-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQ1rGsSOEBH3/dvS5iffiTv44Jc35nTLxb79QnT6gjIS6mEIaI1RNFMMzAndCMmY 4IXfP1iYPBb/T1gQZNRQNg== 0001042645-97-000010.txt : 19970821 0001042645-97-000010.hdr.sgml : 19970821 ACCESSION NUMBER: 0001042645-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALARMGUARD HOLDINGS INC CENTRAL INDEX KEY: 0000319250 STANDARD INDUSTRIAL CLASSIFICATION: 5900 IRS NUMBER: 330318116 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08138 FILM NUMBER: 97661514 BUSINESS ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 BUSINESS PHONE: 6192311818 MAIL ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 FORMER COMPANY: FORMER CONFORMED NAME: TRITON GROUP LTD DATE OF NAME CHANGE: 19950328 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-8138 ALARMGUARD HOLDINGS, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 33-0318116 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 125 Frontage Road, Orange, Connecticut 06477 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 203-795-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock, par value $.0001 per share, outstanding on August 12, 1997 was 5,599,932. ALARMGUARD HOLDINGS, INC. INDEX Part I. Financial Information Item 1. Financial Statements (Unaudited) Page Number Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
ALARMGUARD HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS) June 30, December 31, -------- ------------ 1997 1996 -------- ------------ ASSETS (unaudited) (Note) Current assets: Cash and cash equivalents $417 $230 Restricted cash 1,931 --- Accounts receivable, net 6,003 3,791 Inventories 2,049 1,698 Other current assets 942 582 ------- ------- Total current assets 11,342 6,301 Property and equipment, net 2,195 2,478 Customer installation costs, net 9,215 7,531 Customer contracts and intangibles, net 47,346 21,430 Other investments 3,597 --- Other assets 917 1,391 ------- ------- Total assets $74,612 $39,131 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $2,695 $1,469 Accrued expenses 6,249 1,390 Current portion of long term debt 2,009 4,865 Deferred revenue 6,137 4,621 Due to sellers 4,818 254 Other current liabilities 656 754 ------ ------- Total current liabilities 22,564 13,353 Term loan, less current portion 44,200 26,467 Subordinated debt 4,307 4,951 Notes payable, less current portion 690 2,563 Other liabilities 901 422 Redeemable preferred stock --- 16,273 Stockholders' equity (deficiency) Common stock, $0.0001 par value, 25,000,000 shares 1 --- authorized, 5,599,932 shares issued and outstanding Common stock, $1.00 par value, 256,000 shares authorized, 236,671 shares (including 33,748 of non- --- 237 voting shares) issued and outstanding Additional paid in capital 34,024 35 Accumulated deficit (32,075) (25,135) Notes receivable from officers --- (35) ------- ------- Total stockholders' equity (deficiency) 1,950 (24,898) ------- ------- Total liabilities and stockholders' equity $74,612 $39,131 (deficiency) ======= =======
Note: The condensed consolidated balance sheet as of December 31, 1996 has been derived from the audited consolidated balance sheet as of that date. See accompanying notes to the unaudited condensed consolidated financial statements.
ALARMGUARD HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE FOR THE SIX MONTHS MONTHS ENDED JUNE 30, ENDED JUNE 30, 1997 1996 1997 1996 ---- ---- ---- ---- Revenue: Recurring revenue $5,187 $3,671 $9,360 $7,139 Installation revenue 2,633 1,887 4,664 3,505 Service revenue 567 365 960 682 ------- ------ ------ ------ Total revenue 8,387 5,923 14,984 11,326 Cost of revenue: Monitoring expense 700 558 1,295 1,098 Installation expense 1,846 1,161 3,159 2,030 Service expense 1,022 682 1,787 1,351 ------- ------ ------ ------ Total cost of revenue: 3,568 2,401 6,241 4,479 Gross profit 4,819 3,522 8,743 6,847 Sales and marketing expense 1,179 924 2,195 1,846 General and administrative 2,817 2,074 5,004 4,063 expense Amortization and depreciation 3,093 1,834 5,464 3,736 expense ------- ------ ------ ----- Total operating expense 7,089 4,832 12,663 9,645 ------- ------ ------ ----- Operating loss (2,270) (1,310) (3,920) (2,798) Other income (expense): Interest expense (1,151) (712) (1,995) (1,355) Other, net (12) 1 (12) (11) ------- ------- ------ ------ Loss before extraordinary item (3,433) (2,021) (5,927) (4,164) Extraordinary loss from the early extinguishment of debt (813) --- (813) --- ------- ------- ------- ------ Net loss $(4,246) $(2,021) $(6,740) $(4,164) ======= ======= ======= ====== Pro forma loss per common share before $(0.67) $(0.40) $(1.16) $(0.83) extraordinary item Pro forma loss for extraordinary $(0.16) --- $(0.16) --- item ------- ======= ======= ====== Pro forma net loss per common $(0.83) $(0.40) $(1.32) $(0.83) share ======= ======= ======= ====== Weighted average number of common shares used in computing pro forma loss per common share 5,143 5,032 5,088 5,032 ======= ======= ======= ======
See accompanying notes to unaudited condensed consolidated financial statements.
ALARMGUARD HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($ IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1997 1996 ---- ---- Operating activities: Net loss ($6,740) ($4,164) Adjustment to reconcile net loss to net cash used in operating activities: Amortization and depreciation 5,464 3,736 Extraordinary loss 813 --- Customer installation costs (2,209) (3,066) Changes in operating assets & liabilities, net of effects of acquisitions: Accounts receivable (391) 189 Inventories 17 (262) Other current assets 54 5 Other assets (26) (352) Accounts payable 377 (172) Accrued expenses 480 (523) Deferred revenue (15) 80 Due to sellers (111) (198) Other current liabilities (155) (108) Other liabilities (180) 39 ------- ------- Net cash used in operating activities (2,622) (4,796) Investing activities: Acquisitions of businesses, net of cash acquired (4,645) (893) Increase in restricted cash (1,931) --- Purchases of property and equipment (149) (297) ------- ------- Net cash used in investing activities (6,725) (1,190) Financing activities: Proceeds from term loan 44,200 3,700 Proceeds from issuance of subordinated debt 4,300 1,981 Proceeds from notes payable --- 863 Proceeds from issuance of common stock --- 17 Payments of term loan (31,836) (915) Payments of subordinated debt (4,951) --- Financing fees paid (1,040) --- Payments of other notes payable and capital (1,139) (288) leases ------- ------ Net cash provided by financing activities 9,534 5,358 ------- ------ Increase (decrease) in cash and cash equivalents 187 (628) Cash and cash equivalents at beginning of period 230 1,561 ------- ------ Cash and cash equivalents at end of period $417 $933 ======= ====== Cash paid for interest $1,952 $1,318 ======= ======
See accompanying notes to unaudited condensed consolidated financial statements. ALARMGUARD HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The unaudited interim financial information of Alarmguard Holdings, Inc. ("Alarmguard" or the "Company") should be read in conjunction with the audited consolidated financial statements of Security Systems Holdings, Inc.("SSH") as of and for the year ended December 31, 1996 included in the Registration Statement of Triton Group Ltd. on Form S-4 (File # 333-23307) filed with the Securities and Exchange Commission on March 14, 1997. 2. MERGER On April 15, 1997, Triton Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of Triton Group Ltd. ("Triton"), consummated a merger (the "Merger") with SSH pursuant to an Agreement and Plan of Merger dated December 23, 1996, as amended March 6, 1997 (the "Merger Agreement"), by and among Triton, Merger Sub and SSH. As a result of the Merger, Merger Sub has ceased to exist and SSH will continue as the surviving corporation and as a wholly-owned subsidiary of the Company. In addition, in connection with the Merger, Triton effected a one-for-ten reverse stock split (the "Reverse Stock Split"). Pursuant to the Merger Agreement and in consideration of the Merger, SSH's preferred and common stockholders received an aggregate of approximately 2,877,368 new shares of common stock of Triton, representing approximately 57% of the common stock outstanding upon consummation of the Reverse Stock Split and the Merger. Additionally, the combined company was renamed Alarmguard Holdings, Inc., the common shares of which are listed for trading on the American Stock Exchange under the symbol "AGD". As a result of the Merger, Alarmguard's fiscal year end was changed to December 31 and the Board of Directors of the Company was reconstituted to include five representatives from SSH's board of directors and two representatives from Triton's board of directors. The Merger was accounted for as a "reverse acquisition" such that Triton was designated the accounting acquiree and Alarmguard the accounting acquiror. As such, the net assets of Triton (principally cash of approximately $15.0 million plus other investments) were recorded at fair value and the pre-Merger financial statements of SSH became the historical financial statements of Alarmguard (formerly Triton). Accordingly, in the condensed consolidated balance sheet as of June 30, 1997, SSH's pre-Merger stockholders' deficiency and loss per common share have been retroactively restated for the equivalent number of shares received by the stockholders of SSH in the Merger, with differences between the par values of Triton's common stock and SSH's common stock recorded as an adjustment to paid-in-capital of Alarmguard. The pro forma net loss per common share and the pro forma loss per common share before extraordinary items for the three and six month periods ended June 30, 1997 and 1996 give effect to the conversion of all SSH preferred stock (including accrued dividends), and common stock into Triton common stock as noted above. Accordingly, the pro forma net loss per common share is calculated from the net loss before the dividend requirement on the SSH preferred stock ($200,000 and $341,000 for the six months ended June 30, 1997 and 1996 respectively and $29,000 and $170,000 for the three months ended June 30, 1997 and 1996 respectively). Such conversion excludes shares issuable upon exercise of outstanding stock options due to their anti-dilutive effect. The pro forma loss per common share for the three and six month periods ended June 30, 1997 also give effect to common shares issued in connection with the Company's two acquisitions consummated during the first six months of 1997 from the respective date of acquisitions (see Note 3). All share and per share information herein has been retroactively restated to reflect the Reverse Stock Split. 3. ACQUISITIONS On May 1, 1997, Alarmguard purchased all of the issued and outstanding shares of capital stock of Protective Alarms, Inc. ("Protective Alarms"), for an initial purchase price of $17.1 million. Up to $4.3 million in additional consideration will be paid to the sellers of Protective Alarms upon (i) the installation of certain national account contracts pending on the closing date; and (ii) certain other obligations being met during the year following the closing of the acquisition. Approximately $1.9 million of the amount due to sellers is secured by a cash collateralized letter of credit represented as restricted cash at June 30, 1997. Protective Alarms was a security alarm system company doing business primarily in Connecticut and Westchester County, New York, that provided security equipment and monitoring services to homeowners and businesses. In addition, Protective Alarms specialized in National Account sales under the name "Pro National", primarily in the Northeastern United States. In addition, during the six months ended June 30, 1997, Alarmguard acquired certain operating assets of three companies in the security alarm installation and monitoring business for an aggregate of $1,985,000 in cash and up to 568,000 shares of Alarmguard common stock valued at $3,812,000. The acquisitions added approximately $191,000 of Monthly Recurring Revenue ("MRR") and 2,900 customers. The acquisitions were accounted for under the purchase method of accounting and, accordingly, the purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values at the respective dates of acquisition. In connection with the acquisitions, Alarmguard received customer contracts ($6,044,000), and other assets ($1,137,000) and assumed current liabilities ($1,384,000). During the six months ended June 30, 1996, Alarmguard acquired certain operating assets of two companies in the security alarm installation and monitoring business for an aggregate of $893,000 in cash and $863,000 in notes payable to the sellers. The acquisitions added approximately $57,000 MRR and 2,500 customers. The acquisitions were accounted for under the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the respective dates of acquisition. In connection with the acquisitions, Alarmguard received customer contracts ($1,024,000), and other assets ($1,060,000) and assumed current liabilities ($328,000). The results of operations of the acquired companies have been included in the condensed consolidated statements of operations from the respective dates of acquisition. The following unaudited pro forma information shows the results of the Company's operations as though the acquisitions consummated during the first six months of 1996 had been made as of January 1, 1996 and as though the acquisitions consummated during the first six months of 1997 had been made as of January 1, 1996 and January 1, 1997: (in thousands, except per share data) Six months ended June 30, 1997 1996 ---- ---- Pro forma revenue $18,775 $16,746 ======== ======== Pro forma loss before extraordinary item $(6,162) $(4,469) ======== ======== Pro forma net loss $(6,975) $(4,469) ======== ======== Pro forma loss per common share before extraordinary item $(1.10) $(0.80) ======== ======== Pro forma net loss per common share $(1.25) $(0.80) ======== ======== Shares used in computing pro forma loss per common share 5,600 5,600 ======== ======== The pro forma results are not necessarily indicative of the actual results of operations that would have been obtained had the acquisitions taken place at the beginning of the respective periods or the results that may occur in the future and do not give effect to cost savings which may occur as a result of the consolidation of the acquired companies. The pro forma loss per common share give effect to the conversion of all preferred and common stock into Triton Common Stock (see Note 2) and the common stock issued in two acquisitions consummated during the first six months of 1997. 4. INVENTORIES Inventories consist principally of alarm components and supplies which are carried at the lower of cost or market value. 5. CUSTOMER INSTALLATION COSTS During the six months ended June 30, 1997 and 1996, Alarmguard incurred approximately $2,209,000 and $3,066,000, respectively, in customer installation costs primarily attributable to the operations of its direct marketing program. Alarmguard added approximately 3,200 and 5,400 customers, respectively, through its direct marketing program during these periods. 6. CUSTOMER CONTRACTS AND INTANGIBLES Customer contracts and intangibles (at cost) consist of the following: (in thousands) June 30, December 31, 1997 1996 ---- ---- Acquired customer contracts $50,286 $27,520 Covenants not to compete 12,824 7,271 Goodwill 2,493 2,493 -------- ------- 65,603 37,284 Less accumulated amortization (18,257) (15,854) -------- ------- $47,346 $21,430 ======== ======= 7. OTHER INVESTMENTS Other investments at June 30, 1997 are comprised of certain assets held by Triton at the time of the Merger, which are being monetized on an as soon as reasonably practicable basis. Other investments at June 30, 1997 were as follows (in thousands): Ridgewood Hotels, Inc. Series A Preferred Stock $2,009 Mission West Properties Common Stock 1,352 Other 236 ------ $3,597 ====== Alarmguard owns 450,000 shares of Series A Preferred Stock of Ridgewood Hotels, Inc. ("Ridgewood") with a face value of $3.6 million. Alarmguard currently receives a quarterly dividend of $90,000 on this investment and the preferred stock is redeemable at any time by Ridgewood at its face value plus accrued dividends. The preferred stock is convertible by Alarmguard at any time into 1,350,000 Ridgewood common shares, which would represent approximately 47% of the Ridgewood common shares then outstanding, or 40% fully diluted. Alarmguard accounts for the Ridgewood investment using the cost method of accounting. Alarmguard owns 676,050 common shares (44% of total outstanding common shares) of Mission West Properties ("Mission West"), a real estate company listed on the American Stock Exchange under the symbol "MSW". Mission West sold all of its operating assets in early 1997, and on August 5, 1997, Mission West shareholders approved the sale of 6 million shares of newly issued common stock, at $0.15 per share, to a group of private investors, which transaction is expected to close in September 1997. In a related action, the Mission West Board of Directors declared a $3.30 per share cash distribution to be paid on October 21, 1997. Alarmguard's share of the distribution amounts to approximately $2.2 million. The difference between the carrying amount and the distribution amount will be adjusted upon finalization of the accounting for the Merger. Alarmguard's interest in Mission West had a quoted market value of approximately $2.2 million on June 30, 1997. Upon completion of the sale of the new shares of common stock, Alarmguard will retain an approximate 9% ownership stake in Mission West. Alarmguard accounts for the Mission West investment using the equity method of accounting. 8. LONG TERM DEBT In connection with the Merger, Alarmguard refinanced its subordinated debt existing at April 15, 1997 with new subordinated debt with an aggregate principal amount of $4,600,000 and an interest rate of 15%. In addition, Alarmguard issued warrants to purchase approximately 216,000 shares of Alarmguard Common Stock at an exercise price of $11.11 per share, the fair value of which has been accounted for as a discount to the new subordinated debt and is being amortized over the life of the underlying debt instrument (two years). Concurrent with the Merger, Alarmguard refinanced its credit agreement existing at April 15, 1997 with a new credit agreement. The new credit agreement consists of a two year, $60 million, non-amortizing, revolving loan agreement which converts to a five year term loan on April 30, 1999. On June 30, 1997, outstanding borrowings under the Revolving Credit Facility were $44.2 million. During the three and six month periods ending June 30, 1997, the Company recognized an extraordinary loss of $0.8 million resulting from the write-off of unamortized financing costs from the former term loan and subordinated debt. 9. STOCK OPTIONS On April 17, 1997, the Board of Directors issued 382,000 stock options to the senior management of Alarmguard which vest over a four year period from the date of grant. Additionally, three Directors were granted 10,000 options on similar terms. The exercise price for all options granted was $7.50 per share which was the fair market value of the common stock at the date of grant. 10. COMMITMENTS AND CONTINGENCIES The Company experiences routine litigation in the normal course of its business. Management does not believe that any pending or threatened litigation will have a material adverse effect on the financial condition or results of operations of the Company. 11. RECENT FASB PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted as of December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, primary earnings per share will be replaced with basic earnings per share. In computing basic earnings per share, the dilutive effect of common stock equivalents will be excluded. The impact of Statement No. 128 on the computation of the Company's primary earnings per share (to be replaced with basic earnings per share) and fully diluted earnings per share is not expected to be material. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters in this section constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of Alarmguard Holdings, Inc. (the "Company" or "Alarmguard") to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These factors are discussed under the caption "Risk Factors" in a Registration Statement on Form S-4 (File No. 333-23307) filed with the Securities and Exchange Commission on March 14, 1997 ("Form S-4"). GENERAL OVERVIEW For an overview of the Company's accounting policies, see the Company's audited consolidated financial statements as of and for the year ended December 31, 1996 on Form S-4 mentioned above. Alarmguard sells and installs burglar and fire alarm systems and provides security monitoring services and security system repair and maintenance services to homeowners and businesses, principally in the Northeast and Mid-Atlantic regions of the United States. Alarmguard provides its security alarm systems and services primarily under its trademark "Alarmguard". As of June 30, 1997 Alarmguard had approximately $2.1 million of monthly recurring revenue, approximately 60% of which was residential and 40% which was commercial. On April 15, 1997, Triton Acquisition Corp., a wholly owned subsidiary of Triton Group Ltd., completed a merger (the "Merger") with Security Systems Holdings, Inc. pursuant to an Agreement and Plan of Merger dated December 23, 1996, as amended March 6, 1997. Additionally, the combined company was renamed Alarmguard Holdings, Inc., the common shares of which are listed for trading on the American Stock Exchange under the symbol "AGD"(see note 2 to the unaudited condensed financial statements). Alarmguard's objective is to provide residential and commercial security services to an increasing number of subscribers. Alarmguard's growth strategy is to enhance its position in the security alarm monitoring industry in the Northeastern and Mid-Atlantic United States by increasing the number and density of subscribers for whom it provides services. Alarmguard is pursuing this strategy through a balanced growth plan involving: (1) incorporating acquisitions of portfolios of subscriber accounts in existing and contiguous markets; (2) internal growth through direct marketing to obtain new subscribers (the "Direct Marketing Program"); (3) growth of Alarmguard's core business through referrals and traditional local marketing; and (4) new multi-locational commercial subscribers from its National Accounts Program. Alarmguard believes that increasing the number and density of its subscribers will help it to achieve economies of scale and improve results of operations. During the six months ended June 30, 1997, Alarmguard acquired four companies in the security alarm installation and monitoring business for an aggregate of $19.1 million in cash and up to 568,000 shares of Alarmguard common stock valued at $3,812,000. The acquisitions added approximately $600,000 of monthly recurring revenue and 13,000 customers. Monthly Recurring Revenue ("MRR"). MRR represents revenue that a company in the security alarm industry is entitled to receive under contracts (monitoring, leasing, and maintenance, among other things) in effect at the end of such period. MRR is a term commonly used in the security alarm industry as a measure of the size of a company. It does not measure profitability or performance, and does not include any allowance for future subscriber attrition for uncollectible accounts receivable. Subscriber Attrition. Subscriber attrition has an adverse effect on the Company's financial position and results of operations, since it affects the Company's revenues. Attrition, generally expressed on an annualized basis, can be measured in terms of decreased MRR resulting from canceled subscriber accounts. Gross MRR attrition is defined by the Company for a particular period as a quotient, the numerator of which is equal to gross MRR lost as the result of canceled subscriber accounts during such period and the denominator of which is the average month-end MRR during such period. The following table sets forth the Company's MRR additions, cancellations, and gross MRR attrition for the periods indicated: 6 Months Ended 12 Months Ended June 30, 1997 December 31, 1996 ------------- ----------------- Beginning of period $1,392 $1,129 Direct Marketing Program additions 108 264 Acquisition additions 604 80 Other additions (1) 52 73 Canceled MRR (101) (154) ------------- ----------------- End of period $2,055 $1,392 ============= ================= Gross MRR attrition (2) 12.3% 11.9% (1) Primarily generated through traditional sales programs and the National Accounts Program. (2) Calculated on a last-twelve-month basis RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 REVENUE Revenue for the six months ended June 30, 1997 increased approximately $3.7 million, or 32%, from the comparable period in 1996. Recurring revenue increased approximately $2.2 million, or 31%, as a result of an increase in new customer accounts resulting primarily from acquisitions and the Direct Marketing Program during the second half of 1996 and the first six months of 1997. Installation revenue increased approximately $1.2 million, or 33%, resulting primarily from the acquisition of Protective Alarms and increased activity in the Company's National Account Program. Service revenue increased approximately $0.3 million, or 41%, primarily due to the growth of the customer base. COST OF REVENUE Cost of revenue for the six months ended June 30, 1997 increased approximately $1.8 million, or 39%, from the comparable period in 1996. Monitoring expense increased approximately $0.2 million, or 18%, primarily as a result of increased labor and communication expenses required to monitor additional subscriber accounts. As a percent of recurring revenue, monitoring expense decreased from 15.3% to 13.8%, primarily as a result of efficiencies related to monitoring incremental subscriber accounts. Installation expense increased approximately $1.1 million, or 56%, primarily as a result of increased installation volume from operations and the acquisition of Protective Alarms. Service expense increased approximately $0.4 million, or 32%, resulting from additional labor required to service a larger customer base. Net service department expense (service revenue less service expenses) as a percent of recurring revenue was unchanged at 9% in the first six months of 1997 and 1996. GROSS PROFIT Gross profit increased approximately $1.9 million, or 28%, to $8.7 million for the first six months of 1997 compared with $6.8 million for the first six months of 1996. The increase is primarily the result of an increase in recurring revenue at more favorable margins. Gross profit as a percent of total revenue decreased for the first six months of 1997 to 58% compared with 60% in the comparable period in 1996. This decrease was primarily the result of a less favorable product mix from the installation of security systems. SALES AND MARKETING EXPENSE Sales and marketing expense for the first six months of 1997 increased approximately $0.3 million, or 19%, from the comparable period in 1996. The increase was primarily the result of the acquisition of Protective Alarms and increased commissions associated with increased installation revenue. As a percent of total revenue, sales and marketing expense decreased to 15% for the first six months of 1997 versus 16% for the comparable period in 1996. This decrease is primarily attributable to the increased revenue resulting from the acquisition of customer contracts. GENERAL AND ADMINISTRATIVE General and administrative expenses for the first six months of 1997 increased approximately $0.9 million, or 23%, compared to the comparable period in 1996. The increase is primarily the result of staffing requirements at both the operating and corporate level required to facilitate the Company's growth. Additionally, the first six months of 1997 included the additional expenses of operating as a public company, costs not incurred the first six months of 1996. As a percent of total revenue, general and administrative expense for the first six months of 1997 decreased to 33% from 36% in the comparable 1996 period. This decrease was primarily the result of increased recurring revenue from acquisitions. AMORTIZATION AND DEPRECIATION Amortization and depreciation for the first six months of 1997 increased by approximately $1.7 million, or 46%, compared to the same period in 1996. This increase was primarily the result of increased acquisition activity, and increased customer installation costs. OPERATING LOSS Operating loss for the first six months of 1997 increased to approximately $3.9 million from $2.8 million in the comparable 1996 period. As a percent of total revenue, operating loss was 26% for the first six months of 1997 compared to 25% for the same period in 1996. The increased loss is primarily due to an increase in amortization and depreciation and lower installation margins which were not entirely offset by improved margins from monitoring, sales and marketing, and general and administrative expenses. INTEREST EXPENSE Interest expense, net of interest income, for the six months ended June 30, 1997 increased $0.6 million, or 47% from the comparable period in 1996. This increase is the result of increased outstanding borrowings under the Company's Revolving Credit Facility in the first six months of 1997 compared to the first six months of 1996, a higher interest rate on the refinanced subordinated debt during the same period, and amortization (over two years) of the fair value of common stock warrants issued in conjunction with the subordinated debt. THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 REVENUE Revenue for the three months ended June 30, 1997 increased approximately $2.5 million, or 42%, from the comparable period in 1996. Recurring revenue increased approximately $1.5 million, or 41%, as a result of an increase in new customer accounts resulting primarily from acquisitions and the Direct Marketing Program during the second half of 1996 and the first six months of 1997. Installation revenue increased approximately $0.7 million, or 40%, resulting primarily from the acquisition of Protective Alarms and increased activity in the Company's National Account Program. Service revenue increased approximately $0.2 million, or 55%, primarily due to the growth of the customer base. COST OF REVENUE Cost of revenue for the three months ended June 30, 1997 increased approximately $1.2 million, or 49%, from the comparable period in 1996. Monitoring expense increased approximately $0.1 million, or 26%, primarily as a result of increased labor and communication expenses required to monitor additional subscriber accounts. As a percent of recurring revenue, monitoring expense decreased from 15.2% to 13.5%, primarily a result of efficiencies related to monitoring incremental subscriber accounts. Installation expense increased approximately $0.7 million, or 59%, primarily as a result of increased installation volume from operations and the acquisition of Protective Alarms. Service expense increased approximately $0.3 million, or 50%, resulting from additional labor required to service a larger customer base. Net service department expense (service revenue less service expenses) as a percent of recurring revenue was unchanged at 9% in the three month periods ending June 30, 1997 and 1996. GROSS PROFIT Gross profit increased approximately $1.3 million, or 37%, to $4.8 million for the second quarter of 1997 compared with $3.5 million for the second quarter of 1996. The increase is primarily the result of more favorable margins on an increase in recurring revenue. Gross profit as a percent of total revenue decreased for the second quarter of 1997 to 57% compared with 59% in the comparable period in 1996. This decrease was primarily the result of a less favorable product mix from the installation of security systems. SALES AND MARKETING EXPENSE Sales and marketing expense for the three months ended June 30, 1997 increased approximately $0.3 million, or 28%, from the comparable period in 1996. The increase was primarily the result of the acquisition of Protective Alarms and increased commissions associated with increased installation revenue. As a percent of total revenue, sales and marketing expense decreased to 14% for the second quarter of 1997 versus 16% for the comparable period in 1996. This decrease is primarily attributable to the increased revenue resulting from the acquisition of customer contracts. GENERAL AND ADMINISTRATIVE General and administrative expenses for the second quarter of 1997 increased approximately $0.7 million, or 36%, compared to the comparable period in 1996. The increase is primarily the result of staffing requirements at both the operating and corporate level needed to facilitate the company's growth. Additionally, the second quarter of 1997 includes additional expenses of operating as a public company, costs not incurred in the second quarter of 1996. As a percent of total revenue, general and administrative expense for the second quarter of 1997 decreased to 34% from 35% in the comparable 1996 period. This decrease was primarily the result of increased recurring revenue from acquisitions. AMORTIZATION AND DEPRECIATION Amortization and depreciation for the second quarter of 1997 increased by approximately $1.3 million, or 69%, compared to the same period in 1996. This increase was primarily the result of increased acquisition activity, and increased customer installation costs. OPERATING LOSS Operating loss for the second quarter of 1997 increased to approximately $2.3 million from $1.3 million in the comparable 1996 period. As a percent of total revenue, operating loss increased to 27% for the second quarter of 1997 compared to 22% for the same period in 1996. The increased loss is primarily due to an increase in amortization and depreciation and lower installation margins which were not entirely offset by improved margins from monitoring, sales and marketing, and general and administrative expenses. INTEREST EXPENSE Interest expense, net of interest income, for the three months ended June 30, 1997 increased approximately $0.4 million, or 62% from the comparable period in 1996. This increase is the result of increased outstanding borrowings under the Company's Revolving Credit Facility in the second quarter of 1997 compared to the second quarter of 1996, a higher interest rate on the refinanced subordinated debt during the same period, and amortization (over two years) of the fair value of common stock warrants issued in conjunction with the subordinated debt. LIQUIDITY AND CAPITAL RESOURCES Capital Resources. Since May 1992, the Company has financed its operations and growth from a combination of borrowings under revolving credit facilities, issuance of subordinated debentures, sales of its capital stock, the recently completed Merger and internally generated cash flows. The Company's principal uses of cash are the costs associated with the marketing and installation of Direct Marketing Program systems, acquisitions of subscriber account portfolios, and interest payments on borrowings under the Revolving Credit Facility. A substantial portion of the Company's future cash flow will be used to fund the Direct Marketing Program and to service borrowings under the Revolving Credit Facility and other company debt. There can be no assurance that the Company will continue to have the ability to meet its borrowing requirements to fund its Direct Marketing Program and acquisition strategies, among other things. The Company entered into a new Revolving Credit Facility on April 15, 1997. The Revolving Credit Facility consists of a two year, $60 million, non-amortizing revolving loan agreement which converts to a five year term loan. As of June 30, 1997, the Company had approximately $44.2 million outstanding under the Revolving Credit Facility with approximately $2.0 million of availability. The Company's ability to borrow against the unused portion of the Revolving Credit Facility is limited by certain financial covenants, among other things. In connection with the Merger, Alarmguard refinanced its subordinated debt existing at April 15, 1997 with new subordinated debt with an aggregate principal amount of $4,600,000 and an interest rate of 15%. In addition, Alarmguard issued warrants to purchase approximately 216,000 shares of Alarmguard Common Stock at an exercise price of $11.11 per share which has been accounted for as a discount to the new subordinated debt and is being amortized over the life of the underlying debt instrument (two years) Additionally, the Company has a total of $6.8 million due to sellers of previous acquisitions, a portion of which is secured by various SSH notes and a letter of credit. A portion of the amounts due to sellers require the Company to make periodic principal and interest payments. The Company anticipates receipt of a cash distribution of approximately $2.2 million in October, 1997 from its minority investment in 676,050 shares of common stock in Mission West Properties ("Mission West") (AMEX: MSW). A distribution of $3.30 per common share was declared by the Mission West board of directors on August 5, 1997 and scheduled to be paid October 21, 1997. There can be no assurance that the cash distribution will be received by Alarmguard by October, 1997, or at all. The Company intends to continue to use cash flows from operations, together with borrowings under the Revolving Credit Facility, to finance the addition of subscriber accounts and capital expenditures, including a planned $0.8 million expansion of the Company's central station. Additionally, the Company, depending on future needs and the cost and availability of various financing alternatives, may from time to time seek additional debt or equity financing in the public or private markets in order to support growth of subscriber accounts through acquisitions and the Direct Marketing Program. In August 1997, the Company engaged an investment banking firm to assist the Company in raising additional capital. There can be no assurance that the Company will be able to obtain such financing on acceptable terms or at all. If cash flows from operations and monetization of other investments combined with borrowings under the Revolving Credit Facility and other borrowings are insufficient to fund the Company's growth strategies, management would curtail the Direct Marketing Program and implement a cost reduction strategy to the extent necessary to satisfy its obligations. Liquidity. During the first six months of 1997 and 1996, the Company's net cash used in operating activities was approximately $2.6 million and $4.8 million, respectively. The decrease was primarily the result of increased cash flow from various working capital accounts, and reduced Direct Marketing Program installation costs. During the first six months of 1997 and 1996, the Company's net cash used in investing activities was approximately $6.7 million and $1.2 million, respectively. This increase was primarily the result of larger acquisitions in the first six months of 1997 compared with 1996 which were partially offset by cash received in the Merger. During the first six months of 1997 and 1996, the Company's net cash provided by financing activities was approximately $9.5 million and $5.4 million, respectively. This increase was primarily the result of increased borrowings under the Revolving Credit Facility and elimination of monthly principal payments on the Revolving Credit Facility in 1997. Alarmguard employs two additional operating measures, EBITDA and Adjusted EBITDA, which management believes enhances an understanding of the Company's financial performance. These calculations do not represent cash flows from operations as defined by generally accepted accounting principals and should not be construed as an alternative to net income. EBITDA represents earnings before interest and income taxes plus amortization and depreciation charges. EBITDA has been used by Alarmguard's lenders to determine current borrowing capacity and to estimate the long-term value of companies with recurring revenues. EBITDA for the six months ended June 30, 1997 and 1996, amounted to $1.5 million and $0.9 million respectively. EBITDA for the three months ended June 30, 1997 and 1996, amounted to $0.8 million and $0.5 million, respectively. Adjusted EBITDA is derived by adding Direct Marketing Program expenses incurred, net of Direct Marketing Program revenues earned, to EBITDA. This calculation enhances comparison of Alarmguard's results to those of other security alarm companies that grow primarily through acquisition of subscriber accounts rather than investing in internal growth programs. Adjusted EBITDA was $2.7 million and $1.8 million for the six months ended June 30, 1997 and 1996, respectively. Adjusted EBITDA was $1.4 million and $1.0 million for the three months ended June 30, 1997 and 1996, respectively. During the first six months of 1997 and 1996, the Company had net losses of approximately $6.7 million and approximately $4.2 million, respectively. During the three months ended June 30, 1997 and 1996, the Company had net losses of approximately $4.2 million and approximately $2.0 million, respectively. Such losses reflect, among other factors, the expenses associated with internally generated subscriber accounts, the charges incurred by the Company for amortization of purchased subscriber accounts and the interest incurred on its indebtedness. Such expenses, charges and interest will increase as the Company continues to internally generate new subscriber accounts and to purchase subscriber accounts, or if the Company's indebtedness increases or if interest rates increase. The Company expects to continue to incur net losses for the foreseeable future. The Company has had, and expects to continue to have, a working capital deficit. At June 30, 1997, the Company had a working capital deficit of approximately $11.2 million. There are two principal categories of current liabilities that cause the Company to have a working capital deficit: (i) "deferred revenue", which represents billings by the Company in advance of services performed; and (ii) "purchase holdbacks", which represent the aggregate of a portion of the purchase price of subscriber accounts which, if the actual attrition rate exceeds the guaranteed rate at the end of such 9 - 12 month holdback period, is applied to adjust the effective purchase price downward. Recent FASB Pronouncements. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted as of December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, primary earnings per share will be replaced with basic earnings per share. In computing basic earnings per share, the dilutive effect of common stock equivalents will be excluded. The impact of Statement No. 128 on the computation of the Company's primary earnings per share (to be replaced with basic earnings per share) and fully diluted earnings per share is not expected to be material. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company was not involved in any material legal proceedings during the six months ended June 30, 1997 which management believes would have a material or adverse effect on the financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES Pursuant to the Merger with Triton, and in consideration of the Merger, SSH's stockholders received an aggregate of approximately 2,877,368 new shares of common stock of Triton, representing approximately 57% of the common stock outstanding upon consummation of the Reverse Stock Split and the Merger. On May 28, 1997 the Company consummated the acquisition of Absolute Life Safety and Security, Inc. ("Absolute") for approximately $1,412,000. The consideration provided for in the acquisition was $250,000 in cash and up to 189,021 shares of the Company's common stock, of which 57,418 were placed in escrow and are subject to certain post closing adjustments. The common stock issued was based on a ten day average closing price of $6.15 per share. On June 20, 1997, the Company consummated the acquisition of Telcoa International, Inc. ("Telcoa") for approximately $4,250,000. The consideration provided for in the acquisition was $1,600,000 in cash and up to 378,869 shares of the Company's common stock, of which 303,820 were placed in escrow and are subject to certain post closing adjustments. The common stock issued was based on a ten day average closing price of $6.9939 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. The registrant's annual shareholder meeting was held on April 14, 1997. At the annual meeting, the stockholders of the Company approved all of the proposals submitted to them for approval. b. Management's nominees for directors as listed in the proxy statement were all elected at the annual meeting and there was no solicitation in opposition thereto. (c)(1) The results of Management's proposal to approve the Agreement and Plan of Merger by and among Triton Group Ltd., Triton Acquisition Corp. and Security Systems Holdings, Inc. For: 12,992,116 Against: 50,309 Abstain: 3,231 Broker non-votes: 3,987,021 (c)(2) The results of Management's proposal to approve an amendment to the Registrant's Charter to change the name of Triton Group Ltd. to Alarmguard Holdings, Inc. For: 12,992,300 Against: 49,121 Abstain: 4,235 Broker non-votes: 3,987,021 (c)(3) The results of Management's proposal to approve an amendment to the Registrant's Charter to authorize the Triton Board to issue Triton Preferred Stock in one or more classes or series, having such rights, privileges, designations and preferences as may be determined by the Triton Board. For: 11,927,685 Against: 1,060,089 Abstain: 57,882 Broker non-votes: 3,987,021 (c)(4) The results of Management's proposal to approve an amendment to the Registrant's Charter to change the authorized capital stock of Triton to 25 million shares of Triton Common Stock and 5 million shares of Triton Preferred Stock. For: 12,967,686 Against: 71,148 Abstain: 6,822 Broker non-votes: 3,987,021 (c)(5) The results of Management's proposal to approve an amendment to the Registrant's charter to effect the one-for-ten Reverse Stock Split of the Triton Common Stock. For: 12,736,695 Against: 357,387 Abstain: 17,577 Broker non-votes: 3,921,018 (c)(6) The results of Management's proposal to approve an amendment to the Registrant's charter to classify the directors of Triton into three classes, with staggered three-year terms. For: 11,731,705 Against: 1,298,909 Abstain: 15,042 Broker non-votes: 3,987,021 (c)(7) The results of Management's proposal to approve an amendment to the Registrant's charter to eliminate the ability of Triton stockholders to act by written consent. For: 11,567,970 Against: 1,410,401 Abstain: 67,285 Broker non-votes: 3,987,021 (c)(8) The results of Management's proposal to approve an amendment to the Registrant's charter to eliminate the ability of Triton stockholders to call a special meeting of the stockholders. For: 11,615,807 Against: 1,410,433 Abstain: 19,416 Broker non-votes: 3,987,021 (c)(9) The results of Management's proposal to elect four persons to Triton's Board of Directors. For: 16,981,535 Withheld: 51,142 (c)(10)The results of Management's proposal to approve the 1997 Stock Incentive Plan. For: 15,578,464 Against: 1,332,037 Abstain: 56,164 Broker non-votes: 66,012 d. Not applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibits The following exhibits are filed with this quarterly report on form 10-Q Exhibits Number Exhibit 3.1 Amended and Restated Certificate of Incorporation incorporated by reference from the Registration Statement on Form S-4 10.1 Second Amended and Restated Term Loan and Acquisition Credit Agreement 10.2 Note purchase agreement 10.3 Protective Alarms, Inc. Stock Purchase and Sale Agreement, as amended (incorporated by reference to current report on Form 8-K dated May 1, 1997) 10.4 1997 Long Term Stock Incentive Plan incorporated by reference from the Registration Statement on Form S-4 27.1 Financial data schedule (b) Reports on form 8-K On April 15, 1997, the Company filed a current report on Form 8-K with respect to its merger with Triton Group Ltd. On May 1, 1997, the Company filed a current report on Form 8-K with respect to its acquisition of Protective Alarms, Inc. The Company filed a current report on Form 8-K/A dated April 15, 1997 with respect to its merger with Triton Group Ltd., which included pro forma financial information. The Company filed a current report on Form 8-K/A dated May 1, 1997 with respect to its acquisition of Protective Alarms, Inc., which included pro forma financial information. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALARMGUARD HOLDINGS, INC. Registrant DATE: AUGUST 13, 1997 /S/ DAVID HEIDECORN EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER EX-10.1 2 SECOND AMENDED AND RESTATED TERM LOAN AND ACQUISITION CREDIT AGREEMENT by and among ALARMGUARD, INC., as Borrower, SECURITY SYSTEMS HOLDINGS, INC. AND TRITON GROUP LTD. (TO BE RENAMED ALARMGUARD HOLDINGS, INC.), as the Guarantors, BANK OF BOSTON CONNECTICUT, GENERAL ELECTRIC CAPITAL CORPORATION, IBJ SCHRODER BANK & TRUST COMPANY AND THE OTHER BANKS AND LENDERS WHICH MAY BECOME A PARTY TO THIS AGREEMENT, as the Lenders, BANK OF BOSTON CONNECTICUT as the Administrative Agent, and GENERAL ELECTRIC CAPITAL CORPORATION, as the Documentation Agent. AS OF APRIL 15, 1997 SECOND AMENDED AND RESTATED TERM LOAN AND ACQUISITION CREDIT AGREEMENT This SECOND AMENDED AND RESTATED TERM LOAN AND ACQUISITION CREDIT AGREEMENT (the "Agreement") is made as of this 15th day of April, 1997 by and among ALARMGUARD, INC., a Delaware corporation, with its chief executive office located at 125 Frontage Road, Orange, Connecticut 06477 ("Borrower"), the Guarantors which are or may become parties to this Agreement, the banks, financial institutions and other lenders which are or may become parties to this Agreement (individually, a "Lender" and collectively, the "Lenders"), BANK OF BOSTON CONNECTICUT, a Connecticut savings bank, with its head office located at 31 Pratt Street, Hartford, Connecticut 06103 as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, with an office located at 201 High Ridge Road, Stamford, Connecticut 06927-5100 as the Documentation Agent for the Lenders (in such capacity, the "Documentation Agent"). W I T N E S S E T H: Borrower is currently a direct wholly-owned subsidiary of Security Systems Holdings, Inc., a Delaware corporation ("SSH"). Prior to or concurrently with the execution of this Agreement, SSH will undergo a merger with Triton Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary of Triton Group, Ltd., a Delaware corporation (the "Triton Merger"), with SSH continuing as the surviving corporation after the Triton Merger. In connection with the Triton Merger, Triton Group, Ltd. will immediately thereafter change its name to Alarmguard Holdings, Inc. (as so renamed, "Alarmguard Holdings"). Borrower, Bank of Boston Connecticut and IBJ Schroder Bank & Trust Company entered into a certain Amended and Restated Term Loan and Acquisition Credit Agreement dated as of September 29, 1994 and amended from time to time thereafter (as amended and in effect from time to time, the "Original Credit Agreement") pursuant to which Bank of Boston Connecticut and IBJ Schroder Bank & Trust Company (such Lenders being referred to in such capacity, the "Existing Lenders") agreed to make loans and advances to Borrower. Upon the execution of this Agreement, Borrower is currently indebted to the Existing Lenders in the aggregate principal amount of $31,835,830.00 (the "Existing Loans"), exclusive of accrued and unpaid interest and other amounts due and payable under the Original Credit Agreement. Borrower has requested that the Lenders amend and restate the terms and conditions of the Original Credit Agreement, inter alia, to continue the Existing Loans, to increase the amount of credit available to Borrower thereunder, to amend the purposes for which Borrower is permitted to use the proceeds of loans and advances thereunder, to make General Electric Capital Corporation a party thereto and a lender thereunder (General Electric Capital Corporation being referred to in such capacity as the "Additional Lender"), to substitute Bank of Boston Connecticut for IBJ Schroder Bank & Trust Company as the Administrative Agent for the Lenders and to appoint General Electric Capital Corporation as the Documentation Agent for the Lenders. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Lenders, the Administrative Agent, the Documentation Agent and Borrower hereby agree that the Original Credit Agreement shall (subject to the satisfaction of the conditions set forth in Section 5 hereof) be amended and restated as follows: SECTION 1. DEFINITIONS All capitalized terms used in this Agreement, the Notes or the Other Documents, or in any certificate, report or other document, instrument or agreement executed or delivered pursuant hereto and thereto (unless otherwise indicated therein) shall have the meanings ascribed to such terms below. Section 1.1. "Acquisition" means the Pro Acquisition and each other acquisition of the assets or Capital Stock of a Person made by Borrower or a Subsidiary of Borrower as permitted under Section 6.3. hereof. Section 1.2. "Acquisition Documents" means the documents, agreements and instruments executed and delivered in connection with an Acquisition. Section 1.3. "Acquisition Loan" means each Revolving Loan obtained by Borrower to finance the purchase price for, and the reasonable fees, expenses and costs, including integration costs, incurred by Borrower in connection with, an Acquisition. Section 1.4. "Additional Lender" shall have the meaning set forth in the Preamble hereof. Section 1.5. "Adjusted Eurodollar Rate" means, as applied to any Interest Period for a Eurodollar Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula: AER = [ IOR ] * [1.00 - RP] AER = Adjusted Eurodollar Rate IOR = Interbank Offered Rate RP = Reserve Percentage * The amount in brackets shall be rounded upwards, if necessary to the next higher 1/100 of 1%. Where: "Interbank Offered Rate" applicable to any Eurodollar Loan for any Interest Period means the rate of interest determined by the Administrative Agent to be the prevailing rate per annum at which deposits in U.S. dollars are offered to the Administrative Agent by first-class banks in the interbank Eurodollar market in which it regularly participates on or about 10:00 a.m. (Boston, Massachusetts time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Loan to which such Interest Period is to apply for a period of time approximately equal to such Interest Period. "Reserve Percentage" applicable to any Interest Period means the rate (expressed as a decimal) applicable to any member bank of the Federal Reserve System during such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency or marginal reserve requirement) of such member bank with respect to "Eurocurrency liabilities" as that terms is defined under such regulations. Section 1.6. "Administrative Agent" shall have the meaning set forth in the Preamble hereof and shall include any successor to the Administrative Agent appointed pursuant to Section 10.10. hereof. Section 1.7. "Administrative Questionnaire" shall have the meaning set forth in Section 10.17. hereof. Section 1.8. "Affiliate" means any Person (i) which directly or indirectly controls, or is controlled by, or is under common control with, Borrower or any Subsidiary of Borrower; (ii) which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock of Borrower or any Subsidiary of Borrower or ten percent (10%) or more of the voting stock of which is directly or indirectly beneficially owned or held by Borrower or any Subsidiary of Borrower; or (iii) which is an officer, director, joint venturer or partner of any Person referred to in clause (i) or (ii) above. The term "control" (and its correlative meanings "controlled by" and "under common control with") as used in this Section 1.8. means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise. Notwithstanding any provision of this Section 1.8. to the contrary, the Administrative Agent, the Documentation Agent and the Lenders shall not be considered an Affiliate of any Credit Party for purposes of this Agreement. Section 1.9. "Affiliate Subordination Agreement" means each subordination agreement executed by an Affiliate of Borrower in favor of the Administrative Agent and the Lenders with respect to any Indebtedness due by Borrower to such Affiliate in substantially the form of Exhibit F-1 attached hereto by SSH, as any such Affiliate Subordination Agreement may be amended, supplemented, modified or confirmed from time to time. Section 1.10. "AG Holdings" means AG Holdings Co., Inc., a Delaware corporation. Section 1.11. "AG Holdings Merger" means the merger of AG Holdings with and into SSH completed prior to or concurrently with the execution of this Agreement. Section 1.12. "Agreement" means this Second Amended and Restated Term Loan and Acquisition Credit Agreement, including all schedules and exhibits attached hereto, and any and all amendments, modifications and supplements hereto. Section 1.13. "Alarmguard Holdings" shall have the meaning set forth in the Preamble hereof. Section 1.14. "Alarmguard Holdings Guarantee" means the Guarantee Agreement of even date herewith executed by Alarmguard Holdings in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-2 attached hereto, as such Alarmguard Holdings Guarantee may be amended, supplemented, modified or confirmed from time to time. Section 1.15. "Alarmguard Holdings Pledge" means the Pledge Agreement of even date herewith executed by Alarmguard Holdings in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-3 attached hereto, as such Alarmguard Holdings Pledge may be amended, supplemented, modified or confirmed from time to time. Section 1.16. "Applicable Lending Office" means, for each Lender and for each type of Loan, the lending office of such Lender designated for such type of Loan as set forth on Schedule 1.16. attached hereto, as said Schedule 1.16. is amended, supplemented or modified from time to time, as the office by which its Loans of such type are to be made and maintained. Section 1.17. "Asset Sale" means any sale, transfer or other disposition by Borrower or any of its Subsidiaries to any Person (other than to Borrower or a Subsidiary) of any asset (including, without limitation, any Capital Stock of another Person, but excluding the sale by such Person of its own Capital Stock) of Borrower or such Subsidiary. Section 1.18. "Assignment and Acceptance" shall have the meaning set forth in Section 13.1. hereof. Section 1.19. "Bankruptcy Code" means Title 11 of the United States Code, entitled "Bankruptcy", as amended from time to time, and all rules and regulations promulgated thereunder. Section 1.20. "Base Rate" means the greater of (i) the rate of interest announced from time to time by The First National Bank of Boston at its head office located at 100 Federal Street, Boston, Massachusetts 02100 as its "Base Rate", or (ii) the Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to the next 1/16 of 1%). Section 1.21. "Base Rate Loan" means any Loan bearing interest at a rate determined by reference to the Base Rate. Section 1.22. "Base Rate Margin" means a percentage per annum determined as set forth in Section 2.3.5. hereof. Section 1.23. "Borrower" shall have the meaning set forth in the Preamble hereof. Section 1.24. "Borrower Pledge Agreement" means the Pledge Agreement of even date herewith executed by Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-4 attached hereto, as such Borrower Pledge Agreement may be amended, supplemented, modified or confirmed from time to time. Section 1.25. "Borrower Security Agreement" means the Amended and Restated Security Agreement of even date herewith executed by Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-5 attached hereto, as such Borrower Security Agreement may be amended, supplemented, modified or confirmed from time to time. Section 1.26. "Borrowing Base" means, as of any date as of which the amount thereof shall be determined, an amount which is equal to RMR as of such date multiplied by 22.5. Section 1.27. "Business Day" means, in the case of a Eurodollar Loan, any day in which dealings in foreign currencies and exchange between lenders may be carried on in the place where the Eurodollar Office is located and in Boston, Massachusetts and Hartford, Connecticut and, in all other cases, any day other than a Saturday, Sunday, legal holiday or other day on which lenders in the State of Connecticut or the Commonwealth of Massachusetts are required or permitted by law to close. Section 1.28. "Capital Expenditures" means, without duplication, for any period, the aggregate of all expenditures made by Borrower and its Subsidiaries that, in conformity with GAAP, are required to be included in the "additions to property, plant, equipment" or similar fixed asset account reflected within the consolidated Financial Statements of Borrower and its Subsidiaries. Section 1.29. "Capital Lease" means any lease of any property (whether real, personal or mixed) that, in conformity with GAAP, should be accounted for as a capital lease. Section 1.30. "Capital Stock" means any and all shares, interests, participations or other equivalents, however designated, of the capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. Section 1.31. "Cash Proceeds" means, with respect to any Asset Sale, the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by Borrower and/or any of its Subsidiaries from such Asset Sale. Section 1.32. "Change in Control Event" means any event which results in (i) Alarmguard Holdings ceasing to own directly 100% on a fully diluted basis of the Capital Stock of SSH (other than as a result of the consolidation of Alarmguard Holdings with SSH), (ii) SSH or Alarmguard Holdings ceasing to own directly 100% on a fully diluted basis of the Capital Stock of the Borrower, or (iii) any Person (other than a Continuing Shareholder) or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) (other than a group of the Continuing Shareholders) directly or indirectly having directly or indirectly acquired beneficial or record ownership of more than 20% of the aggregate ordinary voting power represented by the issued and outstanding shares of the Capital Stock of Alarmguard Holdings (including, but not being limited to, the acquisition of such beneficial or record ownership by way of proxy, voting trust, voting agreement or stock pledge) or (iv) the board of directors of Alarmguard Holdings ceasing to consist of a majority of Continuing Directors. Section 1.33. "Closing Date" means the date hereof or, if later, the date on which all conditions precedent to the amendment and restatement of the Original Credit Agreement and the making of the initial Extension of Credit are satisfied or waived. Section 1.34. "Code" means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect. Section 1.35. "Collateral" means all collateral received or delivered as security for the Obligations pursuant to the Security Documents, and any properties and interests provided in addition to or in substitution for any of the foregoing. Section 1.36. "Collateral Disclosure List" means each list completed by Borrower for the purpose of disclosing certain information with respect to the Collateral in substantially the form attached hereto as Exhibit F-6, as any such Collateral Disclosure List may be amended, supplemented or modified from time to time. Section 1.37. "Commitment" means, with respect to each Lender, at any time, such Lender's several obligation to make Revolving Loans, which obligation shall not exceed, in the case of each Lender, an amount equal to the Total Commitment Amount at such time multiplied by such Lender's Commitment Percentage. Section 1.38. "Commitment Percentage" means, with respect to each Lender, the percentage set forth opposite such Lender's name on Schedule 1.38. attached hereto, as such Schedule 1.38. may be amended, modified and/or substituted from time to time by the Administrative Agent in accordance with Section 13.2. hereof. Section 1.39. "Consolidated Current Assets" means, as of any date as of which the amount thereof shall be determined, all amounts that should, in accordance with GAAP, be included as current assets on a consolidated balance sheet of Borrower and its Subsidiaries prepared as of such date; provided, however, that such amounts shall not include (a) cash or cash equivalents, (b) any amounts for any Indebtedness owing by an Affiliate of Borrower, unless such Indebtedness arose in connection with the sale of goods or other property in the ordinary course of business and would otherwise constitute current assets in conformity with GAAP, (c) any Capital Stock issued by an Affiliate of Borrower, (d) the cash surrender value of any life insurance policy or (e) any Consolidated Intangibles. Section 1.40. "Consolidated Current Liabilities" means, as of any date as of which the amount thereof shall be determined, all amounts that should, in accordance with GAAP, be included as current liabilities (inclusive of deferred revenue) on the consolidated balance sheet of Borrower and its Subsidiaries prepared as of such date, plus, to the extent not already included therein, (a) all Indebtedness of any such Person that is payable upon demand or within one (1) year from such date of determination unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary to a date more than one (1) year from such date of determination and (b) all reserves in respect of liabilities or Indebtedness payable on demand or, at the option of the Person to whom such Indebtedness is owed, within one (1) year from such date of determination, the validity of which is contested at such date, but excluding any payments in respect of any Indebtedness of any such Person (whether installment, serial maturity or sinking fund payments or otherwise) having an original term of more than one (1) year required to be made not more than one (1) year after such date of determination. Section 1.41. "Consolidated EBITDA" means, in respect of Borrower and its consolidated Subsidiaries, for any period, the sum for such period of (a) Consolidated Net Income, (b) the sum of provisions for taxes, interest expense and depreciation and amortization expense used in determining such Consolidated Net Income and (c), without duplication of any amounts set forth in subsection (b) hereof, the Direct Marketing Program Net Loss for such period. Section 1.42. "Consolidated Intangibles" means, as of any date as of which the amount thereof shall be determined, all assets of Borrower and its Subsidiaries, determined on a consolidated basis as of such date, that would be classified as intangible assets in accordance with GAAP, but in any event including, without limitation, items such as (a) unamortized debt discount and expense, (b) unamortized organization and reorganization expense, (c) costs in excess of the net asset value of acquired companies, (d) patents, trade and service marks and names, copyrights, (e) research and development expenses except prepaid expenses, (f) all reserves not already deducted from assets; (g) any write-up in the book value of assets resulting from any reevaluation thereof (other than revaluations arising out of foreign currency valuations in accordance with GAAP) subsequent to the date of the Financial Statements referred to in Section 4.7 hereof, and (h) the value of any minority interests in any Person. Section 1.43. "Consolidated Net Income" means, for any period, the consolidated net income (or deficit) of Borrower and its consolidated Subsidiaries for such period, determined in accordance with GAAP but excluding (a) the income (or deficit) of any Person accrued prior to the date on which it becomes a Subsidiary or is merged into or consolidated with Borrower or any Subsidiary, (b) the income (or deficit) of any Person (other than a Subsidiary) in which Borrower or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by Borrower or such Subsidiary in the form of dividends or similar distributions, (c) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation or Requirement of Law applicable to such Subsidiary, (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (e) any aggregate net gain (but not aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets (such term to include all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), (f) any write-up of any asset, (g) any net gain from the collection of the proceeds of life insurance policies, (h) any gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of Borrower or any Subsidiary, (i) in the case of a successor to Borrower by merger or consolidation or as a transferee of its assets, any earnings of the successor corporation prior to such merger, consolidation or transfer of assets, (j) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary and (k) any extraordinary gains or losses other than those described in (a) through (j) above. Section 1.44. "Consolidated Senior Debt" means, as of any date or for any period as of which the amount thereof shall be determined, the aggregate Indebtedness of Borrower and its Subsidiaries to the Lenders under this Agreement as of such date or during such period determined on a consolidated basis. Section 1.45. "Consolidated Total Debt Service" means, for any period, the sum of (a) the amounts deducted for Consolidated Total Interest in determining Consolidated Net Income for such period and (b) the amounts of scheduled payments of principal of Indebtedness of Borrower and its consolidated Subsidiaries during such period. Section 1.46. "Consolidated Total Debt" means, as of any date or for any period as of which the amount thereof shall be determined, the aggregate Indebtedness of any Person and its Subsidiaries as of such date or during such period determined on a consolidated basis but excluding, in the case of Borrower and its consolidated Subsidiaries, Indebtedness evidenced by the Steffanato Note. Section 1.47. "Consolidated Total Interest" means, for any period, the amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or similar caption (including without limitation, imputed interest included in payment under Capital Leases) on a consolidated income statement of Borrower and its consolidated Subsidiaries for such period, less the amount of any interest earned during such period but excluding interest accreted in respect of the Steffanato Note. Section 1.48. "Contingent Obligation" means, as applied to any Credit Party or any of its Subsidiaries, any guarantee, endorsement or other contingent or surety obligation with respect to obligations of any other Person, whether or not reflected on the consolidated balance sheet of such Credit Party and its Subsidiaries, including any obligation to furnish funds, directly or indirectly (whether by virtue of partnership arrangements, by agreement to keep-well or otherwise), through the purchase of goods, supplies or services, or by way of stock purchase, capital contribution, advance or loan, or to enter into a contract for any of the foregoing, for the purpose of payment of obligations of any other Person. Section 1.49. "Continuing Directors" means the directors of Alarmguard Holdings on the Closing Date as set forth on Schedule 1.49. attached hereto and each other director elected or appointed after the Closing Date if such director's nomination or appointment to the board of directors is recommended by a majority of the then Continuing Directors. Section 1.50. "Continuing Shareholders" means the Persons possessing shares of the Capital Stock of Alarmguard Holdings as of the Closing Date and listed on Schedule 1.50. attached hereto. Section 1.51. "Contractual Obligation" means, as applied to any Person, any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. Section 1.52. "Control" means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise. "Controlling" and "Controlled" shall have meanings correlative thereto. Section 1.53. "Controlled Group" means all trades or businesses (whether or not incorporated) under common control that together with Borrower or any Subsidiary, are treated as a single employer under Section 413(b) or 413(c) of the Code or Section 4001 of ERISA. Section 1.54. "Credit Parties" means Borrower, each of its Subsidiaries, SSH and Alarmguard Holdings, collectively. Section 1.55. "Credit Party" means Borrower, each of its Subsidiaries, SSH or Alarmguard Holdings, individually. Section 1.56. "Customer Contracts" means contracts and agreements (x) which have been duly executed by and between Borrower and its customers, or any Subsidiary of Borrower and its customers (other than Protective Alarms of Canada, Inc. following the Pro Acquisition), for regular and ongoing electrical protection, monitoring, closed circuit television and access control services and maintenance, testing and other related services and (y) which (i) have not been canceled by Borrower or any Subsidiary of Borrower in accordance with Borrower's cancellation policies and procedures in effect on the Closing Date as set forth in the Price Waterhouse Report, (ii) are not subject to cancellation in accordance with such policies and procedures or (iii) have not otherwise been canceled or terminated by Borrower or a customer. Section 1.57. "Default" means an event or condition that, but for the lapse of time, the giving of notice, or both, would constitute an Event of Default if that event or condition was not cured or removed within any applicable grace or cure period. Section 1.58. "Default Rate" means the rate of interest determined by increasing the rate of interest otherwise chargeable under this Agreement to a rate which shall be the lower of (i) the highest rate allowed by law or (ii) two percentage points (2.0%) above the rate of interest which would otherwise be in effect under this Agreement. Section 1.59. "Defaulting Lender" shall have the meaning set forth in Section 2.6.2. hereof. Section 1.60. "Deferred Purchase Price Obligations" means any and all obligations of any Credit Party other than Borrower or a Subsidiary of Borrower incurred as permitted under Section 8.1.(g) hereof for amounts deferred or withheld in respect of the purchase price for any Acquisition, including amounts withheld as potential set-offs against Customer Contract terminations, purchase price adjustments or otherwise. Section 1.61. "Direct Marketing Capital Expenditures" means, without duplication, for any period, the aggregate of all Capital Expenditures made by Borrower in connection with the Direct Marketing Program. Section 1.62. "Direct Marketing Program" means an internal marketing program conducted by Borrower (and formerly conducted by SSH for the benefit of Borrower), the costs and expenses of which are separately identified and segregated for accounting purposes in a manner satisfactory to the Administrative Agent and the Lenders for the purpose of generating new Customer Contracts through telemarketing or other marketing techniques by making an investment in the initial installation of a residential or small commercial security alarm monitoring system. Section 1.63. "Direct Marketing Program Costs" means, as of any date as of which the amount thereof shall be determined, the aggregate amount of all Direct Marketing Program Capital Expenditures as of such date plus the Direct Marketing Program Net Loss as of such date. Section 1.64. "Direct Marketing Program Net Loss" means, for any period, the difference between (i) the revenue derived from the Direct Marketing Program during such period less (ii) all expenses (excluding depreciation and amortization for such period relating to the Direct Marketing Program) incurred by Borrower in connection with the Direct Marketing Program during such period, all of the foregoing being calculated in accordance with GAAP. Section 1.65. "Dividend" or "Dividends" means the payment of any dividend or other distribution in respect of the Capital Stock of a Person in cash or other property (excepting distribution in the form of such Capital Stock) or the redemption or acquisition of any Capital Stock or security of a Person. Section 1.66. "Documentation Agent" shall have the meaning set forth in the Preamble hereof. Section 1.67. "Dollars" and "$" means dollars in the lawful currency of the United States of America. Section 1.68. "Encumbrance or "Encumbrances" means any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest under a financing lease or any analogous arrangements in any Credit Party's properties or assets, intended as, or having the effect of, security. Section 1.69. "Environmental Certificate" shall have the meaning set forth in Section 5.2.11. hereof. Section 1.70. "Environmental Laws" means any and all applicable laws, statutes, ordinances, rules, regulations, orders, or determinations of any Governmental Authority pertaining to the environment, including without limitation, the Clean Water Act, the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), and as may be further amended (all together herein called "CERCLA"), the Federal Water Pollution Control Amendments, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Hazardous Materials Transportation Act of 1975, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, and any comparable or similar applicable environmental laws of the State of Connecticut and any other state in which Borrower maintains business premises. Likewise, the terms "hazardous substance," "release," and "threatened release" herein referenced in connection with Environmental Laws shall have the meanings specified in CERCLA and the terms "solid waste" and "dispose" (or "disposed") shall have the meanings specified in RCRA; provided, however, in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment, and provided further that, to the extent the laws of any state which establish a meaning for "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply to business operations conducted in that particular state. Section 1.71. "ERISA" means the Employee Retirement Income Security Act of 1974 and the rules and regulations promulgated thereunder; collectively, as the same may from time to time be supplemented or amended and remain in effect. Section 1.72. "Eurodollar Loan" means any Loan which is bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate. Section 1.73. "Eurodollar Margin" means a per annum percentage determined in the manner set forth in Section 2.3.5. hereof. Section 1.74. "Eurodollar Tranche" means all Eurodollar Loans with respect to which the Interest Periods applicable thereto begin on the same date and end on the same later date (whether or not such Loans were originally made on the same day). Section 1.75. "Event of Default" shall have the meaning set forth in Section 11. hereof. Section 1.76. "Excess Cash Flow" means, for any Fiscal Year, all amounts which would be included in Consolidated Net Income of Borrower and its Subsidiaries during such Fiscal Year, plus, (a) the sum of (i) to the extent that such amounts have been deducted in determining Consolidated Net Income for such fiscal period, all amounts attributable to depreciation and/or amortization and other non-cash charges to Consolidated Net Income and (ii) the decrease, if any, in the amount of the excess of Consolidated Current Assets over Consolidated Current Liabilities at the end of such Fiscal Year compared to the amount of the excess of Consolidated Current Assets over Consolidated Current Liabilities at the end of the immediately preceding Fiscal Year, minus, (b) the sum of (i) the amount of all regularly scheduled payments of principal of the Loans actually made during such Fiscal Year and the amount of any voluntary prepayment of principal of the Loans made during such Fiscal Year, (ii) the amount of Capital Expenditures permitted by Section 8.9. actually made during such Fiscal Year, (iii) the amount of payments made in respect of Capital Leases actually made during such Fiscal Year and (iv) the increase, if any, in the amount of the excess of Current Consolidated Assets over Consolidated Current Liabilities at the end of such Fiscal Year compared to the amount of the excess of Consolidated Current Assets over Current Consolidated Liabilities at the end of the immediately preceding Fiscal Year. Section 1.77. "Exchange Act" means the Securities Exchange Act of 1934, as amended. Section 1.78. "Existing Lenders" shall have the meaning set forth in the Preamble hereof. Section 1.79. "Existing Loans" shall have the meaning set forth in the Preamble hereof. Section 1.80. "Extension of Credit" means any Loan or other extension of credit made by the Lenders to Borrower under this Agreement or the Other Documents. Section 1.81. "Facility Fee" shall have the meaning set forth in Section 2.4.1. hereof. Section 1.82. "Federal Funds Effective Rate" means for any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three (3) Federal funds brokers of recognized standing selected by the Administrative Agent. Section 1.83. "Fees" means the Facility Fee and any other fees payable under this Agreement to the Lenders, including, but not being limited to, any fees payable under Section 2.3.7. and Section 2.5.2., but excluding any fees payable to the Administrative Agent for its own account. Section 1.84. "Financial Statement" or "Financial Statements" means, as of any date, or with respect to any period, as applicable, a financial report or reports consisting of (i) a balance sheet; (ii) an income statement; (iii) a statement of cash flow; and (iv) a statement of changes in stockholders' equity. Section 1.85. "Fiscal Quarter" means each fiscal period of Borrower and its Subsidiaries ending on each March 31, June 30, September 30 and December 31 in each Fiscal Year. Section 1.86. "Fiscal Year" means each fiscal period of Borrower and its Subsidiaries commencing on January 1 in each calendar year and ending on December 31 in such year. Section 1.87. "Forecasts" shall have the meaning set forth in Section 4.8. hereof. Section 1.88. "GAAP" means generally accepted accounting principles in the United States of America as in effect on the Closing Date, consistently applied but subject to adjustment in accordance with Section 14.20. hereof. Section 1.89. "Governing Documents" means, as to any Person, the articles or certificate of incorporation and by-laws or other organic organizational or governing documents of such Person. Section 1.90. "Governmental Authority" means any Federal, state, local or foreign court, commission or tribunal, or governmental, administrative or regulatory agency, department, authority, instrumentality or other body exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government. Section 1.91. "Government Obligations" means securities which are general obligations of the United States of America or which are unconditionally guaranteed by the United States of America as to timely payment of principal and interest. Section 1.92. "Guarantee" means the Alarmguard Holdings Guarantee, the SSH Guarantee or any Subsidiary Guarantee, individually. Section 1.93. "Guarantees" means the Alarmguard Holdings Guarantee, the SSH Guarantee and each Subsidiary Guarantee, collectively. Section 1.94. "Guarantor" means Alarmguard Holdings, SSH or any Subsidiary of Borrower, individually. Section 1.95. "Guarantors" means Alarmguard Holdings, SSH and the Subsidiaries of Borrower, collectively. Section 1.96. "Hazardous Materials" means (i) any chemical, compound, material, mixture or substance that is now or hereafter defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "restricted hazardous waste", or "toxic substances" or terms of similar import under any applicable Federal, state or local law or under the regulations adopted or promulgated pursuant thereto, including, without limitation, Environmental Laws; (ii) any oil, petroleum or petroleum derived substance, any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, any flammable substances or explosives, any radioactive materials, any hazardous wastes or substances, any toxic wastes or substances or any other materials or pollutants which (a) could pose a hazard to any properties or assets of Borrower or its Subsidiaries or (b) could cause any of such properties or assets to be in violation of any Environmental Laws; (iii) asbestos in any form, urea formaldehyde foam insulation, electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million; and (iv) any other chemical, material or substance, exposure to, or disposal of, which is now or hereafter prohibited, limited or regulated by any Federal, state or local governmental body, instrumentality or agency. Section 1.97. "Indebtedness" means, as of any date as applied to any Person, without duplication: (a) all indebtedness for borrowed money (whether by loan or the issuance and sale of debt securities); (b) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (d) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six months from the date the obligation is incurred or is evidenced by a note or similar written instrument; (e) obligations of such Person under interest rate swaps, caps, collars and similar arrangements and (f) all indebtedness secured by any Encumbrance on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person but Indebtedness shall not include Deferred Purchase Price Obligations or amounts payable by Alarmguard Holdings to the Internal Revenue Service in an aggregate amount not to exceed $977,000.00. Section 1.98. "Interest Period" means, (a) with respect to each Eurodollar Loan, the period commencing on the date of the making or continuation of, or conversion to, such Eurodollar Loan and ending one (1), two (2), three (3) or six (6) months thereafter, as Borrower may elect in the applicable Notice; and (b) with respect to each Base Rate Loan, the period commencing on the date of the making or continuation of, or conversion to, such Base Rate Loan and ending on the Maturity Date or such earlier date as the Borrower may elect in the applicable Notice; provided, however, that: (i) any Interest Period (other than an Interest Period determined pursuant to clause (iii) below) that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans, such Business Day falls in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period applicable to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month; (iii) any Interest Period that would otherwise end after the Maturity Date shall end on the Maturity Date; and (iv) notwithstanding clause (iii) above, no Interest Period applicable to a Eurodollar Loan shall have a duration of less than one (1) month and if any Interest Period applicable to such Loan would be for a shorter Interest Period, such Interest Period shall not be available hereunder. Section 1.99. "Interest Protection Arrangement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar interest rate protection agreement or arrangement. Section 1.100. "Investment" means, as applied to any Credit Party and its Subsidiaries, (i) the purchase or acquisition of (x) any share of Capital Stock, indebtedness or other equity security of any other Person, or (y) all or any material portion of the properties and assets of any Person, (ii) any loan, advance or extension of credit to, or contribution to the capital of, any other Person, (iii) any real estate held for sale or investment, (iv) any commodities futures contracts held other than in connection with bona fide hedging transactions permitted under this Agreement, (v) any other investment in any other Person, and (vi) the making of any commitment or acquisition of any option to make an Investment. Section 1.101. "Lease Assignment" means each Collateral Assignment of Lease executed by Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-7 attached hereto, as any such Lease Assignment may be amended, supplemented, modified or confirmed from time to time. Section 1.102. "Lease Obligations" means, for any period, the aggregate rental obligation of Borrower and its Subsidiaries payable during such period in respect of real and/or personal property (net of income from subleases thereof, but including taxes, insurance, maintenance and similar expenses which the lessee is obligated to pay under the terms of such leases), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of Borrower and its Subsidiaries or in the notes thereto but excluding obligations under Capital Leases. Section 1.103. "Leasehold Mortgage" means each leasehold mortgage or deed of trust executed or amended and confirmed by Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-8 attached hereto, individually or collectively, as the case may be, as any such Leasehold Mortgage may be amended, supplemented, modified or confirmed from time to time. Section 1.104. "Lender" shall have the meaning set forth in the Preamble hereof, and shall specifically refer to any Existing Lender or the Additional Lender. Section 1.105. "Lenders" shall have the meaning set forth in the Preamble hereof, and shall specifically refer to the Existing Lenders and the Additional Lender. Section 1.106. "Lender Affiliate" or "Lender Affiliates" means any affiliate of the Administrative Agent, the Documentation Agent, the Lenders or their parent holding companies. Section 1.107. "Lender Agents" shall have the meaning set forth in Section 2.2.7. hereof. Section 1.108. "Leverage Ratio" means, for any period with respect to Borrower and its Subsidiaries, the ratio of Consolidated Total Debt as of the last day of such period to Consolidated EBITDA for such period. Section 1.109. "Line of Credit" shall have the meaning set forth in Section 2.1.1. hereof. Section 1.110. "Loan" means each Existing Loan, Revolving Loan and each Swingline Loan. Section 1.111. "Loan Account" means the account established by Borrower with the Administrative Agent for purposes of administering the Line of Credit. Section 1.112. "Mandatory Borrowing" shall have the meaning set forth in Section 2.2.4. hereof. Section 1.113. "Margin Change" shall have the meaning set forth in Section 2.3.5. hereof. Section 1.114. "Material Adverse Effect" means a material adverse effect upon the (i) business, operations, assets or financial condition or prospects of any Credit Party and its Subsidiaries, taken as a whole, or (ii) the enforceability of this Agreement, the Notes or the Other Documents or the rights or remedies of the Administrative Agent, the Documentation Agent or any Lender hereunder or thereunder or (iii) the ability of the Administrative Agent, the Documentation Agent or any Lender to enforce or collect any of the Obligations including the obligations of any Guarantor to perform, or of the Administrative Agent, the Documentation Agent or any Lender to enforce, any Guarantee. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such an effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect. Section 1.115. "Maturity Date" means March 31, 2004. Section 1.116. "Net Proceeds" means the excess of (i) Cash Proceeds received by Borrower or any Subsidiary in connection with any Asset Sale over (ii) the out-of-pocket expenses incurred by Borrower or such Subsidiary (other than any expenses paid to any Affiliate of Borrower or such Subsidiary) in connection with such Asset Sale and the amounts of any taxes incurred in connection with such Asset Sale, in each case as certified by a Responsible Officer to the Administrative Agent at the time of such Asset Sale. Section 1.117. "Non-Defaulting Lender" means each Lender which is not a Defaulting Lender. Section 1.118. "Note" means any Revolving Credit Note or the Swingline Note. Section 1.119. "Notes" means the Revolving Credit Notes and the Swingline Note. Section 1.120. "Notice" means a Notice of Borrowing, a Notice of Continuation or Conversion or a Swingline Notice. Section 1.121. "Notice of Borrowing" shall have the meaning set forth in Section 2.1.3. hereof. Section 1.122. "Notice of Continuation or Conversion" shall have the meaning set forth in Section 2.3.2. hereof. Section 1.123. "Notice Office" means the office of the Administrative Agent located at 100 Pearl Street, Hartford, Connecticut 06103 or such other office as the Administrative Agent may designate for such purpose to Borrower and the Lenders from time to time. Section 1.124. "Obligations" means any and all loans, advances, indebtedness, liabilities, obligations, covenants or duties of Borrower to the Administrative Agent, the Documentation Agent or the Lenders of any kind or nature, including obligations to pay money and to perform acts or refrain from taking action, arising under or pursuant to this Agreement, the Notes or the Other Documents, and any and all extensions and renewals thereof, and modifications and amendments thereto, whether in whole or in part, whether created directly or acquired by assignment, purchase, discount or otherwise, whether any of the foregoing are direct or indirect, joint or several, absolute or contingent under, due or to become due, now existing or hereafter arising, and whether or not evidenced by a writing and specifically including but not being limited to (i) the unpaid principal amount outstanding at any time under the Notes, plus all accrued and unpaid interest thereon, together with all fees, expenses, including attorneys' fees, penalties, and other amounts owing by or chargeable to the Borrower under this Agreement, the Notes or the Other Documents and (ii) interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Credit Party, whether or not allowed in such case or proceeding. Section 1.125. "Original Credit Agreement" has the meaning set forth in the Preamble hereof. Section 1.126. "Other Documents" means the Collateral Disclosure List, the Guarantees, the Security Documents and the Affiliate Subordination Agreement and any other document, agreement or instrument executed by any Credit Party in connection with any Extension of Credit and any and all amendments, modifications and supplements thereto. Section 1.127. "Outstanding Amount" means, as of any date as of which the amount thereof shall be determined, the outstanding principal amount of all Revolving Loans as of the date of determination. Section 1.128. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or part of its functions under ERISA. Section 1.129. "Permitted Acquisition" means, following the satisfaction of all applicable conditions precedent set forth in Section 6.2. hereof, the Pro Acquisition and any other Acquisition as to which all of the applicable conditions precedent set forth in Section 6.3. hereof have been satisfied. Section 1.130. "Permitted Encumbrance" shall have the meaning set forth in Section 8.5. hereof. Section 1.131. "Permitted Indebtedness" shall have the meaning set forth in Section 8.1. hereof. Section 1.132. "Permitted SSH Activities" means holding the Capital Stock of Borrower, guaranteeing the Loans and granting security therefor under the Security Documents, serving as the maker of any Indebtedness permitted to be incurred under Section 8.1. hereof, employing corporate staff and serving as the lessor of certain leased equipment used in connection with the Direct Marketing Program to be transferred as soon as practicable following the Closing Date to the Borrower. Section 1.133. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other entity of whatever nature, whether public or private. Section 1.134. "Plan" means, at any time, an employee pension or other benefit plan that is subject to Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by Borrower or any member of the Controlled Group for employees of Borrower or any member of the Controlled Group or (ii) if such plan is established, maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one (1) employer makes contributions and to which Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. Section 1.135. "Post Closing Matters" shall have the meaning set forth on Section 11.1.(l) hereof. Section 1.136. "Price Waterhouse Report" means that certain Limited Collateral Analysis report dated November 8, 1996 delivered by Price Waterhouse LLP to the Administrative Agent with respect to the procedures performed by Price Waterhouse LLP related to the Customer Contracts and management information system environment of the Borrower and supplemented by that certain letter dated as of April 15, 1997. Section 1.137. "Pro Acquisition" means the acquisition of the Capital Stock of Protective Alarms, Inc. by SSH as contemplated by, and in accordance with the terms and conditions of, the Pro Acquisition Documents. Section 1.138. "Pro Acquisition Documents" means that certain Stock Purchase and Sale Agreement made as of December 20, 1996 by and among SSH and the stockholders of Protective Alarms, Inc. and as amended as of Februar 28, 1997 and all other documents, agreements, instruments and certificates executed and delivered in connection therewith. Section 1.139. "Prohibited Transaction" shall have the definition set forth in Section 406 of ERISA and Section 4975 of the Code, other than those transactions in which an exemption from the prohibited transaction rules apply under Section 408 of ERISA and Section 4975(d) of the Code and applicable regulations thereunder, including prohibited transaction class exemptions. Section 1.140. "Qualification" means, with respect to any report of independent public accountants covering any Financial Statements of Borrower and its Subsidiaries, a qualification to such report (such as a "subject to" or "except for" statement therein) (i) resulting from a limitation on the scope of examination of the Financial Statements or the underlying data; (ii) as to the capability of the Person whose Financial Statements are certified to continue operations as a going concern; or (iii) which could be eliminated by changes in the Financial Statements or notes thereto covered by such report (such as, by the creation of or increase in a reserve or a decrease in the carrying value of assets) and which if so eliminated by the making of any such change and after giving effect thereto would constitute an Event of Default; provided that the following shall not constitute a Qualification: a consistency exception relating to a change in accounting principles with which the independent public accountants for the Person whose Financial Statements are being examined have concurred. Section 1.141. "Qualified Investments" means, as applied to Borrower and its Subsidiaries, investments in (i) Governmental Obligations; (ii) certificates of deposit or other deposit instruments or accounts of Lenders or trust companies organized under the laws of the United States or any state thereof that have capital and surplus of at least FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00) having maturities of not more than ninety (90) days from the date of acquisition; (iii) commercial paper that is rated not less than prime-one or A-1 or their equivalents by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or their successors having maturities of not more than ninety (90) days from the date of acquisition; and (iv) any repurchase agreement secured by any one (1) or more of the foregoing with a term of not more than seven (7) days. Section 1.142. "Recurring Monthly Revenue" or "RMR" means, for any calendar month, the aggregate recurring regular monthly amount billed under Customer Contracts for a one-month period (regardless of whether billed monthly or less frequently with billings made other than on a monthly basis being adjusted to the equivalent monthly amount) for electrical protection, monitoring, maintenance, closed circuit television and access control service charges, fire and police panel charges, equipment lease rental charges relating to Customer Contracts derived from the Direct Marketing Program and fire testing charges (but excluding revenues from any Customer Contracts relating to any non- recurring, special or other one-time charges) as such RMR is calculated by Borrower in accordance with the practices, policies and procedures followed by Borrower therefor on the Closing Date as set forth in the Price Waterhouse Report and reflected in the RMR Report. Section 1.143. "Register" shall have the meaning set forth in Section 13.2. hereof. Section 1.144. "Release" means any release, emission, disposal, leaching, or migration into the environment, (including, without limitation, the abandonment or disposal of any barrels, containers, or other closed receptacles containing any Hazardous Materials), or into or out of any property owned, occupied or used by Borrower. Section 1.145. "Replacement Lender" shall have the meaning set forth in Section 2.5.7. hereof. Section 1.146. "Reportable Event" means any of the events described in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under applicable regulations issued by PBGC. Section 1.147. "Required Lenders" means collectively (and not individually) Non-Defaulting Lenders the sum of whose Commitments (or if after the Total Commitment Amount has been terminated, outstanding Loans and percentages of outstanding Swingline Loans) constitute greater than 66.66% of the Total Commitment Amount less the aggregate Commitments of Defaulting Lenders (or if after the Total Commitment Amount has been terminated, outstanding Loans and percentages of outstanding Swingline Loans). Section 1.148. "Requirement of Law" means any laws, ordinances, rules regulations and orders of any Governmental Authority applicable to any Credit Party or its Subsidiaries or their business, properties and assets. Section 1.149. "Responsible Officer" means David Heidecorn, John Scerbo or any other senior officer of Borrower or any other Credit Party, as the case may be, designated as such by written notice to the Administrative Agent and acceptable to the Administrative Agent in its sole and absolute discretion. Section 1.150. "Revolving Credit Note" or "Revolving Credit Notes" shall have the meaning set forth in Section 2.1.9. hereof. Section 1.151. "Revolving Credit Period" means the period beginning on the Closing Date and extending through and including the Revolving Credit Termination Date or such earlier date on which the obligation of the Lenders to make Revolving Loans is terminated or the Commitment Amount is reduced to zero (0) in accordance with the terms hereof. Section 1.152. "Revolving Credit Termination Date" means April 30, 1999. Section 1.153. "Revolving Loans" shall have the meaning set forth in Section 2.1.1. hereof, and shall in any event include any loan(s) or advance(s) deemed made pursuant to said Section 2.1.1. Section 1.154. "RMR Report" shall have the meaning set forth in Section 7.2.3. hereof. Section 1.155. "Security Documents" means the Borrower Pledge Agreement, the Borrower Security Agreement, each Lease Assignment, each Leasehold Mortgage, the Alarmguard Holdings Pledge Agreement, the SSH Pledge Agreement, each Subsidiary Pledge Agreement and each Subsidiary Security Agreement. Section 1.156. "Solvent" means, when used with respect to any Person, that as of the date as to which the Person's solvency is to be determined: (a) the fair value of such Person's properties and assets is in excess of the total amount of the liabilities (including contingent liabilities) of such Person; (b) the fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's properties and assets would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, Guarantees and pension plan liabilities) at any time shall be computed as the amount which, in light of all the facts and circumstances existing at the time, represents an amount which can be reasonably expected to become an actual or matured liability. Section 1.157. "SSH" shall have the meaning set forth in the Preamble hereof. Section 1.158. "SSH Guarantee" means the Amended and Restated Guarantee Agreement of even date herewith executed by SSH in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-9 attached hereto, as such SSH Guarantee may be amended, supplemented, modified or confirmed from time to time. Section 1.159. "SSH Pledge" means the Amended and Restated Pledge Agreement of even date herewith executed by SSH in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-10 attached hereto, as such SSH Pledge may be amended, supplemented, modified or confirmed from time to time. Section 1.160. "Steffanato Note" means that certain promissory note, dated September 29, 1994, made by Borrower in favor of Alarmguard of New York, Inc. (succeeded to by Borrower), in the original principal amount of $1,132,216, which promissory note was thereafter endorsed to John Steffanato, Sr. Section 1.161. "Subordinated Indebtedness" means Indebtedness, whether now existing or hereafter arising, with respect to which the payment of the principal of and interest on is expressly subordinated and junior in right of payment as set forth on Exhibit L attached hereto or in such other form and terms approved by the Administrative Agent and the Lenders in writing to the prior indefeasible payment in full of the Obligations and which is not subject to terms, conditions, rights or remedies, including but not limited to, events of default, affirmative and negative covenants and otherwise, which are either (i) more restrictive upon any Credit Party than those set forth in this Agreement or (ii) more favorable to the holders of any such Subordinate Indebtedness than those possessed by the Lenders under this Agreement. Notwithstanding any provision of this Section 1.161. to the contrary, no Subordinated Indebtedness shall contain or be subject to any covenant with respect to which the compliance by any Credit Party therewith is determined by reference to the financial performance or financial condition of such Credit Party. Section 1.162. "Subsidiary" means any Person of which more than fifty percent (50%) or more of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such Person is held or Controlled by Borrower or a Subsidiary of Borrower; or any other such organization the management of which is Controlled by Borrower or a Subsidiary of Borrower; or any joint venture, whether incorporated or not, in which Borrower has more than fifty percent (50%) ownership interest. Section 1.163. "Subsidiary Guarantee" means each Guarantee Agreement executed by a Subsidiary of Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-11 attached hereto, as any such Subsidiary Guarantee may be amended, supplemented, modified or confirmed from time to time. Section 1.164. "Subsidiary Pledge Agreement" means each Pledge Agreement executed by a Subsidiary of Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-12 attached hereto, as any such Subsidiary Pledge Agreement may be amended, supplemented, modified or confirmed from time to time. Section 1.165. "Subsidiary Security Agreement" means each Security Agreement executed by a Subsidiary of Borrower in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit F-13 attached hereto, as any such Subsidiary Security Agreement may be amended, supplemented, modified or confirmed from time to time. Section 1.166. "Swingline" shall have the meaning set forth in Section 2.2.1. hereof. Section 1.167. "Swingline Commitment" means the amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00). Section 1.168. "Swingline Loans" means each loan and advance made by the Administrative Agent to Borrower under the Swingline. Section 1.169. "Swingline Note" shall have the meaning set forth in Section 2.2.3. hereof. Section 1.170. "Swingline Notice" shall have the meaning set forth in Section 2.2.2. hereof. Section 1.171. "Total Commitment Amount" means, as of any date as of which the amount thereof shall be determined, (a) if such date is prior to the Revolving Credit Termination Date, the amount of SIXTY MILLION AND NO/100 DOLLARS ($60,000,000.00) or any lesser amount, including zero (0), resulting from a termination or reduction of such amount in accordance with Section 2.1.12. or Section 12.1. hereof and (b) if such date is on or after the Revolving Credit Termination Date, the outstanding principal amount of the Loans as of such date. Section 1.172. "Transaction Documents" means any and all documents, agreements, certificates and instruments executed and/or delivered by any Credit Party in connection with the Triton Merger or any transactions associated therewith, including the AG Holdings Merger. Section 1.173. "Triton Merger" shall have the meaning set forth in the Preamble hereof. Section 1.174. "Type" means, as to any Loan, such Loan's characterization as either a Base Rate Loan or a Eurodollar Loan. Section 1.175. "Unused Commitment" means, in the case of each Lender, as of the date as of which the amount thereof shall be determined, the positive difference, if any, between (i) the amount of such Lender's Commitment as of such date and (ii) such Lender's Commitment Percentage of the Outstanding Amount as of such date. Section 1.176 "Unused Total Commitment Amount" means, as of any date as of which the amount thereof shall be determined, the positive difference, if any, between (i) the Total Commitment Amount as of such date and (ii) the Outstanding Amount as of such date. Section 2. THE CREDIT FACILITIES Section 2.1. The Line of Credit. Section 2.1.1. Revolving Loans. Upon the execution of this Agreement, the Lenders agree to extend to Borrower a line of credit, so that as long as no Default or Event of Default has occurred and is continuing and all conditions precedent to the making of any Extension of Credit have been satisfied, the Existing Lenders agree, subject to the provisions of Section 2.1.4.(b) hereof, to continue the Existing Loans and each Lender severally agrees to make revolving credit loans ("Revolving Loans") from time to time during the Revolving Credit Period in an aggregate principal amount at any one time not to exceed the lesser of (i) such Lender's Unused Commitment, and (ii) such Lender's Commitment Percentage of the Borrowing Base then in effect; provided, that in no event shall any Revolving Loan be made if, after giving effect to such Revolving Loan, the sum of the Unused Total Commitment Amount and the aggregate amount of Swingline Loans then outstanding would exceed the Total Commitment Amount (the "Line of Credit"). During the Revolving Credit Period, the Borrower may use the Commitments by borrowing, prepaying Existing Loans and Revolving Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. Section 2.1.2. Requirements for Revolving Loans. Except as otherwise provided in this Agreement or permitted by the Lenders, Revolving Loans shall be (i) designated in U.S. Dollars, (ii) in an amount which is at least, in the case of Base Rate Loans, THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00) and, in the case of Eurodollar Loans, ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), (iii) in an amount which is an integral multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00), (iv) at the option of Borrower, obtained and maintained as, or continued or converted into, Base Rate Loans or Eurodollar Loans, and (v) limited, in the case of Eurodollar Loans, to no more than five (5) Eurodollar Tranches. Section 2.1.3. Notice of Borrowing. Except as provided in Section 2.3.6. hereof, whenever Borrower desires to obtain a Revolving Loan (excluding Revolving Loans incurred pursuant to a Mandatory Borrowing or under Section 2.1.4.(b) hereof), Borrower shall provide the Administrative Agent with written notice (or telephonic notice promptly confirmed in writing) received at its Notice Office no later than 12:00 noon (Boston, Massachusetts time) on the date one (1) Business Day before the day on which the requested Revolving Loan is to be made as a Base Rate Loan, and received no later than 12:00 noon (Boston, Massachusetts time) on the date three (3) Business Days before the day on which the requested Revolving Loan is to be made as a Eurodollar Loan. Each such notice (a "Notice of Borrowing") shall, except as provided in Section 2.3.6. hereof, be irrevocable, be in the form of Exhibit A attached hereto and be appropriately completed to specify: (i) the amount of the requested Revolving Loan; (ii) the effective date of such Revolving Loan, (iii) the Type of Loan to be applicable thereto; (iv) whether such Revolving Loan is to be an Acquisition Loan and (v) the duration of the Interest Period, if any (subject to the provisions of the definition of Interest Period). The Administrative Agent shall, except as provided in Section 2.2.4. hereof, promptly (and in no event later than 1:00 p.m. (Boston, Massachusetts time)) give each Lender written notice (or telephonic notice promptly confirmed in writing) of each requested Revolving Loan, such Lender's proportionate share thereof and such other matters covered by the Notice of Borrowing. Borrower hereby acknowledges and agrees that the Administrative Agent may, prior to the receipt of written confirmation, act without liability upon the basis of any telephonic notice provided under this Section 2.1.3., believed by the Administrative Agent, in good faith, to be from a Responsible Officer of Borrower and Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice. Revolving Loans which relate to Mandatory Borrowings shall be made upon the delivery of the notice specified in Section 2.2.4. hereof with Borrower hereby irrevocably agreeing, by its incurrence of any Swingline Loan to the making of Mandatory Borrowings as set forth in such Section 2.2.4. hereof. Section 2.1.4. Funding of Loans. (a) Except as set forth in subsection (b) below and Section 2.2. hereof, not later than 2:00 p.m. (Boston, Massachusetts time) on the date of the making of each Revolving Loan, each Lender shall make available to the Administrative Agent, at the office designated by the Administrative Agent for payment on the Administrative Questionnaire, in U.S. Dollars and in immediately available funds, such Lender's pro rata share of the requested Revolving Loan. The Administrative Agent will, except as set forth in subsection (b) below, promptly make such amounts available to Borrower by depositing to the Loan Account the aggregate of such amounts so made available to the Administrative Agent in the type of funds received. (b) Notwithstanding any provision of this Agreement to the contrary, on the Closing Date the Additional Lender and each Existing Lender that is making Revolving Loans in an amount in excess of the then outstanding Existing Loans of such Existing Lender shall make a Revolving Loan at the place and in the manner set forth in subsection (a) above in the amount which is necessary to cause the Loans made or continued by any such Lender as of the Closing Date (after taking into account any Revolving Loan requested by Borrower as of the Closing Date) to be in the proportion that such Lender's Commitment bears to the Total Commitment Amount as set forth in Section 2.1.5. hereof. Notwithstanding any provision of subsection (a) above to the contrary, the Administrative Agent shall pay any the proceeds of any such Revolving Loans pro rata to each Existing Lender to reduce the outstanding Existing Loans of such Existing Lender as of the Closing Date to an amount which is equal to the proportion which such Existing Lender's Commitment bears to the Total Commitment Amount as of the Closing Date. The Administrative Agent shall pay any such amounts in immediately available funds to such Existing Lenders by wire transfer on the Closing Date (subject to the receipt of any such amounts from the Additional Lender and any Existing Lender providing the same). Any part of any Existing Loan refinanced between the Lenders as aforesaid shall be deemed to be repaid in accordance with the terms of this Agreement with the proceeds of the aforementioned Revolving Loans. Section 2.1.5. Relationship of Revolving Loans to Total Commitment Amount. Each Loan shall consist of either an Existing Loan continued by or a Revolving Loan made by each Lender in respect of its Commitment, which Loan shall be continued or made by each Lender in the proportion that such Lender's Commitment bears to the Total Commitment Amount; provided, however, that, except as provided in Section 2.2. hereof, if at any time, for any reason, the proportion that any Lender's Unused Commitment bears to the Unused Total Commitment Amount is not equal to the proportion that the Commitment of such Lender bears to the Total Commitment Amount, then, each such Lender shall promptly purchase or sell, as may be necessary, participations in the Loans held by the other Lenders in such amounts as will (but only if and to the extent that the purchase of such participations would not cause any Lender to have outstanding Loans in an amount in excess of its Commitment and would not cause any Lender to exceed its lending limit or to violate any other legal requirement to which it is subject), and make such other adjustments from time to time as shall be necessary to, cause the proportion that such Lender's Unused Commitment bears to the Unused Total Commitment Amount to be equal to the proportion that such Lender's Commitment bears to the Total Commitment Amount. Section 2.1.6. Loan Account. Each Loan shall be recorded in the Loan Account. There shall also be recorded in the Loan Account all prepayments and payments made by Borrower in respect of the Line of Credit and other appropriate debits and credits as herein provided. The Administrative Agent shall from time to time, but at least monthly, and upon Borrower's reasonable request, render and send to Borrower a statement of the Loan Account showing the respective outstanding principal balance of the Line of Credit, together with interest and other appropriate debits and credits as of the date of the statement. The statement of the Loan Account shall be considered correct in all respects and accepted by and be conclusively binding upon Borrower absent manifest error unless Borrower makes specific written objection thereto within sixty (60) days after the date the statement of the Loan Account is sent. Section 2.1.7. Several Obligations. The failure of any Lender to make available its proportionate share of any Revolving Loan on the date specified therefor shall not relieve any other Lender of its obligation to make available its proportionate share of such Revolving Loans on such date, but no Lender shall be responsible for the failure of any other Lender to make available such other Lender's proportionate share of the Revolving Loan. Section 2.1.8. Calculation of Borrowing Base. The Borrowing Base as of any time shall be calculated by reference to the most recent RMR Report and other financial reports delivered by Borrower under Sections 6.1.2. or 7.2.3. hereof and such other information as may be available to the Administrative Agent, the Documentation Agent or the Lenders from time to time Section 2.1.9. Revolving Credit Notes. On the Closing Date, Borrower shall issue to each of the Lenders a promissory note executed by Borrower in substantially the form attached hereto as Exhibit B with all blanks appropriately completed in conformity with this Agreement (each a "Revolving Credit Note" and, collectively, the "Revolving Credit Notes"), with all blanks therein appropriately completed. The Revolving Credit Notes shall evidence the obligation of Borrower to repay to the Lender to which it is issued all Loans continued or made by such Lender to Borrower on account of such Lender's Commitment, including all Revolving Loans made by any Lender under Section 2.1.4.(b) hereof. Each Revolving Credit Note shall (i) be payable to the Lender to which it is issued or its registered assigns, (ii) be dated as of the Closing Date, (iii) be in a stated principal amount equal to the Commitment of such Lender, (iv) be payable in the principal amount of such Lender's pro rata percentage of the Loans evidenced thereby, (v) mature on the Maturity Date, (vi) bear interest as provided in Section 2.3.4. hereof, (vii) be subject to voluntary prepayments as provided in Section 2.1.13. hereof and mandatory prepayments as provided in Section 2.1.14. hereof and (viii) be entitled to the benefit of this Agreement and the Other Documents, and all security granted or provided to the Administrative Agent for the ratable benefit of the Lenders thereunder. Each Lender shall prior to any transfer or assignment of its Revolving Credit Note endorse on the reverse side thereof the outstanding principal amounts of the Loans evidenced thereby; provided, however, that such Lender's failure to make any such record or endorsement shall not affect Borrower's obligations in respect thereof. In addition, following the effectiveness of this Agreement, and, if possible, on the Closing Date, each of the Existing Lenders shall deliver to the Administrative Agent the notes or promptly thereafter an affidavit of lost note then held by such Existing Lender evidencing loans and advances under the Original Credit Agreement for delivery to and cancellation by the Borrower. Section 2.1.10. Payment of Principal. The aggregate unpaid principal amount of all Loans, together with accrued and unpaid interest thereon, as evidenced by the Revolving Credit Notes, shall, unless sooner accelerated by the Lenders following the occurrence of an Event of Default, be repaid by Borrower in twenty (20) consecutive quarterly installments in an amount equal to the following percentages of the outstanding principal amount of the Loans on the Revolving Credit Termination Date commencing on June 30, 1999 and continuing on the last day of each succeeding calendar quarter thereafter as follows: DATE OF PAYMENT PERCENTAGE OF OUTSTANDING PRINCIPAL AMOUNT June 30, 1999 3.75% September 30, 1999 3.75% December 31, 1999 3.75% March 31, 2000 3.75% June 30, 2000 5% September 30, 2000 5% December 31, 2000 5% March 31, 2001 5% June 30, 2001 5% September 30, 2001 5% December 31, 2001 5% March 31, 2002 5% June 30, 2002 5% September 30, 2002 5% December 31, 2002 5% March 31, 2003 5% June 30, 2003 6.25% September 30, 2003 6.25% December 31, 2003 6.25% March 31, 2004 6.25% Section 2.1.11. Use of Proceeds. Revolving Loans shall be used solely for the working capital needs and general corporate purposes of Borrower, for Permitted Acquisitions, for Direct Marketing Program Costs, to refinance the existing Indebtedness of Borrower set forth on Schedule 2.1.11. attached hereto, to pay expenses associated with the consummation of the transactions contemplated by this Agreement and to pay amounts to SSH to pay expenses associated with the Triton Merger as set forth on said Schedule 2.1.11. Section 2.1.12. Reduction of Total Commitment Amount. Borrower may from time to time, by written notice delivered to the Administrative Agent at least five (5) Business Days prior to the date of the requested reduction, reduce the Unused Total Commitment Amount by integral multiples of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00). No reduction of the Total Commitment Amount shall be subject to reinstatement. Section 2.1.13. Voluntary Prepayments. Borrower shall have the right to prepay the Loans, in whole or in part, without penalty or premium except as otherwise provided in this Agreement from time to time on the following terms and conditions: (i) Borrower shall provide written notice to the Administrative Agent at its Notice Office (or telephonic notice promptly confirmed in writing) of its intent to prepay the Loans, whether such Loans are Existing Loans, Revolving Loans or Swingline Loans, the amount of such prepayment and, in the case of Eurodollar Loans, the specific Loans to which such prepayment is to be made, which notice shall be provided prior to 12:00 noon (Boston, Massachusetts time) (x) at least one (1) Business Day prior to the date of such prepayment in the case of Base Rate Loans, (y) on the date of such prepayment in the case of Swingline Loans and (z) at least three (3) Business Days prior to the date of such prepayment in the case of Eurodollar Loans and (ii) each prepayment shall be in an aggregate principal amount of at least ONE MILLION AND NO/100 DOLLARS ($1,000,000.00)(or ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) in the case of Swingline Loans); provided, that no partial prepayment of any Eurodollar Loan shall reduce the remaining aggregate outstanding principal amount of such Eurodollar Loan to an amount which is less than the minimum borrowing amount applicable under this Agreement for Eurodollar Loans. Except with respect to prepayments of Swingline Loans, the Administrative Agent shall promptly notify each Lender of any such intended prepayment. Upon receipt by the Administrative Agent, any such prepayment shall be applied pro rata among the Loans of each of the Lenders; provided, however, that such prepayment shall not be applied to any Loans of a Defaulting Lender, until such time as the proportion that such Lender's Unused Commitment bears to the Total Commitment Amount is equal to the proportion that such Lender's Commitment bears to the Total Commitment Amount. Section 2.1.14. Mandatory Prepayments. (a) If, at any time, the Outstanding Amount, together with the amount of the Swingline Loans, shall exceed the Borrowing Base in effect from time to time then any such excess amount shall be immediately due and payable without notice or demand by the Administrative Agent or the Lenders. Any payments made by Borrower under this subsection (a) shall be applied first to any outstanding Swingline Loans and then to outstanding Revolving Loans. (b) Borrower shall prepay the Loans in an amount equal to the Net Proceeds from any Asset Sale in excess of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00); provided, however, that Borrower may conduct an Asset Sale with respect to the assets comprising its "Sonitrol" business during the Fiscal Year ending December 31, 1997 without regard to the application of this subsection (b). Notwithstanding the foregoing proviso, any Asset Sale of Borrower's "Sonitrol" assets shall be subject to subsection (a) above if any such Asset Sale results in the applicability of such subsection (a). Any amounts payable under this subsection (b) shall be payable concurrently with Borrower's receipt of any such Net Proceeds. (c) Borrower shall prepay the Loans in an amount equal to fifty percent (50%) of Excess Cash Flow for each Fiscal Year commencing with the Fiscal Year ending December 31, 1999, together with interest on the amount being prepaid. Any amounts payable under this subsection (c) shall be payable on or before the earlier of (i) the date on which the Financial Statements required to be delivered under Section 7.1.1. hereof in respect of such Fiscal Year are required to be delivered or (ii) the date on which such Financial Statements are actually delivered. (d) Any amounts payable under this Section 2.1.14. shall be applied prior to the Revolving Credit Termination Date to Swingline Loans and then to all other Loans outstanding under the Line of Credit and following the Revolving Credit Termination Date to installments of principal due on the Loans in inverse order of maturity. Section 2.2. Swingline Loans. Section 2.2.1. The Swingline. Upon the execution of this Agreement, the Administrative Agent in its individual capacity hereby agrees to extend to Borrower a line of credit, so that as long as no Default or Event of Default has occurred and is continuing, the Administrative Agent agrees to lend to Borrower, and Borrower may borrow, repay and reborrow, on a revolving basis, in one (1) or more Swingline Loans from time to time during the period commencing on the Closing Date and continuing through the close of business on the Revolving Credit Termination Date, amounts which do not exceed at any one time outstanding the Swingline Commitment (the "Swingline"). All Swingline Loans shall constitute usage of the Administrative Agent's Commitment under this Agreement. Notwithstanding any provision of this Agreement to the contrary, Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) shall be denominated in U.S. Dollars, (iii) may be repaid and reborrowed in accordance with the provisions of this Agreement, (iv) shall not exceed in the aggregate at any one time outstanding the Swingline Commitment and (v) shall not, together with all Revolving Loans, exceed in the aggregate at any one time outstanding the lesser of the Borrowing Base or the Total Commitment Amount. Section 2.2.2. Notice for Swingline Loans. Except as provided in Section 2.2.4. hereof, whenever Borrower desires to obtain a Swingline Loan, Borrower shall provide the Administrative Agent with written notice (or telephonic notice promptly confirmed in writing) received at its Notice Office no later than 12:00 noon (Boston, Massachusetts time) on the day on which the requested Swingline Loan is to be made. Each such notice (a "Swingline Notice") shall be irrevocable, be in substantially the form of Exhibit C attached hereto and be appropriately completed to specify: (i) the amount of the requested Swingline Loan and (ii) the effective date of such Swingline Loan., Borrower hereby acknowledges and agrees that the Administrative Agent may, prior to the receipt of written confirmation act without liability upon the basis of any telephonic notice provided under this Section 2.2.2., believed by the Administrative Agent, in good faith, to be from a Responsible Officer of Borrower and Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice. Notwithstanding the foregoing, the Administrative Agent shall not make any Swingline Loans if the Administrative Agent has received prior to the making of the requested Swingline Loan a certificate or notice from Borrower or any Lender stating the existence of Default or Event of Default or that any conditions to the making of such Swingline Loan have not been satisfied. Section 2.2.3. Swingline Note. On the Closing Date, Borrower shall issue to the Administrative Agent a promissory note executed by Borrower in substantially the form attached hereto as Exhibit D with all blanks appropriately completed in conformity with this Agreement (the "Swingline Note"). The Swingline Note shall evidence the obligation of Borrower to repay to the Administrative Agent all Swingline Loans by the Administrative Agent to Borrower. The Swingline Note shall (i) be payable to the Administrative Agent or its registered assigns, (ii) be dated as of the Closing Date, (iii) be in a stated principal amount equal to the Swingline Commitment, (iv) be payable in the principal amount of the Swingline Loans evidenced thereby, (v) mature on the Revolving Credit Termination Date, (vi) bear interest as provided in Section 2.3.4. hereof, (vii) be subject to voluntary prepayments as provided in Section 2.1.13. hereof and mandatory prepayments as provided in Section 2.1.14. hereof and (viii) be entitled to the benefit of this Agreement and the Other Documents, and all security granted or provided to the Administrative Agent for the ratable benefit of the Lenders thereunder. The Administrative Agent shall record on its internal records the amount of each Swingline Loan made by it and each payment received by it in respect thereof and will prior to any transfer or assignment of the Swingline Note endorse on the reverse side thereof the outstanding principal amount of the Swingline Loan evidenced thereby; provided, however, that the Administrative Agent's failure to make any such record or endorsement shall not affect Borrower's obligations in respect thereof. Section 2.2.4. Mandatory Borrowings. On any Business Day, the Administrative Agent may, in its sole discretion, and, in any event, upon the day which is seven (7) days after the borrowing of a Swingline Loan (of if such day is not a Business Day, the next succeeding Business Day) shall provide notice (which notice shall be deemed to have been automatically provided upon the occurrence of a Default or Event of Default under Section 11.1.(g) or 11.1.(h) to the Lenders that all outstanding Swingline Loans shall be repaid pursuant to Revolving Loans to be made by the Lenders as Base Rate Loans on the immediately succeeding Business Day (such Revolving Loans, a "Mandatory Borrowing") pro rata based upon each Lender's Commitment Percentage, and the proceeds of such Revolving Loans shall be applied directly to repay the Administrative Agent for such outstanding Swingline Loans. Each Lender hereby irrevocably agrees to make Base Rate Loans upon one (1) Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner provided in the foregoing sentence and on the date specified by the Administrative Agent notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum borrowing amount otherwise required under this Agreement, (ii) whether any of the conditions precedent in Section 6 of this Agreement shall have been satisfied, (iii) whether a Default or Event of Default shall have occurred and be continuing, (iv) the date of such Mandatory Borrowing and (v) any reduction in the Total Commitment Amount after such Swingline Loans were made. In the event that any Mandatory Borrowing cannot be made as set forth above for any reason, including, without limitation, the commencement of a proceeding under the Bankruptcy Code with respect to Borrower), each Lender (other than the Administrative Agent) hereby agrees that it shall forthwith purchase from the Administrative Agent (without recourse or warranty) an assignment of such outstanding Swingline Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably based upon their respective Commitment Percentages; provided, however, that all interest payable on the Swingline Loans shall be for the account of the Administrative Agent until the effective date of the purchase of each respective assignment and, to the extent attributable to the purchased assignment, shall be payable to the Lender purchasing the same from and after such effective date. Section 2.3. Interest on the Loans. Section 2.3.1. Base Rate. Each adjustment in the Base Rate shall result immediately, without notice or demand of any kind, in a new rate of interest effective with respect to periods on and after the date of such adjustment. The Base Rate is a base interest rate for loans making reference thereto and is not necessarily the lowest rate at which any Lender may lend money. The Base Rate is neither tied to any external rate of interest nor is it a rate charged by any Lender to any particular class or category of customer. If the Base Rate shall be discontinued or for any other reason not be available for determining the rate of interest chargeable under this Agreement, then the Administrative Agent (with the consent of the Required Lenders) shall select a substitute method of determining the rate of interest chargeable under this Agreement and shall notify Borrower of such selection, which method shall, in the Administrative Agent's estimation, yield a rate of return to each Lender substantially equivalent to the rate of return that such Lender would have expected to receive if the Base Rate remained available for that purpose. Section 2.3.2. Continuation or Conversion of Loans. As long as no Default or Event of Default shall have occurred and be continuing, Borrower may continue or convert all or any part (in integral multiples of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) of any outstanding Loan as a Loan of the same Type or into a Loan of any other Type provided for in this Agreement. If Borrower wishes to continue or convert a Loan as aforesaid, Borrower shall provide the Administrative Agent with written notice (or telephonic notice promptly confirmed in writing) received at its Notice Office no later than 10:00 a.m. (Boston, Massachusetts time) on the date one (1) Business Day before the day on which the requested Loan is to be continued as or converted to a Base Rate Loan, and received no later than 10:00 a.m. (Boston, Massachusetts time) on the date three (3) Business Days before the day on which the requested Loan is to be continued as or converted to a Eurodollar Loan. Each such notice (a "Notice of Continuation or Conversion") shall, except as provided in Section 2.3.6. hereof, be irrevocable, be in the form of Exhibit E attached hereto and be appropriately completed to specify: (i) the amount of the Loan to be continued or converted, (ii) the effective date of such continuation or conversion which shall, in the case of Eurodollar Loan, be the last day of the Interest Period applicable thereto, (iii) the Type or Types of Loans to be applicable thereto; and (iv) the duration of the Interest Period, if any (subject to the provisions of the definition of Interest Period). The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each requested continuation or conversion of a Loan, such Lender's proportionate share thereof and such other matters covered by the Notice of Conversion or Continuation. Borrower hereby acknowledges and agrees that the Administrative Agent may, prior to the receipt of written confirmation act without liability upon the basis of any telephonic notice provided under this Section 2.3.2, believed by the Administrative Agent, in good faith, to be from a Responsible Officer of Borrower and Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice. Section 2.3.3. Duration of Interest Periods. (a) Subject to the provisions of the definition of Interest Period, the duration of each Interest Period applicable to a Loan shall be as specified in the applicable Notice. (b) If the Administrative Agent does not receive a Notice for a Eurodollar Loan pursuant to subsection (a) above within the applicable time limits specified therein, or if, when such notice must be given, a Default or Event of Default shall have occurred and be continuing, Borrower shall be deemed to have elected to convert such Loan in whole into a Base Rate Loan on the last day of the then current Interest Period with respect thereto. (c) Notwithstanding the foregoing, Borrower may not select an Interest Period that would end, but for the provisions of the definition of Interest Period, after the Maturity Date. Section 2.3.4. Interest Rates and Payments of Interest. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Base Rate in effect from time to time plus the Base Rate Margin. Interest accruing in respect of each Base Rate Loan shall be payable on the last day of each month commencing May 31, 1997 and continuing until such Base Rate Loan is due (whether at maturity, by reason of acceleration, prepayment or otherwise). (b) Each Eurodollar Loan shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the Adjusted Eurodollar Rate plus the Eurodollar Margin, which interest shall be payable on the last day of each Interest Period (but, in the case of Interest Periods having a duration of six (6) months or greater, if available, at least quarterly) and when such Eurodollar Loan is due (whether at maturity, by reason of acceleration or otherwise). (c) Interest shall be computed daily on the basis of a year of three hundred sixty (360) days and paid for the actual number of days elapsed during each Interest Period. If the due date for any payment of principal is extended by operation of law, interest shall be payable for such extended time. If any payment required by this Agreement becomes due on a day that is not a Business Day such payment may be made on the next succeeding Business Day (subject to clause (i) of the definition of Interest Period), and such extension shall be included in computing interest in connection with such payment. Section 2.3.5. Interest Rate Margins. As of the Closing Date and during any period in which a Default or Event of Default shall have occurred and be continuing, the Base Rate Margin shall be 1.50% and the Eurodollar Margin shall be 3.0%. Commencing with the end of the first Fiscal Quarter following the Closing Date and continuing on the last day of each succeeding Fiscal Quarter, and as long as no Default or Event of Default shall have occurred and be continuing, the Base Rate Margin and the Eurodollar Margin shall be subject to change (each such change, a "Margin Change") by reference to Borrower's Leverage Ratio as of the last day of any such Fiscal Quarter as follows: LEVERAGE RATIO BASE RATE MARGIN EURODOLLAR MARGIN Equal to or greater 1.50% 3.00% than 3.75 to 1.0 (or if a Default or Event of Default shall exist) Equal to or greater 1.25% 2.75% than 3.50 to 1.0 but less than 3.75 to 1.0 Equal to or greater 1.00% 2.50% than 3.00 to 1.0 but less than 3.50 to 1.0 Less than 3.0 to .75% 2.25% 1.0 The calculation of the Leverage Ratio for purposes of a Margin Change shall be reviewed and verified by the Administrative Agent, in its sole and absolute discretion, by reference to the Financial Statements to be provided by Borrower under Section 7.1. hereof. In making such calculation, and for purposes of the determination of any Margin Change only, Consolidated EBITDA shall be calculated on an annualized basis by reference to the most recent Fiscal Quarter then ending multiplied by four (4). Each Margin Change shall be effective, including with respect to Loans which are then outstanding, as of the date on which the Financial Statements referred to in Section 7.1. hereof are provided to the Administrative Agent (notwithstanding the fact that the calculation of the Leverage Ratio associated with such Margin Change is reviewed and verified by the Administrative Agent at a later date). The Administrative Agent shall review and verify the Borrower's calculation of the Leverage Ratio no later than three (3) Business Days after its receipt of such Financial Statements. The Administrative Agent shall, as soon as practicable, promptly notify each Lender of the occurrence of any Margin Change. Section 2.3.6. Changed Circumstances. In the event that (x) in the case of clause (i) below, the Administrative Agent or (y) in the case of clause (ii) below, any Lender, shall have determined in a commercially reasonable manner (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date on which the Eurodollar Rate would otherwise be set the Administrative Agent shall have determined in good faith (which determination shall be final and conclusive) that adequate and fair means do not exist for ascertaining the Interbank Offered Rate, or (ii) at any time such Lender shall have determined in good faith that: (A) the making or continuation of or conversion of any Loan to a Eurodollar Loan has been made impracticable or unlawful by (1) the occurrence of a contingency that materially and adversely affect the interbank Eurodollar market or (2) compliance by such Lender in good faith with any Requirement of Law enacted after the date hereof or interpretation or change thereof after the date hereof by any Governmental Authority charged with the interpretation or administration thereof or with any request or directive of any such Governmental Authority (whether or not having the force of law); or (B) the Adjusted Eurodollar Rate shall, after the date hereof, no longer represent the effective cost to such Lender for U.S. dollar deposits in the interbank Eurodollar market for deposits in which it regularly participates; then, and in any such event, such Lender (or the Administrative Agent in the case of clause (i) above) shall (x) within five (5) Business Days after any such event and (y) within five (5) Business Days of the date on which such event no longer exists give notice (in writing or by telephone confirmed in writing) to Borrower and (except in the case of clause (i) above) to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to the other Lenders). Thereafter, (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer apply, and any Notice given by Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by Borrower and (y) in the case of clause (ii) above, Borrower shall, as applicable, either (a) pay to such Lender, upon written demand therefor (accompanied by the written notice referred to below), any such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender may determine in its sole discretion) as shall be required to compensate such Lender for any increased costs or reductions in amounts received or receivable under this Agreement (a written notice as to the additional amounts owed to such Lender showing the basis for the calculation thereof, submitted to Borrower by such Lender, shall, absent manifest error, be final and conclusive and binding upon all parties hereto) or (b), as promptly as possible, and, in any event, with the time period required by law, either (A), if any affected Eurodollar Loan has not yet been made, continued or converted, cancel any such Notice by giving the Administrative Agent a telephonic notice (confirmed promptly in writing) thereof on the same date that Borrower was notified by a Lender as aforesaid or (B), if any affected Eurodollar Loan has been made, continued or converted, upon at least three (3) Business Days' notice to the Administrative Agent, require the affected Lender (and any other similarly affected Lender) to convert each such affected Eurodollar Loan into a Base Rate Loan (which conversion shall occur no later than the last day of the Interest Period then applicable to such Eurodollar Loan (or such earlier date if required by any Requirement of Law). Section 2.3.7. Compensation. Borrower shall compensate each Lender, promptly upon its written request (which request shall be accompanied by a notice setting forth the basis for such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any such loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding loss of anticipated profit with respect to any Eurodollar Loans) which such Lender may sustain: (i) if for any reason (other than a default by the Administrative Agent or such Lender) a Eurodollar Loan is not made, continued or converted on the date specified therefor in a Notice (whether or not withdrawn by Borrower or deemed withdrawn under Section 2.3.6. hereof), (ii) if any repayment (including any voluntary or mandatory repayment under Sections 2.1.13. and 2.1.14. hereof or a the result of the acceleration of the Loans) or conversion of Eurodollar Loan occurs on a date which is not the last day of the Interest Period applicable thereto, (iii) if any prepayment of any Eurodollar Loans is not made on any date specified in a notice of prepayment given by Borrower, (iv) as a consequence of (x) any other failure or default by Borrower to repay Eurodollar Loans when required by this Agreement or (y) any election by Borrower under Section 2.3.6. hereof. The calculation of all amounts payable to a Lender under this Section 2.3.7. shall be made as though that Lender has actually funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at the Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Loan, having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender; provided, however, that each Lender may fund each of its Eurodollar Loans in any manner which its elects in its sole and absolute discretion. It is further understood and agreed by Borrower that if any repayment of Eurodollar Loans pursuant to Sections 2.1.13. or 2.1.14. or any conversion of Eurodollar Loans shall occur on a day which is not the last day of an Interest Period applicable thereto, such repayment or conversion shall be accompanied by any amounts owing to any Lender under this Section 2.3.7. Section 2.3.8. Interest under the Original Credit Agreement. On the Closing Date, the Borrower shall pay or cause to be paid to the Administrative Agent for the account of the Existing Lenders all interest accrued but unpaid in respect of the Existing Loans as of the Closing Date (calculated at the rates and in the manner set forth in the Original Credit Agreement as of the close of business on the day immediately preceding the Closing Date). Section 2.4. Fees Applicable to this Agreement and Extensions of Credit. Section 2.4.1. Facility Fee. Borrower shall pay to the Administrative Agent for the account of the Lenders during the Revolving Credit Period a facility fee (the "Facility Fee") computed at the rate of one-half of one percent (.50%) per annum on the average daily amount of the Unused Total Commitment Amount in effect during the period for which payment is made. The Facility Fee shall be payable monthly in arrears commencing May 31, 1997 and continuing on the last day of each month thereafter during the Revolving Credit Period and on the Revolving Credit Termination Date. Section 2.4.2. Agency Fee. Borrower shall pay to the Administrative Agent for its own account an agency fee in the amount of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) for each year or portion thereof in which the Obligations remain outstanding in consideration of its service as the Administrative Agent for the Lenders under this Agreement (the "Agency Fee"). The Agency Fee shall be payable in advance on the Closing Date and on each anniversary thereof. Section 2.4.3. Calculation of Fees. Any Fees due and payable under this Section 2.4. (excluding fees payable under Section 2.4.4.) to the Administrative Agent for the account of the Lenders shall be calculated on the basis of a year of 360 days and according to the actual number of days elapsed in each accrual period. Section 2.4.4. Fees under the Original Credit Agreement. On the Closing Date, the Borrower shall pay or cause to be paid to the Administrative Agent for the account of the Existing Lenders all fees, charges and other amounts due and owing to such Existing Lenders under the Original Credit Agreement as of the Closing Date (calculated in the manner set forth in the Original Credit Agreement as of the close of business on the day immediately preceding the Closing Date). Section 2.5. General Terms Applicable to Any Extension of Credit Section 2.5.1. Increased Costs and Capital Adequacy. (a) If the Administrative Agent, the Documentation Agent or any Lender determines that any change in any law or regulation or directive or bulletin or in the interpretation thereof after the Closing Date by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against any credit extended by the Administrative Agent, the Documentation Agent or any Lender under this Agreement, or (ii) impose on the Administrative Agent, the Documentation Agent, any Lender or their parent holding company any other condition regarding this Agreement and the result of any event referred to in the preceding clause (i) or (ii) above shall be to increase the cost to the Administrative Agent, the Documentation Agent, any Lender or such holding company of issuing, funding or maintaining any Extension of Credit (which increase in cost shall be determined by the Administrative Agent, the Documentation Agent's or such Lender's reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon written demand by the Administrative Agent, the Documentation Agent or any such Lender, Borrower shall pay to the Administrative Agent, the Documentation Agent or such Lender from time to time as specified by the Administrative Agent, the Documentation Agent or any such Lender, additional amounts which shall be sufficient to compensate the Administrative Agent, the Documentation Agent or any such Lender for such increased cost from the date of such change. A certificate as to such increased cost incurred by the Administrative Agent, the Documentation Agent or any Lender as a result of any event mentioned in clause (i) or (ii) above prepared in reasonable detail (which shall include the method employed by the Administrative Agent, the Documentation Agent or any such Lender in determining the allocation of such costs to Borrower) and otherwise in accordance with this subsection (a), submitted by the Administrative Agent, the Documentation Agent or any such Lender to Borrower, shall be conclusive evidence, absent manifest error, as to the amount thereof. (b) If any the Administrative Agent, the Documentation Agent or any Lender shall determine that the adoption after the Closing Date of any applicable law, rule or regulation pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption after the date hereof of any other law, rule, or regulation regarding capital adequacy, or any change therein, or any change after the date hereof in the interpretation or administration thereof, or compliance by the Administrative Agent, the Documentation Agent, any Lender or their parent holding company with any requirement or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, except any such adoption or change or any such compliance with a request or directive which applies or has been applied solely to the Administrative Agent, the Documentation Agent, any such Lender or such parent holding company by reason of events or conditions relating solely to the Administrative Agent, the Documentation Agent or any such Lender, has the effect of reducing the rate of return on the Administrative Agent's, the Documentation Agent's, any Lender's or their parent holding company's capital as a consequence of its commitment hereunder or to a level below that which the Administrative Agent, the Documentation Agent, any such Lender or such holding company could have achieved but for such adoption, change or compliance by an amount deemed by the Administrative Agent, the Documentation Agent or any such Lender to be material (for which reduction of the rate of return shall be determined by the Administrative Agent's, the Documentation Agent's, any such Lender's or such holding company's reasonable allocation of such reduction of the rate of return resulting from such event) then, upon written demand by the Administrative Agent, the Documentation Agent or any such Lender, Borrower shall pay to the Administrative Agent, the Documentation Agent or such Lender, from time to time as specified by the Administrative Agent, the Documentation Agent or any such Lender, such additional amount or amounts which shall be sufficient to compensate the Administrative Agent, the Documentation Agent or any such Lender for such reduction. A certificate as to such increased cost incurred by the Administrative Agent, the Documentation Agent or any such Lender as a result of any event mentioned in this subsection (b), prepared in reasonable detail (which shall include the method employed by the Administrative Agent, the Documentation Agent or any such Lender in determining the allocation of such costs to Borrower) and otherwise in accordance with this subsection (b) submitted by the Administrative Agent, the Documentation Agent or any such Lender to Borrower, shall be conclusive evidence, absent manifest error, as to the amount thereof. (c) Amounts payable by Borrower pursuant to this Section 2.5.1. shall be payable within ten (10) Business Days of receipt by Borrower of a certificate described in subsection (a) or (b) of this Section 2.5.1. Section 2.5.2. Method of Payment. All payments and prepayments of principal and all payments of Fees and interest shall be made by Borrower to the Administrative Agent for the ratable account of the Lenders at the head office of the Administrative Agent (or such other place specified by the Administrative Agent for such purpose) in immediately available funds and in U.S. Dollars, on or before 12:00 noon (Boston, Massachusetts time) on the due date thereof, free and clear of, and without any deduction or withholding for, any taxes or other payments. Any payments which are made later than 12:00 noon (Boston, Massachusetts time) shall be deemed to have been made on the next Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day (unless otherwise provided herein), the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension as the applicable rate in effect immediately prior to such extension of time. Section 2.5.3. Taxes. All payments by Borrower under this Agreement shall be made without set-off, counterclaim or other claim or defense. Except as otherwise provided herein, all payments by or on behalf of Borrower hereunder shall be made free and clear of, and without deduction or withholding for, any and all current or future taxes, levies, imposts, duties, fees, assessments or other charges of any kind or nature now or hereinafter imposed by a Governmental Authority with respect to any such payment but excluding, except as provided below, (i) any tax imposed on or measured by the net income or net profits of any Lender or transferee or assignee thereof (a "Transferee") pursuant to any Requirement of Law, or (ii)or franchise taxes imposed on net income or in lieu thereof on any Lender or Transferee or (iii) any tax imposed by reason of any connection between the jurisdiction imposing such tax and any Lender or Transferee (other than a connection arising solely by virtue of the making of any Extension of Credit under this Agreement) and all interest, penalties or similar liabilities (all such non- excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to as "Taxes"). If any Taxes are required to be withheld or deducted from any payment under this Agreement, Borrower agrees to pay the full amount of such Taxes deducted to the relevant Government Authority in accordance with applicable law, and the payments under this Agreement shall be increased by such additional amounts as may be necessary so that every payment under this Agreement, after required withholding or deduction on account of any Taxes, will not be less than the amount otherwise required to be paid under this Agreement. Borrower shall furnish to the Administrative Agent within thirty (30) days after the date the payment of any Taxes is due certified copies of any tax receipts evidencing such payment by Borrower. Borrower agrees to indemnify and hold harmless the Administrative Agent, the Documentation Agent and each Lender, and reimburse the Administrative Agent, the Documentation Agent and each Lender upon its written request, for the amount of any Taxes specified in this Section 2.5.3. as are paid by such Lender, the Administrative Agent or the Documentation Agent. A certificate as to the amount of any such indemnification prepared by such Lender, the Administrative Agent or the Documentation Agent shall, absent manifest error, be final, conclusive and binding for all purposes. Section 2.5.4. Withholding Tax Exemption. Each Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to Borrower and the Administrative Agent on or prior to the Closing Date (i) two complete executed copies of Internal Revenue Service Form 4224 or Form 1001 (or successor forms thereto) certifying such Lender's entitlement to an exemption from United States withholding tax with respect to payment to be made under this Agreement or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Form 4224 or Form 1001, a certificate in a form approved by the Administrative Agent and two complete executed copies of Internal Revenue Service Form W-8 (or successor form thereto) certifying such Lender's entitlement to exemption from such withholding. In addition, each Lender agrees to deliver to Borrower and the Administrative Agent updates or replacements to the foregoing forms and certificates from time to time when due to the lapse of time, the change in circumstances or otherwise, any such form or certificate previously provided under this Section 2.5.4. shall become obsolete or inaccurate. Each Lender agrees to immediately notify Borrower and the Administrative Agent in the event that it is unable to certify that it is entitled to an exemption from withholding as aforesaid. Notwithstanding any provision of Section 2.5.3 or this Section 2.5.4. to the contrary, Borrower shall be entitled, to the extent required by any Requirement of Law, to deduct and withhold income or similar taxes imposed by the United States (or any other Governmental Authority) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as defined above) for U.S. Federal income tax purposes to the extent that such Lender has not provided to Borrower forms establishing an exemption therefrom as aforesaid and Borrower shall not be obligated to pay any amounts under this Section 2.5.4. hereof in respect of income or withholding taxes imposed by the United States if any Lender has not provided the forms required to be provided pursuant to this Section 2.5.4. hereof or, in the case of a payment, other than interest, to a Lender to the extent that any such forms do not establish a complete exemption from withholding of such taxes. Section 2.5.5. Lending Offices. Loans of each Type made by any Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.3.6., 2.5.1. or 2.5.3. hereof with respect to such Lender, it will, if requested by Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Extension of Credit affected by such event; provided that in the sole judgment of such Lender, such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequences of the event giving rise to the operation of any of the foregoing Sections. Nothing in this Section 2.5.5. shall affect or postpone any of the obligations of Borrower or the rights of any Lender under said Sections 2.3.6., 2.5.1. or 2.5.3. Section 2.5.6. Replacement of Lenders. (x) If any Lender becomes a Defaulting Lender, (y) upon the occurrence of any event giving rise to the operation of Sections 2.3.6., 2.5.1. or 2.5.3. with respect to any Lender which results in such Lender charging to Borrower increased costs in excess of those being generally charged by the other Lenders or (z) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders as provided in Section 10.13. hereof Borrower shall have the right, if no Default or Event of Default then exists or, in the case of clause (z) above, would exist after giving effect to such replacement, to replace such Lender (the "Replaced Lender") with one or more other lenders, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender") and each of whom shall be acceptable to the Administrative Agent; provided that (i) at the time of any replacement pursuant to this Section 2.5.6., the Replacement Lender shall enter into an Assignment and Acceptance pursuant to Section 13.1. (and with all fees payable pursuant to said Section 13.1 to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire the Commitment and the Loans of the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender and (B) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender and (y) the Administrative Agent an amount equal to such Replaced Lender's pro rata share of any Mandatory Borrowing to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations of Borrower then owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid, but including all amounts, if any, owing under Section 2.3.6.) shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment and Acceptance, the payment of amounts referred to in clauses (i) and (ii) above, recordation of the assignment on the Register by the Administrative Agent pursuant to Section 13.2. and, if so requested by the Replacement Lender of the appropriate Note or Notes executed by Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Lender. Section 2.6. Payments among the Administrative Agent and the Lenders. Section 2.6.1. Pro Rata Treatment. Except as otherwise provided herein: (A) each borrowing from the Lenders pursuant to Section 2.1.1. hereof will be made from the Lenders pro rata in accordance with the amounts of their respective Commitment Percentages, (B) payments and prepayments of principal or interest will be made to the Administrative Agent for the account of the Lenders pro rata in accordance with the unpaid principal amount of the Line of Credit, (C) any reduction in the Total Commitment Amount shall reduce each Lender's Commitment Percentage pro rata based upon their then respective Commitment Percentages and (D) all payments of Fees made to the Administrative Agent for the account of the Lenders shall be made pro rata based upon their then respective Commitment Percentages. Section 2.6.2. Non-Receipt of Funds by the Administrative Agent. (a) Unless the Administrative Agent shall have received notice from a Lender prior to the date on which such Lender is to provide funds to the Administrative Agent for a Revolving Loan under such Lender's Commitment (including Revolving Loans required to be made under Section 2.1.4.(b) hereof) that such Lender will not make available to the Administrative Agent such funds, the Administrative Agent may assume that such Lender has made such funds available to the Administrative Agent on such date, and the Administrative Agent, in its sole discretion, may, but shall not be obligated to, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such funds available to the Administrative Agent, such Lender (a "Defaulting Lender") agrees to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to the Administrative Agent, at the Federal Funds Effective Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Revolving Loan under its Commitment for purposes of this Agreement. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall be entitled to all interest earned thereon or Fees earned in respect thereof through the date of the payment of any such amount by such Lender. A Defaulting Lender (regardless of whether such Lender serves as the Administrative Agent) shall be deemed to have assigned to the extent of the delinquency any and all payments due to it from Borrower, whether on account of outstanding Loans, interest, fees or otherwise, to the remaining Non-Defaulting Lenders for application to, and reduction of, their respective pro rata shares of all outstanding Loans. The Defaulting Lender hereby authorizes the Administrative Agent to distribute such payments to the Non-Defaulting Lenders in proportion to their respective pro rata shares of all outstanding Loans. A Defaulting Lender shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans of the Non-Defaulting Lenders, the Lenders' respective pro rata shares of all outstanding Loans have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date, and the Administrative Agent in its sole discretion may, but shall not be obligated to, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand, which shall be made promptly after discovery thereof, such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Effective Rate. (c) Nothing contained in this Section 2.6.2 shall be construed to relieve any Lender of its obligation to make funds available to the Administrative Agent under this Agreement except as otherwise expressly provided herein, nor to relieve the Borrower of its obligations to make any payment when due. (d) The Administrative Agent shall have no obligation to remit to the Lenders any amounts under this Agreement not actually collected from the Borrower. In addition, in the event that any payment received by the Administrative Agent is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or upon the appointment of any intervenor or conservator of, or trustee or similar official for, the Borrower or any substantial part of its properties or assets, or otherwise, and if the Administrative Agent paid any Lender its pro rata share of such payment, then such Lender shall, on demand from the Administrative Agent, immediately pay to the Administrative Agent an amount equal to such Lender's pro rata share of any such payment which must be rescinded, restored or returned by the Administrative Agent. Any such amount shall be paid no later than 3:00 p.m. (Boston, Massachusetts time) on the Business Day following the date of demand for payment by the Administrative Agent shall bear interest at the rate and in the manner set forth in Section 2.6.2.(b) hereof. Section 2.6.3. Sharing of Payments, Etc. Borrower hereby agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may have hereunder or otherwise, each Lender and Lender Affiliate shall be entitled at its option, to offset balances held by it at any of its offices against any principal of or interest on any Revolving Loans, or any fee or expense payable to the Administrative Agent, the Documentation Agent or the Lenders that is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and the Administrative Agent thereof; provided, that its failure to give such notice shall not affect the validity thereof. If a Lender shall effect payment of any principal, interest, fee or expense under this Agreement through the exercise of any right of set-off, banker's lien, counterclaim or similar right, it shall be deemed to have purchased from each of the other Lenders participations in the Loans made by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that the Lenders shall share the benefit of such payment pro rata in accordance with the respective amounts of unpaid principal of and interest on the Revolving Loans made by each of them. To such end, the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Borrower agrees that any Lender so purchasing a participation in the Revolving Loans made by the other Lenders may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of the Revolving Loans in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower to such Lender. SECTION 3. SECURITY FOR THE OBLIGATIONS Section 3.1. Collateral Disclosure List. Borrower shall deliver to the Administrative Agent and the Documentation Agent on or prior to the Closing Date a completed Collateral Disclosure List certified by a Responsible Officer. Section 3.2. Security. The Obligations shall be secured by: Section 3.2.1. All properties and assets of Borrower, including goods, accounts receivable, inventory, contract rights, accounts, documents, instruments and chattel paper, business and financial records and general intangible assets of Borrower (including all Capital Stock of each Subsidiary of Borrower (other than Protective Alarms of Canada, Inc.)), and all proceeds thereof, as more particularly defined in and pursuant to the Borrower Pledge Agreement and the Borrower Security Agreement. Section 3.2.2. The guarantee of Alarmguard Holdings and SSH pursuant to the Alarmguard Holdings Guarantee and the SSH Guarantee, respectively. Section 3.2.3. A pledge of all of SSH's right, title and interest in and to all shares of Capital Stock of Borrower pursuant to the SSH Pledge Agreement. Section 3.2.4. A pledge of all of Alarmguard Holding's right, title and interest in and to all shares of Capital Stock of SSH pursuant to the Alarmguard Holdings Pledge Agreement. Section 3.2.5. A leasehold mortgage, deed of trust or collateral assignment with respect to all of Borrower's right, title and interest, as lessee, in, to and under leases for the premises listed and described on Schedule 3.2.5. attached hereto pursuant to a Leasehold Mortgage or a Lease Assignment, respectively. Section 3.2.6. The guarantee of each Subsidiary of Borrower (excluding, unless otherwise required by the Lenders, Protective Alarms of Canada, Inc.) pursuant to a Subsidiary Guarantee. Section 3.2.7. All properties and assets of each Subsidiary of Borrower which has executed a Subsidiary Guarantee, including goods, accounts receivable, inventory, contract rights, accounts, documents, instruments and chattel paper, business and financial records and general intangible assets of each such Subsidiary (including all Capital Stock of any Subsidiaries of any such Subsidiary), and all proceeds thereof, as more particularly defined in or pursuant to a Subsidiary Pledge Agreement and a Subsidiary Security Agreement. SECTION 4. REPRESENTATIONS AND WARRANTIES In order to induce the Administrative Agent, the Documentation Agent and the Lenders to enter into this Agreement and to make any Extension of Credit, each Credit Party, as applicable, makes the following representations and warranties to the Administrative Agent, the Documentation Agent and the Lenders, which shall be deemed made both before and after giving effect to the Triton Merger as of the date hereof and, except as otherwise provided in this Section 4., on the date of each Extension of Credit. Any knowledge acquired by the Administrative Agent, the Documentation Agent or the Lenders shall not diminish their rights to rely upon such representations and warranties. Section 4.1. Corporate Existence. Each Credit Party is a corporation duly incorporated, validly existing and in good standing under the laws of its respective state of incorporation and is duly qualified in all other jurisdictions in which the properties and assets owned, leased or operated by it, or the nature of the business conducted by it, make such qualification necessary and where failure to so qualify could reasonably be expected to have a Material Adverse Effect. Section 4.2. Corporate Authority. The execution, delivery and performance of this Agreement, the Notes, the Other Documents and the Transaction Documents, the consummation of the transactions herein and therein contemplated, the fulfillment of and compliance with the terms and provisions hereof and thereof have been duly authorized by all necessary corporate action of each Credit Party and are within its corporate power and will not result in a violation of its Governing Documents. Section 4.3. Binding Obligations. This Agreement, the Notes, the Other Documents and the Transaction Documents constitute the legal, valid and binding obligations of each Credit Party which is a party thereto, enforceable against it in accordance with their respective terms. Section 4.4. Noncontravention. The execution, delivery and performance by each Credit Party of this Agreement, the Notes, the Other Documents and the Transaction Documents will not violate any existing law, ordinance, rule, regulation or order of any Governmental Authority or result in a breach of any of the terms of, or constitute a default under, any Contractual Obligation to which any such Credit Party is a party or by which it or any of its properties or assets are bound or result in or require the imposition of any Encumbrance on any of such Credit Party's properties or assets except to the extent that such violation or breach could not reasonably be expected to have a Material Adverse Effect. Section 4.5. Permits. Each Credit Party possesses all material permits, authorizations, licenses, approvals, waivers and consents, without unusual restrictions or limitations, the failure of which to possess could not reasonably be expected to have a Material Adverse Effect, all of which are in full force and effect. Section 4.6. No Consents. The execution, delivery and performance of this Agreement, the Notes, the Other Documents and the Transaction Documents does not require any approval, consent or waiver under any Contractual Obligation except where the absence thereof could not reasonably be expected to have a Material Advise Effect. No approval, authorization, consent, waiver or order of, or registration, application or filing with, any Governmental Authority is required in connection with the transactions contemplated by this Agreement, the Notes, the Other Documents and the Transaction Documents except where the absence thereof could not reasonably be expected to have a Material Adverse Effect. Section 4.7. Financial Statements. Borrower has provided to the Administrative Agent and the Documentation Agent the consolidated Financial Statements of SSH and its Subsidiaries dated as of December 31, 1996 and related footnotes, audited and certified by Ernst & Young, LLP. Borrower has also provided to the Administrative Agent and the Documentation Agent the internally prepared consolidated Financial Statements of SSH and its Subsidiaries dated as of February 28, 1997, certified by the chief financial officer of Borrower but subject, however, to normal, recurring year-end adjustments that shall not in the aggregate be material in amount. All Financial Statements of Borrower heretofore provided to the Administrative Agent and the Documentation Agent present fairly the financial condition and results of business operations of SSH and its Subsidiaries for the periods indicated in accordance with GAAP. Neither SSH, Borrower nor any of their Subsidiaries has any material direct or contingent liabilities, liabilities for taxes, unusual commitments or unrealized or unanticipated losses not disclosed in such Financial Statements. Since the date of the latest dated consolidated balance sheet included in the Financial Statements specified in this Section 4.7., there has been no development or event which could reasonably be expected to have a Material Adverse Effect and no Dividends have been declared or made to stockholders, nor has any of its Capital Stock been purchased or acquired by any Person in any manner nor has SSH, Borrower or any of their Subsidiaries made any Investment except as set forth on Schedule 4.7 attached hereto. Section 4.8. Financial Forecasts. Borrower has provided to the Administrative Agent and the Documentation Agent forecasted Financial Statements together with appropriate supporting details and a statement of the underlying assumptions, prepared on a monthly basis covering the one (1) year period commencing on May 1, 1997 and a pro forma consolidated balance sheet for SSH as of the Closing Date reflecting the consummation of the Triton Merger (the "Forecasts"). The Forecasts have been prepared in good faith and have a reasonable basis. Section 4.9. Financial Information. All written data, reports and information which any Credit Party has supplied to the Administrative Agent, the Documentation Agent or the Lenders or caused to be so supplied by a third party on its behalf in connection with this Agreement, was, at the time so supplied, when taken as a whole, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information at such time in light of the circumstances under which such information was provided. Section 4.10. Business Relationships. There exists no actual or, to any Credit Party's knowledge threatened, termination, cancellation or limitation of, or any modification or change in, the business relationship of any Credit Party with any customer or group of customers, or with any supplier (other than in the ordinary course of business where one supplier is replaced by another offering terms which are no less favorable to such Credit Party) which could reasonably be expected to have a Material Adverse Effect. Section 4.11. Brokers. No broker or finder has brought about the obtaining, making or closing of, and no broker's or finder's fees or commissions will be payable by any Credit Party or its Affiliates to any Person in connection with, the transactions contemplated by this Agreement. Section 4.12. Use of Proceeds. Borrower is not an "investment company," or a company "controlled by" an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (14 U.S.C. 80(a)(1) et seq.). No Extension of Credit, the application of the proceeds and repayment thereof by Borrower or the performance of the transactions contemplated by this Agreement will violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. The proceeds of each Extension of Credit will be used only for the purposes set forth in this Agreement. None of the proceeds of any Extension of Credit will be used, or have been used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any "margin stock" or for any other purpose which might constitute such Extension of Credit a "purpose credit" within the meaning of said Regulation U or Regulations G or X of the Federal Reserve Board. Borrower will not take, or permit any Person acting on its behalf to take, any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. Section 4.13. Statutory Compliance. Each Credit Party is in compliance with all material laws, ordinances, rules, regulations and orders of any Governmental Authority applicable to it, its properties or assets or the business conducted by it (excepting ERISA and Environmental Laws which are the subject of other provisions of this Agreement), except where non-compliance could not reasonably be expected to have a Material Adverse Effect. Section 4.14. Commitments. No Credit Party has any fixed, contingent or other obligations to issue any of its Capital Stock except as set forth on Schedule 4.14. attached hereto. Section 4.15. Events of Default. No Default or Event of Default has occurred and is continuing. Section 4.16. Other Defaults. No Credit Party is in default in the performance, observance or fulfillment of any Contractual Obligation which could reasonably be expected to have a Material Adverse Effect. Section 4.17. Taxes. Each Credit Party has filed all tax returns and reports required to be filed by it with any Governmental Authority and has paid in full, or made adequate provisions or established adequate reserves in accordance with GAAP for, the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due or claimed to be due on or in respect to such tax returns and reports. Section 4.18. Ownership of Borrower. SSH is the holder of all of the issued and outstanding shares of capital stock of Borrower, and no other Person has any rights and/or claim to any issued or unissued shares of such capital stock. Section 4.19. Solvency. Both before and after giving effect to (a) any Extension of Credit to be made on the Closing Date or such other date on which any Extension of Credit requested hereunder is made, (b) the disbursement of the proceeds of any such Extension of Credit pursuant to the instructions of Borrower, (c) the Triton Merger and the other transactions contemplated by this Agreement, the Other Documents and the Transaction Documents and (d) the payment and accrual of costs and expenses incurred in connection with the foregoing, each Credit Party is Solvent. No Credit Party is contemplating either the filing of a petition by it under Bankruptcy Code or any state bankruptcy or insolvency law or the liquidating of all or a major portion of its properties and assets, and no Credit Party has any knowledge of any Person contemplating the filing of any such petition against it. Section 4.20. Business Name. Each of Borrower and its Subsidiaries conducts its business solely through the names set forth on Schedule 11 of the Collateral Disclosure List, without the use of any trade name, or the intervention of or through any other Person. Neither Borrower nor any of its Subsidiaries has, except as set forth in the Collateral Disclosure List, during the preceding five (5) years, conducted its business through any other name or trade name or been the surviving corporation in a merger or consolidation or acquired all or substantially all of the assets of any other Person. Section 4.21. Affiliate Contracts. Except as otherwise provided in this Agreement or as set forth on Schedule 4.21. hereof, all contracts and transactions between any Credit Party and any Affiliate or Subsidiary of such Credit Party have been executed or will be executed on such terms as would be contained in an agreement executed at arms' length with an unrelated third party. Section 4.22. Capitalization. The outstanding shares of Capital Stock of each Credit Party which have been pledged to the Administrative Agent for the ratable benefit of the Lenders under the Security Documents have been duly issued and are fully paid and non-assessable. Section 4.23. Litigation. Except as set forth on Schedule 4.23 attached hereto, there are no actions, suits or proceedings by or before any Governmental Authority or any arbitration or alternate dispute resolution proceeding, pending or, to the knowledge of any Credit Party or any of its officers, threatened, against any Credit Party or its properties and assets, which if adversely determined, could reasonably be expected to have a Material Adverse Effect. Section 4.24. Title to Properties. Each of Borrower and its Subsidiaries has good and marketable title to all of its properties and assets as are reflected in the Financial Statements referred to in Section 4.7. (except such properties, assets or rights as have been disposed of in the ordinary course of business since the date thereof), free from all Encumbrances except Permitted Encumbrances or those Encumbrances disclosed in Schedule 4.24. attached hereto, and, free from all defects of title that could reasonably be expected to have a Material Adverse Effect. The properties, assets and rights of Borrower and its Subsidiaries are sufficient to permit Borrower and such Subsidiaries to conduct the business in which it is presently engaged. Borrower and its Subsidiaries possess all trademarks, service marks, trade names, trade service styles, copyrights and patents that may be necessary to own their properties and assets, and to conduct their business as it is presently conducted or as intended to be conducted hereafter, without any infringement or conflict with the rights of any other Person or any violation of law which could reasonably be expected to have a Material Adverse Effect. Section 4.25. Labor Relations. No Credit Party is a party to any collective bargaining or other agreement with any union and there are no material grievances, disputes or controversies with any union or other organization of such Credit Party's employees, or threats of strikes, work stoppages or demands by any union or such other organization. Section 4.26. Contingent Obligations. No Credit Party is a party to any Guarantee or other similar type of agreement, and it has not offered its endorsement to any Person which would in any way create a contingent liability (except by endorsement of negotiable instruments payable at sight for deposit or collection or similar banking transactions in the ordinary course of business). Section 4.27. Subsidiaries. As of the date of this Agreement, all of the Subsidiaries and Affiliates of Borrower are set forth on Schedule 13 of the Collateral Disclosure List. Borrower or a Subsidiary of Borrower is the owner free and clear of all Encumbrances, of all of the issued and outstanding Capital Stock of each Subsidiary. Neither Borrower nor any of its Subsidiaries is engaged in any joint venture, partnership or other business arrangement with any other Person except as described on said Schedule 13. Section 4.28. ERISA. Each Credit Party and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in substantial compliance in all material respects with the applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA except where non-compliance or liability could not reasonably be expected to have a Material Adverse Effect; and no Prohibited Transaction or Reportable Event has occurred with respect to any Plan. Section 4.29. Environmental Protection. Except as set forth on Schedule 4.29. attached hereto: (a) The business operations of each of Borrower and its Subsidiaries comply in all material respects with all Environmental Laws except where non-compliance could not reasonably be expected to have a Material Adverse Effect. (b) Neither Borrower nor any of its Subsidiaries has received (i) any notice or claim to the effect that it is or may be liable to any Person as a result of the Release or threatened Release of any Hazardous Materials or (ii) any letter or request for information under CERCLA or any other Environmental Laws, and, to the best of Borrower's or any such Subsidiaries' actual knowledge, based upon reasonable investigation, the business operations of Borrower and such Subsidiaries are not the subject of any investigation by any Governmental Authority evaluating whether any remedial action is needed to respond to a Release or threatened Release of any Hazardous Material or claim, or threatened lawsuit or claim arising under or related to any Environmental Law except, in each case, where non-compliance could not reasonably be expected to have a Material Adverse Effect. (c) Borrower, its Subsidiaries and their properties, assets and operations are not subject to any outstanding written order or agreement with any Governmental Authority or private party respecting any Environmental Laws except for any such written order or agreement which could not reasonably be expected to have a Material Adverse Effect. (d) Neither Borrower nor any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment or disposal of Hazardous Materials, and none of the operations of Borrower or any such Subsidiaries involve the generation, transportation, treatment, storage or disposal of Hazardous Materials except where such activity could not reasonably be expected to have a Material Adverse Effect. (e) To the best of Borrower's and its Subsidiaries' actual knowledge, based upon reasonable investigation, no Hazardous Material exists on, under or about any of the properties or assets of Borrower or any such Subsidiaries, real or personal, in a manner that is likely to give rise to any claim or suit against Borrower or any such Subsidiaries, and neither Borrower nor any Subsidiary of Borrower has filed any notice or report of a Release of any Hazardous Materials that could give rise to any such claim or suit against Borrower except, in each case, where such claim or suit or filing could not reasonably be expected to have a Material Adverse Effect. Section 4.30. Investments. Except as set forth on Schedule 4.30., attached hereto no Credit Party has an Investment in any Person other than existing Investments in Subsidiaries and Qualified Investments. Section 4.31. Security Documents. (a) The provisions of each Security Document are effective to create in favor of the Administrative Agent for the ratable benefit of the Lenders, a legal, valid and enforceable lien or security interest in all right, title and interest of the Credit Party which is a party thereto in the Collateral described therein. (b) (i) When UCC financing statements, assignment and/or amendments have been filed in the offices in the jurisdictions listed in Schedule 3 of the Collateral Disclosure List, the Borrower Security Agreement shall constitute a fully perfected first lien on, and security interest in, all right, title and interest of Borrower in the Collateral described therein, which can be perfected by such filing. (ii) When certificates representing the Pledged Stock (as such term is defined in the SSH Pledge Agreement) are delivered to the Administrative Agent, together with stock powers endorsed in blank by a duly authorized officer of SSH, the SSH Pledge Agreement shall constitute a fully perfected first lien on, and security interest in, all right, title and interest of SSH in the Collateral described therein. (iii) When certificates representing the Pledged Stock (as such term is defined in the Alarmguard Holdings Pledge Agreement) are delivered to the Administrative Agent, together with stock powers endorsed in blank by a duly authorized officer of Alarmguard Holdings, the Alarmguard Holdings Pledge Agreement shall constitute a fully perfected first lien on, and security interest in, all right, title and interest of Alarmguard Holdings in the Collateral described therein. (iv) When the Leasehold Mortgage, or assignments and amendments thereto, have been filed in the offices and jurisdictions listed in Schedule 2 of the Collateral Disclosure List, each Leasehold Mortgage shall constitute a fully perfected first lien on all right, title and interest of Borrower in the Collateral described therein. (c) Borrower does not own any properties or assets, or have any interest in any properties or assets, that is not subject to a fully perfected first priority lien on, or security interest in, such properties or assets in favor of the Administrative Agent, other than properties or assets having an aggregate fair market value at any one time not exceeding $50,000.00. Section 4.32. Insurance. Each of Borrower and its Subsidiaries maintains its properties and assets insured against fire and other hazards (so called "All Risk Coverage") in amounts and with companies set forth on Schedule 4.32. attached hereto covering such risks as is customary in such Credit Party's line of business. Borrower and each of its Subsidiaries also maintain public liability coverage against claims for personal injuries or death, errors and omissions, directors and officers coverage, business interruption, worker's compensation, employment or similar insurance with coverages and in amounts as set forth on Schedule 4.32. SECTION 5. CONDITIONS TO OBLIGATION OF THE LENDERS The Administrative Agent, the Documentation Agent and the Lenders shall have no obligation under this Agreement to amend and restate the Original Credit Agreement or to continue or make any Extension of Credit unless and until they are satisfied, in their sole and absolute discretion, that all of the following conditions shall have been satisfied prior to or on the Closing Date: Section 5.1. Representations and Warranties True. The representations and warranties contained in Section 4 are true and correct, and each Credit Party, by a Responsible Officer, shall have so certified to the Administrative Agent, the Documentation Agent and the Lenders. Section 5.2. Delivery of Documents. Each Credit Party shall have duly executed and delivered to the Administrative Agent, the Documentation Agent and the Lenders, in form and substance satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel, this Agreement, the Notes, the Other Documents and all further documents as the Administrative Agent, the Documentation Agent and the Lenders may request to evidence the Obligations or to create, perfect or continue any security interest or lien contemplated by this Agreement and the Other Documents. In addition, the Administrative Agent, the Documentation Agent and the Lenders shall have received or agreed in writing to waive or delay the receipt of: Section 5.2.1. Copies of all corporate action taken by each Credit Party to authorize the execution and delivery of this Agreement, the Notes, the Other Documents and the Transaction Documents, together with a certificate of the corporate secretary of such Credit Party certifying that the same are true, correct and complete as of the Closing Date. Section 5.2.2. Copies of each Credit Party's Governing Documents, together with a certificate of the corporate secretary of such Credit Party certifying that the same are true, correct and complete as of the Closing Date. Section 5.2.3. A certificate issued by the office of the Secretary of State of the state of each Credit Party's incorporation to the effect that each such Credit Party is legally existing and in good standing under the laws of such states. Section 5.2.4 A certificate issued by the office of the Secretary of State of each state in which each Credit Party is qualified as a foreign corporation to the effect that each such Credit Party is duly qualified and in good standing as a foreign corporation under the laws of such states. Section 5.2.5. A certificate of the corporate secretary of each Credit Party certifying to the incumbency and signatures of all officers of such Credit Party who are authorized to execute this Agreement, the Notes, the Other Documents and the Transaction Documents. Section 5.2.6. An ALTA title insurance policy with respect to the Leasehold Mortgages satisfactory in form and substance to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel. Section 5.2.7. UCC and land record searches conducted by a Person satisfactory to the Administrative Agent and the Documentation Agent for each Credit Party under each name set forth on the Collateral Disclosure List listing the filings against each such Credit Party as debtor under such names at each filing office in each jurisdiction in which any Collateral or Credit Party is located. Section 5.2.8. Objective evidence satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel that the Indebtedness (other than Indebtedness under this Agreement and the Steffanato Note) of each Credit Party to any Person in excess of $600,000 as of the Closing Date constitutes Subordinated Indebtedness. Section 5.2.9. Such UCC financing statements, assignments and amendments as the Administrative Agent, the Documentation Agent and the Lenders deem necessary to perfect any security interests contemplated by this Agreement or the Other Documents and such other instruments of assignment acceptable to the Administrative Agent from IBJ Schroder Bank & Trust Company in its capacity as the Agent for the lenders under the Original Credit Agreement for the purpose of assigning to the Administrative Agent for the ratable benefit of the Lenders the Encumbrances granted to IBJ Schroder Bank & Trust Company as Agent to secure the obligations under the Original Credit Agreement. Section 5.2.10. Insurance policies and certificates evidencing adequate insurance coverage in amounts satisfactory to the Administrative Agent and the Documentation Agent on the Credit Parties' properties and assets which insurance policies shall name the Administrative Agent as an additional insured/loss payee. Section 5.2.11. An environmental certificate and indemnity agreement executed by Borrower satisfactory in form and substance to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel (the "Environmental Certificate"). Section 5.2.12. True and correct copies of the employment agreements by and between any Credit Party and Russell MacDonnell and David Heidecorn. Section 5.2.13. Such further documents, instruments and agreements as the Administrative Agent, the Documentation Agent and the Lenders shall reasonable request, all satisfactory in form and substance satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel. Section 5.3. Validity of Liens. All Encumbrances in the Collateral shall have been created or maintained in favor of the Administrative Agent for the benefit of the Lenders, which Encumbrances shall constitute legal, valid and enforceable and, unless otherwise consented to by the Administrative Agent, the Documentation Agent and the Lenders, first security interests in and liens upon the Collateral. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the sole and absolute discretion of the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel to create said Encumbrances shall have been made, taken and/or effected. Section 5.4. Transaction Documents. The Administrative Agent and the Documentation Agent shall have received, with a copy for each Lender, a true and correct copy of the Transaction Documents, including all schedules and exhibits thereto, and such other documents, agreements and instruments executed and delivered in connection therewith or otherwise affecting the terms thereof. The terms and conditions of the transactions contemplated by the Transaction Documents shall have not been amended, modified or supplemented in any manner from those terms and conditions set forth in the Proxy Statement/Prospectus dated March 14, 1997 issued by Alarmguard Holdings (then known as Triton Group, Ltd.) to its stockholders. Section 5.5. Mergers. The Triton Merger and the AG Holdings Merger shall have been consummated in all material respects in accordance with the terms and conditions of the Transaction Documents and applicable law, including the filing of certificates of merger with the Secretary of the State of Delaware, and the Administrative Agent and the Documentation Agent shall have received objective evidence satisfactory to it as to the consummation of such mergers as aforesaid. Section 5.6. Capitalization. The Administrative Agent, the Documentation Agent and the Lenders shall have received objective evidence satisfactory to it that, immediately after the consummation of the Triton Merger and any Extension of Credit to be made on the Closing Date, that the capitalization of Borrower, SSH, and Alarmguard Holdings shall be as set forth on Schedule 5.6 attached hereto, the terms and conditions, and documentation, of all matters relating to such capitalization shall be in form and substance satisfactory to the Administrative Agent, the Documentation Agent and the Lenders and Alarmguard Holdings shall possess cash or cash equivalents in the form of Qualified Investments in an amount not less than $14,000,000.00. Section 5.7. RMR. The Administrative Agent, the Documentation Agent and the Lenders shall have received a certificate of a Responsible Officer of Borrower, satisfactory in form and substance to the Administrative Agent and the Documentation Agent, certifying that RMR as of the Closing Date is at least $1,400,000.00. The Administrative Agent, the Documentation Agent and the Lenders shall have received the Price Waterhouse Report. Section 5.8. Direct Marketing Program. SSH shall have transferred and assigned to Borrower operational responsibility for and all of its right, title and interest in and to the Direct Marketing Program in a manner satisfactory to the Administrative Agent, the Documentation Agent and the Lenders. Section 5.9. Opinions of Counsel. The Administrative Agent, the Documentation Agent and the Lenders shall have received from legal counsel for the Credit Parties written opinions, in the form of Exhibit G-1 and Exhibit G-2 attached hereto, satisfactory in form and substance to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel. The Administrative Agent, the Documentation Agent and the Lenders shall have received from legal counsel to Alarmguard Holdings (then known as Triton Group, Ltd.) the written opinion to be delivered to SSH in connection with the Triton Merger. Section 5.10. Payment of Fees. Borrower shall have paid any applicable fees and expenses due to the Administrative Agent, the Documentation Agent and the Lenders at closing, including the fees and expenses of their legal counsel. Section 5.11. Legal Matters. All legal matters incident to the transactions hereby contemplated shall be satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel. SECTION 6. CONDITIONS TO EXTENSION OF CREDIT The Administrative Agent, the Documentation Agent and the Lenders shall have no obligation to make any Extension of Credit, including the initial Extension of Credit, unless and until, they are satisfied, in their sole and absolute discretion, that all of the following conditions shall have been fulfilled prior to or contemporaneously with the making of such Extension of Credit. Section 6.1. In General. Section 6.1.1. Notice of Borrowing. The Administrative Agent shall have received, in a timely manner, a Notice of Borrowing in a form satisfactory to the Administrative Agent. Section 6.1.2. RMR Report. The Administrative Agent and the Documentation Agent shall have received a RMR Report, in a timely manner, as required under Section 7.2.3. hereof, satisfactory in form and substance to the Administrative Agent and the Documentation Agent showing that the Borrowing Base is sufficient to permit the Lenders to make the requested Extension of Credit. Section 6.1.3. Truth of Representations and Warranties. All of the representations and warranties set forth in Section 4 of this Agreement (with the exception of representations and warranties which, by their terms, are limited to an earlier date) are true and correct as of the date on which the requested Extension of Credit is made. Section 6.1.4. No Default. No Default or Event of Default shall have occurred and be continuing or shall occur as a result of the requested Extension of Credit or the application of the proceeds of such Extension of Credit. Section 6.1.5. Payment of Fees. Borrower shall have paid any applicable fees and expenses due to the Administrative Agent, the Documentation Agent and the Lenders including any fees and expenses of their legal counsel. Section 6.1.6. Corporate Action. The corporate action of each Credit Party referred to in Section 5.2.1. continues to be in full force and effect and the incumbency of officers continues to be as stated in the certificates of incumbency delivered pursuant to Section 5.2.6. or as subsequently reflected in a new certificate of incumbency delivered to the Administrative Agent in connection with the requested Extension of Credit. Section 6.1.7. Legal Matters. All legal matters incident to the transactions contemplated by the requested Extension of Credit shall be satisfactory to the Administrative Agent, the Documentation Agent and their legal counsel and no change shall have occurred in any law or regulation or interpretation thereof, which, in the opinion of either the Administrative Agent or, the Documentation Agent and their respective legal counsel, would make it illegal or against the policy of any Governmental Authority for the Lenders to make the requested Extension of Credit. Section 6.2. Pro Acquisition. In addition to the satisfaction of the conditions set forth in Section 6.1. hereof, the obligation of the Lenders to make any Acquisition Loan in connection with the Pro Acquisition is subject to the satisfaction of the following conditions precedent: Section 6.2.1. Pro Acquisition Documents. The Administrative Agent, the Documentation Agent and the Lenders shall have received the proposed form of Pro Acquisition Documents and any amendments thereto as in effect on the Closing Date. Section 6.2.2. Financial Information. The Administrative Agent, the Documentation Agent and the Lenders shall have received: (i) a copy of Protective Alarms, Inc.'s most recent audited Financial Statements and internally prepared Financial Statements as of February 28, 1997; (ii)a forecasted RMR Report reflecting the consummation of the Pro Acquisition prepared as of April 30, 1997; (iii)an estimated analysis of the purchase price for the Pro Acquisition and the sources of funds to be used for the payment thereof; (iv)a summary analysis of the RMR being acquired in connection with the Pro Acquisition; and (v) such further financial and related information as the Administrative Agent, the Documentation Agent and the Lenders may request in connection with the Pro Acquisition, all of the foregoing items set forth in subsections (i) through (v) above to be satisfactory in form and substance to the Administrative Agent, the Documentation Agent and the Lenders. Section 6.2.3. Liabilities. Borrower shall not incur or assume any Indebtedness, Contractual Obligations, Contingent Liabilities or other liabilities in connection with the Pro Acquisition except for Acquisition Loans necessary to pay all or a portion of the purchase price relating thereto or as set forth in the Pro Acquisition Documents. Section 6.2.4. Collateral. Borrower shall have delivered an updated Collateral Disclosure List reflecting the proposed consummation of the Pro Acquisition. Borrower and each other Credit Party shall take such actions, and execute and deliver such documents, agreements and instruments as the Administrative Agent and the Documentation Agent and their respective legal counsel shall require to insure that the Administrative Agent obtains a first priority perfected lien on, and the right to access any of the properties and assets (other than the Capital Stock of and the properties and assets of Protective Alarms of Canada, Inc.) acquired by Borrower or such other Credit Party in connection with the Pro Acquisition, including but not being limited to uniform commercial code financing statements and termination statements, all of the foregoing to be acceptable to the Administrative Agent, the Documentation Agent, the Lenders and their respective legal counsel. Section 6.2.5. Structure and Subsidiaries. The proposed Acquisition will be effected through the merger of Protective Alarms, Inc. with and into Borrower concurrently with the consummation of the Pro Acquisition. Interstate Central Systems, Inc. shall, if required by the Lenders, become a party to this Agreement by executing a joinder agreement in a form satisfactory to the Administrative Agent and its legal counsel, shall guarantee the Obligations pursuant to a Subsidiary Guarantee, shall grant a lien and security interest in all of its properties and assets to the Administrative Agent for the ratable benefit of the Lenders pursuant to a Subsidiary Security Agreement and Borrower shall pledge all of the Capital Stock of such Subsidiary to the Administrative Agent for the ratable benefit of the Lenders, all in a manner satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their respective legal counsel. Section 6.2.6. No Default. Borrower shall have certified by a Responsible Officer that no Default or Event of Default exists as of the date on which the Pro Acquisition shall be consummated, or would result as a result of the making of any Acquisition Loan in connection therewith, the consummation of the Pro Acquisition or the application of the proceeds of such Acquisition Loan. Section 6.2.7. Certificate as to the Pro Acquisition. Borrower shall deliver a certificate to the Administrative Agent, the Documentation Agent and the Lenders stating that (i) the Pro Acquisition shall have been consummated in accordance with the terms and conditions of the Pro Acquisition Documents in effect on the Closing Date without material amendment, modification or revision and (ii) none of the parties to the Pro Acquisition shall have failed to perform any material agreement, obligation or covenant or make any representation or warranty required to be performed or made by such party, as applicable, in connection therewith. Section 6.2.8. Legal Opinions. The Administrative Agent, the Documentation Agent and the Lenders shall have received from legal counsel for the Credit Parties a written opinion satisfactory in form and substance to the Administrative Agent, the Documentation Agent, the Lenders and their legal counsel as to certain matters relating to the Pro Acquisition. The Administrative Agent, the Documentation Agent and the Lenders shall have received from legal counsel to Protective Alarms, Inc. the written opinion to be delivered to SSH in connection with the Pro Acquisition. Section 6.3. Subsequent Acquisition Loans. In addition to the satisfaction of the conditions set forth in Section 6.1. hereof, the obligation of the Lenders to make any Acquisition Loan is subject to the satisfaction of the following conditions precedent: Section 6.3.1. Consent of Lenders for Other Acquisitions. The Administrative Agent, the Documentation Agent and the Lenders shall have consented to the proposed Acquisition in writing; provided, however, that the consent of the Administrative Agent, the Documentation Agent and the Lenders shall not be required if: (i) the proposed Acquisition involves a purchase price (including any Deferred Purchase Price Obligations) which does not exceed (x) $2,500,000.00 or (y) $7,500,000.00 if $5,000,000.00 or more of the purchase price paid in connection with such Acquisition consists of the capital stock of Alarmguard Holdings; and (ii)the purchase price (including any Deferred Purchase Price Obligations) for the proposed Acquisition, when aggregated with the purchase price (including Deferred Purchase Price Obligations) of all other Acquisitions completed by Borrower (other than the Pro Acquisition) since the Closing Date, does not exceed $15,000,000; and (iii)the proposed Acquisition consists solely of, and is structured as, the acquisition by Borrower of assets which consist of, Customer Contracts (and, in each case, inventory and vehicles not to exceed $100,000 of the purchase price thereof) and will not result in the creation of a new Subsidiary of Borrower; and (iv)the proposed Acquisition will not result in an expansion of Borrower's business outside of the geographic areas set forth on Schedule 6.3. attached hereto. Section 6.3.2. Liabilities. Neither Borrower nor any Subsidiary of Borrower shall incur or assume any Indebtedness, Contractual Obligations, Contingent Liabilities or other liabilities in connection with the proposed Acquisition except for Acquisition Loans necessary to pay all or a portion of the purchase price relating thereto. Section 6.3.3. Subordination of Deferred Purchase Price Obligations. Any Deferred Purchase Price Obligations shall comply with the terms of Section 8.1.(g) hereof. Section 6.3.4. Collateral. Borrower and each other Credit Party shall promptly take such actions, and execute and deliver such documents, agreements and instruments as the Administrative Agent and the Documentation Agent and their respective legal counsel shall require to insure that the Administrative Agent obtains a first priority perfected lien on any of the properties and assets acquired by Borrower or such other Credit Party in connection with the proposed Acquisition, including but not being limited to uniform commercial code financing statements and termination statements, all of the foregoing to be acceptable to the Administrative Agent, the Documentation Agent, the Lenders and their respective legal counsel. Section 6.3.5. Subsidiaries. If the proposed Acquisition will be effected by Borrower through the establishment of a new Subsidiary or the acquisition of the Capital Stock of a Person with the effect of establishing such Person as a new Subsidiary of Borrower, such Subsidiary shall become a party to this Agreement by executing a joinder agreement in a form satisfactory to the Administrative Agent and its legal counsel, shall guarantee the Obligations pursuant to a Subsidiary Guarantee, shall grant a lien and security interest in all of its properties and assets to the Administrative Agent for the ratable benefit of the Lenders pursuant to a Subsidiary Security Agreement and/or Subsidiary Pledge Agreement and Borrower shall pledge all of the Capital Stock of such Subsidiary to the Administrative Agent for the ratable benefit of the Lenders, all in a manner satisfactory to the Administrative Agent, the Documentation Agent, the Lenders and their respective legal counsel. Section 6.3.6. No Default. Borrower shall have certified by a Responsible Officer that no Default or Event of Default exists as of the date of the requested Acquisition Loan, or would result as a result of the making of such Acquisition Loan, the consummation of the proposed Acquisition or the application of the proceeds of such Acquisition Loan. Section 6.3.7. Hostile Acquisitions. The proposed Acquisition shall not be considered by the Administrative Agent, the Documentation Agent and the Lenders, in their sole and absolute discretion, to be a so-called "hostile acquisition." Section 6.3.8. RMR From Permitted Acquisitions. Borrower shall not include any RMR resulting from an Acquisition which does not require the consent of the Lenders under Section 6.3.1. hereof within the Borrowing Base unless and until Borrower has delivered to the Administrative Agent a Notice of Borrowing with respect to the Proposed Acquisition, accompanied by a true and correct copy of the proposed draft purchase and sale agreement relating to the Acquisition. Borrower shall not include any RMR resulting from any Acquisition requiring the consent of the Lenders unless and until Borrower has satisfied (i) any and all terms and conditions imposed by the Lenders in connection with the provision of such consent and (ii) all of the legal matters associated with such Acquisition have been satisfied to the satisfaction of the Administrative Agent and its legal counsel, including, but not being limited to, the confirmation of the filing of any and all documents, agreements and instruments required under Section 6.3.4. hereof and the receipt of opinions from legal counsel to Borrower as to certain matters relating to the proposed Acquisition satisfactory in form and substance to the Administrative Agent, the Lenders and their legal counsel. Section 6.3.9. Certificate as to the Proposed Acquisition. Within three (3) Business Days following the consummation of any Permitted Acquisition, Borrower shall deliver a certificate to the Administrative Agent, the Documentation Agent and the Lenders stating that (i) the proposed Acquisition shall have been consummated in accordance with (x) the terms and conditions of the Acquisition Documents relating thereto and (y), in the case of Acquisitions requiring the prior consent of the Lenders, the terms and conditions approved by the Lenders without material amendment, modification or revision, (ii) none of the parties to the proposed Acquisition shall have failed to perform any material agreement, obligation or covenant or make any representation or warranty required to be performed or made by such party, as applicable, in connection therewith and (iii) the Administration Agent has a first priority Encumbrance in the Collateral acquired. If Borrower fails to deliver such certificate within such three (3) Business Day period, then any RMR purchased in connection with such Acquisition shall be immediately deleted from the Borrowing Base and Borrower shall, if necessary comply with the requirements of Section 2.1.14.(a) hereof. SECTION 7. AFFIRMATIVE COVENANTS Borrower and each of the other Credit Parties, as applicable, covenant and agree that from the date hereof until the payment and performance in full of the Obligations and the termination of the Commitments: Section 7.1. Financial Statements and Reporting Requirements. Borrower shall furnish to the Administrative Agent, the Documentation Agent and the Lenders: Section 7.1.1. Annual Reports. As soon as available, but in no event later than ninety (90) days after the end of each Fiscal Year of Borrower, consolidated Financial Statements for such Fiscal Year of (i) Alarmguard Holdings and its Subsidiaries and (ii) Borrower and its Subsidiaries, in each case audited and certified by Ernst & Young (or other independent certified public accountants of nationally recognized standing) and consisting of a consolidated balance sheet as of the end of such Fiscal Year and the related statements of income and statements of cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, and reported on without a Qualification. Further, concurrently with the delivery of the foregoing, a report from Ernst & Young (or other independent certified public accounts of nationally recognized standing) setting forth the result of certain agreed upon procedures to be performed by Ernst & Young (or such other accountants) with respect to the Direct Marketing Program, such procedures to be mutually agreed upon by Borrower and the Required Lenders within the time period set forth on Schedule 11.1.(l) attached hereto. Section 7.1.2. Monthly Reports. As soon as available, but in no event later than thirty (30) days after the end of each calendar month (forty-five (45) days if the end of such calendar quarter coincides with the end of a Fiscal Quarter), an unaudited, internally prepared consolidated and consolidating balance sheet of Borrower, the Direct Marketing Program and the consolidated Subsidiaries of Borrower as of the end of such calendar month, and the related unaudited, internally prepared consolidated and, if applicable, consolidating statements of income and statements of cash flows for such calendar month and the portion of the Fiscal Year through such calendar month, all in form and substance satisfactory to the Administrative Agent, the Documentation Agent and the Required Lenders and setting forth in each case in comparative form the figures for the previous Fiscal Year and the Forecasts, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated Financial Statements of Borrower and its consolidated Subsidiaries but subject, however, to normal, recurring year-end adjustments that shall not in the aggregate be material in amount and the absence of footnotes. Section 7.1.3. GAAP Compliance. All Financial Statements provided under this Section 7.1. shall fairly present the financial conditions and results of business operations for the periods indicated accordance with GAAP (but subject, in the case of monthly or other interim Financial Statements, to the absence of footnotes and year-end adjustments). Section 7.2. Certificates and Other Information. Borrower shall furnish to the Administrative Agent, the Documentation Agent and the Lenders: Section 7.2.1. Default Certificate. Concurrently with the delivery of the Financial Statements referred to in Section 7.1.1. above, a certificate of Ernst & Young, LLP (or such other independent certified public accountant) reporting on such Financial Statements stating that in making the examination necessary therefor no knowledge was obtained of the existence of any Default or Event of Default as a result of non-compliance by any Credit Party with any of the financial covenants set forth in Section 9 hereof except as set forth in such certificate. Section 7.2.2. Officer's Certificate. Concurrently with the delivery of the Financial Statements referred to in Section 7.1.1. and 7.1.2. above, a certificate of a Responsible Officer substantially in the form of Exhibit H attached hereto, (i) stating that, to the best of such officer's knowledge, Borrower and each other Credit Party, as applicable, during the period covered by any such Financial Statements has observed or performed all of its covenants, obligations and other agreements, and satisfied the terms and conditions, contained in this Agreement to be observed, performed or satisfied by Borrower or such Credit Party, and that such Responsible Officer has obtained no knowledge of the occurrence or continuance of any Default or Event of Default except as set forth in such certificate and (ii) showing in detail the breakdown and calculation of Borrower's compliance with the financial covenants set forth in Section 9 of this Agreement. Section 7.2.3. RMR Report. Concurrently with the delivery of the Financial Statements referred to in Section 7.1.2. above, a report setting forth RMR for the month covered by such Financial Statements and such other information in respect of RMR, any component thereof and the calculation thereof as the Administrative Agent or the Documentation Agent may require, and being accompanied by an internally prepared report reconciling said report and the information set forth thereon to such Financial Statements, all of the foregoing being in substantially the form of Exhibit I attached hereto, and being certified as being true, correct, complete, and calculated in accordance with the requirements of Section 1.142. hereof by a Responsible Officer (the "RMR Report"). Section 7.2.4. Forecasts. As soon as available, but in no event later than thirty (30) days after the end of each Fiscal Year, forecasts as to the operating budget and cash flow of Borrower and its Subsidiaries for the next succeeding Fiscal Year, and including a forecasted consolidated balance sheet and the related statement of income and statement of cash flow, and accompanied by a certificate of a Responsible Officer to the effect that such forecasts have been prepared in accordance with the standards set forth in Section 4.8. hereof and that such officer has no reason to believe that the same are false or misleading in any material respect. Section 7.2.5. Management and Other Reports. Within five (5) days following the receipt thereof, copies of any and all reports or similar documents submitted to any Credit Party by Ernst & Young, including, without limitation, any formally issued management letter commenting upon any Credit Party's internal controls, submitted by such accountants to management in connection with their annual audit report. Section 7.2.6. Shareholder and SEC Reports. Within ten (10) days after the same are sent, copies of all financial statements and financial and other reports which any Credit Party sends to its shareholders or which any such Credit Party makes or files with any securities exchange or the United States Securities and Exchange Commission (or any successor or analogous Governmental Authority), and promptly upon the availability of the same, copies of all other notices and proxy statements sent or made available and all final registration and prospectuses, if any, filed by any such Credit Party with any such securities exchange or Governmental Authority. Section 7.2.7. Insurance. During the month of September in each calendar year, a report of a reputable insurance broker with respect to the insurance maintained by Borrower and its Subsidiaries in accordance with the provisions of this Agreement and the Security Documents and such other supplemental reports relating thereto as the Administrative Agent and the Documentation Agent may reasonably request from time to time. Section 7.2.8. Acquisition Information. As soon as available, but in no event later than thirty (30) days following the consummation thereof, the following documents, agreements, reports and other information with respect to each Acquisition: (a) True and correct copies of any and all documents, agreements and instruments executed and delivered in connection with the Acquisition, together with all schedules and exhibits thereto, certified as true, correct and complete by a Responsible Officer of Borrower; (b) An updated Collateral Disclosure List reflecting the consummation of the Acquisition if the proposed Acquisition requires the consent of the Lenders under Section 6.3.1. hereof; (c) A pro forma consolidated balance sheet for Borrower reflecting the consummation of the Acquisition if the purchase price for the proposed Acquisition is greater than $2,500,000.00; and (d) Such other information as the Administrative Agent, the Documentation Agent or the Lenders may reasonably request relating to any such Acquisition. Section 7.2.9. Other Information. Promptly following any request therefor, such additional financial and other operating information in respect of the Credit Parties which the Administrative Agent, the Documentation Agent or any Lender may reasonably request from time to time. Section 7.3. Fire and Hazard Insurance. Each of Borrower and its Subsidiaries shall keep its properties and assets insured against fire and other hazards (so called "All Risk Coverage") in amounts and with companies reasonably satisfactory to the Administrative Agent and the Documentation Agent to the same extent and covering such risks as is customary in such Credit Party's line of business (but in no event shall such insurance fail to cover such risks or be in amounts less than the insurance coverages in effect on the Closing Date as set forth on Schedule 4.32. attached hereto) which policies shall name the Administrative Agent as first loss payee for the ratable benefit of the Lenders as its interest may appear. Borrower and each of its Subsidiaries shall also maintain public liability coverage against claims for personal injuries or death, errors and omissions, business interruption, worker's compensation, employment or similar insurance with coverage and in amounts satisfactory to the Administrative Agent and the Documentation Agent and as may be required by applicable law (but in no event shall such insurance fail to cover such risks or be in amounts less than the insurance coverages in effect on the Closing Date as set forth on Schedule 4.32. attached hereto). Such all risk policy shall name the Administrative Agent as an additional insured and provide for a minimum of thirty (30) days' written cancellation or material change notice to the Administrative Agent. Borrower agrees to deliver full information as to all of the aforesaid insurance policies to the Administrative Agent, the Documentation Agent and the Lenders upon request therefor. In the event of any loss or damage to the Collateral, Borrower shall give immediate written notice to the Administrative Agent and to its insurers of such loss or damage and shall promptly file proof of loss with its insurers. Borrower also agrees to review the foregoing insurance in connection with each Acquisition and increase the amount of coverage thereunder as a result of any such Acquisition if requested by the Required Lenders. Section 7.4. Maintenance of Existence. Except as otherwise permitted under Section 8 of this Agreement, each Credit Party shall preserve and maintain its corporate existence and its material rights, franchises and privileges, including its corporate name, in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable. Section 7.5. Preservation of Collateral. Each Credit Party shall preserve and maintain the Collateral in good repair, working order and operating condition (ordinary wear and tear excepted) and shall promptly notify the Administrative Agent of any event causing material loss in the value of the Collateral. Section 7.6. Taxes and Other Assessments. Each Credit Party shall pay and discharge, and maintain adequate reserves for the payment and discharge of, all taxes, assessments, government charges or levies, or claims for labor, supplies, rent or other obligations made against it or its properties and assets which, if unpaid, might become an Encumbrance against such Credit Party or its properties and assets, except liabilities which are being contested in good faith in appropriate proceedings. Each Credit Party shall file all Federal, state and local tax returns and other reports that it is required by law to file and shall promptly notify or cause notice to be given to the Administrative Agent of any pending or future audits of its income tax returns by the Internal Revenue Service or by any state in which any such Credit Party conducts business operations and the results of each such audit. Section 7.7. Books and Records; Inspection Rights. Each Credit Party will, and will cause each of its Subsidiaries to, keep proper books of record and account, in which full, true and complete entries are made of all dealings and transactions in all material respects in relation to its business and activities. Each Credit Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or the Documentation Agent (upon prior notice to the Administrative Agent),and as long as no Default or Event of Default shall have occurred, upon reasonable prior notice to Borrower, to visit and inspect its properties, to examine and make abstracts of its books and records, and to discuss its affairs, finances and condition with its officers and, subject to a representatives of any such Credit Party being provided the opportunity to be present, independent accountants, all at such reasonable times and as often as reasonably requested. In handling any information obtained in connection with any of the foregoing, the Administrative Agent, the Documentation Agent, the Lenders or their respective designees shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types, to maintain the confidentiality of any non-public information thereby received or received pursuant to Section 7.1. or Section 7.2. hereof except that disclosure of such information may be made (i) to Lender Affiliates in connection with their present or prospective business relations with Borrower; (ii) to prospective transferees or purchasers of an interest in the Obligations; (iii) as, in the opinion of Lender's legal counsel, required by law, regulation, rule or order, subpoena, judicial order or similar order; (iv) as may be requested or required in connection with the examination, audit or similar investigation of any Lender, (v) to any legal counsel or other professional advisors of the Administrative Agent, the Documentation Agent or any Lender, (vi) in connection with the exercise of any rights and remedies under this Agreement, the Notes or the Other Documents or any other litigation or proceeding to which the Administrative Agent, the Documentation Agent or any Lender is a party or (vii) to the extent that any such information ceases to be confidential through no fault of the Administrative Agent, the Documentation Agent or the Lenders. Section 7.8. Notices. Borrower shall promptly upon becoming aware of the occurrence of a Default or Event of Default notify the Administrative Agent and the Lenders thereof in writing. Borrower shall also advise the Administrative Agent and the Lenders as soon as practicable: (a) of any action, suit, or proceeding by or before any Government Authority or arbitration or alternate dispute resolution proceeding, which could reasonably be expected to have a Material Adverse Effect; (b) of any change in Borrower's independent certified public accountants from Ernst & Young; or (c) of any other matter which could be reasonably expected to have a Material Adverse Effect. Each notice pursuant to this Section 7.8. shall be accompanied by a statement of a Responsible Officer setting forth details relating to the matters reported therein and the action which Borrower or any other Credit Party proposes to take with respect thereto. Section 7.9. Maintenance of Permits. Except as otherwise permitted under this Section 7, Borrower and its Subsidiaries shall obtain and/or maintain in full force and effect all material permits, authorizations, licenses, approvals, waivers and consents which it presently possesses or which may become necessary in the future to conduct its business operations. Section 7.10. Use of Proceeds. Borrower will use the proceeds of any Extension of Credit solely for the purposes set forth in Section 2.1.11. hereof. Section 7.11. INTENTIONALLY OMITTED. Section 7.12. Additional Offices. Borrower shall give the Administrative Agent written notice of each additional facility or office of Borrower or its Subsidiaries to be opened after the Closing Date. Except to the extent set forth in any such notice, the chief executive office of Borrower and all records relating to the Collateral shall be located at the locations set forth in the Collateral Disclosure List. Section 7.13. Access to Collateral. With respect to each location at which the Collateral is now or hereafter located, Borrower will obtain such lien waivers, estoppel certificates or subordination agreements as the Administrative Agent, the Documentation Agent or the Lenders may reasonably require to insure the priority and perfection of their security interest in, and their ability to take possession of, the Collateral situated at such locations. Section 7.14. Compliance with Laws. Each Credit Party shall comply with all Requirements of Law applicable to it and its Subsidiaries in all material respects except where non-compliance is being contested in good faith and in accordance with applicable procedures therefor. Section 7.15. ERISA. The Credit Parties shall: (i) make prompt payments of contributions required to meet the minimum funding standards set forth under ERISA with respect to each and every Plan and, promptly after the filing thereof, furnish to the Administrative Agent copies of each annual report required to be filed under ERISA in connection with each and every Plan for each and every Plan year; (ii) notify the Administrative Agent immediately of any fact, including, but not limited to, any Reportable Event, arising in connection with any Plan which might constitute grounds for the termination thereof by the PBGC or for the appointment by the appropriate United States district court of a trustee to administer the Plan; (iii) promptly after the issuance thereof, furnish to the Administrative Agent a copy of any notice of any Reportable Event given to the PBGC with respect to any Plan; (iv) promptly after receipt thereof, furnish to the Administrative Agent a copy of any notice received from the PBGC relating to the intention of the PBGC to terminate any Plan or to appoint a trustee to administer any Plan; and (v) furnish to the Administrative Agent, promptly upon its request therefor, such additional information concerning each and every Plan as may be reasonably requested. Section 7.16. Compliance with Environmental Laws. (a) Borrower shall, from time to time, if requested by the Administrative Agent or the Required Lenders, upon reasonable cause, retain, at Borrower's expense, an independent professional consultant to prepare a report relating to Hazardous Materials at any or all of the properties and assets of Borrower or any of its Subsidiaries and to conduct an investigation of any or all of the properties and assets of Borrower or any of its Subsidiaries. Borrower agrees also that the Administrative Agent (or its Administrative Agents) may, from time to time retain, an independent professional consultant to advise the Administrative Agent as to any such report relating to Hazardous Materials and Borrower shall be responsible for the reasonable fees and expenses of such consultant. Borrower hereby grants to the Administrative Agent, its Administrative Agents, employees, consultants and contractors the right to enter into or onto Borrower's or its Subsidiaries' business premises to view the premises as is reasonably necessary to provide such advice, provided, however, that the Administrative Agent shall provide reasonable prior notice of such visit and not unreasonably interfere with operations at such premises. (b) Borrower shall promptly advise the Administrative Agent and the Lenders in writing and in reasonable detail of any of the following to the extent that the occurrence thereof could reasonably be expected to have a Material Adverse Effect (i) any Release of any Hazardous Material required to be reported to any Governmental Authority under any applicable Environmental Laws; (ii) any and all written communications with respect to claims or suits under such laws or any Release of Hazardous Materials required to be reported to any Governmental Authority; (iii) any remedial action taken by Borrower, any of its Subsidiaries or any other Person in response to (A) any Hazardous Materials on, under or about the properties or assets of Borrower or any of its Subsidiaries or (B) any claim or suit arising under Environmental Laws; (iv) Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of Borrower's or any of its Subsidiaries' business premises that could reasonably be expected to cause such premises or any part thereof to be classified as "border-zone property" or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; and (v) any request for information from any Governmental Authority that indicates such authority, instrumentality or agency is investigating whether Borrower or any of its Subsidiaries may be potentially responsible for a Release of Hazardous Materials. (c) Borrower shall, at its own expense, provide copies of such documents or information as the Administrative Agent, the Documentation Agent or any Lender may reasonably request in relation to any matters disclosed pursuant to this Section 7.16. (d) Borrower and its Subsidiaries shall comply with all Environmental Laws in all material respects. Borrower and its Subsidiaries shall promptly take any and all necessary remedial action in connection with the presence, storage, use, disposal, transportation or Release of any Hazardous Materials on, under or about its business premises. If Borrower or any of its Subsidiaries undertakes any remedial action with respect to any Hazardous Materials on, under or about its business premises, Borrower or such Subsidiary shall conduct and complete such remedial action in compliance with the policies, orders and directives of any Governmental Authority except when and only to the extent that Borrower's or such Subsidiary's liability for such presence, storage, use, disposal, transportation or discharge of any Hazardous Material, or such policies, orders or directives, are being contested in good faith by Borrower or such Subsidiary. Section 7.17. Interest Rate Protection. Borrower shall obtain no later than one (1) year following the Closing Date and thereafter maintain at all times an Interest Protection Arrangement in respect of a minimum of thirty percent (30%) of the Total Commitment Amount, the terms and conditions of said Interest Protection Arrangement to be satisfactory to the Required Lenders. Section 7.18. Use of Proceeds for Direct Marketing Program. The proceeds of any Revolving Loan requested with respect to the Direct Marketing Program shall be used solely to finance Direct Marketing Program Costs. SECTION 8. NEGATIVE COVENANTS Borrower and each other Credit Party, as applicable, covenants and agrees that from the date hereof until the payment and performance in full of the Obligations and the termination of the Commitments: Section 8.1. Limitation on Indebtedness. Neither any Credit Party nor any of its Subsidiaries shall create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness other than the following ("Permitted Indebtedness"): (a) Indebtedness of Borrower or any of its Subsidiaries incurred in respect of any Extension of Credit under this Agreement; (b) Indebtedness existing as of the date of this Agreement and disclosed on Schedule 8.1. attached hereto or in the Financial Statements referred to in Section 4.7. hereof and any refinancings or refundings of such Indebtedness which will not increase the principal amount of such Indebtedness being refinanced or refunded or change the amortization thereof (other than to extend the same) and otherwise be on terms and conditions no less favorable to any Credit Party or the Lenders, as determined by the Required Lenders, than the Indebtedness being refinanced or refunded; (c) Indebtedness consisting of Capital Leases and motor vehicle and office equipment and furnishings installment sales contracts permitted under Section 8.9. hereof; (d) Subordinated Indebtedness due to SSH, Alarmguard Holdings or any other Affiliate of Borrower covered by the Affiliate Subordination Agreement or otherwise incurred with the prior consent of the Required Lenders; (e) Subordinated Indebtedness due to any Person other than an Affiliate of Borrower and not incurred in connection with an Acquisition existing on the date hereof or otherwise incurred with the prior consent of the Required Lenders; (f) Indebtedness consisting of an Interest Rate Protection Arrangement having terms acceptable to the Required Lenders and entered into solely in respect of all or a portion of the Loans and other Extensions of Credit under this Agreement as required by Section 7.17. hereof and as such Interest Rate Protection Arrangement may be amended, modified or supplemented from time to time with the prior consent of the Required Lenders; (g) Indebtedness constituting Deferred Purchase Price Obligations; provided, that (A) the aggregate unpaid principal amount of all such Indebtedness shall not exceed TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) at any time and (B) such Indebtedness shall be unsecured; and (h) other Indebtedness of Borrower and its Subsidiaries in an aggregate outstanding principal amount not exceeding TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) in the aggregate at any time. Section 8.2. Contingent Liabilities. Neither any Credit Party nor any of its Subsidiaries shall create, incur, assume, guarantee or remain liable with respect to any Contingent Obligations other than the following: (a) The Guarantees; (b) Contingent Obligations existing on the date of this Agreement and disclosed on Schedule 8.2. attached hereto; (c) Contingent Obligations resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; (d) Contingent Obligations with respect to surety, appeal performance and return-of-money and other similar obligations incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money) not exceeding TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) in any one (1) instance of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) in the aggregate at any time; (e) Contingent Obligations of normal trade debt relating to the acquisition of goods and supplies; and (f) Contingent Obligations which consist of normal and customary buyer indemnification obligations incurred by SSH or Alarmguard Holdings in connection with Permitted Acquisitions. Section 8.3. Leases. No Credit Party shall during any Fiscal Year enter into any agreement in respect of, or become liable for, Lease Obligations except that any Credit Party or its Subsidiaries may enter into any such agreement in respect of, or become liable for, Lease Obligations which do not increase the aggregate amount of Lease Obligations of such Credit Party and its Subsidiaries in excess of TWO HUNDRED AND NO/100 DOLLARS ($200,000.00) in any Fiscal Year. Section 8.4. Sale and Leaseback. Neither any Credit Party nor any of its Subsidiaries shall enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property owned by it in order to lease such property or lease other property that any such Credit Party or Subsidiary intends to use for substantially the same purpose as the property being sold or transferred. Section 8.5. Encumbrances. Neither any Credit Party nor any of its Subsidiaries shall create, incur, assume or suffer to exist any Encumbrance upon any of its properties and assets, or assign or otherwise convey any right to receive income, with or without recourse, except the following ("Permitted Encumbrances"): (a) Encumbrances in favor of the Administrative Agent under the Security Documents for the ratable benefit of the Lenders; (b) Encumbrances existing as of the date of this Agreement, consented to by the Required Lenders and disclosed in Schedule 4.24. attached hereto; (c) liens for taxes, fees, assessments and other governmental charges to the extent that payment of the same may be postponed, is being contested and is otherwise not required to be paid in accordance with the provisions of Section 7.6. hereof; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under worker's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent; liens securing the performance of bids, tenders, contracts (other than for the payment of money); and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; (e) attachments, garnishments and judgment liens not constituting an Event of Default; (f) liens in favor of lessors under Capital Leases and sellers under motor vehicles installment sales contracts permitted under Section 8.9. hereof as long as the collateral subject thereto is limited solely to the property that is the subject of such Capital Leases or sales contracts and secures only the amounts owing in respect of such leases and contracts; (g) easements, rights of way, restrictions and other similar charges or Encumbrances relating to real property and not interfering in a material way with the ordinary conduct of its business; (h) Encumbrances on property or assets created in connection with the refinancing or refunding of Indebtedness referred to in Section 8.1.(b) hereof; provided, however, that the amount of Indebtedness secured by any such Encumbrance shall not be increased as a result of such refinancing or refunding and no such Encumbrance shall extend to property and assets of any such Credit Party or Subsidiary not encumbered prior to any such refinancing or refunding; and (i) Encumbrances securing Indebtedness for Capital Expenditures to the extent such Indebtedness is permitted under Section 8.1 hereof, provided, that (i) each such Encumbrance is given solely to secure the purchase price of such property, does not extend to any other property and is given at the time of acquisition of the property, and (ii) the Indebtedness secured thereby does not exceed the lesser of the cost of such property or its fair market value at the time of acquisition. Section 8.6. Sale or Lease of Assets; Merger; Consolidation. Neither Borrower nor any of its Subsidiaries shall sell, lease or otherwise dispose of properties or assets (valued at the lower of cost or market); provided, however, that subject to the requirements of Section 2.1.14. hereof, Borrower may effect (a) the sale of any asset for cash, for aggregate consideration not exceeding FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) in any calendar year, the Net Proceeds of which are intended to be invested in the acquisition of new RMR or applied to repay the Loans in accordance with Section 2.1.14. hereof, (b) the sale of any obsolete or worn out tangible asset for cash the Net Proceeds of which are to be reinvested in replacement tangible assets; provided, however, that if such Net Proceeds are not reinvested in the acquisition of tangible assets replacing the obsolete or worn out assets being sold by Borrower within three (3) months following the date of sale, such Net Proceeds sale be automatically applied to repay the Loans under Section 2.1.14. hereof and (c) the leasing of commercial or residential systems to customers, for aggregate consideration not exceeding THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00) in any calendar year, in connection with the provision of monitoring services under Customer Contracts. Neither Borrower nor any Subsidiary of Borrower may merge or consolidate into or with any other Person; provided, however, that any Subsidiary of Borrower may merge or consolidate into or with (i) Borrower if no Default or Event of Default has occurred and is continuing or would result from such merger and if Borrower is the surviving company, or (ii) any other wholly-owned Subsidiary of Borrower. Section 8.7. Additional Stock Issuance. Borrower shall not permit any of its Subsidiaries to issue any additional shares of its Capital Stock or any securities convertible thereto other than to Borrower. Neither Borrower nor any of its Subsidiaries shall sell, transfer or otherwise dispose of any of the Capital Stock of a Subsidiary, except (i) to Borrower or any of its wholly-owned Subsidiaries, or (ii) in connection with a transaction permitted by Section 8.6. Section 8.8. Dividends. Borrower shall not pay any Dividends on any class of its Capital Stock or make any other distribution or payment on account of or in redemption, retirement or purchase of such Capital Stock. This Section 8.8 shall not apply to (i) the issuance, delivery or distribution by Borrower of shares of its Capital Stock pro rata to its existing shareholders, (ii) the purchase or redemption by Borrower of its Capital Stock solely with the proceeds of the issuance of additional shares of Capital Stock or (iii) payments permitted under Section 8.14.(d) hereof. Section 8.9. Capital Expenditures. Neither Borrower nor any of its Subsidiaries shall make or commit to make any Capital Expenditures (excluding Direct Marketing Capital Expenditures and normal replacements and maintenance which are properly charged to current operations and excluding replacements of obsolete or used equipment involving expenditures in an amount in any Fiscal Year not exceeding the lesser of (i) the Net Proceeds of the sale of any obsolete or used equipment and (ii) ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00)) except for Capital Expenditures in the ordinary course of business not exceeding, in the aggregate, during any Fiscal Year, the following amounts: Fiscal Year Ending Amount December 31, 1997 $600,000.00 (calculated from the Closing Date) December 31, 1998 $1,200,000.00 December 31, 1999 and $1,500,000.00 thereafter If during any Fiscal Year the amount of Capital Expenditures permitted during such Fiscal Year (exclusive of any carryover from a preceding Fiscal Year) is not so utilized, such unutilized amount may be carried over and made in the immediately following Fiscal Year (but not in any subsequent Fiscal Year). Section 8.10. Investments. Neither Borrower nor any of its Subsidiaries shall make or maintain any Investments other than (i) existing Investments in Subsidiaries, (ii) Permitted Acquisitions, (iii) extensions of trade credit in the ordinary course of business in accordance with Borrower's historic business practices; (iv) advances to employees in accordance with Borrower's historic practices thereof in an amount not to exceed $100,000 in the aggregate at any time or (iv) Qualified Investments. Section 8.11. ERISA. Neither Borrower nor any member of the Controlled Group shall permit any Plan maintained by it to (i) engage in any Prohibited Transaction; (ii) incur any "accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or not waived which could reasonably be expected to have a Material Adverse Effect; or (iii) terminate any Plan in a manner that could result in the imposition of an Encumbrance on the property and assets of Borrower or any of its Subsidiaries pursuant to Section 4068 of ERISA. Section 8.12. Change in Terms and Prepayment of Subordinated Indebtedness. Borrower shall not, except as provided in Section 8.1.(b) hereof: (a) effect or permit any change in or amendment to (i) the terms by which any Subordinated Indebtedness purports to be subordinated to the payment and performance of the Obligations, (ii) the terms relating to the repayment (other than extensions of the time during which payment is due) of any Subordinated Indebtedness or (iii) increase the rate of interest applicable thereto; or (b) directly or indirectly, make any payment of any principal of or in redemption, retirement or repurchase of Subordinated Indebtedness except payments required by the instruments evidencing such Indebtedness. Section 8.13. Change Name or Location. Neither Borrower nor any of its Subsidiaries shall change its corporate name or conduct its business under any name other than those set forth in the Collateral Disclosure List or change its chief executive office, place of business or location of the Collateral or records relating to the Collateral from the locations set forth in the Collateral Disclosure List unless it has given the Administrative Agent at least thirty (30) days prior written notice. Section 8.14. Affiliate Transactions. Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) on terms and conditions not less favorable to Borrower or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions between or among Borrower and/or its wholly owned Subsidiaries (other than Protective Alarms of Canada, Inc.) not involving any other Affiliate, (c) the transactions listed and described on Schedule 8.14. attached hereto and (d) following the end of each Fiscal Quarter (i) for which Borrower shall have delivered the monthly Financial Statements required by Section 7.1.2. hereof which coincide with the end of such Fiscal Quarter and (ii) during or in respect of which no Default or Event of Default shall have occurred and be continuing (or result from the payment of any amount permitted under this subsection (d), Borrower may pay to SSH a management fee in an amount not to exceed the amount of $500,000.00 in any Fiscal Year to reimburse SSH and Alarmguard Holdings for amounts actually expended by SSH in respect of normal and customary fees, expenses, franchise tax and similar obligations and filing fees. Any management fee permitted to be paid by Borrower under this subsection (d) shall be payable as of the end of each Fiscal Quarter only following payment by Borrower of any principal, interest, Fees and other amounts due under this Agreement and for amounts actually paid during such Fiscal Quarter (or previously due but not paid by Borrower) and the submission to the Administrative Agent of a certificate setting forth the fees, expenses or obligations for which reimbursement is sought and demonstrating the making of any such payment shall not result in the occurrence of a Default or Event of Default. With respect to any Fiscal Quarter during or in respect of which a Default or Event of Default shall have occurred, such management fee shall accrue (without interest thereon) but may not be paid; provided, however, that if (i) such Default or Event of Default shall have been cured by Borrower, and for so long as no other Default or Event of Default shall have occurred and be continuing, any such accrued management fees may be paid by Borrower to SSH or Alarmguard Holdings in quarterly installments not to exceed $100,000.00, commencing with the end of the Fiscal Quarter next following the calendar month in which such Event of Default shall have been cured and (ii) if such Default or Event of Default shall have been waived by the requisite percentage of Lenders, such accrued and unpaid management fees may not be paid by Borrower to SSH unless and until the Required Lenders shall consent to such payment. Section 8.15. Lines of Business. No Credit Party shall make a material change in or discontinue its existing lines of business nor enter into any new line or lines of business except for the possible discontinuance of the Direct Marketing Program or the Borrower's integrated systems, i.e., "Sonitrol", business. Section 8.16. Fiscal Year. Borrower shall not change the end of its Fiscal Year from December 31. Section 8.17. Governing Documents . Borrower shall not amend its Governing Documents in any manner which could be reasonably expected to have a Material Adverse Effect; provided, however, that in no event may any such amendment establish or authorize a new series or other issue of its Capital Stock or change the rights, powers or preferences of an existing series or other issue of its Capital Stock. Section 8.18. RMR Policies and Procedures. Borrower shall not change, amend, revise or otherwise modify the practices, policies and procedures followed by Borrower for the calculation of RMR or any component thereof from those practices, policies and procedures in effect on the Closing Date. In addition, Borrower shall not change. amend, revise or otherwise modify Borrower's policies and procedures for the cancellation of Customer Contracts from those in effect on the Closing Date. Section 8.19. Acquisitions. No Credit Party shall make an Acquisition except for Permitted Acquisitions. Section 8.20. Subsidiaries. Borrower shall not create any Subsidiaries except for Subsidiaries created with the prior consent of the Lenders in connection with Permitted Acquisitions. SECTION 9. FINANCIAL COVENANTS. Borrower covenants and agrees that from the date hereof, until the payment and performance in full of the Obligations and the termination of the Commitments: Section 9.1. RMR. Alarmguard Holdings shall not permit the ratio of Consolidated Total Debt of Alarmguard Holdings to RMR to exceed 30 to 1 at any time. Section 9.2. Adjusted RMR. Borrower shall not permit the ratio of its Consolidated Senior Debt to RMR to exceed 22.5 to 1 at any time. Section 9.3. Interest Coverage. Borrower shall not permit the ratio of its Consolidated EBITDA to its Consolidated Total Interest to be less than 2.0 to 1.0 as of the end of each calendar month. Borrower's compliance with this covenant shall be determined on a rolling basis by reference to the month then ending and the eleven (11) immediately preceding calendar months. Section 9.4. Debt Service Coverage. Borrower shall not permit the ratio of its Consolidated EBITDA to its Consolidated Total Debt Service to be less than 1.20 to 1.0 as of the end of each calendar month. Borrower's compliance with this covenant shall be determined on a rolling basis by reference to the month then ending and the eleven (11) immediately preceding calendar months. Section 9.5. Leverage Ratio. Borrower shall not permit the ratio of its Consolidated Senior Debt to its Consolidated EBITDA to exceed the following amount as of the end of each of the following calendar months: LEVERAGE RATIO CALENDAR MONTH ENDING 6.0 to 1.0 April 30, 1997 through August 31, 1997 5.0 to 1.0 September 30, 1997 and thereafter For purposes of this covenant, Consolidated EBITDA shall be calculated by multiplying Consolidated EBITDA for the calendar month then ending and the two (2) immediately preceding calendar months by 4. Section 9.6. Adjusted Leverage Ratio. Borrower shall not permit the ratio of its Consolidated Senior Debt to its Consolidated EBITDA to exceed 4.50 to 1.0 as of the end of each calendar month. For purposes of this covenant, (i) Consolidated EBITDA shall be calculated by multiplying Consolidated EBITDA for the calendar month then ending and the two (2) immediately preceding calendar months by 4 and (ii) any Loans used in connection with the Direct Marketing Program and Acquisition Loans made to Borrower during the calendar month then ending and the two (2) immediately preceding calendar months shall be excluded from the calculation of Consolidated Senior Debt. Section 9.7. Direct Marketing Program Creation Multiple. Borrower shall not permit the multiple resulting from dividing (x) the aggregate amount of Direct Marketing Program Costs by (y) the amount of RMR created by such Direct Marketing Program Costs to exceed 35. Borrower's compliance with this covenant shall be determined as of the end of each calendar month and be calculated in the manner set forth in Exhibit I attached hereto. Section 9.8. Direct Marketing Program Costs. Borrower shall not permit the aggregate amount of Direct Marketing Program Costs to exceed the amount of TWELVE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($12,500,000.00). Borrower's compliance with this covenant shall be calculated as of the end of each calendar month on a cumulative basis dating from the end of the calendar month immediately preceding the Closing Date. SECTION 10. THE AGENTS Section 10.1. Appointment, Powers and Immunities. Each Lender and each subsequent holder of the Notes hereby irrevocably appoints and authorizes Bank of Boston Connecticut to act as its Administrative Agent and General Electric Capital Corporation to act as its Documentation Agent under this Agreement and the Other Documents with such powers as are specifically delegated to the Administrative Agent and the Documentation Agent by the terms of this Agreement and the Other Documents together with such other powers as are reasonably incidental thereto. The Administrative Agent and the Documentation Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Other Documents and shall not be a trustee for any Lender. The Administrative Agent and the Documentation Agent shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or the Other Documents or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or the Other Documents, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Other Documents or any other document referred to or provided for herein or therein or for the collectibility of the Loans or for any failure by the Borrower or any other Person to perform any of its obligations under this Agreement, the Notes or the Other Documents. The Administrative Agent and the Documentation Agent may employ Administrative Agents and attorneys-in-fact and shall not be answerable, except as to money or securities received by it or its authorized Administrative Agents, for the negligence or misconduct of any such Administrative Agents or attorneys-in-fact selected by it with reasonable care. Neither the Administrative Agent, the Documentation Agent nor any of its directors, officers, employees or Administrative Agents shall be liable or responsible for any action taken or omitted to be taken by it or them under this Agreement, or under the Other Documents or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. Section 10.2. Reliance. The Administrative Agent and the Documentation Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by the Administrative Agent and the Documentation Agent to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent and the Documentation Agent. As to any matters not expressly provided for by this Agreement or the Other Documents, the Administrative Agent and the Documentation Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or the Other Documents in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Administrative Agent and the Documentation Agent shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Agreement and the Other Documents. The Administrative Agent and the Documentation Agent may utilize the services of such Persons as the Administrative Agent or the Documentation Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by Borrower. Section 10.3. Payments. (a) A payment by the Borrower to the Administrative Agent and the Documentation Agent under this Agreement, the Notes or any of the Other Documents for the account of any Lender shall constitute a payment to such Lender. Except as otherwise provided in this Agreement, the Administrative Agent and the Documentation Agent, as applicable, agree promptly to distribute to each Lender such Lender's pro rata share of payments received by the Administrative Agent or the Documentation Agent for the account of the Lenders. (b) If in the opinion of the Administrative Agent or the Documentation Agent, the distribution of any amount received by the Administrative Agent or the Documentation Agent in such capacity hereunder, under this Agreement, the Notes or any of the Other Documents could reasonably be expected to involve the Administrative Agent or the Documentation Agent in liability, the Administrative Agent or the Documentation Agent may refrain from making distribution until the Administrative Agent's or the Documentation Agent's right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Administrative Agent or the Documentation Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Administrative Agent or the Documentation Agent, as applicable, its proportionate share of the amount so adjudged to the repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. Section 10.4. Holders of Notes. The Administrative Agent and the Documentation Agent may deem and treat the payee of any Note as the absolute owner for all purposes hereof until the Administrative Agent or the Documentation Agent, as applicable, shall have been furnished in writing by the Lender with a different name by such payee or be a subsequent holder, assignee or transferee. Section 10.5. Events of Default. Neither the Administrative Agent or the Documentation Agent shall be deemed to have knowledge of the occurrence of an Event of Default or the occurrence of an event that, with the giving of notice, the lapse of time or both, would constitute an Event of Default (other than the nonpayment of principal of or interest on the Loans) unless the Administrative Agent and the Documentation Agent has received notice from a Lender or the Borrower specifying such Event of Default or Default and stating that such notice is a "Notice of Default." In the event that the Administrative Agent or the Documentation Agent receives such a "Notice of Default" or in the event of any nonpayment of principal or interest on the Loans, the Administrative Agent and the Documentation Agent, as applicable, shall give notice thereof to the Lenders and the Administrative Agent shall take such action with respect to such Event of Default or Default as shall be directed by such Lenders as required under Section 10.14. hereof. Section 10.6. Rights as a Lender. With respect to its Commitment and the Loans made by it, each of the Administrative Agent and the Documentation Agent in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent or the Documentation Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent and the Documentation Agent, as applicable, in its individual capacity. The Administrative Agent, the Documentation Agent and their Lender Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with any Credit Party, as if it were not acting as the Administrative Agent or the Documentation Agent, and the Administrative Agent and the Documentation Agent may accept fees and other consideration from any Credit Party Borrower for services in connection with this Agreement or any of the Other Documents or otherwise without having to account for the same to the Lenders. Section 10.7. Indemnification. The Lenders shall indemnify the Administrative Agent (to the extent not reimbursed by Borrower under Section 13.4. hereof), ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in its capacity as the Administrative Agent, as applicable, under this Agreement in any way relating to or arising out of this Agreement or any of the Other Documents or any other document contemplated hereby or thereby or referred to herein or therein (including, without limitation, the costs and expenses which Borrower is obligated to pay under Section 13.4. hereof, but excluding, unless an Event of Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms of this Agreement, the Other Documents or of any such other documents; provided, however, that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Section 10.8. Non-Reliance on the Administrative Agent, the Documentation Agent and other Lenders. Each Lender agrees that it has, independently and without reliance on the Administrative Agent, the Documentation Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and each other Credit Party and of its decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, the Documentation Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or the Other Documents. Neither the Administrative Agent or the Documentation Agent shall be required to keep itself informed as to the performance or observance by any Credit Party of this Agreement or the Other Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of any Credit Party. Except for notices, reports and other documents and written information delivered by any Credit Party to the Administrative Agent or the Documentation Agent hereunder or under the Other Documents, neither the Administrative Agent or the Documentation Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the financial condition or business of any Credit Party, which may come into the possession of the Administrative Agent, the Documentation Agent or any of their Lender Affiliates. Section 10.9. Failure to Act. Except for action expressly required of the Administrative Agent or the Documentation Agent hereunder or under the Other Documents, the Administrative Agent and the Documentation Agent shall in all cases be fully justified in failing or refusing to act hereunder or thereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Section 10.10. Resignation. The Administrative Agent or the Documentation Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Lenders and Borrower; provided, however, that such resignation shall not be effective in the case of the Administrative Agent until the appointment of a successor Administrative Agent as provided for herein. Upon any such resignation, the Lenders shall have the right, upon consultation with Borrower, to appoint a successor Administrative Agent or successor Documentation Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Administrative Agent or successor Documentation Agent shall be reasonably acceptable to Borrower. If no successor Administrative Agent shall have been so appointed by the Lenders and shall have accepted such appointment within thirty (30) days after the Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a Lender or financial institution having total assets in excess of FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00). In addition, the Administrative Agent or the Documentation Agent may be removed by the Required Lenders at any time on not less than thirty (30) days prior written notice to the Administrative Agent, the Documentation Agent and the Lenders, as applicable. Upon the acceptance of any appointment as the Administrative Agent or the Documentation Agent hereunder by a successor Administrative Agent or successor Documentation Agent, such successor Administrative Agent or successor Documentation Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent or retiring Documentation Agent, and the retiring Administrative Agent or retiring Documentation Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's or retiring Documentation Agent's resignation, the provisions of this Agreement and the Other Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by the Administrative Agent or the Documentation Agent while it was acting as the Administrative Agent or the Documentation Agent. Section 10.11. Cooperation of Lenders. The Administrative Agent and the Documentation Agent shall provide the other Lenders with such information and documentation as such other Lender shall reasonably request relating to the performance of its duties hereunder, including all information relative to the outstanding balance of principal, interest and other sums owed to such other Lenders by Borrower; and cooperate with the other Lenders with respect to any and all collections and/or foreclosure procedures at any time commenced against Borrower or otherwise in respect of the Collateral on behalf of the Lenders. Section 10.12. Actions by Administrative Agent. In case one or more Events of Default have occurred and shall be continuing, and whether or not acceleration of the Obligations shall have occurred, the Administrative Agent shall, if (a) so requested by the Required Lenders and (b) the Required Lenders have provided to the Administrative Agent such additional indemnities and assurances against expenses and liabilities as the Administrative Agent may reasonably request, proceed to enforce the provisions of any of the Other Documents authorizing the sale or other disposition all or any part of the Collateral and exercise all or any such other legal and equitable and other rights or remedies as it may have in respect of such Collateral. The Required Lenders may direct the Administrative Agent in writing as to the method and the extent of any such sale or other disposition and exercise of such other rights or remedies as it may have in respect of such Collateral,, the Lenders hereby agreeing to indemnify and hold the Administrative Agent, harmless from all liabilities incurred in respect of all actions taken or omitted in accordance with such directions; provided, however, that the Administrative Agent need not comply with any such direction to the extent that the Administrative Agent reasonably believes the Administrative Agent's compliance with such direction to be unlawful or commercially unreasonable in any applicable jurisdiction. In any event, the Lenders agree, as among themselves, that the Administrative Agent shall not, without the consent or approval of the Required Lenders and subject to Section 10.14. hereof, (i) make any sale or disposition of the Collateral, (ii) release or subordinate the security interest of the Lenders in any of the Collateral or release or discharge any Person which is a party to this Agreement or the Other Documents, (iii) consent or agree to any amendment or waiver of any material provision of this Agreement or the Other Documents, (iv) declare any Default, (v) exercise any right or remedy with respect to the acceleration or collection of the Obligations or (vi) take any other action which requires the consent or approval of the Lenders under this Agreement or the Other Documents. Section 10.13. Security. (a) The Administrative Agent acknowledges to the other Lenders that it is acting in an agency capacity hereunder and that the liens and security interests in the Collateral secures the Obligations of Borrower owing to all of the Lenders. In the event of any Default, the Administrative Agent will apply and/or pay over to the Lenders any net proceeds derived from the Collateral in the manner set forth in Section 10.3. hereof. (b) Notwithstanding anything to the contrary set forth herein, each of the parties hereto acknowledges and agrees that the respective rights, benefits and privileges of the Administrative Agent, the Documentation Agent and the Lenders under each of the Other Documents and all other instruments, documents and agreements providing the benefit of any collateral security or guarantees for the prompt payment and performance of the Obligations are for the ratable benefit of the Lenders, and each of the rights, benefits and privileges thereunder shall be exercised (or not exercised) solely by the Administrative Agent but only at the direction and with the consent and approval of such Lenders as are required by Section 10.14. hereof. Section 10.14. Required Approval. Any action which requires the consent or approval of the Lenders under this Agreement may be taken upon the affirmative consent or approval of the Required Lenders to be effective; provided, however, that the following action shall require the unanimous affirmative approval of all of the Lenders: (a) any increase or decrease in the amount of the Total Commitment Amount or the Swingline Commitment which can be issued or created hereunder; (b) any amendment of the Borrowing Base which would have the effect of increasing credit availability thereunder; (c) any extension of the Revolving Credit Termination Date or the Maturity Date; (d) any increase or decrease in any Lender's Commitment Percentage, Commitment other than in connection with assignments under Section 13 hereof or in any provision of this Agreement providing for pro rata payments among the Lenders, the sharing of payments of principal, interest, fees and any other amounts due and payable under this Agreement and the sharing of any amounts obtained by any Lender by set-off or otherwise; (e) any decrease in the rate of interest applicable to the Loans (other than as a result of fluctuations in the Base Rate) or in any Fees (other than fees assessed for the account of the Administrative Agent); (f) the release of any Collateral (except for Collateral having a de minimis value or as otherwise expressly provided in this Agreement or in the Security Documents); (g) any amendment of this Section 10.14. and Sections 10.15., 13., 14.11. or 14.12. of this Agreement and any provision of this Agreement providing for the reimbursement of the Lenders for any fees, costs or expenses or the indemnification of any Lender; (h) the release of any Credit Party under any Guarantee; or (i) the amendment or modification of the definition of the term "Required Lenders"; or (j) any amendment or waiver of the provisions of Section 5 or 6 of this Agreement, including, but not being limited to, the provision of any consent of the Lenders in respect of Permitted Acquisitions required under Section 6.3. hereof; or (k) any deferral or postponement in the payment or accrual of interest or Fees; or (l) any amendment to the amortization schedule for the Loans. Section 10.15. Replacement of Non-Consenting Lenders. If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by Section 10.14. hereof, the consent of the Required Lenders is obtained but the consent of one or more other Lenders whose consent is required is not obtained, then Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clause (A) or (B) below, to either (A) replace each such non- consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 2.5.6. so long as the time of such replacement, each Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitment and repay in full such Lender's outstanding Loans; but only if, in each such case, such Replacement Lender and such action is acceptable to the Administrative Agent and the Documentation Agent provided that, unless the Commitment which is terminated and Loans which are repaid pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Revolving Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Lenders (determined before giving effect to the proposed action) shall specifically consent thereto. Section 10.16. Amendment. Borrower hereby agrees that the foregoing provisions of this Section 10 constitute an agreement among, and solely for the benefit of, the Lenders, the Administrative Agent and the Documentation Agent, and the Lenders acknowledge that no Credit Party is a party to or bound by such foregoing provisions and that any and all of the provisions of this Section 10 may be amended at any time by the Lenders, with the consent of the Administrative Agent and the Documentation Agent, without the consent or approval of, or notice to, any Credit Party (other than the requirement of notice to the Borrower of the resignation of the Administrative Agent or the Documentation Agent). Section 10.17. Questionnaire. In order to assist the Administrative Agent and the Documentation Agent in the administration and performance of their duties under this Agreement, each of the Lenders hereby agrees to complete and deliver to the Administrative Agent and the Documentation Agent a questionnaire in substantially the form of Exhibit J attached hereto (an "Administrative Questionnaire"). SECTION 11. DEFAULT Section 11.1. The occurrence of any of the following events shall constitute a default under this Agreement, the Notes and the Other Documents (an "Event of Default"): (a) Borrower shall fail to pay (i) any outstanding principal amount of the Loans when due, (ii) any accrued and unpaid interest on the Loans within three (3) days of the due date therefor or (iii) any fees or expenses payable under this Agreement, the Notes or the Other Documents within five (5) days of the due date therefor; or (b) Any Credit Party shall fail to perform any term, covenant or agreement contained in Sections 7.1., 7.2., 7.3., 7.4., 7.5., 7.6., 7.7., 7.8., 7.12., 7.15., 7.17., 7.18. and 8.1. through 8.20. of this Agreement; provided, however, that no Event of Default shall occur under this subsection (b) by virtue of Borrower's failure to timely deliver any financial statement or report required to be delivered under any of the foregoing sections until the lapse of a ten (10) day grace period; or (c) Any Credit Party shall fail to perform any other term, covenant or agreement (other than in respect of terms, covenants and agreements which are the subject of Sections 11.1.(a) or 11.1.(b) and Section 11.1.(k) hereof) contained in this Agreement and such default shall continue for thirty (30) days after notice thereof has been sent to Borrower by the Administrative Agent; or (d) any default or event of default shall occur under (i) the Other Documents or (ii) the Transaction Documents which could have a Material Adverse Effect; or (e) any representation or warranty of any Credit Party made in this Agreement, the Notes, the Other Documents or the Transaction Documents or in any certificate or report delivered hereunder or thereunder shall prove to have been false in any material respect upon the date when made or deemed to have been made; or (f) Borrower or any of its Subsidiaries shall (i) default in any payment of principal of or interest of any Indebtedness (other than the Loans) or in the payment of any Contingent Obligation or any Lease Obligation, beyond any period of grace (not to exceed thirty (30) days, if any, provided in the instrument or agreement under which such Indebtedness, Contingent Obligation or Lease Obligation was created, if the aggregate amount of the Indebtedness, Contingent Obligations or Lease Obligations in respect of which such default or defaults shall have occurred is at least FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness, Contingent Obligation or Lease Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to permit the holder or holders of such Indebtedness, Contingent Obligation or Lease Obligations to cause, with the giving of notice if required, the same to become due prior to its stated maturity, to become payable or to terminate Borrower or any Subsidiary's use thereof prior to the specified term therefor; or (g) Any Credit Party shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official of itself or of all or a substantial part of its properties and assets; (ii) be generally not paying its debts as such debts become due; (iii) make a general assignment for the benefit of its creditors; (iv) commence a voluntary case under the Bankruptcy Code; (v) take any action or commence any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or any other law providing for the relief of debtors; (vi) fail to contest in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or other law; (vii) take any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing; or (viii) take any corporate action for the purpose of effecting any of the foregoing; or (h) a proceeding or case shall be commenced, without the application or consent of any Credit Party in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts; (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its properties and assets; or (iii) similar relief in respect of it, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts or any other law providing for the relief of debtors, or an order for relief shall be entered in an involuntary case under the Bankruptcy Code, against any such Credit Party; or action under the laws of the jurisdiction of incorporation or organization of any such Person similar to any of the foregoing shall be taken with respect to any such Credit Party; or (i) an uninsured or self-insured judgment or order for the payment of money shall be entered against any Credit Party by any court, or a warrant of attachment or execution or similar process shall be issued or levied against property of any Credit Party, that in the aggregate exceeds TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) in value and such judgment, order, warrant or process shall continue undischarged or unstayed for sixty (60) days; or (j) Any Credit Party or any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) that it shall have become liable to pay to the PBGC or to a plan under Title IV of ERISA; intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by any Credit Party, any member of the Controlled Group, any plan administrator or any combination of the foregoing, other than in the case of a "statutory termination" as defined in Title IV of ERISA, when the amount of such liability to any Credit Party could reasonably be expected to have a Material Adverse Effect; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans against any Credit Party and such proceedings shall not have been dismissed within thirty (30) days thereafter where the liability to any Credit Party could have a Material Adverse Effect; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated where the liability to any Credit Party could have a Material Adverse Effect; or (k) Borrower shall fail to meet any financial covenant set forth in Section 9. hereof; or (l) The failure of any Credit Party to execute, deliver or address, or cause to be executed, delivered and addressed, the matters set forth on Schedule 11.1. attached hereto within the time periods set forth on said Schedule 11.1. (the "Post Closing Matters"); or (m) Any Government Authority shall condemn, seize or otherwise appropriate, or take custody or control of, or file a lien, levy or assessment in respect of, all or any substantial portion of the properties or assets of any Credit Party or any of its Subsidiaries; or (n) Any Governmental Authority or other Person shall garnish, seize or levy or execute upon any monies of Borrower or any of its Subsidiaries on deposit with or otherwise in the custody of the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate; or (o) This Agreement, the Notes or the Other Documents shall cease to be in full force and effect in any material respect, or any Credit Party shall so assert, or, except to the extent resulting from the negligent or willful acts or omissions of the Administrative Agent, the Encumbrances created by the Security Documents shall cease to be fully perfected enforceable first priority security interest on the Collateral as provided herein and therein; or (p) Any Guarantee shall cease to be in full force and effect, or any Guarantor shall so assert; or (q) SSH shall engage in any activity other than Permitted SSH Activities; or (r) a Change in Control Event shall have occurred. SECTION 12. REMEDIES Section 12.1. Remedies. Upon the occurrence of an Event of Default, and at any time thereafter while such Event of Default is continuing, immediately and automatically in the case of an Event of Default specified in Section 11.1(g) or 11.1.(h), and in all other cases, upon the Administrative Agent's declaration at the request or consent of the Required Lenders: (a) The Administrative Agent's and the Lenders' obligation to make any Extension of Credit shall terminate; (b) the unpaid principal amount of the Loans, together with accrued interest thereon, and all other Obligations shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived; (c) The Administrative Agent, the Documentation Agent, the Lenders and any Lender Affiliate may exercise any right of setoff granted to the Administrative Agent, the Documentation Agent, the Lenders and any Lender Affiliate pursuant to Section 14.2.4. hereof; and (d) The Administrative Agent, the Documentation Agent and the Lenders may exercise any and all other rights and remedies they have under this Agreement, the Notes or the Other Documents or at law or in equity, and proceed to protect and enforce their rights by any action at law, in equity or other appropriate proceeding. Section 12.2. Default Interest Rate. Immediately upon the occurrence of an Event of Default specified in Section 11.1.(a) hereof, and in all other cases at option of the Required Lenders, which may be exercised following the occurrence of any other Event of Default, and whether or not the Lenders exercise any other right or remedy, the Obligations (including, to the extent permitted by law, overdue interest and fees) shall bear interest thereafter until paid in full at the Default Rate. SECTION 13. ASSIGNMENT Section 13.1. Assignment. (a) Each Lender may assign to one or more Persons all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the same portion of the Loans at the time owing to it and the Notes held by it); provided, however, that (i) except in the case of an assignment to a Lender or a Lender Affiliate, the Administrative Agent and, as long as no Default or Event of Default shall have occurred or be continuing, the Borrower must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed); (ii) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender's interests, rights and obligations under this Agreement; (iii) the amount of the Commitment and the Loans of the assigning Lender subject to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) or, if less, the entire remaining Commitment and all of the Loans at the time owing to such assigning Lender; (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent an assignment and acceptance in the form of Exhibit K attached hereto (the "Assignment and Acceptance"), together with the Note or Notes subject to such assignment and a processing and recordation fee of TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($2,500.00); (v) the assignee shall be a Lender or financial institution having total assets in excess of FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00)), (vi) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire, (vii) as long as no Default or Event of Default shall have occurred or be continuing, such assignment shall not result in increased costs to any Credit Party by virtue of such assignment and (viii), in the case of Bank of Boston Connecticut, no such assignment shall result, unless otherwise agreed by Borrower, in a reduction of the amount of the Commitment of Bank of Boston Connecticut to less than TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00). Upon such execution, delivery, acceptance and recording pursuant to Section 13.2. hereof from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement; and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's interests, rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of any indemnity, waiver, release or limitation of liability contained herein, as well as to any Fees accrued for its account and not yet paid). (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance; (ii) except as set forth in subsection (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Notes, the Other Documents or any other agreement, document or instrument furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent Financial Statements delivered pursuant to Section 7.1. hereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent or the Documentation Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Documentation Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Documentation Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. Section 13.2. Maintenance of a Register. The Administrative Agent shall maintain at one of its principal offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment and the Commitment Percentage, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error and Borrower, the Administrative Agent, the Documentation Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall also be authorized to amend, modify and substitute Schedule 1.38. attached hereto from time to time to properly reflect the Commitment Percentages of the Lenders under this Agreement. Section 13.3. Questionnaire. Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee together with the Note subject to such assignment, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 13.1. above and, if required, the written consent of the Administrative Agent and/or Borrower to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; and (iii) give prompt notice thereof to the Lenders. Within five (5) Business Days after receipt of notice, Borrower, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for the surrendered Note, a new Note to the order of such assignee in a principal amount equal to the applicable Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment, a new Note to the order of such assigning Lender in a principal amount equal to the applicable Commitment retained by it. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note; shall be dated the date of the surrendered Notes which they replace and shall otherwise be in substantially the form of Exhibit B attached hereto, as applicable. Canceled Notes shall be returned to the Borrower. Section 13.4. Sale of Participations. Each Lender may without the consent of the Borrower or the Administrative Agent sell participations to one or more Lenders, financial institutions or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the same portion of the Loans owing to Lender and the Note held by it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) the participating Lenders, financial institutions or other entities shall be entitled to the benefit of the cost protection provisions contained in this Agreement only to the extent the Lender or Lenders selling a participation to them are entitled thereto; (iv) Borrower, the Administrative Agent, the Documentation Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights, interests and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Borrower relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any Fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest or other amounts on the Loans or changing or extending the Commitments or Section 2.14. hereof) and (v) such participation shall not result in increased costs to any Credit Party by virtue of the sale of such participation. Section 13.5. Disclosure of Information. Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13, disclose to the assignee or participant or proposed assignee or participant any information relating to Borrower furnished to such Lender by or on behalf of Borrower; provided, however, that, prior to any such disclosure of information designated by Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information in accordance with Section 7.7. hereof. Section 13.6. Assignee or Participant Affiliated with Borrower. If any assignee Lender is an Affiliate of Borrower, then any such assignee Lender shall have no right to vote as a Lender hereunder or under any of the Other Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to this Agreement or any of the Other Documents or for purposes of making requests to the Administrative Agent pursuant to Section 10 hereof, and the determination of the Lenders shall for all purposes of this Agreement and the Other Documents be made without regarding to such assignee Lender's interest in any of the Loans. If any Lender sells a participating interest in any of the Loans to a participant, and such participant is Borrower or an Affiliate of the Borrower, then such transferor Lender shall promptly notify the Administrative Agent of the sale of such participation. A transferor Lender shall have no right to vote as a Lender under this Agreement or any of the Other Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to this Agreement or any of the Other Documents or for purposes of making requests to the Administrative Agent pursuant to Section 10 hereof to the extent that such participation is beneficially owned by Borrower or any Affiliate of Borrower, and the determination of the Lender shall for all purposes of this Agreement and the Other Documents be made without regard to the interest of such transferor Lender in the Loans to the extent of such participation. Section 13.7. Miscellaneous Assignment Provisions. If any assignee Lender is not incorporated under the laws of the United States of America or any state thereof, it shall, prior to the date on which any interest or fees are payable under this Agreement or any of the Other Documents for its account, deliver to Borrower and the Administrative Agent certification as to its exemption from deduction or withholding of any United States federal income taxes. Anything contained in this Section 13 to the contrary notwithstanding, any Lender may at any time pledge all or any portion of its interest and rights under this Agreement (including all or any portion of its Note) to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act. No such pledge or the enforcement thereof shall release the pledgor Lender from its obligations under this Agreement or any of the Other Documents. Section 13.8. No Assignment or Delegation by Borrower. Borrower shall not assign or delegate any of its rights or duties under this Agreement. SECTION 14. MISCELLANEOUS Section 14.1. Cross Collateral. The security interests, liens and other rights and interests in and relative to any collateral now or hereafter granted to the Administrative Agent, the Documentation Agent or the Lenders by Borrower by or in any instrument or agreement, including but not limited to this Agreement and the Other Documents, shall serve as security for any and all obligations of Borrower or any other Credit Party to the Administrative Agent, the Documentation Agent and the Lenders, and, for the repayment thereof, the Administrative Agent, the Documentation Agent or the Lenders may resort to any security held by them in such order and manner as they may elect. Section 14.2. Waivers. Section 14.2.1. In General. Borrower waives presentment, demand, notice, protest, notice of acceptance, notice of loans made, credit extended, collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect both to the Obligations and the Collateral, Borrower assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of the Collateral, to the addition or release of any party or Person primarily or secondarily liable therefor, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Lenders may deem advisable in their sole and absolute discretion. The Administrative Agent, the Documentation Agent and the Lenders shall have no duty, other than to act in a commercially reasonable manner, as to the collection or protection of the Collateral or any income thereon, as to the preservation of rights or remedies against prior parties, or as to the preservation of any rights and remedies pertaining thereto. The Administrative Agent, the Documentation Agent and the Lenders may exercise their rights and remedies with respect to the Collateral without resorting or regard to other collateral or sources of reimbursement for liability. The Administrative Agent, the Documentation Agent and the Lenders shall not be deemed to have waived any of their rights and remedies with respect to the Obligations or the Collateral unless such waiver be in writing. No delay or omission on the part of the Administrative Agent, the Documentation Agent or the Lenders in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to any subsequent enforcement by the Administrative Agent, the Documentation Agent or the Lenders. All rights and remedies of the Administrative Agent, the Documentation Agent or the Lenders with respect to the Obligations or the Collateral shall be cumulative and may be exercised singularly or concurrently. Section 14.2.2. PREJUDGMENT REMEDY. EACH CREDIT PARTY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION AND HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES OR BY OTHER APPLICABLE LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT OR THE LENDERS MAY DESIRE TO USE. Section 14.2.3. JURY TRIAL. EACH CREDIT PARTY HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART AND/OR IN THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT OR THE LENDERS OF ANY OF THEIR RIGHTS AND REMEDIES HEREUNDER OR UNDER APPLICABLE LAW. EACH CREDIT PARTY ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEY. Section 14.2.4. Lien and Setoff. Regardless of the adequacy of any collateral or other means of obtaining repayment of the Obligations, any deposits (general or special, time or demand, the provisional or final), balances or other sums credited by or due from the Administrative Agent, the Documentation Agent, the Lenders, or any Lender Affiliate to any Credit Party (other than payroll and payroll tax deposit accounts) may, at any time and from time to time after the occurrence of an Event of Default, without notice to any such Credit Party or compliance with any other condition precedent now or hereafter imposed by statute, rule of law, or otherwise (all of which are hereby expressly waived) be setoff, appropriated, and applied by the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate against any and all obligations of the Credit Parties to the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate in such manner as the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate in their sole and absolute discretion may determine, and each Credit Party hereby grants to the Administrative Agent, the Documentation Agent and the Lenders a continuing security interest in such deposits, balances or other sums for the payment and performance of all such obligations. The rights provided to the Administrative Agent, the Documentation Agent, the Lenders and any Lender Affiliate in this Section 14.2.4. shall be in addition to and shall not limit any common law right of setoff available to the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate. Section 14.2.5. Claims. Borrower does hereby (i) waive any claim in tort, contract or otherwise which Borrower may have against the Administrative Agent, the Documentation Agent, the Lenders, any Lender Affiliate or any Lender Agents which may arise out of the relationship between Borrower and the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate prior to the Closing Date; and (ii) absolutely and unconditionally release and discharge the Administrative Agent, the Documentation Agent, the Lenders and any Lender Affiliate or Lender Agents from any and all claims, causes of action, losses, damages or expenses which may arise out of any relationship between it and the Administrative Agent, the Documentation Agent, the Lenders or any Lender Affiliate which Borrower may have as of the Closing Date. Borrower acknowledges that it makes this waiver and release knowingly, voluntarily and only after considering the ramifications of this waiver and release with its attorney. Section 14.3. Notices. All notices, requests, demands or other communications required by this Agreement shall be made in writing, and unless otherwN CONNECTICUT By: ___________________________ Name: Title: THE DOCUMENTATION AGENT: GENERAL ELECTRIC CAPITAL CORPORATION By: ___________________________ Name: Title: EX-10.2 3 NOTE PURCHASE AGREEMENT dated as of April 15,1997 by and between SECURITY SYSTEMS HOLDINGS, INC. as Issuer, and THE NOTEHOLDERS SIGNATORIES HERETO. TABLE OF CONTENTS ARTICLE 1. DEFINITIONS -2- SECTION 1.1 Certain Defined Terms -2- SECTION 1.2 Accounting Terms 12 ARTICLE 2. SALE AND ISSUANCE OF NOTES; INTEREST; PAYMENTS AND TERMS OF NOTES 13 SECTION 2.1 Sale and Issuance of the Notes 13 SECTION 2.2 Interest on the Notes 13 SECTION 2.3 Payments and Prepayments 14 ARTICLE 3. CONDITIONS TO NOTE ISSUANCE 15 SECTION 3.1 Conditions to Performance of Noteholders 15 SECTION 3.2 Conditions to Performance of the Parties 16 ARTICLE 4. REPRESENTATIONS AND WARRANTIES 17 SECTION 4.1 Organization and Good Standing 17 SECTION 4.2 Authorization and Power 17 SECTION 4.3 No Conflicts or Consents 17 SECTION 4.4 Enforceable Obligations 17 SECTION 4.5 No Default 18 SECTION 4.6 Capital Structure and Subsidiaries 18 SECTION 4.7 Investment Company Act 18 SECTION 4.8 Public Utility Holding Company Act 18 SECTION 4.9 Financial Statements 18 SECTION 4.10 Financial Information : 18 SECTION 4.11 Business Relationships 19 SECTION 4.12 Brokers 19 SECTION 4.13 Statutory Compliance 19 SECTION 4.14 Taxes 19 SECTION 4.15 Litigation 19 SECTION 4.16 Title to Properties 19 SECTION 4.17 Labor Relations 20 SECTION 4.18 Contingent Obligations 20 SECTION 4.19 Investments 20 SECTION 4.20 Representations and Warranties of the Noteholders 20 ARTICLE 5. COVENANTS 21 SECTION 5.1 Indebtedness 21 SECTION 5.2 Payments 22 SECTION 5.3 Transactions with Affiliates 22 SECTION 5.4 Liens 22 SECTION 5.5 Mergers, Consolidations, etc 23 SECTION 5.6 Limitation on Asset Sales 23 SECTION 5.7 Existence 23 SECTION 5.8 Financial Statements and Other Reports 24 SECTION 5.9 Compliance with Laws 24 SECTION 5.10 Payment of Taxes and Other Claims 24 SECTION 5.11 Maintenance of Properties and Insurance 25 SECTION 5.12 Maintaining Records; Access to Properties and Inspections 25 SECTION 5.13 Preservation of Business and Operations 26 SECTION 5.14 Lines of Business 26 SECTION 5.15 Governing Documents 26 SECTION 5.16 Maintenance of Ownership of Subsidiaries 26 SECTION 5.17 Investments 26 ARTICLE 6. EVENTS OF DEFAULT 26 SECTION 6.1 Failure to Make Payments When Due 26 SECTION 6.2 Default in Other Agreements 27 SECTION 6.3 Breach of Certain Covenants and Agreements 27 SECTION 6.4 Involuntary Bankruptcy; Appointment of Receiver, etc 27 SECTION 6.5 Voluntary Bankruptcy; Appointment of Receiver, etc 27 SECTION 6.6 Judgments and Attachments 28 SECTION 6.7 Change in Control 28 ARTICLE 7. SUBORDINATION 28 SECTION 7.1 Notes Subordinate to Senior Debt 28 SECTION 7.2 Standstills, Etc 28 SECTION 7.3 Authorization of Certain Actions 31 SECTION 7.4 Delivery in Trust 32 SECTION 7.5 Waiver of Subrogation. 32 SECTION 7.6 Waiver of Notices, Etc 32 SECTION 7.7 Assignments 33 SECTION 7.8 No Contest 33 SECTION 7.9 Collateral Waiver 33 SECTION 7.10 Additional Financing 33 SECTION 7.11 Benefit of Parties 33 ARTICLE 8. MISCELLANEOUS 34 SECTION 8.1 Transfers; Note Register; Replacement of Notes 34 SECTION 8.2 Expenses 35 SECTION 8.3 Amendments and Waivers 35 SECTION 8.4 Independence of Covenants 35 SECTION 8.5 Notices 36 SECTION 8.6 Failure or Indulgence Not Waiver; Remedies Cumulative 37 SECTION 8.7 Severability 37 SECTION 8.8 Heading 37 SECTION 8.9 Applicable Law 37 SECTION 8.10 Successors and Assigns; Subsequent Holders of Notes 37 SECTION 8.11 Consent to Service of Process 37 SECTION 8.12 Waiver of Jury Trial 38 SECTION 8.13 Limited Recourse 38 SECTION 8.14 Counterparts; Effectiveness 38 SECTION 8.15 Entirety 38 EXHIBITS Exhibit A Security Systems Holdings, Inc. Promissory Note Due 1999 Exhibit B Existing SSH Subordinated Debt Allocation Exhibit C New SSH Subordinated Debt Allocation SCHEDULES Schedule 1.1 Schedule 4.6 Schedule 4.9 Schedule 4.15 Schedule 4.16 Schedule 4.19 Schedule 5.1 Schedule 5.3 Schedule 5.4 Schedule 8.5 NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of April 15, 1997, by and between Security Systems Holdings, Inc., a Delaware corporation (the "Company"), and each of the noteholders identified on the signature pages hereof (individually, a "Noteholder", and collectively, the "Noteholders"). WHEREAS, the Company is party to that certain Agreement and Plan of Merger dated December 23, 1996, as amended (the "Merger Agreement"), by and among the Company, Triton Group Ltd., a Delaware corporation ("Triton") and Triton Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Triton ("Merger Sub"), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Triton (the "Triton Merger"); WHEREAS, in connection with the transactions contemplated by the Merger Agreement, the Company has agreed to repay certain existing indebtedness to the Persons and in the amounts as set forth in Exhibit B hereto (the "Existing SSH Debt") prior to the consummation of the transactions contemplated hereby; WHEREAS, in connection with the transactions contemplated by the Merger Agreement, the Company desires to borrow from the Noteholders and the Noteholders desire to lend to the Company an aggregate amount of $4,600,000 on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the Company and the Noteholders agree as follows: ARTICLE 1. DEFINITIONS SECTION 1. 1 Certain Defined Terms. The following capitalized terms, when used in this Agreement, shall have the following meanings (such definitions to be equally applicable to both singular and plural terms of the terms defined): "Acquisition" means an acquisition of the assets or Capital Stock of a Person by the Company or a Subsidiary of the Company as permitted under Section 6.2 of the Credit Agreement. "Administrative Agent" means Bank of Boston Connecticut, or any successor appointed pursuant to Section l0.10 of the Credit Agreement. "Affiliate" means any Person (i) which directly or indirectly controls, or is controlled by, or is under common control with, the Company or any Subsidiary of the Company; (ii) which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock of the Company or any Subsidiary of the Company or ten percent (10%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Company or any Subsidiary of the Company; or (iii) which is an officer, director, joint venturer or partner of any Person referred to in clause (i) or (ii) above. The term "control" (and its correlative meanings "controlled by" and under common control with") as used in this defined term means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise: "Agent" means, individually, and "Agents" mean, collectively, the Administrative Agent and Documentation Agent (as such terms are defined in the Credit Agreement) under the Credit Agreement, or any successor thereto, or any indenture trustee with respect to any Senior Debt. "Alarmguard" means Alarmguard, Inc., a Delaware corporation and a Subsidiary of the Company. "Alarmguard Holdings" means Triton immediately following the Triton Merger (to be renamed Alarmguard Holdings, Inc.), the Parent of the Company. "Bankruptcy Code" means Title 11 of the United States Code, as now and hereafter in effect, or any successor statute. "Bankruptcy Events" has the meaning set forth in Section 7.2. Board of Directors" means the Board of Directors of the Company or a Subsidiary of the Company, as applicable, or any duly authorized committee of any such Board of Directors. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Connecticut or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "Capital Expenditures" means, without duplication, for any period, the aggregate of all expenditures made by the Company and its Subsidiaries that, in conformity with GAAP, are required to be included in the "additions to property, plant, equipment" or similar fixed asset account reflected within the consolidated Financial Statements of the Company and its Subsidiaries. "Capital Lease Obligation" means, as to any Person, an obligation of such Person that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP and, for purposes of this Agreement, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP. "Capital Stock" of any Person means any and all shares, interests, participations, or other equivalents (however designated, including, without limitation, stock appreciation rights) of or interests in its equity capital including any Preferred Stock, any limited or general partnership interest and any limited liability company membership interest and any rights (other than debt securities convertible into capital stock), warrants or options to acquire such equity capital. "Cash Equivalents" means any of the following, to the extent owned by any Person free and clear of all Liens (other than Liens created pursuant to any Senior Credit Document) and having a maturity of not greater than one hundred eighty (180) days from the date of acquisition thereof. (a) readily marketable direct obligations of the United States of America or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the United States of America; (b) insured certificates of deposit of or time deposits with any commercial bank that is (i) a lender under any Senior Credit Document or (ii) a member of the Federal Reserve System, that issues (or the parent of which issues) commercial paper rated as described in clause (c) below, that is organized under the laws of the United States of America or any state thereof and has combined capital and surplus of at least $1,000,000,000; or (c) commercial paper issued by any corporation organized under the laws of any state of the United States of America and rated at least Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's Ratings Group. "Change in Control" means (a) Alarmguard Holdings ceases to own directly 100% on a fully diluted basis of the Capital Stock of the Company (other than as a result of the consolidation of Alarmguard Holdings with the Company); (b) the Company or Alarmguard Holdings ceasing to own directly 100%, on a fully diluted basis, of the Capital Stock of Alarmguard, (c) any Person (other than a Continuing Shareholder) or group (within - the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) (other than a group of Continuing Shareholders) directly or indirectly having acquired beneficial or record ownership of more than 20% of the aggregate ordinary voting power represented by the issued and outstanding shares of the Capital Stock of Alarmguard Holdings (including, but not limited to, the acquisition of such beneficial or record ownership by way of proxy, voting trust, voting agreement or stock pledge); or (c) the board of directors of Alarmguard Holdings ceasing to consist of a majority of the Continuing Directors. "Chief Financial Officer" means the highest ranking officer of the Company then in charge of the financial matters of the Company. "Closing" has the meaning set forth in Section 2. 1 (b). "Closing Date" has the meaning set forth in Section 2. 1 (b). "Collateral' has the meaning set forth in Section 7.2(d). "Collection Actions" has the meaning set forth in Section 7.2(b). "Common Stock" means the common stock of Alarmguard Holdings, par value $.001 per share, any securities into which the Common Stock shall have been changed, and all other securities of any class or classes (however designated) of the Company, the holders of which have the right, without limitation as to amount, after payment on any securities entitled to a preference on dividends or other distributions upon any dissolution, liquidation or winding-up, either to all or to a share of the balance of payments upon such dissolution, liquidation or winding-up. "Company" shall have the meaning set forth in the preamble hereto. "Company Guarantee" means the Guarantee of the Company dated as of April 15, 1997, as amended, supplemented, made subject to waiver, or otherwise modified from time to time, in respect of the Obligations (as defined therein) in favor of the Senior Creditors. "Conflict" has the meaning set forth in Section 4.3. "Consolidated Fixed Charge Ratio" means, as at any date of determination, with respect to the Company and its consolidated Subsidiaries, the ratio of earnings before interest, taxes, depreciation and amortization to all payments of interest and principal in respect of Indebtedness for the most recently ended twelve-month period. "Consolidated Net Worth" means, as at any date of determination, the consolidated stockholders' equity of the Company and its consolidated Subsidiaries, as determined on a consolidated basis in accordance with GAAP. "Continuing Directors" means the directors of Alarmguard Holdings on the Closing Date as set forth on Schedule 1.1 attached hereto and each other director elected or appointed after the Closing Date if such director's nomination or appointment to the board of directors is recommended by a majority of the then Continuing Directors. "Continuing Shareholders" means the Persons possessing shares of the Capital Stock of Alarmguard Holdings as of the Closing Date and listed on Schedule 1.1 attached hereto. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Agreement" means the Credit Agreement dated as of the Closing Date among Alarmguard, the guarantors named therein, the lenders named therein and Agents named therein, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Customer Contracts" means contracts and agreements by and between the Alarmguard and its customers, or any Subsidiary of Alarmguard and its customers, for regular and ongoing monitoring services, maintenance services and other related services. "DIP Financing" has the meaning set forth in Section 7.10. "Direct Marketing Program" means an internal marketing program conducted by Alarmguard (and formerly conducted by the Company for the benefit of Alarmguard), the costs and expenses of which are separately identified and segregated for accounting purposes in a manner satisfactory to the Agent and the Lenders for the purpose of generating new Customer Contracts through telemarketing or other marketing techniques by making an investment in the initial installation of a residential or small commercial security alarm monitoring system. "Dividend" or "Dividends" means the payment of any dividend or other distribution in respect of the Capital Stock of a Person in cash or other property (excepting distribution in the form of such Capital Stock) or the redemption or acquisition of any Capital Stock or security of a Person. "Documentation Agent" means General Electric Capital Corporation, or any successors appointed pursuant to the Credit Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute and the regulations promulgated thereunder. "Event of Default" means each of the events set forth in Article 6. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Extension of Credit" means any loan or extension of credit to Alarmguard under the Credit Agreement by the Lenders. "Financial Covenant Default" has the meaning set forth in Section 7.2(a). "Financial Statement" or "Financial Statements" means, as of any date, or with respect to any period, as applicable, a financial report or reports consisting of (i) a balance sheet; (ii) an income statement; (iii) a statement of cash flow; and (iv) a statement of changes in stockholders' equity. "Fiscal Quarter" means each fiscal period of the Company and its Subsidiaries ending on each March 31, June 30, September 30 and December 31 in each Fiscal Year. "Fiscal Year" means each fiscal period of the Company and its Subsidiaries commencing on January 1 in each calendar year and ending on December 31 in each such year. "Forecasts" shall have the meaning set forth in Section 4.___ hereof. "GAAP" means, with respect to any Person, generally accepted accounting principles in the United States of America, which are consistently applied for all periods. "Governmental Authority" means any Federal, state, local or foreign court, commission or tribunal, or governmental, administrative or regulatory agency, department, authority, instrumentality or other body exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government. "Government Obligations" means securities which are general obligations of the United States of America or which are unconditionally guaranteed by the United States of America as to timely payment of principal and interest. "Guarantee" of or by any Person means any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness; (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness; or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any guarantee of any guaranteeing Person shall be deemed to be the lower of (i) an amount equal to the stated or determinable amount of the primary obligation in respect of which such guarantee is made and (ii) the maximum amount for which such guaranteeing Person may be liable pursuant to the terms of the instrument embodying such guarantee, unless such primary obligation and the maximum amount for which such guaranteeing Person may be liable are not stated or determinable, in which case the amount of such guarantee shall be such guaranteeing Person's maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. "Indebtedness" of any Person means, without duplication: (a) all indebtedness for borrowed money, including the indebtedness incurred in connection with the Note Issuance (whether by loan or the issuance and sale of debt securities); (b) all Capital Lease Obligations of such Person; (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (d) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six months from the date the obligation is incurred or is evidenced by a note or similar written instrument; (e) obligations of such Person under interest rate swaps, caps, collars and similar arrangements and (f) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. "Initial Interest Payment Date" means June 30, 1997. "Interest Payment Date" means the last day of September, December, March and June of each year. "Investment" means, as applied to the Company and its Subsidiaries, (i) the purchase or acquisition of (x) any share of Capital Stock, indebtedness or other equity security of any other Person, or (y) all or any material portion of the properties and assets of any Person, (ii) any loan, advance or extension of credit to, or contribution of, any other Person, (iii) any real estate held for safe or investment, (iv) any commodities futures contracts held other than in connection with bona fide hedging transactions permitted under this Agreement, any (v) other investment in any other Person, and the making of any commitment or acquisition of any option to make an Investment. "Lenders" has the meaning ascribed thereto under the Credit Agreement. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Loan Documents" means, collectively, this Agreement, the Notes, the Warrant Documents and all other documents, instruments and agreements executed and/or delivered in connection herewith and therewith, each as amended, supplemented or modified from time to time. "Majority Holders of Notes" means, as of any date of determination, the holders of in excess of 66-2/3% in aggregate principal amount of the Notes then outstanding. "Material Adverse Effect" means a material adverse effect upon the (i) business, operations, assets or financial condition or prospects of Alarmguard Holdings and its Subsidiaries, taken as a whole, or (ii) the enforceability of this Agreement, the Notes or the Warrant Documents or the rights or remedies of the Noteholders hereunder or thereunder or (iii) the ability of any Noteholder to enforce or collect any of the obligations under such documents. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such an effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect. "Maturity Date" means April 15, 1999. "Merger Agreement" has the meaning set forth in the recitals hereto. "Merger Documents" means, collectively, the Merger Agreement and each other material document and instrument executed by the Company or any of its Subsidiaries in connection therewith. "Noteholders" has the meaning assigned to that term in the introduction to this Agreement and shall include any assignee of a Note pursuant to Section 8.1. "Note Issuance" means the issuance and sale by the Company, and the purchase by the Noteholders, of the Notes pursuant to the terms and conditions of this Agreement. "Notes" means the Promissory Notes due on the Maturity Date of the Company issued pursuant to Section 2.1 and substantially in the form of Exhibit A hereto. "Notice Period" has the meaning set forth in Section 7.2(c)(2). "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers' Certificate" means, as applied to any corporation, a certificate executed on behalf of such corporation by its Chairman of the Board of Directors (if an officer), its Chief Executive Officer, its President or one of its Vice Presidents and its Chief Financial Officer or Secretary or Treasurer. "Other Default"' has the meaning set forth in Section 7.2(a). "Overdue Rate" means, with respect to any date on which interest shall be paid on the Notes in accordance with Section 2.2(c) hereof, the sum of (a) 2.00% per annum; plus (b) the rate of interest otherwise payable on such date in accordance with section 2.2(a) hereof. "Permitted Indebtedness" means, without duplication, each of the following: (a) Indebtedness of Alarmguard or any of its Subsidiaries incurred in respect of any Extension of Credit under the Credit Agreement; (b) Indebtedness existing as of the date of this Agreement and disclosed on Schedule 5.1 attached hereto or in the Financial Statements referred to in Section 4.9 hereof and any refinancings or refundings of such Indebtedness which will not increase the principal amount of such Indebtedness being refinanced or refunded or change the amortization thereof (other than to extend the same) and otherwise be on terms and conditions no less favorable to any Noteholder, as determined by the Majority Holders of Notes, than the Indebtedness being refinanced or refunded; (c) Indebtedness under Capital Lease Obligations and motor vehicle and office equipment and furnishings installment sales contracts entered into in accordance with the Credit Agreement; (d) Subordinated Obligations due to the Company or any Affiliate or Subsidiary of the Company or otherwise incurred with the prior consent of the Majority Holders of Notes; and (e) Subordinated Obligations due to any Person, other than an Affiliate or Subsidiary of the Company and not incurred in connection with an Acquisition existing on the date hereof or otherwise incurred with the prior consent of the Majority Holders of Notes; "Permitted Liens" means: (a) Liens in favor of the Agent for the benefit of the Senior Creditors incurred pursuant to the Senior Credit Documents; (b) Liens existing as of the date of this Agreement and disclosed in Schedule 5.4 attached hereto; (c) Liens for taxes, fees, assessments and other governmental charges to the extent that payment of the same may be postponed, is being contested and is otherwise not required to be paid in accordance with the provisions of Section 5.10 hereof; (d) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under worker's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent; liens securing the performance of bids, tenders, contracts (other dm for the payment of money); and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business, which liens incurred pursuant to this subparagraph (d) of the definition of "Permitted Liens" do not, in the aggregate, have a Material Adverse Effect on the Company; (e) attachments, garnishments and judgment liens not constituting an Event of Default; (f) liens in favor of lessors in accordance with Capital Lease Obligations and sellers under motor vehicles installment sales contracts; (g) easements, rights of way, restrictions and other similar charges or Liens relating to real property and not interfering in a material way with the ordinary conduct of its business; (h) Liens on property or assets created in connection with the refinancing or refunding of Indebtedness referred to in Section 5.1 hereof, provided, however, that the amount of Indebtedness secured by any such Lien shall not be increased as a result of such refinancing or refunding and no such Lien shall extend to property and assets of the Company or any of its Subsidiaries not encumbered prior to any such refinancing or refunding; (i) Liens securing Indebtedness for Capital Expenditures to the extent such Indebtedness is permitted under Section 5.1 hereof, provided, that (i) each such Lien is given solely to secure the purchase price of such property, does not extend to any other property and is given at the time of acquisition of the property, and (ii) the Indebtedness secured thereby does not exceed the lesser of the cost of such property or its fair market value at the time of acquisition; and (j) without duplication, other Liens of the type permitted pursuant to the Credit Agreement, as in effect on the date hereof. "Person" or "persons" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Qualification" means, with respect to any report of independent public accountants covering any Financial Statements of the Company and its Subsidiaries, a qualification to such report (such as a "subject to" or "except for" statement therein) (i) resulting from a limitation on the scope of examination of the Financial Statements or the underlying data; (ii) as to the capability of the Person whose Financial Statements are certified to continue operations as a going concern; or (iii) which could be eliminated by changes in the Financial Statements or notes thereto covered by such report (such as, by the creation of or increase in a reserve or a decrease in the carrying value of the assets) and which if so eliminated by the making of any such change and after giving effect thereto would constitute an Event of Default; provided that the following shall not constitute a Qualification: a consistency exception relating to a change in accounting principles with which the independent public accountants for the Person whose Financial Statements are being examined have concurred. "Qualified Investments" means, as applied to the Company and its Subsidiaries, investments in (i) Governmental Obligations; (ii) certificates of deposit or other deposit instruments or accounts of Lenders or tug companies organized under the laws of the United States of America or any state thereof that have capital and surplus of at least FIVE HUNDRED MILLION AND NO/100 DOLLARS ($500,000,000.00) having maturities of not more than ninety (90) days from the date of acquisition; (iii) commercial paper that is rated not less than prime-one or A- 1 or their equivalents by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, or their successors having maturities of not more than ninety (90) days from the date of acquisition; and (iv) any repurchase agreement secured by any one (1) or more of the foregoing with a term of not more than seven (7) days. "Required Lenders" has the meaning ascribed thereto in the Credit Agreement. "Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder. "Senior Credit Default" has the meaning set forth in Section 7.2(a). "Senior Credit Documents" has the meaning set forth in Section 7. 1. "Senior Creditors" means (i) each Lender and the Agents under the Credit Agreement and their respective successors and permitted assigns under the Credit Agreement, and (ii) each other obligee of the Company with respect to Senior Debt. "Senior Debt" means (i) the Obligations (as defined in the Company Guarantee) of the Company under the Company Guarantee and (ii) any and all amounts payable under or in respect of the Credit Agreement and any whole or partial increase, extension, renewal, refinancing or replacement thereof or of any subsequent Senior Debt, including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Standstill Period" has the meaning set forth in Section 7.2(c)(2). "Subordinated Obligations" has the meaning set forth in Section 7.1. "Subsidiary" means, with respect to any Person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time, any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent, provided that the term "subsidiary," when used in respect of the Company or any of its Subsidiaries, shall not include any foreign joint venture in which the Company or any such Subsidiary owns less than or equal to 50% of the equity interest in such joint venture. "Successor Company" has the meaning set forth in Section 5.5. "Swap Rate Transaction" means any interest swap agreement, interest cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar interest rate protection agreement or arrangement. "Taxes" means all taxes, assessments, fees, levies, imposts, duties, penalties, deductions, withholdings or other charges imposed by any law or any Governmental Authority. "Transactions" has the meaning set forth in Section 4.3. "Triton Merger" has the meaning ascribed to that term in the introduction to this Agreement. "Warrants" means each of the stock purchase warrants of Alarmguard Holdings issued to the Registered Holder listed therein pursuant to the Warrant Agreement, as the same may be amended, supplemented or modified from time to time. "Warrant Agreement" means the Warrant Agreement, dated as of April 15, 1997, by and among the purchasers listed on the signature pages thereto and Alarmguard Holdings as the same may be amended, supplemented or modified from time to time. "Warrant Documents" means the Warrants and the Warrant Agreement. "Wholly-Owned Subsidiary" means any corporation, association or other business entity of which is 100% of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the Subsidiaries of that Person or a combination thereof. SECTION 1.2 Accounting Terms. For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP as in effect from time to time. ARTICLE 2. SALE AND ISSUANCE OF NOTES; INTEREST; PAYMENTS AND TERMS OF NOTES SECTION 2.1 Sale and Issuance of the Notes. (a) Sale and Issuance of Notes. Subject to the terms and conditions of this Agreement, at the Closing the Noteholders agree to purchase from the Company, and the Company agrees to issue and sell to the Noteholders, the Notes for a purchase price equal to the stated principal amount of the Notes, as such amounts are set forth on Exhibit C hereto. (b) Closing. The pre-closing of the purchase and sale of the Notes being issued hereunder shall take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York or at such other location mutually agreed to by the Company and the Noteholders on the Business Day immediately preceding the Closing Date (as defined below). The closing of the purchase and sale of the Notes being issued hereunder (the "Closing") shall take place on the date and at the location that the closing under the Credit Agreement occurs. The date that the Closing occurs is referred to as the "Closing Date." SECTION 2.2 Interest on the Notes. (a) Rate of Interest. Subject to Section 2.2(c) hereof, interest will accrue on the unpaid principal amount of the Notes during the period from and including the Closing Date through maturity (whether by acceleration or otherwise) at a rate equal to 15% per annum. (b) Interest Payments. Interest shall be payable with respect to the Notes in the manner specified in Section 2.3(e) in arrears on each Interest Payment Date commencing on the Initial Interest Payment Date and upon any prepayment or repurchase of the Notes and at maturity of the Notes. (c) Overdue Rate. If the Company shall default in the payment of any principal of or interest on the Notes when due (whether upon the Maturity Date or any scheduled Interest Payment Date, by acceleration or otherwise, but giving effect to applicable grace periods), the Company agrees to pay, to the extent permitted by law, interest on demand from time to time in the manner specified in Section 2.3(e) on such defaulted amount to, but excluding the date of actual payment, at the applicable Overdue Rate. (d) Computation of Interest. Interest on the Notes shall be computed on the basis of a 365-day year for the actual number of days elapsed. SECTION 2.3 Payments and Prepayments. (a) Payment. The Notes shall be payable in full, together with all accrued and unpaid interest thereon, in accordance with the terms thereof, on the Maturity Date. (b) Voluntary Prepayments. At any time and from time to time the Company, at its option, may prepay all or a portion of the outstanding principal amount of the Notes, in each case at a purchase price equal to 100% of the principal amount of the Notes being prepaid, plus accrued but unpaid interest thereon to (but excluding) the prepayment date. Notice of any prepayment pursuant to this Section 2.3(b) will be delivered at least 30 days but not more than 75 days before the prepayment date to each Noteholder and such--notice shall be irrevocable. Any prepayment of less than all of the outstanding principal amount of the Notes will be made pro rata among the registered holders of the Notes on the basis of the outstanding principal amount of the Notes then held by each such holder. (c) Application of Prepayments. All prepayments shall include payment of accrued interest on the principal amount so prepaid and shall be applied to payment of interest before application to principal. (d) Miscellaneous. In the event that the Company prepays less than all of the outstanding principal amount of any Note held by any Noteholder, the Company shall deliver to such Noteholder upon such prepayment or purchase a replacement Note of like tenor representing the remaining outstanding principal amount of such Note. (e) Manner and Time of Payment. The Company will pay interest due and payable on the Notes provided for in Section 2.2 above (x) in the case of interest which accrues pursuant to Section 2.2(a) above, to Persons who are the registered holders of the Notes at the close of business on the day next preceding the applicable Interest Payment Date, notwithstanding any cancellation of the Notes after the record date and on or before such Interest Payment Date, and (y) in the case of interest which accrues pursuant to Section 2.2(c) above, within five days of the date on which the payment of such interest is demanded to Persons who are registered holders of the Notes as of the close of business on the third Business Day preceding the date on which the payment of such interest is demanded. The Company will pay the principal of and interest on the Notes and all other amounts (if any) required to be paid by it under this Agreement, in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may pay principal, interest and any such other amount by wire transfer of immediately available funds, or if requested by any Noteholder, by check payable in such money and may mail an interest check to the holder's registered address. (f) Payments on Non-Business Days. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Note. ARTICLE 3. CONDITIONS TO NOTE ISSUANCE The obligations of the Company to issue and sell, and each Noteholder to purchase, the Notes hereunder on the Closing Date is subject to the satisfaction of the following conditions: SECTION 3.1 Conditions to Performance of Noteholders. (a) Organizational Documents. On or before the Closing Date, each Noteholder shall have received the following items, each of which shall be in form and substance reasonably satisfactory to each Noteholder and its counsel and, unless otherwise noted, dated the Closing Date: (i) A certified copy of the charter of the Company certified by the, Secretary of State of the State of Delaware, together with a good standing certificate from the Secretary of State of the State of Delaware, each to b e dated a recent date prior to the Closing Date; (ii) A copy of the by-laws of the Company certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; (iii) Resolutions of the Company's Board of Directors approving and authorizing the execution, delivery and performance of the Loan Documents and any other documents, instruments and certificates required to be executed by the Company in connection therewith and approving and authorizing the execution, delivery and issuance of the Notes, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company as being in full force and effect without modification or amendment; (iv) Signatures and incumbency certificates of the officers of the Company executing the Loan Documents; (v) Executed copies of this Agreement, the Notes and the other Loan Documents; and (vi) Such other closing documents as each Noteholder may reasonably request. (b) Proceedings Satisfactory. On or before the Closing Date, all corporate and other proceedings taken or to be taken by the Company in connection with the Transactions and all documents incidental thereto shall be reasonably satisfactory in form and substance to each Noteholder, and each Noteholder shall have received all such counterpart originals or certified copies of such documents as each Noteholder may reasonably request. (c) Opinions of Counsel to the Company. Each Noteholder shall have received in form and substance reasonably satisfactory to each Noteholder and its counsel opinions of counsel to the Company dated as of the Closing Date. (d) Representations and Warranties. The Company, shall have delivered to each Noteholder an Officer's Certificate in form and substance reasonably satisfactory to each Noteholder to the effect that the representations and warranties of the Company in Article 4 are true, correct and complete in all material respects on and as of the Closing Date. (e) Performance of Agreements. The Company shall have performed in all material respects all agreements which this Agreement provides shall be performed by the Company on or before the Closing Date (except as otherwise consented to in writing by each Noteholder), including the repayment of the Existing SSH Debt immediately prior to the consummation of the transactions contemplated hereby. (f) Potential Event of Default; Event of Default. No event shall have occurred and be continuing or would result from the consummation of the Note Issuance which would constitute an Event of Default or Potential Event of Default. (g) Triton Merger. Each Noteholder shall have received copies of each of the principal executed Merger Documents, and all of such Merger Documents and instruments shall be reasonably satisfactory, in form and substance, to each Noteholder and its counsel; provided however, that to the extent any Noteholder shall be a signatory to any of such Merger Documents or such Merger Documents shall have separately been delivered to any Noteholder as a condition to closing or otherwise pursuant to any of the Loan Documents or other Merger Documents, the Company shall be deemed to have delivered such documents to such Noteholder in satisfaction of its obligation to do so under this Section 3.1(g). (h) Senior Credit Documents. Alarmguard and the Senior Creditors shall have duly executed and delivered each of the Senior Credit Documents. All of the conditions contained in the Senior Credit Documents as in effect on the Closing Date will have been satisfied or waived (and notice of such waiver shall have been given to the Noteholders). SECTION 3.2 Conditions to Performance of the Parties. (a) No Injunction, etc. No order, judgment or decree of any Governmental Authority shall enjoin or restrain the Company from executing this Agreement or from issuing and selling, or any Noteholder from purchasing, the Notes or the consummation of the transactions contemplated hereby. (b) No Litigation, etc. There shall not be existing, or to the knowledge of the Company threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Company and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, this Agreement or the Note Issuance. ARTICLE 4. REPRESENTATIONS AND WARRANTIES In order to induce the Noteholders to enter into this Agreement and to purchase the Notes, the Company represents and warrants to each Noteholder as follows: SECTION 4.1 Organization and Good Standing. Each of the Company and its Subsidiaries is a corporation, duly organized and existing in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its Subsidiaries has the corporate power and authority to own its properties and assets and to transact the business in which it is engaged and is duly qualified as a foreign corporation and in good standing in all states in which the nature of the operations conducted by the Company and its Subsidiaries necessitates such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. SECTION 4.2 Authorization and Power. The execution, delivery and performance of this Agreement, the Notes, the Warrant Documents and the Merger Documents, the consummation of the transactions herein and therein contemplated, the fulfillment of and compliance with the terms and provisions hereof and thereof have been duly authorized by all necessary corporate action of the Company and are within its corporate power and will not result in a violation of its governing documents. SECTION 4.3 No Conflicts or Consents. The execution, delivery and performance of the Loan Documents, the consummation of the transactions contemplated hereby and thereby (collectively, the "Transactions"), and compliance with the terms and provisions hereof or thereof will not contravene or conflict with (a "Conflict") any provision of law to which the Company is subject or any judgment, license, order or permit applicable to the Company or any agreement, mortgage, deed of trust or other agreement or instrument to which the Company is a party or by which the Company may be bound, or to which the Company may be subject, or violate any provision of the Certificate of Incorporation or By-laws of the Company. No consent, approval, authorization or order of any Governmental Authority or other Person is required in connection with the consummation of the Transactions, except for such required consents, approvals and authorizations which have been obtained by the Company or permanently waived in writing by the requiring party. SECTION 4.4 Enforceable Obligations. The Loan Documents have been duly executed and delivered by the Company and constitute the valid, legal and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to the applicable laws of bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and other similar laws affecting creditors' rights generally and by general principles of equity. SECTION 4.5 No Default. No event has occurred and is continuing which constitutes a Potential Event of Default or an Event of Default. SECTION 4.6 Capital Structure and Subsidiaries. (a) The authorized Capital Stock of the Company consists of 100 shares of Common Stock. All outstanding shares of such Capital Stock were duly authorized and validly issued, and are fully paid and nonassessable. (b) Set forth on Schedule 4.6 is a true and complete list of each Subsidiary of the Company, setting forth each such Subsidiary's jurisdiction of incorporation, each jurisdiction where it is authorized to do business as a foreign corporation and the ownership of its Capital Stock. SECTION 4.7 Investment Company Act. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.8 Public Utility Holding Company Act. The Company is not a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.9 Financial Statements. The Company has provided to the Noteholders the consolidated Financial Statements of the Company and its Subsidiaries dated as of December 31, 1996 and related footnotes, audited and certified by Ernst & Young, LLP. The Company has also provided to the Noteholders the internally prepared consolidated Financial Statements of the Company and its Subsidiaries dated as of February 28, 1997, certified by the Chief Financial Officer but subject, however, to normal, recurring year-end adjustments that shall not in the aggregate be material in amount. All consolidated Financial Statements of the Company heretofore provided to the Company present fairly the financial condition and results of business operations of the Company and its Subsidiaries for the periods indicated in accordance with GAAP. Neither the Company, nor any of its Subsidiaries has any material direct or contingent liabilities, liabilities for taxes, unusual commitments or unrealized or unanticipated losses not disclosed in such Financial Statements. Since the date of the latest dated consolidated balance sheet included in the Financial Statements specified in this Section 4.9, there has been no development or event which would have a Material Adverse Effect and no Dividends have been declared or made to stockholders, nor has any of its Capital Stock been purchased or acquired by any Person in any manner nor has the Company or any of its Subsidiaries made any Investment except as set forth on Schedule 4.9 attached hereto. SECTION 4.10 Financial Information. All written data, reports and information which the Company has supplied to the Noteholders or caused to be so supplied by a third party on its behalf in connection with this Agreement, was at the time so supplied, when taken as a whole, true and accurate in all material respects and does not make any untrue statement of material fact or omit to state a material fact necessary in order to make, in light of the circumstances under which they were made, not misleading. SECTION 4.11 Business Relationships. There exists no actual or, to the Company's knowledge, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship of the Company or its Subsidiaries with any customer or group of customers, or with any supplier (other than in the ordinary course of business where one supplier is replaced by another offering terms which are no less favorable to the Company or its Subsidiaries) which could reasonably be expected to have a Material Adverse Effect. SECTION 4.12 Brokers. No broker or finder has brought about the obtaining, making or closing of, and no broker's or finder's fees or commissions will be payable by the Company or its Affiliates to any Person in connection with, the transactions contemplated by this Agreement. SECTION 4.13 Statutory Compliance. Each of the Company and its Subsidiaries is in compliance with all laws, ordinances, rules, regulations and orders of any Governmental Authority applicable to it, its properties or assets or the business conducted by it except where non-compliance would have a Material Adverse Effect. SECTION 4.14 Taxes. Each of the Company and its Subsidiaries has filed all tax returns and reports required to be filed by it with any Governmental Authority and has paid in full, or made adequate provisions or established adequate reserves in accordance with GAAP, for, the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due or claimed to be due on or in respect to such tax returns and reports. SECTION 4.15 Litigation. Except as set forth in Schedule 4.15 attached hereto, there are no actions, suits or proceedings by or before any Governmental Authority or any arbitration or alternate dispute resolution proceeding, pending or, to the knowledge of the Company or any of its officers, threatened, against any of the Company or its Subsidiaries or its properties and assets, which if adversely determined, could reasonably be expected to have a Material Adverse Effect. SECTION 4.16 Title to Properties. Each of the Company and its Subsidiaries has good and marketable title to all of the properties and assets as are reflected in the Financial Statements referred to in Section 4.9. (except such properties, assets or rights as have been disposed of in the ordinary course of business since the date thereof), free from all Liens except Permitted Liens or other Liens disclosed in Schedule 4.16 attached hereto, and, free from all defects of title that could reasonably be expected to have a Material Adverse Effect. The properties, assets and rights of the Company and its Subsidiaries are sufficient to permit the Company and such Subsidiaries to conduct the business in which its is presently engaged. The Company and its Subsidiaries possess all trademarks, service marks, trade names, trade service styles, copyrights and patents that may be necessary to own their properties and assets and to conduct their business as it is presently conducted or as intended to be conducted hereafter, without any infringement or conflict with the rights of any other Person or any violation of law which could reasonably be expected to have a Material Adverse Effect. SECTION 4.17 Labor Relations. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining or other agreement with any union and there are no material grievances, disputes or controversies with any union or other organization of such Person's employees, or threats of strikes, work stoppages or demands by any union or such other organization. SECTION 4.18 Contingent Obligations. Neither the Company nor any of its Subsidiaries is a party to any guarantee or other similar type of agreement, and it has not offered its endorsement to any Person which would in any way create a contingent liability (except by endorsement of negotiable instruments payable at sight for deposit or collection or similar banking. transactions in the ordinary course of business). SECTION 4.19 Investments. Except as set forth on Schedule 4.19, attached hereto neither the Company nor any of its Subsidiaries has an Investment in any Person other than existing Investments in Subsidiaries and Qualified Investments. SECTION 4.20 Representations and Warranties of the Noteholders. In order to induce the Company to enter into this Agreement and to issue and sell to the Noteholders the Notes, each of the Noteholders, severally but not jointly, represents and warrants to Company as follows: (a) Organization and Standing. Each Noteholder which is an organization, is an organization duly organized and is validly existing under the laws of its state of organization. (b) Authority. (i) Each Noteholder has full legal right, power and authority to enter into and perform its obligations under this Agreement; (ii) The execution and delivery of this Agreement by each Noteholder and the consummation by it of the transactions contemplated hereby have been duly authorized by each Noteholder, (iii) This Agreement has been duly executed and delivered by each Noteholder; (iv) This Agreement constitutes a valid and binding obligation of each Noteholder enforceable against each Noteholder in accordance with its terms, subject to the applicable laws of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditor's rights generally and by general principles of equity; and (v) No consent, approval, order or authorization of, or registration, declaration or filing with (each a "Consent"), any governmental entity, is required by or with respect to each Noteholder in connection with the execution and delivery of this Agreement or consummation of the transactions contemplated hereby, other than such consents the failure to obtain which could not reasonably be expected to have a Material Adverse Effect. (c) Purchase for Investment. The Notes will be acquired by each Noteholder for its own account for the purpose of investment and not with a view to the resale or distribution of all or any part of such securities in violation of the Securities Act, it being understood that the right to dispose of such securities shall be entirely within the discretion of each Noteholder. Each Noteholder represents and warrants that it is an "accredited investor" as such term is defined in Rule 501 of Regulation D of the Act. (d) Brokers. No broker or finder has brought about the obtaining, making or closing of, and no broker's or finder's fees or commissions will be payable by the Company or any of its Affiliates in connection with, the transactions contemplated by this Agreement. ARTICLE 5. COVENANTS The Company covenants and agrees with each Noteholder that, until the outstanding principal of, and the accrued but unpaid interest on, each Note shall have been paid in full: SECTION 5.1 Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, acquire, become liable with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any of its Subsidiaries may incur Indebtedness, in each case, if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Ratio of the Company is greater than [1.15]. Indebtedness of a Person existing at the time such Person becomes a Subsidiary of the Company or which is secured by a Lien on an asset acquired by the Company or a Subsidiary of the Company (whether or not such Indebtedness is assumed by the acquiring Person) shall be deemed incurred at the time the Person becomes a Subsidiary of the Company or at the time of the asset acquisition, as the case may be. The Company shall not incur any Indebtedness that purports to be by its terms (or by the terms of any agreement governing such Indebtedness) subordinated to any other Indebtedness of the Company unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinated to the Notes, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness of the Company or such Subsidiary, as the case may be. SECTION 5.2 Restricted Payments. The Company shall not pay any Dividends on any class of its Capital Stock or make any other distribution or payment on account of or in redemption. retirement or purchase of such Capital Stock. This Section 5.2 shall not apply to (i) the issuance, delivery or distribution by the Company of shares of its Capital Stock pro rata to its existing stockholders, (ii) the purchase or redemption by the Company of its Capital Stock solely with the proceeds of the issuance of additional shares of Capital Stock, (iii) dividends or payments to Alarmguard Holdings to pay taxes and ordinary course expenses not in excess of $500,000 in any fiscal year or (iv) payments permitted under Section 5.3. SECTION 5.3 Transactions with Affiliates. (a) The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company on terms (i) that are less favorable to the Company or such Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's- length dealings with a Person who is not such an Affiliate, (ii) transactions listed and described on Schedule 5.3 attached hereto and (iii) that, in the event such transaction involves an aggregate amount in excess of $250,000, are not evidenced by a written agreement, instrument or other document and have not been approved by a majority of the members of the Company's Board of Directors having no direct or indirect stake in such transaction. (b) The provisions of the foregoing paragraph (a) will not prohibit (i) any Restricted Payment, to the extent permitted by Section 5.2 hereof, (ii) fees, compensation or employee benefits paid to, and any indemnity provided for the benefit of, current or former directors, officers or employees of the Company or any Subsidiary of the Company in the ordinary course of business, (iii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Company's Board of Directors, (iv) employee stock redemptions, including any payment of principal of or interest on, or any purchase or redemption of, any note issued in connection therewith, (v) loans or advances to officers, directors or employees of the Company or any Subsidiary thereof made in the ordinary course of business, but in any event not to exceed $150,000 in the aggregate outstanding at any one time, or (vi) any transaction between the Company and a Subsidiary of the Company or between Subsidiaries of the Company. SECTION 5.4 Liens. The Company will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Subsidiaries, whether owned on the date of this Agreement or acquired after the Date of this Agreement, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (a) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (b) in all other cases, the Notes are equally and ratably secured, except for (i) Liens existing as of the date of this Agreement; (ii) to the extent not included in clause (i), Liens securing Senior Debt; (iii) Liens of the Company or a Subsidiary of the Company on assets of any Subsidiary of the Company; (iv) Liens securing Indebtedness otherwise permitted under this Agreement; and (v) Permitted Liens. SECTION 5.5 Mergers, Consolidations, etc. The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (a) the resulting, surviving or transferee Person (the "Successor Company") will be organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume, by a written instrument in form reasonably satisfactory to the Majority Holders of Notes, all the obligations of the Company under the Notes; (b) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company as a result of such transaction as having been incurred by the Successor Company at the time of such transaction), no Event of Default or Potential Event of Default will have occurred and be continuing; (c) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; and (d) the Company will have delivered to each Noteholder an officers' certificate and an opinion of counsel reasonably satisfactory to the Noteholders and their counsel, each stating that such transaction complies with this Section 5.5. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Notes, but the predecessor Company in the case of a conveyance, transfer or lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Notes. SECTION 5.6 Limitation on Asset Sales. The Company or its Subsidiaries may not sell, transfer, or encumber the assets of the Company or its Subsidiaries except for (i) sales in the ordinary course of business (which shall be deemed to include the Swap Rate Transaction) and (ii) sales not in the ordinary course of business which are approved by the Board of Directors of the Company and do not involve a sale of all or substantially all of the assets of the Company and do not result in a Consolidated Fixed Charge Ratio of the Company less than or equal to [1.15]. SECTION 5.7 Existence. Except as otherwise permitted by Section 5.5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve or keep in full force and effect any such right or franchise if the Company's Board of Directors (or any duly authorized committee thereof) shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Noteholders. SECTION 5.8 Financial Statements and Other Reports. The Company will furnish to each Noteholder: (a) as soon as available, but in no event later than ninety (90) days after the end of each Fiscal Year of the Company, consolidated Financial Statements for such Fiscal Year of Alarmguard Holdings and its Subsidiaries, audited and certified by Ernst & Young (or other independent certified public accountants of nationally recognized standing) and consisting of a consolidated balance sheet of Alarmguard Holdings and its consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income and consolidated statements of cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal year, and reported on without a Qualification; (b) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Alarmguard Holdings or any of its Subsidiaries with the Securities and Exchange Commission, or with any national securities exchange, or distributed to its stockholders generally, as the case may be; and (c) promptly after (and, in any event, no later than 10 days after) the chief executive officer, the president or the principal financial officer of the Company obtains knowledge thereof, written notice of any Event of Default or Potential Event of Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto. (d) as soon as practicable, notice of: (i) of any action, suit, or proceeding by or before any Governmental Authority or arbitration or alternate dispute resolution proceeding, which would have a Material Adverse Effect; and (ii) any other matter which would have a Material Adverse Effect. SECTION 5.9 Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliance as would not in the aggregate have a Material Adverse Effect. SECTION 5.10. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon it or any of its Subsidiaries or upon the income, profits or property of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies which, in each case, if unpaid, might by law become a material liability or Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate provision has been made. SECTION 5.11 Maintenance of Properties and Insurance. (a) The Company shall cause all material properties owned by or leased by it or any of its Subsidiaries used or useful to the conduct of its business or the business of any of its Subsidiaries to be improved or maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 5.12 shall prevent the Company or any of its Subsidiaries from discontinuing the use, operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors of the Company or of the Board of Directors of any Subsidiary of the Company, or of an officer (or other agent employed by the Company or of any of its Subsidiaries) of the Company or any of its Subsidiaries having managerial responsibility for any such property, desirable in the conduct of the business of the Company or any of its Subsidiaries, and if such discontinuance or disposal is not adverse in any material respect to the Noteholders. (b) The Company shall maintain, and shall cause its Subsidiaries to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, retentions, self-insured amounts and co-insurance provisions, as are customarily carried by similar businesses of similar size, including property and casualty loss, workers' compensation and interruption of business insurance. SECTION 5.12 Maintaining Records; Access to Properties and Inspections. The Company shall keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made in relation to its business and activities. The Company shall (a) permit any representatives designated by the Noteholders to visit and inspect the financial records and the properties of the Company or any of its Subsidiaries at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and (b) permit any representatives designated by the Noteholders to discuss the affairs, finances and condition of the Company or any of its Subsidiaries with the officers thereof and independent accountants therefor; provided, however, that the number of visits pursuant to clause (a) above in any year shall not exceed two, unless (i) an Event of Default shall have occurred and be continuing or (ii) the Noteholders determine in good faith that any material event or material change has occurred with respect to the Company and the its Subsidiaries and that as a result of such event or change more frequent visits are necessary or prudent. SECTION 5.13 Preservation of Business and Operations. The Company shall, and shall cause each of its Subsidiaries, to do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business. SECTION 5.14 Lines of Business. Neither the Company nor any of its Subsidiaries shall make a material change in or discontinuance its existing lines of business (other than the discontinuance of the Direct Marketing Program or its integrated systems business) nor enter into any new line or lines of business except as set forth in the Forecasts. SECTION 5.15 Governing Documents. The Company shall not amend its certificate of incorporation or bylaws in any manner which could be reasonably expected to have a Material Adverse Effect. SECTION 5.16 Maintenance of Ownership of Subsidiaries. The Company will not sell or otherwise dispose of any shares of capital stock of any Subsidiary, except to another Subsidiary, or permit any Subsidiary to issue, sell or otherwise dispose of any shares or rights to acquire any of its capital stock or the capital stock of any Subsidiary, except to the Company or another Subsidiary; provided, however, that the Company may liquidate, merge or consolidate any Subsidiary into or with itself; provided that the Company is the surviving entity, or into or with another Subsidiary. The Company and any of its Subsidiaries may pledge shares of its Capital Stock as security for debt incurred by the Company and any of its Subsidiaries. SECTION 5.17 Investments. Neither the Company nor any of its Subsidiaries shall make or maintain any Investments other than (i) Investments in Subsidiaries, (ii) Acquisitions permitted under the Credit Agreement, (iii) extensions of trade credit in the ordinary course of business in accordance with the Company's and Alarmguard's historic business practices; (iv) advances to employees in accordance with the Company's historic practices thereof in an amount not to exceed $100,000 in the aggregate at any time or (iv) Qualified Investments. ARTICLE 6. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur and be continuing: SECTION 6.1 Failure to Make Payments When Due. (i) Failure to pay any principal of the Notes when due, whether at stated maturity, by acceleration, or otherwise; or (ii) failure to pay any installment of interest on the Notes or any other amount due under this Agreement and such default continues for a period of 10 days. SECTION 6.2 Default in Other Agreements. Any breach or default by the Company or any of its Subsidiaries under any instrument or agreement evidencing Indebtedness of the Company or any of its Subsidiaries the principal amount of which equals at least $500,000 in the aggregate and the effect of such breach or default is to cause, whether by declaration by the requisite number of holders of such Indebtedness or automatically, the acceleration of such Indebtedness, and such Indebtedness shall not have been discharged or such acceleration shall not have been rescinded or annulled within ten days thereof. SECTION 6.3 Breach of Certain Covenants and Agreements. Failure of the Company to perform or comply with any term or condition contained in this Agreement or the Notes (other than Article 2), which failure continues for a period of 30 days after there shall have been given, to the Company by the Majority Holders of Notes, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default". SECTION 6.4 Involuntary Bankruptcy; Appointment of Receiver, etc. (a) A Court of competent jurisdiction shall enter a decree or order for relief in respect of the Company or Alarmguard in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed within sixty (60) days thereof; or any other similar relief shall be granted and remain unstayed under any applicable federal or state law; or (b) an involuntary case is commenced against the Company or Alarmguard under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court of competent jurisdiction for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or Alarmguard or over all or a substantial part of any of the Company's or Alarmguard's properties, shall have been entered; or an interim receiver, trustee or other custodian of the Company or Alarmguard for all or a substantial part of the Company's or Alarmguard's properties is involuntarily appointed; or a warrant of attachment, execution or similar process is issued against any substantial part of the property of the Company or Alarmguard, and the continuance of any such events in this clause (b) for sixty (60) days unless dismissed, vacated or discharged. SECTION 6.5 Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or Alarmguard shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; the making by the Company or Alarmguard of any assignment for the benefit of creditors, the admission by the Company or Alarmguard in writing of its inability to pay its debts as such debts become due; or the Board of Directors of the Company or Alarmguard (or any committee thereof) adopts any resolution or otherwise authorizes action to approve any of the foregoing. SECTION 6.6 Judgments and Attachments. Any money judgment, writ or warrant of attachment, or similar process involving in any individual case or in the aggregate at any time an amount in excess of $250,000 (not covered by insurance) shall be entered or filed against the Company or any of its assets and shall remain undischarged or unvacated for a period of sixty (60) days. SECTION 6.7 Change in Control. A Change in Control shall have occurred. THEN, subject to the terms of Article 7, (i) upon the occurrence of any Event of Default described in the foregoing Section 6.4 or 6.5, the unpaid principal amount of and accrued interest on the Notes shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Company, and the obligations of each Noteholder hereunder shall thereupon terminate and (ii) upon the occurrence of any other Event of Default, the Majority Holders of Notes may, by written notice to the Company, declare the Notes to be, and the same shall forthwith become, due and payable, together with accrued interest thereon. ARTICLE 7. SUBORDINATION SECTION 7.1 Notes Subordinate to Senior Debt. Each Noteholder agrees that the Notes and all interest accrued thereon and any other amounts owing thereunder, under this Agreement, or in respect hereof ("Subordinated Obligations") shall be Subordinate and Junior in Right of Payment to all Senior Debt (including any interest accruing on the Senior Debt, whether prior or subsequent to the commencement of bankruptcy, insolvency or similar proceedings with respect to the Company), together with any and all reasonable fees and expenses incurred by the Senior Creditors in collecting all or any of the Senior Debt, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Company Guarantee, the Credit Agreement, the promissory notes from time to time issued pursuant to the Credit Agreement, and any other documents made, delivered or given in connection with any of the foregoing (together with all amendments, restatements, supplements, replacements or other modifications thereof, "Senior Credit Documents"), whether on account of guaranteed obligations, principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Senior Creditors) or otherwise, the principal amount of which obligations under the Credit Agreement shall in no case exceed EIGHTY MILLION DOLLARS ($80,000,000). SECTION 7.2 Standstills, Etc. As used in this Agreement, the term "Subordinate and Junior in Right of Payment" shall mean that: (a) Unless and until the Credit Agreement shall have been terminated and the Senior Debt shall have been indefeasibly paid in full, no Noteholder will take, demand or receive, by set- off, or in any other manner, any payment or security for the whole or any part of the Subordinated Obligations, provided, however, that the Company may Pay interest and principal on the Subordinated Obligations when and as, and only when and as, the same becomes due and payable unless (i) a default under Section 11.1(c) of the Credit Agreement ("Payment Default") has occurred and such Payment Default is continuing, (ii) the Company either has actual knowledge that, or has received written notice from the Administrative Agent that, a default under Section 11.1(k) of the Credit Agreement ("Financial Covenant Default") has occurred (or would occur as a result of any such payment on the Subordinated Obligations) and such Financial Covenant Default is continuing or (iii) the Company either has actual knowledge that, or has received written notice from the Administrative Agent that an other Event of Default (as defined in the Credit Agreement) other than Events of Default under Section 11.1(c) or Section 11.1(k) of the Credit Agreement ("Other Default" and together with Financial Covenant Defaults and Payment Defaults, "Senior Credit Defaults") has occurred (or would occur as a result of any such payment on the Subordinated Obligations) and such Other Default is continuing. Upon a Payment Default, or upon a Financial Covenant Default or Other Default of which the Company is aware, the Company shall give prompt written notice of such event to the Noteholders. In addition, for purposes of this Article 7, the Administrative Agent may give notice to the Noteholders of the existence of any Senior Credit Default. (b) Unless and until the Credit Agreement shall have been terminated and the Senior Debt shall have been indefeasibly paid in full, no Noteholder will (i) enforce or exercise any right of acceleration, demand or set off against the Company, Alarmguard or any of the Collateral (as hereinafter defined); (ii) make any claim or commence or initiate any action, lawsuit, case or proceeding against the Company or Alarmguard, excluding proceedings under the Bankruptcy Code against the Company only (after proceedings, under the Bankruptcy Code have been commenced by or against Alarmguard) or join together or with any creditor in any action, lawsuit, case or proceeding, excluding proceedings under the Bankruptcy Code (other than initiating a bankruptcy in conjunction with any creditor other than the Administrative Agent), against the Company only; (iii) contact any account debtor of the Company or Alarmguard or take possession of any Collateral or exercise any right of foreclosure, sale or any right or remedy with respect to the Company, Alarmguard or the Collateral; or (iv) take any other action prejudicial to or inconsistent with the subordination of the Subordinated Obligations to the Senior Debt as provided for herein including, without limitation, that no Noteholder shall take any action that will impede, interfere with, restrict, or restrain the exercise by the Administrative Agent or the Lenders of its rights and remedies under the Credit Agreement (hereinafter, (i) through (iv) are collectively referred to as "Collection Actions"). If any Noteholder shall attempt any Collection Action, the Company, the Administrative Agent or the Lenders may interpose as a defense or plea the making of this Agreement. (c) Prohibitions on payments on the Subordinated Obligations under paragraph (a) above and Collection Actions in connection with the Subordinated Obligations under paragraph (b) above are: 1. applicable only as long as a Senior Credit Default is continuing and such payments shall be made immediately following the cure of any such Senior Credit Default; and 2. subject to the limitation that if, within one hundred eighty (180) days of the date that the Noteholders have received notice of a Financial Covenant Default or an Other Default (such 180 day period being hereinafter referred to as the "Standstill Period" and the date of notice of a Financial Covenant Default or an Other Default being hereinafter referred to as a "Notice Date") and the loans outstanding in connection with the Credit Agreement have not been declared by the Administrative Agent or the Lenders to be immediately due and payable, then upon the expiration of the Standstill Period the prohibitions relating to the existing Financial Covenant Default and/or Other Default shall lapse for the following purposes: (i) the Company shall pay all interest that is then due and owing on the Subordinated Obligations (including all interest that would have been paid but for the Senior Credit Default) and (ii) the Noteholders shall be entitled to exercise their remedies hereunder, under the Notes, or otherwise, subject to the condition that any funds collected in excess of the interest payments due and owing shall be first used to pay off the outstanding Senior Debt in their express order of priority. No facts or circumstances constituting a Senior Credit Default under the Credit Agreement existing on a Notice Date shall be used as a basis for any subsequent Senior Credit Default under the Credit Agreement for a period of time beginning on such Notice Date and ending following the 179th consecutive day after the expiration of the Standstill Period unless such prior Senior Credit Default under the Credit Agreement is cured prior to such subsequent Senior Credit Default. (d) Unless and until the Credit Agreement has been terminated and the Senior Debt has been indefeasibly paid in full, each Noteholder acknowledges and agrees that, regardless of the time of loans, advances or extensions of credit made by the Administrative Agent or the Lenders under the Credit Agreement or the relative times or order of attachment, perfection or creation of any security interests, liens, mortgages, encumbrances, pledges, assignments or hypothecations granted to, obtained by or to be granted or obtained by the Administrative Agent for the account of the Lenders in any now existing or hereinafter acquired properties and assets of any kind or description of the Company or Alarmguard (collectively, the "Collateral") for the purpose of securing the Senior Debt, or the actual possession of any Collateral, or the order of filing or recording of financing statements, mortgages or other documents, if any, or any defect, deficiency, error or omission contained in any of the foregoing, or anything in the Credit Agreement or this Agreement to the contrary, as between the Administrative Agent and any Noteholder any security interests, liens, mortgages, encumbrances, pledges, assignments or hypothecations granted to, obtained by or to be granted or obtained by any Noteholder to secure the Subordinated Obligations or otherwise, shall in all respects be subordinate and junior in priority and right of enforcement to the security interest, mortgages, liens, encumbrances, pledges, assignments or hypothecations granted to, obtained by or to be granted or obtained by the Administrative Agent in the Collateral. (e) In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of any properties or assets of the Company to any creditor or creditors of the Company by reason of any liquidation, dissolution or other winding-up of the Company, or by reason of any sale, receivership, insolvency or bankruptcy proceeding or assignment for the benefit of creditors or any proceeding by or against the Company for any relief under any bankruptcy, reorganization or insolvency law or laws, or any law relating to the relief of debtors, readjustment of indebtedness, reorganization, composition or extension, then and in any such event, any payment or distribution of any kind or character whether in cash, property or securities which, but for the subordination provisions of this Agreement would otherwise be payable or deliverable upon or in respect of the Subordinated Obligations, shall instead be paid over or delivered to the Administrative Agent for the account of the Lenders for application on account of the Senior Debt in their express order of priority, and no Noteholder shall receive any such payment or distribution or any benefit therefrom. The Administrative Agent shall be entitled to hold any amounts so paid over or delivered to the Administrative Agent, whether or not any Senior Debt owed to the Administrative Agent or the Lenders are then due and payable, until the Senior Debt have been paid in full. The Company shall give the Noteholders prompt notice of all such actions taken by the Administrative Agent pursuant to this paragraph. SECTION 7.3 Authorization of Certain Actions. Each Noteholder hereby irrevocably authorizes and empowers (without imposing any obligation on) the Administrative Agent until such time as the Senior Debt shall have been paid in full, under the circumstances set forth in paragraph (e) of Section 7.2 of this Article 7, to demand, sue for, collect and receive every such payment or distribution described therein and give acquittance therefor, to file claims and proofs of claims in any statutory or non-statutory proceeding, to vote the full amount of the Subordinated Obligations in its sole discretion in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension and to take all such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote the Subordinated Obligations at creditor's meetings for the election of trustees, acceptances of plans and otherwise), in the name of the Administrative Agent for the account of the Lenders, or in the name of any Noteholder or otherwise as the Administrative Agent for the account of the Lenders may deem necessary or advisable for the enforcement of the subordination provisions of this Agreement. Each Noteholder hereby agrees, under the circumstances set forth in paragraph (e) of Section 7.2 of this Article 7, duly and promptly to take such action as may be reasonably requested at any time and from time to time by the Administrative Agent in accordance herewith to collect the Subordinated Obligations for the account of the Senior Creditors and to file appropriate proofs of claim in respect thereof, to refrain from taking any action inconsistent with any action taken or proposed to be taken by the Administrative Agent in accordance herewith pursuant to the preceding sentence, and to execute and deliver such powers of attorney, assignments or other instruments as may be reasonably requested by the Administrative Agent in accordance herewith in order to enable it to enforce any and all claims upon or in respect of the Subordinated Obligations and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or in respect of the Subordinated Obligations. Notwithstanding the foregoing, in the event of any bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code in which the Company is the debtor, the rights of the Administrative Agent set forth herein to take action on the Noteholders' behalf or to prevent any Noteholder from taking action on its own behalf in such proceedings shall lapse if (i) a plan of reorganization has not been filed within 12 months of the commencement of such Chapter 11 case or (ii) a plan of reorganization has not been confirmed within 18 months of the commencement of such Chapter 11 case. In addition, the rights of the Administrative Agent set forth herein to take action on the Noteholders' behalf or to prevent any Noteholder from taking action on its own behalf shall only be applicable if at such time such Noteholder is prevented from receiving a payment in connection with a Subordinated Obligation as a result of a Senior Credit Default. SECTION 7.4 Delivery in Trust. Should any payment or distribution or security, or the proceeds of any thereof, be collected or received by any Noteholder in respect of Subordinated Obligations, and such collection or receipt is not expressly permitted hereunder prior to the payment in full of the Senior Debt (including, without limitation, circumstances where, following payment to any Noteholder of a payment hereunder, it is thereafter determined that the Company had knowledge or received notice of a Senior Credit De ' fault prior to the time when such payment was made), such Noteholder will, forthwith (or as soon thereafter as such Noteholder shall have notice that such payment should not have been collected or received by such Noteholder) deliver the same to the Administrative Agent, to the extent practicable in precisely the form received (except for the endorsement or the assignment of the holder thereof where necessary) and, until so delivered, the same shall be held in trust by such Noteholder as the property of the Senior Creditors. The Administrative Agent shall be entitled to hold any such payment or distribution or security, or the proceeds of any thereof, so delivered to the Administrative Agent, whether or not any Senior Debt owed to the Administrative Agent or the Lenders are then due and payable, until the Senior Debt owed to the Administrative Agent or the Lenders have been paid in full. SECTION 7.5 Waiver of Subrogation. Each Noteholder waives any right that it may have to be subrogated to the rights of the Senior Creditors to receive payments or distributions of assets of the Company made on the Senior Debt or to otherwise seek reimbursement, indemnity or contribution or payment of any kind from the Company in respect of amounts paid to the Senior Creditors in lieu of the Noteholders under this Agreement, until the Senior Debt have been paid in full. SECTION 7.6 Waiver of Notices, Etc., Each Noteholder hereby waives any and all notices of renewal, extension or accrual of an of the Senior Debt, and agrees and consents, subject to the limitation in Section 7.1 of this Article 7, that without notice to or assent by any Noteholder: (a) the obligations and liabilities of Alarmguard under the Credit Agreement or the Company or any other party or parties for or upon the Senior Debt (and/or any promissory note(s), security document or guaranty evidencing or securing the same) may, from time to time, in whole or in part, be renewed, extended, modified, amended, restated, accelerated, compromised, supplemented, terminated, sold, exchanged, waived or released; (b) the Senior Creditors may exercise or refrain from exercising any right, remedy or power granted by the Company Guarantee or the Credit Agreement or any other document creating, evidencing or otherwise related to the Obligations or the Senior Debt or at law, in equity, or otherwise, with respect to the Obligations or the Senior Debt or any collateral security or lien (legal or equitable) held, given or intended to be given therefor (including, without limitation, the right to perfect any lien or security interest created in connection therewith); (c) any and all collateral security and/or liens (legal or equitable) at any time, present or future, held, given or intended to be given for the Senior Debt, and any rights or remedies of the Senior Creditors in respect thereof may, from time to time, in whole or in part, be exchanged, sold, surrendered, released, modified, waived or extended by the Senior Creditors; and (d) any balance or balances of funds with the Senior Creditors at any time standing to the credit of the Company or the Noteholder of any of the Senior Debt may, from time to time, in whole or in part, be surrendered or released; all as the Senior Creditors may deem advisable and all without impairing, abridging, diminishing, releasing or affecting the subordination to the Senior Debt provided for herein. SECTION 7.7 Assignments.. Each Noteholder agrees that it will not assign, transfer, sell or otherwise dispose of its right, title or interest in any Note issued to such Noteholder to any other person or entity, other than to affiliates of such Noteholder, without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld. SECTION 7.8 No Contest. Each Noteholder agrees that it will not contest or challenge the validity, perfection, enforceability or priority of any security interests, liens, mortgages, encumbrances, pledges, assignments or hypothecations granted to, obtained by or to be granted or obtained by the Administrative Agent for the account of the Lenders in the Collateral. SECTION 7.9 Collateral Waiver. Each Noteholder hereby waives any and all rights to have the Collateral, or any part thereof, granted to or obtained by the Administrative Agent for the account of the Lenders marshalled upon any foreclosure or other disposition thereof. SECTION 7.10 Additional Financing. Each Noteholder agrees that in the event that the Company or Alarmguard shall become subject to a bankruptcy proceeding under the Bankruptcy Code and the Lenders or the Agents voluntarily or involuntarily provide funds to the Company or Alarmguard secured by the Collateral or any other property of the Company or Alarmguard, either as cash collateral pursuant to Section 363 of the Bankruptcy Code or as debtor-in-possession financing pursuant to Section 364 of the Bankruptcy Code ("DIP Financing"), any and all loans, advances and other extensions of credit, and all other obligations, liabilities or indebtedness of every kind owed by the Company or Alarmguard arising out of or in connection with DIP Financing shall be deemed to be a part of the Senior Debt. Each Noteholder agrees not to oppose the provisions of any DIP Financing in any such proceeding. SECTION 7.11 Benefit of Parties. The subordination provisions contained herein are for the benefit of the Senior Creditors and their respective successors and assigns as holders from time to time of Senior Debt, and may not be rescinded or canceled or modified in any way, nor may any provision of this Article 7 be changed, without the prior written consent thereto of the Required Lenders. ARTICLE 8. MISCELLANEOUS SECTION 8.1 Transfers; Note Register; Replacement of Notes. (a) The Notes shall not be sold, assigned, pledged, hypothecated or otherwise transferred, in whole or in part, except as provided in paragraphs (b) and (c) below and except for transfers by will or applicable laws of descent. (b) Subject to paragraph (c) below, the holder of a Note may sell, assign, pledge, hypothecate or otherwise transfer such Note, in whole or in part, to any Person. (c) Prior to any sale, assignment, pledge, hypothecation or other transfer of any Note pursuant to paragraph (b) above, the holder thereof shall give at least 15 days' prior written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer and shall indicate the exemption under the Securities Act pursuant to which the proposed transfer of the Note may be effected without registration under the Securities Act. Every Note surrendered for registration of transfer shall be duly endorsed, or shall be accompanied by a written instrument of transfer duly executed, by the registered holder of such Note. The Note issued upon such transfer shall bear the restrictive legend set forth in paragraph (d) below. (d) Each Note will be stamped or otherwise imprinted with a legend in capital letters and otherwise in substantially the following form: "THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE RESOLD OR TRANSFERRED, IN WHOLE OR IN PART, UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS." (e) The Company shall keep a register in which provisions shall be made for the registration of transfers and exchanges of Notes. The register shall be kept at the chief executive office of the Company. Upon surrender for registration of transfer of any Note at the chief executive office of the Company (and provided that such transfer is effected in compliance with this Section 8.1), the Company shall execute and deliver, in the name of the designated transferee or transferees, one or more new Notes of like tenor for a like aggregate principal amount of Notes. At the option of any registered holder of Notes, its Notes may be exchanged for other Notes of like tenor of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at the chief executive office of the Company. Each new Note issued upon transfer or exchange shall be in a principal amount of at least $100,000 and dated the date to which interest on the Notes surrendered shall have been paid. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company evidencing the same respective obligations, and entitled to the same benefits, as the Notes surrendered upon such registration of transfer or exchange. The Company shall make a notation on each new Note of the amount of all payments of principal previously made on the old Notes with respect to which such new Note is issued and the date to which interest accrued on such old Note has been paid, and shall stamp or otherwise imprint on each new Note the restrictive legend set forth above. (f) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement satisfactory to the Company, or in the case of any such mutilation, upon surrender of such Note (which surrendered Note shall be canceled by the Company), the Company will, without charge, issue a new Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen, destroyed or mutilated Note were then surrendered for exchange. SECTION 8.2 Expenses. The Company agrees to promptly pay after the occurrence of an Event of Default, all costs and expenses (including reasonable attorneys' fees) incurred by the Noteholders in enforcing any obligations of or in collecting any payments due from the Company hereunder or under the Notes by reason of such Event of Default or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement (including any amendment or waiver of the provisions of this Agreement), or of any insolvency or bankruptcy proceedings. SECTION 8.3 Amendments and Waivers. Subject to Section 7.11 hereof, no amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, or consent to any departure by the Company therefrom, shall in any event be effective without the written concurrence of the Majority Holders of Notes and the Company; provided, that no amendment, modification, waiver or consent shall, unless in writing and signed by each Noteholder, do any of the following: (a) reduce the principal of, or interest on the Notes or any fees, premiums, or other amounts payable hereunder; (b) postpone any date fixed for any payment of principal of, or premium or interest on, the Notes or any fees or other amounts payable hereunder; or (c) amend this Section 8.3. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Company in any case shall entitle the Company to any further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 8.3 shall be binding upon each holder of the Notes at the time outstanding and each future holder of the Notes. SECTION 8.4 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitation of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. SECTION 8.5 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, sent via a nationally recognized overnight courier, or via facsimile. Such notices, demands and other communications will be sent to the address indicated below: To the Company: Security Systems Holdings, Inc. 125 Frontage Road Orange, Connecticut 06477 Attention: David Heidecorn With a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attention: David P. Blea, Esq. Telecopy No.: (212) 309-6273 To the Noteholders at the address set forth on Schedule 8.5 With a copy to: Brobeck, Phleger & Harrison LLP 1633 Broadway, 47th Floor New York, New York 10019 Attention: Robert P. Wessely, Esq. Telecopy No.: (212) 586-7878 or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party; provided, that the failure to deliver copies of notices as indicated above shall not affect the validity of any notice. Any such communication shall be deemed to have been received (i) when delivered, if personally delivered, or sent by nationally recognized overnight courier or sent via facsimile or (ii) on the third Business Day following the date on which the piece of mail containing such communication is posted if sent by certified or registered mail. SECTION 8.6 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Noteholder in the exercise of any power, right or privilege hereunder or under the Notes shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or the Notes are cumulative to and not exclusive of, any rights or remedies otherwise available. SECTION 8.7 Severability. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 8.8 Heading. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 8.9 Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. SECTION 8.10 Successors and Assigns; Subsequent Holders of Notes. This Agreement shall be binding upon the parties hereto and their respective permitted successors and assigns and shall inure to the benefit of the parties hereto and the permitted successors and assigns of the Noteholders. The terms and provisions of this Agreement and all other certificates delivered pursuant to Article 3 shall inure to the benefit of any permitted assignee or transferee of the Notes pursuant to Section 8.1(a), and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Noteholders shall automatically extend to and be vested in such transferee to assignee, all subject to the terms and conditions hereof. The Company's rights or any interest therein hereunder may not be assigned without the written consent of the Majority Holders of Notes. SECTION 8.11 Consent to Service of Process. EACH OF THE PARTIES HERETO IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PARTY AT THE ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE FIFTEEN (15) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST ANY OF THE OTHER PARTIES HERETO IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY ANY APPLICABLE LAW. SECTION 8.12 Waiver of Jury Trial. EACH OF THE COMPANY AND THE NOTEHOLDER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE VALIDITY, PRESERVATION OF RIGHTS, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. SECTION 8.13 Limited Recourse. Notwithstanding anything in this Agreement or any other document, agreement or instrument contemplated hereby or entered into in connection with the transactions contemplated hereby, the obligations of the Company under this Agreement shall be without recourse to any director, officer or stockholder of the Company. SECTION 8.14 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. SECTION 8.15 Entirety. This Agreement and the other Loan Documents embody the entire agreement among the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof. IN WITNESS WHEREOF the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. SECURITY SYSTEMS HOLDINGS, INC. By:___________________________ Name: Title: ALIS & CO. By: /s/ Patrick J. Herbert, III Name: Patrick J. Herbert, III Title: General Partner BF PARTNERS By:__________________________________ Name: Title: COAST MEZZANINE INVESTEMENTS, LTD. By: /s/ Hamad AbdulAziz Al Sagar Name: Hamad AbdulAziz Al Sagar Title: Chairman NORTHERN TRUST COMPANY AS TRUSTEE OF THE THORNE BARNES DONNELLEY TRUST By: /s/ Elizabeth A. Phelan Name: Elizabeth A. Phelan Title: Senior Vice President EXHIBIT B Existing SSH Subordinated Debt Allocation of Principal Amount Triumph-Connecticut Limited Partnership $2,014,800 Coast Mezzanine Investments, Ltd. $2,014,800 Alis & Co. $653,520 Thorne Barnes Donnelly Trust $168,360 BF Partners $99,000 $4,950,480 EXHIBIT C New SSH Subordinated New SSH Subordinated Debt Allocation of Debt Percent of Principal Amount Principal Amount Coast Mezzanine Investments, Ltd $2,500,000 54.35% Alis & Co. $1,231,640 6.77% Thorne Barnes Donnelly Trust' $168,360 3.66% BF Partners $400,000 8.70% Kenneth Gross $100,000 2.17% Russell R. MacDonnell $125,000 2.72% David Heidecorn $75,000 1.63% $4,600,000 100.00% EX-27 4
5 1,000 6-MOS 6-MOS DEC-31-1997 DEC-31-1996 JUN-30-1997 DEC-31-1996 2,348 230 0 0 6,411 4,089 408 298 2,049 1,698 11,342 6,301 21,117 16,816 9,707 6,807 74,612 39,131 22,564 13,353 0 0 0 0 0 16,273 1 237 1,949 (25,135) 74,612 39,131 1,719 993 14,984 11,326 1,719 993 6,241 4,479 12,233 9,407 442 249 1,995 1,355 (5,927) (4,164) 0 0 (5,927) (4,164) 0 0 (813) 0 0 0 (6,740) (4,164) (1.32) (0.83) (1.32) (0.83)
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