Document:

exv10w2

 

Exhibit 10.2

THIRD AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

     It is hereby agreed as of the 6th day of July, 2006, by and between 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”), of Baltimore, Maryland, and the successor by merger to Southern Financial Bank that this
Third Amended and Restated Loan and Security Agreement (the “Agreement”) combines, amends and
replaces the Second Amended and Restated Loan and Security Agreement dated June 29, 2005 executed
by Borrower and Bank, as amended. The terms of the Agreement are as follows:

I. DEFINITIONS

	 	A.	 	Specific Definitions. The following terms have the following definitions (each
definition is equally applicable to the singular and plural forms of the terms used, as the
context requires):

	 	1.	 	“Account Debtor” means any person or entity who is or who may become
obligated to make payments to Borrower, including, but not limited to, payments owed
to Borrower under, with respect to, or on account of Receivables.
	 
	 	2.	 	“Assignment of Claims Act” means, collectively, the Assignment of Claims Act
of 1940, as amended, 31 U.S.C. § 3727, 41 U.S.C. § 15, any applicable rules,
regulations and interpretations issued pursuant thereto, and any amendments to any of
the foregoing.
	 
	 	3.	 	“Auxiliary Borrowing Base” has the meaning ascribed to such term in the
Formula Advance Addendum executed the date hereof by and between Borrower and Bank.
	 
	 	4.	 	“Auxiliary Maximum Credit Amount” means One Million Dollars ($1,000,000).
	 
	 	5.	 	“Auxiliary Revolver Facility” means the revolver loan facility extended by
Bank to Borrower pursuant to Paragraph II.A.2 of this Agreement and otherwise in
accordance with the terms of this Agreement.
	 
	 	6.	 	“Borrowing Base” has the meaning ascribed to such term in the Formula Advance
Addendum executed the date hereof by and between Borrower and Bank.
	 
	 	7.	 	“Collateral” means all of the now owned and hereafter acquired assets,
properties and property rights of Borrower with respect to which Borrower has at any
time granted a security interest or lien to Bank or has at any time otherwise assigned
or pledged to Bank as security for any of the Obligations.
	 
	 	8.	 	“Equipment” means all of the now owned and hereafter acquired machinery,
equipment, furniture, fixtures (whether or not attached to real property), vehicles,
supplies and other personal property of Borrower other than inventory, including any
leasehold interests therein and all substitutions, replacement parts and annexations
thereto, and including all improvements and accessions thereto and all spare parts,
tools, accessories and attachments now owned or hereafter acquired in connection
therewith, and any maintenance agreements applicable thereto, and all proceeds and
products thereof, including sales proceeds, and all rights thereto.
	 
	 	9.	 	“G.A.A.P.” means, with respect to any date of determination, generally
accepted accounting principles as used by the Financial Accounting Standards Board
and/or the American Institute of Certified Public Accountants consistently applied and
maintained throughout the periods indicated.
	 
	 	10.	 	“Government” means the United States of America or any agency or
instrumentality thereof.
	 
	 	11.	 	“Government Contract” means any contract with the Government under which
Borrower is the prime contractor.
	 
	 	12.	 	“Inventory” means all of Borrower’s now owned and hereafter acquired
inventory, wherever located, including, but not limited to, goods, wares, merchandise,
materials, raw materials, parts, containers, goods in process, finished goods, work in
progress, bindings or component materials, packaging and shipping materials and other
tangible or intangible personal property held for sale or lease or furnished or to be
furnished under contracts of service or which contribute to the finished products or
the sale, promotion, storage and shipment thereof, all goods returned for credit,
repossessed, reclaimed or otherwise reacquired by Borrower, whether located at
facilities owned or leased by Borrower, in the course of transport to or from Account
Debtors, placed on consignment, or held at storage locations, and all proceeds and
products thereof and all rights thereto, including, but not limited to all sales
proceeds, all chattel paper related to any of the foregoing and all documents,
including, but not limited to, documents of title, bills of lading and warehouse
receipts related to any of the foregoing.
	 
	 	13.	 	“Line of Credit” means any line of credit facility extended by Bank to
Borrower pursuant to Paragraph II.A.1 of this Agreement and otherwise in accordance
with the terms of this Agreement.

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	 	14.	 	“Loan” means one or more credit facilities, including any Line of Credit and
the Auxiliary Revolver Facility, provided by Bank to Borrower pursuant to the terms of
this Agreement and all accompanying Loan documents, including, but not limited to, one
or more promissory notes of Borrower payable to the order of Bank, as the same may be
amended, modified, extended, renewed, supplemented, restated or replaced from time to
time.
	 
	 	15.	 	“Maximum Line of Credit Amount” means Twelve Million Dollars ($12,000,000)
less any amounts outstanding pursuant to the Auxiliary Revolver Facility.
	 
	 	16.	 	“Obligations” means collectively the obligations of Borrower to pay to Bank:
(i) any and all sums due to Bank under or pursuant to the Loan or otherwise under the
terms of this Agreement or any accompanying Loan documents; (ii) any and all sums
advanced by Bank to preserve or protect the Collateral or to preserve, protect, or
perfect Bank’s security interests and liens in the Collateral; (iii) the expenses of
retaking, holding, preparing for sale, selling or otherwise disposing of or realizing
on the Collateral, or of any exercise by Bank of Bank’s rights in the event of a
default by Borrower, together with Bank’s attorneys’ fees, expenses of collection, and
court costs; and (iv) any other indebtedness or liability of Borrower to Bank, whether
direct or indirect (by way of endorsement, guaranty, pledge or otherwise), liquidated
or unliquidated, joint or several, absolute or contingent, contemplated or
uncontemplated, or otherwise arising from any loan, note, letter of credit, guaranty,
overdraft, or any other duty owed by Borrower to Bank, now existing or hereafter
arising.
	 
	 	17.	 	“Other Obligor” means any person or entity that is now or hereafter liable,
directly, contingently or otherwise, upon or in connection with any of the Obligations
or that has granted any lien or security interest to or for the benefit of Bank to
secure any of the Obligations, including, but not limited to, any guarantor, surety,
endorser, or co-maker of any of the Obligations.
	 
	 	18.	 	“Receivables” means all of Borrower’s now owned and hereafter acquired and/or
created Accounts, accounts receivable, contracts, contract rights, Instruments,
Documents, Chattel Paper, Deposit Accounts, notes, notes receivable, drafts,
acceptances, General Intangibles (including, but not limited to, trademarks,
tradenames, licenses, copyrights and patents), and other choses in action (not
including salary or wages), and all proceeds and products thereof, and all rights
thereto, including, but not limited to, proceeds of Inventory and returned goods and
proceeds arising from the sale or lease of or the providing of Inventory, goods, or
services by Borrower, as well as all other rights of any kind, contingent or
non-contingent, of Borrower to receive payment, benefit, or credit from any person or
entity, including, but not limited to, the right to receive tax refunds or tax
rebates.
	 
	 	19.	 	“VDOT Contract” means Contract #844 between Halifax Technology Services
Company (predecessor by merger to Halifax) and Virginia Department of Transportation
and Virginia Retirement Systems for Provision of Services for Information
Technology/Enterprise Architecture, dated November 1, 1998, as amended.
	 
	 	20.	 	“VDOT Vendor Liens/Assignments” means liens on or assignments of receivables
from the VDOT Contract given to vendors supplying equipment and software provided by
Borrower to the customer pursuant to the VDOT Contract, but only to the extent they
relate to the acquisition of such equipment and software.

	 	B.	 	UCC Definitions. The terms “Accounts,” “As-Extracted Collateral,” “Chattel
Paper,” “Deposit Accounts,” “Documents,” “Electronic Chattel Paper,” “Fixtures,” “General
Intangibles,” “Goods,” “Investment Property,” Instruments, “ “Letter-of-Credit Rights,”
“Payment Intangibles,” “Software” and “Tangible Chattel Paper” have the respective meanings
given to those terms in Maryland Uniform Commercial Code — Secured Transactions,
Title 9, Commercial Law Article, Annotated Code of Maryland, as amended
(“Article 9”).
	 
	 	C.	 	Accounting Terms. The accounting terms used in this Agreement have the meanings
customarily given them in accordance with G.A.A.P., unless this Agreement expressly provides
a different meaning.

II. BASIC TERMS OF LOAN

	 	A.1	 	Line of Credit. Subject to the continued compliance
of Borrower with the terms of this Agreement and all
other accompanying Loan documents and the continued
absence of any default by Borrower or any Other
Obligor hereunder and thereunder, Bank may advance to
Borrower, for use by Borrower as hereafter provided,
such sums as Borrower may request, but which shall not
exceed in the aggregate at any one time outstanding
the lesser of the Borrowing Base or the Maximum Line
of Credit Amount. Borrower shall not request any
advance of proceeds of the Line of Credit which
exceeds the Maximum Line of Credit Amount or the
Borrowing Base or which would cause the aggregate
amount of advances made and outstanding under the Line
of Credit to exceed the Maximum Line of Credit Amount
or the Borrowing Base. If the aggregate amount of
advances made and outstanding under the Line of Credit
shall at any time and for any reason exceed the
Maximum Line of Credit Amount or the Borrowing Base,
Borrower shall immediately pay Bank the excess. Each
advance shall be by automatic credit. Bank shall make
all advances by depositing funds in Borrower’s
commercial account number 20-65310679 or such Bank
account as may be agreed upon by Borrower and Bank.
Borrower shall use the proceeds of the Line of Credit
for short term working capital purposes including the
financing of Borrower’s contracts and accounts
receivable. Within such limitations and subject to
all of the terms and conditions set forth herein and
in the other accompanying Loan documents, Borrower may
borrow, repay, and reborrow funds under the Line of
Credit in accordance with the terms and conditions of
this Agreement.
	 
	 	A.2	 	 Auxiliary Revolver Facility. Subject to the continued compliance of Borrower
with the terms of this Agreement and all other accompanying Loan documents and the
continued absence of any default by Borrower or any Other Obligor hereunder and thereunder,
Bank may advance to Borrower, for use by Borrower as hereafter provided, such sums as
Borrower may request, but which shall not exceed in the aggregate at any one time
outstanding the lesser of the Auxiliary Borrowing Base or the Auxiliary Maximum Credit
Amount. Borrower shall not request any advance of proceeds of the Auxiliary Revolver
Facility which exceeds the Auxiliary Maximum Credit Amount or the Auxiliary Borrowing Base
or which would cause the aggregate amount of advances made

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	 	 	 	and outstanding under the Auxiliary Revolver Facility to exceed the Auxiliary Maximum
Credit Amount or the Auxiliary Borrowing Base. If the aggregate amount of advances made
and outstanding under the Auxiliary Revolver Facility shall at any time and for any reason
exceed the Auxiliary Maximum Credit Amount or the Auxiliary Borrowing Base, Borrower shall
immediately pay Bank the excess. Each advance shall be by automatic credit. Bank shall
make all advances by depositing funds in Borrower’s commercial account number 20-65310679
or such Bank account as may be agreed upon by Borrower and Bank. Borrower shall use the
proceeds of the Auxiliary Revolver Facility for costs related to the commencement of any
new contract (a “Permitted Auxiliary Use”). Within such limitations and subject to all of
the terms and conditions set forth herein and in the other accompanying Loan documents,
Borrower may borrow, repay, and reborrow funds under the Auxiliary Revolver Facility in
accordance with the terms and conditions of this Agreement. Notwithstanding the foregoing,
the Borrower cannot request any advances under the Auxiliary Revolver Facility after March
31, 2007, and one-third of the principal amount outstanding on such date shall be paid on
each of May 1, 2007, June 1, 2007 and July 1, 2007.
	 
	 	B.	 	Advance Procedure. With respect to each advance and all matters and transactions
in connection therewith, Borrower hereby irrevocably authorizes Bank to accept, rely upon,
act upon and comply with any oral or written instructions, requests, confirmations and
orders of any employee or representative of Borrower who is so authorized or designated as a
signer of Loan documents under the provisions of Borrower’s most recent Banking and
Borrowing Resolutions or similar document on file with Bank. Borrower acknowledges that the
transmission between Borrower and Bank of any such instructions, requests, confirmations and
orders involves the possibility of errors, omissions, mistakes and discrepancies and agrees
to adopt such internal measures and operational procedures as may be necessary to protect
its interest. By reason thereof, Borrower hereby assumes all risk of loss and
responsibility for, releases and discharges Bank from any and all responsibility or
liability for, and agrees to indemnify, reimburse on demand and hold Bank harmless from, any
and all claims, actions, damages, losses, liability and expenses by reason of, arising out
of, or in any way connected with or related to: (i) Bank’s accepting, relying and acting
upon, complying with or observing any such instruction, request, confirmation or order; and
(ii) any such error, omission, mistake, or discrepancy, provided such error, omission,
mistake or discrepancy is not the result of negligence on the part of Bank. Borrower may
request an advance under the Auxiliary Revolver Facility only if such request is accompanied
with documents, acceptable to the Bank in its sole discretion, supporting the request and
indicating that the proceeds of such advance will be used only for a Permitted Auxiliary
Use.
	 
	 	C.	 	Evidence of Loan; Terms of Repayment. The interest rates on the Loan and the
method of calculating interest upon the Loan, the term of the Loan, the method and times of
repayment, and other conditions pertaining to the repayment of the Loan shall at the option
of Bank be evidenced by Bank’s form of promissory note or as otherwise set forth in
appropriate writings between the parties as determined by Bank. The Loans shall be subject
to annual internal reviews of the Bank concurrent with the delivery of the Borrowers’ annual
modified financial statements. In the absence of a promissory note or other applicable
writing, the Loan shall be deemed to be otherwise conclusively evidenced by Bank’s record of
advances of proceeds of the Loan and Bank’s record of receipt of repayments and other
bookkeeping entries reflecting the payment of principal and interest, and interest shall be
deemed to accrue at the interest rate reflected on Bank’s records.
	 
	 	D.	 	Statement of Account. Bank may at any time or from time to time render a
statement or statements of account to Borrower for the Obligations or any portion thereof.
Each such statement shall be deemed to be correct and conclusively binding on Borrower
unless Borrower notifies Bank to the contrary in writing within thirty (30) days from the
date of any such statement which Borrower deems to be incorrect.
	 
	 	E.	 	ARTS Fee. Borrower shall pay Bank a monthly ARTS fee of $1,000 per month subject
to change as announced by the Bank from time to time. Bank may debit Borrower’s operating
account to effectuate such payment, payable in arrears.
	 
	 	F.	 	Unused Commitment Fee. Borrower agrees to pay an unused commitment fee on any
difference between the Maximum Line of Credit Amount and the amount of advances under the
Line of Credit, determined by the average of the daily amount of credit outstanding during
the specified period. The fee will be calculated by multiplying such difference by
one-quarter percent (0.25%). This fee is due on September 30, 2006, and on the last day of
each following quarter until the Line of Credit has been terminated, payable in arrears.
Bank may debit Borrower’s operating account to effectuate such payment.
	 
	 	G.	 	Commitment Fee. Prior to the execution of this Agreement, Borrower has paid Bank
a non-refundable commitment fee of Thirty Thousand Dollars ($30,000).

III. GRANT OF SECURITY INTEREST

	 	A.	 	Collateral. As collateral security for all Obligations of Borrower to Bank, and
in consideration of advances from Bank to Borrower, Borrower hereby confirms and restates
its prior grant and pledge to Bank of, a continuing security interest in all of the
following property:

	 	1.	 	All of Borrower’s Equipment;
	 
	 	2.	 	All of Borrower’s Receivables;
	 
	 	3.	 	All of Borrower’s Inventory;
	 
	 	4.	 	All of Borrower’s now owned or hereafter acquired Goods, Chattel Paper
(including without limitation all Electronic Chattel Paper and Tangible Chattel
Paper), Instruments, Documents, Investment Property, General Intangibles (including
without limitation all Payment Intangibles and Software), Deposit Accounts,
Letter-of-Credit Rights, As-Extracted Collateral and Fixtures.

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	 	5.	 	Other: Federal Assignment Claims Act assignment on all U.S. Government
contracts in excess of $100,000.00 and for a term of six (6) months or more.

	 	 	 	Borrower also confirms and restates its prior grant and pledge to Bank of a continuing
security interest in: (i) all proceeds (including insurance proceeds) and products of the
above-described Collateral; (ii) any of Borrower’s assets in which Bank has been or is
hereafter granted a security interest under any other security agreements, notes or other
obligations or liabilities between Borrower and Bank; (iii) any accounts, property,
securities, Investment Property or monies of Borrower which may at any time be maintained
at, assigned to, delivered to, or come into possession of, Bank, as well as all proceeds
and products thereof; and (iv) all of the books and records pertaining to any of the
above-described items of Collateral.
	 
	 	B.	 	Borrower’s Obligations. Borrower’s Obligations under this Agreement are
irrevocable, absolute and unconditional, and direct, immediate and primary.

IV. REPRESENTATIONS AND WARRANTIES

	 	 	 	Borrower represents and warrants that:
	 
	 	A.	 	Accuracy. All information, financial statements and data submitted to Bank by
Borrower or any Other Obligor are true, accurate and complete in all material respects.
	 
	 	B.	 	Authority. Halifax is duly organized and existing in good standing under the
laws of the Commonwealth of Virginia. Engineering, Microserv and AlphaNational are each
duly organized and existing in good standing under the laws of the State of Delaware.
Borrower is qualified to do business and in good standing in all jurisdictions where it
conducts its business or its Receivables are located, and has all requisite power,
authority, licenses and permits to own its property and carry on its business, and Borrower
shall deliver to Bank a written opinion of counsel to such effect if requested by Bank.
None of the terms and conditions herein, or of any other agreement executed by Borrower, are
in violation of the charter or by-laws, or other organizational documents of Borrower, any
contractual obligation Borrower may have with any third party, or any order or decree by
which Borrower is bound, and the execution and delivery of this Agreement have been duly
authorized by appropriate corporate, limited liability company or partnership action, and
Borrower shall deliver to Bank a written opinion of counsel to such effect if requested by
Bank.
	 
	 	C.	 	Litigation. No litigation or other proceeding before any court or administrative
agency is pending, or to the knowledge of Borrower, is threatened against Borrower, the
outcome of which could materially impair Borrower’s financial condition or its ability to
carry on its business. Borrower is not the subject of any pending bankruptcy proceeding nor
subject to the continuing jurisdiction of a bankruptcy court as the result of an approved
plan of reorganization.
	 
	 	D.	 	Financing Statements. No financing statement relating to any of the Collateral
is on file in any place, except for any financing statement, (i) naming Bank as secured
party or (ii) which solely identifies VDOT Vendor Liens/Assignments.
	 
	 	E.	 	Assurance of Title. Borrower is the owner of all of the Collateral, or, if
proceeds of any note or notes secured hereby are being used to purchase the Collateral,
Borrower shall be the owner thereof, free and clear of all claims, encumbrances, charges and
liens, except for VDOT Vendor Liens/Assignments, purchase money security interests or as
herein provided.
	 
	 	F.	 	Addresses. The principal place of business of Borrower, the books and records
relating to Borrower’s business and the Collateral, and the Collateral (other than trunk
stock) are located at the address(es) set forth on Exhibit A to this Agreement.
	 
	 	G.	 	Hazardous Substances. Borrower has never received any notification, citation,
complaint or notice of investigation relating to the making, storing, handling, generating
or transporting of any materials or substances which under applicable laws require special
handling in collection, storage, treatment or disposal (“Hazardous Substances”), and
Borrower does not own, make, store, handle, dispose of or transport any Hazardous Substances
in violation of any applicable laws.
	 
	 	H.	 	ERISA. Borrower and each of its affiliates and subsidiaries (“ERISA Affiliates”)
which are under common control, or are part of a controlled group, within the meaning of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), are in compliance
with all applicable provisions of ERISA with regard to each of its employee benefit plans
(as defined in ERISA) (“Employee Benefit Plans”). Neither a reportable event (as defined in
ERISA) nor a prohibited transaction (as defined in ERISA) has occurred with respect to any
Employee Benefit Plan of Borrower or any ERISA Affiliate. Immediately upon the occurrence
of any such reportable event, Borrower shall promptly furnish to Bank notice thereof, as
filed with Pension Benefit Guaranty Corporation (“PBGC”). Neither Borrower nor any ERISA
Affiliate has completely or partially withdrawn from any multiemployer plan and no such
multiemployer plan is in reorganization, all as provided by ERISA. Borrower and each ERISA
Affiliate has met its minimum funding requirements and has no unfulfilled obligations under
ERISA to contribute to any Employee Benefit Plan. Borrower shall promptly notify Bank of
any assertion by PBGC of liability of Borrower or any ERISA Affiliate under Title IV of
ERISA. The failure of Borrower to pay within 30 days the amount of any liability under
Title IV of ERISA demanded by PBGC shall constitute a default hereunder.
	 
	 	I.	 	Taxes. There are no unpaid Federal, State, city, county, or other taxes owed by
Borrower, there are no Federal, State, city, county or other tax liens presently filed
against Borrower, and there are no outstanding personal property taxes of any kind.
	 
	 	J.	 	Debarment and Suspension. No event has occurred and, to the knowledge of
Borrower, no condition exists that may result in the debarment or suspension of Borrower
from any contracting with the Government, and neither Borrower nor any affiliate of Borrower
has been subject to any such debarment or suspension prior to the date of this Agreement.

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	 	K.	 	Subsidiaries. Except for Engineering, AlphaNational and Microserv, Halifax does
not have any subsidiaries with assets having a value in excess of $100. None of
Engineering, AlphaNational and Microserv has any subsidiaries with assets having a value in
excess of $100. Halifax Realty Inc. (“Realty”) is a wholly-owned subsidiary of Halifax that
has assets worth less than $100.
	 
	 	L.	 	VDOT Contract. Borrower has provided Bank a true and complete copy of the VDOT
Contract (including any amendments to the original contract).

V. COVENANTS

	 	 	 	Borrower covenants that:
	 
	 	A.	 	Costs. Borrower shall pay all costs and expenses incident to the making of the
Loan and perfection of Bank’s security interests hereunder, including, but not limited to,
all attorneys’ fees (to the extent not prohibited by law) and all recordation costs and
taxes incident to filing of financing statements and continuation statements in respect
thereof.
	 
	 	B.	 	Further Documents. Borrower shall execute and deliver to Bank from time to time
any instruments or documents, including, but not limited to, financing statements,
amendments, continuation statements, mortgages, loss payable endorsements for insurance
policies, and assignments of insurance policies and proceeds, and shall do all things
necessary or convenient to carry into effect the provisions of this Agreement. Borrower
designates Bank or any of its officers as attorney-in-fact to sign Borrower’s name on any
such instruments or documents, to file the same as may be appropriate, and to request and
endorse Borrower’s name to any and all requests described in Section 9-210 of Article 9.
Borrower agrees that filed photocopies of financing statements and continuation statements
shall be sufficient to perfect Bank’s security interest hereunder.
	 
	 	C.	 	Taxes. Borrower shall pay and discharge, when due, all taxes, levies, liens, and
other charges on any of its assets and shall pay promptly, when due, all other taxes,
including withholding taxes.
	 
	 	D.	 	Laws. Borrower shall comply at all times with all laws, ordinances, rules and
regulations of any Federal, State, municipal or other public authorities having jurisdiction
over Borrower, the Collateral or any of Borrower’s other assets, including, but not limited
to, ERISA and all laws relating to Hazardous Substances.
	 
	 	E.	 	Name and Location. Borrower shall immediately advise Bank in writing of the
opening of any new place of business or the closing of any of its existing places of
business, and of any change in Borrower’s name or the location of the places where the
Collateral, or books and records pertaining to the Collateral, are kept.
	 
	 	F.	 	Books and Records. Borrower shall maintain such records with respect to the
Collateral and the condition (financial and otherwise) and operation of Borrower’s business
as Bank may request from time to time, and shall furnish Bank such information with respect
to the Collateral, Account Debtors, and the condition (financial and otherwise) and
operation of Borrower’s business, including, but not limited to, balance sheets, operating
statements, and other financial information, as Bank may request from time to time. Bank
may at any time and without prior notice to Borrower and without the consent of Borrower
directly contact Account Debtors and verify or confirm the status of the Receivables.
Borrower shall furnish Bank or cause to be furnished to Bank such financial information with
respect to any Other Obligor, including, but not limited to, balance sheets, operating
statements, personal financial statements and other financial information, as Bank may
request from time to time. Bank may discuss the affairs, finances and accounts of Borrower
with any of Borrower’s officers and directors and its independent accountants.
	 
	 	G.	 	Field Examination. Bank or any of its agents or representatives may from time to
time, during normal business hours, inspect, check, make copies of or extracts from the
books, records and files of Borrower, and visit and inspect Borrower’s offices and any of
the Collateral wherever located. Borrower shall make same available at any time for such
purposes, and shall pay all expenses related to such inspections. Unless an Event of
Default has occurred and is continuing, such examinations will not be conducted more
frequently than semi-annually.
	 
	 	H.	 	Reporting Requirements. In addition to such other information (financial and
otherwise) as Bank may require from time to time, Borrower shall submit to Bank all
information to be submitted pursuant to the Reporting Requirements Addendum attached hereto,
as amended from time to time.
	 
	 	I.	 	Misrepresentation. Borrower shall not make or furnish Bank any representation,
warranty, or certificate in connection with or pursuant to this Agreement which is
materially false.
	 
	 	J.	 	Insurance. Borrower has and shall maintain insurance on all of its assets and
properties, including, but not limited to, the Collateral, at all times and against hazards,
with companies, in amounts and in form acceptable to Bank. Borrower shall annually submit
to Bank original insurance certificates providing that such insurance policies have a
Lenders Loss Payable Clause and Additional Insured, and shall be noncancellable unless
thirty (30) days prior notice of cancellation is provided to Bank. In event of any loss
thereunder, the carriers named therein are hereby directed to make such payment for loss
solely to Bank, and not to Borrower and Bank jointly or to any other person. If any
insurance losses are paid by check, draft or other instruments payable to Borrower or to
Borrower and Bank jointly, Bank may endorse the name of Borrower thereon and do such other
things as Bank may deem advisable in order to reduce the same to cash. In addition,
Borrower shall maintain at all times, public liability insurance and all other coverages
required by Bank, naming Bank as additional insured, with companies, in amounts and in form
acceptable to Bank. All loss recoveries received by Bank upon any insurance may be applied
and credited by Bank at its discretion to the Obligations.
	 
	 	K.	 	Bank’s Duty of Care. Except as provided in this Paragraph V.K., Bank’s sole duty
with respect to the Collateral shall be to use reasonable care in the custody, use,
operation and preservation of the Collateral in its possession, and Borrower shall reimburse
Bank

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	 	 	 	for all costs and expenses, including insurance costs, taxes and other charges, incurred in
connection with the custody, use, operation, care or preservation of the Collateral, such
reimbursement to be secured as provided above in Paragraph III. In the event that Bank
takes possession of the Collateral by foreclosure as provided in Paragraph VII.C. herein or
otherwise, Bank may, but shall be under no obligation to, take such actions as it may deem
appropriate to protect the Collateral by insurance or otherwise, and any expense so
incurred shall likewise be reimbursed and secured as provided above in Paragraph III. Bank
shall incur no liability to Borrower for any failure to provide adequate protection or
insurance for the Collateral acquired by Bank. Bank shall not be obligated to take any
steps necessary to preserve any rights in any of the Collateral against prior parties, and
Borrower hereby agrees to take such steps. Borrower hereby waives the defense of
unjustifiable impairment of collateral with respect to the Collateral and any other
collateral for any of the Obligations.
	 
	 	L.	 	Equipment. If the Collateral includes Equipment, then the covenants in this Paragraph V.L. apply:

	 	1.	 	Repair. Borrower shall keep and maintain the Equipment in good order and repair and in working condition.
	 
	 	2.	 	Personalty. The Equipment shall be and shall remain personal
property and nothing shall affect the character of the same or cause the same to
become realty without the written consent of Bank, or prevent Bank in its option from
removing same from premises on which they may become attached, in event of default
hereunder.
	 
	 	3.	 	No Sale of Equipment. Without the prior written consent of Bank,
Borrower shall not sell or otherwise dispose of any of the Equipment, except that
items of Equipment may be sold or exchanged if such Equipment either (a) is replaced
in the ordinary course of Borrower’s business to the satisfaction of Bank by Equipment
of a similar value and which is subject to a security interest of Bank that is prior
to all liens other than purchase money security interests or (b) has a fair market
value (in the aggregate) of less than Ten Thousand Dollars ($10,000).
	 
	 	4.	 	Vehicles. If the Collateral includes a motor vehicle for which a
certificate of title is issuable, Borrower shall deliver to Bank the certificate of
title issued with respect to such vehicle and shall cause a statement of Bank’s
security interest to be noted as a lien on such certificate of title.

	 	M.	 	Receivables. If the Collateral includes Receivables, then the covenants in this
Paragraph V.M. apply:

	 	1.	 	Bona Fide. Each and every Receivable shall (i) be bona fide, be for
a certain undisputed claim or demand for the amount Borrower represented to be owing
thereon, (ii) represent a sale and delivery of personal property sold or work and
labor done, (iii) not be subject to any set-off, counterclaim, or contingent liability
upon the fulfillment of any contract or condition whatsoever, and (iv) shall not be
subject to any prohibition or limitation upon assignment except as required by the
Assignment of Claims Act.
	 
	 	2.	 	Books. If requested by Bank, Borrower shall make all necessary
entries in its books to disclose the grant of a security interest in Receivables to
Bank, and permit Bank to verify Receivables.
	 
	 	3.	 	Mail. Upon demand, Borrower shall open all mail only in the presence
of a representative of Bank, who may take therefrom any remittance on Receivables
securing the Obligations. Bank is also granted the power of attorney to have mail
delivered to Bank, and not to Borrower, and to open all mail and take therefrom any
remittance on any Receivables.
	 
	 	4.	 	Signatures. Bank or its representative may endorse or sign the name
of Borrower on remittances in respect of Receivables, invoices, assignments, financing
statements, notices to Account Debtors, bills of lading, storage receipts, or other
instruments or documents in respect of Receivables or the property covered thereby.
	 
	 	5.	 	Collections. Borrower shall notify all Account Debtors to make
payment of their Receivables to Bank for the deposit to the Cash Collateral Account as
herein provided. Each Account Debtor shall be instructed to pay its Receivables (i)
if by paper check, by mailing such check to the following address: Halifax
Corporation, P.O. Box 9002, Warrenton, VA 20188, and (ii) if by electronic funds
transfer, by wiring funds to Halifax Corporation, a/c # 76-65310763, Provident Bank
ABA # 2520 7301 8. If Borrower receives any payment of a Receivable, it shall receive
such payments on accounts as agent of and for Bank and shall transmit to Bank, on the
day thereof, or at other mutually agreed upon intervals, all original checks, drafts,
acceptances, notes and other evidences of payment received in payment of or on account
of Receivables, including all cash monies similarly received by Borrower. For such
purpose, Borrower does hereby grant to Bank access to any post office boxes in which
mail is received. Until delivery of all such remittances to Bank, Borrower shall keep
the same separate and apart from Borrower’s own funds, capable of identification as
the property of Bank, and shall hold the same in trust for Bank. Further, Borrower
agrees that Bank may pay, for the account of Borrower, any taxes, levies, or other
charges affecting Borrower’s assets, including, but not limited to, Inventory or
Equipment which Borrower fails to pay, including all other taxes and levies, and any
such payment shall constitute a liability of Borrower. Bank shall have the right to
receive, indorse, assign and deliver in Bank’s name or Borrower’s name any and all
checks, drafts and other instruments for the payment of money relating to the
Receivables, and Borrower hereby waives notice of presentment, protest and non-payment
of any instrument so endorsed. Borrower constitutes Bank or Bank’s designee as
Borrower’s attorney-in-fact with power with respect to the Receivables: (i) to
endorse Borrower’s name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment of Collateral that may come into Bank’s possession; (ii) to
sign Borrower’s name on any invoices relating to any of the Receivables, drafts
against Account Debtors, assignments and verifications of Receivables and notices to
Account Debtors; (iii) to notify the post office authorities to change the address for
delivery of mail addressed to Borrower to such address as Bank may designate; (iv) to
receive, open, and dispose of mail addressed to Borrower; (v) to do all other acts and
things necessary, proper, or convenient to carry out the terms and conditions and
purposes and intent of this Agreement. The power of attorney hereby granted, being
coupled with an interest, is irrevocable while any of the Obligations remain unpaid or
unperformed. Bank may, without notice to or consent from Borrower and without
affecting

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	 	 	 	Borrower’s obligations hereunder, sue upon or otherwise collect, extend the time of
payment of or compromise or settle for cash, credit or otherwise upon any terms, any
of the Receivables or any securities, guaranties, instruments or insurances
applicable thereto or release the obligor thereon. Bank is authorized and empowered
to accept the return of any Collateral represented by any of the Receivables without
notice to or consent by Borrower, all without discharging or in any way affecting
Borrower’s liability to Bank. Bank does not, by anything herein or in any
assignment or otherwise, assume any of Borrower’s obligations under any contract or
agreement assigned to Bank, and Bank shall not be responsible in any way for the
performance by Borrower of any of the terms and conditions thereof.
	 
	 	6.	 	Cash Collateral Account. All remittances in payment of the
Receivables securing the Obligations shall be deposited with Bank (or any other bank
designated by Bank) in an account designated as “Provident Bank (name of Borrower),
Cash Collateral Account”, if the Bank should desire. Such deliveries and deposits
shall be made daily and each deposit shall be accompanied by a report in such form as
Bank shall require. All funds held in the Cash Collateral Account may be applied
against the Obligations at the discretion of Borrower. In the event any checks or
drafts deposited in the Cash Collateral Account are dishonored, Bank is hereby
irrevocably authorized to debit any other account of Borrower at Bank in an amount
equal to the amount of the checks or drafts dishonored and deposit such sums in the
Cash Collateral Account. If thereafter the dishonored check or draft is honored and
Bank receives immediately available funds therefore, Bank shall deposit such funds
into the account of Borrower which was previously debited. If any checks or drafts
deposited in the Cash Collateral Account are drawn on a financial institution located
outside of the United States of America, Bank is hereby irrevocably authorized to
debit any other account of Borrower at Bank in an amount equal to the United States
dollar equivalent of the amount of such checks or drafts and deposit such sums in the
Cash Collateral Account. Upon receipt of immediately available funds for any such
checks or drafts Bank shall deposit the collected funds into Borrower’s account at
Bank which was previously debited. All of the Borrower’s primary operating accounts
shall be maintained with the Bank as long as this Agreement is in effect.
	 
	 	7.	 	Cancellation of Contracts. Borrower shall notify Bank in writing of any
cancellation of a contract having annual revenues in excess of $250,000.
	 
	 	8.	 	Government Contracts. In the event any Receivables arise out of
contracts with the Government, Borrower shall assign to Bank all Government Contracts
with amounts payable of $100,000 or greater and in duration of six (6) months or
longer, and execute all other agreements, instruments and documents and shall perform
all further acts that Bank may require to ensure compliance with the Assignment of
Claims Act with respect to such Government Contracts.
	 
	 	9.	 	VDOT Contract Amendments. Borrower shall promptly provide Bank with
copies of all amendments to the VDOT Contract.
	 
	 	10.	 	VDOT Vendor Liens/Assignments. Upon request, Borrower shall promptly
provide Bank with copies of all documents effectuating or related to any VDOT Vendor
Liens/Assignments.

	 	N.	 	Inventory. If the Collateral includes Inventory, then the covenants in this
Paragraph V.N. apply:

	 	1.	 	Signatures. Bank or its representative may endorse or sign the name
of Borrower on remittances in respect to Inventory, assignments, invoices, financing
statements, notices to debtors, bills of lading, notices to suppliers, storage or
other instruments or documents in respect to Inventory or the property covered
thereby.
	 
	 	2.	 	Audit. Bank or its representative may from time to time verify
Inventory, through actual count or otherwise, and Borrower shall make same available
at any time for such purpose.
	 
	 	3.	 	Sales. So long as neither Borrower nor any Other Obligor is in
default of any of the Obligations, Inventory subject to Bank’s continuing security
interests may be sold by Borrower in the ordinary course of business, but shall not
otherwise be taken or removed from Borrower’s premises.

	 	O.	 	Investment Property. If the Collateral includes stocks, bonds or other
Investment Property of Borrower, then the covenants in this Paragraph V.O. apply:

	 	1.	 	Transfers. All certificates or instruments representing or
evidencing such investment property shall be in suitable form for transfer by
delivery, shall be in form and substance satisfactory to Bank and shall be delivered
to and held by or on behalf of Bank; Bank is hereby authorized, at its option and
without any obligation to do so, to transfer to or to register in the name of its
nominee(s) all of any part of such Investment Property, and to do so before or after
default or the maturity of the Obligations secured hereby, with or without notice to
Borrower; Bank shall have the right at any time to exchange certificates or
instruments representing or evidencing such Investment Property for certificates or
instruments of smaller or larger denominations; Bank shall have control over any
securities accounts or security entitlements which constitute Collateral, pursuant to
terms acceptable to Bank.
	 
	 	2.	 	Dividends. In the event that a stock dividend is declared, or any
stock split-up made, with respect to any security pledged hereunder, or cash or other
property is distributed in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or paid-in
surplus, or property other than cash is distributed as a dividend, all the
certificates for the shares representing such stock dividend or stock split-up, and
all of such cash and other property, shall be delivered, duly endorsed, to Bank as
additional security hereunder.
	 
	 	3.	 	Attorney-in-Fact. Borrower hereby appoints Bank Borrower’s
attorney-in-fact with full authority in the place and stead of Borrower and in the
name of Borrower or otherwise, from time to time in Bank’s discretion to take any
action and to execute any instrument which Bank may deem necessary or advisable to
accomplish the purposes of this Agreement, including, but

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	 	 	 	not limited to, receiving, endorsing and collecting all checks and other Instruments
made payable to Borrower representing any dividend, interest payment, or other
distribution in respect of the pledged Investment Property or any part thereof and
giving full discharge for the same.

	 	P.	 	Government Contract Audits. Promptly after Borrower’s receipt thereof, Borrower
shall furnish Bank with notice of any final decision of a contracting officer disallowing
costs aggregating more than $100,000 which disallowed costs arise out of any audit of
Government Contracts of Borrower.
	 
	 	Q.	 	Subsidiaries. If any Borrower creates or acquires a subsidiary containing assets
having a value in excess of $100, Borrower shall cause such subsidiary to become a Borrower
or Other Obligor hereunder (in a form acceptable to Bank). Borrower will not transfer or
permit the transfer of any assets to Realty, and will cause Realty to be liquidated as soon
as practicable.
	 
	 	R.	 	Change in Control or Sale. Without the prior written consent of Bank, Borrower
shall not permit a change in ownership of more than 25% of the stock or other equity
interests of Halifax, Engineering, AlphaNational, Microserv or any other entity constituting
a Borrower, or permit any such entity to enter into any merger or consolidation, or sell or
lease substantially all of its assets.
	 
	 	S.	 	Sale or Assignment of Contract or Subsidiary. Without the prior written consent
of Bank, Borrower shall not sell or assign any or all interest in any (i) contract or (ii)
any subsidiary of Halifax, Engineering, AlphaNational, Microserv or any other entity
constituting a Borrower.
	 
	 	T.	 	Dividends. Without the prior written consent of Bank, Borrower shall not make
any distributions on behalf of equity or pay any dividends.
	 
	 	U.	 	Payments of Debt. Without the prior written consent of Bank, Borrower shall not
make any payments of debt to any person or entity, or make any distributions (including
loans or withdrawals) of any kind to any officers, employees or members, other than (i)
purchase money financings permitted hereunder, (ii) payments to employees (including loans
and travel advances) made in the ordinary course of business, and (iii) payments to the
Bank.
	 
	 	V.	 	Further Covenants. Without the prior written consent of Bank, Borrower shall
not: (i) other than purchase money security interests or VDOT Vendor Liens/Assignments,
pledge or grant any security interest in any Collateral to anyone except Bank, nor permit
any financing statement (except Bank’s financing statement) to be on file in any public
office with respect thereto; (ii) other than purchase money security interests or VDOT
Vendor Liens/Assignments, permit or suffer any lien, levy or other encumbrance to attach to
any of the Collateral or to any other assets of Borrower, except for liens and encumbrances
in favor of Bank; (iii) permit a material change in any Receivable, or a material change in
the terms of any contract giving rise to a Receivable; (iv) make any agreement, compromise,
settlement, bulk sale, lease or transfer of assets other than in the normal course of
business; (v) create, incur or assume any liability for borrowed money, except borrowings
from Bank, trade debt, and purchase money financings not to exceed $250,000 in any one year;
(vi) assume, guarantee, endorse or otherwise become liable in connection with the
obligations of any person, firm or corporation, except by endorsement of instruments for
deposit or collection or similar transactions in the ordinary course of business; or (vii)
purchase or acquire substantially all of the assets or the obligations or stock of any
person, firm or corporation or other enterprises whatsoever, other than the direct
obligations of the United States or Bank.

	 	VI.	 	EVENTS OF DEFAULT. The following shall constitute a default hereunder if existing ten (10)
days after written notice thereof has been given to the Borrower; provided, however, that the
occurrence of an event under Paragraphs VI.C, VI.D, VI.F, VI.H, VI.I or VI.J or a failure by
Borrower to comply with Paragraph V.M.6 or make any payment hereunder when due shall
automatically be a default hereunder:

	 	A.	 	Nonperformance. Default by Borrower under, or breach of any provision, covenant
or warranty of, this Agreement, any other instrument, agreement or document in connection
with any of the Obligations, or any other instrument, agreement or document of Borrower with
Bank, whether such instrument, agreement or document presently exists or is hereafter
executed; or default by any Other Obligor under, or breach of any provision or warranty of,
this Agreement, any other instrument, agreement or document in connection with any of the
Obligations, or any other instrument, agreement or document of any Other Obligor with Bank,
whether such instrument, agreement or document presently exists or is hereafter executed;
	 
	 	B.	 	Representations and Warranties. Any warranty, representation, or statement made
to Bank by or on behalf of Borrower or any Other Obligor proving to have been incorrect in
any material respect when made or furnished;
	 
	 	C.	 	Financial Condition. A determination by Bank in good faith, but in its sole
discretion, that the financial condition of Borrower or any Other Obligor is unsatisfactory;
insolvency of Borrower or any Other Obligor; suspension of business, or commission of an act
amounting to business failure by Borrower or any Other Obligor;
	 
	 	D.	 	Assignments. Any assignment made by Borrower or any Other Obligor for the
benefit of creditors;
	 
	 	E.	 	Judgments. The entry of any final judgment against Borrower or any Other Obligor
for the payment of money in excess of $100,000.00;
	 
	 	F.	 	Bankruptcy. Institution of bankruptcy, insolvency, reorganization or
receivership proceedings by or against Borrower or any Other Obligor in any State or Federal
court or the appointment of a receiver, assignee, custodian, trustee or similar official
under any Federal or State insolvency or creditors’ rights law for any property of Borrower
or any Other Obligor; provided that Borrower shall have sixty (60) days to dismiss any
involuntary bankruptcy proceeding to which it does not consent;
	 
	 	G.	 	Extraordinary Acts. A dissolution, liquidation or reorganization of Borrower or
any Other Obligor which is a corporation, partnership, limited liability company or other
legal entity;

 Page 8 of 13

 

	 	H.	 	Attachments. The levy upon or attachment of any property of Borrower or any Other
Obligor, or the recordation of any Federal, State or local tax lien against Borrower or any
Other Obligor that has not been removed or satisfied within thirty (30) days;
	 
	 	I.	 	Change in Ownership. A change in more than 25% of the ownership of Halifax
without the prior written consent of Bank;
	 
	 	J.	 	Cross-Default. The occurrence of any event which is, or would be with the
passage of time or the giving of notice or both, a default under any indebtedness in excess
of $100,000 of Borrower or any Other Obligor to Bank or to any person other than Bank;
	 
	 	K.	 	Loss or Damage; Transfer or Encumbrance. Any material loss, theft or substantial
damage not fully insured for the benefit of Bank to any of the assets of Borrower or any
Other Obligor or the transfer or encumbrance of any material part of the assets of Borrower
or any Other Obligor other than in the ordinary course of business of Borrower or such Other
Obligor;
	 
	 	L.	 	Debarment or Suspension. The debarment or suspension of Borrower or any Other
Obligor from any contracting with the Government; or
	 
	 	M.	 	Financial Information. The failure of Borrower or any Other Obligor to furnish
Bank such financial information as Bank may require from time to time.

VII. REMEDIES

	 	A.	 	Specific Rights and Remedies. In addition to all other rights and remedies
provided by law and the Loan documents, Bank, on the occurrence of any default, may: (i)
accelerate and call due and payable any and all of the Obligations, including all principal,
accrued interest and other sums due as of the date of default; (ii) impose the default rate
of interest provided in any promissory note evidencing the Loan, with or without
acceleration; (iii) file suit against Borrower or against any Other Obligor; (iv) seek
specific performance or injunctive relief to enforce performance of the Obligations, whether
or not a remedy at law exists or is adequate; (v) exercise any rights of a secured creditor
under the Uniform Commercial Code, including the right to take possession of the Collateral
without the use of judicial process or hearing of any kind and the right to require Borrower
to assemble the Collateral at such place as Bank may specify; (vi) cease making advances or
extending credit to Borrower and stop and retract the making of any advance which may have
been requested by Borrower; and (vii) reduce the Maximum Line of Credit Amount. Borrower
also hereby authorizes Bank, upon a default, but without prior notice to or demand upon
Borrower and without prior opportunity of Borrower to be heard, to institute an action for
replevin, with or without bond as Bank may elect, to obtain possession of any of the
Collateral. In such action for replevin, a copy of this Agreement verified by affidavit of
Bank or sworn on behalf of Bank shall constitute evidence of Bank’s right to possession of
the Collateral.
	 
	 	B.	 	Costs of Collection. Upon the occurrence of any default, Bank shall be entitled
to recover from Borrower reasonable attorneys’ fees, plus court costs and other expenses
which may be incurred by Bank in the enforcement or attempted enforcement of its rights
hereunder, whether against any third party, Borrower, or any Other Obligor. Expenses
recoverable from Borrower shall (to the extent not prohibited by law) include costs of
collection, including such portion of Bank’s overhead as Bank shall allocate to collection
and enforcement of the Obligations in Bank’s sole but reasonable discretion, salaries,
out-of-pocket travel, living expenses and the hiring of agents, consultants, accountants, or
otherwise. All sums of money thus expended, and all other monies expended by Bank to protect
its interest in the Collateral (including insurance, taxes or repairs) shall be repayable by
Borrower to Bank on demand, such repayment to be secured as provided in Paragraph III
hereof.
	 
	 	C.	 	Foreclosure. Upon the occurrence of any default, in addition to other remedies
provided under the Uniform Commercial Code, Bank at any time then or thereafter, in its
discretion, may lawfully enter any of Borrower’s premises or the premises where the
Collateral is located, and with or without judicial process, lawfully remove, under Section
9-609 of the Uniform Commercial Code, the Collateral or records thereof to such place as
Bank may deem advisable, or require Borrower to assemble and make any or all such Collateral
available at such reasonable place as Bank may direct, and realize upon (by public or
private sale or in any other manner) all or any part of the Collateral and, unless the
Collateral is perishable or threatens to decline speedily in value, or is of a type
customarily sold on a recognized market, Bank shall give Borrower, and other parties
entitled to notice, reasonable notice in writing before the sale of the Collateral or any
part thereof at public auction or private sale, in one or more sales, at such price or
prices, and upon such terms either for cash or credit or future delivery as Bank may elect,
and at any such public sale Bank may bid for and become the purchaser of any or all of such
Collateral; and/or Bank may foreclose its security interest in the Collateral in any way
permitted by law. In connection with any notices to be given pursuant to this Paragraph
VII.C., it is agreed in all instances that five (5) business days notice constitutes
reasonable notice. Any such notice shall be deemed given when delivered or deposited in the
U.S. mail with first class postage. The net proceeds of any such sale or sales and any
amounts received in liquidation of the Collateral, less all costs and expenses incurred in
connection therewith, including the costs of collection described in Paragraph VII.B above
and, at the option of Bank or as required by law, less any prior lien claims, shall be
applied against the Obligations in the order that Bank in its sole discretion shall decide,
and Borrower or other party entitled thereto shall be entitled to any surplus resulting
therefrom. No action taken by Bank pursuant hereto shall affect Borrower’s continuing
liability to Bank for any deficiency remaining after any foreclosure. It is mutually agreed
that it is commercially reasonable for Bank to disclaim all warranties which arise with
respect to the disposition of the Collateral.
	 
	 	D.	 	Redemption. The purchaser at any such sale shall thereafter hold the Collateral
absolutely free from any claim or right of whatsoever kind including any equity of
redemption of Borrower, and such demand, notice or right in equity are hereby expressly
waived and released by Borrower.

 Page 9 of 13

 

	 	E.	 	Offset. Upon the occurrence of any default, Bank is authorized to charge the sum
then due to Bank against any and all monies held by or on deposit with Bank on account of
Borrower or its affiliates, and to offset any amounts against any demand or depository
accounts which Borrower, or its affiliates, may have with Bank and to enforce such other
remedies as may be available at law or in equity, without necessity of election.
	 
	 	F.	 	Alternative Remedies. Bank may exercise its rights and remedies hereunder either
alternatively or concurrently with its rights under any and all other agreements between
Bank and Borrower and shall have the full right to realize upon all available Collateral,
collecting on the same or instituting proceedings in connection therewith, until Bank
receives payment in full of all amounts owing to Bank under any of its agreements with
Borrower, including principal, interest, costs and expenses, and costs of enforcement or
attempted enforcement of this or any other agreement among or between Bank and Borrower or
any Other Obligors. Bank shall be under no obligation to pursue Bank’s rights against any
Other Obligor or any of the collateral of any Other Obligor securing any of the Obligations
before pursuing Bank’s rights against Borrower, or the Collateral.

VIII.GENERAL PROVISIONS

	 	A.	 	Continuity and Termination. This Agreement shall become effective immediately
and remain in effect so long as any of the Obligations are outstanding and unpaid, provided
that the security interests hereunder shall continue in full force and effect and are
noncancellable by Borrower prior to the termination of this Agreement. This Agreement may
be terminated by Borrower upon actual delivery of written notice to Bank of such intention,
and payment in full of all then existing Obligations; provided, however, that such notice
and payment shall in no way affect, and this Agreement shall remain fully operative with
respect to, any Obligations (including contingent Obligations), or commitments which may
become Obligations, entered into between Borrower and Bank prior to receipt of such notice
or payment, whichever is later.
	 
	 	B.	 	Right of Bank to Act with Respect to Other Obligors and Collateral. Borrower
hereby assents to any and all terms and agreements between Bank and any Other Obligor, and
all amendments and modifications thereof, whether presently existing or hereafter made and
whether oral or in writing. Bank may, without compromising, impairing, diminishing, or in
any way releasing Borrower from the Obligations and without notifying or obtaining the prior
approval of Borrower, at any time or from time to time: (i) waive or excuse any default by
any Other Obligor, or delay in the exercise by Bank of any or all of Bank’s rights or
remedies with respect to such default; (ii) grant extensions of time for payment or
performance by any Other Obligor; (iii) release, substitute, exchange, surrender, or add
collateral of any Other Obligor, or waive, release, or subordinate, in whole or in part, any
lien or security interest held by Bank on any real or personal property securing payment or
performance, in whole or in part, of the obligations of any Other Obligor; (iv) release any
Other Obligor; (v) apply payments made by any Other Obligor, to any sums owed by any Other
Obligor to Bank, in any order or manner, or to any specific account or accounts, as Bank may
elect; and (vi) modify, change, renew, extend, or amend, in any respect Bank’s agreement
with any Other Obligor, or any document, instrument, or writing, embodying, or reflecting
the same.
	 
	 	C.	 	Waivers By Borrower. Borrower waives: (i) any and all notices whatsoever with
respect to this Agreement or with respect to any of the obligations of any Other Obligor to
Bank, including, but not limited to, notice of: (a) Bank’s acceptance hereof or Bank’s
intention to act, or Bank’s action, in reliance hereon; (b) the present existence or future
incurring of any of the obligations of any Other Obligor to Bank or any terms or amounts
thereof or any change therein; (c) any default by any Other Obligor; and (d) the obtaining
or release of any guaranty or surety agreement, pledge, assignment, or other security for
any of the obligations of any Other Obligor to Bank; (ii) presentment and demand for payment
of any sum due from any Other Obligor and protest of nonpayment; (iii) demand for
performance by any Other Obligor; and (iv) defenses based on suretyship or impairment of
collateral.
	 
	 	D.	 	Information Concerning Collateral or Other Obligors. Bank shall have no present
or future duty or obligation to discover or to disclose to Borrower any information,
financial or otherwise, concerning any Other Obligor or any collateral securing the
Obligations. Borrower waives any right to claim or assert any such duty or obligation on
the part of Bank. Borrower agrees to obtain all information which Borrower considers
appropriate or relevant to this Agreement from sources other than Bank and to become and
remain at all times current and continuously apprised of all information concerning Other
Obligors and any Collateral which is material and relevant to the Obligations of Borrower
under this Agreement.
	 
	 	E.	 	Other Documents. The Obligations are or shall be evidenced by notes, guaranties,
addenda or other documents which are separate agreements and may be negotiated by Bank
without releasing Borrower, any Collateral or any Other Obligor. Without limitation of the
foregoing, Borrower may have executed and delivered to Bank a Formula Advance Addendum, a
Reporting Requirements Addendum and/or a Financial Covenants Addendum which modify and
supplement this Agreement and Borrower’s obligations hereunder. This Agreement specifically
incorporates by reference all of the language and provisions of such notes, guaranties,
addenda or other documents. Borrower consents to any extension of time of payment of any
Obligations. If there is more than one Borrower or Other Obligor, the obligation of each of
them shall be primary, joint and several.
	 
	 	F.	 	Remedies Cumulative. All rights, remedies and powers of Bank hereunder are
irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to
all other rights, remedies and powers of Bank whether in or by any other instruments,
agreements or any laws, including, but not limited to, the Uniform Commercial Code, now
existing or hereafter enacted.
	 
	 	G.	 	Non-Waiver. No indulgence or delay on the part of Bank in exercising any power,
privilege or right hereunder or under any other agreement executed by Borrower to Bank in
connection herewith shall operate as a waiver thereof. No single or partial exercise of any
power, privilege or right shall preclude other or further exercise thereof, or the exercise
of any other power, privilege or right.
	 
	 	H.	 	Governing Law; Severability. This Agreement shall be construed and governed by
the laws of the State of Maryland, If any part of this Agreement shall be adjudged invalid
or unenforceable as of any term of court, then such partial invalidity or unenforceability
shall not cause the remainder of this Agreement to be or become invalid or unenforceable,
and if a provision hereof is held invalid or unenforceable in one or more of its
applications, that provision shall remain in effect in all valid or enforceable applications
that are severable from the invalid or unenforceable application or applications.

 Page 10 of 13

 

	 	I.	 	Litigation. In the event of any litigation with respect to this Agreement, the
promissory note(s) or other agreements evidencing and securing the Obligations, the
Collateral, or any other document or agreement applicable thereto, Borrower waives all
defenses (including the defense of statute of limitations). Borrower consents to the
jurisdiction and venue of the courts of any county or city in the State of Maryland and to
the jurisdiction and venue of the United States District Court for the District of Maryland
in any action or judicial proceeding brought to enforce, construe or interpret this
Agreement.
	 
	 	J.	 	Construction. All accounting terms not otherwise defined in this Agreement shall
be interpreted in accordance with G.A.A.P. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope of this
Agreement nor the intent of any provision thereof. If this Agreement is signed by two or
more parties as Borrowers, the term “Borrower” shall mean each and every party signing this
Agreement as a Borrower. The use of singular herein may also refer to the plural, and vice
versa, and the use of the neuter or any gender shall be applicable to any other gender or
the neuter.
	 
	 	K.	 	Assignment. None of the parties shall be bound by any assignment not expressed
in writing. This Agreement shall inure to and be binding upon the heirs, personal
representatives, successors, and assigns of Borrower and Bank, and the terms “Borrower” and
“Bank” shall include and mean, respectively, the successors and assigns of Borrower and
Bank.
	 
	 	L.	 	Time. Time is of the essence of all Obligations.
	 
	 	M.	 	Joint And Several Obligations. In the event there is more than one Borrower
hereunder, all obligations and liabilities under this Agreement shall be joint and several
obligations and liabilities of each Borrower. In addition, all covenants and agreements of
Borrower hereunder shall be applicable to each Borrower individually and all Borrowers
collectively. The occurrence of any event or occurrence set forth herein as a default to
any one Borrower shall constitute a default under this Agreement as to all Borrowers.
	 
	 	N.	 	Notices. Any notice or demand required or permitted by or in connection with
this Agreement or any other loan document shall be in writing and shall be made by hand
delivery, by Federal Express or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage prepaid, addressed to the
respective parties at the appropriate address set forth on the signature page hereof or to
such other address as may be hereafter specified by written notice by the respective
parties. Notice shall be considered given as of the date of facsimile or hand delivery, one
(1) calendar day after delivery to Federal Express or similar overnight delivery service, or
three (3) calendar days after the date of mailing, independent of the date of actual
delivery or whether delivery is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided herein. If notice is
tendered pursuant to the provisions of this section and is refused by the intended recipient
thereof, the notice, nevertheless, shall be considered to have been given and shall be
effective as of the date herein provided. Notwithstanding anything to the contrary, all
notices and demands for payment from the holder actually received in writing by Borrower
shall be considered to be effective upon the receipt thereof by Borrower regardless of the
procedure or method utilized to accomplish delivery thereof to Borrower.

IX. ADDITIONAL COVENANTS

	 	A.	 	Primary Depository. As long as this Agreement or any other credit agreement
between Borrower and Bank remains in effect, Borrower shall make Bank its primary depository
and cash management financial institution. All of Borrower’s Operating accounts shall
provide for automatic payments of interest, late charges and service charges.

X. ADDRESSES

	 	 	 	 	 
	 

	 	Address of Chief Executive Office of Borrower:
	 	5250 Cherokee Avenue
	 

	 	 	 	Alexandria, Virginia 22312
	 

	 	 	 	Telephone: 703-658-2416
	 

	 	Address of Location of Books and Records
 Relating to Collateral:
	 	5250 Cherokee Avenue
	 

	 	 	 	Alexandria, Virginia 22312
	 

	 	 	 	Telephone: 703-658-2416

	XI.	 	Waiver of Trial by Jury. Borrower and Bank agree that any suit, action, or proceeding, whether claim or counterclaim,
brought or instituted by or against either party hereto or any successor or assign of either party on or with respect to
this Agreement or any other Loan document or which in any relates, directly or indirectly, to the Obligations or any event,
transaction or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury.
BORROWER AND BANK HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. Borrower and
Bank acknowledge and agree that this provision is a specific and material aspect of this Agreement between the parties and
that Bank would not extend the Loan to Borrower if this waiver of jury trial provision were not a part of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 Page 11 of 13

 

     IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower has executed this
Agreement under seal as of the day and year first above written at Baltimore, Maryland.

WITNESS OR ATTEST*:

*Note: Attestation of a corporate officer’s capacity to sign by another corporate officer is
required in all corporate transactions.

	 	 	 	 	 	 	 
	 	 	HALIFAX CORPORATION
	 
	 	 	 	 	 	 
	 

(Signature)

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Joseph Sciacca	 	 
	 

	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	HALIFAX ENGINEERING, INC.
	 
	 	 	 	 	 	 
	 

(Signature)

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Joseph Sciacca	 	 
	 

	 	 	 	Vice President, Secretary and Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	MICROSERV LLC
	 
	 	 	 	 	 	 
	 

(Signature)

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Joseph Sciacca	 	 
	 

	 	 	 	Vice President, Secretary and Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	HALIFAX ALPHANATIONAL ACQUISITION, INC.
	 
	 	 	 	 	 	 
	 

(Signature)

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Joseph Sciacca	 	 
	 

	 	 	 	Vice President, Secretary and Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	5250 Cherokee Avenue
	 	 	Alexandria, Virginia 22312
	 	 	Telephone: 703-658-2416
	 	 	Facsimile: 703-658-2478
	 	 	Federal Tax Identification No. 54-0829246
	 
	 	 	 	 	 	 
	 	 	ACCEPTED AT FALLS CHURCH, VIRGINIA, AS OF THE DATE HEREOF:

PROVIDENT BANK
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	E. Gaye Boyette	 	 
	 

	 	 	 	Senior Vice President	 	 

 Page 12 of 13

 

EXHIBIT A

LOCATIONS OF BOOKS, RECORDS AND COLLATERAL

 Page 13 of 13exv10w3

 

Exhibit 10.3

HALIFAX CORPORATION

5250 Cherokee Avenue

Alexandria, Virginia 22312

May 5, 2006

Mr. Larry L. Whiteside

1618 Forest Bend Lane

Keller, Texas 76248

Re:      Employment Termination                              

Dear Mr. Whiteside:

We have reviewed the letter (“Election Letter”) dated April 18, 2006 from your legal counsel,
Margaret E. Holland, addressed to my attention, which indicates your election to terminate
employment with Halifax Corporation (“Halifax”). While Halifax does not agree with the factual
allegations set forth in the Election Letter and your conclusion that facts surrounding your
employment with Halifax give you the right to terminate such employment for “Good Reason” (as
defined in the Employee Severance and Restrictive Covenant Agreement between you and Halifax (the
“Severance Agreement”)), Halifax is willing to pay you severance for the 12 month period
contemplated by Section 3(a) of the Severance Agreement provided you do the following:

     1. Execute a release of claims against Halifax related to your employment with Halifax; and

     2. Acknowledge and agree in writing to comply fully with your obligations pursuant to that
certain Restrictive Covenant Agreement dated September 30, 2004 by and among Halifax, Employee and
certain other parties named therein including, without limitation, the non-competition provision
applicable to the severance period as set forth in Section 1(A) of such Restrictive Covenant
Agreement.

     If you are agreeable to the arrangement contemplated above, your effective termination will be
May 5, 2006 and Halifax will have its legal counsel prepare customary separation documents
containing the above provisions and send them to you and Margaret Holland.

[The remainder of this page is intentionally left blank]

 

 

Letter Agreement

May 5, 2006

Page 2

If this letter agreement is acceptable to you, please sign this letter where indicated below and
return an executed copy to Halifax.

	 	 	 	 	 
	Sincerely,	 	 
	 
	 	 	 	 
	HALIFAX CORPORATION	 	 
	 
	 	 	 	 
	By:

	 	/s/ Charles L. McNew
 

	 	 
	Name: Charles L. McNew	 	 
	Title:

	 	  President and Chief Executive Officer	 	 
	 
	 	 	 	 
	ACCEPTED AND AGREED TO:	 	 
	 
	 	 	 	 
	/s/ L.L. Whiteside	 	 
	 	 	 
	L.L. Whiteside	 	 
	 
	 	 	 	 
	cc:     Margaret Holland, Esquire

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