8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported) January 30, 2008

DPAC Technologies Corp.

(Exact Name of Registrant as Specified in Its Charter)

California	0-14843	33-0033759
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5675 Hudson Industrial Parkway, Hudson, Ohio	16056
(Address of Principal Executive Offices)	(Zip Code)

(800) 553-1170

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

New Credit Agreement

(1) Effective on January 30, 2008, DPAC Technologies Corp., a California corporation (the “Company”) and its wholly-owned subsidiary, QuaTech, Inc., an Ohio corporation (“QuaTech”) entered into a certain Credit Agreement (the “Credit Agreement”) with Fifth Third Bank, an Ohio banking corporation (“Fifth Third”). Pursuant to the Credit Agreement, each of the Company and QuaTech, as co-borrowers, has access to a revolving credit facility of up to $3,000,000 (the “Credit Facility”). Borrowings under the Credit Facility are available for the refinancing of certain indebtedness and working capital. The amount of available borrowing under the Credit Facility is based upon a borrowing base of the Company’s and QuaTech’s eligible accounts receivable and inventory. Interest on the Credit Facility is determined by reference to Fifth Third’s prime rate plus an applicable margin of one and one half percent (1.5%) for all loans that have not matured due to default or otherwise. Borrowings under the Credit Facility may be prepaid at any time without penalty. Upon execution of the Credit Agreement, the Company and QuaTech were required to pay Fifth Third a $5,000 facility fee. The Credit Agreement contains various covenants, which limit the Company’s and QuaTech’s ability to incur indebtedness, grant certain liens, make certain loans, acquisitions, and investments, become a guarantor or surety, merge or consolidate, or engage in certain asset dispositions, including a sale of all or substantially all of the assets. The Credit Agreement also contains covenants that require the Company and QuaTech to maintain specified financial ratios. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, a copy of which is attached hereto as Exhibit 10.1 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(2) In connection with the Credit Agreement, the Company and QuaTech entered into a certain Revolving Credit Promissory Note (the “Fifth Third Note”) with Fifth Third. The Fifth Third Note requires the Company and QuaTech to pay borrowings under the Credit Facility in the manner specified in the Credit Agreement. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Fifth Third Note, a copy of which is attached hereto as Exhibit 10.2 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(3) Also in connection with the Credit Agreement, QuaTech entered into a certain Security Agreement (the “Security Agreement”) with Fifth Third. Pursuant to the Security Agreement, QuaTech’s obligations under the Credit Agreement and related documents described in this Item 1.01 are secured by all of QuaTech’s personal property assets. The Credit Agreement contains covenants that limit QuaTech’s ability to sell, lease, transfer, assign, encumber or otherwise dispose of its personal property assets. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Security Agreement, a copy of which is attached hereto as Exhibit 10.3 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(4) Also in connection with the Credit Agreement, the Company and QuaTech entered into a certain Subordination Agreement (the “Subordination Agreement”) with Fifth Third and Canal Mezzanine Partners, L.P., a Delaware limited partnership (“Canal”). The Subordination Agreement subordinates certain loan agreements by and among the Company, QuaTech and

Canal (the “Subordinated Debt”) to the Credit Agreement, and prohibits the Company and QuaTech from making any payments of any kind on the Subordinated Debt except as otherwise provided in the Subordination Agreement. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Subordination Agreement, a copy of which is attached hereto as Exhibit 10.4 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(5) Also in connection with the Credit Agreement, the Company and QuaTech entered into a certain Acknowledgement Agreement (the “Acknowledgement Agreement”) with Fifth Third and Development Capital Ventures, L.P. (“DCV”). Pursuant to the Acknowledgement Agreement, which was made in contemplation of a certain preferred stock agreement by and among the Company, QuaTech and DCV (the “Stock Agreement”), DCV may not redeem, or accept redemption of, its interests under the Stock Agreement without Fifth Third’s prior written consent. DCV is also required to pay over to Fifth Third all proceeds arising from the redemption of DCV’s interests under the Stock Agreement, to the extent necessary to satisfy the Company’s obligations to Fifth Third. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Acknowledgement Agreement, a copy of which is attached hereto as Exhibit 10.5 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

New Subordinated Promissory Note and Warrant

(1) Effective on January 31, 2008, the Company and QuaTech entered into a certain Senior Subordinated Note and Warrant Purchase Agreement (the “Canal Purchase Agreement”) with Canal. Pursuant to the Canal Purchase Agreement, the Company and QuaTech have issued and sold to Canal a Senior Subordinated Note (the “Canal Note”) for $1,200,000, due on January 31, 2013, and the Company has issued and sold to Canal a warrant to purchase the common stock of the Company in an amount representing 3% of the Company’s fully diluted common stock on the date of exercise (the “Canal Warrant”). The Canal Note bears interest at 13% annually and is prepayable under certain circumstances, subject to certain prepayment premiums. The Company and QuaTech may use the proceeds of the sales of the Canal Note and the Canal Warrant for the refinancing of certain indebtedness and working capital. Upon execution of the Canal Purchase Agreement, the Company and QuaTech were required to pay Canal a $24,000 closing fee. The Canal Purchase Agreement contains various covenants, which, among other restrictions, limit the Company’s and QuaTech’s ability to incur indebtedness, grant certain liens, make certain loans, prepayments, acquisitions, expenditures, and investments, issue or dispose of certain securities, create subsidiaries, merge or consolidate, or engage in certain asset dispositions, including a sale of all or substantially all of the assets. The Canal Purchase Agreement also contains covenants that require the Company and QuaTech to maintain specified financial ratios and deliver certain financial statements to Canal. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Canal Purchase Agreement and the Canal Note, a copy of each of which are attached hereto as Exhibits 10.6 and 10.7 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(2) In connection with the Canal Purchase Agreement, the Company and QuaTech entered into a certain Security Agreement (the “Canal Security Agreement”) with Canal. Pursuant to the Canal Security Agreement, the Company’s and QuaTech’s obligations under the

Canal Purchase Agreement are secured by each of the Company’s and QuaTech’s specified collateral, including certain equipment, fixtures, accounts, intangibles, goods, inventories, rights, securities, books and records. The Canal Security Agreement contains covenants that limit the Company’s and QuaTech’s ability to sell, assign or transfer such specified collateral. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Canal Security Agreement, a copy of which is attached hereto as Exhibit 10.8 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(3) Also in connection with the Canal Purchase Agreement, the Company entered into a certain Co-Sale Agreement (the “Canal Co-Sale Agreement”) with Canal, DCV, William Roberts, and Steven D. Runkel (collectively with William Roberts, the “Shareholders”). The Canal Co-Sale Agreement provides Canal with a right to participate in certain sales of shares by the Shareholders, with a corresponding reduction in the amount of shares sold by the Shareholders to account for such participation. The Canal Co-Sale Agreement also contains a provision whereby the Company agrees to take action necessary to increase the number of authorized shares of common stock of the Company to an amount sufficient to give effect to the Canal Warrant and a certain stock purchase agreement between the Company and DCV. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Canal Co-Sale Agreement, a copy of which is attached hereto as Exhibit 10.9 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(4) Also in connection with the Canal Purchase Agreement the Company entered into a certain Registration Rights Agreement (the “Canal Registration Rights Agreement”) with Canal, under which the Company agreed to use its best efforts to register the common stock issuable to Canal upon exercise of the Canal Warrant with the Securities and Exchange Commission, as soon as practicable after receiving an eligible request from Canal to register such stock. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Canal Registration Rights Agreement, a copy of which is attached hereto as Exhibit 10.10 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

(5) Also in connection with the Canal Purchase Agreement, the Company and QuaTech entered into a certain Acknowledgement Agreement (the “Canal Acknowledgement Agreement”) with Canal and DCV. Pursuant to the Canal Acknowledgement Agreement, which was made in contemplation of the Stock Agreement, DCV may not redeem, or accept redemption of, its interests under the Stock Agreement without Canal’s prior written consent. DCV is also required to pay over to Fifth Third all proceeds arising from the redemption of DCV’s interests under the Stock Agreement, to the extent necessary to satisfy the Company’s obligations to Fifth Third, and then to pay over to Canal all proceeds arising from the redemption of DCV’s interests under the Stock Agreement, to the extent necessary to satisfy the Company’s obligations to Canal. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Acknowledgement Agreement, a copy of which is attached hereto as Exhibit 10.11 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

New Stock Purchase Agreement

Effective on January 31, 2008, the Company delivered and became bound by a certain Subscription Agreement (the “Stock Purchase Agreement”) with DCV, the Company’s majority stockholder. Pursuant to the Stock Purchase Agreement, the Company has sold to DCV twenty

thousand (20,000) shares of Series A Convertible Preferred Stock of the Company (the “Series A Preferred Stock”) at a price per share of $100, for a total purchase price of $2,000,000. The stock Purchase agreement is dated December 17, 2007 but was placed in escrow pending the refinancing of the Companies senior and subordinated debt which occurred on January 31, 2008. The Stock Purchase Agreement incorporates the common stock issuable upon conversion of the Series A Preferred Stock into that certain Shareholder and Registration Rights Agreement, dated as of May 11, 2005, to which the Company and DCV are parties, among others. The Stock Purchase Agreement also grants DCV the right to purchase a certain pro-rata portion of any new securities issued by the Company. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, a copy of which is attached hereto as Exhibit 10.12 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 1.01.

Item 1.02. Termination of a Material Definitive Agreement.

On January 31, 2008, the Company and QuaTech terminated the Credit Agreement, with National City Bank, as Lender, dated as of July 28, 2000, as amended (the “National City Credit Agreement”), under which QuaTech originally borrowed $600,000 as a term loan and received access to a revolving commitment of up to $2,000,000. On January 31, 2008, the Company and QuaTech also terminated the Subordinated Loan and Security Agreement, with The HillStreet Fund, L.P., as Lender, dated as of July 28, 2000, as amended (the “Hill Street Debt”), pursuant to which each of the Company and QuaTech,, as co-borrowers, had originally borrowed $1,500,000 which was to repaid with interest at the rate of 15% per year. The termination of these agreements is part of a refinancing strategy undertaken by the Company and QuaTech in conjunction with the consummation of the agreements described under “Item 1.01 Entry into a Material Definitive Agreement.” Neither the Company nor QuaTech incurred financial penalties related to the terminations of the National City Credit Agreement and the HillStreet Debt.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information described above under “Item 1.01 Entry into a Material Definitive Agreement” is incorporated herein by reference. The Company and QuaTech have requested and received access to, under the terms of the Credit Agreement and such related documents described in Item 1.01, a $3,000,000 revolving credit facility from Fifth Third, and have issued and sold a $1,200,000 Senior Subordinated Note to Canal, under the terms of the Canal Purchase Agreement and such related documents described in Item 1.01.

Item 3.02. Unregistered Sales of Equity Securities.

(1) Upon the consummation of the Canal Purchase Agreement, on January 31, 2008, the Company issued to Canal a certain Warrant Certificate (the “Canal Warrant Certificate”) certifying the terms of the Canal Warrant. The Canal Warrant entitles Canal to purchase the common stock of the Company in an amount representing 3% of the Company’s fully diluted common stock on the date of exercise, at an aggregate exercise price of $1. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Canal Warrant Certificate, a copy of which is attached hereto as Exhibit 4.1 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 3.02.

(2) Pursuant to the Stock Purchase Agreement, the Company has sold to DCV twenty thousand (20,000) shares of Series A Preferred Stock at a price per share of $100, for a total purchase price of $2,000,000 for general working capital. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, a copy of which is attached hereto as Exhibit 10.12 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 3.02.

(3) In connection with the closing under the Stock Purchase Agreement, the Company has agreed as of January 31, 2008 to issue to Western Reserve Partners LLC 3,571,429 shares of its common stock in partial satisfaction of a transaction fee payable to Western Reserve under a letter agreement dated January 25, 2007.

Each of the unregistered issuances above were exempt from registration under the Securities Act of 1933 under Section 4(2) thereof as private placements to accredited investors (as defined in Regulation D).

Item 5.03. Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On January 4, 2008 the Company filed a certain Certificate of Determination with the Secretary of State of California, which designates thirty thousand (30,000) shares of the Company’s authorized preferred stock as Series A Preferred Stock (the “Series A Stock”), and sets forth all preferences, powers, rights, qualifications, limitations and restrictions of such Series A Preferred Stock. The Certificate of Determination contains a copy of certain resolutions of the Board of Directors of the Company, adopted on December 8, 2007, that approve the Series A Designation and the sale of twenty thousand (20,000) shares of Series A Stock to DCV. The sale and purchase of the Series A Stock pursuant to the Stock Purchase Agreement delivered on January 31, 2008 is the first Series A Stock issued under the Certificate of Determination. The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Certificate of Determination a copy of which is attached hereto as Exhibit 3.1 to this Current Report on Form 8-K and is hereby incorporated by reference into this Item 5.03.

Item 9.01. Financial Statements and Exhibits.

Exhibit 3.1	Certificate of Determination for DPAC Technologies Corp., filed January 4, 2008.
Exhibit 4.1	Warrant to Purchase Common Stock of DPAC Technologies Corp., issued to Canal Mezzanine Partners, L.P., dated as of January 31, 2008.
Exhibit 10.1	Credit Agreement, by and among DPAC Technologies Corp., QuaTech, Inc. and Fifth Third Bank, dated January 30, 2008.
Exhibit 10.2	Revolving Credit Promissory Note, by and among DPAC Technologies Corp., QuaTech, Inc. and Fifth Third Bank, dated January 30, 2008.
Exhibit 10.3	Security Agreement, between QuaTech, Inc. and Fifth Third Bank, dated January 30, 2008.

Exhibit 10.4	Subordination Agreement, by and among DPAC Technologies Corp., QuaTech, Inc., Fifth Third Bank and Canal Mezzanine Partners L.P., dated January 30, 2008.
Exhibit 10.5	Acknowledgement Agreement, by and among DPAC Technologies Corp., QuaTech, Inc., Fifth Third Bank and Development Capital Ventures dated January 30, 2008.
Exhibit 10.6	Senior Subordinated Note and Warrant Purchase Agreement, by and among DPAC Technologies Corp., QuaTech, Inc. and Canal Mezzanine Partners L.P., dated January 31, 2008.
Exhibit 10.7	Senior Subordinated Note made by DPAC Technologies Corp. and QuaTech, Inc. in favor of Canal Mezzanine Partners L.P., dated January 31, 2008.
Exhibit 10.8	Security Agreement, by and among DPAC Technologies Corp., QuaTech, Inc. and Canal Mezzanine Partners L.P., dated January 31, 2008.
Exhibit 10.9	Co-Sale Agreement, by and among DPAC Technologies Corp., Canal Mezzanine Partners L.P., Development Capital Ventures, L.P., William Roberts, and Steven D. Runkel, dated January 31, 2008.
Exhibit 10.10	Registration Rights Agreement, between DPAC Technologies Corp., QuaTech, Inc. and Canal Mezzanine Partners L.P., dated January 30, 2008.
Exhibit 10.11	Acknowledgement Agreement, by and among DPAC Technologies Corp., QuaTech, Inc., Canal Mezzanine Partners L.P. and Development Capital Ventures dated January 31, 2008.
Exhibit 10.12	Subscription Agreement, between DPAC Technologies Corp. and Development Capital Ventures L.P., dated December 17, 2007.
Exhibit 99.1	Company’s Press Release, dated February 4, 2008 describing the transactions described in this Form 8-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DPAC TECHNOLOGIES CORP.
	(Registrant)
Date: February 5, 2008	By:	/s/ STEVEN D. RUNKEL
		Steven D. Runkel
		Chief Executive Officer and President

EX-3.1

Exhibit 3.1

Certificate of Determination

to the

Articles of Incorporation

of

DPAC Technologies Corp.

Series A Preferred

Pursuant to Section 401 of the General Corporation Law of the State of California, the undersigned officers of DPAC Technologies Corp., a California corporation (the “Company”), do hereby certify that:

1. This Certificate of Determination (the “Certificate”) sets forth the relative preferences, powers, rights, qualifications, limitations and restrictions in respect of the Series A Preferred (as defined herein) of the Company authorized pursuant to the Articles of Incorporation of the Company, of which this Certificate is made a part.

2. The authorized number of shares of the Company’s Preferred stock is eight million (8,000,000), and the aggregate number of shares of Preferred stock of the Company with the following preferences, powers, rights, qualifications, limitations and restrictions, to be designated as Series A Preferred, without par value, that the Company is authorized to issue shall be thirty thousand (30,000) (the “Series A Preferred”).

3. None of the shares of Series A Preferred have been issued as of the date of this Certificate.

4. That the following resolutions were duly adopted by the Board of Directors of the Company (the “Board of Directors”) at a duly held meeting on December 8, 2007:

“WHEREAS, the Articles of Incorporation of the Company provide for a class of shares known as Preferred shares, issuable from time to time in one or more series; and

WHEREAS, the Board of Directors of the Company is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred shares, to fix the number of shares constituting such a series, and to determine the designation of that series, or any of them; and

WHEREAS, the Company has not issued any Preferred shares and the Board of Directors of the Company desires, pursuant to its authority, to determine and fix the rights, preferences, privileges, and restrictions relating to the initial series of Preferred shares and the number of shares constituting and the designation of the initial series; Therefore be it

RESOLVED, that the Board of Directors authorizes the original issue of a series of Preferred shares that shall be designated and known as Series A Preferred. The number of shares of this series shall be thirty thousand (30,000).

RESOLVED, FURTHER, that the Company sell twenty thousand (20,000) of the Series A Preferred shares to Development Capital Ventures, L.P. at $100 per share.

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RESOLVED, FURTHER that the Company may sell up to an additional ten thousand (10,000) of the Series A Preferred shares to one or more parties to be determined from time to time by the any of the Board Chairperson, Chief Executive Officer, President or any Vice-President of the Company.

RESOLVED, FURTHER, that all of Series A Preferred shares are subject to the following preferences, powers, rights, qualifications, limitations and restrictions:

1. Voting Rights. Except as may be otherwise provided herein or as required by law, the Series A Preferred shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the shareholders of the Company. Each share of Series A Preferred shall entitle the holder thereof to such number of votes per share on each action as shall equal the number of shares of Common Stock into which such share of Series A Preferred is convertible on the record date for determination of the shareholders entitled to vote. The holders of Series A Preferred shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.

2. Dividends.

2.A. Dividends on the Series A Preferred shall accrue and be paid quarterly in arrears at the annual rate of 9% of the original issue price of $100 per share, (as adjusted for any recapitalization, stock combinations, stock dividends, stock splits and the like, the “Original Issue Price”). Notwithstanding the foregoing to the contray, in the event that the Common Stock of the Company is not listed for trading on the American Stock Exchange, a NASDAQ Stock Market or the New York Stock Exchange on December 31, 2009, effective beginning January 1, 2010 dividends on the Series A Preferred shall accrue and be paid quarterly in arrears at the annual rate of 15% of the Original Issue Price. The right to receive dividends shall be cumulative. Accrued and unpaid dividends on the Series A Preferred shall be paid to the holders of Series A Preferred, at the Company’s election, in cash out of funds legally available therefor or delivery of shares of the Company’s Common Stock having an aggregate value as of the required payment date (as determined below) equal to the required dividend payment (rounded up to the nearest whole share). No dividend shall be paid to the holders of Common Stock in any year unless dividends are paid or declared and set apart for payment with respect to all outstanding shares of Series A Preferred in an amount equal to the aggregate of all dividends payable for such year with respect to the Series A Preferred.

2.B. For purposes of valuing the Common Stock payable to holders of Series A Preferred in lieu of cash with respect to such quarterly dividends, (i) if traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 10 day period ending the day prior to the dividend payment

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date; (ii) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 10 day period ending the day prior to the dividend payment date and (iii) if no such public market exists for the Common Stock, then the value shall be as determined by the Board of Directors of the Company in its reasonable discretion.

3. Liquidation.

3.A. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of Series A Preferred shall be entitled, before any distribution or payment is made upon any stock ranking on liquidation junior to the Series A Preferred, to be paid an amount equal to the Original Issue Price of such Series A Preferred plus an amount equal to any dividends declared but unpaid thereon, computed to the date payment thereof is made available, for each share of Series A Preferred then held by such holder (as adjusted for any recapitalization, stock combinations, stock dividends, stock splits and the like, the “Preferential Amount”).

3.B. If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of Series A Preferred shall be insufficient to permit payment to the holders of Series A Preferred of the Preferential Amount, then the entire assets of the Company to be so distributed shall be distributed among the holders of Series A Preferred Stock in proportion to the number of shares of Series A Preferred held by each such holder. Upon any such liquidation, dissolution or winding up of the Company, after the holders of Series A Preferred shall have been paid in full the Preferential Amount, the remaining assets of the Company legally available for distribution to shareholders shall be distributed to the holders of Common Stock.

3.C. Notwithstanding the above provisions, immediately prior to such liquidation, dissolution or winding up of the Company, the holders of Series A Preferred may elect to convert their shares of Series A Preferred into shares of Common Stock pursuant to paragraph 4.

3.D. A merger, consolidation or reorganization of the Company with, or into, any other corporation or entity in which the shareholders of the Company immediately prior to such transaction hold less than a majority of the voting securities of the surviving or resulting corporation or entity (but excluding any merger or similar transaction effected solely for purposes of reincorporating the Company in another state or creating a holding company with respect to the Company), or a sale of all or substantially all of the assets of the Company shall be deemed to be a liquidation or winding-up within the meaning of this Paragraph 3.

4. Conversions. The shares of Series A Preferred shall have the following conversion provisions:

4.A. Conversion by Holder. Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Series A Preferred shall have the right, at its option at any time, to convert any such shares of Series A Preferred (except that upon any liquidation of the Company such conversion provisions shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Series A Preferred) into fully paid and nonassessable shares of Common Stock as follows.

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(i) Subject to Section 4.D below, the number of shares of Common Stock into which shares of Series A Preferred may be converted shall be obtained by (a) multiplying the number of shares of Series A Preferred so to be converted by the Original Issue Price and (b) dividing the result obtained in (a) by the Voluntary Conversion Price per share.

(A) The “Voluntary Conversion Price” shall be equal to the product of (i)$0.34 (the “Reference Price”) times (ii) 1.25.

(ii) Such right of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Series A Preferred into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Company at its principal office (or such other office or agency of the Company as the Company may designate by notice in writing to the holders of the Series A Preferred) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued.

(iii) A merger, consolidation or reorganization of the Company with, or into, any other corporation or entity in which the shareholders of the Company immediately prior to such transaction hold less than a majority of the voting securities of the surviving or resulting corporation or entity (but excluding any merger or similar transaction effected solely for purposes of reincorporating the Company in another state or creating a holding company with respect to the Company), or a sale of all or substantially all of the assets of the Company shall be deemed to be a liquidation or winding up within the meaning of this Paragraph 4.

4.B. Issuance of Certificates; Time Conversion Effected. Promptly after the receipt of the written notice referred to in subparagraph 4A and surrender of the certificate or certificates for the share or shares of Series A Preferred to be converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Preferred. To the extent permitted by law, such conversion shall be deemed to have been effected on the date on which such written notice shall have been received by the

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Company and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Preferred shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

4.C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of Series A Preferred into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. In case the number of shares of Series A Preferred represented by the certificate or certificates surrendered pursuant to subparagraph 4A exceeds the number of shares converted, the Company shall, upon such conversion, execute and deliver to the holder, at the expense of the Company, a new certificate or certificates for the number of shares of Series A Preferred represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 4C, be delivered upon such conversion, the Company, in lieu of delivering such fractional share, shall pay to the holder surrendering the Series A Preferred for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board Directors of the Company.

4.D. Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Company shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Preferred shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Series A Preferred, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Voluntary Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

4.E. Notices. If at any time:

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock;

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(2) there shall be any capital reorganization or reclassification of the capital stock of the Company, or a consolidation or merger of the Company with or into, or a sale of all or substantially all its assets to, another entity or entities; or

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

then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, or by telex to non-United States residents, addressed to each holder of any shares of Preferred Stock at the address of such holder as shown on the books of the Company, at least ten (10) days’ prior written notice of the date when the same shall take place.

4.F. Stock to be Reserved. The Company will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series A Preferred as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Preferred. The Company covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. The Company will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Company will not take any action which results in any adjustment of the Voluntary Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series A Preferred would exceed the total number of shares of Common Stock then authorized by the Articles.

4.G. Closing of Books. The Company will at no time close its transfer books against the transfer of any Series A Preferred or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred in any manner which interferes with the timely conversion of such Series A Preferred, except as may otherwise be required to comply with applicable securities laws.

4.H. Definition of Common Stock. As used in this Certificate, the term “Common Stock” shall mean and include the Company’s authorized Common Stock, as constituted on the date of filing of this Statement, and shall also include any capital stock of any class of the Company thereafter authorized which shall not be limited to a fixed sum or percentage of par value in respect of the rights of

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the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company; provided that the shares of Common Stock receivable upon conversion of shares of Series A Preferred shall include only shares designated as Common Stock of the Company on the date of filing of this instrument, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 4D.

4.I. Issuance of Certificates; Time Conversion Effected. Promptly after surrender of the certificate or certificates for the share or shares of Series A Preferred to be converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Preferred. To the extent permitted by law, such conversion shall be deemed to have been effected on the date on which the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Preferred shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

5. Redemption.

5.A. Redemption after 2012. On or after December 31, 2012, all outstanding shares of Series A Preferred may be redeemed by the Company, out of funds lawfully available therefore, at a price per share equal to the Preferential Amount.

5.B. Redemption during 2010 , 2011 and 2012. From and after December 31, 2009 and until December 31, 2012, to the extent that the Company shall be permitted to have converted the Series A Preferred under Paragraph 4.I. above into shares of Common Stock at such time, all outstanding shares of Series A Preferred may be redeemed by the Company, out of funds lawfully available therefore, at a price per share equal to the product obtained by (a) multiplying the number of shares of Series A Preferred (b) by the Original Issue Price per share, and upon payment of all accrued but unpaid dividends contemplated by Paragraph 2.

5.C. Notice of Redemption. Such redemptions shall be exercised by the Company by giving written notice to each holder of Series A Preferred that the Company intends to redeem that number of shares of Series A Preferred, whereupon each such holder shall surrender all certificates for the shares so to be redeemed to the Company at its principal office (or such other office or agency of the Company as the Company may designate by notice in writing to the holders of the Series A Preferred) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) to which payment of the relevant redemption price should issued.

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5.D. Payment of Redemption Payment. Promptly after the receipt of the written notice referred to in subparagraph 4.A. and surrender of the certificate or certificates for the share or shares of Series A Preferred to be redeemed, the Company shall issue payment of the relevant redemption amount under Paragraph 5.A. or 5.B. above within thirty (30) days after surrender of such certificate(s). To the extent permitted by law, such redemption shall be deemed to have been effected on the date on which such certificate or certificates for such shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Preferred shall cease, and the holders of Series A Preferred shall have no rights as to the Series A Preferred but shall be entitled only to the payment of the relevant redemption price.

RESOLVED, FURTHER, that the Board Chairperson, Chief Executive Officer, President or any Vice-President, and the Secretary, the Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant Treasure of the Company are each authorized to execute, verify, and file in the office of the California Secretary of State a Certificate of Determination in accordance with this resolution and California law.

The undersigned declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of their own knowledge.

Executed on this 3rd day of January, 2008, at 5675 Hudson Industrial Parkway, Hudson, OH 44236.

/s/ Steven D. Runkel

Steven D. Runkel, Chief Executive Officer

/s/ Steve Vukadinovich

Name:

Title: Secretary

9

EX-4.1

Exhibit 4.1

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.

DPAC Technologies Corp.

Warrant Certificate

Common Stock Purchase Warrant

of

Canal Mezzanine Partners, L.P.

Dated as of January 31, 2008

Warrant Certificate

Dated as of January 31, 2008

This Warrant Certificate certifies that, for value received, Canal Mezzanine Partners, L.P. (together with its successors and assigns, the “Holder”), is entitled to purchase from DPAC Technologies Corp., a California corporation (together with its successors and assigns, the “Company”), that number of shares of common stock of the Company that will equal three percent (3%) of the Fully Diluted Shares of the Company on the date of exercise, at an aggregate exercise price of One Dollar ($1) (the “Warrant Purchase Price”) (such number of shares of common stock purchasable hereunder being subject to adjustment as provided herein), and to exercise the other rights, powers and privileges hereinafter provided, all on the terms and subject to the conditions hereinafter set forth. This Warrant Certificate is being issued by the Company pursuant to the Senior Subordinated Note and Warrant Purchase Agreement dated as of the date hereof by and between the Company, as seller, Quatech, Inc., an Ohio corporation and wholly owned subsidiary of the Company, and the Holder, as purchaser (the “Purchase Agreement”). Reference is hereby made to the Purchase Agreement and that certain Registration Rights Agreement, dated of even date herewith, by and among the Company and the Holder (as amended, modified and supplemented from time to time, the “Registration Rights Agreement”), for a description of, among other things, certain terms relating to the Warrant and the Warrant Shares and certain rights of the Holder hereof and thereof, including, without limitation, the rights of the Holder to require the registration of the Warrant Shares. The Holder is entitled to the applicable benefits of the Purchase Agreement, the Registration Rights Agreement and the other Related Documents and may enforce the applicable agreements contained therein, all in accordance with the terms thereof, notwithstanding any payment or prepayment or redemption or acquisition of any of the other Securities issued pursuant to the Purchase Agreement.

Section 1. Definitions. All capitalized terms not otherwise defined herein shall have the definitions set forth in the Glossary of Defined Terms attached to the Purchase Agreement, which definitions are, to the extent applicable, incorporated in this Warrant Certificate by reference.

Section 2. Exercise of Warrant.

2.1 Warrant Exercise. The Warrant shall be exercisable either as to some or as to all of the Warrant Shares at any time, or from time to time, after the date hereof; provided, that if any exercise of this Warrant by the Holder is a partial exercise, any calculation of Fully Diluted Shares upon a subsequent exercise by the Holder shall not be deemed to include the Warrant Shares issued to the Holder as a result of the previous partial exercise(s). Upon a partial exercise of the Warrant by the Holder, the Warrant Purchase Price shall be pro-rated to reflect the proportionate amount of Warrant Shares being exercised upon such partial exercise in relation to the full amount of Warrant Shares exerciseable for hereunder.

2.2 Manner of Exercise. To exercise this Warrant, the Holder shall deliver to the Company: (a) this Warrant Certificate, (b) a notice of exercise (substantially in the form

attached hereto) (the “Notice of Exercise”) specifying the Warrant Shares to be purchased, executed by a duly authorized officer of the Holder (or its attorney), and (c) an amount equal to the Warrant Purchase Price for all Warrant Shares as to which this Warrant is then being exercised.

2.3 Effectiveness of Exercise. The exercise of the Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant Certificate, the Notice of Exercise and the Warrant Purchase Price shall have been delivered and immediately prior to the close of business on such Business Day the Holder shall be deemed to have become the holder of record of the Warrant Shares.

2.4 Delivery of Certificates. As soon as practicable after the exercise of the Warrant, and in any event within five (5) Business Days thereafter, the Company, at its expense (including any applicable issue Taxes), will cause to be issued in the name of and delivered to the Holder a certificate or certificates representing the number of Warrant Shares to which the Holder shall be entitled upon such exercise. If the exercise of the Warrant is for less than all of the Warrant Shares, the Company shall issue a new Warrant Certificate of like tenor for the balance of the Warrant Shares issuable upon exercise of the Warrant.

2.5 Certain Adjustments.

(a) Reorganization Event. Upon the occurrence of each Reorganization Event, there shall thereafter be issuable upon the exercise of the Warrant (in lieu of the Warrant Shares), as appropriate, the number of shares of common stock, other securities or property to which the Holder would have been entitled had the Holder exercised the Warrant immediately prior to such Reorganization Event. Prior to and as a condition of the consummation of each Reorganization Event, the Company shall cause effective provisions to be made to effect the purposes of this paragraph, including, if appropriate, an agreement among the Company, any successor to the Company and the Holder. Adjustments for events subsequent to the effective date of such Reorganization Event shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. In any such event, effective provisions shall be made in the Charter Documents of the resulting or surviving Person, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving Person shall expressly assume the obligation to deliver, upon exercise, such shares of stock, other securities, or other property. The provisions of this Section 2.5(a) shall similarly apply to successive Reorganization Events.

(b) Other Event. In case any event shall occur as to which the other provisions of this Section 2.5 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrant in accordance with the essential intent and principles hereof, then the Holder may require in writing within ninety (90) days after the occurrence of such event that the Company examine the propriety of an adjustment to the number of Warrant Shares issuable upon exercise of the Warrant. Unless the Company and the Holder shall have mutually agreed upon an adjustment, or that no adjustment is required, within thirty (30) days after the receipt of such request, the Company shall appoint a firm of independent certified public accountants of recognized national standing (which may be the

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Company’s then current accountants), to give an opinion regarding an adjustment, if any, necessary to preserve the purchase rights represented by the Warrant. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder and shall make the adjustments, if any, described therein. The Company shall pay the cost and expense of such opinion.

Section 3. Preemptive Rights. At any time after the Holder partially or completely exercises the Warrant and until the termination of its rights under this Section 3, the Holder shall have the right to participate in any Preemption Offering upon the terms and subject to the conditions set forth in this Section 3.

3.1 Notice of Preemption Offering. The Company shall give the Holder at least thirty (30) days prior written notice of each Preemption Offering. Such notice shall set forth: (i) the proposed commencement date for such Preemption Offering; (ii) the number and description of the securities to be offered in the Preemption Offering; (iii) the purchase price for such securities and (iv) other material terms of the Preemption Offering.

3.2 Participation by Holder. The Holder may, in the sole exercise of its discretion, elect to participate in the Preemption Offering by giving written notice to the Company of its election to participate at least five (5) Business Days prior to the proposed commencement date of the Preemption Offering. If it elects to participate in the Preemption Offering, the Holder shall have the right to purchase, upon the same terms and conditions as those in such Preemption Offering, securities of each type issued in the Preemption Offering in a maximum number or amount equal to the Holder’s Prorata Share of the total number or amount of each such type of security offered.

3.3 Unsold Securities. The Company may, for a period of not more than ninety (90) days after the commencement date of any Preemption Offering, offer and sell the securities subject to the Preemption Offering that were not sold to the Holder upon the terms and subject to the conditions of the Preemption Offering.

3.4 Termination of Preemptive Rights. The rights of the Holder under this Section 3 shall survive the partial and complete exercise of the Warrant and shall terminate upon the earliest to occur of the following events: (i) a Qualified Public Offering; or (ii) when the Holder ceases to own Holder’s Shares.

Section 4. Restrictions on Transfer.

4.1 Restrictive Legends. Except as otherwise permitted herein, this Warrant Certificate, each Warrant Certificate issued in exchange or substitution for any Warrant Certificate, each Warrant Certificate issued upon the registration of Transfer of any Warrant, each certificate representing the Warrant Shares and each certificate issued upon the registration of Transfer of any Warrant Shares, shall be stamped or otherwise imprinted with a legend in substantially the following form:

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“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.”

4.2 Notice of Proposed Transfer; Opinion of Counsel. Except with respect to a Transfer by the Holder to any Affiliate or equity owner of Holder, prior to any Transfer of any Restricted Securities, the Holder will give written notice to the Company of its intention to effect such Transfer. Each such notice (i) shall describe the manner and circumstances of the proposed Transfer in sufficient detail to enable counsel to render the opinion referred to below, and (ii) shall designate counsel for the Holder. The Holder will submit a copy of such notice to its counsel and the Company will promptly submit a copy of the notice to its counsel. The following provisions shall then apply:

(a) If in the opinion of counsel to the Company the proposed Transfer may be effected without registration under the Securities Act, the Company will promptly notify the Holder and the Holder shall thereupon be entitled to Transfer such Restricted Securities in accordance with the terms of the notice delivered to the Company. Each Warrant Certificate or certificate for Warrant Shares, if any, issued upon or in connection with such Transfer shall bear the applicable restrictive legend set forth above, unless in the opinion of such counsel, such legend is no longer required. If counsel for the Company (after having been furnished with the information required by this Section 4) shall fail to deliver an opinion to the Company, or the Company shall fail to notify the Holder as aforesaid, within thirty (30) days after receipt of notice of the Holder’s intention to effect a Transfer, then the opinion of counsel for the Holder shall be sufficient to authorize the proposed Transfer and the opinion of counsel for the Company shall not be required in connection with such proposed Transfer.

(b) If, in the opinion of counsel to the Company, the proposed Transfer may not be effected without registration under the Securities Act, the Company will promptly so notify the Holder and the Holder shall not be entitled to effect the proposed Transfer until receipt of a further notice from the Company under clause (i) above or until registration under the Securities Act has become effective.

Section 5. Availability of Information. To the extent applicable, the Company will comply with the reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act and all other public information reporting requirements of the Commission (including the requirements of Rule 144 promulgated under the Securities Act) from time to time in effect. The Company will cooperate with the Holder at the Holder’s expense to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the Transfer of any Restricted Securities or the Transfer of Restricted Securities by Affiliates of the Company.

Section 6. Reservation of Shares. The Company shall at all times reserve and keep

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available out of its authorized but unissued shares of common stock, solely for issuance and delivery upon the exercise of the Warrant and free from preemptive rights, a sufficient number of shares of common stock to cover the Warrant Shares issuable upon the exercise of the Warrant. All such shares of common stock shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable.

Section 7. Ownership; Registration of Transfer; Exchange and Substitution of Warrant.

7.1 Ownership of Warrant. Until due presentment for Transfer, the Company may treat the Person in whose name this Warrant Certificate is registered on the register kept at the Company’s principal office as the owner and holder hereof for all purposes, notwithstanding any notice to the contrary, provided that when the Warrant has been properly Transferred (whether in whole or in part), the Company shall treat such transferee as the owner of the Warrant for all purposes, notwithstanding any notice to the contrary. Subject to the foregoing provisions and to the Transfer restrictions set forth herein, the Warrant, if properly Transferred, may be exercised by the transferee(s) without first having a new Warrant Certificate issued.

7.2 Registration of Transfers. Subject to the terms of this Warrant Certificate, the Company shall register the Transfer of the Warrant permitted under the terms hereof upon records to be maintained by the Company for that purpose upon surrender of this Warrant Certificate to the Company at the Company’s principal office, together with the Form of Assignment attached hereto duly completed and executed. Upon any such registration of Transfer, a new Warrant Certificate in substantially the form of this Warrant Certificate, shall be issued to the transferee(s).

7.3 Replacement of Warrant Certificate. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Certificate and of an indemnification or surety bond reasonably satisfactory to the Company, or, in the case of mutilation, upon surrender of this Warrant Certificate for cancellation at the Company’s principal office, the Company at its expense will promptly execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.

7.4 Expenses. The Company will pay all expenses, Taxes (other than transfer and income Taxes) and other charges in connection with the preparation, issuance and delivery from time to time of this Warrant Certificate or the Warrant Shares.

7.5 Anti-Dilution Provisions. If the Company, after the date upon which this Warrant Certificate has been issued, issues any warrants, options or other rights to subscribe for, purchase or otherwise acquire any common stock or any Convertible Securities, either immediately or upon the arrival of a specified date or the happening of a specified event, or Convertible Securities or other securities containing provisions protecting the holder or holders thereof against dilution in any manner more favorable to such holder or holders thereof than those set forth in this Warrant, such provisions (or any more favorable portion thereof) shall be deemed to be incorporated herein as if fully set forth in this Warrant and, to the extent inconsistent with any provision of this Warrant, shall be deemed to be substituted therefor.

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7.6 Dividends. The Holder shall be entitled to receive, simultaneously with the shareholders of the Company, any and all dividends paid in cash or other property (other than common stock) by the Company on its common stock equal to the amount of any such dividend(s) that otherwise would be payable on the shares of common stock issuable upon exercise of this Warrant as if this Warrant had been exercised in full.

Section 8. Other Rights of Holder. The Warrant Shares shall be subject to the terms and conditions of the Co-Sale Agreement and the Registration Rights Agreement. Nothing contained in this Warrant Certificate shall be construed as conferring upon the Holder any rights as an equityholder of the Company prior to the exercise of the Warrant or as imposing any obligation on the Holder to purchase any shares of common stock of the Company.

Section 9. Miscellaneous. The provisions of Section 12 of the Purchase Agreement are applicable to this Warrant Certificate and are incorporated by reference in this Warrant Certificate.

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IN WITNESS WHEREOF, the undersigned has executed and delivered this Warrant Certificate effective as of the date first written above.

DPAC TECHNOLOGIES CORP.
a California corporation
By:	/s/ Steven D. Runkel
	Steven D. Runkel, Chief Executive Officer and President

Signature Page to Warrant Certificate

NOTICE OF EXERCISE

The undersigned hereby elects to exercise the Warrant evidenced by this Warrant Certificate, and requests that certificates for                                          Warrant Shares be issued in the name of and delivered to                                         , whose address is                     .

Name of

Holder (Print):

Dated:

By:

Title:

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FORM OF ASSIGNMENT

FOR VALUED RECEIVED,                                          hereby sells, assigns and transfers to                                          (“Transferee”) all/a portion of the rights of the undersigned in and to the Warrantand the Warrant Certificate, and sells, assigns and transfers to Transferee                      of theWarrant Shares issuable upon exercise of said Warrant.

Nameof

Holder(Print):

Dated:

By:

Title:

10

EX-10.1

Exhibit 10.1

CREDIT AGREEMENT

DPAC TECHNOLOGIES CORP., a California corporation (the “Company”), and QUATECH, INC. an Ohio corporation (together with the Company herein collectively or individually, as the context so requires, called the “Borrower” and together called the “Borrowers”), each with their principal office located at 5765 Hudson Industrial Parkway, Hudson Ohio 44236, and FIFTH THIRD BANK, a Ohio banking corporation (the “Bank”), with an office located at 121 South Main Street, Akron, Ohio 44308, for valuable consideration received to their satisfaction, hereby mutually agree as follows:

ARTICLE I. DEFINITIONS

Section l.l. General. Any accounting term used but not specifically defined herein shall be construed in accordance with GAAP. The definition of each agreement, document, and instrument set forth in Section 1.2. hereof shall be deemed to mean and include such agreement, document, or instrument as amended, restated, or modified from time to time.

Section 1.2. Defined Terms. As used in this Agreement, capitalized terms shall have the meanings set forth below, unless the context otherwise requires:

“Account”, “Chattel Paper”, “Deposit Account”, “Document”, “General Intangible”, “Goods”, and “Instrument”, shall have the meanings as set forth in Ohio Uniform Commercial Code including but not limited to Ohio Revised Code Chapter 1309, including any amendments thereof and any substitutions therefore, which definitions are hereby incorporated by reference as though fully rewritten herein.

“Account Debtor” means the Person who is obligated on an Account Receivable.

“Account Receivable” means:

(a) any account receivable, Account, Chattel Paper, Contract Right, General Intangible, Document, or Instrument owned, acquired, or received by a Person,

(b) any other indebtedness owed to or receivable owned, acquired, or received by a Person of whatever kind and however evidenced, and

(c) any right, title and interest in a Person’s Goods that were sold, leased, or furnished by that Person and gave rise to either (a) or (b) above, or both of them. This includes, without limitation:

(1) any rights of stoppage in transit of a Person’s sold, leased, or finished Goods;

(2) any rights to reclaim a Person’s sold, leased or furnished Goods;

(3) any rights a Person has in such sold, leased, or furnished Goods that have been returned to or repossessed by that Person.

“Accounts Receivable Collection Account” means a commercial Deposit Account maintained by Company with Bank, without liability by Bank to pay interest thereon, from which account Bank shall have the exclusive right to withdraw funds until all Obligations are paid, performed, and observed in full.

“Affiliate Bank” means any one or more bank subsidiaries (other than the Bank) of Fifth Third Bancorp and its successors.

“Borrowing Base” means an amount not in excess of the sum of the following:

(a) Eighty percent (80.0%) of the amount due and owing on Domestic Qualified Accounts Receivable, plus

(b) Ninety percent (90.0%) of the amount due and owing on Foreign Qualified Accounts Receivable, plus

(c) The lower of (i) Fifty percent (50.0%) of the cost or market value (whichever is lower) of Borrowers’ Qualified Inventory or (ii) $750,000.00.

“Borrowing Base Certificate” means a certificate reasonably acceptable to the Bank that discloses the information set forth the form attached hereto as Exhibit A.

“Business Day” means a day of the year on which banks are not required or authorized to close in Cleveland, Ohio.

“Capital Expenditures” means a Person’s net fixed assets at the end of the period less net fixed assets at the beginning of the period plus depreciation expense for the period.

“Collateral” shall have the same meaning as described in the Security Instruments.

“Consolidated” means the resultant combination of the financial statements of the Borrowers in accordance with GAAP, including principles of combination consistent with those applied in preparation of the Consolidated financial statements referred to in Section 3.5. herein.

“Contract Right” means (a) any contract right, and (b) any right to payment under a contract not yet earned by performance and not evidenced by an Instrument or Chattel Paper.

“Domestic Qualified Accounts Receivable” means a Qualified Account Receivable due from an Account Debtor located inside the United States.

“Effective Tangible Net Worth” means Tangible Net Worth plus Subordinated Debt.

“EBITDA” means a Person’s net earnings, plus the aggregate amounts deducted in determining such net income in respect of interest expenses, taxes, depreciation, and amortization, minus extraordinary losses or gains.

“Environmental Law” means any federal, state, or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability upon a Person in connection with the use, release or disposal of any hazardous toxic or dangerous substance, waste or material.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means each Person (whether or not incorporated) which together with any Borrower would be treated as a single employer under ERISA.

“Event of Default” means any one or more of the occurrences described in ARTICLE VII hereof.

“Financial Impairment” means the distressed economic condition of a Person manifested by any one or more of the following events:

(a) adjudicated bankruptcy or insolvency of the Person;

(b) the Person ceases, is unable, or admits in writing its inability, to make timely payment upon the Person’s debts, obligations, or liabilities as they mature or come due;

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(c) assignment by the Person for the benefit of creditors;

(d) voluntary institution by the Person or consent granted by the Person to the involuntary institution whether by petition, complaint, application, default, answer (including, without limitation, an answer or any other permissible or required responsive pleading admitting (1) the jurisdiction of the forum or (2) any material allegations of the petition, complaint, application, or other writing to which such answer serves as a responsive pleading thereto), or otherwise of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, trusteeship, or similar proceeding pursuant to or purporting to be pursuant to any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, trusteeship, or similar law of any jurisdiction;

(e) voluntary application by the Person for or consent granted by the Person to the involuntary appointment of any receiver, trustee, or similar officer (1) for the Person or (2) of or for all or any substantial part of the Person’s property;

(f) entry, without the Person’s application, approval, or consent, of any order that is not dismissed, stayed, or discharged within ninety (90) days from its entry, which is pursuant to or purporting to be pursuant to any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation, receivership, trusteeship, or similar law of any jurisdiction (1) approving an involuntary petition seeking an arrangement of the Person’s creditors, (2) approving an involuntary petition seeking reorganization of the Person, or (3) appointing any receiver, trustee, or similar officer (i) for the Person, or (ii) of or for all or any substantial part of the Person’s property;

(g) any judgment, writ, warrant of attachment, execution, or similar process is issued or levied against all or any substantial part of the Person’s property and such judgment, writ, warrant of attachment, execution, or similar process is not released, vacated, or fully bonded within ninety (90) days after its issue or levy

“Foreign Qualified Accounts Receivable” means a Qualified Account Receivable due from an Account Debtor located outside the United States and payment of which is insured by an entity and in a manner acceptable to the Bank in its sole discretion.

“GAAP” means generally accepted accounting principles as then in effect, which shall include the official interpretations thereof by the Financial Accounting Standards Board, consistently applied.

“Indebtedness” means for any Person (i) all obligations to repay borrowed money, direct or indirect, incurred, assumed, or guaranteed, (ii) all obligations for the deferred purchase price of capital assets excluding trade payables, (iii) all obligations under conditional sales or other title retention agreements, and (iv) all lease obligations which have been or should be capitalized on the books of such Person. Notwithstanding the foregoing, Indebtedness shall not include any obligations of the Borrowers under operating and real property leases disclosed to the Bank in writing.

“Inventory” means:

(a) any inventory, including but not limited to, equipment held for sale or lease, new accessories, parts and supplies,

(b) all Goods that are raw materials,

(c) all Goods that are materials used or consumed in the ordinary course of a Person’s business,

(d) all Goods new or used that are, in the ordinary course of a Person’s business, held for sale or lease or furnished or to be furnished under contracts of service,

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(e) all work in process,

(f) all office supplies, packaging utilized in shipment of the Inventory and replacement parts utilized in maintaining the Borrowers’ Equipment, and

(g) all substitutes and replacements for, and parts, accessories, additions, attachments, or accessions to (a) through (f) above.

“Lien” means any mortgage, security interest, lien, charge, encumbrance on, pledge or deposit of, or conditional sale or other title retention agreement with respect to any property or asset.

“Loan Account” means an account maintained by Bank on its books, which will evidence all advances or Loans, accrued interest thereon, other amounts due Bank with respect to such advances or Loans, and all payments thereof by Borrowers.

“Loan” or “Loans” means the credit to the Borrowers extended by the Bank in accordance with Section 2.1. hereof.

“Loan Documents” means this Agreement, the Note, the Security Instruments, and any other documents relating thereto.

“Margin Stock” shall have the meaning given to it under Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time.

“Material Adverse” or variations thereof means a matter of substance which, if adversely determined, would materially impair the right of any Borrower to carry on business as now being conducted or which would materially impair, in a substantive and adverse way, the financial condition of any Borrower.

“Multiemployer Plan” means a Plan described in ERISA that covers employees of any Borrower and employees of any other Person, which together would be treated as a simple employer for purposes of ERISA.

“Obligations” means any of the following obligations, whether direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, originally contracted with Bank or another Person, and now owing to or hereafter acquired in any manner partially or totally by Bank or in which Bank may have acquired a participation, contracted by any Borrower alone, or jointly or severally with another Person, but excluding any non-credit related obligations:

(a) any and all indebtedness, obligations, liabilities, contracts, indentures, agreements, warranties, covenants, guaranties, representations, provisions, terms, and conditions of whatever kind, now existing or hereafter arising, and however evidenced, that are now or hereafter owed, incurred, or executed by any Borrower to, in favor of, or with Bank (including, without limitation, those as are set forth or contained in, referred to, evidenced by, or executed with reference to this Agreement, the Loan Account, any promissory notes, interest rate hedge agreements, letter of credit agreements, advance agreements, indemnity agreements, guaranties, lines of credit, mortgage deeds, security agreements, assignments, pledge agreements, hypothecation agreements, instruments, and acceptance financing agreements), and including any partial or total extension, restatement, renewal, amendment, and substitution thereof or therefore,

(b) any and all claims of whatever kind of Bank against any Borrower, now existing or hereafter arising including, without limitation, any arising out of or in any way connected with warranties made by any Borrower to Bank in connection with any Instrument deposited with or purchased by Bank, and

(c) any and all of Bank’s Related Expenses.

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“Note(s)” means, collectively, the promissory note in the form of Exhibit B hereto, signed and delivered by the Borrowers to evidence its Indebtedness to the Bank in accordance with Section 2.1. hereof, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions of or for any of such note.

“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to Title IV of ERISA.

“Permitted Encumbrances” means, as of any particular time, (a) liens for ad valorem taxes and special assessments not then delinquent, (b) this Agreement, and any Security Agreement related thereto, and any security interest or other lien created thereby, (c) any Permitted Encumbrances defined in any of the Loan Documents, (d) any liens permitted by Section 6.2. hereof, and (e) such minor defects, irregularities, encumbrances, and clouds on title as normally exist with respect to property similar in character to the Collateral and as do not materially interfere with or impair the use or value of the property affected thereby.

“Person” means any natural person, corporation (which shall be deemed to include business trust), association, limited liability company, partnership, joint venture, political entity, or political subdivision thereof.

“Plan” means any plan (other than a Multiemployer Plan) defined in ERISA in which any Borrower is, or has been at any time during the preceding two (2) years, an “employer” or a “substantial employer” as such terms are defined in ERISA.

“Potential Default” means any condition, action, or failure to act that will constitute an Event of Default under this Agreement, after the passage of time, or the service of notice, or both after the passage of time and the service of notice.

“Prime Rate” means that interest rate established from time to time by the Bank as the Bank’s Prime Rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest interest rate charged by Bank for commercial or other extensions of credit.

“Proceeds” means (a) any proceeds, and (b) whatever is received upon the sale, exchange, collection, or other disposition of Collateral or Proceeds, whether cash or non-cash. Cash Proceeds includes, without limitation, moneys, checks, and Deposit Accounts. Proceeds includes, without limitation, any Account arising when the right to payment is earned under a Contract Right, any insurance payable by reason of loss or damage to the Collateral, and any return or unearned premium upon any cancellation of insurance. Except as expressly authorized in the Agreement or the Security Instruments, Bank’s right to Proceeds specifically set forth herein or indicated in any financing statement shall never constitute an express or implied authorization on the part of Bank to Borrowers’ sale, exchange, collection, or other disposition of any or all of the Collateral.

“Prohibited Transaction” means any prohibited transaction as that term is defined for purposes of ERISA.

“Qualified Account Receivable” means an Account Receivable of any Borrower that at all times until it is collected in full continuously meets the following requirements:

(a) is not subject to any claim for credit, allowance, adjustment, set off, or other counter claim by the Account Debtor (but only the portion of the Account Receivable subject to such claim for credit, allowance, adjustment, set off, or other counter claim shall not be a Qualified Account Receivable);

(b) arose in the ordinary course of such Borrower’s business from the performance (fully completed) of services or bona fide sale of Goods which have been shipped to the Account Debtor, and not more than ninety (90) days have elapsed since the date the payment was due;

(c) Borrower has received no notice of the Financial Impairment of the Account Debtor;

(d) is not subject to an assignment, pledge, claim, mortgage, lien, or security interest of any type, including but not limited to purchase money security interest from the vendor of the Inventory that generated such Account Receivable, except that granted to or in favor of Bank and except for liens for taxes or governmental assessments, charges, or levies the payment of which is not at the time required by Section 5.5 hereof;

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(e) Account Debtor has not rejected, returned, revoked acceptance of, or refused to accept any of the Goods that are the subject of the Account Receivable (but the Account Receivable will not be a Qualified Account Receivable only to the extent of such rejection, return, revocation, or refusal);

(f) Borrower has not received any Instrument or Chattel Paper with respect to or in payment of the Account Receivable;

(g) is not a Government Account Receivable, unless Bank’s security interest in such Government Account Receivable is perfected according to the Federal Assignment of Claims Act;

(h) is not an Account Receivable due from any Affiliate, shareholder or employee of Borrower; and

(i) is not evidenced by a promissory note or any other negotiable instrument.

“Qualified Inventory” means all Inventory except Inventory that is:

(a) located outside the United States;

(b) in the possession of a bailee or another third party, unless the rights of any such bailee or third party are waived or subordinated, in a manner satisfactory to the Bank, to the rights of the Bank in such Inventory;

(d) damaged, defective, or obsolete;

(e) held by a Borrower or a third party on consignment; or

(f) subject to an assignment, pledge, claim, mortgage, lien, or security interest of any type, including but not limited to purchase money security interest from the vendor of the Inventory, except that granted to or in favor of Banks and except for liens for taxes or governmental assessments, charges, or levies the payment of which is not at the time required by Section 5.5. hereof.

“Related Expenses” means any and all reasonable out of pocket costs, liabilities, and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorney’s fees (including the cost of inside counsel), legal expenses, judgments, suits, and disbursements) incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

(a) to obtain, preserve, perfect, or enforce any security interest evidenced by (i) this Agreement, or (ii) any other pledge agreement, mortgage deed, hypothecation agreement, guaranty, security agreement, assignment, or security instrument executed or given by any Borrower to or in favor of Bank;

(b) to obtain payment, performance, and observance of any and all of the Obligations;

(c) to maintain, insure, audit, collect, preserve, repossess, and dispose of any of the Collateral, including, without limitation, costs and expenses for appraisals, assessments, and audits of any Borrower or the Collateral; or

(d) incidental or related to (a) through (c) above, including, without imitation, interest thereupon from the date incurred, imposed, or asserted until paid at the rate payable as set forth in Article II of this Agreement, but in no event greater than the highest rate permitted by law.

“Reportable Event” means any reportable event as that term is defined for purposes of ERISA.

“Security Instrument(s)” means the written document(s) listed in Exhibit C attached hereto, signed and delivered from time to time to the Bank in connection with Indebtedness owed by Borrowers to the Bank.

“Subordinated Debt” means Indebtedness of a Person that is subordinated, in a manner satisfactory to the Bank, to all Indebtedness owing to the Bank.

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“Subsidiary” means any Person of which more than fifty percent (50%) of (i) the voting stock entitling the holders thereof to elect a majority of the Board of Directors, managers, or trustees thereof, or (ii) the interest in the capital or profits of such Person, which at the time is owned or controlled, directly or indirectly, by a Borrower or one or more other Subsidiaries.

“Tangible Net Worth” means a Person’s common stock, preferred stock, additional paid in capital and retained earnings less all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items and investments in, advances to, or promissory notes and any receivables from, any affiliate or other related entity, officer, shareholder, or employee of any Borrower, but including leaseholds and leasehold improvements).

“Termination Date” means January 31, 2009, or such earlier date on which the commitment of the Bank to make Loans pursuant to Section 2.1. hereof shall have been terminated pursuant to ARTICLE VIII. of this Agreement.

“Total Fixed Charges” means the sum of Person’s scheduled principal payments (whether paid or not), interest expense, cash taxes paid, plus rent and operating lease expense.

The foregoing definitions shall be applicable to the singulars and plurals of the foregoing defined terms.

ARTICLE II. CREDIT FACILITY

Section 2.1 Revolver Advances. The Bank hereby agrees, subject to the terms and conditions of this Agreement, to extend the following revolving credit facility to the Borrowers (“Revolver Advance(s)”):

(a) The Bank will, at the request of the Borrowers, make one or more Revolver Advances to the Borrowers from time to time on and after the date of this Agreement through and including the Termination Date, in an aggregate principal amount (outstanding at any one time) not to exceed the lesser of (i) Three Million Dollars ($ 3,000,000.00), or (ii) the Borrowing Base (the “Commitment”). Should the outstanding amount of Loans at any time exceed such maximum amount available for Revolver Advances under this Section 2.1., the Borrowers shall immediately repay such excess amount. The Borrowers may borrow, repay, and reborrow the maximum amount of such credit.

(b) Each Revolver Advance may be made on any Business Day in such amount, subject to the limitations set forth herein. All Revolver Advances shall be evidenced by the Revolving Credit Promissory Note dated the date hereof in the form of, and substantially similar to Exhibit B attached hereto. The Revolving Credit Promissory Note shall be a master note, and the principal amount of all Revolver Advances outstanding shall be evidenced by the Revolving Credit Promissory Note or any ledger or other record of the Bank, which shall be presumptive evidence of the principal owing and unpaid on such Note. The Borrowers may from time to time on any Business Day, voluntarily reduce the amount of the Revolver Advance facility; provided that all such reductions shall require 3 days’ prior written notice to the Bank and shall be permanent, and any partial reduction shall be in an amount no less than $ 100,000.00 or any integral multiple of $ 100,000.00, and further provided that Borrowers shall immediately pay to the Bank the amount, if any, by which the aggregate principal amount of such Loans outstanding exceeds such reduced commitment of the Bank at that time.

Section 2.2. Interest Rate.

(a) Each Revolver Advance shall bear interest prior to maturity at a floating rate per annum equal to the Prime Rate plus one and one half percent (1.50%). In the event of any change in the Prime Rate of Bank, the interest rate on any Loan shall be immediately correspondingly adjusted, but in no event shall such interest rate exceed the highest rate permitted by law.

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(b) Upon the maturity of any Loan (whether by acceleration or otherwise), the unpaid principal amount of the Loan, and accrued interest thereof, or any fees or any other sum payable hereunder, shall thereafter until paid in full bear interest at a rate per annum equal to three (3.0%) in excess of the Prime Rate, which rate shall be adjusted to immediately correspond with such change, except such interest rate shall not exceed the highest rate permitted by law (the “Default Rate”).

(c) Borrowers shall pay to the Bank interest on the unpaid principal balance of all Revolver Advances at the rate provided for in Section 2.2 (a) above, starting on February 29, 2008, and continuing on the last day of each quarter thereafter until the final payment is due and payable, which shall be made at the Termination Date.

Section 2.3. Prepayment. The Borrowers may prepay any Loan in whole, or in part, without penalty, at any time or times upon prior notice made by telephone to the Bank no later than 1:00 p.m. on the date of the prepayment.

Section 2.4 Use of Proceeds. The Loans under Section 2.1. shall be used initially to refinance existing indebtedness to National City Bank and thereafter solely for working capital purposes.

Section 2.5. Fees. The Borrowers shall pay to the Bank:

(a) A $ 5,000.00 facility fee, payable on the date of execution of this Agreement.

(b) The Bank’s out-of-pocket expenses, including reasonable fees and expenses of the Bank’s counsel in relating hereto, and any other fees payable in accordance with Section 9.2. (a) hereof, payable on the date of execution of this Agreement.

(c) Prior to maturity, for each payment of principal or interest not paid when due (subject to applicable grace period), a late fee equal to the greater of five percent (5.00%) of the amount of such payment or fifty dollars ($ 50.00).

Section 2.6. Capital Adequacy. If either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) the compliance with any guideline or request from any central bank or other government authority (whether or not having the force of law), affects or would affect the amount of capital required or expected to be maintain by the Bank or any corporation controlling the Bank and the Bank determines that the amount of such capital is increased by or based upon the existence of the Loans (or commitment to make the Loans) and other extensions of credit (or commitments to extend credit) of similar type, then, no later than thirty (30) days after demand by the Bank, the Company shall pay to the Bank from time to time as specified by the Bank additional amounts sufficient to compensate the Bank in the light of such circumstances, to the extent that the Bank reasonably determines such increase in capital to be allocable to the existence of the Bank’s Loans (or commitment to make the Loans) and so long as such amounts are also being charged to Bank’s other similarly situated customers generally. A certificate of the Bank submitted to the Company as to such amounts shall be conclusive and binding for all purposes, absent manifest error.

ARTICLE III. WARRANTIES

The Borrowers represent and warrant to the Bank (which representations and warranties will survive the delivery of the Note and all extensions of credit under this Agreement) that:

Section 3.l. Organization; Corporate Power.

(a) Each Borrower that is a corporation duly organized, validly existing, and in good standing under the laws of the state of California or Ohio, as applicable;

(b) Each Borrower has the power and authority to own its properties and assets and to carry on its business as now being conducted;

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(c) Each Borrower is qualified to do business in every jurisdiction in which the ownership or leasing of its property or the doing of business requires such qualification and where the failure to so qualify would have a Material Adverse effect on such Borrower or its business, assets, operations, or financial condition;

(d) Each Borrower has the power to execute, deliver, and perform its Loan Documents and to borrow hereunder.

Section 3.2. Authorization of Borrowing. The execution, delivery, and performance of the Loan Documents and the Loans by the Borrowers have been duly authorized by all requisite corporate action.

Section 3.3. No Conflict. The execution, delivery, and performance of the Loan Documents will not (a) violate any provision of law, the Articles of Incorporation or the Bylaws/Regulations, as applicable, of any Borrower, (b) violate any order of any court or other agency of any federal or state government, (c) violate any provision of any indenture, agreement, or other instrument to which any Borrower is a party or by which it or any of its properties or assets are bound, or conflict with, result in a breach of, or constitute (with passage of time or delivery of notice, or both), a default under any such indenture, agreement, or other instrument, and which would have a Material Adverse effect on the business, properties, assets, or financial condition of such Borrower, or (d) result in the creation or imposition of any Lien or other encumbrance of any nature whatsoever upon any of the properties or assets of any Borrower except in favor of the Bank.

Section 3.4. Execution of Loan Documents. The Loan Documents have been duly executed and are valid and binding obligations of the Borrowers fully enforceable in accordance with their respective terms, except as the enforceability thereof (a) may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, or similar laws relating to or affecting the rights of creditors generally and (b) is subject to general principals of equity regardless of whether such enforceability is considered in a proceeding in equity or at law.

Section 3.5. Financial Condition. Borrowers have furnished to the Bank Consolidated and consolidating financial statements of the Borrowers for the periods ended September 30, 2007, which financial statements are true and correct in all material respects, and there have been no Material Adverse changes since the date of such statements.

Section 3.6 Liabilities; Liens. The Borrowers have made no investment in, advance to, or guarantee of, the obligations of any Person nor are any Borrower’s assets and properties subject to any material claims, liabilities, Liens, or other encumbrances, except as disclosed in the financial statements provided under Section 3.4 hereof, or as may be permitted by Section 6.2 hereof.

Section 3.7. Litigation. There is no action, suit, examination, review, or proceeding by or before any governmental instrumentality or agency now pending or, to the knowledge of the Borrowers, threatened against any Borrower or against any property or rights of any Borrower, which, if adversely determined, would materially impair the right of such Borrower to carry on business as now being conducted or which would have a Material Adverse effect on the financial condition of such Borrower, except for the litigation, if any, disclosed in writing to the Bank.

Section 3.8. Payment of Taxes. The Borrowers have filed, or caused to be filed, all Federal, state, local, and foreign tax returns required to be filed, and have paid, or caused to be paid, all taxes as are shown on such returns, or on any assessment received by the Borrowers, to the extent that such taxes become due, except as otherwise contested in good faith. The Borrowers have set aside proper amounts on their books, determined in accordance with GAAP, for the payment of all taxes for the years that have not been audited by the respective tax authorities or for taxes being contested in good faith by the Borrowers.

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Section 3.9. Agreements. No Borrower is in default in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party, which default would have a Material Adverse effect on the business, properties, assets, or financial condition of such Borrower.

Section 3.10. Regulatory Status. Neither the making nor the performance of this Agreement, nor any extension of credit hereunder, requires the consent or approval of any governmental instrumentality or political subdivision thereof, any other regulatory or administrative agency, or any court of competent jurisdiction.

Section 3.l1. Federal Reserve Regulations: Use of Loan Proceeds. No Borrower is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any governmental body, including without limitation the provisions of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System, as amended. No part of the proceeds of the Loans will be used, directly or indirectly, to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Following application of the proceeds of each Loan, no more than 25 percent of the value of the assets of the Borrowers will be Margin Stock.

Section 3.12. Subsidiaries. Other than the other Borrower the Company has no Subsidiaries; no Borrower other than the Company has any Subsidiaries.

Section 3.l3. Licenses. Each Borrower has all licenses, franchises, consents, approvals, or authorizations required in connection with the conduct of the business of such Borrower, the absence of which would have a Material Adverse effect on the conduct of its business, and all such licenses, franchises, consents, approvals, and authorizations are in full force and effect.

Section 3.14. ERISA. No Reportable Event or Prohibited Transaction has occurred and is continuing with respect to any Plan, and no Borrower has incurred an “accumulated funding deficiency” (as that term is defined by ERISA) since the effective date of ERISA.

Section 3.15. Environmental Matters. The Borrowers are in compliance with all Environmental Laws and all applicable federal, state and local health and safety laws, regulations, ordinances or rules, except to the extent that any non-compliance will not, in the aggregate, have a Material Adverse effect on the Borrowers or the ability of the Borrowers to fulfill their obligations under this Agreement, the Note, or any other Loan Document.

Section 3.16. Solvency. No Borrower has received consideration, which is the reasonable equivalent value of the obligations, and liabilities that such Borrower has incurred to Bank. No Borrower is insolvent as defined in any applicable state or federal statute, nor will any Borrower be rendered insolvent by the execution and delivery of this Agreement or the Note to Bank. No Borrower is engaged or about to engage in any business or transaction for which the assets retained by it shall be an unreasonably small capital, taking into consideration the obligations to Bank incurred hereunder. No Borrower intends to, nor does it believe that it will, incur debts beyond its ability to pay them as they mature.

ARTICLE IV. CONDITIONS OF LENDING

Section 4.l. First Loan. The obligation of the Bank to make a Loan shall be subject to satisfaction of the following conditions, unless waived in writing by the Bank: (a) all legal matters and Loan Documents incident to the transactions contemplated hereby shall be satisfactory, in form and substance, to Bank’s counsel; (b) the Bank shall have received (i) certificates by an authorized officer of each Borrower, upon which the Bank may conclusively rely until superseded by similar certificates delivered to the Bank, certifying (1) all requisite action taken in connection with the transactions contemplated hereby and (2) the names, signatures, and authority of such Borrower’s authorized signers executing the Loan Documents, and (ii) such other documents as the Bank may reasonably require to be executed by, or delivered on behalf of, the Borrowers; (c) the Bank shall have received the Note with all blanks appropriately completed, executed by an authorized signer(s) of the Borrowers; (d) the

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Borrowers shall have paid to the Bank the fee(s) and expenses then due and payable in accordance with ARTICLE II. of this Agreement; (e) the Bank shall have received written instructions by the Borrowers with respect to disbursement of the proceeds of the Loan; (f) the Bank shall have received all Security Instruments duly executed by all parties thereto; (g) the Bank shall have received an opinion of Borrowers’ legal counsel, covering the matters set forth in Exhibit D and otherwise in form and substance satisfactory to the Bank; (h) the Bank shall have received evidence acceptable to the Bank in its sole discretion that the Company has received, on terms and conditions satisfactory to the Bank in its sole discretion, $ 2,000,000.00 in proceeds from the sale of its preferred stock to Development Capital Venture, L. P. and $ 1,200,000.00 in proceeds from the issuance of its subordinated notes to Canal Mezzanine Partners, L. P.

Section 4.2. Each Loan. The obligation of the Bank to make any Loan shall be subject to compliance with Section 4.l and Article IX hereof and also subject to satisfaction of the following conditions that at the date of making such Loan, and after giving effect thereto: (a) no Event of Default or Potential Default shall have occurred and be then continuing and (b) each representation and warranty set forth in ARTICLE III above is true and correct as if then made.

ARTICLE V. AFFIRMATIVE COVENANTS

As long as credit is available hereunder or until all principal of and interest on the Note have been paid in full:

Section 5.l. Accounting; Financial Statements and Other Information. The Borrowers will maintain a standard system of accounting, established and administered in accordance with GAAP consistently followed throughout the periods involved, and will set aside on its books for each fiscal quarter the proper amounts or accruals for depreciation, obsolescence, amortization, bad debts, current and deferred taxes, prepaid expenses, and for other purposes as shall be required by GAAP. The Borrowers will deliver to the Bank:

(a) As soon as practicable after the end of each fiscal month, and in any event within fifteen (15) days thereafter, a Consolidated Borrowing Base Certificate of the Borrowers for such month, and aging reports of Accounts Receivable of the Borrowers for such month certified as complete and correct in all material respects by the chief financial officer or other authorized officer of the Company;

(b) As soon as practicable after the end of each fiscal month in each year, and in any event within thirty (30) days thereafter, a Consolidated and consolidating balance sheet of the Borrowers as of the end of such month, and Consolidated and consolidating statements of income, cash flows, changes in financial position, and shareholders’ equity of the Borrowers for such month, certified as complete and correct in all material respects by the chief financial officer or other authorized officer of the Company, subject to changes resulting from year-end adjustments;

(c) As soon as practicable after the end of each fiscal year, and in any event within one hundred twenty (120) days thereafter, a Consolidated and consolidating balance sheet of the Borrowers as of the end of such year, and Consolidated and consolidating statements of income, cash flows, changes in financial position, and shareholders’ equity of the Borrowers for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by a review report of independent certified public accountants of recognized standing, selected by the Company and satisfactory to the Bank;

(d) Together with each set of financial statements required by subparagraphs (b) (but only at the end of each fiscal quarter) and (c) above, a certificate in the form of Exhibit E hereto certified by the chief financial officer or other authorized officer of the Company and stating the Borrowers’ compliance Sections 6.8. and 6.9. below, and stating whether there exists any Event of Default or Potential Default, specifying the nature and period of existence thereof and what action, if any, the Borrowers are taking or propose to take with respect thereto;

(e) As soon as practicable after the end of each fiscal year, and in any event within two hundred seventy (270) days thereafter, the Borrowers’ tax return for such year, including all schedules thereto, certified as complete and correct in all material respects by the chief financial officer or other authorized officer of the Company;

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(f) promptly and in any event within ten (10) business days after the occurrence of a Reportable Event with respect to a Plan, a copy of any materials required to be filed with the PBGC with respect to such Reportable Event or those that would have been required to be filed if the thirty (30) day notice requirement to the PBGC were not waived;

(g) promptly upon receipt, and in no event more than three (3) business days after receipt, of a notice by the Borrower, ERISA Affiliate, or any administrator of any Plan or Multiemployer Plan that the PBGC has instituted proceedings to terminate such Plan or to appoint a trustee to administer such Plan, a copy of such notice;

(h) With reasonable promptness, such other data and information as from time to time may be reasonably requested by the Bank.

Section 5.2. Insurance; Maintenance of Properties. The Borrowers will maintain with financially sound and reputable insurers, insurance with coverage and limits as may be required by law or as may be reasonably required by the Bank. The Borrowers will, upon request from time to time, furnish to the Bank a schedule of all insurance carried by it setting forth in detail the amount and type of such insurance. The Borrowers will maintain, in good repair, working order, and condition, all properties used or useful in the business of the Borrowers.

Section 5.3. Existence; Business. The Borrowers will cause to be done all things necessary to preserve and keep in full force and effect its existence and rights, to conduct its business in a prudent manner, to maintain in full force and effect, and renew from time to time, its franchises, permits, licenses, patents, and trademarks that are necessary to operate its business. The Borrowers will comply, in all material respects with all valid laws and regulations now in effect or hereafter promulgated by any properly constituted governmental authority having jurisdiction; provided, however, the Borrowers shall not be required to comply with any law or regulation which it is contesting in good faith by appropriate proceedings as long as either the effect of such law or regulation is stayed pending the resolution of such proceedings or the effect of not complying with such law or regulation is not to jeopardize any franchise, license, permit patent, or trademark necessary to conduct the business of the Borrowers.

Section 5.4. Payment of Taxes. The Borrowers will pay all taxes, assessments, and other governmental charges levied upon any of their properties or assets or in respect of their franchises, business, income, or profits before the same become delinquent, except that no such taxes, assessments, or other charges need be paid if contested by the Borrowers in good faith and by appropriate proceedings promptly initiated and diligently conducted and if the Borrowers have set aside proper amounts, determined in accordance with GAAP, for the payment of all such taxes, changes, and assessments.

Section 5.5. Adverse Changes. The Borrowers will promptly notify the Bank in writing of (a) any future event which, if it had existed on the date of this Agreement, would have required qualification of the representations and warranties set forth in ARTICLE III. hereof and (b) any Material Adverse change in the condition, business, or prospects, financial or otherwise, of any Borrower.

Section 5.6. Notice of Default. The Borrowers will promptly notify the Bank of any Event of Default or Potential Default hereunder and any demands made upon any Borrower by any Person for the acceleration and immediate payment of any Indebtedness in excess of $ 100,000.00 owed to such Person.

Section 5.7. Inspection. The Borrower will make available, for inspection by duly authorized representatives of the Bank, or its designated agent, the books, records, and properties of the Borrowers when reasonably requested to do so, and will furnish the Bank such information regarding their business affairs and financial condition within a reasonable time after written request therefore.

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Section 5.8. Environmental Matters. The Borrower:

(a) Shall comply with all Environmental Laws, where failure to comply would have a Material Adverse effect on the Borrower or its business;

(b) Shall deliver promptly to Bank (i) copies of any significant documents received from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency, and (ii) copies of any significant documents submitted by Borrower or any of its Subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning its operations.

The Borrower shall indemnify the Bank and hold it harmless against any loss, costs, damages, or expense, including, but not limited to, reasonable attorney’s fees, that Bank may incur, directly or indirectly, as a result of or in connection with the assertion against Bank of any claim relating to the presence or removal of any environmental contamination on any Premises utilized by Borrower, except that the Bank shall have no right to be indemnified hereunder for its own bad faith or willful misconduct as determined by a court of competent jurisdiction.

Section 5.9. Health and Safety. The Borrowers shall be in compliance with all requirements of applicable federal, state and local environmental, health and safety laws, regulations, ordinances or rules which would, in the aggregate, if not complied with, result in a Material Adverse effect on any Borrower.

Section 5.10. Loan Costs. The Borrowers will reimburse Bank promptly for reasonable costs paid by Bank in connection with this Agreement, including but not limited to the costs of recording fees, reasonable fees of counsel for services rendered, and out-of-pocket expenses, all of which Bank is authorized to deduct from the proceeds of disbursements hereunder.

Section 5.11. Commercial Operating Account. The Borrowers shall maintain the Bank throughout the term of the Loans, and any extensions thereof, as their primary financial institution, including without limitation, all corporate demand deposit, lock box, time deposit, concentration, zero balance, cash management, and loan accounts (excluding any deposit accounts relating to specific business locations).

Section 5.12. Additional Assurance. The Borrowers shall upon request of Bank promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, and instruments as Bank may require so as to completely vest in and ensure to Bank its rights hereunder and in or to the Collateral.

Section 5.13. Related Expenses. The Borrowers hereby authorizes Bank or Bank’s designated agent (but without obligation by Bank to do so) to incur Related Expenses (whether prior to, upon, or subsequent to any Event of Default); provided, however, that prior to incurring such Expense, as long as there exists no Event of Default hereunder, Bank shall give notice of its intent to incur such Expense and provide the Borrowers with ten (10) days to take such action at their own expense provided that the service provider must be acceptable to Bank in its sole discretion. Borrowers shall promptly repay, reimburse, and indemnify Bank for any and all Related Expenses. Bank may, at its option, debit Related Expenses directly to the Loan Account.

ARTICLE VI. NEGATIVE COVENANTS

As long as credit is available hereunder or until all principal of and interest on the Note have been paid in full:

Section 6.l. Sale or Purchase of Assets. The Borrowers will not, directly or indirectly, (a) purchase, lease, or otherwise acquire any assets in excess of $ 100,000.00 in any fiscal year, except in the ordinary course of business or as otherwise permitted by any provision of this Agreement, or (b) sell, lease, transfer, or otherwise dispose of any plant or any manufacturing facility or other assets except for (i) assets sold for full and adequate consideration which the Board of Directors or senior management of the applicable Borrower has determined to be

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worn out, obsolete, or no longer needed or useful in its business, (ii) assets sold in the ordinary course of business provided that the Borrowers receive full and adequate consideration in exchange for such assets sold, and (iii) any other assets sold for full and adequate consideration as long as the aggregate value of such assets does not exceed $ 100,000.00 in any fiscal year.

Section 6.2. Liens. The Borrowers will not, directly or indirectly, create, incur, assume, or permit to exist any Lien with respect to any property or asset of any Borrower other than:

(a) Liens for taxes or governmental assessments, charges, or levies the payment of which is not at the time required by Section 5.4. hereof;

(b) Liens imposed by law, such as Liens of landlords, carriers, warehousemen, mechanics, and materialmen arising in the ordinary course of business for sums not yet due or being contested by appropriate proceedings promptly initiated and diligently conducted, provided the Borrower has set aside proper amounts, determined in accordance with GAAP, for the payment of all such Liens;

(c) Liens incurred or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance, and other types of social security, or to secure the performance of tenders, statutory obligations, and surety and appeal bonds, or to secure the performance and return of money bonds and other similar obligations, but excluding Indebtedness;

(d) Liens in respect of judgments or awards with respect to which a Borrower shall, in good faith, be prosecuting an appeal or proceeding for review and with respect to which a stay of execution upon such appeal or proceeding for review shall have been obtained;

(e) Liens that secure the Indebtedness of a Borrower for the purchase price of any real or personal property and that only encumber the property purchased; provided the aggregate amount of all such purchase money Liens of all the Borrowers shall not exceed at any time outstanding of $ 100,000.00 in the aggregate;

(f) Liens relating to vehicle leases that shall not exceed at any time outstanding of $ 100,000.00 in the aggregate;

(g) Liens in favor of the Bank or any Affiliate Bank or any non-bank affiliate of the Bank; and

(h) Permitted Encumbrances.

Section 6.3. Indebtedness. The Borrowers will not, directly or indirectly, create, incur, or assume Indebtedness, or otherwise become liable with respect to, any Indebtedness other than:

(a) Indebtedness now or hereafter payable, directly or indirectly, by a Borrower to the Bank or any Affiliate Bank or non-bank affiliate of the Bank;

(b) Subordinated Debt of the Borrower;

(c) To the extent permitted by Section 6.2. of this Agreement, Indebtedness for the purchase price of any real or personal property, which is secured only by a Lien on the property purchased;

(d) Unsecured current Indebtedness and deferred liabilities (other than for borrowed money or represented by bonds, notes, or other securities) incurred in the ordinary course of business;

(e) Indebtedness for taxes, assessments, governmental charges, liens, or similar claims to the extent not yet due and payable.

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Section 6.4. Investments; Loans. The Borrowers will not, directly or indirectly, (a) form or acquire a Subsidiary or otherwise purchase or otherwise acquire or own any stock or other securities of any other Person or (b) make or permit to be outstanding any loan or advance (other than trade advances in the ordinary course of business) or enter into any arrangement to provide funds or credit, to any other Person, except that the Borrower may purchase or otherwise acquire and own marketable U.S. Treasury and Agency obligations, and certificates of deposit and bankers’ acceptances issued or created by any domestic commercial bank, and except that the Borrowers may make other loans or investments in the aggregate amount outstanding at any time of no more than $ 25,000.00.

Section 6.5. Guaranties. The Borrowers will not, directly or indirectly, guarantee (except on favor of the Bank) or otherwise become surety (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to, or otherwise invest in, any Person, or enter into any working capital maintenance or similar agreement) in respect of any obligation or Indebtedness of any other Person, except guaranties by endorsement of negotiable instruments for deposit, collection, or similar transactions in the ordinary course of business.

Section 6.6. Mergers; Consolidation. No Borrower will merge or consolidate with any Person or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, except with the other Borrower.

Section 6.7. Subordinated Debt. The Borrowers will not make any payment upon its outstanding Subordinated Debt, except in such manner and amounts as may be expressly authorized in any subordination agreement presently or hereafter held by the Bank.

Section 6.8. Effective Tangible Net Worth. The Borrowers will not permit its Consolidated Effective Tangible Net Worth to be less than a negative $ 750,000.00, tested at the end of each fiscal quarter, beginning with the quarter ending March 31, 2008.

Section 6.9. Fixed Charge Coverage Ratio. The Borrower will not permit the ratio of the sum of their Consolidated EBITDA plus rent and operating lease expense, less the sum of dividends and distributions and Capital Expenditures (other than Capital Expenditures financed with purchase money indebtedness or capital leases to the extent permitted hereunder) to their Consolidated Total Fixed Charges to be less than 1.00 to 1.00 for the twelve month periods ending March 31, 2008, and June 30, 2008, or thereafter to be at any time less than 1.10 to 1.00, tested at the end of each fiscal quarter for the preceding twelve month period, tested at the end of each fiscal quarter, beginning with the quarter ending March 31, 2008.

ARTICLE VII. EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement:

Section 7.l. Principal or Interest. If the Borrowers fail to pay any installment of principal or interest on the Note or any other sums of money when due and payable under this Agreement or within five business (5) days thereafter; or

Section 7.2. Misrepresentation. If any representation or warranty made herein by any of the Borrowers or in any written statement, certificate, report, or financial statement at any time furnished by, or on behalf of, any Borrower in connection herewith, is incorrect or misleading in any material respect when made; or

Section 7.3. Failure of Performance of this Agreement. If any Borrower fails to perform or observe any covenant or agreement contained in this Agreement, other than any sums of money payable hereunder, and such failure remains unremedied for thirty (30) calendar days after the Bank shall have given written notice thereof to the Borrowers; or

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Section 7.4. Cross-Default. If any Borrower, subject to any applicable grace period, (a) fails to pay any Indebtedness to the Bank (other than as evidenced by the Note) or to any affiliate of the Bank owing by the Borrower when due, whether at maturity, by acceleration, or otherwise, or (b) fails to pay any Indebtedness to a Person other than the Bank or any affiliate of the Bank where such other Indebtedness in the aggregate is in excess of $ 25,000.00, owing by the Borrower when due, whether at maturity, by acceleration, or otherwise, or (c) fails to perform any term, covenant, or agreement on its part to be performed under any agreement or instrument (other than the Loan Documents) evidencing, securing, or relating to such Indebtedness when required to be performed, or is otherwise in default thereunder, if the effect of such failure is to accelerate, or to permit the holder(s) of such Indebtedness or the trustee(s) under any such agreement or instrument to accelerate, the maturity of such Indebtedness, whether or not such failure shall be waived by such holder(s) or trustee(s); or

Section 7.5. Event of Default Under Any Security Instrument. If an event of default occurs and is continuing under the terms of any Security Instrument; or

Section 7.6. ERISA. If any of the following events occur: (a) any Plan incurs any “accumulated funding deficiency” (as such term is defined in ERISA) whether waived or not, (b) the Borrower engages in any Prohibited Transaction, (c) any Plan is terminated, (d) a trustee is appointed by an appropriate United States district court to administer any Plan, or (e) the PBGC institutes proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or

Section 7.7. Financial Impairment. Financial Impairment of any Borrower.

ARTICLE VIII. REMEDIES UPON DEFAULT

Section 8.l. Optional Acceleration. In the event that one or more of the Events of Default set forth in Sections 7.l. through 7.6. above occurs and continues and is not waived by the Bank, then, in any such event, and at any time thereafter, the Bank may, at its option, terminate its commitment to make any Loan and declare the unpaid principal of and all accrued interest on the Note, and any other liabilities hereunder, and all other Indebtedness of the Borrowers to the Bank forthwith due and payable, whereupon the same will forthwith become due and payable without presentment, demand, protest, or other notice of any kind, all of which the Borrowers hereby expressly waive, anything contained herein or in the Note to the contrary notwithstanding.

Section 8.2. Automatic Acceleration. Upon the happening of an Event of Default referred to in Section 7.7. above, the unpaid principal of, all accrued interest on, and Prepayment Premium, if any, in respect of, the Note, and all other Indebtedness of the Borrowers to the Bank then existing will thereupon become immediately due and payable in full and the commitment, if any, of the Bank to make any Loan, if not previously terminated, will thereupon immediately terminate without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in the Note to the contrary notwithstanding.

Section 8.3. Right of Set Off; Security. Upon the occurrence and continuation of an Event of Default, the Bank has the right, in addition to all other rights and remedies available to it, to set off the unpaid balance of the Note and any other Indebtedness payable to the Bank held by it against any debt owing to the Borrower by the Bank or by any Affiliate Bank, including, without limitation, any obligation under a repurchase agreement or any funds held at anytime by the Bank or any Affiliate Bank, whether collected or in the process of collection, or in any time or demand deposit account maintained by any Borrower at, or evidenced by any certificate of deposit issued by, the Bank or any Affiliate Bank. Each Borrower hereby grants, pledges, and assigns to the Bank a security interest in, or lien upon, all cash, negotiable instruments, securities, deposit accounts, and other cash equivalents, whether collected or in the process of collection, whether matured or unmatured, now or hereafter in the possession of the Bank or any Affiliate Bank and upon which such Borrower has or may hereafter have any claim. The Borrower acknowledges and agrees that all of the foregoing shall constitute “cash collateral” for purposes of this Agreement. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in the Note may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Borrower pursuant to this Agreement in the amount of such participation.

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Section 8.4. No Waiver. The remedies in this ARTICLE VIII. are in addition to, not in limitation of, any other right, power, privilege, or remedy, either in law, in equity, or otherwise, to which the Bank may be entitled. No failure or delay on the part of the Bank in exercising any right, power, or remedy will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder.

ARTICLE IX. CONDITIONS PRECEDENT TO LOANS

Section 9.1. Conditions Precedent. The obligation of Bank to make any Loans to Borrowers after the date of this Agreement shall be subject to the conditions precedent that on or before the date of such Loan:

(a) Borrower shall have paid all fees, costs, expense, and taxes then payable by Borrowers pursuant to Article II of this Agreement.

(b) The representations and warranties contained in Article III of this Agreement and in each document, instrument, agreement, and certificate delivered to Bank by Borrowers pursuant to this Agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date; no Event of Default or Potential Default shall have occurred and be continuing or would result from the making of such Loan; and Bank shall have received, if requested by Bank, a certificate of the chief executive officer or the chief financial officer of Borrower dated as of the date of such Loan, to such effect (in the absence of Bank’s request for such a certificate, Borrowers’ borrowing of the Loan shall itself constitute a representation to Bank to such effect);

(c) The making of such Loan shall not contravene any law, rule, or regulation applicable to Bank;

(d) No later than 2:00 p.m., Cleveland time, on such date, Bank shall have received a telephone request by Borrowers to Bank for a Loan in the requested amount;

(e) Bank shall have received a current board resolution or other evidence of all appropriate action to authorize borrowings by the Borrowers and the execution and delivery of all related loan documents by authorized signatories.

(f) Bank shall have received such other approvals, opinions, appraisals, or documents as it may reasonably request.

ARTICLE X. MISCELLANEOUS

Section 10.1. Amendments. The remedies in this Agreement are in addition to, not in limitation of, any other right, power, privilege, or remedy, either in law, in equity, or otherwise, to which the Bank may be entitled. All Bank’s rights and remedies, whether evidenced by this Agreement or by any other agreement, instrument or document shall be cumulative and may be exercised singularly or concurrently. No waiver of any provision of this Agreement or the Note, or consent to departure therefrom, is effective unless in writing and signed by the Bank. No such consent or waiver extends beyond the particular case and purpose involved. No amendment to this Agreement is effective unless in writing and signed by the Borrowers and the Bank. If at any time or times, by assignment or otherwise, Bank transfers any of the Obligations or any part of the Collateral to another person, such transfer shall carry with it Bank’s powers and rights under this Agreement with respect to the Obligation or Collateral so transferred and the transferee shall have said powers and rights, whether or not they are specifically referred to in the transfer. To the extent that Bank retains any other of the Obligations or any part of the Collateral, Bank will continue to have the rights and powers with respect to the Obligations and the Collateral as set forth in this Agreement.

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Section 10.2. Expenses; Documentary Taxes. The Borrowers shall pay (a) all reasonable out-of-pocket expenses of the Bank, including recording, search, and documentation fees and reasonable fees and disbursements of special counsel for the Bank, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Event of Default hereunder and (b) if an Event of Default or Potential Default occurs, all reasonable out-of-pocket expenses incurred by the Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default or Potential Default and collection and other enforcement proceedings resulting therefrom. The Borrowers shall reimburse the Bank for its payment of all transfer taxes, documentary taxes, assessments, or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Note.

Section 10.3. Indemnification. The Borrowers shall indemnify and hold the Bank harmless against any and all liabilities, losses, damages, costs, and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel in connection with any investigative, administrative or judicial proceeding, whether or not the Bank shall be designated a party thereto) which may be incurred by the Bank relating to this Agreement or any actual or proposed use of proceeds of any loan hereunder; provided, that the Bank shall have no right to be indemnified hereunder for its own bad faith or willful misconduct as determined by a court of competent jurisdiction. A certificate as to any such loss or expense shall be promptly submitted by the Bank to the Borrowers and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof.

Section 10.4. Construction. This Agreement and the Note will be governed by and construed in accordance with the laws of the State of Ohio, without regard to principles of conflict of laws. The several captions to different Sections of this Agreement are inserted for convenience only and shall be ignored in interpreting the provisions hereof.

Section 10.5. Extension of Time. Whenever any payment hereunder or under the Note becomes due on a date which the Bank is not open for the transaction of business, such payment will be due on the next succeeding business day and such extension of time will be included in computing interest in connection with such payment.

Section 10.6. Notices. All written notices, requests, or other communications herein provided for must be addressed to the Company or the Bank, as applicable, at the addresses set forth below. Such communication will be effective (a) if given by mail, on the first attempted delivery after such communication is deposited in the U.S. mail by certified mail, return receipt requested, postage prepaid or (b) if given by other means, when delivered at the address specified in this Section 10.6.:

if to the Bank, at:

Fifth Third Bank

Commercial Banking

Mailcode: MD A67811

Fifth Floor

121 South Main St.

Akron, Ohio 44308

Attention: Michael Babb

or at such other address or addressee as may have been furnished to the Company by the Bank in writing; or

if to the Borrowers, at:

c/o DPAC Technologies Corp

5675 Hudson Parkway

Hudson, Ohio 33236

Attention: Steve Runkel

or at such other address or addressee as may have been furnished to the Bank by the Borrowers in writing.

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Section 10.7. Survival of Agreements; Relationship. All agreements, representations, and warranties made in this Agreement will survive the making of the extension of credit hereunder, and will bind and inure to the benefit of each Borrower and the Bank, and their respective successors and assigns; provided, that no subsequent holder of the Note shall by reason of acquiring that Note become obligated to make any Loan hereunder and no successor to or assignee of any Borrower may borrow hereunder without the Bank’s written consent. The relationship between the Borrowers and the Bank with respect to this Agreement, the Note and any other Loan Document is and shall be solely that of debtor and creditor, respectively, and the Bank has no fiduciary obligation toward the Borrowers with respect to any such document or the transactions contemplated thereby. All obligations and liabilities of the Borrowers hereunder shall be joint and several.

Section 10.8. Severability. If any provision of this Agreement or the Note, or any action taken hereunder, or any application thereof, is for any reason held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement or the Note, each of which shall be construed and enforced without reference to such illegal or invalid portion and shall be deemed to be effective or taken in the manner and to the full extent permitted by law.

Section 10.9. Entire Agreement. This Agreement, the Note and any other Loan Document integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral representations and negotiations and prior writings with respect to the subject matter hereof.

Section 10.10. JURY TRIAL WAIVER. BORROWERS AND BANK EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN BANK AND BORROWERS ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, OR ANY AMENDMENT THEREOF, OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK’S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT BETWEEN BANK AND BORROWERS.

IN WITNESS WHEREOF, the Borrowers and the Bank have each caused this Agreement to be executed by their duly authorized officers as of January 30, 2008.

BORROWERS:
DPAC TECHNOLOGIES CORP.		QUATECH, INC.
By:	/s/ Steven D. Runkel	By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer		Steve Runkel, Chief Executive Officer
BANK:
FIFTH THIRD BANK
By:	/s/ Michael H. Babb
	Michael H. Babb, Vice President

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EXHIBIT A

BORROWING BASE CERTIFICATE

Computed as of                                         

I, the undersigned, the                                          of DPAC TECHNOLOGIES CORP. (the “Company”), does hereby certify pursuant to the Credit Agreement by and among the Company, the other Borrower thereunder, and FIFTH THIRD BANK (“the Bank”) dated January 30, 2008, (the “Agreement”), that the following computations are true and correct and have been made in accordance with the provisions (including defined terms) of the Agreement and without duplication or overlap:

1.	Total Domestic Qualified Accounts Receivable	$
2.	80% of Total Domestic Qualified Accounts Receivable	$
3.	Total Foreign Qualified Accounts Receivable	$
4.	90% of Total Foreign Qualified Accounts Receivable	$
5.	Total Qualified Inventory	$
6.	The lesser of (i) 50% of Total Qualified Inventory or (ii) $750,000.00	$
7.	Total of Line 2 plus Line 4 plus Line 6	$
	Less Outstanding Revolver Advances	$
	Borrowing Base (over) / under	$

I further certify that as of the date of this Borrowing Base Certificate:

a) No Event of Default or Potential Default, as defined in the Agreement has occurred or is continuing;

b) No Borrower has a new place of business or place where it maintains Inventory since the last Borrowing Base Certificate except                                                                  .

c) The Borrowers keep all of its records pertaining to Accounts and Accounts Receivable, as defined in Article I. of the Agreement, at its office located at 5675 Hudson Parkway, Hudson, Ohio 44236,

d) Each representation and warranty made by the Borrowers to the Bank in the Agreement is true and correct in all material respects as if made on the date of this Borrowing Base Certificate.

Dated this          day of                 ,         .

DPAC TECHNOLOGIES CORP.

By:

Name:

Title:

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EXHIBIT B

REVOLVING CREDIT PROMISSORY NOTE

$ 3,000,000.00 January 30, 2008

For value received, the undersigned, DPAC TECHNOLOGIES CORP., a California corporation, and QUATECH, INC. an Ohio corporation (collectively, the “Borrowers”), jointly and severally, promise to pay to the order of FIFTH THIRD BANK, Cleveland, Ohio, (the “Bank”), its successor and assigns, at the office set forth in the Loan Agreement (as defined below), on the date or dates and in the manner specified in ARTICLE II. of the Loan Agreement, the lesser of Three Million Dollars ($ 3,000,000.00) or the aggregate principal amount of the Revolver Advances as shown on any ledger or other record of the Bank, which shall be rebuttably presumptive evidence of the principal amount owing and unpaid on this Note.

The Borrowers promise, jointly and severally, to pay to the order of the Bank interest on the unpaid principal amount of each Revolver Advance Loan made pursuant to the Loan Agreement from the date of such Loan until such principal amount is paid in full at such interest rate(s) and at such times as are specified in ARTICLE II. of the Loan Agreement.

This Note is the Revolving Credit Promissory Note referred to in, and is entitled to the benefits of, Section 2.1. of the Credit Agreement by and between the Bank and the Borrowers dated January 30, 2008, as the same may be hereafter amended from time to time (the “Loan Agreement”). This Note may be declared forthwith due and payable in the manner and with the effect provided in the Loan Agreement, which contains provisions for acceleration of the maturity hereof upon the happening of any Event of Default and also for prepayment on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.

Each defined term used in this Note shall have the meaning ascribed thereto in the Loan Agreement.

Each Borrower expressly waives presentment, demand, protest, and notice of dishonor.

Each Borrower authorizes any attorney-at-law to appear in any court of record in the State of Ohio or any other state or territory in the United States after this Note becomes due, whether by lapse of time or acceleration, waive the issuance and service of process, admit the maturity of this Note, confess judgment against the Borrower in favor of any holder of this Note for the amount then appearing due hereon together with interest thereon and costs of suit, and thereupon release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, and if any judgment be vacated for any reason, the holder hereof nevertheless may thereafter use the foregoing warrant of attorney to obtain any additional judgment or judgments against each such Borrower. Each Borrower agrees that the holder’s attorney may confess judgment pursuant to the foregoing warrant of attorney. Each Borrower further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from the holder.

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The Borrowers acknowledges that this Note was signed in Summit County, in the State of Ohio.

FOR THE PURPOSES OF THE BELOW NOTICE, “YOU” AND “YOUR” MEANS THE BORROWER AND EACH OF THEM AND “HIS” AND “CREDITOR” MEANS THE BANK.

WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

DPAC TECHNOLOGIES CORP.		QUATECH, INC.
By:	Exhibit	By:	Exhibit
	Steve Runkel, Chief Executive Officer		Steve Runkel, Chief Executive Officer

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EXHIBIT C

SECURITY INSTRUMENTS

Security Agreements dated as of January 30, 2008, between each of the Borrowers and the Bank.*

Subordination Agreement from Canal Mezzanine Partners, L. P. relating to at least $ 1,200,000.00 of indebtedness of the Company.

Acknowledgement Agreement from Development Capital Venture, L. P. relating to at least $ 2,000,000.00 of preferred shares of the Company.

Unconditional and Continuing Subordination from The Director of Development of the State of Ohio relating to at least $ 2,500,000.00 of indebtedness of the Company.

* These Agreements grant the Bank a first and best lien on all accounts receivable, inventory, equipment, and other assets of each Borrower.

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EXHIBIT D

OPINION OF COUNSEL

[Subject to the reasonable assumptions and qualifications acceptable to the Bank]

(a) Each Borrower is a corporation duly organized and is validly existing and in good standing under the laws of the state of its incorporation.

(b) Each Borrower is duly qualified to carry on its business in Ohio and such other states where the failure to so qualify would have a Material Adverse Effect on such Borrower.

(c) Each Borrower has full power and authority to own its properties and assets, to carry on its business as it is currently being conducted, and to enter into, execute, deliver, and perform under the Loan Documents.

(d) The entering into, execution and delivery of, and the performance under, the Loan Documents by each Borrower (1) have been duly authorized by all requisite corporate action, and (2) will not violate (i) any provision of each Borrower’s articles of incorporation or regulations, or (ii) to the best of such counsel’s knowledge, any material written agreement or instrument to which each Borrower is a party or by which it or any of its assets are bound where such violation would have a Material Adverse effect on the business, properties, assets, or financial condition of such Borrower.

24

EXHIBIT E

[On DPAC Technologies Corp. Stationary]

Compliance Certificate of Authorized Officer

DPAC Technologies Corp.

For the Fiscal Period Ended                     

Fifth Third Bank

Commercial Banking Division

Mailcode: MD A67811

Fifth Floor

121 South Main Street

Akron, Ohio 44308

Attention: [Name and title of current Fifth Third Bank account officer]

Re: Credit Agreement dated January 30, 2008, by and among Fifth Third Bank, DPAC Technologies Corp. (“Company”), and Quatech, Inc. (with the Company, collectively, the “Borrowers”) (the “ Agreement” and collectively with all related documentation, the “Loan Documents”)

Dear                     :

I am providing this certificate to Fifth Third Bank pursuant to Section 5.1. (d) of the Agreement. Please be advised that I have reviewed, or caused to be reviewed under my supervision, the provisions of the Agreement, the other Loan Documents, and such other documents, financial records, transactions, or information that I deemed necessary to give this Certificate.

I hereby certify that I am the                      of Company and that at                     , 20    , and through the date hereof, there existed or exists no Event of Default or Potential Default, as those terms are defined in the Agreement.

Set forth on Attachment I hereto are calculations of the financial covenants set forth in Section 6.8. and 6.9. of the Agreement, which calculations show compliance with the terms thereof.

In witness whereof, I have signed this certificate the      day of                 , 200    .

Name:

Title:

DPAC Technologies Corp.

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Attachment I

DPAC Technologies Corp.

Compliance Certificate - Sections 6.8. and 6.9. Financial Covenants

For the Fiscal Period ended                     

Requirement		Actual
6.8	Effective Tangible Net Worth ³$ (750,000.00)	$
6.9	Fixed Charge Coverage Ratio ³ 1.00 to 1.00*		to 1.00

* Subject to periodic adjustment.

All capitalized terms used herein shall have the meanings set forth in the Agreement.

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EX-10.2

Exhibit 10.2

REVOLVING CREDIT PROMISSORY NOTE

$ 3,000,000.00 January 30, 2008

For value received, the undersigned, DPAC TECHNOLOGIES CORP., a California corporation, and QUATECH, INC. an Ohio corporation (collectively, the “Borrowers”), jointly and severally, promise to pay to the order of FIFTH THIRD BANK, Cleveland, Ohio, (the “Bank”), its successor and assigns, at the office set forth in the Loan Agreement (as defined below), on the date or dates and in the manner specified in ARTICLE II. of the Loan Agreement, the lesser of Three Million Dollars ($ 3,000,000.00) or the aggregate principal amount of the Revolver Advances as shown on any ledger or other record of the Bank, which shall be rebuttably presumptive evidence of the principal amount owing and unpaid on this Note.

The Borrowers promise, jointly and severally, to pay to the order of the Bank interest on the unpaid principal amount of each Revolver Advance Loan made pursuant to the Loan Agreement from the date of such Loan until such principal amount is paid in full at such interest rate(s) and at such times as are specified in ARTICLE II. of the Loan Agreement.

This Note is the Revolving Credit Promissory Note referred to in, and is entitled to the benefits of, Section 2.1. of the Credit Agreement by and between the Bank and the Borrowers dated January 30, 2008, as the same may be hereafter amended from time to time (the “Loan Agreement”). This Note may be declared forthwith due and payable in the manner and with the effect provided in the Loan Agreement, which contains provisions for acceleration of the maturity hereof upon the happening of any Event of Default and also for prepayment on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.

Each defined term used in this Note shall have the meaning ascribed thereto in the Loan Agreement.

Each Borrower expressly waives presentment, demand, protest, and notice of dishonor.

Each Borrower authorizes any attorney-at-law to appear in any court of record in the State of Ohio or any other state or territory in the United States after this Note becomes due, whether by lapse of time or acceleration, waive the issuance and service of process, admit the maturity of this Note, confess judgment against the Borrower in favor of any holder of this Note for the amount then appearing due hereon together with interest thereon and costs of suit, and thereupon release all errors and waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, and if any judgment be vacated for any reason, the holder hereof nevertheless may thereafter use the foregoing warrant of attorney to obtain any additional judgment or judgments against each such Borrower. Each Borrower agrees that the holder’s attorney may confess judgment pursuant to the foregoing warrant of attorney. Each Borrower further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from the holder.

The Borrowers acknowledges that this Note was signed in Summit County, in the State of Ohio.

FOR THE PURPOSES OF THE BELOW NOTICE, “YOU” AND “YOUR” MEANS THE BORROWER AND EACH OF THEM AND “HIS” AND “CREDITOR” MEANS THE BANK.

WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

DPAC TECHNOLOGIES CORP.		QUATECH, INC.
By:	/s/ Steven D. Runkel	By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer		Steve Runkel, Chief Executive Officer

EX-10.3

Exhibit 10.3

SECURITY AGREEMENT

As of January 30, 2008, Company and Bank (as herein defined), in consideration of the premises, and the covenants and agreements contained herein, hereby mutually agree as follows:

1. DEFINITIONS

“Account”, “Chattel Paper”, “Commercial Tort Claim”, “Consumer Goods”, “Deposit Account”, “Document”, “Farm Products”, “General Intangible”, “Goods”, “Health Care Receivable”, “Instrument”, “Investment Property”, “Letter of Credit Rights”, “Payment Intangible”, and “Proceeds”, have the meanings as set forth in Ohio Revised Code Chapter 1309, including any amendments thereof and any substitutions therefore, which definitions are hereby incorporated by reference as though fully rewritten herein.

“Account Debtor” means the Person who is obligated on an Account Receivable.

“Account Receivable” means:

(a) any Account, account receivable, Health Care Receivable, Payment Intangible, and to the extent evidencing the right to payment of a monetary obligation, any Chattel Paper, Document, or Instrument owned, acquired, or received by a Person,

(b) any other indebtedness owed to or receivable owned, acquired, or received by a Person of whatever kind and however evidenced, and

(c) any right, title, and interest in a Person’s Goods that were sold, leased, or furnished by that Person and gave rise to either (a) or (b) above, or both of them. This includes, without limitation,

(1) any rights of stoppage in transit of a Person’s sold, leased, or furnished Goods,

(2) any rights to reclaim a Person’s sold, leased, or furnished Goods, and

(3) any rights a Person has in such sold, leased, or furnished Goods that have been returned to or repossessed by that Person.

“Accounts Receivable Collection Account” means a commercial Deposit Account which may be maintained by Company with Bank, without liability by Bank to pay interest thereon, from which account Bank shall have the exclusive right to withdraw funds until all Obligations are paid, performed, and observed in full.

“Bank” means FIFTH THIRD BANK, an Ohio banking corporation whose principal office is located at 121 South Main Street, Akron, Ohio 44308.

“Borrowers” means Quatech, Inc. and DPAC Technologies Corp.

“Cash Security” means all cash, Instruments, Deposit Accounts, and other cash equivalents, whether matured or unmatured, whether collected or in the process of collection, upon which Company presently has or may hereafter have any claim, that are presently or may hereafter be existing or maintained with, issued by, drawn upon, or in the possession of Bank.

“Collateral” means all of the Company’s personal property assets, including, without limitation:

(a) all of Company’s Accounts Receivable, whether now owned or hereafter acquired or received by Company,

(b) all of Company’s Inventory, whether now owned or hereafter acquired by Company,

(c) all of Company’s Equipment, whether now owned or hereafter acquired by Company, including but not limited to the vehicles listed on attached Exhibit A,

(d) all of Company’s Cash Security,

(e) all of Company’s General Intangibles and other personal property and rights, whether now owned or hereafter acquired by Company, including but not limited to Deposit Accounts, Instruments (including promissory notes), Chattel Paper, Documents, Investment Property, Letter of Credit Rights, Commercial Tort Claims, trademarks, tradenames, patents, copyrights, tax refunds, choses in action and contract rights, and

(f) all of the Proceeds, products, profits, and rents of Company’s Accounts Receivable, Inventory, Equipment, Cash Security, General Intangibles, and other Collateral, and all books and records, including computer software, used in connection with any of the Collateral.

“Company” means QUATECH, INC., a corporation organized under the laws of the State of Ohio.

“Company’s Headquarters” means the location of:

(a) Company’s place of business, if there is only one such place of business, or

(b) if there is more than one place of business, the place (1) from which Company manages the main part of its business operations, and (2) where Persons dealing with Company would normally look for credit information.

“Equipment” means:

(a) any equipment, including without limitation, machinery, office furniture and furnishings, tools, dies, jigs, and molds and any warranty and other claims against the vendor or supplier of such equipment,

(b) all Goods that are used or bought for use primarily in a Person’s business,

(c) all Goods that are not Consumer Goods, Farm Products, or Inventory, and

(d) all substitutes or replacements for, and all parts, accessories, additions, attachments, or accessions to the foregoing.

“Event of Default” means the occurrence of any of the events set forth in Section 7 of the Security Agreement.

“Inventory” means:

(a) any inventory,

(b) all Goods that are raw materials,

(c) all Goods that are work in process,

(d) all Goods that are materials used or consumed in the ordinary course of a Person’s business,

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(e) all Goods that are, in the ordinary course of a Person’s business, held for sale or lease or furnished or to be furnished under contracts of service, and

(f) all substitutes and replacements for, and parts, accessories, additions, attachments, or accessions to (a) to (e) above.

“Loan Agreement” means the Credit Agreement by and among the Borrowers and the Bank, dated of even date herewith, and including any partial or total amendment, renewal, restatement, extension, or substitution of any such agreement.

“Obligations” means any of the following obligations, whether direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, originally contracted with Bank or another Person, and now or hereafter owing to or acquired in any manner partially or totally by Bank or in which Bank may have acquired a participation, contracted by Company alone or jointly or severally with another Person:

(a) any and all indebtedness, obligations, liabilities, contracts, indentures, agreements, warranties, covenants, guaranties, representations, provisions, terms, and conditions of whatever kind, now existing or hereafter arising, and however evidenced, that are now or hereafter owed, incurred, or executed by Company to, in favor of, or with Bank (including, without limitation, those as are set forth or contained in, referred to, evidenced by, or executed with reference to, the Security Agreement, the Loan Agreement, the Promissory Note, any other loan agreements, interest rate hedge agreements, letter agreements, letter of credit agreements, advance agreements, indemnity agreements, guaranties, lines of credit, mortgage deeds, security agreements, assignments, pledge agreements, hypothecation agreements, Instruments, and acceptance financing agreements), and including any partial or total extension, restatement, renewal, amendment, and substitution thereof or therefore;

(b) any and all claims of whatever kind of Bank against Company, now existing or hereafter arising, including, without limitation, any arising out of or in any way connected with warranties made by Company to Bank in connection with any Instrument deposited with or purchased by Bank;

(c) any and all of Bank’s Related Expenses.

“Organization” and “Person” have the meanings as set forth in Ohio Revised Code Section 1301.01, including any amendments thereof and any substitutions therefore, which definitions are hereby incorporated by reference as though fully rewritten herein.

“Permitted Purchase Money Liens” means purchase money security interests incurred by the Company to an obligor other than the Bank, provided that (A) they are confined to the property acquired, (B) the indebtedness secured thereby does not exceed the total cost of the purchase, construction, or improvement of the subject asset, (C) any such indebtedness, if repaid in whole or in part, cannot be reborrowed, D) the Bank has been given the right of first refusal to finance such transaction, and (E) the aggregate dollar amount of all such security interests at any time outstanding shall not exceed $ 100,000.00.

“Potential Default” shall mean any condition, action, or failure to act, which, with the passage of time, service of notice, or both, will constitute an Event of Default under this Security Agreement or under the Loan Agreement.

“Promissory Note” means, collectively, the note issued under the Loan Agreement, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions of or for any of such notes.

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“Related Expenses” means any and all reasonable out of pocket costs, liabilities, and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorney’s fees, legal expenses, judgments, suits, and disbursements) incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

(a) to obtain, preserve, perfect, or enforce the security interest evidenced by (i) the Security Agreement, or (ii) any other pledge agreement, mortgage deed, hypothecation agreement, guaranty, security agreement, assignment, or security instrument executed or given by Company to or in favor of Bank,

(b) to obtain payment, performance, and observance of any and all of the Obligations,

(c) to maintain, insure, collect, preserve, or upon any Event of Default, repossess and dispose of any of the Collateral, or

(d) incidental or related to (a) through (c) above, including, without limitation, interest thereupon from the date incurred, imposed, or asserted until paid at the rate payable upon the Promissory Note, but in no event greater than the highest rate permitted by law.

“Security Agreement” means this agreement between Company and Bank, and including any partial or total amendment, renewal, restatement, extension, or substitution of or for such agreement.

2. SECURITY INTEREST IN COLLATERAL

In consideration of and as security for the full and complete payment, performance, and observance of all Obligations, Company does hereby (a) grant to Bank a security interest in the Collateral, and (b) collaterally assign to Bank all of its right, title, and interest (including, without limitation, all rights to payment) arising under or with respect to all of Company’s Accounts Receivable, whether now owned or hereafter acquired or received by Company, but not including any duty, obligation, or liability of Company with respect thereto; provided, however, the Bank’s lien on any Collateral that is subject to a Permitted Purchase Money Lien shall not take effect until such Permitted Purchase Money Lien is no longer in effect if the documents relating to such Permitted Purchase Money Lien prohibit any other liens on such Collateral.

Company agrees to execute such financing statements and to take whatever other actions are reasonably requested by Bank to perfect and continue Bank’s security interest in the Collateral. Upon request of Bank, Company will deliver to Bank any and all of the documents evidencing or constituting the Collateral, and Company will note Bank’s interest upon any and all chattel paper if not delivered to Bank for possession by Bank. Company hereby appoints Bank as its irrevocable attorney-in-fact for the purpose of executing or filing any documents necessary to grant, perfect, or continue the security interest granted in this Agreement. Bank may at any time, and without further authorization from Company, file an original, carbon, photographic, or other reproduction of any financing statement or of this Agreement for use as a financing statement. Company will reimburse Bank for all reasonable expenses for the perfection and the continuation of the perfection of Bank’s security interest in the Collateral. Company promptly will notify Bank before any change in Company’s name including any change to the assumed business names of Company. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Company may not be indebted to Bank.

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3. WARRANTIES

Company represents and warrants to Bank (which representations and warranties shall survive the execution and the delivery of the Promissory Note, and the extension of credit) that:

(a) The execution, delivery, and performance hereof are within Company’s corporate powers, have been duly authorized, and are not in contravention of law or the terms of Company’s articles of incorporation, regulations, or of any indenture, agreement, or undertaking to which Company is party or by which it is or may be bound;

(b) Except for any security interest granted to or in favor of Bank, any Permitted Purchase Money Lien, or any lien permitted by the Loan Agreement, Company is, and as to Collateral to be acquired after the date hereof will be, the owner of the Collateral free from any claim, lien, encumbrance, or security interest of any type, and Company agrees that it will defend, at its sole expense, the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein;

(c) Subject to any limitation stated herein or in connection herewith, all information furnished to Bank concerning Company or the Collateral, is or will be at the time such information is furnished, complete, accurate, and correct in all material respects;

(d) Company is the lawful owner of and has full and unqualified right to transfer a security interest in all of the Collateral to Bank. Such Collateral is not and will not, so long as Company has any Obligations to Bank, be subject to any financing statement, encumbrance, claim, lien, or security interest of any type except any granted to or in favor of Bank, except for any Permitted Purchase Money Lien or any lien permitted by the Loan Agreement;

(e) Company’s Headquarters is 5765 Hudson Industrial Parkway, Hudson Ohio 44236;

(f) Company’s state of formation and registration number are: Ohio—Registration Number 1145301.

4. COVENANTS

Company undertakes, covenants, and agrees that, until the full and complete payment, performance, and observance of all Obligations, Company:

(a) shall promptly provide Bank with prior written notification of:

(1) any change in Company’s name, and

(2) any change in Company’s Headquarters;

(b) shall at all reasonable times upon reasonable notice (except that no notice is required upon the occurrence of and during the continuance of an Event of Default or Potential Default) allow Bank by or through any of its officers, agents, employees, attorneys, or accountants to:

(1) examine, inspect, and make extracts from Company’s books and other records,

(2) examine and inspect Company’s Inventory and Equipment wherever located, and

(3) arrange for verification of Company’s Accounts Receivable, under reasonable procedures in conjunction with the Company, except upon the occurrence of and during the continuance of an Event of Default or Potential Default the Bank may contact Account Debtors directly;

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(c) shall promptly furnish to Bank upon request:

(1) additional information and statements with respect to the Collateral,

(2) Company’s Instruments, Chattel Paper, Documents, and any other writings relating to or evidencing any of Company’s Accounts Receivable (including, without limitation, computer printouts or typewritten reports listing the current mailing address of all present Account Debtors), and

(3) any other writings and information Bank may reasonably request;

(d) shall upon the request of Bank promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, and instruments as Bank may require, including, without limitation, financing statements, so as to completely vest in and ensure to Bank its rights hereunder and in and to the Collateral;

(e) if any of Company’s Accounts Receivable arise out of contracts with or orders from the United States or any of its departments, agencies, or instrumentalities, shall, upon the request of the Bank, thereafter immediately notify Bank in writing of same and shall execute any writing or take any action required by Bank with reference to the Federal Assignment of Claims Act;

(f) hereby authorizes Bank or Bank’s designated agent (but without obligation by Bank to do so) to incur Related Expenses (whether prior to, upon, or subsequent to any Event of Default), and Company shall promptly repay, reimburse, and indemnify Bank for any and all Related Expenses; provided, however, that Bank shall give Company reasonable notice that it intends to incur any such Related Expenses (except that no notice is required upon the occurrence of and during the continuance of an Event of Default or Potential Default);

(g) shall not grant any consensual or permit to exist any non-consensual mortgage, encumbrance, security interest, or other lien upon any Collateral except any granted to or in favor of Bank or as otherwise expressly permitted by this Agreement, the Loan Agreement, or the Bank in writing;

(h) shall not sell, lease, transfer, assign, encumber or otherwise dispose of any Collateral in excess of $ 100,000.00 in any fiscal year, except in the ordinary course of business; if any such permitted sale involves a titled piece of equipment, absent the occurrence and during the continuance of any Event of Default, the Bank agrees to release its lien on such Equipment and return to the Company the title of any such titled Equipment.

(i) shall not permit uninsured loss, damage, theft or destruction of any Collateral in excess of $ 100,000.00 in any fiscal year, nor permit levy, seizure, or attachment to, of, or upon any of the Collateral or any attempt to accomplish the foregoing; and

(j) shall not use any Collateral in material violation of any applicable statute, ordinance, or regulation.

(k) to the extent that any of the Collateral consists of vehicles or other titled property, shall deliver original certificate(s) of title for such Collateral, properly endorsed to show the Bank’s lien, and shall take whatever action the Bank requests necessary to permit the Bank to perfect its security interest in any vehicle titled outside the state of Ohio.

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5. COLLECTIONS AND RECEIPT OF PROCEEDS

(a) Upon the occurrence and during the continuance of any Event of Default, after written notification thereof to Company, Bank, or Bank’s designated agent, shall have the right and power (as Company’s hereby constituted and appointed attorney-in-fact), which, being coupled with an interest, shall remain irrevocable until all Obligations are fully and completely paid, performed, and observed, at any time to:

(1) notify the Account Debtors on any or all of Company’s Accounts Receivable of the Bank’s security interest in and assignment of those Accounts Receivable upon which the respective Account Debtors are liable, and to request from such Account Debtors, in Bank’s name or in Company’s name, information concerning the Accounts Receivable and amounts owing thereon,

(2) notify purchasers of any or all of Company’s Inventory of Bank’s security interest therein, and to request from such Persons, at any time, in Bank’s name or in Company’s name, information concerning Company’s Inventory and the amounts owing thereon by such purchasers,

(3) notify and require the Account Debtors on any or all of Company’s Accounts Receivable to make payment upon such Accounts Receivable directly to Bank,

(4) notify and require purchasers of Company’s Inventory to make payment of their indebtedness directly to Bank,

(5) receive, retain, acquire, take, endorse, assign, deliver, accept, and deposit, in Bank’s name or Company’s name, any and all of Company’s cash, Instruments, Chattel Paper, Documents, Proceeds of Accounts Receivable, Proceeds of Inventory, collections of Accounts Receivable, and any other writings relating to any of the Collateral theretofore collected, received or retained by Company pursuant to Subsection 5(b) below or thereafter collected, received, or retained by Company,

(6) require Company to open and maintain an Accounts Receivable Collection Account,

(7) cause all remittances representing all collections and all Proceeds of Company’s Accounts Receivable and Inventory to be mailed to a lock box in Cleveland, Ohio, to which Bank shall have access for the processing of such items in accordance with the provisions, terms, and conditions of Bank’s customary lock box agreement. And

(8) take such other action with respect to any or all of the Collateral, in such manner and at such times, as Bank may deem advisable, including, without limitation, the following: collection, legal proceedings, compromises, settlements, adjustments, extensions, postponements, exchanges, releases, and sales.

Bank may, in its sole discretion, at any time and from time to time, apply all or any portion of the collected balance in the Accounts Receivable Collections Account (allowing two (2) days for collection and clearance of remittances) as a credit against Company’s outstanding obligations. If any remittance shall be dishonored, or if, upon final payment, any claim with respect thereto shall be made against Bank on its warranties of collection, Bank may charge the amount of such item against the Accounts Receivable Collections Account or any other Deposit Account maintained by Company with Bank, and, in any event, retain same and Company’s interest therein as additional

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security for the Obligations. Bank may, in its sole discretion, at any time and from time to time, release funds from the Accounts Receivable Collections Account to Company for use in Company’s business. Company may withdraw the balance in the Accounts Receivable Collections Account upon termination of the Security Agreement in accordance with Subsection 9(d).

(b) With respect to Company’s Instruments, Documents, and Chattel Paper, upon the occurrence and during the continuance of any Event of Default, after written request from Bank, Company shall immediately deliver or cause to be delivered to Bank all of Company’s Instruments, Chattel Paper, and Documents, appropriately endorsed either, at Bank’s option, (i) to Bank’s order, without limitation or qualification, or (ii) for deposit in the Accounts Receivable Collection Account. Bank, or Bank’s designated agent, is hereby constituted and appointed Company’s attorney-in-fact with authority and power to so endorse any and all Instruments, Documents, and Chattel Paper upon Company’s failure to do so. Such authority and power, being coupled with an interest, shall be (i) irrevocable until all Obligations are paid, performed, and observed in full, (ii) exercisable by Bank at any time and without any request upon Company by Bank to so endorse, and (iii) exercisable in Bank’s name or Company’s name. Company hereby waives presentment, demand, notice of dishonor, protest, notice of protest, and any and all other similar notices with respect thereto, regardless of the form of any endorsement thereof. Bank shall not be bound or obligated to take any action to preserve any rights in the foregoing against any prior parties thereto.

(c) Except as otherwise provided in Subsections 5(a) or 5(b), Company is authorized (1) to collect and enforce, by all lawful means, all of Company’s Accounts Receivable, and (2) to receive and retain, by all lawful means, any and all Proceeds of all of Company’s Accounts Receivable and Inventory. The lawful collection and enforcement of all of Company’s Accounts Receivable and the lawful receipt and retention by Company of all Proceeds of all of Company’s Accounts Receivable and Inventory shall be as Bank’s agent.

6. INSURANCE AND USE OF INVENTORY AND EQUIPMENT

(a) Until any Event of Default:

(1) Company may retain possession of and use its Equipment and Inventory in any lawful manner not inconsistent with any applicable terms, conditions, and provisions of:

(i) the Security Agreement, and

(ii) any insurance policy thereon.

(2) Company may sell or lease its Inventory in the ordinary course of business; provided, however, that a sale or lease in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt, except for transfers in satisfaction of partial or total purchase money prepayments by a buyer in the ordinary course of Company’s business.

(3) Company may use and consume any raw materials or supplies, the use and consumption of which are necessary in order to carry on Company’s business.

(b) Company shall obtain, and at all times maintain, insurance upon its Inventory and Equipment in such form, written by such companies, in such amounts, for such period, and against such risks as may be reasonably acceptable to Bank, with provisions reasonably satisfactory to Bank for payment of all losses thereunder to Bank and Company as their interests may appear (loss payable endorsement in favor of Bank), and, if required by Bank, Company will deliver copies of the policies with Bank. Any such policies of insurance shall provide for no less than thirty (30) days’ prior written

8

cancellation notice to Bank. Company shall promptly provide notice to the Bank of any loss or damage to the Collateral in excess of $ 25,000.00. Company shall use any sums payable under the insurance polices for loss or damage to the Collateral for the purpose of replacing, repairing, or restoring the Collateral. Notwithstanding the foregoing, in the event that there is any loss or damage to the Collateral, upon written notice from Company to Bank, the Company will have the right to apply the proceeds of insurance to the restoration or repair of the Collateral only as long as:

• at the time of such loss or damage and during the 60 day period described below there has neither occurred and is continuing any Event of Default or any Potential Default hereunder or under the Loan Agreement or the Promissory Note,

• such repair or replacement is expected to be completed and is completed no more than 60 days from the date of loss or damage to the property, and

• if the estimated cost of repair or replacement as determined by the Bank in its sole discretion will exceed $ 100,000.00, any insurance proceeds that are made available directly to the Company will be deposited in an escrow account with the Bank and made available to the Company in accordance with the Bank’s customary disbursement procedures.

Company hereby assigns to Bank any return or unearned premium which may be due upon cancellation of any such policies for any reason and directs the insurers to pay Bank any amount so due if the Bank advises the insurer that there has occurred and is continuing any Event of Default or Potential Default hereunder. Bank, or Bank’s designated agent, is hereby constituted and appointed Company’s attorney-in-fact, effective upon the occurrence and during the continuance of an Event of Default or Potential Default hereunder or under the Loan Agreement or the Promissory Note (either in the name of Company or in the name of the Bank) to make adjustments of all insurance losses, sign all applications, receipts, releases, and other papers necessary for the collection of any such loss, and any return of unearned premium, execute proof of loss, make settlements, and endorse and collect all Instruments payable to Company or issued in connection therewith. Notwithstanding any action by Bank hereunder, Company hereby expressly assumes any and all risk of loss or damage to Company’s Inventory and Equipment to the extent of any and all deficiencies in the effective insurance coverage.

7. EVENTS OF DEFAULT

Upon the occurrence and during the continuance of any one or more of the following Events of Default, any and all Obligations shall, at the option of Bank and notwithstanding any period of time permitted or allowed by any writing evidencing an Obligation, become immediately due and payable without notice, demand, protest, or presentment, all of which are hereby expressly waived by Company:

(a) Subject to any applicable grace period, the occurrence of an event of default under the terms of the Loan Agreement, or

(b) Subject to any applicable grace period, failure of Company to perform or observe any covenant or agreement contained in this Security Agreement or any representation or warranty made herein by Company is incorrect or misleading in any material respect when made.

8. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT

Upon the occurrence of any such Event of Default and at all times thereafter, Bank shall have the rights and remedies of a secured party under the Ohio Uniform Commercial Code in addition to the rights and remedies provided elsewhere within the Security Agreement or in any other writing executed by Company. Bank may require Company to assemble the Collateral and make it available to Bank at a reasonably convenient place to be designated by Bank. Unless the Collateral is perishable, threatens to decline speedily in value, or is of a type customarily sold on a recognized market, Bank will give Company reasonable notice of the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. The requirement of reasonable notice shall

9

be met if such notice is mailed in accordance with Section 9(b) hereof, at least ten (10) days before the time of the public sale or the time after which any private sale or other intended disposition thereof is to be made. At any such public or private sale, Bank may purchase the Collateral. After deduction for Bank’s Related Expenses, the residue of any such sale shall be applied in satisfaction of the Obligations in such order of preference as Bank may determine. Any excess, to the extent permitted by law, shall be paid to Company, and Company shall remain liable for any deficiency.

9. GENERAL

(a) If any provisions of this Security Agreement, or any action taken hereunder, or any application thereof, is for any reason held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Security Agreement, each of which shall be construed and enforced without reference to such illegal or invalid portion and shall be deemed to be effective or taken in the manner and to the full extent permitted by law.

(b) Bank shall not be deemed to have waived any of Bank’s rights hereunder or under any other writing executed by Company unless such waiver is in writing and signed by Bank. No delay or omission on part of Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All Bank’s rights and remedies, whether evidenced hereby or by any other writing shall be cumulative and may be exercised singularly or concurrently. Any written demands, written requests, or written notices to Company that Bank may elect to give shall be effective on first attempted delivery when deposited for delivery, postage prepaid, by U.S. mail, and addressed either, at Bank’s option, to (1) Company’s Headquarters set forth in Subsection 3(e) of the Security Agreement (as modified by any change therein which Company has supplied in writing to Bank) or (2) Company’s address at which Bank customarily communicates with Company. If at any time or times, by assignment or otherwise, Bank transfers any of the Obligations or any part of the Collateral to another person, such transfer shall carry with it Bank’s powers and rights under this Agreement with respect to the obligation or Collateral so transferred and the transferee shall have said powers and rights, whether or not they are specifically referred to in the transfer. To the extent that Bank retains any other of the Obligations or any part of the Collateral, Bank will continue to have the rights and powers herein set forth with respect thereto.

(c) The laws of the State of Ohio, without regard to principles of conflict of laws, shall govern the construction of the Security Agreement (including, without limitation, any terms not specifically defined in the Security Agreement that may be so specifically defined pursuant to Ohio Revised Code Chapter 1309, and including any amendments thereof or any substitution therefore) and the rights and duties of the parties hereto. Company agrees that Bank may make a photocopy of the Security Agreement in the ordinary course of business and such photocopy may be used in place of the original of the Security Agreement. A carbon, photographic or other reproduction of the Security Agreement may be used as a financing statement. The Security Agreement shall be binding upon and inure to the benefit of Company and Bank and their respective successors and assigns. The rights and powers herein given to the Bank are in addition to those otherwise created or existing in the same Collateral by virtue of other agreements or writings.

(d) The term of the Security Agreement shall commence with the date hereof and shall continue until terminated by either Company or Bank. Company may terminate the Security Agreement by giving Bank not less than ten (10) days prior written notice thereof and by paying, performing, and observing all of the Obligations in full on or before such termination date.

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(e) In the Security Agreement, unless the context otherwise requires, words in the singular number include the plural and words in the plural number include the singular.

(f) Company hereby releases Bank from and agrees to indemnify and hold harmless Bank, and its officers, agents, and employees for any and all claims of Company or any other Person for damage or loss caused by any act or acts hereunder or in furtherance hereof whether by omission or commission, and whether based upon any error of judgment or mistake of law or fact (except gross negligence or willful misconduct) on the part of Bank, or its officers, agents, and employees.

COMPANY, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN BANK AND COMPANY ARISING OUT OF, IN CONNECTION WITH, RELATING TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE SECURITY AGREEMENT, ANY AMENDMENT THERETO, OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK’S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED BY COMPANY TO BANK.

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

COMPANY:		BANK:
QUATECH, INC.		FIFTH THIRD BANK
By:	/s/ Steven D. Runkel	By:	/s/ Michael H. Babb
	Steve Runkel, Chief Executive Officer		Michael H. Babb, Vice President

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SECURITY AGREEMENT

As of January 30, 2008, Company and Bank (as herein defined), in consideration of the premises, and the covenants and agreements contained herein, hereby mutually agree as follows:

1. DEFINITIONS

“Account”, “Chattel Paper”, “Commercial Tort Claim”, “Consumer Goods”, “Deposit Account”, “Document”, “Farm Products”, “General Intangible”, “Goods”, “Health Care Receivable”, “Instrument”, “Investment Property”, “Letter of Credit Rights”, “Payment Intangible”, and “Proceeds”, have the meanings as set forth in California Uniform Commercial Code, including any amendments thereof and any substitutions therefore, which definitions are hereby incorporated by reference as though fully rewritten herein.

“Account Debtor” means the Person who is obligated on an Account Receivable.

“Account Receivable” means:

(a) any Account, account receivable, Health Care Receivable, Payment Intangible, and to the extent evidencing the right to payment of a monetary obligation, any Chattel Paper, Document, or Instrument owned, acquired, or received by a Person,

(b) any other indebtedness owed to or receivable owned, acquired, or received by a Person of whatever kind and however evidenced, and

(c) any right, title, and interest in a Person’s Goods that were sold, leased, or furnished by that Person and gave rise to either (a) or (b) above, or both of them. This includes, without limitation,

(1) any rights of stoppage in transit of a Person’s sold, leased, or furnished Goods,

(2) any rights to reclaim a Person’s sold, leased, or furnished Goods, and

(3) any rights a Person has in such sold, leased, or furnished Goods that have been returned to or repossessed by that Person.

“Accounts Receivable Collection Account” means a commercial Deposit Account which may be maintained by Company with Bank, without liability by Bank to pay interest thereon, from which account Bank shall have the exclusive right to withdraw funds until all Obligations are paid, performed, and observed in full.

“Bank” means FIFTH THIRD BANK, an Ohio banking corporation whose principal office is located at 121 South Main Street, Akron, Ohio 44308.

“Borrowers” means Quatech, Inc. and DPAC Technologies Corp.

“Cash Security” means all cash, Instruments, Deposit Accounts, and other cash equivalents, whether matured or unmatured, whether collected or in the process of collection, upon which Company presently has or may hereafter have any claim, that are presently or may hereafter be existing or maintained with, issued by, drawn upon, or in the possession of Bank.

“Collateral” means all of the Company’s personal property assets, including, without limitation:

(a) all of Company’s Accounts Receivable, whether now owned or hereafter acquired or received by Company,

(b) all of Company’s Inventory, whether now owned or hereafter acquired by Company,

(c) all of Company’s Equipment, whether now owned or hereafter acquired by Company, including but not limited to the vehicles listed on attached Exhibit A,

(d) all of Company’s Cash Security,

(e) all of Company’s General Intangibles and other personal property and rights, whether now owned or hereafter acquired by Company, including but not limited to Deposit Accounts, Instruments (including promissory notes), Chattel Paper, Documents, Investment Property, Letter of Credit Rights, Commercial Tort Claims, trademarks, tradenames, patents, copyrights, tax refunds, choses in action and contract rights, and

(f) all of the Proceeds, products, profits, and rents of Company’s Accounts Receivable, Inventory, Equipment, Cash Security, General Intangibles, and other Collateral, and all books and records, including computer software, used in connection with any of the Collateral.

“Company” means DPAC TECHNOLOGIES CORP., a corporation organized under the laws of the State of California.

“Company’s Headquarters” means the location of:

(a) Company’s place of business, if there is only one such place of business, or

(b) if there is more than one place of business, the place (1) from which Company manages the main part of its business operations, and (2) where Persons dealing with Company would normally look for credit information.

“Equipment” means:

(a) any equipment, including without limitation, machinery, office furniture and furnishings, tools, dies, jigs, and molds and any warranty and other claims against the vendor or supplier of such equipment,

(b) all Goods that are used or bought for use primarily in a Person’s business,

(c) all Goods that are not Consumer Goods, Farm Products, or Inventory, and

(d) all substitutes or replacements for, and all parts, accessories, additions, attachments, or accessions to the foregoing.

“Event of Default” means the occurrence of any of the events set forth in Section 7 of the Security Agreement.

“Inventory” means:

(a) any inventory,

(b) all Goods that are raw materials,

(c) all Goods that are work in process,

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(d) all Goods that are materials used or consumed in the ordinary course of a Person’s business,

(e) all Goods that are, in the ordinary course of a Person’s business, held for sale or lease or furnished or to be furnished under contracts of service, and

(f) all substitutes and replacements for, and parts, accessories, additions, attachments, or accessions to (a) to (e) above.

“Loan Agreement” means the Credit Agreement by and among the Borrowers and the Bank, dated of even date herewith, and including any partial or total amendment, renewal, restatement, extension, or substitution of any such agreement.

“Obligations” means any of the following obligations, whether direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, originally contracted with Bank or another Person, and now or hereafter owing to or acquired in any manner partially or totally by Bank or in which Bank may have acquired a participation, contracted by Company alone or jointly or severally with another Person:

(a) any and all indebtedness, obligations, liabilities, contracts, indentures, agreements, warranties, covenants, guaranties, representations, provisions, terms, and conditions of whatever kind, now existing or hereafter arising, and however evidenced, that are now or hereafter owed, incurred, or executed by Company to, in favor of, or with Bank (including, without limitation, those as are set forth or contained in, referred to, evidenced by, or executed with reference to, the Security Agreement, the Loan Agreement, the Promissory Note, any other loan agreements, interest rate hedge agreements, letter agreements, letter of credit agreements, advance agreements, indemnity agreements, guaranties, lines of credit, mortgage deeds, security agreements, assignments, pledge agreements, hypothecation agreements, Instruments, and acceptance financing agreements), and including any partial or total extension, restatement, renewal, amendment, and substitution thereof or therefore;

(b) any and all claims of whatever kind of Bank against Company, now existing or hereafter arising, including, without limitation, any arising out of or in any way connected with warranties made by Company to Bank in connection with any Instrument deposited with or purchased by Bank;

(c) any and all of Bank’s Related Expenses.

“Organization” and “Person” have the meanings as set forth in the California Commercial Code, including any amendments thereof and any substitutions therefore, which definitions are hereby incorporated by reference as though fully rewritten herein.

“Permitted Purchase Money Liens” means purchase money security interests incurred by the Company to an obligor other than the Bank, provided that (A) they are confined to the property acquired, (B) the indebtedness secured thereby does not exceed the total cost of the purchase, construction, or improvement of the subject asset, (C) any such indebtedness, if repaid in whole or in part, cannot be reborrowed, D) the Bank has been given the right of first refusal to finance such transaction, and (E) the aggregate dollar amount of all such security interests at any time outstanding shall not exceed $ 100,000.00.

“Potential Default” shall mean any condition, action, or failure to act, which, with the passage of time, service of notice, or both, will constitute an Event of Default under this Security Agreement or under the Loan Agreement.

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“Promissory Note” means, collectively, the note issued under the Loan Agreement, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions of or for any of such notes.

“Related Expenses” means any and all reasonable out of pocket costs, liabilities, and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorney’s fees, legal expenses, judgments, suits, and disbursements) incurred by, imposed upon, or asserted against, Bank in any attempt by Bank:

(a) to obtain, preserve, perfect, or enforce the security interest evidenced by (i) the Security Agreement, or (ii) any other pledge agreement, mortgage deed, hypothecation agreement, guaranty, security agreement, assignment, or security instrument executed or given by Company to or in favor of Bank,

(b) to obtain payment, performance, and observance of any and all of the Obligations,

(c) to maintain, insure, collect, preserve, or upon any Event of Default, repossess and dispose of any of the Collateral, or

(d) incidental or related to (a) through (c) above, including, without limitation, interest thereupon from the date incurred, imposed, or asserted until paid at the rate payable upon the Promissory Note, but in no event greater than the highest rate permitted by law.

“Security Agreement” means this agreement between Company and Bank, and including any partial or total amendment, renewal, restatement, extension, or substitution of or for such agreement.

2. SECURITY INTEREST IN COLLATERAL

In consideration of and as security for the full and complete payment, performance, and observance of all Obligations, Company does hereby (a) grant to Bank a security interest in the Collateral, and (b) collaterally assign to Bank all of its right, title, and interest (including, without limitation, all rights to payment) arising under or with respect to all of Company’s Accounts Receivable, whether now owned or hereafter acquired or received by Company, but not including any duty, obligation, or liability of Company with respect thereto; provided, however, the Bank’s lien on any Collateral that is subject to a Permitted Purchase Money Lien shall not take effect until such Permitted Purchase Money Lien is no longer in effect if the documents relating to such Permitted Purchase Money Lien prohibit any other liens on such Collateral.

Company agrees to execute such financing statements and to take whatever other actions are reasonably requested by Bank to perfect and continue Bank’s security interest in the Collateral. Upon request of Bank, Company will deliver to Bank any and all of the documents evidencing or constituting the Collateral, and Company will note Bank’s interest upon any and all chattel paper if not delivered to Bank for possession by Bank. Company hereby appoints Bank as its irrevocable attorney-in-fact for the purpose of executing or filing any documents necessary to grant, perfect, or continue the security interest granted in this Agreement. Bank may at any time, and without further authorization from Company, file an original, carbon, photographic, or other reproduction of any financing statement or of this Agreement for use as a financing statement. Company will reimburse Bank for all reasonable expenses for the perfection and the continuation of the perfection of Bank’s security interest in the Collateral. Company promptly will notify Bank before any change in Company’s name including any change to the assumed business names of Company. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Company may not be indebted to Bank.

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3. WARRANTIES

Company represents and warrants to Bank (which representations and warranties shall survive the execution and the delivery of the Promissory Note, and the extension of credit) that:

(a) The execution, delivery, and performance hereof are within Company’s corporate powers, have been duly authorized, and are not in contravention of law or the terms of Company’s articles of incorporation, regulations, or of any indenture, agreement, or undertaking to which Company is party or by which it is or may be bound;

(b) Except for any security interest granted to or in favor of Bank, any Permitted Purchase Money Lien, or any lien permitted by the Loan Agreement, Company is, and as to Collateral to be acquired after the date hereof will be, the owner of the Collateral free from any claim, lien, encumbrance, or security interest of any type, and Company agrees that it will defend, at its sole expense, the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein;

(c) Subject to any limitation stated herein or in connection herewith, all information furnished to Bank concerning Company or the Collateral, is or will be at the time such information is furnished, complete, accurate, and correct in all material respects;

(d) Company is the lawful owner of and has full and unqualified right to transfer a security interest in all of the Collateral to Bank. Such Collateral is not and will not, so long as Company has any Obligations to Bank, be subject to any financing statement, encumbrance, claim, lien, or security interest of any type except any granted to or in favor of Bank, except for any Permitted Purchase Money Lien or any lien permitted by the Loan Agreement;

(e) Company’s Headquarters is 5765 Hudson Industrial Parkway, Hudson Ohio 44236;

(f) Company’s state of formation and registration number are: California—Registration Number C1210364.

4. COVENANTS

Company undertakes, covenants, and agrees that, until the full and complete payment, performance, and observance of all Obligations, Company:

(a) shall promptly provide Bank with prior written notification of:

(1) any change in Company’s name, and

(2) any change in Company’s Headquarters;

(b) shall at all reasonable times upon reasonable notice (except that no notice is required upon the occurrence of and during the continuance of an Event of Default or Potential Default) allow Bank by or through any of its officers, agents, employees, attorneys, or accountants to:

(1) examine, inspect, and make extracts from Company’s books and other records,

(2) examine and inspect Company’s Inventory and Equipment wherever located, and

(3) arrange for verification of Company’s Accounts Receivable, under reasonable procedures in conjunction with the Company, except upon the occurrence of and during the continuance of an Event of Default or Potential Default the Bank may contact Account Debtors directly;

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(c) shall promptly furnish to Bank upon request:

(1) additional information and statements with respect to the Collateral,

(2) Company’s Instruments, Chattel Paper, Documents, and any other writings relating to or evidencing any of Company’s Accounts Receivable (including, without limitation, computer printouts or typewritten reports listing the current mailing address of all present Account Debtors), and

(3) any other writings and information Bank may reasonably request;

(d) shall upon the request of Bank promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, and instruments as Bank may require, including, without limitation, financing statements, so as to completely vest in and ensure to Bank its rights hereunder and in and to the Collateral;

(e) if any of Company’s Accounts Receivable arise out of contracts with or orders from the United States or any of its departments, agencies, or instrumentalities, shall, upon the request of the Bank, thereafter immediately notify Bank in writing of same and shall execute any writing or take any action required by Bank with reference to the Federal Assignment of Claims Act;

(f) hereby authorizes Bank or Bank’s designated agent (but without obligation by Bank to do so) to incur Related Expenses (whether prior to, upon, or subsequent to any Event of Default), and Company shall promptly repay, reimburse, and indemnify Bank for any and all Related Expenses; provided, however, that Bank shall give Company reasonable notice that it intends to incur any such Related Expenses (except that no notice is required upon the occurrence of and during the continuance of an Event of Default or Potential Default);

(g) shall not grant any consensual or permit to exist any non-consensual mortgage, encumbrance, security interest, or other lien upon any Collateral except any granted to or in favor of Bank or as otherwise expressly permitted by this Agreement, the Loan Agreement, or the Bank in writing;

(h) shall not sell, lease, transfer, assign, encumber or otherwise dispose of any Collateral in excess of $ 100,000.00 in any fiscal year, except in the ordinary course of business; if any such permitted sale involves a titled piece of equipment, absent the occurrence and during the continuance of any Event of Default, the Bank agrees to release its lien on such Equipment and return to the Company the title of any such titled Equipment.

(i) shall not permit uninsured loss, damage, theft or destruction of any Collateral in excess of $ 100,000.00 in any fiscal year, nor permit levy, seizure, or attachment to, of, or upon any of the Collateral or any attempt to accomplish the foregoing; and

(j) shall not use any Collateral in material violation of any applicable statute, ordinance, or regulation.

(k) to the extent that any of the Collateral consists of vehicles or other titled property, shall deliver original certificate(s) of title for such Collateral, properly endorsed to show the Bank’s lien, and shall take whatever action the Bank requests necessary to permit the Bank to perfect its security interest in any vehicle titled outside the state of California.

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5. COLLECTIONS AND RECEIPT OF PROCEEDS

(a) Upon the occurrence and during the continuance of any Event of Default, after written notification thereof to Company, Bank, or Bank’s designated agent, shall have the right and power (as Company’s hereby constituted and appointed attorney-in-fact), which, being coupled with an interest, shall remain irrevocable until all Obligations are fully and completely paid, performed, and observed, at any time to:

(1) notify the Account Debtors on any or all of Company’s Accounts Receivable of the Bank’s security interest in and assignment of those Accounts Receivable upon which the respective Account Debtors are liable, and to request from such Account Debtors, in Bank’s name or in Company’s name, information concerning the Accounts Receivable and amounts owing thereon,

(2) notify purchasers of any or all of Company’s Inventory of Bank’s security interest therein, and to request from such Persons, at any time, in Bank’s name or in Company’s name, information concerning Company’s Inventory and the amounts owing thereon by such purchasers,

(3) notify and require the Account Debtors on any or all of Company’s Accounts Receivable to make payment upon such Accounts Receivable directly to Bank,

(4) notify and require purchasers of Company’s Inventory to make payment of their indebtedness directly to Bank,

(5) receive, retain, acquire, take, endorse, assign, deliver, accept, and deposit, in Bank’s name or Company’s name, any and all of Company’s cash, Instruments, Chattel Paper, Documents, Proceeds of Accounts Receivable, Proceeds of Inventory, collections of Accounts Receivable, and any other writings relating to any of the Collateral theretofore collected, received or retained by Company pursuant to Subsection 5(b) below or thereafter collected, received, or retained by Company,

(6) require Company to open and maintain an Accounts Receivable Collection Account,

(7) cause all remittances representing all collections and all Proceeds of Company’s Accounts Receivable and Inventory to be mailed to a lock box in Cleveland, Ohio, to which Bank shall have access for the processing of such items in accordance with the provisions, terms, and conditions of Bank’s customary lock box agreement. and

(8) take such other action with respect to any or all of the Collateral, in such manner and at such times, as Bank may deem advisable, including, without limitation, the following: collection, legal proceedings, compromises, settlements, adjustments, extensions, postponements, exchanges, releases, and sales.

Bank may, in its sole discretion, at any time and from time to time, apply all or any portion of the collected balance in the Accounts Receivable Collections Account (allowing two (2) days for collection and clearance of remittances) as a credit against Company’s outstanding obligations. If any remittance shall be dishonored, or if, upon final payment, any claim with respect thereto shall be made against Bank on its warranties of collection, Bank may charge the amount of such item against the Accounts Receivable Collections Account or any other Deposit Account maintained by Company with Bank, and, in any event, retain same and Company’s interest therein as additional

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security for the Obligations. Bank may, in its sole discretion, at any time and from time to time, release funds from the Accounts Receivable Collections Account to Company for use in Company’s business. Company may withdraw the balance in the Accounts Receivable Collections Account upon termination of the Security Agreement in accordance with Subsection 9(d).

(b) With respect to Company’s Instruments, Documents, and Chattel Paper, upon the occurrence and during the continuance of any Event of Default, after written request from Bank, Company shall immediately deliver or cause to be delivered to Bank all of Company’s Instruments, Chattel Paper, and Documents, appropriately endorsed either, at Bank’s option, (i) to Bank’s order, without limitation or qualification, or (ii) for deposit in the Accounts Receivable Collection Account. Bank, or Bank’s designated agent, is hereby constituted and appointed Company’s attorney-in-fact with authority and power to so endorse any and all Instruments, Documents, and Chattel Paper upon Company’s failure to do so. Such authority and power, being coupled with an interest, shall be (i) irrevocable until all Obligations are paid, performed, and observed in full, (ii) exercisable by Bank at any time and without any request upon Company by Bank to so endorse, and (iii) exercisable in Bank’s name or Company’s name. Company hereby waives presentment, demand, notice of dishonor, protest, notice of protest, and any and all other similar notices with respect thereto, regardless of the form of any endorsement thereof. Bank shall not be bound or obligated to take any action to preserve any rights in the foregoing against any prior parties thereto.

(c) Except as otherwise provided in Subsections 5(a) or 5(b), Company is authorized (1) to collect and enforce, by all lawful means, all of Company’s Accounts Receivable, and (2) to receive and retain, by all lawful means, any and all Proceeds of all of Company’s Accounts Receivable and Inventory. The lawful collection and enforcement of all of Company’s Accounts Receivable and the lawful receipt and retention by Company of all Proceeds of all of Company’s Accounts Receivable and Inventory shall be as Bank’s agent.

6. INSURANCE AND USE OF INVENTORY AND EQUIPMENT

(a) Until any Event of Default:

(1) Company may retain possession of and use its Equipment and Inventory in any lawful manner not inconsistent with any applicable terms, conditions, and provisions of:

(i) the Security Agreement, and

(ii) any insurance policy thereon.

(2) Company may sell or lease its Inventory in the ordinary course of business; provided, however, that a sale or lease in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt, except for transfers in satisfaction of partial or total purchase money prepayments by a buyer in the ordinary course of Company’s business.

(3) Company may use and consume any raw materials or supplies, the use and consumption of which are necessary in order to carry on Company’s business.

(b) Company shall obtain, and at all times maintain, insurance upon its Inventory and Equipment in such form, written by such companies, in such amounts, for such period, and against such risks as may be reasonably acceptable to Bank, with provisions reasonably satisfactory to Bank for payment of all losses thereunder to Bank and Company as their interests may appear (loss payable endorsement in favor of Bank), and, if required by Bank, Company will deliver copies of the policies with Bank. Any such policies of insurance shall provide for no less than thirty (30) days’ prior written

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cancellation notice to Bank. Company shall promptly provide notice to the Bank of any loss or damage to the Collateral in excess of $ 25,000.00. Company shall use any sums payable under the insurance polices for loss or damage to the Collateral for the purpose of replacing, repairing, or restoring the Collateral. Notwithstanding the foregoing, in the event that there is any loss or damage to the Collateral, upon written notice from Company to Bank, the Company will have the right to apply the proceeds of insurance to the restoration or repair of the Collateral only as long as:

• at the time of such loss or damage and during the 60 day period described below there has neither occurred and is continuing any Event of Default or any Potential Default hereunder or under the Loan Agreement or the Promissory Note,

• such repair or replacement is expected to be completed and is completed no more than 60 days from the date of loss or damage to the property, and

• if the estimated cost of repair or replacement as determined by the Bank in its sole discretion will exceed $ 100,000.00, any insurance proceeds that are made available directly to the Company will be deposited in an escrow account with the Bank and made available to the Company in accordance with the Bank’s customary disbursement procedures.

Company hereby assigns to Bank any return or unearned premium which may be due upon cancellation of any such policies for any reason and directs the insurers to pay Bank any amount so due if the Bank advises the insurer that there has occurred and is continuing any Event of Default or Potential Default hereunder. Bank, or Bank’s designated agent, is hereby constituted and appointed Company’s attorney-in-fact, effective upon the occurrence and during the continuance of an Event of Default or Potential Default hereunder or under the Loan Agreement or the Promissory Note (either in the name of Company or in the name of the Bank) to make adjustments of all insurance losses, sign all applications, receipts, releases, and other papers necessary for the collection of any such loss, and any return of unearned premium, execute proof of loss, make settlements, and endorse and collect all Instruments payable to Company or issued in connection therewith. Notwithstanding any action by Bank hereunder, Company hereby expressly assumes any and all risk of loss or damage to Company’s Inventory and Equipment to the extent of any and all deficiencies in the effective insurance coverage.

7. EVENTS OF DEFAULT

Upon the occurrence and during the continuance of any one or more of the following Events of Default, any and all Obligations shall, at the option of Bank and notwithstanding any period of time permitted or allowed by any writing evidencing an Obligation, become immediately due and payable without notice, demand, protest, or presentment, all of which are hereby expressly waived by Company:

(a) Subject to any applicable grace period, the occurrence of an event of default under the terms of the Loan Agreement, or

(b) Subject to any applicable grace period, failure of Company to perform or observe any covenant or agreement contained in this Security Agreement or any representation or warranty made herein by Company is incorrect or misleading in any material respect when made.

8. RIGHTS AND REMEDIES UPON EVENT OF DEFAULT

Upon the occurrence of any such Event of Default and at all times thereafter, Bank shall have the rights and remedies of a secured party under the California Uniform Commercial Code in addition to the rights and remedies provided elsewhere within the Security Agreement or in any other writing executed by Company. Bank may require Company to assemble the Collateral and make it available to Bank at a reasonably convenient place to be designated by Bank. Unless the Collateral is perishable, threatens to decline speedily in value, or is of a type customarily sold on a recognized market, Bank will give Company reasonable notice of the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. The requirement of reasonable notice shall

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be met if such notice is mailed in accordance with Section 9(b) hereof, at least ten (10) days before the time of the public sale or the time after which any private sale or other intended disposition thereof is to be made. At any such public or private sale, Bank may purchase the Collateral. After deduction for Bank’s Related Expenses, the residue of any such sale shall be applied in satisfaction of the Obligations in such order of preference as Bank may determine. Any excess, to the extent permitted by law, shall be paid to Company, and Company shall remain liable for any deficiency.

9. GENERAL

(a) If any provisions of this Security Agreement, or any action taken hereunder, or any application thereof, is for any reason held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Security Agreement, each of which shall be construed and enforced without reference to such illegal or invalid portion and shall be deemed to be effective or taken in the manner and to the full extent permitted by law.

(b) Bank shall not be deemed to have waived any of Bank’s rights hereunder or under any other writing executed by Company unless such waiver is in writing and signed by Bank. No delay or omission on part of Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All Bank’s rights and remedies, whether evidenced hereby or by any other writing shall be cumulative and may be exercised singularly or concurrently. Any written demands, written requests, or written notices to Company that Bank may elect to give shall be effective on first attempted delivery when deposited for delivery, postage prepaid, by U.S. mail, and addressed either, at Bank’s option, to (1) Company’s Headquarters set forth in Subsection 3(e) of the Security Agreement (as modified by any change therein which Company has supplied in writing to Bank) or (2) Company’s address at which Bank customarily communicates with Company. If at any time or times, by assignment or otherwise, Bank transfers any of the Obligations or any part of the Collateral to another person, such transfer shall carry with it Bank’s powers and rights under this Agreement with respect to the obligation or Collateral so transferred and the transferee shall have said powers and rights, whether or not they are specifically referred to in the transfer. To the extent that Bank retains any other of the Obligations or any part of the Collateral, Bank will continue to have the rights and powers herein set forth with respect thereto.

(c) The laws of the State of California, without regard to principles of conflict of laws, shall govern the construction of the Security Agreement (including, without limitation, any terms not specifically defined in the Security Agreement that may be so specifically defined pursuant to the California Commercial Code, and including any amendments thereof or any substitution therefore) and the rights and duties of the parties hereto. Company agrees that Bank may make a photocopy of the Security Agreement in the ordinary course of business and such photocopy may be used in place of the original of the Security Agreement. A carbon, photographic or other reproduction of the Security Agreement may be used as a financing statement. The Security Agreement shall be binding upon and inure to the benefit of Company and Bank and their respective successors and assigns. The rights and powers herein given to the Bank are in addition to those otherwise created or existing in the same Collateral by virtue of other agreements or writings.

(d) The term of the Security Agreement shall commence with the date hereof and shall continue until terminated by either Company or Bank. Company may terminate the Security Agreement by giving Bank not less than ten (10) days prior written notice thereof and by paying, performing, and observing all of the Obligations in full on or before such termination date.

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(e) In the Security Agreement, unless the context otherwise requires, words in the singular number include the plural and words in the plural number include the singular.

(f) Company hereby releases Bank from and agrees to indemnify and hold harmless Bank, and its officers, agents, and employees for any and all claims of Company or any other Person for damage or loss caused by any act or acts hereunder or in furtherance hereof whether by omission or commission, and whether based upon any error of judgment or mistake of law or fact (except gross negligence or willful misconduct) on the part of Bank, or its officers, agents, and employees.

COMPANY, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN BANK AND COMPANY ARISING OUT OF, IN CONNECTION WITH, RELATING TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE SECURITY AGREEMENT, ANY AMENDMENT THERETO, OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK’S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED BY COMPANY TO BANK.

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

COMPANY:		BANK:
DPAC TECHNOLOGIES CORP.		FIFTH THIRD BANK
By:	/s/ Steven D. Runkel	By:	/s/ Michael H. Babb
	Steve Runkel, Chief Executive Officer		Michael H. Babb, Vice President

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EX-10.4

Exhibit 10.4

SUBORDINATION AGREEMENT

(CANAL MEZZANINE PARTNERS, L.P.)

Dated: January 30, 2008

To:	Fifth Third Bank
	Commercial Banking
	Mailcode: MD A67811
	Fifth Floor
	121 South Main St.
	Akron, Ohio 44308

To induce Fifth Third Bank (“Bank”) to establish a credit facility for making loans and extending credit from time to time for the benefit of DPAC Technologies Corp., a California corporation, and Quatech, Inc. an Ohio corporation (collectively, together with each of their successors and permitted assigns, herein collectively referred to as the “Borrowers” and each individually referred to a “Borrower”) as a pursuant to the terms of that certain Credit Agreement among Borrowers and Bank as of even date herewith (as hereafter amended, extended, modified, supplemented, restated, or replaced from time to time, the “Loan Agreement”), and to induce the undersigned to make loans to and for the benefit of Borrowers pursuant to the terms of the SubDebt Agreement (as defined below), the undersigned, intending to be legally bound, hereby agrees as follows:

1. The payment of any and all Subordinated Debt is expressly subordinated to the Senior Debt to the extent and in the manner set forth in this Subordination Agreement. The term “Subordinated Debt” means the principal of and interest on all indebtedness, liabilities, and obligations of Borrowers, or either of them, now existing or hereafter arising, to the undersigned, including but not limited to: (i) obligations, including without limitation, indemnification obligations, owing by Borrowers, or either of them, to the undersigned, or the undersigned’s successors, assignees, affiliates, or designees, pursuant to the terms and conditions of the agreements and documents referred to on Schedule A, attached hereto and made a part hereof (collectively, “SubDebt Agreements”) and (ii) the right of the undersigned to receive payments of principal, interest and other amounts that might or would be due under or, in connection with, the Warrants (as defined on Schedule A), and (iii) any other obligations owing by Borrowers, or either of them, now or hereafter to the undersigned. The term “Senior Debt” means any and all obligations of Borrowers to Bank under, in connection with, or in any way related to (including debtor-in-possession financing), the Loan Agreement (including, without limitation, any interest accruing thereon after maturity or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization, or like proceeding relating to any Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), up to a maximum aggregate principal amount outstanding at any time not to exceed $ 3,000,000.00, in addition to all other obligations to the Bank, including interest thereon and any reasonable fees or expenses relating thereto (“Senior Debt Limit”); provided that the Senior Debt shall exclude amounts that accrue due to modifications to the Loan Agreement made in contravention of Section 10. (a) hereof. All capitalized terms not defined herein shall have the meaning set forth in the Loan Agreement as of the date hereof.

2. (a) As long as no Event of Default or Potential Default has occurred under the Loan Agreement, and if no Event of Default or Potential Default has would result from the making of any such payments, the Borrowers may pay and, as long as no Payment Block (as defined below) is in effect, the undersigned may accept regularly scheduled payments of interest and payment of principal at maturity with respect to the Subordinated Debt and payments or reimbursements of actual, reasonable costs and expenses as provided under the SubDebt Agreements. Unless and until the Senior Debt is indefeasibly paid in full and Bank has no further obligation to make loans to the Borrowers, Borrowers

shall not pay, and the undersigned shall not accept, any other payments of any kind associated with the Subordinated Debt (including without limitation amounts arising from the sale or disposition, or other proceeds, of Borrowers’ property that may be subject to a lien or security interest of the undersigned). No payment or distribution of any kind shall be made, directly or indirectly, whether in cash, securities or other property, by setoff or otherwise, on account of any Subordinated Debt, or in respect of any redemption, repurchase, or other acquisition of any Subordinated Debt by Borrowers, or received by the undersigned, (a) at any time during which any of the Senior Debt shall have been declared due and payable prior to its stated final maturity or shall have become due and payable at stated final maturity, and in either case shall remain unpaid, (b) at any time during any Blockage Period, or (c) at any time during a Proceeding (as defined in the following paragraph) (each a “Payment Block”); provided that scheduled interest payments, and scheduled principal payments to the extent permitted hereunder, and payments or reimbursements of actual costs and expenses that were not paid due to the existence of a Payment Block, may be paid as and when the Payment Block ceases to continue as long as such payments are otherwise permitted hereunder. The Subordinated Debt shall not be prepayable, in whole or in part, without the prior written consent of Bank. . In addition, unless and until the Senior Debt is indefeasibly paid in full and Lender has no further obligations to make Loans under the Loan Agreement, the undersigned shall not at any time exercise any rights to redeem or cause a repurchase of, the Subordinated Debt (including without limitation the exercise of any warrant associated therewith that results in any cash payments), nor shall Companies permit any redemption or repurchase as set forth in the SubDebt Agreements except in accordance with an action or proceeding referenced in Section 8 hereof (but subject always to the subordination provisions set forth herein). Notwithstanding anything to the contrary contained herein, Permitted Actions shall not be prohibited by the Subordination Agreement, including after the occurrence of an Event of Default or Potential Default. For purposes hereof, “Permitted Actions” shall mean (i) payment on the Subordinated Debt in kind (i.e. non-cash), (ii) a conversion of the Subordinated Debt to equity, (iii) operation of anti-dilution rights under the SubDebt Agreement, and (iv) the performance of all earlier agreements and covenants in accordance with the terms of the SubDebt Agreements that do not result in payments of cash to the undersigned.

(b) For purposes hereof (i) “Blockage Period” means the period commencing on the date that (a) Bank shall have delivered written notice to the undersigned in accordance with Section 19. hereof that an Event of Default or Potential Default has occurred and is continuing, and ending on the earliest of (1) the day which is 180 days after the delivery of such notice, (2) the day on which such Event of Default or Potential Default shall have been cured or waived in writing, and (3) the commencement of a Proceeding; provided that no default notice from Bank may be based on an Event of Default which was in existence as of the time of the issuance of any earlier default notice and specified therein unless such Event of Default shall have been cured for not less than 90 days and is subsequently determined to be a new Event of Default (for purposes of this paragraph, breaches of the same financial covenant for consecutive periods shall constitute separate and distinct Events of Default) and provided further that Bank shall not be permitted to institute more than three (3) Blockage Periods in any twelve (12) consecutive month period or (b) the undersigned delivers a written notice to Bank that a default or event of default has occurred and is continuing under the SubDebt Agreements, and ending on the earliest of (1) the day which is 180 days after delivery of such notice by Bank or (2) the day on which such default or event of default shall have been cured or waived in writing; and (ii) “Proceeding” means (a) any voluntary or involuntary insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition, or other similar case or proceeding relating to a Borrower or any of its property, (b) any case or proceeding for any liquidation, dissolution, or other wind-up of a Borrower, whether voluntary or involuntary, and whether or not involving insolvency or bankruptcy proceedings, or (c) any assignment for the benefit of creditors or marshalling of assets of a Borrower or the appointment of a trustee, receiver, sequestrator, or other custodian for a Borrower or any of its property.

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3. Any payments on the Subordinated Debt received by the undersigned (including, without limitation, prepayments on the Subordinated Debt and receipt of proceeds from Borrowers’ property upon which the undersigned has a lien or security interest), other than as expressly permitted in Section 2. above, shall be held in trust for Bank and the undersigned will forthwith turn over any such payments in the form received, properly endorsed, to Bank to be applied to the Senior Debt as determined by Bank in its sole discretion.

4. Borrowers shall not grant to the undersigned and the undersigned shall not take any lien on or security interest in any of the Collateral, now owned or hereafter acquired or created, without Bank’s prior written consent; it being acknowledged and agreed by the Bank that the undersigned has been granted a lien on and security interest in certain of the Collateral and other property of Borrowers on the date thereof; provided however, that the interests of Bank in any Collateral securing the Senior Debt shall have priority over any security or other interest of the undersigned in the Collateral and any other assets of Borrowers that secures the Subordinated Debt. The undersigned agrees to execute and deliver to Bank, contemporaneously with the execution of this Agreement, an Agreement To Subordinate Priority Of Security Interests; except as specifically provided for herein and therein , the priority of the security interests of the parties hereto in the Collateral shall be in accordance with the Uniform Commercial Code as enacted and amended from time to time. For purposes of this Agreement, the term “Collateral” shall mean all “Collateral” as such term is defined in each separate Security Agreement by and between Bank and each of the Borrowers of even date herewith.

5. This Subordination Agreement shall be effective notwithstanding the time, order or method of attachment or perfection with respect to the Collateral, the time or order of recording or the filing or non-filing of financing statements or other recordings or filings. Under no circumstances shall the undersigned have a right to foreclose upon the Collateral or otherwise attempt to enforce any rights it may have with respect to the Collateral whether by judicial action or otherwise, until all of the Senior Debt has been indefeasibly paid and satisfied in full, and Bank has no further obligations to make loans to the Borrowers.

6. The undersigned shall have no right, as against the Bank, to receive or retain all or any portion of the Collateral, including the proceeds thereof, at any time unless and until the Senior Debt is indefeasibly paid and satisfied in full and Bank has no further obligation to make loans to the Borrowers. To the extent the undersigned obtains possession of any Collateral and/or the proceeds thereof, the undersigned shall hold the same in trust for Bank and shall immediately deliver the same to Bank, in the same form as received with any necessary endorsement.

7. The undersigned agrees that it will not make any assertion or claim in any action, suit or proceeding of any nature whatsoever in any way seeking to avoid or otherwise challenging (a) the priority of the liens and security interests granted to Bank to secure the Senior Debt or the validity or effectiveness of the liens and security interests granted to Bank under and in connection with, (b) the validity or effectiveness to the transactions contemplated by, or (c) any remedial action taken in respect of the Collateral by Bank in good faith under, the Loan Agreement or any other Loan Documents all as may be amended, extended, modified, or replaced from time to time.

8. Notwithstanding any breach or default by Borrower under the SubDebt Agreements and expressly subject to the terms and agreements set forth elsewhere in this Subordination Agreement, unless and until the Senior Debt shall be indefeasibly paid and satisfied in full, the undersigned shall not at any time or in any manner unless 180 days have passed since the receipt by Bank of written notice from the undersigned of its intention to do so following the occurrence of a default under the SubDebt Agreements, commence any action or proceeding against Borrowers to recover all or any part of the Subordinated Debt not paid when due, or join with any creditor other than the Bank, in bringing any Proceeding against any

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of the Borrowers. Notwithstanding anything to the contrary contained in this Section 8., the undersigned shall be entitled to accelerate the amount of the Subordinated Debt upon the acceleration of the Senior Debt or the filing of a Proceeding by any Borrower. Nothing in this Section 8. is intended to limit the rights of the undersigned to seek specific performance of any of the covenants or other obligations of Borrowers (other than payment obligations which shall be limited by this Section 8.) set forth in the SubDebt Agreements as long as the performance by Borrowers of such covenant or obligations would not give rise to an Event of Default under the Loan Agreement or other Loan Documents.

9. In the event of any Proceeding, the undersigned will at Bank’s request file any claims, proofs of claim, or other instruments of similar character necessary to enforce the obligations of Borrowers in respect of the Subordinated Debt and will hold in trust for Bank and pay over to Bank in the same form received, to be applied on the Senior Debt as determined by Bank, any and all money, dividends or other assets received in any such Proceeding on account of the Subordinated Debt, unless and until the Senior Debt shall be indefeasibly paid and satisfied in full. In the event the undersigned fails to execute, verify, deliver, and file any proofs of claim in respect of the Subordinated Debt in connection with any such Proceeding prior to twenty (20) days before the expiration of the time to file any such proof or fails to vote any such claim in any such Proceeding prior to five (5) days before the expiration of the time to vote any such claim, Bank may, as attorney-in-fact for the undersigned, take such action on behalf of the undersigned and the undersigned hereby appoints Bank as attorney-in-fact for the undersigned to demand, sue for, collect, and receive any and all such money, dividends, or other assets and give acquittance therefore and to file any claim, proof of claim or other instrument of similar character and to take such other similar actions in such Proceeding in Bank’s name or in the name of the undersigned, as Bank may deem reasonably necessary or advisable for the enforcement of this Subordination Agreement. The undersigned will execute and deliver to Bank such other and further powers of attorney or other instruments as Bank may reasonably request in order to accomplish the foregoing.

10. Bank may at any time and from time to time, without the consent of or notice to the undersigned, without incurring responsibility to the undersigned and without impairing or releasing any of Bank’s rights, or any of the obligations of the undersigned:

(a) Change the amount, manner, place or terms of payment, or change or extend the time of payment of or renew or alter the Senior Debt, or any part thereof, or amend, supplement, or replace the Loan Agreement and/or any notes or other Loan Documents (as defined in the Loan Agreement) executed in connection therewith in any manner or enter into or amend, supplement, or replace in any manner any other agreement relating to the Senior Debt including without limitation, such changes or modifications that may be made in conjunction with a complete or partial refinance thereof or otherwise; provided however that the Borrowers and Bank agree that they will not amend, modify, or alter the Loan Agreement, the Senior Debt, or any other agreement relating to the Senior Debt without the consent of the undersigned, if the effect would (directly or indirectly) be (i) to permit the principal amount of Senior Debt to exceed the Senior Debt Limit, (ii) to cause any applicable interest rate margin as in effect on the date hereof to be increased by more than two percent (2%) per annum, or to impose an interest rate margin where none presently exists of more than two percent (2%) per annum (without taking into account and specifically excluding any increases in margins or rates that may be imposed as the Default Rate, (as defined in the Loan Agreement in effect as of the date hereof) following an Event of Default), (iii) to charge fees in conjunction with any waiver or amendment of the Loan Documents in an amount in excess of $ 25,000.00 (exclusive of fees currently described in the Loan Documents and fees, costs and expenses associated with such waiver or amendment) in any calendar year, (iv) to extend the maturity date of the Senior Debt beyond January 31, 2013, (v) any additional restriction on the payment of the Subordinated Debt to that contained in the Loan Agreement or this Subordination Agreement, as in effect on the date hereof, or (vi) to change or alter the nature or any part of the Senior Debt facility or any of the Loan Documents from a revolving credit facility or line of credit to a term loan.

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(b) Subject to Section 14. below, sell, exchange, release, or otherwise deal with all or any part of any property at any time pledged or mortgaged by any party to secure or securing the Senior Debt or any part thereof;

(c) Release any Person liable in any manner for the payment or collection of the Senior Debt (including, without limitation, a Borrower);

(d) Exercise or refrain from exercising any rights against any Borrower or others (including the undersigned); and

(e) Apply sums paid by any party to the Senior Debt in any order or manner as determined by Bank.

11. The undersigned and the Borrowers shall not amend or modify the SubDebt Agreements such that it would (directly or indirectly) (i) increase the maximum principal amount of the Subordinated Debt, (ii) increase the rate of interest on any of the Subordinated Debt (other than by payment of interest in kind (i.e., non-cash)) (without taking into account increases as currently set forth in the SubDebt Agreements, resulting from a default or event of default thereunder), (iii) subject to the subordination provisions contained herein, include fees payable in conjunction with any amendment or waiver of any of the SubDebt Agreement (exclusive of fees currently described in the SubDebt Agreements and fees, costs and expenses associated with such waiver or amendment) in excess of $ 25,000.00 in the aggregate in any calendar year, (iv) change to an earlier date any date upon which regularly scheduled payments of interest on the Subordinated Debt under and pursuant to the terms of the SubDebt Agreements are due or change the maturity of the Subordinated Debt or (v) add or make more restrictive any event of default or any covenant with respect to the Subordinated Debt, without the prior written consent of the Bank; provided however, that at any time Bank amends any term of the Loan Documents, the undersigned shall be permitted to make conforming amendments and modifications to the SubDebt Agreements; provided further however, that, amendments to the financial covenants in the SubDebt Agreements shall, if modified, at all times, contain financial covenant thresholds that are at least 15% less restrictive than the financial covenants contained in the Loan Agreement, provided further that the undersigned shall not be obligated to modify or amend the financial covenants in the SubDebt Agreement.

12. The undersigned shall advise each future holder of all or any part of the Subordinated Debt that the Subordinated Debt is subordinated to the Senior Debt in the manner and to the extent provided herein. The undersigned represents that no part of the Subordinated Debt or any instrument evidencing the same has been transferred or assigned and the undersigned shall not transfer or assign any part of the Subordinated Debt while any Senior Debt remains outstanding, unless such transfer or assignment is made expressly subject to this Subordination Agreement by the execution by the new holder of the Subordinated Debt of (i) a joinder that will make the new holder a party to this Agreement or (ii) a separate agreement substantially identical to this Agreement. Upon Bank’s request, the undersigned will in the case of any Subordinated Debt that is not evidenced by any instrument cause the same to be evidenced by an appropriate instrument or instruments, and place thereon and on any and all instruments evidencing the Subordinated Debt a legend in such form as Bank may determine to the effect that the indebtedness evidenced thereby is subordinated and subject to the prior payment in full of all Senior Debt pursuant to this Subordination Agreement, as well as deliver all such instruments to Bank.

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13. This is a continuing agreement and will remain in full force and effect until all of the Senior Debt has been indefeasibly paid and satisfied in full and Bank has no further obligation to make Loans under the Loan Agreement. This Subordination Agreement will continue to be effective or will be automatically reinstated, as the case may be, if at any time payment of all or any part of the Senior Debt is rescinded or must otherwise be returned by the Borrowers, or either of them, upon a Proceeding of any of the Borrowers or otherwise, all as though such payment had not been made.

14. (a) If at any time or from time to time the Collateral, or any portion thereof, is in any manner sold or otherwise transferred, the undersigned’s consent to such disposition shall be automatically and irrevocably given if the Bank (i) in its sole discretion and for any reason, consents to such disposition and, except where a disposition or sale by any Borrower is permitted by the terms of the Loan Agreement and/or the Loan Documents (as in effect on the date hereof) or where any Borrower is otherwise permitted by the terms of the Loan Agreement and/or the Loan Documents (as in effect on the date hereof) to retain proceeds of a disposition, sale, or casualty, and (ii) notifies the undersigned that Bank intends to apply the proceeds received by Bank in conjunction with the sale or transfer referenced above to the Senior Debt and that the Senior Debt Limit will be reduced by the amount of such proceeds so applied (exclusive of proceeds from the sale or disposition of Accounts effectuated when an Event of Default has not occurred or is no longer continuing). In any event, the undersigned shall not be entitled to receive any proceeds of any such disposition unless and until the Senior Debt has been indefeasibly paid in full and Bank has no further obligation to make Loans under the Loan Agreement.

(b) If, at any time and for any reason, the undersigned consents, or is deemed to have consented to a sale, transfer, or disposition in accordance with subsection (a) above and Bank releases its lien on the Collateral, or any portion thereof, the undersigned shall likewise release its lien on the property so released from the Bank’s lien. Bank may, as attorney-in-fact for the undersigned, take such action on behalf of the undersigned (in Bank’s name or in the name of the undersigned, as Bank may deem necessary or advisable) and the undersigned hereby appoints Bank as attorney-in-fact for the undersigned to effectuate such release, and the undersigned hereby authorizes Bank to file any Uniform Commercial Code amendments to the undersigned’s financing statements filed against the Borrowers, or either of them, in connection with such release. The undersigned shall execute and deliver to Bank such other and further powers of attorney or other instruments as Bank reasonably may request in order to accomplish the foregoing.

15. Nothing in this Subordination Agreement is intended to compel the Bank or the undersigned at any time to declare any of the Borrowers in default or compel the Bank to proceed against or refrain from proceeding against any Collateral in any order or manner. All rights and remedies of the Bank, with respect to the Collateral, any of the Borrowers, and any other obligors concerning the Senior Debt are cumulative and not alternative. In furtherance of the foregoing, the undersigned waives any and all rights to assert the equitable doctrine of marshalling against Bank.

16. In the event of the commencement of a Proceeding, the Bank shall have the option (in its sole and absolute discretion) to continue to provide financing (on terms acceptable to the Bank) of the trustee, other fiduciary, or of any of the Borrowers as a debtor-in-possession, if the Bank deems such financing to be in its best interests. Subject to the Senior Debt Limit, the subordination and lien priority provisions of this Subordination Agreement shall continue to apply to all advances made during the pendency of such Proceedings, so that the Bank shall have a prior lien on all Collateral, created before or during such Proceeding, to secure all Senior Debt, whether created before or during such Proceeding. The undersigned’s consent to such financing shall not be required regardless of whether the court supervising such Proceeding approves, grants, or allows adequate protection to the undersigned. Nothing in this Section 16. is intended to limit the undersigned’s right, if any, to object to such financing in conjunction with a Proceeding.

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17. Upon indefeasible payment and satisfaction in full of all Senior Debt and termination of Bank’s obligation to make Loans under the Loan Agreement, the undersigned shall be subrogated to the rights of Bank, in accordance with applicable equitable principles, to receive distributions with respect to the Senior Debt until Subordinated Debt is paid in full.

18. Each of the Borrowers consents to Bank and the undersigned sharing with each other any information either may have from time to time with respect to any of the Borrowers. Bank and the undersigned are not obligated to share such information, however.

19. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing and will be effective upon receipt. Such notices and other communications may be hand delivered, sent by facsimile transmission with confirmation of delivery with a copy sent by first class mail, or sent by nationally recognized overnight courier service, to a party’s address set forth below or to such other address as any party may give to the other in writing for such purpose:

To the Bank:	Fifth Third Bank
	Commercial Banking
	Mailcode: MD A67811
	Fifth Floor
	121 South Main St.
	Akron, Ohio 44308
	Attention: Michael Babb
	Telephone No.: (330) 252-2065
	Facsimile No.: (330) 252-2080

or at such other address or addressee as may have been furnished to the undersigned by the Bank in writing;

To the Undersigned:	Canal Mezzanine Partners, L.P.
	1737 Georgetown Road, Suite A
	Hudson, Ohio 44236
	Attention: Shawn Wynne
	Telephone No.: (330) 650-6684
	Facsimile No.: (330) 528-0142

or at such other address or addressee as may have been furnished to the Bank by the undersigned in writing;

To the Borrowers:	c/o DPAC Technologies Corp
	5675 Hudson Parkway
	Hudson, Ohio 33236
	Attention: Steve Runkel
	Telephone No.: (330) 655-9002
	Facsimile No.: (330) 655-9020

or at such other address or addressee as may have been furnished by the Company to the Bank and the undersigned in writing.

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20. Except for the Agreement To Subordinate Priority Of Security Interests, that the parties hereto shall execute contemporaneously with this Agreement, this Subordination Agreement contains the entire agreement between the parties regarding the subject matter hereof and may be amended, supplemented or modified only by written instrument executed by Bank and the undersigned.

21. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

22. This Subordination Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Subordination Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart. Any party so executing this Subordination Agreement by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

23. The undersigned and Bank represent and warrant that neither the execution or delivery of this Subordination Agreement nor fulfillment of nor compliance with the terms and provisions hereof will conflict with, or result in a breach of the terms, conditions, or provisions of or constitute a default under any agreement or instrument to which such Person or any of such Person’s assets is now subject.

24. Any notice of acceptance of this Subordination Agreement is hereby waived.

25. This Subordination Agreement shall be binding upon the parties hereto, and each of the parties’ successors, representatives and assigns and neither Borrowers nor any other persons or entities whatsoever, including without limitation any other third party donee, investor, incidental beneficiary, or any creditor of a Borrower, shall have any right, benefit, priority, or interest under or because of the existence of this Subordination Agreement. This Subordination Agreement may also be assigned by Bank, in whole or in part in connection with any assignment or transfer of any portion of the Senior Debt, and, if requested by Bank, the undersigned shall execute and deliver in favor of the holders of the Senior Debt one or more subordination agreements containing terms and provisions that are substantially identical to the terms and provisions of this Subordination Agreement. The undersigned may assign or transfer this Subordination Agreement subject to Section 12. hereof.

26. Except as provided in Section 2. above, Borrowers agree that they will not make any payment on any of the Subordinated Debt, or take any other action in contravention of the provisions of this Subordination Agreement.

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27. This Subordination Agreement shall in all respects be interpreted, construed and governed by the substantive laws of the State of Ohio. The undersigned submits to the jurisdiction of the Courts of the State of Ohio or the United States District Court for the Northern District of Ohio for the purposes of resolving any controversy relating thereto. EACH PARTY HERETO WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES, OR EITHER OF THEM, A RISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND, OR MODIFY BANK’S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN A NOTE OR OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT BETWEEN THE PARTIES.

28. The term “Borrower” and “Borrowers” shall, as the context may require, each be deemed to refer to, and construed as, Borrowers and/or either of them.

29. Nothing contained in this Agreement is intended to or shall impair, as between Borrowers and the undersigned, the obligations of Borrowers which are absolute and unconditional, to pay to the undersigned the principal of, premium, if any, and interest on the Subordinated Debt as and when the same shall become due and payable in accordance with the terms of the Subordinated Debt. In any event, this Agreement shall not be used by any trustee in bankruptcy or a bankruptcy court or any other court, agency, or panel charged with the responsibility of establishing the priorities of the secured creditors of the Borrowers for the purpose of expanding upon or diminishing the rights of the parties hereto.

[SIGNATURE PAGE FOLLOW]

9

IN WITNESS WHEREOF, the undersigned has executed this agreement as of the date first written above.

CANAL MEZZANINE PARTNERS, L.P.,
a Delaware limited partnership
	By:	Canal Mezzanine Management, LLC,
	an Ohio limited liability company
	Its General Partner
		By:	Canal Holdings, LLC,
		an Ohio limited liability company
		Its Managing Member
			By:	/s/ Shawn M. Wynne
			Name:	Shawn M. Wynne
				Authorized Signer

Intending to be legally bound, Borrowers consent

and agree to the terms of the Subordination

Agreement as of the date first above written:

DPAC TECHNOLOGIES CORP
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer
QUATECH, INC.
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer
Agreed to and Acknowledged by:
FIFTH THIRD BANK
By:	/s/ Michael H. Babb
	Michael Babb, Vice President

SCHEDULE A

SUBDEBT AGREEMENTS

EX-10.5

Exhibit 10.5

ACKNOWLEDGEMENT AGREEMENT

This ACKNOWLEDGEMENT AGREEMENT (herein called the “Agreement”) is entered into as of January 30, 2008, by and between FIFTH THIRD BANK, 121 South Main Street, Akron, Ohio 44308 (herein called “Bank”) and DEVELOPMENT CAPITAL VENTURE, L. P., Virginia Gateway Professional Building, 7500 Iron Bar Lane, Suite 209 ,Gainesville, VA with mailing address of PO Box 399, Catharpin, VA 20143-0399 (herein called “DCV”).

WITNESSETH

WHEREAS, DCV has or will shortly enter into an agreement whereby it will acquire $ 2,000,000.00 in preferred stock (herein called the “Preferred Stock”) of DPAC TECHNOLOGIES (herein called “ Borrower”) (such agreement, the Preferred Stock, and all documents related thereto herein called the “Stock Agreements”, copies of which are attached hereto and made a part hereof), and

WHEREAS, Bank has requested that DCV agree to certain restrictions on its redemption rights under the Stock Agreements as a condition to extending credit to Borrowers, and

WHEREAS, DCV has agreed to restrict such rights.

NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, Bank and DCV do hereby agree as follows:

1. DCV hereby agrees and consents that to the extent that DCV has the right to redeem or be subject to redemption of the Preferred Stock under the Stock Agreements, or otherwise, it will neither exercise such rights nor accept such redemption without the prior written consent of the Bank.

2. Except as specifically provided for herein, DVC’ s rights under the Preferred Stock shall be in accordance with the Stock Agreements, as they may be amended from time to time.

3. In the event the DCV exercises its rights to and/or obtains payment from the Borrower relating to the redemption of the Preferred Stock, the Bank shall be entitled to, and DCV shall immediately pay over to the Bank, the proceeds of the redemption for application upon the obligations of the Borrower to the Bank. To the extent that such proceeds exceed such obligations, the Bank will promptly return such proceeds to DCV.

4. This Agreement is not an executory contract and is created strictly for the benefit of the signatories hereto and to any of Bank’s successors or permitted assigns and DCV’s successors and permitted assigns, but in any event it shall not be used by any Trustee in Bankruptcy or a Bankruptcy Court or any other court, agency, or panel charged with the responsibility of establishing the priorities of the creditors and shareholders of the Borrower for the purpose of expanding upon or diminishing the rights of the parties hereto.

[This space is left blank intentionally.]

5. This Agreement may not be assigned by either party without the express, written, prior consent of the other party; provided, however, that notwithstanding the above, the Bank may assign this Agreement and/or the related credit to any of its affiliates. No waiver of any provision of this Agreement or of any rights hereunder shall be deemed to be made by the Bank unless such waiver is in writing signed on behalf of the Bank, and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the Bank or the obligations of the undersigned to the Bank in any other respect at any other time. Notice of acceptance of this subordination is hereby waived, and this agreement shall be immediately binding upon DCV, and the successor, and permitted assigns of DCV. This agreement shall be governed by and construed in accordance with the law of the State of Ohio.

Executed on the date set forth above.

DEVELOPMENT CAPITAL VENTURE, L. P.
By:	DCC Operating, Inc., General Partner
By:	/s/ Donald L. Murfin
	Donald L. Murfin, Executive Vice President
Intending to be legally bound, Borrowers consent and agree to the terms of the above Agreement as of the date first above written:
DPAC TECHNOLOGIES CORP
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer
QUATECH, INC.
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer
Agreed to and Acknowledged by:
FIFTH THIRD BANK
By:	/s/ Michael H. Babb
	Michael Babb, Vice President

2

EX-10.6

Exhibit 10.6

Quatech, Inc.

and

DPAC Technologies Corp.

Senior Subordinated Note And Warrant

Purchase Agreement

Dated as of January 31, 2008

TABLE OF CONTENTS

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

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

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

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

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Senior Subordinated Note

and Warrant Purchase Agreement

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

RECITALS

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

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

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

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

A. Purchase and Sale

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

B. Security for Payment of the Note

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

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

STATEMENT OF AGREEMENT

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

Section 1. DEFINED TERMS

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

Section 2. PURCHASE AND SALE OF THE SECURITIES

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

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

Section 3. CONDITIONS TO CLOSING

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

3.1 Preferred Stock Transaction

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

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3.2 Execution and Delivery of Related Documents

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

(a) this Purchase Agreement;

(b) the Note;

(c) the Warrant Certificate;

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

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

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

3.3 Certificates, Opinions, and Other Documents

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

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

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

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

(d) an opinion of counsel for the Companies;

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

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

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

3.4 Disbursements and Deliveries

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

3.5 Other

Each of the following shall be true:

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

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

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

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

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

3.6 Post-Closing Items

The following actions shall be taken after the Closing Date:

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

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

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Section 4. REPRESENTATIONS AND WARRANTIES OF EACH COMPANY

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

4.1 Organization and Good Standing

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

4.2 Corporate Power

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

4.3 Subsidiaries and Joint Ventures

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

4.4 Capitalization

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

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

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

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

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

4.5 Authorization; Enforceability

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

4.6 No Conflict

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

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4.7 Consents

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

4.8 Title to and Condition of Properties and Assets

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

4.9 Books and Records

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

4.10 Financial Statements

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

4.11 Undisclosed Liabilities

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

4.12 Material Adverse Change; Material Events

Since the date of the most recent Financial Statements:

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

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(b) there has not been:

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

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

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

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

(iv) any Capital Expenditures paid or incurred;

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

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

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

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

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

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

4.13 Accounts; Inventory

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

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

4.14 Taxes

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

4.15 Intellectual Property

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

4.16 Material Contracts

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

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Legal Proceedings

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

4.17 Insurance

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

4.18 Compliance with Laws

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

4.19 Licenses and Permits

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

4.20 Environmental Warranties

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

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

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

4.21 Labor Relations

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

4.22 Employee Benefit Plans

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

4.23 Customers and Suppliers

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

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4.24 Brokerage Fee

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

4.25 Full Disclosure

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

4.26 Use of Proceeds

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

4.27 Lien Priority

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

Section 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER

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

5.1 Organization

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

5.2 Authorization; Enforceability

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

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

5.3 No Conflicts

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

5.4 Consents

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

5.5 Experience

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

5.6 Investment Intent

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

5.7 Rule 144

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

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5.8 Knowledge of Purchaser

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

Section 6. FINANCIAL REPORTING

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

6.1 Financial and Corporate Reports

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

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

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

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

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

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

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

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

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

6.2 Other Information

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

6.3 Rule 144A

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

6.4 Preparation of Financial Statements in Accordance with GAAP

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

6.5 Changes in Practices, Policies and Procedures

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

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

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

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

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

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

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

6.6 Notice of Certain Events

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

(a) a Default or Event of Default;

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

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

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

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

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

(g) a Qualified Public Offering.

6.7 Books, Records, Audits and Inspections

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

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

Section 7. AFFIRMATIVE COVENANTS

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

7.1 Insurance

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

7.2 Payment of Taxes and Claims

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

7.3 Compliance with Laws

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

7.4 Preservation of Existence and Licenses

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

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7.5 Maintenance of Assets

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

7.6 Performance of Contracts

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

7.7 Employee Benefit Plans

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

7.8 Continuation of Business

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

7.9 Board Observer Rights

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

7.10 Use of Proceeds

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

Section 8. NEGATIVE COVENANTS

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

8.1 Other Indebtedness

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

(a) the Senior Indebtedness;

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(b) State of Ohio Loan; and

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

8.2 Prepayments

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

8.3 Liens

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

8.4 Capital Expenditures

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

8.5 Investments

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

(a) Cash Equivalents;

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

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

8.6 Merger and Consolidation; Acquisitions

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

8.7 Subsidiaries

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

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8.8 Sales and Leasebacks

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

8.9 Transfers, Liquidations and Dispositions of Substantial Assets

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

8.10 Capital Stock; Registration Rights

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

8.11 Restricted Payments

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

8.12 Organizational and Business Activities

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

8.13 Transactions with Affiliates

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

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8.14 Change in Control

Permit any Change in Control.

8.15 Employee Benefit Plans

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

8.16 Change in Principal Office

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

8.17 Senior Loan

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

8.18 Organizational Documents

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

8.19 Other Acts

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

8.20 SUCCESS FEE

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

Section 9. FINANCIAL TESTS

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

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9.1 Funded Debt to EBITDA

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

PERIOD ENDING	AMOUNT
December 31, 2008	3.25
December 31, 2009	2.75
Thereafter	2.25

9.2 Fixed Charge Coverage Ratio

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

PERIOD ENDING	AMOUNT
December 31, 2008	1.00
December 31, 2009	1.05
Thereafter	1.05

9.3 Effective Tangible Net Worth

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

Section 10. EVENTS OF DEFAULT

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

Section 11. INDEMNIFICATION BY THE COMPANY

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

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

Section 12. MISCELLANEOUS

12.1 Amendment, Modification or Restatement

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

Unless otherwise specified in such amendment, modification or restatement:

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

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

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

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

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

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

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

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12.2 Waiver of Compliance

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

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

12.3 Consent or Approval of Purchaser

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

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

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

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

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

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

(d) diminishing the value of the Warrant Shares;

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

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

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

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

12.4 Forbearance

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

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

12.5 No Implied Rights or Waivers

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

12.6 Payment of Fees and Expenses

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

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12.7 Entire Agreement

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

12.8 Severability

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

12.9 Third Party Beneficiaries, Successors and Assigns

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

12.10 Legal Representation

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

12.11 Rules of Construction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

12.12 Notice

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

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

Companies:

c/o DPAC Technologies Corp.

5675 Hudson Parkway

Hudson, Ohio 33236

Attention: Steve Runkel

Telephone No. (440)

Fax No. (440)

With a copy to:

Buchanan Ingersoll & Rooney PC

301 Grant Street, 20th Floor

Pittsburgh, PA 15219

Attention: Perry S. Patterson

Telephone No. (412) 562-8425

Fax No. (412) 562-1041

Purchaser:

Canal Mezzanine Partners, L.P.

1737 Georgetown Road, Suite A

Hudson, OH 44236

Attention: Shawn M. Wynne

Telephone No. (330) 650-6684

Fax No. (330) 528-0142

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With a copy to:

Calfee, Halter & Griswold LLP

1400 KeyBank Center

Cleveland, OH 44114

Attention: John M. Mino

Telephone No. (216) 622-8448

Fax No. (216) 622-0816

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

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

12.13 Assignment

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

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

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

12.14 Further Assurances

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

12.15 Closing of the Transaction

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

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

12.16 Counterparts

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

12.16 California Waiver Provisions

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

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

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12.17 Governing Law

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

12.18 Waiver of Jury Trial

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

12.19 Consent to Jurisdiction, Venue and Service of Process

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

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

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

[signatures appear on following page]

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

Companies:		Purchaser:
DPAC TECHNOLOGIES CORP. a California corporation		CANAL MEZZANINE PARTNERS, L.P. a Delaware limited partnership
By:	/s/ Steven D. Runkel Steve Runkel, Chief Executive Officer	By:	Canal Mezzanine Management, LLC, an Ohio limited liability company
		Title:	General Partner
QUATECH, INC. an Ohio corporation			By:	Canal Holdings, LLC an Ohio limited liability company
			Title:	Managing Member
By:	/s/ Steven D. Runkel Steve Runkel, Chief Executive Officer			By:	/s/ Shawn M. Wynne
				Name:	Shawn M. Wynne
				Title:	Authorized Signer

Signature Page to Note and Warrant Purchase Agreement

EX-10.7

Exhibit 10.7

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

Senior Subordinated Note

due January 31, 2013

Makers	Quatech, Inc. and DPAC Technologies Corp.
Payee	Canal Mezzanine Partners, L.P.
Principal Amount	$1,200,000
Stated Interest Rate	13% per annum
Default Interest Rate	16% per annum
Date of Note	January 31, 2008
Made At	Hudson, Ohio
Maturity Date	January 31, 2013
Payment Dates	Interest : Last day of each month beginning February 29, 2008
	Principal: January     , 2013

This is the Senior Subordinated Note due January 31, 2013 (the “Note”) provided for in the Senior Subordinated Note and Warrant Purchase Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”) by and between the Payee, as purchaser, and the Makers, as sellers.

This Note is one of the Related Documents referred to in the Purchase Agreement.

FOR VALUE RECEIVED, the Makers hereby promises to pay to the order of the Payee the Principal Amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000), together with Interest, Prepayment Premium and Assessments (each as defined herein or in the Purchase Agreement), upon the terms and subject to the conditions set forth in this Note.

Section 1. Definitions and Miscellaneous Provisions

Any capitalized term used but not otherwise defined in this Note shall have the definition given such term as set forth in the Purchase Agreement, which definition is, to the extent applicable, incorporated herein by reference. The provisions of Section 12 of the Purchase Agreement are applicable to this Note and are incorporated herein by reference.

Section 2. Maturity and Pay Off

The unpaid Principal Amount of this Note, together with all accrued but unpaid Interest and Assessments, shall be due and payable in full on the Maturity Date. Payment of the Principal Amount and all accrued but unpaid Interest and Assessments may be Accelerated upon the occurrence of an Event of Default as provided for in this Note. Upon request of the Makers, the Payee will furnish to the Makers a letter setting forth the amount of Principal Amount, Interest, Prepayment Premium and Assessments required to pay this Note in full as of a specified Pay Off Date.

Section 3. Interest

Interest shall accrue on the unpaid Principal Amount from the date of this Note through and including the Pay Off Date at the applicable interest rate (“Interest”). All accrued but unpaid Interest shall be paid monthly in arrears on each Payment Date specified above, commencing February 29, 2008.

At all times that the Default Interest Rate is not in effect, the interest rate on this Note shall be a fixed rate per annum equal to the Stated Interest Rate. Upon the occurrence of an Event of Default, this Note shall accrue interest at a rate per annum equal to the Default Interest Rate unless the Payee elects, in the sole exercise of its discretion, to waive imposition of the Default Interest Rate by giving written notice of such election to the Makers (a “Default Rate Waiver”). Absent a Default Rate Waiver, the interest rate on this Note shall be a fixed rate per annum equal to the Default Interest Rate, and the Default Interest Rate shall continue to be the interest rate on this Note until the Event of Default has been remedied or waived and no other Default or Event of Default is continuing, unremedied or unwaived, provided that the Note has not been Accelerated.

Notwithstanding any provision of this Note to the contrary: (i) in no event shall the interest rate on this Note be a rate per annum in excess of the maximum interest rate permissible under Applicable Law (including any applicable interest rate ceiling imposed by United States Small Business Administration regulations as applicable), and (ii) to the extent that Interest (or other amounts paid with respect to this Note that are deemed to be Interest under Applicable

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Law) results in Interest payments in excess of those permitted under Applicable Law, such excess payments shall be applied first to the payment of the unpaid Principal Amount, second to the payment of any other amounts due from the Makers to the Payee, and third, if no other obligations are owing to the Payee, then refunded to the Makers. The Makers agree that if such excess payments are applied in the manner provided for in this paragraph, then to the fullest extent permitted by Applicable Law, Payee shall not be subject to any penalty provided for by any Applicable Law relating to charging or collecting Interest in excess of that permitted by Applicable Law.

Interest shall accrue based upon: (i) the actual number of days elapsed over each month, including any additional days elapsed because the scheduled Payment Date fell on a day other than a Business Day; (ii) months consisting of thirty (30) days each; (iii) quarters consisting of three (3) 30-day months, and (iv) monthly compounding of any Interest or Assessment accrued but unpaid as of each Payment Date.

Section 4. Principal Amount

The Principal Amount shall be paid in full on the Maturity Date.

Section 5. Prepayments

The Makers may prepay the Principal Amount in whole at any time or in part from time to time; provided that (i) the Makers deliver irrevocable written notice to the Payee at least thirty (30) days prior to such prepayment, which notice shall include written confirmation from the Makers that such prepayment is permissible under the Senior Loan Agreement, (ii) each partial prepayment of Principal Amount shall be equal to $250,000 or an integral multiple thereof, and (iii) any such prepayment shall be made together with payment of a Prepayment Premium as provided below if such prepayment is made on or prior to the second anniversary of the Date of Note.

If the Principal Amount is paid on or prior to the second anniversary of the Date of Note, the Makers shall pay all accrued but unpaid Interest plus an amount equal to the sum of the Interest that would have accrued and been due and payable under this Note from the date of such prepayment through the second anniversary of the Date of Note (a “Prepayment Premium”).

If notice of prepayment is given, the Principal Amount to be prepaid as stated in the notice, together with Interest accrued thereon through the date of prepayment with respect to the Principal Amount prepaid, all unpaid Assessments and a Prepayment Premium, if any, shall become due and payable on the date specified in the notice. In the case of the redemption of less than all of the outstanding Principal Amount hereof, the amounts so paid shall be applied in the following order: (a) first, to payment of the Prepayment Premium, if any; (b) second, to payment of accrued Interest; (c) third, to payment of unpaid Assessments; and (d) finally, to payment of the Principal Amount, in inverse order of the principal installments hereof.

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Section 6. Late Payments

A payment of Principal Amount, Interest, Prepayment Premium, or Assessment shall be deemed to be a Payment Default if such payment is not received prior to 2:00 p.m., Hudson, Ohio time on the fifth day after such payment is due. The Payee may, in the sole exercise of its discretion, by written notice to the Makers, assess a fee of $500 for each Payment Date with respect to which there is a late payment to reimburse the Payee for the cost of processing such late payment. Such late fee shall be deemed to be an Assessment for purposes of this Note. The Payee may not assess a late fee with respect to any Payment Date after payment of this Note is Accelerated.

Section 7. Payments

Unless otherwise agreed by the Payee, all payments in connection with this Note shall be made by wire transfer of immediately available funds to the account of the Payee at or before 2:00 p.m. Hudson, Ohio time on each Payment Date. Any wire transfer received by the Payee after 2:00 p.m. Hudson, Ohio time shall be deemed to have been received by the Payee prior to such time on the next Business Day.

Unless otherwise specified in writing by the Payee to the Makers, all such payments shall be wired as follows:

Morgan Bank, N.A.

10 West Streetsboro Street

Hudson, Ohio 44236

ABA # 041202702

Account # 128075483

In the event that any scheduled Payment Date falls on a day other than a Business Day, the Payment Date shall be deemed to be the following Business Day, and such additional days shall be deemed to have elapsed for purposes of computing Interest payable on such Payment Date.

Section 8. Events of Default

(a) Enumeration of Defaults. The occurrence of each of the following events shall be an “Event of Default” for the purposes of this Note. An Event of Default shall be deemed to continue until waived by written notice by the Payee to the Makers or remedied by action of the Makers.

(b) Payment Default. The Makers default in the payment when due of any Principal Amount, Interest, Prepayment Premium or Assessment, and such default is not remedied (including the payment of any Assessment) within the grace period provided for in Section 6 of this Note (a “Payment Default”). A Payment Default shall be deemed to have occurred notwithstanding the fact that the Payment Default results from compliance with or enforcement of the Subordination Agreement.

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(c) Covenant Default. The Makers fail to observe or perform any affirmative covenant, negative covenant (other than those described in clause 8(e) below), reporting requirement or any other agreement set forth in the Purchase Agreement or the Related Documents and such default is either (i) not remedied within thirty (30) days after written notice of such default by the Payee or the Makers, or (ii) is the third instance of a default under applicable subsection of the Purchase Agreement or the Related Documents.

(d) Warranty Default. Any representation or warranty made by the Makers in the Purchase Agreement or the Related Documents proves to have been untrue, incomplete or misleading in any material respect when made or when deemed to have been made and such breach is not remedied (if it is capable of being remedied) within thirty (30) days after written notice of such default by the Payee or the Makers.

(e) Financial Test Default; Certain Negative Covenants. (i) As of any applicable date of determination, the Makers fail to satisfy any of the Financial Tests, or (ii) the Makers fails to observe or perform any of the negative covenants set forth in Sections 8.1 through 8.11 of the Purchase Agreement.

(f) Cross Default. The holder of any Indebtedness accelerates the payment of such Indebtedness for any reason or the Makers default in the payment of any Indebtedness with an unpaid principal amount in excess of $50,000, and such default remains unremedied beyond the applicable grace period therefor, regardless of whether (i) such default is waived by the obligee, (ii) payment of any Indebtedness of the Makers is accelerated, (iii) the right of the Makers to borrow money is suspended as a result of any such default, or (iv) any action to enforce payment of any Indebtedness is commenced against the Makers or with respect to any collateral securing such Indebtedness.

(g) Subordination Default. Any document with respect to the Senior Indebtedness is amended or modified in violation of the Subordination Agreement, a blocking period provided for in the Subordination Agreement is commenced, payment of any amount due under this Note is prevented due to compliance with or enforcement of the Subordination Agreement, any amounts previously paid to the Payee must be repaid or held in trust by the Payee due to compliance with or enforcement of the Subordination Agreement, or the Makers obtain forbearance with respect to the payment of any principal or interest due under the Senior Indebtedness.

(h) Insolvency Default. The Makers: (i) discontinue the conduct of their business; (ii) apply for or consents to the imposition of any Insolvency Relief; (iii) voluntarily commence or consent to the commencement of an Insolvency Proceeding; (iv) file an answer admitting the material allegations of any involuntary commencement of an Insolvency Proceeding; (v) make a general assignment for the benefit of its creditors; (vi) are unable or admits in writing their inability to pay their debts as they become due; or (vii) have an Insolvency Order entered against such Makers and such Insolvency Order is not dismissed within thirty (30) days of its entry (each, an “Insolvency Default”).

(i) Fraudulent Conveyance Default. The Makers: (i) conceal, remove or permit to be concealed or removed all or any part of their property with the intent to hinder, delay or defraud

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any of their creditors; (ii) make or permit any conveyance of their material properties that would be deemed fraudulent to creditors under any Insolvency Law or other Applicable Law; or (iii) have, while such Makers are insolvent, cause or permit any of their creditors to obtain a Lien on any of their property by legal proceedings or otherwise which is not vacated within thirty (30) days.

(j) Judgments. A final, nonappealable judgment or judgments is or are entered against the Makers in the aggregate amount of $50,000 or more on a claim or claims not covered by insurance.

(k) Material Adverse Change. In the reasonable judgment of the Payee, any material adverse change occurs in the financial condition or results of operations of the Makers or the Makers’ ability to perform its obligations under this Note, the Purchase Agreement or the Related Documents.

(l) Change in Control. A Change in Control of the Makers occurs.

(m) Failure of Enforceability. (i) The Makers shall contest or challenge the validity or enforceability of this Note, the Purchase Agreement or the Related Documents or (ii) this Note, the Purchase Agreement or the Related Documents shall be declared in whole or in part invalid, void or unenforceable which declaration would, individually or in the aggregate, materially reduce the principal benefits of any breach of, or security provided by, this Note, the Purchase Agreement or any Related Document to the Payee, or make the remedies generally afforded thereby inadequate for the practical realization thereof.

Section 9. Remedies and Acceleration

(a) Remedies. Upon the occurrence of an Event of Default, the Payee shall have (i) all rights and remedies granted to it under this Note, the Purchase Agreement and the Related Documents, and (ii) all rights of a creditor under Applicable Law (including the UCC). All such rights and remedies and the exercise thereof shall be cumulative. No exercise of any such rights and remedies shall be deemed to be exclusive or constitute an election of remedies.

(b) Purchase of Senior Indebtedness. If an event of default shall have occurred and be continuing in respect of any Senior Indebtedness of the Makers, the Payee shall have the option (but not the obligation), at any time, to purchase all, but not less than all, of such Senior Indebtedness for an amount equal to the then outstanding principal amount, plus accrued but unpaid interest with respect thereto as of the date of such purchase, plus any unpaid fees and expenses then owing with respect thereto. The purchase price so paid by the Payee shall constitute an additional advance hereunder and shall be subject to the terms and conditions of this Note, the Purchase Agreement and the Related Documents.

(c) Acceleration of Payment. Upon the occurrence of an Insolvency Default, payment of this Note shall be Accelerated automatically and without notice. Upon the occurrence and during the continuation of any other Event of Default, the Payee may, in the sole exercise of its discretion, elect to cause payment of this Note to be Accelerated by giving written notice of such

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election to the Makers. Once payment of this Note has been Accelerated, such Acceleration may be revoked only by the Payee, in the sole exercise of its discretion, by giving written notice of revocation to the Makers.

(d) Waiver of Default. No Default or Event of Default may be waived or shall be deemed to have been waived except by written notice by the Payee to the Makers, and any such waiver shall be applicable only to the specific Defaults or Events of Default expressly identified in such notice and shall not be deemed to apply to any other or subsequent Default or Event of Default. The Payee may grant or withhold any such waiver in the sole exercise of its discretion, and may condition such waiver upon the payment by the Makers of a premium, the grant of additional security interests or the acceptance of other terms and conditions under this Note or the Purchase Agreement. No course of dealing by the Payee, or the failure, forbearance or delay by the Payee in exercising any of its rights or remedies under this Note, the Purchase Agreement or any Related Document shall operate as a waiver of any Default or Event of Default or of any right of the Payee under this Note.

Section 10. Waivers

To the fullest extent permitted by Applicable Law, each Maker waives with respect to this Note: presentment; demand and protest; and notice of presentment, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal; and diligence in collection. Each Maker agrees that the Payee may release all or any part of the Collateral securing the payment of this Note; any guarantor or surety with respect to this Note, or any other Maker from its obligation with respect to this Note, all without notice to such Maker and without affecting in any way the obligation of such Maker under this Note.

Section 11. Security for Payment

Payment of this Note is secured under the terms and subject to the conditions of certain of the Related Documents. Nothing in this Note shall be deemed to preclude the Payee from obtaining other or additional security for the payment of this Note, to require the Payee to elect remedies or proceed against any Collateral or guaranty before Accelerating payment of this Note or to take any legal or other action to collect payment of this Note.

Section 12. Subordination Agreement

It is anticipated that the Payee and the Senior Lender will enter into a Subordination Agreement in connection with the Senior Loan Agreement, pursuant to which certain of the Payee’s rights under this Note and the Related Documents will be subordinated to the Senior Lender. Nothing in this Note, the Purchase Agreement or the Subordination Agreement shall grant to the Makers any rights as a beneficiary under the Subordination Agreement nor any right to enforce any provision of such agreement.

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Section 13. Collection and Assessment for Costs

The Makers shall reimburse the Payee for all reasonable costs and expenses (including reasonable legal fees and disbursements) incurred by the Payee in connection with the collection or attempted collection of the payment of this Note through legal proceedings or otherwise following an Event of Default. All such amounts shall be deemed to be Assessments for purposes of this Note.

Section 14. Amendment

This Note may not be amended, restated, supplemented or otherwise modified except by an express written agreement executed and delivered by each Maker and the Payee. Compliance with the covenants and other provisions of this Note may not be waived or modified except by an express written consent signed and delivered by the Payee.

Section 15. Governing Law

This Note was negotiated in the State of Ohio and accepted by the Payee in the State of Ohio, and the purchase price for the Note shall be disbursed from the State of Ohio. Each Maker agrees that the State of Ohio has a substantial relationship to the transactions evidenced hereby and further agrees that this Note shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to conflicts of laws principles.

Section 16. Waiver of Jury Trial

The Payee and each Maker, after consulting or having had the opportunity to consult with legal counsel, knowingly, voluntarily and intentionally waive any right any of them may have to a trial by jury in any Litigation. Neither the Payee nor any Maker shall seek to consolidate, by counterclaim or otherwise, any Litigation in which a jury trial has been waived with any other Litigation in which a jury trial cannot be or has not been waived.

Section 17. Consent to Jurisdiction, Venue and Service of Process

The Payee and the Makers, each after having consulted or having had the opportunity to consult with legal counsel, hereby knowingly, voluntarily, intentionally, and irrevocably: (i) consents to the jurisdiction of the Common Pleas Court of Summit County, Ohio and the United States District Court for the Northern District of Ohio, Eastern Division with respect to any Litigation; (ii) waives any objections to the venue of any Litigation in either such court; (iii) agrees not to commence any Litigation except in either of such courts and agrees not to contest the removal of any Litigation commenced in any other court to either of such courts; (iv) agrees not to seek to remove, by consolidation or otherwise, any Litigation commenced in either of such courts to any other court; and (v) waives personal service of process in connection with any Litigation and consents to service of process by registered or certified mail, postage prepaid, addressed as provided in the Purchase Agreement.

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Section 18. Confession of Judgment

Each Maker hereby authorizes any attorney at law to appear in any court of record of the State of Ohio or any other state in the United States of America at any time after this Note becomes due, whether by acceleration or otherwise, and to waive the issuing and service of process and confess a judgment in favor of the legal holder hereof against such Maker, or either or any one or more of them, for the amount then appearing due upon this Note, together with costs of suit and to release all errors and waive all right of appeal.

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IN WITNESS WHEREOF, this Note has been executed and delivered by and on behalf each Maker, effective as of the Date of Note set forth above.

WARNING – BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON THE CREDITOR’S PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

Maker:
QUATECH, INC.
By:	/s/ Steve Runkel
	Steve Runkel,
	Chief Executive Officer

Maker:
DPAC TECHNOLOGIES CORP.
By:	/s/ Steve Runkel
	Steve Runkel,
	Chief Executive Officer

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EX-10.8

Exhibit 10.8

Execution Version

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the “Agreement”) is made on January 31, 2008, by and between DPAC TECHNOLOGIES CORP., a California corporation (the “Company”), and QUATECH, Inc., an Ohio corporation (“Quatech”, together with the Company herein collectively or individually, as the context so requires, the “Debtor” or the “Debtors”), and CANAL MEZZANINE PARTNERS, L.P., a Delaware limited partnership (the “Secured Party”).

RECITALS:

WHEREAS, Debtors and Secured Party are parties to a Senior Subordinated Note and Warrant Purchase Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Note Purchase Agreement”), providing for the issuance and sale by the Debtors and the purchase by the Secured Party of that certain Senior Subordinated Note due January 31, 2013 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Note”) in an aggregate principal amount of One Million Two Hundred Thousand and 00/100 Dollars ($1,200,000).

WHEREAS, each Debtor agrees to grant to and create in favor of Secured Party, in the manner set forth in this Agreement, security interests in certain property of such Debtor as security for the performance and payment of the Secured Obligations (as defined in Section 1 hereof).

NOW THEREFORE, for and in consideration of the purchase of the Note by Secured Party and the benefits each Debtor shall receive therefrom, and the representations, warranties and mutual covenants set forth in this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows:

Section 1. Defined Terms.

1.1. Definitions. Certain capitalized words and terms as used in this Agreement shall have the meanings given to them in the Uniform Commercial Code, and the Note Purchase Agreement unless otherwise indicated herein or the context or use indicates another or different meaning or intent. All defined terms shall be equally applicable to both the singular and plural forms of any of the words and terms herein defined. In addition, the following capitalized words shall have the following meanings when used herein:

“Accounts” has the meaning assigned to that term in the Uniform Commercial Code.

“Chattel Paper” has the meaning assigned to that term in the Uniform Commercial Code.

“Commercial Tort Claims” has the meaning assigned to that term in the Uniform Commercial Code.

“Deposit Account” has the meaning assigned to that term in the Uniform Commercial Code.

“Documents” has the meaning assigned to that term in the Uniform Commercial Code.

“Electronic Chattel Paper” has the meaning assigned to that term in the Uniform Commercial Code.

“Equipment” has the meaning assigned to that term in the Uniform Commercial Code.

“Excluded Property” means any of the following:

(a) any interest of any Debtor in any contract right, license, general intangible, intellectual property agreement, any lease pertaining to real or personal property or any other document, instrument or agreement, if the granting of a security interest, lien or encumbrance therein by such Debtor to Secured Party (i) is prohibited by the terms and provisions of the written agreement, document or instrument creating or evidencing such item of Excluded Property or rights related thereto or by applicable law, or (ii) or in the case of any such Excluded Property, such item of Excluded Property would be subject to loss or forfeiture upon the grant or creation of a security interest, lien or encumbrance therein (any of the foregoing, a “Valid Restriction”); provided, however, that Secured Party will be deemed to have, and at all times from and after the date hereof to have had, a security interest in the proceeds of such Excluded Property to the extent that any proceeds of such Excluded Property have come into the possession of Secured Party or otherwise constitute a portion of the Collateral;

(b) any Equipment that is subject to a purchase money security interest or Capitalized Lease that contains a Valid Restriction;

(c) any motor vehicles owned or leased by any Debtor; or

(d) any depository account maintained by any Debtor used solely for medical, pension, benefits, and taxes.

“Fixtures” has the meaning assigned to that term in the Uniform Commercial Code.

“General Intangibles” has the meaning assigned to that term in the Uniform Commercial Code.

“Instruments” has the meaning assigned to that term in the Uniform Commercial Code.

“Inventory” has the meaning assigned to that term in the Uniform Commercial Code.

“Investment Property” has the meaning assigned to that term in the Uniform Commercial Code.

“Letter of Credit Right” has the meaning assigned to that term in the Uniform Commercial Code.

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“Note Purchase Agreement” has the meaning assigned to that term in the Recitals.

“Note” has the meaning assigned to that term in the Recitals.

“Payment Intangible” has the meaning assigned to that term in the Uniform Commercial Code.

“Pledged Deposits” means all time deposits of money (other than Deposit Accounts and Instruments), whether or not evidenced by certificates, and all rights to receive interest on said deposits.

“Secured Obligations” means (a) all principal, interest and other amounts due and payable under the Note Purchase Agreement, the Related Documents and the Note, (b) all costs and expenses incurred by Secured Party in the realization upon the Collateral, including without limitation reasonable attorneys’ fees and legal expenses, and (c) each and every liability owed by any Debtor to Secured Party however created, direct or contingent, due or to become due, whether now existing or hereafter arising, including without limitation the Success Fee.

“Security” has the meaning assigned to that term in Article 8 of the Uniform Commercial Code.

“Software” has the meaning assigned to that term in the Uniform Commercial Code.

“Stock Rights” means any Security, dividends or other distributions and any other right or property which the such Debtor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Security or other ownership interests in a corporation, partnership, joint venture, limited liability company or other entity constituting Collateral and any Security, any right to receive any Security and any right to receive earnings, in which such Debtor now has or hereafter acquires any right, issued by an issuer of such Securities.

“Uniform Commercial Code” means such Code as in effect in any jurisdiction on the date hereof or as the same may be from time to time supplemented or amended hereafter in any jurisdiction.

Section 2. Creation of Security Interests.

2.1. The Collateral. As security for the full and timely discharge of the Secured Obligations in accordance with their respective terms, each Debtor agrees that Secured Party will have, and there is hereby granted to and created in favor of Secured Party, a security interest under the Uniform Commercial Code, and otherwise in accordance with applicable law, in and to the following exclusive of the of the Excluded Property (hereinafter collectively referred to as the “Collateral”):

2.1.1. All Equipment now or hereafter owned by any Debtor, including without limitation (a) all machinery, equipment, furniture and fixtures, (b) all replacements and substitutions thereof and (c) accessions to any of the items aforesaid and all attachments, components, parts (including spare parts) and accessories whether installed thereon or affixed thereto.

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2.1.2. All Accounts and General Intangibles now or hereafter owned by any Debtor, including, without limitation, (a) all moneys due and to become due under any contractual obligation, (b) any damages arising out of or for breach or default in respect of any Account, (c) all other amounts from time to time paid or payable under or in connection with any such Account including, without limitation, all tax refund claims, and (d) all rights of any Debtor in intellectual property, goodwill, trademarks, trade names, service marks, copyrights, patents, and licenses and in applications therefor including, without limitation, license fees, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, rights to sue and recover for past infringement of patents, trademarks and copyrights, computer programs, computer software, engineering drawings, service marks, customer lists, goodwill, and all licenses, permits, agreements of any kind or nature pursuant to which such (i) Debtor operates or has authority to operate, (ii) Debtor possesses, uses or has authority to possess or use property (whether tangible or intangible) of others, or (iii) others possess, use, or have authority to possess or use property (whether tangible or intangible) of such Debtor, and all recorded data of any kind or nature, regardless of the medium of recording, including, without limitation, all software, writings, plants, specifications, and schematics.

2.1.3. All Goods, Inventory, Instruments, Electronic Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Fixtures, Investment Property, Letter of Credit Rights, Payment Intangibles, Pledge Deposits, Software and Stock Rights now or hereafter owned by any Debtor.

2.1.4. To the extent not otherwise included, all other personal property, tangible or intangible, of any Debtor including, without limitation, all furniture, fixtures, other goods, contract rights, rights to the payment of money, insurance refund claims and all other insurance claims and proceeds, tort claims, electronic chattel paper, documents, securities and other investment property, deposit accounts, rights to proceeds of letters of credit, letter-of-credit rights and supporting obligations of every nature.

2.1.5. To the extent not otherwise included, all books and records pertaining to the foregoing, and all Proceeds or products of any or all of the foregoing.

2.1.6. To the extent not otherwise included, all “Collateral” as that term is defined in the Note Purchase Agreement.

2.2. Maintenance. Debtors shall from time to time replace and repair all parts of the Equipment which are or become worn, broken, damaged, or deteriorated and otherwise maintain the Equipment, and every part thereof, in good working order and repair and pay the costs of such repairs, replacements, and maintenance as well as any costs of storing the same when reasonable to do so.

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Section 3. Rights and Remedies of a Secured Party. In addition to all of the rights and remedies given to Secured Party by this Agreement, Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code.

Section 4. Provisions Applicable to the Collateral. The parties agree that the following provisions shall be applicable to the Collateral and each Debtor agrees that during the term of this Agreement:

4.1. Books and Records; Chief Executive Offices; Jurisdiction.

4.1.1. Each Debtor shall keep accurate and complete books and records concerning the Collateral in accordance with GAAP. For the purpose of establishing the location and value of the Collateral, each Debtor shall furnish to Secured Party, at such times and in such form and substance as may be reasonably requested by Secured Party, information adequate to identify the Collateral, including, without limitation, the location, cost and fair market value of the Collateral.

4.1.2. (a) Each Debtor represents and warrants that its chief executive office is located at the address set forth below:

5765 Hudson Industrial Parkway

Hudson, Ohio 44236

(b) Debtors shall not move their chief executive office except to such new location as it may establish in accordance with Section 4.1.5 below.

4.1.3. (a) The only original books of account and records of each Debtor relating to the Collateral are, and will continue to be, kept at the offices of such Debtor set forth in Section 4.1.2 above.

(b) The location where such books of account and records are kept shall not be changed by Debtors except in accordance with Section 4.1.5 below.

4.1.4. Each Debtor represents and warrants that the location of all the Collateral is accurately and completely set forth in Exhibit A hereto. The Secured Party acknowledges and agrees that the Debtors will maintain Inventory and/or Equipment at locations owned by third party landlords, and that Debtors are required to provide appropriate bailee waivers acceptable to Secured Party on any location where any Debtor maintains at any time more than One Hundred Thousand Dollars ($100,000.00) worth of Inventory and/or Equipment.

4.1.5. Each Debtor shall not establish any different location for its chief executive office or for the place where the original books of account and records of such Debtor relating to the Collateral are kept, except in accordance with 4.1.8 below.

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4.1.6. Each Debtor shall not hold its right, title or interest or maintain its records relating to any Collateral or invoice any Account debtor with respect to any Collateral in any name other than its own proper name.

4.1.7. Debtors shall not change their jurisdiction of organization from the State of California with respect to the Company and Ohio with respect to Quatech, except to such new jurisdiction as such Debtor may establish in accordance with Section 4.1.8 below.

4.1.8. Debtors shall not establish any locations different from those provided for in this Section 4.1 and attached Exhibit A hereto, change the jurisdiction of their organization or change their name, until such (a) Debtor shall have given to the Secured Party written notice, thirty (30) days before doing so, of its intention to establish such new location or jurisdiction of organization or change its name, clearly describing each such new location or jurisdiction or its new name and providing such other information in connection therewith as the Secured Party may reasonably request, and (b) with respect to each such new location or jurisdiction or the new name, it shall have taken such action, satisfactory to the Secured Party, as may be necessary to maintain the lien of the Secured Party on the Collateral granted hereunder at all times fully perfected, first in priority to all other liens (except for the liens of the Senior Lender and except as otherwise provided in the Related Documents) and in full force and effect.

4.2. Inspection. Each Debtor shall permit any persons designated by Secured Party, in order to permit Secured Party to assure itself of performance by such Debtor of the Secured Obligations or otherwise facilitate compliance with this Agreement, to enter, examine, audit and inspect the Collateral and all properties, corporate books and financial records pertaining to the Collateral or to the operation, business, affairs and financial condition of such Debtor, at any reasonable time and from time to time and upon reasonable notice to such Debtor, and shall permit such persons to copy (by photocopy or otherwise) and make excerpts of such books and records.

4.3. Notice of Adverse Change. Each Debtor shall immediately notify Secured Party of any material adverse change of which such Debtor has knowledge which adversely affects or may adversely affect its right, title, or interest in, or the value of, the Collateral in any material way.

4.4. Sale of Inventory. Notwithstanding the security interest in the Collateral granted hereunder, each Debtor shall have the right to sell, lease or otherwise dispose of its Inventory in the ordinary course of its business free and clear of such security interest; but in such event, such security interest shall continue in the proceeds of such sale, lease or other disposition.

4.5. Account Verification. Secured Party may at any time cause Debtors to verify with any account debtor of such Debtor as to the status of any Accounts payable by such account debtor. Such Debtor shall direct the account debtor to furnish a written response to the request for verification to a post office box at a post office located in Hudson, Ohio, which post office box shall be controlled by Secured Party. Secured Party may make requests for verification directly with account debtors at any time after and during the continuance of an Event of Default. Debtors from time to time will execute and deliver such instruments and take all such action as Secured Party may reasonably request in order to effectuate the purposes of this Section 4.5.

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4.6. Debtor’s Rights to Collect Accounts. Notwithstanding any security interest in Accounts of Debtors granted hereunder, Debtors shall have the right to and shall endeavor to collect such Accounts at their own cost and expense, until such time as Secured Party shall have notified such Debtor pursuant to Section 4.7 below that Secured Party has revoked such Debtor’s right to collect such Accounts.

4.7. Collection of Accounts by the Secured Party. If an Event of Default shall have occurred and be continuing, Secured Party shall have the right at any time and without affecting the liability of Debtors to Secured Party (a) to revoke any right of Debtors to collect their Accounts pursuant to Section 4.6 above by written notice to Debtors to such effect, (b) to take over and direct collection of such Accounts of Debtors, (c) to give notice of the security interest of Secured Party in such Accounts to any or all of the Account debtors obligated to Debtors, (d) to direct such Account debtors to make payment of such Accounts directly to Secured Party and (e) to take control of such Accounts of Debtors and the proceeds thereof, and to take possession of all of a Debtors’ books and records relating thereto, with full power and authority in the name of Secured Party or of Debtors to enforce, collect, sue for, receive, and give receipts for any and all such Accounts. If any Account becomes evidenced by or if such Debtor receives any promissory note, trade acceptance, chattel paper or other writing or instrument for the payment of money, such Debtor will deliver each such writing or instrument to Secured Party duly endorsed to the order of Secured Party as additional Collateral under this Agreement.

Section 5. Preservation and Protection of Security Interests. Each Debtor shall faithfully preserve and protect Secured Party’s security interest in the Collateral and shall, at its own cost and expense, cause such security interest to be perfected and continue perfected so long as the Secured Obligations or any portion thereof are outstanding and unpaid, and for such purpose. Debtors shall from time to time at the request of Secured Party file or record, or cause to be filed or recorded, such instruments, documents and notices, including without limitation financing and continuation statements, as Secured Party may deem necessary or advisable from time to time in order to preserve, perfect and continue perfected said security interest prior to the rights of any other secured party or lien creditor (other than the Senior Lender). Debtors shall do all such other acts and things and shall execute and deliver all such other instruments and documents, including without limitation further security agreements, pledges, endorsements, assignments and notices, as Secured Party may deem necessary or advisable from time to time in order to perfect and preserve the priority of said security interest as a perfected lien in the Collateral prior to the rights of any other secured party or lien creditor (other than the Senior Lender). Secured Party, and its officers, employees and authorized agents, or any of them, are hereby irrevocably appointed the attorneys-in-fact of Debtors to do all acts and things which Secured Party may deem necessary or advisable to preserve, perfect and continue perfected Secured Party’s security interest in the Collateral, including without limitation the signing of financing, continuation or other similar statements and notices on behalf of such Debtor if Debtors fails to do so within ten (10) days of request by Secured Party.

Section 6. Application of Moneys. Except as otherwise provided in this Agreement, if an Event of Default shall have occurred, all net proceeds which Secured Party shall receive upon realization of the lien and security interest granted under this Agreement may be applied by or at

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the direction of Secured Party, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of Secured Party hereunder, including reasonable attorneys’ fees and legal expenses, to the payment in whole or in part of the Secured Obligations, in such order as Secured Party may elect. Any surplus remaining after the payment and satisfaction of all of the Secured Obligations shall be applied to or on the order of Debtors, their successors or assigns, or to the person or persons who may be lawfully entitled to receive the same, or as any court of competent jurisdiction may direct.

Section 7. Representations and Warranties. Each Debtor hereby represents and warrants to Secured Party that such Debtor has legal title to all the Collateral, subject to no Lien, other than Permitted Liens. No financing or continuation statement which names such Debtor as debtor has been filed under the Uniform Commercial Code other than pursuant to the Permitted Liens, and such Debtor has not agreed or consented to cause or to permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to any Lien, except the Permitted Liens.

Section 8. Affirmative Covenants. On and after the date of this Agreement, and for so long as any Secured Obligation is outstanding:

8.1. Maintenance of Properties. Each Debtor shall maintain and preserve in good working order and condition, ordinary wear and tear excepted, all of its properties which are necessary or useful in the proper conduct of its business, and will from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements to said properties, subject to Section 2.2 of this Agreement.

8.2. Notice of Default. If any Debtor has knowledge that any Event of Default occurs, such Debtor shall give prompt notice in writing of such happening to Secured Party.

8.3. Additional Information. Each Debtor shall furnish to Secured Party promptly after Secured Party’s request therefor, such other information respecting the business, properties or condition of operations, financial or otherwise, of such Debtor as may be requested by Secured Party.

8.4. Maintenance of Collateral.

8.4.1. Each Debtor shall (a) pay and discharge all taxes, assessments, fees, and other governmental charges or levies imposed upon it or any of the Equipment as well as all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords and other similar persons for labor, materials, supplies and rentals which, if unpaid, might by law become a lien on the Collateral or any part thereof and (b) perform according to and maintain in force all leases which are Collateral; provided, however, that Debtors shall not be required to make any payment pursuant to this Section 8.4 if (x) the amount, applicability, or validity thereof is being contested currently in good faith by appropriate proceedings, (y) Debtors shall have set aside on their books, in accordance with GAAP applied on a consistent basis, adequate reserves or provisions with respect thereto, and (z) the title of Debtors to, and its right to use, any of its properties is not materially and adversely affected thereby.

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8.4.2. If Debtors fail to make any payments it is required to make under this Section 8.4, Secured Party may do so for the account of Debtors and may add the amount of such payments to the Secured Obligations.

8.5. Use of Collateral. The Collateral will be used exclusively in the business operations of Debtors.

8.6. Performance of Contracts, etc. Each Debtor shall perform according to and shall comply with those contractual obligations of such Debtor, non-performance of which would materially adversely affect the business of such Debtor or would impair the ability of such Debtor to perform this Agreement.

8.7. Insurance. Each Debtor shall at all times:

8.7.1. Maintain or cause to be maintained insurance upon its respective property with responsible and reputable insurers of such character and in such amounts as are usually maintained by persons engaged in a like business.

8.7.2. Furnish to Secured Party, upon request, a statement of insurance coverage of such Debtor in form and detail satisfactory to Secured Party.

8.7.3. Require each policy of insurance to contain, in favor of and satisfactory to Secured Party, a provision requiring at least thirty (30) days’ prior written notice to Secured Party in the event of any cancellation or contemplated cancellation of such insurance. To the extent reasonably obtainable without additional cost to such Debtor, all such policies will further contain agreements by the insurers that any loss will be payable to Secured Party notwithstanding any acts or negligence by such Debtor which might otherwise result in forfeiture of said insurance. If such Debtor fails to maintain in full force and effect insurance covering the Collateral as may be required by this Section 8.7, or fails to pay the premiums thereon when due, Secured Party may do so for the account of such Debtor and add the cost thereof to the Secured Obligations.

8.7.4. Secured Party shall not be under any duty to ascertain the existence or adequacy of insurance coverage. Debtors shall cause each policy of insurance covering tangible property subject to a Lien in favor of the Secured Party granted pursuant to this Agreement, or under any agreement, instrument or document given as security pursuant hereto, to provide that, in the case of each separate loss in excess of One Hundred Thousand Dollars ($100,000.00) (or, if there shall be existing an Event of Default of any amount), the full amount of insurance proceeds with respect thereto shall be payable to the Secured Party as secured party or otherwise as its interests may appear, to be applied in accordance with the Note Purchase Agreement, and each such policy shall (i) further provide for at least thirty (30) days’ prior written notice to the Secured Party of the cancellation or substantial modification thereof, (ii) provide that, in respect of the interests of the Debtors and the Secured Party in such insurance, such insurance shall not be

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invalidated by any such action or inaction of such Debtor or any other Person, (iii) insure the Secured Party’s interest regardless of any violation by such Debtor or any other Person of any warranties, declarations or conditions contained in such insurance and (iv) provide that the Secured Party shall have the right (but not the obligation) to cure any default by the Debtors under such insurance. After the occurrence of and during the continuation of an Event of Default, each Debtor hereby assigns and sets over unto Secured Party all moneys which may become payable on account of such insurance covering the Collateral including without limitation any return of unearned premiums which may be due upon cancellation of any such insurance, and directs the insurers to pay Secured Party any amount so due. Secured Party, its officers, employees and authorized agents, are hereby irrevocably appointed the attorneys-in-fact of Debtors to endorse any draft or check which may be payable to Debtors in order to collect the proceeds of such insurance or any return of unearned premiums. Any balance of insurance proceeds remaining in the possession of Secured Party after payment in full of the Secured Obligations shall be paid to Debtors or Debtors’ order as such Debtor shall instruct Secured Party.

8.8. Risk of Loss. As of the execution of this Agreement, each Debtor shall assume all risk of loss of, damage to, or destruction of the Collateral to the extent that such Debtor now or hereafter has or acquires any right, title and interest in the Collateral.

Section 9. Negative Covenants. On and after the date of this Agreement and so long as Secured Obligations are outstanding, each Debtor shall not:

9.1. Negative Pledge. Except as permitted by the Note Purchase Agreement, without the prior written consent of Secured Party (a) sell, assign, or transfer any of its right, title and interest in the Collateral except the sale of such Debtor’s Inventory in the ordinary course of business, (b) grant or create or permit to exist any lien on or in any of the Collateral except for Permitted Liens, (c) permit any levy or attachment to be made against any of the Collateral, or (d) file any financing statement with respect to any of the Collateral.

9.2. Change of Name. Change its name without complying with Section 4.1.8 hereof.

Section 10. Care and Maintenance of Collateral by the Secured Party. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of such of the Collateral as may be in Secured Party’s possession if Secured Party takes such action for that purpose as Debtors shall request in writing, provided, however that Secured Party shall not be required to take any such requested action if in the judgment of Secured Party, such action would impair Secured Party’s security interest in such Collateral or its rights in, or the value of, such Collateral, and provided, further, however that such written request is received by Secured Party in sufficient time to permit Secured Party to take the requested action. Each Debtor acknowledges that failure of Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure of Secured Party to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by such Debtor, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. If all or any part of the Collateral consists of any stock, bond or other security, Secured Party shall be under no obligation to sell or otherwise

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dispose of such security, or to cause such security to be sold or otherwise disposed of, by reason of any diminution in the fair market value thereof, and Secured Party’s failure to do so shall under no circumstances be deemed a failure to exercise reasonable care in the custody and preservation of the Collateral, anything in this Section 10 or in any other section of this Agreement notwithstanding.

Section 11. Remedies for Event of Default.

11.1. Remedies. If an Event of Default occurs and is continuing, in addition to the remedies set forth in the Note Purchase Agreement and the other Related Documents:

11.1.1. Secured Party may exercise such rights and remedies as are provided by the Uniform Commercial Code, including without limitation the right to enter any premises where any of the Collateral is located and take possession of the same without demand or notice and without prior judicial hearing or legal proceedings, which each Debtor hereby expressly waives, and to sell all or any portion of the Collateral at public or private sale, after ten (10) days’ prior written notice to such Debtor, at such place or places and at such time or times and in such manner and upon such terms, whether for cash or on credit, as Secured Party in its sole discretion may determine. Upon any such sale of any of the Collateral, to the extent permitted by law, Secured Party may purchase all or any of the Collateral being sold, free from any equity or right of redemption. Secured Party shall apply the proceeds of any such sale to the Secured Obligations as provided in Section 6 hereof. If such proceeds are insufficient to pay the amounts owed by Debtors, Debtors shall be liable for any deficiency in the amount so realized from the Collateral.

11.1.2. Each Debtor shall, upon the demand of Secured Party, promptly assemble the Collateral, or any part thereof and make it available to Secured Party at a place to be designated by Secured Party which shall be reasonably convenient to Secured Party and such Debtor. The right of Secured Party under this Section 11.1.2 to have the Collateral assembled and made available to it is of the essence of this Agreement and Secured Party may, at its election, enforce such right by an action for specific performance.

11.2. No Requirement to Marshal Collateral. Each Debtor, to the extent that it has any right, title or interest in any of the Collateral, waives and releases any right to require Secured Party to collect any of the Secured Obligations from any portion of the Collateral under any theory of marshaling of assets, or otherwise, and specifically authorizes Secured Party to apply any of its Collateral against any of the Secured Obligations in any manner that Secured Party may determine.

Section 12. Captions. Captions and section headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

Section 13. Amendments, Waivers. No amendment, modification or waiver to this Agreement shall be binding unless in writing and signed by the party to be charged.

Section 14. Permitted Liens. The “Permitted Liens” as defined in the Note Purchase Agreement shall be deemed “Permitted Liens” hereunder.

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Section 15. Defeasance. Upon payment and performance in full of the Notes and all reasonable costs and expenses incurred by Secured Party in the realization upon the Collateral, if any, including, without limitation, reasonable attorneys’ fees and legal expenses, this Agreement shall terminate and be of no further force and effect, and in such event, Secured Party shall, at the expense of Debtors, take all action necessary to terminate the security interests of Secured Party in the Collateral. Until such time, however, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

Section 16. Governing Law. This Agreement is being executed and delivered in the State of Ohio and, except to the extent that the laws of any other jurisdiction are mandatorily applicable, shall in all respects be interpreted in accordance with the laws of the State of Ohio applicable to contracts to be performed in the State of Ohio.

Section 17. Counterparts. This Agreement may be signed in any number of counterparts, all of which taken together shall constitute one and the same instrument.

Section 18. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto and supersedes any and all prior agreements, arrangements, and understandings relating to the subject matter hereof. No representation, promise, inducement, or statement of intent has been made by any party which is not embodied in this Agreement, and no party shall be bound by or be liable for any alleged representation, promise, inducement or statement of intention not embodied herein.

Section 19. Enforceability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction.

Section 20. Waiver of Jury Trial. THE SECURED PARTY AND EACH DEBTOR HEREBY VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE SECURED PARTY AND SUCH DEBTOR ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN SUCH DEBTOR AND THE SECURED PARTY IN CONNECTION WITH THE SECURITY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR THE TRANSACTIONS RELATED HERETO OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE SECURED PARTY TO ENTER INTO THE FINANCING TRANSACTIONS WITH DEBTORS. IT SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY THE SECURED PARTY’S ABILITY TO PURSUE ITS REMEDIES INCLUDING, BUT NOT LIMITED TO, ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED HEREIN OR IN ANY OTHER DOCUMENT RELATED HERETO.

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The parties hereto have caused this Security Agreement to be duly executed by its duly authorized officers as of the day and year first above written.

[Signatures appear on following page]

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

Debtors:		Secured Party:
DPAC TECHNOLOGIES CORP.,		CANAL MEZZANINE PARTNERS, L.P.
a California corporation		a Delaware limited partnership
By:	/s/ Steven D. Runkel	By:	Canal Mezzanine Management, LLC,
	Steve Runkel, Chief Executive Officer		an Ohio limited liability company
		Title:	General Partner
QUATECH, INC.,		By:	Canal Holdings, LLC
an Ohio corporation			an Ohio limited liability company
		Title:	Managing Member
By:	/s/ Steven D. Runkel	By:	Shawn M. Wynne
	Steve Runkel, Chief Executive Officer	Name:	Shawn M. Wynne
		Title:	Authorized Signer

Signature Page to Security Agreement

EXHIBIT A

DPAC TECHNOLOGIES CORP.

A.	LOCATION OF CHIEF EXECUTIVE OFFICE:
	5765 Hudson Industrial Parkway
	Hudson, Ohio 44236
B.	LOCATION OF BOOKS AND RECORDS:
	5765 Hudson Industrial Parkway
	Hudson, Ohio 44236
C.	LOCATION OF OTHER COLLATERAL (RETAIL STORES OR WAREHOUSES):
D.	LOCATION OF ANY OTHER PLACE(s) OF BUSINESS:
E.	JURISDICTION OF ORGANIZATION:
	State of California

QUATECH, INC.

A.	LOCATION OF CHIEF EXECUTIVE OFFICE:
	5765 Hudson Industrial Parkway
	Hudson, Ohio 44236
B.	LOCATION OF BOOKS AND RECORDS:
	5765 Hudson Industrial Parkway
	Hudson, Ohio 44236

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C.	LOCATION OF OTHER COLLATERAL (RETAIL STORES OR WAREHOUSES):
D.	LOCATION OF ANY OTHER PLACE(s) OF BUSINESS:
E.	JURISDICTION OF ORGANIZATION:
	State of Ohio

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EX-10.9

Exhibit 10.9

Execution Copy

DPAC Technologies Corp.

Co-Sale Agreement

Dated as of January 31, 2008

Co-Sale Agreement

This CO-SALE AGREEMENT dated as of January 31, 2008 (the “Agreement”) by and among DPAC Technologies Corp., a California corporation (the “Company”), Development Capital Ventures, LP, a Delaware limited partnership (“DCP”), William Roberts, an individual, and Steven D. Runkel, an individual (together with any future holder of Shares, individually, a “Shareholder” and collectively, the “Shareholders”), and Canal Mezzanine Partners, L.P., a Delaware limited partnership (the “Holder”), is provided for and entered into pursuant to the Senior Subordinated Note and Warrant Purchase Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), by and between the Company, Quatech, Inc., an Ohio corporation and wholly owned subsidiary of the Company, and the Holder. The Company, the Shareholders and the Holder are referred to collectively as the “Parties” and individually as a “Party”.

This Agreement is one of the “Related Documents” referred to in the Purchase Agreement.

In consideration of their mutual promises set forth in this Agreement and the Purchase Agreement, the Parties hereby agree as follows:

Section 1. Definitions. All capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Glossary of Defined Terms attached to the Purchase Agreement, which definitions are, to the extent applicable, incorporated in this Agreement by reference.

Section 2. Sales by Shareholders.

2.1 Notice of Purchase Offers. If (i) any Shareholder (a “Selling Shareholder”) receives or solicits, and proposes to accept one or more Purchase Offers for an amount of Shares in excess of fifty percent (50%) of such Selling Shareholder’s Fully Diluted Shares or (ii) any Shareholders (the “Selling Shareholders”) receive or solicit, and propose to accept one or more Purchase Offers which collectively result in the Transfer of greater than fifty percent (50%) of the Fully Diluted Shares of such Selling Shareholders, then such Selling Shareholder(s) shall provide notice to the Holder of the terms and conditions of such Purchase Offer (the “Notice of Purchase Offer”) at least twenty (20) Business Days prior to the proposed date of consummation of such Purchase Offer.

2.2 Right to Participate. The Holder shall have the right, exercisable upon written notice to the Selling Shareholder(s) within ten (10) Business Days after receipt of the Notice of Purchase Offer, to participate in such Purchase Offer on the same (or, in the case of Convertible Securities, equivalent) terms and conditions as set forth in the Notice of Purchase Offer. If the Holder exercises its right of participation granted by this Agreement, the number of securities that such Selling Shareholder(s) may sell pursuant to such Purchase Offer shall be reduced in the manner provided below. The right of participation of the Holder shall be subject to the following terms and conditions:

(a) The Holder may sell that number of its Shares (and equivalent Convertible Securities) in the Purchase Offer as shall be equal to the product obtained by multiplying (i) the aggregate number of Shares (and equivalent Convertible Securities) subject to the Purchase Offer by (ii) a fraction (A) the numerator of which is the number of Shares (and equivalent Convertible Securities) at the time owned by the Holder, and (B) the denominator of which is the sum of (x) the number of Shares (and equivalent Convertible Securities) at the time owned by the Selling Shareholder(s), and (y) the number of Shares (and equivalent Convertible Securities) then owned by the Holder. For purposes of making such computation, the number of Shares owned by the Holder shall be deemed to include the number of Warrant Shares into which the Warrant is then exercisable.

(b) If the Holder elects to participate in the Purchase Offer, it shall deliver to the Selling Shareholder(s) for Transfer to the purchaser one or more certificates, properly endorsed for Transfer, free and clear of all adverse claims, that represent the number of Shares (and equivalent Convertible Securities) the Holder elects to sell pursuant to this Agreement. Such certificates shall be delivered to the Selling Shareholder(s) no later than two (2) Business Days prior to the date set for consummation of the Purchase Offer.

2.3 Consummation of Purchase Offer. The certificate or certificates delivered to the Selling Shareholder(s) pursuant to Section 2.2 shall be Transferred by the Selling Shareholder(s) to the purchaser in consummation of the Purchase Offer pursuant to the terms and conditions specified in the Notice of Purchase Offer delivered to the Holder. The Selling Shareholder(s) shall promptly thereafter remit to the Holder that portion of the sale proceeds that equals (i) the purchase price per share or share equivalent, multiplied by (ii) the number of share or share equivalents sold by the Holder in connection with such Purchase Offer.

2.4 Ongoing Rights. The exercise or non-exercise by the Holder of its right to participate in one or more Purchase Offers hereunder shall not adversely affect the Holder’s right to participate in subsequent Purchase Offers pursuant to this Agreement.

2.5 Permitted Exceptions. The participation rights of the Holder hereunder shall not apply to (i) any bona fide gift by a Shareholder, or (ii) Transfer of securities to the spouse or descendants of a Shareholder or any trust established for the benefit of the Shareholder or his spouse or descendants; provided that the Shareholder shall give prior written notice to the Holder of such gift or other Transfer and the donee or transferee shall become a party to and be bound by, and comply with, all provisions of this Agreement.

Section 3. Prohibited Transfers. If a Shareholder engages in a Prohibited Transfer, the Holder, in addition to such other remedies as may be available at law or in equity, shall have the right to sell to the Shareholder engaging in such Prohibited Transfer that number of Shares or Convertible Securities owned by the Holder which shall be equal to the number of shares the Holder would have been entitled to Transfer to the purchaser in the Prohibited Transfer. Such sale shall be made on the following terms and conditions:

(a) The price per share at which such Shares or Convertible Securities shall be

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sold to the Shareholder shall be equal or equivalent to the price per share paid by the purchase offeror to the Shareholder in the Prohibited Transfer. The Shareholder shall also reimburse the Holder for any and all reasonable fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Holder’s rights under this Section.

(b) Within twenty (20) Business Days after the earlier of the date on which the Holder (i) receives notice from a Shareholder of a Prohibited Transfer, or (ii) otherwise becomes aware of a Prohibited Transfer, the Holder shall, if it determines in its sole discretion to exercise its sale rights pursuant to this Section, deliver to the Shareholder engaging in the Prohibited Transfer the certificate or certificates representing the securities to be sold hereunder free and clear of all adverse claims and properly endorsed for Transfer.

(c) The Shareholder engaging in the Prohibited Transfer shall, upon receipt of the certificate or certificates for the Shares or Convertible Securities to be sold by the Holder hereunder, pay the aggregate purchase price therefor plus the amount of reimbursable fees and expenses, as specified above, by wire transfer of immediately available funds or certified or cashier’s check made payable to the order of the Holder.

(d) Notwithstanding the foregoing, any attempt to Transfer securities of the Company in violation of the terms of this Agreement shall be void and the Company agrees it will not affect such a Transfer nor will it treat any proposed transferee as the holder of such securities without the written consent of the Holder.

Section 4. Legend. Each certificate representing Shares or Convertible Securities of the Company now or hereafter owned by the Shareholders shall be endorsed by the Company with the following legend:

THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE HOLDER AND OTHER PARTIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

The legend required by this Agreement shall be removed from any certificate upon the earlier of the termination of this Agreement or the date upon which the provisions of this Agreement are no longer applicable to the securities represented by such certificate.

Section 5. Termination. The rights of the Holder and the obligations of the Shareholders and the Company under this Agreement shall terminate upon the earliest to occur of the following events:

(a) a Qualified Public Offering; or

(b) the Holder ceases to own any Holder’s Shares.

Section 6. Other Obligations of the Company. The Company agrees to use reasonable best efforts to enforce the terms of this Agreement, to inform the Holder of any breach hereof and to assist the Holder in the exercise of its rights hereunder.

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Section 7. Increase in Authorized Shares of Common Stock. The Company hereby agrees, as soon as practical following the date hereof, to take appropriate shareholder action to increase the number of authorized shares of common stock of the Company to provide a sufficient amount of shares of common stock of the Company reserved for issuance upon conversion of (i) the Warrant issued to the Purchaser pursuant to the Purchase Agreement and (ii) the Series A Preferred Stock (the “Preferred Stock”) issued to DCP pursuant to that certain Subscription Agreement dated December 17, 2007 between the Company and DCP (the “Subscription Agreement”). DCP hereby agrees to vote all of its Shares in favor of such an increase in the number of authorized shares of common stock of the Company. The Company and DCP each agrees to execute and deliver such further documents and instruments and to do such further acts and things as may be necessary or desirable to carry out the intent and purposes of this Agreement.

Section 8. Miscellaneous. The provisions of Section 12 of the Purchase Agreement are applicable to this Agreement and are incorporated by reference in this Agreement.

[signatures appear on following page]

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

Company:		Holder:
DPAC TECHNOLOGIES CORP. a California corporation		CANAL MEZZANINE PARTNERS, L.P., a Delaware limited partnership
By:	/s/ Steven D. Runkel	By:	Canal Mezzanine Management, LLC,
	Steven D. Runkel, Chief Executive Officer and President		an Ohio limited liability company
		Title:	General Partner
			By:	Canal Holdings, LLC, an Ohio limited liability company
Shareholders:			Title:	Managing Member
/s/ Steven D. Runkel				By:	/s/ Shawn M. Wynne
Steven D. Runkel				Title:
/s/ William Roberts
William Roberts
DEVELOPMENT CAPITAL VENTURES, L.P.
By:	DCC Operating, Inc., General Partner
By:	/s/ Donald L. Murfin
	Donald L. Murfin, Executive Vice President

Signature Page to Co-Sale Agreement

EX-10.10

Exhibit 10.10

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (“Agreement”) is made and entered into as of January 31, 2008 by and between DPAC TECHNOLOGIES CORP., a California corporation (the “Company”), and Canal Mezzanine Partners, L.P. (“Investor”).

R E C I T A L S

WHEREAS, the Company, the Company’s wholly owned subsidiary, QUATECH, INC., an Ohio corporation (“Quatech”), and Investor have entered into that certain Senior Subordinated Note and Warrant Purchase Agreement (together with all promissory notes and related agreements executed in connection therewith, including without limitation the warrant to purchase shares of the Company’s common stock executed in connection therewith (the “Warrant”), and any amendments thereto, the “Note Agreement”), dated as of the same date herewith, pursuant to which Investor will loan to Quatech certain funds under the terms and conditions of such Note Agreement; and

WHEREAS, as a condition and as an inducement to the willingness of Investor to make such loans as are contemplated by the Note Agreement, the Company is required to enter into this Agreement with respect to shares of Company common stock, no par value per share (“DPAC Common Stock”) issuable pursuant to exercise of the Warrant, as well as other shares of DPAC Common Stock that may be issued to Investor pursuant to Section 3 of the Warrant (“Preemptive Stock”); and

WHEREAS, the Company is party to that Shareholder and Registration Rights Agreement dated May 11, 2005 (the “Existing Rights Agreement”), and it is the intention of the parties hereto that the rights contained in this Agreement be coordinated to reflect the Company’s obligations under such prior registration rights agreement, and the rights of the Shareholders (as defined therein) party thereto.

A G R E E M E N T

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

1. Definitions. As used herein:

1.1 The term “Advice” is defined in Section 2.9.

1.2 The term “Blocking Right” is defined in Section 2.1.

1.3 The term “Commission” means the Securities and Exchange Commission.

1.4 The term “Exchange Act” means the Securities Exchange Act of 1934, as amended.

1.5 The term “Existing Holder” means any of the following persons owning or having the right to acquire Registrable Shares or any permitted assignee of rights under this Agreement: Development Capital Ventures, LP; William Roberts, an individual; and Steve Runkel, an individual.

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1.6 The term “Institutional Shareholder” shall mean Development Capital Ventures, L.P.

1.7 The term “Public Offering” means and includes the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of securities to the general public for the account of the Company.

1.8 The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act (as defined below) and the applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

1.9 For the purposes hereof, the term “Registrable Shares” means and includes the shares of the DPAC Common Stock issuable upon exercise of the Warrant, and the Preemptive Stock (and where the context so includes, shall also mean Registrable Shares together with the “Registrable Shares”, as defined in the Existing Rights Agreement).

1.10 The term “Securities Act” means the Securities Act of 1933, as amended.

1.11 The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

2. Registration Rights.

2.1 Demand Registration.

Subject to Sections 2.6, 2.7 and 2.8, if at any time the Company shall receive a written request from the Institutional Investor that the Company file with the Commission a registration statement under the Securities Act covering the registration for offer and sale of outstanding Registrable Shares (as defined in the Existing Rights Agreement) held by such Institutional Investor, then the Company shall promptly notify in writing the Investor of such request. Within 20 days after such notice has been given by the Company, Investor and any Existing Holder may give written notice to the Company of its election to include its Registrable Shares in the registration. As soon as practicable after the expiration of such 20-day period, the Company shall use its reasonable best efforts to cause the registration of all Registrable Shares of Investor with respect to which registration has been so requested. If the Institutional Investor intends to distribute its Registrable Shares covered by their request by means of an underwriting, the right of Investor to include its Registrable Shares in such registration shall be conditioned upon Investor’s participation in such underwriting and the inclusion of Investor’s Registrable Shares in the underwriting to the extent provided herein. Investor shall enter into an underwriting agreement in customary form with the underwriters selected for such underwriting. Notwithstanding the foregoing, if the underwriter advises the Institutional Shareholder in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise Investor, and the number of shares of Registrable Shares that may be included in the underwriting shall be allocated among Investor and the Existing Holders, including the Institutional Shareholder, in proportion (as nearly as practicable) to the amount of Registrable Shares of the Company owned by each such person.

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Notwithstanding the provisions set forth above in this Section 2.1, the Company shall not be obligated to effect any registration pursuant to this Section within 180 days after a Public Offering. In addition, the Company may postpone for up to 90 days the filing or effectiveness of a registration statement pursuant to a request under this Section if the Board of Directors (with the concurrence of the managing underwriters, if any) determines in good faith that such registration would be reasonably expected to have a material adverse effect on any proposal or plan by the Company to engage in any acquisition or sale of assets, merger, consolidation, tender offer, financing or similar transaction (a “Blocking Right”). The Company may not assert a Blocking Right more than once in any twelve month period. In the event of any postponement described in this subsection the Investor shall, upon written notice to the Company, be entitled to withdraw such request and, if such request is withdrawn, such request shall not count as a request for registration pursuant to this Section.

2.2 Piggyback Registration.

Subject to Sections 2.6 and 2.7, if at any time after the date hereof the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of others, in connection with the public offering of such securities solely for cash, on a registration form that would also permit the registration of Registrable Shares, the Company shall promptly give Investor written notice of such proposal. Upon the written request of Investor given within 20 days after any such notice is given, subject to Sections 2.6 and 2.7, the Company shall use its commercially reasonable best efforts to cause to be included in such registration all Registrable Shares with respect to which registration has been so requested.

2.3 Registration Obligations of the Company.

Whenever required under this Agreement to use commercially reasonable best efforts to effect the registration of any Registrable Shares, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the Commission a registration statement covering such Registrable Shares and use reasonable efforts to cause such registration statement to be declared effective by the Commission as expeditiously as possible and to keep such registration effective until the date when all Registrable Shares covered by the registration statement have been sold; provided, that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to Investor and the underwriters, if any, copies of all such documents proposed to be filed (excluding exhibits, unless any such person shall specifically request exhibits in writing), which documents will be subject to the review of Investor and the underwriters, and the Company will not file such registration statement or any amendment thereto or any prospectus or any supplement thereto with the Commission if (A) a majority of the group constituting the Existing Holders and Investor (the “Rights Group”) reasonably object to such filing (unless such registration is pursuant to Section 3 and is in connection with a Public Offering) or (B) information in such registration statement or prospectus concerning Investor has changed or is otherwise inaccurate and Investor or the underwriters, if any, shall reasonably and promptly object;

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(b) prepare and file with the Commission such amendments and post-effective amendments to such registration statement as may be necessary to keep such registration statement effective during the period referred to in subsection (a) above, and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed with the Commission pursuant to Rule 424 under the Securities Act;

(c) furnish to Investor and to each underwriter, if any, such reasonable numbers of copies of such registration statement, each amendment thereto, the prospectus included in such registration statement (including each preliminary prospectus), each supplement thereto and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Shares owned by them;

(d) use its best efforts to register and qualify the Registrable Shares under such other securities laws of such United States jurisdictions as shall be reasonably requested by a majority of the Rights Group or any underwriters or, in the alternative, to obtain exemptions from the registration requirements of such securities laws, and do any and all other acts and things which may be reasonably necessary or advisable to enable Investor and underwriters to consummate the disposition of the Registrable Shares owned by Investor and underwriters in such jurisdictions; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to transact business, subject itself to taxation or to file a general consent to service of process in any such jurisdiction;

(e) promptly after becoming aware thereof, notify Investor, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading and, at the request of Investor, the Company will promptly prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(f) cause all such Registrable Shares to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Shares with the NASD;

(g) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement;

(h) enter into such customary agreements (including underwriting agreements in customary form for a primary offering) and take all such other actions as a majority of the Rights Group or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Shares;

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(i) subject to compliance with such confidentiality requirements as the Company may reasonably impose, and subject to the requirements of federal and state securities laws, the rules of the NASD and the rules of any securities exchange on which the Company’s securities are traded, make available for inspection by Investor, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by Investor or underwriter, provided, however, that the Investor shall employ only one counsel, all pertinent financial and other records and pertinent corporate documents of the Company, and cause the officers, directors, employees and independent accountants of the Company to supply all information reasonably requested by Investor and any underwriter, attorney, accountant or agent in connection with such registration statement;

(j) promptly notify Investor and the underwriters, if any, of the following events and (if requested by any such person) confirm such notification in writing: (i) the filing of the prospectus or any prospectus supplement and the registration statement and any amendment or post-effective amendment thereto and, with respect to the registration statement or any post-effective amendment thereto, the declaration of the effectiveness of such documents; (ii) any requests by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (iii) the issuance or written threat of issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; and (iv) the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the initiation or threat of initiation of any proceeding for such purpose;

(k) make reasonable efforts to prevent the entry of any order suspending the effectiveness of the registration statement and obtain at the earliest possible moment the withdrawal of any such order, if entered;

(l) if reasonably requested by any underwriter or Investor in connection with any underwritten offering, promptly incorporate in a prospectus supplement or post-effective amendment such information as such underwriter or a majority of the Rights Group agree should be included therein relating to the sale of the Registrable Shares, including without limitation information with respect to the number of Registrable Shares being sold to such underwriter, the purchase price being paid therefore by such underwriter and any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Shares to be sold in such offering, and make all required filings of such prospectus supplement or post-effective amendment promptly after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;

(m) upon the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after the initial filing of the registration statement with the Commission), (i) promptly provide copies of such document to counsel for the requesting Investor and counsel for the underwriters, if any, and (ii) make representatives of the Company available for discussion of such document;

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(n) cooperate with Investor and the underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Shares to be sold and not bearing any restrictive legends, and enable such Registrable Shares to be in such lots and registered in such names as the underwriters may request at least two business days prior to any delivery of Registrable Shares to the underwriters;

(o) if necessary, provide a CUSIP number for all Registrable Shares not later than the effective date of the registration statement; and

(p) prior to the effectiveness of the registration statement and any post-effective amendment thereto and at each closing of an underwritten offering, do the following insofar as the requesting Investor are concerned or affected: (i) make such representations and warranties to Investor and the underwriters, if any, with respect to the Registrable Shares and the registration statement as are customarily made by issuers to holders and underwriters in primary underwritten offerings; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions shall be reasonably satisfactory to the underwriters, if any, and to a majority of the Rights Group) addressed to each of Investor and the Existing Holders and the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the Rights Group and underwriters or their counsel; (iii) obtain “cold comfort” letters and updates thereof from the Company’s independent certified public accountants addressed to the Existing Holders and Investor or underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in cold comfort letters by accountants and underwriters in connection with primary underwritten offerings; and (iv) deliver such documents and certificates as may be reasonably requested by a majority of the Rights Group or by the underwriters, if any, to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company.

2.4 Suspension of Disposition of Registrable Shares.

Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(e), Investor will forthwith discontinue disposition of Registrable Shares until such Investor’s receipt of copies of a supplemented or amended prospectus contemplated by Section 2.3(e), or until it is advised in writing (an “Advice”) by the Company that the use of the prospectus may be resumed and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus and, if so directed by the Company, Investor will deliver to the Company (at the expense of the Company) all copies, other than permanent file copies then in Investor’s possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. If the Company shall give any such notice, the time periods specified in Section 2.3(a) shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.3(e) to and including the date when Investor shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.3(e) or the Advice.

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2.5 Expenses of Registration.

Whether or not any registration statement prepared and filed pursuant to this Agreement is declared effective by the Commission, the Company shall pay or incur all expenses incurred in connection with a registration pursuant to the terms hereof (excluding underwriting fees, discounts and commissions attributable to the sale of Registrable Shares), including without limitation all registration, qualification, application, filing, listing, transfer agent and registrar fees, printing, messenger, telephone and delivery fees and expenses, accounting fees and disbursements (including the expenses of any audit, review and/or “cold comfort” letters), fees and disbursements of counsel for the Company, and in each demand registration, to a maximum of $15,000, the fees and costs of one counsel representing the Institutional Investor.

2.6 Conditions Precedent to Participation in Registration.

Investor shall not participate in any registration hereunder unless:

(a) Investor timely furnishes to the Company and/or the underwriters managing such registration, if any, all such information regarding Investor, the Registrable Shares held by it and its intended method of disposing of such Registrable Shares as the Company or such underwriters may reasonably request;

(b) Investor agrees to notify the Company and/or any underwriters managing such registration of the occurrence of any event which causes the prospectus prepared in connection with any such registration to contain an untrue statement of a material fact or omit to state a fact necessary to make the statements therein not misleading promptly after Investor obtains knowledge of such occurrence; and

(c) in the case of an underwritten registration, Investor agrees to (i) sell Investor ‘s Registrable Shares on the basis of any underwriting arrangements approved by the persons(s) entitled hereunder to approve such arrangements and (ii) complete, execute and deliver all questionnaires, powers of attorney, indemnities, lock-up agreement, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and consistent with this Agreement.

2.7 Selection of Underwriters; Priorities.

(a) The Institutional Investor shall have the right to select the investment banker(s) and manager(s) to administer any offering to which Section 2.1 is applicable, subject to the written consent of a majority in interest of the Registrable Shares held by the Rights Group, which consent may be withheld in their sole and absolute discretion; a majority of the Rights Group shall have the right to select the investment banker(s) and manager(s) to administer an offering to be effected pursuant to Section 2.2 on Form S-1 or S-3 if no such securities are being sold for the account of the Company.

(b) In the case of a registration under Section 2.1 which is an underwritten offering, if the managing underwriters advise the Company in writing that in their opinion the number of Registrable Shares and other securities requested to be included exceeds the number of Registrable Shares and other securities which can be sold at the desired price in such offering, the Company will include in such registration, to the extent of the amount which the Company is advised can be sold

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at such price: (i) first, the Registrable Shares requested to be included, pro rata among the Rights Group on the basis of the number of Registrable Shares requested to be registered by each such person; (ii) second, securities held by persons having piggyback registration rights and securities proposed to be sold by the Company, pro rata based on the estimated gross proceeds from the sale thereof; and (iii) third, all other securities requested to be included in such registration.

(c) In the case of a registration under Section 2.2 which is an underwritten offering, if the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold at the desired price in such offering, the Company will include in such registration, to the extent of the amount which the Company is advised can be sold at such price:

(i) if such registration is commenced upon the demand of persons having demand registration rights, the Company will include in such registration, (A) first, securities held by the persons having such demand registration rights, (B) second, securities proposed to be sold by the Company, Registrable Shares, and securities proposed to be sold by other persons having piggyback registration rights pro rata based on the estimated gross proceeds from the sale thereof and (C) third, all other securities requested to be included in such registration; and

(ii) if such registration is commenced by the Company on its own account and not in response to persons having demand registration rights, (A) first, the securities which the Company proposes to sell, (B) second, Registrable Shares and securities proposed to be sold by other persons having piggyback registration rights, pro rata based on the estimated gross proceeds from the sale thereof, (C) third, all other securities requested to be included in such registration.

2.8 Termination of the Company’s Obligations.

Except as set forth below, the Company shall have no further obligations under Section 2.1 after the Company has effected (a) two (2) registrations on Form S-1 or Form S-2 (or any successor forms) pursuant to a demand made pursuant to Section 2.1, or (b) all Registrable Shares covered thereby have been sold either pursuant thereto or pursuant to Rule 144, or (c) when all of Investor’s Registrable Shares may be sold within one day’s then normal trading volume under Rule 144(k), or (d) the close of business on December 31, 2010, whichever is earliest. The Company’s obligation to effect registrations pursuant to Section 2.2 and registrations under Section 2.1 to be done on Form S-3 so long as the Company is eligible to use such Form (or any successor form) shall continue for so long as any Registrable Shares remain unregistered.

2.9 Indemnification.

2.9.1 Indemnification of Investor. Pursuant to the Company’s registration of the Registrable Shares under the Securities Act, the Company will indemnify and hold harmless Investor and each underwriter of the Registrable Shares so registered and each person, if any, who controls Investor or any such underwriter within the meaning of

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Section 15 of the Securities Act from and against any and all losses, claims, damages, expenses or liabilities (or any action in respect thereof), joint or several, to which they or any of them become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse Investor, each such underwriter and each such controlling person, if any, for any legal or other expenses reasonably incurred by them or any of them, as such expenses are incurred, in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the prospectus (or the registration statement or prospectus as from time to time amended or supplemented by the Company); (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading; or (iii) any violation by the Company of the Securities Act, the Exchange Act, a state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law; provided, however, that the indemnity contained in this Section 2.9 will not apply where such untrue statement or omission was made in such registration statement, preliminary or amended, preliminary prospectus or prospectus in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by Investor, any such underwriter or any such controlling person expressly for use therein. Promptly after receipt by Investor, any underwriter or any controlling person of notice of the commencement of any action in respect of which indemnity may be sought against the Company, Investor, or such underwriter or such controlling person, as the case may be, will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to Investor, such underwriter or such controlling person, as the case may be), and the payment of expenses insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company. Investor, any such underwriter or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof in the event the representation of Investor, underwriter or controlling person by counsel retained by or on the behalf of the Company would be inappropriate due to conflicts of interest between any such person and any other party represented by such counsel in such proceeding or action, in which case the Company shall pay, as incurred, the fees and expenses of such separate counsel. The Company shall not be liable to indemnify any person under this Section 2.9 for any settlement of any such action effected without the Company’s consent (which consent shall not be unreasonably withheld). The Company shall not, except with the approval of each party being indemnified under this Section 2.9 (which approval will not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to the parties being so indemnified of a release from all liability in respect to such claim or litigation.

2.9.2 Indemnification of the Company. In the event that the Company registers any of the Registrable Shares under the Securities Act, Investor will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each underwriter of the Registrable Shares so registered and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act from and against any and all losses, claims, damages, expenses or liabilities

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(or any action in respect thereof), joint or several, to which they or any of them may become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer, underwriter or controlling person for any legal or other expenses reasonably incurred by them or any of them, as such expenses are incurred, in connection with investigating or defending any actions whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, in any preliminary or amended preliminary prospectus or in the prospectus (or the registration statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by Investor, expressly for use therein; provided, however, that Investor’s obligations hereunder shall be limited to an amount equal to the proceeds to Investor of the Registrable Shares sold in such registration. Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against Investor, the Company will notify Investor in writing of the commencement thereof, and Investor shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel, who shall be counsel satisfactory to the Company) and the payment of expenses insofar as such action shall relate to the alleged liability in respect of which indemnity may be sought against Investor. The Company and each such director, officer, underwriter or controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof in the event the representation of the Company, any of its officers or directors or any underwriter or controlling person by counsel retained by or on the behalf of Investor would be inappropriate due to conflicts of interest between any such person and any other party represented by such counsel in such proceeding or action, in which case Investor shall pay, as incurred, the fees and expenses of such separate counsel. Notwithstanding the two preceding sentences, if the action is one in which the Company may be obligated to indemnify Investor pursuant to Section 2.9, the Company shall have the right to assume the defense of such action, subject to the right of such holders to participate therein as permitted by Section 2.9. Investor shall not be liable to indemnify any person for any settlement of any such action effected without Investor’s consent (which consent shall not be unreasonably withheld). Investor shall not, except with the approval of the Company (which approval shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to the party being so indemnified of a release from all liability in respect to such claim or litigation.

2.10 Contribution.

If the indemnification provided for in Section 2.9. is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim,

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damage or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

2.11 Exchange Act Registration.

With a view to making available to Investor the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit Investor to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

2.11.1. Use its best efforts to make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the Effective Time;

2.11.2. Take such reasonable actions, including the registration of its common stock under Section 12 of the Exchange Act, as are necessary to enable Investor to use Rule 144 for the sale of their Registrable Shares;

2.11.3. File on a timely basis with the SEC all information that the SEC may require under either of Section 13 or Section 15(d) of the Exchange Act and, so long as it is required to file such information, take all action that may be required as a condition to the availability of Form S-3 or Rule 144 under the Securities Act (or any successor exemptive rule hereinafter in effect) with respect to DPAC Common Stock; and

2.11.4. Furnish to Investor forthwith upon request (a) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, (b) a copy of the most recent annual or quarterly report of the Company as filed with the SEC, and (c) any other reports and documents that Investor may reasonably request in availing itself of any rule or regulation of the SEC allowing Investor to sell any such Registrable Shares without registration.

2.12. Market Stand-Off Agreement.

Provided that all of the members of the Rights Group are treated equally and all officers and directors of the Company are also so bound, Investor shall not, to the extent requested by any managing underwriter of the Company, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Registrable Shares during a period (the “Stand-Off Period”) equal to one hundred twenty (120) days following the effective date of a registration statement of any secondary offering of the Company under the Securities Act (or in each case such shorter period as the Company or managing underwriter may authorize) and except in each case, for securities sold as part of the offering covered by such registration statement in accordance with the provisions of this Agreement. In order to enforce the foregoing covenant, the Company may impose stock transfer restrictions with respect to the Registrable Shares of Investor until the end of the Stand-Off Period. Notwithstanding the foregoing, the obligations described in this

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Section 2.9. shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future.

3. [Reserved].

4. Nasdaq Listing.

From and after the date hereof for so long as Investor continues to hold Registrable Shares, the Company will use commercially reasonable best efforts to maintain the continued listing of the DPAC Common Stock on the Over the Counter Bulletin Board.

5. Covenant Not to Enter Into Other Registration Rights Agreements.

Until the termination of the Company’s obligations under Section 2.8 hereof, the Company will not agree to, and will not, grant registration rights of any type, whether demand, piggyback or other, to any other person without the express written consent of Investor.

6. Miscellaneous.

6.1. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.

6.2. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors, assigns, heirs, executors, administrators and other legal representatives. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement.

6.3. Assignment. This Agreement shall not be assigned without the prior written consent of the other party hereto.

6.4. Modifications. This Agreement shall not be amended, altered or modified in any manner whatsoever, except by a written instrument executed by the parties hereto.

6.5. Severability. If any provision of this Agreement or the application of such provision to any person or circumstances shall be held invalid or unenforceable by a court of competent jurisdiction, such provision or application shall be unenforceable only to the extent of such invalidity or unenforceability, and the remainder of the provision held invalid or unenforceable and the application of such provision to persons or circumstances, other than the party as to which it is held invalid, and the remainder of this Agreement, shall not be affected.

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6.6. Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Ohio without regard to the conflicts of law principles thereof.

6.7. Attorneys’ Fees. The prevailing party or parties in any litigation, arbitration, mediation, bankruptcy, insolvency or other proceeding (“Proceeding”) relating to the enforcement or interpretation of this Agreement may recover from the unsuccessful party or parties all fees and disbursements of counsel (including expert witness and other consultants’ fees and costs) relating to or arising out of (a) the Proceeding (whether or not the Proceeding proceeds to judgment) and (b) any post-judgment or post-award proceeding including, without limitation, one to enforce or collect any judgment or award resulting from the Proceeding. All such judgments and awards shall contain a specific provision for the recovery of all such subsequently incurred costs, expenses, fees and disbursements of counsel.

6.8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect.

6.9. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.

6.10. Notices. Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed duly given upon (a) transmitter’s confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier, or (c) the expiration of five (5) business days after the day when mailed by certified or registered mail, postage prepaid, addressed at the following addresses (or at such other address as the parties hereto shall specify by like notice):

If to the Company to:	With a copy to:
DPAC TECHNOLOGIES CORP.	Buchanan Ingersoll & Rooney PC
5675 Hudson Industrial Parkway	301 Grant Street 20th Floor
Hudson, Ohio 44236	One Oxford Centre
Attention: Steve Runkel, CEO	Pittsburgh PA 15219
Phone: (800) 553-1170	Attention: Richard Rose, Esq.
Facsimile: (        )         -	Phone: (412) 562-8425
	Facsimile: (412) 562-1041

If to Investor, to the address noted on the signature page hereto and to any counsel identified in like written notice from Investor to the Company. Each of the parties hereto shall be entitled to specify another address by giving notice as aforesaid to each of the other parties hereto.

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

DPAC TECHNOLOGIES CORP.
By:	/s/ Steven D. Runkel
	Steven D. Runkel,
	Chief Executive Officer and President

INVESTOR		ADDRESS FOR NOTICES
Canal Mezzanine Partners, L.P.
By:	/s/ Shawn M. Wynne, its General Partner

Signature:	/s/ Shawn M. Wynne
Name:	Shawn M. Wynne
Title:	General Partner

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EX-10.11

Exhibit 10.11

ACKNOWLEDGEMENT AGREEMENT

This ACKNOWLEDGEMENT AGREEMENT (herein called the “Agreement”) is entered into as of January 31, 2008, by and between CANAL MEZZANINE PARTNERS, L.P., 1737 Georgetown Road, Suite A, Hudson, Ohio 44236 (herein called the “Purchaser”) and DEVELOPMENT CAPITAL VENTURE, L.P., Virginia Gateway Professional Building, 7500 Iron Bar Lane, Suite 209, Gainesville, VA with mailing address of P.O. Box 399, Catharpin, VA 20143-0399 (herein called “DCV”).

W I T N E S S E T H

WHEREAS, DCV has or will shortly enter into an agreement whereby it will acquire $2,000,000.00 in preferred stock (herein called the “Preferred Stock”) of DPAC TECHNOLOGIES Corp. (herein called the “Company”) (such agreement, the Preferred Stock, and all documents related thereto herein called the “Stock Agreements”, copies of which are attached hereto and made a part hereof), and

WHEREAS, the Purchaser has requested that DCV agree to certain restrictions on its redemption rights under the Stock Agreements as a condition of the Company to issue and sell to the Purchaser the Senior Subordinated Note in the aggregate principal amount of $1,200,000 due February 31, 2013 and a warrant to purchase the common stock of the Company representing 3% of the fully diluted common stock of Company, and

WHEREAS, DCV has agreed to restrict such rights.

NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the Purchaser and DCV do hereby agree as follows:

1. DCV hereby agrees and consents that to the extent that DCV has the right to redeem or be subject to redemption of the Preferred Stock under the Stock Agreements, or otherwise, it will neither exercise such rights nor accept such redemption without the prior written consent of the Purchaser.

2. Except as specifically provided for herein, DVC’s rights under the Preferred Stock shall be in accordance with the Stock Agreements, as they may be amended from time to time.

3. In the event the DCV exercises its rights to and/or obtains payment from the Company relating to the redemption of the Preferred Stock, prior to the repayment in full of the Senior Indebtedness, Fifth Third Bank (the “Senior Lender”) shall be entitled to, and DCV shall immediately pay over to the Senior Lender, the proceeds of the redemption for application upon the obligations of the Company to the Senior Lender and upon and after the repayment in full of the Senior Indebtedness, Purchaser shall be entitled to, and DCV shall immediately pay over to the Purchaser, the proceeds of the redemption for application upon the obligations of the Company to the Purchaser. To the extent that such proceeds exceed such obligations, the Purchaser will promptly return such proceeds to DCV or as otherwise directed by law or court order.

4. This Agreement is not an executory contract and is created strictly for the benefit of the signatories hereto and to any of the Purchaser’s successors or permitted assigns and DCV’s successors and permitted assigns, but in any event it shall not be used by any Trustee in Bankruptcy or a Bankruptcy Court or any other court, agency, or panel charged with the responsibility of establishing the priorities of the creditors and shareholders of the Company for the purpose of expanding upon or diminishing the rights of the parties hereto.

5. This Agreement may not be assigned by either party without the express, written, prior consent of the other party; provided, however, that notwithstanding the above, the Purchaser may assign this Agreement and/or the related credit to any of its affiliates. No waiver of any provision of this Agreement or of any rights hereunder shall be deemed to be made by the Purchaser unless such waiver is in writing signed on behalf of the Purchaser, and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the Purchaser or the obligations of the undersigned to the Purchaser in any other respect at any other time. Notice of acceptance of this subordination is hereby waived, and this agreement shall be immediately binding upon DCV, and the successor, and permitted assigns of DCV. This agreement shall be governed by and construed in accordance with the law of the State of Ohio.

[This space is left blank intentionally]

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Executed on the date set forth above.

DEVELOPMENT CAPITAL VENTURE, L.P.
By:	DCC Operating, Inc., General Partner
Name:	Donald L. Murfin
Title:	Executive Vice President
Intending to be legally bound, each Company consents and agrees to the terms of the above Agreement as of the date first above written:
DPAC TECHNOLOGIES CORP.
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer
QUATECH, INC.
By:	/s/ Steven D. Runkel
	Steve Runkel, Chief Executive Officer

Agreed to and Acknowledged by:
CANAL MEZZANINE PARTNERS, L.P., a Delaware limited partnership
By:	Canal Mezzanine Management, LLC,
	an Ohio limited liability company
Title:	General Partner
	By:	Canal Holdings, LLC,
		an Ohio limited liability company
	Title:	Managing Member
		By:	/s/ Shawn M. Wynne
		Name:	Shawn M. Wynne
		Title:	Authorized Signer

3

EX-10.12

Exhibit 10.12

SUBSCRIPTION AGREEMENT

The undersigned, DEVELOPMENT CAPITAL VENTURES, L.P. (the “Investor”), hereby agrees with DPAC Technologies Corp., a California corporation (the “Company”), as follows:

1. Investor hereby purchases Twenty Thousand (20,000) shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”), without par value (the “Preferred Stock”) of the Company at a price per share of $100.00, and agrees to pay to the Company on the date hereof a total purchase price of $2,000,000.00 (the “Purchase Price”), by wire transfer.

2. Investor acknowledges, represents and warrants to the Company as follows:

(a) Investor understands that neither the Preferred Stock nor the common stock, without par value (the “Common Stock”) of the Company into which the Series A Preferred Stock may convert into has been registered under the Securities Act of 1933, as amended (the “Federal Act”) or any state’s securities laws by reason of specific exemptions under the provisions thereof which depend in part upon the representations made by Investor in this Agreement. Investor understands that the Company is relying upon Investor’s representations and agreements contained in this Agreement (and any supplemental information furnished by Investor, if any) for the purpose of determining whether this transaction meets the requirements for such exemptions.

(b) Investor has such knowledge, skill and experience in business, financial and investment matters so that Investor is capable of evaluating the merits and risks of an investment in the Preferred Stock.

(c) Investor has made such independent investigation of the Company, its management, and related matters as the Investor deems to be necessary or advisable in connection with an investment in the Preferred Stock; and Investor has received all information and data which the Investor believes to be necessary in order to reach an informed decision as to the advisability of an investment in the Preferred Stock.

(d) Investor is an accredited investor within the meaning of Rule 501(a) of Regulation D promulgated under the Federal Act.

(e) Investor understands that the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock are “restricted securities” under applicable Federal securities laws and that the Federal Act and the rules of the Securities and Exchange Commission provide in substance that Investor may dispose of the Preferred Stock or Common Stock issuable upon conversion of the Preferred Stock only pursuant to an effective registration statement under the Federal Act or an exemption from such registration, if available.

(f) Investor hereby confirms that Investor is acquiring the Preferred Stock for investment only and not with a view to or in connection with any resale or distribution of the Preferred Stock.

(g) Investor hereby confirms that its principal place of business is within the State of Virginia.

3. The Company acknowledges, represents and warrants to the Investor as follows:

(a) All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, and free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and any other encumbrances imposed by or through the Company other than the securities laws. The Preferred Stock has been offered, issued, sold and delivered in compliance with applicable federal and state securities laws, and none of such securities are or were at the time of issuance of any preemptive rights. The Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock, will be, duly and validly issued, fully paid and nonassessable and free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and any other encumbrances imposed by or through the Company. The aggregate authorized capital stock of the Company immediately prior to the issuance of the Preferred Stock consists of one hundred twenty million (120,000,000) shares of Common Stock, of which, as of October 25, 2007, ninety-two million eight hundred forty-three thousand eight hundred sixty-seven (92,843,867) are currently issued and outstanding, and eight million (8,000,000) shares of preferred stock, of which none are issued and outstanding. The Certificate of Incorporation of the Company (including the rights, preferences and other terms of the Preferred Stock) and Bylaws of the Company are as set forth as Exhibits A and B hereto. There are no outstanding options or warrants to purchase any capital stock or any other security convertible into equity securities of the Company, except for the following:

(i) Under the 1996 Stock Option Plan, as amended (the “Plan”), fifteen million (15,000,000) shares of Common Stock are available to be purchased. As of September 30, 2007, the total number of options outstanding was eleven million twelve thousand nine hundred forty (11,012,940).

(ii) There are currently outstanding warrants to purchase six million nine hundred twenty-three thousand seven hundred forty-nine (6,923,749) shares of Common Stock.

(iii) Following the closing of the transactions contemplated by (A) this Agreement, and the issuance of the Preferred Stock to the Investor and (B) any refinancing transaction(s) with any person related to the Company’s Credit Agreement, with National City Bank, as Lender, dated as of July

28, 2000, the Subordinated Loan and Security Agreement, with The HillStreet Fund, L.P., as Lender, as dated as of July 28, 2000 (each as amended), in no event will Investor’s equity interest in the Company (calculated on a fully diluted basis, assuming conversion of all outstanding options, warrants, convertible securities and all derivative securities with an exercise price of $0.16 or less per share of Company Common Stock) be less than 49.5%.

(b) The Company is not an “investment company” nor a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(c) The Company is not a “dealer” as defined in the Securities Act nor a broker-dealer (or broker, dealer) as defined under any applicable state securities laws.

(d) The Company shall use the proceeds related to the sale of the Preferred Stock to Investor to retire certain debt obligations of the Company and for general corporate purposes.

4. Limitation on Representations and Warranties. The representations and warranties made pursuant to Section 3 hereof are the sole representations and warranties of the Company.

5. Survival of Representations and Warranties. The representations and warranties of the Company made pursuant to Section 3 hereof shall survive for a period of twenty-four (24) months from the date hereof when they shall terminate, unless notice in writing of breach thereof was given prior to termination, except that the representations and warranties in Sections 3(a) hereof shall survive indefinitely.

6. Indemnification by Company. The Company agrees to indemnify, defend and hold the Investor harmless from and against any and all claims, demands, losses, expenses, costs, obligations, damages, liabilities and expense (including all costs, interest, penalties and reasonable attorneys fees) (collectively, “Losses”) which Investor may incur, suffer or sustain, which arise, result from or relate to any breach of or failure by Sellers to perform any of their representations, warranties, covenants or agreements under this Agreement (including such representations and warranties incorporated herein) or in any exhibit to this Agreement, as if any and all materiality and knowledge qualification provisions were not contained therein.

7. Legend. Investor acknowledges and agrees that the certificate(s) evidencing the Preferred Stock will bear the a legend substantially similar to the following, until otherwise registered for re-sale:

THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS (THE “ACTS”) AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER THAT THE TRANSFER OF THESE SHARES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACTS.

8. Amendment Investor and the Company acknowledge that the Company currently may not have sufficient shares of authorized Common Stock if the Preferred Stock were to be immediately converted. The Company covenants to take all reasonable efforts to amend its articles of incorporation to provide for adequate shares of Common Stock issuable upon conversion of the Preferred Stock. Investor agreed to vote for or consent to such amendment with respect to all shares of Common Stock and Preferred Stock owned by it.

9. Registration Rights Investor and the Company are parties, among others, to that certain Shareholder and Registration Rights Agreement dated as of May 11, 2005 (the “Registration Rights Agreement”). The parties agree the Common Stock issuable upon conversion of the Preferred Stock shall be included as “Registrable Shares” under the terms of the Registration Rights Agreement.

10. Purchase Right.

(a) Definitions.

(i) “Affiliate” shall mean with respect to any individual, corporation, partnership, association, trust, or any other entity (in each case, a “Person”), any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation any general partner, officer or director of such Person and any venture capital fund now or hereafter existing which is controlled by or under common control with one or more general partners or shares the same management company with such Person.

(ii) “Common Stock issued and outstanding on a fully diluted basis” means, as of any date, the total number of shares of Common Stock which are issued and outstanding, plus the total number of shares of Common Stock which would be issued upon conversion, exercise and/or exchange of all outstanding securities of the Company which are convertible, exercisable and/or exchangeable, directly or indirectly, for shares of Common Stock.

(iii) “Excluded Securities” means (A) securities issued upon the conversion of shares of Series A Preferred Stock; (B) securities issued pursuant to an acquisition approved by the Board of Directors of the Company, of another corporation or other entity by merger, consolidation, purchase of substantially all of the assets or equity securities or otherwise; (C) up to an aggregate of 15,000,000 shares of Common Stock (subject to adjustment for any stock splits, stock dividends, reverse stock splits, stock combinations and other similar capitalization changes) issued under the Plan, or such greater number if approved by the Board of Directors and the Stockholders of the Company; (D) shares of Common Stock issued pursuant to a bona fide, firm commitment public offering; (E) securities issued upon the conversion, exercise or exchange of other securities outstanding on the date of this Agreement; or (F) securities issued in a stock split or stock dividend by the Company that is paid on a proportionate basis to all holders of the Company’s capital stock.

(iv) “New Securities” means (A) all equity securities of any kind or class issued by the Company after the date hereof and (B) rights of any kind to acquire, directly or indirectly (including, without limitation, by conversion, exchange or exercise, whether debt instrument or otherwise) any securities described in clause (A).

(v) “Pro Rata Share” means, with respect to Investor, a fraction, the numerator of which is the number of shares of Common Stock owned by Investor (including shares of Common Stock issuable upon conversion, exercise and/or exchange of shares of Series A Preferred Stock owned by Investor) on the Notice Date (as defined below) and the denominator of which is the total number of shares of Common Stock issued and outstanding on a fully diluted basis on the Notice Date.

(b) Subject to the terms and conditions of this Section 10, the Company hereby grants to Investor a right of first offer to purchase up to its Pro Rata Share of all New Securities that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than Excluded Securities. Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, members and Affiliates in such proportions as it deems appropriate.

(c) If the Company proposes to issue any New Securities (other than Excluded Securities), it shall offer to sell to Investor its Pro Rata Share of such New Securities in accordance with the procedure set forth below:

(i) The Company shall give Investor a written notice (the “Offer Notice”). The date on which the Company gives the Offer Notice is hereinafter referred to as the “Notice Date.” The Offer Notice shall describe (A) the number of New Securities the Company has a bona fide intention to offer, sell or issue, (B) the price and terms and conditions upon which it proposes to offer such New Securities, and (C) Investor’s Pro Rata Share of the New Securities.

(ii) For a period of 20 days following the Notice Date (the “Acceptance Period”), Investor shall have the right to purchase (the “Purchase Right”), at the price and on the terms and conditions stated in the Offer Notice, up to Investor’s Pro Rata Share of the New Securities. If Investor who desires to exercise its Purchase Right, then it shall give written notice (the “Acceptance Notice”) to the Company within the Acceptance Period. The Acceptance Notice shall state that Investor desires to exercise its Purchase Right and the number of New Securities that Investor elects to purchase upon exercise of such Purchase Right up to Investor’s full Pro Rata Share. Failure by Investor to give the Acceptance Notice within the Acceptance Period shall be deemed, without any further action by the Company or Investor, the irrevocable waiver of Investor’s Purchase Right with respect to the New Securities set forth in the Offer Notice and any other securities issuable, directly or indirectly, upon conversion, exercise or exchange of such New Securities.

(d) Following the expiration of the Acceptance Period, the Company shall be entitled, during the period of 90 days following the expiration of the Acceptance Period (the “Unrestricted Period”), to sell to any person or entity up to the full amount of the New Securities set forth in the Offer Notice on the terms set forth in the Offer Notice, less the number of New Securities, if any, which Investor has elected to purchase upon exercise of its Purchase Right in accordance with Section 10(c) hereof (the “Remainder Securities”). The Company shall give ten (10) days’ prior written notice to Investor (if it has elected to purchase New Securities) of any such sale to a third party, which sale shall be at the price and upon terms and conditions no more favorable to the third party than those described in the Offer Notice. At and upon the closing, which shall include full payment to the Company, of the sale of such Remainder Securities to such third party, Investor shall purchase from the Company, and the Company shall sell to Investor, the New Securities elected to be purchased pursuant to Section 10(c) hereof on the terms specified in the Offer Notice. If the Company does not complete the sale of the Remainder Securities to any person or entity within the Unrestricted Period, the Purchase Right provided hereunder shall be deemed to be revived and such Remainder Securities shall not be offered unless first reoffered to Investor in accordance herewith. The exercise or non-exercise by Investor of its rights pursuant to this Section 10 shall be without prejudice to its rights under this Section 10 with respect to any future issuance of New Securities by the Company.

(e) Investor’s rights pursuant to this Section 10 shall automatically terminate upon a conversion of all shares of Series A Preferred Stock owned by Investor into Common Stock or as of such time that Investor shall cease to own beneficially or of record any shares of Series A Preferred Stock.

11. Investor acknowledges that neither the Company nor any person acting on its behalf has offered or sold the Preferred Stock to Investor by any form of general solicitation, general or public media advertising or mass mailing.

12. This Subscription Agreement shall be deemed to be a contract under the Laws of the State of Ohio and shall for all purposes be governed by and construed and enforced in accordance with the laws of the State of Ohio.

13. Neither this Subscription Agreement nor any provisions hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.

14. This Subscription Agreement is not transferable or assignable by Investor or the Company.

15. This Subscription Agreement, and the Preferred Stock constitute the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior understandings and agreements, whether written or oral, with respect to such subject matter.

16. This Subscription Agreement and the Preferred Stock shall only be binding upon a party (that is a signatory thereto) when executed by the parties thereto.

17. This Subscription Agreement may be executed in counterparts, all of which shall constitute the same instrument.

[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, do hereby execute this Subscription Agreement as of this 17th day of December, 2007.

DPAC Technologies Corp.
By:	/s/ Steven D. Runkel
Name:	Steven D. Runkel
Title:	CEO
DEVELOPMENT CAPITAL VENTURES, L.P.
By:	DCC Operating, Inc., General Partner
By:	/s/ Donald L. Murfin
Name:	Donald L. Murfin
Title:	Exec. Vice President

Exhibit A

Certificate of Incorporation

Exhibit B

Bylaws

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE
Contact: Steve Runkel	Steve Vukadinovich
Chief Executive Officer	Chief Financial Officer
(330) 655-9000	(330) 655-9000
Steve.Runkel@Quatech.com	Steve.Vukadinovich@dpactech.com

DPAC TECHNOLOGIES CLOSES ON NEW FINANCING

Hudson, OH, February 4, 2008 – DPAC Technologies, Inc. (DPAC.OB), a provider of device connectivity and device networking solutions, announced that it has closed on new equity and debt financing. The value of this financing, which includes the sale of preferred stock, as well as senior subordinated notes and a working capital line of credit, is for approximately $6.0 million, after deducting financing fees. The company will use the proceeds from this financing to repay its existing senior debt held by National City Bank, repay its existing subordinated debt held by Hill Street Capital, and provide additional working capital.

The preferred stock issuance is for $2.0 million and consists of 20,000 shares of Series A Preferred shares issued to Development Capital Ventures, L.P. The Preferred shares carry an initial annual dividend rate of 9% and contain conversion rights allowing the preferred shares to be converted into Company’s common stock. The senior debt is a $3.0M working capital line of credit from Fifth Third Bank in Cincinnati, Oh, with a floating interest rate of the bank’s prime rate plus 1.5%. Availability under the line of credit is formula driven based on applicable balances of the Company’s accounts receivable and inventories. The Company will initially have availability to draw up to approximately $2.1 million under the line of credit. The line of credit contains certain financial and other covenants that the Company must comply with. Additionally, the Company entered into a Senior Subordinated Note and Warrant Purchase Agreement (“Agreement”) with Canal Mezzanine Partners, L.P. (“Canal”), providing the Company with approximately $1.1 million in net funding. The note contained in the Agreement has a stated principal balance of $1.2 million with an annual interest rate of 13% and a five year maturity date. Interest only payments are payable monthly during the first five years of the note with all principal due and payable on the fifth anniversary of the note. The Agreement also provides for a formula driven success fee to be paid at maturity and for issuance of a warrant entitling Canal to purchase 3% of the Company’s fully diluted shares at time of exercise at a nominal purchase price.

“I am pleased to announce the closing of this new financing” stated Steve Runkel, President and Chief Executive Office of DPAC. “This financing allows us to repay our existing debt obligations, and more importantly, strengthens our balance sheet. We have made significant steps over the past 12 months in terms of improving our profitability and generating growth from our Device Networking Products. A stronger balance sheet will increase the confidence level of our customers and will position us to be a market leader in the rapidly growing Device Networking and Machine-to-Machine market.”

###

About DPAC Technologies

DPAC Technologies provides embedded wireless networking products for machine-to-machine communication applications. DPAC’s Airborne™ and AirborneDirect™ wireless products are used by major OEMs in the transportation, instrumentation and industrial control, homeland security, medical diagnostics and logistics markets to provide remote data collection and control. DPAC Technologies is based in Hudson, OH. The Company’s web site address is www.dpactech.com. Information concerning DPAC is filed by DPAC with the SEC and is available on the SEC website, www.sec.gov.

About QuaTech

QuaTech, Inc., a wholly-owned subsidiary of DPAC, delivers high performance device networking & connectivity solutions to help companies improve their bottom line performance. Quatech enables reliable machine-to-machine (M2M) communications via secure 802.11 wireless or traditional wired networks with industrial grade (hardened) embedded radios, modules, boards and external device servers and bridges. For local and mobile connections, Quatech serial adapters provide secure connectivity and port expansion via any interface option. Satisfied customers rely on our unique combination of performance and support to improve bottom line performance through real-time remote monitoring & control, streamlined systems and lower total cost of ownership (TCO). Quatech markets its products through a global network of distributors, resellers, systems integrators and original equipment manufacturers (OEMs). Founded in 1983, Quatech is headquartered in Hudson, Ohio, and merged with DPAC Technologies, Inc. in February 2006. www.quatech.com.

Forward-Looking Statements

This press release includes forward-looking statements. You can identify these statements by their forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “guidance,” “estimate,” “intend,” predict,” and “continue” or similar words or any connection with any discussion of future events or circumstances or of management’s current estimates or beliefs. Forward-looking statements are subject to risks and uncertainties, and therefore results may differ materially from those set forth in those statements. More information about the risks and challenges faced by DPAC Technologies Corp. is contained in the Securities and Exchange Commission filings made by the Company on Form S-4, 10-K, 10-Q or 10-QSB and 8-K. DPAC Technologies Corp. specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.