LOAN AGREEMENT by DecisionPoint Systems, Inc.

 

2314505 ONTARIO INC.

 

(hereinafter referred to as the "Borrower"),

 

BDC CAPITAL INC., a wholly-owned subsidiary of

 

(hereinafter referred to as the "Bank"),

 

(hereinafter referred to as the "Guarantor"),

 

(hereinafter referred to as "DecisionPoint"),

1.  

RECITALS

1.1  

The Borrower has requested the Bank to provide certain credit facilities for certain purposes as further detailed herein;

1.2  

The Bank has issued and the Borrower has accepted a letter of offer dated February 14, 2012, as amended from time to time in writing by the parties (the "Offer of Finance"); and

1.3  

The Bank is willing to provide such facilities to the Borrower pursuant to the Offer of Finance and in accordance with the terms and conditions contained herein.

2.  

DEFINITIONS

2.1  

Defined Terms

(a)  

"Additional Interest" has the meaning ascribed to such term in paragraph 4.7;

(b)  

"Advances" means, collectively, all monies paid by the Bank to the Borrower or to any other person or entity, at the direction of the Borrower, together with all further monies advanced by the Bank to or on behalf of the Borrower, expended by or on behalf of the Bank or paid by the Bank in respect of the Offer of Finance;

(c)  

"Agreement" means this agreement and all schedules attached hereto and includes all amendments, modifications, supplements and replacements hereto and thereto from time to time entered into pursuant to the terms hereof or thereof, as the case may be;

(d)  

"Annual Gross Sales" means comprehensively (during a given fiscal year) the total amount of the actual selling price of the totality of the goods sold and the services rendered by a business carried on by the Borrower or the Guarantor, regardless of the place where these goods and services are sold, notably the following amounts:

(i)  

the amounts received by the Borrower or the Guarantor, as applicable, in consideration of the sale of goods, articles and merchandise;

(ii)  

the amounts received by the Borrower or the Guarantor, as applicable, in consideration of services rendered;

(iii)  

the amounts received by the Borrower or the Guarantor, as applicable, in consideration of the sale or leasing of any property (including intellectual property) of the Borrower or the Guarantor, as applicable, or other persons or the granting of a license in respect of any such property;

(iv)  

all the amounts received and receivable, whatever they may be;

(v)  

all the proceeds, if applicable, from insurance against operating losses and the insurance proceeds received in respect of a business of the Borrower or the Guarantor, as applicable.

(i)  

the amount of retail sales taxes or goods and services taxes imposed by a government authority directly on sales and collected from customers at the point of sale by the Borrower or the Guarantor, as applicable, acting as a representative of this authority, on condition that the amount of these taxes is added to the selling price, that it is not part of the indicated price of the article or the service and that it is actually paid by the seller to that authority;

(ii)  

the refunds granted in consideration of merchandise sold to the Borrower or the Guarantor, as applicable, to the extent that the Borrower or the Guarantor, as applicable, price of this merchandise had already been included in the annual gross sales;

(iii)  

any refund on merchandise obtained from suppliers and manufacturers.

(b)  

"Arm's Length" has the meaning ascribed to it, as of the date hereof, in Section 251(1) of the Income Tax Act (Canada);

(c)  

"Authority" means any person, bureau, agency, board, tribunal, commission, branch or office of any federal, provincial, regional, municipal or other governmental department having jurisdiction over the whole or any part of the Personal Property, this transaction, the Borrower or the Guarantor and shall include a board or association of insurance underwriters;

(d)  

"Available Funds" means for a 12-month period the sum of net earnings plus depreciation and amortization, plus or minus deferred income taxes; and minus the following items:  dividends (drawings), capital stock redemption, advances or loans granted to the shareholders and to related and Arm's Length companies otherwise than in the Borrower's current transactions;

(e)  

"Business Day" means any day, excluding Saturday, Sunday and any other days which shall be in the Province of Ontario, a legal holiday or any day on which the Bank is not open to the public;

(f)  

"Canadian Dollars", "Cdn. Dollars" or "Cdn. $" mean lawful currency of Canada;

(g)  

"Credit Facility" or "Loan" has the meaning given to such terms in paragraph 3.1 hereof and as the context may require, means, collectively, the aggregate of all Advances, all accrued and unpaid interest, costs and expenses thereon and all costs incurred by the Bank in making the Advances or in any steps or proceedings taken in securing or realizing upon the Security held by the Bank in respect thereof;

(h)  

"Corresponding Fixed Interest Rate Plan" means the fixed interest rate plan then being offered by the Bank to its customers equal to the number of years, rounded to the nearest year (minimum one year), from the date any prepayment is received to the next scheduled Maturity Date.  In the case of partial prepayment, the interest differential charge will be reduced in the same proportion as the amount prepaid bears to the principal outstanding at the time prepayment is received;

(i)  

"Default" means the occurrence of any one or more of the events specified in paragraph 10.1 regardless of whether any requirement in connection with such event for the giving of notice, the lapse of time, or both, has been satisfied or met;

(j)  

"EBITDA" means earnings before income taxes, interest (long-term and short-term), depreciation, amortization and all extraordinary items and gains/losses on disposal of assets;

(k)  

"Encumbrance" means and includes any mortgage, charge, pledge, security interest, lien, encumbrance or assignment, of any nature whatsoever or howsoever arising affecting the interest of the Borrower in the Personal Property or any part thereof and includes, without limiting the generality of the foregoing, Permitted Encumbrances;

(l)  

"Event of Default" has the meaning ascribed to such term in paragraph 10.1;

(m)  

"Excess Available Funds" means Available Funds minus the normal current portion of the long-term debt paid during the year, minus 100% of the average unfunded capital expenditures for the past three years, minus 10% of the annual sales growth;

(n)  

"Generally Accepted Accounting Principles" means generally accepted accounting principles as specified in the Handbook of the Canadian Institute of Chartered Accountants which are in effect from time to time in Canada, consistently applied;

(o)  

"Intellectual Property" means all the intangible assets, present and future, of the Borrower and/or the Guarantor, including but without limiting the generality of the foregoing, all its rights in any trademarks, registered or not, copyrights, including software, domain names, source codes, designs and manuals, industrial designs, inventions, patents and ongoing applications for patents, commercial secrets, know-how, integrated circuit topography, any confidential information, licence from third parties, end-user licence and any other intellectual property rights (registered or not), their improvements and modifications as well as any right in any application relating to their protection, in Canada or elsewhere, of one or some of these Intellectual Property rights;

(p)  

"Interest Differential" means the difference between the Bank's Base Rate for the Corresponding Fixed Interest Rate Plan and the Base Rate as set out in the Offer of Finance on the date the prepayment is received.  The Interest Differential is multiplied by the principal that would have been outstanding at the Payment Date in each month until the Maturity Date.  Then the present value of the amount or amounts obtained by such multiplication is calculated by discounting such amount or amounts using the Base Rate for the Corresponding Fixed Interest Rate Plan as the discount factor.  The total of the present values is the interest differential charge;

(q)  

"Interest Rate" means the interest rate payable by the Borrower to the Bank on the principal amount of the Credit Facility outstanding from time to time as specified in paragraph 4.1 hereof;

(r)  

"Loan Documents" means, collectively, the Offer of Finance, this Agreement, the Security Documents, the guarantees of each of the Guarantor and DecisionPoint executed in favour of the Bank, any assignment and/or postponement agreement executed by any person to or in favour of the Bank, any subordination and postponement agreement executed by any Person to or in favour of the Bank, any certificate issued by the Borrower, the Guarantor or DecisionPoint in connection herewith or therewith and, in each case, any amendments, restatements, supplements or other modifications to any such agreements or documents at any time and from time to time, and "Loan Document" means any one of them;

(s)  

"Long-term Debt" means the sum of the long-term debt plus capital leases and the current portion of long-term debt and capital leases that will be repaid within the next 12 months; plus the book value of the preferred shares, subject to an official redemption agreement, as the case may be;

(t)  

"Long-term Debt to Tangible Net Worth Ratio" means the Long-term Debt divided by the Tangible Net Worth;

(u)  

"Maturity Date" means June 23rd, 2016;

(v)  

"Notice" means any notice or communication in writing given pursuant to the provisions of this Agreement in accordance with paragraph 12.1;

(w)  

"Obligations" means, at any relevant date, all amounts and obligations of any kind or nature owing by the Borrower to the Bank, whether direct or contingent, under the Credit Facility or by virtue of this Agreement or the Security Documents.  For greater clarification, Obligations include, without limitation, royalty, bonus, and prepayment amounts (calculated in accordance with the provisions of paragraph 4.5(a)(ii)) to the Maturity Date in the event of an early payout, whether by request of the Borrower or on a Default;

(x)  

"Payment Date" means the 23rd day of each and every calendar month commencing on the next occurring Payment Date following the first Advance of funds or if such day is not a Business Day, the Business Day next following;

(y)  

"Permitted Encumbrances" means, as of any particular time, any one or more of the following in respect of the Borrower or the Guarantor, as applicable:

(i)  

liens for Taxes (including like assessments, charges, rates and levies) not yet due or, if due, the validity or amount of which is being contested diligently and in good faith by or on behalf of the Borrower or the Guarantor, as applicable, and in respect of which there shall have been deposited within thirty (30) days of the date of such taxes becoming due with the Bank or the taxing authority collateral in an amount sufficient to pay such Taxes, and liens for the excess of the amount of any past due Taxes for which a final assessment or account has not been received over the amount of such Taxes as estimated and paid by or on behalf of the Borrower or the Guarantor, as applicable;

(ii)  

the lien of any judgment rendered or claim filed against the Borrower or the Guarantor, as applicable, which is being contested diligently and in good faith by appropriate proceedings by or on behalf of the Borrower or the Guarantor, as applicable, and in respect of which, if in the reasonable judgment of the Bank the same shall be prudent or desirable, there shall have been paid into court or deposited with the Bank collateral in an amount sufficient to pay such judgment or claim together with any interest thereon and costs in respect thereof; provided that the Borrower or the Guarantor, as applicable, shall have a period of thirty (30) days from the date of any such judgment or claim being filed to make such payment or deposit;

(iii)  

zoning and building by-laws and ordinances, municipal by-laws and regulations and restrictive covenants affecting the Premises which in the opinion of the Bank, acting reasonably, do not and will not in the aggregate materially and adversely affect the lien of the Security or materially impair the value, use or operation of the Premises;

(iv)  

the lien and charge of the Security Documents;

(v)  

the Encumbrances listed in Schedule "B" annexed hereto;

(vi)  

any Encumbrance to secure related party or shareholder loans to the Borrower or the Guarantor, as applicable, provided that the same are completely subordinated to the Bank;

(vii)  

the liens and security interests created by the general security agreements between each of the Borrower and the Guarantor, on the one hand, and Royal Bank of Canada ("RBC"), on the other hand, in connection with the secured operating line of credit provided to the Borrower by RBC and any and all financings, liabilities or obligations which the Borrower may accept or issue in order to replace or supersede such loan or any replacement financing thereof from time to time (the "RBC Facility");

(viii)  

the lien and security interests created by a general security agreement granted by the Guarantor in connection with any operating or revolving credit or loan facility (in excess of or in addition to the RBC Facility) used to fund a product demand from a third party vendor to meet a customer order of the Borrower, the terms of which facility provide for the retirement of the funding out of the proceeds of payment by such customer, and the aggregate amount of which facility shall not, at any time, exceed $750,000 (the "Bulge Facility");

(ix)  

the lien and security interests created by a general security agreement between the Borrower and Karen Dalicandro and 2293046 Ontario Inc. (co

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