SETTLEMENT AGREEMENT

($11 mil Note)

 

THIS SETTLEMENT AGREEMENT (the “Agreement”) is made this 28th day of February
2018 and effective as of December 30, 2017 (the “Effective Date”), by and
between Quest Solution Inc., a Delaware corporation (the “Company”) and David
Marin and Kathy Marin, individuals residing at 12272 Monarch Street, Garden
Grove, CA 92841 and 20 Sklar Street, Ladera Ranch, CA 92694, respectively
(collectively “the Marins”). The Company and the Marins collectively shall be
referred to as the “Parties.”

 

WHEREAS, in connection with the Company’s purchase of all of the capital stock
of Bar Code Specialties, Inc. from David Marin (the “Acquisition”), the Company
entered into a promissory note on November 19, 2014 in the original principal
amount of $11,000,000, as amended through the date hereof (the “Note”), of which
the aggregate amount of approximately $10,696,465.17 (the “Owed Amount”) is
currently owed to the Marins, which includes accrued interest earned but not
paid;

 

WHEREAS; the Parties agree to reduce the purchase price of the capital stock
purchased in the Acquisition and to reduce the Owed Amount under the Note
accordingly on the terms set forth below.

 

WHEREAS, each of the Parties desires to resolve any and all claims in connection
with the Owed Amount upon the fulfillment of the conditions set forth below.

 

NOW THEREFORE, in consideration of the mutual covenants and other good and
valuable considerations hereinafter contained, the Parties agree as follows:

 

  1. Recitals. The above recitals are incorporated into this Agreement.        
2. Purchase Price Adjustment. The Parties agree that the Owed Amount shall be
reduced by $9,495,465.17 of the Owed Amount (the “Cancelled Debt”) without
consideration as a purchase price adjustment in the Acquisition, effective as of
December 31, 2017. The Parties agree to treat such debt reduction for all
purposes as a purchase price adjustment. Notwithstanding the foregoing, in the
event the Company fails to deliver the Warrant in accordance with Section 3,
fails to make any other payments due hereunder, or upon an Event of Default
under the Note, $1,200,000 of the Cancelled Debt shall be reinstated and added
back to the principal amount then outstanding under the Note, together with any
accrued unpaid interest on the Reinstated Debt under the Note (the “Reinstated
Debt”), and shall double the monthly payments under Section 2.1 of the Note to
$40,000 per month.

 

   

 

 

  3. Warrant; Payment on the Note. Within three (3) days of the execution of
this Agreement, the Company agrees to issue and deliver to the Marins (or to an
affiliated entity or affiliated person as designated in writing by both of the
Marins) a Warrant to purchase an aggregate of 3,000,000 shares of the Company’s
Common Stock (the “Warrant”) at an exercise price of $0.20 per share (which
exercise price the Parties acknowledge is approximately 200% of the closing
sales price per share of the Company’s Common Stock on the date hereof). The
issuance of the Warrant shall reduce the outstanding balance of the Note by an
additional $1,000. The Warrant shall be in a form reasonably acceptable to the
Marins but shall have the following terms: (i) the term of the Warrant shall be
for three years; (ii) the Warrant shall contain standard net exercise provisions
to facilitate a cashless exercise of the Warrant; (iii) the shares of Common
Stock issuable upon exercise of the Warrants shall be subject to restrictions in
accordance with the Securities Act of 1933, as amended (the “1933 Act”) and will
bear the standard 1933 Act restrictive legend until the requisite holding period
shall be met under the 1933 Act. The Parties agree that the value of the Warrant
for tax purposes as of the date of issuance is expected to be $1,000. In the
event the Warrant’s value as of the date of issuance is in excess of the
foregoing amount, the Parties agree that the Company shall reimburse the Marins
for any resulting tax liability they owe in this regard up to $200,000, which
reimbursement shall be due and payable upon notice to the Company of the amount
of such taxes due (with reasonable documentation to support the same). This
reimbursement obligation shall not be applicable to any potential gain on the
exercise of the Warrant or sale of the underlying shares. Notwithstanding the
foregoing, the Company agrees to make any reformations to this Agreement
reasonable requested by the Marins to reduce any potential tax liability in this
regard. In addition, the Marins hereby agree that they will not collectively
sell more than 10% of the shares of Common Stock beneficially owned by them in
any 30-day period (the “Trading Restriction”). The Trading Restriction shall be
null and void 180 days after the Company’s Common Stock is listed on the NASDAQ
Capital Market or another national stock exchange. In addition, the Marins agree
to execute the voting proxy agreement in favor of the Company’s CEO, Shai
Lustgarten, in substantially the form attached hereto as Exhibit B.         4.
Amendment of the Note. The Parties agree that the remaining principal balance of
the Note, after giving effect to the debt cancellation and payment in kind for
the Warrant set forth in in Sections 2 and 3 above, shall be $1,200,000 (the
“Remaining Balance”) (subject to further increase upon a reinstatement of debt
in accordance with Section 2 above). The Parties further agree that the Note
shall be amended as follows:

 

  a. Section 2.1 of the Note shall be amended in full to read as follows: “The
principal balance of the Note (after giving effect to the debt cancellations and
reductions pursuant to the Settlement Agreement between the Company and David
and Kathy Marin dated February 2018), shall be paid in sixty (60) equal monthly
installments of Twenty Thousand Dollars ($20,000), with the first payment due
and payable on the earlier of (i) the eight month anniversary of the date of
this Agreement; or (ii) the date when the Company’s obligation under its
promissory note with Scansource, Inc. (“Scansource”), currently in the amount of
approximately $2,800,000 is satisfied and all amounts currently in default due
under the credit agreement (currently approximately $6.0 million) with
Scansource is reduced to $2.0 million. Any interest accrued pursuant to the Note
shall be paid with the 60th monthly payment.

 

   

 

 

 

  b. Sections 2.3 and Section 4 of the Note shall be deleted in their entirety
as the Company has ceased paying for the premiums on such life insurance, and
the Company has executed and delivered an assignment of such life insurance
policy to Mr. Marin.         c.  The Marins agree to release any security
interest they may have against the Company’s assets related to this Note and to
cancel the Security Agreement dated November 19, 2014 upon the termination of
that certain Subordination Agreement by Scansource and the Company. Upon such
cancellation of the Security Agreement, Section 6 of the Note shall be deleted
in its entirety. The Company agrees to use its commercially reasonable best
efforts to terminate such Subordination Agreement unless Scansource consents in
writing to the payments to the Marins or their designees hereunder.         d.
Except as set forth in this Agreement, all of the terms and provisions of the
Note not otherwise modified or eliminated by this Agreement, shall remain
unchanged and in full force and effect. The Note, as amended through the date
hereof, shall be read together and construed in accordance with the terms of
this Agreement.         e. The Company represents and warrants to the Marins
that the Company has entered into settlement agreements with Kurt Thomet and
George Zicman (collectively, the “Noteholders”), pursuant to which all of the
promissory notes payable by the Company to the Noteholders have been cancelled
in full, together with any security interest granted to the Noteholders.

 

  5. The Marins hereby confirm that, upon receipt of this Agreement and the
Warrant, the Company shall have no obligation to pay any other fees, expenses,
accrued but unpaid interest or dividends or any other payment or reimbursements
that comprise the Cancelled Debt, except for the Reinstated Debt (but only to
the extent of any such reinstatement in accordance with this Agreement), and
subsequent interest and other amounts that may be accrued thereon after such
reinstatement. The Marins hereby agree to release any security interest that
they may have against the Company’s assets upon the cancellation of that certain
Subordination Agreement by the Company and Scansource. The Marins represent and
warrant that no other person or entity has any interest in the Cancelled Debt
and that they have not pledged, and that they have not assigned or transferred,
or purported to assign or transfer, to any person or entity all or any portion
of the Cancelled Debt.

 

   

 

 

  6. Indemnification. The Marins agree that in the event either of the Marins
assigned or transferred any interest in the Cancelled Debt, then the Marins
shall be responsible for any damages arising against the Company relating to
such assignment or transfer including reasonable expenses in defending a third
party action related to such assignment or transfer.         7. Mutual
Non-Disparagement. All Parties agree not to disparage or otherwise make
unfavorable remarks regarding any other party to this Agreement. Notwithstanding
the foregoing, nothing in this Agreement shall prevent the Parties from making
any truthful statement to the extent (a) necessary to rebut any untrue
statements made about him; (b) necessary with respect to any litigation,
arbitration or mediation involving this Agreement, including, but not limited
to, the enforcement of this Agreement; (c) required by law or by any court,
arbitrator, mediator or administrative or legislative body (including any
committee thereof) with jurisdiction over such person; or (d) made as good faith
competitive statements in the ordinary course of business.         8. Merger and
Amendment. This Agreement, its Exhibits and the Note, as amended, contain the
entire agreement and understanding concerning the Owed Amounts and Cancelled
Debt, and supersedes and replaces all prior negotiations, proposed agreement and
agreements, written or oral. Each of the parties hereto acknowledges that none
of the parties hereto, agents or counsel of any party, has made any promise,
representation or warranty whatsoever, express or implied, not contained herein
concerning the subject hereto, to induce it to execute this Agreement and
acknowledges and warrants that it is not executing this Agreement in reliance on
any promise, representation or warranty not contained herein. This Agreement may
not be modified or amended in any manner except by an instrument in writing
specifically stating that it is a supplement, modification or amendment to the
Agreement and signed by each of the Parties hereto against whom such
modification or amendment shall be claimed to be effective.         9. Duplicate
Originals; Counterparts. This Agreement may be executed in any number of
duplicate originals and each duplicate original shall be deemed to be an
original. This Agreement may be executed in several counterparts, each of which
counterparts shall be deemed an original instrument and all of which together
shall constitute a single agreement.         10. Severability. Each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited or invalid under applicable law, such provision will be ineffective
only to the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.         11. Governing Law. This Agreement shall be
interpreted and the rights and liabilities of the Parties determined in
accordance with the laws of the State of California, excluding its conflict of
laws rules.         12. Representation by Counsel. Each party hereto represents
and agrees with each other that it has been represented by or had the
opportunity to be represented by, independent counsel of its own choosing, and
that it has had the full right and opportunity to consult with its respective
attorney(s), that to the extent, if any, that it desired, it availed itself of
this right and opportunity, that it or its authorized officers (as the case may
be) have carefully read and fully understand this Agreement in its entirety and
have had it fully explained to them by such party’s respective counsel, that
each is fully aware of the contents thereof and its meaning, intent and legal
effect, and that it or its authorized officer (as the case may be) is competent
to execute this Agreement and has executed this Agreement free from coercion,
duress or undue influence. For the purposes of clarity, the Parties agree that
Morgan, Lewis & Bockius LLP is only representing Mr. David Marin in connection
with this Agreement.

 

   

 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement
as of the day and year first written above.

 

  QUEST SOLUTION INC.         By: /s/ Shai Lustgarten   Name: Shai Lustgarten  
Title: Chief Executive Officer           /s/ David Marin      David Marin      
    /s/ Kathy Marin     Kathy Marin