SECOND AMENDMENT AND THIRD WAIVER TO THE LOAN AND SECURITY AGREEMENT


          Second Amendment and Third Waiver dated as of May 12, 1999 (this
"Amendment") to the Loan and Security Agreement, dated as of December 31, 1997
(as amended and modified, the "LOAN AGREEMENT"), among GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("LENDER") and KNOGO NORTH AMERICA INC., a
Delaware corporation ("BORROWER"), and the other Credit Parties executing this
Amendment.

                                  WITNESSETH :

          WHEREAS, Borrower has requested that Lender waive the defaults arising
from the breach of "Minimum EBITDA" financial covenant and the "Minimum Net
Worth" financial covenant for the period ending March 31, 1999;

          WHEREAS, Borrower has requested that Lender amend certain financial
covenants for Fiscal Year ending December 31, 1999;

          WHEREAS, Lender is willing to waive such financial covenant defaults
and amend such financial covenants only on the terms and conditions set forth
herein;

          WHEREAS, Borrower has also agreed not to make any cash dividend
payments with respect to the Series A Preferred Stock;

          NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties do hereby
agree that all capitalized terms used herein shall have the meanings ascribed
thereto in the Loan Agreement and do hereby further agree as follows:

                               STATEMENT OF TERMS

          1. AMENDMENT TO LOAN AGREEMENT. Section 5(l) of the Loan Agreement is
amended in its entirety to provide as follows:

             (l) MAKE OR PERMIT ANY RESTRICTED PAYMENT EXCEPT THAT DIVIDEND
                 PAYMENTS MAY BE MADE ON THE SERIES A PREFERRED STOCK IN
                 ACCORDANCE WITH THE TERMS SET FORTH IN THE CERTIFICATE OF
                 DESIGNATION FILED WITH THE SECRETARY OF STATE OF DELAWARE ON
                 FEBRUARY 12, 1997, PROVIDED, THAT, IF PAYMENTS ARE IN THE FORM
                 OF CASH (I) NO DEFAULT SHALL HAVE OCCURRED AND BE CONTINUING
                 PRIOR TO AND AFTER GIVING EFFECT TO SUCH DIVIDEND PAYMENT AND
                 (II) AT THE TIME OF SUCH PAYMENT AND AFTER GIVING EFFECT
                 THERETO, THE FIXED CHARGE COVERAGE RATIO IS IN EXCESS OF 1.00
                 TO 1.00.

          2. AMENDMENTS RELATING TO FINANCIAL COVENANTS. Schedule G of the Loan
Agreement is hereby amended as follows:

             (a) Paragraph 1 is amended in its entirety to provide as follows:

              1. MINIMUM EBITDA. SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED
                 BASIS SHALL MAINTAIN AT THE END OF EACH FISCAL PERIOD SET FORTH
                 BELOW, AN EBITDA OF NOT LESS THAN THE AMOUNT SET FORTH OPPOSITE
                 SUCH FISCAL PERIOD BELOW:

<PAGE>
                 Fiscal Period                           Minimum EBITDA
        ----------------------------------------------------------------------
          January 1, 1999- June 30, 1999                     $(1,000,000)
        ----------------------------------------------------------------------
          January 1, 1999- September 30, 1999                  $(200,000)
        ----------------------------------------------------------------------

         (b) Paragraph 2 is amended in its entirety to provide as follows:

         2.  MINIMUM NET WORTH. SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED
             BASIS SHALL AT THE END OF EACH FISCAL PERIOD SET FORTH BELOW HAVE A
             NET WORTH OF NOT LESS THAN THE AMOUNT SET OPPOSITE FISCAL PERIOD:

                Fiscal Period                           Minimum Net Worth
        ----------------------------------------------------------------------
           At June 30, 1999                                $18,950,000
        ----------------------------------------------------------------------
          At September 30, 1999                            $18,976,000
        ----------------------------------------------------------------------
          At December 31, 1999                             $18,850,000
        ----------------------------------------------------------------------

         (c)    A new paragraph 3 is inserted following end of paragraph 2 and 
                provides as follows:

         3.  FIXED CHARGE COVERAGE RATIO. SENTRY AND ITS SUBSIDIARIES
             SHALL MAINTAIN A FIXED CHARGE COVERAGE RATIO OF NOT LESS
             THAN 1.00 TO 1.00 FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.

         (d)    The following defined terms are inserted in the appropriate 
                alphabetical order:

          "FIXED CHARGE COVERAGE RATIO" SHALL MEAN, FOR ANY PERIOD, THE RATIO OF
          THE FOLLOWING FOR SENTRY AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS
          DETERMINED IN ACCORDANCE WITH GAAP: (A) EBITDA FOR SUCH PERIOD LESS
          CAPITAL EXPENDITURES FOR SUCH PERIOD WHICH ARE NOT FINANCED THROUGH
          THE INCURRENCE OF ANY INDEBTEDNESS (EXCLUDING THE REVOLVING CREDIT
          LOAN) TO (B) THE SUM OF (I) INTEREST EXPENSE PAID OR ACCRUED IN
          RESPECT OF ANY INDEBTEDNESS DURING SUCH PERIOD, PLUS (II) TAXES TO THE
          EXTENT ACCRUED OR OTHERWISE PAYABLE WITH RESPECT TO SUCH PERIOD PLUS
          (III) REGULARLY SCHEDULED PAYMENTS OF PRINCIPAL PAID OR THAT WERE
          REQUIRED TO BE PAID ON FUNDED DEBT (EXCLUDING THE REVOLVING CREDIT
          LOAN) DURING SUCH PERIOD, PLUS (IV) CASH DIVIDEND PAYMENTS MADE WITH
          RESPECT TO SERIES A PREFERRED STOCK.

          "FUNDED DEBT" SHALL MEAN, FOR ANY PERSON, ALL OF SUCH PERSON'S
          INDEBTEDNESS WHICH BY THE TERMS OF THE AGREEMENT GOVERNING OR
          INSTRUMENT EVIDENCING SUCH INDEBTEDNESS MATURES MORE THAN ONE YEAR
          FROM, OR IS DIRECTLY OR INDIRECTLY RENEWABLE OR EXTENDIBLE AT THE
          OPTION OF SUCH PERSON UNDER A REVOLVING CREDIT OR SIMILAR AGREEMENT
          OBLIGATING THE LENDER OR LENDERS TO EXTEND CREDIT OVER A PERIOD OF
          MORE THAN ONE YEAR FROM, THE DATE OF CREATION THEREOF, INCLUDING
          CURRENT MATURITIES OF LONG-TERM DEBT, REVOLVING CREDIT, AND SHORT-TERM
          DEBT EXTENDIBLE BEYOND ONE YEAR AT THE OPTION OF SUCH PERSON.

          3. WAIVERS. Lender hereby waives the Events of Default arising solely
as a result of the breach of the minimum EBITDA covenant and breach of the
Minimum Net Worth covenant solely for the period ending March 31, 1999.



          4. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Amendment, each Credit Party hereto hereby warrants, represents and covenants to
Lender that: (a) each representation and warranty of the Credit Parties set
forth in the Loan Agreement is hereby restated and reaffirmed as true and
correct on and as of the date hereof after giving affect to this Amendment as if
such representation or warranty were made on and as of the date hereof (except
to the extent that any such representation or warranty expressly relates to a
prior specific date or period in which case it is true and correct as of such
prior date or period), and no Default or Event of Default has occurred and is
continuing as of this date under the Loan Agreement after giving effect to this
Amendment; and (b) each Credit Party hereto has the power and is duly authorized
to enter into, deliver and perform this Amendment, and this Amendment is the
legal, valid and binding obligation of such Credit Party enforceable against it
in accordance with its terms.

          CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT. The
effectiveness of this Amendment is subject to the fulfillment of the following
conditions precedent:

          (a)      Lender shall have received one or more counterparts
                   of this Amendment duly executed and delivered by the
                   Credit Parties hereto;

          (b)      Any and all guarantors of the Obligations shall have
                   consented to the execution, delivery and performance
                   of this Amendment and all of the transactions
                   contemplated hereby by signing one or more
                   counterparts of this Amendment in the appropriate
                   space indicated below and returning same to Lender;

         (c)       Borrower shall have paid to Lender an Amendment Fee
                   of $2,500 and a Documentation fee of $1,000.

          6. CONTINUING EFFECT OF LOAN AGREEMENT. Except as expressly amended
and modified hereby, the provisions of the Loan Agreement, and the Liens granted
thereunder, are and shall remain in full force and effect and the waiver set
forth herein shall be limited precisely as drafted and shall not constitute a
waiver of any other provisions of the Loan Agreement.

          7. COUNTERPARTS. This Amendment may be executed in multiple
counterparts each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.

          8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE WITHOUT REGARD TO THE PRINCIPLES
THEREOF REGARDING CONFLICTS OF LAWS.




          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year specified at the beginning
hereof.

                              KNOGO NORTH AMERICA INC.,
                              AS BORROWER


                              By: PETER J. MUNDY
                                 -------------------------
                                    (Conformed)
                              Name:  Peter J. Mundy
                              Title: V.P. - CFO

                              SENTRY TECHNOLOGY CORPORATION,
                              AS CREDIT PARTY

                              By: PETER J. MUNDY
                                 -------------------------
                                     (Conformed)
                              Name:  Peter J. Mundy
                              Title: V.P. - CFO

                              VIDEO SENTRY CORPORATION,
                              AS CREDIT PARTY

                              By: PETER J. MUNDY 
                                 --------------------------
                                     (Conformed)
                              Name:  Peter J. Mundy
                              Title: V.P. - CFO

                              KNOGO CARIBE, INC.,
                              AS CREDIT PARTY

                              By: PETER J. MUNDY
                                 --------------------------
                                     (Conformed)
                              Name:  Peter J. Mundy
                              Title: Treasurer

                              GENERAL ELECTRIC CAPITAL CORPORATION,
                              AS LENDER

                              By: JAMES N. DESANTIS
                                 --------------------------
                                     (Conformed)
                              Name:  James DeSantis
                              Title: Duly Authorized Signatory

<PAGE>

                              CONSENT OF GUARANTORS

          Each of the undersigned guarantors does hereby consent to the
execution, delivery and performance of the within and foregoing Amendment and
confirms the continuing effect of such guarantor's guarantee of the Obligations
after giving effect to the foregoing Amendment.

          IN WITNESS WHEREOF, each of the undersigned guarantors has executed
this Consent to Guarantors as of the day and year first above set forth.

                              GUARANTORS:

                              SENTRY TECHNOLOGY CORPORATION


                              By: T. A. NICOLETTE 
                                 -------------------------
                                      (Conformed)
                              Name:  T. A. Nicolette
                              Title: President & CEO

                              VIDEO SENTRY CORPORATION


                              By: T. A. NICOLETTE
                                 --------------------------
                                      (Conformed)
                              Name:  T. A. Nicolette
                              Title: President

                              KNOGO CARIBE, INC.


                              By: T. A. NICOLETTE 
                                 --------------------------
                                      (Conformed)
                              Name:  T. A. Nicolette
                              Title: President