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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:
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.
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:
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: