|          | **FINANCIAL ASSETS  SECURITY AGREEMENT** |
|----------|------------------------------------------|
| Standard |                                     |

**FINANCIALASSETS SECURITY AGREEMENT**("Security Agreement") dated as of May 1, 2001, given by **STOCKERYALE,INC. F/K/A STOCKER & YALE, INC.**, a corporation organized andexisting under the laws of the State of Massachusetts ("Customer") to**MERRILLLYNCH BUSINESS FINANCIAL SERVICES INC.**("MLBFS").

1. **Definitions.** (a) In addition to termsdefined elsewhere in this Security Agreement, when used herein the followingterms shall have the following meanings:

(i)         "Bankruptcy Event" shall mean any ofthe following: (A) a proceeding under any bankruptcy, reorganization,arrangement, insolvency, readjustment of debt or receivership law or statuteshall be filed or consented to by Customer; or (B) any such proceeding shall befiled against Customer and shall not be dismissed or withdrawn within sixty(60) days after filing; or (C) Customer shall make a general assignment for thebenefit of creditors; or (D) Customer shall become insolvent or generally failto pay or admit in writing its inability to pay its debts as they become due;or (E) Customer shall be adjudicated a bankrupt or insolvent.

(ii)        "Business Day" shall mean any dayother than a Saturday, Sunday, federal holiday or other day on which the NewYork Stock Exchange is regularly closed.

(iii)       "Collateral" shall mean: (A) theSecurities Account, (B) any free credit balances now or hereafter credited toor owing from MLPF&S to Customer in respect of the Securities Account, (C)all financial assets and investment property (including, without limitation,all security entitlements, securities accounts, stocks, bonds, mutual funds,certificates of deposit, commodities contracts and other securities), moneymarket deposit accounts, instruments, general intangibles and other property ofwhatever kind or description now and hereafter in or controlled by theSecurities Account or listed on any confirmation or periodic report fromMLPF&S as being in or controlled by the Securities Account, whether nowowned or hereafter acquired, (D) all proceeds of the sale, exchange, redemptionor exercise of any of the foregoing, including, without limitation, alldividends, interest payments and other distributions of cash or property inrespect thereof, and (E) all rights incident to the ownership of any of theforegoing.

(iv)      "Loan Agreements" shall mean thatcertain **WCMALOAN AND SECURITY AGREEMENT****NO. 794-07E49** between Customer and MLBFS,and that certain **WCMA REDUCING REVOLVER LOAN AND SECURITY AGREEMENT****NO.794-07E50** between Customer and MLBFS, as either or both of the samemay from time to time be or have been amended, restated, extended orsupplemented.

(v)       "Minimum Value” shall mean $2,000,000.00.

(vi)      "MLPF&S" shall mean **MERRILLLYNCH, PIERCE, FENNER & SMITH INCORPORATED**, and its successorsand assigns.

(vii)     "Obligations" shall mean allobligations, liabilities and indebtedness of every kind and nature now orhereafter owing, arising, due or payable from Customer to MLBFS, howsoevercreated, arising, or evidenced, whether direct or indirect, absolute orcontingent, or due or to become due, including, without limitation, interestaccruing after the filing of any petition in bankruptcy, and all present andfuture obligations, liabilities and indebtedness of Customer to MLBFS under theLoan Agreements and the agreements, instruments and documents executed pursuantthereto, including, without limitation, this Security Agreement.

(viii)    "Permitted Liens" shall mean: (A)liens in favor of MLBFS; (B) liens for current taxes not delinquent and, ifMLBFS' rights to and interest in the Collateral are not materially andadversely affected thereby, liens for taxes being contested in good faith byappropriate proceedings; (C) any trade settlement liens of MLPF&S; and (D)other liens permitted in writing by MLBFS.

(ix)       "Securities Account" shall mean thatcertain MLPF&S securities account number 794-07E67 in the name of Customerand any and all successor securities accounts at MLPF&S.

(b) All terms used in this Security Agreementwhich are defined in the Uniform Commercial Code of Illinois ("UCC")shall have the meanings set forth in the UCC. Without limiting the foregoing,the term "financial assets" and "security entitlement"shall have the meaning set forth in Section 8-102 of the UCC, and the term"investment property" shall have the meaning set forth in Section9-115 of the UCC.

2. **Grant of Security Interest.** In order tosecure payment and performance of the Obligations, Customer hereby pledges,grants and conveys and assigns to MLBFS a continuing first lien and securityinterest upon the Collateral subject only to any Permitted Liens. Infurtherance thereof, Customer hereby irrevocably: (i) authorizes and directsMLPF&S to name or rename the Securities Account on its books and records asthe "**STOCKERYALE,INC. F/K/A STOCKER & YALE, INC.****PLEDGED COLLATERAL ACCOUNT F/B/O MLBFS**",(ii) authorizes and directs MLPF&S and every other person or entity now orhereafter holding or otherwise having possession or control of any Collateralto hold, possess or control such Collateral as agent for MLBFS and subject tothe rights, direction, control and security interest of MLBFS, (iii) authorizesand directs MLPF&S and all such other persons or entities to comply withany and all present and future entitlement orders or directions of MLBFS withrespect to the Securities Account and all or any part of the Collateral,notwithstanding any contrary direction or dispute by Customer or any otherparty (unless prohibited by law or the order of a judicial body havingappropriate jurisdiction), and without making any inquiry whatsoever as toMLBFS' right or authority to give such order or direction or as to theapplication of any payment pursuant thereto, (iv) waives and releasesMLPF&S and all such other persons and entities from, and agrees toindemnify and hold harmless MLPF&S and all such other persons and entitiesfrom and against, any liability whatsoever for complying with any such ordersor directions of MLBFS; and (v) agrees with MLBFS and MLPF&S that all assetsand other property now and from time to time hereafter in or controlled by theSecurities Account or listed on any confirmation of periodic report fromMLPF&S as being in or controlled by the Securities Account shall be deemedto be "Financial Assets" within the meaning of the UCC.

3.**Rights and Limitations of Customer.** (a)Except upon the prior written consent of MLBFS, Customer shall not: (i)purchase any financial assets, investment property or other property with fundsin the Securities Account other than: (A) publicly held domestic money marketfunds or deposits with Merrill Lynch Bank USA or Merrill Lynch Bank & TrustCo. which are credited to the Securities Account, (B) obligations of orguaranteed or insured by the U. S. Government (including insured certificatesof deposit), or (C) if the overall investment quality of the Collateral is notthereby materially reduced and if the Securities Account is not therebymaterially less diversified, publically traded stocks, bonds and otherfinancial assets or investment property which are margin-eligible and otherwiseacceptable to MLBFS and purchased with the proceeds of other Collateral whichhas been sold by Customer; (ii) borrow any funds on margin or otherwise fromanyone other than MLBFS using all or any part of the Collateral as collateral;(iii) otherwise grant or permit to exist any lien or security interest upon anypart of the Collateral other than Permitted Liens, or (iv) directly orindirectly withdraw any financial assets, investment property or other propertyfrom the Securities Account except in connection with a sale permitted hereby.

(b) So long as no Event of Default shall haveoccurred and be continuing, Customer may without the consent of MLBFS: (i)retain any financial assets, investment property and other property which arein or controlled by the Securities Account on the date hereof; (ii) sell anysuch property at any time so long as the proceeds are either held in theSecurities Account or used to purchase other financial assets or investmentproperty permitted hereby which are held in or controlled by the SecuritiesAccount; and (iii) exercise any voting and consensual rights with respect tothe financial assets, investment property and other property included in theCollateral for any purpose not inconsistent with this Security Agreement.

4. **Warranties.** Customer warrants to MLBFS on acontinuing basis that:

(a) **Ownership and Priority.** Except for therights of MLBFS hereunder and for any Permitted Liens: (i) Customer is theowner of the Securities Account and all other Collateral free and clear of anyinterest or lien of any third party, and (ii) upon the acknowledgment of thisSecurity Agreement by MLPF&S and/or the completion of any other actionrequired by applicable law to perfect its security interest hereunder, MLBFSwill have a valid and perfected first lien and security interest upon all ofthe Collateral.

(b) **Collateral Not Restricted; Enforceability.**Except as enforceability may be limited by bankruptcy and other similar lawsaffecting the rights of creditors generally or by general principles of equity:(i) neither Customer nor any part of the Collateral is subject to any legal,contractual or other restriction which might hinder or prevent the grant to orenforcement by MLBFS of the security interest in the Collateral pursuant tothis Security Agreement, and (ii) this Security Agreement is the legal, validand binding obligation of Customer, enforceable against Customer in accordancewith its terms.

(c) **Right, Power and Authority.** Customer hasthe full right, power and authority to make, execute and deliver this SecurityAgreement.

5. **Covenants.**

(a) **No Other Liens.**Except upon the priorwritten consent of MLBFS, Customer will not cause or permit to exist anysecurity interests or liens upon the Collateral other than Permitted Liens.

(b) **Maintenance of Perfection.** Customer willexecute and deliver to MLBFS such Uniform Commercial Code financing statements,continuation statements and other agreements, instruments and documents asMLBFS may from time reasonably require in order to establish, perfect andmaintain perfected the lien and security interest of MLBFS hereunder.

(c) **Change in Principal Place of Business.**Customer will provide not less than 30 days prior written notice of any changein Customer's principal place of business.

(d) **Change With MLPF&S.**Customer willprovide MLBFS with prompt written notice of any change known to Customer in theaccount number of the Securities Account, the Financial Consultant atMLPF&S assigned to Customer or the address of said Financial Consultant'soffice at MLPF&S.

(e) **Minimum Collateral Value.** Customer furtherwarrants and agrees that the aggregate immediate market value of the Collateralwill at all times during the term hereof be not less than the Minimum Value. Indetermining the value of the Collateral for the purposes of this Section, novalue will be given to any financial assets or investment property in orcontrolled through the Securities Account for less than 30 calendar days wheresuch financial assets or investment property either: (i) have been issued by anopen-end investment company (including money market funds and other open-endmutual funds) other than in connection with reinvestment of dividends; or (ii)are part of a new issue with respect to which MLPF&S participated as amember of the selling group or syndicate.

6. **Event of Default.** The occurrence of any ofthe following will constitute an "Event of Default" hereunder: (a)the occurrence of an Event of Default under the terms of any of the LoanAgreements; or (b) if Customer shall breach or violate any of its covenants orwarranties herein contained, and does not cure such breach or violation within10 Business Days after notice from MLBFS; or (c) a default or Event of Defaultby Customer shall occur under the terms of any other agreement, instrument ordocument with or intended for the benefit of MLBFS, MLPF&S or any of theiraffiliates, and any required notice shallhave been given and required passage of time shall have elapsed; or (d)if Customer's subscription to the Securities Account shall be terminated forany reason; or (e) any event shall occur which shall reasonably cause MLBFS toin good faith believe that the prospect of payment or performance by Customerhas been materially impaired (determined in a manner consistent with the intentof Section 1-208 of the UCC); or (f) if at any time the aggregate immediatemarket value of the Collateral shall be or become an amount less than theMinimum Value (determined in a manner consistent with Section 5(e) hereof), andCustomer shall not within 1 Business Day of written demand by MLBFS depositinto the Securities Account additional financial assets or investment propertyacceptable to MLBFS sufficient to increase such aggregate immediate marketvalue to at least the Minimum Value; or (g) any Bankruptcy Event shall occur.

7. **Remedies.** Upon the occurrence of any Eventof Default and at any time thereafter during the continuance thereof, MLBFSmay, at its option, and in addition to all other rights and remedies availableto MLBFS: (a) by written notice to MLPF&S, terminate all rights of Customerwith respect to control of the Collateral (it being understood, however, thatupon the occurrence of any Bankruptcy Event all rights of Customer with respectto control of the Collateral shall automatically terminate without notice orother action on the part of MLBFS), and thereby obtain the right to exclusivecontrol over the Collateral, including, without limitation, the right to cancelany open orders and close any and all outstanding contracts, liquidate all orany part of the Collateral, transfer the Securities Account or any otherCollateral to the name of MLBFS or its nominee, and withdraw any Collateralfrom the Securities Account; and (b) exercise any one or more of the rights andremedies of a secured party under the UCC. Any sale of Collateral pursuant tothis Paragraph may be made at MLBFS' discretion on any exchange or other marketwhere such business is usually transacted, or at public auction or privatesale, and MLBFS or MLBFS' agent may at any such sale be the purchaser for theaccount of MLBFS or such agent. The proceeds of sale or other disposition ofany of the Collateral shall be applied by MLBFS on account of the Obligations,with any excess paid over to Customer orits successors or assigns, as their interests and rights may appear, or whoeverelse may then be adjudged entitled thereto. To the fullest extentpermitted by law, Customer waives notice of any sale, advertisement and allother notices and formalities whatsoever. All rights and remedies available toMLBFS hereunder shall be cumulative and in addition to all other rights andremedies otherwise available to it at law, in equity or otherwise, and any oneor more of such rights and remedies may be exercised simultaneously orsuccessively. No waiver by MLBFS of any Event of Default shall waive any otheror subsequent Event of Default. None of the provisions hereof shall be held tohave been waived by any act or knowledge of MLBFS, but only by a writteninstrument executed by an officer of MLBFS and delivered to Customer.

 

8. **Power of Attorney.** Customer further agreesthat MLBFS shall have and hereby irrevocably grants to MLBFS, effective uponthe occurrence and during the continuance of any Event of Default, the full andirrevocable right, power and authority in the name of Customer or in MLBFS' ownname, to demand, collect, withdraw, receipt for and sue for the SecuritiesAccount and any or all of the other Collateral, and all amounts due or tobecome due and payable upon or with respect to the Collateral; to execute anywithdrawal receipts respecting any or all of the Collateral; to endorse thename of Customer on any and all commercial paper and other instruments given inpayment therefor; and, in its discretion, to take any and all further action(including, without limitation, the transfer of the Securities Account or anyother Collateral to the name of MLBFS or its nominee) which MLBFS shall deemnecessary or appropriate to preserve or protect its interests hereunder.

9. **Rights Absolute.** The rights of MLBFShereunder and with respect to the Collateral are absolute and unconditional,and nothing that MLBFS does or leaves undone shall affect such rights of MLBFS.Without limiting the foregoing, MLBFS shall not as a condition of such rightsbe required to resort to any other collateral or security, pursue or exhaustany remedy against Customer or any other party or observe any formality ofnotice or otherwise (except as expressly provided herein); and (ii) Customerhereby consents to, and waives notice of, any extension, renewal ormodification from time to time of any of the Loan Agreements or any otheragreement, instrument or document evidencing or securing the Obligations, anyextensions, forbearances, compromises or releases of any of the Obligations,and the release of any party primarily or secondarily obligated for theObligations or of any other collateral therefor.

10. **Limitation of MLBFS' Obligations.** MLBFSshall not as a result of this Security Agreement be subjected to any obligationor liability of Customer of any manner or type with respect to the Collateral,including, but not limited to, the duty to perform any covenants and agreementsmade by Customer; all of which obligations and liabilities shall continue torest upon Customer as though this Security Agreement had not been made.

11. **MLPF&S Not Authorized.****CUSTOMER****ACKNOWLEDGESAND AGREES THAT NOTWITHSTANDING THE AFFILIATION BETWEEN MLBFS AND MLPF&S,AND THE AGENCY RELATIONSHIP ACKNOWLEDGED BY MLPF&S IN THE CONSENT HERETO,NEITHER MLPF&S****NOR ANY OF ITS EMPLOYEES ARE AUTHORIZED TO WAIVE ONBEHALF OF MLBFS ANY PROVISION HEREOF, OR CONSENT ON BEHALF OF MLBFS TO ANYACTION OR INACTION BY CUSTOMER, OR OTHERWISE BIND MLBFS.**

12. **Term.** This Security Agreement shall becomeeffective when signed by Customer, and shall continue in effect so longthereafter as any of the Loan Agreements shall be in effect or there shall beany Obligations outstanding.

13. **Miscellaneous.**

(a) Customer waives notice of the acceptancehereof by MLBFS.

(b) Titles to Paragraphs are for convenienceonly and shall not be considered in the interpretation hereof.

(c) This Security Agreement shall be bindingupon Customer and Customer's heirs, personal representatives, successors andassigns, as applicable, and shall inure to the benefit of MLBFS and itssuccessors and assigns. If there is more than one "Customer", theirobligations hereunder are joint and several.

(d) **THIS WRITTEN SECURITY AGREEMENT CONSTITUTES THE ENTIREAGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, MAY BEMODIFIED ONLY BY A WRITTEN INSTRUMENT EXECUTED BY BOTH MLBFS AND CUSTOMER, ANDMAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENTORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTSBETWEEN THE PARTIES.**

(e)**THIS SECURITY AGREEMENT SHALL BE GOVERNED IN ALLRESPECTS BY THE LAWS OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE RIGHT OFMLBFS TO ENFORCE THIS SECURITY AGREEMENT IN ANY JURISDICTION AND VENUEPERMITTED BY APPLICABLE LAW: (I) CUSTOMER AGREES THAT THIS SECURITY AGREEMENTMAY AT THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUEIN WHICH ANY OF THE LOAN AGREEMENTS MAY BE ENFORCED, (II) CUSTOMER IRREVOCABLYSUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATEOR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND (III) CUSTOMERWAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND THECONVENIENCE OF ANY SUCH FORUM AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROMSTATE TO FEDERAL COURT. CUSTOMER FURTHER AGREES THAT ANY CLAIM BY CUSTOMERAGAINST MLBFS HEREUNDER OR WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATEDHEREBY SHALL BE BROUGHT AGAINST MLBFS ONLY IN AN ACTION OR PROCEEDING IN AFEDERAL OR STATE COURT IN THE COUNTY OF COOK AND STATE OF ILLINOIS, ANDCUSTOMER WAIVES THE RIGHT TO BRING ANY SUCH ACTION OR PROCEEDING OR ASSERT ANYCOUNTERCLAIM AGAINST MLBFS IN ANY OTHER JURISDICTION OR BEFORE ANY OTHER FORUM.CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS.**

(f)**CUSTOMER AND MLBFS HEREBY EACH EXPRESSLY WAIVE ANYAND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIMBROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY WAY RELATED TOOR ARISING OUT OF THIS SECURITY AGREEMENT, ANY OF THE LOAN AGREEMENTS OR ANY OFTHE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.**

Dated as of the day and year first abovewritten.

**STOCKERYALE,INC. F/K/A STOCKER & YALE, INC.**

 

| By:    | /s/ Mark W. Blodgett | /s/ Gary B. Godin |
|--------|----------------------|-------------------|
|   |                      |
|   |                 |              |
|   | Signature (1)        | Signature (2)     |
|   | Mark W. Blodgett     | Gary B. Godin     |
|        |
|   | Printed Name         | Printed Name      |
|   | CEO                  | CFO               |
|        |
|   | Title                | Title             |
|        |                      |                   |  |  |  |  |

 

ACCEPTED AT CHICAGO, ILLINOIS:

**MERRILL LYNCH BUSINESSFINANCIAL SERVICES INC.**

| By:    | /s/ Julie Ellman |
|--------|------------------|
|   |                  |

 

 

|   | FR U-1                          |
|--------|---------------------------------|
|   | OMB No. 7100-0115               |
|   | Approval Expires March 31, 2002 |

 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEMStatement of Purpose for an Extension of Credit Secured by Margin Stock(Federal Reserve Form U-1)

| **MERRILL LYNCH BUSINESS  FINANCIAL SERVICES INC**.                                                                                                                                                                                                                                |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                    |
| Name  of Bank                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                               |
| This report is require by law (15 U.S.C. 78g  and 78w; 12 CFR 221). The Federal Reserve may not conduct or sponsor, and an  organization (or a person) is not required to respond to, a collection of  information unless it  displays a  currently valid OMB control number. |   | Public reporting burden for this collection of  information is estimated to average 0.07 hours per response, including the  time to gather and maintain data in the required form and to review  instructions and complete the information collection. Send comments regarding  this burden estimated or any other aspect of this Collection of information,  including suggestions for reducing this burden to: Secretary, Board of Governors  of the Federal Reserve System, 20th and C Streets, N.W., Washington, DC  20551; and to the Office of Management and Budget, Paperwork Reduction  Project (7100-0011), Washington, DC 20503. |

Instructions

1.          Thisform must be completed when a bank extends credit in excess of $100,000 secureddirectly or indirectly, in whole or in part, by any margin stock.

2.          Theterm "margin stock" is defined in Regulation U (12 CFR 221) andincludes, principally: (1) stocks that are registered on a national securitiesexchange; (2) debt securities (bonds) that are convertible into margin stocks;(3) any over-the-counter security designated as qualified for trading in theNational Market System under a designation plan approved by the Securities andExchange Commission (NMS security); and (4) shares of most mutual funds, unless95 per cent of the assets of the fund are continuously invested in U. S.government, agency, state or municipal obligations.

3.          Pleaseprint or type (if space is inadequate, attach separate sheet).

Part I  To be completed by borrower(s)

1.  What is the amount of the credit being extended?  $6,000,000.00

| 2.   Will any part of this credit be used to  purchase or carry margin stock? | o | Yes | **ý** | No |   |
|-----------------------------------------------------------------------------------------|---|-----|------------|----|--------|

*Ifthe answer is "no",* describe the specific purpose of thecredit:  To provide working capitaland/or for other lawful business purposes

 

I (We) have read this form and certify that tothe best of my (our) knowledge and belief the information given is true,accurate, and complete, and that the margin stock and any other securitiescollateralizing this credit are authentic, genuine, unaltered, and not stolen,forged or counterfeit.

Signed: **StockerYale, Inc. f/k/a Stocker & Yale, Inc.**

| /s/ Mark W. Blodgett         | 5/14/01 |   | /s/ Gary B. Godin    | 5/14/01 |
|------------------------------|---------|--------|----------------------|---------|
|                              |    |        |
|    Borrower's signature | Date    |   | Borrower's signature | Date    |
| Mark W. Blodgett             |    |   | Gary B. Godin        |    |
|                              |    |        |
|   Print  or type name   |    |   | Print or type name   |    |

This form should not be signed in blank

**Aborrower who falsely certifies the purpose of a credit on this form orotherwise willfully or intentionally evades the provisions of Regulation U willalso violate Federal Reserve Regulation X, "Borrowers of SecuritiesCredit."**

Part II  To be completed by bank only if the purpose of the credit is to purchaseor carry margin securities (Part I (2) answered "yes")

1.          List the margin stock securing thiscredit; do not include debt securities convertible into margin stock. Themaximum loan value of margin stock is 50 per cent of its current market valueunder the current Supplement to Regulation U.

| No. of shares | Issue  | Market Price  per share | Date and source of  valuation  (See note below) | Total market  value per issue |
|---------------|--------|-------------------------|-------------------------------------------------|-------------------------------|
|               |        |                         |                                                 |                               |
|          |   |                    |                                            |                          |
|          |   |                    |                                            |                          |
|          |   |                    |                                            |                          |
|          |   |                    |                                            |                          |
|          |   |                    |                                            |                          |

2.          Listthe debt securities convertible into margin stock securing this credit. Themaximum loan value of such debt securities is 50 per cent of the current marketvalue under the current Supplement to Regulation U.

| Principal  Amount | Issue  | Market  Price | Date  and source of  valuation  (See note below) | Total  market  value per issue |
|-------------------|--------|---------------|--------------------------------------------------|--------------------------------|
|                   |        |               |                                                  |                                |
|              |   |          |                                             |                           |
|              |   |          |                                             |                           |
|              |   |          |                                             |                           |

3.          Listother collateral including non-margin stock securing this credit.

| Describe  briefly | Market  Price | Date  and source of  valuation  (See note below) | Good  faith  loan value |
|-------------------|---------------|--------------------------------------------------|-------------------------|
|                   |               |                                                  |                         |
|              |          |                                             |                    |
|              |          |                                             |                    |
|              |          |                                             |                    |
|              |          |                                             |                    |
|              |          |                                             |                    |

Note: Bank need not complete "Date andsource of valuation" if the market value was obtained from regularlypublished information in a journal of general circulation or an automatedquotation system.

Part III To be signed by a bank officer in all instances.

I am a duly authorized representative of thebank and understand that this credit secured by margin stock may be subject tothe credit restrictions of Regulation U. I have read this form and anyattachments, and I have accepted the customer's statement in Part I in goodfaith as required by Regulation U*; and I certify that to the best of myknowledge and belief, all the information given is true, accurate, andcomplete. I also certify that if any securities that directly secure the creditare not or will not be registered in the name of the borrower or its nominee, Ihave or will cause to have examined the written consent of the registered ownerto pledge such securities. I further certify that any securities that have beenor will be physically delivered to the bank in connection with this credit havebeen or will be examined, that all validation procedures required by bankpolicy and the Securities Exchange Act of 1934 (section 17(f), as amended) havebeen or will be performed, and that I am satisfied to the best of my knowledgeand belief that such securities are genuine and not stolen or forged and theirfaces have not been altered.

----

*To accept the customer's statement in goodfaith, the officer of the bank must be alert to the circumstances surroundingthe credit and, if in possession of any information that would cause a prudentperson not to accept the statement without inquiry, must have investigated andbe satisfied that the statement is truthful. Among the facts which wouldrequire such investigation are receipt of the statement through the mail orfrom a third party.

|   |   |   | Signed: |
|--------|--------|--------|---------|
|   |   |   |    |   |   |   |   |
|        |   |        |
| Date   |   |   |    | Bank officer's signature |
|   |   |   |    |
|   |   |   |    |   |   |   |   |
|        |   |        |
| Title  |   |   |    | Print or type name |

**Thisform must be retained by the lender for three years after the credit isextinguished.**

 

|  | **SECRETARY'S CERTIFICATE** |
|--|-----------------------------|

*(FinancialAsset Security Agreement)*

**Theundersigned hereby certifies** that the undersigned is the duly appointed andacting Secretary (or Assistant Secretary) of **STOCKERYALE, INC. F/K/A STOCKER &YALE, INC.**, a corporation duly organized, validly existing and ingood standing under the laws of the State of Massachusetts, and that thefollowing is a true, accurate and compared transcript of resolutions duly,validly and lawfully adopted on the 19 day of March, 2001 by the Board ofDirectors of said corporation acting in accordance with the laws of the stateof incorporation and the charter and by-laws of said corporation:

“**RESOLVED**, that it is advisable and in thebest interests of this Corporation that this Corporation grant to **MERRILLLYNCH BUSINESS FINANCIAL SERVICES INC.** (“MLBFS”) a security interestin one or more Merrill Lynch securities accounts, all successor securityaccounts, and all securities and other financial assets, investment propertyand other property now and hereafter therein or controlled thereby(collectively, the “Collateral”) as collateral for its obligations to MLBFS;and

“**FURTHER RESOLVED**, that the President, anyVice President, Treasurer, Secretary or other officer of this Corporation, orany one or more of them, be and each of them hereby is authorized and empoweredfor and on behalf of this Corporation to: (a) grant to MLBFS a first and priorsecurity interest in the Collateral and any other property of this Corporation;(b) execute and deliver to MLBFS: (i) all Financial Assets Security Agreementsand all other agreements, instruments and documents now and hereafter requiredby MLBFS, and (ii) any present or future amendments to any of the foregoing;all in such form as such officer shall approve, as conclusively evidenced byhis signature thereon; and (c) do and perform all such acts and things deemedby any such officer to be necessary or advisable to carry out and perform theundertakings and agreements of this Corporation in connection therewith; andall prior acts of said officers in these premises are hereby ratified andconfirmed; and

**“FURTHER RESOLVED**, that MLBFS is authorized to rely upon theforegoing resolutions until it receives written notice of any change orrevocation, which change or revocation shall not in any event affect theobligations of this Corporation with respect to any transaction committed to byMLBFS or having its inception prior to the receipt of such notice by MLBFS.”

**Theundersigned further certifies** that the foregoing resolutions have not been rescinded,modified or repealed in any manner and are in full force and effect as of thedate of this Certificate, and that the following individuals are now the dulyelected and acting officers of said corporation and **the signatures set forth below are the truesignatures of said officers**:

|   | President:      | /s/ Mark W. Blodgett |
|--------|-----------------|----------------------|
|   |            |                      |
|   | Vice President: |                 |
|   |            |                      |
|   | Secretary:      | /s/ Gary B. Godin    |
|   |            |                      |
|   | Treasurer:      | /s/ Gary B. Godin    |
|   |            |                      |

**INWITNESS WHEREOF,**the undersigned has executed this Certificate and has affixed the seal of saidcorporation hereto, pursuant to due authorization, all as of this 14 day ofMay, 2001.

 

**(CorporateSeal)**

|   | /s/ Gary B. Godin |         |
|--------|-------------------|--------------|
|   |                   |         |
|   |              | Secretary    |   |
|   |              |         |   |
|   | /s/ Gary B. Godin |         |
|   |                   |         |
|   |              | Printed Name |   |