Exhibit 10.1
THIRD AMENDMENT AND WAIVER
     This THIRD AMENDMENT AND WAIVER (this “Amendment”) is entered into as of
April 30, 2008, among HALIFAX CORPORATION OF VIRGINIA, f/k/a Halifax
Corporation, a Virginia corporation (“Halifax”), HALIFAX ENGINEERING, INC., a
Virginia corporation (“Engineering”), MICROSERV LLC, a Delaware limited
liability company (Microserv”) and HALIFAX ALPHANATIONAL ACQUISITION, INC., a
Delaware corporation (“AlphaNational”; collectively with Halifax, Engineering
and Microserv, “Borrower”), and PROVIDENT BANK, a Maryland banking corporation
(“Bank”).
W I T N E S S E T H :
     WHEREAS, the Borrower and the Bank entered into that certain Fourth Amended
and Restated Loan and Security Agreement dated as of June 29, 2007 (as amended,
restated, supplemented or modified from time to time, including the amendments
and waivers set forth in that certain First Amendment and Waiver dated
November 13, 2007, and that certain Second Amendment and Waiver dated as of
January 31, 2008 the “Loan Agreement”; capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Loan
Agreement);
     WHEREAS, the following Events of Default have occurred under the Loan
Agreement: (a) Borrower failing to maintain a minimum Tangible Net Worth plus
Subordinated Debt of not less than $1,000,000 as of March 31, 2008; (b) Borrower
failing to maintain a ratio of Total Liabilities less Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of not greater than 4.0:1 as of
December 31, 2007; (c) Borrower failing to maintain a Current Ratio equal to or
greater than 1:1 as of March 31, 2008; and (d) Borrower failing to deliver to
the Bank, by April 15, 2008, Bank either: (i) a commitment for financing in
sufficient amount to completely pay-off the Line of Credit and the Auxiliary
Revolver Facility; or (ii) an engagement letter with an advisory firm
satisfactory to the Bank to assist the Borrower in evaluating and pursuing
alternative refinancing sources or the sale of all or substantially all of the
Borrower’s assets pay the principal, interest and late charges owed under the
Auxiliary Revolver Facility at the December 31, 2007 maturity thereof or
(iii) an Account Control Agreement executed by Liberty Bank in form and
substance acceptable to the Bank covering any accounts maintained by the
Borrower at Liberty Bank (the “Existing Defaults”);
     WHEREAS, the Existing Defaults are continuing and remain unwaived, and the
Borrower has requested that the Bank waive the Existing Defaults;
     WHEREAS, the Bank has agreed to the requested waiver on the terms and
conditions provided herein; and
     WHEREAS, the Borrower has further requested that certain terms and
conditions of the Loan Agreement and the Promissory Notes evidencing the
Revolving Line of Credit and the Auxiliary Revolver Facility (each a “Promissory
Note” and collectively, the “Promissory Notes”) be amended, and the Bank has
agreed to the requested amendments on the terms and conditions provided herein;

 

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     NOW THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
     1. Amounts Due. The Borrower acknowledges and agrees that as of April 29,
2008 the outstanding principal balance due under: (a) the Line of Credit is
Three Million Six Hundred and Two Thousand Three Hundred Seventy-One Dollars and
96/100 ($3,602,371.96) with accrued interest due in the amount of Twenty-One
Thousand Three Hundred Fifty-two Dollars and 03/100 ($21,352.03) and (b) the
Auxiliary Revolver Facility is Thirty Five Thousand Four Hundred Thirty-Six
Dollars and 95/00 ($35,436.95) with accrued interest due in the amount of Two
Hundred and Seventy Dollars and 31/100 ($270.31) and that such sums are in fact
now due and owing without defense, set-off or counterclaim whatsoever.
     2. Amendment to the Loan Agreement.
          A. Section II.A. 1. of the Loan Agreement is hereby modified and
amended by deleting the last two sentences thereof added by that certain Second
Amendment and Waiver dated as of January 31, 2008 and replacing them with the
following:
“All amounts outstanding under the Line of Credit shall be due and paid in full
on June 30, 2008.”
          B. Section II.A.2. of the Loan Agreement is hereby modified and
amended by deleting the last seven sentences thereof added by that certain
Second Amendment and Waiver dated as of January 31, 2008 and replacing them with
the following:
“Notwithstanding the provisions set forth above regarding the operation of the
Auxiliary Revolver Facility, the Borrower cannot request any advance under the
Auxiliary Revolver Facility after February 1, 2008 and all amounts outstanding
under the Auxiliary Revolver Facility shall thereafter be due and paid in full
as set forth above and finally on April 30, 2008.”
     3. Amendment to Promissory Notes.
          A. Section 3(a) of the Promissory Note evidencing the Line of Credit
shall be deleted in its entirety and replaced with the following:
“(a) Principal: The principal balance of this Promissory Note and any accrued
but unpaid interest shall be paid in full by the Borrower in immediately
available funds on June 30, 2008.”
          B. Section 3(a) of the Promissory Note evidencing the Auxiliary
Revolver Facility shall be deleted in its entirety and replaced with the
following:
“(a) Principal: The principal balance of this Promissory Note and any accrued
but unpaid interest shall be paid in full by the Borrower in immediately
available funds on April 30, 2008.”

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     4. Waiver. The Bank acknowledges that the Existing Defaults currently
exist. Subject to the fulfillment of the conditions precedent to the
effectiveness of this Amendment set forth in Section 4, the Bank hereby waives
the Existing Defaults.
     5. No Other Amendments or Waivers. Except in connection with the amendments
and the waivers expressly set forth above, the execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of the Bank under the Loan Agreement or any of the other related
documents, nor constitute a waiver of any provision of the Loan Agreement or any
of the other related documents. Except for the amendments set forth above, the
text of the Loan Agreement and all other related documents shall remain
unchanged and in full force and effect and hereby ratifies and confirms its
respective obligations thereunder. The Borrower acknowledges and expressly
agrees that the Bank reserves the right to, and does in fact, require strict
compliance with all terms and provisions of the Loan Agreement.
     6. Conditions Precedent to Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Bank shall have
received the following, in form and substance satisfactory to the Bank:

  a.   counterparts of this Amendment executed by each Borrower;     b.  
payment in full, in immediately available funds, to the Bank of one-half of
amendment fee described below in the amount of $15,000, such fee being fully
earned and non-refundable upon the effectiveness of this Amendment;     c.  
payment in full of all other fees and expenses due and payable to the Bank under
the Loan Agreement and in connection with the execution and delivery of this
Amendment and the transactions described herein, including, without limitation,
the fees and expenses of counsel to the Bank, if any; and     d.   such other
information, documents, including amended and restated promissory notes,
instruments, certificates or approvals as may be set forth within this Agreement
or as the Bank or the Bank’s counsel may reasonably require.

     7. Additional Agreements. The Borrower agrees as follows:

  a.   By no later than May 31, 2008, the Borrower shall deliver to the Bank
either: (i) a commitment for financing in sufficient amount to completely
pay-off the Line of Credit by no later than June 30, 2008; or (ii) an engagement
letter with an advisory firm satisfactory to the Bank to assist the Borrower in
evaluating and pursuing alternative refinancing sources or the sale of all or
substantially all of the Borrower’s assets.     b.   By no later than May 15,
2008, the Borrower shall deliver to the Bank a fully executed Account Control
Agreement acceptable to Bank perfecting the Bank’s security interest in all of
the Borrower’s accounts at Liberty Bank.

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  c.   By no later than May 15, 2008, the Borrower shall identify to the Bank
all locations at which it maintains inventory valued at greater than $10,000.  
  d.   On a monthly basis commencing on May 15, 2008, the Borrower shall deliver
copies of the account statements for the prior month on the VDOT escrow funds in
accounts at SunTrust Bank, N.A., and on all Liberty Bank accounts.     e.   On a
monthly basis commencing on May 30, 2008, and within 30 days of the end of each
month thereafter, the Borrower shall deliver copies of its previous month-end
income statement and balance sheet.     f.   By no later than May 15, 2008, the
Borrower shall deliver a listing of the names and address of all of its account
debtors and vendors.     g.   The Automatic Credit Advance procedure of the
Borrower’s ARTS Service shall cease on April 30, 2008. Notwithstanding anything
to the contrary in any agreement or the Reporting Requirements Addendum with the
Bank, the Borrower shall, commencing in May 1, 2008: (i) upload Receivable data
into ARTS upon each advance request, and in any event shall upload such data at
least every two weeks; (ii) submit to the Bank Borrowing Base Certificates, in
form and substance satisfactory to the Bank, every two weeks; (iii) within ten
(10) days of each month end, submit a Borrowing Base Certificate reflecting
activity for the entire previous month, accompanied by a reconciliation of
reported sales, credits, collections, ending Receivable balances, loan balance
to subsidiary records, and bank statements.     h.   The Financial Covenants set
forth in the Financial Covenants Addendum continue to apply to the Borrower and
shall be measured next by the Bank as of March 31, 2008 and monthly thereafter.
The following Financial Covenants are hereby modified and amended with the
following:

  (i)   Financial Covenant II.A shall be modified and amended to read as
follows: Borrower shall at all times maintain a minimum Tangible Net Worth plus
Subordinated Debt of not less than $400,000 as of March 31, 2008 and as of the
last day of each month thereafter, and     (ii)   Financial Covenant II.D shall
be modified and amended to read as follows: Borrower failing to maintain a
Current Ratio equal to or greater than .975 as of March 31, 2008 and as of the
last day of each month thereafter.

For purposes of covenant measurements, any capital infusion or issuance of
subordinated debt shall be deemed to have occurred after March 31, 2008.

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     8. Representations and Warranties of the Borrower. In consideration of the
execution and delivery of this Amendment by the Bank, the Borrower hereby
represents and warrants in favor of the Bank: (a) each Borrower has the power
and authority (i) to enter into this Amendment and (ii) to do all acts and
things as are required or contemplated hereunder to be done, observed and
performed by the Borrower; (b) the Borrower has the power and has taken all
necessary action to authorize it to execute, deliver, and perform this Amendment
in accordance with the terms hereof and to consummate the transactions
contemplated hereby; (c) (i) the Borrower has obtained all necessary
governmental, shareholder and third party approvals, (ii) all such necessary
governmental, shareholder and third party approvals are in full force and
effect, (iii) none of such necessary governmental, shareholder and third party
approvals is the subject of any pending or, to the best of the Borrower’s
knowledge, threatened attack or revocation, by the grantor of the governmental,
shareholder or third party approval and (iv) the Borrower is not required to
obtain any additional necessary governmental, shareholder or third party
approval in connection with the execution, delivery, and performance of this
Amendment, in accordance with its terms, or the consummation of the transactions
contemplated hereby or thereby; (d) the execution, delivery, and performance of
this Amendment in accordance with its terms and the consummation of the
transactions contemplated hereby do not and will not (i) violate any applicable
law, (ii) conflict with, result in a breach of, or constitute a default under
the charter, bylaws and other governing documents of each Borrower or under any
indenture, agreement, or other instrument to which the Borrower is a party or by
which the Borrower or any of its properties may be bound, or (iii) result in or
require the creation or imposition of any lien upon or with the Borrower except
liens permitted by the Loan Agreement; (e) this Amendment has been duly executed
and delivered by each Borrower, and is a legal, valid and binding obligation of
each Borrower, enforceable in accordance with its terms except to the extent
that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting the enforcement of
creditor’s rights generally or by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law);
(f) after giving effect to this Amendment, no Event of Default exists under the
Loan Agreement; (g) as of the date hereof, all representations and warranties of
the Borrower set forth in the Loan Agreement are true, correct and complete in
all material respects; and (h) the Loan Agreement constitutes the legal, valid
and binding obligations of each Borrower, enforceable in accordance with its
terms except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditor’s rights generally or by general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
     9. Amendment Fee. The Borrower agrees to pay the Bank an amendment fee
equal to $30,000 which fee shall be fully earned and non-refundable upon the
effectiveness of this Amendment. Borrower shall pay $15,000 of the fee upon
execution of this Agreement and shall pay the remaining $15,000 on or prior to
5:00 p.m., eastern time, May 31, 2008, provided, however, that its obligation to
make such $15,000 payment shall be discharged if the Borrower fully and finally
repays all sums outstanding under the revolving Line of Credit and the Auxiliary
Revolver Facility prior to 5:00 p.m., eastern time, May 31, 2008.
     10. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement. In proving this Amendment
in any judicial proceedings, it shall not be

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necessary to produce or account for more than one such counterpart signed by the
party against whom such enforcement is sought. Any signatures delivered by a
party by facsimile transmission or by e-mail transmission of an adobe file
format document (also known as a PDF file) shall be deemed an original signature
hereto.
     11. Reference to and Effect on the Note Documents. Upon the effectiveness
of this Amendment, on and after the date hereof, each reference in the Loan
Agreement to “this Agreement”, “hereunder”, “hereof”, or words of like import
referring to the Loan Agreement, and each reference in the other related
documents to “the Loan Agreement”, “thereunder,” “thereof”, or words of like
import referring to the Loan Agreement, shall mean and be a reference to the
Loan Agreement as amended hereby.
     12. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses in connection with the preparation, execution, and delivery
of this Amendment and the other instruments and documents to be delivered
hereunder, including, without limitation, the amendment fee to be paid pursuant
to Sections 5 and 8 of this Amendment, and the fees and out- of-pocket expenses
of counsel for the Bank with respect thereto and with respect to advising the
Bank as to its rights and responsibilities hereunder and thereunder. In
addition, the Borrower agrees to pay any and all stamp and other taxes payable
or determined to be payable in connection with the execution and delivery of
this Amendment and the other instruments and documents to be delivered
hereunder, and agrees to save the Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
     13. Release of Claims. This Amendment is intended to be a further
accommodation by Bank to Borrower. In consideration of all such accommodations,
and acknowledging that Bank will be specifically relying on the following
provisions as a material inducement in entering into this Amendment, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, each Borrower, on behalf of itself and its shareholders and
subsidiaries, hereby releases, remises and forever discharges Bank and its
agents, servants, employees, directors, officers, attorneys, accountants,
consultants, affiliates, representatives, receivers, trustees, subsidiaries,
predecessors, successors and assigns (collectively, the “Released Parties”) from
any and all claims, damages, losses, demands, liabilities, obligations, actions
and causes of action whatsoever (whether arising in contract or in tort, and
whether at law or in equity), whether known or unknown, matured or contingent,
liquidated or unliquidated, in any way arising from, in connection with, or in
any way concerning or relating to the Loan Agreement, the other related
documents, or any dealings with any of the Released Parties in connection with
the transactions contemplated by such documents or this Amendment prior to the
execution of this Amendment. This release shall be and remain in full force and
effect notwithstanding the discovery by any Borrower after the date hereof
(a) of any new or additional claim against any Released Party, (b) of any new or
additional facts in any way relating to the subject matter of this release,
(c) that any fact relied upon by it was incorrect or (d) that any representation
made by any Released Party was untrue or that any Released Party concealed any
fact, circumstance or claim relevant to Borrower’s execution of this release;
provided, however, this release shall not extend to any claims arising after the
execution of this Amendment in connection with the Loan Agreement. Each Borrower
acknowledges and agrees that this release is intended to, and does, fully,
finally and forever release all matters described in this Section 13,

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notwithstanding the existence or discovery of any such new or additional claims
or facts, incorrect facts, misunderstanding of law, misrepresentation or
concealment.
     14. Section Titles. The section titles contained in this Amendment are
included for the sake of convenience only, shall be without substantive meaning
or content of any kind whatsoever, and are not a part of the agreement between
the parties.
     15. Entire Agreement. This Amendment and the other related documents
constitute the entire agreement and understanding between the parties hereto
with respect to the transactions contemplated hereby and thereby and supersede
all prior negotiations, understandings and agreements between such parties with
respect to such transactions.
     16. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF.
     17. Time of the Essence. Time is of the essence with respect to all the
terms and conditions of this Agreement.
     18. Voluntary Agreement and Advice of Counsel. The Borrower acknowledges,
affirms and agrees that they: (a) are entering into this Agreement of their own
choice without coercion or duress of any kind; (b) are not relying upon any
representations, whether written or oral, not contained in this Agreement;
(c) have had the opportunity to be represented by counsel of their own choice;
and (d) understand the meaning and effect of all of the terms and provisions of
this Agreement including the releases and waivers contained in Section 13.
[Remainder of page intentionally left blank.]
[Signatures follow]

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the day and year first written above.

              BORROWER:   HALIFAX CORPORATION OF VIRGINIA    
 
           
 
  By:   /s/ Joseph Sciacca
                                                                     (SEAL)
 
   
 
  Name:   Joseph Sciacca    
 
  Title:   Chief Financial Officer    
 
                HALIFAX ENGINEERING, INC.    
 
           
 
  By:   /s/ Joseph Sciacca
                                                                     (SEAL)
 
   
 
  Name:   Joseph Sciacca    
 
  Title:   Vice President, Secretary and Treasurer    
 
                MICROSERV LLC    
 
           
 
  By:   /s/ Joseph Sciacca
                                                                     (SEAL)
 
   
 
  Name:   Joseph Sciacca    
 
  Title:   Vice President, Secretary and Treasurer    
 
                HALIFAX ALPHANATIONAL ACQUISITION, INC.    
 
           
 
  By:   /s/ Joseph Sciacca
                                                                     (SEAL)
 
   
 
  Name:   Joseph Sciacca    
 
  Title:   Vice President, Secretary and Treasurer    
 
            BANK:   PROVIDENT BANK    
 
           
 
  By:   /s/ Michael McShane
                                                                (SEAL)
 
   
 
  Name:   Michael McShane    
 
  Title:   Senior Vice President    

Third Amendment and Waiver
to Loan Agreement
April, 2008

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