Exhibit 10.1

 

August 29, 2007   sent via electronic and regular mail  

Quatech, Inc.

5675 Hudson Industrial Parkway

Hudson, Ohio 44236-5012

Attention: Steven D. Runkel, President

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” or “National City”).
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 matured 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 the right to exercise all rights and remedies available to Bank under
the Quatech Loan Documents and under law.

Bank, Borrower and Guarantors entered into a Reservation of Rights Letter and
Loan Continuation Standstill Agreement, dated as of August 1, 2007 (“Reservation
of Rights Letter”). The Reservation of Rights letter provides for among other
things, that Bank would continue to make credit available under the Revolving
Note and defer exercising its rights and remedies until August 24, 2007.
Borrower and Guarantors’ agreed and acknowledged 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 did not and does not waive, and
reserved, 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.

Quatech has requested that National City continue to extend credit pursuant to
the Quatech Loan Documents and refrain and forbear from exercising the rights
and remedies against Quatech available to National City following acceleration
and demand for payment to allow Quatech time to seek and secure complete
repayment of the Quatech Debt (as defined below) by the financial structuring
further described on Exhibit A (the “Refinancing”);

This letter confirms that (i) the amount of Borrower's Debt to Bank as of
August 29, 2007 is the principal amount of $1,982,000.00 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
in the approximate amount of $112,052.18 (“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
letter agreement to the earliest of (such

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period being referred to herein as the “Forbearance Period”): (I) November 30,
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 letter agreement. 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 acknowledges and confirms that the Quatech Loan Documents matured
and the Quatech Debt is due and payable immediately with no claims, defenses,
causes of action, counterclaims or offsets against National City.

 

  B. Quatech represents to National City that based on its most recent budget
and financial forecasts it has sufficient cash to meet its operational needs
during the Forbearance Period.

 

  C. Quatech further represents and warrants that:

 

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

 

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

 

  (3) Quatech does not have any claims, defenses, causes of action,
counterclaims or offsets against National City or its officers, employees,
agents, directors, subsidiaries, affiliates or attorneys of any kind or nature
whatsoever;

 

  (4) as of the date of this letter agreement, all liens, security interests,
assignments and pledges encumbering the Collateral, created pursuant to or
referred to in the Quatech Loan Documents , the Related Writings or this letter
agreement are first priority liens, security interests, assignments and pledges
(except as otherwise permitted by the Quatech Loan Documents ) continue
unimpaired, are in full force and effect and secure and shall continue to secure
all of the Quatech Loan Documents 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 or the
Related Writings, 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, except that National City acknowledges
the Covenant Violations as defined in the Reservation of Rights Letter exist and
are continuing.

 

  (7) no representation or warranty by Quatech contained in this letter
agreement or any document, agreement or instrument referred to herein or
presented to National City as an inducement to enter into this letter agreement
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 letter agreement 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 Quatech
is subject or by which it or any of its property is bound;

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  (9) This letter agreement and the documents, agreements and instruments
referred to herein constitute the legal, valid and binding Quatech Loan
Documents of Quatech enforceable in accordance with their terms and have been
duly authorized, executed and delivered by Quatech.

 

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

 

  D. Quatech hereby expressly acknowledges and confirms that the foregoing
representations and warranties are being specifically relied upon by National
City as a material inducement to National City to enter into this letter
agreement and to forbear from exercising National City’s rights and remedies,
other than the rights to accrue and seek payment of interest as provided for in
the Quatech Loan Documents (as modified by this letter agreement) and seek
payment of attorneys’ fees and other costs and expenses, under the Quatech Loan
Documents and the Related Writings. The foregoing representations and warranties
shall survive the execution and delivery of this letter agreement.

Forbearance and Deferral Agreement

 

  A. National City hereby agrees to continue to lend under the Quatech Loan
Documents (as modified by this letter agreement) and to forbear from exercising
rights and remedies under the Quatech Loan Documents , the Related Writings and
applicable law, other than its rights to accrue and seek payment of interest as
provided for in the Quatech Loan Documents (as modified by this letter
agreement) and seek payment of attorneys’ fees and other costs and expenses,
which rights and remedies Quatech acknowledges and confirms that National City
is entitled to exercise, during the Forbearance Period commencing on the date of
this letter agreement and ending on the earliest to occur of: (1) November 30,
2007 (2) repayment of the Debt in full or (3) the occurrence of a Terminating
Event (as defined below).

 

  B. INTENTIONALLY OMITTED

 

  C. For purposes of this letter agreement, 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 letter agreement);

 

  (2) any representation and warranty made by Quatech in this letter agreement,
the Quatech Loan Documents or any of the Related Writings 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 or the Related Writings;

 

  (4) the failure of Quatech to perform any other obligation under this letter
agreement, including without any limitation the failure of Quatech to comply
with the Refinancing Schedule (as defined below).

 

  D. Upon the occurrence of a Terminating Event, without further notice to
Quatech or any other action on the part of National City, all Debt shall be
immediately due and payable and National City may exercise any and all of it
rights and remedies under the Quatech Loan Documents , the Related Writings,
this letter agreement and applicable law.

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Consideration for Forbearance and Deferral Agreement

 

  A. The Borrowing Base Report, as described and defined in the Quatech Loan
Documents (and as may be supplemented or amended from time to time by National
City) , shall be delivered to National City on a weekly basis.

 

  B. All performance due National City under the Quatech Loan Documents or
Related Writings shall be timely provided

C.

 

  D. All regularly scheduled payments on the Revolving Note and the Term Note C
shall continue in accordance with their terms and conditions and respective
Quatech Loan Documents except that as to the Revolving Note and the Term Note C
the interest shall be increased effective as of August 24, 2007 to three percent
(3%) per annum above the applicable rate except that two percent (2%) of the
increase shall be deferred until November 30, 2007 so that if the Refinancing
should not occur by November 30, 2007 (or if there should be a Terminating
Event), effective as of that date, all deferred interest shall be immediately
due and owing. After Maturity, whether by the passage of time or acceleration,
principal of the Revolving Note and the Term Note C and any overdue interest on
that principal shall bear interest at the rate of six percent (6%) per annum
above the otherwise applicable rate.

 

  E. In addition to all payment required by the Quatech Loan Documents, if
Quatech receives any prepayment for the contacts in excess of $100,000.00, then
Quatech shall make a mandatory additional payment of no less than $100,000.00
from the proceeds of the prepayment, these funds are to be applied to the
principal of the term loan.

 

  F. In addition to all reporting required by the Quatech Loan Documents,
Quatech shall provide, as requested by National City and in form and detail
satisfactory to National City, information in writing regarding their financial
condition, properties, business operations, and pension plans, if any, prepared,
in the case of financial information, in accordance with generally accepted
accounting principles consistently applied and otherwise in form and detail
satisfactory to National City. In addition and without limitation, Quatech shall
provide to National City the following specific financial information and
documents:

 

  (i) Quatech shall provide to National City a 13-week cash flow projection
detailing the expected cash inflows and outflows and on a weekly basis on each
Friday shall provide an update to the cash flow projection detailing the actual
cash inflows/outflows for the prior week and an additional week projected.
National City shall provide a template to be used for this reporting.

 

  (ii) Quatech shall update National City in writing by 3:00 p.m. on Friday of
each week, as to

 

  •  

The progress made during the preceding week on the Refinancing, only due if a
definitive purchase or merger agreement is not signed by October 1, 2007

 

  •  

Merger and or sale of business

 

  •  

General business activity financial condition, properties, business operations,

 

  •  

Sales

 

  (iii) Quatech shall provide monthly financial statements

 

  G. Quatech agrees to maintain all checking accounts at National City.

 

  H.

Quatech shall pay all costs and expenses of National City related to or in
connection with this letter agreement and any documents, agreements or
instruments referred to herein, including, without limitation, the fees and
expenses of National City’s consultants, attorneys or other professionals.
National City shall be permitted and is hereby authorized by Quatech

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to debit any account of Quatech for such fees with notice to Quatech. Nothing in
this letter agreement shall be intended or construed to hold National City
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 each of Quatech).

 

  I. Quatech shall pay forbearance and restructuring fee of $50,000.00 that
shall be paid in installments and shall be fully earned and non-refundable as of
the required payment dates (“Forbearance Fee”). The Forbearance Fee shall be
paid in consecutive installments as follows:

 

DATE

   PAYMENT

September 1, 2007

   $ 10,000.00

October 1, 2007

   $ 10,000.00

November 1, 2007

   $ 10,000.00

November 30, 2007

   $ 20,000.00

Installment payments of the Forbearance Fee will be deducted from Quatech’s
checking account and National City shall be permitted and is hereby authorized
by Quatech to debit any account of Quatech on the day upon which an installment
payment is due. If a Terminating Event should occur, the entire unpaid balance
of the Forbearance Fee shall be immediately due and owing. If the Refinancing
should occur prior to or on November 30, 2007, all installments of the
Forbearance Fee scheduled to be paid on November 30, 2007 or after the
Refinancing will be forgiven.

 

  J. All National City Bank credit cards will be closed and paid off on or
before November 30, 2007

 

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

Warrant of Attorney.

Borrower authorizes any attorney-at-law (a) to appear in any state or federal
court of record in the United States after any obligation evidenced or referred
to in this Agreement matures whether occurring by lapse of time or by
acceleration; (b) to waive the issuance and service of process; (c) to confess
judgment against Borrower in favor of Bank or other holder of this Agreement or
the obligations referenced in this Agreement for the amount then appearing due
from such party, together with interest and costs of suit; and (d) to release
all errors and waive all rights of appeal and stay of execution. This warrant of
attorney to confess judgment is a joint and several warrant of attorney. The
warrant of attorney shall survive any judgment; and if any judgment be vacated
for any reason, the holder hereof nevertheless may hereafter use the foregoing
warrant of attorney to obtain an additional judgment or judgments against
Borrower or any one or more of them. Borrower hereby expressly waives any
conflict of interest that the holder’s attorney may have in confessing such
judgment against such parties and expressly consents to the confessing attorney
receiving a legal fee from the holder for confessing such judgment against
Borrower.

Waiver of Jury Trial.

EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT, THE DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY

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PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN ADDITION, EACH PARTY WAIVES
THE RIGHT TO CLAIM OR RECOVER IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY DAMAGES
OTHER THAN OR IN ADDITION TO ACTUAL DAMAGES.

Release

In consideration of the accommodations being made available by National City to
or for the benefit of Quatech under this letter agreement, including, without
limitation, the forbearance on the part of National City, Quatech for itself and
its agents, employees, representatives, officers, successors and assigns, do
hereby remise, release and forever discharge National City and their 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 letter agreement, the Quatech Loan Documents or any Related
Writing, 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 letter
agreement. 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.

Indemnification

From and after the date of this letter agreement, each of Quatech shall
indemnify, defend and hold harmless National City and their 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 letter agreement, the Quatech Loan Documents or any Related Writing,
(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 either
Quatech. This indemnification shall survive execution and delivery of this
letter agreement.

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Miscellaneous

Except as otherwise expressly provided herein, the Quatech Loan Documents, as
amended, remains in full force and effect. Any default under, or breach of, the
terms of this letter agreement 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 letter
agreement shall not constitute an expressed or implied course of dealing for any
future payment requirements or any other action that National City may take in
connection with, or relating to, the Quatech Loan Documents.

If you are in agreement with the foregoing terms and conditions, please sign all
two 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 31, 2007, then the terms contained herein shall expire
and be non-binding upon National City.

Sincerely,

Patrick Whelan

Vice President

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.

ACCEPTANCE

 

QUATECH, INC. BY:  

 

ITS:  

 

SIGNATURES AND NOTARY PROVISIONS ON NEXT PAGE

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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.

 

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  

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STATE OF OHIO   )     )   SS. COUNTY OF                                    
                            )  

BEFORE ME, a Notary Public in and for said County and State, personally appeared
Steven D. Runkel in his capacity as President of the above-named entity,
QUATECH, INC., who acknowledged that he did sign the foregoing for and on behalf
of that entity, with all necessary power and authority to do so, and that the
same is the free act and deed of that entity and is the free act and deed of
such individual personally and in the capacity hereinbefore set forth.

IN TESTIMONY, I set my hand and official seal this          day of August 2007

 

 

  Notary Public  

 

STATE OF OHIO   )     )   SS. COUNTY OF                                    
                            )  

BEFORE ME, a Notary Public in and for said County and State, personally appeared
                     in his capacity as                      of the above-named
entity, QUATECH, INC., who acknowledged that he did sign the foregoing for and
on behalf of that entity, with all necessary power and authority to do so, and
that the same is the free act and deed of that entity and is the free act and
deed of such individual personally and in the capacity hereinbefore set forth.

IN TESTIMONY, I set my hand and official seal this          day of August 2007

 

 

  Notary Public