Document:

EXHIBIT 10.8

            NON-QUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
                             FOR ANTHONY J. FABIANO
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                      NON-QUALIFIED SUPPLEMENTAL EXECUTIVE
                              RETIREMENT AGREEMENT

                              SOUND FEDERAL SAVINGS
                             White Plains, New York

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            NON-QUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

      This  Non-qualified   Supplemental  Executive  Retirement  Agreement  (the
"Agreement"),  effective  as of the 1st day of  January,  2004,  formalizes  the
agreements  by and between  SOUND  FEDERAL  SAVINGS  (the  "Bank"),  a federally
chartered  stock bank,  and certain key  employees,  hereinafter  referred to as
"Executive(s)", who shall be selected and approved by the Bank to participate in
this Agreement by execution of a Non-qualified Supplemental Executive Retirement
Joinder  Agreement  ("Joinder  Agreement") in a form provided by the Bank. SOUND
FEDERAL BANCORP,  INC. (the "Holding  Company") is a party to this Agreement for
the sole purpose of guaranteeing the Bank's performance hereunder.

                              W I T N E S S E T H :

      WHEREAS, the Executives are employed by the Bank; and

      WHEREAS,  the Bank recognizes the valuable services  heretofore  performed
for it by such Executives and wishes to encourage their continued employment and
to provide them with additional incentive to achieve corporate objectives; and

      WHEREAS,  the Bank wishes to provide the terms and  conditions  upon which
the Bank shall pay additional retirement benefits to the Executives; and

      WHEREAS,  the Bank intends this  Agreement  to be  considered  an unfunded
arrangement,  maintained primarily to provide supplemental retirement income for
its  Executives,  members of a select group of management or highly  compensated
employees  of the  Bank,  for tax  purposes  and for  purposes  of the  Employee
Retirement Income Security Act of 1974, as amended; and

      WHEREAS,  the Bank has adopted this Non-qualified  Supplemental  Executive
Retirement   Agreement  which  controls  all  issues  relating  to  Supplemental
Retirement Benefits as described herein.

      NOW,  THEREFORE,  in  consideration  of the  premises  and  of the  mutual
promises herein contained, the Bank and the Executive agree as follows:

                                    SECTION I
                                   DEFINITIONS

      When used herein,  the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:

1.1   "Accrued  Benefit"  means  that  portion  of the  Supplemental  Retirement
      Benefit  which is  required to be expensed  and  accrued  under  generally
      accepted accounting principles (GAAP).

1.2   "Act"  means the  Employee  Retirement  Income  Security  Act of 1974,  as
      amended from time to time.

1.3   "Administrator" means the Bank and/or its Board.

1.6   "Bank" means Sound Federal Savings and any successor thereto or the Board.

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1.7   "Beneficiary"  means the person or persons (and their heirs) designated as
      Beneficiary by the Executive to whom the deceased Executive's benefits are
      payable. If no Beneficiary is so designated,  then the Executive's Spouse,
      if living,  will be deemed the Beneficiary.  If the Executive's  Spouse is
      not  living,  then  the  Children  of the  Executive  will be  deemed  the
      Beneficiaries and will take on a per stirpes basis. If there are no living
      Children, then the Estate of the Executive will be deemed the Beneficiary.

1.7   "Benefit  Eligibility  Date"  shall be the later of (1) the 1st day of the
      month  following  the  month in which the  Executive  attains  the  Normal
      Retirement  Age, or (ii) the 1st day of the month  following  the month in
      which the Executive actually retires.

1.8   "Board" shall mean the Board of Directors of the Bank, unless specifically
      noted otherwise.

1.9   "Cause"  shall include  termination  because of the  Executive's  personal
      dishonesty,  incompetence,  willful  misconduct,  breach of fiduciary duty
      involving personal profit,  intentional  failure to perform stated duties,
      willful  violation  of any law rule,  or  regulation  (other than  traffic
      violations  or  similar  offenses)  or final  cease-and-desist  order,  or
      material breach of any provision of this Agreement.

1.10  "Change in Control"  shall mean a change in control of a nature that:  (i)
      would be  required  to be reported in response to Item 1(a) of the current
      report on Form 8-K, as in effect on the date  hereof,  pursuant to Section
      13 or 15(d) of the Securities  Exchange Act of 1934 (the "Exchange  Act");
      or (ii) results in a Change in Control of the  Association  or the Company
      within the meaning of the Home Owners' Loan Act, as amended ("HOLA"),  and
      applicable rules and regulations promulgated  thereunder,  as in effect at
      the time of the Change in  Control;  or (iii)  without  limitation  such a
      Change in Control shall be deemed to have occurred at such time as (a) any
      "person" (as the term is used in Sections  13(d) and 14(d) of the Exchange
      Act) is or becomes the "beneficial  owner" (as defined in Rule 13d-3 under
      the Exchange Act),  directly or  indirectly,  of securities of the Company
      representing  25% or  more  of the  combined  voting  power  of  Company's
      outstanding   securities  except  for  any  securities  purchased  by  the
      Association's  employee stock  ownership plan or trust; or (b) individuals
      who constitute the Board on the date hereof (the "Incumbent  Board") cease
      for any reason to  constitute at least a majority  thereof,  provided that
      any  person  becoming  a  director  subsequent  to the date  hereof  whose
      election  was  approved  by a  vote  of at  least  three-quarters  of  the
      directors comprising the Incumbent Board, or whose nomination for election
      by  the  Company's  stockholders  was  approved  by  the  same  Nominating
      Committee serving under an Incumbent Board, shall be, for purposes of this
      clause (b),  considered as though he were a member of the Incumbent Board;
      or (c) a plan of  reorganization,  merger,  consolidation,  sale of all or
      substantially  all the assets of the Association or the Company or similar
      transaction  in which the  Association  or  Company  is not the  surviving
      corporation  occurs;  or (d) a proxy  statement  soliciting  proxies  from
      stockholders  of the Company,  by someone  other than the current Board of
      Directors  of the  Company,  seeking  stockholder  approval  of a plan  of
      reorganization,   merger  or  consolidation  of  the  Company  or  similar
      transaction  with  one or more  corporations  as a  result  of  which  the
      outstanding shares of the common stock of the Company are exchanged for or
      converted  into cash or property or securities  not issued by the Company;
      or (e) a tender offer is made for 25% or more of the voting  securities of
      the Company and the shareholders  owning  beneficially or of record 25% or
      more of the outstanding securities of the Company have tendered or offered
      to sell their  shares  pursuant  to such  tender  offer and such  tendered
      shares have been accepted by the tender offeror.

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1.11  "Children"  means the Executive's  children,  or the issue of any deceased
      Children, then living at the time payments are due the Children under this
      Agreement.  The term  "Children"  shall  include  both natural and adopted
      Children.

1.12  "Code" means the Internal Revenue Code of 1986, as amended.

1.13  "Disability  Benefit" means the monthly  benefit  payable to the Executive
      following a  determination,  in accordance with Subsection 3.6, that he is
      no longer able, properly and satisfactorily,  to perform his duties at the
      Bank.  The  Disability  Benefit  shall be equal  to the  Accrued  Benefit,
      annuitized using the Interest Factor and paid over the Payout Period.

1.14  "Effective Date" of this Agreement shall be January 1, 2004.

1.15  "Estate" means the estate of the Executive.

1.16  "Executive"  means the executive officer who is designated by the Board to
      participate in the Plan.

1.21  "Holding Company" means Sound Federal Bancorp, Inc.

1.22  "Interest  Factor"  unless  specifically   designated  otherwise  in  this
      Subsection or in another place in this Agreement, means annual compounding
      or  discounting,  as  applicable,  at six percent  (6%).  For  purposes of
      determining  the present value of the amount  necessary to contribute to a
      rabbi  trust to fund the  Executive's  benefit in the event of a Change in
      Control, the Interest Factor shall mean 120% of the semiannual  applicable
      federal rate (AFR) as determined under Code section 1274(d).

1.23  "Normal  Retirement  Age"  shall be the  birthday  on which the  Executive
      attains the age set forth in such Executive's  NON-QUALIFIED  SUPPLEMENTAL
      EXECUTIVE RETIREMENT JOINDER AGREEMENT.

1.24  "Payout  Period"  means  the time  frame  during  which  benefits  payable
      hereunder  shall  be  distributed.  Payments  generally  shall  be made in
      monthly  installments  commencing  within  thirty (30) days  following the
      occurrence of the event which triggers distribution and shall continue for
      the longer of One Hundred Eighty (180) months or the Executive's lifetime.
      In certain  cases set forth  herein,  an  Executive's  (or  Beneficiary's)
      benefit shall be paid in a single lump payment.

1.20  "Plan Year" shall mean the calendar year.

1.21  "Spouse" means the individual to whom the Executive is legally  married at
      the  time of the  Executive's  death,  provided,  however,  that  the term
      "Spouse" shall not refer to an individual to whom the Executive is legally
      married at the time of death if the  Executive  and such  individual  have
      entered into a formal separation  agreement (provided that such separation
      agreement  does not provide  otherwise  or state that such  individual  is
      entitled  to a portion of the  benefit  hereunder)  or  initiated  divorce
      proceedings.

1.22  "Supplemental  Retirement  Benefit"  means an annual amount (before taking
      into account federal and state income taxes),  payable to the Executive in
      monthly  installments  throughout the Payout  Period,  equal to the amount
      designated in the Joinder Agreement.  The Supplemental  Retirement Benefit
      shall be calculated annually,  based on certain actuarial assumptions,  as
      the difference  between (i) the benefit the Executive would be entitled to
      receive  upon  retirement  at his Normal  Retirement  Age under the Bank's
      tax-qualified  defined  benefit  pension plan and employee stock

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      ownership plan without giving  consideration  to the  limitations  imposed
      under Code Sections  401(a)(17) and 415 (the "Applicable  Limitations") on
      such benefits and  contributions and (ii) the amount that the Executive is
      actually  entitled to receive at such time as the result of the Applicable
      Limitations.

1.23  "Survivor's  Benefit" means an annual amount payable to the Beneficiary in
      monthly  installments  throughout the Payout  Period,  equal to the amount
      designated in the Executive's Joinder Agreement.

                                   SECTION II
                          ESTABLISHMENT OF RABBI TRUST

      The Bank may  establish a rabbi  trust into which the Bank may  contribute
assets which shall be held, subject to the claims of the Bank's creditors in the
event of the Bank's  "Insolvency" as defined in the agreement which  establishes
such rabbi trust,  until the  contributed  assets are paid to the Executives and
their  Beneficiaries  in such  manner  and at such  times as  specified  in this
Agreement.  The Bank may make  contributions  to the rabbi  trust to provide the
Bank  with a source of funds to assist it in  meeting  the  liabilities  of this
Agreement.  The rabbi trust and any assets  held  therein  shall  conform to the
terms of the rabbi trust agreement which may be established in conjunction  with
this Agreement.  To the extent the language in this Agreement is modified by the
language in the rabbi trust agreement, the rabbi trust agreement shall supersede
this  Agreement.  In the  event of a Change in  Control  or  imminent  Change in
Control,  the Bank shall  establish a rabbi  trust (if none has been  previously
established  hereunder)  and shall  transfer  to the rabbi  trust  prior to such
Change in Control,  the present value of an amount  sufficient to fully fund the
Supplemental Retirement Benefit for each Executive covered by this Agreement.

                                   SECTION III
                                    BENEFITS

3.1   Retirement  Benefit.  If the  Executive  is in service with the Bank until
      reaching his Normal Retirement Age, the Executive shall be entitled to the
      Supplemental  Retirement  Benefit.  Such  benefit  shall  commence  on the
      Executive's  Benefit  Eligibility  Date and shall be  payable  in  monthly
      installments throughout the Payout Period. In the event the Executive dies
      at any time  after  attaining  his  Normal  Retirement  Age,  but prior to
      completion  of all such payments due and owing  hereunder,  the Bank shall
      pay  to  the  Executive's   Beneficiary  a  continuation  of  the  monthly
      installments for the remainder of the Payout Period.

3.2   Death  Prior to Normal  Retirement  Age.  If the  Executive  dies prior to
      attaining his Normal  Retirement  Age but while  employed at the Bank, the
      Executive's  Beneficiary shall be entitled to the Survivor's Benefit.  The
      Survivor's   Benefit  shall  commence  within  thirty  (30)  days  of  the
      Executive's death and shall be payable in monthly installments  throughout
      the Payout Period.

3.3   Involuntary Termination (Other Than for Cause) or Voluntary Termination of
      Employment.  If the Executive's  employment with the Bank is involuntarily
      terminated  prior to the attainment of his Normal  Retirement Age, for any
      reason  other  than for  Cause,  the  Executive's  death,  disability,  or
      following a Change in Control (as defined),  or the Executive  voluntarily
      terminates his  employment,  the Executive (or his  Beneficiary)  shall be
      entitled to the Accrued  Benefit  relating to Executive at the time of the
      Executive's termination of employment.  Such benefit shall commence at the
      Executive's Normal Retirement Age, shall be annuitized (using the Interest
      Factor)  and be  payable  in monthly  installments  throughout  the Payout
      Period.  In  the  event  the  Executive  dies  prior  to  commencement  or
      completion  of all such payments due and owing  hereunder,  the Bank shall
      pay  to  the  Executive's   Beneficiary  a  continuation  of  the  monthly

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      installments  for the  remainder  of the  Payout  Period.  Notwithstanding
      anything to the contrary herein,  the  Administrator  may determine to pay
      the  Executive's  Accrued  Benefit to the  Executive  in a lump sum within
      sixty (60) days of his termination.

3.4   Termination  of  Service  Related to a Change in  Control.  If a Change in
      Control occurs,  and thereafter the  Executive's  employment is terminated
      (either voluntarily or involuntarily),  the Executive shall be entitled to
      the  Supplemental  Retirement  Benefit as if the  Executive  had  remained
      employed by the Bank (or its  successor)  until  attainment  of his Normal
      Retirement  Age.  Such benefit shall  commence  within thirty (30) days of
      such termination and shall be payable in monthly  installments  throughout
      the Payout Period.  In the event that the Executive dies at any time after
      termination of employment,  but prior to commencement or completion of all
      such payments due and owing hereunder,  the Bank, or its successor,  shall
      pay  to  the  Executive's   Beneficiary  a  continuation  of  the  monthly
      installments for the remainder of the Payout Period.

3.5   Termination  for Cause.  If the  Executive is  terminated  for Cause,  all
      benefits under this Agreement  shall be forfeited and this Agreement shall
      become null and void as to such Executive.

3.6   Disability  Benefit.   Notwithstanding  any  other  provision  hereof,  if
      requested by the Executive and approved by the Board (which approval shall
      not be unreasonably withheld),  the Executive shall be entitled to receive
      the Disability Benefit hereunder, in any case in which it is determined by
      a duly licensed  physician  selected by the Bank, that the Executive is no
      longer able, properly and satisfactorily, to perform his regular duties as
      an  Executive,  because of ill  health,  accident,  disability  or general
      inability due to age. If the Executive's service is terminated pursuant to
      this paragraph and Board approval is obtained,  the Executive may elect to
      receive  the  Disability  Benefit in lieu of any other  benefit  available
      under Section III, which is not available prior to the Executive's Benefit
      Eligibility Date. The Disability  Benefit shall be paid within thirty (30)
      days  following  the  above-mentioned  disability  determination.  At  the
      Executive's request,  and upon Board approval,  the Disability Benefit may
      be paid in a lump sum. In the event the  Executive  dies at any time after
      termination  of employment  due to disability  but prior to payment of the
      Disability  Benefits,  the Bank  shall pay the  Survivor's  Benefit to the
      Executive's   Beneficiary.   The  determination  regarding  payment  of  a
      Disability  Benefit or payment of the Disability  Benefit in a lump sum is
      within the sole discretion of the Board.

                                   SECTION IV
                             BENEFICIARY DESIGNATION

      The Executive  shall make an initial  designation of primary and secondary
Beneficiaries  upon execution of his Joinder  Agreement and shall have the right
to change  such  designation,  at any  subsequent  time,  by  submitting  to the
Administrator  in  substantially  the form  attached as Exhibit A to the Joinder
Agreement,  a written  designation of primary and secondary  Beneficiaries.  Any
Beneficiary  designation  made subsequent to execution of the Joinder  Agreement
shall become  effective only when receipt  thereof is acknowledged in writing by
the Administrator.

                                    SECTION V
                          EXECUTIVE'S RIGHT TO ASSETS:
                     ALIENABILITY AND ASSIGNMENT PROHIBITION

      At no time shall the Executive be deemed to have any lien, right, title or
interest in or to any specific  investment  or asset of the Bank.  The rights of
the  Executive,  any  Beneficiary,  or any other  person  claiming  through  the
Executive  under this Agreement,  shall be solely those of an unsecured  general
creditor  of the Bank.  The  Executive,  the  Beneficiary,  or any other  person
claiming  through the  Executive,

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shall only have the right to receive  from the Bank those  payments so specified
under this  Agreement.  Neither the  Executive  nor any  Beneficiary  under this
Agreement  shall  have  any  power or right  to  transfer,  assign,  anticipate,
hypothecate,  mortgage,  commute, modify or otherwise encumber in advance any of
the benefits  payable  hereunder,  nor shall any of said  benefits be subject to
seizure for the payment of any debts, judgments, alimony or separate maintenance
owed by the Executive or his  Beneficiary,  nor be  transferable by operation of
law in the event of bankruptcy, insolvency or otherwise.

                                   SECTION VI
                                 ACT PROVISIONS

6.1   Named Fiduciary and  Administrator.  The Bank shall be the Named Fiduciary
      and   Administrator   (the   "Administrator")   of  this   Agreement.   As
      Administrator,  the Bank shall be responsible for the management,  control
      and   administration   of  the  Agreement  as  established   herein.   The
      Administrator may delegate to others certain aspects of the management and
      operational responsibilities of the Agreement, including the employment of
      advisors  and  the   delegation   of   ministerial   duties  to  qualified
      individuals.

6.2   Claims  Procedure and  Arbitration.  In the event that benefits under this
      Agreement are not paid to the Executive (or to his Beneficiary in the case
      of the  Executive's  death) and such  claimants  feel they are entitled to
      receive  such  benefits,  then  a  written  claim  must  be  made  to  the
      Administrator  within sixty (60) days from the date  payments are refused.
      The  Administrator  shall  review the  written  claim and, if the claim is
      denied, in whole or in part, they shall provide in writing,  within thirty
      (30) days of  receipt  of such  claim,  their  specific  reasons  for such
      denial,  reference  to the  provisions  of this  Agreement  or the Joinder
      Agreement upon which the denial is based,  and any additional  material or
      information  necessary to perfect the claim.  Such writing by the Bank and
      its Board of Directors shall further  indicate the additional  steps which
      must be  undertaken  by  claimants  if an  additional  review of the claim
      denial is desired.

      If claimants desire a second review,  they shall notify the  Administrator
      in writing  within thirty (30) days of the first claim  denial.  Claimants
      may review this Agreement, the Joinder Agreement or any documents relating
      thereto  and submit any issues and  comments,  in  writing,  they may feel
      appropriate.  In its sole discretion,  the Administrator shall then review
      the second claim and provide a written decision within thirty (30) days of
      receipt of such claim.  This decision shall state the specific reasons for
      the decision and shall  include  reference to specific  provisions of this
      Agreement or the Joinder Agreement upon which the decision is based.

      If claimants  continue to dispute the benefit  denial based upon completed
      performance of this Agreement and the Joinder Agreement or the meaning and
      effect  of the  terms  and  conditions  thereof,  it shall be  settled  by
      arbitration  administered  by the AAA  under  its  Commercial  Arbitration
      Rules,  and  judgment on the award  rendered by the  arbitrator(s)  may be
      entered in any court having jurisdiction thereof.

                                   SECTION VII
                                  MISCELLANEOUS

7.1   No Effect on Employment Rights.  Nothing contained herein will confer upon
      the  Executive  the right to be  retained  in the  service of the Bank nor
      limit  the  right of the Bank to  discharge  or  otherwise  deal  with the
      Executive without regard to the existence of the Agreement.

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7.2   State Law.  The  Agreement  is  established  under,  and will be construed
      according  to, the laws of the State of New York,  to the extent such laws
      are not preempted by the Act and valid regulations published thereunder.

7.3   Severability and  Interpretation  of Provisions.  In the event that any of
      the provisions of this Plan or portion hereof,  are held to be inoperative
      or invalid by any court of  competent  jurisdiction,  or in the event that
      any legislation  adopted by any governmental body having jurisdiction over
      the Bank would be  retroactively  applied to  invalidate  this plan or any
      provision hereof or cause the benefits hereunder to be taxable,  then: (1)
      insofar as is reasonable, effect will be given to the intent manifested in
      the  provisions  held  invalid or  inoperative,  and (2) the  validity and
      enforceability  of the remaining  provisions will not be affected thereby.
      In the event that the intent of any  provision  shall need to be construed
      in a manner to avoid taxability,  such  construction  shall be made by the
      plan  administrator  in a manner that would manifest to the maximum extent
      possible the original meaning of such provisions.

7.4   Incapacity  of   Recipient.   In  the  event  the  Executive  is  declared
      incompetent  and a conservator  or other person  legally  charged with the
      care of his  person  or  Estate  is  appointed,  any  benefits  under  the
      Agreement  to  which  such  Executive  is  entitled  shall be paid to such
      conservator or other person legally charged with the care of his person or
      Estate.

7.5   Unclaimed  Benefit.  The  Executive  shall keep the Bank  informed  of his
      current  address  and the  current  address of his  Beneficiaries.  If the
      location of the Executive is not made known to the Bank within three years
      after the date upon which any payment of any  benefits  may first be made,
      the Bank shall delay payment of the Executive's  benefit  payment(s) until
      the location of the Executive is made known to the Bank; however, the Bank
      shall only be obligated to hold such benefit  payment(s) for the Executive
      until the expiration of three (3) years.  Upon expiration of the three (3)
      year  period,  the Bank may  discharge  its  obligation  by payment to the
      Executive's Beneficiary. If the location of the Executive's Beneficiary is
      not  made  known  to the Bank by the end of an  additional  two (2)  month
      period  following  expiration  of the three (3) year period,  the Bank may
      discharge its obligation by payment to the Executive's Estate. If there is
      no Estate in existence  at such time or if such fact cannot be  determined
      by the  Bank,  the  Executive  and his  Beneficiary(ies)  shall  thereupon
      forfeit any rights to the balance,  if any, of any  benefits  provided for
      such Executive and/or Beneficiary under this Agreement.

7.6   Limitations on Liability.  Notwithstanding any of the preceding provisions
      of the Agreement, no individual acting as an employee or agent of the Bank
      or the Holding Company, or as a member of the Board of the Bank or Holding
      Company  shall be  personally  liable to the Executive or any other person
      for any claim, loss,  liability or expense incurred in connection with the
      Agreement.

7.7   Gender.  Whenever in this  Agreement  words are used in the  masculine  or
      neuter  gender,  they  shall be read and  construed  as in the  masculine,
      feminine or neuter gender, whenever they should so apply.

7.8   Effect on Other Corporate  Benefit  Agreements.  Nothing contained in this
      Agreement  shall affect the right of the Executive to participate in or be
      covered by any qualified or non-qualified pension,  profit sharing, group,
      bonus or other  supplemental  compensation  or  fringe  benefit  agreement
      constituting  a  part  of  the  Bank's  existing  or  future  compensation
      structure.

7.9   Suicide.  Notwithstanding  anything to the contrary in this Agreement, the
      benefits otherwise provided herein shall not be payable and this Agreement
      shall become null and void if the

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      Executive's  death  results from suicide,  whether sane or insane,  within
      twenty-six (26) months after the execution of his Joinder Agreement.

7.10  Inurement.  This  Agreement  shall be binding  upon and shall inure to the
      benefit of the Bank, its successors  and assigns,  and the Executive,  his
      successors, heirs, executors, administrators, and Beneficiaries.

7.11  Tax  Withholding.  The Bank may withhold  from any benefits  payable under
      this  Agreement  all  federal,  state,  city,  or other  taxes as shall be
      required pursuant to any law or governmental regulation then in effect.

7.12  Headings.  Headings and  sub-headings  in this  Agreement are inserted for
      reference  and  convenience  only and  shall  not be deemed a part of this
      Agreement.

                                  SECTION VIII
                              AMENDMENT/REVOCATION

      This Agreement  shall not be amended,  modified or revoked at any time, in
whole or part, without the mutual written consent of the Executive and the Bank,
and such mutual  consent  shall be required  even if the  Executive is no longer
employed by the Bank.

                                   SECTION IX
                                    EXECUTION

9.3   This Agreement sets forth the entire  understanding  of the parties hereto
      with respect to the  transactions  contemplated  hereby,  and any previous
      agreements  or  understandings  between the parties  hereto  regarding the
      subject matter hereof are merged into and superseded by this Agreement.

9.4   This Agreement shall be executed in triplicate,  each copy of which,  when
      so executed  and  delivered,  shall be an  original,  but all three copies
      shall together constitute one and the same instrument.

                     [Remainder of Page Intentionally Blank]

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      IN WITNESS  WHEREOF,  the Bank and the  Holding  Company  have caused this
Agreement to be executed on this 1st day of April 2004.

ATTEST:                                     SOUND FEDERAL SAVINGS

/s/ Anthony J. Fabiano                      By:  /s/ Bruno J. Gioffre
----------------------                           --------------------
Secretary                                   Title:  Chairman

ATTEST:                                     SOUND FEDERAL BANCORP, INC.

/s/ Anthony J. Fabiano                      By:  /s/ Bruno J. Gioffre
----------------------                           --------------------
Secretary                                   Title:  Chairman

                                       9
<PAGE>

        NON-QUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT JOINDER AGREEMENT

      I, Anthony J. Fabiano, and SOUND FEDERAL SAVINGS hereby agree for good and
valuable consideration,  the value of which is hereby acknowledged, that I shall
participate in the Non-qualified  Supplemental  Executive  Retirement  Agreement
("Agreement")  established as of January 1, 2004, by SOUND FEDERAL  SAVINGS,  as
such  Agreement may now exist or hereafter be modified,  and do further agree to
the terms and conditions thereof.

      I understand that I must execute this Non-qualified Supplemental Executive
Retirement  Joinder  Agreement  ("Joinder  Agreement")  as  well as  notify  the
Administrator of such execution in order to participate in the Agreement.

      I  understand  that  if I  retire  on or  after  attainment  of my  Normal
Retirement  Age of 65,  I  shall  be  entitled  to the  Supplemental  Retirement
Benefit,  calculated in accordance with Subsections 1.22 and 3.1, and subject to
all relevant  provisions of the Agreement.  My Supplemental  Retirement  Benefit
payable  at my Normal  Retirement  Age is  presently  projected  to be  $82,600,
provided,  however,  my  actual  Supplemental  Retirement  Benefit  at my Normal
Retirement Age may be a greater or smaller amount.

      I  understand  that my  annual  Survivor's  Benefit  shall  be equal to my
Supplemental  Retirement  Benefit,  as calculated in accordance with Subsections
1.22 and 3.1 on the day immediately prior to my death, and subject to Subsection
3.2 and all relevant provisions of the Agreement.

      I further  understand that I am entitled to review or obtain a copy of the
Agreement, at any time, and may do so by contacting the Bank.

      This Joinder  Agreement shall become  effective upon execution  (below) by
both the Executive and a duly authorized officer of the Bank.

      Dated this 1st day of April, 2004.

/s/ Anthony J. Fabiano
--------------------------------
Anthony J. Fabiano

/s/ Richard P. McStravick
--------------------------------
(Bank's duly authorized Officer)

                                       10Exhibit 4.1

                               CONOLOG CORPORATION

                          SECURITIES PURCHASE AGREEMENT

                                 April 26, 2004

<PAGE>

                                Table of Contents

                                                                            Page
                                                                            ----

1.       Agreement to Sell and Purchase........................................1

2.       Fees and Warrant......................................................1

3.       Closing, Delivery and Payment.........................................2
         3.1        Closing....................................................2
         3.2        Delivery...................................................2

4.       Representations and Warranties of the Company.........................2
         4.1        Organization, Good Standing and Qualification..............2
         4.2        Subsidiaries...............................................3
         4.3        Capitalization; Voting Rights..............................3
         4.4        Authorization; Binding Obligations.........................4
         4.5        Liabilities................................................4
         4.6        Agreements; Action.........................................4
         4.7        Obligations to Related Parties.............................5
         4.8        Changes....................................................6
         4.9        Title to Properties and Assets; Liens, Etc.................7
         4.10       Intellectual Property......................................7
         4.11       Compliance with Other Instruments..........................8
         4.12       Litigation.................................................8
         4.13       Tax Returns and Payments...................................8
         4.14       Employees..................................................9
         4.15       Registration Rights and Voting Rights......................9
         4.16       Compliance with Laws; Permits..............................9
         4.17       Environmental and Safety Laws.............................10
         4.18       Valid Offering............................................10
         4.19       Full Disclosure...........................................10
         4.20       Insurance.................................................10
         4.21       SEC Reports...............................................10
         4.22       Listing...................................................10
         4.23       No Integrated Offering....................................11
         4.24       Stop Transfer.............................................11
         4.25       Dilution..................................................11
         4.26       Patriot Act...............................................11

5.       Representations and Warranties of the Purchaser......................12
         5.1        No Shorting...............................................12
         5.2        Requisite Power and Authority.............................12
         5.3        Investment Representations................................12
         5.4        Purchaser Bears Economic Risk.............................13
         5.5        Acquisition for Own Account...............................13
         5.6        Purchaser Can Protect Its Interest........................13
         5.7        Accredited Investor.......................................13
         5.8        Legends...................................................13

6.       Covenants of the Company.............................................14
         6.1        Stop-Orders...............................................14

                                       i

<PAGE>

         6.2        Listing...................................................14
         6.3        Market Regulations........................................15
         6.4        Reporting Requirements....................................15
         6.5        Use of Funds..............................................15
         6.6        Access to Facilities......................................15
         6.7        Taxes.....................................................15
         6.8        Insurance.................................................16
         6.9        Intellectual Property.....................................17
         6.10       Properties................................................17
         6.11       Confidentiality...........................................17
         6.12       Required Approvals........................................17
         6.13       Reissuance of Securities..................................18
         6.14       Opinion...................................................18
         6.15       NASDAQ Approval...........................................18

7.       Covenants of the Purchaser...........................................19
         7.1        Confidentiality...........................................19
         7.2        Non-Public Information....................................19
         7.3        Termination of Obligations Under the Note.................19

8.       Covenants of the Company and Purchaser Regarding Indemnification.....19
         8.1        Company Indemnification...................................19
         8.2        Purchaser's Indemnification...............................19
         8.3        Procedures................................................20

9.       Conversion of Convertible Note.......................................20
         9.1        Mechanics of Conversion...................................20
         9.2        Maximum Conversion........................................21

10.      Registration Rights, Indemnification.................................21
         10.1       Registration Rights Granted...............................21
         10.2       Indemnification...........................................22
         10.3       Offering Restrictions.....................................23

11.      Miscellaneous........................................................24
         11.1       Governing Law.............................................24
         11.2       Survival..................................................24
         11.3       Successors................................................24
         11.4       Entire Agreement..........................................25
         11.5       Severability..............................................25
         11.6       Amendment and Waiver......................................25
         11.7       Delays or Omissions.......................................25
         11.8       Notices...................................................25
         11.9       Attorneys' Fees...........................................26
         11.10      Titles and Subtitles......................................26
         11.11      Facsimile Signatures; Counterparts........................27
         11.12      Construction..............................................27

                                       ii

<PAGE>

                                LIST OF EXHIBITS

--------------------------------------------------------------------------------
Form of Convertible Term Note.....................................     Exhibit A
Form of Warrant...................................................     Exhibit B
Form of Opinion...................................................     Exhibit C
Form of Escrow Agreement..........................................     Exhibit D

                                      iii

<PAGE>

                          SECURITIES PURCHASE AGREEMENT

      THIS SECURITIES  PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of April 26,  2004,  by and  between  CONOLOG  CORPORATION,  a  Delaware
corporation  (the  "Company"),  and Laurus Master Fund,  Ltd., a Cayman  Islands
company (the "Purchaser").

                                    RECITALS

      WHEREAS,  the  Company  has  authorized  the  sale to the  Purchaser  of a
Convertible  Term Note in the  aggregate  principal  amount of One  Million  Two
Hundred Thousand Dollars ($1,200,000.00) (the "Note"), which Note is convertible
into  shares of the  Company's  common  stock,  $0.01  par value per share  (the
"Common Stock") at a fixed  conversion  price of $1.06 per share of Common Stock
("Fixed Conversion Price");

      WHEREAS,  the  Company  wishes  to issue a  warrant  to the  Purchaser  to
purchase up to 270,000 shares of the Company's  Common Stock in connection  with
Purchaser's purchase of the Note;

      WHEREAS,  Purchaser  desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and

      WHEREAS,  the  Company  desires to issue and sell the Note and  Warrant to
Purchaser on the terms and conditions set forth herein.

                                    AGREEMENT

      NOW, THEREFORE,  in consideration of the foregoing recitals and the mutual
promises,  representations,  warranties and covenants  hereinafter set forth and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

      1.  Agreement to Sell and Purchase.  Pursuant to the terms and  conditions
set forth in this Agreement,  on the Closing Date (as defined in Section 3), the
Company  agrees to sell to the  Purchaser,  and the  Purchaser  hereby agrees to
purchase  from the  Company a Note in the amount of  $1,200,000  convertible  in
accordance  with the terms thereof into shares of the Company's  Common Stock in
accordance with the terms of the Note and this Agreement.  The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
thirty six (36) months  from the date of  issuance.  Collectively,  the Note and
Warrant  (as defined in Section 2) and Common  Stock  issuable in payment of the
Note,  upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."

      2. Fees and Warrant. On the Closing Date:

            (a) The Company will issue and deliver to the Purchaser a Warrant to
      purchase  up to  270,000  shares of Common  Stock in  connection  with the
      Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be
      delivered  on the  Closing

<PAGE>

      Date.  A form  of  Warrant  is  annexed  hereto  as  Exhibit  B.  All  the
      representations, covenants, warranties, undertakings, and indemnification,
      and other rights made or granted to or for the benefit of the Purchaser by
      the Company are hereby also made and granted in respect of the Warrant and
      shares of the Company's Common Stock issuable upon exercise of the Warrant
      (the "Warrant Shares").

            (b) Subject to the terms of Section  2(d) below,  the Company  shall
      pay to Laurus  Capital  Management,  LLC,  manager of  Purchaser a closing
      payment in an amount  equal to three and one-half  percent  (3.50%) of the
      aggregate  principal  amount of the Note. The foregoing fee is referred to
      herein as the "Closing Payment."

            (c) The Company shall  reimburse  the  Purchaser for its  reasonable
      legal fees for services  rendered to the Purchaser in  preparation of this
      Agreement  and  the  Related  Agreements  (as  hereinafter  defined),  and
      expenses in connection with the  Purchaser's  due diligence  review of the
      Company and relevant  matters.  Amounts required to be paid hereunder will
      be paid at the  Closing and shall be $29,500  for legal  expenses  and for
      performing due diligence inquiries on the Company.

            (d) The Closing  Payment,  legal fees and due diligence fees (net of
      deposits  previously  paid by the Company  shall be paid at closing out of
      funds held  pursuant to a Funds  Escrow  Agreement  of even date  herewith
      among the  Company,  Purchaser,  and an Escrow  Agent (the  "Funds  Escrow
      Agreement") and a disbursement letter (the "Disbursement Letter").

      3. Closing,  Delivery and  Payment.

            3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date  hereof,  at such time or place as the Company and  Purchaser  may mutually
agree (such date is hereinafter referred to as the "Closing Date").

            3.2  Delivery.  Pursuant to the Funds  Escrow  Agreement in the form
attached  hereto as Exhibit C, at the Closing on the Closing  Date,  the Company
will deliver to the Purchaser,  among other things,  a Note in the form attached
as Exhibit A  representing  the principal  amount of $1,200,000 and a Warrant in
the form  attached as Exhibit B in the  Purchaser's  name  representing  270,000
Warrant  Shares and the  Purchaser  will  deliver to the  Company,  among  other
things,  the amounts set forth in the Disbursement  Letter by certified funds or
wire transfer.

      4.  Representations  and  Warranties  of the Company.  The Company  hereby
represents and warrants to the Purchaser as of the date of this Agreement as set
forth below which  disclosures are supplemented by, and subject to the Company's
filings under the Securities Exchange Act of 1934  (collectively,  the "Exchange
Act Filings"), copies of which have been provided to the Purchaser.

            4.1 Organization, Good Standing and Qualification.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.  The Company has the corporate  power and authority to
own and  operate  its  properties  and  assets,  to  execute  and  deliver  this
Agreement,  and the Note and the  Warrant to be issued in

                                       2
<PAGE>

connection  with this  Agreement,  the Security  Agreement  relating to the Note
dated  as of  April  26,  2004  between  the  Company  and  the  Purchaser,  the
Registration  Rights Agreement  relating to the Securities dated as of April 26,
2004 between the Company and the Purchaser and all other agreements  referred to
herein (collectively,  the "Related Agreements"), to issue and sell the Note and
the  shares of Common  Stock  issuable  upon  conversion  of the Note (the "Note
Shares"), to issue and sell the Warrant and the Warrant Shares, and to carry out
the provisions of this Agreement and the Related  Agreements and to carry on its
business as presently conducted. The Company is duly qualified and is authorized
to do  business  and  is in  good  standing  as a  foreign  corporation  in  all
jurisdictions  in which the nature of its activities and of its properties (both
owned  and  leased)  makes  such  qualification  necessary,   except  for  those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.

      4.2  Subsidiaries.  The  Company  owns all of the issued  and  outstanding
capital  stock of Nonolog,  Inc.  The Company does not own or control any equity
security or other  interest of any other  corporation,  limited  partnership  or
other business entity.  Lonogog,  Inc. the only other subsidiary of the Company,
will be wound up and dissolved no later than November 1, 2004.

      4.3 Capitalization; Voting Rights.

            (a) The  authorized  capital  stock of the  Company,  as of the date
      hereof  consists of 20,000,000  shares,  of which  2,150,313 are shares of
      Common  Stock,  par value $0.01 per share,  2,150,313  shares of which are
      issued and  outstanding  (such amount  including  800,000 shares of Common
      Stock to be issued to the Company's officers and directors as set forth on
      Schedule 4.3 hereto but  excluding  220 shares of Common Stock held in the
      Company's treasury),  and 212,000 are shares of preferred stock, par value
      $0.50 per share, 162,000 shares of which are designated Series A Preferred
      Stock  with a par  value of $0.50  per  share of which  155,000  have been
      issued  and  outstanding  and  50,000  of which  are  designated  Series B
      Preferred Stock with a stated par value of $0.50 of which 1,197 shares are
      issued and outstanding.

            (b) Except as disclosed in Exchange Act Filings or on Schedule  4.3,
      other than: (i) the shares reserved for issuance under the Company's stock
      option  plans;  and (ii)  shares  which may be  granted  pursuant  to this
      Agreement and the Related  Agreements,  there are no outstanding  options,
      warrants,  rights (including conversion or preemptive rights and rights of
      first  refusal),  proxy or  stockholder  agreements,  or  arrangements  or
      agreements of any kind for the purchase or acquisition from the Company of
      any of its  securities.  Except as disclosed in Exchange Act Filings or on
      Schedule  4.3,  neither the offer,  issuance or sale of any of the Note or
      Warrant,  or the issuance of any of the Note Shares or Warrant Shares, nor
      the consummation of any transaction  contemplated  hereby will result in a
      change in the price or number of any securities of the Company outstanding
      other than as the result of the  issuance  of Note Shares  and/or  Warrant
      shares,  under  anti-dilution or other similar provisions  contained in or
      affecting any such securities.

            (c) All issued and outstanding shares of the Company's Common Stock:
      (i) have been duly  authorized  and validly  issued and are fully paid and
      nonassessable;  and

                                       3
<PAGE>

      (ii) were issued in compliance with all applicable  state and federal laws
      concerning the issuance of securities.

            (d) The rights,  preferences,  privileges  and  restrictions  of the
      shares of the Common Stock are as stated in the Company's  Certificate  of
      Incorporation  (the  "Charter").  The Note Shares and Warrant  Shares have
      been duly and validly  reserved for  issuance.  When issued in  compliance
      with the  provisions  of this  Agreement and the  Company's  Charter,  the
      Securities will be validly issued, fully paid and nonassessable,  and will
      be  free  of any  liens  or  encumbrances;  provided,  however,  that  the
      Securities may be subject to  restrictions  on transfer under state and/or
      federal  securities  laws as set forth herein or as otherwise  required by
      such laws at the time a transfer is proposed.

            4.4 Authorization;  Binding Obligations. All corporate action on the
part of the Company,  its officers and directors necessary for the authorization
of this Agreement and the Related Agreements, the performance of all obligations
of the Company hereunder at the Closing and, the authorization,  sale,  issuance
and  delivery  of the Note and  Warrant has been taken or will be taken prior to
the  Closing.  The  Agreement  and the Related  Agreements,  when  executed  and
delivered  and to the extent it is a party  thereto,  will be valid and  binding
obligations of the Company enforceable in accordance with their terms, except:

            (a) as limited by applicable bankruptcy, insolvency, reorganization,
      moratorium or other laws of general application  affecting  enforcement of
      creditors' rights; and

            (b) general  principles of equity that restrict the  availability of
      equitable or legal remedies.

The sale of the Note and the subsequent  conversion of the Note into Note Shares
are not and will not be  subject  to any  preemptive  rights  or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the  subsequent  exercise of the Warrant for Warrant  Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.

            4.5 Liabilities.  The Company, to the best of its knowledge,  has no
material  contingent  liabilities,  except current  liabilities  incurred in the
ordinary  course of business  and  liabilities  disclosed  in any  Exchange  Act
Filings.

            4.6  Agreements;  Action.  Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:

            (a) There are no agreements, understandings, instruments, contracts,
      proposed  transactions,  judgments,  orders, writs or decrees to which the
      Company  is a party or to its  knowledge  by which it is bound  which  may
      involve: (i) obligations (contingent or otherwise) of, or payments to, the
      Company in excess of $25,000 (other than  obligations  of, or payments to,
      the Company arising from purchase or sale  agreements  entered into in the
      ordinary  course of  business);  or (ii) the  transfer  or  license of any
      patent, copyright,  trade secret or other proprietary right to or from the
      Company (other than licenses  arising from the purchase of "off the shelf"
      or  other  standard  products);   or  (iii)  provisions

                                       4
<PAGE>

      restricting the development,  manufacture or distribution of the Company's
      products or services;  or (iv) indemnification by the Company with respect
      to infringements of proprietary rights.

            (b) Since  January 31,  2004,  the Company has not:  (i) declared or
      paid any dividends,  or authorized or made any  distribution  upon or with
      respect to any class or series of its capital  stock;  (ii)  incurred  any
      indebtedness  for money  borrowed  or any other  liabilities  (other  than
      ordinary course obligations)  individually in excess of $25,000 or, in the
      case of indebtedness and/or liabilities individually less than $25,000, in
      excess of $50,000 in the  aggregate;  (iii) made any loans or  advances to
      any person not in excess,  individually  or in the aggregate,  of $50,000,
      other than ordinary advances for travel expenses;  or (iv) sold, exchanged
      or otherwise disposed of any of its assets or rights,  other than the sale
      of its inventory in the ordinary course of business.

            (c)  For  the  purposes  of  subsections  (a)  and  (b)  above,  all
      indebtedness,   liabilities,  agreements,   understandings,   instruments,
      contracts  and proposed  transactions  involving the same person or entity
      (including  persons or  entities  the  Company  has reason to believe  are
      affiliated  therewith)  shall be aggregated for the purpose of meeting the
      individual minimum dollar amounts of such subsections.

            4.7 Obligations to Related Parties.  Except as set forth on Schedule
4.7,  there  are  no   obligations  of  the  Company  to  officers,   directors,
stockholders or employees of the Company other than:

            (a) for  payment  of  salary  for  services  rendered  and for bonus
      payments;

            (b) reimbursement for reasonable  expenses incurred on behalf of the
      Company;

            (c) for other standard employee benefits made generally available to
      all employees  (including stock option  agreements  outstanding  under any
      stock option plan approved by the Board of Directors of the Company); and

            (d)  obligations  listed in the  Company's  financial  statements or
      disclosed in any of its Exchange Act Filings.

Except as described  above or set forth on Schedule  4.7,  none of the officers,
directors  or,  to the  best  of  the  Company's  knowledge,  key  employees  or
stockholders  of the Company or any  members of their  immediate  families,  are
indebted to the Company,  individually or in the aggregate, in excess of $25,000
or have any direct or indirect  ownership  interest  in any firm or  corporation
with which the  Company is  affiliated  or with which the Company has a business
relationship,  or any firm or corporation which competes with the Company, other
than passive  investments in publicly traded companies  (representing  less than
one percent (1%) of such company) which may compete with the Company.  Except as
described  above, no officer,  director or  stockholder,  or any member of their
immediate  families,  is,  directly or  indirectly,  interested  in any material
contract  with  the  Company  and  no  agreements,  understandings  or  proposed
transactions are contemplated between the Company and any such person. Except as

                                       5
<PAGE>

set forth on Schedule  4.7, the Company is not a guarantor or  indemnitor of any
indebtedness of any other person, firm or corporation.

            4.8  Changes.  Since  January 31,  2004,  except as disclosed in any
Exchange  Act  Filing  or in any  Schedule  to this  Agreement  or to any of the
Related Agreements, there has not been:

            (a) Any  change in the  assets,  liabilities,  financial  condition,
      prospects or operations of the Company, other than changes in the ordinary
      course of business, none of which individually or in the aggregate has had
      or is  reasonably  expected  to have a  material  adverse  effect  on such
      assets, liabilities,  financial condition,  prospects or operations of the
      Company;

            (b) Any  resignation or termination of any officer,  key employee or
      group of employees of the Company;

            (c) Any material change,  except in the ordinary course of business,
      in  the  contingent  obligations  of  the  Company  by  way  of  guaranty,
      endorsement, indemnity, warranty or otherwise;

            (d) Any  damage,  destruction  or loss,  whether  or not  covered by
      insurance,  materially and adversely affecting the properties, business or
      prospects or financial condition of the Company;

            (e) Any waiver by the  Company of a valuable  right or of a material
      debt owed to it;

            (f) Any direct or indirect material loans made by the Company to any
      stockholder,  employee,  officer or  director of the  Company,  other than
      advances made in the ordinary course of business;

            (g) Any material change in any compensation arrangement or agreement
      with any employee, officer, director or stockholder;

            (h) Any declaration or payment of any dividend or other distribution
      of the assets of the Company;

            (i) Any labor organization activity related to the Company;

            (j)  Any  debt,   obligation  or  liability  incurred,   assumed  or
      guaranteed  by the Company,  except those for  immaterial  amounts and for
      current liabilities incurred in the ordinary course of business;

            (k) Any sale,  assignment  or transfer of any  patents,  trademarks,
      copyrights, trade secrets or other intangible assets;

                                       6
<PAGE>

            (l) Any change in any  material  agreement to which the Company is a
      party or by which it is bound which may  materially  and adversely  affect
      the business,  assets,  liabilities,  financial  condition,  operations or
      prospects of the Company;

            (m) Any other  event or  condition  of any  character  that,  either
      individually or  cumulatively,  has or may materially and adversely affect
      the  business,  assets,  liabilities,  financial  condition,  prospects or
      operations of the Company; or

            (n) Any  arrangement  or  commitment by the Company to do any of the
      acts described in subsection (a) through (m) above.

            4.9 Title to Properties and Assets;  Liens, Etc. Except as set forth
on Schedule 4.9, the Company has good and marketable title to its properties and
assets,  and good title to its  leasehold  estates,  in each case  subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than:

            (a) those resulting from taxes which have not yet become delinquent;

            (b) minor liens and  encumbrances  which do not  materially  detract
      from the value of the property  subject  thereto or materially  impair the
      operations of the Company; and

            (c) those  that have  otherwise  arisen  in the  ordinary  course of
      business.

All facilities,  machinery,  equipment,  fixtures, vehicles and other properties
owned,  leased or used by the Company are in good operating condition and repair
and are  reasonably  fit and  usable for the  purposes  for which they are being
used. Except as set forth on Schedule 4.9, the Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.

            4.10 Intellectual Property.

            (a) The Company  owns or  possesses  sufficient  legal rights to all
      patents,  trademarks,   service  marks,  trade  names,  copyrights,  trade
      secrets, licenses,  information and other proprietary rights and processes
      necessary for its business as now conducted and to the Company's knowledge
      as  presently  proposed to be  conducted  (the  "Intellectual  Property"),
      without  any known  infringement  of the  rights of  others.  There are no
      outstanding  options,  licenses or  agreements of any kind relating to the
      foregoing  proprietary  rights,  nor is the Company bound by or a party to
      any  options,  licenses  or  agreements  of any kind with  respect  to the
      patents,  trademarks,   service  marks,  trade  names,  copyrights,  trade
      secrets, licenses,  information and other proprietary rights and processes
      of any other  person or entity  other  than such  licenses  or  agreements
      arising from the purchase of "off the shelf" or standard products.

            (b) The Company has not received any  communications  alleging  that
      the Company has violated any of the patents,  trademarks,  service  marks,
      trade names,  copyrights or trade secrets or other  proprietary  rights of
      any  other  person  or  entity,  nor is the  Company  aware  of any  basis
      therefor.

                                       7
<PAGE>

            (c) The  Company  does not  believe  it is or will be  necessary  to
      utilize any inventions, trade secrets or proprietary information of any of
      its employees  made prior to their  employment by the Company,  except for
      inventions,  trade  secrets  or  proprietary  information  that  have been
      rightfully assigned to the Company.

            4.11  Compliance  with  Other  Instruments.  Except  as set forth in
Exchange  Act Filings or on Schedule  4.11,  the Company is not in  violation or
default of any term of its Charter or Bylaws,  or of any  material  provision of
any mortgage, indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound or of any judgment,  decree, order or writ. The
execution,  delivery and  performance of and compliance  with this Agreement and
the Related  Agreements to which it is a party, and the issuance and sale of the
Note by the  Company  and the other  Securities  by the  Company  each  pursuant
hereto,  will not,  with or  without  the  passage  of time or giving of notice,
result in any such  material  violation,  or be in conflict with or constitute a
default  under any such term or  provision,  or  result in the  creation  of any
mortgage,  pledge,  lien,  encumbrance  or charge upon any of the  properties or
assets of the Company or the suspension,  revocation,  impairment, forfeiture or
nonrenewal of any permit,  license,  authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.

            4.12  Litigation.  Except as set forth in Exchange Act Filings or on
Schedule 4.12 hereto,  there is no action,  suit,  proceeding  or  investigation
pending or, to the Company's knowledge, currently threatened against the Company
that  prevents  the  Company  to  enter  into  this  Agreement  or  the  Related
Agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result,  either  individually  or in the aggregate,  in any material
adverse  change in the assets,  condition,  affairs or prospects of the Company,
financially or otherwise,  or any change in the current equity  ownership of the
Company,  nor is the  Company  aware  that  there  is any  basis  for any of the
foregoing.  The Company is not, to its reasonable knowledge,  a party or subject
to the  provisions  of any order,  writ,  injunction,  judgment or decree of any
court  or  government  agency  or  instrumentality.  There is no  action,  suit,
proceeding  or  investigation  by the  Company  currently  pending  or which the
Company intends to initiate.

            4.13 Tax Returns and Payments.  The Company has timely filed all tax
returns  (federal,  state and local) required to be filed by it. All taxes shown
to be due and  payable on such  returns,  any  assessments  imposed,  and to the
Company's  knowledge all other taxes due and payable by the Company on or before
the  Closing,  have  been  paid or will be paid  prior to the time  they  become
delinquent.  Except as set forth on  Schedule  4.13,  the  Company  has not been
advised:

            (a) that any of its returns,  federal,  state or other, have been or
      are being audited as of the date hereof; or

            (b) of any  deficiency  in  assessment  or proposed  judgment to its
      federal, state or other taxes.

The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.

                                       8
<PAGE>

            4.14  Employees.  Except as set forth on Schedule  4.14, the Company
has no collective bargaining  agreements with any of its employees.  There is no
labor  union  organizing  activity  pending  or,  to  the  Company's  knowledge,
threatened with respect to the Company.  Except as disclosed in the Exchange Act
Filings  or on  Schedule  4.14,  the  Company  is not a party to or bound by any
currently effective  employment  contract,  deferred  compensation  arrangement,
bonus plan,  incentive plan, profit sharing plan,  retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company,  nor any consultant with whom the Company has contracted,  is in
violation  of any  term  of any  employment  contract,  proprietary  information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract  with,  the Company  because of the nature of the
business to be conducted  by the Company;  and to the  Company's  knowledge  the
continued  employment  by  the  Company  of  its  present  employees,   and  the
performance of the Company's  contracts with its independent  contractors,  will
not  result in any such  violation.  The  Company  is not aware  that any of its
employees is  obligated  under any contract  (including  licenses,  covenants or
commitments  of any  nature) or other  agreement,  or  subject to any  judgment,
decree or order of any court or administrative agency, that would interfere with
their  duties to the Company.  The Company has not received any notice  alleging
that any such  violation has  occurred.  Except for employees who have a current
effective  employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. Except as set
forth on Schedule 4.14, the Company is not aware that any officer,  key employee
or group of employees intends to terminate his, her or their employment with the
Company,  nor does  the  Company  have a  present  intention  to  terminate  the
employment of any officer, key employee or group of employees.

            4.15 Registration  Rights and Voting Rights.  Except as set forth on
Schedule  4.15 and except as disclosed  in Exchange Act Filings,  the Company is
presently not under any obligation,  and has not granted any rights, to register
any of the Company's presently  outstanding  securities or any of its securities
that may hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company has entered into any agreement  with respect to the voting of equity
securities of the Company.

            4.16 Compliance with Laws; Permits.  Except as set forth on Schedule
4.16, to its knowledge,  the Company is not in violation in any material respect
of any  applicable  statute,  rule,  regulation,  order  or  restriction  of any
domestic  or foreign  government  or any  instrumentality  or agency  thereof in
respect of the conduct of its business or the ownership of its properties  which
violation  would   materially  and  adversely   affect  the  business,   assets,
liabilities,  financial  condition,  operations or prospects of the Company.  No
governmental  orders,  permissions,  consents,  approvals or authorizations  are
required to be obtained and no  registrations or declarations are required to be
filed in connection  with the  execution and delivery of this  Agreement and the
issuance  of any of the  Securities,  except  such as has been duly and  validly
obtained or filed,  or with  respect to any filings  that must be made after the
Closing,  as will be filed in a timely  manner.  The  Company  has all  material
franchises,  permits,  licenses  and any  similar  authority  necessary  for the
conduct of its  business as now being  conducted  by it, the lack of which would
materially and adversely affect the business, properties, prospects or financial
condition of the Company.

                                       9
<PAGE>

            4.17  Environmental and Safety Laws. The Company is not in violation
of any  applicable  statute,  law or regulation  relating to the  environment or
occupational health and safety, and to its knowledge,  no material  expenditures
are or will be required in order to comply with any such existing  statute,  law
or regulation.  Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or, to the  Company's  knowledge,  by any other person or entity on any property
owned,  leased  or  used  by the  Company.  For the  purposes  of the  preceding
sentence, "Hazardous Materials" shall mean:

            (a) materials  which are listed or otherwise  defined as "hazardous"
      or "toxic" under any applicable local, state,  federal and/or foreign laws
      and regulations  that govern the existence  and/or remedy of contamination
      on property,  the protection of the environment  from  contamination,  the
      control of  hazardous  wastes,  or other  activities  involving  hazardous
      substances, including building materials; or

            (b) any petroleum products or nuclear materials.

            4.18 Valid  Offering.  Assuming the accuracy of the  representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration  requirements of
the Securities  Act of 1933, as amended (the  "Securities  Act"),  and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration,  permit or qualification  requirements of all applicable
state securities laws.

            4.19 Full  Disclosure.  The Company has provided the Purchaser  with
all  information  requested by the Purchaser in connection  with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment  decision.  Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its  attorneys or agents in  connection
herewith or therewith or with the transactions  contemplated  hereby or thereby,
contain  any untrue  statement  of a material  fact nor omit to state a material
fact necessary in order to make the statements  contained herein or therein,  in
light of the circumstances in which they are made, not misleading. Any financial
projections  and other  estimates  provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future  events which the  Company,  at the date of the issuance of
such projections or estimates, believed to be reasonable.

            4.20  Insurance.   The  Company  has  general  commercial,   product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for  companies  similarly  situated to the Company in the
same or similar business.

            4.21 SEC Reports.  Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the  Exchange  Act. The Company has  furnished  the  Purchaser  with
copies  of:  (i) its Annual  Report on Form  10-KSB  for the  fiscal  year ended
December 31, 2002; and (ii) its Quarterly  Reports on Form 10-QSB for the fiscal
quarters  ended June 30, 2003 and September  30, 2003,  and the Form 8-K filings
which it has made during 2003 to date (collectively,  the "SEC Reports"). Except
as

                                       10
<PAGE>

set forth on Schedule 4.21,  each SEC Report was, at the time of its filing,  in
substantial  compliance with the requirements of its respective form and none of
the SEC Reports,  nor the financial  statements (and the notes thereto) included
in the SEC Reports,  as of their respective  filing dates,  contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances under which they were made, not misleading.

            4.22  Listing.  The Common Stock is listed for trading on the Nasdaq
SmallCap Market and, as of the date hereof,  satisfies all  requirements for the
continuation  of such listing.  The Company has not received any notice that its
Common Stock will be delisted from the Nasdaq  SmallCap Market (except for prior
notices as to which the Company, as of the date hereof, has previously satisfied
all  demands  of the  Nasdaq  Smallcap,  ) or that  the  Common  Stock  does not
currently meet all requirements for the continuation of such listing.

            4.23 No  Integrated  Offering.  Neither the Company,  nor any of its
affiliates,  nor any  person  acting on its or their  behalf,  has  directly  or
indirectly  made any offers or sales of any security or solicited  any offers to
buy any  security  under  circumstances  that would  cause the  offering  of the
Securities  pursuant to this Agreement to be integrated  with prior offerings by
the Company for purposes of the  Securities  Act which would prevent the Company
from selling the Securities  pursuant to Rule 506 under the  Securities  Act, or
any applicable  exchange-related  stockholder approval provisions,  nor will the
Company or any of its affiliates or  subsidiaries  take any action or steps that
would  cause  the  offering  of  the  Securities  to be  integrated  with  other
offerings.

            4.24 Stop Transfer.  The Securities are restricted  securities as of
the date of this  Agreement.  The Company will not issue any stop transfer order
or other order  impeding the sale and delivery of any of the  Securities at such
time as the  Securities  are  registered  for public sale or an  exemption  from
registration  is available,  except as required by state and federal  securities
laws.

            4.25  Dilution.  The  Company  specifically  acknowledges  that  its
obligation  to issue the shares of Common Stock upon  conversion of the Note and
exercise of the Warrant is binding upon the Company and  enforceable  regardless
of the  dilution  such  issuance  may have on the  ownership  interests of other
shareholders of the Company.

            4.26  Patriot  Act.  If  the  Company  is  a   corporation,   trust,
partnership,  limited  liability  Purchaser or other  organization,  the Company
certifies  that,  to the best of Company's  knowledge,  the Company has not been
designated,  and is not  owned or  controlled,  by a  "suspected  terrorist"  as
defined in  Executive  Order 13224.  The Company  hereby  acknowledges  that the
Purchaser seeks to comply with all applicable laws concerning  money  laundering
and related  activities.  In furtherance  of those  efforts,  the Company hereby
represents,  warrants and agrees that: (i) none of the cash or property that the
Company  will  pay or will  contribute  to the  Purchaser  has  been or shall be
derived from, or related to, any activity that is deemed  criminal  under United
States law; and (ii) no contribution or payment by the Company to the Purchaser,
to the  extent  that they are  within  the  Company's  control  shall  cause the
Purchaser to be in  violation of the United  States Bank Secrecy Act, the United
States  International  Money Laundering Control Act of 1986 or the United States
International  Money Laundering

                                       11
<PAGE>

Abatement and  Anti-Terrorist  Financing Act of 2001. The Company shall promptly
notify  the  Purchaser  if any of these  representations  ceases  to be true and
accurate regarding the Company.  The Company agrees to provide the Purchaser any
additional  information regarding the Company that the Purchaser deems necessary
or convenient to ensure  compliance with all applicable  laws  concerning  money
laundering and similar activities. The Company understands and agrees that if at
any  time  it is  discovered  that  any of  the  foregoing  representations  are
incorrect,  or if otherwise  required by applicable law or regulation related to
money laundering  similar  activities,  the Purchaser may undertake  appropriate
actions to ensure  compliance with  applicable law or regulation,  including but
not limited to segregation and/or redemption of the Company's  investment in the
Purchaser.  The  Company  further  understands  that the  Purchaser  may release
confidential  information  about the Company and, if applicable,  any underlying
beneficial  owners,  to  proper  authorities  if  the  Purchaser,  in  its  sole
discretion,  determines  that it is in the best  interests  of the  Purchaser in
light of relevant rules and  regulations  under the laws set forth in subsection
(ii) above.

      5.  Representations and Warranties of the Purchaser.  The Purchaser hereby
represents  and  warrants to the Company as follows  (such  representations  and
warranties do not lessen or obviate the  representations  and  warranties of the
Company set forth in this Agreement)

            5.1  No  Shorting.  The  Purchaser  or any  of  its  affiliates  and
investment  partners has not,  will not and will not cause any person or entity,
directly or indirectly, to engage in "short sales" of the Company's Common Stock
or any other hedging strategies as long as the Note shall be outstanding.

            5.2 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement  and the Related  Agreements  and to carry out their  provisions.  All
corporate  action on  Purchaser's  part  required for the lawful  execution  and
delivery  of this  Agreement  and the  Related  Agreements  have been or will be
effectively taken prior to the Closing. Upon their execution and delivery,  this
Agreement and the Related  Agreements  will be valid and binding  obligations of
Purchaser, enforceable in accordance with their terms, except:

            (a) as limited by applicable bankruptcy, insolvency, reorganization,
      moratorium or other laws of general application  affecting  enforcement of
      creditors' rights; and

            (b) as limited by general  principles  of equity that  restrict  the
      availability of equitable and legal remedies.

            5.3  Investment  Representations.  Purchaser  understands  that  the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon  Purchaser's  representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities  Act"). The Purchaser  confirms that it
has  received  or has had  full  access  to all  the  information  it  considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be

                                       12
<PAGE>

purchased by it under this  Agreement and the Note Shares and the Warrant Shares
acquired by it upon the  conversion of the Note and the exercise of the Warrant,
respectively.  The Purchaser  further confirms that it has had an opportunity to
ask  questions  and receive  answers from the Company  regarding  the  Company's
business,  management and financial  affairs and the terms and conditions of the
Offering,  the Note,  the Warrant and the  Securities  and to obtain  additional
information  (to the extent the  Company  possessed  such  information  or could
acquire it  without  unreasonable  effort or  expense)  necessary  to verify any
information furnished to the Purchaser or to which the Purchaser had access.

            5.4  Purchaser  Bears  Economic  Risk.   Purchaser  has  substantial
experience in  evaluating  and investing in private  placement  transactions  of
securities  in  companies  similar  to the  Company  so  that it is  capable  of
evaluating  the merits and risks of its  investment  in the  Company and has the
capacity to protect its own interests.  Purchaser must bear the economic risk of
this  investment  until the  Securities  are sold  pursuant to: (i) an effective
registration  statement  under the  Securities  Act; or (ii) an  exemption  from
registration is available with respect to such sale.

            5.5 Acquisition for Own Account. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for  Purchaser's  own account
for  investment  only, and not as a nominee or agent and not with a view towards
or for resale in connection with their distribution.

            5.6 Purchaser Can Protect Its Interest. Purchaser represents that by
reason  of its,  or of its  management's,  business  and  financial  experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note,  the Warrant and the  Securities  and to protect its own  interests in
connection with the transactions contemplated in this Agreement, and the Related
Agreements.  Further,  Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.

            5.7  Accredited  Investor.   Purchaser  represents  that  it  is  an
accredited investor within the meaning of Regulation D under the Securities Act.

            5.8 Legends.

            (a) The Note shall bear substantially the following legend:

            "THIS NOTE AND THE COMMON STOCK  ISSUABLE  UPON  CONVERSION  OF THIS
            NOTE HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
            AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
            COMMON STOCK ISSUABLE UPON  CONVERSION OF THIS NOTE MAY NOT BE SOLD,
            OFFERED  FOR SALE,  PLEDGED  OR  HYPOTHECATED  IN THE  ABSENCE OF AN
            EFFECTIVE  REGISTRATION  STATEMENT  AS TO THIS  NOTE OR SUCH  SHARES
            UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
            COUNSEL  REASONABLY

                                       13
<PAGE>

            SATISFACTORY TO CONOLOG  CORPORATION  THAT SUCH  REGISTRATION IS NOT
            REQUIRED."

            (b) The Note  Shares and the Warrant  Shares,  if not issued by DWAC
      system (as  hereinafter  defined),  shall bear a legend  which shall be in
      substantially  the  following  form  until such  shares are  covered by an
      effective registration statement filed with the SEC:

            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  OR ANY  APPLICABLE,
            STATE  SECURITIES  LAWS.  THESE SHARES MAY NOT BE SOLD,  OFFERED FOR
            SALE,  PLEDGED  OR  HYPOTHECATED  IN  THE  ABSENCE  OF AN  EFFECTIVE
            REGISTRATION  STATEMENT  UNDER SUCH  SECURITIES  ACT AND  APPLICABLE
            STATE  LAWS OR AN  OPINION OF  COUNSEL  REASONABLY  SATISFACTORY  TO
            CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."

            (c) The Warrant shall bear substantially the following legend:

            "THIS WARRANT AND THE COMMON  SHARES  ISSUABLE UPON EXERCISE OF THIS
            WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED,  OR ANY APPLICABLE  STATE  SECURITIES LAWS. THIS WARRANT
            AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
            BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
            AN  EFFECTIVE  REGISTRATION  STATEMENT  AS TO  THIS  WARRANT  OR THE
            UNDERLYING  SHARES OF COMMON  STOCK  UNDER  SAID ACT AND  APPLICABLE
            STATE   SECURITIES   LAWS  OR  AN  OPINION  OF  COUNSEL   REASONABLY
            SATISFACTORY TO CONOLOG  CORPORATION  THAT SUCH  REGISTRATION IS NOT
            REQUIRED."

      6.  Covenants of the Company.  The Company  covenants  and agrees with the
Purchaser as follows:

            6.1  Stop-Orders.  The Company will advise the  Purchaser,  promptly
after it receives  notice of issuance by the Securities and Exchange  Commission
(the "SEC"), any state securities  commission or any other regulatory  authority
of any stop order or of any order  preventing or suspending  any offering of any
securities  of the Company,  or of the  suspension of the  qualification  of the
Common  Stock of the Company for  offering or sale in any  jurisdiction,  or the
initiation of any proceeding for any such purpose.

            6.2 Listing.  The Company shall  promptly  secure the listing of the
shares  of  Common  Stock  issuable  upon  conversion  of the  Note and upon the
exercise of the  Warrant on the NASDAQ SC (the  "Principal  Market")  upon which
shares of Common Stock are listed

                                       14
<PAGE>

(subject to  official  notice of  issuance)  and shall use its  reasonable  best
efforts to maintain  such  listing so long as any other  shares of Common  Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
the  Principal  Market,  and  will  comply  in all  material  respects  with the
Company's  reporting,  filing and other obligations under the bylaws or rules of
the National  Association of Securities Dealers ("NASD") and such exchanges,  as
applicable.

            6.3 Market  Regulations.  The Company shall notify the SEC, NASD and
applicable  state  authorities,  in accordance with their  requirements,  of the
transactions  contemplated by this Agreement, and shall take all other necessary
action and  proceedings as may be required and permitted by applicable law, rule
and regulation,  for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.

            6.4  Reporting  Requirements.  For the period  beginning on the date
hereof and ending on the fourth  anniversary  of the date hereof or as otherwise
required  by  applicable  law,  the  Company  will  timely file with the SEC all
reports  required to be filed  pursuant  to the  Exchange  Act and refrain  from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.

            6.5 Use of Funds.  The Company  agrees that it will use the proceeds
of the sale of the Note and Warrant for general  corporate  and working  capital
purposes only.

            6.6   Access  to   Facilities.   The   Company   will   permit   any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon  reasonable  notice and during  normal  business  hours,  at such  person's
expense and accompanied by a representative of the Company, to:

            (a) visit and inspect any of the properties of the Company;

            (b)  examine  the  corporate  and  financial  records of the Company
      (unless such  examination is not permitted by federal,  state or local law
      or by contract) and make copies thereof or extracts therefrom; and

            (c) discuss the  affairs,  finances and accounts of the Company with
      the directors, officers and independent accountants of the Company.

Notwithstanding the foregoing, the Company will not provide any material,
non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

            6.7 Taxes. The Company will promptly pay and discharge,  or cause to
be paid and discharged,  when due and payable, all lawful taxes, assessments and
governmental  charges or levies  imposed upon the income,  profits,  property or
business  of the  Company;  provided,  however,  that any such tax,  assessment,
charge or levy  need not be paid if the  validity  thereof  shall  currently  be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books  adequate  reserves with respect  thereto,  and provided,
further,  that the  Company  will pay all such  taxes,  assessments,  charges or
levies  forthwith  upon the

                                       15
<PAGE>

commencement  of  proceedings  to foreclose  any lien which may have attached as
security therefor.

            6.8  Insurance.  The  Company  will keep its assets  which are of an
insurable  character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers,  insurance against
other  hazards and risks and liability to persons and property to the extent and
in the manner which the Company  reasonably  believes is customary for companies
in  similar  business  similarly  situated  as the  Company  and  to the  extent
available  on  commercially  reasonable  terms.  The  Company  and  each  of its
subsidiaries set forth in Section 4.2 hereof (the  "Subsidiaries")  will jointly
and severally bear the full risk of loss from any loss of any nature  whatsoever
with  respect  to the  assets  pledged  to the  Purchaser  as  security  for its
obligations  hereunder  and under the Related  Agreements.  At the Company's own
cost  and  expense  in  amounts  and  with  carriers  reasonably  acceptable  to
Purchaser,  the  Company  and each of the  Subsidiaries  shall  (i) keep all its
insurable  properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies  engaged in businesses  similar to the Company's or the
respective  Subsidiary's  including  business  interruption   insurance;   (ii))
maintain  customary public and product  liability  insurance  against claims for
personal injury,  death or property damage suffered by others; (iv) maintain all
such worker's  compensation  or similar  insurance as may be required  under the
laws of any state or  jurisdiction  in which the  Company or the  Subsidiary  is
engaged in business;  and (v) furnish  Purchaser with (x) copies of all policies
and  evidence of the  maintenance  of such  policies  at least  thirty (30) days
before any expiration  date, (y) excepting the Company's  workers'  compensation
policy,  endorsements  to such  policies  naming  Purchaser as  "co-insured"  or
"additional  insured"  and  appropriate  loss payable  endorsements  in form and
substance satisfactory to Purchaser,  naming Purchaser as loss payee and deliver
such   certificates  of  insurance   evidencing  the   appropriate   loss  payee
endorsements  to the  Purchaser  within five (5) business days after the Closing
Date, and (z) evidence that as to Purchaser the insurance  coverage shall not be
impaired or  invalidated  by any act or neglect of the Company or any Subsidiary
and the insurer  will  provide  Purchaser  with at least thirty (30) days notice
prior to  cancellation.  The  Company and each  Subsidiary  shall  instruct  the
insurance carriers that in the event of any loss thereunder,  the carriers shall
make payment for such loss to the Company  and/or the  Subsidiary  and Purchaser
jointly.  In the event that as of the date of receipt of each loss recovery upon
any such  insurance,  the  Purchaser  has not  declared an event of default with
respect to this  Agreement  or any of the Related  Agreements,  then the Company
shall be  permitted to direct the  application  of such loss  recovery  proceeds
toward  investment  in  property,   plant  and  equipment  that  would  comprise
"Collateral"  secured by Purchaser's  security interest pursuant to its security
agreement,  with  any  surplus  funds  to  be  applied  toward  payment  of  the
obligations  of the  Company  to  Purchaser.  In the event  that  Purchaser  has
properly  declared an event of default with respect to this  Agreement or any of
the Related Agreements,  then all loss recoveries received by Purchaser upon any
such  insurance  thereafter  may be applied to the  obligations  of the  Company
hereunder and under the Related  Agreements,  in such order as the Purchaser may
determine.  Any surplus  (following  satisfaction of all Company  obligations to
Purchaser)  shall be paid by  Purchaser  to the  Company  or  applied  as may be
otherwise  required

                                       16
<PAGE>

by law. Any deficiency  thereon shall be paid by the Company or the  Subsidiary,
as applicable, to Purchaser, on demand.

            6.9 Intellectual  Property. The Company shall maintain in full force
and effect its corporate  existence,  rights and franchises and all licenses and
other  rights  to  use  Intellectual  Property  owned  or  possessed  by it  and
reasonably deemed to be necessary to the conduct of its business.

            6.10  Properties.  The  Company  will  keep its  properties  in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time  make all  needful  and  proper  repairs,  renewals,  replacements,
additions  and  improvements  thereto;  and the Company will at all times comply
with  each  provision  of all  leases  to which it is a party or under  which it
occupies  property if the breach of such provision could  reasonably be expected
to have a material adverse effect.

            6.11 Confidentiality.  The Company agrees that it will not disclose,
and will not  include in any  public  announcement,  the name of the  Purchaser,
unless  expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. The Company may disclose Purchaser's identity and the terms of this
Agreement to its current and prospective debt and equity financing sources.

            6.12 Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding,  the Company, without the prior
written consent of the Purchaser, shall not:

            (a) directly or indirectly declare or pay any dividends,  other than
      dividends with respect to its preferred stock;

            (b) liquidate, dissolve or effect a material reorganization;

            (c) become  subject to  (including,  without  limitation,  by way of
      amendment to or modification  of) any agreement or instrument which by its
      terms would  (under any  circumstances)  restrict the  Company's  right to
      perform  the  provisions  of  this  Agreement  or any  of  the  agreements
      contemplated thereby;

            (d)  materially  alter or change  the scope of the  business  of the
      Company;

            (e)  create,  incur,  assume or  suffer  to exist  any  indebtedness
      (exclusive  of trade debt and debt  incurred  to finance  the  purchase of
      equipment  (not in excess of five percent (5%) per annum of the  Company's
      assets) whether  secured or unsecured or any  refinancings or replacements
      thereof or any debt incurred in connection  with the purchase of assets or
      in connection  with operating lines of credit as necessary to operate such
      assets, or any refinancings or replacements  thereof; (ii) cancel any debt
      owing to it in excess of  $25,000  in the  aggregate  during  any 12 month
      period; (iii) assume,  guarantee,  endorse or otherwise become directly or
      contingently  liable  in  connection  with any  obligations  of any  other
      Person, except the endorsement of negotiable  instruments by a Company for
      deposit or collection or similar  transactions  in the ordinary  course of

                                       17
<PAGE>

      business  or  guarantees  provided  to any of the  lenders  set  forth  in
      subparagraph (i) immediately above.

            6.13  Reissuance  of  Securities.  The  Company  agrees  to  reissue
certificates  representing  the  Securities  without  the  legends  set forth in
Section 5.7 above at such time as:

            (a) the holder  thereof is permitted  to dispose of such  Securities
      pursuant to Rule 144(k) under the Securities Act; or

            (b) upon resale subject to an effective registration statement after
      such Securities are registered under the Securities Act.

The Company  agrees to  cooperate  with the  Purchaser  in  connection  with all
resales  pursuant  to Rule 144(d) and Rule  144(k) and  provide  legal  opinions
necessary  to allow such resales  provided  the Company and its counsel  receive
reasonably  requested  representations from the selling Purchaser and broker, if
any.

            6.14 Opinion.  On the Closing Date,  the Company will deliver to the
Purchaser  an opinion  acceptable  to the  Purchaser  from the  Company's  legal
counsel.  The Company will provide,  at the Company's expense,  such other legal
opinions in the future as are  reasonably  necessary  for the  conversion of the
Note and exercise of the Warrant.

            6.15 NASDAQ Approval. (a) The Company will at all times maintain, an
authorized,  reserved  and  sufficient  number of shares of Common Stock for the
full  conversion  of the Note and  exercise  of the  Warrant  (as defined in the
Warrant).  Notwithstanding anything contained herein to the contrary, the number
of shares  of  Common  Stock  issuable  by the  Company  and  acquirable  by the
Purchaser  at a price below  $1.06  [market  price of the stock at closing]  per
share pursuant to the terms of the Secured Convertible Term Note and/or Warrants
issued by the Company to the Purchaser  pursuant to this  Agreement  (the "April
Transaction Documents"),  shall not exceed an aggregate of 459,770 shares of the
Company's  Common Stock,  (subject to  appropriate  adjustment for stock splits,
stock  dividends,  or  other  similar  recapitalizations  affecting  the  Common
Stock)(the  "Maximum  Common  Stock  Issuance"),  unless the  issuance of shares
hereunder in excess of the Maximum Common Stock Issuance shall first be approved
by the Company's shareholders. If at any point in time and from time to time the
number of shares of Common Stock to be issued pursuant to the terms of the April
Transaction  Documents  would exceed the Maximum  Common Stock  Issuance but for
this Section 6.15, the Company shall  promptly,  but no later than July 31, 2004
(the  "Approval  Date"),  call a  shareholders  meeting to  solicit  shareholder
approval for the  issuance of the shares of Common Stock  hereunder in excess of
the Maximum Common Stock Issuance. (the Additional Shares").

            (b) The Company  and Laurus  agree  that,  until the Company  either
obtains  shareholder  approval of the issuance of the Additional  Shares,  or an
exemption  from  NASDAQ's  corporate  governance  rules as they may apply to the
Additional  Shares,  and an  opinion  of counsel  reasonably  acceptable  to the
Company that NASDAQ's  corporate  governance  rules do not conflict with nor may
result in a delisting of the  Company's  Common  Stock from the NASDAQ  SmallCap
Market (the "Approval") upon the conversion of the Note or the exercise of

                                       18
<PAGE>

the Warrant, Laurus may not receive, whether upon conversion of the Note or upon
exercise  of the  Warrant,  more  than an  aggregate  of  459,770  shares of the
Company's  Common  Stock (the number of common  shares that would  increase  the
Purchaser's  total holdings of the Company's  common stock to greater than 19.9%
of the shares of Company's  Common Stock  outstanding on the Closing Date).  The
Company  hereby agrees and covenants to attempt to obtain the Approval  required
pursuant to NASDAQ's corporate governance rules to allow conversion of the Note,
interest  thereon and the Warrant,  in no event later than August 15, 2004. (the
"Trigger  Date").  The Company further  covenants to file the preliminary  proxy
statement  relating to the Approval with the Commission on or before thirty days
after the Closing  Date  ("Proxy  Filing  Date").  If the Company  shall fail to
obtain the Approval by the Trigger Date, then the Company hereby agrees,  within
five (5) business days after the Trigger Date, to amend and restate the Note to,
among other  things,  reduce the  principal  amount  thereof from  $1,200,000 to
$479,500.

      7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:

            7.1 Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly  agreed to by the  Company  or unless  and until  such  disclosure  is
required by law or  applicable  regulation,  and then only to the extent of such
requirement.

            7.2 Non-Public  Information.  The Purchaser agrees not to effect any
sales in the  shares  of the  Company's  Common  Stock  while in  possession  of
material,  non-public  information  regarding  the  Company if such sales  would
violate applicable securities law.

            7.3  Termination of  Obligations  under the Note.  Upon  irrevocable
payment (or conversion) in full of all of the Company's outstanding  obligations
under  the  Note,  the  Purchaser  hereby  agrees  that  all  of  the  Company's
obligations to the Purchaser  under the Note shall have been fully satisfied and
the  Company  shall have no other  obligations  to the  Purchaser  with  respect
thereto.

      8. Covenants of the Company and Purchaser Regarding Indemnification.

            8.1 Company Indemnification.  The Company agrees to indemnify,  hold
harmless,   reimburse  and  defend  Purchaser,  each  of  Purchaser's  officers,
directors,  agents,  affiliates,  control persons,  and principal  shareholders,
against  any  claim,  cost,  expense,  liability,  obligation,  loss  or  damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser   which   results,   arises  out  of  or  is  based   upon:   (i)  any
misrepresentation  by  Company  or breach of any  warranty  by  Company  in this
Agreement  or in any  exhibits  or  schedules  attached  hereto  or any  Related
Agreement;  or (ii) any  breach or  default  in  performance  by  Company of any
covenant or  undertaking  to be  performed  by Company  hereunder,  or any other
agreement entered into by the Company and Purchaser relating hereto.

            8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless,  reimburse and defend the Company and each of the Company's  officers,
directors,  agents, affiliates,  control persons and principal shareholders,  at
all times  against any claim,  cost,  expense,  liability,  obligation,  loss or
damage (including  reasonable legal fees) of any nature,  incurred by or imposed
upon  the  Company  which  results,  arises  out of or is  based  upon:  (i) any

                                       19
<PAGE>

misrepresentation  by  Purchaser  or breach of any warranty by Purchaser in this
Agreement  or in any  exhibits  or  schedules  attached  hereto  or any  Related
Agreement;  or (ii) any breach or default in  performance  by  Purchaser  of any
covenant or  undertaking  to be performed by Purchaser  hereunder,  or any other
agreement entered into by the Company and Purchaser relating hereto.

            8.3 Procedures.  The procedures and limitations set forth in Section
10.2(c) and (d) shall apply to the  indemnifications  set forth in Sections  8.1
and 8.2 above.

      9. Conversion of Convertible Note.

            9.1 Mechanics of Conversion.

            (a)  Provided  the   Purchaser  has  notified  the  Company  of  the
      Purchaser's  intention  to sell the Note  Shares  and the Note  Shares are
      included in an effective  registration  statement or are otherwise  exempt
      from  registration  when sold: (i) Upon the conversion of the Note or part
      thereof,  the  Company  shall,  at its own  cost  and  expense,  take  all
      necessary  action  (including  the  issuance  of an opinion of counsel) to
      assure  that the  Company's  transfer  agent  shall  issue  shares  of the
      Company's  Common Stock in the name of the  Purchaser  (or its nominee) or
      such other  persons as  designated  by the  Purchaser in  accordance  with
      Section  9.1(b)  hereof  and  in  such   denominations   to  be  specified
      representing the number of Note Shares issuable upon such conversion;  and
      (ii)  The  Company   warrants  that  no  instructions   other  than  these
      instructions  have  been or will be  given  to the  transfer  agent of the
      Company's Common Stock and that after the  Effectiveness  Date (as defined
      in the  Registration  Rights  Agreement)  the Note  Shares  issued will be
      freely transferable subject to the prospectus delivery requirements of the
      Securities Act and the provisions of this Agreement,  and will not contain
      a legend restricting the resale or transferability of the Note Shares.

            (b) Purchaser will give notice of its decision to exercise its right
      to convert the Note or part thereof by telecopying or otherwise delivering
      an executed and  completed  notice of the number of shares to be converted
      to the Company (the "Notice of  Conversion").  The  Purchaser  will not be
      required to surrender  the Note until the  Purchaser  receives a credit to
      the account of the  Purchaser's  prime broker  through the DWAC system (as
      defined  below),  representing  the Note Shares or until the Note has been
      fully  satisfied.  Each date on which a Notice of Conversion is telecopied
      or delivered to the Company in accordance with the provisions hereof shall
      be deemed a  "Conversion  Date."  Pursuant  to the terms of the  Notice of
      Conversion,  the Company will issue  instructions  to the  transfer  agent
      accompanied by an opinion of counsel within three (3) business days of the
      date of the  delivery  to Company of the  Notice of  Conversion  and shall
      cause the transfer  agent to transmit the  certificates  representing  the
      Conversion   Shares  to  the  Holder  by  crediting  the  account  of  the
      Purchaser's prime broker with the Depository Trust Company ("DTC") through
      its Deposit  Withdrawal Agent Commission  ("DWAC") system within three (3)
      business  days after  receipt by the  Company of the Notice of  Conversion
      (the "Delivery Date").

            (c) The Company understands that a delay in the delivery of the Note
      Shares  in the form  required  pursuant  to  Section 9 hereof  beyond  the
      Delivery Date could result

                                       20
<PAGE>

      in economic loss to the Purchaser.  In the event that the Company fails to
      direct its transfer  agent to deliver the Note Shares to the Purchaser via
      the DWAC system  within the time frame set forth in Section  9.1(b)  above
      and the Note Shares are not  delivered  to the  Purchaser  by the Delivery
      Date, as  compensation  to the Purchaser for such loss, the Company agrees
      to pay late payments to the Purchaser for late issuance of the Note Shares
      in the form required  pursuant to Section 9 hereof upon  conversion of the
      Note in the amount equal to $500 per business day after the Delivery Date.
      Notwithstanding the foregoing,  the Company will not owe the Purchaser any
      late  payments if the delay in the delivery of the Note Shares  beyond the
      Delivery  Date is solely out of the control of the Company and the Company
      is actively  trying to cure the cause of the delay.  The Company shall pay
      any payments  incurred under this Section in immediately  available  funds
      upon demand.

Nothing  contained herein or in any document  referred to herein or delivered in
connection  herewith  shall be deemed to  establish  or require the payment of a
rate of  interest  or other  charges  in  excess  of the  maximum  permitted  by
applicable law. In the event that the rate of interest or dividends  required to
be paid or other charges  hereunder  exceed the maximum amount permitted by such
law, any payments in excess of such maximum  shall be credited  against  amounts
owed by the Company to a Purchaser and thus refunded to the Company.

            9.2  Maximum  Conversion.   Subject  to  Section  6.15  hereof,  the
Purchaser shall not be entitled to convert on a Conversion  Date, that amount of
a Note in  connection  with that number of shares of Common Stock which would be
(a) in  excess  of the  sum  of:  (i) the  number  of  shares  of  Common  Stock
beneficially owned by the Purchaser on a Conversion Date; and (ii) the number of
shares of Common Stock  issuable upon the conversion of the Note with respect to
which the  determination  of this  proviso is being made on a  Conversion  Date,
which would result in  beneficial  ownership by the Purchaser of more than 4.99%
of the outstanding shares of Common Stock of the Company on such Conversion Date
and (b) (ii) exceed twenty five percent (25%) of the  aggregate  dollar  trading
volume of the  Common  Stock  for the ten (10) day  trading  period  immediately
preceding delivery of a Notice of Conversion to the Company. For the purposes of
the immediately preceding sentence,  beneficial ownership shall be determined in
accordance  with  Section  13(d)  of  the  Exchange  Act  and  Regulation  13d-3
thereunder.  Upon an Event of Default under the Note, the conversion  limitation
in this Section 9.2 shall become null and void.

      10. Registration Rights, Indemnification.

            10.1  Registration   Rights  Granted.   The  Company  hereby  grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.

                                       21
<PAGE>

            10.2  Indemnification.  (a) In the  event of a  registration  of any
Registrable  Securities  under the Securities  Act pursuant to the  Registration
Rights  Agreement,  the Company will  indemnify and hold harmless the Purchaser,
and its  officers,  directors  and each other  person,  if any, who controls the
Purchaser within the meaning of the Securities Act, against any losses,  claims,
damages  or  liabilities,  joint or  several,  to which the  Purchaser,  or such
persons may become  subject under the  Securities  Act or otherwise,  insofar as
such losses,  claims,  damages or  liabilities  (or actions in respect  thereof)
arise out of or are based upon any untrue  statement or alleged untrue statement
of any material fact contained in any  registration  statement  under which such
Registrable  Securities were registered under the Securities Act pursuant to the
Registration  Rights Agreement,  any preliminary  prospectus or final prospectus
contained therein,  or any amendment or supplement  thereof,  or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  and will  reimburse  the  Purchaser,  and each such  person for any
reasonable  legal  or  other  expenses  incurred  by  them  in  connection  with
investigating or defending any such loss,  claim,  damage,  liability or action;
provided,  however,  that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue  statement  or alleged  untrue  statement  or  omission  or
alleged  omission so made in  conformity  with  information  furnished  by or on
behalf of the  Purchaser or any such person in writing  specifically  for use in
any such document.

            (b) In the event of a  registration  of the  Registrable  Securities
under the  Securities Act pursuant to the  Registration  Rights  Agreement,  the
Purchaser  will  indemnify  and hold  harmless  the Company,  and its  officers,
directors  and each other  person,  if any, who controls the Company  within the
meaning  of  the  Securities  Act,  against  all  losses,   claims,  damages  or
liabilities,  joint or several,  to which the Company or such persons may become
subject under the Securities Act or otherwise,  insofar as such losses,  claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue  statement or alleged  untrue  statement  of any  material  fact
contained in the registration  statement under which such Registrable Securities
were  registered  under the Securities Act pursuant to the  Registration  Rights
Agreement,  any preliminary prospectus or final prospectus contained therein, or
any  amendment  or  supplement  thereof,  or arise out of or are based  upon the
omission or alleged  omission to state  therein a material  fact  required to be
stated therein or necessary to make the statements  therein not misleading,  and
will  reimburse  the Company and each such  person for any  reasonable  legal or
other expenses  incurred by them in connection with  investigating  or defending
any such loss, claim, damage, liability or action,  provided,  however, that the
Purchaser  will be liable in any such  case if and only to the  extent  that any
such loss,  claim,  damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information  furnished in writing to the Company by or on behalf
of the Purchaser specifically for use in any such document.

                                       22
<PAGE>

            (c) Promptly  after  receipt by an  indemnified  party  hereunder of
notice of the  commencement of any action,  such  indemnified  party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof,  but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such  indemnified  party other than under this Section 10.2(c) and shall only
relieve it from any liability which it may have to such indemnified  party under
this Section 10.2(c) if and to the extent the  indemnifying  party is prejudiced
by such  omission.  In case  any  such  action  shall  be  brought  against  any
indemnified party and it shall notify the indemnifying party of the commencement
thereof,  the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and  undertake the defense  thereof with counsel
satisfactory to such indemnified  party, and, after notice from the indemnifying
party to such  indemnified  party of its election so to assume and undertake the
defense thereof,  the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently incurred by
such  indemnified  party  in  connection  with  the  defense  thereof;   if  the
indemnified party retains its own counsel,  then the indemnified party shall pay
all fees, costs and expenses of such counsel,  provided,  however,  that, if the
defendants  in any such  action  include  both  the  indemnified  party  and the
indemnifying  party and the indemnified  party shall have  reasonably  concluded
that there may be reasonable  defenses  available to it which are different from
or additional to those available to the  indemnifying  party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying  party, the indemnified party shall have the right to select
one  separate  counsel  and to assume  such  legal  defenses  and  otherwise  to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such  participation to be
reimbursed by the indemnifying party as incurred.

            (d) In order to provide for just and equitable  contribution  in the
event of joint  liability  under the Securities Act in any case in which either:
(i) the Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification  pursuant to this Section 10.2 but it is  judicially  determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the  expiration of time to appeal or the denial of the last right of appeal)
that such  indemnification may not be enforced in such case  notwithstanding the
fact that this Section 10.2 provides for  indemnification  in such case; or (ii)
contribution  under  the  Securities  Act  may be  required  on the  part of the
Purchaser or  controlling  person of the  Purchaser in  circumstances  for which
indemnification  is provided  under this Section  10.2;  then,  and in each such
case,  the Company and the Purchaser  will  contribute to the aggregate  losses,
claims,  damages or liabilities to which they may be subject (after contribution
from others) in such  proportion so that the Purchaser is  responsible  only for
the portion  represented by the percentage that the public offering price of its
securities  offered by the  registration  statement bears to the public offering
price  of all  securities  offered  by such  registration  statement,  provided,
however,  that,  in any such case,  (A) the  Purchaser  will not be  required to
contribute  any  amount  in  excess  of the  public  offering  price of all such
securities  offered by it pursuant to such  registration  statement;  and (B) no
person or entity guilty of fraudulent  misrepresentation  (within the meaning of
Section  10 of the Act) will be  entitled  to  contribution  from any  person or
entity who was not guilty of such fraudulent misrepresentation.

            10.3 Offering  Restrictions.  Except as previously  disclosed in the
SEC Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors  of the

                                       23
<PAGE>

Company;  or shares of preferred stock issued to pay dividends in respect of the
Company's  preferred  stock;  or equity or debt  issued  in  connection  with an
acquisition  of a business  or assets by the  Company;  or the  issuance  by the
Company  of  stock  in  connection  with the  establishment  of a joint  venture
partnership or licensing  arrangement (these exceptions  hereinafter referred to
as the "Excepted  Issuances"),  the Company will not issue any securities with a
continuously  variable/floating  conversion  feature  which  are or could be (by
conversion or registration)  free-trading  securities (i.e. common stock subject
to a  registration  statement)  prior to the full repayment or conversion of the
Note (the "Exclusion Period").

      11. Miscellaneous.

            11.1  Governing  Law.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY  AND
CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK,  WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.  ANY ACTION  BROUGHT BY EITHER PARTY AGAINST
THE OTHER  CONCERNING THE  TRANSACTIONS  CONTEMPLATED BY THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN
THE STATE OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT
AND  OTHER  AGREEMENTS  ON  BEHALF  OF  THE  COMPANY  AGREE  TO  SUBMIT  TO  THE
JURISDICTION  OF SUCH  COURTS  AND WAIVE  TRIAL BY JURY.  IN THE EVENT  THAT ANY
PROVISION OF THIS  AGREEMENT  OR ANY OTHER  AGREEMENT  DELIVERED  IN  CONNECTION
HEREWITH IS INVALID OR  UNENFORCEABLE  UNDER ANY  APPLICABLE  STATUTE OR RULE OF
LAW, THEN SUCH PROVISION  SHALL BE DEEMED  INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT  THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR
RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR  UNENFORCEABLE  UNDER
ANY LAW SHALL NOT AFFECT THE VALIDITY OR  ENFORCEABILITY  OF ANY OTHER PROVISION
OF ANY AGREEMENT.

            11.2  Survival.  The  representations,   warranties,  covenants  and
agreements made herein shall survive any investigation made by the Purchaser and
the  closing of the  transactions  contemplated  hereby to the  extent  provided
therein.  All statements as to factual  matters  contained in any certificate or
other  instrument  delivered by or on behalf of the Company  pursuant  hereto in
connection  with the  transactions  contemplated  hereby  shall be  deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.

            11.3 Successors.  Except as otherwise expressly provided herein, the
provisions  hereof  shall  inure to the  benefit  of, and be binding  upon,  the
successors,  heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be  enforceable by each person who shall be a holder
of the  Securities  from time to time,  other than the  holders of Common  Stock
which  has been  sold by the  Purchaser  pursuant  to Rule  144 or an  effective
registration  statement.  Purchaser  may not assign its  rights  hereunder  to a
competitor of the Company.

                                       24
<PAGE>

            11.4 Entire  Agreement.  This Agreement,  the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire  understanding  and agreement between the parties
with regard to the subjects  hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.

            11.5  Severability.  In case any provision of the Agreement shall be
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

            11.6 Amendment and Waiver.

            (a) This  Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.

            (b) The  obligations  of the Company and the rights of the Purchaser
under  this  Agreement  may be  waived  only  with the  written  consent  of the
Purchaser.

            (c) The  obligations  of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the Company.

            11.7 Delays or Omissions.  It is agreed that no delay or omission to
exercise  any right,  power or remedy  accruing  to any party,  upon any breach,
default or  noncompliance  by another party under this  Agreement or the Related
Agreements,  shall  impair  any such  right,  power or  remedy,  nor shall it be
construed to be a waiver of any such breach,  default or  noncompliance,  or any
acquiescence  therein, or of or in any similar breach,  default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related  Agreements,  by law  or  otherwise  afforded  to any  party,  shall  be
cumulative and not alternative.

            11.8 Notices.  All notices required or permitted  hereunder shall be
in writing and shall be deemed effectively given:

            (a) upon personal delivery to the party to be notified;

            (b) when sent by confirmed  facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;

            (c) three (3) business  days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or

            (d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.

All communications shall be sent as follows:

                                       25
<PAGE>

         If to the Purchaser, to:       Conolog Corporation
                                        5 Columbia Road
                                        Somerville, NJ 08876

                                        Attention:  Robert Benou, CEO
                                        Facsimile:  (908)722-5461

                                        with a copy to:

                                        Milberg Weiss Bershad Hynes & Lerach LLP
                                        One Pennsylvania Plaza
                                        New York, New York 10119
                                        Attention: Arnold N. Bressler, Esq.

                                        Attention: David Manno, Esq.
                                        Facsimile: (212) 273-4317

         If to the Company, to:         Laurus Master Fund, Ltd.
                                        c/o Ironshore Corporate Services ltd.
                                        P.O. Box 1234 G.T.
                                        Queensgate House, South Church Street
                                        Grand Cayman, Cayman Islands
                                        Facsimile:  345-949-9877

                                        with a copy to:

                                        John E. Tucker, Esq.
                                        825 Third Avenue 14th Floor
                                        New York, NY 10022
                                        Facsimile:  212-541-4434

or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.

            11.9  Attorneys'  Fees.  In the  event  that any suit or  action  is
instituted to enforce any provision in this Agreement,  the prevailing  party in
such dispute shall be entitled to recover from the losing party all fees,  costs
and  expenses  of  enforcing  any right of such  prevailing  party under or with
respect to this Agreement,  including,  without limitation, such reasonable fees
and  expenses  of  attorneys  and  accountants,  which  shall  include,  without
limitation, all fees, costs and expenses of appeals.

            11.10  Titles  and  Subtitles.   The  titles  of  the  sections  and
subsections  of the Agreement are for  convenience of reference only and are not
to be considered in construing this Agreement.

                                       26
<PAGE>

            11.11  Facsimile  Signatures;  Counterparts.  This  Agreement may be
executed by  facsimile  signatures  and in any number of  counterparts,  each of
which shall be an  original,  but all of which  together  shall  constitute  one
instrument.

            11.12  Construction.  Each party acknowledges that its legal counsel
participated  in the  preparation of this  Agreement and the Related  Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be  resolved   against  the   drafting   party  shall  not  be  applied  in  the
interpretation of this Agreement to favor any party against the other.

             [the remainder of this page is intentionally left blank

                                       27
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto  have  executed  the  SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                              PURCHASER:

CONOLOG CORPORATION                   LAURUS MASTER FUND, LTD.

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

                                       28
<PAGE>

                                    EXHIBIT A

                            FORM OF CONVERTIBLE NOTE

                                       A-1

<PAGE>

                                    EXHIBIT B

                                 FORM OF WARRANT

                                       B-1

<PAGE>

                                    EXHIBIT C

                                 FORM OF OPINION

      1. The Company is a  corporation  validly  existing  and in good  standing
under the laws of the State of Delaware and has all  requisite  corporate  power
and  authority  to own,  operate  and lease its  properties  and to carry on its
business as it is now being conducted.

      2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related  Agreements.
All corporate action on the part of the Company and its officers,  directors and
stockholders  necessary  has  been  taken  for:  (i)  the  authorization  of the
Agreement and Related  Agreements and the  performance of all obligations of the
Company thereunder at the Closing;  and (ii) the authorization,  sale,  issuance
and  delivery  of the  Securities  pursuant  to the  Agreement  and the  Related
Agreements.  The Note Shares and the Warrant Shares, when issued pursuant to and
in accordance with the terms of the Agreement and the Related Documents and upon
delivery shall be validly issued and outstanding, fully paid and non assessable.

      3. The execution,  delivery and performance of the Agreement,  the Note or
the Related  Agreements by the Company and the  consummation of the transactions
on its part contemplated by any thereof, will not, with or without the giving of
notice or the passage of time or both:

            (a) Violate the  provisions of the Charter or bylaws of the Company;
      or

            (b) To the best of such counsel's  knowledge,  violate any judgment,
      decree, order or award of any court binding upon the Company.

      4. The Agreement and Related Agreements will constitute, valid and legally
binding  obligations of the Company,  and are enforceable against the Company in
accordance with their respective terms, except:

            (a) as limited by applicable bankruptcy, insolvency, reorganization,
      moratorium or other laws of general application  affecting  enforcement of
      creditors' rights; and

            (b) general  principles of equity that restrict the  availability of
      equitable or legal remedies.

      5. To such  counsel's  knowledge,  the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly  waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any  preemptive  rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.

      6.  Assuming the accuracy of the  representations  and  warranties  of the
Purchaser  contained  in the  Agreement,  the offer,  sale and  issuance  of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's

                                      C-1
<PAGE>

knowledge, neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf,  has directly or indirectly  made any offers or sales of
any security or solicited  any offers to buy and  security  under  circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated  with prior  offerings by the Company for purposes of the  Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the  Securities  Act, or any applicable  exchange-related  stockholder
approval provisions.

      7. There is no action,  suit,  proceeding or investigation  pending or, to
such counsel's knowledge, currently threatened against the Company that prevents
the right of the  Company to enter  into this  Agreement  or any of the  Related
Agreements,  or to consummate the  transactions  contemplated  thereby.  To such
counsel's knowledge,  the Company is not a party or subject to the provisions of
any  order,  writ,  injunction,  judgment  or decree of any court or  government
agency  or  instrumentality;  nor is  there  any  action,  suit,  proceeding  or
investigation by the Company  currently  pending or which the Company intends to
initiate.

      8. The UCC-1 Financing  Statement  naming the Company as debtor and Laurus
as  secured  party is in proper  form for filing  and  assuming  that such UCC-1
Financing Statement has been filed with the Secretary of State of Delaware,  the
security  interest  created  under the  Security  Agreement  will  constitute  a
perfected  security  interest  under  the  Uniform  Commercial  Code in favor of
Laurus.

                                      C-2
<PAGE>

                                    EXHIBIT D

                            FORM OF ESCROW AGREEMENT

                                      D-1
<PAGE>

                          Securities Purchase Agreement

                                Schedule 4.3 (b)

      The  Company is in the  process of  issuing  800,000  shares of its common
stock to certain of its  officers and  directors,  provided,  however,  that the
Company shall not issue more than 100,000 of such shares in any month,  nor more
than an aggregate of 300,000 shares in any fiscal quarter.

      The Company  has entered  into an  Agreement  with Ted Altman  pursuant to
which the company is obligated  to issue him 100,000  shares of its common stock
in  increments.  The Company is in the process of issuing  25,000  shares of its
common  stock to Mr.  Altman.  The Company  will issue the balance of the shares
over the course of the agreement with Mr. Altman.

      The Company has entered into an Agreement with Ilya Kovnatsky  pursuant to
which the company is obligated  to issue him 100,000  shares of its common stock
in  increments.  The Company is in the process of issuing  25,000  shares of its
common stock to Mr. Kovnatsky.  The Company will issue the balance of the shares
over the course of the agreement with Mr. Kovnatsky.

<PAGE>

                          Securities Purchase Agreement

                                  Schedule 4.7

      The  Company is in the  process of  issuing  800,000  shares of its common
stock to certain of its officers and directors.

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