Exhibit 10.1

August 1, 2007

Quatech, Inc.

5675 Hudson Industrial Parkway

Hudson, Ohio 44236-5012

Attention: Steven D. Runkel, President

 

Re: Reservation of Rights Letter and Loan Continuation Standstill Agreement

Dear Mr. Runkel:

Reference is made to a Credit Agreement dated July 28, 2000, as amended by a
certain First Amendment to Credit Agreement dated as of March 25, 2002, a Second
Amendment to Credit Agreement dated as of September 4, 2002, a Third Amendment
to Credit Agreement dated November 25, 2003, a Fourth Amendment to Credit
Agreement dated July 21, 2005 and a Fifth Amendment to Credit Agreement dated on
or about February 2006 (as amended, the “Credit Agreement”) by and among
Quatech, Inc. (fka WR Acquisitions, Inc.) (the “Borrower”), each of the
Guarantors specifically, Steven D. Runkel and William J. Roberts (as defined in
the Credit Agreement) and National City Bank (“Bank”). Borrower additionally has
certain commercial credit card accounts with Bank. Capitalized terms used but
not otherwise defined in this letter, shall have the meanings given such terms
in the Credit Agreement. All the foregoing, all other evidence of Debt owing
from Borrower to Bank, all security agreements and Related Writings and any
amendments and supplements, collectively referred to as the “Quatech Loan
Documents”.

The Revolving Note and Term Note C mature respectively August 1 and August 5,
2007 (“Maturity”). Additionally, Borrower has failed to comply with the
financial covenant set forth in Section 3B.03 of the Credit Agreement for the
period ended June 30, 2007 which covenant requires compliance with a Debt
Service Coverage. Borrower has also failed to comply with the covenant set forth
in Section 3B.02 of the Credit Agreement for the period ended June 30, 2007
which covenant requires compliance with a Senior Debt to EBITDA Ratio (the
foregoing failures to comply with covenants are collectively referred to as the
“Covenant Violations”). As a result of the Maturity and the Covenant Violations,
Bank has or, with the mere passage of time, will have the right to exercise all
rights and remedies available to Bank under the Quatech Loan Documents and under
law.

The purpose of this Reservation of Rights Letter and Loan Continuation
Standstill Agreement (this “Reservation of Rights Letter”) is to notify you that
(x) pursuant to the terms and conditions that follow, Bank will continue to make
credit available under the Revolving Note and defer exercising its rights and
remedies until August 24, 2007, and (y) that by not exercising the foregoing
rights at this time or any other rights, powers and remedies available to Bank
under the Quatech Loan Documents, Bank does not waive, and does hereby reserve,
all of its rights, powers and remedies. This Reservation of Rights Letter is not
a renewal or novation of either the Revolving Note or Term Note C and shall not
operate or be construed as a waiver of any right, power or remedy of Bank under
the Quatech Loan Documents and under law.

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Quatech, Inc.

August 1, 2007

Page 2

This letter confirms that (i) the amount of Borrower’s Debt to Bank as of
August 1, 2007 is the principal amount of $1, 932,000.00 on the Revolving Note
and the principal amount of $279,367.00 on Term Note C plus interest on the
foregoing plus the amount outstanding on certain commercial credit card accounts
(“Quatech Debt”) (ii) Bank is the perfected first priority secured creditor in
all assets of Quatech (iii) Quatech and each of the Guarantors requested that
Bank continue to make credit available under the Revolving Note and defer
exercise of its rights and remedies under the Quatech Loan Documents and
applicable law, for the period from the date of this Reservation of Rights
Letter to the earliest of (such period being referred to herein as the
“Standstill Period”): (I) August 24, 2007, (II) repayment of the Quatech Debt in
full or (III) the occurrence of a Terminating Event (as defined below), and;
(iv) Bank is willing to do so under the terms and subject to the conditions set
forth in this Reservation of Rights Letter. In consideration of the
representations and warranties set forth below and the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:

Representations and Warranties

 

  A. Quatech and Guarantors each has acknowledged and confirmed that Bank has or
with the mere passage of time, will have the right to exercise all rights and
remedies available to Bank under the Quatech Loan Documents and under law and
that absent entry by Quatech into this Reservation of Rights Letter, the Quatech
Debt is due and payable immediately with no claims, defenses, causes of action,
counterclaims or offsets against Bank.

 

  B. Quatech has represented to Bank that based on its most recent budget and
financial forecasts, it has sufficient cash to meet its operational needs during
the Standstill Period.

 

  C. Quatech and Guarantors each hereby further represents and warrants that:

 

  (1) all of its representations and warranties in the Quatech Loan Documents as
the same may be amended hereby, are true and complete in all respects on the
date hereof with the same force and effect as if made on such date;

 

  (2) the Quatech Loan Documents are in full force and effect;

 

  (3) neither Quatech nor any Guarantor has any claims, defenses, causes of
action, counterclaims or offsets against the Bank or its officers, employees,
agents, directors, subsidiaries, affiliates or attorneys of any kind or nature
whatsoever;

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Quatech, Inc.

August 1, 2007

Page 3

 

  (4) as of the date of this Reservation of Rights Letter all liens, security
interests, assignments and pledges encumbering assets of Quatech created
pursuant to or referred to in the Quatech Loan Documents or this Reservation of
Rights Letter are first priority liens, security interests, assignments and
pledges, continue unimpaired, are in full force and effect and secure and shall
continue to secure all of the obligations described in the respective
instruments in which such interests were granted;

 

  (5) intentionally omitted;

 

  (6) no violation or Event of Default under the Quatech Loan Documents and no
event which, with the passage of time or the giving of notice, or both, could
constitute any such default, violation or Event of Default, has occurred and is
continuing, excepts the existing Covenant Violations as specified in this
Reservation of Rights Letter;

 

  (7) no representation or warranty by Quatech or Guarantors contained in this
Reservation of Rights Letter or any document, agreement or instrument referred
to herein or presented to Bank as an inducement to enter into this Reservation
of Rights Letter contains any untrue statements of material fact or omits to
state a material fact necessary to make such representation or warranty not
misleading in light of the circumstances under which it was made;

 

  (8) the execution, delivery and performance of this Reservation of Rights
Letter and any document, agreement or instrument referred to herein by Quatech
will not result in the violation of any mortgage, indenture, material contract,
instrument, agreement, judgment, decree, order, statute, rule or regulation to
which either of Quatech or Guarantors is subject or by which it or any property
is bound;

 

  (9) this Reservation of Rights Letter and the documents, agreements and
instruments referred to herein constitute the legal, valid and binding
obligations of each of Quatech and Guarantors enforceable in accordance with
their terms and have been duly authorized, executed and delivered by each of
Quatech and Guarantors; and

 

  (10) no consents or approvals are required in connection with the execution,
delivery and performance by each of Quatech and Guarantors of this Reservation
of Rights Letter or any documents, agreements or instruments referred to herein
that have not been previously obtained.

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Quatech, Inc.

August 1, 2007

Page 4

 

  D. Each of Quatech and Guarantors hereby expressly acknowledges and confirms
that the foregoing representations and warranties are being specifically relied
upon by Bank as a material inducement to Bank to enter into this Reservation of
Rights Letter and to forbear and defer from exercising Bank’s rights and
remedies as provided for in the Quatech Loan Documents (as modified by this
Reservation of Rights Letter) and seek payment of attorneys’ fees and other
costs and expenses, under the Quatech Loan Documents. The foregoing
representations and warranties shall survive the execution and delivery of this
Reservation of Rights Letter.

Forbearance and Deferral Agreement

 

  E. Bank hereby agrees to continue to lend under the Revolving Note (as
modified by this Reservation of Rights Letter) and to forbear from exercising
rights and remedies under the Quatech Loan Documents and applicable law, and
seek payment of attorneys’ fees and other costs and expenses, (which rights and
remedies each of Quatech and Guarantors acknowledges and confirms that Bank is
entitled to exercise), during the Standstill Period commencing on the date of
this Reservation of Rights Letter and ending on the earliest to occur of:
(1) August 24, 2007 (2) repayment of the Quatech Debt in full or (3) the
occurrence of a Terminating Event (as defined below). Additionally, Bank will
accept and Borrower shall pay interest only payments on both the Revolving Note
and Term Note C, both such interest only payments being due on August 5, 2007.
All Quatech Debt is due and payable on August 24, 2007.

 

  F. INTENTIONALLY OMITTED

 

  G. For purposes of this Reservation of Rights Letter, the term “Terminating
Event” shall mean the occurrence of any of the following events:

 

  (1) the failure by Quatech to make payments in accordance with the terms of
the Quatech Loan Documents (as may be modified by this Reservation of Rights
Letter);

 

  (2) any representation and warranty made by Quatech or Guarantors in this
Reservation of Rights Letter or the Quatech Loan Documents shall be untrue or
incorrect in any material respect;

 

  (3) the occurrence of a default, violation or Event of Default under the
Quatech Loan Documents, except the existing Covenant Violations as specified
above;

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Quatech, Inc.

August 1, 2007

Page 5

 

  (4) the failure of Quatech or Guarantors to perform any other obligation under
this Reservation of Rights Letter.

 

  H. Upon the occurrence of a Terminating Event, without further notice to
Quatech or Guarantors or any other action on the part of Bank, all Quatech Debt
shall be immediately due and payable and Bank may exercise any and all of its
rights and remedies under the Quatech Loan Documents and applicable law.

Consideration for Forbearance and Deferral Agreement

 

  A. Quatech agrees to an “Extension Fee” of $2,500.00. The Extension Fee shall
be fully earned and non-refundable as of the required payment dates. The
Extension Fee shall be paid as follows: (x) immediately upon a Terminating Event
and otherwise (y) on August 24, 2007. Bank shall be permitted and is hereby
authorized by Borrower to debit any account of Borrower for the Extension Fee
with notice to Borrower.

 

  B. Quatech shall seek and attempt to obtain refinancing (“Refinancing”) as
described on Schedule A.

 

  C. The interest only payments on the Revolving Note and Term Note C as
provided in this Reservation of Rights Letter shall be timely made and
performance due Bank under the Quatech Loan Documents shall be timely provided

 

  D. In addition to any other financial reporting required by the Quatech Loan
Documents, Quatech shall provide, as requested by Bank and in form and detail
satisfactory to Bank, information in writing regarding the status of the
Refinancing, including any letters of intent and sale agreements in draft from
or otherwise.

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Quatech, Inc.

August 1, 2007

Page 6

 

  E. Quatech shall pay all costs and expenses of Bank related to or in
connection with this Reservation of Rights Letter and any documents, agreements
or instruments referred to herein, including, without limitation, the fees and
expenses of Bank’s consultants, attorneys or other professionals. Bank shall be
permitted and is hereby authorized by Borrower to debit any account of Borrower
for such fees with notice to Borrower. Nothing in this Reservation of Rights
Letter shall be intended or construed to hold Bank liable or responsible for any
expense, liability or obligation of any kind or nature whatsoever (including,
without limitation, attorneys’ fees and expenses, other professionals’ fees and
expenses, or other amounts payable to or on behalf of Quatech).

 

  F. Each of the Guarantors acknowledges consents and agrees to all the
foregoing.

Release

In consideration of the accommodations being made available by Bank to or for
the benefit of Quatech under this Reservation of Rights Letter, including,
without limitation, the Standstill Period on the part of Bank, Quatech for
itself and its agents, employees, representatives, officers, successors and
assigns, does hereby remise, release and forever discharge Bank and its
respective shareholders, subsidiaries, affiliates, directors, servants, agents,
employees, representatives, officers, attorneys and their respective heirs,
personal representatives, successors and assigns (collectively, the “Released
Parties”) of and from any and all claims, counterclaims, demands, actions and
causes of action of any nature whatsoever, whether at law or in equity,
including, without limitation, any of the foregoing arising out of or relating
to the transactions described in this Reservation of Rights Letter or the
Quatech Loan Documents, which against the Released Parties, or any of them,
Quatech now has or hereafter can or may have for or by reason of any cause,
matter or thing whatsoever, from the beginning of the world to the date of this
Reservation of Rights Letter. In addition, Quatech agrees not to commence, join
in or prosecute any suit or other proceeding in a position that is adverse to
any of the Released Parties arising directly or indirectly from any of the
foregoing matters.

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Quatech, Inc.

August 1, 2007

Page 7

 

Indemnification

From and after the date of this Reservation of Rights Letter, Quatech shall
indemnify, defend and hold harmless Bank and its respective shareholders,
subsidiaries, affiliates, directors, servants, agents, employees,
representatives, officers, attorneys and their respective heirs, personal
representatives, successors and assigns (severally and collectively, the
“Indemnified Parties”) against and from any and all liability for, and against
and from all losses or damages Indemnified Parties may suffer as a result of,
any claim, demand, cost, expense, or judgment of any type, kind, character or
nature (including attorneys’ fees and court costs), which Indemnified Parties
shall incur or suffer as a result of (i) any act or omission of Quatech or any
of its agents or representatives in connection with the transactions described
in this Reservation of Rights Letter or the Quatech Loan Documents, (ii) the
inaccuracy of any of the representations or warranties of Quatech or (iii) the
breach of any of the respective covenants set forth herein of Quatech. This
indemnification shall survive execution and delivery of this Reservation of
Rights Letter.

Miscellaneous

Except as otherwise expressly provided herein, the Quatech Loan Documents, as
amended, remain in full force and effect. Any default under, or breach of, the
terms of this Reservation of Rights Letter shall constitute an Event of Default
under, and breach of, the Quatech Loan Documents. Further, National City’s
agreement to forbear from exercising its rights and remedies under the Quatech
Loan Documents based on the terms and subject to the conditions set forth in
this Reservation of Rights Letter shall not constitute an expressed or implied
course of dealing for any future payment requirements or any other action that
Bank may take in connection with, or relating to, the Quatech Loan Documents.

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Quatech, Inc.

August 1, 2007

Page 8

 

If you are in agreement with the foregoing terms and conditions, please sign all
enclosed copies of this letter agreement and return them to me. Once I have
signed originals from you, I will provide you with an original executed copy.
Should you have any questions, please do not hesitate to call me. If acceptance
is not received by August 2, 2007, then the terms contained herein shall expire
and be non-binding upon National City Bank.

Sincerely,

Sharon Rader

 

ACCEPTANCE

QUATECH, INC. (as borrower) BY:  

/s/ Steven D. Runkel

ITS:   CEO

 

/s/ Steven D. Runkel

  (as Guarantor) Steven D. Runkel      

/s/ William J. Roberts

  (as Guarantor) William J. Roberts