Form of Securities Purchase Agreement



STOCKERYALE, INC.

                                           

SECURITIES PURCHASE AGREEMENT

         

THIS  SECURITIES  PURCHASE  AGREEMENT (the  "Agreement")  is made and entered into as of June 10, 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 $5,000,000  (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 400,000 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 $5,000,000).


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 June 10, 2004,  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"),  20,599,034
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 March 31, 2004,  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 from entering
into this Agreement or the other Transaction Documents,  or from consummating 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, 2003 , (ii) its  Quarterly  Report on Form 10-Q for the fiscal  quarter ended March 31, 2004 and (iii)
its Proxy  Statement  filed  with the SEC on April 13,  2004  (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.  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.


2.30     Form S-3  Eligibility.  The Company is eligible to register the  Conversion  Shares and the Warrant Shares
for resale by the Purchaser using Form S-3 promulgated under the 1933 Act.


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.


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,  to repay in full all obligations under that certain line of credit and term note with
Merrill Lynch  Business  Financial  Services  ("Merrill  Lynch") and will not use any of such proceeds to repay any
indebtedness  of the Company  (other than trade  payables in the  ordinary  course and the  obligations  to Merrill
Lynch) 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.


4.18     Pro Rata  Requirement.  The Company  hereby  agrees that if the Company  takes any action or omits to take
any action in connection with or relating to any of the Transaction Documents,  including,  without limitation, any
prepayments,  redemptions,  repayments,  conversions,  determinations  as  to  payments  in  cash  or  stock  or  a
combination of stock or cash or otherwise,  then it must  simultaneously  take the similar action or omission,  pro
rata as  applicable,  with  respect  to the  documents  having  substantially  identical  terms to the  Transaction
Documents  issued  and  entered  into on the  date  hereof  with  Smithfield  Fiduciary  LLC (the  "Other  Investor
Transaction  Documents"  and  collectively  with the  Transaction  Documents,  the "June  Transaction  Documents").
Neither the Company nor any other  person  shall offer or pay any  consideration  to any person to amend or consent
to a waiver or modification  of any provision of any of the Other Investor  Transaction  Documents  unless the same
consideration  also is offered to the  Purchaser  or its  designee.  The Company has not,  directly or  indirectly,
made any agreements  with any person  relating to the terms or condition of the  transactions  contemplated  by the
June  Transaction  Documents  except  as  set  forth  in the  June  Transaction  Documents.  Without  limiting  the
foregoing,  the Company confirms that,  except as set forth in the June Transaction  Documents,  no person has made
any  commitment or promise or has any other  obligation  to provide any financing to the Company or otherwise.  The
terms of the Other  Investor  Transaction  Documents are  substantially  identical to the terms of the  Transaction
Documents  (other than the amount of the  investment  to be made and the number of  warrants to be issued,  in each
case in accordance with the terms thereof).


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  Canadian  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     Security  Agreement.  The Company  shall have  delivered to the Purchaser an executed copy of the Security
Agreement.


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. 

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: /s/                                                                       
    

        Name:                                                                        
         

        Title:                                                                        
         

        Address:                                                                        
         

           

           
	By:  
    /s/                                                                       
    

        Name:                                                                        
         

        Address:                                                                     
         

                     
                                                                            
         

        c/o Ironshore Corporate Services Ltd. 

        P.O. Box 1234 G.T., Queensgate House, South Church Street 

        Grand Cayman, Cayman Islands  

        


 



 

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