Exhibit
10.1


SECURITIES PURCHASE AGREEMENT


This Securities Purchase
Agreement (this “Agreement”) is dated as of September 24, 2007, among Focus Enhancements, Inc., a Delaware
corporation (the “Company”), and each Purchaser identified on the
signature pages hereto (each a “Purchaser” and collectively the “Purchasers”);
the Company and each Purchaser are individually referred to herein as a “party”
and collectively as the “parties”.


WHEREAS, the Company has
filed with the Commission a Registration Statement (as defined below) relating
to the offer and sale from time to time of the Company’s securities, including
shares of its Common Stock and Warrants;


WHEREAS, subject to the
terms and conditions set forth in this Agreement, the Company desires to issue
and sell to the Purchasers pursuant to the Registration Statement, and the
Purchasers, severally and not jointly, desire to purchase from the Company in
the aggregate, up to 3,863,637 shares of Common Stock and Warrants to purchase
965,910 shares of Common Stock on the Closing Date, each as set forth in the
respective amounts on the signature pages attached hereto.


NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Company and each Purchaser agrees as follows:


ARTICLE I.

DEFINITIONS


1.1 Definitions.  In addition to
the terms defined elsewhere in this Agreement, for all purposes of this
Agreement, the following terms have the meanings indicated in this Section 1.1:


“Action” shall have the meaning ascribed to
such term in Section 3.1(j).


“Affiliate” means any Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a Person as such terms are used in and construed
under Rule 144.  With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.


“Business Day” means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.


 “Closing”
means the closing of the purchase and sale of the Common Stock and the Warrants
pursuant to Section 2.1.



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“Closing Date” means the Trading Day when all
of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions precedent to the Purchasers’ obligations to
pay the Subscription Amount have been satisfied or waived.


“Commission”
means the Securities and Exchange Commission.


“Common Stock” means the common stock of the
Company, $0.01 par value per share, and any securities into which such common
stock may hereafter be reclassified.


“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 Counsel” means Manatt, Phelps &
Phillips, LLP with offices located at 1001 Page Mill Road, Bldg. 2, Palo Alto,
California  94304-1006.


“Disclosure Schedules” means the Disclosure
Schedules attached hereto.


“Environmental Laws” shall have the meaning
ascribed to such term in Section 3.1(bb).


“Evaluation Date” shall have the meaning
ascribed to such term in Section 3.1(dd).


“Exchange Act” means the Securities Exchange
Act of 1934, as amended.


“GAAP” shall have the meaning ascribed to such
term in Section 3.1(h).


“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).


“Liens” means a lien, charge, security
interest, encumbrance, right of first refusal, preemptive right or other
restriction.


“Material Adverse Effect” shall have the
meaning ascribed to such term in Section 3.1(b).


“Material Permits” shall have the meaning
ascribed to such term in Section 3.1(m).


“Montauk Placement Agent Fee” shall mean eight
percent (8%) of the gross proceeds from the sale of up to and including
3,863,637 Shares to the Purchasers.



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“Per Share Purchase Price” shall be $0.88,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement but prior to the Closing.


“Person” means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.


“Placement Agent” means First Montauk Securities Corp. and any other
placement agents used as selling agents in connection with the sale of the
Securities.


“Placement Agent Fee” shall mean the Montauk
Cash Placement Agent Fee and any other fees paid to the placement agents in
connection with services provided to the Company as selling agent in connection
with the sale of the Securities.


“Registration Statement” means the registration
statement on Form S-3 (File No. 333-139224), including a prospectus, relating
to the offer and sale of certain of the Company’s Common Stock, which was
declared effective by the Commission on December 20, 2006.  References herein to the term “Registration
Statement” as of any date shall mean such effective registration statement, as
amended or supplemented to such date, including all information and documents
incorporated by reference therein.


“Required Approvals” shall have the meaning
ascribed to such term in Section 3.1(e).


“Rule 144” means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.


“SEC Reports” shall have the meaning ascribed
to such term in Section 3.1(h).


“Securities”
means the Shares, the Warrants and the Warrant Shares.


“Securities Act” means the Securities Act of
1933, as amended.


“Shares” means the shares of Common Stock
issued or issuable to each Purchaser pursuant to this Agreement.


“Subscription Amount” means, as to each
Purchaser, the amounts set forth below such Purchaser’s signature block on the
signature page hereto, in United States dollars and in immediately available
funds.


“Subsidiary” shall mean the subsidiaries of the
Company, if any, set forth on Schedule 3.1(a) or any business entity in
which the Company now or in the future owns or has the power to vote or
control, at the time such is determined, twenty percent (20%) or more of the
equitable, beneficial,  legal or other
ownership interests thereof.



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“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not
listed on a Trading Market, a day on which the Common Stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or
(iii) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided,
that in the event that the Common Stock is not listed or quoted as set forth in
(i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.


“Trading Market” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the New York Stock Exchange, the
Nasdaq Global Market or the Nasdaq Capital Market.


“Transaction Documents” means this Agreement
and the Warrants and any other documents or agreements executed in connection
with the transactions contemplated hereunder.


“Warrants” means the Common Stock Purchase
Warrants, in the form of Exhibit A, issuable to the Purchasers at
the Closing, which warrants shall have an exercise price equal to $1.05 per
share and shall be exercisable for a period of 5 years.


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


ARTICLE
II.

PURCHASE AND SALE


2.1 Purchase of Common Stock.


(a) At the Closing, each Purchaser shall purchase
from the Company, severally and not jointly, and the Company shall issue and
sell to each Purchaser, (a) a number of Shares equal to such Purchaser’s
Subscription Amount divided by the Per Share Purchase Price and (b) the
Warrants, registered in the name of each Purchaser, pursuant to which such
Purchaser shall have the right to acquire up to the number of shares of Common
Stock equal to 25% of the Shares to be issued to such Purchaser at the
Closing.  The aggregate number of Shares
sold hereunder (when aggregated with the aggregate number of Warrant Shares)
shall, in no event, exceed four million eight-hundred twenty-nine thousand five hundred and
forty-seven (4,829,547)
shares.  The offering and sale of
the Shares (the “Offering”) are being made pursuant to (1) an effective
Registration Statement on Form S-3 (including the Prospectus contained therein
(the “Base Prospectus”) and (2) a Prospectus Supplement (the “Prospectus
Supplement” and together with the Base Prospectus, the “Prospectus”) containing
certain supplemental information regarding the Shares and terms of the Offering
that will be filed with the Commission and delivered to the 



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Purchaser (or made available to
the Purchaser by the filing by the Company of an electronic version thereof
with the Commission).


(b) Upon satisfaction of the conditions set forth
in Section 2.2, (i) each Purchaser shall deliver to the Company such Purchaser’s
Subscription Amount by wire transfer of immediately available funds to an
account designated by the Company as set forth on Schedule I hereto, which
funds will be delivered to the Company in consideration of the Shares and the
Warrants issued at the Closing and (ii) the Company shall deliver to each
Purchaser duly
executed certificates evidencing the Shares and the Warrants provided however
that the Company may deliver  the Shares through
the Depository Trust Company Deposit/Withdrawal at Custodian (“DWAC”) system to
the account that the Purchaser has specified in writing to the Company.  Delivery of the Shares may be by electronic
book-entry at The Depository Trust Company (“DTC”), registered in the Purchaser’s
name and address as set forth on Schedule I, and released by the Company’s
transfer agent to the Purchaser at the Closing. 
The Closing shall occur at the offices of Manatt Phelps & Phillips,
LLP, or such other location as the parties shall mutually agree.


(c) It is the Purchaser’s responsibility to (A)
make the necessary wire transfer or confirm the proper account balance in a
timely manner and (B) if the Shares are to be delivered through the DWAC
system, arrange for settlement by way of DWAC in a timely manner.  If the Purchaser does not deliver the
aggregate Subscription Amount for the Shares or does not make proper
arrangements for settlement in a timely manner, as applicable, the Shares may
not be delivered at Closing to the Purchaser or the Purchaser may be excluded
from the Closing altogether.


2.2 Closing Conditions; Deliveries.


(a) Conditions to the Purchasers’ Obligations.
The obligation of each Purchaser to purchase the Shares and Warrants at the
Closing is subject to the fulfillment to the Purchasers’ reasonable
satisfaction, on or prior to the Closing Date, of the following conditions, any
of which may be waived in writing by the Purchasers:


(i)            The representations and warranties
made by the Company in Section 3.1 hereof shall be true and correct except
where the failure to be so true and correct does not have a Material Adverse
Effect.  The Company shall have performed
in all material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.


(ii)           The Company shall have obtained in a
timely fashion any and all material consents, permits, approvals, registrations
and waivers necessary or appropriate for consummation of the purchase and sale
of the Shares and Warrants, all of which shall be and remain so long as necessary
in full force and effect.


(iii)          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, or self-regulatory organization
enjoining or 



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preventing the consummation of
the transactions contemplated hereby or in the other Transaction Documents.


(iv)          The Company shall have delivered 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 (i), (ii), (iii) and(vii)
of this Section 2.2(a).


(v)           The Company shall have delivered a
Certificate, executed on behalf of the Company by its Secretary, dated as of
the Closing Date, certifying the resolutions adopted by the Board of Directors
of the Company approving the transactions contemplated by this Agreement and
the other Transaction Documents and the issuance of the Shares and Warrants,
certifying the current versions of the Certificate of Incorporation 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.


(vi)          The Prospectus shall have been filed
with the Commission pursuant to Rule 424(b) under the Securities Act within the
applicable time period prescribed for such filing; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; no stop order or suspension of trading shall have
been imposed by any Person with respect to public trading in the Common Stock;
and the Purchaser shall have received the Prospectus in accordance with the
federal securities laws.


(vii)         The Company’s Common Stock (including
the Shares and the Warrant Shares) shall be eligible for inclusion on the
Nasdaq Capital Market and listed and admitted and authorized for trading on the
Nasdaq Capital Market.


(b) Conditions to Obligations of the Company.
The Company’s obligation to sell and issue the Shares and 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:


(i)            The representations and warranties
made by each of the Purchasers in Section 3.2 hereof 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 Purchasers shall have performed in all material respects all
obligations and conditions herein required to be performed or observed by them
on or prior to the Closing Date.


(ii)           Each of the Purchasers shall have
delivered such Purchaser’s Subscription Amount by wire transfer to the account
set forth on Schedule I attached hereto.


(iii)          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, or self-regulatory organization
enjoining or 



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preventing the consummation of
the transactions contemplated hereby or in the other Transaction Documents.


(c) Termination of Obligations to Effect
Closing; Effects.


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


(A)          Upon
the mutual written consent of the Company and the Purchasers;


 (B)          By the Company if any of the
conditions set forth in Section 2.2(b) shall have become incapable of
fulfillment, and shall not have been waived by the Company;


 (C)          By a Purchaser (with respect to itself
only) if any of the conditions set forth in Section 2.2(a) shall have become
incapable of fulfillment, and shall not have been waived by such Purchaser; or


 (D)         By either the Company or any Purchaser
(with respect to itself only) if the Closing has not occurred on or prior to
September 28, 2007;


provided, however, that, except in the case
of clause (A) 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.


(ii)           Nothing in this Section 2.2(c) 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.


(iii)          In the event of termination by a
Purchaser of its obligations to effect the Closing pursuant to this Section
2.2(c), written notice thereof shall forthwith be given by the Company to the
other Purchasers and the other Purchasers shall have the right to terminate
their obligations to effect the Closing upon written notice to the Company.


ARTICLE
III.

REPRESENTATIONS AND WARRANTIES


3.1 Representations and Warranties of the Company.  Except as set forth under the corresponding
section of the Disclosure Schedules delivered concurrently herewith, the
Company hereby makes the following representations and warranties as of the
date hereof and as of the Closing Date to each Purchaser:



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(a) 
Subsidiaries.  Except as set forth on
Schedule 3.1(a), the Company has no direct or indirect
subsidiaries.  Except as set forth on Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock
or other equity interests of each Subsidiary free and clear of any Liens, and
all the issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights.  If the Company has no
subsidiaries, then references in the Transaction Documents to the Subsidiaries
will be disregarded.


(b)   Organization
and Qualification.  Each of the
Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws
or other organizational or charter documents. 
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business or
financial condition of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).


(c) 
Authorization; Enforcement.  The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
and otherwise to carry out its obligations thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company in connection therewith other than in connection with the Required
Approvals.  Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.


(d) No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby do not and
will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an 



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event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected, or (iv) conflict with or
violate the terms of any agreement by which the Company or any Subsidiary is
bound or to which any property or asset of the Company or any Subsidiary is
bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.


(e) 
Filings, Consents and Approvals.  The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section 4.1
of this Agreement, (ii) application(s) to each applicable Trading Market for
the listing of additional shares with respect to the Shares and Warrant Shares
for trading thereon in the time and manner required thereby, and (iii) such
filings as are required to be made under applicable state securities laws, with
each of the items listed in clauses (i)-(iii) inclusive being deemed a “Required
Approval”).


(f)  
Issuance of the Securities.  The
Shares and Warrants are duly authorized and, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company.  The Warrant Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company.  The Company has reserved from
its duly authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement and the Warrants.


(g) Capitalization.  The authorized capital stock of the Company
consists of  150,000,000 shares of Common Stock and
3,000,000 shares of Preferred Stock.  The
Company has not issued any capital stock since such filing other than pursuant
to the exercise of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale
of the Securities, there are no outstanding options, warrants, script rights to
subscribe to, calls or 



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commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock, other than as set forth in the SEC Reports, the Registration
Statement or the Prospectus or in connection with the Company’s stock option
plans.  The issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities.  Except as disclosed in the SEC Reports, the
Registration Statement or the Prospectus, there are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.


(h) SEC
Reports; Financial Statements.  The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any
such extension.  As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The financial statements
of the Company included in the SEC Reports and the Registration Statement and
the Prospectus comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. 
Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.



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(i)  Material
Changes.  Since the date of the
latest audited financial statements included within the SEC Reports or included
or incorporated by reference in the Registration Statement or Prospectus,
except as disclosed in the SEC Reports, the Registration Statement or
Prospectus (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities required
to be reflected in the Company’s financial statements pursuant to GAAP (which
liabilities have not resulted in and could not reasonably be expected to result
in a Material Adverse Effect) or required to be disclosed in filings made with
the Commission, (iii) the Company has not altered its method of accounting,
(iv) the Company has not declared or made any dividend or distribution of cash
or other property, with or without consideration, to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans.  Except as disclosed in the
SEC Reports, the Company does not have pending before the Commission any request
for confidential treatment of information.


(j)  Litigation.  Except as disclosed in the SEC Reports, the
Registration Statement or the Prospectus: There is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the knowledge
of the Company, threatened against or affecting the Company, any Subsidiary or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or 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 knowledge of
the Company, there is not pending or contemplated, with respect to the Company,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. 
The Commission 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 Exchange Act or the Securities Act.


(k) Employment
Matters.  The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
the failure to be in compliance would not, either individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement.  The Company and its Subsidiaries believe that
their overall relations with their employees are satisfactory.  No executive officer of the Company or any of
its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has 



 11
 









notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such officer’s
employment with the Company or any such Subsidiary.


(l)  Compliance.  Except as disclosed in the SEC Reports, the
Registration Statement or the Prospectus, neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business, except in
each case as could not have a Material Adverse Effect.


(m) Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.


(n) Title
to Assets.  The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens as disclosed in the SEC Reports, the Registration
Statement or the Prospectus and for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.


(o) Patents
and Trademarks.  Except as set forth
in the SEC Reports, the Registration Statement or the Prospectus, the Company
and its Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights (collectively, the “Intellectual
Property Rights”) that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could have or reasonably be expected to result in a Material
Adverse Effect.



 12















(p) Insurance.  The Company and the Subsidiaries are insured
by insurers against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged.  Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business.


(q) Transactions With Affiliates
and Employees.  Except as set forth
in the SEC Reports, the Registration Statement or the Prospectus, none of the
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than 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 knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, other than (i) for
services as employees, officers and directors, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.


(r)  Sarbanes-Oxley.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder, in each case which are
applicable to it as of the Closing Date.


(s) Certain Fees.  Except for the Placement Agent Fee, no cash
brokerage or cash finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions
contemplated by this Agreement.


(t)  Investment Company.
The Company is not, and is not an Affiliate of, an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.


(u) Registration Rights.  Except as set forth in the SEC Reports, the
Registration Statement or the Prospectus, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities
of the Company.


(v) Listing and Maintenance
Requirements.  The Company’s Common
Stock is registered pursuant to Section 12(b) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such 



 13
 









registration.  Except as set forth on Schedule 3.1(v),  SEC Reports, the Registration Statement or
the Prospectus, the Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market.


(w) Disclosure.  The Company confirms that, neither the
Company nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or might
constitute material, non-public information.  
The Company understands and confirms that the Purchasers will rely on
the foregoing representations and covenants in effecting transactions in
securities of the Company.


(x) Registration Statement. 
The Registration Statement has been declared effective by the Commission
and at the time it became effective, and as of the date hereof, the
Registration Statement complied and complies with Rule 415 under the Securities
Act.   No stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that
purpose has been initiated or, to the Company’s knowledge, threatened by the
Commission.  On the effective date of the
Registration Statement, the Registration Statement complied, and on the date of
the Prospectus, the Prospectus will comply, in all material respects with the
applicable provisions of the Securities Act and the applicable rules and
regulations of the Commission thereunder; on the effective date of the Registration
Statement, the Registration Statement did not, on the date of the Prospectus,
the Prospectus will not, and at the date of the Closing, the Registration
Statement and the Prospectus will not, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made (with respect to the Prospectus), not
misleading; and when filed with the Commission, the documents incorporated by
reference in the Registration Statement and the Prospectus, complied or will
comply in all material respects with the applicable provisions of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the
applicable rules and regulations of the Commission thereunder.  The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.


(y) Taxes.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has timely prepared
and filed all necessary federal, state and foreign income and franchise tax
returns and has paid or accrued all taxes shown as due thereon, and the Company
has no knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary. 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, any Subsidiary or any of their respective
assets or property.



 14
 









(z)  General Solicitation.  Neither the Company nor, to the Company’s
knowledge, any person acting on behalf of the Company has offered or sold any
of the Securities by any form of general solicitation or general advertising.


(aa)         Acknowledgment
Regarding Purchasers’ Purchase of Shares and Warrants.  The Company acknowledges and agrees that each
of the Purchasers is acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions contemplated
hereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Shares and Warrants.  The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its representatives.


(bb)         Environmental
Matters.  To the Company’s knowledge,
the Company (i) is not 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”),
(ii) does not own or operate any real property contaminated with any substance
in violation of any Environmental Laws, (iii) is not liable for any off-site
disposal or contamination pursuant to any Environmental Laws, and (iv) is not
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.


(cc)         Accounting
Controls.  The Company and its
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 generally accepted accounting principles and to maintain asset
accountability, and (iii) access to assets is permitted only in accordance with
management’s general or specific authorization.


(dd)         Internal Controls. The Company has established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company’s most recently filed period report under the Exchange Act,
as the case may be, is being prepared. 
The Company’s certifying officers have evaluated the effectiveness of
the Company’s disclosure controls and procedures as of the end of the most
recent periodic reporting period under the 



 15
 









Exchange Act
(such date, the “Evaluation Date”). 
The Company presented in its most recently filed periodic report under
the Exchange 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, except as described in the SEC Reports, there
have been no significant changes in the Company’s internal control over
financial reporting (as such term is defined in Item 308(c) of Regulation S-K)
or, to the Company’s knowledge, in other factors that could significantly
affect the Company’s internal control over financial reporting.  The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles and the applicable
requirements of the Exchange Act.


3.2 Representations and Warranties of the Purchasers.  Each Purchaser hereby, for itself and for no
other Purchaser, represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:


(a) Organization; Authority.  Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of such Purchaser.  Each
Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.


(b) Purchaser Acknowledgement.   Each Purchaser has received (or otherwise
had made available to it by the filing by the Company of an electronic version
thereof with the Commission) the Base Prospectus, dated December 20, 2006,
which is a part of the Company’s Registration Statement, including all
documents and information incorporated by reference therein and amendments
thereto and the Prospectus Supplement (collectively, the “Disclosure Package”),
prior to or in connection with the receipt of this Agreement.  Each Purchaser understands that no Person has
been authorized to give any information or to make any representations that
were not contained in the Disclosure Package, and such Purchaser has not relied
on any such other information or representations in making a decision to
purchase the Shares or the Warrants. 
Specifically, each Purchaser represents that it has reviewed the
Prospectus Supplement, dated September 24, 2007.



 16
 









(c)  Purchaser Diligence.  Such Purchaser acknowledges that it has sole
responsibility for its own due diligence investigation and its own investment
decision, and that in connection with its investigation of the accuracy of the
information contained or incorporated by reference in the Registration
Statement and the Prospectus and its investment decision, Purchaser has not
relied on any representation or information not set forth in this Agreement,
the Registration Statement or the Prospectus. 
Each Purchaser represents and warrants that it is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions
with respect to, investments in shares presenting an investment decision like
that involved in the purchase of the Shares, including investments in
securities issued by the Company and investments in comparable companies and in
connection with its decision to purchase Shares has received and is relying
only upon the Disclosure Package and the documents incorporated by reference
therein.  Each Purchaser understands that
nothing in this Agreement, the Prospectus or any other materials presented to
the Purchaser in connection with the purchase and sale of the Shares
constitutes legal, tax or investment advice. 
The Purchaser 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 Shares.  At the time
such Purchaser was offered the Securities, it was, and at the date hereof it is
an “accredited investor” as defined in Rule 501(a) under the Securities Act.  Such Purchaser is not required to be
registered as a broker dealer under Section 15 of the Exchange Act.


(d) Approvals.  No state, federal or foreign regulatory
approvals, permits, licenses or consents are required for Purchaser to enter
into this Agreement or purchase the Shares or the Warrants.


(e) Address.  Each Purchaser represents that the address
set forth for such Purchaser on such Purchaser’s signature page is its true and
correct principal address.


(f)  Blue Sky Compliance.  Such Purchaser shall agree to comply with any
state blue sky limitations on the resale of the Securities, if any.


(g) Fees.  Such Purchaser understands and acknowledges
that the Company is providing compensation to the Placement Agents, and certain
other broker dealer firms, in connection with services provided to the Company
as selling agents in connection with the sale of the Securities.  The Placement Agents and the other selling
agents shall be entitled to receive their applicable Placement Agent Fee.


The Company acknowledges
and agrees that each Purchaser does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.


ARTICLE
IV.

OTHER AGREEMENTS OF THE PARTIES


4.1 Securities Laws Disclosure; Publicity.  Except as set forth below, no public release
or announcement concerning the transactions contemplated hereby shall be issued
by the Company 



 17
 









or the
Purchasers without the prior consent of the other party (which consent 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 Purchasers, as
the case may be, shall allow the other party to the extent reasonably
practicable in the circumstances, reasonable time to comment on such release or
announcement in advance of such issuance. 
The Company will make such other filings and notices in the manner and
time required by the Commission. 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser, or include the name of any Purchaser in any filing
with the Commission (other than any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any other regulatory agency, without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure except to the extent such prior notice is
provided in this Agreement.


4.2 Non-Public Information.  The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior to disclosure of such information
the Company identifies such information as being material nonpublic information
and provides such Purchaser with the opportunity to accept or refuse to accept
such material nonpublic information for review and any Purchaser wishing to
obtain such information shall have executed a written agreement regarding the
confidentiality and use of such information.


4.3 Use of Proceeds.  The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital and general corporate
purposes.


4.4 Indemnification of Purchasers.   The Company will indemnify and hold each
Purchaser and each Purchaser’s Affiliates and the directors, officers,
shareholders, partners, employees and agents of each Purchaser and each
Purchaser’s Affiliates (each, a “Purchaser Party”) harmless from any and
all losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents; or (b) any cause of action, suit or claim
brought or made against such Purchaser Party and arising solely out of or
solely resulting from the execution, delivery, performance or enforcement of
this Agreement or any of the other Transaction Documents and without causation
by any other activity, obligation, condition or liability pertaining to such
Purchaser Party. The Company will reimburse such Purchaser Party for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.


4.5 Reservation of Common Stock.   As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a 



 18
 









sufficient number of shares of
Common Stock for the purpose of enabling the Company to issue Shares pursuant
to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.


4.6 Listing of Common Stock. Promptly
following the date hereof, the Company shall take all necessary action to cause
the Shares and the Warrant Shares to be approved for inclusion in the Nasdaq
Capital Market.  Further, if the Company
applies to have its Common Stock or other securities traded on any other Trading
Market, it shall include in such application the Shares and the Warrant Shares
and will take such other action as is necessary to cause such Common Stock to
be so listed.  The Company will use
commercially reasonable efforts to continue the listing and trading of its
Common Stock on the Nasdaq Capital Market and, in accordance, therewith, will
use commercially reasonable efforts to comply in all respects with the Company’s
reporting, filing and other obligations applicable to issuers whose securities
are listed on such market.


4.7 Equal Treatment of Purchasers.  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 Purchaser by the
Company and negotiated separately by each Purchaser, and is intended to treat
for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.


4.8 No Net Short Position.  Each Purchaser agrees, severally and not
jointly with any other Purchasers, that it or any Person acting at the request
or direction of Purchaser, will not  use
the Shares or the Warrant Shares to cover any Short Sales (as hereinafter
defined) if doing so would be in violation of applicable securities laws.  For purposes of this Section 4.8, a “Short
Sale” by any Purchaser shall mean a sale of Common Stock by such Purchaser that
is marked as a short sale and that is made at a time when there is no
equivalent offsetting long position in Common Stock held by such Purchaser,
including, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act, whether or not against
the box, and all types of direct and indirect stock pledges, forward sales
contracts, options, puts, calls, short sales, swaps, “put equivalent positions”
(as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements
(including on a total return basis) and sales and other transactions through
non-US broker dealers or foreign regulated brokers.


ARTICLE
V.

MISCELLANEOUS


5.1 Fees and Expenses.  The Company and the Purchasers shall each
bear their own expenses in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement.  The Company shall pay all stamp and other
taxes and duties levied in connection with the sale of the Securities.


5.2 Entire Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter 



 19
 









hereof and supersede  and void all prior agreements and
understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.


5.3 Notices. 
Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered (receipt confirmed) via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered (receipt
confirmed) via facsimile at the facsimile number set forth on the signature
pages attached hereto on a day that is not a Trading Day or later than 6:30
p.m. (New York City time) on any Trading Day, (c) the second Trading Day
following the date of deposit with a carrier or service, if sent by U.S.
nationally recognized overnight carrier or courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given.  The address for such notices and communications
shall be as set forth on the signature pages attached hereto.


5.4 Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof (unless it so
provides by its terms), nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.


5.5 Construction.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction
will be applied against any party.


5.6 Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns.  The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser.  Any Purchaser
may assign any or all of its rights under this Agreement to any Person to whom
such Purchaser assigns or transfers any Securities, provided such transferee
agrees in writing to be bound, with respect to the transferred Securities, by
the provisions hereof that apply to the “Purchasers”.


5.7 No Third-Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.4.


5.8 Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of 



 20
 









conflicts of law thereof.  Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York.  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, New York for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper.  Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by delivering a copy thereof via
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto (including its affiliates, agents,
officers, directors and employees) hereby irrevocably waives, 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. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such action or proceeding, as determined by the court
hearing such matter, shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.


5.9 Survival.  The representations and warranties herein
shall not survive the Closing.


5.10 Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.


5.11 Severability.  If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.


5.12 Replacement of Securities.  If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.



 21
 









The applicants
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.


5.13 Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.


5.14 Payment Set Aside.  To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.


5.15 Independent Nature of
Purchasers’ Obligations and Rights. 
The obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers 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 Purchaser shall be entitled
independently to 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 Purchaser to be joined
as an additional party in any proceeding for such purpose.  Each Purchaser has been or has had the
opportunity to be represented by its own separate legal counsel in its review
and negotiation of the Transaction Documents. 
The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.


(Signature
Page Follows)



 22
 









IN WITNESS
WHEREOF, the parties hereto have caused this Securities Purchase Agreement to
be duly executed by their respective authorized signatories as of the date
first indicated above.


	
  FOCUS ENHANCEMENTS, INC.

  	
   

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  	
   

  	
  1370 Dell Avenue

  	
   

  
	
   

  	
   

  	
  Campbell, California 95008

  	
   

  
	
  By:

  	
   

  	
   

  	
  Attn: Gary Williams

  	
   

  
	
   

  	
  Name: Gary Williams

  	
  Chief Financial Officer

  	
   

  
	
   

  	
  Title: Executive VP of Finance and CFO

  	
   

  	
  Tel: (408) 866-8300

  	
   

  
	
   

  	
   

  	
   

  	
  Fax: (408)866-4795

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  With copy to (which shall not constitute notice):

  
						



 


Manatt, Phelps &
Phillips, LLP


1001 Page Mill Road,
Bldg. 2


Palo Alto,
California  94304-1006


Attn:  Jerrold F. Petruzzelli, Esq.


Tel:    (650) 812-1300


Fax:   (650) 213-0260


[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK


SIGNATURE PAGES
FOR PURCHASERS FOLLOW]



 23
 









[PURCHASER
SIGNATURE PAGES TO FCSE SECURITIES PURCHASE AGREEMENT]


IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.


	
  Name of Investing Entity:

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
	
  Email Address of
  Authorized Entity:

  	
   

  
	
  Fax Number of
  Authorized Signatory/Entity:

  	
   

  
	
  Address for
  Notice of Investing Entity:

  	
   

  
								



Address for Delivery of
Securities for Investing Entity (if not same as above):


Principal place of
residence (for individuals) or business (for corporations):


	
  Subscription Amount:

  	
   

  
	
  Shares:

  	
   

  
	
  Warrant Shares:

  	
   

  
	
   

  	
   

  
					



EIN Number:  [WE SUGGEST YOU PROVIDE
THIS UNDER SEPARATE COVER]


Please check one of the following:


o            Investing
Entity is an existing stockholder of the Company


o            Investing
Entity is not an existing stockholder of the
Company


[PURCHASER SIGNATURE PAGE]



 24














SCHEDULE I


[Bank]




ABA # 


For Credit To:

Focus Enhancements

1370 Dell Ave

Campbell, CA 95008


Acct # 



 1















EXHIBIT A


Form of
Warrant



 1















Schedules


3.1(a) Subsidiaries


COMO Computer and Motion GmbH (Germany)

Focus Enhancements, Korea

Focus Enhancements Japan K.K.


Schedule 3.1(v) Listing and
Maintenance Requirements


On August 15, 2007, the Company received a letter from
The Nasdaq Stock Market notifying it that for the last 30 consecutive business
days, the bid price of its common stock had closed below the minimum $1.00 per
share price requirement for continued inclusion under Nasdaq Marketplace Rules
4310(c)(4).


Pursuant to Marketplace Rule 4310(c)(8)(D), the
Company will be provided with 180 calendar days to regain compliance with
Nasdaq Capital Market’s minimum bid price requirement. To do so, the bid price
of the Company’s common stock must close at $1.00 or more per share, for a
minimum of 10 consecutive business days, before February 11, 2008.



 1