Exhibit 10.3
PROMISSORY NOTE

                              Principal
$1,500,000.00   Loan Date
06-15-2009   Maturity
06-15-2010   Loan No
52-01-000295   Call / Coll    Account    Officer
MTL   Initials

References in the boxes above are for Lender’s use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

             
Borrower:
  Halifax Corporation of Virginia
5250 Cherokee Avenue
Alexandria, VA 22312   Lender:   Sonabank, a State chartered bank
Warrenton Loan Production Office
550 Broadview Avenue
Warrenton, VA 20186

IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

Principal Amount: $1,500,000.00   Initial Rate: 8.000%   Date of Note: June 15,
2009

PROMISE TO PAY. Halifax Corporation of Virginia (“Borrower”) promises to pay to
Sonabank, a State chartered bank (“Lender”), or order, in lawful money of the
United States of America, the principal amount of One Million Five Hundred
Thousand & 00/100 Dollars ($1,500,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 15, 2010. In addition, Borrower will
pay regular monthly payments of all accrued unpaid interest due as of each
payment date, beginning July 15, 2009, with all subsequent interest payments to
be due on the same day of each month after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; then to any late charges; and then to any unpaid
collection costs. Borrower will pay Lender at Lender’s address shown above or at
such other place as Lender may designate in writing,
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Wall Street
Journal Prime as published in the Wall Street Journal (the “Index”). The Index
is not necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute Index after notifying Borrower. Lender will tell Borrower the current
Index rate upon Borrower’s request. The interest rate, change will not occur
more often than each month. Borrower understands that Lender may make loans
based on other rates as well. The Index currently is 3.250% per annum. The
interest rate to be applied to the unpaid principal balance of this Note will be
calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a
rate of 2.750 percentage points over the Index, adjusted if necessary for any
minimum and maximum rate limitations described below, resulting in an initial
rate of 8.000% per annum. NOTICE: Under no circumstances will the interest rate
on this Note be less than 8.000% per annum or more than the maximum rate allowed
by applicable law.
INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/365
simple interest basis; that is, by applying the ratio of the interest rate over
the number of days in a year, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
All interest payable under this Note is computed using this method.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower’s obligation to continue to make payments
of accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked “paid in full”,
“without recourse”, or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender’s rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes “payment in full”
of the amount owed or that is tendered with other conditions or limitations or
as full satisfaction of a disputed amount must be mailed or delivered to:
Sonabank, a State chartered bank, Warrenton Loan Production Office, 550
Broadview Avenue Warrenton, VA 20186.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
8.000% of the unpaid portion of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, at Lender’s option, and if permitted by applicable law, Lender may add
any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (Including any increased
rate). Upon default, the interest rate on this Note shall be increased to
21.000% per annum. However, in no event will the interest rate exceed the
maximum interest rate limitations under applicable law.
DEFAULT. Each of the following shall constitute an event of default (“Event of
Default”) under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation, covenant
or condition contained in any other agreement between Lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower’s behalf under this Note or the related
documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower’s existence as a going
business, or a trustee or receiver is appointed for Borrower or for all or a
substantial portion of the assets of Borrower, or Borrower makes a general
assignment for the benefit of Borrower’s creditors, or Borrower files for
bankruptcy, or an involuntary bankruptcy petition is filed against Borrower and
such involuntary petition remains undismissed for sixty (60) days.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the loan. This includes a garnishment of any of
Borrower’s accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

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Loan No: 52-01-000295   PROMISSORY NOTE
(Continued)   Page 2

Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
guaranty of the indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower’s financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
Cure Provisions. If any default, other than a default in payment is curable and
if Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured if Borrower,
after receiving written notice from Lender demanding cure of such default:
(1) cures the default within thirty (30) days; or (2) if the cure requires more
than thirty (30) days, immediately initiates steps which Lender deems in
Lender’s sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance under this Note and all accrued unpaid interest, together with all other
applicable fees, costs and charges, if any, immediately due and payable, and
then Borrower will pay that amount.
ATTORNEYS’ FEES; EXPENSES. Subject to any limits under applicable law, upon
default, Borrower agrees to pay Lender’s attorneys’ fees and all of Lender’s
other collection expenses, whether or not there is a lawsuit, including without
limitation legal expenses for bankruptcy proceedings.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender
and, to the extent not preempted by federal law, the laws of the Commonwealth of
Virginia without regard to its conflicts of law provisions. This Note has been
accepted by Lander in the Commonwealth of Virginia.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to
submit to the jurisdiction of the applicable courts for Fauquier County,
Commonwealth of Virginia.
CONFESSION OF JUDGMENT. Upon a default in payment of this Note at maturity,
whether by acceleration or otherwise, Borrower hereby irrevocably authorizes and
empowers William Lagos or Marie Leibson as Borrower’s attorney-in-fact to appear
in the Fauquier County clerk’s office and to confess judgment against Borrower
for the unpaid amount of this Note as evidenced by an affidavit signed by an
officer of Lender setting forth the amount then due, attorneys’ fees plus costs
of suit, and to release all errors, and waive all rights of appeal. If a copy of
this Note, verified by an affidavit, shall have been filed in the proceeding, it
will not be necessary to file the original as a warrant of attorney. Borrower
waives the right to any stay of execution and the benefit of all exemption laws
now or hereafter in effect. No single exercise of the foregoing warrant and
power to confess judgment will be deemed to exhaust the power, whether or not
any such exercise shall be held by any court to be invalid, voidable, or void;
but the power will continue undiminished and may be exercised from time to time
as Lender may elect until all amounts owing on this Note have been paid in full.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $35.00 if Borrower
makes a payment on Borrower’s loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower’s accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.
COLLATERAL. Borrower acknowledges this Note is secured by A first lien on all
business assets.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in this paragraph.
All oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender’s office shown above. Borrower agrees to be liable
for all sums either: (A) advanced in accordance with the instructions of an
authorized person or (B) credited to any of Borrower’s accounts with Lender. The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender’s internal records, including daily
computer print-outs.
OPERATING ACCOUNT PROVISION. Borrower is to maintain it’s primary operating
accounts with Lender throughout the term of the loan. In the event that any main
or primary operating accounts are not maintained with Lender, the effective
interest rate will be increased by 2.0% over the rate noted in the loan
documents.
PROPERTY. No further encumbrance of the Property shall be permitted without the
prior written consent of the Lender.
EQUITY POSITION. If at any time during the term of the Loan the equity position
of the Borrower falls below the current position of $3,500,00, such a fall will
constitute an event of default under the Loan and pursuant to the Loan
documents.
DEBT SERVICE. If at any time during the term of the Loan the debt service
coverage falls below 1.25X, such a fall will constitute an event of default
under the Loan documents.
FIELD EXAM. Field Exam will be performed annually on both accounts and
inventory.
COLLATERAL. Lender will require an assignment of all receivables payments,
collections, and proceeds of receivables and Borrower will collect all such
amounts and post them to the designated lock-box account. Borrower shall pay a
monthly lock-box fee of $500. All proceeds of receivables which may from time to
time come into the possession of the Borrower shall be held in trust for the
Lender, segregated from the other funds of the Borrower, and be delivered to the
Lender immediately in the form received with any necessary endorsement for
deposit into Borrower’s account, such delivery in no event to be later than one
(1) business day after receipt thereof by the Borrower. In addition, the
Borrower shall not adjust, settle, or compromise the amount or payment of any
receivable, release wholly or partly any account debtor or obligor for any
receivable, or allow any credit or discount on any receivable other than in the
normal course of business, without the prior written consent of the Lender.
Accounts receivable reports to be uploaded at least semi-monthly through the
SABL system and summary inventory listing will be submitted to Lender by
Borrower monthly.

 

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Loan No: 52-01-000295   PROMISSORY NOTE
(Continued)   Page 3

ADVANCES. Pursuant to the terms and conditions of the Loan, Lender shall make
advances to the Borrower from time to time during the term of the Loan upon
Borrower’s request, provided that the outstanding principal amount of such
advances may not exceed the lesser of (i) $1,500,000.00 or (ii) the Borrowing
Base (as defined herein) (such amount being the “Revolving Commitment”). Within
that limit, and subject to the other terms and conditions of the Loan, the
Borrower may from time to time borrow, prepay, and re-borrow revolving advances.
“Borrowing Base” means, as of any date of its determination by the Lender, 85%
of the value of the Eligible Accounts (defined herein) of the Borrower.
“Eligible Accounts” means, with respect to the Borrower and as of any date of
its determination by the Lender, the accounts receivable of such Borrower which
are reflected on the balance sheet of such Borrower as of such date in
accordance with generally accepted accounting principles, excluding, however:
(a) accounts receivable in which the Lender does not have a first priority
perfected security interest (Including accounts receivable governed by the
Federal Assignment of Claims Act unless properly assigned pursuant to that ACT)
and accounts receivable which are not “accounts” as such term is defined in the
Virginia Uniform Commercial Code (Including those represented by any promissory
note, trade acceptance, chattel paper, draft, or other instrument);
(b) accounts receivable which did not arise from an enforceable order or
contract for the absolute and finial sale of the inventory or services of the
Borrower or accounts receivable for which the sales or services have not been
fully performed in the ordinary course of business of the Borrower;
(c) accounts receivable which are older than 90 days after the date of the
invoice that generated such accounts receivable;
(d) accounts receivable which are subject to any contest or offset, including
contra accounts, or which have been disputed;
(e) accounts receivable which were not generated in an arm’s length transaction
or are accounts receivable from any affiliate of the Borrower and any accounts
receivable which have already been included as Eligible Accounts from such
affiliates;
(f) accounts receivable which are otherwise unacceptable as collateral,
including foreign and bonded, as determined by the Lender according to the
reasonable policies of the Lender.
SABL. Sonabank Asset Based Lending (SABL) is a proprietary asset based lending
system utilized to monitor asset based lines of credit.
System balances are checked and updated prior to any draw or payment requests
being processed. Transactions that have not yet posted into SABL may affect your
ability to borrow or pay on your line as the borrowing base will be recalculated
when these new transactions are recorded. All transactions requested through the
SABL system during normal business hours will be processed the same day.
Transactions requested after normal business hours will be processed the
following business day.
PREPAYMENT. The Borrower may elect to prepay all or part of the interest and/or
principal of any advance without penalty. If at any time during the term of this
Agreement, the aggregate outstanding principal amount of advances exceeds the
Revolving Commitment, the Borrower shall upon demand pay to the Lender for
application against the advances an amount equal to the amount of such excess,
together with any accrued but unpaid interest on the principal amount prepaid,
so that such excess is eliminated.
     In the event that the line is paid and closed prior to maturity a 2%
penalty will apply and be assessed based on the maximum credit limit of the
facility.
REPAYMENT. Lender will apply all receipted payments through the lockbox account
to the outstanding principal balance due. In the event that there is no
outstanding balance the receipted funds will be transferred to the primary
operating account of the borrower.
Lender shall automatically debit from Borrower’s account all interest payments
and monthly fees. The aggregate outstanding principal amount of the advances, as
well as any unpaid interest or other accrued and unpaid costs, fees and
expenses, shall be due and payable in full by Borrower on the Loan maturity
date.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower’s heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.
NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES.
Please notify us if we report any inaccurate information about your account(s)
to a consumer reporting agency. Your written notice describing the specific
inaccuracy(ies) should be sent to us at the following address: Sonabank, a State
chartered bank Warrenton Loan Production Office 550 Broadview Avenue Warrenton,
VA 20186.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan or release any party or guarantor or collateral; or impair, fail
to realize upon or perfect Lender’s security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.

 

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Loan No: 52-01-000295   PROMISSORY NOTE
(Continued)   Page 4

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:

          HALIFAX CORPORATION OF VIRGINIA
    (SEAL) [w74497w7449701.gif]  By:   /s/ Joseph Sciacca   (seal)   Joseph
Sciacca, Chief Financial Officer of Halifax      Corporation of Virginia       
 

LASER PRO Lending, VA S.42.00.004 Corp, Harland Financial Solutions, Inc. 1957,
2009. All Rights Reserved, VA c:\CFRLPLICAO.FC TR-1743 PR-22
STATE COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF FAIRFAX; to wit:
     The foregoing document was acknowledged before me in the foregoing
jurisdiction this 15th day of JUNE 2009, by JOSEPH SCIACCA.

              /s/ Suzanne K. Green     Notary Public      My commission expires:
September 30, 2009     Registration Number: 123531  

(SEAL) [w74497w7449702.gif]