Document:

REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (the “Agreement”) is made and entered into as of
      this 1st day of February, 2007 by and among Precision Optics Corporation, Inc.,
      a Massachusetts corporation (the “Company”), and the “Investors” named in that
      certain Purchase Agreement by and among the Company and the Investors (the
      “Purchase Agreement”).

     

    The
      parties hereby agree as follows:

     

    1. Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.01 per share, and any securities
      into which such shares may hereinafter be reclassified.

     

    “Investors”
shall
      mean the Investors identified in the Purchase Agreement and any Affiliate or
      permitted transferee of any Investor who is a subsequent holder of any Warrants
      or Registrable Securities.

     

    “Prospectus”
shall
      mean (i) the prospectus included in any Registration Statement, as amended
      or
      supplemented by any prospectus supplement, with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference in such prospectus, and (ii) any “free writing prospectus” as defined
      in Rule 405 under the 1933 Act.

     

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the 1933 Act (as defined below) which is
      declared effective by the SEC.

     

    “Registrable
      Securities”
shall
      mean (i) the Shares, (ii) the Warrant Shares and (iii) any other securities
      issued or issuable with respect to or in exchange for Registrable Securities;
      provided, that, a security shall cease to be a Registrable Security upon (A)
      sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or
      (B)
      such security becoming eligible for sale by the Investors pursuant to Rule
      144(k).

     

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the 1933 Act that
      covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, amendments and supplements to such Registration
      Statement, including post-effective amendments, all exhibits and all material
      incorporated by reference in such Registration Statement.

     

    “Required
      Investors”
means
      the Investors holding a majority of the Registrable Securities.

    
      
        
        

      

      
        
        

        
          

        

      

       

    

     

    “SEC”
means
      the U.S. Securities and Exchange Commission.

     

    “Shares”
means
      the shares of Common Stock issued pursuant to the Purchase
      Agreement.

     

    “1933
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Warrants”
means,
      the warrants to purchase shares of Common Stock issued to the Investors pursuant
      to the Purchase Agreement, the form of which is attached to the Purchase
      Agreement as Exhibit A.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon the exercise of the
      Warrants.

     

    2. Registration.

     

    (a)  Registration
      Statements.

     

    (i) Subject
      to the provisions of Section 2(d), promptly following the closing of the
      purchase and sale of the securities contemplated by the Purchase Agreement
      (the
“Closing Date”) but no later than 45 days after the Closing Date (the “Filing
      Deadline”), the Company shall prepare and file with the SEC one Registration
      Statement on Form SB-2 (or, if Form SB-2 is not then available to the Company,
      on such form of registration statement as is then available to the Company
      to
      effect a registration for resale of the Registrable Securities, subject to
      the
      Required Investors’ consent), covering the resale of the Registrable Securities
      in an amount at least equal to the Shares and the Warrant Shares. Subject to
      any
      SEC comments, such Registration Statement shall include the plan of distribution
      substantially in the form attached hereto as Exhibit
      A.
      Such
      Registration Statement also shall cover, to the extent allowable under the
      1933
      Act and the rules promulgated thereunder (including Rule 416), such
      indeterminate number of additional shares of Common Stock resulting from stock
      splits, stock dividends or similar transactions with respect to the Registrable
      Securities. Such Registration Statement shall not include any shares of Common
      Stock or other securities for the account of any other holder without the prior
      written consent of the Required Investors. The Registration Statement (and
      each
      amendment or supplement thereto, and each request for acceleration of
      effectiveness thereof) shall be provided in accordance with Section 3(c) to
      the
      Investors and their counsel prior to its filing or other submission. Subject
      to
      the provisions of Section 2(d), if a Registration Statement covering the
      Registrable Securities is not filed with the SEC on or prior to the Filing
      Deadline, the Company will make pro rata payments to each Investor, as
      liquidated damages and not as a penalty, in an amount equal to 1.0% of the
      aggregate amount invested by such Investor for each 30-day period or pro rata
      for any portion thereof following the Filing Deadline for which no Registration
      Statement is filed with respect to the Registrable Securities. Such payments
      shall constitute the Investors’ exclusive monetary remedy for such events, but
      shall not affect the right of the Investors to seek injunctive relief. Such
      payments shall be made to each Investor in cash. 

     

    
      
        
        

      

      
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    (ii) Additional
      Registrable Securities.
      Subject
      to the provisions of Section 2(d), upon the written demand of any Investor
      and
      upon any change in the Warrant Price (as defined in the Warrant) such that
      additional shares of Common Stock become issuable upon the exercise of the
      Warrants (the “Additional Shares”), the Company shall prepare and file with the
      SEC one or more Registration Statements on Form SB-2 or amend the Registration
      Statement filed pursuant to clause (i) above, if such Registration Statement
      has
      not previously been declared effective (or, if Form SB-2 is not then available
      to the Company, on such form of registration statement as is then available
      to
      the Company to effect a registration for resale of the Additional Shares,
      subject to the Required Investors’ consent) covering the resale of the
      Additional Shares, but only to the extent the Additional Shares are not at
      the
      time covered by an effective Registration Statement. Subject to any SEC
      comments, such Registration Statement shall include the plan of distribution
      substantially in the form attached hereto as Exhibit
      A.
      Such
      Registration Statement also shall cover, to the extent allowable under the
      1933
      Act and the rules promulgated thereunder (including Rule 416), such
      indeterminate number of additional shares of Common Stock resulting from stock
      splits, stock dividends or similar transactions with respect to the Additional
      Shares. Such Registration Statement shall not include any shares of Common
      Stock
      or other securities for the account of any other holder without the prior
      written consent of the Required Investors. The Registration Statement (and
      each
      amendment or supplement thereto, and each request for acceleration of
      effectiveness thereof) shall be provided in accordance with Section 3(c) to
      the
      Investors and their counsel prior to its filing or other submission. Subject
      to
      the provisions of Section 2(d), if a Registration Statement covering the
      Additional Shares is required to be filed under this Section 2(a)(ii) and is
      not
      filed with the SEC within 45 days of the request of any Investor or upon the
      occurrence of any of the events specified in this Section 2(a)(ii), the Company
      will make pro rata payments to each Investor, as liquidated damages and not
      as a
      penalty, in an amount equal to 1.0% of the aggregate amount invested by such
      Investor for each 30-day period or pro rata for any portion thereof following
      the date by which such Registration Statement should have been filed for which
      no Registration Statement is filed with respect to the Additional Shares. Such
      payments shall constitute the Investors’ exclusive monetary remedy for such
      events, but shall not affect the right of the Investors to seek injunctive
      relief. Such payments shall be made to each Investor in cash.

     

    (iii) S-3
      Qualification.
      Subject
      to the provisions of Section 2(d), promptly following the date (the
“Qualification Date”) upon which the Company becomes eligible to use a
      registration statement on Form S-3 to register the Registrable Securities or
      Additional Shares, as applicable, for resale, but in no event more than 45
      days
      after the Qualification Date (the “Qualification Deadline”), the Company shall
      file a registration statement on Form S-3 covering the Registrable Securities
      or
      Additional Shares, as applicable (or a post-effective amendment on Form S-3
      to
      the registration statement on Form SB-2) (a “Shelf Registration Statement”) and
      shall use commercially reasonable efforts to cause such Shelf Registration
      Statement to be declared effective as promptly as practicable thereafter.
      Subject to the provisions of Section 2(d), if a Shelf Registration Statement
      covering the Registrable Securities is not filed with the SEC on or prior to
      the
      Qualification Deadline, the Company will make pro rata payments to each
      Investor, as liquidated damages and not as a penalty, in an amount equal to
      1.0%
      of the aggregate purchase price paid by such Investor pursuant to the Purchase
      Agreement attributable to those Registrable Securities that remain unsold at
      that time for each 30-day period or pro rata for any portion thereof following
      the date by which such Shelf Registration Statement should have been filed
      for
      which no such Shelf Registration Statement is filed with respect to the
      Registrable Securities or Additional Shares, as applicable. Such payments shall
      constitute the Investors’ exclusive monetary remedy for such events, but shall
      not affect the right of the Investors to seek injunctive relief. Such payments
      shall be made to each Investor in cash.

     

    
      
        
        

      

      
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    (b)  Expenses.
      The
      Company will pay all expenses associated with each registration, including
      filing and printing fees, the Company’s counsel and accounting fees and
      expenses, costs associated with clearing the Registrable Securities for sale
      under applicable state securities laws, listing fees, fees and expenses of
      one
      counsel to the Investors and the Investors’ reasonable expenses in connection
      with the registration, but excluding discounts, commissions, fees of
      underwriters, selling brokers, dealer managers or similar securities industry
      professionals with respect to the Registrable Securities being
      sold.

     

    (c)  Effectiveness.

     

    (i) The
      Company shall use commercially reasonable efforts to have the Registration
      Statement declared effective as soon as practicable after filing. The Company
      shall notify the Investors by facsimile or e-mail as promptly as practicable,
      and in any event, within twenty-four (24) hours, after any Registration
      Statement is declared effective and shall simultaneously provide the Investors
      with copies of any related Prospectus to be used in connection with the sale
      or
      other disposition of the securities covered thereby. Subject to the provisions
      of Section 2(d), if (A)(x) a Registration Statement covering the Registrable
      Securities is not declared effective by the SEC prior to the earlier of (i)
      five
      (5) Business Days after the SEC shall have informed the Company that no review
      of the Registration Statement will be made or that the SEC has no further
      comments on the Registration Statement or (ii) the 115th
      day
      after the Closing Date (the 135th
      day if
      the SEC reviews the Registration Statement), (y) a Registration Statement
      covering Additional Shares is not declared effective by the SEC within 115
      days
      following the time such Registration Statement was required to be filed pursuant
      to Section 2(a)(ii) (135 days if the SEC reviews the Registration Statement)
      or
      (z) a Shelf Registration Statement is not declared effective by the SEC within
      115 days after the Qualification Deadline (135 days if the SEC reviews the
      Registration Statement), or
      (B)
      after a Registration Statement has been declared effective by the SEC, sales
      cannot be made pursuant to such Registration Statement for any reason (including
      without limitation by reason of a stop order, or the Company’s failure to update
      the Registration Statement), but excluding the inability of any Investor to
      sell
      the Registrable Securities covered thereby due to market conditions and except
      as excused pursuant to subparagraph (ii) below, then
      the
      Company will make pro rata payments to each Investor, as liquidated damages
      and
      not as a penalty, in an amount equal to 1.0% of the aggregate amount invested
      by
      such Investor for each 30-day period or pro rata for any portion thereof
      following the date by which such Registration Statement should have been
      effective (the “Blackout Period”). Such payments shall constitute the Investors’
exclusive monetary remedy for such events, but shall not affect the right of
      the
      Investors to seek injunctive relief. The amounts payable as liquidated damages
      pursuant to this paragraph shall be paid monthly within three (3) Business
      Days
      of the last day of each month following the commencement of the Blackout Period
      until the termination of the Blackout Period. Such payments shall be made to
      each Investor in cash.

     

    (ii) For
      not
      more than twenty (20) consecutive days or for a total of not more than
      forty-five (45) days in any twelve (12) month period, the Company may delay
      the
      disclosure of material non-public information concerning the Company, by
      suspending the use of any Prospectus included in any registration contemplated
      by this Section containing such information, the disclosure of which at the
      time
      is not, in the good faith opinion of the Company, in the best interests of
      the
      Company (an “Allowed Delay”); provided, that the Company shall promptly (a)
      notify the Investors in writing of the existence of (but in no event, without
      the prior written consent of an Investor, shall the Company disclose to such
      Investor any of the facts or circumstances regarding) material non-public
      information giving rise to an Allowed Delay, (b) advise the Investors in writing
      to cease all sales under the Registration Statement until the end of the Allowed
      Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay
      as promptly as practicable.

     

    
      
        
        

      

      
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    (d) Rule
      415; Cutbacks.
      Notwithstanding the other provisions of this Section 2, if at any time the
      SEC
      takes the position that the offering of some or all of the Registrable
      Securities in a Registration Statement is not eligible to be made on a delayed
      or continuous basis under the provisions of Rule 415 under the 1933 Act, the
      Company shall (i) remove from the Registration Statement such portion of the
      Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such
      restrictions and limitations on the registration and resale of the Registrable
      Securities as the SEC may require to assure the Company’s compliance with the
      requirements of Rule 415 (collectively, the “SEC Restrictions”). Any cut-back
      imposed pursuant to this Section 2(d) shall be allocated among the Investors
      on
      a pro rata basis and shall be allocated first to any Warrant Shares, unless
      the
      SEC Restrictions otherwise require. No liquidated damages shall accrue on any
      Cut Back Shares until such time as the Company is able to effect the
      registration of the Cut Back Shares in accordance with any SEC Restrictions
      (such date, the “Restriction Termination Date”). From and after the Restriction
      Termination Date, all of the provisions of this Section 2 (including the
      liquidated damages provisions) shall again be applicable to the Cut Back Shares;
      provided, however, that for such purposes the Closing Date shall be deemed
      to be
      the Restriction Termination Date.

    

    3. Company
      Obligations.
      The
      Company will use commercially reasonable efforts to effect the registration
      of
      the Registrable Securities in accordance with the terms hereof, and pursuant
      thereto the Company will, as expeditiously as possible:

     

    (a)  use
      commercially reasonable efforts to cause such Registration Statement to become
      effective and to remain continuously effective for a period that will terminate
      upon the earlier of (i) the date on which all Registrable Securities covered
      by
      such Registration Statement as amended from time to time, have been sold, and
      (ii) the date on which all Registrable Securities covered by such Registration
      Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and
      advise the Investors in writing when the Effectiveness Period has
      expired;

     

    (b)  prepare
      and file with the SEC such amendments and post-effective amendments to the
      Registration Statement and the Prospectus as may be necessary to keep the
      Registration Statement effective for the Effectiveness Period and to comply
      with
      the provisions of the 1933 Act and the 1934 Act with respect to the distribution
      of all of the Registrable Securities covered thereby;

    
      
        
        

      

      
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    (c)  provide
      copies to and permit counsel designated by the Investors to review each
      Registration Statement and all amendments and supplements thereto no fewer
      than
      three (3) Business Days prior to their filing with the SEC and not file any
      document to which such counsel reasonably objects;

     

    (d)  furnish
      to the Investors and their legal counsel (i) promptly after the same is prepared
      and publicly distributed, filed with the SEC, or received by the Company (but
      not later than two (2) Business Days after the filing date, receipt date or
      sending date, as the case may be) one (1) copy of any Registration Statement
      and
      any amendment thereto, each preliminary prospectus and Prospectus and each
      amendment or supplement thereto, and each letter written by or on behalf of
      the
      Company to the SEC or the staff of the SEC, and each item of correspondence
      from
      the SEC or the staff of the SEC, in each case relating to such Registration
      Statement (other than any portion of any thereof which contains information
      for
      which the Company has sought confidential treatment), and (ii) such number
      of
      copies of a Prospectus, including a preliminary prospectus, and all amendments
      and supplements thereto and such other documents as each Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor that are covered by the related Registration
      Statement;

     

    (e)  use
      commercially reasonable efforts to (i) prevent the issuance of any stop order
      or
      other suspension of effectiveness and, (ii) if such order is issued, obtain
      the
      withdrawal of any such order at the earliest possible moment;

     

    (f)  prior
      to
      any public offering of Registrable Securities, use commercially reasonable
      efforts to register or qualify or cooperate with the Investors and their counsel
      in connection with the registration or qualification of such Registrable
      Securities for offer and sale under the securities or blue sky laws of such
      domestic jurisdictions requested by the Investors and do any and all other
      commercially reasonable acts or things necessary or advisable to enable the
      distribution in such jurisdictions of the Registrable Securities covered by
      the
      Registration Statement; provided,
      however, that the Company shall not be required in connection therewith or
      as a
      condition thereto to (i) qualify to do business in any jurisdiction where it
      would not otherwise be required to qualify but for this Section 3(f), (ii)
      subject itself to general taxation in any jurisdiction where it would not
      otherwise be so subject but for this Section 3(f), or (iii) file a general
      consent to service of process in any such jurisdiction;

     

    (g)  use
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Company are then listed;

     

    (h)  immediately
      notify the Investors, at any time prior to the end of the Effectiveness Period,
      upon discovery that, or upon the happening of any event as a result of which,
      the Prospectus includes an untrue statement of a material fact or omits to
      state
      any material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then existing,
      and promptly prepare, file with the SEC and furnish to such holder a supplement
      to or an amendment of such Prospectus as may be necessary so that such
      Prospectus shall not include an untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then existing;
      and

    
      
        
        

      

      
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    (i)  otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the 1933 Act and the 1934 Act, including, without
      limitation, Rule 172 under the 1933 Act, file any final Prospectus, including
      any supplement or amendment thereof, with the SEC pursuant to Rule 424 under
      the
      1933 Act, promptly inform the Investors in writing if, at any time during the
      Effectiveness Period, the Company does not satisfy the conditions specified
      in
      Rule 172 and, as a result thereof, the Investors are required to deliver a
      Prospectus in connection with any disposition of Registrable Securities and
      take
      such other actions as may be reasonably necessary to facilitate the registration
      of the Registrable Securities hereunder; and make available to its security
      holders, as soon as reasonably practicable, but not later than the Availability
      Date (as defined below), an earnings statement covering a period of at least
      twelve (12) months, beginning after the effective date of each Registration
      Statement, which earnings statement shall satisfy the provisions of Section
      11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the
      purpose of this subsection 3(i), “Availability Date” means the 45th day
      following the end of the fourth fiscal quarter that includes the effective
      date
      of such Registration Statement, except that, if such fourth fiscal quarter
      is
      the last quarter of the Company’s fiscal year, “Availability Date” means the
      90th day after the end of such fourth fiscal quarter).

     

    (j)  With
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell shares of Common Stock to the public without
      registration, the Company covenants and agrees to: (i) make and keep public
      information available, as those terms are understood and defined in Rule 144,
      until the earlier of (A) six months after such date as all of the Registrable
      Securities may be resold pursuant to Rule 144(k) or any other rule of similar
      effect or (B) such date as all of the Registrable Securities shall have been
      resold; (ii) file with the SEC in a timely manner all reports and other
      documents required of the Company under the 1934 Act; and (iii) furnish to
      each
      Investor upon request, as long as such Investor owns any Registrable Securities,
      (A) a written statement by the Company that it has complied with the reporting
      requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual
      Report on Form 10-KSB or Quarterly Report on Form 10-QSB, and (C) such other
      information as may be reasonably requested in order to avail such Investor
      of
      any rule or regulation of the SEC that permits the selling of any such
      Registrable Securities without registration.

    

    4. Due
      Diligence Review; Information.
      The
      Company shall make available, during normal business hours, for inspection
      and
      review by the Investors, advisors to and representatives of the Investors (who
      may or may not be affiliated with the Investors and who are reasonably
      acceptable to the Company), all financial and other records, all SEC Filings
      (as
      defined in the Purchase Agreement) and other filings with the SEC, and all
      other
      corporate documents and properties of the Company as may be reasonably necessary
      for the purpose of such review, and cause the Company’s officers, directors and
      employees, within a reasonable time period, to supply all such information
      reasonably requested by the Investors or any such representative, advisor or
      underwriter in connection with such Registration Statement (including, without
      limitation, in response to all questions and other inquiries reasonably made
      or
      submitted by any of them), prior to and from time to time after the filing
      and
      effectiveness of the Registration Statement for the sole purpose of enabling
      the
      Investors and such representatives, advisors and underwriters and their
      respective accountants and attorneys to conduct initial and ongoing due
      diligence with respect to the Company and the accuracy of such Registration
      Statement.

    
      
        
        

      

      
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    The
      Company shall not disclose material nonpublic information to the Investors,
      or
      to advisors to or representatives of the Investors, unless prior to disclosure
      of such information the Company identifies such information as being material
      nonpublic information and provides the Investors, such advisors and
      representatives with the opportunity to accept or refuse to accept such material
      nonpublic information for review and any Investor wishing to obtain such
      information enters into an appropriate confidentiality agreement with the
      Company with respect thereto.

     

    5. Obligations
      of the Investors.

     

    (a)  Each
      Investor shall furnish in writing to the Company such information regarding
      itself, the Registrable Securities held by it and the intended method of
      disposition of the Registrable Securities held by it, as shall be reasonably
      required to effect the registration of such Registrable Securities and shall
      execute such documents in connection with such registration as the Company
      may
      reasonably request. At least five (5) Business Days prior to the first
      anticipated filing date of any Registration Statement, the Company shall notify
      each Investor of the information the Company requires from such Investor if
      such
      Investor elects to have any of the Registrable Securities included in the
      Registration Statement. An Investor shall provide such information to the
      Company at least three (3) Business Days prior to the first anticipated filing
      date of such Registration Statement if such Investor elects to have any of
      the
      Registrable Securities included in the Registration Statement.

     

    (b)  Each
      Investor, by its acceptance of the Registrable Securities agrees to cooperate
      with the Company as reasonably requested by the Company in connection with
      the
      preparation and filing of a Registration Statement hereunder, unless such
      Investor has notified the Company in writing of its election to exclude all
      of
      its Registrable Securities from such Registration Statement.

     

    (c)  Each
      Investor agrees that, upon receipt of any notice from the Company of either
      (i)
      the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
      happening of an event pursuant to Section 3(h) hereof, such Investor will
      immediately discontinue disposition of Registrable Securities pursuant to the
      Registration Statement covering such Registrable Securities, until the Investor
      is advised by the Company that such dispositions may again be made.

     

    (d)  The
      Company shall have no obligation to make liquidated damages payments under
      this
      Agreement to any Investor that is in breach of these obligations.

     

    6. Indemnification.

     

    (a)  Indemnification
      by the Company.
      To the
      extent permitted by law, the Company will indemnify and hold harmless each
      Investor and its officers, directors, members, employees and agents, successors
      and assigns, and each other person, if any, who controls such Investor within
      the meaning of the 1933 Act, against any losses, claims, damages or liabilities,
      joint or several, to which they may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon: (i) any untrue statement or
      alleged untrue statement of any material fact contained in any Registration
      Statement, any preliminary Prospectus or final Prospectus, or any amendment
      or
      supplement thereof; (ii) any blue sky application or other document executed
      by
      the Company specifically for that purpose or based upon written information
      furnished by the Company filed in any state or other jurisdiction in order
      to
      qualify any or all of the Registrable Securities under the securities laws
      thereof (any such application, document or information herein called a
“Blue
      Sky
      Application”);
      (iii)
      the omission or alleged omission to state therein a material fact required
      to be
      stated therein or necessary to make the statements therein not misleading;
      (iv)
      any violation by the Company or its agents of any rule or regulation promulgated
      under the 1933 Act applicable to the Company or its agents and relating to
      action or inaction required of the Company in connection with such registration;
      or (v) any failure to register or qualify the Registrable Securities included
      in
      any such Registration in any state where the Company or its agents has
      affirmatively undertaken or agreed in writing that the Company will undertake
      such registration or qualification on an Investor’s behalf pursuant to an
      Investor’s affirmative request under Section 3(f) hereof and will reimburse such
      Investor, and each such officer, director or member and each such controlling
      person for any legal or other expenses reasonably incurred by them in connection
      with investigating or defending any such loss, claim, damage, liability or
      action; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished by such Investor or any such controlling
      person in writing specifically for use in such Registration Statement or
      Prospectus.

    
      
        
        

      

      
        -8-

        
          

        

      

       

    

     

    (b)  Indemnification
      by the Investors.
      To the
      extent permitted by law, each Investor shall, severally but not jointly,
      indemnify and hold harmless the Company, its directors, officers, employees,
      stockholders and each person who controls the Company (within the meaning of
      the
      1933 Act) against any losses, claims, damages, liabilities and expense
      (including reasonable attorney fees) resulting from any untrue statement of
      a
      material fact or any omission of a material fact required to be stated in the
      Registration Statement or Prospectus or preliminary Prospectus or amendment
      or
      supplement thereto or necessary to make the statements therein not misleading,
      to the extent, but only to the extent that such untrue statement or omission
      is
      contained in any information furnished in writing by such Investor to the
      Company specifically for inclusion in such Registration Statement or Prospectus
      or amendment or supplement thereto. In no event shall the liability of an
      Investor be greater in amount than the dollar amount of the proceeds (net of
      all
      expense paid by such Investor in connection with any claim relating to this
      Section 6 and the amount of any damages such Investor has otherwise been
      required to pay by reason of such untrue statement or omission) received by
      such
      Investor upon the sale of the Registrable Securities included in the
      Registration Statement giving rise to such indemnification
      obligation.

     

    (c)  Conduct
      of Indemnification Proceedings.
      Any
      person entitled to indemnification hereunder shall (i) give prompt notice to
      the
      indemnifying party of any claim with respect to which it seeks indemnification
      and (ii) permit such indemnifying party to assume the defense of such claim
      with
      counsel reasonably satisfactory to the indemnified party; provided
      that any
      person entitled to indemnification hereunder shall have the right to employ
      separate counsel and to participate in the defense of such claim, but the fees
      and expenses of such counsel shall be at the expense of such person unless
      (a)
      the indemnifying party has agreed to pay such fees or expenses, or (b) the
      indemnifying party shall have failed to assume the defense of such claim and
      employ counsel reasonably satisfactory to such person or (c) in the reasonable
      judgment of any such person, based upon written advice of its counsel, a
      conflict of interest exists between such person and the indemnifying party
      with
      respect to such claims (in which case, if the person notifies the indemnifying
      party in writing that such person elects to employ separate counsel at the
      expense of the indemnifying party, the indemnifying party shall not have the
      right to assume the defense of such claim on behalf of such person); and
provided,
      further,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations hereunder, except to the
      extent that such failure to give notice shall materially adversely affect the
      indemnifying party in the defense of any such claim or litigation. It is
      understood that the indemnifying party shall not, in connection with any
      proceeding in the same jurisdiction, be liable for fees or expenses of more
      than
      one separate firm of attorneys at any time for all such indemnified parties.
      No
      indemnifying party will, except with the consent of the indemnified party,
      consent to entry of any judgment or enter into any settlement that does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect of such
      claim or litigation.

     

    
      
        
        

      

      
        -9-

        
          

        

      

       

    

     

    (d)  Contribution.
      If for
      any reason the indemnification provided for in the preceding paragraphs (a)
      and
      (b) is unavailable to an indemnified party or insufficient to hold it harmless,
      other than as expressly specified therein, then the indemnifying party shall
      contribute to the amount paid or payable by the indemnified party as a result
      of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative fault of the indemnified party and the indemnifying party,
      as well as any other relevant equitable considerations. No person guilty of
      fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
      Act
      shall be entitled to contribution from any person not guilty of such fraudulent
      misrepresentation. In no event shall the contribution obligation of a holder
      of
      Registrable Securities be greater in amount than the dollar amount of the
      proceeds (net of all expenses paid by such holder in connection with any claim
      relating to this Section 6 and the amount of any damages such holder has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission) received by it upon the sale of
      the
      Registrable Securities giving rise to such contribution obligation.

     

    7. Miscellaneous.

     

    (a)  Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by the Company and the
      Required Investors. The Company may take any action herein prohibited, or omit
      to perform any act herein required to be performed by it, only if the Company
      shall have obtained the written consent to such amendment, action or omission
      to
      act, of the Required Investors.

     

    (b)  Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made as set forth in Section 9.4 of the Purchase Agreement.

     

    
      
        
        

      

      
        -10-

        
          

        

      

       

    

     

    (c)  Assignments
      and Transfers by Investors.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Investors and their respective successors and assigns. An Investor may
      transfer or assign, in whole or from time to time in part, to one or more
      persons its rights hereunder in connection with the transfer of Registrable
      Securities by such Investor to such person, provided that such Investor complies
      with all laws applicable thereto and provides written notice of assignment
      to
      the Company promptly after such assignment is effected.

     

    (d)  Assignments
      and Transfers by the Company.
      This
      Agreement may not be assigned by the Company (whether by operation of law or
      otherwise) without the prior written consent of the Required Investors,
      provided, however, that the Company may assign its rights and delegate its
      duties hereunder to any surviving or successor corporation in connection with
      a
      merger or consolidation of the Company with another corporation, or a sale,
      transfer or other disposition of all or substantially all of the Company’s
      assets to another corporation, without the prior written consent of the Required
      Investors, after notice duly given by the Company to each Investor.

     

    (e)  Benefits
      of the Agreement.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

    (f)  Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    (g)  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    (h)  Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provisions hereof prohibited or unenforceable in any
      respect.

     

    (i)  Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    
      
        
        

      

      
        -11-

        
          

        

      

       

    

     

    (j)  Entire
      Agreement.
      This
      Agreement is intended by the parties as a final expression of their agreement
      and intended to be a complete and exclusive statement of the agreement and
      understanding of the parties hereto in respect of the subject matter contained
      herein. This Agreement supersedes all prior agreements and understandings
      between the parties with respect to such subject matter.

     

    (k)  Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

    
      
        
        

      

      
        -12-

        
          

        

      

       

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

    
      	 	 	 
	The
              Company:	PRECISION
              OPTICS
              CORPORATION, INC.
	 
 	 
 	 
 
	
            	By:  	/s/
              Richard E. Forkey
	 	
              
                

              

              Name:
                Richard E. Forkey

              Title:
                President, Chief Executive Officer and
                Treasurer

            

    

        

    
      
        
        

      

      
        -13-

        
          

        

      

       

    

     

    
      	 	 	 
	The
              Investors:	SPECIAL
              SITUATIONS FUND III QP, L.P.
	 
 	 
 	 
 
	
            	By:  	/s/
              David M. Greenhouse
	 	
              
                

              

              Name:
                David M. Greenhouse

              Title:
                General Partner

            

      	 	 	 
	 	 	 
	
            	
              SPECIAL
                SITUATIONS PRIVATE EQUITY FUND, L.P.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              David M. Greenhouse
	 	
              
                

              

              Name:
                David M. Greenhouse

              Title:
                General Partner

            

      	 	 	 
	 	 	 
	
            	
              
                LAPLACE
                  GROUP LLC

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Reuven Dessler
	 	
              
                

              

              Name:
                Reuven Dessler

              Title:
                Managing Member

            

      	 	 	 
	 	 	 
	
            	
            	/s/
              Joel Pitlor
	 	
              
                
Joel
                Pitlor

            

    

    
      	 	 	 
	 	 	 
	
            	
            	/s/
              Arnold Schumsky
	 	
              
                
Arnold
                Schumsky

            

    

    
      
        
        

      

      
        -14-

        
          

        

      

       

    

    Exhibit
      A

    

    Plan
      of Distribution

    

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

     

    
      The
        selling stockholders may use any one or more of the following methods when
        disposing of shares or interests therein:

    

    

    · ordinary
      brokerage transactions and
      transactions in which the broker-dealer solicits purchasers;

    

    · block
      trades in which the
      broker-dealer will attempt to sell the shares as agent, but may position and
      resell a portion of the block as principal to facilitate the
      transaction;

    

    · purchases
      by a broker-dealer as
      principal and resale by the broker-dealer for its account;

    

    · an
      exchange distribution in accordance
      with the rules of the applicable exchange;

    

    · privately
      negotiated
      transactions;

    

    · short
      sales effected after the date
      the registration statement of which this Prospectus is a part is declared
      effective by the SEC;

    

    · through
      the writing or settlement of
      options or other hedging transactions, whether through an options exchange
      or
      otherwise;

    

    · broker-dealers
      may agree with the
      selling stockholders to sell a specified number of such shares at a stipulated
      price per share; and

    

    · a
      combination of any such methods of
      sale.

    

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus. The selling stockholders also
      may
      transfer the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

    
      
        
        

      

      
        -15-

        
          

        

      

       

    

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

    

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided that they meet the criteria and conform to the requirements of that
      rule.

    

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act.

    

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

    

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    
      
        
        

      

      
        -16-

        
          

        

      

       

    

     

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, to
      the
      extent applicable we will make copies of this prospectus (as it may be
      supplemented or amended from time to time) available to the selling stockholders
      for the purpose of satisfying the prospectus delivery requirements of the
      Securities Act. The selling stockholders may indemnify any broker-dealer that
      participates in transactions involving the sale of the shares against certain
      liabilities, including liabilities arising under the Securities
      Act.

    

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

    

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold pursuant to Rule 144(k) of the Securities
      Act.

    
      
        
        

      

      
        -17-THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE TRANSFERRED UNLESS (I) SUCH
      SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE ACT, (II) SUCH
      SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III) THE COMPANY HAS
      RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER
      MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933
      OR
      QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

    

    SUBJECT
      TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00
      P.M. EASTERN TIME ON [FIFTH ANNIVERSARY OF THE CLOSING DATE] (THE “EXPIRATION
      DATE”).

    

    No.
      __________

     

    PRECISION
      OPTICS CORPORATION, INC.

    

    WARRANT
      TO PURCHASE _______ SHARES OF

    COMMON
      STOCK, PAR VALUE $0.01 PER SHARE

    

    For
      VALUE
      RECEIVED, ____________________ (“Warrantholder”), is entitled to purchase,
      subject to the provisions of this Warrant, from Precision Optics Corporation,
      Inc., a Massachusetts corporation (“Company”), at any time not later than 5:00
      P.M., Eastern time, on the Expiration Date (as defined above), at an exercise
      price per share equal to $0.32 (the exercise price in effect being herein called
      the “Warrant Price”), ______ shares (“Warrant Shares”) of the Company’s Common
      Stock, par value $0.01 per share (“Common Stock”). The number of Warrant Shares
      purchasable upon exercise of this Warrant and the Warrant Price shall be subject
      to adjustment from time to time as described herein.

    

    Section
      1. Registration.
      The
      Company shall maintain books for the transfer and registration of the Warrant.
      Upon the initial issuance of this Warrant, the Company shall issue and register
      the Warrant in the name of the Warrantholder.

    

    Section
      2. Transfers.
      As
      provided herein, this Warrant may be transferred only pursuant to a registration
      statement filed under the Securities Act of 1933, as amended (the “Securities
      Act”), or an exemption from such registration. Subject to such restrictions, the
      Company shall transfer this Warrant from time to time upon the books to be
      maintained by the Company for that purpose, upon surrender hereof for transfer,
      properly endorsed or accompanied by appropriate instructions for transfer and
      such other documents as may be reasonably required by the Company, including,
      if
      required by the Company, an opinion of its counsel reasonably satisfactory
      to
      the Company to the effect that such transfer is exempt from the registration
      requirements of the Securities Act, to establish that such transfer is being
      made in accordance with the terms hereof, and a new Warrant shall be issued
      to
      the transferee and the surrendered Warrant shall be canceled by the
      Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Section
      3. Exercise
      of Warrant.
      Subject
      to the provisions hereof, the Warrantholder may exercise this Warrant, in whole
      or in part, at any time prior to its expiration upon surrender of the Warrant,
      together with delivery of a duly executed Warrant exercise form, in the form
      attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash,
      certified check or wire transfer of funds (or
      by
      cashless exercise as provided below) of
      the
      aggregate Warrant Price for that number of Warrant Shares then being purchased,
      to the Company during normal business hours on any business day at the Company’s
      principal executive offices (or such other office or agency of the Company
      as it
      may designate by notice to the Warrantholder). The Warrant Shares so purchased
      shall be deemed to be issued to the Warrantholder or the Warrantholder’s
      designee, as the record owner of such shares, as of the close of business on
      the
      date on which this Warrant shall have been surrendered (or the date evidence
      of
      loss, theft or destruction thereof and security or indemnity satisfactory to
      the
      Company has been provided to the Company), the Warrant Price shall have been
      paid and the completed Exercise Agreement shall have been delivered.
      Certificates for the Warrant Shares so purchased shall be delivered to the
      Warrantholder within a reasonable time, not exceeding three (3) business days,
      after this Warrant shall have been so exercised. The certificates so delivered
      shall be in such denominations as may be requested by the Warrantholder and
      shall be registered in the name of the Warrantholder or such other name as
      shall
      be designated by the Warrantholder, as specified in the Exercise Agreement.
      If
      this Warrant shall have been exercised only in part, then, unless this Warrant
      has expired, the Company shall, at its expense, at the time of delivery of
      such
      certificates, deliver to the Warrantholder a new Warrant representing the right
      to purchase the number of shares with respect to which this Warrant shall not
      then have been exercised. As used herein, “business day” means a day, other than
      a Saturday or Sunday, on which banks in New York City are open for the general
      transaction of business. Each exercise hereof shall constitute the
      re-affirmation by the Warrantholder that the representations and warranties
      contained in Section 5 of the Purchase Agreement (as defined below) are true
      and
      correct in all material respects with respect to the Warrantholder as of the
      time of such exercise.

    

    Section
      4. Compliance
      with the Securities Act of 1933.
      Except
      as provided in the Purchase Agreement (as defined below), the Company may cause
      the legend set forth on the first page of this Warrant to be set forth on each
      Warrant, and a similar legend on any security issued or issuable upon exercise
      of this Warrant, unless counsel for the Company is of the opinion as to any
      such
      security that such legend is unnecessary.

    

    Section
      5. Payment
      of Taxes.
      The
      Company will pay any documentary stamp taxes attributable to the initial
      issuance of Warrant Shares issuable upon the exercise of the Warrant; provided,
      however, that the Company shall not be required to pay any tax or taxes which
      may be payable in respect of any transfer involved in the issuance or delivery
      of any certificates for Warrant Shares in a name other than that of the
      Warrantholder in respect of which such shares are issued, and in such case,
      the
      Company shall not be required to issue or deliver any certificate for Warrant
      Shares or any Warrant until the person requesting the same has paid to the
      Company the amount of such tax or has established to the Company’s reasonable
      satisfaction that such tax has been paid. The Warrantholder shall be responsible
      for income taxes due under federal, state or other law, if any such tax is
      due.

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    

    Section
      6. Mutilated
      or Missing Warrants.
      In case
      this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall
      issue in exchange and substitution of and upon surrender and cancellation of
      the
      mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen
      or destroyed, a new Warrant of like tenor and for the purchase of a like number
      of Warrant Shares, but only upon receipt of evidence reasonably satisfactory
      to
      the Company of such loss, theft or destruction of the Warrant, and with respect
      to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with
      respect thereto, if requested by the Company.

    

    Section
      7. Reservation
      of Common Stock.
      The
      Company hereby represents and warrants that there have been reserved, and the
      Company shall at all applicable times keep reserved until issued (if necessary)
      as contemplated by this Section 7, out of the authorized and unissued shares
      of
      Common Stock, sufficient shares to provide for the exercise of the rights of
      purchase represented by this Warrant. The Company agrees that all Warrant Shares
      issued upon due exercise of the Warrant shall be, at the time of delivery of
      the
      certificates for such Warrant Shares, duly authorized, validly issued, fully
      paid and non-assessable shares of Common Stock of the Company.

    

    Section
      8. Adjustments.
      Subject
      and pursuant to the provisions of this Section 8, the Warrant Price and number
      of Warrant Shares subject to this Warrant shall be subject to adjustment from
      time to time as set forth hereinafter.

    

    (a) If
      the
      Company shall, at any time or from time to time while this Warrant is
      outstanding, pay a dividend or make a distribution on its Common Stock in shares
      of Common Stock, subdivide its outstanding shares of Common Stock into a greater
      number of shares or combine its outstanding shares of Common Stock into a
      smaller number of shares or issue by reclassification of its outstanding shares
      of Common Stock any shares of its capital stock (including any such
      reclassification in connection with a consolidation or merger in which the
      Company is the continuing corporation), then (i) the Warrant Price in effect
      immediately prior to the date on which such change shall become effective shall
      be adjusted by multiplying such Warrant Price by a fraction, the numerator
      of
      which shall be the number of shares of Common Stock outstanding immediately
      prior to such change and the denominator of which shall be the number of shares
      of Common Stock outstanding immediately after giving effect to such change
      and
      (ii) the number of Warrant Shares purchasable upon exercise of this Warrant
      shall be adjusted by multiplying the number of Warrant Shares purchasable upon
      exercise of this Warrant immediately prior to the date on which such change
      shall become effective by a fraction, the numerator of which is shall be the
      Warrant Price in effect immediately prior to the date on which such change
      shall
      become effective and the denominator of which shall be the Warrant Price in
      effect immediately after giving effect to such change, calculated in accordance
      with clause (i) above. Such adjustments shall be made successively whenever
      any
      event listed above shall occur.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    

    (b) If
      any
      capital reorganization, reclassification of the capital stock of the Company,
      consolidation or merger of the Company with another corporation in which the
      Company is not the survivor, or sale, transfer or other disposition of all
      or
      substantially all of the Company’s assets to another corporation shall be
      effected, then, as a condition of such reorganization, reclassification,
      consolidation, merger, sale, transfer or other disposition, lawful and adequate
      provision shall be made whereby each Warrantholder shall thereafter have the
      right to purchase and receive upon the basis and upon the terms and conditions
      herein specified and in lieu of the Warrant Shares immediately theretofore
      issuable upon exercise of the Warrant, such shares of stock, securities or
      assets as would have been issuable or payable with respect to or in exchange
      for
      a number of Warrant Shares equal to the number of Warrant Shares immediately
      theretofore issuable upon exercise of the Warrant, had such reorganization,
      reclassification, consolidation, merger, sale, transfer or other disposition
      not
      taken place, and in any such case appropriate provision shall be made with
      respect to the rights and interests of each Warrantholder to the end that the
      provisions hereof (including, without limitation, provision for adjustment
      of
      the Warrant Price) shall thereafter be applicable, as nearly equivalent as
      may
      be practicable in relation to any shares of stock, securities or assets
      thereafter deliverable upon the exercise hereof. The Company shall not effect
      any such consolidation, merger, sale, transfer or other disposition unless
      prior
      to or simultaneously with the consummation thereof the successor corporation
      (if
      other than the Company) resulting from such consolidation or merger, or the
      corporation purchasing or otherwise acquiring such assets or other appropriate
      corporation or entity shall assume the obligation to deliver to the
      Warrantholder, at the last address of the Warrantholder appearing on the books
      of the Company, such shares of stock, securities or assets as, in accordance
      with the foregoing provisions, the Warrantholder may be entitled to purchase,
      and the other obligations under this Warrant. The provisions of this paragraph
      (b) shall similarly apply to successive reorganizations, reclassifications,
      consolidations, mergers, sales, transfers or other dispositions.

    

    (c) In
      case
      the Company shall fix a payment date for the making of a distribution to all
      holders of Common Stock (including any such distribution made in connection
      with
      a consolidation or merger in which the Company is the continuing corporation)
      of
      evidences of indebtedness or assets (other than cash dividends or cash
      distributions payable out of consolidated earnings or earned surplus or
      dividends or distributions referred to in Section 8(a)), or subscription rights
      or warrants, the Warrant Price to be in effect after such payment date shall
      be
      determined by multiplying the Warrant Price in effect immediately prior to
      such
      payment date by a fraction, the numerator of which shall be the total number
      of
      shares of Common Stock outstanding multiplied by the Market Price (as defined
      below) per share of Common Stock immediately prior to such payment date, less
      the fair market value (as determined by the Company’s Board of Directors in good
      faith) of said assets or evidences of indebtedness so distributed, or of such
      subscription rights or warrants, and the denominator of which shall be the
      total
      number of shares of Common Stock outstanding multiplied by such Market Price
      per
      share of Common Stock immediately prior to such payment date. “Market Price” as
      of a particular date (the “Valuation Date”) shall mean the following: (a) if the
      Common Stock is then listed on a national stock exchange, the closing sale
      price
      of one share of Common Stock on such exchange on the last trading day prior
      to
      the Valuation Date; (b) if the Common Stock is then quoted on the National
      Association of Securities Dealers, Inc. OTC Bulletin Board (the “Bulletin
      Board”) or such similar quotation system or association, the closing sale price
      of one share of Common Stock on the Bulletin Board or such other quotation
      system or association on the last trading day prior to the Valuation Date or,
      if
      no such closing sale price is available, the average of the high bid and the
      low
      asked price quoted thereon on the last trading day prior to the Valuation Date;
      or (c) if the Common Stock is not then listed on a national stock exchange
      or
      quoted on the Bulletin Board or such other quotation system or association,
      the
      fair market value of one share of Common Stock as of the Valuation Date, as
      determined in good faith by the Board of Directors of the Company and the
      Warrantholder. If the Common Stock is not then listed on a national securities
      exchange, the Bulletin Board or such other quotation system or association,
      the
      Board of Directors of the Company shall respond promptly, in writing, to an
      inquiry by the Warrantholder prior to the exercise hereunder as to the fair
      market value of a share of Common Stock as determined by the Board of Directors
      of the Company. In the event that the Board of Directors of the Company and
      the
      Warrantholder are unable to agree upon the fair market value in respect of
      subpart (c) of this paragraph, the Company and the Warrantholder shall jointly
      select an appraiser, who is experienced in such matters. The decision of such
      appraiser shall be final and conclusive, and the cost of such appraiser shall
      be
      borne equally by the Company and the Warrantholder. Such adjustment shall be
      made successively whenever such a payment date is fixed.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    

    (d) An
      adjustment to the Warrant Price shall become effective immediately after the
      payment date in the case of each dividend or distribution and immediately after
      the effective date of each other event which requires an
      adjustment.

    

    (e) In
      the
      event that, as a result of an adjustment made pursuant to this Section 8, the
      Warrantholder shall become entitled to receive any shares of capital stock
      of
      the Company other than shares of Common Stock, the number of such other shares
      so receivable upon exercise of this Warrant shall be subject thereafter to
      adjustment from time to time in a manner and on terms as nearly equivalent
      as
      practicable to the provisions with respect to the Warrant Shares contained
      in
      this Warrant.

    

    (f) Except
      as
      provided in subsection (g) hereof, if and whenever the Company shall issue
      or
      sell, or is, in accordance with any of subsections (f)(l) through (f)(7) hereof,
      deemed to have issued or sold, any Additional Shares of Common Stock for no
      consideration or for a consideration per share less than the Warrant Price
      in
      effect immediately prior to the time of such issue or sale, then and in each
      such case (a “Trigger
      Issuance”)
      the
      then-existing Warrant Price, shall be reduced, as of the close of business
      on
      the effective date of the Trigger Issuance, to a price determined as
      follows:

    

    Adjusted
      Warrant Price = (A
      x
      B) + D

                       
      A+C

    

    where

    

    “A”
      equals the number of shares of Common Stock outstanding, including Additional
      Shares of Common Stock (as defined below) deemed to be issued hereunder,
      immediately preceding such Trigger Issuance;

    

    “B”
      equals the Warrant Price in effect immediately preceding such Trigger
      Issuance;

    

    “C”
      equals the number of Additional Shares of Common Stock issued or deemed issued
      hereunder as a result of the Trigger Issuance; and

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    

    “D”
      equals the aggregate consideration, if any, received or deemed to be received
      by
      the Company upon such Trigger Issuance;

    

    provided,
      however, that in no event shall the Warrant Price after giving effect to such
      Trigger Issuance be greater than the Warrant Price in effect prior to such
      Trigger Issuance.

    

    For
      purposes of this subsection (f), “Additional Shares of Common Stock” shall mean
      all shares of Common Stock issued by the Company or deemed to be issued pursuant
      to this subsection (f), other than Excluded Issuances (as defined in subsection
      (g) hereof).

    

    For
      purposes of this subsection (f), the following subsections (f)(l) to (f)(7)
      shall also be applicable:

    

    (f)(1)
      Issuance of Rights or Options. In case at any time the Company shall in any
      manner grant (directly and not by assumption in a merger or otherwise) any
      warrants or other rights to subscribe for or to purchase, or any options for
      the
      purchase of, Common Stock or any stock or security convertible into or
      exchangeable for Common Stock (such warrants, rights or options being called
      “Options” and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such Options or the right to convert or
      exchange any such Convertible Securities are immediately exercisable, and the
      price per share for which Common Stock is issuable upon the exercise of such
      Options or upon the conversion or exchange of such Convertible Securities
      (determined by dividing (i) the sum (which sum shall constitute the applicable
      consideration) of (x) the total amount, if any, received or receivable by the
      Company as consideration for the granting of such Options, plus (y) the
      aggregate amount of additional consideration payable to the Company upon the
      exercise of all such Options, plus (z), in the case of such Options which relate
      to Convertible Securities, the aggregate amount of additional consideration,
      if
      any, payable upon the issue or sale of such Convertible Securities and upon
      the
      conversion or exchange thereof, by (ii) the total maximum number of shares
      of
      Common Stock issuable upon the exercise of such Options or upon the conversion
      or exchange of all such Convertible Securities issuable upon the exercise of
      such Options) shall be less than the Warrant Price in effect immediately prior
      to the time of the granting of such Options, then the total number of shares
      of
      Common Stock issuable upon the exercise of such Options or upon conversion
      or
      exchange of the total amount of such Convertible Securities issuable upon the
      exercise of such Options shall be deemed to have been issued for such price
      per
      share as of the date of granting of such Options or the issuance of such
      Convertible Securities and thereafter shall be deemed to be outstanding for
      purposes of adjusting the Warrant Price. Except as otherwise provided in
      subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the
      actual issue of such Common Stock or of such Convertible Securities upon
      exercise of such Options or upon the actual issue of such Common Stock upon
      conversion or exchange of such Convertible Securities.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    

    (f)(2)
      Issuance of Convertible Securities. In case the Company shall in any manner
      issue (directly and not by assumption in a merger or otherwise) or sell any
      Convertible Securities, whether or not the rights to exchange or convert any
      such Convertible Securities are immediately exercisable, and the price per
      share
      for which Common Stock is issuable upon such conversion or exchange (determined
      by dividing (i) the sum (which sum shall constitute the applicable
      consideration) of (x) the total amount received or receivable by the Company
      as
      consideration for the issue or sale of such Convertible Securities, plus (y)
      the
      aggregate amount of additional consideration, if any, payable to the Company
      upon the conversion or exchange thereof, by (ii) the total number of shares
      of
      Common Stock issuable upon the conversion or exchange of all such Convertible
      Securities) shall be less than the Warrant Price in effect immediately prior
      to
      the time of such issue or sale, then the total maximum number of shares of
      Common Stock issuable upon conversion or exchange of all such Convertible
      Securities shall be deemed to have been issued for such price per share as
      of
      the date of the issue or sale of such Convertible Securities and thereafter
      shall be deemed to be outstanding for purposes of adjusting the Warrant Price,
      provided that (a) except as otherwise provided in subsection 8(f)(3), no
      adjustment of the Warrant Price shall be made upon the actual issuance of such
      Common Stock upon conversion or exchange of such Convertible Securities and
      (b)
      no further adjustment of the Warrant Price shall be made by reason of the issue
      or sale of Convertible Securities upon exercise of any Options to purchase
      any
      such Convertible Securities for which adjustments of the Warrant Price have
      been
      made pursuant to the other provisions of subsection 8(f).

     

    (f)(3)
      Change in Option Price or Conversion Rate. Upon the happening of any of the
      following events, namely, if the purchase price provided for in any Option
      referred to in subsection 8(f)(l) hereof, the additional consideration, if
      any,
      payable upon the conversion or exchange of any Convertible Securities referred
      to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible
      Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into
      or
      exchangeable for Common Stock shall change at any time (including, but not
      limited to, changes under or by reason of provisions designed to protect against
      dilution), the Warrant Price in effect at the time of such event shall forthwith
      be readjusted to the Warrant Price which would have been in effect at such
      time
      had such Options or Convertible Securities still outstanding provided for such
      changed purchase price, additional consideration or conversion rate, as the
      case
      may be, at the time initially granted, issued or sold. On the termination of
      any
      Option for which any adjustment was made pursuant to this subsection 8(f) or
      any
      right to convert or exchange Convertible Securities for which any adjustment
      was
      made pursuant to this subsection 8(f) (including without limitation upon the
      redemption or purchase for consideration of such Convertible Securities by
      the
      Company), the Warrant Price then in effect hereunder shall forthwith be changed
      to the Warrant Price which would have been in effect at the time of such
      termination had such Option or Convertible Securities, to the extent outstanding
      immediately prior to such termination, never been issued.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    (f)(4)
      Stock Dividends. Subject to the provisions of this Section 8(f), in case the
      Company shall declare or pay a dividend or make any other distribution upon
      any
      stock of the Company (other than the Common Stock) payable in Common Stock,
      Options or Convertible Securities, then any Common Stock, Options or Convertible
      Securities, as the case may be, issuable in payment of such dividend or
      distribution shall be deemed to have been issued or sold without
      consideration.

    

    (f)(5)
      Consideration for Stock. In case any shares of Common Stock, Options or
      Convertible Securities shall be issued or sold for cash, the consideration
      received therefor shall be deemed to be the net amount received by the Company
      therefor, after deduction therefrom of any expenses incurred or any underwriting
      commissions or concessions paid or allowed by the Company in connection
      therewith. In case any shares of Common Stock, Options or Convertible Securities
      shall be issued or sold for a consideration other than cash, the amount of
      the
      consideration other than cash received by the Company shall be deemed to be
      the
      fair value of such consideration as determined in good faith by the Board of
      Directors of the Company, after deduction of any expenses incurred or any
      underwriting commissions or concessions paid or allowed by the Company in
      connection therewith. In case any Options shall be issued in connection with
      the
      issue and sale of other securities of the Company, together comprising one
      integral transaction in which no specific consideration is allocated to such
      Options by the parties thereto, such Options shall be deemed to have been issued
      for such consideration as determined in good faith by the Board of Directors
      of
      the Company. If Common Stock, Options or Convertible Securities shall be issued
      or sold by the Company and, in connection therewith, other Options or
      Convertible Securities (the “Additional Rights”) are issued, then the
      consideration received or deemed to be received by the Company shall be reduced
      by the fair market value of the Additional Rights (as determined using the
      Black-Scholes option pricing model or another method mutually agreed to by
      the
      Company and the Warrantholder). The Board of Directors of the Company shall
      respond promptly, in writing, to an inquiry by the Warrantholder as to the
      fair
      market value of the Additional Rights. In the event that the Board of Directors
      of the Company and the Warrantholder are unable to agree upon the fair market
      value of the Additional Rights, the Company and the Warrantholder shall jointly
      select an appraiser, who is experienced in such matters. The decision of such
      appraiser shall be final and conclusive, and the cost of such appraiser shall
      be
      borne evenly by the Company and the Warrantholder.

    

    (f)(6)
      Record Date. In case the Company shall take a record of the holders of its
      Common Stock for the purpose of entitling them (i) to receive a dividend or
      other distribution payable in Common Stock, Options or Convertible Securities
      or
      (ii) to subscribe for or purchase Common Stock, Options or Convertible
      Securities, then such record date shall be deemed to be the date of the issue
      or
      sale of the shares of Common Stock deemed to have been issued or sold upon
      the
      declaration of such dividend or the making of such other distribution or the
      date of the granting of such right of subscription or purchase, as the case
      may
      be.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    

    (f)(7)
      Treasury Shares. The number of shares of Common Stock outstanding at any given
      time shall not include shares owned or held by or for the account of the Company
      or any of its wholly-owned subsidiaries, and the disposition of any such shares
      (other than the cancellation or retirement thereof) shall be considered an
      issue
      or sale of Common Stock for the purpose of this subsection (f).

    

    (g) Anything
      herein to the contrary notwithstanding, the Company shall not be required to
      make any adjustment of the Warrant Price in the case of the issuance of
(A)
      capital stock, Options or Convertible Securities issued to directors, officers,
      employees or consultants of the Company in connection with their service as
      directors of the Company, their employment by the Company or their retention
      as
      consultants by the Company pursuant to an equity compensation program approved
      by the Board of Directors of the Company or the compensation committee of the
      Board of Directors of the Company, (B) shares of Common Stock issued upon the
      conversion or exercise of Options or Convertible Securities issued prior to
      the
      date hereof, provided such securities are not amended after the date hereof
      to
      increase the number of shares of Common Stock issuable thereunder or to lower
      the exercise or conversion price thereof, (C) securities issued pursuant to
      that
      certain Purchase Agreement dated February 1, 2007, among the Company and the
      Investors named therein (the “Purchase Agreement”) and securities issued upon
      the exercise or conversion of those securities, and (D) shares of Common Stock
      issued or issuable by reason of a dividend, stock split or other distribution
      on
      shares of Common Stock (but only to the extent that such a dividend, split
      or
      distribution results in an adjustment in the Warrant Price pursuant to the
      other
      provisions of this Warrant) (collectively, “Excluded Issuances”).

    

    (h) Upon
      any
      adjustment to the Warrant Price pursuant to Section 8(f) above, the number
      of
      Warrant Shares purchasable hereunder shall be adjusted by multiplying such
      number by a fraction, the numerator of which shall be the Warrant Price in
      effect immediately prior to such adjustment and the denominator of which shall
      be the Warrant Price in effect immediately thereafter.

    

    (i) To
      the
      extent permitted by applicable law and the listing requirements of any stock
      market or exchange on which the Common Stock is then listed, the Company from
      time to time may decrease the Warrant Price by any amount for any period of
      time
      if the period is at least twenty (20) days, the decrease is irrevocable during
      the period and the Board shall have made a determination that such decrease
      would be in the best interests of the Company, which determination shall be
      conclusive. Whenever the Warrant Price is decreased pursuant to the preceding
      sentence, the Company shall provide written notice thereof to the Warrantholder
      at least five (5) days prior to the date the decreased Warrant Price takes
      effect, and such notice shall state the decreased Warrant Price and the period
      during which it will be in effect.

    

    Section
      9. Fractional
      Interest.
      The
      Company shall not be required to issue fractions of Warrant Shares upon the
      exercise of this Warrant. If any fractional share of Common Stock would, except
      for the provisions of the first sentence of this Section 9, be deliverable
      upon
      such exercise, the Company, in lieu of delivering such fractional share, shall
      pay to the exercising Warrantholder an amount in cash equal to the Market Price
      of such fractional share of Common Stock on the date of exercise.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    

    Section
      10. Extension
      of Expiration Date.
      Except
      as excused pursuant to Section 2(d) of the Registration Rights Agreement
      relating to the Warrant Shares (the “Registration Rights Agreement”), if the
      Company fails to cause any Registration Statement covering Registrable
      Securities (unless otherwise defined herein, capitalized terms are as defined
      in
      the Registration Rights Agreement) to be declared effective prior to the
      applicable dates set forth therein, or if any of the events specified in Section
      2(c)(ii) of the Registration Rights Agreement occurs, and the Blackout Period
      (whether alone, or in combination with any other Blackout Period) continues
      for
      more than 60 days in any 12 month period, or for more than a total of 90 days,
      then the Expiration Date of this Warrant shall be extended one day for each
      day
      beyond the 60-day or 90-day limits, as the case may be, that the Blackout Period
      continues.

    

    Section
      11. Benefits.
      Nothing
      in this Warrant shall be construed to give any person, firm or corporation
      (other than the Company and the Warrantholder) any legal or equitable right,
      remedy or claim, it being agreed that this Warrant shall be for the sole and
      exclusive benefit of the Company and the Warrantholder.

    

    Section
      12. Notices
      to Warrantholder.
      Upon
      the happening of any event requiring an adjustment of the Warrant Price, the
      Company shall promptly give written notice thereof to the Warrantholder at
      the
      address appearing in the records of the Company, stating the adjusted Warrant
      Price and the adjusted number of Warrant Shares resulting from such event and
      setting forth in reasonable detail the method of calculation and the facts
      upon
      which such calculation is based. Failure to give such notice to the
      Warrantholder or any defect therein shall not affect the legality or validity
      of
      the subject adjustment.

    

    Section
      13. Identity
      of Transfer Agent.
      The
      Transfer Agent for the Common Stock is Computershare Investor Services. Upon
      the
      appointment of any subsequent transfer agent for the Common Stock or other
      shares of the Company’s capital stock issuable upon the exercise of the rights
      of purchase represented by the Warrant, the Company will mail to the
      Warrantholder a statement setting forth the name and address of such transfer
      agent.

    

    Section
      14. Notices.
      Unless
      otherwise provided, any notice required or permitted under this Warrant shall
      be
      given in writing and shall be deemed effectively given as hereinafter described
      (i) if given by personal delivery, then such notice shall be deemed given upon
      such delivery, (ii) if given by telex or facsimile, then such notice shall
      be
      deemed given upon receipt of confirmation of complete transmittal, (iii) if
      given by mail, then such notice shall be deemed given upon the earlier of (A)
      receipt of such notice by the recipient or (B) three days after such notice
      is
      deposited in first class mail, postage prepaid, and (iv) if given by an
      internationally recognized overnight air courier, then such notice shall be
      deemed given one business day after delivery to such carrier. All notices shall
      be addressed as follows: if to the Warrantholder, at its address as set forth
      in
      the Company’s books and records and, if to the Company, at the address as
      follows, or at such other address as the Warrantholder or the Company may
      designate by ten days’ advance written notice to the other:

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    

    If
      to the
      Company:

    

    Precision
      Optics Corporation, Inc.

    22
      East
      Broadway

    Gardner,
      Massachusetts 01440-3338

    Attention:
      Richard E. Forkey, President, Chief Executive Officer  and
      Treasurer

    Fax:
      (978) 630-1487

    

    With
      a
      copy to:

    

    Ropes
      & Gray LLP

    One
      International Place

    Boston,
      MA 02110

    Attention:
      Patrick O’Brien

    Fax:
      (617) 951-7050

    

    Section
      15. Registration
      Rights.
      The
      initial Warrantholder is entitled to the benefit of certain registration rights
      with respect to the shares of Common Stock issuable upon the exercise of this
      Warrant as provided in the Registration Rights Agreement, and any subsequent
      Warrantholder may be entitled to such rights.

    

    Section
      16. 
      Successors.
      All the
      covenants and provisions hereof by or for the benefit of the Warrantholder
      shall
      bind and inure to the benefit of its respective successors and assigns
      hereunder. 

    

    Section
      17. Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Warrant shall be governed by, and construed in accordance with, the internal
      laws of the State of New York, without reference to the choice of law provisions
      thereof. The Company and, by accepting this Warrant, the Warrantholder, each
      irrevocably submits to the exclusive jurisdiction of the courts of the State
      of
      New York located in New York County and the United States District Court for
      the
      Southern District of New York for the purpose of any suit, action, proceeding
      or
      judgment relating to or arising out of this Warrant and the transactions
      contemplated hereby. Service of process in connection with any such suit, action
      or proceeding may be served on each party hereto anywhere in the world by the
      same methods as are specified for the giving of notices under this Warrant.
      The
      Company and, by accepting this Warrant, the Warrantholder, each irrevocably
      consents to the jurisdiction of any such court in any such suit, action or
      proceeding and to the laying of venue in such court. The Company and, by
      accepting this Warrant, the Warrantholder, each irrevocably waives any objection
      to the laying of venue of any such suit, action or proceeding brought in such
      courts and irrevocably waives any claim that any such suit, action or proceeding
      brought in any such court has been brought in an inconvenient forum.
EACH
      OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES
      ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
      WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
      WAIVER.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    

    Section
      18. Call
      Provision.
      Notwithstanding any other provision contained in this Warrant to the contrary,
      from and after the second anniversary of the Closing Date (as defined in the
      Purchase Agreement), in the event that the closing bid price per share of Common
      Stock as traded on the Bulletin Board (or such other exchange or stock market
      on
      which the Common Stock may then be listed or quoted) equals or exceeds $1.00
      (appropriately adjusted for any stock split, reverse stock split, stock dividend
      or other reclassification or combination of the Common Stock occurring after
      the
      date hereof) for twenty (20) consecutive trading days commencing after the
      Registration Statement (as defined in the Registration Rights Agreement) has
      been declared effective, the Company, upon thirty (30) days prior written notice
      (the “Notice
      Period”)
      given
      to the Warrantholder within one business day immediately following the end
      of
      such twenty (20) trading day period, may call this Warrant, in whole but not
      in
      part, at a redemption price equal to $0.01 per share of Common Stock then
      purchasable pursuant to this Warrant; provided that (i) the Company
      simultaneously calls all Company Warrants (as defined below) on the same terms,
      (ii) all of the shares of Common Stock issuable hereunder either (A) are
      registered pursuant to an effective Registration Statement (as defined in the
      Registration Rights Agreement) which is not suspended and for which no stop
      order is in effect, and pursuant to which the Warrantholder is able to sell
      such
      shares of Common Stock at all times during the Notice Period or (B) no longer
      constitute Registrable Securities (as defined in the Registration Rights
      Agreement) and (iii) this Warrant is fully exercisable for the full amount
      of
      Warrant Shares covered hereby. Notwithstanding any such notice by the Company,
      the Warrantholder shall have the right to exercise this Warrant prior to the
      end
      of the Notice Period.

    

    Section
      19. Cashless
      Exercise.
      The
      Warrantholder may elect to receive, without the payment by the Warrantholder
      of
      the aggregate Warrant Price in respect of the shares of Common Stock to be
      acquired, shares of Common Stock of equal value to the value of this Warrant,
      or
      any specified portion hereof, by the surrender of this Warrant (or such portion
      of this Warrant being so exercised) together with a Net Issue Election Notice,
      in the form annexed hereto as Appendix B, duly executed, to the Company.
      Thereupon, the Company shall issue to the Warrantholder such number of fully
      paid, validly issued and nonassessable shares of Common Stock as is computed
      using the following formula:

    

    X
      =
Y
      (A -
      B)

    A

    

    where 

    

    X
      = the
      number of shares of Common Stock to which the Warrantholder is entitled upon
      such cashless exercise;

    

    Y
      = the
      total
      number of shares of Common Stock covered by this Warrant for which the
      Warrantholder has surrendered purchase rights at such time for cashless exercise
      (including both shares to be issued to the Warrantholder and shares as to which
      the purchase rights are to be canceled as payment therefor);

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    

    A
      = the
      “Market Price” of one share of Common Stock as at the date the net issue
      election is made; and

    

    B
      = the
      Warrant Price in effect under this Warrant at the time the net issue election
      is
      made.

    

    Section
      20. No
      Rights as Stockholder.
      Prior
      to the exercise of this Warrant, the Warrantholder shall not have or exercise
      any rights as a stockholder of the Company by virtue of its ownership of this
      Warrant.

    

    Section
      21. Amendment;
      Waiver.
      This
      Warrant is one of a series of Warrants of like tenor issued by the Company
      pursuant to the Purchase Agreement and initially covering an aggregate of
      10,000,000 shares of Common Stock (collectively, the “Company
      Warrants”).
      Any
      term of this Warrant may be amended or waived (including the adjustment
      provisions included in Section 8 of this Warrant) upon the written consent
      of
      the Company and the holders of Company Warrants representing at least 50% of
      the
      number of shares of Common Stock then subject to all outstanding Company
      Warrants (the “Majority
      Holders”);
      provided,
      that
      (x) any such amendment or waiver must apply to all Company Warrants; and (y)
      the
      number of Warrant Shares subject to this Warrant, the Warrant Price and the
      Expiration Date may not be amended, and the right to exercise this Warrant
      may
      not be altered or waived, without the written consent of the
      Warrantholder.

    

    Section
      22. Section
      Headings.
      The
      section headings in this Warrant are for the convenience of the Company and
      the
      Warrantholder and in no way alter, modify, amend, limit or restrict the
      provisions hereof.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as
      of
      the ______ day of February, 2007.

    
      	 	 	 
	 	PRECISION
              OPTICS
              CORPORATION, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
              Richard E. Forkey
	 	Title:
              President, Chief Executive Officer and
              Treasurer

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    APPENDIX
      A

    PRECISION
      OPTICS CORPORATION, INC.

    WARRANT
      EXERCISE FORM

    

    To
      Precision Optics Corporation, Inc.:

    

    The
      undersigned hereby irrevocably elects to exercise the right of purchase
      represented by the within Warrant (“Warrant”) for, and to purchase thereunder by
      the payment of the Warrant Price and surrender of the Warrant, _______________
      shares of Common Stock (“Warrant Shares”) provided for therein, and requests
      that certificates for the Warrant Shares be issued as follows: 

    

    _______________________________

    Name

    ________________________________

    Address

    ________________________________

    ________________________________

    Federal
      Tax ID or Social Security No.

    

    and
      delivered by  (certified
      mail to the above address, or 

    (electronically
      (provide DWAC Instructions:__________________),

    or
      

    (other
      (specify): _______________________________________).

    

    and,
      if
      the number of Warrant Shares shall not be all the Warrant Shares purchasable
      upon exercise of the Warrant, that a new Warrant for the balance of the Warrant
      Shares purchasable upon exercise of this Warrant be registered in the name
      of
      the undersigned Warrantholder or the undersigned’s Assignee as below indicated
      and delivered to the address stated below.

     

    Dated:
      ___________________, ____

    
      	 	 	 	 
	Note:
              The
              signature must correspond with	 	Signature: 	 
	
              the
                name of the Warrantholder as written

              on
                the first page of the Warrant in
                every

            	 	 	
              

            
	
              particular, without alteration or
                enlargement

              or any change whatever, unless the
                Warrant

            	 	 	
              
Name
              (please print)
	
              has
                been assigned.

            	 	 	 
	
               

            	 	 	
              

              
Address
	 	 	 	 
	 	 	 	
              
Federal
              Identification or
	 	 	 	Social Security No.
	 	 	 	 
	 	 	 	Assignee: 
	 	 	 	
              

              

              

            

    

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    APPENDIX
      B

    PRECISION
      OPTICS CORPORATION, INC.

    NET
      ISSUE
      ELECTION NOTICE

     

    To:
      Precision Optics Corporation, Inc.

    

    Date:[_________________________]

     

    The
      undersigned hereby elects under Section
      19
      of this
      Warrant to surrender the right to purchase [____________] shares of Common
      Stock
      pursuant to this Warrant and hereby requests the issuance of [_____________]
      shares of Common Stock. The certificate(s) for the shares issuable upon such
      net
      issue election shall be issued in the name of the undersigned or as otherwise
      indicated below.

    
      	 	 	 	 
	 	 	 	 
	
              
Signature	 	 	
            
	 	 	 	 
	
              
Name
              for Registration	 	 	 
	 	 	 	 
	
              
Mailing
              Address	 	 	 

    
      
        
        

      

      
        -16-

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