Exhibit 10.1
EXECUTION COPY
FORBEARANCE
AGREEMENT
THIS FORBEARANCE AGREEMENT (this
“Agreement”) is entered into as of this 3
rd day of August, 2011 (the “Effective
Date”), by and among DPAC Technologies Corp., a California
corporation (“DPAC”), and Quatech, Inc., an Ohio
corporation (“Quatech”, together with DPAC, the
“Borrowers”), and Fifth Third Bank, an Ohio banking
corporation (“Lender”).
RECITALS AND
STIPULATIONS
A. Borrowers and Lender are parties
to a certain Credit Agreement, dated as of January 30, 2008
(the “Original Loan Agreement”), as modified by that
certain First Amendment to Credit Agreement, dated as of
January 31, 2009 (the “First Amendment”), and that
certain Second Amendment to Credit Agreement, dated as of
March 30, 2010 (the “Second Amendment”), that
certain Third Amendment to Credit Agreement, dated as of
July 30, 2010 (the “Third Amendment”), that
certain Fourth Amendment to Credit Agreement dated as of
February 25, 2011 (the “Fourth Amendment”), that
certain Fifth Amendment to Credit Agreement dated as of
June 14, 2011 (the “Fifth Amendment,” together
with the Original Loan Agreement, the Fourth Amendment, the Third
Amendment, the Second Amendment, and the First Amendment, the
“Loan Agreement”);
B. In connection with the Original
Loan Agreement, the Borrowers executed that certain Revolving
Credit Promissory Note in favor of the Bank, dated as of
January 30, 2008 (the “Original Note”), which was
replaced by that certain Revolving Credit Promissory Note in favor
of the Bank, dated as of January 31, 2009 (the “Second
Note,” together with the Original Note, the
“Note,” together with the Loan Agreement, the
“Loan Documents”), and executed in connection with the
First Amendment;
C. Borrowers defaulted and remain in
default under section 6.1 and section 7.1 of the Loan Agreement
(such defaults under these sections only being the “Existing
Defaults”), as well as other defaults under other sections of
the Loan Agreement (the “Continuing Defaults”) by,
among other things, failing to pay the Bank amounts due under the
Second Note, and purchasing assets in excess of $100,000.00 from
Socket Mobile, Inc. through the assistance of Development Capital
Venture, L.P. without the express written consent of the
Bank;
D. Borrowers and Lender entered into
the respective amendments to the Original Loan Agreement in order
to permit the Borrowers to cure the Existing Defaults;
E. Borrowers have requested that
Lender forbear from exercising any of its rights and remedies under
the Loan Documents and applicable law in respect of the Existing
Defaults, the Continuing Defaults, and certain other Events of
Default with respect to the Obligations, and Lender has agreed to
so forbear upon the terms and subject to the conditions set forth
in this Agreement;
F. Borrowers have informed the
Lender that Borrowers intend to enter into an Asset Purchase
Agreement (the “Purchase Agreement”) with Q-Tech
Acquisition, LLC (“QT”), which requires, inter
alia, payment in full of the Obligations in connection with the
closing thereunder;
G. Each term used herein and not
otherwise defined herein shall have the meaning given to such term
in the Loan Documents; and
H. The Borrowers and Lender
acknowledge and agree that this Agreement has been negotiated in
good faith.
NOW, THEREFORE,
in consideration of the recitals and
stipulations set forth above and the mutual promises and covenants
contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
Borrowers and Lender hereby agree as follows:
AGREEMENT
1. General
Acknowledgment .
Borrowers acknowledge and agree to the following:
(a) Borrowers hereby acknowledge the
accuracy of the representations set forth in the Recitals and
Stipulations of this Agreement;
(b) Neither this Agreement nor any
other agreement entered in connection herewith or pursuant to the
terms hereof shall be deemed or construed to be a compromise,
satisfaction, reinstatement, accord and satisfaction, novation or
release of any of the Loan Documents, or any rights or obligations
thereunder, or a waiver by Lender of any of its rights under the
Loan Documents or at law or in equity;
(c) Neither this Agreement nor any
other agreement executed in connection herewith pursuant to the
terms hereof, nor any actions taken pursuant to this Agreement or
such other agreement shall be deemed to cure the Existing Defaults
and/or Continuing Defaults or any other Event of Default, which may
exist under the Loan Documents, or to be a waiver by the Lender of
the Existing Defaults and/or Continuing Defaults or any other Event
of Default under the Loan Documents, or of any rights or remedies
in connection therewith or with respect hereto, evidencing the
parties’ intention that the Obligations under the Loan
Documents shall remain in full force and effect;
(d) All liens, security interests,
rights and remedies granted to Lender for its benefit under the
Loan Documents are hereby renewed, confirmed and continued;
and
(e) The Borrowers reaffirm the
validity, binding effect and enforceability of each of the Loan
Documents, as modified by provisions of this Agreement, and
acknowledge that the Borrowers are liable to Lender for the full
amount of Indebtedness evidenced by the Loan Documents (as modified
hereby), without offset, deduction, claim, counterclaim, defense or
recoupment of any kind.
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2. Confirmation of
Indebtedness .
Borrowers confirm and acknowledges that as of August 2, 2011,
it is indebted and obligated to Lender under the Note in the
following amounts:
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(a)
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Principal:
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$
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1,500,000.00; and
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(b)
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Accrued and Unpaid Interest:
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$
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1,093.75.
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3. Consent;
Forbearance . Subject
to Borrowers’ satisfaction of all of the Obligations
contemporaneously with the closing of the sale contemplated in the
Purchase Agreement, Lender hereby irrevocably waives any default or
Event of Default that was or will be caused solely as a result of
the Borrowers’ execution, delivery or performance of the
Purchase Agreement (such waived defaults being “Asset Sale
Defaults”). Lender will forbear from taking action with
respect to any Existing Defaults or Continuing Defaults that occur
at any time on or prior to October 31, 2011, provided that the
Borrowers comply with all terms and conditions contained in this
Agreement. The Lender’s obligation to so forbear will
commence on the Effective Date and will terminate on the earlier of
October 31, 2011, or the date of occurrence of any Agreement
Default (defined below) (such period of forbearance being the
“Forbearance Period”). For the avoidance of doubt, the
forbearance granted hereunder includes a forbearance with respect
to the Borrowers’ obligations to repay the outstanding
principal amount under the Loan Documents (otherwise due on
September 15, 2011) until the expiration or termination of the
Forbearance Period.
4. Conditions to the
Lender’s Forbearance . Lender’s willingness to forbear as
provided in this Agreement is conditioned on the
following:
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a.
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The execution
of this Agreement by the Borrowers;
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b.
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Lender
receiving the resolutions of each of the Borrowers authorizing the
execution of this Agreement and the implementation of the
transactions contemplated hereby. A copy of these resolutions is
attached hereto as Exhibit A;
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c.
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In the form of
consent attached to this Agreement as Exhibit B, Canal Mezzanine
Partners, L.P. (“Canal”), Director of Development of
the State of Ohio (the “State”), and Development
Capital Ventures, L.P. (“DCV”) each respectively
(i) acknowledging and consenting to a Consent of Subordinated
Creditor (“Subordination Agreement”) subordinating
certain Indebtedness of the Borrowers to the Loan Documents, and
(ii) confirming that the Subordination Agreement shall
continue in full force and effect;
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d.
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In
consideration of the forbearance granted by Lender to Borrowers
pursuant to this Agreement, Borrowers paying to Lender on the
Effective Date of this Agreement a non-refundable forbearance fee
of Twenty Thousand Dollars ($20,000) (the “Forbearance
Fee”). In addition and concurrently with the execution
hereof, Borrowers paying to Lender the approximate fees and
expenses incurred to date with respect to the preparation,
negotiation and execution of this Agreement and all related
documents and the transactions contemplated hereby and thereby. In
the event additional legal fees are incurred by Lender subsequent
to the date hereof with respect to the preparation, negotiation and
execution of this Agreement and all related documents and the
transactions contemplated hereby and thereby, Borrowers shall pay
any and all such amounts to Lender (or directly to its counsel)
promptly upon demand therefor;
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e.
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The Borrowers
making all required payments of interest to Lender pursuant to the
terms of the Loan Documents;
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f.
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Pursuant to the
Purchase Agreement, the filing of an Information Statement on
Schedule 14C with the Securities and Exchange Commission on or
before August 31, 2011;
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g.
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Borrowers
satisfying the remaining Obligations on or before October 31,
2011, including the payment in full of the Indebtedness owed
pursuant to the Loan Documents;
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h.
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Borrowers
maintaining all business banking accounts with Lender;
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i.
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As of the date
of this Agreement, excepting its ordinary payroll obligations to
any Insider or employee employed by the Borrowers and any other
liabilities, including reimbursement expenses, paid by the
Borrowers for or on behalf of any Insider or employee of the
Borrowers, Borrowers making no payments to any Insider or employee
of Borrowers on account of (i) any debt, (ii) dividend,
(iii) consulting agreement, (iv) lease, or (v) other
agreements, without Lender’s advance written consent to the
payment to the respective Insider or employee of the Borrowers. For
purposes of this Agreement, the term “Insider” shall
have the meaning prescribed in section 101(31) of Title 11 (the
“Bankruptcy Code”) of the United States
Code;
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j.
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Notwithstanding
anything to the contrary contained in the Loan Documents, as of the
date of this Agreement, the Borrowers making no Capital
Expenditures, without Lender’s advance written consent to the
payment of the respective Capital Expenditures. For the purposes of
this Agreement, Capital Expenditures shall mean for this
Forbearance Period, the aggregate amount of (a) all
expenditures made, directly or indirectly, by the Borrowers during
such period for equipment, fixed assets, real property or
improvements, or for replacements or substitutions therefor or
additions thereto, that have been or should be, in accordance with
generally accepted accounting principles (GAAP), reflected as
additions to property, plant or equipment on a consolidated balance
sheet of any of the Borrowers or have a useful life of more than
one year, plus (b) to the extent not included in clause
(a) above, the aggregate principal amount of all Indebtedness,
including obligations under Capital Leases, assumed or incurred in
connection with any such expenditures. For the purposes of this
Agreement, “Capital Lease” shall mean, as applied to
the Borrowers, any lease of (or any other agreement conveying the
right to use) any property (whether real, personal or mixed) by
such Person as lessee which would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on
the balance sheet of any of the Borrowers;
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k.
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Borrowers
providing Lender with ongoing financial projections and other
financial information as Lender may from time to time request in
order to clearly outline the Borrowers’ ability to repay the
Obligations, performance under the Purchase Agreement, and any
other amounts owing to Lender;
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l.
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Borrowers
complying with all requirements of the Loan Documents to the extent
not inconsistent with this Agreement; and
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m.
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Borrowers not
entering into any agreement with any third party, including,
without limitation, Canal, the State and/or DCV, which would affect
in any material respect Lender’s rights and preferences
hereunder or under any Loan Documen
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