Document:

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                                                                   Exhibit 10.31

                              FORM OF NML AMENDMENT

     This First Amendment to Subordinated Note and Warrant Purchase Agreement
(this "Amendment"), dated as of August 25, 2003 (the "Effective Date"), amends
that certain Subordinated Note and Warrant Purchase Agreement dated as of
January 18, 2002 (the "Original Agreement") between Monitronics International,
Inc. (the "Company") and The Northwestern Mutual Life Insurance Company (the
"Purchaser").

     A. Pursuant to the Original Agreement, the Company issued and sold to the
Purchaser 13.5% Subordinated Notes due 2009 in the aggregate principal amount of
$40,000,000 (the "Notes") and Common Stock Purchase Warrants to acquire up to an
aggregate of 1,133,328 shares of Class A Common Stock, $.0l par value per share,
of the Company.

     B. The Company desires to issue $160,000,000 of Senior Subordinated Notes
due 2010 (the "Senior Subordinated Notes") pursuant to a Purchase Agreement to
be entered into among the Company, Banc of America Securities LLC and the other
initial purchasers named therein (the "Purchase Agreement") in a transaction
exempt from the registration requirements of the Securities Act of 1933 in
reliance on Rule 144A promulgated thereunder (the "Offering").

     C. The Purchaser desires to purchase Senior Subordinated Notes in the
Offering.

     D. The Company will use a portion of the proceeds of the issuance of the
Senior Subordinated Notes to redeem a portion of the Notes.

     E. As a condition to the Purchase Agreement and in connection with the
consummation of the transactions contemplated thereby, the parties hereto desire
to amend the Original Agreement and modify the terms of the Notes that will
remain outstanding as hereinafter set forth.

     NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:

1.   Amendment of Original Agreement.

     1.01 Section 1.01 of the Original Agreement shall be amended by deleting in
their entirety the following definitions: Affiliate, Approved Alarm Purchase
Agreements, Banks, Budget, Capital Expenditure, Capital Lease, Change in
Control, Control Event, Distribution, Fixed Charges, Loan Agreement, Out of
Holdback Revenue, Permitted Lien, Preferred Stock, Restricted Payment, Senior
Debt, Senior Debt Service, Senior Subordinated Debt, Total Debt, Total Interest
Expense, and Total Senior Debt.

     1.02 Section 1.01 of the Original Agreement shall be further amended by
adding the following defined terms:

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          "ABRY Fee" means a one-time payment to ABRY Partners, LLC of an
advisory fee to be paid on or about the Effective Date in an aggregate principal
amount not to exceed Two Million Seven Hundred Thousand Dollars ($2,700,000).

          "Acquired RMR" shall mean Recurring Monthly Revenue under Security
Alarm Contracts acquired under Approved Alarm Purchase Agreements (but only to
the extent such Acquired RMR is payable to the Company).

          "Additional Permitted Subordinated Debt" shall have the meaning
assigned to that term in the Loan Agreement as in effect on the date hereof.

          "Affiliate" means as to any Person any other Person at the time
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Person. For purposes of this definition, "control" of a
Person means the power, directly or indirectly, either to (i) vote 5% or more of
the securities having ordinary voting power for the election of directors of
such Person or (ii) direct or cause the direction of the management and policies
of such Person, whether by contract or otherwise.

          "Aggregate Purchase Price" means, with respect to any period, the
aggregate Purchase Price for all acquisitions completed by the Company and its
Subsidiaries during such period.

          "Annualized Quarterly NOI" means, as of any date, an amount equal to
four (4) multiplied by NOI for the Trailing Three-Month Period ended on such
date.

          "Approved Alarm Purchase Agreement" has the meaning set forth in the
Loan Agreement.

          "Banks" means and shall include Fleet National Bank, as administrative
agent, Bank of America, N.A., as syndication agent, and any other lenders which
from time to time become parties to the Loan Agreement, and their respective
successors and assigns.

          "Budget" has the meaning set forth in Section 7.01(a)(vi).

          "Capital Expenditures" means, for any period, the sum of the aggregate
of all expenditures (whether paid in cash or other consideration or accrued as a
liability) by the Company and its Subsidiaries on a Consolidated basis in
accordance with GAAP during such period for fixed or capital assets (excluding
any capitalized interest and any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations and
excluding any replacement assets acquired with the proceeds of insurance).

          "Capital Leases" means, with respect to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

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          "Capital Stock" means, as to any Person, all shares, interests,
partnership interests, limited liability company interests, participations,
rights in or other equivalents (however designated) of such Person's equity
(however designated) and any rights, warrants or options exchangeable for or
convertible into such shares, interests, participations, rights or other equity.

          "Cash Equivalents" means Dollar denominated investments in book-entry
securities, negotiable instruments, or securities represented by instruments in
bearer or registered form which evidence:

          (a) direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States;

          (b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States or any state thereof (or any domestic branch of a foreign bank)
and subject to supervision and examination by Federal or State Banking or
depository institution authorities; provided, however, that at the time of the
investment or contractual commitment to invest therein, the commercial paper or
other short-term unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a Person other than such depository
institution or trust company) thereof shall have a credit rating from each of
the Rating Agencies in one of the two highest investment categories granted
thereby;

          (c) commercial paper or other short term obligations of any
corporation organized under the laws of the United States whose ratings, at the
time of the investment or contractual commitment to invest therein, from each of
the Rating Agencies are in the highest investment category granted thereby;

          (d) investments in money market funds having a rating from each of the
Rating Agencies in the highest investment category granted thereby;

          (e) bankers acceptances issued by any depository institution or trust
company referred to in clause (b) above; or

          (f) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States or any agency or
instrumentality thereof the obligations of which are backed by the full faith
and credit of the United States, in either case entered into with (i) a
depository institution or trust company (acting as principal) described in
clause (b) above (except that the rating referred to in the proviso in such
clause (b) shall be A-1 or higher in the case of Standard & Poor's) (such
depository institution or trust company being referred to in this definition as
a "financial institution"), (ii) broker/dealer (acting as principal) registered
as a broker or dealer under Section 15 of the Securities Exchange Act of 1934,
as amended, (a "broker/dealer") the unsecured short-term debt obligations of
which are rated P-1 by Moody's and at least A-1 by Standard & Poor's at the time
of entering into such repurchase obligation (a "rated broker/dealer"), (iii) an
unrated, broker/dealer (an "unrated broker/dealer"), acting as principal, that
is a wholly-owned subsidiary of a non-bank or bank

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holding company the unsecured short-term debt obligations of which are rated P-1
by Moody's and at least A-1 by Standard & Poor's at the time of purchase.

          "Casualty Event" means the damage, destruction or condemnation, as the
case may be, of property of any Person or any of its Subsidiaries.

          "Change in Control" means with respect to any Person, an event or
series of events by which:

          (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but excluding any employee
benefit plan of such person or its subsidiaries, and any person or entity acting
in its capacity as trustee, agent or other fiduciary or administrator of any
such plan) other than a Pledgor (together with its Affiliates) becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, except that a person or group shall be deemed to have
"beneficial ownership" of all securities that such person or group has the right
to acquire (such right, an "option right"), whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
thirty-five percent (35%) or more of the equity securities of such Person
entitled to vote for members of the Managing Person of such Person on a
fully-diluted basis (and taking into account all such securities that such
person or group has the right to acquire pursuant to any option right);

          (b) the Pledgors or their Affiliates cease to own, directly or
indirectly, in the aggregate more than fifty percent (50%) of the voting stock
(on a fully-diluted basis) of the Company; or

          (c) during any period of twelve (12) consecutive months, a majority of
the members of the Managing Person of such Person cease to be composed of
individuals (i) who were members of that Managing Person on the first day of
such period, (ii) whose election or nomination to that Managing Person was
approved by individuals referred to in clause (i) above constituting at the time
of such election or nomination at least a majority of that Managing Person,
(iii) who are Pledgors or representatives of the Pledgors, or (iv) whose
election or nomination to that Managing Person was approved by individuals
referred to in clauses (i) and (ii) above constituting at the time of such
election or nomination at least a majority of that Managing Person (excluding,
in the case of both clause (ii) and clause (iv), any individual whose initial
nomination for, or assumption of office as, a member of that Managing Person
occurs as a result of an actual or threatened solicitation of proxies or
consents for the election or removal of one or more members of such Managing
Person by any person or group other than a solicitation for the election of one
or more members by or on behalf of the Managing Person).

          (d) if (i) James R. Hull ceases to be and/or perform the duties of
Chief Executive Officer and President of the Company, and (ii) either (y) Mr.
Hull is not replaced by an interim executive officer acceptable in the
reasonable discretion of the Purchaser Majority within sixty (60) days or (z)
Mr. Hull is not replaced by a permanent Chief Executive Officer and/or President
(as the case may be) acceptable in the reasonable discretion of the Purchaser
Majority within one hundred eighty (180) days.

          "Compliance Certificate" has the meaning set forth in Section
7.01(a)(iv).

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          "Consolidated" means the Company and its Subsidiaries which are
consolidated for financial reporting purposes.

          "Current Liabilities" means, at any date of determination, all
liabilities (excluding Total Senior Debt and the current portion of other long
term debt) which would be characterized as current liabilities in accordance
with GAAP.

          "Customary Lien" means any of the following:

          (a) any Lien imposed by law for Taxes that are not yet due or are
being contested in the manner described in Section 7.01(c) , provided that
enforcement of such Lien is stayed pending such contest;

          (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than thirty (30) days or
are being contested in the manner described in Section 7.01(c), provided that
enforcement of each such Lien is stayed pending such contest;

          (c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;

          (d) pledges and deposits to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of business;

          (e) judgment liens in respect of judgments that would not cause an
Event of Default under Section 8.01(f); and

          (f) zoning ordinances, easements, rights of way, minor defects,
irregularities, and other similar encumbrances on real property imposed by law
or arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Company or
any of its Subsidiaries.

          "Disposition" has the meaning set forth in Section 7.02(e).

          "Dollars" and "$" mean lawful currency of the United States.

          "Effective Date" means August 25, 2003.

          "ERISA Affiliate" means any Person which is a member of any group of
organizations within the meaning of Sections 414(b) or (c) of the Code (or,
solely for purposes of potential liability under Section 302(c)(11) of ERISA and
Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, Sections 414(m) or (o) of the Code) of
which the Company or any Subsidiary is a member.

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          "Financial Officer" means, as to any Person, the chief financial
officer of such Person or such other officer as shall be satisfactory to the
Purchaser.

          "Fixed Charge Coverage Ratio" means, at any date, the ratio of (a) NOI
to (b) Fixed Charges, in each case, for the Twelve Month Trailing Period ended
on such date.

          "Fixed Charges" means, for any period, the sum, without duplication,
of each of the following determined on a Consolidated basis in accordance with
GAAP:

          (a) all scheduled payments of principal and interest on any
Indebtedness during such period relating to Lender Debt, Senior Subordinated
Notes, the Notes and Other Senior Debt,

          (b) all Federal, State and local income Taxes in respect of income
earned in such period,

          (c) Capital Expenditures, and

          (d) all Restricted Payments paid or payable during such period,
regardless of when expensed in accordance with GAAP.

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

          "Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or in effect
guaranteeing any return on any investment made by another Person, or any
Indebtedness, lease, dividend or other obligation (a "primary obligation") of
any other Person (a "primary obligor") in any manner, whether directly or
indirectly, including any obligation of the guarantor, direct or indirect,

          (a) to purchase any primary obligation or any property constituting
direct or indirect security therefore,

          (b) to advance or supply funds (i) for the purchase or payment of any
primary obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of a primary
obligor,

          (c) to purchase property, securities or services primarily for the
purpose of assuring the beneficiary of any primary obligation of the ability of
a primary obligor to make payment of a primary obligation,

          (d) otherwise to assure or hold harmless the beneficiary of a primary
obligation against loss in respect thereof, and

          (e) in respect of the liabilities of any partnership in which a
secondary obligor is a general partner, except to the extent that such
liabilities of such partnership are nonrecourse to such secondary obligor and
its separate property,

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provided, however, that the term "Guarantee" shall not include the endorsement
of instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee shall be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by the guarantor in good faith.

          "Holdback Revenue" means, for any period, revenue during such period
associated with credits to Holdback Debt.

          "Impermissible Qualification" has the meaning set forth in Section
7.01(a)(i)(A).

          "Indenture" means the Indenture dated August 25, 2003 between the
Company and The Bank of New York Trust Company of Florida, N.A., as trustee,
with respect to the Senior Subordinated Notes, as the same may be amended,
restated, modified, supplemented and/or extended from time to time.

          "Interest Coverage Ratio" means, as of any date, the ratio of (i) NOI
for the Trailing Three-Month Period ending on such date determined on a
Consolidated basis in accordance with GAAP, to (ii) Total Interest Expense for
such Trailing Three-Month Period, determined on a Consolidated basis in
accordance with GAAP.

          "Interest Expense" means, for any period, the aggregate amount
(determined on a Consolidated basis in accordance with GAAP) of interest,
whether accrued or paid, during such period in respect of all Indebtedness of
the Company and its Subsidiaries for borrowed money and Indebtedness in respect
of Capital Leases and the deferred purchase price of property.

          "Investments" has the meaning set forth in Section 7.02(d).

          "Lender Debt" means principal amounts outstanding from time to time
under the Loan Agreement (including the aggregate and undrawn stated amount of
all letters of credit issued thereunder) or otherwise due to the lender or
agents under or in respect of the related loan documents.

          "Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), or other security agreement or security
interest of any kind or nature whatsoever, including any conditional sale or
other title retention agreement and any capital or financing lease having
substantially the same economic effect as any of the foregoing.

          "Line of Business" means the business of purchasing security alarm and
other monitoring contracts and engaging in central station security alarm
monitoring and other monitoring services.

          "Loan Agreement" means that certain Credit Agreement, dated August 25,
2003, among the Company, Fleet National Bank, as administrative agent, and the
Banks and other agents named therein, as from time to time amended and in effect
and all other agreements, instruments and documents executed or delivered in
connection therewith, and any and all amendments, increases, supplements and
other modifications thereof and all renewals,

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extensions, restatements, rearrangements and/or substitutions from time to time
of all or any part of the foregoing.

          "Managing Person" means, with respect to any Person that is (a) a
corporation, its board of directors, (b) a limited liability company, its board
of control, managing member or members, (c) a limited partnership, its general
partner, (d) a general partnership or a limited liability partnership, its
managing partner or executive committee or (e) any other Person, the managing
body thereof or other Person analogous to the foregoing.

          "Material Adverse Effect" means a material adverse change in, or
effect on, (a) the business, assets, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole, (b) the ability
of the Company or any Subsidiary to perform its obligations under this
Agreement, the Notes or the Subordination Agreements, (c) the rights of, or
benefits available to, the Purchasers under this Agreement, the Notes or the
Subordination Agreements, or (d) the legality or enforceability of this
Agreement, the Notes or the Subordination Agreements.

          "Moody's" means Moody's Investors Service, Inc., or any successor
thereto.

          "NOI" means, for any period and on a Consolidated basis, the sum of
(a) Net Income for such period plus (b) to the extent deducted in computing Net
Income, all as determined in accordance with GAAP, (i) Interest Expense for such
period, (ii) depreciation and amortization for such period, (iii) income taxes
for such period, plus (c) for the fiscal quarter ended September 30, 2003 only,
(A) up to $400,000 in one-time expenses attributable to the issuance of the
Senior Subordinated Debt, (B) the $2,000,000 transaction fee paid to James R.
Hull in connection with the issuance of the Senior Subordinated Debt, (C) the
aggregate write-off of deferred financing costs existing on the Company's
balance sheet as of August 25, 2003 and (D) up to Two Million Eight Hundred
Ninety-Three Thousand Nine Hundred Eighty-Two Dollars ($2,893,982) in prepayment
premium and other fees paid in connection with the repayment of a portion of the
Notes on the Effective Date, minus (d) Holdback Revenue and extraordinary income
for such period.

          "Option Plans" means (i) the Company's 1999 Stock Option Plan, dated
November 3, 1999, which provides for the issuance of up to 150,000 shares of
Class A Common Stock, and (ii) the Company's 2001 Stock Option Plan, dated April
27, 2001, which provides for the issuance of up to 250,000 shares of Class A
Common Stock.

          "Organizational Documents" means as to any Person which is (a) a
corporation, the certificate or articles of incorporation and by-laws of such
Person, (b) a limited liability company, the certificate of formation and the
limited liability company agreement or similar agreement of such Person, (c) a
partnership, the partnership agreement or similar agreement of such Person, (d)
a limited partnership, the certificate of limited partnership and the agreement
of limited partnership or similar agreement of such Person, or (e) any other
form of entity or organization, the organizational documents analogous to the
foregoing.

          "Other Senior Debt" means Indebtedness for borrowed money (including
without limitation Capital Leases and purchase money Indebtedness), other than
Lender Debt,

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Holdback Debt, Senior Subordinated Notes, the Notes and Additional Permitted
Subordinated Debt.

          "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority
succeeding to the functions thereof.

          "Permitted Investment" has the meaning set forth in Section 7.02(d).

          "Permitted Lien" has the meaning set forth in Section 7.02(b).

          "Pledgors" means, collectively, Austin Ventures III-A, L.P., Austin
Ventures III-B, L.P, Austin Ventures Affiliates Fund, L.P., Austin Ventures V,
L.P., Capital Resource Lenders II, L.P., Windward Capital Partners, L.P.,
Windward Capital L.P. II, LLC, ABRY Partners IV, L.P., ABRY Investment
Partnership, L.P., The Northwestern Mutual Life Insurance Company, Hull Family
Limited Partnership, Robert Sherman, Michael Gregory, Michael Meyers and Stephen
Hedrick.

          "Preferred Stock" means any Capital Stock of the Company which has a
liquidation preference to the Company's common stock or contains provisions for
the payment or accrual of a fixed dividend on a scheduled date as part of the
rights and entitlements thereof.

          "Purchase Price" means the total consideration paid for any
acquisition of asset or Capital Stock, including the amount of any Holdback Debt
and any liabilities assumed in connection therewith.

          "Rating Agencies" means Standard & Poor's and Moody's.

          "Recurring Monthly Revenue" means at any date of determination, the
total recurring amounts from Security Alarm Contracts purchased from Approved
Alarm Dealers under Approved Alarm Purchase Agreements, billed to customers of
the Company or any of its Subsidiaries for a one-month period (regardless of
whether billed monthly or less frequently) and/or otherwise collected under such
Security Alarm contracts, and measured for customers with installed alarm
systems by the amount most recently billed to such customer for a one-month
period and who have paid within ninety (90) days from due date the amount called
for under their respective customer contracts, and only for customers which are
subscribers under duly executed Security Alarm Contracts. RMR will not include
wholesale monitoring services or other services not directly related to security
monitoring.

          "Restricted Investment" means any Investment that is not a Permitted
Investment.

          "Restricted Payment" means, with respect to any Person, (i) the
declaration or payment of any dividend or other distribution, direct or
indirect, on account of any shares of Capital Stock or other equity interest in
such Person now or hereafter outstanding (other than a dividend payable solely
in shares of such Capital Stock to the holders of such shares), (ii) any
purchase, redemption, retirement, sinking fund or similar payment, purchase or
other acquisition or exchange, direct or indirect, of any shares of Capital
Stock or other equity interest in such

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Person now or hereafter outstanding (other than equity interests owned by a
Subsidiary of such Person), (iii) the allocation or other setting apart of any
sum for the payment of any dividend or distribution on, or for the purchase,
redemption or retirement of any shares of Capital Stock or other equity interest
in such Person, (iv) any other distribution by reduction of capital or otherwise
in respect of any shares of Capital Stock or other equity interest in such
Person, provided, that the ABRY Fee shall not constitute a Restricted Payment
(v) any payment or prepayment (mandatory or otherwise), including principal,
interest, dividend, distribution or any purchase, redemption or defesance, on or
in respect of any Junior Subordinated Debt, (vi) any payment, whether in cash,
securities or other property, in respect of the Capital Stock of such Person
which is subject to mandatory or optional repurchase or redemption by such
Person, in whole or in part and (vii) any Restricted Investment.

          "RMR" means at any date, Recurring Monthly Revenue for the recently
ended month plus Acquired RMR under Security Alarm Contracts acquired during
such month but not otherwise included int he calculation of Recurring Monthly
Revenue for such month.

          "Security Alarm Contracts" means contracts between Approved Alarm
Dealers and end users of alarm equipment for monitoring and servicing of alarm
equipment, which contracts must be assignable, contain standard industry limits
of liability, and comply with all applicable consumer laws.

          "Senior Debt" means (i) all Indebtedness of the company and any of its
Subsidiaries for money borrowed from the Banks pursuant to the Loan Agreement in
a principal amount not to exceed $320,000,000 plus up to $150,000,000 in
incremental borrowings thereunder, together with all interest accrued thereon
and any other obligations of the Company or any Subsidiary under the Loan
Agreement and the related loan documents, (ii) Senior Subordinated Notes, (iii)
all indebtedness which is not by its terms subordinate and junior to the Notes
and which is disclosed on the Financial Statements or is permitted by this
Agreement at the time it is created or incurred, (iv) obligations of the Company
and any of its Subsidiaries under Capital Leases disclosed in the Financial
Statements or which are permitted by this Agreement at the time they are
incurred in an aggregate principal amount not to exceed $1,000,000, (v) all
Indebtedness of the Company and any of its Subsidiaries incurred to refinance
any of the Indebtedness referred to in items (i) through (iv) above, where the
security securing such Indebtedness is substantially the same security as that
securing the Indebtedness being refinanced and (vi) all Guarantees by the
Company and any of its Subsidiaries which are not their terms subordinate and
junior to the Notes and which are permitted hereby at the time they are made of
Indebtedness of the Company or any Subsidiary if such Indebtedness would have
been Senior Debt pursuant to the provisions of clause (i), (ii), (iii), (iv) or
(v) of this sentence.

          "Senior Leverage Ratio" means as of any date the ratio of (a) Total
Senior Debt as of the last day of the immediately preceding month to (b)
Annualized Quarterly NOI as of such date, determined on a Consolidated basis in
accordance with GAAP.

          "Senior Subordinated Notes" means the Company's 11.75% Senior
Subordinated Notes due 2010 issued under the Indenture.

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          "Standard & Poor's" means Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc., or any successor thereto.

          "Tax" means any present or future tax, levy, impost, duty, charge,
fee, deduction or withholding of any nature and whatever called, by a
Governmental Authority, on whomsoever and wherever imposed, levied, collected,
withheld or assessed.

          "Total Debt" means, as of any date, the sum of Total Senior Debt,
Senior Subordinated Notes, the Notes and Additional Permitted Subordinated Debt.

          "Total Interest Expense" means Interest Expense of the Company and its
Subsidiaries in respect of Total Debt.

          "Total Leverage Ratio" means, as of any date, the ratio of (a) Total
Debt as of the last day of the immediately preceding month to (b) Annualized
Quarterly NOI as of such date, determined on a Consolidated basis in accordance
with GAAP.

          "Total Senior Debt" means, as of any date, the sum of (a) all Lender
Debt plus (b) Other Senior Debt plus (c) the book overdraft shown on the balance
sheet of the Company as of the month most recently ended.

          "Trailing Three-Month Period" means, at any date, the period of the
three (3) consecutive months ending on such date, or, if such date is not the
last day of a month, the period of the most immediately completed three (3)
consecutive months.

          "Twelve Month Trailing Period" means, at any date, the period of the
twelve (12) consecutive months ending on such date, or, if such date is not the
last day of a month, the period of the most immediately completed consecutive
twelve months.

          "Wholly Owned" means, with respect to any Subsidiary of any Person,
one hundred percent (100%) of the outstanding Capital Stock of such Subsidiary
is owned, directly or indirectly, by such Person.

     1.03 Section 2.01 of the Original Agreement is hereby amended to read in
its entirety as follows:

          "2.01 The Notes. The Company has authorized the issuance and sale to
     the Purchasers of $40,000,000 aggregate principal amount of its 13.5%
     Subordinated Notes due January 18, 2009. The 13.5% Subordinated Notes shall
     be substantially in the form set forth as Exhibit 2.01 attached hereto
     which is herein referred to individually as a "Note" and collective as the
     "Notes", which term shall also include any notes delivered in exchange or
     replacement therefore. Except as otherwise provided in this Agreement, the
     entire unpaid principal amount of the Notes shall (a) be payable on March
     1, 2010 and (b) bear interest (based on a 360-day year counting actual days
     elapsed) until due and payable at a rate of thirteen and one half percent
     (13.5%) per annum), which interest shall be payable semi-annually in
     arrears on the last Business Day of June and December in each year,
     commencing on the last Business Day of June, 2002, and at maturity or prior
     prepayment of the Notes, provided that payment will be made in cash only of
     interest

                                       11

<PAGE>

     accrued on the Notes at the rate of twelve percent (12%) per annum and the
     remaining accrued interest shall be added to the outstanding principal
     amount of the Notes (and thereafter bear interest at thirteen and one half
     percent (13.5%) per annum. Beginning on December 15, 2003, the interest
     rate on the Notes shall be increased to a rate of fourteen and one half
     percent (14.5%) per annum with the cash interest component remaining at
     twelve percent (12%) per annum and the remaining accrued interest shall be
     added to the outstanding principal amount of the Notes. The increased
     interest rate shall be applied retroactively to August 25, 2003."

     1.04 Section 2.12 of the Original Agreement is hereby amended to read in
its entirety as follows:

          "2.12 Subordination. The indebtedness evidenced by the Notes and the
     rights and remedies of the Purchasers under this Agreement shall be
     subordinate and junior to (i) certain Indebtedness of the Company to the
     Banks in the manner and to the extent provided in the Intercreditor and
     Subordination Agreement dated as of the Effective Date by and among the
     Banks, the Company and the Purchasers (the "Bank Subordination Agreement")
     and (ii) certain Indebtedness of the Company to the holders of the Senior
     Subordinated Notes in the manner and to the extent provided in the
     Intercreditor and Subordination Agreement dated as of the Effective Date by
     and between the Company and the Purchasers (the "Senior Subordinated Debt
     Subordination Agreement;" the Bank Subordination Agreement and the Senior
     Subordinated Debt Subordination Agreement are collectively referred to
     herein as the "Subordination Agreements.""

     1.05 The second sentence of Section 6.01 of the Original Agreement is
hereby amended to delete therefrom the definition of "Material Adverse Effect"
and to replace it with the definition of "Material Adverse Effect" as set forth
in Section 1.01 hereof.

     1.06 Section 7.01 of the Original Agreement is hereby amended to read in
its entirety as follows:

          "7.01 Affirmative Covenants of the Company Other Than Reporting
     Requirements. Without limiting any other covenants and provisions hereof,
     the Company covenants and agrees that, as along as any of the Securities
     are outstanding (except that the provisions of this Article shall terminate
     upon the later to occur of (1) above and a Qualified IPO), it will perform
     and observe the following covenants and provisions and will cause each
     Subsidiary to perform and observe such of the following covenants and
     provisions as are applicable to such Subsidiary:

               (a) Financial Statements and Information. The Company shall
     furnish or cause to be furnished to the Purchasers:

                    (i) within ninety (90) days after the end of each fiscal
          year:

                              (A) the audited Consolidated and consolidating
               balance sheet and related statements of operations, stockholders'
               equity and cash flows of the Company and its Subsidiaries as of
               the end of and for such year, setting forth in each case in
               comparative

                                       12

<PAGE>

               form the figures for the previous fiscal year, all reported on by
               the Company's accountants (without (1) a "going concern" or like
               qualification, exception or exculpatory paragraph, (2) any
               qualification or exception as to the scope of such audit or (3)
               any exception or qualification which relates to the treatment or
               classification of any item and which, as a condition to the
               removal of such qualification, would require an adjustment to
               such item, the effect of which would be to cause the Company to
               be in default of any of its obligations under Section 7.02(j) or
               7.02(k) (each, an "Impermissible Qualification")) with an opinion
               of such Accountants to the effect that such Consolidated
               financial statements present fairly in all material respects the
               financial condition and results of operations of the Company and
               its Subsidiaries on a Consolidated basis in accordance with GAAP
               consistently applied and that the audit by such accountants in
               connection with such Consolidated financial statements has been
               made in accordance with generally accepted auditing standards;

                              (B) Consolidated calculations utilized for
               computation and determination of the Company's compliance with
               Section 7.02(j) and 7.02(k), which may be included in the
               applicable Compliance Certificate, based upon the audited balance
               sheets and related statements of operations, stockholders' equity
               and cash flows of the Company and its Subsidiaries as of the end
               of and for such year;

                              (C) A statement setting forth a comparison between
               the results reported in the audited financial statements
               delivered pursuant to clause (A) above and results projected to
               be achieved in the Company's Budget for such fiscal year, all in
               reasonable detail and signed by a Financial Officer of the
               Company;

                              (D) a statement signed by the Company's
               accountants who have reported on the same to the effect that in
               connection with their examination of such financial statements
               they have reviewed this Agreement and have no knowledge of any
               event or condition which constitutes a Default or Event of
               Default or, if they have such knowledge, specifying the nature
               and period of existence thereof, provided, however, that in
               issuing such statement, such accountants shall not be required to
               go beyond normal auditing procedures conducted in connection with
               their opinion referred to above.

                    (ii) within forty-five (45) days after the end of each
          quarterly accounting period of each fiscal year (excluding the quarter
          that ends on the last day of the Company's fiscal year), the:

                              (A) unaudited Consolidated and consolidating
               balance sheets and the related statements of operations,
               stockholders' equity and cash flows of the Company and its
               Subsidiaries

                                       13

<PAGE>

               as of the end of and for such fiscal quarter and the then elapsed
               portion of the fiscal year, setting forth in each case in
               comparative form the figures for the corresponding period or
               periods of (or, in the case of the balance sheet, as of the end
               of) the previous fiscal year;

                              (B) Consolidated calculations utilized for the
               computation and determination of the Company's compliance with
               Sections 7.02(j) and 7.02(k), which may be included in the
               applicable Compliance Certificate, based upon the unaudited
               Consolidated and consolidating balance sheets and related
               statements of operations, stockholders equity and cash flows of
               the Company and its Subsidiaries as of the end of and for such
               fiscal quarter and the then elapsed portion of the fiscal year;
               and

                              (C) A statement setting forth a comparison between
               the results reported in the unaudited financial statements
               delivered pursuant to clause (A) above and results projected to
               be achieved in the Company's Budget for such quarterly accounting
               period, all in reasonable detail and signed by a Financial
               Officer of the Company;

                    (iii) As soon as available, but in any event within thirty
          (30) days after the end of each month (other than any month at the end
          of a fiscal quarter), the:

                              (A) unaudited Consolidated and consolidating
               balance sheets of the Company and its Subsidiaries as at the end
               of such month;

                              (B) related unaudited statements of income and
               surplus and cash flows for such month and for the period from the
               beginning of the current fiscal year to the end of such month,
               setting forth in comparative form with respect to such
               consolidated financial statements the corresponding figures from
               the Budget for such period and portion of such fiscal year;

                              (C) monthly holdback and attrition summaries with
               holdback replacements showing the attrition and holdback activity
               of the Company's accounts as of the end of such month calculated
               on a trailing twelve (12) month basis; and

                              (D) a monthly summary accounts receivable aging
               report, showing aggregate account receivables by aging
               categories.

                    (iv) concurrently with any delivery of financial statements
          under subsections (i) or (ii) above, a certificate (a "Compliance
          Certificate") of a Financial Officer of the Company, (1) certifying as
          to whether an Event of

                                       14

<PAGE>

          Default has occurred and, if so, specifying the details thereof and
          any action taken or proposed to be taken with respect thereto, (2)
          setting forth reasonably detailed (A) calculations demonstrating
          compliance with Sections 7.02(j) and 7.02(k), (B) explanations and
          calculations of the Consolidated components of each of the covenants
          in Section 8.16, (C) identification and calculation of any
          transactions between and among the Company and any of its
          Subsidiaries; and (D) calculations of the amounts, if any, of any
          Restricted Payments made in the preceding fiscal quarter and (3)
          stating whether any change in GAAP or in the application thereof has
          occurred since the date of the audited financial statements and, if
          any such change has occurred, specifying the effect of such change on
          the financial statements accompanying such Compliance Certificate;

                    (v) On or before May 31 of each fiscal year, an annual
          budget prepared on a monthly basis for the Company (and for its
          Subsidiaries, if any) for the next succeeding fiscal year, (displaying
          anticipated balance sheets and statements of income and surplus and
          cash flows) (the "Budget"); and promptly upon preparation thereof, any
          amendments or revisions thereto or any other significant budgets which
          the Company prepares;

                    (vi) Promptly upon their becoming available, copies of all
          10-Ks and 10-Qs and other periodic or special reports filed by the
          Company or any Subsidiary, with the Commission, or any such periodic
          or special reports filed with any other federal, state or local
          governmental agency or authority, if such other reports indicate any
          material change in the business, operations, affairs or conditions of
          the Company or any Subsidiary or if copies thereof are requested by
          any Purchaser, and copies of any material notices and other material
          communications from the Commission or from any other federal, state or
          local governmental agency or authority which specifically relate to
          the Company or any Subsidiary;

                    (vii) Promptly upon receipt thereof, copies of all audit
          reports and management letters, if any, submitted to the Company or
          any Subsidiary by the Accountants in connection with each interim or
          special audit of the books of the Company made by such accountants
          and, at any time after the Company or any of its Subsidiaries shall
          become subject to the reporting requirements of the Securities
          Exchange Act of 1934, upon request by any Purchaser, copies of all
          financial statements, reports, notices and proxy statements, if any,
          sent by the Company to its shareholders;

                    (viii) Immediately upon receipt or issuance by the Company,
          copies of all reports, covenant compliance certificates, budgets,
          projections, requests for waivers, notices of default, requests for
          amendments or other material correspondence issued in connection with
          or relating to the Preferred Stock Agreements; and

                                       15

<PAGE>

                    (ix) Promptly following any request therefor, such other
          information regarding the Company or any of its Subsidiaries, or
          compliance with the terms of this Agreement, as any Purchaser may
          reasonably request.

               (b) Existence; Conduct of Business, Etc. The Company shall, and
     shall cause each of its Subsidiaries to, do or cause to be done all things
     necessary to preserve, renew and keep in full force and effect (i) its
     legal existence (provided that the foregoing shall not prohibit any merger
     or consolidation not prohibited by Section 7.02(c)(i)(A)) and (ii) all
     rights, licenses, permits, privileges and franchises the absence of which
     would reasonably be expected to have a Material Adverse Effect. The Company
     shall, and shall cause each of its Subsidiaries to, do or cause to be done
     all things necessary to ensure that the Company and each Subsidiary remains
     in compliance with all of their respective contractual obligations, except
     to the extent the failure to remain in compliance would not be reasonably
     expected to have a Material Adverse Effect.

               (c) Payment of Obligations. The Company shall, and shall cause
     each of its Subsidiaries to, pay and discharge when due, its obligations,
     including obligations with respect to Taxes, except where (i) the validity
     or amount thereof is being contested in good faith by appropriate
     proceedings diligently conducted, (ii) the Company or such Subsidiary have
     set aside on its books adequate reserves with respect thereto in accordance
     with GAAP and (iii) the failure to make payment pending such contest could
     not reasonably be expected to result in a Material Adverse Effect.

               (d) Maintenance of Properties. The Company shall, and shall cause
     each of its Subsidiaries to, maintain, protect and keep in good repair,
     working order and condition (ordinary wear and tear excepted) at all times,
     all of its property other than property, the loss of which, individually or
     in the aggregate, would not reasonably be expected to have a Material
     Adverse Effect.

               (e) Insurance.

                    (i) Business Interruption Insurance. The Company and each of
          its Subsidiaries shall maintain with financially sound and reputable
          insurers insurance related to interruption of business, either for
          loss of revenues or for extra expense, in the manner customary for
          businesses of similar size engaged in similar activities.

                    (ii) Property Insurance. The Company and each of its
          Subsidiaries shall keep its assets which are of an insurable character
          insured by financially sound and reputable insurers against theft and
          fraud and against loss or damage by fire, explosion and hazards
          insured against by extended coverage to the extent, in amounts and
          with deductibles at least as favorable as those generally maintained
          by businesses of similar size engaged in similar activities.

                    (iii) Liability Insurance. The Company and each of its
          Subsidiaries shall maintain with financially sound and reputable
          insurers

                                       16

<PAGE>

          insurance against liability for hazards, risks and liability to
          persons and property, including, in the case of the Company, errors
          and omission insurance of not less than Six Million Dollars
          ($6,000,000) per occurrence, to the extent, in amounts and with
          deductibles at least as favorable as those generally maintained by
          businesses of similar size engaged in similar activities.

               (f) Books and Records; Inspection Rights. The Company shall, and
     shall cause each of its Subsidiaries to, keep proper books of record and
     account in which full, true and correct entries are made of all dealings
     and transactions in relation to its business and activities and, at all
     reasonable times upon reasonable prior notice, permit representatives of
     the Purchasers at their own expense (unless an Event of Default has
     occurred and is continuing, in which case the Company shall pay the
     reasonable out-of-pocket costs and expenses of each Company exercising its
     rights hereunder) to (i) visit the offices of the Company and each of its
     Subsidiaries, (ii) examine such books and records and accountants' reports
     relating thereto, (iii) make copies or extracts there from, (iv) discuss
     the affairs of the Company and each of its Subsidiaries with the respective
     officers thereof, (v) to examine and inspect the property of the Company
     and each of its Subsidiaries and (vi) meet and discuss the affairs of the
     Company and each of its Subsidiaries with the Company's accountants and,
     following an Event of Default, the alarm dealers with whom the Company does
     business.

               (g) Compliance with Applicable Laws; ERISA.

                    (i) The Company shall, and shall cause each of its
          Subsidiaries to, comply with all Applicable Laws, including without
          limitation rules, regulations and orders of any Governmental Authority
          applicable to it or its property.

                    (ii) The Company will make, and will cause all ERISA
          Affiliates of the Company to make, all payments or contributions to
          employee benefit plans required under the terms thereof and in
          accordance with applicable minimum funding requirements of ERISA and
          the Code and applicable collective bargaining agreements. The Company
          will cause all employee benefit plans sponsored by any ERISA Affiliate
          of the Company to be maintained in material compliance with ERISA and
          the Code. The Company will not engage, and will not permit or suffer
          any ERISA Affiliate of the Company or any Person entitled to
          indemnification or reimbursement from the Company or any ERISA
          Affiliate of the Company to engage, in any prohibited transaction for
          which an exemption is not available. No ERISA Affiliate of the Company
          will terminate, or permit the PBGC to terminate, any employee benefit
          plan or withdraw from any multiemployer plan, in any manner that could
          result in material liability of any ERISA Affiliate of the Company.

               (h) Replacement Notes. Upon receipt of an affidavit from any
     Purchaser as to the loss, theft, destruction or mutilation of such
     Purchaser's Note(s), the Company will issue a replacement note in the same
     principal amount of the Note(s) being replaced and dated as of the date
     through which interest has been paid on such Note(s).

                                       17

<PAGE>

               (i) Attendance at Board Meetings. The Company shall permit each
     Purchaser or its designee to have one observer attend each meeting of the
     board of directors of the Company and any committee thereof. The Company
     will send to the Purchasers and their designee the notice of the time and
     place of any such meeting in the same manner and at the same time as notice
     is sent to the directors or committee members, as the case may be;
     provided, however, that the Purchasers and their designee shall always
     receive at least 48 hours' prior notice of any meeting. The Company shall
     also provide to the Purchasers copies of all notices, reports, minutes,
     consents and other documents at the time and in the manner as they are
     provided to the board of directors or committees.

               (j) Board of Directors and Committees. The board of directors of
     the Company shall meet at least four (4) times per calendar year. The
     Company shall at all times maintain a Compensation Committee and an Audit
     Committee of its board of directors. For as long as any Notes are
     outstanding, the Company shall reimburse the Purchasers' board observer for
     all reasonable out-of-pocket costs incurred by it in connection with
     traveling to and from and attending meetings of the board of directors and
     committees of the board of directors of the Company; thereafter, the
     Purchasers shall bear any and all such expenses incurred by their board
     observer.

               (k) U.S. Real Property Holding Corporation. The Company shall,
     and shall cause each Subsidiary to, conduct its business, and do or cause
     to be done any and all actions as are necessary, so that neither the
     Company nor any Subsidiary shall at any time be a "United States Real
     Property Holding Corporation" as defined in Section 897(c)(2) of the Code
     and Section 1.897-2(b) of the Regulations promulgated by the Internal
     Revenue Service."

     1.07 Section 7.02 of the Original Agreement is hereby amended to read in
its entirety as follows:

          "7.02 Negative Covenants of the Company. Without limiting any other
     covenants and provisions hereof, the Company covenants and agrees that, as
     long as any of the Securities are outstanding (except that (1) the
     provisions of Sections 7.02(a), (b), (c), (d), (e), (f), (g), (i), (j), (k)
     and (l) shall terminate upon repayment in full of the aggregate outstanding
     principal balance of the Notes together with all interest and Make-Whole
     Amount due thereon, and (2) the remainder of the provisions of this Article
     shall terminate upon the later to occur of (1) above and a Qualified IPO):

               (a) Indebtedness. The Company shall not, and shall not permit any
     of its Subsidiaries to, directly or indirectly, create, incur, assume or
     suffer to exist any liability for Indebtedness, except:

                    (i) Senior Debt;

                    (ii) Senior Subordinated Notes;

                    (iii) Additional Permitted Subordinated Debt;

                                       18

<PAGE>

                    (iv) the Notes and any renewals, extensions, refinancings
          and refundings thereof;

                    (v) Current Liabilities of the Company (other than for
          borrowed money) arising from trade obligations incurred in the
          ordinary course of its business and in accordance with customary trade
          practices;

                    (vi) Junior Subordinated Debt;

                    (vii) Unsecured Holdback Debt,

                    (viii) Accrued dividends in respect of the Preferred Stock;

                    (ix) Guarantees incurred by the Company or any Subsidiary in
          respect of Indebtedness of any Company or any Subsidiary that is
          permitted by this Section 7.02(a); and

                    (x) Indebtedness from intercompany loans from the Company to
          any Subsidiary or from any Subsidiary to the Company or another
          Subsidiary.

               (b) Negative Pledge. The Company shall not, and shall not permit
     any Subsidiary to, directly or indirectly, create, incur, assume or suffer
     to exist any Lien upon any of its property, whether now owned or hereafter
     acquired, or assign or sell any income or revenues (including accounts
     receivable) or rights in respect of any thereof, except for the following
     (collectively "Permitted Liens"):

                    (i) Liens securing Senior Debt;

                    (ii) any Customary Lien;

                    (iii) Liens on specific assets or properties of the Company
          existing on the Effective Date, provided that (A) such Lien shall not
          apply to any other property or asset of the Company or any Subsidiary
          and (B) such Lien shall secure only those obligation that it secures
          on the Effective Date; and

                    (iv) Liens securing Capital Leases and Liens on property of
          the Company or any Subsidiary acquired after the Effective Date and
          either existing on such property when acquired, or created
          contemporaneously with such acquisition, to secure the payment or
          financing of the purchase price thereof, provided that such Liens
          attach only to the property so purchased or acquired and, provided,
          further, that the Indebtedness secured by such Liens is permitted by
          clause (iv) of the definition of Senior Debt.

               (c) Fundamental Changes.

                    (i) The Company shall not, and shall not permit any of its
          Subsidiaries to, directly or indirectly, consolidate or merge into or
          with any other Person, or permit any other Person to merge into or
          consolidate with it or any of

                                       19

<PAGE>

          its Subsidiaries, or sell, transfer, lease or otherwise dispose of (in
          one transaction or in a series of transactions) all or substantially
          all of its assets, or all or substantially all of any class of the
          Capital Stock of any of the Subsidiaries (in each case, whether now
          owned or hereafter acquired), or liquidate or dissolve, or issue any
          class of Capital Stock or permit any Subsidiaries to do any of the
          foregoing, except that, so long as immediately before and after giving
          effect thereto, no Event of Default shall or would exist:

                              (A) the Company may merge with any Subsidiary and
               any Subsidiary may merge with the Company or any other
               Subsidiary, provided that in connection with any merger involving
               the Company, the Company shall be the survivor thereof; and

                              (B) the Company or any of its Subsidiaries may
               consummate any sale, assignment, lease, transfer or other
               disposition permitted by Section 7.02(e).

                    (ii) The Company will not issue additional shares of its
          Capital Stock, provided that the Company may, from time to time after
          the Effective Date,

                         (A) issue shares of Capital Stock upon the conversion
               or exercise of Preferred Stock, options, warrants or other
               instruments outstanding on the Effective Date in accordance with
               the terms of such Preferred Stock, options, warrants and other
               instruments as in effect on the Effective Date,

                         (B) grant to management employees of the Company
               options to purchase shares of the Company's Class A Common Stock
               pursuant to the Option Plans and issue shares of Class A Common
               Stock upon the exercise thereof,

                         (C) issue shares of its Capital Stock to any Person who
               agrees to pledge such shares to the lenders under the Loan
               Agreement, and

                         (D) issue shares of its Capital Stock to any Person who
               will not agree to pledge such shares to the lenders under the
               Loan Agreement as long as the shares pledged to the lenders under
               the Loan Agreement after issuance of such shares, equal or exceed
               seventy-five percent (75%) of the outstanding voting stock of the
               Company on a fully diluted basis.

          subject, in each case, to the condition that such issuance would not
          create an Event of Default under any other provision of this
          Agreement.

               (d) Investments, Loans, Advances and Guarantees. The Company
     shall not, and shall not permit any of its Subsidiaries to, at any time,
     purchase or otherwise acquire (including pursuant to any merger with any
     Person that was not a

                                       20

<PAGE>

     Wholly Owned Subsidiary of the Company prior to such merger), hold or
     invest in any Capital Stock, evidences of indebtedness or other securities
     (including any option, warrant or other right to acquire any of the
     foregoing and any derivative product) of, make or permit to exist any loans
     to or advances on behalf of, incur any Guarantees in respect of any
     obligations of, or make or permit to exist any investment (of cash or any
     other property) or any other interest in, any other Person (all of which
     are sometimes referred to herein as "Investments"), except the following
     (each, a "Permitted Investment"):

                    (i) Investments in Cash Equivalents;

                    (ii) Investments by the Company in the Capital Stock of or
          debt issued by any Subsidiary and investments by any Subsidiary in the
          Capital Stock of or debt issued by the Company or any Subsidiary,
          provided that the proceeds of such investment in the Company or a
          Subsidiary shall be received by the Company or such Guarantor;

                    (iii) Permitted RMR Acquisitions;

                    (iv) Extensions of credit by the Company in the ordinary
          course of business in accordance with customary trade practices;

                    (v) Capital Expenditures, to the extent permitted by Section
          7.02(k);

                    (vi) Investments made in connection with the purchase of one
          hundred percent (100%) of the ownership interest of any Approved Alarm
          Dealer as a means of acquiring Security Alarm Contracts;

                    (vii) Investments in promissory notes and other similar
          non-cash consideration received by any Purchaser in connection with
          Dispositions under Section 7.02(e);

                    (viii) Investments received in connection with the
          bankruptcy or reorganization of suppliers, customers or Approved Alarm
          Dealers or in settlement of amounts due (including in settlement of
          delinquent obligations of, and other disputes with, suppliers,
          customers and Approved Alarm Dealers) to the Company or any of its
          Subsidiaries;

                    (ix) Investments constituting Guarantees permitted by
          Section 7.02(a); and

                    (x) Investments not otherwise permitted by this Section
          7.02(d) not to exceed Five Hundred Thousand Dollars ($500,000)
          outstanding at any time in the aggregate.

               (e) Dispositions. The Company shall not, and shall not permit any
     of its Subsidiaries to, directly or indirectly, sell, transfer, lease or
     otherwise dispose

                                       21

<PAGE>

     (including pursuant to a merger) of any asset, including Capital Stock or
     assets of any Subsidiary, nor shall the Company permit any of its
     Subsidiaries to issue any additional shares of its Capital Stock (each such
     sale, transfer, lease, disposition or issuance a "Disposition"), except the
     Company or any Subsidiary may, sell, assign, lease or otherwise dispose of
     (i) inventory in the ordinary course of business, (ii) equipment that is no
     longer used or useful in the Company's or any of its Subsidiaries' business
     or that is physically obsolete, provided that the proceeds thereof are used
     first to reduce outstanding Senior Debt and then to reduce other
     outstanding Indebtedness, (iii) equipment the proceeds of which are applied
     within thirty (30) days of such sale to the purchase of replacement
     equipment with like value and function and (iv) other assets, provided
     that: (A) fair market value of all of the assets sold in a given fiscal
     year in the aggregate does not exceed the lesser of: (I) $15 million or
     (II) fifteen percent (15%) of the total amount outstanding in respect of
     principal and unpaid interest under the Loan Agreement immediately prior to
     any such sale (provided, however, that the foregoing limitation on the
     value of assets that may be sold in a given fiscal year shall not be
     applicable if there then exists an event of default under the Loan
     Agreement), (B) the assets are sold at their fair market value (determined
     in good faith by the Board of Directors), (C) the sale is approved by the
     Board of Directors and (D) the proceeds from such dispositions are applied
     first to reduce outstanding Senior Debt and then to reduce other
     outstanding Indebtedness. Notwithstanding the foregoing, the provisions of
     this Section 7.02(e) shall not apply to any transaction if, as a result of
     such transaction, the Notes and any outstanding unpaid interest (Make-Whole
     Amount and other amounts) thereon are repaid in full at the closing of such
     transaction.

               (f) Restricted Payments. The Company shall not, and shall not
     permit any of its Subsidiaries to, directly or indirectly, declare, pay or
     make any Restricted Payment except:

                    (i) Restricted Payments made by any Subsidiary of the
          Company to the Company;

                    (ii) subject to the subordination provisions of the
          Additional Permitted Subordinated Debt, scheduled payments of interest
          on the Additional Permitted Subordinated Debt;

                    (iii) scheduled payments of dividends in respect of the
          Preferred Stock in accordance with the applicable agreements or
          provisions of the Company's Organizational Documents relating thereto
          in effect on the Effective Date, up to a maximum of One Hundred
          Thousand Dollars ($100,000) per fiscal quarter in the aggregate;

                    (iv) redemptions of Capital Stock from James R. Hull in an
          aggregate amount not to exceed One Million Five Hundred Thousand
          Dollars ($1,500,000) in the fiscal year ended June 30, 2004 and Five
          Hundred Thousand Dollars ($500,000) in each fiscal year thereafter;
          provided that all permitted but unused redemption amounts under this
          Section 7.02(f)(iv) in any year may be carried forward and applied in
          subsequent years on a cumulative basis; and

                                       22

<PAGE>

                    (v) reimbursements of reasonable out-of-pocket expenses
          incurred by representatives of the holders of the Preferred Stock
          actually incurred in connection with the business of the Company , in
          an aggregate amount not to exceed Fifty Thousand Dollars ($50,000.00)
          in any fiscal year of the Company.

     Notwithstanding the foregoing, the Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, at any time make any
payments of the kinds specified in clauses (ii), (iii) and (iv) of this Section
7.02(f) if at the time of such payment an Event of Default exists or would arise
as a result of such payment.

               (g) Line of Business; Collection Policies and Procedures. The
     Company shall not, and shall not permit any of its Subsidiaries to,
     directly or indirectly, engage in any business other than the Line of
     Business. The Company shall not, and shall not permit any of its
     Subsidiaries to, directly or indirectly, implement any material change in
     its collection policies and procedures without the prior written consent of
     the Requisite Noteholders.

               (h) Transactions with Affiliates. The Company shall not, and
     shall not permit any of its Subsidiaries to, become a party to any
     transaction with an Affiliate (other than Wholly Owned Subsidiaries of such
     entity, or in the case of a Subsidiary, the Company), unless the Company's
     or such Subsidiary's Managing Person shall have determined that the terms
     and conditions relating thereto are as favorable to the Company or such
     Subsidiary as those which would be obtainable at the time in a comparable
     arms-length transaction with a Person other than an Affiliate, unless such
     transaction is expressly permitted by this Agreement.

               (i) Amendments, Etc. of Organizational Documents. The Company
     shall not, and shall not permit any of its Subsidiaries to, enter into or
     agree to any amendment, modification or waiver of any term or condition of
     its Organizational Documents except for such amendments, modifications or
     waivers that could not be reasonably expected to adversely affect any
     Purchaser or the rights of any Purchaser under this Agreement.

               (j) Financial Covenants.

                    (i) Total Leverage Ratio. The Company shall not permit the
          Total Leverage Ratio as of the last day of any fiscal quarter ending
          during any of the periods set forth below to exceed the ratio set
          forth below with respect to the applicable period set forth below:

          ---------------------------------------------------------
                             Period                         Ratio
          ---------------------------------------------------------
          From the Effective Date through June 29, 2005   4.40:1.00
          ---------------------------------------------------------
          From June 30, 2005 through June 29, 2006        4.13:1.00
          ---------------------------------------------------------

                                       23

<PAGE>

          ---------------------------------------------------------
          From June 30, 2006 through June 29, 2007        3.85:1.00
          ---------------------------------------------------------
          Thereafter                                      3.58:1.00
          ---------------------------------------------------------

                    (ii) Senior Leverage Ratio. The Company shall not permit the
          Senior Leverage Ratio as of the last day of any fiscal quarter to
          exceed 2.37:1.00.

                    (iii) Interest Coverage Ratio. The Company shall not permit
          the Interest Coverage Ratio as of the last day of any fiscal quarter
          to be less than 2.47:1.00.

                    (iv) Fixed Charge Coverage Ratio. The Company shall not
          permit the Fixed Charge Coverage Ratio as of the last day of any
          fiscal quarter to be less than 1.57:1.00.

               (k) Capital Expenditures. The Company will not, and will not
     permit any Subsidiary to, make any Capital Expenditure during any fiscal
     year if, after giving effect thereto, the aggregate amount of all Capital
     Expenditures made by the Company and its Subsidiaries during such fiscal
     year would exceed Four Million Nine Hundred Fifty Thousand Dollars
     ($4,950,000), provided that the Company may carry forward up to Four
     Hundred Forty Thousand Dollars ($440,000) of permitted but unused Capital
     Expenditures from the immediately preceding (but no prior) fiscal year, and
     provided, further, that in no event shall Capital Expenditures exceed Five
     Million Three Hundred Ninety Thousand Dollars ($5,390,000) in any such
     fiscal year.

               (l) Permitted RMR Acquisitions. The Company will not acquire
     Security Alarm Contracts or enter into any Approved Alarm Purchase
     Agreement requiring the Company to acquire Security Alarm Contracts from
     any Approved Alarm Dealer or purchase ownership or equity interests of an
     Approved Alarm Dealer as a method of acquiring Security Alarm contracts, if
     after giving effect to such transaction:

                    (i) the Aggregate Purchase Price of RMR acquired from such
          Approved Alarm Dealer (whether before or after the Effective Date)
          would exceed two percent (2%) in any month of the aggregate amount of
          the Company's subscriber accounts as of the end of the month most
          recently required to be reported to the Purchasers, provided that
          one-time bulk purchases under five percent (5%) of the aggregate
          amount of the Company's subscriber accounts as reflected on the
          balance sheet of the company for the month most recently required to
          be reported to the Company shall be permitted; or

                    (ii) the Aggregate Purchase Price of Security Alarm
          Contracts acquired from such Approved Alarm Dealer during any period
          of twelve (12) consecutive months from and after the Effective Date
          would exceed ten percent (10%) of the aggregate amount of the
          Company's subscriber accounts as reflected

                                       24

<PAGE>

          on the balance sheet of the Company for the month most recently
          required to be reported to the Purchasers.

     Acquisitions of Security Alarm Contracts from Approved Alarm Dealers to the
     extent permitted under this Section 7.02(l) are referred to herein as
     "Permitted RMR Acquisitions.""

     1.08 Section 7.03 of the Original Agreement is hereby deleted in its
entirety.

     1.09 Section 8.01(c) of the Original Agreement is replaced in its entirety
with the following:

               "(c) The Company (i) shall default in the performance of any
     covenant contained in Sections 7.02(a), (b), (e) or (j); or (ii) shall
     default in the performance of any other covenant contained in Section 7.02
     and such default shall remain uncured for ten (10) days; or"

     1.10 Section 8.01(f) of the Original Agreement is replaced in its entirety
with the following:

     "(f) The Company or any Subsidiary shall fail to pay any Indebtedness
exceeding $500,000 owing by the Company or such Subsidiary (as the case may be),
or any interest or premium thereon, when due (or, if permitted by the terms of
the relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, unless such failure to pay shall be waived
by the holder or holders of such Indebtedness or such trustee or trustees; or"

     1.11 Exhibit 2.01 to the Original Agreement is hereby replaced in its
entirety with Exhibit A hereto.

2.   Redemption and Modification of Notes.

     2.01 Purchase of Senior Subordinated Notes and Redemption of Notes. The
Purchaser hereby agrees to purchase $23,180,000 of Senior Subordinated Notes in
the Offering. At the closing of the Offering, the Company agrees to use a
portion of the proceeds from the Offering to (i) redeem $20,490,927.10 aggregate
principal amount of the Notes at a redemption price of $23,180,000 in cash (the
"Redemption"), (ii) pay to the Purchaser $374,808.06 in cash for accrued
interest on the portion of the Notes redeemed and (iii) pay to the Purchaser a
transaction fee of $204,909.27 in cash. The remaining $20,490,927.11 principal
amount of the Notes outstanding after the Redemption will be amended as provided
in Section 2.02 hereof.

     2.02 Modification of Notes. The parties hereto agree that the scheduled
maturity date of the Notes that remain outstanding after the Redemption shall be
extended to March 1, 2010. If the Notes are not redeemed in full prior to
December 15, 2003, the non-cash portion of interest rate on the Notes shall be
increased from 1.5% per annum to 2.5% per annum, which increased rate shall
apply retroactively to the Effective Date. Section 2.01 of the Original
Agreement shall be amended to reflect such modifications as set forth in Section
1.03 hereof.

                                       25

<PAGE>

     2.03 Cancellation of Notes. Upon execution and delivery of this Amendment,
in order to properly reflect the partial redemption of the Notes pursuant to
Section 2.01 and the modification as contemplated by Section 2.02 hereof, the
Purchaser shall surrender the Notes in exchange for new Notes, dated the
Effective Date. The new Notes issued shall be substantially in the form set
forth as Exhibit A attached hereto and shall be in the aggregate principal
amount of $20,490,927.11. The parties hereto further agree that any reference to
the term Notes in the Original Agreement shall include the new Notes issued
pursuant to this Section 2.03.

3.   Miscellaneous.

     3.01 Registration Rights. Other than pursuant to the terms of the Fourth
Amended and Restated Registration Agreement, dated January 18, 2002, by and
among the Company and the Pledgors, the Warrant Agreement, dated November 10,
1994, between the Company and Heller Financial, Inc., and the Registration
Rights Agreement, dated the Effective Date, among the Company, Banc of America
Securities LLC and Fleet Securities, Inc., no Person has demand or other rights
to cause the Company or any of its Subsidiaries to file any registration
statement under the Securities Act relating to any securities of the Company or
any of its Subsidiaries or any right to participate in any such registration
statement.

     3.02 Representations and Warranties Incorporated from Loan Agreement. Each
of the representations and warranties given by the Company to the Banks in the
Loan Agreement is true and correct in all material respects as of the Effective
Date.

     3.03 Effect. Except as amended hereby, the Original Agreement shall remain
in full force and effect.

     3.04 Defined Terms. All capitalized terms used but not specifically defined
herein shall have the same meanings given such terms in the Original Agreement
unless the context clearly indicates or dictates a contrary meaning.

     3.05 Notices. All notices, requests, demands and other communications
provided for in this Amendment shall be delivered in compliance with Section
9.03 of the Original Agreement.

     3.06 Costs, Expenses, Taxes. The Company agrees to pay on demand all costs
and expenses of the Purchaser in connection with the preparation, execution and
delivery of this Amendment and other instruments and documents to be delivered
hereunder.

     3.07 Governing Law. This Amendment shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York.

     3.08 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Amendment by signing
any of such counterparts.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       26

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the date first above written.

                                              THE NORTHWESTERN MUTUAL LIFE
                                              INSURANCE COMPANY

                                              By:  /s/ Mark E. Kishler
                                                  ------------------------------
                                              Name:  Mark E. Kishler
                                                    ----------------------------
                                              Title:  Authorized Representative
                                                     ---------------------------

                                              MONITRONICS INTERNATIONAL, INC.

                                              By: /s/ James R. Hull
                                                 -------------------------------
                                              Name: James R. Hull
                                              Title: President

<PAGE>

                                    EXHIBIT A

                                                                    EXHIBIT 2.01

                                                  Principal Amount of
                                                  Notes or Number of
                                                    Warrants To be
Name of Purchaser              Type of Security        Purchased
----------------------------   ----------------   -------------------
The Northwestern Mutual Life        Notes           $20,490,927.11
Insurance Company
720 East Wisconsin Avenue          Warrants              1,133,328
Milwaukee, Wisconsin  53202
Attn: Securities Department
Telecopier: (414) 665-7124

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Monitronics International, Inc., 13.5% Subordinated Notes due 2009, PPN609453
A* 6, principal, premium or interest") to:

Bankers Trust Company (ABA #0210-01033)
16 Wall Street
Insurance Unit, 4th Floor
New York, New York 10005

for credit to: The Northwestern Mutual Life Insurance Company
Account Number 00-000-027

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment
to be addressed, Attention: Investment Operations, Fax Number: (414) 665-5714.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 39-0509570

<PAGE>

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS
OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS
THEREFROM.

THIS PROMISSORY NOTE IS SUBJECT TO AN INTERCREDITOR AND SUBORDINATION AGREEMENT
DATED AS OF AUGUST 25, 2003, WITH THE BANKS (AS DEFINED IN THE AGREEMENT
REFERENCED BELOW) AND MONITRONICS INTERNATIONAL, INC. AND AN INTERCREDITOR AND
SUBORDINATION AGREEMENT DATED AS OF AUGUST 25, 2003, WITH THE COMPANY ON BEHALF
OF THE MONITRONICS INTERNATIONAL, INC. HOLDERS OF SENIOR SUBORDINATED DEBT (AS
DEFINED IN THE AGREEMENT REFERENCED BELOW).

                         MONITRONICS INTERNATIONAL, INC.

                        13.5% SUBORDINATED NOTE DUE 2009

No. 2                                                            August 25, 2003
$20,490,927.11                                                  PPN: 609453 A* 6

     FOR VALUE RECEIVED, Monitronics International, Inc., a Texas corporation
(the "Company"), hereby promises to pay to The Northwestern Mutual Life
Insurance Company, or assigns (hereinafter referred to as the "Payee"), on or
before March 1, 2010 the principal sum of Twenty Million Four Hundred Ninety
Thousand Nine Hundred Twenty Seven and 11/100 Dollars ($20,490,927.11) or such
part thereof as then remains unpaid, and to pay interest from the date hereof on
the whole amount of said principal sum remaining from time to time unpaid at the
rate of thirteen and one-half percent (13.5%) per annum, such interest to be
payable semi-annually in arrears on the last Business Day of June and December
in each year and at maturity or prior prepayment of the Notes, the first such
payment to be due and payable on the last Business Day of June, 2002, until the
whole amount of the principal hereof remaining unpaid shall become due and
payable, provided that payment will be made in cash only of interest accrued
hereon at the rate of twelve percent (12%) per annum and the remaining accrued
interest shall be added to the outstanding principal amount hereof (and
thereafter bear interest at thirteen and one half percent (13.5%) per annum).
Notwithstanding the foregoing, beginning on December 15, 2003, the interest rate
on the Notes shall be increased to fourteen and one-half percent (14.5%) per
annum with the Cash Interest component remaining at twelve percent (12%) per
annum and the remaining accrued interest shall be added to the outstanding
principal of the Notes. The increased interest rate shall be applied
retroactively to August 25, 2003. Principal, Make-Whole Amount, if any, and
interest shall be payable in lawful money of the United States of America, in
immediately available funds, by wire transfer of funds to the account or
accounts designated in writing by the Payee or in such other manner as the Payee
may designate from time to time in writing to the Company. Interest shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
Nothing in this Note shall require the Company to pay interest at a rate in
excess of the maximum rate permitted by applicable law. Any interest payable
hereunder or under any other instrument relating to the indebtedness evidenced
hereby that is in excess of the maximum rate permitted by applicable law shall,
in the event of

<PAGE>

acceleration of maturity, late payment, prepayment, or otherwise, be applied to
a reduction of the unrepaid indebtedness evidenced hereby and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of such
unrepaid indebtedness, such excess shall be refunded to the Company. To the
extent not prohibited by applicable law, determination of the maximum rate
permitted by applicable law shall at all times be made by amortizing, prorating,
allocating and spreading in equal parts during the full term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from the Company in connection with the indebtedness evidenced hereby, so that
the actual rate of interest on account of such indebtedness is uniform
throughout the term thereof.

     This Note is issued pursuant to and is entitled to the benefits of a
certain Subordinated Note and Warrant Purchase Agreement, dated as of January
18, 2002, as amended on August 25, 2003, by and among the Company and the
institutional investors named therein (as the same may be amended from time to
time, referred to herein as the "Agreement"), and each holder of this Note, by
its acceptance hereof, agrees to be bound by the provisions of the Agreement.
The Company and the Payee further acknowledge and agree that (i) this Note is
subject to prepayment, in whole or in part, and to certain mandatory redemption
payments, as specified in the Agreement, (ii) the principal of and interest on
this Note is subordinated to certain indebtedness of the Company owed to the
Banks (as defined in the Agreement) and the holders of Senior Subordinated Debt
(as defined in the Agreement) pursuant to the Subordination Agreements (as
defined in the Agreement) and (iii) in case of an Event of Default, as defined
in the Agreement, (a) the principal of this Note may become or may be declared
due and payable in the manner and with the effect provided in the Agreement and
(b) the principal of this Note, and any unpaid interest thereon, shall bear
interest at the rate of sixteen and one half percent (16.5%) per annum as
provided in the Agreement.

     As further provided in the Agreement, upon surrender of this Note for
transfer or exchange, a new Note or new Notes of the same tenor dated the date
to which interest has been paid on the surrendered Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so surrendered
will be issued to the transferee or transferees.

     In case any payment herein provided for shall not be paid when due, the
Company promises to pay all costs of collection, including all reasonable
attorney's fees.

     This Note shall be governed by, and construed in accordance with, the
internal laws of the State of New York.

     The Company and all endorsers and guarantors of this Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.

<PAGE>

     IN WITNESS WHEREOF, the Company has executed this Note under seal as of the
date first written above.

                                    MONITRONICS INTERNATIONAL, INC.

                                    By:
                                       -----------------------------------------
                                    Name: James R. Hull
                                    Title: President and Chief Executive Officer

[Corporate Seal]

ATTEST:

By:
    -------------------------------
Title:
       ----------------------------<PAGE>

                                                                   Exhibit 10.32

                     PREFERRED STOCK SUBORDINATION AGREEMENT

     PREFERRED STOCK SUBORDINATION AGREEMENT (this "Agreement") dated as of May
10, 1996 by and among Monitronics International, Inc., a Texas corporation (the
"Company"), Capital Resource Lenders II, L.P., a Delaware limited partnership,
Austin Ventures Ill-A, L.P., a Delaware limited partnership, and Austin Ventures
Ill-B, L.P., a Delaware limited partnership (collectively, the "Purchasers"),
and the holders of Preferred Stock (as defined herein) whose names appear on the
signature pages to this Agreement.

                              W I T N E S S E T H:

     WHEREAS, the parties hereto (other than the Company) are the holders of
certain obligations and securities of the Company and the parties hereto desire
to establish hereby the relative rights and priorities of payment of such
obligations and securities to such parties.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     SECTION 1. DEFINITIONS.

     As used in this Agreement, the following terms shall have the following
meanings:

     "Notes" shall mean the 12.0% Senior Subordinated Notes due June 30, 2003
issued by the Company pursuant to the Purchase Agreement, and any notes issued
in exchange therefor or in replacement thereof, as the same may be amended,
modified or supplemented.

     "Preferred Stock" shall mean the Company's Preferred Stock, par value $0.01
per share, as authorized on the date of this Agreement.

     "Purchase Agreement" shall mean the Senior Subordinated Note and Warrant
Purchase Agreement dated the date hereof by and among the Company and the
Purchasers, as hereinafter amended, modified or supplemented.

     "Senior Creditor" shall mean any holder of Senior Obligations as such.

     "Senior Obligations" shall mean all indebtedness of the Company for
principal, interest, fees, expenses and other amounts now existing or hereafter
incurred or due and owing under the Notes and/or the Purchase Agreement.

     "Subordinated Investor" shall mean any holder of Subordinated Obligations
as such.

     "Subordinated Obligations" shall mean any and all obligations or
liabilities of the Company now existing or hereafter arising, absolute or
contingent, arising by contract, at law or otherwise, with respect to (a)
dividends payable on Preferred Stock, (b) the purchase, redemption or other
acquisition of Preferred Stock, and (c) any other amount payable to holders of
Preferred Stock as such.

<PAGE>

Unless otherwise defined herein, capitalized terms used in this Agreement shall
have the meanings assigned to them in the Purchase Agreement.

     SECTION 2. SUBORDINATION.

     2.1 Subordination. Each of the Subordinated Investors agrees, for itself
and each future holder of Subordinated Obligations and for the benefit of all
present and future holders of Senior Obligations, that in the manner and to the
extent set forth in this Section 2, the Subordinated Obligations and the
Preferred Stock are and shall be expressly subordinate and junior in right of
payment to all Senior Obligations.

     2.2 Restrictions on Payments. So long as any Senior Obligations are
outstanding, neither the Company nor any of its Subsidiaries will make or cause
to be made, and no Subordinated Investor will demand, accept or receive,
directly or indirectly, any payment (in cash, property, by set-off or otherwise)
on or with respect to Subordinated Obligations (except securities which are
subordinate and junior in right of payment to the Senior Obligations).

     2.3 Turn-Over of Payments Received. If any Subordinated Investor receives
any payment or distribution on Subordinated Obligations which it is not entitled
to receive and retain under the provisions of this Section 2, such Subordinated
Investor will hold any amount so received in trust for the Senior Creditors and
shall forthwith remit such payment in the form received (with any necessary
endorsements) to the Senior Creditors.

     2.4 Limitations on Remedies. So long as any Senior Obligations are
outstanding, no Subordinated Investor shall (a) commence or join (unless the
Senior Creditors shall also join) in any proceeding against the Company or any
of its Subsidiaries under any bankruptcy, reorganization, readjustment of debt,
arrangement of debt, receivership, liquidation or insolvency law or statute of
any federal or state government, or (b) commence any action or proceeding
against the Company or any of its Subsidiaries to enforce payment or to collect
payment of all or any part of the Subordinated Obligations; provided, however,
that this Section 2.4 shall not be construed so as to prevent the Company or any
of its Subsidiaries from filing a voluntary proceeding under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt, restructuring,
liquidation or insolvency law or statute of any federal or state government.

     2.5 Subordination Not Affected. A Senior Creditor may at any time and from
time to time, without the consent of or notice to the Subordinated Investors,
without incurring liability to the Subordinated Investors, and without impairing
or releasing the obligations of the Subordinated Investors under this Agreement:
(a) change the manner, place or terms of payment or change the time of payment
of or renew, alter, waive, release or compromise the Senior Obligations or any
security therefor, or amend or modify in any manner any agreement, note,
guaranty or other instrument evidencing or securing or otherwise relating to any
Senior Obligations, except that the Senior Creditors shall not extend the
maturity of the Senior Obligations beyond June 30, 2003 without the written
consent of the Subordinated Investors; (b) exercise or refrain from exercising
any rights against the Company and others (including Subordinated Investors);
and (c) apply any sums by whomsoever paid or howsoever realized to the Senior
Obligations.

                                      -2-

<PAGE>

     SECTION 3. MISCELLANEOUS.

     3.1 Instrument Legend. Any certificate, agreement or instrument evidencing
any of the Subordinated Obligations shall be inscribed with a legend or shall
otherwise conspicuously indicate that the obligations evidenced thereby are
subordinate and junior in right of payment to the Senior Obligations in the
manner and to the extent set forth in this Agreement.

     3.2 Transfer of Claims. No Subordinated Investor shall sell, assign or
otherwise transfer, in whole or in part, any Subordinated Obligations or any
interest therein, unless such sale, assignment or transfer is made expressly
subject to and the transferee becomes bound by the terms of this Agreement
applicable to such Subordinated Obligations.

     3.3 Waivers by Subordinated Investors. All Senior Obligations shall be
deemed to have been made or incurred in reliance upon this Agreement. The
Subordinated Investors expressly waive all notice of the acceptance by the
Senior Creditors of the subordination and other provisions of this Agreement and
all other notices whatsoever, and expressly waive proof of reliance by the
Senior Creditors upon the subordination and other agreements herein set forth.
The Senior Creditors shall have no liability to the Subordinated Investors for
any and all actions which the Senior Creditors, in good faith and without
willful misconduct or breach of an express obligation to the Subordinated
Investors hereunder, take or omit to take with respect to the agreements or
instruments creating, evidencing or securing Senior Obligations or the
collection of the Senior Obligations.

     3.4 Governing Law and Consent to Jurisdiction. This Agreement shall be
construed and interpreted, and the rights and obligations of the parties hereto
determined, in accordance with the laws of The Commonwealth of Massachusetts.
The parties consent to the jurisdiction of the courts of The Commonwealth of
Massachusetts as to any issues related to this Agreement, including the
validity, enforceability, or interpretation thereof, which require judicial
resolution.

     3.5 Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective transferees,
successors and assigns, including without limitation any receiver, trustee,
custodian, or debtor-in-possession, as holders of Senior Obligations and
Subordinated Obligations.

     3.6 Notices. Any notice given hereunder shall be in writing and shall be
deemed to have been validly given to a party hereto (i) three business days
after being deposited in the United States Postal Service as registered or
certified mail, return receipt requested, with proper postage prepaid, and
addressed to such party at its address set forth on Exhibit A to this Agreement,
or at such other address as such party may designate to the other parties by
like notice; or (ii) on the date of delivery at such party's address as
specified above by hand delivery, telex, telegraph or facsimile transmitter.

     3.7 Section Titles. The section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever, are not
a part of the agreement between the parties hereto, and are provided solely for
convenience of reference.

     3.8 Waivers. etc. No failure to exercise and no delay in exercising any
right, power or privilege under this Agreement shall operate as a waiver
thereof; and no single or partial

                                      -3-

<PAGE>

exercise of any right, power or privilege under this Agreement shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies provided in this Agreement are cumulative
and shall not be exclusive of any rights or remedies provided by other
agreements or by law.

     3.9 Amendments. The subordination provisions contained herein are for the
benefit of the holders from time to time of Senior Obligations, and may be
rescinded or cancelled, and except as otherwise expressly provided for herein,
amended or modified, only with the express prior written consent of all holders
of the Senior Obligations and Subordinated Obligations.

     3.10 Counterparts. This Agreement may be executed in any number of separate
counterparts, all of which shall constitute one and the same agreement.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                      -4-

<PAGE>

     IN WITNESS WHEREOF, this Preferred Stock Subordination Agreement has been
executed by the parties hereto as of the day and year first above set forth.

                                        THE COMPANY

                                        MONITRONICS INTERNATIONAL, INC.

                                        By: /s/ James R. Hull
                                            ------------------------------------
                                            Name:  James R. Hull
                                            Title: President and C.E.O.

                                        THE PURCHASERS

                                        CAPITAL RESOURCE LENDERS II, L.P.

                                        By: Capital Resource Partners II, L.P.,
                                            its General Partner

                                        By:  /s/ illegible signature
                                            ------------------------------------
                                            Title: Authorized Representative

                                        AUSTIN VENTURES III-A, L.P.

                                        By: AV Partners III, L.P.
                                            Its General Partner

                                        By:
                                            ------------------------------------
                                            Title:

                                      S-1

<PAGE>

     IN WITNESS WHEREOF, this Preferred Stock Subordination Agreement has been
executed by the parties hereto as of the day and year first above set forth.

                                        THE COMPANY

                                        MONITRONICS INTERNATIONAL, INC.

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

                                        THE PURCHASERS

                                        CAPITAL RESOURCE LENDERS II, L.P.

                                        By: Capital Resource Partners II, L.P.,
                                            its General Partner

                                        By:
                                            ------------------------------------
                                            Title:

                                        AUSTIN VENTURES III-A, L.P.

                                        By: AV Partners III, L.P.
                                            Its General Partner

                                        By: /s/ Blaine F. Wesner
                                            ------------------------------------
                                            Title: Authorized Signatory

                                      S-2

<PAGE>

                                        AUSTIN VENTURES III-B, L.P.

                                        By: AV Partners III, L.P.
                                            Its General Partner

                                        By: /s/ Blaine F. Wesner
                                            ------------------------------------
                                            Title: Authorized Signatory

                                        THE PREFERRED STOCKHOLDERS

                                        AUSTIN VENTURES III-A, L.P.

                                        By: AV Partners III, L.P.
                                            Its General Partner

                                        By: /s/ Blaine F. Wesner
                                            ------------------------------------
                                            Title: Authorized Signatory

                                        AUSTIN VENTURES III-B, L.P.

                                        By: AV Partners III, L.P.
                                            Its General Partner

                                        By: /s/ Blaine F. Wesner
                                            ------------------------------------
                                            Title: Authorized Signatory

                                      S-3

<PAGE>

                                                                       EXHIBIT A

                                    ADDRESSES

If to the Company:                        Monitronics, International, Inc.
                                          12801 Stemmons Freeway
                                          Suite 821
                                          Dallas, Texas 75234
                                          Attention: James R. Hull
                                          Fax Number: (214) 484-1393

With a copy to:                           Glast, Phillips & Murray, P.C.
                                          Suite 2200, L.B. 48
                                          One Galleria Tower
                                          Dallas, Texas 75240-6657
                                          Attention: Mike Parsons, Esq.
                                          Fax Number: (214) 419-8329

If to the Purchasers:                     Capital Resource Partners
                                          175 Portland Street, Suite 300
                                          Boston, MA 02114
                                          Attention: Stephen M. Jenks
                                          Fax Number: (617) 723-9819

With a copy to:                           Testa, Hurwitz & Thibeault, LLP
                                          High Street Tower
                                          125 High Street
                                          Boston, MA 02110
                                          Attention: Andrew E. Taylor, Jr., Esq.
                                          Fax Number: (617) 248-7100

If to the Preferred Stockholders:         c/o Austin Ventures
                                          1300 Norwood Tower
                                          114 West Seventh Street
                                          Austin, Texas 78701
                                          Attention: Blaine F. Wesner
                                          Fax Number: (512) 476-3952

With a copy to:                           Hughes & Luce, L.L.P
                                          111 Congress Avenue
                                          Suite 900
                                          Austin, Texas 78701
                                          Attention: William R. Volk
                                          Fax Number: (512) 482-6859

                                      A-1

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