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EXHIBIT 10.1

 

STOCKERYALE, INC.

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the " Agreement ") is made and entered into
as of February 20, 2004, by and among StockerYale, Inc., a Massachusetts
corporation (the " Company "), and Laurus Master Fund, Ltd. (the " Purchaser ").

RECITALS

Whereas , the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D (" Regulation D ") as promulgated by the United
States Securities and Exchange Commission (the " SEC ") under the Securities Act
of 1933, as amended (the " 1933 Act ");

Whereas , the Company desires to sell and the Purchaser desires to purchase,
upon the terms and conditions stated in this Agreement, (i) a secured
convertible note of the Company substantially in the form attached as Exhibit A
in the principal amount of $4,000,000 (together with any secured convertible
notes issued in exchange therefor or replacement thereof in accordance with the
terms thereof, the " Note ") and (ii) a warrant substantially in the form
attached as Exhibit B (the " Warrant ") to acquire 700,000 shares of the
Company’s common stock (the " Warrant Shares ");

Whereas , the Note shall be convertible into shares of the Company's common
stock (the " Conversion Shares "), in accordance with the terms of the Note (the
Note, the Warrant, the Conversion Shares and the Warrant Shares are referred to
herein collectively as the " Securities "); and

Whereas , contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached as Exhibit C (the " Registration Rights
Agreement ") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

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.    PURCHASE AND SALE OF NOTE AND WARRANT.

1.1    Purchase of Note and Warrant . Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 5 and 6 below, the Company shall issue and
sell to the Purchaser and the Purchaser agrees to purchase from the Company the
Note and the Warrant. The purchase price (the " Purchase Price ") of the Note
and the Warrant at the closing (the " Closing ") shall be equal to $1.00 for
each $1.00 of principal amount of the Note purchased (representing an aggregate
Purchase Price of $4,000,000).

1.2    The Closing Date . The date and time of the Closing (the " Closing Date
") shall be at such time and place as is mutually agreed to by the Company and
the Purchaser, subject to the satisfaction (or waiver) of all of the conditions
to the Closing set forth in Sections 5 and 6.

1.3    Form of Payment . Pursuant to a Funds Escrow Agreement (the " Funds
Escrow Agreement "), on the Closing Date, (i) the Purchaser shall pay the
Purchase Price to the Company for the Note and the Warrant by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, less any amount withheld for expenses and other payments pursuant
to Section 4.16, and (ii) the Company shall deliver to the Purchaser, the Note
representing the principal amount of the Note that the Purchaser is then
purchasing hereunder along with the Warrant, duly executed on behalf of the
Company and registered in the name of the Purchaser or its designee.

2.    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 except as disclosed in the Company’s filings
under the Securities Exchange Act of 1934 (collectively, the " Exchange Act
Filings "), or the Schedules hereto.

2.1    Organization, Good Standing and Qualification . The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is qualified to do business
and in good standing in each other jurisdiction in which the ownership or
leasing of its properties or the nature of its business requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, " Material Adverse Effect " means any material adverse effect on the
business, properties, assets, operations, results of operations or financial
condition of the Company, or on the transactions contemplated hereby, or by the
other Offering Documents or the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Offering Documents..

2.2    Subsidiaries . Schedule 2.2 hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person’s ownership of the outstanding stock or
other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary (that is a corporation)
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
subsidiary.

2.3    Capitalization; Voting Rights .

(a)    The authorized capital stock of the Company, as of December 31, 2003,
consists of (i) no shares of preferred stock, and (ii) 100,000,000 shares of
common stock, par value $.01 per share (the " Common Stock "), 17,321,076 shares
of which are issued and outstanding.

(b)    Except as disclosed on Schedule 2.3, 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 Transaction Documents, there are
no outstanding options, warrants, rights (including preemptive rights and rights
of first refusal) to subscribe to, call or commitment of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company (such Schedule 2.3 shall provide the exercise or
conversion term, exercise or conversion price, vesting period, holders of such
options, warrants or convertible securities and the amount granted or issued to
each holder). There exists no proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Neither the offer, issuance or sale of any of the Note or
Warrant, or the issuance of any of the Conversion 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, 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
(ii) together with the offer and sale of all convertible securities, rights,
warrants, or options of the Company were issued in compliance with all
applicable state and federal laws concerning the issuance of securities, and no
stockholder has a right of rescission or damages against the Company with
respect thereto.

(d)    The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Articles of Organization, as amended to date
(the " Charter "). The Conversion 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, except to
the extent that such restrictions shall be eliminated by virtue of the
Registration Rights Agreement.

(e)    No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities of the
Company or rights to purchase equity securities of the Company provides for
acceleration or other changes in the vesting provisions or other terms of such
agreement or understanding as the result of any merger, consolidated sale of
stock or assets, change in control or any other transaction(s) by the Company,
including the transactions contemplated hereunder.

2.4    Authorization; Binding Obligations . All corporate action on the part of
the Company necessary for the authorization of this Agreement, the Note, the
Warrant, the Registration Rights Agreement, the Funds Escrow Agreement and the
Security Agreement (collectively, the " Transaction Documents "), the
performance of all obligations of the Company hereunder at the applicable
Closing and, the authorization, sale, issuance and delivery of the Note and
Warrant has been taken or will be taken prior to the Closing and no further
consent or authorization of the Company, its board of directors or stockholders
is required. This Agreement and the other Transaction Documents, when executed
and delivered and to the extent that the Company 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 Conversion 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. The Note and the Warrant, when executed
and delivered in accordance with the terms of this Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.

2.5    Liabilities . The Company has no material liabilities and, to the best of
its knowledge, knows of no material contingent liabilities, except current
liabilities incurred in the ordinary course of business (whether or not arising
before or after the date of the Company’s most recent Exchange Act Filing) and
liabilities disclosed in the Company’s most recent Exchange Act Filing.

2.6    Agreements; Action . Except as set forth on Schedule 2.6:

(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 $50,000
(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 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)    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 individually in excess of $250,000 or, in the case of indebtedness
and/or liabilities individually less than $50,000, in excess of $150,000 in the
aggregate, (iii) made any loans or advances to any person or entity in excess,
individually or in the aggregate, of $100,000, 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. Neither the Company nor any subsidiary is in default with respect to
any indebtedness.

(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.

2.7    Obligations to Related Parties . 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, (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 2.7, 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 $50,000 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 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 set forth on Schedule 2.7, the Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

2.8    Changes . Since September 30, 2003, except as disclosed in any Schedule
to this Agreement or to any of the other Transaction Documents, there has not
been:

(a)    Any change in the assets, liabilities, financial condition, 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 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 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;

(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 or operations of the Company;

(m)    Any other event or condition of the character that, either individually
or cumulatively, has or could reasonably be expected to materially and adversely
affect the business, assets, liabilities, financial condition 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.

2.9    Title to Properties and Assets; Liens, Etc. 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, (c) those that have otherwise arisen in the ordinary
course of business and (d) those set forth on Schedule 2.9. 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. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.

2.10    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)    Except as set forth on Schedule 2.10(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.

(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.

2.11    Compliance with Other Instruments . The Company is not in violation or
default of any term of its Charter or its bylaws as currently in effect (the "
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 other Transaction
Documents to which it is a party, and the issuance and sale of the Note and
Warrant by the Company and the other Securities by the Company each pursuant
hereto and thereto, 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.

2.12    Litigation . There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
or any subsidiary that prevents the Company to enter into this Agreement or the
other Transaction Documents, or to consummate the transactions contemplated
hereby or thereby. Except as set forth on Schedule 2.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the knowledge of the
Company, threatened, against or involving the Company, any subsidiary of the
Company or any of their respective properties or assets which individually or in
the aggregate would have a Material Adverse Effect. 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. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

2.13    Tax Returns and Payments . The Company has timely filed all tax returns
(federal, state and local) required to be filed by it of which the failure to
file would have a material adverse effect. 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. 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.

2.14    Employees . 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. 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. 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.

2.15    Registration Rights and Voting Rights . Except as listed on Schedule
2.15, the Company is presently not under any obligation, and has not granted any
rights, or a party to any agreement, to register any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued
that have not been satisfied. To the Company's knowledge, no stockholder of the
Company has entered into any agreement with respect to the voting or transfer of
any equity securities of the Company.

2.16    Compliance with Laws; Permits . 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 or operations 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 or financial
condition of the Company.

2.17    Environmental and Safety Laws . Except as described on Schedule 2.17,
(a) 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 and (b) 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.

2.18    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 1933 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. Neither the Company nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities.

2.19    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. Neither this Agreement, the exhibits and
schedules hereto, the other Transaction Documents 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. As of the date hereof
no facts have come to the attention of the Company that would, in its opinion,
require the Company to revise or amplify in any material respect the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom.

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

2.21    SEC Reports . The Common Stock of the Company is registered pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934 (the " Exchange
Act ") and the Company has timely filed all proxy statements, reports,
schedules, forms, statements 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-K for the fiscal year ended December 31, 2002 ,
(ii) its Quarterly Report on Form 10-Q for the fiscal quarters ended June 30,
2003 and September 30, 2003 and (iii) its Proxy Statement filed with the SEC on
April 16, 2003 (collectively, the " SEC Reports "). The Company is eligible to
file a registration statement on Form S-3 with the SEC for the purpose of
registering the resale of its securities. 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. The
financial statements of the Company included in the SEC Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles (" GAAP ") applied
on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed) and fairly present in all material respects the
financial position of the Company and its subsidiaries as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

2.22    No Market Manipulation . The Company has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued.

2.23    Listing . The Company's Common Stock is listed for trading on the Nasdaq
National Market and satisfies all requirements for the continuation of such
listing. The Company has not received any written notice that its Common Stock
will be delisted from the Nasdaq National Market or that the Common Stock and
the Company do not meet all requirements for the continuation of such listing.

2.24    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 1933 Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the 1933 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.

2.25    Stop Transfer . The Securities are restricted securities as of the date
of this Agreement. The Company will agree to promptly cause to be removed any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are resold if such securities are
registered for public sale, whether as a result of the Registration Rights
Agreement or otherwise, or an exemption from registration is available and the
conditions for use thereof are satisfied, except as required by federal
securities laws.

2.26    Dilution . The Company understands the nature of the Securities being
sold hereby and recognizes that they may have a potential dilutive effect. 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.

2.27    Material Agreements . There is no agreement that has not been filed with
the SEC as an exhibit to a registration statement or other applicable form the
breach of which could reasonably be expected to have a material adverse effect
as to the Company and its subsidiaries, or would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement in any material respect.

2.28    ERISA . Based upon the Employee Retirement Income Security Act of 1974
(" ERISA "), and the regulations and published interpretations thereunder: (i)
the Company has not engaged in any Prohibited Transactions as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii) the
Company has met all applicable minimum funding requirements under Section 302 of
ERISA in respect of its plans; (iii) the Company does not have any knowledge of
any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to terminate any
employee benefit plan(s); (iv) the Company does not have any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than Companies’ employees; and (v) the Company has not
withdrawn, completely or partially, from any multi-employer pension plan so as
to incur liability under the Multiemployer Pension Plan Amendments Act of 1980.

2.29    Solvency . After taking into account the proceeds received by the
Company, from the transactions contemplated hereby, the Company is solvent, able
to pay its debts as they mature, has capital sufficient to carry on its business
and all businesses in which such Company is about to engage and the fair
saleable value of its assets (calculated on a going concern basis) is in excess
of the amount of its liabilities.

3.    REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

The Purchaser hereby represents and warrants to the Company as follows:

3.1    Requisite Power and Authority . The Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Transaction Documents 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 Transaction Documents have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the other Transaction Documents will be valid and binding
obligations of the 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.

3.2    Investment Representations . The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the 1933 Act based in part upon the Purchaser's representations
contained in this Agreement, including, without limitation, that the Purchaser
is an "accredited investor" within the meaning of Regulation D. The Purchaser
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 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.

3.3    Purchaser Bears Economic Risk . The 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. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to (i) an effective registration
statement under the 1933 Act, or (ii) an exemption from registration is
available.

3.4    Acquisition for Own Account . The Purchaser is acquiring the Note and the
Warrant its 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.

3.5    Purchaser Can Protect Its Interest . The Purchaser represents that by
reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the other Transaction
Documents. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the other Transaction Documents. Notwithstanding anything in this Agreement
to the contrary, the Purchaser acknowledges that the Company’s fiscal year ended
on December 31, 2003 and that the Company has not yet completed an audit of its
financial results for that fiscal year or released its financial results for
such period. The Purchaser understands that an investment in the Company
involves a high degree of risk for the reasons, among others, set forth on
Schedule 3.5 attached hereto.

3.6    Accredited Investor . The Purchaser represents that it is an accredited
investor within the meaning of Regulation D.

3.7    Legends .

(a)    The Conversion Shares and the Warrant Shares, except as provided in
Section 4.17, shall bear a legend which shall be in substantially the following
form:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR IF 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
STOCKERYALE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

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

"THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SHARES OF COMMON STOCK
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 STOCKERYALE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

3.8    Market Manipulation. The Purchaser has not taken, and will not take,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of any of the
Securities being offered hereby or affect the price at which any of the
Securities being offered hereby may be issued. Notwithstanding the foregoing,
nothing contained herein shall limit or be deemed in any manner whatsoever to
limit any Purchaser hedging transactions following payment in full of the Note.

4.    COVENANTS OF THE COMPANY.

The Company covenants and agrees with the Purchaser as follows:

4.1    Stop-Orders . The Company will advise the Purchaser, promptly after it
receives notice of issuance by 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.

4.2    Listing . The Company will use commercially reasonable efforts to
maintain the listing of its Common Stock on the Nasdaq Stock Market (including
the Nasdaq SmallCap Market and the Nasdaq OTC Bulletin Board, but excluding the
pink and yellow sheets), American Stock Exchange or New York Stock Exchange (a "
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. The Company will provide the Purchaser copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.

4.3    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 the
Purchaser and promptly provide copies thereof to the Purchaser.

4.4    Reporting Requirements . 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. Within fifteen (15) days after the end of each month,
the Company will deliver to the Purchaser unaudited trial balances as at the end
of such month.

4.5    Use of Funds . The Company agrees that it will use the proceeds of the
sale of the Note and Warrant for general corporate purposes and the purposes set
forth on Schedule 4.5 hereto and will not use any of such proceeds to repay any
indebtedness of the Company (other than trade payables in the ordinary course)
to any current executive officers, directors or principal stockholders of the
Company.

4.6    Access to Facilities . The Company will permit any representatives
designated by the Purchaser (or any transferee 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 any such corporations with the
directors, officers and independent accountants of the Company.

4.7    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 Company; 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
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.
For the avoidance of doubt, the parties acknowledge and agree that the inclusion
of customary antidilution provisions in securities will not constitute a
variable/floating rate conversion feature.

4.8    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 customary for companies in similar business similarly situated as
the Company and to the extent available on commercially reasonable terms.

4.9    Intellectual Property; Corporate Existence . 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.

4.10    Financial Information . The Company agrees to send the following to the
Purchaser: (i) unless the following are filed with the SEC through EDGAR and are
available to the public through EDGAR, within one (1) day after the filing
thereof with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act; (ii) on the same day as the release thereof, facsimile copies of all press
releases issued by the Company or any of its Subsidiaries, unless available
through Bloomberg Financial Markets (or any successor thereto) contemporaneously
with the release; and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.

4.11    Reservation of Shares . The Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than 110% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares upon conversion of the entire outstanding Note
(without regard to any limitations on conversions) and 110% of the number of
shares of Common Stock needed to provide for the issuance of the Warrant Shares
upon exercise of all outstanding Warrant (without regard to any limitations on
exercises).

4.12    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.

4.13    Corporate Existence . So long as the Purchaser beneficially owns any of
the Securities, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company’s assets, except in the event of a
merger or consolidation or sale or transfer of all or substantially all of the
Company’s assets where the surviving or successor entity in such transaction (i)
assumes the Company’s obligations hereunder and the Transaction Documents and
(ii) is a publicly traded company whose common stock is quoted or listed on a
Principal Market.

4.14    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 1933 Act, or (b) upon resale
subject to an effective registration statement after such Securities are
registered under the 1933 Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and, subject to satisfaction of all requirements of such rules, to provide legal
opinions or such transfer agent instructions necessary to allow such resales
provided the Company and its counsel receive reasonably requested
representations from the selling Purchaser and broker, if any.

4.15    Priority of Notes . Except as set forth on Schedule 4.15 hereto, for so
long as the Note is outstanding, in the event that the Company or any of its
Subsidiaries issues or incurs any indebtedness, it shall, or it shall cause any
Subsidiary to, first enter into, and cause the lender to enter into, a
Subordination Agreement, containing terms and conditions acceptable to the
Purchaser.

4.16    Expenses and Other Payments . The Company shall reimburse the Purchaser
for its reasonable legal fees for services rendered to the Purchaser in
preparation of this Agreement and the other Transaction Documents, and expenses
in connection with the Purchaser’s due diligence review of the Company and
relevant matters, subject to reasonable documentation of such expenses. Amounts
payable hereunder and under Section 6.10 of the Note shall be withheld by the
Purchaser from the Purchase Price to be paid at Closing.

4.17    Transfer and Depositary Agent Instructions . Other than as provided
below, all certificates issued for Conversion Shares or Warrant Shares shall
bear the restrictive legend specified in Section 3.7. The Company warrants that
the Securities shall be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement, other than in accordance with applicable securities laws. If
the Purchaser provides the Company with an opinion of counsel, in a form
reasonably acceptable to the Company, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or the Purchaser provides the Company with reasonable assurances
that the Securities can be sold pursuant to Rule 144 without any restriction as
to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by the Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 4.18 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 4.18, that the Purchaser shall be
entitled, in addition to all other available remedies but subject to applicable
securities laws, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.

5.    CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company to issue and sell the Note and the Warrant to the
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing the Purchaser with prior written
notice thereof:

5.1    Execution . The Purchaser shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.

5.2    Payment . The Purchaser shall have delivered to the Company the Purchase
Price (less the amounts withheld pursuant to Section 4.16) by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.

5.3    Representations and Warranties . The representations and warranties of
the Purchaser shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such date), and the Purchaser shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Purchaser at or
prior to the Closing Date.

6.    CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE.

The obligation of the Purchaser hereunder to purchase the Note and the Warrant
from the Company at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in its sole discretion by providing the Company with prior
written notice thereof:

6.1    Execution . The Company shall have executed each of the Transaction
Documents and delivered the same to the Purchaser.

6.2    Exchange Listing . The Common Stock (x) shall be designated for quotation
or listed on the Principal Market and (y) shall not have been suspended by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market; and the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise of the Notes
and the related Warrants, as the case may be, shall be listed upon the Principal
Market.

6.3    Representations and Warranties . The representations and warranties of
the Company shall be true and correct as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Purchaser shall have received a certificate, executed by
either the Chief Executive Officer or the Chief Financial Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Purchaser.

6.4    Legal Opinion . The Purchaser shall have received (a) a legal opinion,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit D
attached hereto and (b) a legal opinion of Company’s local real estate counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to Purchaser.

6.5    Delivery of Securities . The Company shall have executed and delivered to
the Purchaser the Note and the Warrant (in such denominations as such Buyer
shall request) for the Note and the Warrant being purchased by the Purchaser at
the Closing.

6.6    Board Resolutions . The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.4 above and in a form reasonably
acceptable to the Purchaser (the "Resolutions").

6.7    Reservation of Shares . As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Note and the exercise of the Warrant, at
least the number of shares of Common Stock as set forth in Section 4.11 hereof.

6.8    Intentionally Omitted.

6.9    Good Standing Certificates . The Company shall have delivered to the
Purchaser a certificate evidencing the incorporation and good standing of the
Company and each Subsidiary in such entity's state of incorporation or
organization issued by the Secretary of State of such state of incorporation or
organization as of the Closing Date.

6.10    Secretary’s Certificate . The Company shall have delivered to the
Purchaser a secretary's certificate, dated as of the Closing Date, certifying as
to (A) the Resolutions, (B) the Charter, certified as of the Closing Date, by
the Secretary of State of the State of Massachusetts and (C) the Bylaws, each as
in effect at the Closing.

6.11    Filings . The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws.

6.12    Mortgage Documentation . The Company shall have delivered to the
Purchaser (a) an executed copy of the Mortgage dated as of the date hereof under
which the Company shall grant to Purchaser a first priority perfected mortgage
lien on the real property located at 32 Hampshire Road, Salem, New Hampshire and
(b) all such other documents, instruments, agreements, title commitments, title
insurance policies, surveys, zoning classifications, certificates of occupancy
and environmental reports, in each case related to such real property, each in
form and substance reasonably acceptable to Purchaser.

6.13    Other Transaction Documents . The Company shall have delivered to the
Purchaser such other documents relating to the transactions contemplated by this
Agreement as the Purchaser or its counsel may reasonably request, including,
without limitation, all documents, instruments and agreements relating to the
Canadian component to the transaction contemplated hereby.

7.    COVENANTS OF THE COMPANY AND THE PURCHASER REGARDING INDEMNIFICATION.

7.1    Company Indemnification . The Company agrees to indemnify, hold harmless,
reimburse and defend the Purchaser, each of the 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 the negotiation, execution or
performance of this Agreement including but not limited to (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 Transaction
Document, 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 the Purchaser relating hereto.

7.2    Purchaser's Indemnification . The 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 incurred in the defense thereof) of any
nature, incurred by or imposed upon the Company which results, arises out of or
is based upon any breach of the representations of the Purchaser contained in
Section 3 of this Agreement.

7.3    Procedures . Promptly after receipt by an indemnified party pursuant to
the provisions of Section 7.1 or 7.2 of notice of the commencement of any action
involving the subject matter of the foregoing indemnity provisions such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 7.1 or 7.2, promptly
notify the indemnifying party of the commencement thereof; but the omission to
so notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise under this Section except to the
extent the defense of the claim is prejudiced. In case such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, provided, however, if counsel for the
indemnifying party concludes that a single counsel cannot under applicable legal
and ethical considerations, represent both the indemnifying party and the
indemnified party, the indemnified party or parties have the right to select
separate counsel to participate in the defense of such action on behalf of such
indemnified party or parties; provided that there shall be no more than one such
separate counsel. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party pursuant to the provisions of said
Section 7.1 or 7.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action or (iii) the
indemnifying party has, in its sole discretion, authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party .

8.    MISCELLANEOUS.

8.1    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; provided, however that the Purchaser may choose to waive this
provision and bring an action outside 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.

8.2    Survival . The representations, warranties, indemnities, agreements,
covenants and other statements of the Company made herein shall survive
execution of this Agreement and delivery of the Note and Warrant for a period of
two years. 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.

8.3    Successors and Assigns . Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, 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. The Purchaser may assign and/or
grant participations (in whole or in part) in this Agreement and the other
Transaction Documents.

8.4    Entire Agreement . This Agreement, the exhibits and schedules hereto, the
other Transaction Documents and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof, including, but not limited to, the purchase
and sale of the Note and Warrant and the subsequent issuance of the Conversion
Shares and the Warrant Shares. 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. The Purchaser shall not be deemed
to have made any representation or warranty to the Company other than as
expressly made by the Purchaser in Section 3 hereof. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by the Purchaser in Section 3 hereof, the
Purchaser makes no representation or warranty to the Company with respect to the
timing or the manner in which the Company’s Common Stock will be sold.

8.5    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.

8.6    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.

8.7    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
non-compliance by another party under this Agreement or the Transaction
Documents, 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, the
Warrant or the other Transaction Documents, by law or otherwise afforded to any
party, shall be cumulative and not alternative.

8.8    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) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the Company at the
address as set forth on the signature page hereof, with a copy to Stuart M.
Cable, P.C., Goodwin Procter LLP facsimile number (617) 523-1231, and to the
Purchaser at the address set forth on the signature page hereto for such
Purchaser, with a copy in the case of the Purchaser to Scott J. Giordano, Esq.,
Loeb & Loeb, LLP, 345 Park Avenue, New York, NY 10154, facsimile number (212)
407-4990, or at such other address as the Company or the Purchaser may designate
by ten days advance written notice to the other parties hereto.

8.9    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.

8.10    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.

8.11    Broker's Fees . Each party hereto represents and warrants that, except
as each party may have notified the other in writing on or prior to the date
hereof, no agent, broker, investment banker, person or firm acting on behalf of
or under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses incurred
by such other party as a result of the representation in this Section 8.11 being
untrue.

8.12    Construction . Each party acknowledges that its legal counsel
participated in the preparation of this Agreement 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.

       

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IN WITNESS WHEREOF , the parties hereto have executed this Securities Purchase
Agreement as of the date set forth in the first paragraph hereof.

COMPANY:
PURCHASER:
STOCKERYALE, INC.
LAURUS MASTER FUND, LTD.
 
By:    
 
Name:
 
Title:
 
Address:    
 
 
 
By:    
 
Name:
 
Address:
 
c/o Ironshore Corporate Services Ltd.
 
P.O. Box 1234 G.T., Queensgate House, South Church Street
 
Grand Cayman, Cayman Islands

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LIST OF EXHIBITS

Form of Note
Exhibit A
Form of Warrant
Exhibit B
Form of Registration Rights Agreement
Exhibit C
Form of Opinion
Exhibit D
 
 

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Schedule 4.15

1.    Indebtedness owed to Merrill Lynch Business Financial Services, Inc. in a
maximum amount (inclusive of principal, interest, fees, costs and expenses) not
to exceed $6,600,000 in the aggregate, as the same may be renewed, extended,
replaced or refinanced from time to time.

2.    Leases and purchase money security interests in specific items of
equipment and the proceeds thereof.

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Schedule 4.5
Use of Funds

 

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STOCKERYALE, INC.

SECURITIES PURCHASE AGREEMENT

February 20, 2004

 

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1. PURCHASE AND SALE OF NOTE AND WARRANT.

1.1 Purchase of Note and Warrant

1.2 The Closing Date

1.3 Form of Payment

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

2.1 Organization, Good Standing and Qualification

2.2 Subsidiaries

2.3 Capitalization; Voting Rights.

2.4 Authorization; Binding Obligations

2.5 Liabilities

2.6 Agreements; Action

2.7 Obligations to Related Parties

2.8 Changes

2.9 Title to Properties and Assets; Liens, Etc.

2.10 Intellectual Property.

2.11 Compliance with Other Instruments

2.12 Litigation

2.13 Tax Returns and Payments

2.14 Employees

2.15 Registration Rights and Voting Rights

2.16 Compliance with Laws; Permits

2.17 Environmental and Safety Laws

2.18 Valid Offering

2.19 Full Disclosure

2.20 Insurance

2.21 SEC Reports

2.22 No Market Manipulation

2.23 Listing

2.24 No Integrated Offering

2.25 Stop Transfer

2.26 Dilution

2.27 Material Agreements

2.28 ERISA

2.29 Solvency

3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

3.1 Requisite Power and Authority

3.2 Investment Representations

3.3 Purchaser Bears Economic Risk

3.4 Acquisition for Own Account

3.5 Purchaser Can Protect Its Interest

3.6 Accredited Investor

3.7 Legends.

4. COVENANTS OF THE COMPANY.

4.1 Stop-Orders

4.2 Listing

4.3 Market Regulations

4.4 Reporting Requirements

4.5 Use of Funds

4.6 Access to Facilities

4.7 Offering Restrictions

4.8 Insurance

4.9 Intellectual Property

4.10 Financial Information

4.11 Reservation of Shares

4.12 Confidentiality

4.13 Corporate Existence

4.14 Reissuance of Securities

4.15 Priority of Notes

4.16 Expenses and Other Payments

4.17 Transfer and Depositary Agent Instructions

5. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

5.1 Execution

5.2 Payment

5.3 Representations and Warranties

6. CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE.

6.1 Execution

6.2 Exchange Listing

6.3 Representations and Warranties

6.4 Legal Opinion

6.5 Delivery of Securities

6.6 Board Resolutions

6.7 Reservation of Shares

6.8 Transfer Agent Instructions

6.9 Good Standing Certificates

6.10 Secretary’s Certificate

6.11 Filings

6.12 Security Agreement

6.13 Other Transaction Documents

7. COVENANTS OF THE COMPANY AND THE PURCHASER REGARDING INDEMNIFICATION.

7.1 Company Indemnification

7.2 Purchaser's Indemnification

7.3 Procedures

.

8. MISCELLANEOUS.

8.1 Governing Law

8.2 Survival

8.3 Successors and Assigns

8.4 Entire Agreement

8.5 Severability

8.6 Amendment and Waiver.

8.7 Delays or Omissions

8.8 Notices

8.9 Titles and Subtitles

8.10 Facsimile Signatures; Counterparts

8.11 Broker's Fees

8.12 Construction

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