Document:

EXHIBIT
      10.1

    PURCHASE
      AGREEMENT

     

    THIS
      PURCHASE AGREEMENT (“Agreement”) is made as of the 25th day of June, 2008 by and
      among Precision Optics Corporation, Inc., a Massachusetts corporation (the
      “Company”), and the Investors set forth on the signature pages affixed hereto
      (each an “Investor” and collectively the “Investors”).

    

    Recitals

    

    A. The
      Company and the Investors are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
      Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
      as amended; and

    

    B. The
      Investors wish to purchase from the Company, and the Company wishes to sell
      and
      issue to the Investors, upon the terms and conditions stated in this Agreement,
      (i) $600,000 in aggregate principal amount of the 10% Senior Secured Convertible
      Notes in the form attached hereto as Exhibit
      A
      (the
“Notes”), which Notes are convertible into 12,000,000 shares of the Company’s
      Common Stock, par value $0.01 per share (together with any securities into
      which
      such shares may be reclassified the “Common Stock”), at a conversion price of
      $0.05 per share (subject to adjustment as provided therein), and (ii) warrants
      to purchase an aggregate of 7,920,000 shares of Common Stock (subject to
      adjustment as provided therein) at an exercise price of $0.07 per share (subject
      to adjustment as provided therein) in the form attached hereto as Exhibit
      B
      (the
“Warrants”); and

    

    C. Contemporaneous
      with the sale of the Notes and the Warrants, the parties hereto will execute
      and
      deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit
      C
      (the
“Registration Rights Agreement”), pursuant to which the Company will agree to
      provide certain registration rights under the Securities Act of 1933, as
      amended, and the rules and regulations promulgated thereunder, and applicable
      state securities laws.

    

    In
      consideration of the mutual promises made herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

    

    1. Definitions.
      In
      addition to those terms defined above and elsewhere in this Agreement, for
      the
      purposes of this Agreement, the following terms shall have the meanings set
      forth below:

    

    “Affiliate”
means,
      with respect to any Person, any other Person which directly or indirectly
      through one or more intermediaries Controls, is controlled by, or is under
      common control with, such Person.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Amendment”
means
      an amendment to the Company’s Articles of Organization implementing a
      one-for-six reverse split of the Common Stock and maintaining the number of
      authorized shares of Common Stock at 50,000,000.

    

    “Amendment
      Effective Date”
means
      the date on which the Amendment is effective.

    

    “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.

    

    “Certificate
      of Amendment”
means
      a
      Certificate of Amendment to the Company’s Articles of Organization effecting the
      Amendment.

    

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

    

    “Company’s
      Knowledge”
means
      the actual knowledge of the executive officers (as defined in Rule 405 under
      the
      1933 Act) of the Company, after due inquiry.

    

    “Confidential
      Information”
means
      trade secrets, confidential information and know-how (including but not limited
      to ideas, formulae, compositions, processes, procedures and techniques, research
      and development information, computer program code, performance specifications,
      support documentation, drawings, specifications, designs, business and marketing
      plans, and customer and supplier lists and related information).

    

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

    

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Notes.

    

    “Effective
      Date”
means
      the date on which the initial Registration Statement is declared effective
      by
      the SEC.

    

    “Effectiveness
      Deadline”
means
      the date on which the initial Registration Statement is required to be declared
      effective by the SEC under the terms of the Registration Rights
      Agreement.

    

    “Intellectual
      Property”
means
      all of the following: (i) patents, patent applications, patent disclosures
      and
      inventions (whether or not patentable and whether or not reduced to practice);
      (ii) trademarks, service marks, trade dress, trade names, corporate names,
      logos, slogans and Internet domain names, together with all goodwill associated
      with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
      registrations, applications and renewals for any of the foregoing; and (v)
      proprietary computer software (including but not limited to data, data bases
      and
      documentation).

    
      
        
        

      

      
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    “Interest
      Shares”
means
      shares of Common Stock issuable in lieu of cash interest on the
      Notes.

    

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the assets, liabilities, results of operations,
      condition (financial or otherwise), business, or prospects of the Company and
      its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform
      its obligations under the Transaction Documents.

    

    “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

    

    “Proposal”
has
      the
      meaning set forth in Section 7.10.

    

    “Purchase
      Price”
means
      Six Hundred Thousand Dollars ($600,000).

    

    “Registration
      Statement”
has
      the
      meaning set forth in the Registration Rights Agreement.

    

    “SEC
      Filings”
has
      the
      meaning set forth in Section 4.6.

    

    “Securities”
means
      the Notes, the Warrants, the Conversion Shares, the Interest Shares and the
      Warrant Shares.

    

    “Security
      Agreement”
means
      the Pledge and Security Agreement in the form attached hereto as Exhibit
      D.

    

    “Subsidiary”
of
      any
      Person means another Person, an amount of the voting securities, other voting
      ownership or voting partnership interests of which is sufficient to elect at
      least a majority of its Board of Directors or other governing body (or, if
      there
      are no such voting interests, 50% or more of the equity interests of which)
      is
      owned directly or indirectly by such first Person.

    

    “Transaction
      Documents”
means
      this Agreement, the Notes, the Security Agreement, the Warrants, the
      Registration Rights Agreement and the Voting Agreement.

    

    “Voting
      Agreement”
means
      the Voting Agreement in the form attached hereto as Exhibit
      E.

     

    
      
        
        

      

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

    

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

    

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

    

    2. Purchase
      and Sale of the Notes and the Warrants.
      Subject
      to the terms and conditions of this Agreement, on the Closing Date, each of
      the
      Investors shall severally, and not jointly, purchase, and the Company shall
      sell
      and issue to the Investors, the Notes and the Warrants in the respective amounts
      set forth opposite the Investors’ names on the signature pages attached hereto
      in exchange for the Purchase Price as specified in Section 3 below.

    

    3. Closing.
      Upon
      confirmation that the other conditions to closing specified herein have been
      satisfied or duly waived by the Investors, the Company shall deliver to
      Lowenstein Sandler PC, in trust, the Notes and the Warrants, registered in
      such
      name or names as the Investors may designate, with instructions that such Notes
      and Warrants are to be held for release to the Investors only upon payment
      in
      full of the Purchase Price to the Company by all the Investors. Upon such
      receipt by Lowenstein Sandler PC of the Notes and the Warrants, each Investor
      shall promptly, but no more than one Business Day thereafter, cause a wire
      transfer in same day funds to be sent to the account of the Company as
      instructed in writing by the Company, in an amount representing such Investor’s
      pro rata portion of the Purchase Price as set forth on the signature pages
      to
      this Agreement. On the date (the “Closing Date”) the Company receives the
      Purchase Price, the Notes and the Warrants shall be released to the Investors
      (the “Closing”). The Closing of the purchase and sale of the Notes and the
      Warrants shall take place at the offices of Lowenstein Sandler PC, 1251 Avenue
      of the Americas, 18th Floor, New York, New York 10020, or at such other location
      and on such other date as the Company and the Investors shall mutually
      agree.

    

    4. Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investors that, except as set
      forth in the schedules delivered herewith (collectively, the “Disclosure
      Schedules”):

    

    4.
      1 Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Subsidiaries is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation and has all requisite corporate power and authority to carry
      on
      its business as now conducted and to own its properties. Each of the Company
      and
      its Subsidiaries is duly qualified to do business as a foreign corporation
      and
      is in good standing in each jurisdiction in which the conduct of its business
      or
      its ownership or leasing of property makes such qualification or leasing
      necessary unless the failure to so qualify has not had and could not reasonably
      be expected to have a Material Adverse Effect. The Company’s Subsidiaries are
      listed on Schedule
      4.1
      hereto.

     

    
      
        
        

      

      
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    4.2 Authorization.
      The
      Company has full power and authority and, except for the approval of the
      Proposal by its stockholders and the filing of the Certificate of Amendment
      as
      contemplated in Section 7.10, has taken all requisite action on the part of
      the
      Company, its officers, directors and stockholders necessary for (i) the
      authorization, execution and delivery of the Transaction Documents, (ii) the
      authorization of the performance of all obligations of the Company hereunder
      or
      thereunder, and (iii) the authorization, issuance (or reservation for issuance)
      and delivery of the Securities.
      When
      delivered in accordance with the terms hereof, the Transaction Documents will
      constitute the legal, valid and binding obligations of the Company, enforceable
      against the Company in accordance with their terms, subject to bankruptcy,
      insolvency, fraudulent transfer, reorganization, moratorium and similar laws
      of
      general applicability, relating to or affecting creditors’ rights
      generally.

    

    4.3 Capitalization.
      The
      issued and outstanding shares of Common Stock have been duly authorized and
      validly issued, are fully paid and nonassessable, have been issued in compliance
      with all federal and state securities laws, were not issued in violation of
      or
      subject to any preemptive rights or other rights to subscribe for or purchase
      securities, and conform in all material respects to the description thereof
      contained in the Company’s filings with the SEC. Except as set forth in the
      Company’s SEC Filings and except for options and other awards that may be
      granted under the Company’s Amended and Restated 1997 Incentive Plan or the
      Company’s 2006 Equity Incentive Plan, the Company does not have outstanding any
      options to purchase, or any preemptive rights or other rights to subscribe
      for
      or to purchase, any securities or obligations convertible into, or any contracts
      or commitments to issue or sell, shares of its capital stock or any such
      options, rights, convertible securities or obligations. Except as contemplated
      by this Agreement, neither the Company nor any of its Subsidiaries is currently
      in negotiations for the issuance of any equity securities of any kind. Except
      as
      described on Schedule
      4.3
      and
      except for the Registration Rights Agreement and the Voting Agreements, there
      are no voting agreements, buy-sell agreements, option or right of first purchase
      agreements or other agreements of any kind among the Company and any of the
      securityholders of the Company relating to the securities of the Company held
      by
      them. Except as described on Schedule
      4.3
      and
      except as provided in the Registration Rights Agreement, no Person has the
      right
      to require the Company to register any securities of the Company under the
      1933
      Act, whether on a demand basis or in connection with the registration of
      securities of the Company for its own account or for the account of any other
      Person.

    

    Except
      as
      described on Schedule
      4.3,
      the
      issuance and sale of the Securities hereunder will not obligate the Company
      to
      issue shares of Common Stock or other securities to any other Person (other
      than
      the Investors) and will not result in the adjustment of the exercise,
      conversion, exchange or reset price of any outstanding security.

    

    Except
      as
      described on Schedule
      4.3,
      the
      Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase
      any
      equity interest in the Company upon the occurrence of certain
      events.

    

    4.4 Valid
      Issuance.
      From
      and after the Amendment Effective Date, (i) the Conversion Shares will have
      been
      duly and validly authorized and, when issued upon the due conversion of the
      Notes, will be validly issued, fully paid and nonassessable, and shall be free
      and clear of all encumbrances and restrictions (other than those created by
      the
      Investors), except for restrictions on transfer set forth in the Transaction
      Documents or imposed by applicable securities laws, and (ii) the Interest Shares
      will have been duly and validly authorized and, when issued in accordance with
      the terms of the Notes, will be validly issued, fully paid and nonassessable,
      and shall be free and clear of all encumbrances and restrictions (other than
      those created by the Investors), except for restrictions on transfer set forth
      in the Transaction Documents or imposed by applicable securities laws. The
      Warrants have been duly and validly authorized. From and after the Amendment
      Effective Date, the Warrant Shares will have been duly and validly authorized
      and, when issued upon the due exercise of the Warrants, will be validly issued,
      fully paid and non-assessable free and clear of all encumbrances and
      restrictions, except for restrictions on transfer set forth in the Transaction
      Documents or imposed by applicable securities laws and except for those created
      by the Investors. From and after the Amendment Effective Date, the Company
      will
      have reserved a sufficient number of shares of Common Stock for issuance upon
      the conversion of the Notes, the payment of interest on the Notes and upon
      exercise of the Warrants, free and clear of all encumbrances and restrictions,
      except for restrictions on transfer set forth in the Transaction Documents
      or
      imposed by applicable securities laws and except for those created by the
      Investors.

    
      
        
        

      

      
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    4.5 Consents.
      Except
      for the approval of the Proposal by its stockholders and the filing of the
      Certificate of Amendment as contemplated in Section 7.10, the
      execution, delivery and performance by the Company of the Transaction Documents
      and the offer, issuance and sale of the Securities require no consent of, action
      by or in respect of, or filing with, any Person, governmental body, agency,
      or
      official other than filings that have been made pursuant to applicable state
      securities laws and post-sale filings pursuant to applicable state and federal
      securities laws which the Company undertakes to file within the applicable
      time
      periods. Subject to the accuracy of the representations and warranties of each
      Investor set forth in Section 5 hereof, the Company has taken all action
      necessary to exempt (i) the issuance and sale of the Securities, (ii) the
      issuance of the Conversion Shares upon the due conversion of the Notes, the
      issuance of the Interest Shares as provided in the Notes and the issuance of
      the
      Warrant Shares upon due exercise of the Warrants, and (iii) the other
      transactions contemplated by the Transaction Documents from the provisions
      of
      any stockholder rights plan or other “poison pill” arrangement, any
      anti-takeover, business combination or control share law or statute binding
      on
      the Company or to which the Company or any of its assets and properties may
      be
      subject and any provision of the Company’s Articles of Organization or Bylaws
      that is or could reasonably be expected to become applicable to the Investors
      as
      a result of the transactions contemplated hereby, including without limitation,
      the issuance of the Securities and the ownership, disposition or voting of
      the
      Securities by the Investors or the exercise of any right granted to the
      Investors pursuant to this Agreement or the other Transaction
      Documents.

    

    4.6 Delivery
      of SEC Filings; Business.
      The
      Company has made available to the Investors through the EDGAR system, true
      and
      complete copies of the Company’s most recent Annual Report on Form 10-KSB for
      the fiscal year ended June 30, 2007 (the “10-KSB”), and all other reports filed
      by the Company pursuant to the 1934 Act since the filing of the 10-KSB and
      prior
      to the date hereof (collectively, the “SEC Filings”). The SEC Filings are the
      only filings required of the Company pursuant to the 1934 Act for such period.
      The Company and its Subsidiaries are engaged in all material respects only
      in
      the business described in the SEC Filings and the SEC Filings contain a complete
      and accurate description in all material respects of the business of the Company
      and its Subsidiaries, taken as a whole.

     

    
      
        
        

      

      
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    4.7 Use
      of
      Proceeds.
      The net
      proceeds of the sale of the Notes and the Warrants hereunder shall be used
      by
      the Company for working capital and general corporate purposes.

    

    4.8 No
      Material Adverse Change.
      Since
      June 30, 2007, except for the Amendment and except as identified and described
      in the SEC Filings or as described on Schedule
      4.8,
      there
      has not been:

    

    (i) any
      change in the consolidated assets, liabilities, financial condition or operating
      results of the Company from that reflected in the financial statements included
      in the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31,
      2008, except for changes in the ordinary course of business which have not
      had
      and could not reasonably be expected to have a Material Adverse Effect,
      individually or in the aggregate;

    

    (ii) any
      declaration or payment of any dividend, or any authorization or payment of
      any
      distribution, on any of the capital stock of the Company, or any redemption
      or
      repurchase of any securities of the Company;

    

    (iii) any
      material damage, destruction or loss, whether or not covered by insurance to
      any
      assets or properties of the Company or its Subsidiaries;

    

    (iv) any
      waiver, not in the ordinary course of business, by the Company or any Subsidiary
      of a material right or of a material debt owed to it;

    

    (v) any
      satisfaction or discharge of any lien, claim or encumbrance or payment of any
      obligation by the Company or a Subsidiary, except in the ordinary course of
      business and which is not material to the assets, properties, financial
      condition, operating results or business of the Company and its Subsidiaries
      taken as a whole (as such business is presently conducted and as it is proposed
      to be conducted);

    

    (vi) any
      change or amendment to the Company's Articles of Organization or Bylaws, or
      material change to any material contract or arrangement by which the Company
      or
      any Subsidiary is bound or to which any of their respective assets or properties
      is subject;

    

    (vii) any
      material labor difficulties or labor union organizing activities with respect
      to
      employees of the Company or any Subsidiary;

    

    (viii) any
      material transaction entered into by the Company or a Subsidiary other than
      in
      the ordinary course of business; 

    
      
        
        

      

      
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    (ix) the
      loss
      of the services of any key employee, or material change in the composition
      or
      duties of the senior management of the Company or any Subsidiary;

    

    (x) the
      loss
      or threatened loss of any customer which has had or could reasonably be expected
      to have a Material Adverse Effect; or

    

    (xi) any
      other
      event or condition of any character that has had or could reasonably be expected
      to have a Material Adverse Effect.

    

    4.9 SEC
      Filings.

    

    (a) At
      the
      time of filing thereof, the SEC Filings complied as to form in all material
      respects with the requirements of the 1934 Act and did not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading.

    

    (b) Each
      registration statement and any amendment thereto filed by the Company since
      January 1, 2005 pursuant to the 1933 Act and the rules and regulations
      thereunder, as of the date such statement or amendment became effective,
      complied as to form in all material respects with the 1933 Act and did not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary in order to make the statements
      made therein not misleading; and each prospectus filed pursuant to Rule 424(b)
      under the 1933 Act, as of its issue date and as of the closing of any sale
      of
      securities pursuant thereto did not contain any untrue statement of a material
      fact or omit to state any material fact required to be stated therein or
      necessary in order to make the statements made therein, in the light of the
      circumstances under which they were made, not misleading.

    

    4.10 No
      Conflict, Breach, Violation or Default.
      Subject
      to the approval of the Proposal by its stockholders and the filing of the
      Certificate of Amendment as contemplated by Section 7.10, the execution,
      delivery and performance of the Transaction Documents by the Company and the
      issuance and sale of the Securities will not conflict with or result in a breach
      or violation of any of the terms and provisions of, or constitute a default
      under (i) the Company’s Articles of Organization or the Company’s Bylaws, both
      as in effect on the date hereof (true and complete copies of which have been
      filed with the SEC), or (ii)(a) any statute, rule, regulation or order of any
      governmental agency or body or any court, domestic or foreign, having
      jurisdiction over the Company, any Subsidiary or any of their respective assets
      or properties, or (b) any agreement or instrument to which the Company or any
      Subsidiary is a party or by which the Company or a Subsidiary is bound or to
      which any of their respective assets or properties is subject, except, in the
      case of clause (ii) only, such breaches, violations or defaults that
      individually or in the aggregate would not cause a Material Adverse
      Effect.

    

    4.11 Tax
      Matters.
      The
      Company and each Subsidiary has timely prepared and filed all tax returns
      required to have been filed by the Company or such Subsidiary with all
      appropriate governmental agencies and timely paid all taxes shown thereon or
      otherwise owed by it (after giving effect to applicable extensions). The
      charges, accruals and reserves on the books of the Company in respect of taxes
      for all fiscal periods are adequate in all material respects, and there are
      no
      material unpaid assessments against the Company or any Subsidiary nor, to the
      Company’s Knowledge, any basis for the assessment of any additional taxes,
      penalties or interest for any fiscal period or audits by any federal, state
      or
      local taxing authority except for any assessment which is not material to the
      Company and its Subsidiaries, taken as a whole. All taxes and other assessments
      and levies that the Company or any Subsidiary is required to withhold or to
      collect for payment have been duly withheld and collected and paid to the proper
      governmental entity or third party when due. There are no tax liens or claims
      pending or, to the Company’s Knowledge, threatened against the Company or any
      Subsidiary or any of their respective assets or property. Except as described
      on
Schedule
      4.11,
      there
      are no outstanding tax sharing agreements or other such arrangements between
      the
      Company and any Subsidiary or other corporation or entity.

    
      
        
        

      

      
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    4.12 Title
      to Properties.
      Except
      as disclosed in the SEC Filings, the Company and each Subsidiary has good and
      marketable title to all real properties and all other properties and assets
      owned by it, in each case free from liens, encumbrances and defects that would
      materially affect the value thereof or materially interfere with the use made
      or
      currently planned to be made thereof by them; and except as disclosed in the
      SEC
      Filings, the Company and each Subsidiary holds any leased real or personal
      property under valid and enforceable leases with no exceptions that would
      materially interfere with the use made or currently planned to be made thereof
      by them.

    

    4.13 Certificates,
      Authorizations and Permits.
      The
      Company and each Subsidiary possess adequate certificates, authorizations or
      permits issued by appropriate governmental agencies or bodies necessary to
      conduct the business now operated by it, except where the failure to possess
      such certificates, authorizations or permits has not had and could not
      reasonably be expected to have a Material Adverse Effect, and neither the
      Company nor any Subsidiary has received any notice of proceedings relating
      to
      the revocation or modification of any such certificate, authority or permit
      that, if determined adversely to the Company or such Subsidiary, could
      reasonably be expected to have a Material Adverse Effect, individually or in
      the
      aggregate.

    

    4.14 Labor
      Matters.

     

    (a) Except
      as
      set forth on Schedule
      4.14,
      the
      Company is not a party to or bound by any collective bargaining agreements
      or
      other agreements with labor organizations. Except as set forth on Schedule
      4.14,
      the
      Company has not violated in any material respect any laws, regulations, orders
      or contract terms, affecting the collective bargaining rights of employees,
      labor organizations or any laws, regulations or orders affecting employment
      discrimination, equal opportunity employment, or employees’ health, safety,
      welfare, wages and hours.

     

    (b) (i)
      There
      are no labor disputes existing, or to the Company's Knowledge, threatened,
      involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts
      or any other disruptions of or by the Company's employees, (ii) there are no
      unfair labor practices or petitions for election pending or, to the Company's
      Knowledge, threatened before the National Labor Relations Board or any other
      federal, state or local labor commission relating to the Company's employees,
      (iii) no demand for recognition or certification heretofore made by any labor
      organization or group of employees is pending with respect to the Company and
      (iv) to the Company's Knowledge, the Company enjoys good labor and employee
      relations with its employees and labor organizations.

    
      
        
        

      

      
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    (c) Except
      as
      disclosed in the SEC Filings or as described on Schedule
      4.14,
      the
      Company is, and at all times has been, in compliance in all material respects
      with all applicable laws respecting employment (including laws relating to
      classification of employees and independent contractors) and employment
      practices, terms and conditions of employment, wages and hours, and immigration
      and naturalization. There are no claims pending against the Company before
      the
      Equal Employment Opportunity Commission or any other administrative body or
      in
      any court asserting any violation of Title VII of the Civil Rights Act of 1964,
      the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other
      federal, state or local Law, statute or ordinance barring discrimination in
      employment.

     

    (d) Except
      as
      disclosed in the SEC Filings or as described on Schedule
      4.14,
      the
      Company is not a party to, or bound by, any employment or other contract or
      agreement that contains any severance, termination pay or change of control
      liability or obligation, including, without limitation, any “excess parachute
      payment,” as defined in Section 280G(b) of the Internal Revenue
      Code.

    

    (e) Except
      as
      specified in Schedule
      4.14,
      each of
      the Company's employees is a Person who is either a United States citizen or
      a
      permanent resident entitled to work in the United States. To the Company's
      Knowledge, the Company has no liability for the improper classification by
      the
      Company of such employees as independent contractors or leased employees prior
      to the Closing.

    

    4.15 Intellectual
      Property.

    

    (a) All
      Intellectual Property of the Company and its Subsidiaries is currently in
      compliance with all legal requirements (including timely filings, proofs and
      payments of fees) and is valid and enforceable. No Intellectual Property of
      the
      Company or its Subsidiaries which is necessary for the conduct of Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted or as
      currently proposed to be conducted has been or is now involved in any
      cancellation, dispute or litigation, and, to the Company’s Knowledge, no such
      action is threatened. No patent of the Company or its Subsidiaries has been
      or
      is now involved in any interference, reissue, re-examination or opposition
      proceeding.

    

    (b) All
      of
      the licenses and sublicenses and consent, royalty or other agreements concerning
      Intellectual Property which are necessary for the conduct of the Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted or as
      currently proposed to be conducted to which the Company or any Subsidiary is
      a
      party or by which any of their assets are bound (other than  generally
      commercially available, non-custom, off-the-shelf software application programs
      having a retail acquisition price of less than $10,000 per license)
      (collectively, “License Agreements”) are valid and binding obligations of the
      Company or its Subsidiaries that are parties thereto and, to the Company’s
      Knowledge, the other parties thereto, enforceable in accordance with their
      terms, except to the extent that enforcement thereof may be limited by
      bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
      other similar laws affecting the enforcement of creditors’ rights generally, and
      there exists no event or condition which will result in a material violation
      or
      breach of or constitute (with or without due notice or lapse of time or both)
      a
      default by the Company or any of its Subsidiaries under any such License
      Agreement.

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (c) The
      Company and its Subsidiaries own or have the valid right to use all of the
      Intellectual Property that is necessary for the conduct of the Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted or as
      currently proposed to be conducted and for the ownership, maintenance and
      operation of the Company’s and its Subsidiaries’ properties and assets, free and
      clear of all liens, encumbrances, adverse claims or obligations to license
      all
      such owned Intellectual Property and Confidential Information, other than
      licenses entered into in the ordinary course of the Company’s and its
      Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
      enforceable right to use all third party Intellectual Property and Confidential
      Information used or held for use in the respective businesses of the Company
      and
      its Subsidiaries.

    

    (d) To
      the
      Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or
      conflict with (collectively, “Infringe”) any Intellectual Property rights of any
      third party or any confidentiality obligation owed to a third party, and, to
      the
      Company’s Knowledge, the Intellectual Property and Confidential Information of
      the Company and its Subsidiaries which are necessary for the conduct of
      Company’s and each of its Subsidiaries’ respective businesses as currently
      conducted or as currently proposed to be conducted are not being Infringed
      by
      any third party. There is no litigation or order pending or outstanding or,
      to
      the Company’s Knowledge, threatened or imminent, that seeks to limit or
      challenge or that concerns the ownership, use, validity or enforceability of
      any
      Intellectual Property or Confidential Information of the Company and its
      Subsidiaries and the Company’s and its Subsidiaries’ use of any Intellectual
      Property or Confidential Information owned by a third party, and, to the
      Company’s Knowledge, there is no valid basis for the same.

    

    (e) The
      consummation of the transactions contemplated hereby and by the other
      Transaction Documents will not result in the alteration, loss, impairment of
      or
      restriction on the Company’s or any of its Subsidiaries’ ownership or right to
      use any of the Intellectual Property or Confidential Information which is
      necessary for the conduct of Company’s and each of its Subsidiaries’ respective
      businesses as currently conducted or as currently proposed to be
      conducted.

    

    (f) The
      Company and its Subsidiaries have taken reasonable steps to protect the
      Company’s and its Subsidiaries’ rights in their Intellectual Property and
      Confidential Information. Except under confidentiality obligations, there has
      been no material disclosure of any of the Company’s or its Subsidiaries’
Confidential Information to any third party.

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    4.16 Environmental
      Matters.
      Neither
      the Company nor any Subsidiary is in violation of any statute, rule, regulation,
      decision or order of any governmental agency or body or any court, domestic
      or
      foreign, relating to the use, disposal or release of hazardous or toxic
      substances or relating to the protection or restoration of the environment
      or
      human exposure to hazardous or toxic substances (collectively, “Environmental
      Laws”), owns or operates any real property contaminated with any substance that
      is subject to any Environmental Laws, is liable for any off-site disposal or
      contamination pursuant to any Environmental Laws, or is subject to any claim
      relating to any Environmental Laws, which violation, contamination, liability
      or
      claim has had or could reasonably be expected to have a Material Adverse Effect,
      individually or in the aggregate; and there is no pending or, to the Company’s
      Knowledge, threatened investigation that might lead to such a
      claim.

    

    4.17 Litigation.
      Except
      as described on Schedule
      4.17,
      there
      are no pending legal actions, suits or proceedings against or affecting the
      Company, its Subsidiaries or any of its or their properties; and to the
      Company’s Knowledge, no such actions, suits or proceedings are threatened or
      contemplated. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or since January 1, 2003 has been the subject of any action
      involving a claim of violation of or liability under federal or state securities
      laws or a claim of breach of fiduciary duty. There has not been, and to the
      Company’s Knowledge, there is not pending or contemplated, any investigation by
      the SEC involving the Company or any current or former director or officer
      of
      the Company. The SEC has not issued any stop order or other order suspending
      the
      effectiveness of any registration statement filed by the Company or any
      Subsidiary under the 1933 Act or the 1934 Act.

    

    4.18 Financial
      Statements.
      The
      financial statements included in each SEC Filing present fairly, in all material
      respects, the consolidated financial position of the Company as of the dates
      shown and its consolidated results of operations and cash flows for the periods
      shown, and such financial statements have been prepared in conformity with
      United States generally accepted accounting principles applied on a consistent
      basis (“GAAP”) (except as may be disclosed therein or in the notes thereto, and,
      in the case of quarterly financial statements, as permitted by Form 10QSB under
      the 1934 Act); provided, however, that the unaudited financial statements are
      subject to normal year-end audit adjustments (which are not expected to be
      material) and do not contain all footnotes required under generally accepted
      accounting principles. As of their respective dates, such financial statements
      complied as to form in all material respects with the published rules and
      regulations of the Commission with respect thereto. Except as set forth in
      the
      financial statements of the Company included in the SEC Filings filed prior
      to
      the date hereof or as described on Schedule
      4.18,
      neither
      the Company nor any of its Subsidiaries has incurred any liabilities, contingent
      or otherwise, except those incurred in the ordinary course of business,
      consistent (as to amount and nature) with past practices since the date of
      such
      financial statements, none of which, individually or in the aggregate, have
      had
      or could reasonably be expected to have a Material Adverse Effect.

    

    4.19 Insurance
      Coverage.
      The
      Company and each Subsidiary maintains in full force and effect insurance
      coverage that is customary for comparably situated companies for the business
      being conducted and properties owned or leased by the Company and each
      Subsidiary, and the Company reasonably believes such insurance coverage to
      be
      adequate against all liabilities, claims and risks against which it is customary
      for comparably situated companies to insure.

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    4.20 OTCBB
      Compliance.
      The
      Common Stock is registered pursuant to Section 12(g) of the 1934 Act and is
      quoted on The Nasdaq Stock Market, Inc.’s OTC Bulletin Board quotation service
      (the “OTCBB”), and the Company has taken no action designed to, or likely to
      have the effect of, terminating the registration of the Common Stock under
      the
      1934 Act or removal from quotation of the Common Stock from the OTCBB, nor
      has
      the Company received any notification that the SEC, the OTCBB or the Financial
      Industry Regulatory Authority, Inc. is contemplating terminating such
      registration or quotation.

    

    4.21 Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or an Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of the Company, other than as described in Schedule
      4.21.

    

    4.22 No
      Directed Selling Efforts or General Solicitation.
      Neither
      the Company nor any Person acting on its behalf has conducted any general
      solicitation or general advertising (as those terms are used in Regulation
      D) in
      connection with the offer or sale of any of the Securities.

    

    4.23 No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any Company
      security or solicited any offers to buy any security, under circumstances that
      would adversely affect reliance by the Company on Section 4(2) for the exemption
      from registration for the transactions contemplated hereby or would require
      registration of the Securities under the 1933 Act.

    

    4.24 Private
      Placement.
      The
      offer and sale of the Securities to the Investors as contemplated hereby is
      exempt from the registration requirements of the 1933 Act.

    

    4.25 Questionable
      Payments.
      Neither
      the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
      their respective current or former directors, officers, employees, agents or
      other Persons acting on behalf of the Company or any Subsidiary, has on behalf
      of the Company or any Subsidiary or in connection with their respective
      businesses: (a) used any corporate funds for unlawful contributions, gifts,
      entertainment or other unlawful expenses relating to political activity; (b)
      made any direct or indirect unlawful payments to any governmental officials
      or
      employees from corporate funds; (c) established or maintained any unlawful
      or
      unrecorded fund of corporate monies or other assets; (d) made any false or
      fictitious entries on the books and records of the Company or any Subsidiary;
      or
      (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
      other unlawful payment of any nature.

    

    4.26 Transactions
      with Affiliates.
      Except
      as disclosed in the SEC Filings or as disclosed on Schedule
      4.26,
      none of
      the officers or directors of the Company and, to the Company’s Knowledge, none
      of the employees of the Company is presently a party to any transaction with
      the
      Company or any Subsidiary (other than as holders of stock options and/or
      warrants, and for services as employees, officers and directors), including
      any
      contract, agreement or other arrangement providing for the furnishing of
      services to or by, providing for rental of real or personal property to or
      from,
      or otherwise requiring payments to or from any officer, director or such
      employee or, to the Company’s Knowledge, any entity in which any officer,
      director, or any such employee has a substantial interest or is an officer,
      director, trustee or partner.

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    4.27 Internal
      Controls.
      The
      Company is
      in
      material compliance with the provisions of the Sarbanes-Oxley Act of 2002
      currently applicable to the Company. The Company and
      the
      Subsidiaries maintain a system of internal accounting controls sufficient to
      provide reasonable assurance that (i) transactions are executed in accordance
      with management's general or specific authorizations, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with GAAP and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management's general or specific
      authorization, and (iv) the recorded accountability for assets is compared
      with
      the existing assets at reasonable intervals and appropriate action is taken
      with
      respect to any differences. The Company has established disclosure controls
      and
      procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the
      Company and designed such disclosure controls and procedures to ensure that
      material information relating to the Company, including the Subsidiaries, is
      made known to the certifying officers by others within those entities,
      particularly during the period in which the Company’s most recently filed
      periodic report under the 1934 Act, as the case may be, is being prepared.
      The
      Company's certifying officers have evaluated the effectiveness of the Company's
      controls and procedures as of the end of the period covered by the most recently
      filed periodic report under the 1934 Act (such date, the "Evaluation Date").
      The
      Company presented in its most recently filed periodic report under the 1934
      Act
      the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the Company's internal controls (as such term is defined in Item
      308
      of Regulation S-K) or, to the Company's Knowledge, in other factors that could
      significantly affect the Company's internal controls. The Company maintains
      and
      will continue to maintain a standard system of accounting established and
      administered in accordance with GAAP and the applicable requirements of the
      1934
      Act.

    

    4.28 Disclosures.
      Neither
      the Company nor any Person acting on its behalf has provided the Investors
      or
      their agents or counsel with any information that constitutes, as of the Closing
      Date, material non-public information, other than the terms of the transactions
      contemplated hereby. The written materials delivered to the Investors in
      connection with the transactions contemplated by the Transaction Documents
      do
      not contain any untrue statement of a material fact or omit to state a material
      fact necessary in order to make the statements contained therein, in light
      of
      the circumstances under which they were made, not misleading.

    

    5. Representations
      and Warranties of the Investors.
      Each of
      the Investors hereby severally, and not jointly, represents and warrants to
      the
      Company that:

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    5.1 Organization
      and Existence.
      If the
      Investor is not an individual, such Investor is a validly existing corporation,
      limited partnership or limited liability company and has all requisite
      corporate, partnership or limited liability company power and authority to
      invest in the Securities pursuant to this Agreement.

    

    5.2 Authorization.
      The
      execution, delivery and performance by such Investor of the Transaction
      Documents to which such Investor is a party have been duly authorized and will
      each constitute the valid and legally binding obligation of such Investor,
      enforceable against such Investor in accordance with their respective terms,
      subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
      moratorium and similar laws of general applicability, relating to or affecting
      creditors’ rights generally.

    

    5.3 Purchase
      Entirely for Own Account.
      The
      Securities to be received by such Investor hereunder will be acquired for such
      Investor’s own account, not as nominee or agent, and not with a view to the
      resale or distribution of any part thereof in violation of the 1933 Act, and
      such Investor has no present intention of selling, granting any participation
      in, or otherwise distributing the same in violation of the 1933 Act
      without
      prejudice, however, to such Investor’s right at all times to sell or otherwise
      dispose of all or any part of such Securities in compliance with applicable
      federal and state securities laws.
      Nothing
      contained herein shall be deemed a representation or warranty by such Investor
      to hold the Securities for any period of time. Such
      Investor
      is not a broker-dealer registered with the SEC under the 1934 Act or an entity
      engaged in a business that would require it to be so registered.

    

    5.4 Investment
      Experience.
      Such
      Investor acknowledges that it can bear the economic risk and complete loss
      of
      its investment in the Securities and has such knowledge and experience in
      financial or business matters that it is capable of evaluating the merits and
      risks of the investment contemplated hereby.

    

    5.5 Disclosure
      of Information.
      Such
      Investor has had an opportunity to receive all information related to the
      Company requested by it and to ask questions of and receive answers from the
      Company regarding the Company, its business and the terms and conditions of
      the
      offering of the Securities. Such Investor acknowledges receipt of copies of
      the
      SEC Filings. Neither such inquiries nor any other due diligence investigation
      conducted by such Investor shall modify, limit or otherwise affect such
      Investor’s right to rely on the Company’s representations and warranties
      contained in this Agreement.

    

    5.6 Restricted
      Securities.
      Such
      Investor understands that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the 1933 Act only in certain limited
      circumstances.

    

    5.7 Legends.
      It is
      understood that, except as provided below, certificates evidencing the
      Securities may bear the following or any similar legend:

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    (a) “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 without volume restriction pursuant to Rule 144, 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.”

    

    (b) If
      required by the authorities of any state in connection with the issuance of
      sale
      of the Securities, the legend required by such state authority.

    

    5.8 Accredited
      Investor.
      Such
      Investor is an accredited investor as defined in Rule 501(a) of Regulation
      D, as
      amended, under the 1933 Act.

    

    5.9 No
      General Solicitation.
      Such
      Investor did not learn of the investment in the Securities as a result of any
      general solicitation or general advertising.

    

    5.10 Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or an Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of such Investor.

    

    5.11 Prohibited
      Transactions.
      Since
      the earlier of (a) such time as such Investor was first contacted by the Company
      or any other Person acting on behalf of the Company regarding the transactions
      contemplated hereby or (b) thirty (30) days prior to the date hereof, neither
      such Investor nor any Affiliate of such Investor which (x) had knowledge of
      the
      transactions contemplated hereby, (y) has or shares discretion relating to
      such
      Investor’s investments or trading or information concerning such Investor’s
      investments, including in respect of the Securities, or (z) is subject to such
      Investor’s review or input concerning such Affiliate’s investments or trading
      (collectively, “Trading Affiliates”) has, directly or indirectly, effected or
      agreed to effect any short sale, whether or not against the box, established
      any
“put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with
      respect to the Common Stock, granted any other right (including, without
      limitation, any put or call option) with respect to the Common Stock or with
      respect to any security that includes, relates to or derived any significant
      part of its value from the Common Stock or otherwise sought to hedge its
      position in the Securities (each, a “Prohibited Transaction”). Prior to the
      earliest to occur of (i) the termination of this Agreement, (ii) the Effective
      Date or (iii) the Effectiveness Deadline, such Investor shall not, and shall
      cause its Trading Affiliates not to, engage, directly or indirectly, in a
      Prohibited Transaction. Such Investor acknowledges that the representations,
      warranties and covenants contained in this Section 5.11 are being made for
      the
      benefit of the Investors as well as the Company and that each of the other
      Investors shall have an independent right to assert any claims against such
      Investor arising out of any breach or violation of the provisions of this
      Section 5.11.

    

    5.12 Reliance
      on Exemptions.
      Such
      Investor understands that the Securities are being offered and sold to it in
      reliance upon specific exemptions from the registration requirements of the
      1933
      Act, the rules and regulations promulgated thereunder and state securities
      laws
      and that the Company is relying upon the truth and accuracy of, and the
      Investor’s compliance with, the representations, warranties, agreements,
      acknowledgments and understandings of the Investor set forth herein in order
      to
      determine the availability of such exemptions and the eligibility of the
      Investor to acquire the Securities.

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    5.13 Investment
      Decision.
      Such
      Investor understands that nothing in the Agreement or any other materials
      presented to such Investor in connection with the purchase and sale of the
      Securities constitutes legal, tax or investment advice. Such Investor has
      consulted such legal, tax and investment advisors as it, in its sole discretion,
      has deemed necessary or appropriate in connection with its purchase of the
      Securities. 

    

    5.14 Risk
      of Loss.
      Such
      Investor understands that its investment in the Securities involves a
      significant degree of risk, including a risk of total loss of such Investor’s
      investment, and such Investor has full cognizance of and understands all of
      the
      risk factors related to such Investor’s purchase of the Securities, including,
      but not limited to, those set forth under or incorporated by reference under
      the
      caption “Factors That May Affect Future Results and Market Price of Stock” in
      the SEC Filings. Such Investor understands that the market price of the Common
      Stock has been volatile and that no representation is being made as to the
      future value of the Common Stock.

    

    5.15 No
      Government Review.
      Such
      Investor understands that no United States federal or state agency or any other
      government or governmental agency has passed upon or made any recommendation
      or
      endorsement of the Securities.

    

    5.16 Residency.
      Such
      Investor's principal executive office, if an entity, or residence, if an
      individual, is in the jurisdiction set forth immediately below such Investor’s
      name on the signature pages hereto.

    

    6.
      Conditions
      to Closing.

    

    6.1 Conditions
      to the Investors’ Obligations.
      The
      obligation of each Investor to purchase the Notes and the Warrants at the
      Closing is subject to the fulfillment to such Investor’s satisfaction, on or
      prior to the Closing Date, of the following conditions, any of which may be
      waived by such Investor (as to itself only):

    

    (a) The
      representations and warranties made by the Company in Section 4 hereof qualified
      as to materiality shall be true and correct at all times prior to and on the
      Closing Date, except to the extent any such representation or warranty expressly
      speaks as of an earlier date, in which case such representation or warranty
      shall be true and correct as of such earlier date, and, the representations
      and
      warranties made by the Company in Section 4 hereof not qualified as to
      materiality shall be true and correct in all material respects at all times
      prior to and on the Closing Date, except to the extent any such representation
      or warranty expressly speaks as of an earlier date, in which case such
      representation or warranty shall be true and correct in all material respects
      as
      of such earlier date. The Company shall have performed in all material respects
      all obligations and covenants herein required to be performed by it on or prior
      to the Closing Date.

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    (b) The
      Company shall have obtained any and all consents, permits, approvals,
      registrations and waivers necessary or appropriate for consummation of the
      purchase and sale of the Securities and the consummation of the other
      transactions contemplated by the Transaction Documents, all of which shall
      be in
      full force and effect.

    

    (c) The
      Company shall have executed and delivered the Registration Rights Agreement,
      the
      Voting Agreements, the Security Agreement and the other Security
      Documents.

    

    (d) No
      judgment, writ, order, injunction, award or decree of or by any court, or judge,
      justice or magistrate, including any bankruptcy court or judge, or any order
      of
      or by any governmental authority, shall have been issued, and no action or
      proceeding shall have been instituted by any governmental authority, enjoining
      or preventing the consummation of the transactions contemplated hereby or in
      the
      other Transaction Documents.

    

    (e) The
      Company shall have delivered to the Investors a Certificate, executed on behalf
      of the Company by its Chief Executive Officer or its Chief Financial Officer,
      dated as of the Closing Date, certifying to the fulfillment of the conditions
      specified in subsections (a), (b), (d) and (h) of this Section 6.1.

    

    (f) The
      Company shall have delivered to the Investors a Certificate, executed on behalf
      of the Company by its Clerk, dated as of the Closing Date, certifying the
      resolutions adopted by the Board of Directors of the Company approving (i)
      the
      transactions contemplated by this Agreement and the other Transaction Documents,
      (ii) the issuance of the Securities and (iii) the Amendment, certifying the
      current versions of the Articles of Organization and Bylaws of the Company
      and
      certifying as to the signatures and authority of persons signing the Transaction
      Documents and related documents on behalf of the Company.

    

    (g) The
      Investors shall have received an opinion from Ropes & Gray LLP, the
      Company's counsel, dated as of the Closing Date, in form and substance
      reasonably acceptable to the Investors and addressing such legal matters as
      the
      Investors may reasonably request.

    

    (h) No
      stop
      order or suspension of trading shall have been imposed by the SEC or any other
      governmental or regulatory body with respect to public trading in the Common
      Stock.

    

    (i) The
      Persons set forth in Schedule 6.1 shall have executed and delivered Voting
      Agreements.

    

    6.2 Conditions
      to Obligations of the Company.
      The
      Company's obligation to sell and issue the Notes and the Warrants at the Closing
      is subject to the fulfillment to the satisfaction of the Company on or prior
      to
      the Closing Date of the following conditions, any of which may be waived by
      the
      Company:

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    (a) The
      representations and warranties made by the Investors in Section 5 hereof, other
      than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
      5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and
      correct in all material respects when made, and shall be true and correct in
      all
      material respects on the Closing Date with the same force and effect as if
      they
      had been made on and as of said date. The Investment Representations shall
      be
      true and correct in all respects when made, and shall be true and correct in
      all
      respects on the Closing Date with the same force and effect as if they had
      been
      made on and as of said date. The Investors shall have performed in all material
      respects all obligations and covenants herein required to be performed by them
      on or prior to the Closing Date.

    

    (b) The
      Investors shall have executed and delivered the Registration Rights Agreement,
      the Security Agreement and the other Security Documents to which they are a
      party.

    

    (c) The
      Investors shall have delivered the Purchase Price to the Company.

    

    6.3 Termination
      of Obligations to Effect Closing; Effects.

    

    (a) The
      obligations of the Company, on the one hand, and the Investors, on the other
      hand, to effect the Closing shall terminate as follows:

    

    (i) Upon
      the
      mutual written consent of the Company and the Investors;

    

    (ii) By
      the
      Company if any of the conditions set forth in Section 6.2 shall have become
      incapable of fulfillment, and shall not have been waived by the
      Company;

    

    (iii) By
      an
      Investor (with respect to itself only) if any of the conditions set forth in
      Section 6.1 shall have become incapable of fulfillment, and shall not have
      been
      waived by the Investor; or

    

    (iv) By
      either
      the Company or any Investor (with respect to itself only) if the Closing has
      not
      occurred on or prior to June 30, 2008;

    

    provided,
      however, that, except in the case of clause (i) above, the party seeking to
      terminate its obligation to effect the Closing shall not then be in breach
      of
      any of its representations, warranties, covenants or agreements contained in
      this Agreement or the other Transaction Documents if such breach has resulted
      in
      the circumstances giving rise to such party’s seeking to terminate its
      obligation to effect the Closing.

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    (b) In
      the
      event of termination by the Company or any Investor of its obligations to effect
      the Closing pursuant to this Section 6.3, written notice thereof shall forthwith
      be given to the other Investors by the Company and the other Investors shall
      have the right to terminate their obligations to effect the Closing upon written
      notice to the Company and the other Investors. Nothing in this Section 6.3
      shall
      be deemed to release any party from any liability for any breach by such party
      of the terms and provisions of this Agreement or the other Transaction Documents
      or to impair the right of any party to compel specific performance by any other
      party of its obligations under this Agreement or the other Transaction
      Documents.

    

    7. Covenants
      and Agreements of the Company.

    

    7.1 Reservation
      of Common Stock.
      From
      and after the Amendment Effective Date, the Company shall at all times reserve
      and keep available out of its authorized but unissued shares of Common Stock,
      solely for the purpose of providing for the conversion of the Notes, the
      issuance of the Interest Shares and the exercise of the Warrants, such number
      of
      shares of Common Stock as shall from time to time equal the Conversion Shares,
      the Interest Shares (assuming all interest on the Notes is paid in Interest
      Shares) and the Warrant Shares.

    

    7.2 Reports.
      The
      Company will furnish to the Investors such information relating to the Company
      and its Subsidiaries as from time to time may reasonably be requested by the
      Investors; provided, however, that 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.

    

    7.3 No
      Conflicting Agreements.
      The
      Company will not take any action, enter into any agreement or make any
      commitment that would conflict or interfere in any material respect with the
      Company’s obligations to the Investors under the Transaction
      Documents.

    

    7.4 Insurance.
      The
      Company shall not materially reduce the insurance coverages described in Section
      4.19.

    

    7.5 Compliance
      with Laws.
      The
      Company will comply in all material respects with all applicable laws, rules,
      regulations, orders and decrees of all governmental authorities.

    

    7.6 Listing
      of Underlying Shares and Related Matters.
      If the
      Company applies to have its Common Stock or other securities traded on any
      stock
      exchange or market, it shall include in such application the Conversion Shares,
      the Interest Shares and the Warrant Shares and will take such other action
      as is
      necessary to cause such Common Stock to be so listed. Following any such
      listing, the Company will use commercially reasonable efforts to continue the
      listing and trading of its Common Stock on such stock exchange or market and,
      in
      accordance, therewith, will use commercially reasonable efforts to comply in
      all
      respects with the Company’s reporting, filing and other obligations under the
      bylaws or rules of such stock exchange or market, as
      applicable.

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    7.7 Termination
      of Covenants.
      The
      provisions of Sections 7.2 through 7.5 shall terminate and be of no further
      force and effect on the date on which the Company’s obligations under the
      Registration Rights Agreement to register or maintain the effectiveness of
      any
      registration covering the Registrable Securities (as such term is defined in
      the
      Registration Rights Agreement) shall terminate.

    

    7.8 Removal
      of Legends.
      In
      connection with any sale or disposition of the Securities by an Investor
      pursuant to Rule 144 or pursuant to any other exemption under the 1933 Act
      such
      that the purchaser acquires freely tradable shares and upon compliance by the
      Investor with the requirements of this Agreement, the Company shall or, in
      the
      case of Common Stock, shall cause the transfer agent for the Common Stock (the
      “Transfer Agent”) to issue replacement certificates representing the Securities
      sold or disposed of without restrictive legends. Upon the earlier of (i)
      registration for resale pursuant to the Registration Rights Agreement or (ii)
      the Conversion Shares, the Interest Shares or the Warrant Shares, as applicable,
      becoming freely tradable by a non-affiliate pursuant to Rule 144 the Company
      shall (A) deliver to the Transfer Agent irrevocable instructions that the
      Transfer Agent shall issue a certificate representing shares of Common Stock
      without legends upon receipt by such Transfer Agent of (X) either (1) a
      customary representation by the Investor that Rule 144 applies to the shares
      of
      Common Stock represented thereby or (2) a statement by the Investor that such
      Investor has sold the shares of Common Stock represented thereby in accordance
      with the Plan of Distribution contained in the Registration Statement, and
      (Y)
      if applicable, the legended certificates for such shares, and (B) cause its
      counsel to deliver to the Transfer Agent one or more blanket opinions to the
      effect that the removal of such legends in such circumstances may be effected
      under the 1933 Act. At any time when one or more of the Securities may be freely
      sold or is covered by an effective Registration Statement, the Company shall,
      or
      shall cause the Transfer Agent to, promptly cause the Investor’s Securities to
      be replaced with Securities which do not bear restrictive legends, and
      Conversion Shares subsequently issued upon the due conversion of the Notes,
      Interest Shares issued pursuant to the Notes and Warrant Shares subsequently
      issued upon due exercise of the Warrants shall not bear such restrictive legends
      provided such Securities may be freely sold or are covered by an effective
      Registration Statement. When the Company is required to cause an unlegended
      Security to be issued as provided herein, if: (1) the unlegended Security is
      not
      delivered to an Investor within three (3) Business Days of submission by that
      Investor of a request for unlegended Securities and, if applicable, the
      documentation specified above to the Transfer Agent or the Company, as
      applicable, and (2) prior to the time such unlegended Security is received
      by
      the Investor, the Investor, or any third party on behalf of such Investor or
      for
      the Investor’s account, purchases (in an open market transaction or otherwise)
      another Security to deliver in satisfaction of a sale by the Investor of such
      Security (a “Buy-In”), then the Company shall pay in cash to the Investor (for
      costs incurred either directly by such Purchaser or on behalf of a third party)
      the amount by which the total purchase price paid for the replacement Security
      as a result of the Buy-In (including brokerage commissions, if any) exceeds
      the
      proceeds received by such Investor as a result of the sale to which such Buy-In
      relates. The Investor shall provide the Company written notice indicating the
      amounts payable to the Investor in respect of the Buy-In.

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    7.9 Subsequent
      Equity Sales.
      From
      the date hereof until such time as no Investor holds any of the Securities,
      the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a “Variable Rate Transaction”. The
      term “Variable Rate Transaction” shall mean a transaction in which the Company
      issues or sells (i) any debt or equity securities that are convertible into,
      exchangeable or exercisable for, or include the right to receive additional
      shares of Common Stock either (A) at a conversion, exercise or exchange rate
      or
      other price that is based upon and/or varies with the trading prices of or
      quotations for the shares of Common Stock at any time after the initial issuance
      of such debt or equity securities, or (B) with a conversion, exercise or
      exchange price that is subject to being reset at some future date after the
      initial issuance of such debt or equity security or upon the occurrence of
      specified or contingent events directly or indirectly related to the business
      of
      the Company or the market for the Common Stock or (ii) enters into any
      agreement, including, but not limited to, an equity line of credit, whereby
      the
      Company may sell securities at a future determined price.

    

    7.10 Proxy
      Statement; Stockholders Meeting; Filing of Amendment.
      (a)
      Promptly following the execution and delivery of this Agreement the Company
      shall take all action necessary to call a meeting of its stockholders (the
      “Stockholders Meeting”), which shall occur not later than December 2, 2008 (the
“Stockholders Meeting Deadline”), for the purpose of seeking approval of the
      Company’s stockholders for the Amendment (the “Proposal”). In connection
      therewith, the Company will promptly prepare and file with the SEC proxy
      materials (including a proxy statement and form of proxy) for use at the
      Stockholders Meeting and, after receiving and promptly responding to any
      comments of the SEC thereon, shall promptly mail such proxy materials to the
      stockholders of the Company. Each Investor shall promptly furnish in writing
      to
      the Company such information relating to such Investor and its investment in
      the
      Company as the Company may reasonably request for inclusion in the Proxy
      Statement. The Company will comply with Section 14(a) of the 1934 Act and the
      rules promulgated thereunder in relation to any proxy statement (as amended
      or
      supplemented, the “Proxy Statement”) and any form of proxy to be sent to the
      stockholders of the Company in connection with the Stockholders Meeting, and
      the
      Proxy Statement shall not, on the date that the Proxy Statement (or any
      amendment thereof or supplement thereto) is first mailed to stockholders or
      at
      the time of the Stockholders Meeting, contain any untrue statement of a material
      fact or omit to state any material fact necessary in order to make the
      statements made therein not false or misleading, or omit to state any material
      fact necessary to correct any statement in any earlier communication with
      respect to the solicitation of proxies or the Stockholders Meeting which has
      become false or misleading. If the Company should discover at any time prior
      to
      the Stockholders Meeting, any event relating to the Company or any of its
      Subsidiaries or any of their respective affiliates, officers or directors that
      is required to be set forth in a supplement or amendment to the Proxy Statement,
      in addition to the Company's obligations under the 1934 Act, the Company will
      promptly inform the Investors thereof.

    

    (b) Subject
      to their fiduciary obligations under applicable law (as determined in good
      faith
      by the Company’s Board of Directors after consultation with the Company’s
      outside counsel), the Company's Board of Directors shall recommend to the
      Company's stockholders that the stockholders vote in favor of the Proposal
      (the
“Company Board Recommendation”) and shall take all commercially reasonable
      action (including, without limitation, the hiring of a proxy solicitation firm
      of nationally recognized standing) to solicit the approval of the stockholders
      for the Proposal unless the Board of Directors shall have modified, amended
      or
      withdrawn the Company Board Recommendation pursuant to the provisions of the
      immediately succeeding sentence. The Company covenants that the Board of
      Directors of the Company shall not modify, amend or withdraw the Company Board
      Recommendation unless the Board of Directors (after consultation with the
      Company’s outside counsel) shall determine in the good faith exercise of its
      business judgment that maintaining the Company Board Recommendation would
      violate its fiduciary duty to the Company’s stockholders. Whether or not the
      Company's Board of Directors modifies, amends or withdraws the Company Board
      Recommendation pursuant to the immediately preceding sentence, the Company
      shall
      in accordance with applicable law and the provisions of its Articles of
      Organization and Bylaws, (i) take all action necessary to convene the
      Stockholders Meeting as promptly as practicable, but no later than the
      Stockholders Meeting Deadline, to consider and vote upon the approval of the
      Proposal and (ii) submit the Proposal at the Stockholders Meeting to the
      stockholders of the Company for their approval.

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (c) Not
      later
      than two (2) Business Days after obtaining approval of the Proposal at the
      Stockholders Meeting, the Company shall file the Certificate of Amendment with
      the Secretary of the Commonwealth of Massachusetts which shall be as promptly
      as
      practicable after the filing thereof as permitted by applicable law. The Company
      shall notify the Investors in writing of the filing of the Certificate of
      Amendment as provided in the immediately preceding sentence not later than
      one
      (1) Business Day after such filing.

    

    7.11 Right
      to Participate in Future Financings.
      From
      the date hereof until 90 days after the Effective Date, upon any financing
      by
      the Company of its Common Stock or Common Stock Equivalents (a “Subsequent
      Financing”), each Investor shall have the right to participate in such
      Subsequent Financing as provided herein. At least seven (7) Business Days prior
      to the closing of the Subsequent Financing, the Company shall deliver to each
      Investor a written notice of its intention to effect a Subsequent Financing
      (“Pre-Notice”), which Pre-Notice shall ask such Investor if it wants to review
      the details of such financing (such additional notice, a “Subsequent Financing
      Notice”). Upon the request of an Investor, and only upon a request by such
      Investor, for a Subsequent Financing Notice, the Company shall promptly, but
      no
      later than one Business Day after such request, deliver a Subsequent Financing
      Notice to such Investor. The Subsequent Financing Notice shall describe in
      reasonable detail the proposed terms of such Subsequent Financing, the amount
      of
      proceeds intended to be raised thereunder, the Person with whom such Subsequent
      Financing is proposed to be effected, and attached to which shall be a term
      sheet or similar document relating thereto. Each Investor shall notify the
      Company by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after
      their receipt of the Subsequent Financing Notice of its willingness to
      participate in the Subsequent Financing on the terms described in the Subsequent
      Financing Notice, subject to completion of mutually acceptable documentation.
      The Investors agreeing to participate in the Subsequent Financing shall have
      the
      right to purchase their Pro Rata Portion (as defined below) of the Common Stock
      or Common Stock Equivalents to be issued in such Subsequent Financing. “Pro Rata
      Portion” is the ratio of (x) the number of shares of Common Stock beneficially
      owned amount by such Investor (determined in accordance with Rule 13d-3 under
      the 1934 Act and (y) number of shares of Common Stock then outstanding
      (calculated on a fully diluted basis). Notwithstanding the foregoing, this
      Section 7.11 shall not apply in respect of the issuance of (a) shares of Common
      Stock or options to employees, consultants, officers or directors of the Company
      pursuant to any stock or option plan duly adopted by a majority of the
      non-employee members of the Board of Directors of the Company or a majority
      of
      the members of a committee of non-employee directors established for such
      purpose, shares of Common Stock issuable in respect of the Notes and the
      Warrants, and (c) securities upon the exercise of or conversion of any
      convertible securities, options or warrants issued and outstanding on the date
      of this Agreement, provided that the terms of such securities have not been
      amended since the date of this Agreement to increase the number of shares of
      Common Stock issuable thereunder or to lower the exercise or conversion price
      thereof.

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    7.12 Equal
      Treatment of Investors.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. For clarification purposes, this provision constitutes
      a
      separate right granted to each Investor by the Company and negotiated separately
      by each Investor, and is intended for the Company to treat the Investors as
      a
      class and shall not in any way be construed as the Investors acting in concert
      or as a group with respect to the purchase, disposition or voting of Securities
      or otherwise.

    

    7.13 Restructuring.
      The
      Company shall use commercially reasonable efforts (including a significant
      salary reduction for certain employees) to effect a cost restructuring that
      will
      reduce the net cash burn of the Company and its Subsidiaries to $500,000 or
      less
      for the fiscal year ending June 30, 2009. As part of that restructuring, the
      Company intends to amend its existing equity incentive plan (the “2006 Plan”) to
      increase the number of shares available to grant to key employees of, and
      consultants to, the Company and its Subsidiaries. Over the next 24 months the
      grants under the 2006 Plan and any other equity incentive plan adopted by the
      Company from time to time shall not cumulatively exceed 20% of the shares of
      Common Stock outstanding on the date hereof (calculated on a fully diluted
      basis).

    

    7.14 Use
      of
      Proceeds.
      The
      Company shall use the net proceeds of the sale of the Notes and the Warrants
      as
      provided in Section 4.7.

    

    8. Survival
      and Indemnification.

    

    8.1 Survival.
      The
      representations, warranties, covenants and agreements contained in this
      Agreement shall survive the Closing of the transactions contemplated by this
      Agreement.

    

    8.2 Indemnification.
      The
      Company agrees to indemnify and hold harmless each Investor and its Affiliates
      and their respective directors, officers, employees and agents from and against
      any and all losses, claims, damages, liabilities and expenses (including without
      limitation reasonable attorney fees and disbursements and other expenses
      incurred in connection with investigating, preparing or defending any action,
      claim or proceeding, pending or threatened and the costs of enforcement thereof)
      (collectively, “Losses”) to which such Person may become subject as a result of
      any breach of representation, warranty, covenant or agreement made by or to
      be
      performed on the part of the Company under the Transaction Documents, and will
      reimburse any such Person for all such amounts as they are incurred by such
      Person.

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    8.3 Conduct
      of Indemnification Proceedings.
      Promptly
      after receipt by any Person (the “Indemnified
      Person”) of notice of any demand, claim or circumstances which would or might
      give rise to a claim or the commencement of any action, proceeding or
      investigation in respect of which indemnity may be sought pursuant to Section
      8.2, such Indemnified Person shall promptly notify the Company in writing and
      the Company shall assume the defense thereof, including the employment of
      counsel reasonably satisfactory to such Indemnified Person, and shall assume
      the
      payment of all reasonable fees and expenses; provided,
      however, that
      the
      failure of any Indemnified Person so to notify the Company shall not relieve
      the
      Company of its obligations hereunder except to the extent that the Company
      is
      materially prejudiced by such failure to notify. In any such proceeding, any
      Indemnified Person shall have the right to retain its own counsel, but the
      fees
      and expenses of such counsel shall be at the expense of such Indemnified Person
      unless: (i) the Company and the Indemnified Person shall have mutually agreed
      to
      the retention of such counsel; or (ii) in the reasonable judgment of counsel
      to
      such Indemnified Person representation of both parties by the same counsel
      would
      be inappropriate due to actual or potential differing interests between them.
      The Company shall not be liable for any settlement of any proceeding effected
      without its written consent, which consent shall not be unreasonably withheld,
      but if settled with such consent, or if there be a final judgment for the
      plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
      from and against any loss or liability (to the extent stated above) by reason
      of
      such settlement or judgment. Without the prior written consent of the
      Indemnified Person, which consent shall not be unreasonably withheld, the
      Company shall not effect any settlement of any pending or threatened proceeding
      in respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Party, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

    

    9. Miscellaneous.

    

    9.1 Successors
      and Assigns.
      This
      Agreement may not be assigned by a party hereto without the prior written
      consent of the Company or the Investors, as applicable, provided, however,
      that
      an Investor may assign its rights and delegate its duties hereunder in whole
      or
      in part to an Affiliate or to a third party acquiring some or all of its
      Securities in a transaction complying with applicable securities laws without
      the prior written consent of the Company or the other Investors. The provisions
      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.

    

    9.2 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 and transmitted via facsimile,
      or by portable document format via electronic mail, each of which shall be
      deemed an original.

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    9.3 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.

    

    9.4 Notices.
      Unless
      otherwise provided, any notice required or permitted under this Agreement 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 telecopier, 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 to the party to be notified at the address as follows, or at such
      other address as such party may designate by ten days’ advance written notice to
      the other party:

    

    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

    

    If
      to the
      Investors:

    

    to
      the
      addresses set forth on the signature pages hereto.

    

    9.5 Expenses.
      The
      parties hereto shall pay their own costs and expenses in connection herewith,
      except that the Company shall pay the reasonable fees and expenses of Lowenstein
      Sandler PC not to exceed $35,000, regardless of whether the transactions
      contemplated hereby are consummated; it being understood that Lowenstein Sandler
      PC has only rendered legal advice to the Special Situations Funds participating
      in this transaction and not to the Company or any other Investor in connection
      with the transactions contemplated hereby, and that each of the Company and
      each
      Investor has relied for such matters on the advice of its own respective
      counsel. Such expenses shall be paid upon demand. The Company shall reimburse
      the Investors upon demand for all reasonable out-of-pocket expenses incurred
      by
      the Investors, including without limitation reimbursement of attorneys’ fees and
      disbursements, in connection with any amendment, modification or waiver of
      this
      Agreement or the other Transaction Documents. In the event that legal
      proceedings are commenced by any party to this Agreement against another party
      to this Agreement in connection with this Agreement or the other Transaction
      Documents, the party or parties which do not prevail in such proceedings shall
      severally, but not jointly, pay their pro rata share of the reasonable
      attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred
      by the prevailing party in such proceedings.

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    9.6 Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      retroactively or prospectively), only with the written consent of the Company
      and the Investors. Any amendment or waiver effected in accordance with this
      paragraph shall be binding upon each holder of any Securities purchased under
      this Agreement at the time outstanding, each future holder of all such
      Securities, and the Company.

    

    9.7 Publicity.
      Except
      as set forth below, no public release or announcement concerning the
      transactions contemplated hereby shall be issued by the Company or the Investors
      without the prior consent of the Company (in the case of a release or
      announcement by the Investors) or the Investors (in the case of a release or
      announcement by the Company) (which consents shall not be unreasonably
      withheld), except as such release or announcement may be required by law or
      the
      applicable rules or regulations of any securities exchange or securities market,
      in which case the Company or the Investors, as the case may be, shall allow
      the
      Investors or the Company, as applicable, to the extent reasonably practicable
      in
      the circumstances, reasonable time to comment on such release or announcement
      in
      advance of such issuance. No later than one Business Day following the Closing
      Date, the Company will publicly disclose the transactions contemplated hereby
      and, in connection therewith, will, no later than two Business Days following
      the Closing Date, file with the SEC either a Current Report on Form 8-K or
      a
      Quarterly Report on Form 10-QSB, to the extent permissible, which shall attach
      as exhibits copies of the Transaction Documents.

    

    9.8 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 provision hereof prohibited or unenforceable in any
      respect.

    

    9.9 Entire
      Agreement.
      This
      Agreement, including the Exhibits and the Disclosure Schedules, and the other
      Transaction Documents constitute the entire agreement among the parties hereof
      with respect to the subject matter hereof and thereof and supersede all prior
      agreements and understandings, both oral and written, between the parties with
      respect to the subject matter hereof and thereof.

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    9.10 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.

    

    9.11 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 (other than Section 5-1401 of the New York General Obligation Law).
      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.

    

    9.12 Independent
      Nature of Investors' Obligations and Rights.
      The
      obligations of each Investor under any Transaction Document are several and
      not
      joint with the obligations of any other Investor, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor under any Transaction Document. The decision of each Investor to
      purchase Securities pursuant to the Transaction Documents has been made by
      such
      Investor independently of any other Investor. Nothing contained herein or in
      any
      Transaction Document, and no action taken by any Investor pursuant thereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Investor acknowledges that no other Investor has acted as agent for such
      Investor in connection with making its investment hereunder and that no Investor
      will be acting as agent of such Investor in connection with monitoring its
      investment in the Securities or enforcing its rights under the Transaction
      Documents. Each Investor shall be entitled to independently protect and enforce
      its rights, including, without limitation, the rights arising out of this
      Agreement or out of the other Transaction Documents, and it shall not be
      necessary for any other Investor to be joined as an additional party in any
      proceeding for such purpose. The Company acknowledges that each of the Investors
      has been provided with the same Transaction Documents for the purpose of closing
      a transaction with multiple Investors and not because it was required or
      requested to do so by any Investor.

     

    [signature
      page follows]

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    

    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

            
	 	 
	 	
              By:

            	/s/
              Richard E. Forkey
	 	
              Name:
                Richard E. Forkey

            
	 	
              Title: President, Chief Executive Officer and Treasurer

            

    

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

    

    
      	
              The
                Investors:

            	
              SPECIAL SITUATIONS FUND III QP, L.P.

            
	 	 
	 	
              By:

            	/s/
              Austin W. Marxe
	 	
              Name:
                Austin W. Marxe

            
	 	
              Title:
                General Partner

            

    

    

    Aggregate
      Purchase Price: $275,000

    Principal
      Amount of Notes: $275,000

    Number
      of
      Warrants: 3,630,000

    

    
      	
              Address
                for Notice:

            	 
	 	
              527
                Madison Avenue

            
	 	
              Suite
                2600

            
	 	
              New
                York, NY 10022

            
	 	 
	 	
              with
                a copy to:

            
	 	 
	 	
              Lowenstein
                Sandler PC

            
	 	
              65
                Livingston Avenue

            
	 	
              Roseland,
                NJ 07068

            
	 	
              Attn:
                John D. Hogoboom, Esq.

            
	 	
              Telephone:  
                973.597.2500

            
	 	
              Facsimile:     
                973.597.2400

            

    

    

    
      	
              SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

            
	 
	
              By:

            	/s/
              Austin W. Marxe
	
              Name:
                Austin W. Marxe

            
	
              Title:
                General Partner

            

    

    

    Aggregate
      Purchase Price: $275,000

    Principal
      Amount of Notes: $275,000

    Number
      of
      Warrants: 3,630,000

    

    
      	
              527
                Madison Avenue

            
	
              Suite
                2600

            
	
              New
                York, NY 10022

            
	 
	
              with
                a copy to:

            
	 
	
              Lowenstein
                Sandler PC

            
	
              65
                Livingston Avenue

            
	
              Roseland,
                NJ 07068

            
	
              Attn:
                John D. Hogoboom, Esq.

            
	
              Telephone:
                973.597.2500

            
	
              Facsimile:
                973.597.2400

            

    

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

     

    
      	
              /s/
                Arnold Schumsky

            
	
              Arnold
                Schumsky

            

    

    

    Aggregate
      Purchase Price: $50,000

    Principal
      Amount of Notes: $50,000

    Number
      of
      Warrants: 660,000

    

    Address
      for Notice:

    
      
        
        

      

      
        -31-EXHIBIT
      10.2

    PLEDGE
      AND SECURITY AGREEMENT

     

    PLEDGE
      AND SECURITY AGREEMENT (this “Agreement”),
      dated
      as of June 25, 2008, is by and among Precision Optics Corporation, Inc., a
      Massachusetts corporation (the “Borrower”),
      and
      such other parties as may become Grantors hereunder on or after the date hereof
      (together with the Borrower, the “Grantors”
and,
      individually, a “Grantor”)
      and
      the Investors named as such in the Purchase Agreement, dated June 25, 2008
      (the
“Purchase
      Agreement”),
      among
      the Borrower and such Investors (collectively, the “Purchasers”).

     

    WHEREAS,
      pursuant to the terms of the Purchase Agreement, the Purchasers are acquiring
      from the Borrower, $600,000 in an aggregate principal amount of the Borrower’s
      10% Senior Secured Convertible Notes (the “Notes”);
      and

    

    WHEREAS,
      the
      Grantors wish to grant security interests in favor of the Purchasers as herein
      provided to secure the obligations of the Borrower under the Notes;

     

    NOW
      THEREFORE,
      in
      consideration of the promises contained herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    1.
       Definitions.
      All
      capitalized terms used herein without definitions shall have the respective
      meanings provided therefor in the Purchase Agreement or the Notes. As used
      herein the term “Obligations”
shall
      mean all principal, interest (including interest accrued after the filing of
      a
      bankruptcy or similar petition whether or not a claim therefor is enforceable),
      fees, expenses and indemnities payable from time to time by the Grantors under
      the Notes and the other Transaction Documents, including reimbursements under
      Section 11. The term “State,”
as
      used herein, means the State of New York. All terms defined in the Uniform
      Commercial Code of the State and used herein shall have the same definitions
      herein as specified therein. However, if a term is defined in Article 9 of
      the
      Uniform Commercial Code of the State differently than in another Article of
      the
      Uniform Commercial Code of the State, the term has the meaning specified in
      Article 9.

     

    2.
       Grant
      of Security Interest.
      Each
      Grantor hereby grants to the Purchasers, to secure the payment and performance
      in full of all of the Obligations, a security interest in and so pledges to
      the
      Purchasers the following properties, assets and rights of such Grantor, wherever
      located, whether now owned or hereafter acquired or arising, and all proceeds
      and products thereof (all of the same being hereinafter called the “Collateral”):
      

     

    (i) goods
      (including inventory, equipment and any accessions thereto), 

     

    (ii) instruments
      (including promissory notes),

     

    (iii) documents,

     

    (iv) accounts,

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (v) chattel
      paper (whether tangible or electronic),

     

    (vi) deposit
      accounts,

     

    (vii) letter-of-credit
      rights (whether or not the letter of credit is evidenced by a
      writing),

     

    (viii) commercial
      tort claims,

     

    (ix) securities
      and all other investment property (“Investment
      Property”),

     

    (x) supporting
      obligations,

     

    (xi) contract
      rights or rights to the payment of money, insurance claims and proceeds,

     

    (xii) general
      intangibles including, without limitation, all payment intangibles, patents,
      patent applications, trademarks, trademark applications, trade names,
      copyrights, copyright applications, software, engineering drawings, service
      marks, customer lists, goodwill, and all licenses, permits, agreements of any
      kind or nature pursuant to which the Grantors possess, use or have authority
      to
      possess or use property (whether tangible or intangible) of others or others
      possess, use or have authority to possess or use property (whether tangible
      or
      intangible) of the Grantors, and all recorded data of any kind or nature,
      regardless of the medium of recording including, without limitation, all
      software, writings, plans, specifications and schematics; and

     

    (xiii) all
      now
      existing and hereafter acquired or arising (A) capital stock, equity securities
      or interests or other Investment Property (including the capital stock described
      on Schedule
      A
      hereto),
      (B) all cash dividends and cash distributions with respect to the foregoing
      (“Dividends”),
      (C)
      all non-cash dividends paid on capital securities, liquidating dividends paid
      on
      capital securities, shares of capital securities resulting from (or in
      connection with the exercise of) stock splits, reclassifications, warrants,
      options, non-cash dividends, mergers, consolidations, and all other
      distributions (whether similar or dissimilar to the foregoing) on or with
      respect to any capital securities constituting Collateral (excluding Dividends,
      “Distributions”),
      and
      (D) all certificates, agreements (including stockholders agreements, partnership
      agreements, operating agreements and limited liability company agreements),
      books, records, writings, data bases, information and other property relating
      to, used or useful in connection with, evidencing, embodying, incorporating
      or
      referring to, any of the foregoing. 

     

    The
      Purchasers acknowledge that the attachment of the security interest in any
      commercial tort claim as original collateral is subject to the Grantor’s
      compliance with §4.7.

     

    Notwithstanding
      the foregoing, Collateral shall not include any of the following (collectively,
      the “Excluded
      Collateral”)
      (1)
      vehicles subject to a certificate of title statute, (2) rights under licenses,
      permits and contracts in which a security interest may not be granted except
      to
      the extent that such prohibition is not enforceable under the applicable Uniform
      Commercial Code, provided,
      that
      the Grantors shall not permit any such prohibitions in any contracts, licenses
      and permits entered into after the date hereof except in the ordinary course
      consistent with past practice and (3) the property listed on Schedule
      2
      attached
      hereto.

    

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    3.
       Authorization
      to File Financing Statements.
      The
      Grantors hereby irrevocably authorize the Purchasers at any time and from time
      to time to file in any applicable Uniform Commercial Code jurisdiction any
      initial financing statements and amendments thereto against each Grantor that
      (a) indicate the Collateral (i) as all assets of such Grantor or words of
      similar effect, regardless of whether any particular asset comprised in the
      Collateral falls within the scope of Article 9 of the Uniform Commercial Code
      of
      the State or such jurisdiction, or (ii) as being of an equal or lesser scope
      or
      with greater detail, and (b) contain any other information required by part
      5 of
      Article 9 of the Uniform Commercial Code of the State for the sufficiency or
      filing office acceptance of any financing statement or amendment, including
      (i)
      whether such Grantor is an organization, the type of organization and any
      organization identification number issued to such Grantor and, (ii) in the
      case
      of a financing statement filed as a fixture filing or indicating Collateral
      as
      as-extracted collateral or timber to be cut, a sufficient description of real
      property to which the Collateral relates. The Grantors agree to furnish any
      such
      information to the Purchasers promptly upon request. Each Grantor also ratifies
      its authorization for the Purchasers to have filed in any Uniform Commercial
      Code jurisdiction any like initial financing statements or amendments thereto
      if
      filed prior to the date hereof.

     

    4.
       Other
      Actions.
      Further
      to insure the attachment, perfection and first priority (subject to Permitted
      Liens) of, and the ability of the Purchasers to enforce, the Purchasers’
security interest in the Collateral, the Grantors agree, in each case at the
      Grantor’s own expense, to take the following actions with respect to the
      following Collateral:

     

    4.1.
       Promissory
      Notes and Tangible Chattel Paper.
      If any
      Grantor shall at any time hold or acquire any promissory notes or tangible
      chattel paper, such Grantor shall forthwith endorse, pledge and deliver the
      same
      to the Purchasers, accompanied by such instruments of transfer or assignment
      duly executed in blank as the Purchasers may from time to time
      specify.

     

    4.2.
       Deposit
      Accounts.
      For
      each deposit account (each, a “Deposit
      Account”)
      that
      any Grantor at any time opens or maintains at any depository bank (each, a
      “Depository
      Bank”),
      the
      Grantor shall, at the Purchasers’ request and option, pursuant to an agreement
      in form and substance satisfactory to the Purchasers (each, a “Deposit
      Account Control Agreement”),
      upon
      an Event of Default either (a) cause the Depositary Bank to agree to comply
      at
      any time with instructions from the Purchasers to such Depositary Bank directing
      the disposition of funds from time to time credited to such Deposit Account,
      without further consent of the Grantor, or (b) arrange for the Purchasers to
      become the customers of the Depositary Bank with respect to the Deposit Account,
      with the Grantors being permitted, only with the consent of the Purchasers,
      to
      exercise rights to withdraw funds from such Deposit Account. The Purchasers
      agree with the Grantors that the Purchasers shall not give any such instructions
      or withhold any withdrawal rights from the Grantors, unless an Event of Default
      has occurred and is continuing, or, after giving effect to any withdrawal not
      otherwise permitted by the Transaction Documents, would occur. The provisions
      of
      this paragraph shall not apply to (i) any Deposit Account for which the
      Grantors, the Depositary Bank and the Purchasers have entered into a cash
      collateral agreement specially negotiated among any Grantor, the Depositary
      Bank
      and the Purchasers for the specific purpose set forth therein (ii) Deposit
      Accounts for which any Purchaser is the depositary, and (iii) items on deposit
      in any Deposit Account constituting sales tax remittances.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    4.3.
       Investment
      Property.
      If any
      Grantor shall at any time hold or acquire any certificated securities, the
      Grantor shall forthwith endorse, pledge and deliver the same to the Purchasers,
      accompanied by such instruments of transfer or assignment duly executed in
      blank
      as the Purchasers may from time to time specify. If any securities now or
      hereafter acquired by any Grantor are uncertificated and are issued to the
      Grantor or its nominee directly by the issuer thereof, the Grantor shall
      immediately notify the Purchasers thereof and, at the Purchasers’ request and
      option, pursuant to an agreement in form and substance satisfactory to the
      Purchasers, either (a) cause the issuer to agree to comply with instructions
      from the Purchasers as to such securities, without further consent of the
      Grantor or such nominee, or (b) arrange for the Purchasers to become the
      registered owners of the securities. If any securities, whether certificated
      or
      uncertificated, or other investment property now or hereafter acquired by any
      Grantor are held by the Grantor or its nominee through a securities intermediary
      or commodity intermediary, the Grantor shall immediately notify the Purchasers
      thereof and, at the Purchasers’ request and option, pursuant to an agreement in
      form and substance satisfactory to the Purchasers, either (i) cause such
      securities intermediary or (as the case may be) commodity intermediary to agree
      to comply with entitlement orders or other instructions from the Purchasers
      to
      such securities intermediary as to such securities or other investment property,
      or (as the case may be) to apply any value distributed on account of any
      commodity contract as directed by the Purchasers to such commodity intermediary,
      in each case without further consent of the Grantor or such nominee, or (ii)
      in
      the case of financial assets or other investment property held through a
      securities intermediary, arrange for the Purchasers to become the entitlement
      holders with respect to such investment property, with the Grantor being
      permitted, only with the consent of the Purchasers, to exercise rights to
      withdraw or otherwise deal with such investment property. The Purchasers agree
      with the Grantors that the Purchasers shall not give any such entitlement orders
      or instructions or directions to any such issuer, securities intermediary or
      commodity intermediary, and shall not withhold its consent to the exercise
      of
      any withdrawal or dealing rights by the Grantors, unless an Event of Default
      has
      occurred and is continuing, or, after giving effect to any such investment
      and
      withdrawal rights not otherwise permitted by the Transaction Documents, would
      occur. The provisions of this paragraph shall not apply to any financial assets
      credited to a securities account for which any Purchaser is the securities
      intermediary.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    4.4.
       Collateral
      in the Possession of a Bailee.
      If any
      goods are at any time in the possession of a bailee, the Grantors shall promptly
      notify the Purchasers thereof and, if requested by the Purchasers, shall
      promptly obtain an acknowledgment from the bailee, in form and substance
      satisfactory to the Purchasers, that the bailee holds such Collateral for the
      benefit of the Purchasers and shall act upon the instructions of the Purchasers,
      without the further consent of the Grantor. The Purchasers agree with the
      Grantors that the Purchasers shall not give any such instructions unless an
      Event of Default has occurred and is continuing or would occur after taking
      into
      account any action by the Grantors with respect to the bailee.

     

    4.5.
       Electronic
      Chattel Paper and Transferable Records.
      If any
      Grantor at any time holds or acquires an interest in any electronic chattel
      paper or any “transferable
      record,”
as
      that term is defined in Section 201 of the federal Electronic Signatures in
      Global and National Commerce Act, or in §16 of the Uniform Electronic
      Transactions Act as in effect in any relevant jurisdiction, the Grantor shall
      promptly notify the Purchasers thereof and, at the request of the Purchasers,
      shall take such action as the Purchasers may reasonably request to vest in
      the
      Purchasers control, under §9-105 of the Uniform Commercial Code, of such
      electronic chattel paper or control under Section 201 of the federal Electronic
      Signatures in Global and National Commerce Act or, as the case may be, §16 of
      the Uniform Electronic Transactions Act, as so in effect in such jurisdiction,
      of such transferable record. The Purchasers agree with the Grantors that the
      Purchasers will arrange, pursuant to procedures satisfactory to the Purchasers
      and so long as such procedures will not result in the Purchasers’ loss of
      control, for the Grantors to make alterations to the electronic chattel paper
      or
      transferable record permitted under UCC §9-105 or, as the case may be, Section
      201 of the federal Electronic Signatures in Global and National Commerce Act
      or
§16 of the Uniform Electronic Transactions Act for a party in control to make
      without loss of control, unless an Event of Default has occurred and is
      continuing or would occur after taking into account any action by the Grantors
      with respect to such electronic chattel paper or transferable
      record.

     

    4.6.
       Letter-of-credit
      Rights.
      If any
      Grantor is at any time a beneficiary under a letter of credit now or hereafter
      issued in favor of the Grantor, the Grantor shall promptly notify the Purchasers
      thereof and, at the request and option of the Purchasers, the Grantor shall,
      pursuant to an agreement in form and substance satisfactory to the Purchasers,
      either (i) arrange for the issuer and any confirmer of such letter of credit
      to
      consent to an assignment to the Purchasers of the proceeds of any drawing under
      the letter of credit or (ii) arrange for the Purchasers to become the transferee
      beneficiaries of the letter of credit, with the Purchasers agreeing, in each
      case, that the proceeds of any drawing under the letter to credit are to be
      applied as provided in the Note.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    4.7.
       Commercial
      Tort Claims.
      If any
      Grantor shall at any time hold or acquire a commercial tort claim, the Grantor
      shall immediately notify the Purchasers in a writing signed by the Grantor
      of
      the brief details thereof and grant to the Purchasers in such writing a security
      interest therein and in the proceeds thereof, all upon the terms of this
      Agreement, with such writing to be in form and substance satisfactory to the
      Purchasers.

     

    5.
       Other
      Actions as to any and all Collateral.
      The
      Grantors further agree to take any other action reasonably requested by the
      Purchasers to insure the attachment, perfection and first priority (subject
      to
      Permitted Liens) of, and the ability of the Purchasers to enforce, the
      Purchasers’ security interest in any and all of the Collateral including,
      without limitation, (a) executing, delivering and, where appropriate, filing
      financing statements and amendments relating thereto under the Uniform
      Commercial Code, to the extent, if any, that any Grantor’s signature thereon is
      required therefor, (b) causing the Purchasers’ names to be noted as secured
      parties on any certificate of title for a titled good if such notation is a
      condition to attachment, perfection or priority of, or ability of the Purchasers
      to enforce, the Purchasers’ security interest in such Collateral, (c) complying
      with any provision of any statute, regulation or treaty of the United States
      as
      to any Collateral if compliance with such provision is a condition to
      attachment, perfection or priority of, or ability of the Purchasers to enforce,
      the Purchasers’ security interest in such Collateral, (d) obtaining governmental
      and other third party consents and approvals, including without limitation
      any
      consent of any licensor, lessor or other person obligated on Collateral, (e)
      obtaining waivers from landlords in form and substance satisfactory to the
      Purchasers, (f) taking all actions required by any earlier versions of the
      Uniform Commercial Code or by other law, as applicable in any relevant Uniform
      Commercial Code jurisdiction, or by other law as applicable in any foreign
      jurisdiction, (g) delivery to the Purchasers of stock certificates (and stock
      powers duly executed in blank in favor of the Purchasers) covering all of the
      capital stock described on Schedule
      A,
      and (h)
      if the Maturity Date is extended, at the time of such extension entering into
      with the Purchasers and a service company reasonably acceptable to the
      Purchasers and Grantors, a contract requiring (i) the service company to file
      continuation statements and (ii) the Grantors to pay the cost of all filings
      and
      creation of continuation and termination statements.

     

    6.
       Relation
      to Other Security Documents.
      The
      provisions of this Agreement supplement the provisions of the other Transaction
      Documents. Nothing contained in any such Transaction Document shall derogate
      from any of the rights or remedies of the Purchasers hereunder. The provisions
      of this Agreement shall be read and construed with the other Security Documents
      referred to below in the manner so indicated.

     

    6.1.
       Copyright
      Security Agreements.
      If
      required by the Purchasers, concurrently herewith each Grantor is also executing
      and delivering to the Purchasers the Copyright Security Agreement (attached
      hereto as Exhibit
      I)
      pursuant to which the Grantor is granting to the Purchasers security interests
      in certain Collateral consisting of copyrights, and copyright registrations.
      The
      provisions of the Copyright Security Agreement are supplemental to the
      provisions of this Agreement, and nothing contained in the Copyright Security
      Agreement shall derogate from any of the rights or remedies of the Purchasers
      hereunder. Neither the delivery of, nor anything contained in, the Copyright
      Security Agreement shall be deemed to prevent or postpone the time of attachment
      or perfection of any security interest in such Collateral created
      hereby.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    6.2.
       Trademark
      Security Agreements.
      If
      required by the Purchasers, concurrently herewith each Grantor is also executing
      and delivering to the Purchasers the Trademark Security Agreement (attached
      hereto as Exhibit
      II)
      pursuant to which the Grantor is granting to the Purchasers security interests
      in certain Collateral consisting of trademarks, and trademark registrations.
      The
      provisions of the Trademark Security Agreement are supplemental to the
      provisions of this Agreement, and nothing contained in the Trademark Security
      Agreement shall derogate from any of the rights or remedies of the Purchasers
      hereunder. Neither the delivery of, nor anything contained in, the Trademark
      Security Agreement shall be deemed to prevent or postpone the time of attachment
      or perfection of any security interest in such Collateral created
      hereby.

     

    6.3.
       Patent
      Security Agreements.
      If
      required by the Purchasers, concurrently herewith each Grantor is also executing
      and delivering to the Purchasers the Patent Security Agreement (attached hereto
      as Exhibit
      III)
      pursuant to which the Grantor is granting to the Purchasers security interests
      in certain Collateral consisting of patents, and patent registrations. The
      provisions of the Patent Security Agreement are supplemental to the provisions
      of this Agreement, and nothing contained in the Patent Security Agreement shall
      derogate from any of the rights or remedies of the Purchasers hereunder. Neither
      the delivery of, nor anything contained in, the Patent Security Agreement shall
      be deemed to prevent or postpone the time of attachment or perfection of any
      security interest in such Collateral created hereby.

     

    7.
       Representations
      and Warranties Concerning Grantor’s Legal Status.
      Each
      Grantor has concurrently herewith delivered to the Purchasers a certificate
      signed by each Grantor and entitled “Perfection Certificate” (the “Perfection
      Certificate”).
      Each
      Grantor represents and warrants to the Purchasers as follows: (a) the Grantor’s
      exact legal name is that indicated on the Perfection Certificate and on the
      signature page hereof, (b) the Grantor is an organization of the type and
      organized in the jurisdiction set forth in the Perfection Certificate, (c)
      the
      Perfection Certificate accurately sets forth the Grantor’s organizational
      identification number or accurately states that the Grantor has none, (d) the
      Perfection Certificate accurately sets forth the Grantor’s place of business or,
      if more than one, its chief executive office as well as the Grantor’s mailing
      address if different and (e) all other information set forth on the Perfection
      Certificate pertaining to the Grantor is accurate and complete in all material
      respects.

     

    
      
        
        

      

      
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    8.
       Covenants
      Concerning Grantor’s Legal Status.
      Each
      Grantor covenants with the Purchasers as follows: (a) without providing at
      least
      30 days prior written notice to the Purchasers, the Grantor will not change
      its
      name, its place of business or, if more than one, chief executive office, or
      its
      mailing address or organizational identification number if it has one, (b)
      if
      the Grantor does not have an organizational identification number and later
      obtains one, the Grantor shall forthwith notify the Purchasers of such
      organizational identification number, and (c) the Grantor will not change its
      type of organization, jurisdiction of organization or other legal
      structure.

     

    9.
       Representations
      and Warranties Concerning Collateral.
      Each
      Grantor further represents and warrants to the Purchasers as follows: (a) the
      Grantor is the owner of or has other rights in or power to transfer the
      Collateral, free from any adverse lien, security interest or other encumbrance,
      except for the security interest created by this Agreement and the Permitted
      Liens, (b) none of the Collateral constitutes, or is the proceeds of,
“farm
      products”
as
      defined in §9-102(a)(34) of the Uniform Commercial Code of the State, (c) none
      of the account debtors or other persons obligated on any of the Collateral
      is a
      governmental authority subject to the Federal Assignment of Claims Act or like
      federal, state or local statute or rule in respect of such Collateral, (d)
      the
      Grantor holds no commercial tort claim except as indicated on Schedule
      B
      hereto
      as modified from time to time, (e) except as described on Schedule
      9,
      during
      the past five years the Grantor has at all times operated its business in
      compliance with all applicable provisions of the federal Fair Labor Standards
      Act, as amended, and with all applicable provisions of federal, state and local
      statutes and ordinances dealing with the control, shipment, storage or disposal
      of hazardous materials or substances and (f) all other information set forth
      on
      the Perfection Certificate pertaining to the Collateral is accurate and complete
      in all material respects.

     

    10.
       Covenants
      Concerning Collateral Etc.
      Each
      Grantor further covenants with the Purchasers as follows: (a) the Collateral,
      to
      the extent not delivered to the Purchasers pursuant to §4, will be kept at those
      locations listed on the Perfection Certificate and the Grantor will not remove
      the Collateral from such locations, without providing at least 30 days prior
      written notice to the Purchasers, (b) except for the security interest herein
      granted and
      Permitted Liens, the Grantor shall be the owner of or have other rights in
      the
      Collateral free from any lien, security interest or other encumbrance, and
      the
      Grantor shall defend the same against all claims and demands of all persons
      at
      any time claiming the same or any interests therein adverse to the Purchasers,
      (c) the Grantor shall not pledge, mortgage or create, or suffer to exist a
      security interest in the Collateral in favor of any person other than the
      Purchasers except for Permitted Liens, (d) the Grantor will not use the
      Collateral in violation of any policy of insurance thereon, (e) the Grantor
      will
      permit the Purchasers, or their designee, to inspect the Collateral, wherever
      located, at any reasonable, mutually agreeable time upon prior notice of at
      least three Business Days (unless a Default or an Event of Default has occurred
      and is continuing, in which event no prior notice shall be required), (f) the
      Grantor will pay promptly when due all taxes, assessments, governmental charges
      and levies upon the Collateral or incurred in connection with the use or
      operation of such Collateral or incurred in connection with this Agreement
      other
      than any taxes contested in good faith and for which appropriate reserves have
      been established by the Grantor, (g) the Grantor will operate its business
      in
      compliance with all applicable provisions of the federal Fair Labor Standards
      Act, as amended, and with all applicable provisions of federal, state and local
      statutes and ordinances dealing with the control, shipment, storage or disposal
      of hazardous materials or substances, and (h) the Grantor will not sell or
      otherwise dispose, or offer to sell or otherwise dispose, of the Collateral
      or
      any interest therein except for as permitted by the Notes.

     

    
      
        
        

      

      
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    11.
       Insurance.

     

    11.1.
       Maintenance
      of Insurance.
      Each
      Grantor will maintain with financially sound and reputable insurers insurance
      with respect to its properties and business against such casualties and
      contingencies as shall be in accordance with general practices of businesses
      engaged in similar activities in similar geographic areas; provided,
      however,
      that
      the Borrower shall at all times maintain with financially sound and reputable
      insurers such insurance in amounts not less than the insurance maintained by
      the
      Borrower as of the date hereof. Such insurance shall be in such minimum amounts
      that the Grantor will not be deemed a coinsurer under applicable insurance
      laws,
      regulations and policies and otherwise shall be in such amounts, contain such
      terms, be in such forms and be for such periods as may be reasonably
      satisfactory to the Purchasers. In addition, all such insurance shall be payable
      to the Purchasers, on a pro rata basis, as additional loss payees. Without
      limiting the foregoing, the Grantors will (i) keep all of its physical property
      insured with casualty or physical hazard insurance on an “all risks” basis, with
      broad form flood and earthquake coverages and electronic data processing
      coverage, with a full replacement cost endorsement and an “agreed amount” clause
      in an amount equal to 100% of the full replacement cost of such property, (ii)
      maintain all such workers’ compensation or similar insurance as may be required
      by law and (iii) maintain, in amounts and with deductibles equal to those
      generally maintained by businesses engaged in similar activities in similar
      geographic areas, general public liability insurance against claims of bodily
      injury, death or property damage occurring, on, in or about the properties
      of
      the Grantors; business interruption insurance; and product liability
      insurance.

     

    11.2.
       Insurance
      Proceeds.
      The
      proceeds of any casualty insurance in respect of any casualty loss of any of
      the
      Collateral shall, subject to the rights, if any, of other parties with a prior
      interest in the property covered thereby, (i) so long as no Default or Event
      of
      Default has occurred and is continuing and to the extent that the amount of
      such
      proceeds is less than $300,000, be disbursed to the Grantor for direct
      application by the Grantor solely to the repair or replacement of the Grantor’s
      property so damaged or destroyed and (ii) in all other circumstances, be held
      by
      the Purchasers as cash collateral for the Obligations and (except to the extent
      disbursed pursuant to the next sentence) may be applied to the Obligations.
      The
      Purchasers may, at their sole option, disburse from time to time all or any
      part
      of such proceeds so held as cash collateral, upon such terms and conditions
      as
      the Purchasers may reasonably prescribe, for direct application by the Grantor
      solely to the repair or replacement of the Grantor’s property so damaged or
      destroyed, or the Purchasers may apply all or any part of such proceeds to
      the
      Obligations.

     

    
      
        
        

      

      
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    11.3.
       Notice
      of Cancellation etc.
      All
      policies of insurance shall provide for at least 30 days prior written
      cancellation notice to the Purchasers, unless a shorter period is mandated
      under
      applicable law. In the event of failure by any Grantor to provide and maintain
      insurance as herein provided, the Purchasers may, at their option, provide
      such
      insurance and charge the amount thereof to the Grantor. Each Grantor shall
      furnish the Purchasers with certificates of insurance and policies evidencing
      compliance with the foregoing insurance provision.

     

    12.
       Collateral
      Protection Expenses; Preservation of Collateral.

     

    12.1.
       Expenses
      Incurred by Purchasers.
      If any
      grantor fails or refuses to do so, in their discretion, the Purchasers may
      discharge taxes and other encumbrances at any time levied or placed on any
      of
      the Collateral, make repairs thereto and pay any necessary filing fees or
      insurance premiums. Each Grantor agrees to reimburse the Purchasers on demand
      for any and all expenditures so made. The Purchasers shall have no obligation
      to
      the Grantors to make any such expenditures, nor shall the making thereof relieve
      the Grantor of any default. Any expenses incurred under this Section 12 shall
      constitute Obligations.

     

    12.2.
       Purchasers’
      Obligations and Duties.
      Anything herein to the contrary notwithstanding, each Grantor shall remain
      liable under each contract or agreement comprised in the Collateral to be
      observed or performed by the Grantor thereunder. The Purchasers shall not have
      any obligation or liability under any such contract or agreement by reason
      of or
      arising out of this Agreement or the receipt by the Purchasers of any payment
      relating to any of the Collateral, nor shall the Purchasers be obligated in
      any
      manner to perform any of the obligations of the Grantor under or pursuant to
      any
      such contract or agreement, to make inquiry as to the nature or sufficiency
      of
      any payment received by the Purchasers in respect of the Collateral or as to
      the
      sufficiency of any performance by any party under any such contract or
      agreement, to present or file any claim, to take any action to enforce any
      performance or to collect the payment of any amounts which may have been
      assigned to the Purchasers or to which the Purchasers may be entitled at any
      time or times. The Purchasers’ sole duty with respect to the custody, safe
      keeping and physical preservation of the Collateral in their possession, under
      §9-207 of the Uniform Commercial Code of the State or otherwise, shall be to
      deal with such Collateral in the same manner as the Purchasers deal with similar
      property for their own accounts.

     

    
      
        
        

      

      
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    13.
       Securities
      and Deposits.
      The
      Purchasers may at any time following and during the continuance of an Event
      of
      Default, at their option, transfer to themselves or any nominee any securities
      constituting Collateral, receive any income thereon and hold such income as
      additional Collateral or apply it to the Obligations. Whether or not any
      Obligations are due, the Purchasers may following and during the continuance
      of
      an Event of Default demand, sue for, collect, or make any settlement or
      compromise which it deems desirable with respect to the Collateral. Regardless
      of the adequacy of Collateral or any other security for the Obligations, any
      deposits or other sums at any time credited by or due from the Purchasers to
      the
      Grantors may at any time be applied to or set off against any of the Obligations
      then due and owing.

     

    14.
       Notification
      to Account Debtors and Other Persons Obligated on
      Collateral.
      If an
      Event of Default shall have occurred and be continuing, the Grantors shall,
      at
      the request of the Purchasers, notify account debtors and other persons
      obligated on any of the Collateral of the security interest of the Purchasers
      in
      any account, chattel paper, general intangible, instrument or other Collateral
      and that payment thereof is to be made directly to the Purchasers or to any
      financial institution designated by the Purchasers as their agent therefor,
      and
      the Purchasers may themselves, if an Event of Default shall have occurred and
      be
      continuing, without notice to or demand upon the Grantor, so notify account
      debtors and other persons obligated on Collateral. After the making of such
      a
      request or the giving of any such notification, the Grantors shall hold any
      proceeds of collection of accounts, chattel paper, general intangibles,
      instruments and other Collateral received by the Grantor as trustee for the
      Purchasers without commingling the same with other funds of the Grantor and
      shall turn the same over to the Purchasers in the identical form received,
      together with any necessary endorsements or assignments. The Purchasers shall
      apply the proceeds of collection of accounts, chattel paper, general
      intangibles, instruments and other Collateral received by the Purchasers to
      the
      Obligations, such proceeds to be immediately entered after final payment in
      cash
      or other immediately available funds of the items giving rise to
      them.

     

    15.
       Investment
      Property.
      (i) The
      Grantors, at their cost and expense (including the cost and expense of any
      of
      the following referenced consents, approvals etc.) will promptly execute and
      deliver or cause the execution and delivery of all applications, certificates,
      instruments, registration statements, and all other documents and papers the
      Purchasers may request during the continuance of an Event of Default in
      connection with the obtaining of any consent, approval, registration,
      qualification, permit, license, accreditation, or authorization of any other
      official body or other Person necessary or appropriate for the effective
      exercise of any rights hereunder or under the other Transaction Documents.
      Without limiting the generality of the foregoing, the Grantors agree that in
      the
      event the Purchasers shall exercise their rights hereunder or pursuant to the
      other Transaction Documents during the continuance of an Event of Default,
      to
      sell, transfer, or otherwise dispose of, or vote, consent, operate, or take
      any
      other action in connection with any of the Collateral, the Grantors shall
      execute and deliver (or cause to be executed and delivered) all applications,
      certificates, assignments and other documents that the Purchasers request to
      facilitate such actions and shall otherwise promptly, fully, and diligently
      cooperate with the Purchasers and any other Persons in making any application
      for the prior consent or approval of any official body or any other Person
      to
      the exercise by the Purchasers of any such rights relating to all or any of
      the
      Collateral.

     

    
      
        
        

      

      
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    (ii) The
      Grantors agree promptly upon the occurrence and continuance of an Event of
      Default and without any request therefor by the Purchasers, so long as such
      Event of Default shall continue, (i) to deliver (properly endorsed where
      required hereby or requested by Purchasers) to the Purchasers all Dividends
      and
      Distributions with respect to Investment Property and all proceeds of the
      Collateral, in each case thereafter received by the Grantor, all of which shall
      be held by Purchasers as additional Collateral; and (ii) with respect to
      Collateral consisting of general partner interests or limited liability company
      interests, to make modifications to all necessary documents to admit the
      Purchasers as general partners or members, respectively.

     

    (iii) Except
      when an Event of Default has occurred and is continuing, the Grantors may
      continue to vote all Investment Property included in the Collateral except
      in a
      manner which is inconsistent or in violation of the Transaction Documents.
      The
      Grantors agree promptly upon the occurrence and during the continuance of an
      Event of Default, (i) that Purchasers may exercise (to the exclusion of the
      Grantor) the voting power and all other incidental rights of ownership with
      respect to any Collateral constituting Investment Property of the Grantor and
      the Grantor hereby grants Purchasers an irrevocable proxy, exercisable under
      such circumstances, to vote such Investment Property; and (ii) that it shall
      promptly deliver to the Purchasers such additional proxies and other documents
      as may be necessary to allow the Purchasers to exercise such voting
      power.

     

    (iv) All
      Dividends, Distributions, interest, principal, cash payments, payment
      intangibles and proceeds which may at any time and from time to time be held
      by
      any Grantor but which the Grantor is then obligated to deliver to the
      Purchasers, shall, until delivery to the Purchasers, be held by the Grantor
      separate and apart from its other property in trust for the Purchasers. The
      Purchasers agree that unless an Event of Default shall have occurred and be
      continuing, the Grantors will have the exclusive voting power with respect
      to
      any Investment Property constituting the Grantor’s Collateral and the Purchasers
      will, upon the written request of any Grantor, promptly deliver such proxies
      and
      other documents, if any, as shall be reasonably requested by the Grantor which
      are necessary to allow the Grantor to exercise that voting power; provided
      that
      no
      vote shall be cast, or consent, waiver, or ratification given, or action taken
      by the Grantor that would violate any provision of any Transaction
      Document.

     

    The
      Grantors hereby acknowledge that the sale by Purchasers of any Investment
      Property pursuant to the terms hereof in compliance with the Securities Act,
      as
      well as applicable “Blue Sky” or other state securities laws may require strict
      limitations as to the manner in which Purchasers or any subsequent transferee
      of
      the Investment Property may dispose thereof. The Grantors acknowledge and agree
      that, to protect Purchasers’ interests, it may be necessary to sell the
      Investment Property at a price less than the maximum price attainable if a
      sale
      were delayed or made in another manner, such as a public offering under the
      Securities Act. The Grantors do not have an objection to a sale in such manner
      and the Grantors agree that Purchasers do not have an obligation to obtain
      the
      maximum possible price for all or any part of the Investment Property. Without
      limiting the generality of the foregoing, the Grantors agree that Purchasers
      may, pursuant to the terms hereof and subject to applicable law, from time
      to
      time attempt to sell all or any part of the Investment Property by a private
      placement, restricting the bidders and prospective purchasers to those Persons
      who will represent and agree that they are purchasing for investment only and
      not for distribution. In so doing, Purchasers may solicit offers to buy the
      Investment Property or any part thereof for cash from a limited number of
      investors deemed by Purchasers, in their reasonable judgment, to be
      institutional investors or other responsible Persons who might be interested
      in
      purchasing the Investment Property. If Purchasers shall solicit such offers,
      then acceptance by Purchasers of one of the offers shall be deemed to be a
      commercially reasonable method of disposition of the Collateral.

     

    
      
        
        

      

      
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    16.
       Power
      of Attorney.

     

    16.1.
       Appointment
      and Powers of Purchasers.
      The
      Grantors hereby irrevocably constitute and appoint the Purchasers and any
      officer or agent thereof, with full power of substitution, as its true and
      lawful attorney-in-fact with full irrevocable power and authority in the place
      and stead of the Grantors or in the Purchasers’ own name, for the purpose of
      carrying out the terms of this Agreement, to take any and all appropriate action
      and to execute any and all documents and instruments that may be necessary
      or
      desirable to accomplish the purposes of this Agreement and, without limiting
      the
      generality of the foregoing, hereby gives said attorney the power and right,
      on
      behalf of the Grantors, without notice to or assent by the Grantors, to do
      the
      following:

     

    (a)
      upon
      the occurrence and during the continuance of an
      Event
      of Default, generally to sell, transfer, pledge, make any agreement with respect
      to or otherwise deal with any of the Collateral in such manner as is consistent
      with the Uniform Commercial Code of the State and as fully and completely as
      though the Purchasers were the absolute owners thereof for all purposes, and
      to
      do at the Grantors’ expense, at any time, or from time to time, all acts and
      things which the Purchasers deem necessary to protect, preserve or realize
      upon
      the Collateral and the Purchasers’ security interest therein, in order to effect
      the intent of this Agreement, all as fully and effectively as the Grantor might
      do, including, without limitation, (i) the filing and prosecuting of
      registration and transfer applications with the appropriate federal or local
      agencies or authorities with respect to trademarks, copyrights and patentable
      inventions and processes, (ii) upon written notice to the Grantors, the exercise
      of voting rights with respect to voting securities, which rights may be
      exercised, if the Purchasers so elect, with a view to causing the liquidation
      in
      a commercially reasonable manner of assets of the issuer of any such securities
      and (iii) the execution, delivery and recording, in connection with any sale
      or
      other disposition of any Collateral, of the endorsements, assignments or other
      instruments of conveyance or transfer with respect to such Collateral;
      and

     

    
      
        
        

      

      
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    (b)
      to
      the extent that the Grantors’ authorization given in §3 is not sufficient, to
      file such financing statements with respect hereto, with or without the Grantor’
signature, as the Purchasers may deem appropriate and to execute in the
      Grantor’s name such financing statements and amendments thereto and continuation
      statements which may require the Grantor’s signature.

     

    16.2.
       Ratification
      by Grantors.
      To the
      extent permitted by law, the Grantors hereby ratify all that said attorney
      shall
      lawfully do or cause to be done by virtue hereof. This power of attorney is
      a
      power coupled with an interest and shall be irrevocable.

     

    16.3.
       No
      Duty on Purchasers.
      The
      powers conferred on the Purchasers hereunder are solely to protect its interests
      in the Collateral and shall not impose any duty upon it to exercise any such
      powers. The Purchasers shall be accountable only for the amounts that they
      actually receive as a result of the exercise of such powers and neither any
      Purchaser nor any of its officers, directors, employees or agents shall be
      responsible to the Grantor for any act or failure to act, except for such
      Purchaser’s own gross negligence or willful misconduct.

     

    17.
       Remedies.
      If an
      Event of Default shall have occurred and be continuing, the Purchasers may,
      without notice to or demand upon the Grantors, declare this Agreement to be
      in
      default, and the Purchasers shall thereafter have in any jurisdiction in which
      enforcement hereof is sought, in addition to all other rights and remedies,
      the
      rights and remedies of a purchaser under the Uniform Commercial Code of the
      State or of any jurisdiction in which Collateral is located, including, without
      limitation, the right to take possession of the Collateral, and for that purpose
      the Purchasers may, so far as the Grantors can give authority therefor, enter
      upon any premises on which the Collateral may be situated and remove the same
      therefrom. The Purchasers may in their discretion require the Grantors to
      assemble all or any part of the Collateral at such location or locations within
      the jurisdiction(s) of the Grantors’ principal office(s) or at such other
      locations as the Purchasers may reasonably designate. Unless the Collateral
      is
      perishable or threatens to decline speedily in value or is of a type customarily
      sold on a recognized market, the Purchasers shall give to the Grantors at least
      ten Business Days prior written notice of the time and place of any public
      sale
      of Collateral or of the time after which any private sale or any other intended
      disposition is to be made. The Grantors hereby acknowledge that ten Business
      Days prior written notice of such sale or sales shall be reasonable notice.
      In
      addition, the Grantors waive any and all rights that it may have to a judicial
      hearing in advance of the enforcement of any of the Purchasers’ rights
      hereunder, including, without limitation, its right following an Event of
      Default to take immediate possession of the Collateral and to exercise its
      rights with respect thereto.

     

    
      
        
        

      

      
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    18.
       Standards
      for Exercising Remedies.
      To
      the
      extent that applicable law imposes duties on the Purchasers to exercise remedies
      in a commercially reasonable manner, the Grantors acknowledge and agree that
      it
      is not commercially unreasonable for the Purchasers (a) to fail to incur
      expenses reasonably deemed significant by the Purchasers to prepare Collateral
      for disposition or otherwise to complete raw material or work in process into
      finished goods or other finished products for disposition, (b) to fail to obtain
      third party consents for access to Collateral to be disposed of, or to obtain
      or, if not required by other law, to fail to obtain governmental or third party
      consents for the collection or disposition of Collateral to be collected or
      disposed of, (c) to fail to exercise collection remedies against account debtors
      or other persons obligated on Collateral or to remove liens or encumbrances
      on
      or any adverse claims against Collateral, (d) to exercise collection remedies
      against account debtors and other persons obligated on Collateral directly
      or
      through the use of collection agencies and other collection specialists, (e)
      to
      advertise dispositions of Collateral through publications or media of general
      circulation, whether or not the Collateral is of a specialized nature, (f)
      to
      contact other persons, whether or not in the same business as the Grantor,
      for
      expressions of interest in acquiring all or any portion of the Collateral,
      (g)
      to hire one or more professional auctioneers to assist in the disposition of
      Collateral, whether or not the collateral is of a specialized nature, (h) to
      dispose of Collateral by utilizing Internet sites that provide for the auction
      of assets of the types included in the Collateral or that have the reasonable
      capability of doing so, or that match buyers and sellers of assets, (i) to
      dispose of assets in wholesale rather than retail markets, (j) to disclaim
      disposition warranties, (k) to purchase insurance or credit enhancements to
      insure the Purchasers against risks of loss, collection or disposition of
      Collateral or to provide to the Purchasers a guaranteed return from the
      collection or disposition of Collateral, or (1) to the extent deemed appropriate
      by the Purchasers, to obtain the services of other brokers, investment bankers,
      consultants and other professionals to assist the Purchasers in the collection
      or disposition of any of the Collateral. The Grantors acknowledge that the
      purpose of this §18 is to provide non-exhaustive indications of what actions or
      omissions by the Purchasers would not be commercially unreasonable in the
      Purchasers’ exercise of remedies against the Collateral and that other actions
      or omissions by the Purchasers shall not be deemed commercially unreasonable
      solely on account of not being indicated in this §18. Without limitation upon
      the foregoing, nothing contained in this §18 shall be construed to grant any
      rights to the Grantors or to impose any duties on the Purchasers that would
      not
      have been granted or imposed by this Agreement or by applicable law in the
      absence of this §18.

     

    19.
       No
      Oral Change; Amendments; Security Agreement Supplements for Additional
      Grantors.
      No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by the Grantors and the Purchasers, and no waiver of any
      provision of this Agreement, and no consent to any departure by the Grantors
      therefrom, shall be effective unless it is in writing and signed by the
      Purchasers, and then such waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given. Notwithstanding
      the foregoing, additional Persons may become Grantors under this Agreement
      without consent of any other Grantor through execution and delivery to the
      Purchasers of an Assumption Agreement in the form of Annex 1 hereto or any
      other
      form of supplement acceptable to the Purchasers. Nothing in this Section 19
      shall be construed to permit any Grantor to form a Subsidiary unless expressly
      permitted to do so under the Note.

     

    
      
        
        

      

      
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    20.
       Suretyship
      Waivers by Grantors.
      Each
      Grantor waives demand, notice, protest, notice of acceptance of this Agreement,
      notice of loans made, credit extended, Collateral received or delivered or
      other
      action taken in reliance hereon and all other demands and notices of any
      description. With respect to both the Obligations and the Collateral, the
      Grantors assent to any extension or postponement of the time of payment or
      any
      other indulgence, to any substitution, exchange or release of or failure to
      perfect any security interest in any Collateral, to the addition or release
      of
      any party or person primarily or secondarily liable, to the acceptance of
      partial payment thereon and the settlement, compromising or adjusting of any
      thereof, all in such manner and at such time or times as the Purchasers may
      deem
      advisable. The Purchasers shall have no duty as to the collection or protection
      of the Collateral or any income thereon, nor as to the preservation of rights
      against prior parties, nor as to the preservation of any rights pertaining
      thereto beyond the safe custody thereof as set forth in §11.2. The Grantors
      further waive any and all other suretyship defenses.

     

    21.
       Marshalling.
      The
      Purchasers shall not be required to marshal any present or future collateral
      security (including but not limited to this Agreement and the Collateral) for,
      or other assurances of payment of, the Obligations or any of them or to resort
      to such collateral security or other assurances of payment in any particular
      order, and all of its rights hereunder and in respect of such collateral
      security and other assurances of payment shall be cumulative and in addition
      to
      all other rights, however existing or arising. To the extent that it lawfully
      may, each Grantor hereby agrees that it will not invoke any law relating to
      the
      marshalling of collateral which might cause delay in or impede the enforcement
      of the Purchasers’ rights under this Agreement or under any other instrument
      creating or evidencing any of the Obligations or under which any of the
      Obligations is outstanding or by which any of the Obligations is secured or
      payment thereof is otherwise assured, and, to the extent that it lawfully may,
      each Grantor hereby irrevocably waives the benefits of all such
      laws.

     

    22.
       Proceeds
      of Dispositions; Expenses.
      The
      Grantors shall pay to the Purchasers on demand any and all expenses, including
      reasonable attorneys’ fees and disbursements, incurred or paid by the Purchasers
      in protecting, preserving or enforcing the Purchasers’ rights under or in
      respect of any of the Obligations or any of the Collateral. After deducting
      all
      of said expenses, the residue of any proceeds of collection or sale of the
      Obligations or Collateral shall, to the extent actually received in cash, be
      applied to the payment of the Obligations in such order or preference as the
      Purchasers may determine, proper allowance and provision being made for any
      Obligations not then due. Upon the final payment and satisfaction in full of
      all
      of the Obligations and after making any payments required by Sections
      9-608(a)(1)(C) or 9615(a)(3) of the Uniform Commercial Code of the State, any
      excess shall be returned to the Grantors, and the Grantors shall remain liable
      for any deficiency in the payment of the Obligations.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    23.
       Overdue
      Amounts.
      Until
      paid, all amounts due and payable by the Grantors hereunder shall be a debt
      secured by the Collateral and shall bear, whether before or after judgment,
      interest at the rate of interest set forth in the Note.

     

    24.
       Governing
      Law; Consent to Jurisdiction.
      

     

    (a)
       Governing
      Law.
      This
      Agreement shall be governed by, and construed in accordance with, the law of
      the
      State (other than those conflict of law rules that would defer to the
      substantive laws of another jurisdiction). Without in any way limiting the
      preceding choice of law, the parties elect to be governed by the law of the
      State in accordance with, and are relying (at least in part) on, Section 5-1401
      of the General Obligations Law of the State, as amended, or any corresponding
      or
      succeeding provisions thereof.

     

    (b)
       Submission
      to Jurisdiction.
      The
      Grantors hereby submit to the exclusive personal jurisdiction of the United
      States District Court for the Southern District of New York and of the Supreme
      Court of the State of New York sitting in New York County (including its
      Appellate Division), and of any other appellate court in the State of New York,
      for the purposes of all legal proceedings arising out of or relating to this
      Agreement or the transactions contemplated hereby.

     

    (c)
       Waiver
      of Venue.
      The
      Grantors hereby irrevocably waive, to the fullest extent permitted by applicable
      law, any objection that it may now or hereafter have to the laying of the venue
      of any such proceeding brought in such a court and any claim that any such
      proceeding brought in such a court has been brought in an inconvenient forum.
      Without in any way limiting the preceding consents to personal jurisdiction
      and
      venue, the parties agree to submit to the jurisdiction of the courts of the
      State of New York in accordance with Section 5-1402 of the General Obligations
      Law of the State, as amended, or any corresponding or succeeding provisions
      thereof.

     

    (d)
       Service
      of Process.
      Each
      party to this Agreement irrevocably consents to service of process in the manner
      provided for notices in the Purchase Agreement. Nothing in this Agreement will
      affect the right of any party to this Agreement to serve process in any other
      manner permitted by law.

     

    25.
       Waiver
      of Jury Trial.
      THE
      GRANTORS AND THE PURCHASERS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT
      PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
      PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
      CONTEMPLATED HEREBY. 

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    26.
       Miscellaneous;
      Agreement to be Bound by Provisions of Transaction Documents Applicable to
      Grantor.
      The
      headings of each section of this Agreement are for convenience only and shall
      not define or limit the provisions thereof. This Agreement and all rights and
      obligations hereunder shall be binding upon the Grantors and their respective
      successors and assigns, and shall inure to the benefit of the Purchasers and
      their respective successors and assigns. If any term of this Agreement shall
      be
      held to be invalid, illegal or unenforceable, the validity of all other terms
      hereof shall in no way be affected thereby, and this Agreement shall be
      construed and be enforceable as if such invalid, illegal or unenforceable term
      had not been included herein. The Grantors acknowledge receipt of a copy of
      this
      Agreement. Each Grantor agrees to be bound by each provision of every other
      Transaction Document which purports to be applicable to it as if such provision
      were set forth herein.

     

    27.
       Action
      by Majority of Purchasers.
      All
      actions authorized to be taken or to not taken by the Purchasers hereunder
      shall
      be taken or not taken by the written consent of the holders of a majority in
      principal amount of the Notes then outstanding.

     

    

    28. Subsidiaries.
      Borrower shall cause each existing and future Subsidiary that has assets of
      $10,000 or more to complete, execute and deliver to the Purchasers, the form
      of
      Assumption Agreement attached as Annex
      1
      and such
      other documents as the Purchasers shall reasonably request, including, without
      limitation, evidence of good standing of such Affiliate and lien searches,
      all
      in form and substance acceptable to the Purchasers.

    

    29. Limited
      Recourse Guaranty.
      Each
      Subsidiary that becomes a Grantor (each a “Subsidiary
      Grantor”)
      hereby
      unconditionally guarantees the payment when due of all Obligations, provided,
      however, that recourse under this provision is limited to the assets of the
      Subsidiary Grantor that are, or will be, included as part of the Collateral.
      This guaranty is irrevocable and will not be affected by any release of any
      Grantor or surrender, exchange, compromise or release any Collateral, by any
      failure to perfect any liens, by any irregularity, enforceability or invalidity
      of any Obligations or any part thereof or any security or guaranty thereof.
      Each
      Subsidiary Grantor waives all defenses based on suretyship or on impairment
      of
      Collateral. Without notice to, or the consent of, any Subsidiary Grantor, the
      terms of the Obligations and any related documents may be changed, extended,
      renewed or compromised.

    

    30. Administrative
      and Collateral Agency; Actions of Purchasers.
      Each
      Purchaser hereby designates Special Situations Fund III QP, L.P. (the “Agent”)
      as its agent hereunder to act on its behalf and to deal with the Grantor and
      the
      Collateral in all matters in connection with this Agreement, including, but
      not
      limited to, the enforcement of its rights hereunder, notwithstanding anything
      to
      the contrary in the Purchase Agreement or in the Notes. The Grantor shall
      deliver to Agent all items required to be delivered from time to time to
      Purchasers hereunder. The written consent of the holders of a majority in
      principal amount of the Notes then outstanding shall be required to authorize
      the Agent to take any action hereunder. References to the Purchasers hereunder
      shall be deemed to be references to the Agent, on behalf of and for the benefit
      of the Purchasers, unless the context otherwise requires

    

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    [The
      remainder of this page has been intentionally left blank.]

    

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, intending to be legally bound, the Grantors and Purchasers
      have
      caused this Agreement to be duly executed as of the date first above
      written.

     

    
      	
              GRANTOR:

            
	 
	
              PRECISION
                OPTICS CORPORATION, INC.

            
	 	 
	
              By:

            	
              
                /s/
                  Richard E. Forkey

              

            
	
              Name:

            	
              Richard
                E. Forkey

            
	
              Title:

            	
              President,
                Chief Executive Officer and

            
	Treasurer

    

     

    PURCHASERS:

    

    SPECIAL
      SITUATIONS FUND III QP, L.P.

    SPECIAL
      SITUATIONS PRIVATE EQUITY FUND, L.P.

    

    
      	
              By:

            	
              /s/
                Austin W. Marxe

            
	
               

            	
              
                Name:
                  Austin W. Marxe

              

            
	
               

            	
              
                Title:
                  General Partner

              

            
	 	 
	/s/
              Arnold Schumsky
	Arnold
              Schumsky

    

     

    [Signature
      Page to Pledge and Security Agreement]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
      A

     

    Capital
      Stock

     

    Pledged
      Stock

    

    
      	
              Pledgor

            	 	
              Issuer

            	 	
              Shares

              Pledged

            	 	
              Certificate

              Number(s)

            	 
	 	 	 	 	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
      I

     

    Copyright
      Security Agreement

     

    COPYRIGHT
      SECURITY AGREEMENT,
      dated
      as of _______________, 2008 (this “Agreement”),
      is by
      and among the parties identified as “Grantors” on the signature pages hereto and
      such other parties as may become Grantors hereunder after the date hereof
      (individually a “Grantor”,
      and
      collectively the “Grantors”)
      and
      the Purchasers named on the signature pages hereto (the “Purchasers”).

     

    Grantor
      and Purchasers hereby agree as follows:

     

    SECTION
      1.

     

    Definitions;
      Interpretation.

     

    (a) Defined
      Terms.
      All
      capitalized terms used in this Agreement and not otherwise defined herein shall
      have the meanings assigned to them in the Purchase Agreement, dated as of June
      25, 2008, by and between Precision Optics Corporation, Inc. (the “Borrower”)
      and
      the Purchasers (the “Purchase
      Agreement”)
      and
      the Notes.

     

    (b) Certain
      Defined Terms.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Collateral”
has
      the
      meaning set forth in Section 2.

     

    “Copyright
      Office”
means
      the United States Copyright Office.

     

    “Notes”
means
      $600,000 in aggregate principal amount of the Borrower’s 10% Senior Secured
      Convertible Notes issued by the Borrower to the Purchasers.

     

    “UCC”
means
      the Uniform Commercial Code as in effect in the State of New York.

     

    (c) Terms
      Defined in UCC.
      Where
      applicable in the context of this Agreement and except as otherwise defined
      herein, terms used in this Agreement shall have the meanings assigned to them
      in
      the UCC. 

     

    (d) Construction.
      In this
      Agreement, the following rules of construction and interpretation shall be
      applicable: (i) no reference to “proceeds” in this Agreement authorizes any
      sale, transfer, or other disposition of any Collateral by Grantor; (ii)
“includes” and “including” are not limiting; (iii) “or” is not exclusive; and
      (iv) “all” includes “any” and “any” includes “all.” To the extent not
      inconsistent with the foregoing, the rules of construction and interpretation
      applicable to the Security Agreement shall also be applicable to this Agreement
      and are incorporated herein by this reference.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    SECTION
      2.
      

     

    Security
      Interest.

     

    (a) Grant
      of Security Interest.
      As
      security for the payment and performance of the Obligations, each Grantor hereby
      assigns, transfers and conveys to the Purchasers, and grants a security interest
      in and mortgage to the Purchasers of, all such Grantor’s right, title and
      interest in, to and under the following property, in each case whether now
      or
      hereafter existing or arising or in which such Grantor now has or hereafter
      owns, acquires or develops an interest and wherever located (collectively,
      the
“Collateral”):

     

    (i) All
      of
      such Grantor’s present and future United States registered copyrights and
      copyright registrations, including such Grantor’s United States registered
      copyrights and copyright registrations listed in Schedule
      A
      to this
      Agreement, all of such Grantor’s present and future United States applications
      for copyright registrations, including such Grantor’s United States applications
      for copyright registrations listed in Schedule
      B
      to this
      Agreement, and all of such Grantor’s present and future copyrights that are not
      registered in the Copyright Office including, without limitation, derivative
      works (collectively, the “Copyrights”),
      and
      any and all royalties, payments, and other amounts payable to Grantor in
      connection with the Copyrights, together with all renewals and extensions of
      the
      Copyrights, the right to recover for all past, present, and future infringements
      of the Copyrights, and all manuscripts, documents, writings, tapes, disks,
      storage media, computer programs, computer databases, computer program flow
      diagrams, source codes, object codes and all tangible property embodying or
      incorporating the Copyrights, and all other rights of every kind whatsoever
      accruing thereunder or pertaining thereto;

     

    (ii) All
      of
      such Grantor’s right, title and interest in and to any and all present and
      future license agreements with respect to the Copyrights;

     

    (iii) All
      present and future accounts and other rights to payment arising from, in
      connection with or relating to the Copyrights; and

     

    (iv) All
      cash
      and non-cash proceeds of any and all of the foregoing.

     

    (b) Continuing
      Security Interest.
      Each
      Grantor agrees that this Agreement shall create a continuing security interest
      in the Collateral which shall remain in effect until terminated in accordance
      with Section 11.

     

    SECTION
      3.
      

     

    Supplement
      to Security Agreement.

     

    This
      Agreement has been entered into in conjunction with the security interests
      granted to Purchasers under the Security Agreement, and other security documents
      referred to therein. The rights and remedies of the Purchasers with respect
      to
      the security interests granted herein are without prejudice to, and are in
      addition to those set forth in the Security Agreement or any other security
      documents referred to therein, all terms and provisions of which are
      incorporated herein by reference.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    SECTION
      4.
      

     

    Representations
      and Warranties.

     

    Each
      Grantor represents and warrants to Purchasers that:

     

    (a) Copyright
      Registrations.
      A true
      and correct list of all of such Grantor’s United States registered copyrights
      and copyright registrations is set forth in Schedule
      A.

     

    (b) Applications
      for Copyright Registration.
      A true
      and correct list of all of such Grantor’s United States applications for
      copyright registrations is set forth in Schedule
      B.

     

    SECTION
      5.
      

     

    Further
      Acts.

     

    On
      a
      continuing basis, each Grantor shall make, execute, acknowledge and deliver,
      and
      file and record in the proper filing and recording places, all such instruments
      and documents, and take all such action as may be necessary or advisable or
      may
      be requested by Purchasers to carry out the intent and purposes of this
      Agreement, or for assuring, confirming or protecting the grant or perfection
      of
      the security interest granted or purported to be granted hereby, to ensure
      such
      Grantor’s compliance with this Agreement or to enable Purchasers to exercise and
      enforce their rights and remedies hereunder with respect to the Collateral,
      including any documents for filing with the Copyright Office or any applicable
      state office. Purchasers may record this Agreement, an abstract thereof, or
      any
      other document describing Purchasers’ interest in the Copyrights with the
      Copyright Office, at the expense of such Grantor. In addition, each Grantor
      authorizes Purchasers to file financing statements describing the Collateral
      in
      any UCC filing office deemed appropriate by Purchasers. If any Grantor shall
      at
      any time hold or acquire a commercial tort claim arising with respect to the
      Collateral, such Grantor shall immediately notify Purchasers in a writing signed
      by such Grantor of the brief details thereof and grant to the Purchasers in
      such
      writing a security interest therein and in the proceeds thereof, all upon the
      terms of this Agreement, with such writing to be in form and substance
      satisfactory to the Purchasers.

     

    SECTION
      6.

     

    Authorization
      to Supplement.

     

    Each
      Grantor shall give the Purchasers prompt notice of any additional United States
      copyright registrations or applications therefor after the date hereof. Each
      Grantor authorizes the Purchasers unilaterally to modify this Agreement by
      amending Schedule
      A
      or
B
      to
      include any future United States registered copyrights or applications therefor
      of such Grantor. Notwithstanding the foregoing, no failure to so modify this
      Agreement or amend Schedules
      A
      or
B
      shall in
      any way affect, invalidate or detract from Purchasers’ continuing security
      interest in all Collateral, whether or not listed on Schedule
      A
      or
B.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    SECTION
      7.
      

     

    Binding
      Effect.

     

    This
      Agreement shall be binding upon, inure to the benefit of and be enforceable
      by
      each Grantor, Purchasers and their respective successors and assigns. No Grantor
      may assign, transfer, hypothecate or otherwise convey its rights, benefits,
      obligations or duties hereunder except as specifically permitted by the
      Notes.

     

    SECTION
      8.
      

     

    Governing
      Law.

     

    This
      Agreement shall be governed by, and construed in accordance with, the law of
      the
      State of New York, except as required by mandatory provisions of law or to
      the
      extent the perfection or priority of the security interests hereunder, or the
      remedies hereunder, in respect of any Collateral are governed by the law of
      a
      jurisdiction other than the State of New York.

     

    SECTION
      9.
      

     

    Entire
      Agreement; Amendment.

     

    No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by the Grantors and the Purchasers, and no waiver of any
      provision of this Agreement, and no consent to any departure by the Grantors
      therefrom, shall be effective unless it is in writing and signed by the
      Purchasers, and then such waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given. Notwithstanding
      the foregoing, (i) additional Persons may become Grantors under this Agreement
      without consent of any other Grantor through execution and delivery to the
      Purchasers of an Assumption Agreement in the form of Annex 1 hereto or any
      other
      form of supplement acceptable to the Purchasers, and (ii) Purchasers
      unilaterally may re-execute this Agreement or modify, amend or supplement the
      Schedules hereto as provided in Section 6 hereof. To the extent that any
      provision of this Agreement conflicts with any provision of the Notes, the
      provision giving Purchasers greater rights or remedies shall govern, it being
      understood that the purpose of this Agreement is to add to, and not detract
      from, the rights granted to Purchasers under the Notes. Nothing in this Section
      9 shall be construed to permit any Grantor to form a Subsidiary unless expressly
      permitted to do so under the Notes.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    SECTION
      10.
      

     

    Counterparts.

     

    This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and all of which taken together shall constitute but one
      and
      the same agreement. Delivery of an executed counterpart of this Agreement by
      facsimile shall be equally as effective as delivery of a manually executed
      counterpart. Any party hereto delivering a counterpart of this Agreement by
      facsimile shall also deliver a manually executed counterpart, but the failure
      to
      so deliver a manually executed counterpart shall not affect the validity,
      enforceability, or binding effect hereof.

     

    SECTION
      11.
      

     

    Termination.

     

    Upon
      the
      indefeasible payment and performance in full of all Obligations, the security
      interests created by this Agreement shall terminate and the Purchasers (at
      the
      Grantors’ expense) shall promptly execute and deliver to the Grantors such
      documents and instruments reasonably requested by the Grantors as shall be
      necessary to evidence termination of all such security interests given by the
      Grantors to Purchasers hereunder, including cancellation of this Agreement
      by
      written notice from Purchasers to the Copyright Office.

     

    SECTION
      12.

     

    No
      Inconsistent Requirements.

     

    Each
      Grantor acknowledges that this Agreement and the other documents, agreements
      and
      instruments entered into or executed in connection herewith may contain
      covenants and other terms and provisions variously stated regarding the same
      or
      similar matters, and each Grantor agrees that all such covenants, terms and
      provisions are cumulative and all shall be performed and satisfied in accordance
      with their respective terms.

     

    SECTION
      13.
      

     

    Severability.

     

    If
      one or
      more provisions contained in this Agreement shall be invalid, illegal or
      unenforceable in any respect in any jurisdiction or with respect to any party,
      such invalidity, illegality or unenforceability in such jurisdiction or with
      respect to such party shall, to the fullest extent permitted by applicable
      law,
      not invalidate or render illegal or unenforceable any such provision in any
      other jurisdiction or with respect to any other party, or any other provisions
      of this Agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    SECTION
      14.
      

     

    Notices.

     

    All
      notices and other communications hereunder shall be in writing and shall be
      mailed, sent or delivered in accordance with the Purchase
      Agreement.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have duly executed this Agreement, as of the date first above
      written.

     

    
      	
              GRANTORS:

            
	
              PRECISION
                OPTICS CORPORATION, INC.

            
	 	 
	 	
               

            
	
              By:

            	
              Name:
                Richard E. Forkey

            
	 	
              Title:
                President, Chief Executive Officer and 

              Treasurer~

            
	 	 
	
              [NAMES
                OF SUBSIDIARY GRANTORS]

            
	 	 
	
              By:

            	
               

            
	 	
              Name:

            
	 	
              Title:

            

    

     

    PURCHASERS:

    

    SPECIAL
      SITUATIONS FUND III QP, L.P.

    SPECIAL
      SITUATIONS PRIVATE EQUITY FUND, L.P.

    

    
      	
              By:

            	
               

            
	 	
              Name:
                Austin W. Marxe

            
	 	
              Title:
                General Partner

            
	 
	 
	
              Arnold
                Schumsky

            

    

     

    [Signature
      Page to Copyright Security Agreement]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      A

     

    to
      the Copyright Security Agreement

     

    Grantor:
      [___________]

     

    Registered
      Copyrights

     

    
      	
              Title of Work

            	 	
              Registration Number

            	 	
              Date of Registration

            	 
	 	 	 	 	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      B

     

    to
      the Copyright Security Agreement

     

    Grantor:
      [______________]

     

    Copyright
      Applications

     

    
      	
              Title
                of Work

            	 	
              Application
                Number

            
	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Annex
      1
      to

    Copyright
      Security Agreement

     

    ASSUMPTION
      AGREEMENT,
      dated
      as of ________________, 200__, made by ______________________________ (the
      “Additional
      Grantor”),
      in
      favor of the Purchasers named on the signature pages to the Copyright Security
      Agreement (as defined below) (the “Purchasers”)
      of
      $600,000 in aggregate principal amount of the 10% Senior Secured Convertible
      Notes (collectively, the “Notes”)
      issued
      by Precision Optics Corporation, Inc. (the “Borrower”)
      to the
      Purchasers pursuant to the terms of a Purchase Agreement, dated June 25, 2008
      (the “Purchase
      Agreement”),
      by
      and between the Borrower and the Purchasers. All capitalized terms not defined
      herein shall have the meaning ascribed to them in the Purchase Agreement and
      the
      Notes.

    

    WITNESSETH

     

    WHEREAS,
      the
      Grantors have entered into the Copyright Security Agreement dated as of
      ________________, 2008 (as it may be amended, supplemented or otherwise modified
      from time to time, the “Copyright
      Security Agreement”)
      in
      favor of the Purchasers; and 

     

    WHEREAS,
      the
      Additional Grantor has agreed to execute and deliver this Assumption Agreement
      in order to become a party to the Copyright Security Agreement; 

     

    NOW,
      THEREFORE, IT IS AGREED:

     

    1.
      Copyright
      Security Agreement.
      By
      executing and delivering this Assumption Agreement, the Additional Grantor,
      as
      provided in Section 9 of the Copyright Security Agreement, hereby becomes a
      party to the Copyright Security Agreement as a Grantor thereunder with the
      same
      force and effect as if originally named therein as a Grantor and, without
      limiting the generality of the foregoing, hereby expressly assumes all
      obligations and liabilities of a Grantor thereunder.

     

    2.
      Representations
      and Warranties Concerning Grantor’s Legal Status. 
      The
      Additional Grantor has previously delivered to the Purchasers a certificate
      signed by the Additional Grantor and entitled “Perfection Certificate” (the
“Perfection
      Certificate”).
      The
      Additional Grantor represents and warrants to the Purchasers as follows: (a)
      the
      Additional Grantor’s exact legal name is that indicated on the Perfection
      Certificate and on the signature page hereof, (b) the Additional Grantor is
      an
      organization of the type and organized in the jurisdiction set forth in the
      Perfection Certificate, (c) the Perfection Certificate accurately sets forth
      the
      Additional Grantor’s organizational identification number or accurately states
      that the Additional Grantor has none, (d) the Perfection Certificate accurately
      sets forth the Additional Grantor’s place of business or, if more than one, its
      chief executive office as well as the Additional Grantor’s mailing address if
      different, (e) all other information set forth on the Perfection Certificate
      pertaining to the Grantor is accurate and complete including but not limited
      to
      information pertaining to copyrights and (f) each of the representations and
      warranties contained in the Transaction Documents relating to it are true and
      correct on and as the date hereof (after giving effect to this Assumption
      Agreement) as if made on and as of such date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.
      Governing
      Law.
      THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
      IN
      ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING
      THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF,
      THE PURCHASERS) ELECTS TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND
      ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE GENERAL OBLIGATIONS
      LAW
      OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR SUCCEEDING
      PROVISIONS THEREOF

     

    IN
      WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be
      duly
      executed and delivered as of the date first above written.

     

    
      	
              [ADDITIONAL
                GRANTOR]

            
	 
	
              By:

            	
               

            
	
              Name:

            
	
              Title:

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Exhibit
      II

    

    Trademark
      Security Agreement

    

    TRADEMARK
      SECURITY AGREEMENT,
      dated
      as of June 25, 2008 (this “Agreement”),
      is by
      and among the parties identified as “Grantors” on the signature pages hereto and
      such other parties as may become Grantors hereunder after the date hereof
      (individually a “Grantor”,
      and
      collectively the “Grantors”)
      and
      the Purchasers named on the signature pages hereto (the “Purchasers”).

    

    Grantors
      and Purchasers hereby agree as follows:

    

    SECTION
      1.

    

    Definitions;
      Interpretation.

    

    (a) Defined
      Terms.
      All
      capitalized terms used in this Agreement and not otherwise defined herein shall
      have the meanings assigned to them in the Purchase Agreement, dated as of June
      25, 2008, by and between Precision Optics Corporation, Inc. (the “Borrower”)
      and
      the Purchasers (the “Purchase
      Agreement”)
      and
      the Notes.

     

    (b) Certain
      Defined Terms.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

    

    "Collateral"
      has the
      meaning set forth in Section 2.

    

    “Notes”
means
      $600,000 in aggregate principal amount of the Borrower’s 10% Senior Secured
      Convertible Notes issued by the Borrower to the Purchasers.

     

    "Trademark
      Office"
      means
      the United States Patent & Trademark Office.

    

    SECTION
      2.

    

    Security
      Interest

    

    To
      secure
      the complete and timely payment and satisfaction of the Obligations, each
      Grantor hereby grants to Purchasers, and hereby reaffirms its prior grant
      pursuant to the Security Agreement of, a continuing security interest in such
      Grantor’s entire right, title and interest in and to the following (all of the
      following items or types of property being herein collectively referred to
      as
      the “Collateral”), whether now owned or existing or hereafter created or
      acquired:

    

    (a) Each
      trademark listed on Schedule 1 annexed hereto, together with any reissues,
      continuations or extensions thereof (each a “Trademark”), and all of the
      goodwill of the business connected with the use of, and symbolized by, each
      Trademark; and

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b) All
      products and proceeds of the forgoing, including without limitation, any claim
      by Grantor against third parties for past, present or future (a) infringement
      or
      dilution of any Trademark, or (b) injury to the goodwill associated with any
      Trademark.

    

    SECTION
      3

    

    Supplement
      to Security Agreement

    

    This
      Agreement has been entered into in conjunction with the security interests
      granted to Purchasers under the Security Agreement, and other security documents
      referred to therein. The rights and remedies of the Purchasers with respect
      to
      the security interests granted herein are without prejudice to, and are in
      addition to those set forth in the Security Agreement or any other security
      documents referred to therein, all terms and provisions of which are
      incorporated herein by reference.

    

    SECTION
      4

    

    Representations
      and Warranties

    

    Each
      Grantor represents and warrants to Purchasers that:

    

    (a) Grantor
      is the sole and exclusive owner of the entire and unencumbered right, title
      and
      interest in and to each Trademark, free and clear of any liens, charges and
      encumbrances, including without limitation licenses and covenants by Grantor
      not
      to sue third persons, except for Permitted Liens.

    

    (b) Grantor
      has no notice of any suits or actions commenced or threatened with reference
      to
      any Trademark; and

    

    (c) Grantor
      has the unqualified right to execute and deliver this Agreement and perform
      its
      terms.

    

    SECTION
      5

    

    Further
      Acts

    

    Grantor
      agrees that until Grantor's Obligations shall have been satisfied in full,
      Grantor shall not, without the prior written consent of Purchasers, sell or
      assign its interest in, or grant any license under, any Trademark or enter
      into
      any other agreement with respect to any Trademark (except as permitted under
      the
      Transaction Documents), and Grantor further agrees that it shall not take any
      action or permit any action to be taken by others subject to its control,
      including licensees, or fail to take any action which would affect the validity
      or enforcement of the rights transferred to Purchasers under this
      Agreement.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    SECTION
      6

    

    Purchasers’
      Right to Sue

    

    After
      an
      Event of Default occurs and while it continues, Purchasers shall have the right,
      but shall in no way be obligated, to bring suit in its own name to enforce
      the
      Trademarks and, if Purchasers shall commence any such suit, Grantor shall,
      at
      the request of Purchasers, do any and all lawful acts and execute any and all
      proper documents reasonably required by Purchasers in aid of such enforcement
      and Grantor shall promptly, upon demand, reimburse and indemnify Purchasers
      for
      all reasonable costs and expenses incurred by Purchasers in the exercise of
      its
      rights under this Section 7.

    

    SECTION
      7

    

    Cumulative
      Remedies; Power of Attorney

    

    Purchasers
      hereby acknowledges and affirms that the rights and remedies with respect to
      the
      Trademarks, whether established hereby or by the Security Agreement, or by
      any
      other agreements or by law shall be cumulative and may be exercised singularly
      or concurrently. Grantor hereby authorizes Purchasers upon the occurrence and
      during the continuance of an Event of Default, to make, constitute and appoint
      any officer or agent of Purchasers as Purchasers may select, in their sole
      discretion, as Grantor's true and lawful attorney-in-fact, with power to (a)
      endorse Grantor's name on all applications, documents, papers and instruments
      necessary or desirable for Purchasers in the use of the Trademarks or (b) take
      any other actions with respect to the Trademarks as Purchasers deem to be in
      the
      best interest of Purchasers, or (c) grant or issue any exclusive or
      non-exclusive license under the Trademarks to anyone, or (d) assign, pledge,
      convey or otherwise transfer title in or dispose of the Trademarks to anyone.
      Grantor hereby ratifies all that such attorneys shall lawfully do or cause
      to be
      done after the occurrence and during the continuance of an Event of Default
      by
      virtue hereof. This power of attorney shall be irrevocable until Grantor's
      Obligations shall have been paid in full. Grantor hereby further acknowledges
      and agrees that the use by Purchasers of the Trademarks after the occurrence
      and
      during the continuance of an Event of Default shall be worldwide, except as
      limited by their terms, and without any liability for royalties or related
      charges from Purchasers to Grantor.

    

    SECTION
      8

    

    Binding
      Effect

    

    This
      Agreement shall be binding upon, inure to the benefit of and be enforceable
      by
      each Grantor, Purchasers and their respective successors and assigns. No Grantor
      may assign, transfer, hypothecate or otherwise convey its rights, benefits,
      obligations or duties hereunder except as specifically permitted by the
      Notes.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    SECTION
      9

    

    Governing
      Law

    

    This
      Agreement shall be governed by, and construed in accordance with, the law of
      the
      State of New York, except as required by mandatory provisions of law or to
      the
      extent the perfection or priority of the security interests hereunder, or the
      remedies hereunder, in respect of any Collateral are governed by the law of
      a
      jurisdiction other than the State of New York.

    

    SECTION
      10

    

    Entire
      Agreement; Amendment

    

    No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by the Grantors and the Purchasers, and no waiver of any
      provision of this Agreement, and no consent to any departure by the Grantors
      therefrom, shall be effective unless it is in writing and signed by the
      Purchasers, and then such waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given. Notwithstanding
      the foregoing, (a) additional Persons may become Grantors under this Agreement
      without consent of any other Grantor through execution and delivery to the
      Purchasers of an Assumption Agreement in the form of Annex 1 hereto or any
      other
      form of supplement acceptable to the Purchasers, and (b) Purchasers unilaterally
      may modify, amend or supplement the Schedules hereto, and such modified, amended
      or supplemented Schedules shall be deemed to be accurate absent manifest error.
      To the extent that any provision of this Agreement conflicts with any provision
      of the Notes, the provision giving Purchasers greater rights or remedies shall
      govern, it being understood that the purpose of this Agreement is to add to,
      and
      not detract from, the rights granted to Purchasers under the Notes. Nothing
      in
      this Section 10 shall be construed to permit any Grantor to form a Subsidiary
      unless expressly permitted to do so under the Notes.

    

    SECTION
      11

    

    Counterparts

    

    This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and all of which taken together shall constitute but one
      and
      the same agreement. Delivery of an executed counterpart of this Agreement by
      facsimile shall be equally as effective as delivery of a manually executed
      counterpart. Any party hereto delivering a counterpart of this Agreement by
      facsimile shall also deliver a manually executed counterpart, but the failure
      to
      so deliver a manually executed counterpart shall not affect the validity,
      enforceability, or binding effect hereof.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    SECTION
      12.

    

    Termination

    

    Upon
      the
      indefeasible payment and performance in full of all Obligations, the security
      interests created by this Agreement shall terminate and the Purchasers (at
      the
      Grantors’ expense) shall promptly execute and deliver to the Grantors such
      documents and instruments reasonably requested by the Grantors as shall be
      necessary to evidence termination of all such security interests given by the
      Grantors to Purchasers hereunder, including cancellation of this Agreement
      by
      written notice from Purchasers to the Trademark Office.

    

    SECTION
      13

    

    No
      Inconsistent Requirements

    

    Each
      Grantor acknowledges that this Agreement and the other documents, agreements
      and
      instruments entered into or executed in connection herewith may contain
      covenants and other terms and provisions variously stated regarding the same
      or
      similar matters, and each Grantor agrees that all such covenants, terms and
      provisions are cumulative and all shall be performed and satisfied in accordance
      with their respective terms.

    

    SECTION
      14

    

    Severability

    

    If
      one or
      more provisions contained in this Agreement shall be invalid, illegal or
      unenforceable in any respect in any jurisdiction or with respect to any party,
      such invalidity, illegality or unenforceability in such jurisdiction or with
      respect to such party shall, to the fullest extent permitted by applicable
      law,
      not invalidate or render illegal or unenforceable any such provision in any
      other jurisdiction or with respect to any other party, or any other provisions
      of this Agreement.

    

    SECTION
      15

    

    Notices

    

    All
      notices and other communications hereunder shall be in writing and shall be
      mailed, sent or delivered in accordance with the Purchase
      Agreement.

    

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have duly executed this Agreement as of the date first above
      written.

     

    
      	
              GRANTORS:

            
	
              PRECISION
                OPTICS CORPORATION, INC.

            
	 	 
	
              By:

            	
               

            
	 	
              Name:
                Richard E. Forkey

            
	 	
              Title:
                President, Chief Executive Officer and 

              Treasurer

            
	 	 
	
              [NAMES
                OF SUBSIDIARY GRANTORS]

            
	 	 
	
              By:

            	
               

            
	 	
              Name:

            
	 	
              Title:

            

    

     

    PURCHASERS:

    

    SPECIAL
      SITUATIONS FUND III QP, L.P.

    SPECIAL
      SITUATIONS PRIVATE EQUITY FUND, L.P.

    

    
      	
              By:

            	
               

            
	 	
              Name:
                Austin W. Marxe

            
	 	
              Title:
                General Partner

            
	 	 
	
               

            
	
              Arnold
                Schumsky 

            

    

    

    
      [Signature
        Page to Trademark Security Agreement]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    SCHEDULE
      A

    to
      the Trademark Security Agreement

    

    Grantor:
      [_________]

    

    TRADEMARK
      REGISTRATIONS

    

    Trademarks
      owned by Grantors: 

    

    
      	
              Trademark Description

            	 	
              U.S. Registration No.

            	 	
              Date Registered

            	 
	 	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

        

    SCHEDULE
      B

    to
      the Trademark Security Agreement

    

    Grantor:
      [_________] 

    

    TRADEMARK
      APPLICATIONS

    

    
      	
              Trademark Application Description

            	 	
              U.S. Application No.

            	 	
              Date Applied

            	 
	 	 	 	 	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Annex
      1
      to

    Trademark
      Security Agreement

     

    ASSUMPTION
      AGREEMENT,
      dated
      as of ________________, 200__, made by ______________________________ (the
      “Additional
      Grantor”),
      in
      favor of the Purchasers named on the signature pages to the Trademark Security
      Agreement (as defined below) (the “Purchasers”)
      of
      $600,000 in aggregate principal amount of the 10% Senior Secured Convertible
      Notes (collectively, the “Notes”)
      issued
      by Precision Optics Corporation, Inc. (the “Borrower”)
      to the
      Purchasers pursuant to the terms of a Purchase Agreement, dated June 25, 2008
      (the “Purchase
      Agreement”),
      by
      and between the Borrower and the Purchasers. All capitalized terms not defined
      herein shall have the meaning ascribed to them in the Purchase Agreement and
      the
      Notes.

    

    WITNESSETH

     

    WHEREAS,
      the
      Grantors have entered into the Trademark Security Agreement dated as of June
      25,
      2008 (as it may be amended, supplemented or otherwise modified from time to
      time, the “Trademark
      Security Agreement”)
      in
      favor of the Purchasers; and 

     

    WHEREAS,
      the
      Additional Grantor has agreed to execute and deliver this Assumption Agreement
      in order to become a party to the Trademark Security Agreement; 

     

    NOW,
      THEREFORE, IT IS AGREED:

     

    1.
      Trademark
      Security Agreement.
      By
      executing and delivering this Assumption Agreement, the Additional Grantor,
      as
      provided in Section 10 of the Trademark Security Agreement, hereby becomes
      a
      party to the Trademark Security Agreement as a Grantor thereunder with the
      same
      force and effect as if originally named therein as a Grantor and, without
      limiting the generality of the foregoing, hereby expressly assumes all
      obligations and liabilities of a Grantor thereunder.

     

    2.
      Representations
      and Warranties Concerning Grantor’s Legal Status. 
      The
      Additional Grantor has previously delivered to the Purchasers a certificate
      signed by the Additional Grantor and entitled “Perfection Certificate” (the
“Perfection
      Certificate”).
      The
      Additional Grantor represents and warrants to the Purchasers as follows: (a)
      the
      Additional Grantor’s exact legal name is that indicated on the Perfection
      Certificate and on the signature page hereof, (b) the Additional Grantor is
      an
      organization of the type and organized in the jurisdiction set forth in the
      Perfection Certificate, (c) the Perfection Certificate accurately sets forth
      the
      Additional Grantor’s organizational identification number or accurately states
      that the Additional Grantor has none, (d) the Perfection Certificate accurately
      sets forth the Additional Grantor’s place of business or, if more than one, its
      chief executive office as well as the Additional Grantor’s mailing address if
      different (e) all other information set forth on the Perfection Certificate
      pertaining to the Grantor is accurate and complete including but not limited
      to
      information pertaining to trademarks and (f) each of the representations and
      warranties contained in the Transaction Documents relating to the Additional
      Grantor are true and correct on and as the date hereof (after giving effect
      to
      this Assumption Agreement) as if made on and as of such date.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    3.
      Governing
      Law.
      THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
      IN
      ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING
      THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF,
      THE PURCHASERS) ELECTS TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND
      ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE GENERAL OBLIGATIONS
      LAW
      OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR SUCCEEDING
      PROVISIONS THEREOF

     

    IN
      WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be
      duly
      executed and delivered as of the date first above written.

     

    
      	
              [ADDITIONAL
                GRANTOR]

            
	 
	
              By:

            	 
	Name:
	Title:

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Exhibit
      III

    

    Patent
      Security Agreement

    

    PATENT
      SECURITY AGREEMENT,
      dated
      as of June 25, 2008 (this “Agreement”),
      is by
      and among the parties identified as “Grantors” on the signature pages hereto and
      such other parties as may become Grantors hereunder after the date hereof
      (individually a “Grantor”,
      and
      collectively the “Grantors”)
      and
      the Purchasers named on the signature pages hereto (the “Purchasers”).

    

    W
      I T N E S S E T H:

    

    WHEREAS,
      pursuant to a Security Agreement dated as of the date hereof (as such agreement
      may be amended, amended and restated, supplemented or otherwise modified from
      time to time, the “Security
      Agreement”),
      between the Grantors and the Purchasers and in order to obtain the benefits
      referred to therein, the Grantors have granted to the Purchasers a security
      interest in substantially all of the Grantor’s property, including, without
      limitation, the Collateral referred to in Section 2 below; and

    

    WHEREAS,
      pursuant to the Security Agreement, the Grantor has agreed to execute this
      Agreement in respect of its Collateral for recording with the Patent Office
      and
      any other office in which a security interest in the Collateral may be recorded
      under the laws of any other applicable jurisdiction;

    

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants and agreements
      hereinafter set forth, the Grantor and the Purchasers agree as
      follows:

    

    SECTION
      1.
      

     

    Definitions;
      Interpretation.

     

    (a) Defined
      Terms.
      All
      capitalized terms used in this Agreement and not otherwise defined herein shall
      have the meanings assigned to them in the Purchase Agreement, dated as of June
      25, 2008, by and between Precision Optics Corporation, Inc. (the “Borrower”)
      and
      the Purchasers (the “Purchase
      Agreement”)
      and
      the Notes.

     

    (b) Certain
      Defined Terms.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Collateral”
has
      the
      meaning set forth in Section 2.

     

    “Notes”
means
      $600,000 in aggregate principal amount of the Borrower’s 10% Senior Secured
      Convertible Notes issued by the Borrower to the Purchasers.

     

    “Patent
      Office”
means
      the United States Patent and Trademark Office.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “UCC”
means
      the Uniform Commercial Code as in effect in the State of New York.

     

    (c) Terms
      Defined in UCC.
      Where
      applicable in the context of this Agreement and except as otherwise defined
      herein, terms used in this Agreement shall have the meanings assigned to them
      in
      the UCC. 

     

    (d) Construction.
      In this
      Agreement, the following rules of construction and interpretation shall be
      applicable: (i) no reference to “proceeds” in this Agreement authorizes any
      sale, transfer, or other disposition of any Collateral by Grantor; (ii)
“includes” and “including” are not limiting; (iii) “or” is not exclusive; and
      (iv) “all” includes “any” and “any” includes “all.” To the extent not
      inconsistent with the foregoing, the rules of construction and interpretation
      applicable to the Security Agreement shall also be applicable to this Agreement
      and are incorporated herein by this reference.

    

    SECTION
      2

    

    Grant
      of
      Security

    

    (a) The
      Grantor hereby grants to the Purchasers a security interest in and to all of
      the
      Grantor’s right, title and interest in and to the following (the “Collateral”):

    

    (i)
       the
      United States, international, and foreign patents, patent applications and
      patent licenses set forth on Schedule
      A
      and
B
      hereto,
      as Schedule
      A
      and
B
      may be
      supplemented from time to time by supplements to the Security Agreement and
      this
      Agreement which may be executed and delivered by the Grantor to the Purchasers,
      from time to time, together with all reissues, divisions, continuations,
      continuations-in-part, extensions and reexaminations thereof, and all rights
      therein provided by international treaties or conventions (the “Patents”);
      

    

    (ii)
       any
      and
      all claims for damages for past, present and future infringement,
      misappropriation or breach with respect to the Patents, with the right, but
      not
      the obligation, to sue for and collect, or otherwise recover, such damages;
      and

    

    (iii)
       any
      and
      all proceeds of the foregoing. 

    

    (b) The
      pledge and collateral assignment of, and the grant of a security interest in,
      the Collateral by the Grantor under this Agreement secures the payment of all
      Obligations of the Grantor now or hereafter existing, whether direct or
      indirect, absolute or contingent, and whether for principal, reimbursement
      obligations, interest, premiums, penalties, fees, indemnifications, contract
      causes of action, costs, expenses or otherwise.

    

    (c)  The
      Grantor authorizes and requests that the Commissioner of Patents and Trademarks
      and any other applicable government officer record this Agreement.

    

    SECTION
      3.
      

     

    Supplement
      to Security Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    This
      Agreement has been entered into in conjunction with the security interests
      granted to Purchasers under the Security Agreement, and other security documents
      referred to therein. The rights and remedies of the Purchasers with respect
      to
      the security interests granted herein are without prejudice to, and are in
      addition to those set forth in the Security Agreement or any other security
      documents referred to therein, all terms and provisions of which are
      incorporated herein by reference.

    

    SECTION
      4.
      

     

    Representations
      and Warranties.

     

    Each
      Grantor represents and warrants to Purchasers that:

     

    (a) Patent
      Registrations.
      A true
      and correct list of all of such Grantor’s Patents is set forth on Schedule
      A.

     

    (b) Applications
      for Patents.
      A true
      and correct list of all of such Grantor’s applications for Patents is set forth
      on Schedule
      B.

    

    SECTION
      5.

    

    Further
      Acts.

     

    On
      a
      continuing basis, each Grantor shall make, execute, acknowledge and deliver,
      and
      file and record in the proper filing and recording places, all such instruments
      and documents, and take all such action as may be reasonably necessary or
      advisable or may be reasonably requested by Purchasers to carry out the intent
      and purposes of this Agreement, or for assuring, confirming or protecting the
      grant or perfection of the security interest granted or purported to be granted
      hereby, to ensure such Grantor’s compliance with this Agreement or to enable
      Purchasers to exercise and enforce their rights and remedies hereunder with
      respect to the Collateral, including any documents for filing with the Patent
      Office or any applicable state office. Purchasers may record this Agreement,
      an
      abstract thereof, or any other document describing Purchasers’ interest in the
      Patents with the Patent Office, at the expense of such Grantor. In addition,
      each Grantor authorizes Purchasers to file financing statements describing
      the
      Collateral in any UCC filing office deemed appropriate by Purchasers. If any
      Grantor shall at any time hold or acquire a commercial tort claim arising with
      respect to the Collateral, such Grantor shall immediately notify Purchasers
      in a
      writing signed by such Grantor of the brief details thereof and grant to the
      Purchasers in such writing a security interest therein and in the proceeds
      thereof, all upon the terms of this Agreement, with such writing to be in form
      and substance satisfactory to the Purchasers.

     

    SECTION
      6.
      

     

    Authorization
      to Supplement.

     

    Each
      Grantor shall give the Purchasers prompt notice of any additional United States
      Patent registrations or applications therefor after the date hereof. Each
      Grantor authorizes the Purchasers unilaterally to modify this Agreement by
      amending Schedule
      A
      or
B
      to
      include any future United States registered Patents or applications therefor
      of
      such Grantor. Notwithstanding the foregoing, no failure to so modify this
      Agreement or amend Schedules
      A
      or
B
      shall in
      any way affect, invalidate or detract from Purchasers’ continuing security
      interest in all Collateral, whether or not listed on Schedule
      A
      or
B.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    SECTION
      7.
      

     

    Binding
      Effect.

     

    This
      Agreement shall be binding upon, inure to the benefit of and be enforceable
      by
      each Grantor, Purchasers and their respective successors and assigns. No party
      may assign, transfer, hypothecate or otherwise convey its rights, benefits,
      obligations or duties hereunder except as specifically permitted by the
      Notes.

     

    SECTION
      8.
      

     

    Governing
      Law.

     

    This
      Agreement shall be governed by, and construed in accordance with, the law of
      the
      State of New York, except as required by mandatory provisions of law or to
      the
      extent the perfection or priority of the security interests hereunder, or the
      remedies hereunder, in respect of any Collateral are governed by the law of
      a
      jurisdiction other than the State of New York.

     

    SECTION
      9.
      

     

    Entire
      Agreement; Amendment.

     

    No
      amendment of any provision of this Agreement shall be effective unless it is
      in
      writing and signed by the Grantors and the Purchasers, and no waiver of any
      provision of this Agreement, and no consent to any departure by the Grantors
      therefrom, shall be effective unless it is in writing and signed by the
      Purchasers, and then such waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given. Notwithstanding
      the foregoing, (i) additional Persons may become Grantors under this Agreement
      without consent of any other Grantor through execution and delivery to the
      Purchasers of an Assumption Agreement in the form of Annex 1 hereto or any
      other
      form of supplement acceptable to the Purchasers, and (ii) Purchasers
      unilaterally may re-execute this Agreement, to the extent necessary, to modify,
      amend or supplement Schedules A or B hereto as provided in Section 6 hereof.
      To
      the extent that any provision of this Agreement conflicts with any provision
      of
      the Notes, the provision giving Purchasers greater rights or remedies shall
      govern, it being understood that the purpose of this Agreement is to add to,
      and
      not detract from, the rights granted to Purchasers under the Notes. Nothing
      in
      this Section 9 shall be construed to permit any Grantor to form a Subsidiary
      unless expressly permitted to do so under the Note.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SECTION
      10.
      

     

    Counterparts.

     

    This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and all of which taken together shall constitute but one
      and
      the same agreement. Delivery of an executed counterpart of this Agreement by
      facsimile shall be equally as effective as delivery of a manually executed
      counterpart. Any party hereto delivering a counterpart of this Agreement by
      facsimile shall also deliver a manually executed counterpart, but the failure
      to
      so deliver a manually executed counterpart shall not affect the validity,
      enforceability, or binding effect hereof.

     

    SECTION
      11.
      

     

    Termination.

     

    Upon
      the
      indefeasible payment and performance in full of all Obligations, the security
      interests created by this Agreement shall terminate and the Purchasers (at
      the
      Grantors’ expense) shall promptly execute and deliver to the Grantors such
      documents and instruments reasonably requested by the Grantors as shall be
      necessary to evidence termination of all such security interests given by the
      Grantors to Purchasers hereunder, including cancellation of this Agreement
      by
      written notice from Purchasers to the Patent Office.

     

    SECTION
      12.

     

    No
      Inconsistent Requirements.

     

    Each
      Grantor acknowledges that this Agreement and the other documents, agreements
      and
      instruments entered into or executed in connection herewith may contain
      covenants and other terms and provisions variously stated regarding the same
      or
      similar matters, and each Grantor agrees that all such covenants, terms and
      provisions are cumulative and all shall be performed and satisfied in accordance
      with their respective terms.

     

    SECTION
      13.
      

     

    Severability.

     

    If
      one or
      more provisions contained in this Agreement shall be invalid, illegal or
      unenforceable in any respect in any jurisdiction or with respect to any party,
      such invalidity, illegality or unenforceability in such jurisdiction or with
      respect to such party shall, to the fullest extent permitted by applicable
      law,
      not invalidate or render illegal or unenforceable any such provision in any
      other jurisdiction or with respect to any other party, or any other provisions
      of this Agreement.

     

    SECTION
      14.
      

     

    Notices.

     

    All
      notices and other communications hereunder shall be in writing and shall be
      mailed, sent or delivered in accordance with the Purchase
      Agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    [Signature
      Page Follows]

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have duly executed this Agreement as of the date first above
      written.

     

    
      	
              GRANTORS:

            
	
              PRECISION
                OPTICS CORPORATION, INC.

            
	 	 
	
              By:

            	 
	 	
              Name:
                Richard E. Forkey

            
	 	
              Title:
                President, Chief Executive Officer and Treasurer

            
	 	 
	
              [NAMES
                OF SUBSIDIARY GRANTORS]

            
	 	 
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            

    

    

    PURCHASERS:

    

    SPECIAL
      SITUATIONS FUND III QP, L.P.

    SPECIAL
      SITUATIONS PRIVATE EQUITY FUND, L.P.

    

    
      	
              By:

            	
               

            
	 	
              Name:
                Austin W. Marxe

            
	 	
              Title:
                General Partner

            
	 
	
               

            
	
              Arnold
                Schumsky

            

    

    
       

      [Signature
        Page to Patent Security Agreement]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    SCHEDULE
      A

    

    to
      the Patent Security Agreement

    

    Grantor:
      [_________]

    

    Registered
      Patents: 

    

    
      	
              Patent No.

            	 	
              Date of Registration

            	 	
              Date of Expiration

            
	 	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      B

    

    to
      Patent Security Agreement

    

    Grantor:
      [_________] 

    

    Applications
      for Patents:

    

    
      	
              Patent No.

            	 	
              Date of Registration

            	 	
              Date of Expiration

            
	 	 	 	 	 
	 	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Annex
      1
      to

    Patent
      Security Agreement

     

    ASSUMPTION
      AGREEMENT,
      dated
      as of ________________, 200__, made by ______________________________ (the
      “Additional
      Grantor”),
      in
      favor of the Purchasers named on the signature pages to the Patent Security
      Agreement (as defined below) (the “Purchasers”)
      of
      $600,000 in aggregate principal amount of the 10% Senior Secured Convertible
      Notes (collectively, the “Notes”)
      issued
      by Precision Optics Corporation, Inc. (the “Borrower”)
      to the
      Purchasers pursuant to the terms of a Purchase Agreement, dated June 25, 2008
      (the “Purchase
      Agreement”),
      by
      and between the Borrower and the Purchasers. All capitalized terms not defined
      herein shall have the meaning ascribed to them in the Purchase Agreement and
      the
      Notes.

    
 

    WITNESSETH

     

    WHEREAS,
      the
      Grantors have entered into the Patent Security Agreement dated as of June 25,
      2008 (as it may be amended, supplemented or otherwise modified from time to
      time, the “Patent
      Security Agreement”)
      in
      favor of the Purchasers; and 

     

    WHEREAS,
      the
      Additional Grantor has agreed to execute and deliver this Assumption Agreement
      in order to become a party to the Patent Security Agreement; 

     

    NOW,
      THEREFORE, IT IS AGREED:

     

    1.
      Patent
      Security Agreement.
      By
      executing and delivering this Assumption Agreement, the Additional Grantor,
      as
      provided in Section 9 of the Patent Security Agreement, hereby becomes a party
      to the Patent Security Agreement as a Grantor thereunder with the same force
      and
      effect as if originally named therein as a Grantor and, without limiting the
      generality of the foregoing, hereby expressly assumes all obligations and
      liabilities of a Grantor thereunder.

     

    2.
      Representations
      and Warranties Concerning Grantor’s Legal Status. 
      The
      Additional Grantor has previously delivered to the Purchasers a certificate
      signed by the Additional Grantor and entitled “Perfection Certificate” (the
“Perfection
      Certificate”).
      The
      Additional Grantor represents and warrants to the Purchasers as follows: (a)
      the
      Additional Grantor’s exact legal name is that indicated on the Perfection
      Certificate and on the signature page hereof, (b) the Additional Grantor is
      an
      organization of the type and organized in the jurisdiction set forth in the
      Perfection Certificate, (c) the Perfection Certificate accurately sets forth
      the
      Additional Grantor’s organizational identification number or accurately states
      that the Additional Grantor has none, (d) the Perfection Certificate accurately
      sets forth the Additional Grantor’s place of business or, if more than one, its
      chief executive office as well as the Additional Grantor’s mailing address if
      different (e) all other information set forth on the Perfection Certificate
      pertaining to the Grantor is accurate and complete including but not limited
      to
      information pertaining to Patents and (f) each of the representations and
      warranties contained in the Transaction Documents relating to it are true and
      correct on and as of the date hereof (after giving effect to this Assumption
      Agreement) as if made on and as of such date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.
      Governing
      Law.
      THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
      IN
      ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. WITHOUT IN ANY WAY LIMITING
      THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY THEIR ACCEPTANCE HEREOF,
      THE PURCHASERS) ELECTS TO BE GOVERNED BY NEW YORK LAW IN ACCORDANCE WITH, AND
      ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE GENERAL OBLIGATIONS
      LAW
      OF THE STATE OF NEW YORK, AS AMENDED, OR ANY CORRESPONDING OR SUCCEEDING
      PROVISIONS THEREOF.

     

    IN
      WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be
      duly
      executed and delivered as of the date first above written.

     

    
      	
              [ADDITIONAL
                GRANTOR]

            
	 
	
              By:

            	 
	
              Name:

            
	
              Title:

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Schedule
      B

     

    Commercial
      Tort Claims

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    Annex
      1
      to

    Pledge
      and Security Agreement

     

    ASSUMPTION
      AGREEMENT,
      dated
      as of ________________, 200__, made by ______________________________ (the
      “Additional
      Grantor”),
      in
      favor of the Purchasers named on the signature pages to the Security Agreement
      (as defined below) (the “Purchasers”)
      of
      $600,000 in aggregate principal amount of the 10% Senior Secured Convertible
      Notes (collectively, the “Notes”)
      issued
      by Precision Optics Corporation, Inc. (the “Borrower”)
      to the
      Purchasers pursuant to the terms of a Purchase Agreement, dated June 25, 2008
      (the “Purchase
      Agreement”),
      by
      and between the Borrower and the Purchasers. All capitalized terms not defined
      herein shall have the meaning ascribed to them in the Purchase Agreement and
      the
      Notes.

    

    WITNESSETH

     

    WHEREAS,
      the
      Grantors have entered into the Pledge and Security Agreement dated as of June
      25, 2008 (as it may be amended, supplemented or otherwise modified from time
      to
      time, the “Security
      Agreement”)
      in
      favor of the Purchasers; and 

     

    WHEREAS,
      the
      Additional Grantor has agreed to execute and deliver this Assumption Agreement
      in order to become a party to the Security Agreement; 

     

    NOW,
      THEREFORE, IT IS AGREED:

     

    1.
      Security
      Agreement.
      By
      executing and delivering this Assumption Agreement, the Additional Grantor,
      as
      provided in Section 19 of the Security Agreement, hereby becomes a party to
      the
      Security Agreement as a Grantor thereunder with the same force and effect as
      if
      originally named therein as a Grantor and, without limiting the generality
      of
      the foregoing, hereby expressly assumes all obligations and liabilities of
      a
      Grantor thereunder.

     

    2.
      Representations
      and Warranties Concerning Grantor’s Legal Status. 
      The
      Additional Grantor has previously delivered to the Purchasers a certificate
      signed by the Additional Grantor and entitled “Perfection Certificate” (the
“Perfection
      Certificate”)
      (form
      of Perfection Certificate to be completed is attached hereto as Schedule
      1).
      The
      Additional Grantor represents and warrants to the Purchasers as follows: (a)
      the
      Additional Grantor’s exact legal name is that indicated on the Perfection
      Certificate and on the signature page hereof, (b) the Additional Grantor is
      an
      organization of the type and organized in the jurisdiction set forth in the
      Perfection Certificate, (c) the Perfection Certificate accurately sets forth
      the
      Additional Grantor’s organizational identification number or accurately states
      that the Additional Grantor has none, (d) the Perfection Certificate accurately
      sets forth the Additional Grantor’s place of business or, if more than one, its
      chief executive office as well as the Additional Grantor’s mailing address if
      different (e) all other information set forth on the Perfection Certificate
      pertaining to the Grantor is accurate and complete and (f) each of the
      representations and warranties contained in the Transaction Documents relating
      to it are true and correct on and as the date hereof (after giving effect to
      this Assumption Agreement) as if made on and as of such date.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    3.
      Governing
      Law.
      THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
      IN
      ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (OTHER THAN THOSE CONFLICT
      OF
      LAW RULES THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION).
      WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND
      BY
      THEIR ACCEPTANCE HEREOF, THE PURCHASERS) ELECTS TO BE GOVERNED BY NEW YORK
      LAW
      IN ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF
      THE
      GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
      CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.

     

    IN
      WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be
      duly
      executed and delivered as of the date first above written.

     

    
      	
              [ADDITIONAL
                GRANTOR]

            
	 
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Schedule
      1

     

    to

     

    Assumption
      Agreement to Pledge and Security Agreement

    PERFECTION
      CERTIFICATE

     

    The
      undersigned, the    and    of
      [Additional Grantor] a [state of organization] [entity] (the “Company”), hereby
      certifies, with reference to a certain Pledge and Security Agreement dated
      as of
      June 25, 2008 (terms defined in such Security Agreement having the same meanings
      herein as specified therein), between the Grantors and the Purchasers named
      therein.

     

    1.  Names.  (a) The
      exact
      corporate name of the Company as that name appears on its [Certificate
      of Incorporation]
      is as
      follows:

     

    (b) The
      following is a list of all other names (including trade names or similar
      appellations) used by the Company, or any other business or organization to
      which the Company became the successor by merger, consolidation, acquisition,
      change in form, nature or jurisdiction of organization or otherwise, now or
      at
      any time during the past five years:

     

    2.  Other
      Identifying Factors.  (a) The
      following is the type of organization of the Company:

     

    (b) The
      following is the jurisdiction of the Company’s organization:

     

    (c) The
      following is the Company’s state issued organizational identification number
[state
      “None” if the state does not issue such a number]:

     

    (d) The
      following is the Company’s federal employer identification number:

     

    (e) Attached
      hereto as Schedule 2
      is the
      information required above in this §2 for any other business or organization to
      which the Company became the successor by merger, consolidation, acquisition,
      change in form, nature or jurisdiction of organization or otherwise, now or
      at
      any time during the past five years:

    

    3.  Chief
      Executive Office.  

     

    (a) The
      chief
      executive office of the Company is located at the following
      address:

    

    
      	
              Address

            	 	
              County

            	 	
              State

            
	 	 	 	 	 
	 	 	 	 	 

    

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b) The
      principal mailing address of the Company is the following address, if different
      from the chief executive office address:

    

    
      	
              Mailing
                Address

            	 	
              County

            	 	
              State

            
	 	 	 	 	 
	 	 	 	 	 

    

    

    4.  Other
      Current Locations.  

     

    (a) The
      following are all other locations in the United States of America in which
      the
      Company maintains any books or records relating to any of the Collateral
      consisting of accounts, contract rights, chattel paper, general intangibles
      or
      mobile goods:

    

    
      	
              Address

            	 	
              County

            	 	
              State

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

    (b) The
      following are all other places of business of the Company in the United States
      of America:

    

    
      	
              Address

            	 	
              County

            	 	
              State

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

     

    (c) The
      following are all other locations in the United States of America where any
      of
      the Collateral consisting of inventory or equipment is located:

    

    
      	
               

              Address

            	 	
               

              County

            	 	
               

              State

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) The
      following are the names and addresses of all persons or entities other than
      the
      Company, such as lessees, consignees, warehousemen or purchasers of chattel
      paper, which have possession or are intended to have possession of any of the
      Collateral consisting of chattel paper, inventory or equipment:

    

    
      	
               

              Name

            	 	
               

              Mailing
                Address

            	 	
               

              County

            	 	
               

              State

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

    

     

    5.  Prior
      Locations.  (a) Set
      forth
      below is the information required by §3 and by subparagraphs (a) and (b) of §4
      with respect to each location or place of business previously maintained by
      the
      Company at any time during the past five years in a state in which the Company
      has previously maintained a location or place of business at any time during
      the
      past four months:

    

    
      	
               

              Address

            	 	
               

              County

            	 	
               

              State

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

     

    (b) Set
      forth
      below is the information required by subparagraphs (c) and (d) of §4 with
      respect to each other location at which, or other person or entity with which,
      any of the Collateral consisting of inventory or equipment has been previously
      held at any time during the past twelve months:

    

    
      	
               

              Name

            	 	
               

              Address

            	 	
               

              County

            	 	
               

              State

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    6.  Fixtures.  Attached
      hereto as Schedule
      6
      is the
      information required by UCC §9-402(5) or by Rev. UCC §9-502(b) of each state in
      which any of the Collateral consisting of fixtures are or are to be located
      and
      the name and address of each real estate recording office where a mortgage
      on
      the real estate on which such fixtures are or are to be located would be
      recorded.

     

    7.  Intellectual
      Property.  Attached
      hereto as Schedule
      7
      is a
      complete list of all United States and foreign patents, copyrights, trademarks,
      trade names and service marks registered or for which applications are pending
      in the name of the Company.

     

    8.  Securities;
      Instruments.  Attached
      hereto as Schedule
      8
      is a
      complete list of all stocks, bonds, debentures, notes and other securities
      and
      investment property owned by the Company (provide
      name of issuer, a description of security and value):

     

    9.  Motor
      Vehicles.  The
      following is a complete list of all motor vehicles owned by the Company
(describe
      each vehicle by make, model and year and indicate for each the state in which
      registered and the state in which based):

    

    
      	
               

              Vehicle

            	 	
               

              State
                of Registration

            	 	
               

              State
                in Which Based

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

     

    10. Other
      Titled Collateral.  The
      following is a complete list of aircraft and boats and all other inventory,
      equipment and other goods of the Company which are subject to any certificate
      of
      title or other registration statute of the United States, any state or any
      other
      jurisdiction (provide
      description of covered goods and indicate registration system and
      jurisdiction):

    

    

      
        	
                Goods

              	 	
                Registration
                  System

              	 	
                Jurisdiction

              
	 	 	 	 	 

      

    

    

     

    11. Bank
      Accounts.  The
      following is a complete list of all bank accounts (including securities and
      commodities accounts) maintained by the Company (provide
      name and address of depository bank, type of account and account
      number):

    

      
        	
                Depository
                  Bank

              	 	
                Bank
                  Address

              	 	
                Type
                  of Account

              	 	
                Acct.
                  No.

              
	 	 	 	 	 	 	 

      

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    12. Unusual
      Transactions.  Except
      for those purchases, acquisitions and other transactions described on
Schedule
      2
      or on
Schedule
      12
      attached
      hereto, all of the Collateral has been originated by the Company in the ordinary
      course of the Company’s business or consists of goods which have been acquired
      by the Company in the ordinary course from a person in the business of selling
      goods of that kind.

     

     

    13. Termination
      Statements.  An
      authorized termination statement on Form UCC-3 in form acceptable to Purchasers
      has been duly filed in each applicable jurisdiction identified in §§2, 3, 4 and
      5 or on Schedule
      2
      and
Schedule
      12
      hereto
[or,
      in the case of Schedule
      2
      or
Schedule
      12
      a
      release acceptable to Purchasers from the person from which the Company
      purchased or otherwise acquired the Collateral identified on such schedule]
      and
      has
      been delivered to Purchasers. Attached hereto as Schedule 13
      is a
      true copy of each such filing duly acknowledged by the filing
      officer[
      and
      of each such release].

     

    14. Schedule
      of Filing.  Attached
      hereto as Schedule 14
      is a
      schedule setting forth filing information with respect to the filings described
      in §13 above.

     

    15. Filing
      Fees.  All
      filing fees and taxes payable in connection with the filings described in §13
      have been paid.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, we have hereunto signed this Certificate on
      __________.

     

    
      	 
	
              Title:

            
	 
	 
	
              Title:

            

    

    

    
      [Signature
        Page to Perfection Certificate]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}]]