Exhibit 10.6

 

 

Quatech, Inc.

and

DPAC Technologies Corp.

Senior Subordinated Note And Warrant

Purchase Agreement

 

 

Dated as of January 31, 2008

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TABLE OF CONTENTS

 

Section 1.    DEFINED TERMS    2 Section 2.    PURCHASE AND SALE OF THE
SECURITIES    2 Section 3.    CONDITIONS TO CLOSING    2    3.1    Preferred
Stock Transaction    2    3.2    Execution and Delivery of Related Documents   
3    3.3    Certificates, Opinions, and Other Documents    3    3.4   
Disbursements and Deliveries    4    3.5    Other    4    3.6    Post-Closing
Items    4 Section 4.    REPRESENTATIONS AND WARRANTIES OF EACH COMPANY    5   
4.1    Organization and Good Standing    5    4.2    Corporate Power    5    4.3
   Subsidiaries and Joint Ventures    5    4.4    Capitalization    5    4.5   
Authorization; Enforceability    6    4.6    No Conflict    6    4.7    Consents
   7    4.8    Title to and Condition of Properties and Assets    7    4.9   
Books and Records    7    4.10    Financial Statements    7    4.11   
Undisclosed Liabilities    7    4.12    Material Adverse Change; Material Events
   7    4.13    Accounts; Inventory    8    4.14    Taxes    9    4.15   
Intellectual Property    9    4.16    Material Contracts    9    4.17   
Insurance    10    4.18    Compliance with Laws    10    4.19    Licenses and
Permits    10    4.20    Environmental Warranties    10    4.21    Labor
Relations    11    4.22    Employee Benefit Plans    11    4.23    Customers and
Suppliers    11    4.24    Brokerage Fee    12    4.25    Full Disclosure    12
   4.26    Use of Proceeds    12    4.27    Lien Priority    12 Section 5.   
REPRESENTATIONS AND WARRANTIES OF PURCHASER    12    5.1    Organization    12
   5.2    Authorization; Enforceability    12    5.3    No Conflicts    13   
5.4    Consents    13    5.5    Experience    13    5.6    Investment Intent   
13

 

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   5.7    Rule 144    13    5.8    Knowledge of Purchaser    14 Section 6.   
FINANCIAL REPORTING    14    6.1    Financial and Corporate Reports    14    6.2
   Other Information    15    6.3    Rule 144A    15    6.4    Preparation of
Financial Statements in Accordance with GAAP    15    6.5    Changes in
Practices, Policies and Procedures    15    6.6    Notice of Certain Events   
16    6.7    Books, Records, Audits and Inspections    16 Section 7.   
AFFIRMATIVE COVENANTS    17    7.1    Insurance    17    7.2    Payment of Taxes
and Claims    17    7.3    Compliance with Laws    17    7.4    Preservation of
Existence and Licenses    17    7.5    Maintenance of Assets    18    7.6   
Performance of Contracts    18    7.7    Employee Benefit Plans    18    7.8   
Continuation of Business    18    7.9    Board Observer Rights    18    7.10   
Use of Proceeds    18 Section 8.    NEGATIVE COVENANTS    18    8.1    Other
Indebtedness    18    8.2    Prepayments    19    8.3    Liens    19    8.4   
Capital Expenditures    19    8.5    Investments    19    8.6    Merger and
Consolidation; Acquisitions    19    8.7    Subsidiaries    19    8.8    Sales
and Leasebacks    20    8.9    Transfers, Liquidations and Dispositions of
Substantial Assets    20    8.10    Capital Stock; Registration Rights    20   
8.11    Restricted Payments    20    8.12    Organizational and Business
Activities    20    8.13    Transactions with Affiliates    20    8.14    Change
in Control    21    8.15    Employee Benefit Plans    21    8.16    Change in
Principal Office    21    8.17    Senior Loan    21    8.18    Organizational
Documents    21    8.19    Other Acts    21 Section 9.    FINANCIAL TESTS    21
   9.1    Funded Debt to EBITDA    22    9.2    Fixed Charge Coverage Ratio   
22    9.3    Effective Tangible Net Worth    22 Section 10.    EVENTS OF DEFAULT
   22

 

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Section 11.    INDEMNIFICATION BY THE COMPANY    22 Section 12.    MISCELLANEOUS
   23    12.1    Amendment, Modification or Restatement    23    12.2    Waiver
of Compliance    24    12.3    Consent or Approval of Purchaser    24    12.4   
Forbearance    25    12.5    No Implied Rights or Waivers    25    12.6   
Payment of Fees and Expenses    25    12.7    Entire Agreement    26    12.8   
Severability    26    12.9    Third Party Beneficiaries, Successors and Assigns
   26    12.10    Legal Representation    26    12.11    Rules of Construction
   26    12.12    Notice    28    12.13    Assignment    29    12.14    Further
Assurances    30    12.15    Closing of the Transaction    30    12.16   
Counterparts    30    12.17    Governing Law    32    12.18    Waiver of Jury
Trial    32    12.19    Consent to Jurisdiction, Venue and Service of Process   
32

 

EXHIBIT A    Glossary of Defined Terms EXHIBIT B    Form of Note EXHIBIT C   
Form of Warrant Certificate EXHIBIT D    Form of Security Agreement EXHIBIT E   
Form of Registration Rights Agreement EXHIBIT F    Form of Co-Sale Agreement

 

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Senior Subordinated Note

and Warrant Purchase Agreement

This is a SENIOR SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT dated as of
January 31, 2008 (the “Purchase Agreement”) by and between Quatech, Inc., an
Ohio corporation (“Quatech”) and DPAC Technologies Corp., a California
corporation (“DPAC”, together with Quatech and their successors and assigns,
each individually the “Company”, and collectively, the “Companies”), as sellers,
and Canal Mezzanine Partners, L.P., a Delaware limited partnership (together
with its successors and assigns, the “Purchaser”), as purchaser. The Companies
and the Purchaser are referred to collectively as the “Parties”, and
individually as a “Party”.

RECITALS

A. Quatech is an Ohio corporation engaged in the business of manufacturing,
supplying and providing support for high performance device networking and
connectivity solutions. DPAC is a holding company primarily engaged in the
business of owning all of the outstanding shares of Quatech.

B. The Purchaser has agreed to purchase up to $1,200,000 of Senior Secured
Subordinated Promissory Notes from Quatech.

C. The Companies intend to enter into a loan agreement (the “Senior Loan
Agreement”) with a senior lender (the “Senior Lender”), pursuant to which it is
anticipated that the Senior Lender will provide to the Companies up to a maximum
aggregate principal amount of $3,000,000 (the “Senior Loan”) for Companies’
working capital and other purposes. It is anticipated that the Senior Loan will
be secured by a first priority security interest in the Collateral.

D. Development Capital Venture, L.P. has purchased at least $2,000,000 of
preferred shares of DPAC.

 

  A. Purchase and Sale

Upon the terms and subject to the conditions set forth in this Purchase
Agreement, the Companies shall issue and sell to the Purchaser (i) a Senior
Subordinated Note in the aggregate principal amount of $1,200,000 due
January 31, 2013 (the “Note”) and (ii) in the case of DPAC, a warrant to
purchase the common stock of DPAC representing 3% of the Fully Diluted Common
Stock of DPAC on the date of exercise (the “Common Stock Warrant” and together
with the Note, and where applicable, the Warrant Shares, the “Securities”).

 

  B. Security for Payment of the Note

As security for payment of the Note and the payment and performance of other
obligations under this Purchase Agreement and the Related Documents, pursuant to
the terms of a Security Agreement of even date herewith by and between the
Companies and the Purchaser (the “Security Agreement”), each Company will grant
to the Purchaser a first priority security

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interest in the Collateral. At such time when the Company enters into the Senior
Loan Agreement, upon the request of the Senior Lender, the Purchaser will
subordinate its first priority security interest in the Collateral to the Senior
Lender’s security interest in such assets, pursuant to the terms of a
subordination agreement on terms reasonable and satisfactory to both the
Purchaser and the Senior Lender (the “Subordination Agreement”).

STATEMENT OF AGREEMENT

In consideration of the premises and the respective representations, warranties,
covenants, agreements and conditions hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereby agree as follows:

Section 1. DEFINED TERMS

Certain terms used in this Purchase Agreement and the Related Documents are
defined in the Glossary of Defined Terms attached as Exhibit A. Unless otherwise
expressly provided or unless the context otherwise requires, such defined terms
shall have the meaning specified in the Glossary of Defined Terms when used in
this Purchase Agreement and the Related Documents.

Section 2. PURCHASE AND SALE OF THE SECURITIES

Upon the terms and subject to the conditions set forth in this Purchase
Agreement, the Companies shall issue and sell to the Purchaser and the Purchaser
shall purchase from the Company (i) the Note in the form attached hereto as
Exhibit B for a purchase price of $1,200,000 (the “Note Purchase Price”), and
(ii) the Warrant represented by the Warrant Certificate in the form attached
hereto as Exhibit C (the “Warrant Certificate”) at an aggregate exercise price
of One Dollar ($1) (the “Warrant Purchase Price” and together with the Note
Purchase Price, the “Aggregate Purchase Price”).

The purchase and sale of the Securities shall be consummated on the Closing Date
as provided for in this Purchase Agreement, and on such date the Purchaser shall
make full payment of the Aggregate Purchase Price by federal funds wire transfer
in immediately available funds to an account designated by the Companies, and
DPAC shall deliver to the Purchaser the Securities, dated the Closing Date and
registered on the books of DPAC in the name of the Purchaser.

Section 3. CONDITIONS TO CLOSING

The obligation of the Purchaser to purchase the Securities on the Closing Date
is subject to the fulfillment, in a manner reasonably satisfactory to the
Purchaser and its counsel, of each of the following conditions precedent:

 

  3.1 Preferred Stock Transaction

Without limiting the generality of the foregoing, Development Capital Venture,
L.P. and certain affiliates of DPAC shall have purchased from DPAC at least
$2,000,000 of Series A Convertible Preferred Stock of DPAC, pursuant to the
Subscription Agreement(s) with respect thereto (the “Stock Purchase
Transaction”).

 

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  3.2 Execution and Delivery of Related Documents

Each of the following documents, each dated and effective as of the Closing
Date, shall have been duly executed and delivered by the parties thereto:

 

  (a) this Purchase Agreement;

 

  (b) the Note;

 

  (c) the Warrant Certificate;

 

  (c) the Security Agreement in the form attached hereto as Exhibit D;

 

  (d) the Registration Rights Agreement in the form attached hereto as Exhibit
E; and

 

  (e) the Co-Sale Agreement in the form attached hereto as Exhibit F.

 

  3.3 Certificates, Opinions, and Other Documents

The following certificates, opinions and other documents shall be delivered by
or on behalf of the Companies, each in a form satisfactory to the Purchaser and
its counsel:

(a) certified copies of the resolutions of each of the Companies authorizing the
execution, delivery and performance of its obligations under this Purchase
Agreement, the Related Documents and any other documents to be delivered by the
Companies pursuant hereto and thereto;

(b) certified copies of each Company’s Charter Documents, including any and all
amendments thereto, as in effect on the Closing Date, together with good
standing certificates;

(c) a certificate of the Chief Executive Officer of each Company certifying:
(i) the names of the officers of such Company authorized to sign this Purchase
Agreement, the Related Documents and any other documents or certificates to be
delivered pursuant hereto and thereto by such Company, together with the true
signatures of such officers, (ii) that the representations and warranties made
by such Company in Section 4 of the Purchase Agreement are true and complete in
all material respects on and as of the Closing Date (except to the extent such
representations and warranties expressly relate to an earlier date), and
(iii) that no material adverse change has occurred in the financial condition of
such Company or its operations since the date of the most recent Financial
Statements, nor any event or circumstance shall have occurred which could
reasonably be expected to result in a material adverse change in the financial
condition of such Company or its operations;

(d) an opinion of counsel for the Companies;

 

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(e) Forms UCC-1 and copies of Lien searches with respect to the Collateral;

(f) certificates, together with undated assignments separate from certificate
duly executed in blank by such Company, as applicable, for any stock of each
Company that are represented by certificates,

(g) such other opinions, certificates, affidavits, documents, lien releases and
filings as the Purchaser may reasonably request.

 

  3.4 Disbursements and Deliveries

A closing fee in the amount of $24,000, together with reimbursement of the
Purchaser’s legal fees and due diligence and other expenses as provided for in
Section 12.6 of this Purchase Agreement shall have been made out of the proceeds
of the sale of the Securities.

 

  3.5 Other

Each of the following shall be true:

(a) each of the Companies’ representations and warranties set forth in this
Purchase Agreement and the Related Documents shall be accurate in all material
respects as of the Closing Date;

(b) no material adverse change shall have occurred in the financial condition of
any Company or its operations since the date of the most recent Financial
Statements, nor any event or circumstance shall have occurred which could
reasonably be expected to result in a material adverse change in the financial
condition of any Company or its operations;

(c) the Purchaser shall have concluded an investigation of the business,
condition, properties, assets, prospects, operations and affairs of the
Companies and shall be satisfied, in its sole discretion, with the results
thereof;

(d) the Purchaser’s Investment Committee shall have considered and approved the
purchase of the Securities; and

(e) one (1) representative designated by the Purchaser shall have the right to
observe DPAC’s Board of Directors upon the closing of the transactions
contemplated hereby.

 

  3.6 Post-Closing Items

The following actions shall be taken after the Closing Date:

(a) each Company shall timely make all required governmental or regulatory
filings with respect to the issuance and sale of the Securities; and

(b) each Company shall timely furnish or cause to be timely furnished all
post-closing items required to be delivered pursuant to the terms of this
Purchase Agreement.

 

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Section 4. REPRESENTATIONS AND WARRANTIES OF EACH COMPANY

The representations and warranties of each Company set forth below shall survive
the Closing Date, and any investigation made by the Purchaser shall not diminish
the right of the Purchaser to rely upon such representations and warranties.
Except as otherwise specified, such representations and warranties are made
giving effect to the Stock Purchase Transaction and the filing and effectiveness
of the Certificate of Designations with respect to the Series A Convertible
Preferred Stock of DPAC contemplated thereby. Exceptions to the representations
and warranties are set forth on the Schedule of Exceptions of the Companies
delivered contemporaneously herewith. Each Company represents and warrants to
the Purchaser as follows:

 

  4.1 Organization and Good Standing

Quatech is a corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio. DPAC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Each Company is duly qualified and is authorized to do business and is in good
standing under the laws of each state or other jurisdiction in which either the
character of its properties or the nature of its activities makes such
qualification necessary. Each Company has furnished to the Purchaser true and
complete copies of its Charter Documents and any other agreements affecting its
governance, all as in effect on the date of this Purchase Agreement.

 

  4.2 Corporate Power

Each Company has full corporate and other power and authority (a) to own, lease
and operate its assets, (b) to carry on its business as presently conducted and
as proposed to be conducted, (c) to execute and deliver this Purchase Agreement,
the Related Documents and any other instruments or documents provided for herein
or therein, and (d) to carry out and perform its obligations under the terms of
this Purchase Agreement and the Related Documents.

 

  4.3 Subsidiaries and Joint Ventures

Quatech is the only Subsidiary of DPAC. Quatech has no Subsidiaries. Neither
Company otherwise owns or controls, directly or indirectly, or has any other
equity investment in or other interest in, any other Person. Neither Company is
a member, partner or participant in any partnership, joint venture, association
or similar arrangement.

 

  4.4 Capitalization

(a) The total authorized shares of Quatech consists of five million shares
consisting of three million shares of common stock and two million shares of
preferred stock of which 650,000 shares of the preferred stock is designated as
series A convertible preferred stock. The authorized capital stock of DPAC shall
consist of 120,000,000 million shares of common stock, of which 92,890,836
shares are issued and outstanding as of the date hereof (and of which

 

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11.922,000 shares are subject to issuance under DPAC’s stock option plan) and
8,000,000 shares of preferred stock, of which 30,000 have been designated as
Series A Convertible Preferred and of which 21,250 are issued and outstanding.
The number of shares of Common Stock authorized is sufficient to cover the
exercise of the Warrant as of the date hereof. DPAC has reserved sufficient
shares for issuance upon exercise of the Warrant.

(b) The outstanding shares have been, the Securities upon their issuance will
be, and upon the exercise of the Warrant in accordance with its terms, the
Warrant Shares will have been (i) duly authorized, validly issued, fully paid
and non-assessable, (ii) issued in compliance with Applicable Law, and
(iii) issued in compliance with applicable preemptive, preferential or
contractual rights.

(c) Except as provided in this Purchase Agreement, the Related Documents, the
transactions contemplated by the Stock Purchase Transaction and Schedule 4.4(c)
hereto, there are no outstanding options, subscriptions, warrants, calls,
preemptive rights, conversion rights, exchange rights, redemption rights,
registration rights, co-sale rights, buy-sell rights, rights of first refusal or
similar rights, agreements or undertakings in effect or committed to by any
Company or its members with respect to the shares of such Company.

(d) There is no irrevocable proxy, voting trust, members agreement, close
corporation agreement or similar agreement or arrangement with respect to the
exercise of the Voting Power of any Company.

 

  4.5 Authorization; Enforceability

The execution and delivery of this Purchase Agreement and the Related Documents
by each Company, and the performance of its obligations hereunder and
thereunder, have been duly authorized by all requisite corporation action. This
Purchase Agreement and each Related Document, when executed and delivered by
each Company, will constitute valid and legally binding obligations of each
Company, enforceable against each Company in accordance with their respective
terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors’ rights generally, and to general principles
of equity.

 

  4.6 No Conflict

The execution, delivery and performance of this Purchase Agreement and the
Related Documents by each Company do not and will not (a) conflict with or
violate any Applicable Law or any judgment, order, decree, stipulation or
injunction to which each Company is subject, (b) violate or conflict with the
provisions of its Charter Documents, (c) result in the breach of, or constitute
a default under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Lien on any of
its assets or properties pursuant to, any note, bond, contract, lease, license,
permit, indenture, mortgage, or any other instrument or agreement to which each
Company is a party or by which any of its property is bound.

 

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  4.7 Consents

No consent, approval, authorization, license, order or permit of, or
declaration, registration or filing with, or notification to, any governmental
authority or any other Person is required in connection with the execution,
delivery and performance of this Purchase Agreement and the Related Documents,
or the consummation of any transaction contemplated hereby or thereby.

 

  4.8 Title to and Condition of Properties and Assets

Each Company has good and marketable title to or a valid and subsisting
leasehold interest in all of the assets, properties and tangible personal
property that it purports to own and necessary for the conduct of its business,
free and clear of any Lien (except for Permitted Liens). Such property is in
good operating condition and repair, ordinary wear and tear excepted.

 

  4.9 Books and Records

The books of account, asset ledgers, inventory ledgers, minute books and stock
record books of each Company, all of which have been made available to the
Purchaser, are complete and correct in all material respects, and have been
maintained on a consistent basis in accordance with sound business practices.

 

  4.10 Financial Statements

The Financial Statements of the Company for Fiscal Years 2004, 2005, and 2006,
reviewed in each case by the Accountants, and the unaudited Financial Statements
of the Company for the eleven (11) months ended November 30, 2007, copies of
which have been previously made available to the Purchaser, (a) are correct and
complete in all material respects (b) are consistent with, and have been
prepared from, the books and records of each Company (c) have been prepared in
accordance with GAAP except for such deviations as are referred to in the notes
thereto, and (d) fairly present in all material respects the financial position
and results of operations, changes in members’ equity and cash flows of each
Company as of each date and for the respective periods covered by the Financial
Statements.

 

  4.11 Undisclosed Liabilities

Each Company has no Indebtedness, liability, claim, loss, deficiency or
obligation of any nature (whether absolute or contingent, liquidated or
unliquidated and whether due or to become due), except for liabilities reflected
or reserved against on the most recent Financial Statements and liabilities
incurred since that date in the ordinary course of business. Each Company is not
liable upon or with respect to, or obligated in any other way to provide funds
in respect of, or to guaranty or assume in any manner any debt or obligation of
any other Person. Each Company has no knowledge of any circumstance, condition,
event or arrangement that may hereafter give rise to any such liability other
than in the ordinary course of business.

 

  4.12 Material Adverse Change; Material Events

Since the date of the most recent Financial Statements:

(a) there has not been any material adverse change in either of the Company’s
business, operations, properties, prospects, assets or condition and no event
has occurred or circumstance exists that may result in such a material adverse
change, and

 

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(b) there has not been:

(i) any damage, destruction or loss of any of each Company’s material properties
or assets;

(ii) any Indebtedness incurred other than Indebtedness incurred to the
Purchaser;

(ii) any change in any accounting policies, procedures or practices other than
changes required by GAAP;

(iii) any sale, assignment, lease or other disposition of any of its assets
other than sales in the ordinary course of business;

(iv) any Capital Expenditures paid or incurred;

(v) any acceleration, termination, cancellation or adverse modification of any
Material Contract;

(vi) any payment or setting aside for payment of any Dividend or other
distribution with respect to, or any redemption, retirement or other purchase
of, any of its Capital Stock other than in connection with the Share Purchase
Transaction;

(vii) any increase in bonuses, salaries or other compensation paid or payable to
any member, officer or manager, or (except in the ordinary course of business)
employee;

(viii) any adoption of, or increase in the payments under, any Benefit Plan;

(ix) any other material transaction other than in the ordinary course of
business consistent with past practices; or

(xi) any commitment entered into by any Company, contingent or otherwise, to do
any of the foregoing.

 

  4.13 Accounts; Inventory

All accounts receivable of each Company represent or will represent valid
obligations arising from sales actually made in the ordinary course of business.
The accounts receivable are current and collectible net of the reserves shown on
the records of each Company, which reserves are adequate and calculated
consistent with past practice. There is no contest, claim, or right of set-off,
other than returns in the ordinary course of business, relating to the amount or
validity of such accounts receivable. The inventory of each Company is of a
quality and quantity

 

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usable and salable in the ordinary course of business, except for obsolete items
and items of below-standard quality, all of which have been written off or
written down to net realizable value.

 

  4.14 Taxes

Each Company has timely filed or caused to be filed all Tax returns required
under Applicable Law and such returns are true, correct and complete in all
material respects. Each Company has made available to the Purchaser copies of
all such Tax returns filed for the last five years. No audit of such Company’s
Tax returns is in progress, or to its knowledge, is being proposed, threatened
or discussed. Each Company has paid or made adequate provision for payment of
all Taxes and assessments that have been or are accrued, due or levied, and
there are no assessed Tax deficiencies against such Company. All Taxes that such
Company is required to withhold or collect have been duly withheld or collected,
and, to the extent required by Applicable Law, have been paid to appropriate
governmental authorities or Persons. The Companies’ have not waived, or been
requested to waive or extend, any statute of limitations relating to the payment
or assessment of Taxes or deficiencies.

 

  4.15 Intellectual Property

Each Company owns or is licensed to use, without restriction or adverse claim,
all Intellectual Property free and clear of any Liens, other than Permitted
Liens, and has the right to use its Intellectual Property without payment to any
Person (except for licensing fees). There are no interference, opposition or
cancellation proceedings or infringement suits pending or, to the knowledge of
such Company, threatened with respect to any of the Intellectual Property. To
the knowledge of such Company, no Person is interfering with, infringing upon,
misappropriating or otherwise in conflict with any of its Intellectual Property.
Neither Company has not interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property rights of any
Person, and neither Company has received any claim alleging such action. All
filings in federal and state offices necessary to protect such Company’s rights
in its Intellectual Property against third parties have been made.

 

  4.16 Material Contracts

The Purchaser has been furnished with copies of all Material Contracts by
reference to DPAC’s most recent Annual Report on Form 10KSB. With respect to
each Material Contract, except where such Company has received an executed
waiver of compliance with respect to clauses (b) and/or (c) below from the
appropriate parties to such Material Contract, (a) such agreement is in full
force and effect and constitutes the legal, valid and binding obligation of such
Company and, to its knowledge, the other parties thereto, enforceable in
accordance with its terms, (b) such agreement will not be terminated as a result
of this Purchase Agreement, and (c) neither Company is in default in any
material respect under such agreement and no event has occurred which, with the
passage of time, would constitute such a default.

 

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Legal Proceedings

There are no proceedings, actions or investigations pending or, to the knowledge
of any Company, threatened, against or affecting such Company or its business or
assets in any court, quasi-judicial agency, administrative agency or arbitrator.
Neither Company is subject to any outstanding injunction, judgment, order,
decree or ruling, whether or not subject to appeal. To the knowledge of each
Company, no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such proceedings.

 

  4.17 Insurance

Each Company maintains and has maintained such insurance as is required by
Applicable Law and such other insurance, in amounts and insuring against hazards
and other liabilities, as is customarily maintained by companies similarly
situated. All insurance policies presently maintained by such Company are in
full force and effect and have been issued under valid policies for the benefit
of such Company. There are no known pending claims against any Company for
personal injuries, products liability, property or other damage under any
insurance policy heretofore or presently issued to such Company.

 

  4.18 Compliance with Laws

Each Company has complied and is currently in compliance with all Applicable
Laws where the failure to so comply may have a material adverse effect on its
financial or business condition, and no notice has been received by such Company
alleging non-compliance which remains uncured as of the date hereof.

 

  4.19 Licenses and Permits

Each Company has obtained all licenses, permits and other governmental
authorizations necessary to own its assets and conduct its business as presently
conducted and as proposed to be conducted. All of such licenses, permits and
authorizations are in full force and effect. No material violation or remedial
obligation exists in respect of any such license or permit. No proceeding is
pending, or to the knowledge of such Company, threatened to revoke or limit any
such license, permit or authorization.

 

  4.20 Environmental Warranties

(a) Hazardous Materials. Except in the normal course of such Company’s business
and in compliance with Environmental Laws, no Hazardous Materials are, or to its
knowledge have been, located on or about any real properties leased or owned by
it or have been released by it into the environment, or have been discharged,
treated, managed, recycled, placed or disposed of by it or, to its knowledge,
anyone else, at, on or under any real properties leased or owned by it, and no
Hazardous Materials formerly located on the real properties leased or owned by
the Company have been disposed of at any off-site waste disposal.

 

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(b) Environmental Laws. Each Company is and at all times has been operating in
compliance with all applicable Environmental Laws where the failure to so comply
could have a material adverse effect on its business, financial condition or
prospects.

(c) Legal Proceedings and Investigations. To the knowledge of each Company, no
investigation, administrative order or notice, consent order, litigation,
settlement or environmental claim or lien with respect to Hazardous Materials is
proposed, threatened or in existence with respect to any real properties now or
previously owned or leased by such Company, or with respect to any off-site
waste disposal to which waste of such Company has been taken. Neither Company
has basis to expect, and has not received, any summons, citation, directive,
inquiry, order, notice or communication from any Person concerning any actual,
alleged or potential violation of or failure to comply with any Environmental
Laws arising out of or with respect to any real properties now or previously
owned or leased by such Company or the operation of its business.

 

  4.21 Labor Relations

Neither Company is a party to or bound by any collective bargaining or other
labor agreement, and there are no organizational efforts affecting its
employees. There are no unremedied violations of any federal, state or local
labor or employment laws or regulations, including wages, hours, collective
bargaining, Taxes and the like, and each Company has no knowledge of the
existence of any grounds for any such claims.

 

  4.22 Employee Benefit Plans

Each Company (a) has made all payments or contributions due to date under each
Benefit Plan, and has recorded on its books amounts accrued to date as
liabilities with respect to each Benefit Plan, (b) has performed all material
obligations required to be performed under, and is not in default under or
violation of, any Benefit Plan, (c) is in compliance in all material respects
with requirements of ERISA, the Code and Applicable Law with respect to the
Benefit Plans, (d) is aware of no existing or threatened material actions, suits
or claims pending (other than routine claims for benefits) with respect to any
Benefit Plan, (e) has not completely or partially terminated or withdrawn from
any Benefit Plan that is or was subject to ERISA, (f) has not incurred, nor
reasonably expects to incur, any liability to the Pension Benefit Guaranty
Corporation, and (g) has no liability in respect to any Multiemployer Plan (as
defined under ERISA).

 

  4.23 Customers and Suppliers

Neither Company has been advised, and has knowledge, that any of its customers
or suppliers intends to cease doing business with it or to reduce the amount of
goods or services purchased or sold on a regular on-going basis from it, which
cessation or reduction in the aggregate could have a material adverse effect on
its financial or business condition.

 

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  4.24 Brokerage Fee

Except as set forth on Schedule 4.24 hereto, neither Company has engaged in any
investment banker, finder, broker or similar agent which may give rise to any
brokerage fee, finder’s fee, commission or similar liability, other than an
Affiliate of the Purchaser.

 

  4.25 Full Disclosure

The Financial Statements and other documents provided to the Purchaser and the
representations and warranties of the Companies contained in this Purchase
Agreement and the Related Documents, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. The Companies have not knowingly provided
or made available to the Purchaser any information that is misleading or
inaccurate in any material respect or knowingly withheld from or failed to
disclose to the Purchaser any data, documents or other information that, insofar
as such Company can now foresee, could materially adversely affect its assets,
properties or business or financial condition or its ability to perform its
obligations under this Purchase Agreement or the Related Documents.

 

  4.26 Use of Proceeds

Each Company, as applicable, shall use the proceeds of the sale of the
Securities to refinance existing Indebtedness and to create working capital
availability for growth initiatives.

 

  4.27 Lien Priority

Neither Company has entered into or granted any security agreements, or
permitted the filing or attachment of any lien or security interest on or
affecting any of the Collateral that would be prior or that may in any way be
superior to the Purchaser’s security interest and rights in and to such
Collateral.

Section 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER

The representations and warranties of the Purchaser set forth below shall
survive the Closing Date, and any investigation made by such Company shall not
diminish the right of the such Company to rely upon such representations and
warranties. The Purchaser represents and warrants to the Companies as follows:

 

  5.1 Organization

The Purchaser is a limited partnership duly organized and validly existing under
the laws of the State of Delaware.

 

  5.2 Authorization; Enforceability

The execution and delivery of this Purchase Agreement and the Related Documents
by the Purchaser, and the performance of its obligations hereunder and
thereunder, are within its powers and have been duly authorized by all necessary
action. This Purchase Agreement and

 

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each Related Document, when executed and delivered by the Purchaser, will
constitute valid and legally binding obligations of the Purchaser, enforceable
against the Purchaser in accordance with their respective terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors’ rights generally, and to general principles of equity.

 

  5.3 No Conflicts

The execution, delivery and performance of this Purchase Agreement and the
Related Documents by the Purchaser do not and will not (a) conflict with or
violate any Applicable Law or any judgment, order, decree, stipulation or
injunction to which the Purchaser is subject, (b) violate or conflict with the
provisions of its Charter Documents, or (c) result in the breach of, or
constitute a default under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Lien on any of its assets or properties pursuant to any note, bond, contract,
lease, license, permit, indenture, mortgage, or any other instrument or
agreement to which it is a party or by which any of its property is bound.

 

  5.4 Consents

No consent, approval, authorization, license, order or permit of, or
declaration, registration or filing with, or notification to, any governmental
authority or any other Person is required in connection with the execution,
delivery and performance of this Purchase Agreement and the Related Documents,
or the consummation of any transaction contemplated hereby or thereby.

 

  5.5 Experience

The Purchaser is an Accredited Investor and has such knowledge and experience in
financial business matters that it is capable of evaluating the risks and merits
of an investment in the Securities. The Purchaser acknowledges that by reason of
its business or financial experience and financial condition, it has the ability
to analyze and bear the entire risk of its investment pursuant to this Purchase
Agreement.

 

  5.6 Investment Intent

The Purchaser is acquiring the Securities for investment for its own account and
not with a view to, or for resale in connection with, any distribution thereof.
The Purchaser understands that the issuance and sale of the Securities have not
been, and will not be, subject to a registration statement filed under the
Securities Act or any applicable state securities laws by reason of an exemption
from such registration, which exemption depends upon, among other things, the
accuracy of the representations expressed herein.

 

  5.7 Rule 144

The Purchaser acknowledges that the Securities are restricted securities within
the meaning of Rule 144 promulgated under the Securities Act and must be held
indefinitely unless subsequently registered under the Securities Act and
applicable state securities laws or unless an exemption from such registration
is available.

 

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  5.8 Knowledge of Purchaser

The Purchaser (a) has investigated the Company’s business, management and
financial condition, (b) has had the opportunity to inspect the Company’s books,
records and facilities, (c) has had the opportunity to ask questions of
Company’s representatives concerning the business and financial affairs of the
Company, and (c) has had the opportunity to request and obtain such other
information about the Company as the Purchaser has deemed necessary to reach an
informed decision to invest in the Securities. The purchase of such Securities
is not a result of an advertisement or general solicitation.

Section 6. FINANCIAL REPORTING

The obligations of the Company set forth in this Section shall terminate upon
the date upon which the Purchaser no longer holds any of the Securities.

 

  6.1 Financial and Corporate Reports

The Company shall deliver or shall cause to be delivered to the Purchaser the
following reports within the applicable time periods specified in this
Section 6.1.

(a) Annual Financial Statements. The Annual Financial Statements shall be
delivered within one hundred twenty (120) days after the end of each Fiscal
Year, and shall be accompanied by an Audit Report, Accountant’s Statement, CFO
Certificate and Compliance Certificate.

(b) Quarterly Financial Statements. The Quarterly Financial Statements shall be
delivered within forty-five (45) days after the end of each fiscal Quarter
(other than the fourth Quarter), and shall be accompanied by a CFO Certificate
and Compliance Certificate.

(c) Monthly Financial Statements. The Monthly Financial Statements shall be
delivered promptly upon their dissemination to the Company’s management, but in
no event later than thirty (30) days after the end of each calendar Month and
shall contain all operating information and analyses typically disseminated to
the Company’s management.

(d) Projected Financial Statements. The projected Financial Statements with
respect to each Fiscal Year shall be delivered within thirty (30) days after the
end of the preceding Fiscal year.

(e) Securities Reports. Any Securities Reports shall be delivered promptly upon
their dissemination to security holders or the Commission.

(f) Lender Reports. Any Lender Reports shall be delivered promptly upon their
delivery to any lender or noteholder.

 

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(g) Management Letters. Any Management Letters shall be delivered promptly after
receipt thereof.

In the event the Company fails to timely deliver Financial Statements to the
Purchaser, the Purchaser shall be entitled to assess a late delivery fee in an
amount not exceeding $2,500 per occurrence.

 

  6.2 Other Information

Promptly upon written request therefor, the Companies shall furnish (or cause to
be furnished) to the Purchaser financial or other information available in its
books, records and files; provided, however, that if such information cannot be
furnished without undue expense, the Company may require the Purchaser to
reimburse it for all reasonable out-of-pocket expenses incurred in connection
with furnishing such information.

 

  6.3 Rule 144A

Each Company shall, upon the written request of the Purchaser, furnish to any
Qualified Institutional Buyer (as such term is defined in Rule 144A under the
Securities Act) designated by the Purchaser, such financial or other information
as the Purchaser reasonably determines is necessary in order to afford
compliance with Rule 144A under the Securities Act in connection with any
proposed sale of the Securities, except at such times as such Company is subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act.

 

  6.4 Preparation of Financial Statements in Accordance with GAAP

Each Company shall prepare all Financial Statements in compliance with the
regulations of any regulatory body having jurisdiction over such Company or its
business and in accordance with GAAP in a manner consistent with the practices,
policies and procedures applied in connection with the preparation of the
Financial Statements initially delivered to the Purchaser, except for any
changes permitted or approved in the manner provided for herein.

 

  6.5 Changes in Practices, Policies and Procedures

(a) Notice of Proposed Change. In the event that such Company proposes to make
any material change in any of the practices, policies or procedures applied in
connection with the preparation of its Financial Statements, such Company shall:

(i) notify the Purchaser in writing of such proposed change at least forty-five
(45) days prior to the required delivery date of the first Financial Statement
that will be affected by such proposed change;

(ii) state in reasonable detail in such notice the reason for such change,
including, if applicable, a description of any change in GAAP that occasioned
such change;

(iii) submit a written statement by its chief financial officer and the
Accountant describing the anticipated effect, if any, of the proposed change to
the computation of the Financial Tests, or stating that such proposed change
will have no material effect on the computation of the Financial Tests; and

 

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(iv) in the event such proposed change will have a material effect on the
computation of such Financial Tests, submit with each Compliance Certificate a
written reconciliation in reasonable detail demonstrating the computation of the
Financial Tests as if such change had not been made.

(b) Consent to Change. Unless such change in practices, policies or procedures
is required by GAAP, such Company shall not adopt any such proposed change
without the written consent of the Purchaser, which consent shall not be
unreasonably withheld.

(c) Effect of Change on Financial Tests. In the event that any such change in
policies, practice or procedures would materially affect the computation of any
Financial Test, unless this Purchase Agreement is amended to make appropriate
modifications to such Financial Test, compliance with each Financial Test shall
be determined without giving effect to any such change.

 

  6.6 Notice of Certain Events

Each Company shall give prompt written notice to the Purchaser of the occurrence
of any of the following events:

(a) a Default or Event of Default;

(b) the occurrence of any event which with notice, lapse of time or both would
constitute an event of default under any Senior Indebtedness;

(c) all suits, actions or other proceedings commenced or threatened where the
amount claimed is Twenty-Five Thousand Dollars ($25,000) or more;

(d) any material dispute which arises between any Company and any governmental
regulatory body or law enforcement authority;

(e) any matter which has resulted or is likely to result in a material adverse
change in such Company’s financial condition or operations;

(f) the loss or destruction of any material asset of any Company not covered by
insurance; or

(g) a Qualified Public Offering.

 

  6.7 Books, Records, Audits and Inspections

Each Company shall maintain accurate and complete books, accounts and records
and shall permit employees or agents of the Purchaser at any reasonable time to
inspect its properties, to examine or audit its books, accounts and records and
make copies and memoranda thereof, and to question its officers, employees and
Accountants concerning its business and financial

 

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condition. In the event any properties, books, accounts or records are in the
possession of or under the control of a third party, each Company shall direct
and hereby authorizes such third party to permit access thereof to the
Purchaser’s employees or agents for the purpose of performing the inspections,
appraisals, examinations or audits permitted under this Section 6.7, and to
respond to any reasonable requests from the Purchaser for information concerning
the amount, status or condition of any assets in the third party’s possession or
control.

Section 7. AFFIRMATIVE COVENANTS

Until the date upon which the Purchaser no longer holds any Securities or
Warrant Shares, each Company shall, unless the Purchaser waives compliance
therewith in writing:

 

  7.1 Insurance

Maintain casualty insurance upon all of its assets and business properties and
public and product liability insurance with responsible and reputable insurers
of such character and in such amounts as are usually maintained by companies
engaged in like businesses, with no material reduction in coverage from that in
existence on the date hereof. No such insurance may be canceled (except in
connection with obtaining replacement insurance) without the prior written
consent of the Purchaser.

 

  7.2 Payment of Taxes and Claims

Pay all Taxes, assessments and other governmental charges levied or imposed upon
its properties or assets or in respect of its franchises, business, income or
profits before any penalty or interest accrues thereon, and all claims for sums
which have become due and payable and which by law have or might become a Lien
or charge upon its properties or assets, provided that (unless any material item
of property would be lost, forfeited or materially damaged as a result thereof)
no such charge, Tax, assessment or claim need be paid if the amount,
applicability or validity thereof is currently being contested in good faith by
appropriate proceedings and if reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made therefor.

 

  7.3 Compliance with Laws

Comply in all material respects with all Applicable Law if noncompliance
therewith would materially adversely affect its business or operations.

 

  7.4 Preservation of Existence and Licenses

Preserve and maintain its existence and its rights, franchises and privileges in
the jurisdiction of its formation and qualify and remain qualified as a foreign
entity in each jurisdiction in which the failure to do so would have a material
adverse affect on its financial condition or operations; and obtain, preserve
and maintain all material permits, licenses, approvals and authorizations
necessary for the conduct of its business.

 

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  7.5 Maintenance of Assets

Maintain its tangible assets in good condition and repair in accordance with the
requirements of its business. Maintain its Intellectual Property and its
exclusive rights to use and exploit or license the Intellectual Property, and
defend all interferences or infringements therewith.

 

  7.6 Performance of Contracts

Perform and comply with, in accordance with its terms, all material provisions
of each Material Contract, except to the extent it may contest the provisions
thereof in good faith and by appropriate proceedings.

 

  7.7 Employee Benefit Plans

Cause each of its Benefit Plans to be administered in all material respects in
compliance with the requirements of ERISA, the Code, Applicable Law, and the
terms and conditions of such plans.

 

  7.8 Continuation of Business

Continue to operate its business in substantially the manner as it is conducted
as of the Closing Date.

 

  7.9 Board Observer Rights

Maintain the composition of DPAC’s Board of Directors such that one
(1) representative designated by the Purchaser shall have observations rights of
DPAC’s Board of Directors and (b) at all times carry director and officer
liability insurance in such amounts as the Purchaser shall require.

 

  7.10 Use of Proceeds

Cause the proceeds of the sale of the Securities to be used for the refinancing
of existing Indebtedness, and to create working capital availability for growth
initiatives.

Section 8. NEGATIVE COVENANTS

Until the date upon which the Purchaser no longer holds any Securities or
Warrant Shares, each Company shall not, unless the prior written consent of the
Purchaser is obtained:

 

  8.1 Other Indebtedness

Create, incur, contract, assume, have outstanding, guarantee or otherwise be or
become directly or indirectly liable in respect of any Indebtedness; provided,
however, that this Section 8.1 shall not be deemed to prohibit:

(a) the Senior Indebtedness;

 

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(b) State of Ohio Loan; and

(c) operating, financing or other lease or purchase money financing for
equipment which is secured by the equipment so leased or purchased and that does
not exceed One Hundred Thousand Dollars $100,000 on an annual basis.

 

  8.2 Prepayments

Pay any Indebtedness prior to its scheduled maturity other than the Note or the
Senior Indebtedness.

 

  8.3 Liens

Grant, create, incur, assume, permit or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, except Permitted
Liens.

 

  8.4 Capital Expenditures

Absent the advance written consent of the Purchaser, make any Capital
Expenditures that would cause the aggregate amount of Capital Expenditures of
the Companies to exceed $250,000 for any calendar year.

 

  8.5 Investments

Make any Investment in, or otherwise acquire any interest in, or control of,
another Person, except for the following:

(a) Cash Equivalents;

(b) Any acquisition of securities or evidences of indebtedness of others when
acquired in settlement of accounts receivable or other debts arising in the
ordinary course of business, so long as the aggregate amount of any such
securities or evidences of indebtedness is not material to the business or
condition (financial or otherwise) of any Company; and

(c) Such other Investments as shall have been approved by Purchaser in writing.

 

  8.6 Merger and Consolidation; Acquisitions

Merge or consolidate with or into any Person wherein such Company is not the
surviving entity, or purchase all or substantially all of the Capital Stock or
assets of any Person.

 

  8.7 Subsidiaries

Create any Subsidiaries or enter into joint ventures not in existence on the
date of this Purchase Agreement or make any loans or advances to its
Subsidiaries or joint ventures except pursuant to a promissory note which is
pledged to the Purchaser.

 

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  8.8 Sales and Leasebacks

Enter into any sale and leaseback agreement governing any of its fixed or
capital assets.

 

  8.9 Transfers, Liquidations and Dispositions of Substantial Assets

Dissolve or liquidate, or sell, transfer, license, lease or otherwise dispose of
any material portion of its property or assets or business, other than sales in
the ordinary course of business.

 

  8.10 Capital Stock; Registration Rights

Issue, sell or otherwise dispose of any shares of Capital Stock or any
Convertible Securities (other than with respect to the issuance of common stock
options under DPAC’s stock option plan or the issuance of shares of Common Stock
upon conversion of the Series A Preferred Stock, effect a recapitalization or
reorganization, grant any registration rights with respect to Capital Stock or
take any other action which would materially adversely affect the Purchaser’s
ownership interest in any Company (provided that any transaction that is
undertaken for the purpose of “reincorporating” DPAC in the State of Ohio,
Delaware or the Commonwealth of Pennsylvania, upon thirty (30) days prior notice
to the Purchaser, shall not be prohibited by this section).

 

  8.11 Restricted Payments

Make, pay or declare, or commit to make, pay or declare, directly or indirectly,
any Restricted Payment.

 

  8.12 Organizational and Business Activities

Other than as contemplated by this Purchase Agreement or to the extent necessary
to provide for sufficient number of share of Common Stock for issuance upon
conversion of the Series A Preferred Stock issued pursuant to the Stock Purchase
Transaction, amend its Charter Documents, reincorporate, change its structure,
effect any reorganization or recapitalization, engage in any business activities
or operations substantially different from or unrelated to its present business
or take any action that would make it impossible to carry on the ordinary
business of any Company (provided that any transaction that is undertaken for
the purpose of “reincorporating” DPAC in the State of Ohio, Delaware or the
Commonwealth of Pennsylvania, upon thirty (30) days prior notice to the
Purchaser, shall not be prohibited by this section).

 

  8.13 Transactions with Affiliates

Enter into any transaction with any Affiliate (or any partner, officer, manager
or director thereof), or enter into, assume or suffer to exist any employment or
consulting contract with any Affiliate (or any partner, officer, manager or
director thereof) or any former or current officer, manager or director of any
Company, except any transaction or contract which is in the ordinary course of
business and which is upon fair and reasonable terms no less favorable to any
Company than it would obtain in a comparable arms-length transaction with a
Person not an Affiliate.

 

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  8.14 Change in Control

Permit any Change in Control.

 

  8.15 Employee Benefit Plans

Create, enter into or provide or make any direct or indirect commitment to
create, enter into or provide any Benefit Plan (other than those currently
existing or any replacements thereof) or terminate or materially amend any of
such plans without the consent of the Purchaser, which consent shall not be
unreasonably withheld; or incur any liability, directly or indirectly, (i) for
any funding deficiency, (ii) for any post-retirement medical or life insurance
benefits, except pursuant to the COBRA Requirements, or (iii) to the Pension
Benefit Guaranty Corporation.

 

  8.16 Change in Principal Office

Move its principal office, executive office or principal place of business
without 30 days prior notice to the Purchaser.

 

  8.17 Senior Loan

Amend or modify the Senior Loan Agreement, or ancillary agreements thereto,
including any renewal or extension thereof, nor seek forbearance or a waiver of
any terms thereof; provided, however, that consent by the Purchaser to any
renewal or extension of the Senior Loan Agreement shall not be unreasonably
withheld.

 

  8.18 Organizational Documents

Amend or modify the certificates/articles of incorporation or Code of
Regulations and/or Bylaws, as applicable, of the Companies.

 

  8.19 Other Acts

Do any other act that would make it impossible or impractical to carry on the
ordinary business of any Company.

 

  8.20 SUCCESS FEE

Purchaser will receive a Success Fee payable upon a Success Fee Triggering
Event. Such Success Fee shall be due and payable on the date such Success Fee
Triggering Event occurs in immediately available funds.

Section 9. FINANCIAL TESTS

Until payment in full of the Note, no Company shall, unless the Purchaser waives
compliance therewith in writing, meet the following Financial Tests:

 

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  9.1 Funded Debt to EBITDA

The Companies shall maintain on a consolidated basis, determined as of the end
of each Quarter, a Ratio of Funded Debt to EBITDA for the four most recently
completed Quarters of equal to or less than the following amounts:

 

PERIOD ENDING

   AMOUNT

December 31, 2008

   3.25

December 31, 2009

   2.75

Thereafter

   2.25

 

  9.2 Fixed Charge Coverage Ratio

The Companies shall maintain on a consolidated basis, determined as of the end
of each Quarter, a Fixed Charge Coverage Ratio for the most recently completed
Quarters of at least the following amounts:

 

PERIOD ENDING

   AMOUNT

December 31, 2008

   1.00

December 31, 2009

   1.05

Thereafter

   1.05

 

  9.3 Effective Tangible Net Worth

The Companies on a consolidated basis, will not permit their Effective Tangible
Net Worth to be less than a negative $750,000, determined as of the end of each
Quarter, beginning with the Quarter ending March 31, 2008.

Section 10. EVENTS OF DEFAULT

Events of Default are stated in the Note, a form of which is attached as Exhibit
B.

Section 11. INDEMNIFICATION BY THE COMPANY

Each Company shall indemnify and hold the Indemnified Party harmless from and
against Indemnified Losses incurred by or asserted against any Indemnified Party
related to, caused by, resulting or arising directly or indirectly from or in
connection with any inaccuracy in or breach of any representation or warranty,
or any failure to perform or observe fully any

 

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covenant, agreement or provision contained herein, in the Related Documents or
in any other certificate, instrument or documents delivered by the Company in
connection herewith or therewith, provided however that such indemnification
shall not extend to losses resulting from the willful misconduct or gross
negligence of an Indemnified Party. Indemnified Losses shall be payable as and
when incurred upon demand of the Indemnified Party, until or unless a final
judicial determination is made that an Indemnified Party is not entitled to such
indemnification as a result of its willful misconduct or gross negligence. The
foregoing indemnification provisions are in addition to any statutory, equitable
or common law remedy available to the Purchaser, and shall survive the
termination of this Purchase Agreement and the Related Documents.

Section 12. MISCELLANEOUS

 

  12.1 Amendment, Modification or Restatement

The Parties may, by mutual agreement, amend, modify or restate any provision or
the entirety of this Purchase Agreement or any Related Document, provided that
each such amendment, modification or restatement shall be in writing and shall
be executed and delivered by each Party.

Unless otherwise specified in such amendment, modification or restatement:

(a) the amended or modified provisions shall be effective as of the date of such
amendment;

(b) such amendment shall not be deemed to constitute a waiver of any Default
that has occurred and is continuing as of the effective date thereof;

(c) each Company shall be deemed to have reconfirmed each of the representations
and warranties set forth herein as of the effective date of such amendment;

(d) all terms defined herein shall have the same definition in such amendment;

(e) such amendment shall be deemed to be a Related Document and the provisions
of this Section 12.1 shall be applicable to such amendment; and

(f) this Purchase Agreement and each Related Document shall be deemed to remain
in full force and effect, as so amended, modified or restated.

Unless otherwise specified, all Related Documents concerning security shall
remain in full force and effect. The Purchaser may, in its sole discretion,
condition its agreement to any amendment, modification or restatement upon the
payment of money, the granting of additional security, the providing additional
guarantees or other acts or concessions by any Company or any other Person.

 

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  12.2 Waiver of Compliance

The Parties may, by mutual agreement, waive compliance with any provision of
this Purchase Agreement or any Related Document or any Default or Event of
Default; provided that each such waiver shall be in writing and shall be
executed and delivered by each Party. Each such waiver shall be effective only
in the specific instance and for the specific purpose for which it is given.

The Purchaser may, in its sole discretion, refuse to grant any such waiver or
condition any such waiver upon the payment of money, the granting of additional
security, the providing of additional guarantees or other acts or concessions by
any Company or any other Person.

 

  12.3 Consent or Approval of Purchaser

Whenever this Purchase Agreement or any Related Document provides that an action
may be taken with the “consent” or “approval” of the Purchaser, such consent or
approval must be in writing signed by the Purchaser. Each such consent or
approval shall be effective only in the specific instance and for the specific
purpose for which it is given.

Unless this Purchase Agreement or the Related Document specifically provides
that the Purchaser shall not “unreasonably withhold” such consent or approval,
the Purchaser may, in its sole discretion, refuse to grant any such consent or
approval, or condition any such consent or approval upon the payment of money,
the granting of additional security, the providing of additional guarantees or
other acts or concessions by any Company or any other Person.

Where this Purchase Agreement or any Related Document provides that the
Purchaser shall not “unreasonably withhold” any consent or approval, any of the
following shall by way of example and not limitation, constitute an appropriate
reason to withhold such consent or approval:

(a) imposing additional unreimbursed cost, expense or liability upon the
Purchaser or its Affiliates;

(b) releasing any Person liable for any obligation under this Purchase Agreement
or any Related Document;

(c) limiting in any material respect the practical ability of the Purchaser to
enforce any of its rights or remedies under this Purchase Agreement or any
Related Document;

(d) diminishing the value of the Warrant Shares;

(e) causing or potentially causing the Purchaser or its Affiliates to violate or
breach any agreement by which they are bound, the terms of their Charter
Documents or any Applicable Law;

(f) releasing any security for any of the obligations under this Purchase
Agreement or any Related Document;

(g) subordinating or further subordinating of any of the rights of the Purchaser
under this Purchase Agreement or any Related Document to the rights of any other
Person; or

 

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(h) reducing the Purchaser’s percentage of the Fully Diluted Membership Shares.

 

  12.4 Forbearance

The Purchaser may, in the sole exercise of its discretion, with or without
notice to any Company, forbear from declaring an Event of Default under this
Purchase Agreement or any Related Document, or exercising or enforcing any right
or remedy hereunder or thereunder.

Unless the Purchaser otherwise agrees in writing, no such forbearance shall be
deemed to toll the passage of any time period, waive the Purchaser’s right to
declare such Event of Default or exercise or enforce any such right or remedy at
any time, suspend the accrual of Interest or waive any Assessment that would
otherwise accrue or become due, constitute a basis for laches or estoppel, or
preclude the exercise or enforcement of any other right or remedy or declaration
of any other Event of Default under this Purchase Agreement or any Related
Document. The Purchaser may, in the sole exercise of its discretion, condition
any forbearance upon the payment of money, the granting of additional security,
the providing of additional guarantees or other acts or concessions by any
Company or any other Person.

 

  12.5 No Implied Rights or Waivers

No notice to or demand on any Company in any case shall entitle such Company to
any other or further notice or demand in the same, similar and other
circumstances. Neither any failure nor any delay on the part of the Purchaser in
exercising any right, power or privilege under this Purchase Agreement or any
other Related Document shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of the same or
the exercise of any other right, power or privilege.

 

  12.6 Payment of Fees and Expenses

Each Company shall reimburse the Purchaser for all fees and expenses (including
reasonable legal fees and expenses) incurred by the Purchaser in connection with
its due diligence investigation and the negotiation, preparation and closing of
the transactions contemplated in this Purchase Agreement and the Related
Documents. Payment shall be made on the Closing Date of all accrued fees and
expenses incurred through the day immediately prior to the Closing Date, and
promptly upon receipt of any statement for fees and disbursements incurred
thereafter, including at the closing and post-closing. After the Closing Date,
each Company shall reimburse the Purchaser for all expenses (including
reasonable legal fees and expenses) incurred in connection with the
investigation and determination of an Event of Default, the enforcement of this
Purchase Agreement and the Related Documents, the collection of amounts due
under this Purchase Agreement and the Related Documents, the preparation,
negotiation and review of any amendment, modification or restatement of this
Purchase Agreement or the Related Documents, and any consent, waiver,
forbearance or other agreement provided for herein or in the Related Documents.
This obligation shall survive the termination of this Purchase Agreement and the
Related Documents.

 

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  12.7 Entire Agreement

This Purchase Agreement and the Related Documents constitute the entire
agreement relating to the subject matter hereof among the Parties and supersede
all prior or contemporaneous agreements between the Parties. The Parties have
not relied upon any representations, inducements, promises, undertakings or
agreements other than those expressly set forth in this Purchase Agreement or
the Related Documents.

 

  12.8 Severability

If any provision of this Purchase Agreement or any Related Document is held to
be invalid, void or unenforceable for any reason, the remaining provisions shall
nevertheless continue in full force and effect, provided that nothing in this
Section 12.8 shall be construed to limit or waive the breach of any
representation with respect to enforceability of this Purchase Agreement.

 

  12.9 Third Party Beneficiaries, Successors and Assigns

The obligations of each Party under this Purchase Agreement and any Related
Document shall inure solely to the benefit of the other Party, and no other
Person shall have any legal or equitable right, remedy, or claim under or with
respect to this Purchase Agreement or the Related Documents. This Purchase
Agreement and the Related Documents shall inure to and be binding upon the
successors and assigns of the Parties, subject to Section 12.13.

 

  12.10 Legal Representation

Each of the Parties has been represented by independent legal counsel in
connection with the negotiation, drafting and execution of this Purchase
Agreement and the Related Documents, and each Party expressly waives to the
fullest extent permitted by Applicable Law any claim that this Purchase
Agreement or any Related Document constitutes a contract of adhesion; the
protection of any Applicable Law protecting individuals or consumers in credit
transactions; any usury or similar law limiting interest or other fees or
compensation in a credit transaction; any claim that this Purchase Agreement or
any Related Document constitutes a partnership, joint venture, trust or similar
arrangement; any claim that this Purchase Agreement or any Related Document
imposes any fiduciary or agency duty upon the Purchaser or any of its agents;
and any implied representation, warranty or covenant.

 

  12.11 Rules of Construction

Unless otherwise specified, the following rules shall be applied in construing
the provisions of this Purchase Agreement and the Related Documents.

(a) All accounting terms not specifically defined shall be construed in
accordance with GAAP.

(b) Terms that imply gender shall apply to all genders.

 

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(c) Headings are included solely for purposes of reference and shall be ignored
in construing the provisions of this Purchase Agreement or any Related
Documents.

(d) The Exhibits, Schedules and Glossary of Defined Terms attached to this
Purchase Agreement or any Related Document are incorporated herein and in each
Related Document by reference.

(e) “Herein,” “hereto,” “hereof” and words of similar import refer to this
Purchase Agreement or any Related Documents (as applicable).

(f) The word “and” connotes “each and every,” and the word “or” connotes “any
one or more.”

(g) The word “including” is deemed to be followed by the words “without
limitation”.

(h) When used in connection with a specific date or time, (i) the word “from”
connotes “from and including,” (ii) the word “through” connotes “through and
including,” (iii) the word “before” connotes “on or before,” (iv) the word
“after” connotes “on or after,” (v) “next” day or Business Day connotes the
“first day or Business Day immediately succeeding” such date, and (vi) “prior”
or “preceding” day or Business Day connotes the “first day or Business Day
immediately proceeding” such date.

(i) In counting a number of days or Business Days (i) “after” or “following” a
specified date, counting commences with the first day or Business Day (as
applicable) following such date and ends on and includes the last day or
Business Day (as applicable) counted, and (ii) “before” or “prior” to a
specified date, counting commences with the first day or Business Day (as
applicable) preceding such date and ends on and includes the last day or
Business Day (as applicable) counted.

(j) Unless otherwise provided, an event or act is deemed to occur on a specified
day or Business Day only if it occurs before 4:00 p.m. on that day or Business
Day (as applicable) and, if it occurs after that time, is deemed to occur on the
next day or Business Day (as applicable).

(k) Any reference to any law or regulation refers to that law or regulation as
amended from time to time and to the corresponding provision of any successor
law or regulation.

(l) Any reference to any agreement or other document refers to that agreement or
other documents as amended, modified or restated from time to time.

(m) The recitals are the mutual representations of the Parties and are a part of
the document in which they appear.

(n) Any reference to any Person shall be construed as a reference to that
Person’s successors, assigns, heirs or estate or personal representative.

 

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(o) No consideration or evidentiary weight shall be given to any prior draft or
markup of any document; the identity of the Party (or its counsel) drafting or
proposing any provision of a document; any summary or description of any
proposed term or provision set forth in any term sheet, commitment letter or
written presentation produced prior to the date hereof; or perceived or alleged
differences among the Parties with respect to bargaining advantage,
sophistication in financial affairs or access to information.

(p) Where any provision herein refers to an action to be taken or an action
being prohibited from being taken, by any Person, such provision shall apply
whether such action is taken directly or indirectly by such Person.

(q) With regard to all dates and time periods set forth or referred to in this
Purchase Agreement or the Related Documents, time is of the essence.

 

  12.12 Notice

(a) Any notice or other communication required or permitted to be given or made
under this Purchase Agreement or any Related Document (i) shall be in writing,
(ii) may be delivered by hand delivery, First Class U.S. Mail (regular,
certified, registered or expedited delivery), FedEx, UPS Overnight, Airborne or
other nationally recognized delivery service or facsimile and (iii) shall be
delivered or transmitted to the appropriate address as set forth below.

(b) Each notice or other communication shall be delivered or addressed to a
Party at its address set forth below. A Party’s address for notice may be
changed from time to time by notice given to each of the other Parties.

Companies:

c/o DPAC Technologies Corp.

5675 Hudson Parkway

Hudson, Ohio 33236

Attention: Steve Runkel

Telephone No. (440)

Fax No. (440)

With a copy to:

Buchanan Ingersoll & Rooney PC

301 Grant Street, 20th Floor

Pittsburgh, PA 15219

Attention: Perry S. Patterson

Telephone No. (412) 562-8425

Fax No. (412) 562-1041

Purchaser:

Canal Mezzanine Partners, L.P.

1737 Georgetown Road, Suite A

Hudson, OH 44236

Attention: Shawn M. Wynne

Telephone No. (330) 650-6684

Fax No. (330) 528-0142

 

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With a copy to:

Calfee, Halter & Griswold LLP

1400 KeyBank Center

Cleveland, OH 44114

Attention: John M. Mino

Telephone No. (216) 622-8448

Fax No. (216) 622-0816

(c) Absent fraud or manifest error, a receipt signed by the addressee or its
authorized representative, a certified or registered mail receipt, a signed
delivery service confirmation or a fax confirmation of transmission shall
constitute proof of delivery. Any notice actually received by the addressee
shall constitute delivery notwithstanding the failure to comply with any
provisions of this subsection.

(d) A notice delivered by regular First Class U.S. Mail shall be deemed to have
been delivered on the third Business Day after its post-mark. Any other notice
shall be deemed to have been received on the date and time of the signed receipt
or confirmation of delivery or transmission thereof, unless that receipt or
confirmation date and time is not a Business Day or is after 5:00 p.m. local
time on a Business Day, in which case such notice shall be deemed to have been
received on the next succeeding Business Day.

 

  12.13 Assignment

(a) The Companies shall not, and shall not attempt or purport, to assign or
transfer to any Person or permit any other Person to assume or undertake any of
such Companies rights, duties or obligations under this Purchase Agreement or
any Related Document without the prior written consent of the Purchaser, which
consent may be granted in its sole discretion. Any assignment in contravention
of this provision shall be void.

(b) The Purchaser may, in the sole exercise of its discretion, (i) assign (with
or without recourse) all of its rights, duties and obligations under this
Purchase Agreement and the Related Documents to any Affiliate, including any
partner of the Purchaser; (ii) sell or transfer all or any part of the
Securities to any Affiliate; (iii) sell a participation in the Securities to any
Affiliate, any partner of the Purchaser or any Accredited Institutional
Investor; or (iv) distribute all or part of the Securities to the partners of
the Purchaser as an in-kind distribution. The Purchaser shall not be required to
notify the Companies of any of the foregoing assignments, participations or
distributions; provided, however, that until the Companies receive such notice,

 

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the Companies shall be entitled to treat the Purchaser as the sole owner of the
Securities. With the consent of each Company, which consent shall not be
unreasonably withheld, the Purchaser may, subject to Applicable Laws (i) assign
(with or without recourse) all of its rights, duties and obligations under this
Purchase Agreement and the Related Documents to any Accredited Institutional
Investor, or (ii) sell or transfer all or any part of the Securities to any
Person.

 

  12.14 Further Assurances

Each Party agrees to execute and deliver such further documents and instruments
and to do such further acts and things as may be necessary or desirable to carry
out the intent and purposes of this Purchase Agreement and the Related
Documents.

 

  12.15 Closing of the Transaction

It is anticipated that the transactions contemplated by this Purchase Agreement
may be closed and consummated by the transmission of documents, signature pages
of documents and funds by mail, delivery service, fax or other electronic
transmission. Each Party agrees that the faxed delivery of a counterpart
signature page to the other Party or its representatives shall constitute such
Party’s execution and delivery thereof. The Parties agree that the attachment of
original or faxed signature pages of any document by legal counsel acting in
such capacity, and in accordance with instructions, shall constitute the
execution and delivery of such documents.

The closing shall be deemed to have occurred and this Purchase Agreement and the
Related Documents shall be deemed to have been simultaneously executed and
delivered by all Parties in Hudson, Ohio on the Closing Date.

 

  12.16 Counterparts

This Purchase Agreement and any Related Document may be executed in one or more
counterparts, each of which shall be deemed an original, and all of such
counterparts together shall constitute one and the same agreement.

 

  12.16 California Waiver Provisions

Each Company agrees that the “fair market value” provisions of Section 580a of
the California Code of Civil Procedure or any similar laws of any other
applicable jurisdiction shall have no applicability with respect to the
determination of such Company’s liability in any guarantee contained in this
Purchase Agreement or the Related Documents. Without limiting the generality of
any waiver in any guarantee contained in this Purchase Agreement or the Related
Documents, each Company hereby waives, to the maximum extent permitted by law,
any and all benefits under any one or more of California Civil Code Section 2787
through and including Section 2855 or any similar laws of any other applicable
jurisdiction. Without limiting the generality of any other waiver or other
provision set forth in any guarantee contained in this Purchase Agreement or the
Related Documents, each Company waives, to the maximum extent permitted by law,
all rights and defenses arising out of an election of remedies by the holders of

 

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the Securities (other than the Purchased Shares) even though such election of
remedies, such as a nonjudicial foreclosure with respect to any security for the
Indebtedness, has destroyed such Company’s rights of subrogation and
reimbursement against such Company, by the operation of applicable law. The
right of the holders of the Securities (other than the Purchased Securities) to
enforce any guarantee contained in this Purchase Agreement or the Related
Documents is absolute and is not contingent upon the genuineness, validity or
enforceability this Purchase Agreement or the Related Documents. Each Company
waives, to the maximum extent permitted by law, all benefits and defenses it may
have under California Civil Code Section 2810 or any similar laws in any other
applicable jurisdiction and agrees that the rights of the holders of the
Securities (other than the Purchased Shares) under any guarantee contained in
this Purchase Agreement or the Related Documents shall be enforceable even if
such Company had no liability at the time of execution of the this Purchase
Agreement or the Related Documents or later ceases to be liable. Each Company
waives, to the maximum extent permitted by law, all benefits and defenses it may
have under California Civil Code Section 2809 or any similar laws in any other
applicable jurisdiction with respect to its obligations under any guarantee
contained in this Purchase Agreement or the Related Documents and agrees that
rights of the holders of the Securities (other than the Purchased Shares) under
this Purchase Agreement or the Related Documents (other than the Purchased
Shares) will remain enforceable even if the amount, if any, secured by this
Purchase Agreement or the Related Documents (other than the Purchased Shares) is
larger in amount and more burdensome than that for which such Company is
responsible. The enforceability of any guarantee contained in this Purchase
Agreement or the Related Documents against any Company shall continue until all
Indebtedness has been paid in full and shall not be limited or affected in any
way by any impairment or any diminution or loss of value of any security or
collateral for any Company’s obligations under this Purchase Agreement or any
Related Documents, from whatever cause, the failure of any security interest in
any such security or collateral or any disability or other defense of the
Companies, any other guarantor of the Companies’ obligations under any other
Related Document, any pledgor of collateral for any person’s obligations to the
holders of the Securities (other than the Purchased Shares) or any other person
in connection with this Purchase Agreement or the Related Documents (other than
the Purchased Shares). Each Company waives, to the maximum extent permitted by
law, all benefits and defenses it may have under California Civil Code Sections
2845 and 2850, and until all of the Indebtedness (other than contingent
indemnification obligations) have been paid in full, California Civil Code
Section 2849 or any similar laws of any other applicable jurisdiction with
respect to its obligations under any guarantee contained in this Purchase
Agreement or the Related Documents, including the right to require the holders
of the Securities (other than the Purchased Shares) to (A) proceed against any
Company, any guarantor of any Company’s obligations under any Related Document,
any other pledgor of collateral for any person’s obligations to the holders of
the Securities (other than the Purchased Shares) or any other person in
connection with the Indebtedness, (B) proceed against or exhaust any other
security or collateral holders of the Securities (other than the Purchased
Shares) may hold, or (C) pursue any other right or remedy for each such
Company’s benefit, and agrees that the holders of the Securities (other than the
Purchased Shares) may exercise their right under any guarantee contained in this
Purchase Agreement or the Related Documents without taking any action against
any Company, any other guarantor of such Company’s obligations under this
Purchase Agreement or any Related Documents, any pledgor of collateral for any
person’s obligations to holders of the Securities (other than the Purchased
Shares) or any other person in connection with the Indebtedness, and without
proceeding against or exhausting any security or collateral holders of the
Securities (other than the Purchased Shares) hold.

 

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  12.17 Governing Law

This Purchase Agreement and the Note were negotiated in the State of Ohio and
accepted by the Purchaser in the State of Ohio, and the Note Purchase Price
shall be disbursed from the State of Ohio. The Parties agree that the State of
Ohio has a substantial relationship to the transactions evidenced hereby and
further agree that this Purchase Agreement and the Related Documents shall be
governed by and construed in accordance with the laws of the State of Ohio
without regard to conflicts of laws principles.

 

  12.18 Waiver of Jury Trial

The Parties, each after consulting or having had the opportunity to consult with
legal counsel, knowingly, voluntarily and intentionally waive any right they may
have to a trial by jury in any Litigation. No Party shall seek to consolidate,
by counterclaim or otherwise, any Litigation in which a jury trial has been
waived with any other Litigation in which a jury trial cannot be or has not been
waived.

 

  12.19 Consent to Jurisdiction, Venue and Service of Process

The Parties, each after having consulted or having had the opportunity to
consult with legal counsel, knowingly, voluntarily, intentionally, and
irrevocably: (i) consents and submits to the exclusive jurisdiction of the
Common Pleas Court of Summit County, Ohio and the United States District Court
for the Northern District of Ohio, Eastern Division with respect to any
Litigation; (ii) waives any objection to the jurisdiction and venue of any
Litigation in either such court; (iii) agrees not to commence any Litigation
except in either of such courts or to contest the removal of any Litigation
commenced in any other court to either of such courts; (iv) agrees not to seek
to remove, by consolidation or otherwise, any Litigation commenced in either of
such courts to any other court; and (v) waives personal service of process in
connection with any Litigation and consents to service of process by registered
or certified mail, postage prepaid, addressed as set forth herein or in any
other manner permitted by law. Unless the Parties otherwise agree, all discovery
shall be conducted in Hudson, Ohio and each Party shall bear its own expenses in
connection therewith.

In the event that any Party commences Litigation in any court other than as
specified in this Section and such Litigation is dismissed, stayed or removed by
virtue of the enforcement of this Section, (i) such Party shall reimburse the
other Parties for all legal fees and other expenses incurred in defending such
Litigation and securing such stay, dismissal or removal (including costs
incurred in connection with discovery), and (ii) all discovery and responsive
pleading shall be stayed pending the determination of any motion to cause such
Litigation to be dismissed, stayed or removed to one of the courts specified in
this Section.

 

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These provisions shall not be deemed to have been modified in any respect or
relinquished by any Party except by written instrument executed by each of them.

[signatures appear on following page]

 

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IN WITNESS WHEREOF, the Parties have caused this Purchase Agreement to be
executed and delivered effective as of the date first written above.

 

Companies:   Purchaser:

DPAC TECHNOLOGIES CORP.

a California corporation

 

CANAL MEZZANINE PARTNERS, L.P.

a Delaware limited partnership

By:  

/s/ Steven D. Runkel

Steve Runkel, Chief Executive Officer

  By:  

Canal Mezzanine Management, LLC,

an Ohio limited liability company

    Title:   General Partner QUATECH, INC. an Ohio corporation     By:  

Canal Holdings, LLC

an Ohio limited liability company

    Title:   Managing Member By:  

/s/ Steven D. Runkel

Steve Runkel, Chief Executive Officer

     

By:

 

/s/ Shawn M. Wynne

        Name:   Shawn M. Wynne         Title:   Authorized Signer

Signature Page to Note and Warrant Purchase Agreement