FOCUS ENHANCEMENTS, INC. AMENDED AND RESTATED SENIOR SECURED NOTE PURCHASE AGREEMENT

Exhibit 10.1

FOCUS ENHANCEMENTS, INC.

AMENDED AND RESTATED SENIOR SECURED NOTE
PURCHASE AGREEMENT

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FOCUS ENHANCEMENTS, INC.

AMENDED AND RESTATED SENIOR SECURED NOTE
PURCHASE AGREEMENT

THIS AMENDED AND RESTATED SENIOR SECURED NOTE PURCHASE AGREEMENT (this “ Agreement “) is made as of February 7, 2008 (“effective date”) by and among Focus Enhancements, Inc., a Delaware corporation (the “ Company “), and Purchasers’ Agent (as defined below), on behalf of each of the “Original Purchasers” set forth in Exhibit A (as defined below), and each “New Purchaser” defined below (as set forth in Exhibit A hereto) of an Amended and Restated Senior Secured Note Due January 1, 2011 (as defined below)  (each of the Original Purchasers and the New Purchasers is a “Purchaser” and collectively are referred to herein as the “Purchasers”).  Capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to them in Section 1 below.

RECITALS

A.                                                                  The Company and the Original Purchasers  previously entered into a Senior Secured Convertible Note Purchase Agreement dated as of January 24, 2006 relating to loans in the amount of $10,000,000 (the “Original Purchase Agreement”) pursuant to which Senior Secured Convertible Notes were issued to the Original Purchasers (“Original Notes”).  The Company has issued additional Notes under the Original Purchase Agreement via payment-in-kind so the approximate amount of all Original Notes on December 30, 2007 totals $11,493,417.  The Company, Purchasers’ Agent, and the Original Purchasers, desire to amend and restate the Original Purchase Agreement and re-issue the Original Notes on the terms stated herein, which include, without limitation, increasing the principal amount evidenced by this Agreement to $20,800,000,  making  additional loans to Company under this Agreement up to such  $20,800,000 (with the difference in cash payable to the Company), and to add the New Purchasers as parties hereto. This Agreement is intended to and does completely amend and restate, without novation, the Original Purchase Agreement.  All security interests granted under the Original Purchase Agreement are hereby confirmed and ratified and shall continue to secure all obligations under this Agreement.  The Original Purchasers, the Company, and the Purchasers’ Agent also entered into a January 24, 2006 Registration Rights Agreement for the registration of the securities into which the Original Notes were convertible, and as the underlying securities into which such Original Notes are convertible will disappear upon the effective date of this Agreement, the Original Purchasers and Company desire to terminate the January 24, 2006 Registration Rights Agreement.

B.                                                                    In addition to the Original Purchasers, the New Purchasers wish to extend loans  to Company memorialized as “new” Notes pursuant to the terms of this Agreement pari passu with the Original Purchasers.

C.                                                                    As partial consideration for the amendment and restatement of the Original Purchase Agreement, the Company shall issue new Notes and a total of 26,000,002 warrants (“Warrants”) in the form of Exhibit B-1 to purchase common stock of the Company, with each of the Purchasers receiving Warrants in an amount equal to its prorata percentage of the outstanding principal under all new Notes as set forth on Exhibit B hereof.

D.                                                                         The Company and each Purchaser wish to either amend and restate or consummate new loan transactions in an aggregate amount of up to $20,800,000 through the issuance to the Purchasers of certain

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Amended and Restated Senior Secured Notes Due January 1, 2011 in the form of Exhibit C hereto (the “ Notes ”).

E.                                                                               The Company is a party to a Loan and Security Agreement, as amended to date, with the Venture Banking Group, a division of Greater Bay Bancorp (the “Bank”) for a $4,000,000 revolving line of credit and a term loan of $2,500,000 (collectively the “Bank Loan”) that is secured by accounts and other payment rights (“Bank’s Security Interest”).

F.                                                                               The Company is a beneficiary of a Guaranty of the Bank Loan by Carl E. Berg (“ Berg ”), which guaranty is secured by all of the Company’s assets pursuant to a Security Agreement, as amended, and a Collateral Assignment, Patent Mortgage and a Security Agreement (“Berg’s Security Interest”).

G.                                                                              Pursuant to an Amended and Restated Security Agreement substantially in the form of Exhibit D (“Security Agreement”) being entered into concurrently herewith, the Notes shall be secured by all of the assets of the Company (“Purchasers’ Security Interest”).

H.                                                                             The Bank and Berg are parties to an Intercreditor Agreement dated as of November 15, 2004, as amended by that certain Amendment No. 1 to Intercreditor Agreement dated as of January 24, 2006, which sets forth their relative rights and priorities as between themselves with respect to the shared collateral subject to Bank’s Security Interest and Berg’s Security Interest, to which Intercreditor Agreement the Purchasers shall be added as parties by an Amendment  No. 2 to Intercreditor Agreement in the form of Exhibit E (“Amended Intercreditor Agreement”).

I.                                                                          The Purchasers and Berg will share interests in the same Company collateral on a pro rata basis and will enter into an Amended and Restated Intercreditor Agreement substantially in the form of Exhibit F (“New Intercreditor Agreement”) hereto with respect to the shared collateral subject to Berg’s Security Interest and the Purchasers’ Security Interest.

J.                                                                         The Purchasers will subordinate the Purchasers’ Security Interest to the Bank’s Security Interest with respect to a maximum of $6,500,000, plus any accrued but unpaid interest under the Bank Loan.

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

The recitals set forth above are hereby incorporated by this reference as if they were part of the body of this Agreement.

1.                                        DEFINITIONS.  Capitalized terms not otherwise defined in this Agreement shall have the following definitions:

1.1                                  “ Affiliate ” means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person.  For the purposes of this definition, “control,” when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting

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securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

1.2                                  “ Amended Intercreditor Agreement ” means the Amendment No. 2 to the Intercreditor Agreement dated as of November 15, 2004 between Berg and Bank which adds the Purchasers as parties to such Agreement.

1.3                                  [INTENTIONALLY OMITTED]

1.4                                  [INTENTIONALLY OMITTED]

1.5                                  “ Business Day ” means each day that is not a Saturday, Sunday or legal holiday.

1.6                                  “ Capital Stock ” means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distribution of the assets of, the issuing person.

1.7                                  [INTENTIONALLY OMITTED]

1.8                                  “ Common Stock ” means the common stock of the Company, $0.01 par value per share, as it exists on the date of this Agreement, and any shares of any class or classes of capital stock of the Company resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided , however , that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

1.9                                  “ Company ” means the party named as such in the first paragraph of this Agreement until a successor replaces it pursuant to the applicable provisions of this Agreement, and thereafter “Company” shall mean such successor Company.

1.10                            “ Continuing Director ” means, as of any date of determination, any member of the board of directors who (a) was a member of the board of directors of the Company on the date of this Agreement or (b) becomes a member of the board of directors subsequent to the date of this Agreement and was appointed,

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nominated for election or elected to the board of directors with the approval of a majority of the Continuing Directors who were members of the board of directors at the time of such appointment, nomination or election.

1.11                            “ Exchange Act ” means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

1.12                            “ Final Maturity Date ” means January 1, 2011.

1.13                            “ Fundamental Change ” means the occurrence of any of the following at a time after the Notes are originally issued:

(a)                               the Common Stock  is neither traded on the New York Stock Exchange or another U.S. national securities exchange nor quoted on the NASDAQ Stock Market or another established automated over-the-counter trading market in the United States; or

(b)                              any Person acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Company’s Capital Stock entitling the Person to exercise 50% or more of the total voting power of all shares of the Company’s Capital Stock entitled to vote generally in elections of directors, other than an acquisition by the Company, any of its Subsidiaries or any of its employee benefit plans; or

(c)                               the Company merges or consolidates with or into any other Person (other than a Subsidiary of the Company), another Person merges with or into the Company or the Company conveys, sells, transfers or leases all or substantially all of its assets to another Person, other than any transaction:

(i)                                    that does not result in a reclassification, conversion, exchange or cancellation of any outstanding Common Stock; or

(ii)                                 pursuant to which the holders of Common Stock immediately prior to the transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of the Capital Stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after the transaction; or

(iii)                              that is effected solely to change the Company’s jurisdiction of incorporation and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of common stock of the surviving entity; or

(d)                              the Continuing Directors cease to constitute a majority of the board of directors of the Company (or, if applicable, the board of directors of a successor Person to the Company) within

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a 12- month period (it being understood that if any current director resigns his/her position or refuses to stand for reelection, such current director’s replacement shall be deemed to be a “Continuing Director”).

For purposes of this definition, whether a Person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act and “Person” includes any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act.

1.14                            “ Fundamental Change Repurchase Date ” means the date specified as such in the Fundamental Change Repurchase Right Notice delivered to Holders pursuant to Section 3.1 (b).

1.15                            “ GAAP ” means generally accepted accounting principles in the United States of America as in effect as of the date of this Agreement, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) the statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entity as approved by a significant segment of the accounting profession, and (4) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in registration statements filed under the Securities Act and periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

1.16                            “ Guaranty ” means the Unconditional Guaranty dated as of November 15, 2004 by Berg of the Bank Loan, which is secured by the Berg Security Interest.

1.17                            “ Holder ” means the Person in whose name a Note is registered on the Company’s books.

1.18                            “ Indebtedness ” means, with respect to any Person, without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of such Person in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by credit or loan agreements, bonds, debentures, notes or other written obligations (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof) (other than any accounts payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services), (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers’ acceptances, (c) all obligations and liabilities (contingent or otherwise) of such Person in respect of leases of such Person required, in conformity with GAAP, to be accounted for as capitalized lease obligations on the balance sheet of such Person, (d) all obligations of such Person evidenced by a note or similar instrument given in connection with the acquisition of any business, properties or assets of any kinds, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued liabilities arising in the ordinary course of business), (f) all obligations and other liabilities (contingent or otherwise) of such Person under any lease or related document (including a purchase agreement) in connection with the lease of real property or improvements (or any personal property

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included as part of any such lease) that provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property (whether or not such lease transaction is characterized as an operating lease or a capitalized lease in accordance with GAAP), (g) all obligations (contingent or otherwise) of such Person with respect to any interest rate, currency or other swap, cap, floor or collar agreement, hedge agreement, forward contract, or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (h) all direct or indirect guarantees, agreements to be jointly liable or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (g), and (i) any and all deferrals, renewals, extensions, restatements, replacements, refinancings and refundings of, or amendments, modifications, or supplements to, or any indebtedness or obligation issued in exchange for, any indebtedness, obligation or liability of the kind described in clauses (a) through (h).

1.19                            [INTENTIONALLY OMITTED]

1.20                            “ Lien ” means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind.

1.21                            “ Loan Documents ” means this Purchase Agreement, the Notes, the Security Agreement, all financing statements and instruments of perfection filed pursuant to the Security Agreement, the Registration Rights Agreement, the Amended Intercreditor Agreement, and the New Intercreditor Agreement and such other documents and instruments as are signed and delivered by Purchasers or the Company for the transactions contemplated by this Agreement.

1.22                            “ Majority-in-Interest of the Notes ” or “Majority-in-Interest” means the Holders of Notes representing more than 50% of the total amount of Notes principal outstanding.

1.23                            “ New Intercreditor Agreement ” means the Amended and Restated Intercreditor Agreement dated as of the date of this Agreement among  Berg and the Purchasers pursuant to which they will share collateral subject to the Berg Security Interest and the Purchasers’ Security Interest.

1.24                            “ Obligations ” means any principal, interest, penalties, fees, indemnifications, reimbursements, attorneys’ fees and expenses, damages and other liabilities payable under the documentation governing any Indebtedness.

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1.25                            [INTENTIONALLY OMITTED]

1.26                            “ Permitted Liens ” means: (i) Liens imposed by law, such as carriers’, warehousemen’s, materialmen’s and mechanics’ liens, or Liens arising out of judgments or awards against the Company which the Company do not constitute an Event of Default; (ii) Liens for taxes not yet subject to penalties for non-payment and Liens for taxes the payment of which is being contested in good faith and by appropriate proceedings and for which, to the extent required by generally accepted accounting principles then in effect, proper and adequate book reserves relating thereto are established by the Company; (iii) Liens (A) upon or in any equipment acquired or held by the Company to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment and other equipment financed by the holder of such Lien; (iv) Liens consisting of leases or subleases and licenses and sublicenses granted to others in the ordinary course of either the Company’s business not interfering in any material respect with the business of the Company and any interest or title of a lessor or licensor under any lease or license, as applicable; (v) Liens incurred or deposits made in the ordinary course of either the Company’s business in connection with worker’s compensation, unemployment insurance, social security and other like laws; (vi) Liens in favour of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (viii) Liens to which the Purchasers have each expressly consented in writing; (ix) the Bank Security Interests; (x) the Berg Security Interest; and (xi) Liens in favour of the Purchasers.

1.27                            “ Person ” or “ person ” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

1.28                            “ Purchasers’ Agent ” means Thomas O. Boucher. Jr.  and any of his successors as appointed from time to time in accordance with this Agreement.

1.29                            “ Redemption Date ” when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Agreement.

1.30                            “ Registration Rights Agreement ” means the Amended and Restated Registration Rights Agreement substantially in the form of Exhibit G among the Company, the Purchasers’ Agent and the Purchasers, dated as of the date of this Agreement with respect to the Company’s  registration of the Warrants  and Warrant Shares under the Securities Act.

1.31                            “ SEC ” means the Securities and Exchange Commission.

1.32                            “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

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1.33                            “ Security Agreement ” means the Amended and Restated Security Agreement dated as of the date of this Agreement by and among the Company, the Purchasers’ Agent, and the  Purchasers.

1.34                            [INTENTIONALLY OMITTED]

1.35                            [INTENTIONALLY OMITTED]

1.36                            “ Subsidiaries ” means COMO Computer and Motion GmbH, Focus Enhancements, Korea and Focus Enhancements Japan K.K.

1.37                            “ Trading Day ” means a day during which trading in securities generally occurs on the NASDAQ Stock Market or, if the Common Stock is not quoted on the NASDAQ Stock Market, on the principal national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not listed on a national or regional securities exchange, on the National Association of Notes Dealers Automated Quotation System or other established automated over-the-counter trading market in the United States or, if the Common Stock is not quoted on the National Association of Notes Dealers Automated Quotation System or another established automated over-the-counter trading market in the United States, on the principal other market on which the Common Stock is then traded ( provided that no day on which trading of the Common Stock is suspended shall count as a Trading Day).

2.                                        PURCHASE AND SALE OF NOTES AND WARRANTS

2.1                                  Note Issuance, Cancellation of Original Notes, Warrants Issuance .  Subject to the terms and conditions of this Agreement, in return for the Purchase Price provided by each Purchaser (which, in the case of  (i) Original Purchasers, shall be the exchange of the Original Notes, any additional Notes issued in lieu of interest cash payments,  and any new cash consideration as the Original Purchasers shall advance and (ii) New Purchasers, shall be new cash consideration), the Company shall sell and issue to such Purchaser a new one or more Notes  Each such Note shall have a principal balance equal to the Purchase Price paid by such Purchaser for the Note, as set forth in the Schedule of Purchasers.  Any Purchase Prices previously evidenced by the Original Notes issued under the Original Purchase Agreement shall be amended and restated by the Notes and any Purchase Price amounts related thereto shall be deemed already paid to Company.  All Original Notes shall be canceled and no longer outstanding, even if not surrendered, upon the Purchase Agreement Closing Date set forth below.   Concurrently with the issuance of the Notes, the Company shall issue that  number of Warrants to each respective Purchaser in accordance with the proportion that each Purchaser’s Note principal bears to the total outstanding principal amount of all $20,800,000 in Notes issued under this Agreement multiplied by 26,000,002, with  each such Purchaser’s number of Warrants set forth in Exhibit B (every 0.5 or more being rounded up and less than 0.5 being rounded down, in each case to the nearest whole Warrant number).  At Company’s option, Company may  pay in kind any Note interest due on  June 30, 2008 and/or  December 30, 2008. As used herein, “pay in kind” means that in lieu of paying cash as the interest payment, Company shall  issue a new Note in the  amount of the interest payment then  due.  If Company pays  any interest in kind on any

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Note on either of such dates,  all interest payments then due on all  outstanding Notes shall be similarly paid in kind.   Upon payment in kind of  any interest, the person receiving such payment  shall also be entitled to receive,  on the same terms as set forth in the Warrants issued under this Purchase Agreement, additional Warrants for a number of Common Stock Shares of the Company equal to the  additional new  Note amount divided by $0.80, subject to further adjustment as set forth in the Warrants issued under this  Purchase Agreement.

2.2                                  Closing Date .  The purchase and sale of the Notes shall take place at the offices of Ingalls & Snyder LLC, 61 Broadway, New York, New York  at   such  place and time as the Company and the Purchasers’ Agent shall agree (the “ Purchase Agreement Closing Date ”), but no later than February 15, 2008.  Each Purchaser shall deliver to the Company the Purchase Price together with an executed counterpart to this Agreement, and each of the other Loan Documents, and the Company shall deliver to each Purchaser one or more executed Notes together with fully executed copies of the Loan Documents. Any Original Purchaser shall deliver the Original Notes as part of the Purchase Price or provide an indemnity reasonably satisfactory to Company if such Original Note cannot be located.

2.3                                  Separate Agreements .  The Company’s agreements with each of the Purchasers are separate agreements and the sales of the Notes are separate transactions.

2.4                                  Security Interest and Security Agreement .  The indebtedness represented by the Notes shall be secured by all of the assets of the Company in accordance with the terms and conditions of the Security Agreement, which shall be subject to the terms of the Amended Intercreditor Agreement and the New Intercreditor Agreement.  All parties signatory thereto shall execute the Amended Intercreditor Agreement. All parties signatory thereto shall execute the Amended Security Agreement to memorialize the security interest.

2.5                                  Registration Rights Agreement; January 24, 2006 Registration Rights Agreement Terminated . The Original Purchasers, Purchasers’ Agent, and Company hereby terminate the January 24, 2006 Registration Rights Agreement.  In connection with the transactions contemplated hereby, the Company, the Purchasers’ Agent and each Purchaser shall execute  the Registration Rights Agreement.

2.6                                  Eligibility .  Each Purchaser must be an “ accredited ” investor as such term is defined in Rule 501 of Regulation D promulgated by the U.S. Notes and Exchange Commission.

2.7                                  Transfer and Exchange .

(a)                                   Subject to compliance with any applicable additional requirements contained in Section 3, when a Note is presented to the Company with a request to register a transfer thereof or to exchange such Note for an equal principal amount of Notes of other authorized denominations, the Company shall register the transfer or make the exchange as requested; provided , however , that every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by an assignment

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form and, if applicable, a transfer certificate each in the form included in the Note, and in form satisfactory to the Company duly executed by the Holder thereof or its attorney duly authorized in writing.  Any exchange or registration of transfer shall be without charge, except that the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, and provided, that this sentence shall not apply to any exchange pursuant to Section 2.9.

(b)                                   The Company shall not be required to exchange or register a transfer of (i) any Notes for the 15-day period immediately preceding the date of mailing of a notice of Notes to be redeemed, (ii) any Notes or portions thereof selected or called for redemption (except, in the case of redemption of a Note in part, the portion thereof not to be redeemed) or (iii) any Notes or portions thereof in respect of which a notice pursuant to Section 3.1(c) hereof has been delivered and not withdrawn by the Holder thereof (except, in the case of the purchase of a Note in part, the portion thereof not to be purchased).

(c)                                   All Notes issued upon any transfer or exchange of Notes shall be valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Agreement, as the Notes surrendered upon such transfer or exchange.

(d)                                   Each Holder agrees severally to indemnify the Company against any liability that may result from the registration of transfer, exchange or assignment of such Holder’s Note in violation of any provision of this Agreement and/or applicable United States federal or state securities law, but only to the extent of the damages caused to the Company by such Holder’s violation.  The Holder will not be liable for breaches by any other Holder pursuant to this provision.

2.8                                  Replacement Notes .

(a)                                   If any mutilated Note is surrendered to the Company, and there is delivered to the Company such security or indemnity as will be required by the Company to save it harmless, then, in the absence of notice to the Company that such Note has been acquired by a protected purchaser, the Company shall execute and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding.  In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, or is about to be redeemed or purchased by the Company pursuant to Section 2.9, the Company in its discretion may, instead of issuing a new Note, pay, redeem or purchase such Note, as the case may be.

(b)                                   Upon the issuance of any new Notes under this Section 2.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses in connection therewith.

(c)                                   The provisions of this Section 2.8 are (to the extent lawful) exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.

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2.9            Optional Redemption .

(a)                                   The Company shall have the option to redeem the Notes pursuant to this Section 2.9 at any time, in whole or in part (or any portion thereof equal to $1,000,000 or any integral multiple of $1,000,000 in excess thereof), upon 30 days’ prior written notice, at a redemption price in cash equal to 100% of the principal amount of the Notes (the “  Redemption Price  ”) to be redeemed together with accrued and unpaid interest, if any, on the principal amount of the Notes redeemed to the Redemption Date.

(b)                                   At least 30 days before a Redemption Date, the Company shall deliver a notice of redemption to each Holder of Notes to be redeemed at such Holder’s address on the Company’s books.  The notice shall identify the Notes to be redeemed and shall state:

(1)                                   the Redemption Date;

(2)                                   the Redemption Price;

(3)                                   that Notes called for redemption must be presented and surrendered to the Company to collect the Redemption Price;

(4)                                   [INTENTIONALLY OMITTED];

(5)                                   that, unless the Company defaults in making the payment of the Redemption Price, interest on Notes called for redemption shall cease accruing on and after the Redemption Date and the only remaining right of the Holder shall be to receive payment of the Redemption Price plus accrued interest, if any, up to but not including the Redemption Date, upon presentation and surrender of the Notes by the Holders to the Company; and

(6)                                   if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, upon presentation and surrender of such Note, a new Note or Notes in aggregate principal amount equal to the unredeemed portion thereof will be issued.

(c)                                   Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice, together with accrued and unpaid interest, if any.  Upon presentation and surrender to the Company, Notes called for redemption shall be paid at the Redemption Price, plus accrued interest up to but not including the Redemption Date.

2.10                            Payment of Interest .

(a)                                   The Company agrees to pay the Holders interest on the Note principal outstanding from time to time in cash at the rate and times specified in the Note.  The Company will pay interest by check mailed to the address of each  Holder on the Company’s books and records on the dates specified in the Note; provided that the Company will make payments of interest to such  Holder’s account by wire transfer on the Business Day immediately preceding the interest payment date if such  Holder has provided wire transfer instructions to the Company at least five Business Days prior to the scheduled interest payment date.

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(b)                                   Notwithstanding the foregoing, the Company, at its sole option, may pay interest due on each of  June 30, 2008 and/or December 30, 2008 through the issuance of new Notes in the principal amount of the interest due to the Holders, if there is no pending Event of Default as of such interest payment date (however, in no event shall the face amount of the Notes exceed $30,100,000).  The Company shall issue and deliver the new Notes to the Holders within three Business Days after the interest payment date.  The Company shall notify the Purchasers’ Agent and the Holders of any election pursuant to this Section 2.10(b) at least 10 days prior to the related interest payment date.  Any election by the Company pursuant to this Section 2.10(b) shall apply to all Notes outstanding as of the related interest payment date, other than Notes as to which the Holder has submitted a Fundamental Change Repurchase Right Notice prior to the date the Company sends a notice pursuant to this Section 2.10(b).

3.                                        REPURCHASE UPON A FUNDAMENTAL CHANGE

3.1                                  Repurchase at Option of the Holder upon a Fundamental Change .

(a)                                   Subject to the satisfaction of the requirements of this Section 3.1, if a Fundamental Change  occurs at any time prior to the Final Maturity Date, each Holder will, upon receipt of the notice of the occurrence of a Fundamental Change described in Section 3.1(c), have the right to require the Company to repurchase any or all of such Holder’s Notes for cash in an amount equal to 101% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to (but not including) the Fundamental Change Repurchase Date (the “ Fundamental Change Repurchase Price ”).

(b)                                   on or before the 15th Business Day prior to the effective date of a Fundamental Change (which Fundamental Change results in the Holders of such Notes having the right to cause the Company to repurchase their Notes), the Company will provide to all Holders of the Notes, a notice of the occurrence of the Fundamental Change and of the resulting repurchase right (the “ Fundamental Change Repurchase Right Notice ”).  The Fundamental Change Repurchase Right Notice shall state:

(1)                                   the event or events giving rise to the Fundamental Change;

(2)                                   the effective date of the Fundamental Change, if applicable;

(3)                                   the last date on which a Holder may exercise its repurchase right;

(4)                                   the Fundamental Change Repurchase Price;

(5)                                   the Fundamental Change Repurchase Date;

(6)                                   [INTENTIONALLY OMITTED]; and

(7)                                   the procedures that Holders must follow to require the Company to repurchase their Notes and to withdraw any Repurchase Exercise Notice.

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(c)                                   To exercise the repurchase right in connection with a Fundamental Change, a Holder must, prior to midnight, New York City time, on the second Business Day immediately preceding the Fundamental Change Repurchase Date, deliver the Notes to be purchased to the Company, duly endorsed for transfer, and must deliver a written notice of repurchase (a “ Repurchase Exercise Notice ”), substantially in the form included in the Note.  The Repurchase Exercise Notice must state:

(1)                                   the portion of the principal amount of the Notes to be repurchased, which must be equal to $100,000 or an integral multiple thereof (unless the total is $100,000 or less); and

(2)                                   that the Notes are to be repurchased by the Company as of the Fundamental Change Repurchase Date pursuant to the applicable provisions of the Notes and this Agreement.

(d)                                   A Holder may withdraw any Repurchase Exercise Notice (in whole or in part) by a written notice of withdrawal delivered to the Company prior to midnight, New York City time, on the second Business Day immediately preceding the Fundamental Change Repurchase Date.  The notice of withdrawal must state:

(1)                                   the principal amount of the Notes for which the Repurchase Exercise Notice has been withdrawn; and

(2)                                   the principal amount, if any, that remains subject to the Repurchase Exercise Notice.

(e)                   &n