Form of Security Agreement




STOCKERYALE, INC.




SECURITY AGREEMENT

To:       
Laurus Master Fund, Ltd.


            c/o Ironshore Corporate Services, Ltd.

            P.O. Box 1234 G.T

            Queensgate House

            South Church Street

            Grand Cayman, Cayman Islands

Date:   
June 10, 2004

To Whom It
May Concern:

1.    
To secure the
payment of all Obligations (as hereafter defined), StockerYale, Inc., a
Massachusetts corporation (the "Assignor"), hereby assigns and grants to Laurus
a continuing security interest in all of the following property now owned or at
any time hereafter acquired by the Assignor, or in which the Assignor now has or
at any time in the future may acquire any right, title or interest (the
"Collateral"): all cash, cash equivalents , accounts, accounts receivable,
inventory, equipment, goods, documents, instruments (including, without
limitation, promissory notes), contract rights, general intangibles (including,
without limitation, payment intangibles), chattel paper, supporting obligations,
investment property (including, without limitation, all equity interests owned
by the Assignor), letter-of-credit rights, deposit accounts, trademarks,
trademark applications, tradestyles, patents, patent applications, copyrights
and copyright applications in which the Assignor now has or hereafter may
acquire any right, title or interest, all proceeds and products thereof
(including, without limitation, proceeds of insurance) and all additions,
accessions and substitutions thereto or therefore. In the event the Assignor
wishes to finance the acquisition of any hereafter acquired equipment and has
obtained a commitment from a financing source to finance such equipment from an
unrelated third party, Laurus agrees to release its security interest on such
hereafter acquired equipment so financed by such third party financing source. 
Except as otherwise defined herein, all capitalized terms used herein shall have
the meaning provided such terms the Securities Purchase Agreement referred to
below.

2.    
The term
"Obligations" as used herein shall mean and include all debts, liabilities and
obligations owing by the Assignor to Laurus and all loans, advances, extensions
of credit, endorsements, guaranties, benefits and/or financial accommodations
heretofore or hereafter made, granted or extended by Laurus to Assignor or which
Laurus has or will become obligated to make, grant or extend to Assignor or for
Assignor's account and any and all interest, charges and/or expenses heretofore
or hereafter owing by Assignor to Laurus and any and all renewals or extensions
of the foregoing, in each case, whether now existing or hereafter arising,
direct or indirect, liquidated or unliquidated, absolute or contingent, due or
not due, arising under, in connection with, pursuant to or evidenced by the
documents, instruments and agreements set forth on Schedule A hereto
(each a "Document" and collectively the "Documents"), in each case, irrespective
of the genuineness, validity, regularity or enforceability of such Obligations,
or of any instrument evidencing any of the Obligations or of any collateral
therefor or of the existence or extent of such collateral, and irrespective of
the allowability, allowance or disallowance of any or all of the Obligations in
any case commenced by or against the Assignor under Title 11, United States
Code, including, without limitation, obligations or indebtedness of the Assignor
for post-petition interest, fees, costs and charges that would have accrued or
been added to the Obligations but for the commencement of such case.

3.    
The Assignor
hereby represents, warrants and covenants to Laurus that:

(a)    
it is a
corporation validly existing, in good standing and organized under the laws of
the State of Massachusetts, and it will provide Laurus thirty (30) days' prior
written notice of any change in its jurisdiction of organization;

(b)    
its legal name,
as set forth in its Certificate of Incorporation (or equivalent organizational
document) as amended through the date hereof, is StockerYale, Inc. and it will
provide Laurus thirty (30) days' prior written notice of any change in its legal
name;

(c)    
it does not have
an organizational identification number as the same is not issued by the
Massachusetts Secretary of State;

(d)    
it is the lawful
owner of the Collateral and it has the sole right to grant a security interest
therein and will defend the Collateral against all claims and demands of all
persons and entities;

(e)    
it will keep the
Collateral owned by it free and clear of all attachments, levies, taxes, liens,
security interests and encumbrances of every kind and nature ("Encumbrances"),
except (i) Encumbrances securing the Obligations, (ii) to the extent said
Encumbrance does not secure indebtedness in excess of $50,000 and such
Encumbrance is removed or otherwise released within ten (10) days of the
creation thereof and (iii) a security interest in favor of Smithfield Fiduciary
LLC ("Smithfield"), the lien priorities with respect to which are governed by
the terms of an Intercreditor Agreement between Smithfield and Laurus;

(f)     
it will at its
own cost and expense keep the Collateral in good state of repair (ordinary wear
and tear excepted) and will not waste or destroy the same or any part thereof
other than ordinary course discarding of items no longer used or useful in its
business;

(g)    
it will not,
without Laurus' prior written consent, sell, exchange, lease or otherwise
dispose of the Collateral, whether by sale, lease or otherwise, except for the
sale of inventory in the ordinary course of business and for the disposition or
transfer in the ordinary course of business during any fiscal year of obsolete
and worn-out equipment or equipment no longer necessary for its ongoing needs,
having an aggregate fair market value of not more than $25,000 and only to the
extent that:

(i)    
the proceeds of
any such disposition are used to acquire replacement Collateral which is subject
to Laurus' first priority perfected security interest or are used to repay
Obligations or to pay general corporate expenses; and

(ii)    
following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations;

(h)    
it will insure
the Collateral in Laurus' name against loss or damage by fire, theft, burglary,
pilferage, loss in transit and such other hazards as Laurus shall specify in
amounts and under policies by insurers acceptable to Laurus and all premiums
thereon shall be paid by the Assignor and the policies delivered to Laurus.  If
the Assignor fails to do so, Laurus may procure such insurance and the cost
thereof shall be promptly reimbursed by the Assignor and shall constitute
Obligations;

(i)    
it will at all
reasonable times and upon reasonable notice (provided that no such notice shall
be required following the occurrence and during the continuance of an Event of
Default or in the event Laurus believes (in the exercise of its good faith
judgment) that such access and/or right of inspect is necessary to preserve or
protect the Collateral) allow Laurus or Laurus' representatives free access to
and the right of inspection of the Collateral;

(j)     
the Assignor
hereby indemnifies and saves Laurus harmless from all loss, costs, damage,
liability and/or expense, including reasonable attorneys' fees, that Laurus may
sustain or incur to enforce payment, performance or fulfillment of any of the
Obligations and/or in the enforcement of this Security Agreement or in the
prosecution or defense of any action or proceeding either against the Assignor
or Laurus concerning any matter growing out of or in connection with this
Security Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by Laurus' own gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
nonappealable decision).

4.    
The occurrence of
any of the following events or conditions shall constitute an "Event of Default"
under this Security Agreement:

(a)    
any covenant,
warranty, representation or statement made or furnished to Laurus by the
Assignor or on the Assignor's behalf was false in any material respect when made
or furnished, and if subject to cure, shall not be cured for a period of fifteen
(15) days;

(b)    
the loss, theft,
substantial damage, destruction, sale or encumbrance to or of any material
portion (as determined by Laurus in the exercise of its good faith judgment) of
the Collateral or the making of any levy, seizure or attachment thereof or
thereon  except to the extent:

(i)    
such loss is
covered by insurance proceeds which are used to replace the item or repay
Laurus; or

(ii)    
said levy,
seizure or attachment does not secure indebtedness in excess of $100,000 and
such levy, seizure or attachment has not been removed or otherwise released
within ten (10) days of the creation or the assertion thereof;

(c)    
the Assignor
shall become insolvent, cease operations, dissolve, terminate our business
existence, make an assignment for the benefit of creditors, suffer the
appointment of a receiver, trustee, liquidator or custodian of all or any part
of the Assignor's property;

(d)    
any proceedings
under any bankruptcy or insolvency law shall be commenced by or against the
Assignor and if commenced against the Assignor shall not be dismissed within
thirty (30) days;

(e)    
the Assignor
shall repudiate, purport to revoke or fail to perform any of its obligations
under any Document (after passage of applicable cure period, if any); or

(f)     
an Event of
Default (or similar term) shall have occurred under and as defined in any
applicable Document; or

(g)    
an Event of
Default (or similar term) shall have occurred under and as defined in any
document, instrument or agreement entered into between Laurus and StockerYale
Canada, Inc., as such documents, instruments and agreements may be amended,
modified and supplemented from time to time.

5.    
Upon the
occurrence of any Event of Default and at any time thereafter, Laurus may
declare all Obligations immediately due and payable and Laurus shall have the
remedies of a secured party provided in the Uniform Commercial Code as in effect
in the State of New York, this Security Agreement and other applicable law. 
Upon the occurrence of any Event of Default and at any time thereafter, Laurus
will have the right to take possession of the Collateral and to maintain such
possession on the Assignor's premises or to remove the Collateral or any part
thereof to such other premises as Laurus may desire.  Upon Laurus' request, the
Assignor shall assemble the Collateral and make it available to Laurus at a
place designated by Laurus.  If any notification of intended disposition of any
Collateral is required by law, such notification, if mailed, shall be deemed
properly and reasonably given if mailed at least ten (10) days before such
disposition, postage prepaid, addressed to the Assignor either at the Assignor's
address shown herein or at any address appearing on Laurus' records for the
Assignor.  Any proceeds of any disposition of any of the Collateral shall be
applied by Laurus to the payment of all expenses in connection with the sale of
the Collateral, including reasonable attorneys' fees and other legal expenses
and disbursements and the reasonable expense of retaking, holding, preparing for
sale, selling, and the like, and any balance of such proceeds may be applied by
Laurus toward the payment of the Obligations in such order of application as
Laurus may elect, and the Assignor shall be liable for any deficiency. 


6.    
If the Assignor
defaults in the performance or fulfillment of any of the terms, conditions,
promises, covenants, provisions or warranties on the Assignor's part to be
performed or fulfilled under or pursuant to this Security Agreement, Laurus may,
at its option without waiving its right to enforce this Security Agreement
according to its terms, immediately or at any time thereafter and without notice
to the Assignor, perform or fulfill the same or cause the performance or
fulfillment of the same for the Assignor's  account and at the Assignor's cost
and expense, and the cost and expense thereof (including reasonable attorneys'
fees) shall be added to the Obligations and shall be payable on demand with
interest thereon at the highest rate permitted by law.

7.    
The Assignor
hereby appoints Laurus, any of Laurus' officers, employees or any other person
or entity whom Laurus may designate as our attorney, with power to execute such
documents in our behalf and to supply any omitted information and correct patent
errors in any documents executed by the Assignor or on our behalf; to file
financing statements against the Assignor covering the Collateral (and, in
connection with the filing of any such financing statements, describe the
Collateral as "all assets and all personal property, whether now owned and/or
hereafter acquired" (or any substantially similar variation thereof)); to sign
the Assignor's name on public records; and to do all other things Laurus deems
necessary to carry out this Security Agreement.  Neither Laurus nor the attorney
will be liable for any acts of commission or omission, nor for any error of
judgment or mistake of fact or law other than their gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
non-appealable decision).  This power being coupled with an interest, is
irrevocable so long as any Obligations remains unpaid.

8.    
No delay or
failure on Laurus' part in exercising any right, privilege or option hereunder
shall operate as a waiver of such or of any other right, privilege, remedy or
option, and no waiver whatever shall be valid unless in writing, signed by
Laurus and then only to the extent therein set forth, and no waiver by Laurus of
any default shall operate as a waiver of any other default or of the same
default on a future occasion.  Laurus' books and records containing entries with
respect to the Obligations shall be admissible in evidence in any action or
proceeding, shall be binding upon the Assignor for the purpose of establishing
the items therein set forth and shall constitute prima facie proof thereof. 
Laurus shall have the right to enforce any one or more of the remedies available
to Laurus, successively, alternately or concurrently.  The Assignor agrees to
join with Laurus in executing financing statements or other instruments to the
extent required by the Uniform Commercial Code in form satisfactory to Laurus
and in executing such other documents or instruments as may be required or
deemed necessary by Laurus for purposes of affecting or continuing Laurus'
security interest in the Collateral.

9.    
This Security
Agreement shall be governed by and construed in accordance with the laws of the
State of New York and cannot be terminated orally.  All of the rights, remedies,
options, privileges and elections given to Laurus hereunder shall inure to the
benefit of Laurus' successors and assigns.  Each of Laurus and the Assignor
hereby (a) waives any and all right to trial by jury in litigation relating to
this Security Agreement and the transactions contemplated hereby and the
Assignor hereby agrees not to assert any counterclaim in such litigation, (b)
submit to the nonexclusive jurisdiction of any New York State court sitting in
the borough of Manhattan, the city of New York; provided that nothing in this
Security Agreement shall be deemed to preclude Laurus from bringing suit or
taking other legal action in any other jurisdiction and (c) waive any objection
the Assignor or Laurus may have as to the bringing or maintaining of such action
with any such court.


10.   
All notices from Laurus to the Assignor shall be sufficiently
given if mailed or delivered to the Assignor at its address set forth in the
Securities Purchase Agreement.


Very truly yours,


StockerYale, Inc.


By: /s/                                    



Name:____________________


Title:_____________________


ACKNOWLEDGED:       

LAURUS
MASTER FUND, LTD.             

By: /s/                                      


Name:_____________________

Title:______________________