Document:

Exhibit 4.2

                  COMMON STOCK AND WARRANTS PURCHASE AGREEMENT

                                     Between

                            FOCUS Enhancements, Inc.

                                       and

                         the Investors Signatory Hereto

         COMMON STOCK AND WARRANTS PURCHASE  AGREEMENT dated as of September 17,
1999  (the  "Agreement"),  between  the  Investors  signatory  hereto  (each  an
"Investor"  and  together  the  "Investors"),  and FOCUS  Enhancements,  Inc., a
corporation  organized and existing under the laws of the State of Delaware (the
"Company").

         WHEREAS,  the parties  desire  that,  upon the terms and subject to the
conditions  contained herein, the Company shall issue and sell to the Investors,
and the Investors  shall  purchase in the  aggregate,  (i)  1,500,000  shares of
Common Stock (as defined below) and (ii) Warrants (as defined below) to purchase
up to  150,000  shares of the  Common  Stock (as  defined  below) at 110% of the
Closing Date Market Price for such Common Stock.

         WHEREAS,  such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or  Regulation  D  ("Regulation  D") and the  other  rules  and  regulations
promulgated  thereunder (the "Securities Act"), and/or upon such other exemption
from the  registration  requirements  of the  Securities Act as may be available
with  respect  to  any  or  all of the  investments  in  securities  to be  made
hereunder.

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I

                               Certain Definitions

Section 1.1.  "Capital Shares" shall mean the Common Stock and any shares of any
other class of common  stock  whether now or  hereafter  authorized,  having the
right to participate in the  distribution of earnings and assets of the Company.

Section 1.2. "Capital Shares Equivalents" shall mean any securities,  rights, or
obligations  that are convertible  into or exchangeable for or give any right to
subscribe  for any  Capital  Shares of the Company or any  Warrants,  options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable  securities.
 .

Section  1.3.  "Closing"  shall mean the closing of the purchase and sale of the
Common Stock and Warrants pursuant to Section 2.1.

Section 1.4.  "Closing  Date" shall mean the date on which all conditions to the
Closing  have been  satisfied  (as  defined in Section  2.1 (b)  hereto) and the
Closing shall have occurred.

<PAGE>

Section 1.5.  "Common  Stock" shall mean the Company's  common stock,  $0.01 par
value per share.

Section 1.6. "Damages" shall mean any loss, claim,  damage,  judgment,  penalty,
deficiency,  liability,  costs  and  expenses  (including,  without  limitation,
reasonable  attorney's fees and  disbursements and reasonable costs and expenses
of expert witnesses and investigation).

Section  1.7.  "Effective  Date"  shall  mean the date on  which  the SEC  first
declares  effective  a  Registration  Statement  registering  the  resale of the
Registrable Securities as set forth in the Registration Rights Agreement.

Section  1.8.  "Escrow  Agent"  shall have the  meaning  set forth in the Escrow
Agreement.

Section 1.9. "Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit C hereto executed and delivered  contemporaneously with this
Agreement.

Section 1.10.  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended,  and the rules and regulations  promulgated  thereunder.

Section 1.11.  "Legend" shall mean the legend set forth in Section 9.1.

Section  1.12.  "Market  Price" on any given date shall mean the  average of the
closing bid prices on the  Principal  Market (as reported by Bloomberg  L.P.) of
the Common Stock  during the five  Trading Day period  ending on the Trading Day
immediately prior to the Closing Date.

Section 1.13.  "Material  Adverse Effect" shall mean any effect on the business,
operations,  properties,  stock price or financial condition of the Company that
is material  and adverse to the Company  and its  subsidiaries  and  affiliates,
taken as a whole,  and/or any condition,  circumstance,  or situation that would
prohibit or  otherwise  interfere  with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration Rights
Agreement,  the Escrow  Agreement,  the or the Warrants in any material respect.

Section 1.14.  "Outstanding"  when used with reference to shares of Common Stock
or Capital Shares  (collectively  the  "Shares"),  shall mean, at any date as of
which the number of such Shares is to be determined,  all issued and outstanding
Shares,  and shall  include all such Shares  issuable in respect of  outstanding
scrip or any  certificates  representing  fractional  interests  in such Shares;
provided,  however,  that  "Outstanding"  shall  not mean any such  Shares  then
directly  or  indirectly  owned or held by or for the  account  of the  Company.

Section 1.15. "Person" shall mean an individual,  a corporation,  a partnership,
an association, a trust or other entity or organization,  including a government
or political subdivision or an agency or instrumentality  thereof.

Section 1.16. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange,  the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume.

Section  1.17.  "Purchase  Price"  shall mean  $1.00 per share of Common  Stock,
adjusted for any splits,  reverse splits or Common Stock  dividends  declared by
the Company  between the first  Closing and the second  Closing.

Section  1.18.  "Registrable  Securities"  shall mean the Shares and the Warrant
Shares until (i) the Registration  Statement has been declared  effective by the
SEC,  and all Shares and Warrant  Shares  have been  disposed of pursuant to the
Registration Statement,  (ii) all Shares and Warrant Shares have been sold under
circumstances  under which all of the applicable  conditions of Rule 144 (or any

<PAGE>

similar  provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Shares and Warrant Shares have been  otherwise  transferred to holders
who may trade such shares without  restriction under the Securities Act, and the
Company has delivered a new  certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Shares and Warrant Shares may be sold without any
time,  volume or manner  limitations  pursuant  to Rule  144(k) (or any  similar
provision then in effect) under the Securities Act.

Section 1.19. "Registration Rights Agreement" shall mean the agreement regarding
the  filing of the  Registration  Statement  for the  resale of the  Registrable
Securities, entered into between the Company and the Investors as of the Closing
Date in the form  annexed  hereto as  Exhibit  C.

Section 1.20.  "Registration  Statement" shall mean a registration  statement on
Form S-3 (if use of such form is then  available to the Company  pursuant to the
rules of the SEC and,  if not,  on such  other form  promulgated  by the SEC for
which the Company then  qualifies  and which  counsel for the Company shall deem
appropriate,  and which form shall be available  for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions  of  this  Agreement,   the  Registration  Rights  Agreement  and  in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable  Securities  under
the  Securities  Act.

Section 1.21. "Regulation D" shall have the meaning set forth in the recitals of
this  Agreement.

Section 1.22. "SEC" shall mean the Securities and Exchange  Commission.

Section  1.23.  "Section  4(2)" and  "Section  4(6)" shall have the meanings set
forth in the recitals of this Agreement.

Section 1.24.  "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.

Section 1.25.  "SEC  Documents"  shall mean the Company's  Annual Report on Form
10-K for the  fiscal  year  ended  December  31,  1998 and  each  report,  proxy
statement or  registration  statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.

Section 1.26.  "Shares" shall mean the shares of Common Stock purchased pursuant
to this Agreement.

Section 1.27. "Trading Day" shall mean any day during which the Principal Market
shall be open for  business.

Section 1.28.  "Warrants"  shall mean the Warrants  substantially in the form of
Exhibit  A to be issued  to the  Investors  hereunder.

Section  1.29.  "Warrant  Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.

                                   ARTICLE II

                 Purchase and Sale of Common Stock and Warrants

Section 2.1. Investment.

         (a) Upon the terms and subject to the conditions set forth herein,  the
Company agrees to sell, and the Investors  agree to purchase the Shares together
with the Warrants at the Purchase Price on each Closing Date as follows:

<PAGE>

                  (i)      First  Closing.  Upon  execution and delivery of this
                           Agreement,  each Investor shall deliver to the Escrow
                           Agent   immediately    available   funds   in   their
                           proportionate  amount of the one half of the Purchase
                           Price as set forth on the signature pages hereto, and
                           the   Company   shall   deliver   the  Common   Stock
                           certificates representing the Shares so purchased and
                           all of the Warrants to the Escrow  Agent,  to be held
                           by the Escrow Agent pursuant to the Escrow Agreement.

                  (ii)     Second  Closing.  Within  five  (5)  Trading  Days of
                           written notice from the Company to the Investors that
                           the   Registration   Statement   has  been   declared
                           effective,  each Investor shall deliver to the Escrow
                           Agent   immediately    available   funds   in   their
                           proportionate  amount  of  one-half  of the  Purchase
                           Price as set forth on the signature pages hereto, and
                           the   Company   shall   deliver   the  Common   Stock
                           certificates  representing  the  remaining  Shares so
                           purchased  to the  Escrow  Agent,  to be  held by the
                           Escrow Agent pursuant to the Escrow Agreement.

                  (iii)    Each Closing. Upon satisfaction of the conditions set
                           forth in Section  2.1(b),  each  Closing  ("Closing")
                           shall  occur at the  offices of the  Escrow  Agent at
                           which the Escrow  Agent (x) shall  release the Shares
                           purchased and the Warrants (as to the first  Closing)
                           to the  Investors  and (y) shall release the Purchase
                           Price  (after all fees have been paid as set forth in
                           the Escrow  Agreement),  pursuant to the terms of the
                           Escrow Agreement.

         (b) Each Closing is subject to the satisfaction, or waiver by the party
to be benefitted thereby, of the following conditions:

                  (i)      acceptance  and  execution  by the Company and by the
                           Investors, of this Agreement and all Exhibits hereto;

                  (ii)     delivery into escrow by each Investor of  immediately
                           available  funds in the amount of the Purchase  Price
                           of the Common Stock and the  Warrants,  as applicable
                           to each  Closing,  as more  fully  set  forth  in the
                           Escrow Agreement;

                  (iii)    all  representations  and warranties of the Investors
                           contained  herein shall remain true and correct as of
                           the  Closing  Date (as a condition  to the  Company's
                           obligations);

                  (iv)     all  representations  and  warranties  of the Company
                           contained  herein shall remain true and correct as of
                           the Closing  Date (as a condition  to the  Investors'
                           obligations);

                  (v)      the  Company  shall have  obtained  all  permits  and
                           qualifications  required  by any  state for the offer
                           and sale of the Common Stock and  Warrants,  or shall
                           have the availability of exemptions therefrom;

                  (vi)     the sale and  issuance  of the  Common  Stock and the
                           Warrants hereunder,  and the proposed issuance by the
                           Company  to  the   Investors   of  the  Common  Stock
                           underlying  the Warrants  upon the  exercise  thereof
                           shall   be   legally   permitted   by  all  laws  and
                           regulations  to which the  Investors  and the Company
                           are subject and there shall be no ruling, judgment or
                           writ  of  any  court   prohibiting  the  transactions
                           contemplated by this Agreement;

                  (vii)    delivery of the original fully executed  Common Stock
                           certificates  and  Warrants  certificates  (as to the
                           first Closing) to the Escrow Agent;

                  (viii)   delivery  to  the  Escrow  Agent  of  an  opinion  of
                           Sullivan & Worcester LLP, counsel to the Company,  in
                           the  form  of  Exhibit  D  hereto  (as to  the  first
                           Closing);

<PAGE>

                  (ix)     delivery  to the  Escrow  Agent  of  the  Irrevocable
                           Instructions  to Transfer  Agent in the form attached
                           hereto as Exhibit E (as to the first Closing); and

                  (x)      delivery  to the  Escrow  Agent  of the  Registration
                           Rights Agreement (as to the first Closing).

Section 2.2. Liquidated  Damages.  The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration  Rights Agreement shall constitute
liquidated damages and not penalties.  The parties further  acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to  precisely  estimate,  (b) the  amounts  specified  in such  Sections  bear a
reasonable  proportion  and are not plainly or grossly  disproportionate  to the
probable  loss likely to be incurred by the  Investors  in  connection  with the
failure  by the  Company to timely  cause the  registration  of the  Registrable
Securities and (c) the parties are sophisticated  business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.

                                  ARTICLE III

                   Representations and Warranties of Investor

Each Investor, severally and not jointly, represents and warrants to the Company
that:

Section 3.1.  Intent.  The Investor is entering into this  Agreement for its own
account and not with a view to or for sale in connection  with any  distribution
of the Common  Stock.  The Investor has no present  arrangement  (whether or not
legally binding) at any time to sell the Shares, the Warrants, or Warrant Shares
to or  through  any  person or  entity;  provided,  however,  that by making the
representations  herein, the Investor does not agree to hold such securities for
any  minimum or other  specific  term and  reserves  the right to dispose of the
Shares and  Warrant  Shares at any time in  accordance  with  federal  and state
securities  laws  applicable  to such  disposition.

Section 3.2.  Sophisticated  Investor.  The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited  investor
(as defined in Rule 501 of  Regulation  D), and Investor has such  experience in
business  and  financial  matters  that it has the  capacity  to protect its own
interests in connection  with this  transaction and is capable of evaluating the
merits and risks of an  investment  in the Common  Stock and the  Warrants.  The
Investor  acknowledges that an investment in the Common Stock is speculative and
involves a high degree of risk.

Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly  executed  and  delivered  by the  Investor  and is a valid and  binding
agreement of the Investor  enforceable  against it in accordance with its terms,
subject to applicable  bankruptcy,  insolvency,  or similar laws relating to, or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other  equitable  principles  of  general  application.

Section  3.4.  Not an  Affiliate.  The  Investor is not an officer,  director or
"affiliate"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

Section 3.5. Absence of Conflicts.  The execution and delivery of this Agreement
and each  agreement  which is attached as an Exhibit  hereto and executed by the
Investor  in  connection  herewith,  and the  consummation  of the  transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the  Investor,  will not violate any law,  rule,  regulation,  order,
writ, judgment,  injunction,  decree or award binding on Investor or (a) violate
any provision of any  indenture,  instrument or agreement to which Investor is a
party or is subject,  or by which  Investor  or any of its assets is bound;  (b)
conflict with or  constitute a material  default  thereunder;  (c) result in the
creation or imposition of any lien pursuant to the terms of any such  indenture,
instrument  or agreement,  or constitute a breach of any fiduciary

<PAGE>

duty owed by Investor  to any third  party;  or (d) require the  approval of any
third-party  (which has not been  obtained)  pursuant to any material  contract,
agreement,  instrument,  relationship  or legal  obligation to which Investor is
subject or to which any of its assets, operations or management may be subject.

Section 3.6.  Disclosure;  Access to Information.  The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's  investment in the Company that have been  requested by the Investor.
The Company is subject to the periodic  reporting  requirements  of the Exchange
Act, and the Investor has reviewed  copies of all SEC Documents  deemed relevant
by Investor.

Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting,  television advertisement
or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  Representations and Warranties of the Company

The Company  represents and Warrants to the Investors that,  except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:

Section 4.1.  Organization  of the Company.  The Company is a  corporation  duly
incorporated  and  existing  in good  standing  under  the laws of the  State of
Delaware and has all requisite  corporate authority to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  and does not own more that fifty  percent  (50%) of or control any
other business  entity except as set forth in the SEC Documents.  The Company is
duly  qualified and is in good standing as a foreign  corporation to do business
in every  jurisdiction in which the nature of the business conducted or property
owned by it makes such  qualification  necessary,  other than those in which the
failure so to qualify  would not have a Material  Adverse  Effect.

Section 4.2.  Authority.  (i) The Company has the requisite  corporate power and
corporate  authority  to enter  into and  perform  its  obligations  under  this
Agreement,  the Registration  Rights Agreement,  the Escrow  Agreement,  and the
Warrants and to issue the Shares,  the Warrants and the Warrant Shares  pursuant
to their  respective  terms,  (ii) the execution,  issuance and delivery of this
Agreement,  the Registration Rights Agreement,  the Escrow Agreement, the Common
Stock certificates and the Warrants by the Company and the consummation by it of
the transactions  contemplated hereby have been duly authorized by all necessary
corporate  action and no further consent or  authorization of the Company or its
Board of Directors or  stockholders is required,  and (iii) this Agreement,  the
Registration   Rights  Agreement,   the  Escrow  Agreement,   the  Common  Stock
certificates  representing the Shares,  and the Warrants have been duly executed
and  delivered by the Company and at each  Closing  shall  constitute  valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms,  except as such  enforceability  may be limited by  applicable
bankruptcy,  insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable  principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the exercise of the
Warrants.

Section  4.3.  Capitalization.  The  authorized  capital  stock  of the  Company
consists of  30,000,000  shares of Common Stock,  $0.01 par value per share,  of
which  19,205,090  shares are issued and  outstanding  as of August 31, 1999 and
3,000,000 shares of preferred  stock,  par value $0.01 per share,  none of which
shares are issued  and  outstanding.  Except  for (i)  outstanding  options  and
warrants  as set  forth  in the SEC  Documents,  and  (ii) as set  forth  in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or  understandings  pursuant to which any Capital Shares  Equivalents
may  become  outstanding.  Except  as set forth in the SEC  Documents  or in the
Disclosure  Schedule,  the  Company  is not a party  to any  agreement  granting
registration  or  anti-dilution  rights to any person with respect to any of its
equity or

<PAGE>

debt  securities.  All of the outstanding  shares of Common Stock of the Company
have  been  duly and  validly  authorized  and  issued  and are  fully  paid and
non-assessable.

Section 4.4. Common Stock.  The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full  compliance  with all
reporting  requirements  of the Exchange  Act, and the Company is in  compliance
with all  requirements  for the  continued  listing or  quotation  of its Common
Stock,  and such Common  Stock is currently  listed or quoted on, the  Principal
Market.  As of the date  hereof,  the  Principal  Market is the Nasdaq  SmallCap
Market  and the  Company  has not  received  any  notice  regarding,  and to its
knowledge  there is no  threat,  of the  termination  or  discontinuance  of the
eligibility  of the Common Stock for such listing.

Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete  copies of the SEC  Documents.  The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and  regulations of the SEC  promulgated  thereunder and the SEC Documents
did not  contain  any 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,
not  misleading.  The financial  statements  of the Company  included in the SEC
Documents   complied  in  all  material  respects  with  applicable   accounting
requirements  and the  published  rules  and  regulations  of the  SEC or  other
applicable  rules  and  regulations  with  respect  thereto  at the time of such
inclusion.  Such  financial  statements  have been prepared in  accordance  with
generally  accepted  accounting  principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements  or the  notes  thereto  or (ii) in the  case  of  unaudited  interim
statements,  to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material  respects the financial  position
of the Company as of the dates  thereof and the results of  operations  and cash
flows for the periods  then ended  (subject,  in the case of  unaudited  interim
statements,  to normal year-end audit adjustments).  Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become  due) that would  have been  required  to be  reflected  in,  reserved
against or  otherwise  described  in the  financial  statements  or in the notes
thereto in accordance  with GAAP,  which was not fully  reflected  in,  reserved
against or otherwise described in the financial  statements or the notes thereto
included in the SEC  Documents  or was not  incurred in the  ordinary  course of
business  consistent  with the Company's past  practices  since the last date of
such  financial  statements.

Section  4.6.  Exemption  from  Registration;  Valid  Issuances.  Subject to the
accuracy  of the  Investors'  representations  in Article  III,  the sale of the
Shares, the Warrants and the Warrant Shares will not require  registration under
the Securities Act and/or any applicable  state  securities law. When issued and
paid for in accordance  with the Warrants,  the Warrant  Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the Shares,
the Warrants or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement,  the Registration  Rights Agreement,  the
Escrow  Agreement or the Warrants  will (i) result in the creation or imposition
by the  Company of any liens,  charges,  claims or other  encumbrances  upon the
Shares,  the Warrants or the Warrant Shares or, except as  contemplated  herein,
any of the assets of the  Company,  or (ii)  entitle the holders of  Outstanding
Capital  Shares to  preemptive  or other rights to subscribe  for or acquire the
Capital Shares or other securities of the Company.  The Shares, the Warrants and
the Warrant Shares shall not subject the Investors to personal  liability to the
Company or its creditors by reason of the  possession  thereof.

Section  4.7.  No  General   Solicitation  or  Advertising  in  Regard  to  this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company,  any person  acting on its or their behalf (i) has  conducted or
will  conduct any general  solicitation  (as that term is used in Rule 502(c) of
Regulation D) or general  advertising  with respect to the sale of the Shares or
the Warrants,  or (ii) made any offers or sales of

<PAGE>

any security or solicited any offers to buy any security under any circumstances
that would  require  registration  of the  Shares,  the  Warrants or the Warrant
Shares under the Securities Act.

Section 4.8. No  Conflicts.  The  execution,  delivery and  performance  of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated  hereby,  including without  limitation the issuance of the Shares,
the  Warrants  and the  Warrant  Shares,  do not and  will not (i)  result  in a
violation  of the  Company's  Certificate  of  Incorporation  or By-Laws or (ii)
conflict with, or constitute a material 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 of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting  or similar  agreement  to which the  Company is a party,  or (iii)
result in a violation  of any  federal,  state or local law,  rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations)  applicable  to the  Company or by which any  material  property or
asset of the  Company is bound or  affected,  nor is the  Company  otherwise  in
violation of,  conflict  with or default  under any of the foregoing  (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations  and  violations  as  would  not  have,  individually  or  in  the
aggregate,  a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law,  ordinance or regulation of any  governmental
entity,  except for possible  violations  that either singly or in the aggregate
would not have a Material Adverse Effect.  The Company is not required under any
Federal,  state  or  local  law,  rule or  regulation  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Warrants in
accordance with the terms hereof (other than any SEC,  Principal Market or state
securities  filings that may be required to be made by the Company subsequent to
Closing,  any registration  statement that may be filed pursuant hereto, and any
shareholder  approval required by the rules applicable to companies whose common
stock  trades on the  Principal  Market);  provided  that,  for  purposes of the
representation  made in this sentence,  the Company is assuming and relying upon
the accuracy of the relevant  representations  and  agreements  of the Investors
herein.

Section  4.9. No  Material  Adverse  Change.  Since June 30,  1999,  no Material
Adverse  Effect has occurred or exists with  respect to the  Company,  except as
disclosed  in  the  SEC  Documents.

Section 4.10. No Undisclosed  Events or  Circumstances.  Since June 30, 1999, no
event or circumstance  has occurred or exists with respect to the Company or its
businesses,  properties,  prospects,  operations or financial  condition,  that,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  prior to the date  hereof by the Company but which has not been so
publicly  announced  or  disclosed  in  the  SEC  Documents.

Section  4.11.  No  Integrated  Offering.  Other than  pursuant to an  effective
registration  statement under the Securities Act, or pursuant to the issuance or
exercise of employee  stock  options,  or  pursuant to its  discussion  with the
Investors in connection with the transactions  contemplated  hereby, the Company
has not issued,  offered or sold its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock within the six-month period
next  preceding  the date  hereof,  and the Company  shall not permit any of its
directors,  officers or affiliates  directly or  indirectly to take,  any action
(including, without limitation, any offering or sale to any Person of the Shares
or Warrants),  so as to make  unavailable  the  exemption  from  Securities  Act
registration  being  relied  upon by the  Company  for  the  offer  and  sale to
Investors of the Shares or the Warrants (and the Warrant Shares) as contemplated
by this Agreement.

Section 4.12.  Litigation and Other Proceedings.  Except as disclosed in the SEC
Documents,  there are no lawsuits or proceedings pending or, to the knowledge of
the  Company,  threatened,  against the Company or any  subsidiary,  nor has the
Company received any written or oral notice of any such action, suit, proceeding
or  investigation,  which in either case could  reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents,  no judgment,
order,  writ,  injunction  or  decree  or award  has been

<PAGE>

issued  by or,  to  the  knowledge  of  the  Company,  requested  of any  court,
arbitrator  or  governmental  agency  which could  result in a Material  Adverse
Effect.

Section 4.13. No  Misleading  or Untrue  Communication.  The Company and, to the
knowledge  of the  Company,  any person  representing  the  Company or any other
person selling or offering to sell the Shares or the Warrants in connection with
the transaction contemplated by this Agreement,  have not made, at any time, any
oral  communication  in  connection  with the  offer  or sale of the same  which
contained  any  untrue  statement  of a  material  fact or  omitted to state any
material  fact  necessary in order to make the  statements,  in the light of the
circumstances under which they were made, not misleading.

Section 4.14. Material Non-Public Information.  The Company has not disclosed to
the  Investors  any  material  non-public  information  that  (i)  if  disclosed
publicly, would reasonably be expected to have a material effect on the price of
the Common Stock or (ii) according to applicable law, rule or regulation, should
have been  disclosed  publicly by the Company prior to the date hereof but which
has not  been so  disclosed.

Section 4.15. Insurance.  The Company and each subsidiary maintains property and
casualty,  general  liability,  workers'  compensation,   environmental  hazard,
personal injury and other similar types of insurance with financially  sound and
reputable insurers that is adequate,  consistent with industry standards and the
Company's  historical  claims  experience.  The Company has not received  notice
from,  and has no knowledge  of any threat by, any insurer  (that has issued any
insurance  policy to the  Company)  that such insurer  intends to deny  coverage
under or cancel,  discontinue  or not renew any  insurance  policy  presently in
force.

Section 4.16. Tax Matters.

         (a) The Company and each  subsidiary has filed all Tax Returns which it
is required  to file under  applicable  laws;  all such Tax Returns are true and
accurate and has been  prepared in  compliance  with all  applicable  laws;  the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have  withheld and paid
over to the  appropriate  taxing  authorities  all Taxes which it is required to
withhold  from amounts paid or owing to any employee,  stockholder,  creditor or
other third  parties;  and since  December 31, 1998,  the charges,  accruals and
reserves for Taxes with respect to the Company  (including  any  provisions  for
deferred  income  taxes)  reflected  on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.

         (b) No claim  has been  made by a taxing  authority  in a  jurisdiction
where the Company does not file tax returns  that the Company or any  subsidiary
is or may be subject to  taxation  by that  jurisdiction.  There are no foreign,
federal,  state or local tax audits or  administrative  or judicial  proceedings
pending or being  conducted  with respect to the Company or any  subsidiary;  no
information  related to Tax matters has been requested by any foreign,  federal,
state or local taxing  authority;  and,  except as disclosed  above,  no written
notice  indicating  an intent to open an audit or other review has been received
by the  Company or any  subsidiary  from any  foreign,  federal,  state or local
taxing  authority.   There  are  no  material  unresolved  questions  or  claims
concerning  the  Company's  Tax  liability.  The Company (A) has not executed or
entered into a closing  agreement  pursuant to ss. 7121 of the Internal  Revenue
Code or any  predecessor  provision  thereof or any similar  provision of state,
local or  foreign  law;  or (B) has not  agreed  to or is  required  to make any
adjustments  pursuant to ss. 481(a) of the Internal  Revenue Code or any similar
provision  of state,  local or foreign  law by reason of a change in  accounting
method  initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting  permission for
any changes in  accounting  methods that relate to the business or operations of
the  Company.  The Company has not been a United  States real  property  holding
corporation  within the meaning of ss.  897(c)(2) of the  Internal  Revenue Code
during the applicable period specified in ss.  897(c)(1)(A)(ii)  of the Internal
Revenue Code.

<PAGE>

         (c) The  Company  has not made an  election  under  ss.  341(f)  of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas.  Reg. ss.  1.1502-6 (or
comparable  provisions of state,  local or foreign law),  (B) as a transferee or
successor,  (C) by contract or indemnity or (D) otherwise.  The Company is not a
party to any tax sharing  agreement.  The Company has not made any payments,  is
obligated to make payments or is a party to an agreement  that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.

         (d) For purposes of this Section 4.16:

                  "IRS" means the United States Internal Revenue Service.

                  "Tax" or "Taxes" means federal, state, county, local, foreign,
                  or  other  income,  gross  receipts,  ad  valorem,  franchise,
                  profits,  sales  or  use,  transfer,   registration,   excise,
                  utility,  environmental,   communications,  real  or  personal
                  property,  capital  stock,  license,  payroll,  wage or  other
                  withholding,  employment,  social security,  severance, stamp,
                  occupation, alternative or add-on minimum, estimated and other
                  taxes of any kind whatsoever  (including,  without limitation,
                  deficiencies,   penalties,  additions  to  tax,  and  interest
                  attributable thereto) whether disputed or not.

                  "Tax Return"  means any return,  information  report or filing
                  with  respect  to  Taxes,  including  any  schedules  attached
                  thereto and including any amendment thereof.

Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property.  Each of the Company and its subsidiaries has good and marketable
title to all  personal  property  owned  by it,  free  and  clear of all  liens,
encumbrances  and defects except such 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 to the Company's knowledge any real
property, mineral or water rights, and buildings held under lease by the Company
as tenant are held by it under valid,  subsisting  and  enforceable  leases with
such  exceptions as are not material and do not interfere  with the use made and
intended to be made of such property,  mineral or water rights, and buildings by
the Company.

Section 4.18.  Intellectual  Property.  Each of the Company and its subsidiaries
owns or possesses  adequate and  enforceable  rights to use all patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge  (collectively,  "Intangibles")  necessary  for  the  conduct  of  its
business as now being conducted. To the Company's knowledge, except as disclosed
in the  SEC  Documents  neither  the  Company  nor  any of its  subsidiaries  is
infringing  upon or in conflict  with any right of any other person with respect
to any Intangibles.  Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any  Intangibles and
the Company has no knowledge of any basis for such claim.

Section 4.19. Internal Controls and Procedures.  The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all  transactions  to which the Company or any  subsidiary  is a party or by
which its  properties  are bound are executed with  management's  authorization;
(ii) the recorded  accounting of the Company's  consolidated  assets is compared
with  existing  assets at  regular  intervals;  (iii)  access  to the  Company's
consolidated   assets  is  permitted  only  in  accordance   with   management's
authorization;  and (iv) all transactions to which the Company or any subsidiary
is a party or by which its  properties  are bound are  recorded as  necessary to
permit preparation of the financial statements of the Company in accordance with
U.S.  generally  accepted  accounting  principles.

Section 4.20. Payments and Contributions.  Neither the Company,  any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used  any  Company  funds  for any  unlawful  contribution,

<PAGE>

endorsement, gift, entertainment or other unlawful expense relating to political
activity;  (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any  provision of the Foreign  Corrupt  Practices  Act of 1977,  as
amended; or (iv) made any bribe, rebate, payoff, influence payment,  kickback or
other similar payment to any person with respect to Company matters.

Section 4.21. No  Misrepresentation.  The  representations and warranties of the
Company contained in this Agreement,  any schedule,  annex or exhibit hereto and
any  agreement,  instrument  or  certificate  furnished  by the  Company  to the
Investors  pursuant to this Agreement,  do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

                                   ARTICLE V

                           Covenants of the Investors

         Each  Investor,  severally and not jointly,  covenants with the Company
that:

Section 5.1. Compliance with Law. The Investor's trading activities with respect
to  shares  of the  Company's  Common  Stock  will  be in  compliance  with  all
applicable  state and federal  securities  laws, rules and regulations and rules
and regulations of the Principal  Market on which the Company's  Common Stock is
listed.

                                   ARTICLE VI

                            Covenants of the Company

Section  6.1.  Registration  Rights.  The Company  shall cause the  Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material  respects with the terms  thereof.

Section 6.2. 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,  shares of Common  Stock for the purpose of
enabling  the Company to issue the Shares at the second  Closing and the Warrant
Shares  pursuant  to any  exercise  of the  Warrants.  The  number  of shares so
reserved from time to time, as  theretofore  increased or reduced as hereinafter
provided,  may be reduced by the number of shares actually delivered pursuant to
any  exercise  of the  Warrants  and the number of shares so  reserved  shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock  that the  Company  may  thereafter  be  obligated  to issue by  reason of
adjustments to the Warrants.

Section  6.3.  Listing of Common  Stock.  The Company  hereby  agrees to use all
commercially  reasonable  efforts to  maintain  the  listing  and trading of the
Common  Stock  on a  Principal  Market,  and as soon as  reasonably  practicable
following the Closing to list the Shares and the Warrant Shares on the Principal
Market.  The Company further  agrees,  if the Company applies to have the Common
Stock traded on any other Principal  Market, it will include in such application
the  Shares  and the  Warrant  Shares,  and will  take such  other  action as is
necessary or  desirable in the opinion of the  Investors to cause the Shares and
Warrant  Shares to be listed  on such  other  Principal  Market as  promptly  as
possible.  The Company will comply in all respects with the Company's reporting,
filing and other  obligations  under the bylaws or rules of the Principal Market
and shall provide  Investors with copies of any  correspondence  to or from such
Principal  Market which  questions or threatens  delisting of the Common  Stock,
within  three (3)  Trading  Days of the  Company's  receipt  thereof,  until the
Investors  have disposed of all of their  Registrable  Securities.

<PAGE>

Section 6.4. Exchange Act Registration.  The Company will cause its Common Stock
to continue to be  registered  under  Section  12(b) or (g) of the Exchange Act,
will use all commercially  reasonable efforts to comply in all respects with its
reporting and filing  obligations  under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules  thereunder) to terminate or suspend such  registration or to terminate or
suspend its reporting and filing  obligations under said Act until the Investors
have disposed of all of their Registrable Securities.

Section 6.5.  Legends.  The certificates  evidencing the Registrable  Securities
shall be free of  legends,  except  as set forth in  Article  IX.

Section 6.6. Corporate Existence;  Conflicting Agreements. The Company will take
all steps  necessary to preserve and  continue  the  corporate  existence of the
Company.  The  Company  shall not enter into any  agreement,  the terms of which
agreement  would  restrict  or impair  the right or  ability  of the  Company to
perform  any  of its  obligations  under  this  Agreement  or  any of the  other
agreements attached as exhibits hereto.

Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof,  effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially  all of the assets of the Company to, another
entity (a  "Consolidation  Event")  unless the resulting  successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the  obligation  to  deliver  to the  Investors  such  shares  of  stock  and/or
securities as the Investors are entitled to receive  pursuant to this Agreement.

Section 6.8. Issuance of Common Stock and Warrant Shares. The sale of the Shares
and the Warrants and the issuance of the Warrant Shares  pursuant to exercise of
the Warrants shall be made in accordance with the provisions and requirements of
Section 4(2), 4(6) or Regulation D and any applicable  state securities law. The
Company shall make any necessary SEC and "blue sky" filings  required to be made
by the Company in connection with the sale of the Securities to the Investors as
required  by all  applicable  laws,  and  shall  provide a copy  thereof  to the
Investors  promptly  after  such  filing.

Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to its then-current
bid price until 90 days after the effective date of the  Registration  Statement
except for any sales (i) pursuant to any  presently  existing  employee  benefit
plan  which  plan  has been or will  be,  at the  Company's  annual  meeting  of
stockholders held on July 26, 1999, approved by the Company's stockholders, (ii)
pursuant  to any  compensatory  or stock  option plan for  directors,  full-time
employees  or key  consultants,  (iii)  pursuant  to the  exercise  of any other
warrants  or options  which are issued and  outstanding  on the date hereof (and
which are not  exercisable  for more than 300,000  shares of Common Stock in the
aggregate)  or (iv) with the prior  approval  of a majority  in  interest of the
Investors,  which  will  not be  unreasonably  withheld,  in  connection  with a
strategic  partnership or other business  transaction,  the principal purpose of
which is not simply to raise money.

                                  ARTICLE VII

                            Survival; Indemnification

Section 7.1.  Survival.  The  representations,  warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes,  schedules
and exhibits hereto and in each  instrument,  agreement and certificate  entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions  contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation  available to it

<PAGE>

under the provisions of this Agreement,  irrespective of any investigation  made
by or on behalf of such party on or prior to the Closing Date.

Section 7.2.  Indemnity.  (a) The Company  hereby  agrees to indemnify  and hold
harmless  the  Investors,  their  respective  Affiliates  and  their  respective
officers,   directors,   partners  and  members  (collectively,   the  "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor  Indemnitees for all reasonable  out-of-pocket  expenses (including the
reasonable  fees and  expenses  of legal  counsel),  in each  case  promptly  as
incurred  by the  Investor  Indemnitees  and to the extent  arising out of or in
connection with:

                  (i) any  misrepresentation,  omission of fact or breach of any
         of the  Company's  representations  or  warranties  contained  in  this
         Agreement, the annexes, schedules or exhibits hereto or any instrument,
         agreement  or  certificate  entered  into or  delivered  by the Company
         pursuant to this Agreement; or

                  (ii) any  failure by the  Company  to perform in any  material
         respect any of its covenants,  agreements,  undertakings or obligations
         set forth in this Agreement, the annexes,  schedules or exhibits hereto
         or any instrument,  agreement or certificate  entered into or delivered
         by the Company pursuant to this Agreement; or

                  (iii) any action instituted  against the Investors,  or any of
         them, by any  stockholder  of the Company who is not an Affiliate of an
         Investor, with respect to any of the transactions  contemplated by this
         Agreement.

         (b)  Each  Investor,  severally  and  not  jointly,  hereby  agrees  to
indemnify and hold harmless the Company,  its  Affiliates  and their  respective
officers,   directors,   partners  and  members   (collectively,   the  "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company  Indemnitees for all reasonable  out-of-pocket  expenses  (including the
reasonable  fees and  expenses  of legal  counsel),  in each  case  promptly  as
incurred  by the  Company  Indemnitees  and to the extent  arising  out of or in
connection with:

                  (i) any misrepresentation,  omission of fact, or breach of any
         of the  Investor's  representations  or  warranties  contained  in this
         Agreement, the annexes, schedules or exhibits hereto or any instrument,
         agreement  or  certificate  entered  into or  delivered by the Investor
         pursuant to this Agreement; or

                  (ii) any failure by the  Investor  to perform in any  material
         respect any of its covenants,  agreements,  undertakings or obligations
         set forth in this Agreement or any instrument, certificate or agreement
         entered into or delivered by the Investor pursuant to this Agreement.

Section 7.3.  Notice.  Promptly  after  receipt by either  party hereto  seeking
indemnification  pursuant  to Section  7.2 (an  "Indemnified  Party") of written
notice of any  investigation,  claim,  proceeding  or other action in respect of
which  indemnification is being sought (each, a "Claim"),  the Indemnified Party
promptly  shall notify the party from whom  indemnification  pursuant to Section
7.2 is being sought (the "Indemnifying  Party") of the commencement thereof; but
the omission to so notify the  Indemnifying  Party shall not relieve it from any
liability  that it otherwise may have to the  Indemnified  Party,  except to the
extent that the  Indemnifying  Party is actually  prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying  Party and
the Indemnified Party are parties,  the Indemnifying  Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying  Party, the Indemnified  Party shall have the right to
employ  separate  legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees,  out-of-

<PAGE>

pocket  costs and expenses of such  separate  legal  counsel to the  Indemnified
Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such
fees,  out-of-pocket  costs and expenses,  (y) the Indemnified  Party reasonably
shall  have  concluded  that  representation  of the  Indemnified  Party and the
Indemnifying  Party by the same legal  counsel would not be  appropriate  due to
actual or, as reasonably  determined by legal counsel to the Indemnified  Party,
potentially  differing  interests  between  such  parties in the  conduct of the
defense  of such  Claim,  or if there  may be legal  defenses  available  to the
Indemnified  Party that are in addition to or disparate from those  available to
the  Indemnifying  Party,  or (z) the  Indemnifying  Party  shall have failed to
employ legal counsel  reasonably  satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances  other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne  exclusively by the  Indemnified  Party.  Except as
provided above, the  Indemnifying  Party shall not, in connection with any Claim
in the same  jurisdiction,  be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or  compromise  any Claim or consent to the entry of any judgment  that does not
include an unconditional  release of the Indemnified  Party from all liabilities
with respect to such Claim or judgment.

Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification  that does not involve a claim or demand being asserted by a
third party,  the Indemnified  Party promptly shall deliver notice of such claim
to the Indemnifying  Party. If the Indemnifying  Party disputes the claim,  such
dispute shall be resolved by mutual  agreement of the Indemnified  Party and the
Indemnifying  Party or by binding  arbitration  conducted in accordance with the
procedures  and rules of the American  Arbitration  Association  as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

         Due Diligence Review; Non-Disclosure of Non-Public Information.

Section 8.1. Due  Diligence  Review.  Subject to Section 8.2, the Company  shall
make  available  for  inspection  and review by the  Investors,  advisors to and
representatives  of the  Investors  (who may or may not be  affiliated  with the
Investors and who are reasonably acceptable to the Company), and any underwriter
participating in any disposition of the Registrable  Securities on behalf of the
Investors  pursuant to the Registration  Statement,  any amendment or supplement
thereto or any blue sky,  Nasdaq or other  filing,  all SEC  Documents and other
filings with the SEC, and all other publicly available  corporate  documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers,  directors and employees to supply all
such publicly available information reasonably requested by the Investors or any
such representative,  advisor or underwriter in connection with the Registration
Statement (including, without limitation, in response to all questions and other
inquiries  reasonably made or submitted by any of them),  prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the  Investors and such  representatives,  advisors and
underwriters and their  respective  accountants and attorneys to conduct initial
and ongoing due  diligence  with  respect to the Company and the accuracy of the
Registration Statement.

Section 8.2.      Non-Disclosure of Non-Public Information.

         (a) The Company shall not disclose material  non-public  information to
the Investors,  advisors to or  representatives of the Investors unless prior to
disclosure of such information the Company  identifies such information as being
non-public   information   and  provides  the   Investors,   such  advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
non-public  information for review. Other than disclosure of any comment letters
received  from the SEC staff with  respect to the  Registration  Statement,  the

<PAGE>

Company may, as a condition to disclosing any non-public  information hereunder,
require  the   Investors'   advisors  and   representatives   to  enter  into  a
confidentiality  agreement in form and content  reasonably  satisfactory  to the
Company and the Investors.

         (b) Nothing  herein  shall  require  the  Company to disclose  material
non-public  information to the Investors or their  advisors or  representatives,
and the Company  represents  that it does not  disseminate  material  non-public
information  to any  investors  who  purchase  stock in the  Company in a public
offering, to money managers or to securities analysts,  provided,  however, that
notwithstanding   anything  herein  to  the  contrary,   the  Company  will,  as
hereinabove  provided,  promptly notify the advisors and  representatives of the
Investors  and,  if any,  underwriters,  of any  event or the  existence  of any
circumstance   (without  any  obligation  to  disclose  the  specific  event  or
circumstance)  of which  it  becomes  aware,  constituting  material  non-public
information  (whether or not requested of the Company  specifically or generally
during the course of due diligence by such persons or entities),  which,  if not
disclosed in the prospectus  included in the Registration  Statement would cause
such  prospectus to include a material  misstatement  or to omit a material fact
required to be stated therein in order to make the statements  therein, in light
of the circumstances in which they were made, not misleading.  Nothing contained
in this  Section 8.2 shall be  construed  to mean that such  persons or entities
other than the Investors  (without the written consent of the Investors prior to
disclosure of such  information  as set forth in Section  8.2(a)) may not obtain
non-public  information  in the course of conducting due diligence in accordance
with the terms of this  Agreement  and  nothing  herein  shall  prevent any such
persons or entities  from  notifying  the Company of their opinion that based on
such due diligence by such persons or entities,  that the Registration Statement
contains  an  untrue  statement  of a  material  fact or omits a  material  fact
required to be stated in the  Registration  Statement  or  necessary to make the
statements  contained therein,  in light of the circumstances in which they were
made, not misleading.

                                   ARTICLE IX

                      Legends; Transfer Agent Instructions

Section  9.1.  Legends.   Unless  otherwise  provided  below,  each  certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY OTHER
APPLICABLE  SECURITIES  LAWS AND HAVE BEEN ISSUED IN RELIANCE  UPON AN EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT  AND  SUCH  OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION  HEREIN
MAY BE SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

Section  9.2.  Transfer  Agent  Instructions.  Upon the  execution  and delivery
hereof,  the Company is issuing to the transfer  agent for its Common Stock (and
to any  substitute or  replacement  transfer agent for its Common Stock upon the
Company's  appointment  of any such  substitute or replacement  transfer  agent)
instructions  substantially in the form of Exhibit E hereto.  Such  instructions
shall be  irrevocable  by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.

Section 9.3. No Other  Legend or Stock  Transfer  Restrictions.  No legend other
than the one  specified  in Section 9.1 has been or shall be placed on the share
certificates  representing  the  Registrable  Securities and

<PAGE>

no instructions or "stop transfer  orders,"  "stock transfer  restrictions,"  or
other  restrictions have been or shall be given to the Company's  transfer agent
with respect thereto other than as expressly set forth in this Article IX.

Section 9.4. Investors' Compliance.  Nothing in this Article shall affect in any
way each  Investor's  obligations to comply with all applicable  securities laws
upon resale of the Common Stock.

                                   ARTICLE X

                           Choice of Law; Arbitration

Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in  accordance  with the laws of the State of New York  applicable  to
contracts  made in New York by persons  domiciled  in New York City and  without
regard to its  principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to  arbitration  under the American  Arbitration  Association
(the "AAA") in New York City,  New York,  and shall be finally and  conclusively
determined  by the decision of a board of  arbitration  consisting  of three (3)
members  (hereinafter  referred  to as  the  "Board  of  Arbitration")  selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration)  with  respect to the  amount,  if any,  which the losing  party is
required to pay to the other party in respect of a claim  filed.  In  connection
with  rendering its decisions,  the Board of Arbitration  shall adopt and follow
the laws of the State of New York unless the matter at issue is the  corporation
law of the Company's state of incorporation,  in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration  shall be rendered no more than thirty (30) calendar
days following  commencement of proceedings with respect  thereto.  The Board of
Arbitration  shall cause its written  decision  to be  delivered  to all parties
involved in the dispute.  Any decision made by the Board of Arbitration  (either
prior to or after the  expiration of such thirty (30) calendar day period) shall
be final,  binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest  extent  permitted by law and entered in any court of
competent  jurisdiction.  The Board of  Arbitration  shall be authorized  and is
hereby  directed  to enter a  default  judgment  against  any party  failing  to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules.  The  non-prevailing  party to any  arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party,  including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be  entitled  to obtain  injunctive  relief  from a court in any case where such
relief is available.

                                   ARTICLE XI

                                   Assignment

Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company  hereunder  may be assigned by either party to any other  person.
Notwithstanding the foregoing,  (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Shares or Warrants  purchased or acquired by any Investor hereunder with respect
to the Shares or Warrants  held by such person,  and (b) upon the prior  written
consent of the Company,  which  consent  shall not  unreasonably  be withheld or
delayed, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity  (including  any Affiliate of
the Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.

                                  ARTICLE XII

<PAGE>

                                     Notices

Section 12.1. Notices. All notices, demands, requests, consents,  approvals, and
other  communications  required or permitted  hereunder shall be in writing and,
unless otherwise specified herein,  shall be (i) hand delivered,  (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges  prepaid,  or (iv)
transmitted by facsimile,  addressed as set forth below or to such other address
as such party shall have specified most recently by written  notice.  Any notice
or other  communication  required or  permitted to be given  hereunder  shall be
deemed effective (a) upon hand delivery or delivery by facsimile,  with accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours  where such notice is to be  received)  or (b) on the first  business  day
following  the date of sending by  reputable  courier  service,  fully  prepaid,
addressed  to such  address,  or (c) upon  actual  receipt of such  mailing,  if
mailed. The addresses for such communications shall be:

If to the Company:                    600 Research Drive
                                      Wilmington, MA  01887
                                      Attention: Christopher Ricci
                                      Telephone: (978) 988-5888
                                      Facsimile: (978) 661-0160

with a copy to (shall not constitute
notice):                              Sullivan & Worcester LLP
                                      One Post Office Square
                                      Boston, MA  02109
                                      Attention: Stephen J. Coukos
                                      Telephone: (617) 338-2800
                                      Facsimile: (617) 338-2880

if to the Investors:                  As set forth on the signature pages hereto

with a copy to:                       Joseph A. Smith, Esq.
(shall not constitute notice)         Epstein Becker & Green, P.C.
                                      250 Park Avenue
                                      New York, New York
                                      Telephone: (212) 351-4500
                                      Facsimile: (212) 661-0989

Either party hereto may from time to time change its address or facsimile number
for notices  under this  Section 12.1 by giving  written  notice of such changed
address  or  facsimile  number to the other  party  hereto as  provided  in this
Section 12.1.

                                  ARTICLE XIII

                                  Miscellaneous

Section  13.1.  Counterparts/  Facsimile/  Amendments.  This  Agreement  may  be
executed  in multiple  counterparts,  each of which may be executed by less than
all of the parties and shall be deemed to be an

<PAGE>

original  instrument  which shall be  enforceable  against the parties  actually
executing such  counterparts  and all of which together shall constitute one and
the same instrument.  Except as otherwise stated herein, in lieu of the original
documents,  a facsimile  transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing  executed by all parties.

Section 13.2.  Entire  Agreement.  This  Agreement,  the agreements  attached as
Exhibits hereto, which include, but are not limited to the Warrants,  the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and  understanding  of the parties  relating to the  subject  matter  hereof and
supersedes  all  prior  and   contemporaneous   agreements,   negotiations   and
understandings  between  the  parties,  both oral and  written  relating  to the
subject  matter  hereof.  The  terms  and  conditions  of all  Exhibits  to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.

Section 13.3.  Severability.  In the event that any provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision;  provided that such severability shall be ineffective if
it  materially  changes the  economic  benefit of this  Agreement  to any party.

Section  13.4.  Headings.  The  headings  used in this  Agreement  are  used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

Section 13.5.  Number and Gender.  There may be one or more Investors parties to
this  Agreement,  which  Investors  may be  natural  persons  or  entities.  All
references to plural Investors shall apply equally to a single Investor if there
is only one  Investor,  and all  references  to an  Investor as "it" shall apply
equally  to a natural  person.

Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the  determination of the trading price or trading volume of the Common
Stock on any given  Trading  Day for the  purposes  of this  Agreement  shall be
Bloomberg,  L.P. or any successor  thereto.  The written  mutual  consent of the
Investors  and the  Company  shall be  required  to employ  any other  reporting
entity.

Section  13.7.  Replacement  of  Certificates.  Upon  (i)  receipt  of  evidence
reasonably  satisfactory  to the  Company  of the loss,  theft,  destruction  or
mutilation of a certificate  representing  the Shares or Warrants or any Warrant
Shares  and (ii) in the  case of any such  loss,  theft or  destruction  of such
certificate,  upon  delivery of an indemnity  agreement  or security  reasonably
satisfactory  in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such  certificate,  the Company at its expense will  execute and deliver,  in
lieu thereof, a new certificate of like tenor.

Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses  incident to the performance of its obligations  hereunder,
except  that the  Company  shall pay the fees,  expenses  and  disbursements  of
Epstein Becker & Green,  P.C.,  counsel to the Investors,  in an amount equal to
$10,000 all as set forth in the Escrow Agreement.

Section 13.9.  Brokerage.  Each of the parties hereto represents that it has had
no dealings in connection  with this  transaction  with any finder or broker who
will demand  payment of any fee or  commission  from the other party  except for
JWGenesis Securities,  Inc., whose fee shall be paid by the Company. The Company
on the one hand,  and the Investors,  on the other hand,  agree to indemnify the
other against and hold the other  harmless from any and all  liabilities  to any
person  claiming  brokerage  commissions or finder's fees on account of services
purported  to  have  been  rendered  on  behalf  of the  indemnifying  party  in
connection with this Agreement or the transactions  contemplated hereby.

<PAGE>

Section  13.10.  Publicity.  The Company agrees that it will not issue any press
release or other public  announcement of the  transactions  contemplated by this
Agreement  without  the  prior  consent  of the  Investors,  which  shall not be
unreasonably  withheld  nor delayed by more than two (2) Trading Days from their
receipt of such  proposed  release;  provided,  however,  that if the Company is
advised by its outside  counsel  that it is  required  by law or the  applicable
rules  of any  Principal  Market  to issue  any such  press  release  or  public
announcement,  then it may do so without  the prior  consent  of the  Investors,
although  it  shall  be  required  to  provide  prior  notice  (which  may be by
telephone)  to the  Investors  that it intends  to issue  such press  release or
public  announcement.  No release shall name the Investors without their express
consent.

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

                                      FOCUS Enhancements, Inc.

                                      By: /s/ Thomas L. Massie
                                      Name: Thomas L. Massie
                                      Title: President & CEO

  Address: c/o Ultra Finanz AG        BNC Bach International Ltd., Inc..
  Grossmunsterplatz 6
  Zurich, CH-8022
  Switzerland
  Fax: 011-411-262-5515               By: /s/ H. U. Bachofen
  Amount subscribed for:              Name: H. U. Bachofen, Director
  $1,500,000

<PAGE>

                               AMENDMENT NO. 1 TO
                  COMMON STOCK AND WARRANTS PURCHASE AGREEMENT

         This  Amendment No. 1  ("Amendment")  is entered in to between BNC Bach
International  Ltd.,  Inc.  ("Investor")  and  FOCUS  Enhancements,   Inc.  (the
"Company")  as of  November  17,  1999 to amend that  certain  Common  Stock and
Warrants Purchase  Agreement dated as of September 17, 1999 and exhibits thereto
(the  "Agreement")  as set forth herein and to confirm and ratify the  Agreement
except as amended by this Amendment.  All capitalized terms used but not defined
herein shall have the meanings set forth in the Agreement.  In  consideration of
the mutual undertakings contained herein, the parties agree as follows:

         1. The Investor  hereby  waives the  condition  precedent to the second
Closing that the Registration Statement shall have been declared effective.

         2. The Company  hereby  reduces the price per share of the Common Stock
to be purchased by the  Investor at the second  Closing to ninety cents  ($0.90)
from $1.00.

          3. The Agreement is otherwise ratified and confirmed.

FOCUS Enhancements, Inc.                    BNC Bach International Ltd., Inc.

By: /s/ Thomas Massie                       By: /s/ H. U. Bachofen
         Thomas Massie                               H. U. Bachofen
         President                                   Director

<PAGE>

                                                                       EXHIBIT A

NEITHER  THIS WARRANT NOR THE SHARES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT")
OR ANY OTHER  APPLICABLE  SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES  ISSUABLE UPON EXERCISE  HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED,  ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

                             STOCK PURCHASE WARRANT

                  To Purchase 150,000 Shares of Common Stock of

                            FOCUS ENHANCEMENTS, INC.

         THIS CERTIFIES that, for value received, BNC Bach international,  Ltd.,
Inc. (the "Holder"),  is entitled,  upon the terms and subject to the conditions
hereinafter  set forth, at any time on or after September 17, 1999 (the "Initial
Exercise  Date") and on or prior to the close of business on September  17, 2002
(the "Termination Date") but not thereafter,  to subscribe for and purchase from
FOCUS  Enhancements,  Inc., a Delaware  corporation (the  "Company"),  up to One
Hundred Fifty Thousand  (150,000) shares (the "Warrant Shares") of Common Stock,
$.01 par value, of the Company (the "Common  Stock").  The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be $______
(100% of the average of the closing bid prices of the Common Stock on the Nasdaq
SmallCap  Market on the five  Trading Days ending on September  17,  1999).  The
Exercise  Price and the  number of shares for which the  Warrant is  exercisable
shall be subject to adjustment as provided herein.  In the event of any conflict
between the terms of this  Warrant and the Common  Stock and  Warrants  Purchase
Agreement  dated  September  17, 1999  pursuant  to which this  Warrant has been
issued  (the  "Purchase  Agreement"),  the  Purchase  Agreement  shall  control.
Capitalized  terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.

<PAGE>

         1.  Title to  Warrant.  Prior to the  Termination  Date and  subject to
compliance  with  applicable  laws,  this Warrant and all rights  hereunder  are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized  attorney,  upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.

         2.  Authorization of Shares.  The Company  covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the 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.  Except  as  provided  in  Section 4 herein,
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 before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed,  at the office of the Company (or
such  other  office or agency of the  Company as it may  designate  by notice in
writing to the registered  holder hereof at the address of such holder appearing
on the books of the  Company)  and upon  payment  of the  Exercise  Price of the
shares thereby  purchased by wire transfer or cashier's  check drawn on a United
States  bank,  the  holder  of this  Warrant  shall be  entitled  to  receive  a
certificate for the number of shares of Common Stock so purchased.  Certificates
for shares  purchased  hereunder  shall be delivered to the holder hereof within
three (3)  Trading  Days  after the date on which this  Warrant  shall have been
exercised as aforesaid.  This Warrant shall be deemed to have been exercised and
such certificate or certificates 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 Holder,  if any, pursuant to Section 5 prior to
the issuance of such  shares,  have been paid.  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  shares of Common
Stock called for by this Warrant,  which new Warrant shall in all other respects
be identical with this Warrant.

         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 the Exercise Price.

         5. Charges, Taxes and Expenses.  Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant  shall be made without  charge to
the holder hereof for any issue or transfer tax or other  incidental  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 of this Warrant or in such name or names as may be

                                       2
<PAGE>

directed by the holder of this  Warrant;  provided,  however,  that in the event
certificates  for  shares of Common  Stock are to be issued in a name other than
the name of the  holder of this  Warrant,  this  Warrant  when  surrendered  for
exercise  shall be  accompanied  by the  Assignment  Form  attached  hereto duly
executed  by the holder  hereof;  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 shareholder  books
or records in any manner which prevents the timely exercise of this Warrant.

         7. Transfer,  Division and Combination.  (a) Subject to compliance with
any  applicable  securities  laws,  transfer  of this  Warrant  and  all  rights
hereunder,  in whole or in part, shall be registered on the books of the Company
to be  maintained  for such  purpose,  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 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 shares of Common  Stock  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  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  hereof 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, the Warrant Shares so purchased
shall be and be deemed to be 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 certificate
or any stock  certificate  relating to the Warrant Shares,  and in case of loss,
theft or  destruction,  of indemnity or security  reasonably

                                       3
<PAGE>

satisfactory  to it (which shall not include the posting of any bond),  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 legal holiday,  then such action may be
taken or such right may be exercised on the next  succeeding day not a Saturday,
Sunday or legal holiday.

         11.  Adjustments  of Exercise Price and Number of Warrant  Shares.  (a)
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  holders of its  outstanding  Common
Stock,  (ii)  subdivide  its  outstanding  shares of Common Stock into a greater
number of shares of Common Stock, (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 of this Warrant  shall be entitled
to  receive  the kind and number of Warrant  Shares or other  securities  of the
Company  which he 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 of this Warrant 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  resulting from 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.

                  (b) 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 all or substantially all 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  successor  or  acquiring  corporation  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then 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 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

                                       4
<PAGE>

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 shares of Common Stock
for which this Warrant is  exercisable  which shall be as nearly  equivalent  as
practicable to the adjustments  provided for in this Section 11. For purposes of
this Section 11, "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  11  shall   similarly   apply  to   successive   reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         12.  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.

         13.  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 promptly mail by registered or certified mail,  return receipt  requested,
to the holder of this Warrant notice of such  adjustment or adjustments  setting
forth  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. Such notice,  in the absence
of manifest  error,  shall be  conclusive  evidence of the  correctness  of such
adjustment.

         14. 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;

                                       5
<PAGE>

then, in any one or more of such cases,  the Company shall give to Holder (i) at
least 30 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 30
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 addressed to Holder
at the  last  address  of  Holder  appearing  on the  books of the  Company  and
delivered in accordance with Section 16(d).

         15. 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 Principal  Market
upon which the Common Stock may be listed.

         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
against  impairment.  Without  limiting the  generality  of the  foregoing,  the
Company  will (a) not  increase  the par value of any  shares  of  Common  Stock
receivable  upon the exercise of this Warrant 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  shares of Common Stock
upon the  exercise  of this  Warrant,  and (c) use all  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.

                                       6
<PAGE>

         Upon the  request of Holder,  the  Company  will at any time during the
period this Warrant is outstanding  acknowledge in writing,  in form  reasonably
satisfactory  to  Holder,  the  continuing  validity  of  this  Warrant  and the
obligations of the Company hereunder.

         Before taking any action which would cause an  adjustment  reducing the
current Exercise Price below the then par value, if any, of the shares of Common
Stock  issuable  upon  exercise  of the  Warrants,  the  Company  shall take any
corporate  action  which may be  necessary in order that the Company may validly
and legally issue fully paid and  non-assessable  shares of such Common Stock at
such adjusted Exercise Price.

         Before  taking any action  which would result in an  adjustment  in the
number of shares of Common Stock 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.

         16. Miscellaneous.

                  (a)  Jurisdiction.  This  Warrant  shall be  binding  upon any
successors or assigns of the Company.  This Warrant shall  constitute a contract
under the laws of New York without  regard to its conflict of law  principles or
rules,  and be subject  to  arbitration  pursuant  to the terms set forth in the
Purchase Agreement.

                  (b)  Restrictions.  The holder  hereof  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 rights  hereunder  terminate on the  Termination
Date. If the Company  willfully  fails to comply with any material  provision of
this  Warrant,  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  hereof 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 affirmative  action by Holder to purchase shares of Common Stock, and
no enumeration  herein of the rights or privileges of Holder hereof,  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.

                                       7
<PAGE>

                  (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) Indemnification.  The Company agrees to indemnify and hold
harmless Holder from and against any liabilities,  obligations, losses, damages,
penalties,  actions,  judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against  Holder in any manner  relating  to or arising out of any failure by the
Company to perform or observe  in any  material  respect  any of its  covenants,
agreements,  undertakings  or obligations  set forth in this Warrant;  provided,
however,  that the Company  will not be liable  hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims,  costs,  attorneys' fees, expenses or disbursements are found in a final
non-appealable  judgment by a court to have resulted  from Holder's  negligence,
bad  faith  or  willful   misconduct  in  its  capacity  as  a  stockholder   or
warrantholder of the Company.

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

                  (j) 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.

                                       8
<PAGE>

                  (k)  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.

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

Dated: September 17, 1999
                            FOCUS Enhancements, Inc.

                            By:_________________________________________________
                                Christopher Ricci, Senior Vice President

                                       9
<PAGE>

                               NOTICE OF EXERCISE

To: FOCUS Enhancements, Inc.

         (1)______The  undersigned  hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of FOCUS  Enhancements,  Inc. 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.

         (2)______Please  issue a certificate or certificates  representing said
shares of Common Stock in the name of the  undersigned  or in such other name as
is specified below:

                  ________________________________________
                  (Name)

                  ________________________________________
                  (Address)

Dated:

                                               ______________________________
                                               Signature

<PAGE>

                                 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 an  fiduciary  or other  representative
capacity  should  file  proper  evidence of  authority  to assign the  foregoing
Warrant.

<PAGE>

                                                                       EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

                  THIS REGISTRATION RIGHTS AGREEMENT,  dated as of September 17,
1999 between the investor or investors  signatory hereto (each an "Investor" and
together the "Investors"), and FOCUS Enhancements,  Inc., a Delaware corporation
(the "Company").

                  WHEREAS,  simultaneously  with the  execution  and delivery of
this  Agreement,  the Investor is  purchasing  from the  Company,  pursuant to a
Common  Stock  and  Warrants  Purchase  Agreement  dated  the date  hereof  (the
"Purchase Agreement"), 1,500,000 shares of Common Stock and Warrants to purchase
up to 150,000  shares of the  Company's  Common Stock (terms not defined  herein
shall have the meanings ascribed to them in the Purchase Agreement); and

                  WHEREAS,  the Company  desires to grant to the  Investors  the
registration  rights set forth  herein  with  respect  to the  Shares  purchased
pursuant to the  Purchase  Agreement  and shares of Common Stock  issuable  upon
exercise of the Warrants (hereinafter referred to as the "Stock" or "Securities"
of the Company).

                  NOW, THEREFORE, the parties hereto mutually agree as follows:

                  Section 1.  Registrable  Securities.  As used  herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared  effective by the  Commission,  and all  Securities  have been
disposed of pursuant to the  Registration  Statement,  (ii) all Securities  have
been sold under  circumstances  under which all of the applicable  conditions of
Rule 144 (or any  similar  provision  then in force)  under the  Securities  Act
("Rule 144") are met,  (iii) all Securities  have been otherwise  transferred to
holders who may trade such Securities  without  restriction under the Securities
Act,  and the  Company  has  delivered a new  certificate  or other  evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner  limitations  pursuant to Rule 144(k) (or any similar
provision  then in  effect)  under the  Securities  Act.  The term  "Registrable
Securities" means any and/or all of the securities  falling within the foregoing
definition   of  a   "Registrable   Security."  In  the  event  of  any  merger,
reorganization,  consolidation,  recapitalization  or other  change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the  definition  of  "Registrable  Security"  as is  appropriate  in order to
prevent  any  dilution or  enlargement  of the rights  granted  pursuant to this
Agreement.

                  Section   2.   Restrictions   on   Transfer.   Each   Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein,  the Securities are "restricted  securities" as defined in Rule
144 promulgated under the Act. Each Investor  understands that no disposition or
transfer  of the  Securities  may be made by  Investor  in the absence of (i) an
opinion  of  counsel  to  the  Investor,   in  form  and  substance   reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.

<PAGE>

                           With a view to making  available to the Investors the
benefits  of Rule 144 under the  Securities  Act or any  other  similar  rule or
regulation of the  Commission  that may at any time permit the Investors to sell
securities of the Company to the public without  registration  ("Rule 144"), the
Company agrees to:

                           (a) comply with the provisions of paragraph (c)(1) of
Rule 144; and

                           (b) file with the  Commission  in a timely manner all
reports and other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the  Exchange  Act by  companies  subject to either of
such  sections,  irrespective  of whether  the  Company is then  subject to such
reporting requirements.

                  Section 3. Registration Rights With Respect to the Securities.

                           (a) The Company  agrees that it will prepare and file
with the Securities and Exchange Commission  ("Commission"),  within thirty (30)
days after the Closing Date a  registration  statement (on Form S-3, or, subject
to the Company's  right to repurchase  the  Securities in lieu of such filing as
set forth in Section 3(e), other appropriate  registration statement form) under
the Securities Act (the  "Registration  Statement"),  at the sole expense of the
Company  (except  as  provided  in  Section  3(c)  hereof),  in  respect  of the
Investors, so as to permit a public offering and resale of all of the Securities
under the Act by the Investors as selling stockholders and not as underwriters.

                           The  Company  shall use all  commercially  reasonable
efforts to cause such  Registration  Statement to become effective within ninety
(90) days from the Closing Date (or, if the  Registration  Statement  receives a
"full  review"  from the  Commission,  120 days  from the  Closing  Date) or, if
earlier,  within  five (5) days of SEC  clearance  to  request  acceleration  of
effectiveness. The Company will notify the Investors of the effectiveness of the
Registration  Statement  within one Trading Day of such event. In the event that
the number of shares so registered shall for any reason prove to be insufficient
to  register  the resale of all of the  Securities,  then the  Company  shall be
obligated  to file,  within  thirty  (30) days of notice  from any  Investor,  a
further Registration  Statement  registering such remaining shares and shall use
all commercially  reasonable  efforts to prosecute such additional  Registration
Statement  to  effectiveness  within  ninety (90) days (or, if the  Registration
Statement receives a "full review" from the Commission, 120 days) of the date of
such notice.

                           (b)  The  Company  will  maintain  the   Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the  date  that all of the  Securities  have  been  sold  pursuant  to such
Registration  Statement,  (iii) the date the  Investors  receive  an  opinion of
counsel to the Company,  which  counsel  shall be  reasonably  acceptable to the
Investors,  that the  Securities  may be sold under the  provisions  of Rule 144
without  limitation  as to  volume,  (iv) all  Securities  have  been  otherwise
transferred to persons who may trade such shares without  restriction  under the
Securities  Act,  and the  Company  has  delivered  a new  certificate  or other
evidence of ownership

                                       2
<PAGE>

for such securities not bearing a restrictive  legend, or (v) all Securities may
be sold without any time, volume or manner  limitations  pursuant to Rule 144(k)
or any similar  provision then in effect under the Securities Act in the opinion
of counsel to the Company,  which counsel shall be reasonably  acceptable to the
Investor (the "Effectiveness Period").

                           (c)  All  fees,   disbursements   and   out-of-pocket
expenses and costs  incurred by the Company in connection  with the  preparation
and  filing  of  the  Registration  Statement  under  subparagraph  3(a)  and in
complying  with  applicable  securities  and Blue Sky laws  (including,  without
limitation,  all attorneys'  fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting  and/or  brokerage  discounts,
fees and commissions,  if any, applicable to the Securities being registered and
the fees and expenses of their  counsel.  The  Investors and their counsel shall
have a reasonable  period,  not to exceed five (5) Trading  Days,  to review the
proposed Registration  Statement or any amendment thereto,  prior to filing with
the  Commission,  and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the securities
for sale in such states as any Investor reasonably  designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required  to qualify in any state  which will  require an escrow or
other  restriction  relating to the Company  and/or the  sellers,  or which will
require  the  Company  to qualify to do  business  in such state or require  the
Company to file therein any general  consent to service of process.  The Company
at its  expense  will  supply  the  Investors  with  copies  of  the  applicable
Registration  Statement and the  prospectus  included  therein and other related
documents in such quantities as may be reasonably requested by the Investors.

                           (d) The Company shall not be required by this Section
3 to include an Investor's Securities in any Registration  Statement which is to
be filed if, in the  opinion of counsel  for both the  Investor  and the Company
(or,  should they not agree,  in the opinion of another  counsel  experienced in
securities  law matters  acceptable to counsel for the Investor and the Company)
the  proposed  offering  or other  transfer  as to which  such  registration  is
requested is exempt from applicable  federal and state securities laws and would
result in all  purchasers  or  transferees  obtaining  securities  which are not
"restricted securities", as defined in Rule 144 under the Securities Act.

                           (e) In the event that (i) the Registration  Statement
to be filed by the Company  pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days from the Closing Date, (ii) such Registration
Statement is not  declared  effective  by the  Commission  within the earlier of
ninety  (90)  days from the  Closing  Date (or,  if the  Registration  Statement
receives a "full  review" from the  Commission,  120 days from the Closing Date)
(unless such failure to register is due in whole or in part to the  Commission's
request that the Investors be named as underwriters  in the prospectus  included
in the  Registration  Statement) or five (5) days of clearance by the Commission
to  request  effectiveness,  (iii) if the  Securities  have been  registered  as
contemplated  by clause (ii), such  Registration  Statement is not maintained as
effective  by the Company for the period set forth in Section 3(b) above or (iv)
the additional  Registration  Statement referred to in Section 3(a) is not filed
within  thirty (30) days or declared  effective  within  ninety (90) days as set
forth therein (or, if such additional  Registration  Statement

                                       3
<PAGE>

receives a "full review" from the Commission,  120 days) (unless such failure to
register  is due in  whole  or in  part to the  Commission's  request  that  the
Investors  be  named  as  underwriters   in  the  prospectus   included  in  the
Registration  Statement)  (each a "Registration  Default") then the Company will
pay  Investor  (pro rated on a daily  basis),  as  liquidated  damages  for such
failure and not as a penalty one percent (1%) of the  aggregate  market value as
of the Closing  Date of shares of Common  Stock  purchased  from the Company and
still held by the Investor for the first two months of such Registration Default
and two  percent  (2%)  for  every  month  thereafter  until  such  Registration
Statement  has been filed,  and in the event of late  effectiveness  (in case of
clause (ii) above) or lapsed  effectiveness (in the case of clause (iii) above),
one percent (1%) of the aggregate  market value as of the Closing Date of shares
of Common  Stock  purchased  from the Company and still held by the Investor for
the first two months of such Registration Default and two percent (2%) for every
month thereafter  (regardless of whether one or more such Registration  Defaults
are then in  existence)  until such  Registration  Statement  has been  declared
effective.  Payment of the liquidated  damages shall be made to the Investors in
cash,  within five (5)  calendar  days of demand,  provided,  however,  that the
payment of such  liquidated  damages  shall not  relieve  the  Company  from its
obligations  to register the  Securities  pursuant to this  Section.  The market
value of the Common Stock for this purpose  shall be the closing  price (or last
trade,  if so  reported)  on the  Principal  Market  for  each day  during  such
Registration Default. Notwithstanding anything to the contrary contained herein,
a failure to maintain the  effectiveness of an filed  Registration  Statement or
the ability of an Investor to use an otherwise effective  Registration Statement
to effect  resales of  Securities  during the period after 45 days and within 90
days from the end of the Company's fiscal year resulting solely from the need to
update the Company's financial statements contained or incorporated by reference
in such Registration  Statement shall not constitute a Registration  Default and
shall not trigger the accrual of liquidated damages hereunder.

                           If the  Company  does not  remit the  payment  to the
Investors as set forth  above,  the Company  will pay the  Investors  reasonable
costs of collection,  including  attorneys'  fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the  Investors'  other  rights or  remedies as set forth in this
Agreement.

                           (f) No provision  contained herein shall preclude the
Company from selling securities pursuant to any Registration  Statement in which
it is required to include Securities pursuant to this Section 3.

                           (g) If at any  time or from  time to time  after  the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below),  the Investors  shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities,  from the time of the
giving of notice with respect to a Potential  Material Event until the Investors
receive  written  notice from the Company  that such  Potential  Material  Event
either has been  disclosed  to the public or no longer  constitutes  a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of  Securities  for more than thirty (30) days in the  aggregate
during any twelve month period during the period the  Registration  Statement is
required to be in effect, and if such period is exceeded,  such event shall be a

                                       4
<PAGE>

Registration  Default.  If a Potential  Material  Event shall occur prior to the
date a  Registration  Statement  is  required  to be filed,  then the  Company's
obligation to file such Registration  Statement shall be delayed without penalty
for not more  than  twenty  (20)  days,  and  such  delay or  delays  shall  not
constitute  a  Registration  Default.  The  Company  must,  if lawful,  give the
Investors notice in writing at least two (2) Trading Days prior to the first day
of the blackout period.

                           (h)  "Potential  Material  Event"  means  any  of the
following:  (a) the possession by the Company of material  information  not ripe
for disclosure in a registration  statement,  as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that disclosure
of such  information  in a  Registration  Statement  would be detrimental to the
business and affairs of the Company;  or (b) any material engagement or activity
by the  Company  which  would,  in the good  faith  determination  of the  Chief
Executive  Officer  or the  Board of  Directors  of the  Company,  be  adversely
affected  by  disclosure  in  a  registration  statement  at  such  time,  which
determination  shall be accompanied by a good faith  determination  by the Chief
Executive  Officer or the Board of Directors of the Company that the  applicable
Registration  Statement would be materially  misleading  absent the inclusion of
such information.

                  Section  4.  Cooperation  with  Company.  The  Investors  will
cooperate  with the Company in all respects in connection  with this  Agreement,
including timely supplying all information  reasonably  requested by the Company
(which shall include all information regarding the Investors and proposed manner
of  sale  of  the  Registrable  Securities  required  to  be  disclosed  in  any
Registration  Statement)  and executing  and returning all documents  reasonably
requested  in  connection  with the  registration  and  sale of the  Registrable
Securities  and  entering  into  and  performing  their  obligations  under  any
underwriting  agreement,  if the offering is an underwritten  offering, in usual
and  customary  form,  with the managing  underwriter  or  underwriters  of such
underwritten offering.  Nothing in this Agreement shall obligate any Investor to
consent  to be  named  as an  underwriter  in any  Registration  Statement.  The
obligation  of the  Company to  register  the  Registrable  Securities  shall be
absolute and unconditional as and to the extent provided in this Agreement as to
those  Securities  which the  Commission  will permit to be  registered  without
naming  the  Investors  as  underwriters.  Any  delay or  delays  caused  by the
Investors by failure to cooperate as required  hereunder  shall not constitute a
Registration Default.

                  Section  5.  Registration  Procedures.  If  and  whenever  the
Company is required by any of the  provisions  of this  Agreement  to effect the
registration  of any of the  Registrable  Securities  under the Act, the Company
shall (except as otherwise  provided in this  Agreement),  as  expeditiously  as
possible,  subject to the Investors'  assistance  and  cooperation as reasonably
required with respect to each Registration Statement:

                           (a) (i)  prepare  and file with the  Commission  such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration  Statement
effective and to comply with the  provisions of the Act with respect to the sale
or other disposition of all securities  covered by such  registration  statement
whenever the  Investors  shall  desire to sell or otherwise  dispose of the same
(including  prospectus  supplements with respect to the sales of securities from
time to time in

                                       5
<PAGE>

connection with a registration  statement pursuant to Rule 415 promulgated under
the Act) and (ii) take all lawful action such that each of (A) the  Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated  therein or necessary to make the statements  therein,  in light of
the  circumstances  under  which  they were  made,  not  misleading  and (B) the
prospectus  forming part of the  Registration  Statement,  and any  amendment or
supplement thereto,  does not at any time during the Registration Period include
an untrue statement of a material fact or omit to state a material fact required
to be stated  therein or necessary to make the statements  therein,  in light of
the circumstances under which they were made, not misleading;

                           (b) (i) prior to the filing  with the  Commission  of
any  Registration   Statement   (including  any  amendments   thereto)  and  the
distribution or delivery of any prospectus  (including any supplements thereto),
provide  draft copies  thereof to the  Investors as required by Section 3(c) and
reflect in such documents all such comments as the Investors (and their counsel)
reasonably  may  propose  respecting  the  Selling   Shareholders  and  Plan  of
Distribution  sections (or  equivalents)  and (ii) furnish to each Investor such
numbers of copies of a  prospectus  including a  preliminary  prospectus  or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements  of the  Act,  and  such  other  documents,  as such  Investor  may
reasonably  request in order to facilitate the public sale or other  disposition
of the securities owned by such Investor;

                           (c) register and qualify the  Registrable  Securities
covered by the  Registration  Statement under such other  securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request (subject to
the limitations set forth in Section 3(c) above),  and do any and all other acts
and things  which may be  necessary  or  advisable  to enable  each  Investor to
consummate  the public sale or other  disposition  in such  jurisdiction  of the
securities owned by such Investor;

                           (d) list such Registrable Securities on the Principal
Market,  if the listing of such  Registrable  Securities is then permitted under
the rules of such Principal Market;

                           (e)  notify   each   Investor  at  any  time  when  a
prospectus relating thereto covered by the Registration Statement is required to
be  delivered  under  the Act,  of the  happening  of any  event of which it has
knowledge  as a result  of which the  prospectus  included  in the  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material  fact  required to be stated  therein or  necessary to
make the  statements  therein not  misleading in the light of the  circumstances
then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;

                           (f) as promptly as  practicable  after becoming aware
of such event, notify each Investor who holds Registrable  Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance  by the  Commission  of any  stop  order  or  other  suspension  of the
effectiveness  of the Registration  Statement at the earliest  possible time and
take all lawful  action to effect the  withdrawal,  recession or removal of such
stop order or other suspension;

                                       6
<PAGE>

                           (g) cooperate  with the  Investors to facilitate  the
timely  preparation and delivery of certificates for the Registrable  Securities
to  be  offered  pursuant  to  the   Registration   Statement  and  enable  such
certificates  for the  Registrable  Securities  to be in such  denominations  or
amounts,  as the  case may be,  as the  Investors  reasonably  may  request  and
registered  in such names as the Investors  may request;  and,  within three (3)
Trading  Days  after  a  Registration   Statement  which  includes   Registrable
Securities  is declared  effective  by the  Commission,  deliver and cause legal
counsel  selected  by the  Company  to  deliver  to the  transfer  agent for the
Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;

                           (h) take all such  other  lawful  actions  reasonably
necessary to expedite and facilitate  the  disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the  prospectus  which  are  customary  for  issuers  to  perform  under  the
circumstances;

                           (i)  in  the  event  of  an  underwritten   offering,
promptly  include or  incorporate in a prospectus  supplement or  post-effective
amendment  to the  Registration  Statement  such  information  as  the  managers
reasonably  agree  should be included  therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement or
post-effective  amendment  as soon as  practicable  after it is  notified of the
matters  to be  included  or  incorporated  in  such  Prospectus  supplement  or
post-effective amendment; and

                           (j) maintain a transfer  agent and  registrar for its
Common Stock.

                  Section 6.  Indemnification.

                           (a) To the  maximum  extent  permitted  by  law,  the
Company agrees to indemnify and hold harmless the Investors and each person,  if
any, who controls an Investor  within the meaning of the  Securities Act (each a
"Distributing  Investor")  against any losses,  claims,  damages or liabilities,
joint or several (which shall, for all purposes of this Agreement,  include, but
not be limited to, all  reasonable  costs of defense and  investigation  and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject,  under the Securities Act or otherwise,  insofar as such losses,
claims,  damages or liabilities (or actions in respect  thereof) arise out of or
are based upon any untrue  statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement  thereto, or arise out of or are based upon the omission
or alleged  omission  to state  therein a material  fact  required  to be stated
therein or necessary to make the statements  therein not  misleading;  provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue  statement or alleged untrue statement or omission or
alleged omission made in such Registration  Statement,  preliminary  prospectus,
final  prospectus or amendment or supplement  thereto in reliance  upon,  and in
conformity  with,   written   information   furnished  to  the  Company  by  the
Distributing Investor, its counsel, affiliates or any underwriter,  specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.

                                       7
<PAGE>

                           (b) To the  maximum  extent  permitted  by law,  each
Distributing  Investor  agrees  that it will  indemnify  and hold  harmless  the
Company,  and each  officer and  director of the Company or person,  if any, who
controls  the Company  within the  meaning of the  Securities  Act,  against any
losses,  claims,  damages or liabilities  (which shall, for all purposes of this
Agreement,  include,  but not be limited to, all reasonable costs of defense and
investigation  and all  reasonable  attorneys'  fees and  expenses) to which the
Company or any such officer,  director or controlling  person may become subject
under the Securities Act or otherwise,  insofar as such losses,  claims, damages
or  liabilities  (or actions in respect  thereof) arise out of or are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in any Registration  Statement,  or any related final prospectus or amendment or
supplement  thereto,  or arise  out of or are  based  upon the  omission  or the
alleged  omission to state therein a material fact required to be stated therein
or necessary to make the  statements  therein not  misleading,  but in each case
only to the extent that such untrue  statement  or alleged  untrue  statement or
omission or alleged  omission  was made in such  Registration  Statement,  final
prospectus  or  amendment  or  supplement  thereto  in  reliance  upon,  and  in
conformity  with,  written   information   furnished  to  the  Company  by  such
Distributing Investor, its counsel, affiliates or any underwriter,  specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.

                           (c) Promptly  after receipt by an  indemnified  party
under this Section 6 of notice of the  commencement  of any action  against such
indemnified party, such indemnified party will, if a claim in respect thereof is
to be made  against  the  indemnifying  party  under this  Section 6, notify the
indemnifying party in writing of the commencement  thereof;  but the omission so
to notify the indemnifying  party will not relieve the  indemnifying  party from
any liability  which it may have to any  indemnified  party except to the extent
the  failure of the  indemnified  party to  provide  such  written  notification
actually prejudices the ability of the indemnifying party to defend such action.
In case any such  action  is  brought  against  any  indemnified  party,  and it
notifies the indemnifying  party of the commencement  thereof,  the indemnifying
party will be entitled to  participate  in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof,  subject to the  provisions  herein  stated and after  notice  from the
indemnifying  party to such  indemnified  party of its election so to assume the
defense thereof,  the indemnifying  party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such  indemnified  party in  connection  with the defense  thereof other than
reasonable  costs of  investigation,  unless the  indemnifying  party  shall not
pursue the action to its final  conclusion.  The indemnified  parties as a group
shall have the right to employ one  separate  counsel in any such  action and to
participate  in the defense  thereof,  but the fees and expenses of such counsel
shall not be at the expense of the indemnifying  party if the indemnifying party
has assumed the defense of the action with counsel  reasonably  satisfactory  to
the  indemnified  party  unless  (i) the  employment  of such  counsel  has been
specifically  authorized in writing by the indemnifying party, or (ii) the named
parties to any such action  (including any impleaded  parties)  include both the
indemnified  party and the  indemnifying  party and the indemnified  party shall
have been  advised by its counsel  that there may be one or more legal  defenses
available to the indemnifying party different from or in conflict with any legal
defenses  which  may  be  available  to  the  indemnified  party  or  any  other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such  action on behalf of such  indemnified  party,  it
being

                                       8
<PAGE>

understood,  however,  that the indemnifying party shall, in connection with any
one such action or separate but substantially  similar or related actions in the
same jurisdiction  arising out of the same general allegations or circumstances,
be liable only for the  reasonable  fees and  expenses of one  separate  firm of
attorneys for the indemnified  party,  which firm shall be designated in writing
by the  indemnified  party).  No settlement of any action against an indemnified
party shall be made without the prior written consent of the indemnified  party,
which  consent  shall not be  unreasonably  withheld so long as such  settlement
includes a full release of claims against the indemnified party.

                  Section  7.  Contribution.  In order to  provide  for just and
equitable  contribution  under the  Securities  Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially  determined  (by the entry of a final  judgment or decree by a
court of  competent  jurisdiction  and the  expiration  of time to appeal or the
denial  of the last  right  of  appeal)  that  such  indemnification  may not be
enforced in such case  notwithstanding  the fact that the express  provisions of
Section 6 hereof provide for  indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any  indemnified  party,
then the Company and the applicable  Distributing  Investor shall  contribute to
the  aggregate  losses,  claims,  damages  or  liabilities  to which they may be
subject (which shall,  for all purposes of this Agreement,  include,  but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys'  fees and  expenses),  in either such case (after  contribution  from
others) on the basis of relative fault as well as any other  relevant  equitable
considerations.  The relative  fault shall be  determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or the  omission  or  alleged  omission  to state a  material  fact  relates  to
information  supplied  by  the  Company  on  the  one  hand  or  the  applicable
Distributing  Investor  on the other hand,  and the  parties'  relative  intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
statement or omission.  The Company and the Distributing  Investor agree that it
would not be just and equitable if contribution  pursuant to this Section 7 were
determined by pro rata  allocation  or by any other method of  allocation  which
does  not take  account  of the  equitable  considerations  referred  to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses,  claims, damages or liabilities (or actions in respect thereof) referred
to above in this  Section  7 shall  be  deemed  to  include  any  legal or other
expenses  reasonably  incurred  by such  indemnified  party in  connection  with
investigating  or  defending  any such  action  or claim.  No  person  guilty of
fraudulent  misrepresentation  (within  the  meaning  of  Section  11(f)  of the
Securities  Act) shall be entitled to  contribution  from any person who was not
guilty of such fraudulent misrepresentation.

Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to  undertake  liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds  received by such
Investor  from  the  sale  of  such  Investor's  Registrable  Securities  (after
deducting any fees,  discounts and commissions  applicable  thereto) pursuant to
any  Registration   Statement  under  which  such  Registrable   Securities  are
registered  under  the  Securities  Act and  (ii)  underwriter  be  required  to
undertake  liability  to any person  hereunder  for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the  Registrable  Securities  underwritten by it and distributed
pursuant to such Registration Statement.

                                       9
<PAGE>

                  Section 8. Notices. All notices, demands, requests,  consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless  otherwise  specified  herein,  shall be (i) hand delivered,
(ii) deposited in the mail,  registered or certified,  return receipt requested,
postage  prepaid,  (iii) delivered by reputable air courier service with charges
prepaid,  or (iv)  transmitted  by  facsimile,  addressed  as set  forth  in the
Purchase  Agreement or to such other address as such party shall have  specified
most recently by written notice. Any notice or other  communication  required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or  delivery  by  facsimile,   with  accurate  confirmation   generated  by  the
transmitting  facsimile  machine,  at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received),  or the first  business day following  such delivery (if delivered
other than on a business day during normal  business  hours where such notice is
to be received) or (b) on the first  business day  following the date of sending
by reputable courier service,  fully prepaid,  addressed to such address, or (c)
upon actual  receipt of such  mailing,  if mailed.  Either party hereto may from
time to time  change its  address or  facsimile  number for  notices  under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.

                  Section 9.  Assignment.  This  Agreement  is binding  upon and
inures  to the  benefit  of the  parties  hereto  and  their  respective  heirs,
successors and permitted  assigns.  The rights granted the Investors  under this
Agreement  may  be  assigned  to  any  purchaser  of  substantially  all  of the
Registrable  Securities (or the rights  thereto) from an Investor,  as otherwise
permitted by the Purchase Agreement.

                  Section 10. Additional  Covenants of the Company.  The Company
agrees that at such time as it otherwise meets the  requirements  for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable  Securities,  it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action within its reasonable  control so as to maintain such eligibility for the
use of such form.

                  Section  11.  Counterparts/Facsimile.  This  Agreement  may be
executed  in two or  more  counterparts,  each  of  which  shall  constitute  an
original,  but all of which, when together shall constitute but one and the same
instrument,  and shall become effective when one or more  counterparts have been
signed by each party hereto and delivered to the other  parties.  In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.

                  Section 12. Remedies.  The remedies provided in this Agreement
are cumulative  and not exclusive of any remedies  provided by law. If any term,
provision,  covenant  or  restriction  of this  Agreement  is held by a court of
competent  jurisdiction  to be  invalid,  illegal,  void or  unenforceable,  the
remainder of the terms, provisions,  covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated,  and the parties hereto shall use their best efforts to find and
employ an alternative

                                       10
<PAGE>

means to achieve the same or substantially  the same result as that contemplated
by such term, provision, covenant or restriction.

                  Section 13.  Conflicting  Agreements.  The  Company  shall not
enter into any agreement  with respect to its  securities  that is  inconsistent
with the  rights  granted  to the  holders  of  Registrable  Securities  in this
Agreement or  otherwise  prevents  the Company  from  complying  with all of its
obligations hereunder.

                  Section 14.  Headings.  The headings in this Agreement are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

                  Section 15. Governing Law,  Arbitration.  This Agreement shall
be governed by and  construed  in  accordance  with the laws of the State of New
York  applicable to contracts made in New York by persons  domiciled in New York
City and without  regard to its  principles  of conflicts  of laws.  Any dispute
under this  Agreement  shall be  submitted  to  arbitration  under the  American
Arbitration  Association  (the "AAA") in New York City,  New York,  and shall be
finally and  conclusively  determined by the decision of a board of  arbitration
consisting  of three  (3)  members  (hereinafter  referred  to as the  "Board of
Arbitration") selected as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive  business days in New York City, New York,
and shall reach and render a decision in writing  (concurred in by a majority of
the members of the Board of  Arbitration)  with  respect to the amount,  if any,
which the losing  party is  required  to pay to the other  party in respect of a
claim  filed.  In  connection  with  rendering  its  decisions,   the  Board  of
Arbitration  shall  adopt and follow  the laws of the State of New York.  To the
extent  practical,  decisions of the Board of  Arbitration  shall be rendered no
more than thirty (30) calendar days following  commencement of proceedings  with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of  Arbitration  (either  prior to or after the  expiration  of such thirty (30)
calendar day period)  shall be final,  binding and  conclusive on the parties to
the dispute,  and entitled to be enforced to the fullest extent permitted by law
and entered in any court of  competent  jurisdiction.  The Board of  Arbitration
shall be authorized and

                                       11
<PAGE>

is hereby  directed to enter a default  judgment  against  any party  failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules.  The  non-prevailing  party to any  arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party,  including
reasonable attorneys' fees, in connection with such arbitration. Any party shall
be  entitled  to obtain  injunctive  relief  from a court in any case where such
relief is available.

<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Registration  Rights  Agreement to be duly  executed,  on the day and year first
above written.

                                  FOCUS Enhancements, Inc.

                                  By:___________________________________________

                                  BNC Bach International, Ltd., Inc.

                                  By:___________________________________________
                                      H.U. Bachofen, Director

                                       12Exhibit 4.5

                  COMMON STOCK AND WARRANTS PURCHASE AGREEMENT

                                     Between

                            FOCUS Enhancements, Inc.

                                       and

                         the Investors Signatory Hereto

         COMMON STOCK AND WARRANTS  PURCHASE  AGREEMENT dated as of November 24,
1999  (the  "Agreement"),  between  the  Investors  signatory  hereto  (each  an
"Investor"  and  together  the  "Investors"),  and FOCUS  Enhancements,  Inc., a
corporation  organized and existing under the laws of the State of Delaware (the
"Company").

         WHEREAS,  the parties  desire  that,  upon the terms and subject to the
conditions  contained herein, the Company shall issue and sell to the Investors,
and the Investors  shall  purchase in the  aggregate,  (i)  1,250,000  shares of
Common Stock (as defined below) and (ii) Warrants (as defined below) to purchase
up to  125,000  shares of the  Common  Stock (as  defined  below) at 110% of the
Closing Date Market Price for such Common Stock.

         WHEREAS,  such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or  Regulation  D  ("Regulation  D") and the  other  rules  and  regulations
promulgated  thereunder (the "Securities Act"), and/or upon such other exemption
from the  registration  requirements  of the  Securities Act as may be available
with  respect  to  any  or  all of the  investments  in  securities  to be  made
hereunder.

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I

                               Certain Definitions

Section 1.1.  "Capital Shares" shall mean the Common Stock and any shares of any
other class of common  stock  whether now or  hereafter  authorized,  having the
right to participate in the  distribution of earnings and assets of the Company.

Section 1.2. "Capital Shares Equivalents" shall mean any securities,  rights, or
obligations  that are convertible  into or exchangeable for or give any right to
subscribe  for any  Capital  Shares of the Company or any  Warrants,  options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable  securities.

<PAGE>

 .

Section  1.3.  "Closing"  shall mean the closing of the purchase and sale of the
Common Stock and Warrants  pursuant to Section 2.1.

Section 1.4.  "Closing  Date" shall mean the date on which all conditions to the
Closing  have been  satisfied  (as  defined in Section  2.1 (b)  hereto) and the
Closing  shall  have  occurred.

Section 1.5.  "Common  Stock" shall mean the Company's  common stock,  $0.01 par
value per share.

Section 1.6. "Damages" shall mean any loss, claim,  damage,  judgment,  penalty,
deficiency,  liability,  costs  and  expenses  (including,  without  limitation,
reasonable  attorney's fees and  disbursements and reasonable costs and expenses
of expert witnesses and investigation).

Section  1.7.  "Effective  Date"  shall  mean the date on  which  the SEC  first
declares  effective  a  Registration  Statement  registering  the  resale of the
Registrable  Securities  as set  forth  in the  Registration  Rights  Agreement.

Section 1.8.  "Exchange Act" shall mean the Securities  Exchange Act of 1934, as
amended,  and the rules and  regulations  promulgated  thereunder.

Section 1.9.  "Legend"  shall mean the legend set forth in Section 9.1.

Section  1.10.  "Market  Price" on any given date shall mean the  average of the
closing bid prices on the  Principal  Market (as reported by Bloomberg  L.P.) of
the Common Stock  during the five  Trading Day period  ending on the Trading Day
immediately prior to the Closing Date.

Section 1.11.  "Material  Adverse Effect" shall mean any effect on the business,
operations,  properties,  stock price or financial condition of the Company that
is material  and adverse to the Company  and its  subsidiaries  and  affiliates,
taken as a whole,  and/or any condition,  circumstance,  or situation that would
prohibit or  otherwise  interfere  with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration Rights
Agreement, or the Warrants in any material respect.

Section 1.12.  "Outstanding"  when used with reference to shares of Common Stock
or Capital Shares  (collectively  the  "Shares"),  shall mean, at any date as of
which the number of such Shares is to be determined,  all issued and outstanding
Shares,  and shall  include all such Shares  issuable in respect of  outstanding
scrip or any  certificates  representing  fractional  interests  in such Shares;
provided,  however,  that  "Outstanding"  shall  not mean any such  Shares  then
directly  or  indirectly  owned or held by or for the  account  of the  Company.

Section 1.13. "Person" shall mean an individual,  a corporation,  a partnership,
an association, a trust or other entity or organization,  including a government
or political subdivision or an agency or instrumentality  thereof.

Section 1.14. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange,  the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever

<PAGE>

is at the time the  principal  trading  exchange or market for the Common Stock,
based upon share volume.

Section  1.15.  "Purchase  Price"  shall mean  $1.60 per share of Common  Stock.

Section  1.16.  "Registrable  Securities"  shall mean the Shares and the Warrant
Shares until (i) the Registration  Statement has been declared  effective by the
SEC,  and all Shares and Warrant  Shares  have been  disposed of pursuant to the
Registration Statement,  (ii) all Shares and Warrant Shares have been sold under
circumstances  under which all of the applicable  conditions of Rule 144 (or any
similar  provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Shares and Warrant Shares have been  otherwise  transferred to holders
who may trade such shares without  restriction under the Securities Act, and the
Company has delivered a new  certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Shares and Warrant Shares may be sold without any
time,  volume or manner  limitations  pursuant  to Rule  144(k) (or any  similar
provision then in effect) under the Securities Act.

Section 1.17. "Registration Rights Agreement" shall mean the agreement regarding
the  filing of the  Registration  Statement  for the  resale of the  Registrable
Securities, entered into between the Company and the Investors as of the Closing
Date in the form  annexed  hereto as  Exhibit  B.

Section 1.18.  "Registration  Statement" shall mean a registration  statement on
Form S-3 (if use of such form is then  available to the Company  pursuant to the
rules of the SEC and,  if not,  on such  other form  promulgated  by the SEC for
which the Company then  qualifies  and which  counsel for the Company shall deem
appropriate,  and which form shall be available  for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions  of  this  Agreement,   the  Registration  Rights  Agreement  and  in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable  Securities  under
the  Securities  Act.

Section 1.19. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.

Section 1.20. "SEC" shall mean the Securities and Exchange Commission.

Section  1.21.  "Section  4(2)" and  "Section  4(6)" shall have the meanings set
forth in the recitals of this Agreement.

Section 1.22.  "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.

Section 1.23.  "SEC  Documents"  shall mean the Company's  Annual Report on Form
10-K for the  fiscal  year  ended  December  31,  1998 and  each  report,  proxy
statement or  registration  statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.

Section 1.24.  "Shares" shall mean the shares of Common Stock purchased pursuant
to this Agreement.

<PAGE>

Section 1.25. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.

Section 1.26.  "Warrants"  shall mean the Warrants  substantially in the form of
Exhibit A to be issued to the Investors hereunder.

Section  1.27.  "Warrant  Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.

                                   ARTICLE II

                 Purchase and Sale of Common Stock and Warrants

Section 2.1. Investment.

         (a) Upon the terms and subject to the conditions set forth herein,  the
Company agrees to sell, and the Investors  agree to purchase the Shares together
with the Warrants at the Purchase Price on the Closing Date as follows:

                  (i)      Closing.   Upon   execution   and  delivery  of  this
                           Agreement, each Investor shall deliver to the Company
                           immediately  available  funds in their  proportionate
                           amount  of the  Purchase  Price  as set  forth on the
                           signature pages hereto, and the Company shall deliver
                           the Common Stock certificates representing the Shares
                           so purchased and all of the Warrants to each Investor
                           in their proportionate amount.

                  (ii)     Closing Location. Upon satisfaction of the conditions
                           set forth in Section 2.1(b), the closing  ("Closing")
                           shall occur at the offices of the Company.

         (b)  The  Closing  is  subject  to the  satisfaction  of the  following
conditions:

                  (i)      acceptance  and  execution  by the Company and by the
                           Investors, of this Agreement and all Exhibits hereto;

                  (ii)     delivery to Company by each  Investor of  immediately
                           available  funds in the amount of the Purchase  Price
                           of the Common Stock and the Warrants;

                  (iii)    all  representations  and warranties of the Investors
                           contained  herein shall remain true and correct as of
                           the  Closing  Date (as a condition  to the  Company's
                           obligations);

                  (iv)     all  representations  and  warranties  of the Company
                           contained  herein shall remain true and correct as of
                           the Closing  Date (as a condition  to the  Investors'
                           obligations);

<PAGE>

                  (v)      the  Company  shall have  obtained  all  permits  and
                           qualifications  required  by any  state for the offer
                           and sale of the Common Stock and  Warrants,  or shall
                           have the availability of exemptions therefrom;

                  (vi)     the sale and  issuance  of the  Common  Stock and the
                           Warrants hereunder,  and the proposed issuance by the
                           Company  to  the   Investors   of  the  Common  Stock
                           underlying  the Warrants  upon the  exercise  thereof
                           shall   be   legally   permitted   by  all  laws  and
                           regulations  to which the  Investors  and the Company
                           are subject and there shall be no ruling, judgment or
                           writ  of  any  court   prohibiting  the  transactions
                           contemplated by this Agreement;

                  (vii)    delivery of the original fully executed  Common Stock
                           certificates   and  Warrants   certificates  to  each
                           Investor;

                  (viii)   delivery  to  the   Investors   of  the   Irrevocable
                           Instructions  to Transfer  Agent in the form attached
                           hereto as Exhibit C; and

                  (ix)     delivery to the Investors of the Registration  Rights
                           Agreement.

Section 2.2. Liquidated  Damages.  The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration  Rights Agreement shall constitute
liquidated damages and not penalties.  The parties further  acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to  precisely  estimate,  (b) the  amounts  specified  in such  Sections  bear a
reasonable  proportion  and are not plainly or grossly  disproportionate  to the
probable  loss likely to be incurred by the  Investors  in  connection  with the
failure  by the  Company to timely  cause the  registration  of the  Registrable
Securities and (c) the parties are sophisticated  business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.

                                  ARTICLE III

                   Representations and Warranties of Investor

Each Investor, severally and not jointly, represents and warrants to the Company
that:

Section 3.1.  Intent.  The Investor is entering into this  Agreement for its own
account and not with a view to or for sale in connection  with any  distribution
of the Common  Stock.  The Investor has no present  arrangement  (whether or not
legally binding) at any time to sell the Shares, the Warrants, or Warrant Shares
to or  through  any  person or  entity;  provided,  however,  that by making the
representations  herein, the Investor does not agree to hold such securities for
any  minimum or other  specific  term and  reserves  the right to dispose of the
Shares and  Warrant  Shares at any time in  accordance  with  federal  and state
securities  laws  applicable  to such  disposition.

Section 3.2.  Sophisticated  Investor.  The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited  investor
(as defined in Rule 501 of  Regulation  D), and Investor has such  experience in
business  and  financial  matters  that it has the

<PAGE>

capacity to protect its own interests in connection with this transaction and is
capable of evaluating  the merits and risks of an investment in the Common Stock
and the  Warrants.  The Investor  acknowledges  that an investment in the Common
Stock is speculative and involves a high degree of risk.

Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly  executed  and  delivered  by the  Investor  and is a valid and  binding
agreement of the Investor  enforceable  against it in accordance with its terms,
subject to applicable  bankruptcy,  insolvency,  or similar laws relating to, or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other  equitable  principles  of  general  application.

Section  3.4.  Not an  Affiliate.  The  Investor is not an officer,  director or
"affiliate"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

Section 3.5. Absence of Conflicts.  The execution and delivery of this Agreement
and each  agreement  which is attached as an Exhibit  hereto and executed by the
Investor  in  connection  herewith,  and the  consummation  of the  transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the  Investor,  will not violate any law,  rule,  regulation,  order,
writ, judgment,  injunction,  decree or award binding on Investor or (a) violate
any provision of any  indenture,  instrument or agreement to which Investor is a
party or is subject,  or by which  Investor  or any of its assets is bound;  (b)
conflict with or  constitute a material  default  thereunder;  (c) result in the
creation or imposition of any lien pursuant to the terms of any such  indenture,
instrument  or agreement,  or constitute a breach of any fiduciary  duty owed by
Investor to any third  party;  or (d) require  the  approval of any  third-party
(which has not been  obtained)  pursuant to any  material  contract,  agreement,
instrument,  relationship or legal obligation to which Investor is subject or to
which any of its assets,  operations  or  management  may be  subject.  Investor
further agrees that to the extent that this  Agreement and each agreement  which
is attached as an Exhibit  hereto and  executed  by the  Investor in  connection
herewith  conflicts with or requires the consent of the Investor due to previous
agreements with the Company,  consummation  hereof shall be deemed to waive such
conflicts and be an express consent to execution of this Agreement.

Section 3.6.  Disclosure;  Access to Information.  The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's  investment in the Company that have been  requested by the Investor.
The Company is subject to the periodic  reporting  requirements  of the Exchange
Act, and the Investor has reviewed  copies of all SEC Documents  deemed relevant
by Investor.

Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting,  television advertisement
or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  Representations and Warranties of the Company

<PAGE>

The Company  represents and Warrants to the Investors that,  except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:

Section 4.1.  Organization  of the Company.  The Company is a  corporation  duly
incorporated  and  existing  in good  standing  under  the laws of the  State of
Delaware and has all requisite  corporate authority to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  and does not own more that fifty  percent  (50%) of or control any
other business  entity except as set forth in the SEC Documents.  The Company is
duly  qualified and is in good standing as a foreign  corporation to do business
in every  jurisdiction in which the nature of the business conducted or property
owned by it makes such  qualification  necessary,  other than those in which the
failure so to qualify  would not have a Material  Adverse  Effect.

Section 4.2.  Authority.  (i) The Company has the requisite  corporate power and
corporate  authority  to enter  into and  perform  its  obligations  under  this
Agreement,  the Registration Rights Agreement, and the Warrants and to issue the
Shares,  the Warrants and the Warrant Shares pursuant to their respective terms,
(ii) the execution,  issuance and delivery of this Agreement,  the  Registration
Rights Agreement,  the Common Stock certificates and the Warrants by the Company
and the  consummation by it of the  transactions  contemplated  hereby have been
duly  authorized by all  necessary  corporate  action and no further  consent or
authorization  of the  Company  or its Board of  Directors  or  stockholders  is
required,  and (iii) this Agreement,  the  Registration  Rights  Agreement,  the
Common Stock  certificates  representing the Shares,  and the Warrants have been
duly executed and delivered by the Company and at each Closing shall  constitute
valid and binding  obligations of the Company enforceable against the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
applicable  bankruptcy,  insolvency,  or similar laws  relating to, or affecting
generally  the  enforcement  of,  creditors'  rights  and  remedies  or by other
equitable  principles of general  application.  The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the exercise of the  Warrants.

Section 4.3. Capitalization.The authorized capital stock of the Company consists
of  30,000,000  shares of Common  Stock,  $0.01  par value per  share,  of which
21,012,701  shares  are issued  and  outstanding  as of  November  23,  1999 and
3,000,000 shares of preferred  stock,  par value $0.01 per share,  none of which
shares are issued  and  outstanding.  Except  for (i)  outstanding  options  and
warrants  as set  forth  in the SEC  Documents,  and  (ii) as set  forth  in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or  understandings  pursuant to which any Capital Shares  Equivalents
may  become  outstanding.  Except  as set forth in the SEC  Documents  or in the
Disclosure  Schedule,  the  Company  is not a party  to any  agreement  granting
registration  or  anti-dilution  rights to any person with respect to any of its
equity or debt securities.  All of the outstanding shares of Common Stock of the
Company have been duly and validly  authorized and issued and are fully paid and
non-assessable.

Section 4.4. Common Stock.  The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full  compliance  with all
reporting  requirements  of the Exchange  Act, and the Company is in  compliance
with all  requirements  for the  continued  listing or  quotation  of its Common
Stock,  and such Common  Stock is currently

<PAGE>

listed or quoted on, the Principal Market. As of the date hereof,  the Principal
Market is the Nasdaq SmallCap Market and the Company has not received any notice
regarding,  and to its  knowledge  there is no  threat,  of the  termination  or
discontinuance of the eligibility of the Common Stock for such listing.

Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete  copies of the SEC  Documents.  The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and  regulations of the SEC  promulgated  thereunder and the SEC Documents
did not  contain  any 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,
not  misleading.  The financial  statements  of the Company  included in the SEC
Documents   complied  in  all  material  respects  with  applicable   accounting
requirements  and the  published  rules  and  regulations  of the  SEC or  other
applicable  rules  and  regulations  with  respect  thereto  at the time of such
inclusion.  Such  financial  statements  have been prepared in  accordance  with
generally  accepted  accounting  principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements  or the  notes  thereto  or (ii) in the  case  of  unaudited  interim
statements,  to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material  respects the financial  position
of the Company as of the dates  thereof and the results of  operations  and cash
flows for the periods  then ended  (subject,  in the case of  unaudited  interim
statements,  to normal year-end audit adjustments).  Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become  due) that would  have been  required  to be  reflected  in,  reserved
against or  otherwise  described  in the  financial  statements  or in the notes
thereto in accordance  with GAAP,  which was not fully  reflected  in,  reserved
against or otherwise described in the financial  statements or the notes thereto
included in the SEC  Documents  or was not  incurred in the  ordinary  course of
business  consistent  with the Company's past  practices  since the last date of
such  financial  statements.

<PAGE>

Section  4.6.  Exemption  from  Registration;  Valid  Issuances.  Subject to the
accuracy  of the  Investors'  representations  in Article  III,  the sale of the
Shares, the Warrants and the Warrant Shares will not require  registration under
the Securities Act and/or any applicable  state  securities law. When issued and
paid for in accordance  with the Warrants,  the Warrant  Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the Shares,
the Warrants or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement,  the Registration Rights Agreement or the
Warrants  will (i) result in the  creation or  imposition  by the Company of any
liens,  charges,  claims or other  encumbrances upon the Shares, the Warrants or
the Warrant Shares or, except as contemplated  herein,  any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other  rights  to  subscribe  for or  acquire  the  Capital  Shares  or other
securities of the Company. The Shares, the Warrants and the Warrant Shares shall
not subject the Investors to personal  liability to the Company or its creditors
by reason of the possession  thereof.

Section  4.7.  No  General   Solicitation  or  Advertising  in  Regard  to  this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company,  any person  acting on its or their behalf (i) has  conducted or
will  conduct any general  solicitation  (as that term is used in Rule 502(c) of
Regulation D) or general  advertising  with respect to the sale of the Shares or
the Warrants,  or (ii) made any offers or sales of any security or solicited any
offers  to  buy  any  security  under  any  circumstances   that  would  require
registration  of the  Shares,  the  Warrants  or the  Warrant  Shares  under the
Securities  Act.

Section 4.8. No  Conflicts.  The  execution,  delivery and  performance  of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated  hereby,  including without  limitation the issuance of the Shares,
the  Warrants  and the  Warrant  Shares,  do not and  will not (i)  result  in a
violation  of the  Company's  Certificate  of  Incorporation  or By-Laws or (ii)
conflict with, or constitute a material 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 of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting  or similar  agreement  to which the  Company is a party,  or (iii)
result in a violation  of any  federal,  state or local law,  rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations)  applicable  to the  Company or by which any  material  property or
asset of the  Company is bound or  affected,  nor is the  Company  otherwise  in
violation of,  conflict  with or default  under any of the foregoing  (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations  and  violations  as  would  not  have,  individually  or  in  the
aggregate,  a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law,  ordinance or regulation of any  governmental
entity,  except for possible  violations  that either singly or in the aggregate
would not have a Material Adverse Effect.  The Company is not required under any
Federal,  state  or  local  law,  rule or  regulation  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Warrants in
accordance with the terms hereof (other than any SEC,  Principal Market or state
securities  filings that may be required to be made by the Company subsequent to
Closing,  any registration  statement that may be filed pursuant hereto, and any
shareholder  approval required by the rules applicable to companies whose common
stock  trades on the  Principal  Market);  provided  that,  for  purposes of the
representation  made in

<PAGE>

this  sentence,  the Company is assuming  and relying  upon the  accuracy of the
relevant representations and agreements of the Investors herein.

Section 4.9. No Material  Adverse Change.  Since September 30, 1999, no Material
Adverse  Effect has occurred or exists with  respect to the  Company,  except as
disclosed  in  the  SEC  Documents.

Section 4.10. No Undisclosed Events or Circumstances.  Since September 30, 1999,
no event or  circumstance  has occurred or exists with respect to the Company or
its businesses,  properties, prospects, operations or financial condition, that,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  prior to the date  hereof by the Company but which has not been so
publicly  announced  or  disclosed  in  the  SEC  Documents.

Section  4.11.  No  Integrated  Offering.  Other than  pursuant to an  effective
registration  statement under the Securities Act, or pursuant to the issuance or
exercise of employee  stock  options,  or  pursuant to its  discussion  with the
Investors in connection with the transactions  contemplated  hereby, the Company
has not issued,  offered or sold its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock within the six-month period
next  preceding  the date  hereof,  and the Company  shall not permit any of its
directors,  officers or affiliates  directly or  indirectly to take,  any action
(including, without limitation, any offering or sale to any Person of the Shares
or Warrants),  so as to make  unavailable  the  exemption  from  Securities  Act
registration  being  relied  upon by the  Company  for  the  offer  and  sale to
Investors of the Shares or the Warrants (and the Warrant Shares) as contemplated
by this Agreement.

Section 4.12.  Litigation and Other Proceedings.  Except as disclosed in the SEC
Documents,  there are no lawsuits or proceedings pending or, to the knowledge of
the  Company,  threatened,  against the Company or any  subsidiary,  nor has the
Company received any written or oral notice of any such action, suit, proceeding
or  investigation,  which in either case could  reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents,  no judgment,
order,  writ,  injunction  or  decree  or award  has been  issued  by or, to the
knowledge of the Company,  requested of any court,  arbitrator  or  governmental
agency  which  could  result in a Material  Adverse  Effect.

Section 4.13. No  Misleading  or Untrue  Communication.  The Company and, to the
knowledge  of the  Company,  any person  representing  the  Company or any other
person selling or offering to sell the Shares or the Warrants in connection with
the transaction contemplated by this Agreement,  have not made, at any time, any
oral  communication  in  connection  with the  offer  or sale of the same  which
contained  any  untrue  statement  of a  material  fact or  omitted to state any
material  fact  necessary in order to make the  statements,  in the light of the
circumstances under which they were made, not misleading.

Section 4.14. Material Non-Public Information.  The Company has not disclosed to
the  Investors  any  material  non-public  information  that  (i)  if  disclosed
publicly, would reasonably be expected to have a material effect on the price of
the Common Stock or (ii) according to applicable law, rule or regulation, should
have been  disclosed  publicly by the Company prior to the date hereof but which
has not  been so  disclosed.

<PAGE>

Section 4.15. Insurance.  The Company and each subsidiary maintains property and
casualty,  general  liability,  workers'  compensation,   environmental  hazard,
personal injury and other similar types of insurance with financially  sound and
reputable insurers that is adequate,  consistent with industry standards and the
Company's  historical  claims  experience.  The Company has not received  notice
from,  and has no knowledge  of any threat by, any insurer  (that has issued any
insurance  policy to the  Company)  that such insurer  intends to deny  coverage
under or cancel,  discontinue  or not renew any  insurance  policy  presently in
force.

Section 4.16. Tax Matters.

         (a) The Company and each  subsidiary has filed all Tax Returns which it
is required  to file under  applicable  laws;  all such Tax Returns are true and
accurate and has been  prepared in  compliance  with all  applicable  laws;  the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have  withheld and paid
over to the  appropriate  taxing  authorities  all Taxes which it is required to
withhold  from amounts paid or owing to any employee,  stockholder,  creditor or
other third  parties;  and since  December 31, 1998,  the charges,  accruals and
reserves for Taxes with respect to the Company  (including  any  provisions  for
deferred  income  taxes)  reflected  on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.

         (b) No claim  has been  made by a taxing  authority  in a  jurisdiction
where the Company does not file tax returns  that the Company or any  subsidiary
is or may be subject to  taxation  by that  jurisdiction.  There are no foreign,
federal,  state or local tax audits or  administrative  or judicial  proceedings
pending or being  conducted  with respect to the Company or any  subsidiary;  no
information  related to Tax matters has been requested by any foreign,  federal,
state or local taxing  authority;  and,  except as disclosed  above,  no written
notice  indicating  an intent to open an audit or other review has been received
by the  Company or any  subsidiary  from any  foreign,  federal,  state or local
taxing  authority.   There  are  no  material  unresolved  questions  or  claims
concerning  the  Company's  Tax  liability.  The Company (A) has not executed or
entered into a closing  agreement  pursuant to ss. 7121 of the Internal  Revenue
Code or any  predecessor  provision  thereof or any similar  provision of state,
local or  foreign  law;  or (B) has not  agreed  to or is  required  to make any
adjustments  pursuant to ss. 481(a) of the Internal  Revenue Code or any similar
provision  of state,  local or foreign  law by reason of a change in  accounting
method  initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting  permission for
any changes in  accounting  methods that relate to the business or operations of
the  Company.  The Company has not been a United  States real  property  holding
corporation  within the meaning of ss.  897(c)(2) of the  Internal  Revenue Code
during the applicable period specified in ss.  897(c)(1)(A)(ii)  of the Internal
Revenue Code.

         (c) The  Company  has not made an  election  under  ss.  341(f)  of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas.  Reg. ss.  1.1502-6 (or
comparable  provisions of state,  local or foreign law),  (B) as a transferee or
successor,  (C) by contract or indemnity or (D) otherwise.  The Company is not a
party to any tax sharing  agreement.  The Company has not made any

<PAGE>

payments, is obligated to make payments or is a party to an agreement that could
obligate it to make any payments that would not be deductible  under ss. 280G of
the Internal Revenue Code.

         (d) For purposes of this Section 4.16:

                  "IRS" means the United States Internal Revenue Service.

                  "Tax" or "Taxes" means federal, state, county, local, foreign,
                  or  other  income,  gross  receipts,  ad  valorem,  franchise,
                  profits,  sales  or  use,  transfer,   registration,   excise,
                  utility,  environmental,   communications,  real  or  personal
                  property,  capital  stock,  license,  payroll,  wage or  other
                  withholding,  employment,  social security,  severance, stamp,
                  occupation, alternative or add-on minimum, estimated and other
                  taxes of any kind whatsoever  (including,  without limitation,
                  deficiencies,   penalties,  additions  to  tax,  and  interest
                  attributable thereto) whether disputed or not.

                  "Tax Return"  means any return,  information  report or filing
                  with  respect  to  Taxes,  including  any  schedules  attached
                  thereto and including any amendment thereof.

Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property.  Each of the Company and its subsidiaries has good and marketable
title to all  personal  property  owned  by it,  free  and  clear of all  liens,
encumbrances  and defects except such 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 to the Company's knowledge any real
property, mineral or water rights, and buildings held under lease by the Company
as tenant are held by it under valid,  subsisting  and  enforceable  leases with
such  exceptions as are not material and do not interfere  with the use made and
intended to be made of such property,  mineral or water rights, and buildings by
the Company.

Section 4.18.  Intellectual  Property.  Each of the Company and its subsidiaries
owns or possesses  adequate and  enforceable  rights to use all patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge  (collectively,  "Intangibles")  necessary  for  the  conduct  of  its
business as now being conducted. To the Company's knowledge, except as disclosed
in the  SEC  Documents  neither  the  Company  nor  any of its  subsidiaries  is
infringing  upon or in conflict  with any right of any other person with respect
to any Intangibles.  Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any  Intangibles and
the Company has no knowledge of any basis for such claim.

Section 4.19. Internal Controls and Procedures.  The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all  transactions  to which the Company or any  subsidiary  is a party or by
which its  properties  are bound are executed with  management's  authorization;
(ii) the recorded  accounting of the Company's  consolidated  assets is compared
with  existing  assets at  regular  intervals;  (iii)  access  to the  Company's
consolidated   assets  is  permitted  only  in  accordance   with   management's
authorization;  and (iv) all transactions to which the Company or any subsidiary
is a party or by which its  properties  are bound

<PAGE>

are recorded as necessary to permit  preparation of the financial  statements of
the Company in accordance with U.S. generally accepted accounting principles.

Section 4.20. Payments and Contributions.  Neither the Company,  any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used  any  Company  funds  for any  unlawful  contribution,  endorsement,  gift,
entertainment  or other unlawful expense  relating to political  activity;  (ii)
made any direct or indirect  unlawful payment of Company funds to any foreign or
domestic government  official or employee;  (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended;  or (iv)
made any bribe,  rebate,  payoff,  influence payment,  kickback or other similar
payment  to any  person  with  respect  to Company  matters.

Section 4.21. No  Misrepresentation.  The  representations and warranties of the
Company contained in this Agreement,  any schedule,  annex or exhibit hereto and
any  agreement,  instrument  or  certificate  furnished  by the  Company  to the
Investors  pursuant to this Agreement,  do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

                                   ARTICLE V

                           Covenants of the Investors

         Each  Investor,  severally and not jointly,  covenants with the Company
that:

Section 5.1. Compliance with Law. The Investor's trading activities with respect
to  shares  of the  Company's  Common  Stock  will  be in  compliance  with  all
applicable  state and federal  securities  laws, rules and regulations and rules
and regulations of the Principal  Market on which the Company's  Common Stock is
listed.

                                   ARTICLE VI

                            Covenants of the Company

Section  6.1.  Registration  Rights.  The Company  shall cause the  Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material  respects with the terms  thereof.

Section 6.2. 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,  shares of Common  Stock for the purpose of
enabling  the Company to issue the Shares at the second  Closing and the Warrant
Shares  pursuant  to any  exercise  of the  Warrants.  The  number  of shares so
reserved from time to time, as  theretofore  increased or reduced as hereinafter
provided,  may be reduced by the number of shares actually delivered pursuant to
any  exercise  of the  Warrants  and the number of shares so  reserved  shall be
increased or decreased to

<PAGE>

reflect  potential  increases  or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.

Section  6.3.  Listing of Common  Stock.  The Company  hereby  agrees to use all
commercially  reasonable  efforts to  maintain  the  listing  and trading of the
Common  Stock  on a  Principal  Market,  and as soon as  reasonably  practicable
following the Closing to list the Shares and the Warrant Shares on the Principal
Market.  The Company further  agrees,  if the Company applies to have the Common
Stock traded on any other Principal  Market, it will include in such application
the  Shares  and the  Warrant  Shares,  and will  take such  other  action as is
necessary or  desirable in the opinion of the  Investors to cause the Shares and
Warrant  Shares to be listed  on such  other  Principal  Market as  promptly  as
possible.  The Company will comply in all respects with the Company's reporting,
filing and other  obligations  under the bylaws or rules of the Principal Market
and shall provide  Investors with copies of any  correspondence  to or from such
Principal  Market which  questions or threatens  delisting of the Common  Stock,
within  three (3)  Trading  Days of the  Company's  receipt  thereof,  until the
Investors  have disposed of all of their  Registrable  Securities.

Section 6.4. Exchange Act Registration.  The Company will cause its Common Stock
to continue to be  registered  under  Section  12(b) or (g) of the Exchange Act,
will use all commercially  reasonable efforts to comply in all respects with its
reporting and filing  obligations  under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules  thereunder) to terminate or suspend such  registration or to terminate or
suspend its reporting and filing  obligations under said Act until the Investors
have disposed of all of their Registrable Securities.

Section 6.5.  Legends.  The certificates  evidencing the Registrable  Securities
shall be free of  legends,  except  as set forth in  Article  IX.

Section 6.6. Corporate Existence;  Conflicting Agreements. The Company will take
all steps  necessary to preserve and  continue  the  corporate  existence of the
Company.  The  Company  shall not enter into any  agreement,  the terms of which
agreement  would  restrict  or impair  the right or  ability  of the  Company to
perform  any  of its  obligations  under  this  Agreement  or  any of the  other
agreements attached as exhibits hereto.

Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof,  effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially  all of the assets of the Company to, another
entity (a  "Consolidation  Event")  unless the resulting  successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the  obligation  to  deliver  to the  Investors  such  shares  of  stock  and/or
securities as the Investors are entitled to receive  pursuant to this Agreement.

Section 6.8. Issuance of Common Stock and Warrant Shares. The sale of the Shares
and the Warrants and the issuance of the Warrant Shares  pursuant to exercise of
the Warrants shall be made in accordance with the provisions and requirements of
Section 4(2), 4(6) or Regulation D and any applicable  state securities law. The
Company shall make any necessary SEC and "blue sky" filings  required to be made
by the Company in connection with the sale of the Securities to

<PAGE>

the  Investors  as required by all  applicable  laws,  and shall  provide a copy
thereof to the Investors promptly after such filing.

Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to its then-current
bid price until 90 days after the effective date of the  Registration  Statement
except for any sales (i) pursuant to any  presently  existing  employee  benefit
plan which plan has been approved by the Company's  stockholders,  (ii) pursuant
to any compensatory or stock option plan for directors,  full-time  employees or
key consultants, (iii) pursuant to the exercise of any other warrants or options
which  are  issued  and  outstanding  on the  date  hereof  (and  which  are not
exercisable  for more than 300,000  shares of Common Stock in the  aggregate) or
(iv) with the prior approval of a majority in interest of the  Investors,  which
will not be unreasonably withheld, in connection with a strategic partnership or
other  business  transaction,  the  principal  purpose of which is not simply to
raise money.

                                  ARTICLE VII

                            Survival; Indemnification

Section 7.1.  Survival.  The  representations,  warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes,  schedules
and exhibits hereto and in each  instrument,  agreement and certificate  entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions  contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation  available to it under
the provisions of this Agreement,  irrespective of any investigation  made by or
on behalf of such party on or prior to the Closing Date.

Section 7.2.  Indemnity.  (a) The Company  hereby  agrees to indemnify  and hold
harmless  the  Investors,  their  respective  Affiliates  and  their  respective
officers,   directors,   partners  and  members  (collectively,   the  "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor  Indemnitees for all reasonable  out-of-pocket  expenses (including the
reasonable  fees and  expenses  of legal  counsel),  in each  case  promptly  as
incurred  by the  Investor  Indemnitees  and to the extent  arising out of or in
connection with:

(i)      any  misrepresentation,  omission  of  fact  or  breach  of  any of the
         Company's  representations  or warranties  contained in this Agreement,
         the annexes, schedules or exhibits hereto or any instrument,  agreement
         or  certificate  entered into or  delivered by the Company  pursuant to
         this Agreement; or

(ii)     any  failure by the Company to perform in any  material  respect any of
         its covenants,  agreements,  undertakings  or obligations  set forth in
         this  Agreement,  the  annexes,  schedules  or  exhibits  hereto or any
         instrument,  agreement or certificate  entered into or delivered by the
         Company pursuant to this Agreement; or

(iii)    any action  instituted  against the  Investors,  or any of them, by any
         stockholder of the Company who is not an Affiliate of an Investor, with
         respect to any of the transactions contemplated by this Agreement.

(b) Each  Investor,  severally  and not jointly,  hereby agrees to indemnify and
hold  harmless  the  Company,  its  Affiliates  and their  respective  officers,
directors, partners and members (collectively, the "Company Indemnitees"),  from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for all reasonable  out-of-pocket  expenses  (including the reasonable  fees and
expenses  of legal  counsel),  in each case  promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:

                  (i) any misrepresentation,  omission of fact, or breach of any
         of the  Investor's  representations  or  warranties  contained  in this
         Agreement, the annexes, schedules or exhibits hereto or any instrument,
         agreement  or  certificate  entered  into or  delivered by the Investor
         pursuant to this Agreement; or

                  (ii) any failure by the  Investor  to perform in any  material
         respect any of its covenants,  agreements,  undertakings or obligations
         set forth in this Agreement or any instrument, certificate or agreement
         entered into or delivered by the Investor pursuant to this Agreement.

<PAGE>

Section 7.3.  Notice.  Promptly  after  receipt by either  party hereto  seeking
indemnification  pursuant  to Section  7.2 (an  "Indemnified  Party") of written
notice of any  investigation,  claim,  proceeding  or other action in respect of
which  indemnification is being sought (each, a "Claim"),  the Indemnified Party
promptly  shall notify the party from whom  indemnification  pursuant to Section
7.2 is being sought (the "Indemnifying  Party") of the commencement thereof; but
the omission to so notify the  Indemnifying  Party shall not relieve it from any
liability  that it otherwise may have to the  Indemnified  Party,  except to the
extent that the  Indemnifying  Party is actually  prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying  Party and
the Indemnified Party are parties,  the Indemnifying  Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying  Party, the Indemnified  Party shall have the right to
employ  separate  legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees,  out-of-pocket  costs
and expenses of such  separate  legal counsel to the  Indemnified  Party if (and
only if):  (x) the  Indemnifying  Party  shall  have  agreed  to pay such  fees,
out-of-pocket  costs and expenses,  (y) the Indemnified  Party  reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal  counsel would not be  appropriate  due to actual or, as
reasonably  determined by legal counsel to the  Indemnified  Party,  potentially
differing  interests  between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying  Party,
or (z) the  Indemnifying  Party  shall  have  failed  to  employ  legal  counsel
reasonably  satisfactory to the Indemnified  Party within a reasonable period of
time after notice of the  commencement of such Claim.  If the Indemnified  Party
employs  separate  legal  counsel in  circumstances  other than as  described in
clauses  (x),  (y) or (z)  above,  the fees,  costs and  expenses  of such legal
counsel shall be borne exclusively by the Indemnified Party.  Except as provided
above,  the  Indemnifying

<PAGE>

Party  shall not,  in  connection  with any Claim in the same  jurisdiction,  be
liable for the fees and expenses of more than one firm of legal  counsel for the
Indemnified  Party (together with appropriate  local counsel).  The Indemnifying
Party shall not,  without the prior  written  consent of the  Indemnified  Party
(which  consent shall not  unreasonably  be withheld),  settle or compromise any
Claim or  consent  to the  entry  of any  judgment  that  does  not  include  an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.

Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification  that does not involve a claim or demand being asserted by a
third party,  the Indemnified  Party promptly shall deliver notice of such claim
to the Indemnifying  Party. If the Indemnifying  Party disputes the claim,  such
dispute shall be resolved by mutual  agreement of the Indemnified  Party and the
Indemnifying  Party or by binding  arbitration  conducted in accordance with the
procedures  and rules of the American  Arbitration  Association  as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

         Due Diligence Review; Non-Disclosure of Non-Public Information.

Section 8.1. Due  Diligence  Review.  Subject to Section 8.2, the Company  shall
make  available  for  inspection  and review by the  Investors,  advisors to and
representatives  of the  Investors  (who may or may not be  affiliated  with the
Investors and who are reasonably acceptable to the Company), and any underwriter
participating in any disposition of the Registrable  Securities on behalf of the
Investors  pursuant to the Registration  Statement,  any amendment or supplement
thereto or any blue sky,  Nasdaq or other  filing,  all SEC  Documents and other
filings with the SEC, and all other publicly available  corporate  documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers,  directors and employees to supply all
such publicly available information reasonably requested by the Investors or any
such representative,  advisor or underwriter in connection with the Registration
Statement (including, without limitation, in response to all questions and other
inquiries  reasonably made or submitted by any of them),  prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the  Investors and such  representatives,  advisors and
underwriters and their  respective  accountants and attorneys to conduct initial
and ongoing due  diligence  with  respect to the Company and the accuracy of the
Registration Statement.

Section 8.2.      Non-Disclosure of Non-Public Information.

         (a) The Company shall not disclose material  non-public  information to
the Investors,  advisors to or  representatives of the Investors unless prior to
disclosure of such information the Company  identifies such information as being
non-public   information   and  provides  the   Investors,   such  advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
non-public  information for review. Other than disclosure of any comment letters
received  from the SEC staff with  respect to the  Registration  Statement,  the
Company may, as a condition

<PAGE>

to disclosing  any  non-public  information  hereunder,  require the  Investors'
advisors and  representatives to enter into a confidentiality  agreement in form
and content reasonably satisfactory to the Company and the Investors.

         (b) Nothing  herein  shall  require  the  Company to disclose  material
non-public  information to the Investors or their  advisors or  representatives,
and the Company  represents  that it does not  disseminate  material  non-public
information  to any  investors  who  purchase  stock in the  Company in a public
offering, to money managers or to securities analysts,  provided,  however, that
notwithstanding   anything  herein  to  the  contrary,   the  Company  will,  as
hereinabove  provided,  promptly notify the advisors and  representatives of the
Investors  and,  if any,  underwriters,  of any  event or the  existence  of any
circumstance   (without  any  obligation  to  disclose  the  specific  event  or
circumstance)  of which  it  becomes  aware,  constituting  material  non-public
information  (whether or not requested of the Company  specifically or generally
during the course of due diligence by such persons or entities),  which,  if not
disclosed in the prospectus  included in the Registration  Statement would cause
such  prospectus to include a material  misstatement  or to omit a material fact
required to be stated therein in order to make the statements  therein, in light
of the circumstances in which they were made, not misleading.  Nothing contained
in this  Section 8.2 shall be  construed  to mean that such  persons or entities
other than the Investors  (without the written consent of the Investors prior to
disclosure of such  information  as set forth in Section  8.2(a)) may not obtain
non-public  information  in the course of conducting due diligence in accordance
with the terms of this  Agreement  and  nothing  herein  shall  prevent any such
persons or entities  from  notifying  the Company of their opinion that based on
such due diligence by such persons or entities,  that the Registration Statement
contains  an  untrue  statement  of a  material  fact or omits a  material  fact
required to be stated in the  Registration  Statement  or  necessary to make the
statements  contained therein,  in light of the circumstances in which they were
made, not misleading.

                                   ARTICLE IX

                      Legends; Transfer Agent Instructions

Section  9.1.  Legends.   Unless  otherwise  provided  below,  each  certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY OTHER
APPLICABLE  SECURITIES  LAWS AND HAVE BEEN ISSUED IN RELIANCE  UPON AN EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT  AND  SUCH  OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION  HEREIN
MAY BE SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

<PAGE>

Section  9.2.  Transfer  Agent  Instructions.  Upon the  execution  and delivery
hereof,  the Company is issuing to the transfer  agent for its Common Stock (and
to any  substitute or  replacement  transfer agent for its Common Stock upon the
Company's  appointment  of any such  substitute or replacement  transfer  agent)
instructions  substantially in the form of Exhibit C hereto.  Such  instructions
shall be  irrevocable  by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.

Section 9.3. No Other  Legend or Stock  Transfer  Restrictions.  No legend other
than the one  specified  in Section 9.1 has been or shall be placed on the share
certificates  representing  the  Registrable  Securities and no  instructions or
"stop transfer  orders," "stock transfer  restrictions,"  or other  restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.

Section 9.4. Investors' Compliance.  Nothing in this Article shall affect in any
way each  Investor's  obligations to comply with all applicable  securities laws
upon resale of the Common Stock.

                                   ARTICLE X

                           Choice of Law; Arbitration

Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of  Massachusetts  applicable
to contracts made in  Massachusetts  by persons  domiciled in Boston and without
regard to its  principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to  arbitration  under the American  Arbitration  Association
(the  "AAA") in Boston,  Massachusetts,  and shall be finally  and  conclusively
determined  by the decision of a board of  arbitration  consisting  of three (3)
members  (hereinafter  referred  to as  the  "Board  of  Arbitration")  selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in Boston, Massachusetts, and shall reach and render a
decision in writing  (concurred  in by a majority of the members of the Board of
Arbitration)  with  respect to the  amount,  if any,  which the losing  party is
required to pay to the other party in respect of a claim  filed.  In  connection
with  rendering its decisions,  the Board of Arbitration  shall adopt and follow
the  laws of the  State  of  Massachusetts  unless  the  matter  at issue is the
corporation  law of the  Company's  state of  incorporation,  in which event the
corporation  law of such  jurisdiction  shall  govern such issue.  To the extent
practical,  decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following  commencement  of  proceedings  with respect
thereto.  The Board of  Arbitration  shall  cause  its  written  decision  to be
delivered to all parties involved in the dispute. Any decision made by the Board
of  Arbitration  (either  prior to or after the  expiration  of such thirty (30)
calendar day period)  shall be final,  binding and  conclusive on the parties to
the dispute,  and entitled to be enforced to the fullest extent permitted by law
and entered in any court of  competent  jurisdiction.  The Board of  Arbitration
shall be authorized and is hereby directed to enter a default  judgment  against
any party failing to  participate in any  proceeding  hereunder  within the time
periods set forth in the AAA rules. The non-prevailing  party to any arbitration
(as  determined  by the  Board of  Arbitration)  shall pay the

<PAGE>

expenses of the  prevailing  party,  including  reasonable  attorney's  fees, in
connection  with  such  arbitration.  Any  party  shall be  entitled  to  obtain
injunctive  relief from a court in any case where such relief is  available  and
the  prevailing  party shall  likewise  be  entitled to be paid their  expenses,
including reasonable attorney's fees.

                                   ARTICLE XI

                                   Assignment

Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company  hereunder  may be assigned by either party to any other  person.
Notwithstanding the foregoing,  (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Shares or Warrants  purchased or acquired by any Investor hereunder with respect
to the Shares or Warrants  held by such person,  and (b) upon the prior  written
consent of the Company,  which  consent  shall not  unreasonably  be withheld or
delayed, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity  (including  any Affiliate of
the Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.

                                  ARTICLE XII

                                     Notices

Section 12.1. Notices. All notices, demands, requests, consents,  approvals, and
other  communications  required or permitted  hereunder shall be in writing and,
unless otherwise specified herein,  shall be (i) hand delivered,  (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges  prepaid,  or (iv)
transmitted by facsimile,  addressed as set forth below or to such other address
as such party shall have specified most recently by written  notice.  Any notice
or other  communication  required or  permitted to be given  hereunder  shall be
deemed effective (a) upon hand delivery or delivery by facsimile,  with accurate
confirmation  generated by the transmitting facsimile machine, at the address or
number  designated  below (if delivered on a business day during normal business
hours where such notice is to be received),  or the first business day following
such delivery (if delivered  other than on a business day during normal business
hours  where such notice is to be  received)  or (b) on the first  business  day
following  the date of sending by  reputable  courier  service,  fully  prepaid,
addressed  to such  address,  or (c) upon  actual  receipt of such  mailing,  if
mailed. The addresses for such communications shall be:

<PAGE>

If to the Company:                    600 Research Drive
                                      Wilmington, MA  01887
                                      Attention: Chris Ricci
                                      Telephone: (978) 988-5888
                                      Facsimile: (978) 661-0160

with a copy to (shall not constitute
notice):                              Sullivan & Worcester LLP
                                      One Post Office Square
                                      Boston, MA  02109
                                      Attention: Stephen J. Coukos
                                      Telephone: (617) 338-2800
                                      Facsimile: (617) 338-2880

if to the Investors:                  As set forth on the signature pages hereto

with a copy to:                       Joseph A. Smith, Esq.
(shall not constitute notice)         Epstein Becker & Green, P.C.
                                      250 Park Avenue
                                      New York, New York
                                      Telephone: (212) 351-4500
                                      Facsimile: (212) 661-0989

Either party hereto may from time to time change its address or facsimile number
for notices  under this  Section 12.1 by giving  written  notice of such changed
address  or  facsimile  number to the other  party  hereto as  provided  in this
Section 12.1.

                                  ARTICLE XIII

                                  Miscellaneous

Section  13.1.  Counterparts/  Facsimile/  Amendments.  This  Agreement  may  be
executed  in multiple  counterparts,  each of which may be executed by less than
all of the parties and shall be deemed to be an original  instrument which shall
be enforceable  against the parties actually executing such counterparts and all
of which  together  shall  constitute  one and the same  instrument.  Except  as
otherwise  stated  herein,  in  lieu  of the  original  documents,  a  facsimile
transmission  or  copy of the  original  documents  shall  be as  effective  and
enforceable  as the  original.  This  Agreement may be amended only by a writing
executed by all parties.

Section 13.2.  Entire  Agreement.  This  Agreement,  the agreements  attached as
Exhibits  hereto,  which include,  but are not limited to the Warrants,  and the
Registration Rights Agreement,  set forth the entire agreement and understanding
of the parties  relating to the subject  matter hereof and  supersedes all prior
and  contemporaneous  agreements,  negotiations and  understandings

<PAGE>

between  the  parties,  both oral and written  relating  to the  subject  matter
hereof.  The  terms  and  conditions  of all  Exhibits  to  this  Agreement  are
incorporated  herein  by  this  reference  and  shall  constitute  part  of this
Agreement as is fully set forth herein.

Section 13.3.  Severability.  In the event that any provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision;  provided that such severability shall be ineffective if
it  materially  changes the  economic  benefit of this  Agreement  to any party.

Section  13.4.  Headings.  The  headings  used in this  Agreement  are  used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

Section 13.5.  Number and Gender.  There may be one or more Investors parties to
this  Agreement,  which  Investors  may be  natural  persons  or  entities.  All
references to plural Investors shall apply equally to a single Investor if there
is only one  Investor,  and all  references  to an  Investor as "it" shall apply
equally  to a natural  person.

Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the  determination of the trading price or trading volume of the Common
Stock on any given  Trading  Day for the  purposes  of this  Agreement  shall be
Bloomberg,  L.P. or any successor  thereto.  The written  mutual  consent of the
Investors  and the  Company  shall be  required  to employ  any other  reporting
entity.

Section  13.7.  Replacement  of  Certificates.  Upon  (i)  receipt  of  evidence
reasonably  satisfactory  to the  Company  of the loss,  theft,  destruction  or
mutilation of a certificate  representing  the Shares or Warrants or any Warrant
Shares  and (ii) in the  case of any such  loss,  theft or  destruction  of such
certificate,  upon  delivery of an indemnity  agreement  or security  reasonably
satisfactory  in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such  certificate,  the Company at its expense will  execute and deliver,  in
lieu thereof, a new certificate of like tenor.

Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses  incident to the performance of its obligations  hereunder.

Section 13.9.  Brokerage.  Each of the parties hereto represents that it has had
no dealings in connection  with this  transaction  with any finder or broker who
will demand  payment of any fee or  commission  from the other party  except for
JWGenesis  Securities,  Inc., whose fee shall be paid by the Company only to the
extent  that  JWGenesis  Securities,  Inc.  has  introduced  one or  more of the
Investors and then, only to the extent of that Investor's  participation in this
Agreement.  The Company on the one hand, and the  Investors,  on the other hand,
agree to indemnify  the other  against and hold the other  harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account  of  services   purported  to  have  been  rendered  on  behalf  of  the
indemnifying  party  in  connection  with  this  Agreement  or the  transactions
contemplated hereby.

Section  13.10.  Publicity.  The Company agrees that it will not issue any press
release or other public  announcement of the  transactions  contemplated by this
Agreement  without  the  prior  consent  of the  Investors,  which  shall not be

<PAGE>

unreasonably  withheld  nor delayed by more than two (2) Trading Days from their
receipt of such  proposed  release;  provided,  however,  that if the Company is
advised by its outside  counsel  that it is  required  by law or the  applicable
rules  of any  Principal  Market  to issue  any such  press  release  or  public
announcement,  then it may do so without  the prior  consent  of the  Investors,
although  it  shall  be  required  to  provide  prior  notice  (which  may be by
telephone)  to the  Investors  that it intends  to issue  such press  release or
public  announcement.  No release shall name the Investors without their express
consent.

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

                            FOCUS Enhancements, Inc.

                            By: /s/ Thomas L. Massie
                                Thomas L. Massie, President & CEO

  Address:                  Raptor Global Portfolio Ltd. - $1,394,400
                            c/o Tudor Investment Corporation
                            40 Rowes Wharf, 2nd Floor
                            Boston, MA 02110

  Fax: (617) 737-1169       By: /s/ William T. Flaherty
                            Name: William T. Flaherty
                                  Vice President, Tudor Investment Corporation
                                  As Investment Adviser
                                  Raptor Global Portfolio Ltd.

  Address:                  Altar Rock Fund L.P. - $5,600
                            c/o Tudor Investment Corporation
                            40 Rowes Wharf, 2nd Floor
                            Boston, MA 02110

  Fax: (617) 737-1169       By: /s/ William T. Flaherty
                            Name: William T. Flaherty
                                  Vice President, Tudor Investment Corporation
                                  As General Partner
                                  Altar Rock Fund L.P.

  Address:                  Roseworth Group, Ltd. - $600,000
                            c/o Dr. Dr. Batliner & Partner
                            Aeulestrasse 74, Postfach 86
                            FL-9490 Vaduz, Liechtenstein

  Fax: 011-075-236-0405     By: /s/ Hans Gassner
                            Name: Hans Gassner

<PAGE>

                                                                       EXHIBIT A

NEITHER  THIS WARRANT NOR THE SHARES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT")
OR ANY OTHER  APPLICABLE  SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES  ISSUABLE UPON EXERCISE  HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED,  ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.

                             STOCK PURCHASE WARRANT

                  To Purchase _______ Shares of Common Stock of

                            FOCUS ENHANCEMENTS, INC.

         THIS  CERTIFIES  that,  for  value  received,  __________________  (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set  forth,  at any time on or after  December  1, 1999 (the  "Initial  Exercise
Date")  and on or prior to the  close of  business  on  December  1,  2004  (the
"Termination Date") but not thereafter, to subscribe for and purchase from FOCUS
Enhancements,  Inc., a corporation incorporated in Delaware (the "Company"),  up
to  _________________________________  (_________) shares (the "Warrant Shares")
of Common  Stock,  $.01 par value,  of the Company  (the  "Common  Stock").  The
purchase  price of one share of Common Stock (the  "Exercise  Price") under this
Warrant  shall be [(110% of the Market  Price on the Closing  Date of the Common
Stock and Warrants Purchase Agreement dated as of November 24, 1999] pursuant to
which this  Warrant has been issued (the  "Purchase  Agreement")).  The Exercise
Price and the number of shares for which the  Warrant  is  exercisable  shall be
subject to adjustment as provided  herein.  In the event of any conflict between
the terms of this Warrant and the  Purchase  Agreement,  the Purchase  Agreement
shall  control.  Capitalized  terms used and not otherwise  defined herein shall
have the meanings set forth for such terms in the Purchase Agreement.

<PAGE>

         1.  Title to  Warrant.  Prior to the  Termination  Date and  subject to
compliance  with  applicable  laws,  this Warrant and all rights  hereunder  are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized  attorney,  upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.

         2.  Authorization of Shares.  The Company  covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the 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.  Except  as  provided  in  Section 4 herein,
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 before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed,  at the office of the Company (or
such  other  office or agency of the  Company as it may  designate  by notice in
writing to the registered  holder hereof at the address of such holder appearing
on the books of the  Company)  and upon  payment  of the  Exercise  Price of the
shares thereby  purchased by wire transfer or cashier's  check drawn on a United
States  bank,  the  holder  of this  Warrant  shall be  entitled  to  receive  a
certificate for the number of shares of Common Stock so purchased.  Certificates
for shares  purchased  hereunder  shall be delivered to the holder hereof within
three (3)  Trading  Days  after the date on which this  Warrant  shall have been
exercised as aforesaid.  This Warrant shall be deemed to have been exercised and
such certificate or certificates 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 Holder,  if any, pursuant to Section 5 prior to
the issuance of such  shares,  have been paid.  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  shares of Common
Stock called for by this Warrant,  which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the  resale by the Holder of the  Warrant  Shares at any time from and after one
year from the  issuance  date of this  Warrant,  then the Holder  shall have the
right to a "cashless  exercise" in which the Holder shall be entitled to receive
a  certificate  for the  number  of shares  equal to the  quotient  obtained  by
dividing [(A-B) (X)] by (A), where:

         (A) = the  average  of the high and low  trading  prices  per  share of
         Common Stock on the Trading Day preceding the date of such election;

         (B) = the Exercise Price of the Warrant; and

                                       2
<PAGE>

         (X) = the number of shares  issuable  upon  exercise  of the Warrant in
         accordance with the terms of this Warrant.

         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 the Exercise Price.

         5. Charges, Taxes and Expenses.  Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant  shall be made without  charge to
the holder hereof for any issue or transfer tax or other  incidental  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 of this Warrant or in such name or names as may be directed by the
holder of this Warrant;  provided,  however,  that in the event certificates for
shares of Common  Stock  are to be issued in a name  other  than the name of the
holder of this  Warrant,  this Warrant when  surrendered  for exercise  shall be
accompanied by the Assignment  Form attached  hereto duly executed by the holder
hereof; 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 shareholder  books
or records in any manner which prevents the timely exercise of this Warrant.

         7. Transfer,  Division and Combination.  (a) Subject to compliance with
any  applicable  securities  laws,  transfer  of this  Warrant  and  all  rights
hereunder,  in whole or in part, shall be registered on the books of the Company
to be  maintained  for such  purpose,  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 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 shares of Common  Stock  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  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.

                                       3
<PAGE>

                  (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  hereof 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, the Warrant Shares so purchased
shall be and be deemed to be 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 certificate
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
(which  shall not  include  the  posting of any bond),  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 legal holiday,  then such action may be
taken or such right may be exercised on the next  succeeding day not a Saturday,
Sunday or legal holiday.

         11.  Adjustments  of Exercise Price and Number of Warrant  Shares.  (a)
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  holders of its  outstanding  Common
Stock,  (ii)  subdivide  its  outstanding  shares of Common Stock into a greater
number of shares of Common Stock, (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 of this Warrant  shall be entitled
to  receive  the kind and number of Warrant  Shares or other  securities  of the
Company  which he 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 of this Warrant 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  resulting from such  adjustment.  An adjustment

                                       4
<PAGE>

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.

                  (a) 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 all or substantially all 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  successor  or  acquiring  corporation  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then 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 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 shares of
Common  Stock for which this  Warrant is  exercisable  which  shall be as nearly
equivalent as  practicable to the  adjustments  provided for in this Section 11.
For purposes of this  Section 11,  "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 11 shall  similarly  apply to  successive
reorganizations,  reclassifications,  mergers,  consolidations or disposition of
assets.

         12.  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.

         13.  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 promptly mail by registered or certified mail,  return receipt  requested,
to the holder of this Warrant notice of such  adjustment or adjustments  setting
forth  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

                                       5
<PAGE>

requiring  such  adjustment  and  setting  forth the  computation  by which such
adjustment was made.  Such notice,  in the absence of manifest  error,  shall be
conclusive evidence of the correctness of such adjustment.

         14. 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 30 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 30
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 addressed to Holder
at the  last  address  of  Holder  appearing  on the  books of the  Company  and
delivered in accordance with Section 16(d).

                                       6
<PAGE>

         15. 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 Principal  Market
upon which the Common Stock may be listed.

                  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  against  impairment.  Without  limiting the  generality of the
foregoing,  the  Company  will (a) not  increase  the par value of any shares of
Common  Stock  receivable  upon the  exercise of this  Warrant  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 shares of
Common Stock upon the  exercise of this  Warrant,  and (c) use all  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.

                  Upon the  request  of  Holder,  the  Company  will at any time
during the period this Warrant is outstanding  acknowledge  in writing,  in form
reasonably  satisfactory to Holder, the continuing  validity of this Warrant and
the obligations of the Company hereunder.

                  Before  taking  any action  which  would  cause an  adjustment
reducing  the current  Exercise  Price below the then par value,  if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any  corporate  action which may be necessary in order that the Company may
validly and legally  issue fully paid and  non-assessable  shares of such Common
Stock at such adjusted Exercise Price.

                  Before  taking any action which would result in an  adjustment
in the number of shares of Common Stock 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.

         16. Miscellaneous.

                  (a)  Jurisdiction.  This  Warrant  shall be  binding  upon any
successors or assigns of the Company.  This Warrant shall  constitute a contract
under the laws of New York

                                       7
<PAGE>

without  regard to its conflict of law  principles  or rules,  and be subject to
arbitration pursuant to the terms set forth in the Purchase Agreement.

                  (b)  Restrictions.  The holder  hereof  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 rights  hereunder  terminate on the  Termination
Date. If the Company  willfully  fails to comply with any material  provision of
this  Warrant,  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  hereof 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 affirmative  action by Holder to purchase shares of Common Stock, and
no enumeration  herein of the rights or privileges of Holder hereof,  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) Indemnification.  The Company agrees to indemnify and hold
harmless Holder from and against any liabilities,  obligations, losses, damages,
penalties,  actions,  judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against  Holder in any manner  relating  to or arising out of any failure by the
Company to perform or observe  in any  material  respect  any of its  covenants,
agreements,  undertakings  or obligations  set forth in this Warrant;  provided,
however,  that the Company  will not be liable  hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims,  costs,  attorneys'  fees,  expenses  or

                                       8
<PAGE>

disbursements  are found in a judgment by a court to have resulted from Holder's
negligence,  bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.

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

                  (j) 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.

                                       9
<PAGE>

                  (k)  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.

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

Dated: November 24, 1999
                            FOCUS ENHANCEMENTS, INC.

                            By:_________________________________________________
                                   Thomas L. Massie, President & CEO

                                       10
<PAGE>

                               NOTICE OF EXERCISE

To: FOCUS ENHANCEMENTS, INC.

         (1)______The  undersigned  hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of FOCUS  Enhancements,  Inc. 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.

         (2)______Please  issue a certificate or certificates  representing said
shares of Common Stock in the name of the  undersigned  or in such other name as
is specified below:

                  ________________________________________
                  (Name)

                  ________________________________________
                  (Address)

Dated:

                                              ______________________________
                                              Signature

<PAGE>

                                 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 an  fiduciary  or other  representative
capacity  should  file  proper  evidence of  authority  to assign the  foregoing
Warrant.

<PAGE>

                                                                       EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

                  THIS REGISTRATION  RIGHTS AGREEMENT,  dated as of November 24,
1999 between the investor or investors  signatory hereto (each an "Investor" and
together the "Investors"), and FOCUS Enhancements,  Inc., a Delaware corporation
(the "Company").

                  WHEREAS,  simultaneously  with the  execution  and delivery of
this  Agreement,  the Investor is  purchasing  from the  Company,  pursuant to a
Common  Stock  and  Warrants  Purchase  Agreement  dated  the date  hereof  (the
"Purchase Agreement"), 1,250,000 shares of Common Stock and Warrants to purchase
up to 125,000  shares of the  Company's  Common Stock (terms not defined  herein
shall have the meanings ascribed to them in the Purchase Agreement); and

                  WHEREAS,  the Company  desires to grant to the  Investors  the
registration  rights set forth  herein  with  respect  to the  Shares  purchased
pursuant to the  Purchase  Agreement  and shares of Common Stock  issuable  upon
exercise of the Warrants (hereinafter referred to as the "Stock" or "Securities"
of the Company).

                  NOW, THEREFORE, the parties hereto mutually agree as follows:

                  Section 1.  Registrable  Securities.  As used  herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared  effective by the  Commission,  and all  Securities  have been
disposed of pursuant to the  Registration  Statement,  (ii) all Securities  have
been sold under  circumstances  under which all of the applicable  conditions of
Rule 144 (or any  similar  provision  then in force)  under the  Securities  Act
("Rule 144") are met,  (iii) all Securities  have been otherwise  transferred to
holders who may trade such Securities  without  restriction under the Securities
Act,  and the  Company  has  delivered a new  certificate  or other  evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner  limitations  pursuant to Rule 144(k) (or any similar
provision  then in  effect)  under the  Securities  Act.  The term  "Registrable
Securities" means any and/or all of the securities  falling within the foregoing
definition   of  a   "Registrable   Security."  In  the  event  of  any  merger,
reorganization,  consolidation,  recapitalization  or other  change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the  definition  of  "Registrable  Security"  as is  appropriate  in order to
prevent  any  dilution or  enlargement  of the rights  granted  pursuant to this
Agreement.

                  Section   2.   Restrictions   on   Transfer.   Each   Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein,  the Securities are "restricted  securities" as defined in Rule
144 promulgated under the Act. Each Investor  understands that no disposition or
transfer  of the  Securities  may be made by  Investor  in the absence of (i) an
opinion  of  counsel  to  the  Investor,   in  form  and  substance   reasonably

<PAGE>

satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.

                           With a view to making  available to the Investors the
benefits  of Rule 144 under the  Securities  Act or any  other  similar  rule or
regulation of the  Commission  that may at any time permit the Investors to sell
securities of the Company to the public without  registration  ("Rule 144"), the
Company agrees to:

                           (a) comply with the provisions of paragraph (c)(1) of
Rule 144; and

                           (b) file with the  Commission  in a timely manner all
reports and other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the  Exchange  Act by  companies  subject to either of
such  sections,  irrespective  of whether  the  Company is then  subject to such
reporting requirements.

                  Section 3. Registration Rights With Respect to the Securities.

                           (a) The Company  agrees that it will prepare and file
with the Securities and Exchange Commission  ("Commission"),  within thirty (30)
days after the Closing Date a  registration  statement (on Form S-3, or, subject
to the Company's  right to repurchase  the  Securities in lieu of such filing as
set forth in Section 3(e), other appropriate  registration statement form) under
the  Securities  Act (the  "Registration  Statement"),  at the sole  expense and
discretion  of the  Company  (except as  provided in Section  3(c)  hereof),  in
respect of the Investors, so as to permit a public offering and resale of all of
the Securities under the Act by the Investors as selling stockholders and not as
underwriters.

                           The  Company  shall use all  commercially  reasonable
efforts to cause such  Registration  Statement  to become  effective  within one
hundred  fifty  (120)  days  from the  Closing  Date  (or,  if the  Registration
Statement  receives  a "full  review"  from the  Commission,  150 days  from the
Closing  Date) or, if earlier,  within five (5) days of SEC clearance to request
acceleration  of  effectiveness.  The Company  will notify the  Investors of the
effectiveness  of the  Registration  Statement  within one  Trading  Day of such
event. In the event that the number of shares so registered shall for any reason
prove to be insufficient  to register the resale of all of the Securities,  then
the Company  shall be obligated to file,  within thirty (30) days of notice from
any Investor, a further Registration Statement registering such remaining shares
and shall use all commercially  reasonable  efforts to prosecute such additional
Registration  Statement to  effectiveness  within  ninety (120) days (or, if the
Registration  Statement receives a "full review" from the Commission,  150 days)
of the date of such notice.

                           (b)  The  Company  will  maintain  the   Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the  date  that all of the  Securities  have  been  sold  pursuant  to such
Registration  Statement,  (iii) the date the  Investors  receive  an  opinion of
counsel to the Company,  which  counsel  shall be  reasonably  acceptable to the
Investors,  that the  Securities  may be sold under the  provisions  of Rule 144
without limitation as to volume, (iv) all Securities have

                                        2
<PAGE>

been  otherwise  transferred  to  persons  who may  trade  such  shares  without
restriction  under the  Securities  Act,  and the  Company  has  delivered a new
certificate  or other  evidence of ownership for such  securities  not bearing a
restrictive  legend,  or (v) all Securities may be sold without any time, volume
or manner  limitations  pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company,  which
counsel  shall be  reasonably  acceptable  to the Investor  (the  "Effectiveness
Period").

                           (c)  All  fees,   disbursements   and   out-of-pocket
expenses and costs  incurred by the Company in connection  with the  preparation
and  filing  of  the  Registration  Statement  under  subparagraph  3(a)  and in
complying  with  applicable  securities  and Blue Sky laws  (including,  without
limitation,  all attorneys'  fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting  and/or  brokerage  discounts,
fees and commissions,  if any, applicable to the Securities being registered and
the fees and expenses of their  counsel.  The  Investors and their counsel shall
have a reasonable  period,  not to exceed five (5) Trading  Days,  to review the
proposed Registration  Statement or any amendment thereto,  prior to filing with
the  Commission,  and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the securities
for sale in such states as any Investor reasonably  designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required  to qualify in any state  which will  require an escrow or
other  restriction  relating to the Company  and/or the  sellers,  or which will
require  the  Company  to qualify to do  business  in such state or require  the
Company to file therein any general  consent to service of process.  The Company
at its  expense  will  supply  the  Investors  with  copies  of  the  applicable
Registration  Statement and the  prospectus  included  therein and other related
documents in such quantities as may be reasonably requested by the Investors.

                           (d) The Company shall not be required by this Section
3 to include an Investor's Securities in any Registration  Statement which is to
be filed if, in the  opinion of counsel  for both the  Investor  and the Company
(or,  should they not agree,  in the opinion of another  counsel  experienced in
securities  law matters  acceptable to counsel for the Investor and the Company)
the  proposed  offering  or other  transfer  as to which  such  registration  is
requested is exempt from applicable  federal and state securities laws and would
result in all  purchasers  or  transferees  obtaining  securities  which are not
"restricted securities", as defined in Rule 144 under the Securities Act.

                           (e) In the event that (i) the Registration  Statement
to be filed by the Company  pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days from the Closing Date, (ii) such Registration
Statement is not declared  effective by the Commission within the earlier of one
hundred  twenty  (120)  days  from the  Closing  Date (or,  if the  Registration
Statement  receives  a "full  review"  from the  Commission,  150 days  from the
Closing Date) (unless such failure to register is due in whole or in part to the
Commission's  request  that  the  Investors  be  named  as  underwriters  in the
prospectus included in the Registration Statement) or five (5) days of clearance
by the Commission to request  effectiveness,  (iii) if the Securities  have been
registered as contemplated by clause (ii),  such  Registration  Statement is not
maintained  as effective by the Company for the period set forth in Section 3(b)
above or (iv)

                                       3
<PAGE>

the additional  Registration  Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared  effective  within one hundred  twenty (120)
days as set  forth  therein  (or,  if  such  additional  Registration  Statement
receives a "full review" from the Commission,  150 days) (unless such failure to
register  is due in  whole  or in  part to the  Commission's  request  that  the
Investors  be  named  as  underwriters   in  the  prospectus   included  in  the
Registration  Statement) (each a "Registration  Default") then the Company will,
at its  election,  either (A)  repurchase  the Common Stock from the Investor at
their  original  purchase  price  (and  Investor  hereby  agrees to permit  such
Securities  to be so  repurchased)  or (B) pay  Investor  (pro  rated on a daily
basis), as liquidated  damages for such failure and not as a penalty one percent
(1%) of the  aggregate  market  value as of the Closing Date of shares of Common
Stock  purchased  from the Company and still held by the  Investor for the first
two  months  and  two  percent  (2%)  for  every  month  thereafter  until  such
Registration  Statement has been filed,  and in the event of late  effectiveness
(in case of clause  (ii) above) or lapsed  effectiveness  (in the case of clause
(iii) above),  one percent (1%) of the aggregate  market value as of the Closing
Date of shares of Common Stock  purchased from the Company and still held by the
Investor  for the  first  two  months  and two  percent  (2%)  for  every  month
thereafter  (regardless  of whether one or more such  Registration  Defaults are
then  in  existence)  until  such  Registration   Statement  has  been  declared
effective.  The  election  to  repurchase  the  Securities  shall be made to the
Investors  in  writing  within  five  (5)  Trading  Days of the  date  on  which
liquidated  damages would otherwise  begin to accrue,  and payment shall be made
within five (5) Trading  Days of such  notice,  or else the  Company's  election
shall be void and of no further effect.  Payment of the liquidated damages shall
be made to the  Investors  in cash,  within  five (5)  calendar  days of demand,
provided, however, that the payment of such liquidated damages shall not relieve
the Company from its  obligations  to register the  Securities  pursuant to this
Section.  The market  value of the Common  Stock for this  purpose  shall be the
closing price (or last trade,  if so reported) on the Principal  Market for each
day during such Registration Default.  Notwithstanding  anything to the contrary
contained   herein,  a  failure  to  maintain  the  effectiveness  of  an  filed
Registration  Statement  or the  ability  of an  Investor  to  use an  otherwise
effective  Registration  Statement to effect  resales of  Securities  during the
period  after 45 days and  within 90 days from the end of the  Company's  fiscal
year resulting solely from the need to update the Company's financial statements
contained or incorporated by reference in such Registration  Statement shall not
constitute  a  Registration  Default  and  shall  not  trigger  the  accrual  of
liquidated damages hereunder.

                           If the  Company  does not  remit the  payment  to the
Investors as set forth  above,  the Company  will pay the  Investors  reasonable
costs of collection,  including  attorneys'  fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the  Investors'  other  rights or  remedies as set forth in this
Agreement.

                           (f) No provision  contained herein shall preclude the
Company from selling securities pursuant to any Registration  Statement in which
it is required to include Securities pursuant to this Section 3.

                           (g) If at any  time or from  time to time  after  the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below),  the Investors  shall not offer or sell

                                       4
<PAGE>

any  Securities  or engage in any other  transaction  involving  or  relating to
Securities,  from the time of the giving of notice  with  respect to a Potential
Material Event until the Investors  receive written notice from the Company that
such  Potential  Material  Event  either has been  disclosed to the public or no
longer  constitutes a Potential  Material  Event;  provided,  however,  that the
Company may not so suspend the right to such holders of Securities for more than
thirty (30) days in the  aggregate  during any twelve  month  period  during the
period the  Registration  Statement  is  required  to be in effect,  and if such
period is exceeded,  such event shall be a Registration  Default. If a Potential
Material  Event  shall  occur  prior to the  date a  Registration  Statement  is
required to be filed,  then the Company's  obligation to file such  Registration
Statement  shall be delayed  without penalty for not more than twenty (20) days,
and such  delay or delays  shall not  constitute  a  Registration  Default.  The
Company must, if lawful,  give the Investors  notice in writing at least two (2)
Trading Days prior to the first day of the blackout period.

                           (h)  "Potential  Material  Event"  means  any  of the
following:  (a) the possession by the Company of material  information  not ripe
for disclosure in a registration  statement,  as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that disclosure
of such  information  in a  Registration  Statement  would be detrimental to the
business and affairs of the Company;  or (b) any material engagement or activity
by the  Company  which  would,  in the good  faith  determination  of the  Chief
Executive  Officer  or the  Board of  Directors  of the  Company,  be  adversely
affected  by  disclosure  in  a  registration  statement  at  such  time,  which
determination  shall be accompanied by a good faith  determination  by the Chief
Executive  Officer or the Board of Directors of the Company that the  applicable
Registration  Statement would be materially  misleading  absent the inclusion of
such information.

                  Section  4.  Cooperation  with  Company.  The  Investors  will
cooperate  with the Company in all respects in connection  with this  Agreement,
including timely supplying all information  reasonably  requested by the Company
(which shall include all information regarding the Investors and proposed manner
of  sale  of  the  Registrable  Securities  required  to  be  disclosed  in  any
Registration  Statement)  and executing  and returning all documents  reasonably
requested  in  connection  with the  registration  and  sale of the  Registrable
Securities  and  entering  into  and  performing  their  obligations  under  any
underwriting  agreement,  if the offering is an underwritten  offering, in usual
and  customary  form,  with the managing  underwriter  or  underwriters  of such
underwritten offering.  Nothing in this Agreement shall obligate any Investor to
consent  to be  named  as an  underwriter  in any  Registration  Statement.  The
obligation  of the  Company to  register  the  Registrable  Securities  shall be
absolute and unconditional as and to the extent provided in this Agreement as to
those  Securities  which the  Commission  will permit to be  registered  without
naming  the  Investors  as  underwriters.  Any  delay or  delays  caused  by the
Investors by failure to cooperate as required  hereunder  shall not constitute a
Registration Default.

                  Section  5.  Registration  Procedures.  If  and  whenever  the
Company is required by any of the  provisions  of this  Agreement  to effect the
registration  of any of the  Registrable  Securities  under the Act, the Company
shall (except as otherwise  provided in this  Agreement),  as  expeditiously  as
possible,  subject to the Investors'  assistance  and  cooperation as reasonably
required with respect to each Registration Statement:

                                       5
<PAGE>

                           (a) (i)  prepare  and file with the  Commission  such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration  Statement
effective and to comply with the  provisions of the Act with respect to the sale
or other disposition of all securities  covered by such  registration  statement
whenever the  Investors  shall  desire to sell or otherwise  dispose of the same
(including  prospectus  supplements with respect to the sales of securities from
time to time in connection  with a registration  statement  pursuant to Rule 415
promulgated under the Act) and (ii) take all lawful action such that each of (A)
the Registration  Statement and any amendment  thereto does not, when it becomes
effective,  contain an untrue  statement  of a material  fact or omit to state a
material fact required to be stated  therein or necessary to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading and (B) the prospectus  forming part of the  Registration  Statement,
and any  amendment  or  supplement  thereto,  does  not at any time  during  the
Registration  Period  include an untrue  statement of a material fact or omit to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading;

                           (b) (i) prior to the filing  with the  Commission  of
any  Registration   Statement   (including  any  amendments   thereto)  and  the
distribution or delivery of any prospectus  (including any supplements thereto),
provide  draft copies  thereof to the  Investors as required by Section 3(c) and
reflect in such documents all such comments as the Investors (and their counsel)
reasonably  may  propose  respecting  the  Selling   Shareholders  and  Plan  of
Distribution  sections (or  equivalents)  and (ii) furnish to each Investor such
numbers of copies of a  prospectus  including a  preliminary  prospectus  or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements  of the  Act,  and  such  other  documents,  as such  Investor  may
reasonably  request in order to facilitate the public sale or other  disposition
of the securities owned by such Investor;

                           (c) register and qualify the  Registrable  Securities
covered by the  Registration  Statement under such other  securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request (subject to
the limitations set forth in Section 3(c) above),  and do any and all other acts
and things  which may be  necessary  or  advisable  to enable  each  Investor to
consummate  the public sale or other  disposition  in such  jurisdiction  of the
securities owned by such Investor;

                           (d) list such Registrable Securities on the Principal
Market,  if the listing of such  Registrable  Securities is then permitted under
the rules of such Principal Market;

                           (e)  notify   each   Investor  at  any  time  when  a
prospectus relating thereto covered by the Registration Statement is required to
be  delivered  under  the Act,  of the  happening  of any  event of which it has
knowledge  as a result  of which the  prospectus  included  in the  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material  fact  required to be stated  therein or  necessary to
make the  statements  therein not  misleading in the light of the  circumstances
then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;

                                       6
<PAGE>

                           (f) as promptly as  practicable  after becoming aware
of such event, notify each Investor who holds Registrable  Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance  by the  Commission  of any  stop  order  or  other  suspension  of the
effectiveness  of the Registration  Statement at the earliest  possible time and
take all lawful  action to effect the  withdrawal,  recession or removal of such
stop order or other suspension;

                           (g) cooperate  with the  Investors to facilitate  the
timely  preparation and delivery of certificates for the Registrable  Securities
to  be  offered  pursuant  to  the   Registration   Statement  and  enable  such
certificates  for the  Registrable  Securities  to be in such  denominations  or
amounts,  as the  case may be,  as the  Investors  reasonably  may  request  and
registered  in such names as the Investors  may request;  and,  within three (3)
Trading  Days  after  a  Registration   Statement  which  includes   Registrable
Securities  is declared  effective  by the  Commission,  deliver and cause legal
counsel  selected  by the  Company  to  deliver  to the  transfer  agent for the
Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;

                           (h) take all such  other  lawful  actions  reasonably
necessary to expedite and facilitate  the  disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the  prospectus  which  are  customary  for  issuers  to  perform  under  the
circumstances;

                           (i)  in  the  event  of  an  underwritten   offering,
promptly  include or  incorporate in a prospectus  supplement or  post-effective
amendment  to the  Registration  Statement  such  information  as  the  managers
reasonably  agree  should be included  therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement or
post-effective  amendment  as soon as  practicable  after it is  notified of the
matters  to be  included  or  incorporated  in  such  Prospectus  supplement  or
post-effective amendment; and

                           (j) maintain a transfer  agent and  registrar for its
Common Stock.

                  Section 6.  Indemnification.

                           (a) To the  maximum  extent  permitted  by  law,  the
Company agrees to indemnify and hold harmless the Investors and each person,  if
any, who controls an Investor  within the meaning of the  Securities Act (each a
"Distributing  Investor")  against any losses,  claims,  damages or liabilities,
joint or several (which shall, for all purposes of this Agreement,  include, but
not be limited to, all  reasonable  costs of defense and  investigation  and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject,  under the Securities Act or otherwise,  insofar as such losses,
claims,  damages or liabilities (or actions in respect  thereof) arise out of or
are based upon any untrue  statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement  thereto, or arise out of or are based upon the omission
or alleged  omission  to state  therein a material  fact  required  to be stated
therein or necessary to make the statements  therein not  misleading;  provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability

                                       7
<PAGE>

arises out of or is based upon an untrue  statement or alleged untrue  statement
or omission or alleged omission made in such Registration Statement, preliminary
prospectus,  final  prospectus  or amendment or  supplement  thereto in reliance
upon, and in conformity with,  written  information  furnished to the Company by
the  Distributing  Investor,   its  counsel,   affiliates  or  any  underwriter,
specifically for use in the preparation  thereof.  This indemnity agreement will
be in addition to any liability which the Company may otherwise have.

                           (b) To the  maximum  extent  permitted  by law,  each
Distributing  Investor  agrees  that it will  indemnify  and hold  harmless  the
Company,  and each  officer and  director of the Company or person,  if any, who
controls  the Company  within the  meaning of the  Securities  Act,  against any
losses,  claims,  damages or liabilities  (which shall, for all purposes of this
Agreement,  include,  but not be limited to, all reasonable costs of defense and
investigation  and all  reasonable  attorneys'  fees and  expenses) to which the
Company or any such officer,  director or controlling  person may become subject
under the Securities Act or otherwise,  insofar as such losses,  claims, damages
or  liabilities  (or actions in respect  thereof) arise out of or are based upon
any untrue  statement or alleged untrue statement of any material fact contained
in any Registration  Statement,  or any related final prospectus or amendment or
supplement  thereto,  or arise  out of or are  based  upon the  omission  or the
alleged  omission to state therein a material fact required to be stated therein
or necessary to make the  statements  therein not  misleading,  but in each case
only to the extent that such untrue  statement  or alleged  untrue  statement or
omission or alleged  omission  was made in such  Registration  Statement,  final
prospectus  or  amendment  or  supplement  thereto  in  reliance  upon,  and  in
conformity  with,  written   information   furnished  to  the  Company  by  such
Distributing Investor, its counsel, affiliates or any underwriter,  specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.

                           (c) Promptly  after receipt by an  indemnified  party
under this Section 6 of notice of the  commencement  of any action  against such
indemnified party, such indemnified party will, if a claim in respect thereof is
to be made  against  the  indemnifying  party  under this  Section 6, notify the
indemnifying party in writing of the commencement  thereof;  but the omission so
to notify the indemnifying  party will not relieve the  indemnifying  party from
any liability  which it may have to any  indemnified  party except to the extent
the  failure of the  indemnified  party to  provide  such  written  notification
actually prejudices the ability of the indemnifying party to defend such action.
In case any such  action  is  brought  against  any  indemnified  party,  and it
notifies the indemnifying  party of the commencement  thereof,  the indemnifying
party will be entitled to  participate  in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof,  subject to the  provisions  herein  stated and after  notice  from the
indemnifying  party to such  indemnified  party of its election so to assume the
defense thereof,  the indemnifying  party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such  indemnified  party in  connection  with the defense  thereof other than
reasonable  costs of  investigation,  unless the  indemnifying  party  shall not
pursue the action to its final  conclusion.  The indemnified  parties as a group
shall have the right to employ one  separate  counsel in any such  action and to
participate  in the defense  thereof,  but the fees and expenses of such counsel
shall not be at the expense of the indemnifying  party if the indemnifying party
has assumed the defense of the action with counsel  reasonably  satisfactory  to
the  indemnified  party  unless  (i) the

                                       8
<PAGE>

employment  of such counsel has been  specifically  authorized in writing by the
indemnifying  party, or (ii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying party
and the indemnified  party shall have been advised by its counsel that there may
be one or more legal defenses available to the indemnifying party different from
or in conflict with any legal defenses which may be available to the indemnified
party or any other indemnified party (in which case the indemnifying party shall
not have the  right to  assume  the  defense  of such  action  on behalf of such
indemnified  party, it being understood,  however,  that the indemnifying  party
shall,  in  connection  with any one such action or separate  but  substantially
similar or  related  actions in the same  jurisdiction  arising  out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified  party).  No settlement of any
action  against an  indemnified  party shall be made  without the prior  written
consent  of the  indemnified  party,  which  consent  shall not be  unreasonably
withheld so long as such  settlement  includes a full release of claims  against
the indemnified party.

                  Section  7.  Contribution.  In order to  provide  for just and
equitable  contribution  under the  Securities  Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially  determined  (by the entry of a final  judgment or decree by a
court of  competent  jurisdiction  and the  expiration  of time to appeal or the
denial  of the last  right  of  appeal)  that  such  indemnification  may not be
enforced in such case  notwithstanding  the fact that the express  provisions of
Section 6 hereof provide for  indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any  indemnified  party,
then the Company and the applicable  Distributing  Investor shall  contribute to
the  aggregate  losses,  claims,  damages  or  liabilities  to which they may be
subject (which shall,  for all purposes of this Agreement,  include,  but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys'  fees and  expenses),  in either such case (after  contribution  from
others) on the basis of relative fault as well as any other  relevant  equitable
considerations.  The relative  fault shall be  determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or the  omission  or  alleged  omission  to state a  material  fact  relates  to
information  supplied  by  the  Company  on  the  one  hand  or  the  applicable
Distributing  Investor  on the other hand,  and the  parties'  relative  intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
statement or omission.  The Company and the Distributing  Investor agree that it
would not be just and equitable if contribution  pursuant to this Section 7 were
determined by pro rata  allocation  or by any other method of  allocation  which
does  not take  account  of the  equitable  considerations  referred  to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses,  claims, damages or liabilities (or actions in respect thereof) referred
to above in this  Section  7 shall  be  deemed  to  include  any  legal or other
expenses  reasonably  incurred  by such  indemnified  party in  connection  with
investigating  or  defending  any such  action  or claim.  No  person  guilty of
fraudulent  misrepresentation  (within  the  meaning  of  Section  11(f)  of the
Securities  Act) shall be entitled to  contribution  from any person who was not
guilty of such fraudulent misrepresentation.

Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to  undertake  liability to any person under this Section 7
for any amounts in excess of the

                                       9
<PAGE>

dollar  amount of the proceeds  received by such  Investor from the sale of such
Investor's  Registrable  Securities  (after  deducting  any fees,  discounts and
commissions  applicable  thereto)  pursuant to any Registration  Statement under
which such  Registrable  Securities are registered  under the Securities Act and
(ii) underwriter be required to undertake  liability to any person hereunder for
any  amounts  in  excess  of  the  aggregate   discount,   commission  or  other
compensation  payable  to  such  underwriter  with  respect  to the  Registrable
Securities  underwritten  by it and  distributed  pursuant to such  Registration
Statement.

                  Section 8. Notices. All notices, demands, requests,  consents,
approvals,  and other communications required or permitted hereunder shall be in
writing and, unless  otherwise  specified  herein,  shall be (i) hand delivered,
(ii) deposited in the mail,  registered or certified,  return receipt requested,
postage  prepaid,  (iii) delivered by reputable air courier service with charges
prepaid,  or (iv)  transmitted  by  facsimile,  addressed  as set  forth  in the
Purchase  Agreement or to such other address as such party shall have  specified
most recently by written notice. Any notice or other  communication  required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or  delivery  by  facsimile,   with  accurate  confirmation   generated  by  the
transmitting  facsimile  machine,  at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received),  or the first  business day following  such delivery (if delivered
other than on a business day during normal  business  hours where such notice is
to be received) or (b) on the first  business day  following the date of sending
by reputable courier service,  fully prepaid,  addressed to such address, or (c)
upon actual  receipt of such  mailing,  if mailed.  Either party hereto may from
time to time  change its  address or  facsimile  number for  notices  under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.

                  Section 9.  Assignment.  This  Agreement  is binding  upon and
inures  to the  benefit  of the  parties  hereto  and  their  respective  heirs,
successors and permitted  assigns.  The rights granted the Investors  under this
Agreement  may  be  assigned  to  any  purchaser  of  substantially  all  of the
Registrable  Securities (or the rights  thereto) from an Investor,  as otherwise
permitted by the Purchase Agreement.

                  Section 10. Additional  Covenants of the Company.  The Company
agrees that at such time as it otherwise meets the  requirements  for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable  Securities,  it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action within its reasonable  control so as to maintain such eligibility for the
use of such form.

                  Section  11.  Counterparts/Facsimile.  This  Agreement  may be
executed  in two or  more  counterparts,  each  of  which  shall  constitute  an
original,  but all of which, when together shall constitute but one and the same
instrument,  and shall become effective when one or more  counterparts have been
signed by each party hereto and delivered to the other  parties.  In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.

                                       10
<PAGE>

                  Section 12. Remedies.  The remedies provided in this Agreement
are cumulative  and not exclusive of any remedies  provided by law. If any term,
provision,  covenant  or  restriction  of this  Agreement  is held by a court of
competent  jurisdiction  to be  invalid,  illegal,  void or  unenforceable,  the
remainder of the terms, provisions,  covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated,  and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.

                  Section 13.  Conflicting  Agreements.  The  Company  shall not
enter into any agreement  with respect to its  securities  that is  inconsistent
with the  rights  granted  to the  holders  of  Registrable  Securities  in this
Agreement or  otherwise  prevents  the Company  from  complying  with all of its
obligations hereunder.

                  Section 14.  Headings.  The headings in this Agreement are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

                  Section 15. Governing Law,  Arbitration.  This Agreement shall
be governed by and construed in accordance with the laws of the  Commonwealth of
Massachusetts applicable to contracts made in Massachusetts by persons domiciled
in Boston,  Massachusetts  and without  regard to its principles of conflicts of
laws. Any dispute under this Agreement  shall be submitted to arbitration  under
the American Arbitration Association (the "AAA") in Boston,  Massachusetts,  and
shall be finally  and  conclusively  determined  by the  decision  of a board of
arbitration  consisting  of three (3)  members  (hereinafter  referred to as the
"Board of  Arbitration")  selected as according to the rules  governing the AAA.
The Board of  Arbitration  shall meet on  consecutive  business  days in Boston,
Massachusetts, and shall reach and render a decision in writing (concurred in by
a majority  of the  members  of the Board of  Arbitration)  with  respect to the
amount,  if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions,  the Board
of Arbitration shall adopt and follow the laws of the State of Massachusetts. To
the extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following  commencement of proceedings  with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of  Arbitration  (either  prior to or after the  expiration  of such thirty (30)
calendar day period)  shall be final,  binding and  conclusive on the parties to
the dispute,  and entitled to be enforced to the fullest extent permitted by law
and entered in any court of  competent  jurisdiction.  The Board of  Arbitration
shall be authorized and is hereby directed to enter a default  judgment  against
any party failing to  participate in any  proceeding  hereunder  within the time
periods set forth in the AAA rules. The non-prevailing  party to any arbitration
(as  determined  by the  Board of  Arbitration)  shall pay the  expenses  of the
prevailing party,  including reasonable attorneys' fees, in connection with such
arbitration.  Any party  shall be entitled  to obtain  injunctive  relief from a
court in any case where such relief is available and the prevailing  party shall
likewise be entitled to be paid their expenses,  including reasonable attorney's
fees.

                                       11
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be duly executed, on the day and year first above written.

                            FOCUS Enhancements, Inc.

                            By: __________________________________
                                Thomas L. Massie, President & CEO

  Address:                  Raptor Global Portfolio Ltd. - $1,394,400
                            c/o Tudor Investment Corporation
                            40 Rowes Wharf, 2nd Floor
                            Boston, MA 02110

  Fax: (617) 737-1169       By:__________________________________
                            Name: William T. Flaherty
                                  Vice President, Tudor Investment Corporation
                                  As Investment Adviser
                                  Raptor Global Portfolio Ltd.

  Address:                  Altar Rock Fund L.P. - $5,600
                            c/o Tudor Investment Corporation
                            40 Rowes Wharf, 2nd Floor
                            Boston, MA 02110

  Fax: (617) 737-1169       By:__________________________________
                            Name: William T. Flaherty
                                  Vice President, Tudor Investment Corporation
                                  As General Partner
                                  Altar Rock Fund L.P.

  Address:                  Roseworth Group, Ltd. - $600,000
                            c/o Dr. Dr. Batliner & Partner
                            Aeulestrasse 74, Postfach 86
                            FL-9490 Vaduz, Liechtenstein

  Fax: 011-075-236-0405     By:__________________________________
                            Name: Hans Gassner

                                       12

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