Document:

Exhibit 4.1

COMMON STOCK PURCHASE WARRANT

To Purchase                  
Shares of Common Stock of

FOCUS
ENHANCEMENTS, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received,                            
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date of issuance of this Warrant (the “Initial Exercise Date”)
and on or prior to the five-year anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Focus
Enhancements, Inc., a Delaware corporation (the “Company”), up to                            shares
(the “Warrant Shares”) of Common Stock, par value $0.01 per share, of
the Company (the “Common Stock”). 
The purchase price of one share of Common Stock (the “Exercise Price”)
under this Warrant shall be $2.00, subject to adjustment hereunder.  The Exercise Price and the number of Warrant
Shares for which the Warrant is exercisable shall be subject to adjustment as
provided herein. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated February      , 2007, among the
Company and the purchasers signatory thereto.

1.     Title to Warrant.  Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.  The transferee shall
sign an investment letter in form and substance reasonably satisfactory to the
Company.

2.     Authorization of Shares.  The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by
this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

3.     Exercise of Warrant.

(a)  Exercise of the purchase rights represented
by this Warrant may be made at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery of the Notice
of Exercise Form, surrender of this Warrant and payment of the aggregate
Exercise Price, in each case, to the Company at its address set forth on the
signature page to the Purchase Agreement (or such other office or agency of the
Company as it may designate by notice in writing to the registered Holder at
the address of such Holder appearing on the books of the Company).  Certificates for shares purchased hereunder
shall be delivered to the Holder within five (5) Trading Days from 

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the delivery to
the Company of the Notice of Exercise Form, surrender of this Warrant and
payment of the aggregate Exercise Price as set forth above (“Warrant Share
Delivery Date”).  This Warrant shall
be deemed to have been exercised on the date the Exercise Price is received by
the Company.  The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Exercise Price and all taxes required to be paid by the
Holder, if any, pursuant to Section 5 prior to the issuance of such shares,
have been paid.  If the Company fails to
deliver to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 3(a) by the Warrant Share Delivery Date, then
the Holder will have the right to rescind such exercise.  In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by the
Warrant Share Delivery Date, and if after such day the Holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which (x)
the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder.  For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted exercise of shares of
Common Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other
evidence reasonably requested by the Company. 
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms hereof.

(b)   If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased Warrant Shares
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.

(c) If at any time after
one year from the date of issuance of this Warrant there is no effective
Registration Statement registering the resale of the Warrant Shares 

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by the Holder, this Warrant may also be exercised at
such time by means of a “cashless exercise” in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) =     the Market Price (as defined
below) of one share of Common Stock on the date that the Holder delivers a
complete Notice of Exercise Form to the Company as provided herein

(B) =       the Exercise Price of this
Warrant, as adjusted; and

(X) =      the number of Warrant Shares
issuable upon exercise of this Warrant in accordance with the terms of this
Warrant by means of a cash exercise rather than a cashless exercise.

The term “Market
Price” as of a particular date (the “Valuation Date”) shall mean the
following: (a) if the Common Stock is then listed or quoted on a Trading
Market, the closing sale price of one share of Common Stock on such exchange on
the last Trading Day prior to the Valuation Date or, if no such closing sale
price is available, the average of the high bid and the low asked price quoted
thereon on the last trading day prior to the Valuation Date; (b) if the
Common Stock is not then listed or quoted on a Trading Market and if prices for
the Common Stock are then quoted on the OTC Bulletin Board or such similar
exchange or association, the closing sale price of one share of Common Stock on
the OTC Bulletin Board or such other exchange or association on the last
Trading Day prior to the Valuation Date or, if no such closing sale price is
available, the average of the high bid and the low asked price quoted thereon
on the last Trading Day prior to the Valuation Date; or (c) if the Common Stock
is not then listed or quoted on a Trading Market or quoted on the OTC Bulletin
Board or such other exchange or association, the fair market value of one share
of Common Stock as of the Valuation Date, shall be determined in good faith by
the Board of Directors of the Company and the Holder.  If the Common Stock is not then listed or
quoted on a Trading Market or quoted on the OTC Bulletin Board or such other
exchange or association, the Board of Directors of the Company shall respond
promptly, in writing, to an inquiry by the Holder prior to the exercise
hereunder as to the fair market value of a share of Common Stock as determined
by the Board of Directors of the Company. 
In the event that the Board of Directors of the Company and the Holder
are unable to agree upon the fair market value in respect of subpart (c)
hereof, the Company and the Holder shall jointly select an appraiser, who is
experienced in such matters.  The
decision of such appraiser shall be final and conclusive, and the cost of such
appraiser shall be borne equally by the Company and the Holder.  Such adjustment shall be made successively
whenever such a payment date is fixed.

4.     No Fractional Shares or
Scrip.  No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.  As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price.

5.     Charges, Taxes and
Expenses.  Issuance of certificates
for Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental 

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expense in respect
of the issuance of such certificate, all of which taxes and expenses shall be
paid by the Company, and such certificates shall be issued in the name of the
Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.

6.     Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

7.     Transfer, Division and
Combination.

(a)   Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 1 and 7(e) hereof and
to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  A
Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

(b)   This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or
attorney.  Subject to compliance with
Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

(c)   The Company shall prepare, issue and deliver
at its own expense (other than transfer taxes) the new Warrant or Warrants
under this Section 7.

(d)   The Company agrees to maintain, at its
aforesaid office, books for the registration and the registration of transfer
of the Warrants.

8.     No Rights as Shareholder until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof.  Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed to
be 

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issued to such Holder as
the record owner of such shares as of the close of business on the later of the
date of such surrender or payment.

9.     Loss, Theft, Destruction
or Mutilation of Warrant.  The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.

10.   Saturdays, Sundays,
Holidays, etc.  If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a federal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day that is not a Saturday, Sunday or federal holiday.

11.   Adjustments
of Exercise Price and Number of Warrant Shares, Stock Splits, etc.  The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following.  In case the Company shall (i) pay a dividend
in shares of Common Stock or make a distribution in shares of Common Stock to
all of the holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof.  Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the Holder
shall thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
by the number of Warrant Shares or other securities of the Company that are
purchasable pursuant hereto immediately after such adjustment.  An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.

12.   Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.  In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the 

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successor or
acquiring corporation (“Other Property”), are to be received by or
distributed to the holders of Common Stock of the Company, then the Holder
shall have the right thereafter to receive, upon exercise of this Warrant, the
number of shares of common stock of the successor or acquiring corporation or
Common Stock of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.  In case
of any such reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if other than
the Company) shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined in good faith by resolution of the Board of Directors of the
Company) in order to provide for adjustments of Warrant Shares for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 12.  For purposes of this Section 12, “common stock
of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock.  The
foregoing provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.

13.   Voluntary Adjustment by
the Company.  The Company may at any
time during the term of this Warrant reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.

14.   Notice of Adjustment.  Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

15.   Limitations on Exercise.
Notwithstanding anything to the contrary contained herein, the number of
Warrant Shares that may be acquired by the Holder upon any exercise of this
Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the
total number of shares of Common Stock then beneficially owned by such Holder
and its Affiliates and any other Persons whose beneficial ownership of Common
Stock would be aggregated with the Holder’s for purposes of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
does not exceed 9.999% (the “Maximum Percentage”) of the total number of issued
and outstanding shares of Common Stock (including for such purpose the shares
of Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each 

 6
 

delivery of a notice of
exercise hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this Section and determined that issuance
of the full number of Warrant Shares requested in such notice of exercise is
permitted under this Section.  The
Company’s obligation to issue shares of Common Stock in excess of the
limitation referred to in this Section shall be suspended (and, except as
provided below, shall not terminate or expire notwithstanding any contrary
provisions hereof) until such time, if any, as such shares of Common Stock may
be issued in compliance with such limitation; provided, that, if, as of the
Expiration Date, the Company has not received written notice that the shares of
Common Stock may be issued in compliance with such limitation, the Company’s
obligation to issue such shares shall terminate.  This provision shall not restrict the number
of shares of Common Stock which a Holder may receive or beneficially own in
order to determine the amount of securities or other consideration that such
Holder may receive in the event of a reorganization, reclassification, merger,
consolidation or disposition of assets as contemplated in Section 12 of this
Warrant. This restriction may not be waived.

16.   Notice of Corporate Action.  If at any time:

(a)           the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any other
right, or

(b)           there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or substantially all the property, assets or business of the Company to,
another corporation, or

(c)           there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

then, in any one or more
of such cases, the Company shall give to Holder (i) at least 10 days’ prior
written notice of the date on which a record date shall be selected for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, liquidation or winding up, and (ii) in the case of any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days’ prior
written notice of the date when the same shall take place.  Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, the date on which the
holders of Common Stock shall be entitled to any such dividend, distribution or
right, and the amount and character thereof, and (ii) the date on which any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such disposition, dissolution, liquidation or
winding up.  Each such written notice
shall be sufficiently given if 

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addressed to Holder at
the last address of Holder appearing on the books of the Company and delivered
in accordance with Section 18(d).

17.   Authorized Shares.  The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant.  The
Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

18.   Miscellaneous.

(a)   Jurisdiction.  All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.

(b)   Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

(c)   Nonwaiver and Expenses.  No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all 

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rights
hereunder terminate on the Termination Date. 
If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys’
fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.

(d)   Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

(e)   Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

(f)    Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

(g)   Successors and Assigns.  Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder.  The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder
or holder of Warrant Shares.

(h)   Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

(i)    Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

(j)    Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

********************

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IN WITNESS WHEREOF, the Company has caused this
Warrant to be executed by its officer thereunto duly authorized.

	
  Dated: February      ,
  2007

  	
   

  	
   

  
	
   

  	
  FOCUS
  ENHANCEMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Gary Williams

  
	
   

  	
   

  	
  Title: EVP of Finance & CFO

  
				

 

 10

NOTICE OF EXERCISE

To:          Focus Enhancements,
Inc.

(1)   The
undersigned hereby elects to purchase                 
Warrant Shares of the Company pursuant to the terms of the attached Warrant,
and tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any, in the event Warrant Shares are to be issued
in a name other than the undersigned.

(2)   Payment
shall take the form of (check applicable box):

o
in lawful money of the United States; or

o
the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 3(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 3(c).

(3)   Please
issue a certificate or certificates representing said Warrant Shares in the
name of the undersigned or in such other name as is specified below:

	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The Warrant Shares shall be delivered to the
  following:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D under the Securities Act of 1933, as
amended.

	
  

  	
  [PURCHASER]

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

	
  

  	
  whose address is

  
	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  .

  
	
   

  	
   

  
	
  Dated:  

  	
                               ,          

  
				

 

	
  

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  	
   

  
					

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.Exhibit 10.1

SECURITIES
PURCHASE AGREEMENT

This
Securities Purchase Agreement (this “Agreement”) is dated as of February 20, 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 4,500,000 shares of Common Stock and
Warrants to purchase 450,000 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.

 1
 

“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).

“Per Share Purchase
Price” shall be $1.26, 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.

 2
 

“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.

“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.

“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.

 3
 

“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 $2.00 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 10% 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 5 million (5,000,000) 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 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.  

 4
 

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 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 

 5
 

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 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:

 6
 

(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
February 23, 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:

(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.

 7
 

(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 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, 

 8
 

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 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 

 9
 

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.

(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 

 10
 

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 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.

 11

(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.

(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

 12
 

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.  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(g) 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 registration. 
Except as disclosed in the 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

 13
 

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)  Form S-3 Eligibility.  The Company meets the requirements for the
use of Form S-3 under the Securities Act for the primary issuance of
securities.  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 February 16, 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.

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 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

 17
 

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 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

 18
 

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 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

 19
 

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 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

 20
 

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.  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

 21
 

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

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