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Exhibit 10.13  


 
 

SECURITIES PURCHASE AGREEMENT    
    


        This Securities Purchase Agreement (this "Agreement") is dated as of May 5, 2004, among DPAC Technologies
Corp., a California corporation (the "Company"), and each purchaser identified on the signature pages hereto (each, including its successors and
assigns, a "Purchaser" and collectively the "Purchasers"); and 


        WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company in the aggregate, up to $2,000,000 of shares of
Common Stock and Warrants on the Closing Date. 


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


ARTICLE I.

DEFINITIONS  


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



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


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


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


        "Closing Date" means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations to pay the Subscription Amount and (ii) the Company's obligations to deliver the Securities have been satisfied
or waived. 


        "Closing Price" means on any particular date the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the primary Trading Market on which the Common Stock
is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP function; (b) if the Common
Stock is not then listed or quoted on a Trading Market and if prices for the Common Stock are then reported in the "Pink Sheets" published by the Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common
Stock as determined by a nationally recognized-independent appraiser selected in good faith by Purchasers holding a majority of the Shares then outstanding. 


        "Commission" means the Securities and Exchange Commission. 



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        "Common Stock" means the common stock of the Company, no par value per share, and any securities into which such common stock may
hereafter be reclassified. 


        "Common Stock Equivalents" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock. 


        "Company Counsel" means Yocca Patch & Yocca, LLP, with offices located at 19900 MacArthur Boulevard, Suite 650, Irvine, CA 92612. 


        "Disclosure Schedules" means the Disclosure Schedules of the Company delivered to the Purchasers concurrently herewith. 



        "Effective Date" means the date that the Registration Statement is first declared effective by the Commission. 


        "Exchange Act" means the Securities Exchange Act of 1934, as amended. 


        "Exempt Issuance" means the issuance of (a) shares of Common Stock or options to employees, officers, directors, advisors and
consultants (provided the aggregate number of shares issuable to advisors and consultants shall not exceed 200,000 in any 12 month period, subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement) of the Company pursuant to any stock or option plan or
agreement duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of or conversion of any securities issued hereunder, convertible securities, options or warrants issued and outstanding on the
date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities, (c) securities issued in acquisitions or
strategic transactions, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, a company in a business synergistic with the business of the Company and in
which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities, (d) securities issued in a stock dividend or similar transaction, and (e) securities issued for cash in a firm
commitment underwritten registered public offering. 


        "FW" means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York
10170-0002. 


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



        "Liens" means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right, or any similar restriction
(excluding restrictions on securities pursuant to federal and state securities laws). 


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


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



        "Per Share Purchase Price" equals $0.805, subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. 



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


        "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition). 


        "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto. 



        "Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant Shares. 


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


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



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


        "Securities" means the Shares, the Warrants and the Warrant Shares. 


        "Securities Act" means the Securities Act of 1933, as amended. 


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



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


        "Subsidiary" shall mean the subsidiaries of the Company, if any, set forth on  Schedule 3.1(a). 


        "Trading Day" means a day on which the Common Stock is traded on a Trading Market. 



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


        "Transaction Documents" means this Agreement, the Warrants and the Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder. 



        "Warrants" means the Series A and Series B Common Stock Purchase Warrants as described in
Sections 2.2(a)(iii)—(iv). 


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



ARTICLE II.

PURCHASE AND SALE  


        2.1    Closing.    On the Closing Date, each Purchaser shall purchase from the Company, severally and not jointly with
the other Purchasers, and the Company shall issue and sell to each Purchaser, (a) a number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price and
(b) the Warrants as determined pursuant to Sections 2.2(a)(iii)—(iv). The aggregate Subscription Amounts for Shares sold hereunder shall be up to $2,000,000. Upon
satisfaction of the 


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conditions
set forth in Section 2.2, the Closing shall occur at the offices of FW or such other location as the parties shall mutually agree. 


        2.2    Deliveries.    



        (a)   On
the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following: 



          (i)  this
Agreement duly executed by the Company; 


         (ii)  a
copy of the irrevocable instructions to the Company's transfer agent instructing the transfer agent to deliver, on an expedited basis, a certificate evidencing a
number of Shares equal to such Purchaser's Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser; 


        (iii)  a
copy of a Warrant, registered in the name of such Purchaser, exercisable immediately upon issuance for a term of 5 years from the Initial Exercise Date (as
defined in the respective Warrants), pursuant to which such Purchaser shall have the right to acquire up to the number of shares of Common Stock equal to 50% of the Shares to be issued to such
Purchaser ("Series A Warrant Shares") at an exercise price of $1.235, which Warrant shall
otherwise in the form of Exhibit C attached hereto (the "Series A Warrant");  provided,
however, in the event the aggregate number of shares of Common Stock issuable hereunder and
pursuant to the Warrants would exceed, on a fully exercised basis, 4,249,380 shares (19.999% of the Corporation's outstanding Common Stock immediately prior to the date hereof)
("Nasdaq Maximum" and the number of shares that exceed the Nasdaq Maximum, the "Excess Amount"), the
Company shall issue two certificates representing Series A Warrants to such
Purchaser as follows: (A) a Series A Warrant to purchase a number of shares equal to the Series A Warrant Share Amount less such Purchaser's pro-rata portion (based on
the Subscription Amount of such Purchaser and the aggregate Subscription Amounts hereunder) of the Excess Amount, with the Initial Exercise Date being the Closing Date and otherwise with the terms set
forth above and (B) a Series A Warrant to purchase a number of Shares equal to such Purchaser's pro-rata portion (based on the Subscription Amount of such Purchaser and the
aggregate Subscription Amounts hereunder) of the Excess Amount, otherwise with the terms set forth above except that the Series A Warrants with an Initial Exercise Date being 6 months
and 1 day following the Closing and shall have a minimum adjusted Exercise Price pursuant to Section 11(b) therein of not less than $1.10, such minimum price subject to adjustment only
for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. 




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        (iv)  a
copy of a Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to purchase up to such Purchaser's pro rata share
(based on the number of shares purchased hereunder) of $1,000,000 divided by the Series B Exercise Price and which shall be exercisable immediately upon issuance until the 320th
day after the Effective Date, at an exercise price equal to $0.967 (the "Series B Exercise
Price"), which Warrant shall otherwise in the form of Exhibit D attached hereto (the
"Series B Warrant"); 


         (v)  the
Registration Rights Agreement duly executed by the Company; and 


        (vi)  a
legal opinion of Company Counsel, in the form of Exhibit B attached hereto. 




        (b)   On
the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following: 



          (i)  this
Agreement duly executed by such Purchaser; 


         (ii)  such
Purchaser's Subscription Amount by wire transfer to the account as specified in writing by the Company; and 


        (iii)  the
Registration Rights Agreement duly executed by such Purchaser. 





        2.3    Closing Conditions.    



        (a)   The
obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met: 



          (i)  the
accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers contained herein; 


         (ii)  all
obligations, covenants and agreements of the Purchasers required to be performed at or prior to the Closing Date shall have been performed; and 



        (iii)  the
delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement. 




        (b)   The
respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met: 



          (i)  the
accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained herein; 


         (ii)  all
obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; 


        (iii)  the
delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; 


        (iv)  there
shall have been no Material Adverse Effect with respect to the Company since the date hereof; and 


         (v)  From
the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the 




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reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares at the Closing. 




ARTICLE III.

REPRESENTATIONS AND WARRANTIES  


        3.1    Representations and Warranties of the Company.    Except as set forth under the corresponding section of the
Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to each Purchaser: 



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


        (b)    Organization and Qualification.    Each of the Company and the Subsidiaries is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
or curtail such power and authority or qualification. 


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


        (d)    No Conflicts.    The execution, delivery and performance of the Transaction Documents by the Company, the
issuance and sale of the Shares and the consummation by the Company of the other transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation, bylaws or 



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


        (e)    Filings, Consents and Approvals.    The Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the
Commission of the Registration Statement, (iii) application(s) to each applicable Trading Market for the listing of the Shares and Warrant Shares for trading thereon in the time and manner
required thereby or as otherwise permitted by the Trading Market, (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state
securities laws, (v) the anticipated filing of the Transaction Documents as exhibits to the Company's SEC Reports, (vi) public dissemination of the material terms of the Transaction
Documents, and (vii) other filings incidental to maintaining the registration of the Company's securities under the Exchange Act (collectively, the "Required
Approvals"). 


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


        (g)    Capitalization.    The capitalization of the Company is as described in the Company's most recent periodic
report filed with the Commission. The Company has not issued any capital stock since such filing other than pursuant to the exercise of employee stock options under the Company's stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company's employee stock purchase plan and pursuant to the conversion or exercise of outstanding Common Stock Equivalents
outstanding. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. The issue and 



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sale
of the Securities does not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers and Seidler Companies) and does not result in a right
of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the
Shares. Except as disclosed in the SEC Reports, there are no material stockholders agreements, voting agreements or other similar agreements with respect to the Company's capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of the Company's stockholders. 


        (h)    SEC Reports; Financial Statements.    The Company has filed all reports required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the "SEC Reports") on a timely
basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The SEC Reports, read together, do not
contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the
notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. 


        (i)    Material Changes.    Since the date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in the SEC Reports or the Company's fiscal year 2004 earnings news release or other new releases released between the date of such earnings news release and the
Trading Day prior to the date of this Agreement, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. 



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        (j)    Litigation.    There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or,
to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof acting in such capacity, is or has been the subject of any Action involving a claim of violation of
or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 


        (k)    Labor Relations.    No material labor dispute exists or, to the knowledge of the Company, is imminent with
respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. 



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


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


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


        (o)    Patents and Trademarks.    The Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with their respective businesses
as described in the SEC Reports and which the failure to so have could reasonably be expected to have a Material Adverse Effect (collectively, the "Intellectual Property  



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 Rights"). Except for matters since resolved by mutual agreement, during the past 12 months, neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. 



        (p)    Insurance.    The Company and the Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. 


        (q)    Transactions With Affiliates and Employees.    Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services
as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 in any fiscal year other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits or director fees, including stock option agreements under any stock
option plan of the Company. 


        (r)    Sarbanes-Oxley; Internal Accounting Controls.    The Company is in material compliance with all provisions of
the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company,
including its subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company's most recently filed periodic report under
the Exchange Act, as the case may be, is being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures as of the date prior to the filing
date of the most recently filed periodic report under the Exchange Act (such date, the "Evaluation Date"). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company's internal controls (as such term is defined in Item 307(b) of Regulation S-K under
the Exchange Act) or, to the Company's knowledge, in other factors that could reasonably be expected to significantly affect the Company's internal controls. 


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



10







 




        (t)    Private Placement.    Assuming the accuracy of the Purchasers representations and warranties set forth in
Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities as contemplated hereunder does not contravene the rules and regulations of the Trading Market. 


        (u)    Investment Company.    The Company is not, and is not an Affiliate of, and immediately after receipt of payment
for the Shares, will not be or become, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act. 


        (v)    Registration Rights.    No Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company. 


        (w)    Listing and Maintenance Requirements.    The Company's Common Stock is registered pursuant to
Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance
requirements. 


        (x)    Application of Takeover Protections.    The Company and its Board of Directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of California that is or would become applicable to the Purchasers
solely as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights as contemplated under the Transaction Documents, including without limitation as a result
of the Company's issuance of the Securities and the Purchasers' ownership of the Securities. 


        (y)    Disclosure.    The Company confirms that, neither the Company nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information that constitutes material, non-public information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations and covenants in effecting transactions in securities of the Company after the public announcement of the transactions contemplated hereby. All disclosure
provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement and the SEC Reports, furnished by or on
behalf of the Company with respect to the representations and warranties made herein, read as a whole with more current information superseding older information, are true and correct with respect to
such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2 hereof. 


        (z)    No Integrated Offering.    Assuming the accuracy of the Purchasers' representations and warranties set forth in
Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this offering of the 



11







 




Securities
to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. 


        (aa)    Solvency.    Based on the financial condition of the Company as of the Closing Date after giving effect to the
receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or
in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company's assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in
respect of its debt). 


        (bb)    Form S-3 Eligibility.    Assuming the accuracy of the Purchasers' representations and
warranties set forth in Section 3.2, the Company is eligible to register the resale of its Common Stock by the Purchasers under Form S-3 promulgated under the Securities Act
and the Company hereby covenants and agrees to use its best efforts to maintain its eligibility to use Form S-3 until the Registration Statement covering the resale of the Shares
shall have been filed with, and declared effective by, the Commission. 



        (cc)    Taxes.    Except for matters that would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary has, during the five fiscal years immediately preceding the date hereof, filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any
Subsidiary. 


        (dd)    General Solicitation.    Neither the Company nor any person acting on behalf of the Company has offered any of
the Shares by any form of general solicitation or general advertising. The Company has offered the Shares for sale only to the Purchasers and certain other "accredited investors" within the meaning of
Rule 501 under the Securities Act. 


        (ee)    Foreign Corrupt Practices.    During the five fiscal years immediately preceding the date hereof, neither the
Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. 


        (ff)    Accountants.    The Company's accountants are set forth on  Schedule 3.1(ff) of the Disclosure Schedule. To the
Company's knowledge, such accountants, who the Company expects will express their opinion
with respect to the financial statements to be included in the Company's Annual Report on Form 10-K for the year ended February 29, 2004, are independent accountants as
required by the Securities Act. 



12







 




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




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



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



        (b)    Investment Intent.    Such Purchaser is acquiring the Securities as principal for its own account for
investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser's right at all times to sell or
otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall
be deemed a representation or warranty by such Purchaser to hold the Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. 


        (c)    Purchaser Status.    At the time such Purchaser was offered the Securities, it was, and at the date hereof it
is, and on each date on which it exercises any Warrants, it will be either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act and is not an Affiliate of the Company. 



13









  



        (d)    Experience of Such Purchaser.    Such Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated
the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such
investment. 


        (e)    General Solicitation.    Such Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement. 


        (f)    Short Sales.    Such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, engaged in any Short Sales in the securities of the Company (including, without limitations, any Short Sales involving the Company's securities)
since the time that such Purchaser was first contacted regarding an investment in the Company. For purposes of this Section, "Short Sales" include,
without limitation, all "short sales" as defined in Rule 3b-3 of the Exchange Act. Such Purchaser covenants that neither it nor any affiliates acting on its behalf or pursuant to
any understanding with it will engage in any Short Sales prior to the time that the transactions contemplated by this Agreement are publicly announced as described in Section 4.4. 


        (g)    Disclosure Schedules.    Each Purchaser acknowledges and agrees that the Company does not make and has not
made, and Purchaser is not relying on, any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.1 hereof. Each
Purchaser further acknowledges that it has received the SEC Reports and the Disclosure Schedule and has had full and adequate opportunity to request additional information from and to ask questions of
the Company. 




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


ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES  


        4.1    Transfer Restrictions.    



        (a)   The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion and shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. 


        (b)   The
Purchasers agree to the imprinting, so long and from time to time as is required by this Section 4.1(b), of a legend on any of the Securities in the following
form: 




THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY 





14







 



STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES (IF AND WHEN MARGINABLE) MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. 





        The
Company acknowledges and agrees that a Purchaser may from time to time, if and so long as the Securities are deemed marginable by the U.S. Federal Reserve System, pledge pursuant to
a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement,
such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice under this Agreement shall be required on account of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of
the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder. 


        (c)   Certificates
evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a
registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares or Warrant
Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the
Company's transfer agent promptly after the Effective Date if required by the Company's transfer agent to effect the removal of the legend hereunder. If all or any portion of a Warrant is exercised at
a time when there is an effective registration statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or
the Company's transfer agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such date, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. Except for notifying
the transfer agent promptly whenever the Registration Statement is not effective or stale, the Company may not make any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section. 



15







 




        (d)   In
addition to such Purchaser's other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each
$1,000 of Shares or Warrant Shares (based on the Closing Price of the Common Stock on the date such Securities are submitted to the Company's transfer agent) subject to Section 4.1(c), $10 per
Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is
delivered. Nothing herein shall limit such Purchaser's right to pursue actual damages for the Company's failure to deliver certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 


        (e)   Each
Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set
forth in this Section 4.1 is predicated upon the Purchaser's representation, and the Company's reliance, that the Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery requirements, or an applicable exemption therefrom. The Purchasers understand that the Company is relying on exemptions
under Section 4(2) of the Securities Act, and that a Purchaser's private transfer of Warrants must also satisfy such requirements. 


        (f)    Until
the date that each Purchaser holds less than 20% of the Shares initially purchased hereunder by such Purchaser, the Company shall not undertake a reverse or
forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares, except in the case of any reverse stock
split undertaken by the Company in order to help the Common Stock comply with the minimum sale price requirements of the Company's principal Trading Market. 




        4.2    Furnishing of Information.    As long as any Purchaser owns Securities, the Company covenants to timely file
(or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144. 


        4.3    Integration.    The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under
the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market
such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 


        4.4    Securities Laws Disclosure; Publicity.    The Company shall, by 8:30 a.m. Eastern time on the Trading
Day following the Closing Date, issue a press release or file a Current Report on Form 8-K, in each case reasonably acceptable to each Purchaser disclosing the material terms
of the transactions contemplated hereby. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or 


16







 



without
the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the
name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with the registration statement contemplated by the Registration Rights Agreement or otherwise and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under subclause (i) or (ii). 



        4.5    Shareholders Rights Plan.    No claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that any Purchaser is an "Acquiring Person" under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company
and the Purchasers. In addition, each Purchaser acknowledges and agrees that it shall not at any time beneficially hold, directly or indirectly, more than 19.999% of the Company's then outstanding
Common Stock. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. 


        4.6    Non-Public Information.    The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying after the
Closing on the foregoing representations in effecting transactions in securities of the Company. 



        4.7    Use of Proceeds.    Except as set forth on Schedule 4.7
attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other
than payment of trade payables in the ordinary course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding
litigation. 


        4.8    Reimbursement.    If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person
who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities as contemplated under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall
be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement. 


        4.9    Indemnification of Purchasers.    Subject to the provisions of this Section 4.9, the Company will
indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and 


17







 



agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating
to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser's representation, warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party
shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of
such Purchaser Party. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by an Purchaser Party effected without the Company's prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made by the Purchasers in this Agreement or in the other Transaction Documents. 


        4.10    Reservation of Common Stock.    As of the date hereof, the Company has reserved and the Company shall continue
to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement
and Warrant Shares pursuant to any exercise of the Warrants. 


        4.11    Listing of Common Stock.    The Company hereby agrees to use best efforts to maintain the listing of the
Common Stock on a Trading Market, and as soon as reasonably practicable following the Closing (but not later than the earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will include in
such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of the Trading Market. 



        4.12    Equal Treatment of Purchasers.    No consideration shall be offered or paid to any person to amend or consent
to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for the Company the Purchasers as a
class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 



        4.13    Participation in Future Financing.    From the date hereof until 12 months after the Closing Date, upon
any financing by the Company of its Common Stock or Common Stock Equivalents (a 


18







 



"Subsequent Financing"), each Purchaser shall have the right to participate in up to 100% of such Subsequent Financing (the
"Participation Maximum"). At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a
written notice of its intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing (such additional notice, a "Subsequent Financing Notice"). Upon the request of a Purchaser, and only upon
a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto. If by 6:30 p.m. (New York City time) on the second Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and to the
Persons set forth in the Subsequent Financing Notice. If the Company receives no notice from a Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate. The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice, or on
terms more favorable to the Company, within 60 Trading Days after the date of the initial Subsequent Financing Notice. In the event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the aggregate amount of the Subsequent Financing, each such Purchaser shall have the right to purchase their Pro Rata Portion (as defined below) of the
Participation Maximum. "Pro Rata Portion" is the ratio of (x) the Subscription Amount of Securities purchased by a participating Purchaser and
(y) the sum of the aggregate Subscription Amount of all participating Purchasers. Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance. 



        4.14    Subsequent Equity Sales.    From the date hereof until 90 days after the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.14 shall be extended for the
number of Trading Days during such period in which (y) trading in the Common Stock is suspended by any Trading Market, or (z) following the Effective Date, the Registration Statement is
not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Shares and Warrant Shares. Notwithstanding the foregoing, this
Section 4.14 shall not apply in respect of an Exempt Issuance. 



        4.15    Deliver of Securities After Closing.    The Company shall deliver, or cause to be delivered, the respective
Shares and Warrants purchased by each Purchaser to such Purchaser within 3 Trading Days of the Closing Date. 


19








   ARTICLE V.

MISCELLANEOUS  


        5.1    Fees and Expenses.    The Company shall reimburse RAM Capital Resources LLC
("RAM") the sum of $20,000 for its legal fees. The Company shall deliver, prior to the Closing, a completed and executed copy of the Closing Statement,
attached hereto as Annex A. Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay, up to a cumulative maximum for all Purchasers of
$5,000, all stamp and other taxes and duties (other than taxes based on gains or income) levied in connection with the original issuance and sale of the Securities. 


        5.2    Entire Agreement.    The Transaction Documents, together with the exhibits and schedules thereto, contain the
entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. 


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


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


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


        5.6    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers (except pursuant to a sale under a Registration Statement or a transfer not permitted under this
Agreement) any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities and the transferee's qualifications as an investor, by the provisions
hereof that apply to the "Purchasers" and further provided that the transfer does not result from any general solicitation. 


20







 



        5.7    No Third-Party Beneficiaries.    This Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.9. 


        5.8    Governing Law.    All questions concerning the construction, validity, enforcement and interpretation of the
Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding. 


        5.9    Survival.    The representations and warranties herein shall survive the Closing and delivery of the Shares and
Warrant Shares. 


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


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


        5.12    Rescission and Withdrawal Right.    Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future actions and rights. 



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


21








 



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


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


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


        5.16    Independent Nature of Purchasers' Obligations and Rights.    The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers
as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights
arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.
Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW does not represent all of the Purchasers but only RAM, who has acted as placement agent to the transaction. The Company
has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. 


        5.17    Liquidated Damages.    The Company's obligations to pay any partial liquidated damages or other amounts owing
under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 


(Signature Page Follows)


22







 

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



	DPAC TECHNOLOGIES CORP.	 	Address for Notice:
	 	 	 	 	 
	 	 	 	 	 
	By:	 	 	 	7321 Lincoln Way, Garden
	 	 	
 Name: Creighton ("Kim") Early

Title: Chief Executive Officer and President	 	Grove, CA 92841
	 	 	 	 	 
	 	 	 	 	 
	By:	 	 	 	Attn:
	 	 	
 Name: William M. Stowell

Title: Chief Financial Officer and Secretary	 	 
	 	 	 	 	 
	With a copy to (which shall not constitute notice):

Nicholas J. Yocca, Yocca Patch & Yocca, LLP, 19900

MacArthur Boulevard, Suite 650, Irvine, CA 92612	 	 




[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW] 


23







 
[PURCHASER
SIGNATURE PAGES TO DPAC SECURITIES PURCHASE AGREEMENT] 



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



	Name of Investing Entity:	 	 
	 	 	

	Signature of Authorized Signatory of Investing Entity:	 	 
	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	

	Email Address of Authorized Entity:	 	 
	 	 	

	 	 	 
	 	 	 
	Address for Notice of Investing Entity:
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Address for Delivery of Securities for Investing Entity (if not same as above):
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Subscription Amount:	 	 
	Shares:	 	 
	Warrant Shares:	 	 
	EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]




[SIGNATURE
PAGES CONTINUE] 


24







 
Annex A  


CLOSING STATEMENT  


        Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase up to $2,000,000 of Common Stock and Warrants
from DPAC Technologies Corp. (the "Company"). All funds will be wired into a trust account maintained by Yocca Patch & Yocca, LLP, counsel to the
Company. All funds will be disbursed in accordance with this Closing Statement. 


Disbursement Date: May 11, 2004 



	I.  PURCHASE PRICE	 	 	 	 	 
	

 	
 	

 	
 	
 	

 
	 	 	Gross Proceeds to be Received in Trust	 	$	2,000,000.00
	 	 	 	 	 	 
	II. DISBURSEMENTS	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	Fees to Seidler	 	$	100,000.00
	 	 	Yocca Patch & Yocca, LLP	 	$	50,000.00
	 	 	Remaining funds to DPAC	 	$	1,850,000.00
	 	 	 	 	 	 
	Total Amount Disbursed:	 	 	 	$	2,000,000.00





WIRE INSTRUCTIONS:



	To:	 	Yocca Patch & Yocca, LLP
	Account Name:	 	Attorney Client Trust Account
	Account Number:	 	1664304022
	Routing Number:	 	121000358
	Bank:	 	Bank of America

Irvine Industrial Branch

4101 MacArthur Boulevard

Newport Beach, CA 92660
	 	 	 
	To:	 	 
	 	 	





25








   EXHIBIT A  


REGISTRATION RIGHTS AGREEMENT  


        This Registration Rights Agreement (this "Agreement") is made and entered into as of May 5, 2004, by and
among DPAC Technologies Corp., a California corporation (the "Company"), and the purchasers signatory hereto (each such purchaser, a
"Purchaser" and collectively, the "Purchasers"). 


        This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement"). 


        The
Company and the Purchasers hereby agree as follows: 


        1.    Definitions.    Capitalized terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: 



        "Advice" shall have the meaning set forth in Section 6(d). 


        "Effectiveness Date" means, with respect to the Registration Statement required to be filed hereunder, the earlier of (a) the
90th calendar day following the date of the Purchase Agreement and (b) the fifth Trading Day following the date on which the Company is notified by the Commission that the
Registration Statement will not be reviewed or is no longer subject to further review and comments. 


        "Effectiveness Period" shall have the meaning set forth in Section 2(a). 


        "Event" shall have the meaning set forth in Section 2(b). 


        "Event Date" shall have the meaning set forth in Section 2(b). 



        "Filing Date" means, with respect to the Registration Statement required to be filed hereunder, the 30th calendar day
following the date of the Purchase Agreement. 


        "Holder" or "Holders" means the holder or holders, as the case may be, from time to time
of Registrable Securities. 


        "Indemnified Party" shall have the meaning set forth in Section 5(c). 


        "Indemnifying Party" shall have the meaning set forth in Section 5(c). 


        "Losses" shall have the meaning set forth in Section 5(a). 


        "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened. 


        "Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 



        "Registrable Securities" means all of the Shares and the Warrant Shares, together with any shares of Common Stock issued or issuable upon
any stock split, dividend or other distribution, 



26







 




recapitalization
or similar event with respect to the foregoing, until such securities shall have been resold pursuant to the Registration Statement or Rule 144 promulgated under the Securities
Act. 


        "Registration Statement" means the registration statements required to be filed hereunder, including (in each case) the Prospectus,
amendments and supplements to the registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by
reference or deemed to be incorporated by reference in the registration statement. 


        "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 



        "Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule. 




        2.    Registration.    



        (a)   On
or prior to the Filing Date, the Company shall prepare and file with the Commission the Registration Statement covering the resale of all of the Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement required hereunder shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3, in which case the Registration shall be on another appropriate form in accordance herewith). The
Registration Statement required hereunder shall contain (except if otherwise directed by the Holders or if otherwise required by any applicable law or regulation) substantially the
"Plan of Distribution" attached hereto as Annex A. Subject to the terms of this Agreement, the Company
shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event not later than the
Effectiveness Date, and shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the earliest of (i) the date when all Registrable
Securities covered by the Registration Statement have been sold or cancelled, (ii) the date when all of the Registrable Securities not theretofore sold or cancelled may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent
and the affected Holders, or (iii) the sixth anniversary of the Closing Date (the "Effectiveness Period"). 


        (b)   If:
(i) a Registration Statement is not filed on or prior to the Filing Date (if the Company files a Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or is not subject to further review, or (iii) prior to the date when such Registration
Statement is first declared effective by the Commission, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 Trading Days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission on or before the Effectiveness Date, or (v) after
a Registration Statement is first declared effective by the Commission, it ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be
effective, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities, for in any such case 10 consecutive Trading 



27







 

Days
but no more than an aggregate of 30 Trading Days during any 12 month period (which need not be consecutive Trading Days)(any such failure or breach being referred to as an
"Event," and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on
which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such 10 Trading Days is exceeded, or for purposes of clause (v) the date on which such 10
or 30 Trading Day period, as applicable, is exceeded being referred to as "Event Date"), then without detracting from any other rights the Holders may
have hereunder or under applicable law, on each such Event Date and, on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven
days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall
apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event. Notwithstanding anything herein to the contrary, liquidated damages under this Section 2(a)
as to a Holder shall not exceed, in the aggregate, fourteen percent (14.0%) of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement. 




        3.    Registration Procedures    


        In
connection with the Company's registration obligations hereunder, the Company shall: 



        (a)   Not
less than five Trading Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall,
(i) furnish to the Holders copies of all such documents proposed to be filed (including documents incorporated or deemed incorporated by reference to the extent requested by such Person) which
documents will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that the Company is notified
of such objection in writing no later than 5 Trading Days after the Holders have been so furnished copies of such documents. 


        (b)   (i) Prepare
and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any
comments received from the Commission with respect to the Registration Statement or any amendment thereto and, as promptly as reasonably possible, upon request, provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by
the 



28







 




Holders
thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. 


        (c)   Notify
the Holders of Registrable Securities to be sold as promptly as reasonably possible and (if requested by any such Person) confirm such notice in writing promptly
following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of the Registration Statement and whenever the Commission comments in writing on the Registration Statement (the Company shall upon request
provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction, or the initiation or threatening of any Proceeding for
such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions
to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 


        (d)   Use
commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment. 


        (e)   Furnish
to each Holder, without charge, at least one conformed copy of the Registration Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. 


        (f)    Promptly
deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any
amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c). 


        (g)   Prior
to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the Registration or qualification) of such 



29







 




Registrable
Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep the
Registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration Statement; provided, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction. 


        (h)   If
requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be
delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names as any such Holders may request. 



        (i)    Upon
the occurrence of any event contemplated by Section 3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file
any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in
accordance with clauses (ii) through (v) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders
shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to
exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of liquidated damages pursuant to
Section 2(b), for a period not to exceed 60 days (which need not be consecutive days) in any 12 month period. 


        (j)    Comply
with all applicable rules and regulations of the Commission. 


        (k)   The
Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder
and, if required by the Commission, the person thereof that has voting and dispositive control over the Shares. During any periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company's request, any liquidated damages that
are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information
is delivered to the Company. Nothing herein relieves any Holder or other Person of any obligation to file any ownership reports with the Commission. 



30













   
        4.    Registration Expenses.    All fees and expenses incident to the performance of or compliance with this
Agreement
by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading
Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for
any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 


        5.    Indemnification    



        (a)    Indemnification by the Company.    The Company shall, notwithstanding any termination of this Agreement,
indemnify and hold harmless each Holder, the officers, directors, agents and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).
The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this
Agreement. 


        (b)    Indemnification by Holders.    Each Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the 



31







 




Exchange
Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent
arising out of or based solely upon: (x) such Holder's failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the
extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such
Prospectus or (ii) to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated
or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in
Section 6(d). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. 



        (c)    Conduct of Indemnification Proceedings.    If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the
"Indemnifying Party") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such
notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party. 




        An
Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate
counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent
shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an 


32







 

unconditional
release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 


        Subject
to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice
thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees
and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties. 



        (d)    Contribution.    If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an
Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any
reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if
the indemnification provided for in this Section was available to such party in accordance with its terms. 




        The
parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the
case of fraud by such Holder. 


        The
indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 


        6.    Miscellaneous    



        (a)    Remedies.    In the event of a breach by the Company or by a Holder, of any of their obligations under this
Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a
remedy at law would be adequate. 


        (b)    No Piggyback on Registrations.    Except as set forth on  Schedule 6(b) attached hereto, neither the Company nor any of
its security holders (other than the Holders in such capacity 



33







 




pursuant
hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities. No Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company. The Company shall not file any other registration statement until after the Effective Date. 


        (c)    Compliance.    Each Holder covenants and agrees that it will comply with the prospectus delivery requirements
of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. 


        (d)    Discontinued Disposition.    Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities
under the
Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company will use its best efforts to ensure that the use of the
Prospectus may be resumed as promptly as it practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(b). 


        (e)    Piggy-Back Registrations.    If at any time during the Effectiveness Period there is not an
effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection
with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date of such notice, any
such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered, subject to
customary underwriter cutbacks applicable to all holders of registration rights. 


        (f)    Amendments and Waivers.    The provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each Holder
of the then outstanding Registrable Securities to be bound thereby. 


        (g)    Notices.    Any and all notices or other communications or deliveries required or permitted to be provided
hereunder shall be made in accordance with the provisions of the Purchase Agreement. 


        (h)    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement. 


        (i)    Execution and Counterparts.    This Agreement may be executed in any number of counterparts, each of which when
so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the 



34







 




party
executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. 


        (j)    Governing Law.    All questions concerning the construction, validity, enforcement and interpretation of this
Agreement shall be determined with the provisions of the Purchase Agreement. 



        (k)    Cumulative Remedies.    The remedies provided herein are cumulative and not exclusive of any remedies provided
by law. 


        (l)    Severability.    If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 


        (m)    Headings.    The headings in this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. 


        (n)    Independent Nature of Purchasers' Obligations and Rights.    The obligations of each Holder hereunder are
several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing
contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary
for any other Holder to be joined as an additional party in any proceeding for such purpose. 



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


35







 

        IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. 



	 	 	 	 	 
	 	 	 	 	 
	 	 	DPAC TECHNOLOGIES CORP.
	 	 	 	 	 
	 	 	 	 	 
	 	 	By:	 	 
	 	 	 	 	
 Name:

Title:




[SIGNATURE
PAGE OF HOLDERS FOLLOWS] 


36







 
[PURCHASER'S
SIGNATURE PAGE TO DPAC RRA] 



	Name of Investing Entity:	 	 
	 	 	

	Signature of Authorized Signatory of Investing entity:	 	 
	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	





[SIGNATURE
PAGES CONTINUE] 


37







 
[PURCHASER'S
SIGNATURE PAGE TO DPAC RRA] 



	Name of Investing Entity:	 	 
	 	 	

	Signature of Authorized Signatory of Investing entity:	 	 
	 	 	

	Name of Authorized Signatory:	 	 
	 	 	

	Title of Authorized Signatory:	 	 
	 	 	





[SIGNATURE
PAGES CONTINUE] 


38








   ANNEX A  


Plan of Distribution


        The
Selling Stockholders (the "Selling Stockholders") of the common stock ("Common Stock")
of DPAC Technologies Corp. (the "Company") and any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: 



	•
	ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;



	•
	block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the
transaction;



	•
	purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;



	•
	an
exchange distribution in accordance with the rules of the applicable exchange;



	•
	privately
negotiated transactions;



	•
	settlement
of short sales entered into after the date of this prospectus;



	•
	broker-dealers
may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;



	•
	a
combination of any such methods of sale;



	•
	through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or



	•
	any
other method permitted pursuant to applicable law. 




        The
Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
if available, rather than under this prospectus. 


        Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each Selling Stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the types of transactions involved. 



        In
connection with the sale of our common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of our common stock short and deliver
these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction). 


        The
Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have 


39







 

any
agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. 


        The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. 


        Because
Selling Stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities
Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus. Each Selling Stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the
resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders. 


        We
agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard
to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or
Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with. 


        Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with
respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholders or any
other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale. 


40









   
        NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. 


SERIES A COMMON STOCK PURCHASE WARRANT  


To Purchase                        Shares of Common Stock of 


DPAC Technologies Corp.  


        THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for value received,
                        (the
"Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at
any time on or after the sixth monthly anniversary of the date of issuance of this Warrant plus one day (the "Initial Exercise
Date") and on or prior to the fifth anniversary of the Initial Exercise Date (the "Termination Date") but not thereafter, to
subscribe for and purchase from DPAC Technologies Corp., a California corporation (the "Company"), up
to                        shares (the
"Warrant Shares") of Common Stock, no par value, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock (the "Exercise Price") under this Warrant shall be $1.235, subject to
adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as expressly provided herein.  Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that
certain Securities Purchase Agreement (the "Purchase Agreement"), dated May 5, 2004 among the Company and the purchasers signatory
thereto.


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


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


        3.    Exercise of Warrant.    



        (a)   Exercise
of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date
by delivery to 



41







 

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


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



        (c)   The
Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the extent that after giving effect to such
issuance after exercise, the Holder (together with the Holder's affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the
Common Stock 



42







 




outstanding
immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company is not representing to Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 3(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this
Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 3(c), in determining the number of outstanding shares of Common Stock, the Holder
may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be,
(y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. 



        (d)   If
at any time after one year from the date of issuance of this Warrant and prior to the Termination Date there is no effective Registration Statement registering the
resale of the Warrant Shares by the Holder for a then continuing period of more than 20 consecutive Trading Days, then, this Warrant may also be exercised at such time by means of a "cashless
exercise" in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where:



	 	(A)	 	=	 	the Closing Price on the Trading Day immediately preceding the date of such election;
	 	 	 	 	 	 
	 	(B)	 	=	 	the Exercise Price of this Warrant, as adjusted; and
	 	 	 	 	 	 
	 	(X)	 	=	 	the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.





        (e)   Subject
to the provisions of this Section 3, if after the 6 month anniversary of the Effective Date, the Closing Price for each of twenty consecutive
Trading Days (the "Measurement Period", which period shall not have commenced until after such anniversary date) exceeds 250% of the Exercise Price (the
"Threshold Price") (subject to adjustment for reverse and forward stock 



43







 

splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of the Purchase Agreement), then the Company may, within two Trading Days of
such period, call for cancellation of all or any portion of this Warrant for which a Notice of Exercise has not yet been delivered (such right, a
"Call"). To exercise this right, the Company must deliver to the Holder an irrevocable written notice (a "Call
Notice"), indicating therein the portion of unexercised portion of this Warrant to which such notice applies. If the conditions set forth below for such Call are satisfied from
the period from the date of the Call Notice through and including the Call Date (as defined below), then any portion of this Warrant subject to such Call Notice for which a Notice of Exercise shall
not have been received from and after the date of the Call Notice will be cancelled at 6:30 p.m. (New York City time) on the tenth (10th) Trading Day after the date the Call
Notice is received by the Holder (such date, the "Call Date"). Any unexercised portion of this Warrant to which the Call Notice does not pertain will be
unaffected by such Call Notice. In furtherance thereof, the Company covenants and agrees that it will honor all Notices of Exercise with respect to Warrant Shares subject to a Call Notice that are
tendered from the time of delivery of the Call Notice through 6:30 p.m. (New York City time) on the Call Date. The parties agree that any Notice of Exercise delivered following a Call Notice
shall first reduce to zero the number of Warrant Shares subject to such Call Notice prior to reducing the remaining Warrant Shares available for purchase under this Warrant. For example, if
(x) this Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m. (New York City time) on
the Call Date the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the right under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled, (2) the Company, in the time and manner required under this Warrant, will have issued and delivered to the Holder 50 Warrant Shares in respect of the exercises following receipt of
the Call Notice, and (3) the Holder may, until the Termination Date, exercise this Warrant for 25 Warrant Shares (subject to adjustment as herein provided and subject to subsequent Call
Notices). Subject again to the provisions of this Section 3(e), the Company may deliver subsequent Call Notices for any portion of this Warrant for which the Holder shall not have delivered a
Notice of Exercise. Notwithstanding anything to the contrary set forth in this Warrant, the Company may not deliver a Call Notice or require the cancellation of this Warrant (and any Call Notice will
be void), unless, from the beginning of the 20th consecutive Trading Days used to determine whether the Common Stock has achieved the Threshold Price through the Call Date,
(i) the Company shall have honored in accordance with the terms of this Warrant all Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call Date, (ii) the
Registration Statement shall be effective as to all Warrant Shares and the prospectus thereunder available for use by the Holder for the resale of all such Warrant Shares and (iii) the Common
Stock shall be listed or quoted for trading on the Trading Market. The Company's right to Call the Warrant shall be exercised ratably among the Purchasers based on each Purchaser's initial purchase of
Common Stock pursuant to the Purchase Agreement. 




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



        5.    Charges, Taxes and Expenses.    Issuance of certificates for Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,  however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company 


44







 

may
require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 


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


        7.    Transfer, Division and Combination.    



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


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


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


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


        (e)   If,
at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be pursuant to an effective
registration statement under the Securities Act and qualification under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that
the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. 



45









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


        9.    Loss, Theft, Destruction or Mutilation of Warrant.    The Company covenants that upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 


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


        11.    Adjustments of Exercise Price and Number of Warrant Shares.    



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


        (b)    Anti-Dilution Provisions.    During the Exercise Period, the Exercise Price (but not the number of
Warrant Shares) shall be subject to adjustment from time to time as provided in this Section 11(b). In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. 



        (i)    Adjustment of Exercise Price.    If and whenever the Company issues or sells, or in accordance with
Section 11(b)(ii) hereof is deemed to have issued or sold, any shares of Common Stock for an effective consideration per share of less than the then Exercise Price or for no
consideration (such lower price, the "Base Share Price" and such issuances collectively, a "Dilutive
Issuance"), then, the Exercise Price shall be reduced to equal the Base Share Price; provided,  however, the
Base Share Price shall not be less than $1.10, such minimum price  




46







 


 subject to adjustment only for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this
Agreement. Such adjustment shall be made whenever shares of Common Stock or Common Stock Equivalents are issued. 



        (ii)    Effect on Exercise Price of Certain Events.    For purposes of determining the adjusted Exercise Price under
Section 11(b) hereof, the following will be applicable: 



        (A)    Issuance of Rights or Options.    If the Company in any manner issues or grants any warrants, rights or
options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or Common Stock Equivalents (such warrants, rights and options to purchase Common Stock or Common Stock
Equivalents are hereinafter referred to as "Options") and the effective price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Exercise Price ("Below Base Price Options"), then the maximum total number of shares of Common Stock issuable upon the exercise
of all such Below Base Price Options (assuming full exercise, conversion or exchange of Common Stock Equivalents, if applicable) will, as of the date of the issuance or grant of such Below Base Price
Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share and the maximum consideration payable to the Company upon such exercise (assuming full
exercise, conversion or exchange of Common Stock Equivalents, if applicable) will be deemed to have been received by the Company. For purposes of the preceding sentence, the "effective price per share
for which Common Stock is issuable upon the exercise of such Below Base Price Options" is determined by dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Below Base Price Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all
such Below Base Price Options, plus, in the case of Common Stock Equivalents issuable upon the exercise of such Below Base Price Options, the minimum aggregate amount of additional consideration
payable upon the exercise, conversion or exchange thereof at the time such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of
Common Stock issuable upon the exercise of all such Below Base Price Options (assuming full conversion of Common Stock Equivalents, if applicable). No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon the exercise of such Below Base Price Options or upon the exercise, conversion or exchange of Common Stock Equivalents issuable upon exercise of
such Below Base Price Options. 


        (B)    Issuance of Common Stock Equivalents.    If the Company in any manner issues or sells any Common Stock
Equivalents, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the effective price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is less than the Exercise Price, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock
Equivalents will, as of the date of the issuance of such Common Stock Equivalents, be deemed to be outstanding and to have been issued and sold by the Company for such price per share and the maximum
consideration payable to the Company upon such exercise (assuming full exercise, conversion or exchange of Common Stock Equivalents, if applicable) will be deemed to have been received by the Company.
For the purposes of the preceding sentence, the "effective price per share for which Common Stock is issuable upon such exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the 





47







 






issuance
or sale of all such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof
at the time such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Common Stock Equivalents. No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon exercise, conversion or
exchange of such Common Stock Equivalents. 


        (C)    Change in Option Price or Conversion Rate.    If there is a change at any time in (i) the amount of
additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Common Stock Equivalents; or (iii) the rate at which any Common Stock Equivalents are convertible into or exchangeable for Common Stock (in each such case, other than under or
by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such
time had such Options or Common Stock Equivalents still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted,
issued or sold. 


        (D)    Calculation of Consideration Received.    If any Common Stock, Options or Common Stock Equivalents are issued,
granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Common Stock Equivalents are
issued or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the fair market value of such consideration, except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the fair market value (closing bid price, if traded on any market) thereof as of the date of receipt. In case any Common Stock, Options or
Common Stock Equivalents are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Common Stock Equivalents, as the case may
be. The fair market value of any consideration other than cash or securities will be determined in good faith by an investment banker or other appropriate expert of national reputation selected by the
Company and reasonably acceptable to the holder hereof, with the costs of such appraisal to be borne by the Company. 



        (E)    Exceptions to Adjustment of Exercise Price.    Notwithstanding the foregoing, no adjustment will be made under
this Section 11(b) in respect of an Exempt Issuance. 




        (iii)    Offerings of Other Property to Common Stock Holders.    If the Company, at any time prior to the Termination
Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 11(b)(i)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall 




48







 


be
the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. 


        (iv)    Minimum Adjustment of Exercise Price.    No adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. 





        12.    Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.    In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of its property, assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation
("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter
to receive, at the option of the Company, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such event or (b) cash equal to the value of this Warrant as determined in accordance with the Black Scholes option
pricing formula. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for
adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this
Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 



        13.    Voluntary Adjustment by the Company.    The Company may at any time during the term of this Warrant reduce the
then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company, but in no event less than $1.10. 


49









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


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



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



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


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




then,
in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such
dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if
any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed
to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). 


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


        Except
and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of 


50







 



this
Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder
as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. 


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



        17.    Miscellaneous.    



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


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


        (c)    Nonwaiver and Expenses.    No course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 


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


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


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



        (g)    Successors and Assigns.    Subject to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this 



51







 




Warrant
are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. 



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


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



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



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



52







 

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



	

Dated: May     , 2004	
 	

 	
 	

 
	

 	
 	
DPAC TECHNOLOGIES CORP.
	

 	
 	

By:	
 	

    
 Name:

Title:




53








NOTICE OF EXERCISE  


To:
DPAC Technologies Corp. 


        (1)   The
undersigned hereby elects to purchase            Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. 


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




[    ]
in lawful money of the United States; or 


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





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


                                        
                          



The
Warrant Shares shall be delivered to the following: 


                                        
                          
 


                                        
                          



                                        
                          



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



	 	 	[PURCHASER]
	

 	
 	

By:

	 	 	Name:

Title:
	

 	
 	

Dated:










ASSIGNMENT FORM  


(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.) 


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















Dated:
                             ,           














	Holder's Signature:	 	

	Holder's Address:	 	

	 	 	







Signature
Guaranteed:
                                         
                  


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









   
        NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. 


SERIES A COMMON STOCK PURCHASE WARRANT  


To
Purchase            Shares of Common Stock of 


DPAC Technologies Corp.  


        THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for value received,
                        (the
"Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the
date of issuance of this Warrant (the "Initial Exercise Date") and on or prior to the fifth anniversary of the Initial Exercise Date (the
"Termination Date") but not thereafter, to subscribe for and purchase from DPAC Technologies Corp., a California corporation (the
"Company"), up to                        shares (the "Warrant Shares") of Common Stock, no par value, of the
Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be $1.235, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as expressly provided herein. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Securities Purchase Agreement (the "Purchase Agreement"), dated May 5, 2004 among the Company
and the purchasers signatory thereto.


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


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


        3.    Exercise of Warrant.    



        (a)   Exercise
of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date
by delivery to 



1







 

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


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



        (c)   The
Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the extent that after giving effect to such
issuance after exercise, the Holder (together with the Holder's affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the
Common Stock 



2







 




outstanding
immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company is not representing to Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 3(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this
Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 3(c), in determining the number of outstanding shares of Common Stock, the Holder
may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be,
(y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company's Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. 



        (d)   If
at any time after one year from the date of issuance of this Warrant and prior to the Termination Date there is no effective Registration Statement registering the
resale of the Warrant Shares by the Holder for a then continuing period of more than 20 consecutive Trading Days, then, this Warrant may also be exercised at such time by means of a "cashless
exercise" in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where: 



	 	 	(A)	 	=	 	the Closing Price on the Trading Day immediately preceding the date of such election;
	

 	
 	

(B)	
 	

=	
 	

the Exercise Price of this Warrant, as adjusted; and
	

 	
 	

(X)	
 	

=	
 	

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





        (e)   Subject
to the provisions of this Section 3, if after the 6 month anniversary of the Effective Date, the Closing Price for each of twenty consecutive
Trading Days (the "Measurement Period", which period shall not have commenced until after such anniversary date) exceeds 250% of the Exercise Price (the
"Threshold Price") (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the date of the Purchase Agreement), then the Company may, within two Trading 



3







 

Days
of such period, call for cancellation of all or any portion of this Warrant for which a Notice of Exercise has not yet been delivered (such right, a
"Call"). To exercise this right, the Company must deliver to the Holder an irrevocable written notice (a "Call
Notice"), indicating therein the portion of unexercised portion of this Warrant to which such notice applies. If the conditions set forth below for such Call are satisfied from
the period from the date of the Call Notice through and including the Call Date (as defined below), then any portion of this Warrant subject to such Call Notice for which a Notice of Exercise shall
not have been received from and after the date of the Call Notice will be cancelled at 6:30 p.m. (New York City time) on the tenth (10th) Trading Day after the date the Call
Notice is received by the Holder (such date, the "Call Date"). Any unexercised portion of this Warrant to which the Call Notice does not pertain will be
unaffected by such Call Notice. In furtherance thereof, the Company covenants and agrees that it will honor all Notices of Exercise with respect to Warrant Shares subject to a Call Notice that are
tendered from the time of delivery of the Call Notice through 6:30 p.m. (New York City time) on the Call Date. The parties agree that any Notice of Exercise delivered following a Call Notice
shall first reduce to zero the number of Warrant Shares subject to such Call Notice prior to reducing the remaining Warrant Shares available for purchase under this Warrant. For example, if
(x) this Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m. (New York City time) on
the Call Date the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the right under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled, (2) the Company, in the time and manner required under this Warrant, will have issued and delivered to the Holder 50 Warrant Shares in respect of the exercises following receipt of
the Call Notice, and (3) the Holder may, until the Termination Date, exercise this Warrant for 25 Warrant Shares (subject to adjustment as herein provided and subject to subsequent Call
Notices). Subject again to the provisions of this Section 3(e), the Company may deliver subsequent Call Notices for any portion of this Warrant for which the Holder shall not have delivered a
Notice of Exercise. Notwithstanding anything to the contrary set forth in this Warrant, the Company may not deliver a Call Notice or require the cancellation of this Warrant (and any Call Notice will
be void), unless, from the beginning of the 20th consecutive Trading Days used to determine whether the Common Stock has achieved the Threshold Price through the Call Date,
(i) the Company shall have honored in accordance with the terms of this Warrant all Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call Date, (ii) the
Registration Statement shall be effective as to all Warrant Shares and the prospectus thereunder available for use by the Holder for the resale of all such Warrant Shares and (iii) the Common
Stock shall be listed or quoted for trading on the Trading Market. The Company's right to Call the Warrant shall be exercised ratably among the Purchasers based on each Purchaser's initial purchase of
Common Stock pursuant to the Purchase Agreement. 




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



        5.    Charges, Taxes and Expenses.    Issuance of certificates for Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,  however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto. 


4









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


        7.    Transfer, Division and Combination.    



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


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


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


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


        (e)   If,
at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be pursuant to an effective
registration statement under the Securities Act and qualification under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that
the Holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer
may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or
(a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. 




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



        9.    Loss, Theft, Destruction or Mutilation of Warrant.    The Company covenants that upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or 


5







 



stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 


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


        11.    Adjustments of Exercise Price and Number of Warrant Shares.    



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


        (b)    Anti-Dilution Provisions.    During the Exercise Period, the Exercise Price (but not the number of
Warrant Shares) shall be subject to adjustment from time to time as provided in this Section 11(b). In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. 



        (i)    Adjustment of Exercise Price.    If and whenever the Company issues or sells, or in accordance with
Section 11(b)(ii) hereof is deemed to have issued or sold, any shares of Common Stock for an effective consideration per share of less than the then Exercise Price or for no
consideration (such lower price, the "Base Share Price" and such issuances collectively, a "Dilutive
Issuance"), then, the Exercise Price shall be reduced to equal the Base Share Price. Such adjustment shall be made whenever shares of Common Stock or Common Stock Equivalents
are issued. 


        (ii)    Effect on Exercise Price of Certain Events.    For purposes of determining the adjusted Exercise Price under
Section 11(b) hereof, the following will be applicable: 



        (A)    Issuance of Rights or Options.    If the Company in any manner issues or grants any warrants, rights or
options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or Common Stock Equivalents (such warrants, rights and options to purchase Common Stock or Common Stock
Equivalents are hereinafter referred to as "Options") and the effective price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Exercise Price ("Below Base Price Options"), then the maximum total number of shares of Common Stock issuable upon the exercise
of all such Below Base Price Options (assuming full exercise, 





6







 



conversion
or exchange of Common Stock Equivalents, if applicable) will, as of the date of the issuance or grant of such Below Base Price Options, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share and the maximum consideration payable to the Company upon such exercise (assuming full exercise, conversion or exchange of Common Stock Equivalents, if
applicable) will be deemed to have been received by the Company. For purposes of the preceding sentence, the "effective price per share for which Common Stock is issuable upon the exercise of such
Below Base Price Options" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Below Base
Price Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Below Base Price Options, plus, in the case of Common Stock
Equivalents issuable upon the exercise of such Below Base Price Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time
such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Base
Price Options (assuming full conversion of Common Stock Equivalents, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Below Base Price Options or upon the exercise, conversion or exchange of Common Stock Equivalents issuable upon exercise of such Below Base Price Options. 



        (B)    Issuance of Common Stock Equivalents.    If the Company in any manner issues or sells any Common Stock
Equivalents, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the effective price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is less than the Exercise Price, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock
Equivalents will, as of the date of the issuance of such Common Stock Equivalents, be deemed to be outstanding and to have been issued and sold by the Company for such price per share and the maximum
consideration payable to the Company upon such exercise (assuming full exercise, conversion or exchange of Common Stock Equivalents, if applicable) will be deemed to have been received by the Company.
For the purposes of the preceding sentence, the "effective price per share for which Common Stock is issuable upon such exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Common Stock Equivalents, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Common Stock Equivalents first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Common Stock Equivalents. No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon exercise, conversion or exchange of such Common Stock Equivalents. 


        (C)    Change in Option Price or Conversion Rate.    If there is a change at any time in (i) the amount of
additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Common Stock Equivalents; or (iii) the rate at which any Common Stock Equivalents are convertible into or exchangeable for Common Stock (in each such case, other than under or
by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such
time had such 





7







 



Options
or Common Stock Equivalents still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. 


        (D)    Calculation of Consideration Received.    If any Common Stock, Options or Common Stock Equivalents are issued,
granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Common Stock Equivalents are
issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such
consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the fair market value (closing bid price, if traded on
any market) thereof as of the date of receipt. In case any Common Stock, Options or Common Stock Equivalents are issued in connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Common Stock Equivalents, as the case may be. The fair market value of any consideration other than cash or securities will be determined in good faith by
an investment banker or other appropriate expert of national reputation selected by the Company and reasonably acceptable to the holder hereof, with the costs of such appraisal to be borne by the
Company. 


        (E)    Exceptions to Adjustment of Exercise Price.    Notwithstanding the foregoing, no adjustment will be made under
this Section 11(b) in respect of an Exempt Issuance. 




        (iii)    Offerings of Other Property to Common Stock Holders.    If the Company, at any time prior to the Termination
Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 11(b)(i)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date
mentioned above, and of which the numerator shall be such Closing Price on such record date less the
then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date
mentioned above. 


        (iv)    Minimum Adjustment of Exercise Price.    No adjustment of the Exercise Price shall be made in an amount of
less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. 




8















   
        12.    Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.    In case the Company
shall
reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of its property, assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation
("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter
to receive, at the option of the Company, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such event or (b) cash equal to the value of this Warrant as determined in accordance with the Black Scholes option
pricing formula. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for
adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this
Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 



        13.    Voluntary Adjustment by the Company.    The Company may at any time during the term of this Warrant reduce the
then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company, but in no event less than $1.10. 


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


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



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


        (b)   there
shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of
the 



9








 




Company
with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, 


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




then,
in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such
dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if
any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d). 


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


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



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


10







 



        17.    Miscellaneous.    



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


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



        (c)    Nonwaiver and Expenses.    No course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 



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


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



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


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


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


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


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



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


11







 

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



	

Dated: May     , 2004	
 	

 	
 	

 
	 	 	DPAC TECHNOLOGIES CORP.
	

 	
 	

By:	
 	

 Name:

Title:




12








NOTICE OF EXERCISE  


To:    DPAC
Technologies Corp. 


        (1)   The
undersigned hereby elects to purchase            Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. 


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





o    in
lawful money of the United States; or 



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






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











The
Warrant Shares shall be delivered to the following: 















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



	 	 	[PURCHASER]
	

 	
 	

By:	
 	

    

	 	 	Name:

Title:





	

 	
 	

Dated:	
 	

    










ASSIGNMENT FORM  


(To
assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.) 


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



	    
	 	whose address is	 	 	 
	    
	.	 	 
	    
	 	 	 
	Dated:	 	    
	,	 	    






	

 	
 	

Holder's Signature:	
 	

    
	
 	

 
	 	 	Holder's Address:	 	    
	 	 
	 	 	 	 	    
	 	 
	

Signature Guaranteed:	
 	

    
	
 	

 





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









   
        NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT. 


SERIES B COMMON STOCK PURCHASE WARRANT  


To
Purchase                        Shares of Common Stock of 


DPAC Technologies Corp.  


        THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for value received,
                        (the
"Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the
date of issuance of this Warrant (the "Initial Exercise Date") and on or prior to the 320th day after the Effective Date (the
"Termination Date") but not thereafter, to subscribe for and purchase from DPAC Technologies Corp., a California corporation (the
"Company"), up to                        shares (the "Warrant Shares") of Common Stock, no par value, of the
Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price")
under this Warrant shall be $0.967, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as expressly provided herein. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in that certain Securities Purchase Agreement (the "Purchase Agreement"), dated May 5, 2004 among the Company and the
purchasers signatory thereto.


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


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


        3.    Exercise of Warrant.    



        (a)   Exercise
of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date
by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to
the 



1







 

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


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



        (c)   The
Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the extent that after giving effect to such
issuance after exercise, the Holder (together with the Holder's affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to such issuance. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon exercise of this 



2







 




Warrant
with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the
remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(c), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company is not representing to Holder that such calculation is in compliance with Section 13(d) of the
Exchange Act and Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(c) applies, the
determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such
Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and
of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 3(c), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or
(z) any other notice by the Company or the Company's Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. 


        (d)   If
at any time after one year from the date of issuance of this Warrant and prior to the Termination Date there is no effective Registration Statement registering the
resale of the Warrant Shares by the Holder for a then continuing period of more than 20 consecutive Trading Days, then, this Warrant may also be exercised at such time by means of a "cashless
exercise" in which the Holder shall be entitled
to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: 



	(A)
	= the
 Closing Price on the Trading Day immediately preceding the date of such election;



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



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





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


        5.    Charges, Taxes and Expenses.    Issuance of certificates for Warrant Shares shall be made without charge to the
Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided,  however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be 


3







 



accompanied
by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer
tax incidental thereto. 


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


        7.    Transfer, Division and Combination.    



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


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


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


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


        (e)   If,
at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be pursuant to an effective
registration statement under the Securities Act and qualification under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that
the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. 




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


4









   
        9.    Loss, Theft, Destruction or Mutilation of Warrant.    The Company covenants that upon receipt by the Company
of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 


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


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


        12.    Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets.    In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of its property, assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation
("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter
to receive, at the option of the Company, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such event or (b) cash equal to the value of this Warrant as determined in accordance with the Black Scholes option
pricing formula. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall
expressly assume the 


5







 



due
and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common
stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation
and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this
Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 



        13.    Voluntary Adjustment by the Company.    The Company may at any time during the term of this Warrant reduce the
then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company, but in no event less than $1.10. 


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


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



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


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



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




then,
in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such
dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if
any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, 


6







 

dissolution,
liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d). 


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


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



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


        17.    Miscellaneous.    



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


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


        (c)    Nonwaiver and Expenses.    No course of dealing or any delay or failure to exercise any right hereunder on the
part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. 



7







 




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


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


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



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


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


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


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



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



8







 

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


Dated:
May     , 2004 



	 	 	DPAC TECHNOLOGIES CORP.
	

 	
 	

By:	
 	

    
 Name:

Title:




9








NOTICE OF EXERCISE  


To:    DPAC
Technologies Corp. 


        (1)   The
undersigned hereby elects to purchase            Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. 


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





o    in
lawful money of the United States; or 



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






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











The
Warrant Shares shall be delivered to the following: 















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



	 	 	[PURCHASER]
	

 	
 	

By:	
 	

    

	 	 	Name:

Title:





	

 	
 	

Dated:	
 	

    










ASSIGNMENT FORM  


(To
assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.) 


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



	    
	 	whose address is	 	 	 
	    
	.	 	 
	    
	 	 	 
	Dated:	 	    
	,	 	    






	

 	
 	

Holder's Signature:	
 	

    
	
 	

 
	 	 	Holder's Address:	 	    
	 	 
	 	 	 	 	    
	 	 
	

Signature Guaranteed:	
 	

    
	
 	

 





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










	

 	
 	

YOCCA PATCH & YOCCA LLP

LAWYERS	
 	



TELEPHONE (949) 253-0800
	 	 	19900 MACARTHUR BOULEVARD	 	FACSIMILE (949) 253-0870
	 	 	SUITE 650

IRVINE, CALIFORNIA 92612	 	 




MAY 11, 2004


The
Purchasers Listed on Attachment A

C/o Joseph A. Smith

Feldman Weinstein LLP

420 Lexington Avenue, Suite 2620

New York, NY 10170 


	Re:
	Securities
Purchase Agreement

Ladies and Gentlemen: 



        We
have acted as counsel to DPAC Technologies Corp., a California corporation (the "Company"), in connection with the execution and delivery by it of the Securities Purchase Agreement
dated as of May 5, 2004, (the "Purchase Agreement") among the Company and the Purchasers as defined therein (each a "Purchaser" and collectively "Purchasers"). This opinion is being delivered
to you at the Company's request pursuant to Section 2.2(a)(vi) of the Purchase Agreement. Unless specifically defined
herein or the context requires otherwise, capitalized terms used herein shall have the meanings ascribed to them in the Purchase Agreement, unless otherwise defined herein. 


        In
connection with this opinion, we have examined the documents listed below: 



        (a)   The
Purchase Agreement, including the following exhibits: (i) Form of Registration Rights Agreement, (ii) Form of Series A Warrant, and
(iii) Form of Series B Warrant. 


        (b)   Resolutions
of the Board of Directors of the Company dated April 26, 2004. 


        (c)   The
Bylaws of the Company, as amended. 


        (d)   The
Articles of Incorporation of the Company, as amended, as filed with the California Secretary of State. 


        (e)   The
Disclosure Schedule. 




        The
documents referred to in subparagraph (a) above are herein referred to collectively as the "Transaction Documents." 



        In
addition, we have examined, among other things, originals or copies of such corporate records of the Company, certificates of officers of the Company, certificates of public officials
and such other documents and questions of law that we deemed necessary or appropriate. We have assumed the authenticity and completeness of all documents submitted to us as originals, the conformity
with original documents of all documents submitted to us as copies and the genuineness of all signatures. We have also assumed that with respect to all parties to the agreements and instruments
relevant hereto other than the Company, such parties have the requisite power and authority to execute, deliver and perform such agreements or instruments, that such agreements or instruments have
been duly authorized by all requisite action, duly executed and delivered by such parties and that such agreements or instruments are the valid, binding and enforceable obligations of such parties. We
assume the legal capacity of all natural persons. 


        As
to questions of fact material to our opinions, we have relied upon representations and warranties contained in the Purchase Agreement or the Transaction Documents and certificates
delivered in connection therewith, certificates of officers of the Company and certificates and advice of public officials and have made no independent investigation of such matters. 










        As
used in this opinion, the expression "to our knowledge" refers to the current actual knowledge of the attorneys of this firm who have worked on matters for the Company solely in
connection with the Transaction Documents and the transactions contemplated thereby, and without any independent investigation of any underlying facts or situations. 


        Based
upon and subject to the foregoing, and subject to the qualifications stated herein, we are of the opinion that: 



        1.     The
Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. The Company has the requisite corporate
power and authority to enter into and perform its obligations under the Transaction Documents and to issue the Common Shares, the Warrants and the Warrant Shares. The execution and delivery of the
Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is required. 


        2.     The
Transaction Documents constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms,
subject to the exceptions set forth herein, and except also that the enforceability thereof may be subject to or limited by (a) bankruptcy, insolvency, reorganization, arrangement, moratorium,
or other similar laws relating to or affecting rights of creditors and (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in
equity or at law. 


        3.     The
execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby,
including, without limitation, the issuance of the Shares, the Warrant and the Warrant Shares, does not (i) result in a violation of the Company's Articles of Incorporation or
By-Laws; or (ii) constitute a material default (or an event that with notice or lapse of time or both would become a default) under, require a consent under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any "lock-up", refusal or similar provision of any underwriting or
similar agreement to which the Company is a party that is listed as a material contract in the Exhibit Index to the current draft of its most recent Form 10-K a copy of which is
attached as Appendix A ("Material Contract"). To our knowledge, the Company is not in violation of any terms of its Articles of Incorporation or Bylaws. 


        4.     The
issuance of the Shares, the Warrants and upon exercise thereof, the Warrant Shares, to the Purchasers as contemplated in the Transaction Documents will be exempt from
registration under the Securities Act. When so issued, the Shares and Warrants, and upon payment of the exercise price, the Warrant Shares, shall be duly and validly issued, fully paid and
nonassessable. 


        5.     Except
as disclosed in the SEC filings or the Disclosure Schedule, to our knowledge, there are no actions, suits, proceedings or investigations that are pending or
currently threatened against the Company or its properties, or against any officer or director of the Company in his or her capacity as such (i) that question the validity of the Purchase
Agreement or the right of the Company to enter into the Purchase Agreement or to consummate the transactions contemplated thereby or (ii) which would be reasonably expected to have,
individually or in the aggregate, a material adverse effect on the Company. To our knowledge, except as disclosed in the SEC filings or the Disclosure Schedule, the Company is not, in any material
respect, a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. 


        6.     To
our knowledge, the Company is not subject to any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or
other similar anti-takeover provision under the Company's Articles of Incorporation or By-Laws or the laws of the State of California. 



        7.     The
authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, no par value, and 8,000,000 Shares of Preferred Stock, no par value. 













        We
confirm as a factual matter, and not as a matter of opinion, that we participated in discussion with the Trading Market concerning the Transaction Documents and understand that the
Company's execution and delivery of the Transaction Documents do not result in a violation of any rule or regulation of the Trading Market applicable to the Company, except for such violations as
would not, individually or in the aggregate, have a Material Adverse Effect. 


        We
are members of the bar of the State of California and, accordingly do not purport to be experts on or to be qualified to express any opinion herein concerning, nor do we express any
opinion herein concerning, any laws other than the laws of the State of California and federal law. Our opinions are based on the assumption that the internal laws of the State of California and
federal law would govern the provisions of the Transaction Documents and the transactions contemplated thereby. 


        The
foregoing opinions exclude the following matters as to which we expressly decline, with your permission, to render any opinion: 



	A.
	The
unenforceability under certain circumstances of choice of law provisions.



	B.
	The
effect of introduction of extrinsic evidence to modify the terms or the interpretation of a written agreement.



	C.
	The
Company's compliance or non-compliance with (i) antifraud provisions of applicable Federal or state securities laws, (ii) applicable federal or state
antitrust laws and regulations, (iii) unfair competition or trade practice laws and regulations, (iv) pension and employee benefit laws and regulations, or (v) the limitations
imposed by Chapter 5 of the California Corporations Code relating to the repurchase by a corporation of its capital stock.



	D.
	The
effect of any Federal or state law pertaining to your legal or regulatory status, the nature of your business, or legality of this investment.



	E.
	The
effect or availability of rules of law governing equitable remedies, injunctive relief or specific performance, regardless of whether any such remedy is considered in a proceeding
at law or in equity; and the effect of judicial decisions which have held that certain provisions are unenforceable when their enforcement would violate the implied covenant of good faith and fair
dealing, or would be commercially unreasonable, or where breach of such provisions is not material; and the unenforceability under certain circumstances of provisions to the effect that failure to
exercise or delay in exercising any right or remedy will not operate as a waiver of that right or remedy.



	F.
	The
effect of California Civil Code Section 1671, which provides in part that a contractual provision liquidating the damages for breach of contract in a commercial transaction
will be invalid if it is established that the provision was "unreasonable" under the circumstances existing at the time the contract was made.



	G.
	The
effect of California Civil Code Section 1670.5, which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which
the court finds as a matter of law to have been unconscionable at the time it was made.



	H.
	The
effect of Section 1698 of the California Civil Code, which provides in part that provisions of any instrument or agreement that may only be waived in writing will not be
enforced to the extent that an oral agreement has been executed modifying provisions of such instrument or agreement.



	I.
	The
effect of California laws relating to usury or permissible rates of interest upon the transactions contemplated by the Transaction Documents.



	J.
	The
unenforceability under certain circumstances of provisions regarding indemnification.



	K.
	Any
opinion with respect to any documents or instruments referenced in the Purchase Agreement, except for the Purchase Agreement itself and the Transaction Documents as set forth in
Exhibits B through D to the Purchase Agreement; with respect to past, present or 










future
fair market value of any securities; or with respect to whether enough remaining authorized but unissued shares of Common Stock will be available at a future time for exercise of Warrants. 





        The
foregoing opinions speak as of the date hereof only. We expressly decline any undertaking to advise you of any matters arising subsequent to the date hereof which would cause use to
amend any portion of the foregoing in whole or in part. 


        The
foregoing opinions are being furnished to you solely for your benefit in connection with the transactions described above and may not be relied upon by any other person, nor may
copies be delivered to any other person, without our prior written consent. 



	

 	
 	

Very truly yours,
	

 	
 	

/s/  YOCCA PATCH & YOCCA, LLP      
 Yocca Patch & Yocca, LLP









Attachment A



	Purchaser
 
	 	Shares

	Basso Eq Op Hid Fund LTD	 	70,000
	Basso Multi Strategy Hldg Fund Ltd	 	180,000
	Truk Opportunity Fund, LLC	 	295,750
	Truk International Fund, LLC	 	29,250
	OTAPE Investments LLC	 	124,224
	AS Capital Partners, LLC	 	124,224
	Langley Capital	 	250,000
	Redwood Partners II, LLC	 	62,112
	SRG Capital, LLC	 	186,335
	Penn Footwear	 	168,789
	Omicron Capital Master Trust	 	248,447
	Bristol Investment Fund, Ltd	 	248,447
	Professional Traders Fund, LLC	 	124,224
	RHP Master Fund, LLC	 	372,671









Appendix A  


	1.
	Share
Exchange Agreement dated October 26, 2000 among the Registrant, Productivity Enhancement Products, Inc. ("PEP") and the Shareholder of PEP (excluding disclosure
schedules), which is incorporated by reference to the Registrant's Current Report on Form 8-K filed November 13, 2000.



	2.
	Registration
Rights Agreement dated October 26, 2000 between the Registrant and the Shareholder of PEP, which is incorporated by reference to the Registrant's Current Report on
Form 8-K filed November 13, 2000.



	3.
	Articles
of Incorporation, as amended which is incorporated by reference to registrant's Current Report on Form 8-K, Date of Event July 11, 1988.



	4.
	By-laws,
as amended, which is incorporated by reference to Registrant's Current Report on Form 8-K, Date of Event July 11, 1988



	5.
	Lease
for Premises at 7321 Lincoln Way, Garden Grove, California, dated June 19, 1997 as incorporated by reference to Registrant's Annual Report on
Form 10-KSB for the year ended February 29, 1996.



	6.
	1996
Stock Option Plan as incorporated by reference to Registrant's Annual Report on Form 10-KSB for the year ended February 29, 1996.*



	7.
	1985
Stock Option Plan, as amended and incorporated by reference to Registrant's Annual Report on Form 10-KSB for the year ended February 28, 1994.



	8.
	Form
of Indemnification Agreement with officers and directors as incorporated by reference to Registrant's Annual Report on Form 10-KSB for the year ended
February 28, 1994.



	9.
	Loan
and Security Agreement between Silicon Valley Bank and DPAC Technologies Corp. dated August 30, 2002 incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q filed October 14, 2003.



	10.
	Amendment
to Loan and Security Agreement between Silicon Valley Bank and DPAC Technologies Corp. dated June 25, 2003 incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q filed October 14, 2003.



	11.
	Employment
Agreement dated June 7, 2001 between Registrant and Edward G. Bruce, incorporated by reference to the Registrant's Current Report on Form 8-K
filed December 23, 2003.



	12.
	Departure
Agreement dated December 18, 2003 between Registrant and Edward G. Bruce, incorporated by reference to the Registrant's Current Report on Form 8-K
filed December 23, 2003.



	13.
	Employment
Agreement dated June 7, 2001 between Registrant and William M. Stowell.



	14.
	Employment
Agreement dated June 7, 2001 between Registrant and John Sprint. 











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