exv10w3







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.



 









 





					
	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.




 









 








					
	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.




 









 









					
	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 

 	 	 
	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