109813.00100/11802266v.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 7, 2008
HALIFAX CORPORATION OF VIRGINIA
(Exact name of registrant as specified in its charter)
Virginia 1-08964 54-0829246
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
5250 Cherokee Avenue, Alexandria, Virginia 22312
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(703)658-2400
N/A
Former name, former address, and former fiscal year, if changed since
last report
Check the appropriate box below if the Form 8-K filing is intended to
satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry Into a Material Definitive Agreement.
On July 7, 2008, we entered into Loan and Security Agreement,
referred to as the Loan Agreement, with Textron Financial Corporation,
referred to as the lender. The Loan Agreement replaced our Fourth
Amended and Restated Loan and Security Agreement dated as of June 29,
2007 with Provident Bank, which terminated on June 30, 2008, referred
to as the Old Credit Facility.
The Loan Agreement has a term of three years (this three year term
is referred to as the initial term) and will automatically renew after
the completion of the initial term for additional one year terms unless
terminated by the lender or us. We may terminate the Loan Agreement by
giving written notice of termination to the Lender at least 90 days
prior to the end of the relevant term. The Lender may terminate the
Loan Agreement at the expiration of the initial term or any renewal
term by giving written notice of termination at least 60 days prior to
the effective date of the termination and at any time during the
existence of an event of default. We may terminate the Loan Agreement
early upon payment in full of the principal amount outstanding and any
other obligations we owe to the Lender provided that we pay an early
termination fee of 2% of the credit limit if we terminate the Loan
Agreement within the first year of the Loan Agreement (if termination
is caused by a change in control, the percentage will be reduced to 1%)
and such termination fee is reduced to 1% of the credit limit if
terminated after the first year of the Loan Agreement. The lender is
also entitled to the early termination fee upon an occurrence of an
event of default relating to our becoming insolvent or bankrupt, even
if the lender does not exercise its right of termination.
Under the revolving credit facility of the Loan Agreement, we may
borrow an amount equal to the lesser of (a) $4,000,000 or (b) the sum
of (i) up to the eligible accounts advance rate of the aggregate amount
of eligible accounts and (ii) up to the eligible pre-billed accounts
rate of the aggregate amount of eligible pre-billed accounts in an
amount not to exceed the eligible pre-billed accounts sublimit. The
Lender may establish reserves against the amount we may borrow as it
determines in its sole discretion are necessary to reflect events,
conditions, contingencies or risks which may affect the collateral
securing the revolving credit facility or our financial condition. The
lender may also reduce the eligible accounts advance rate to a lesser
amount the lender determine in its sole credit discretion if our
borrower's dilution at any time exceeds the maximum dilution
percentage. The eligible accounts advance rate, eligible pre-billed
accounts, eligible pre-billed accounts sublimit, eligible accounts,
collateral, dilution and maximum dilution are defined in the Loan
Agreement. Advances under the Loan Agreement are collateralized by a
first priority security interest on all of our personal property as set
forth in the Loan Agreement. Each of Halifax Engineering, Inc.,
Halifax Realty, Inc. and Halifax Alphanational Acquisition, Inc. are
guarantors under the Loan Agreement. Additionally, Charles McNew and
Joseph Sciacca have limited personal guarantees under the Loan
Agreement. As of July 1, 2008, we were eligible to borrow up to
$4,000,000. We used approximately $2.5 million to pay off the amount
outstanding under the Old Credit Facility.
Interest accrues on the outstanding balance at a variable rate,
adjusted daily, equal to prime plus 2.75%. Prime generally means the
greater of (a) 5% or (b) the prime commercial rate of interest per
annum as announced from time to time on-line by the Wall Street
Journal. All
interest accrued on the outstanding principal balance will be
calculated on the basis of a year of 360 days and the actual number of
days elapsed in each month. Upon an event of default, the interest
rate on the unpaid balance will immediately be increased by 3%. We
must pay accrued interest monthly, in arrears. Accrued interest and
fees will be added to the unpaid principal amount on the day such
amounts are due, unless the lender elects to invoice us for such
amounts. At June 30, 2008, the interest rate was 7.75%.
We are required to pay to the lender a monthly servicing fee of
$2,500. We are also required to pay a credit facility fee in the
amount of 1.0% of the credit limit, which was due on the effective date
of the Loan Agreement and 0.5% on each anniversary of the effective
date of the Loan Agreement. We will also be required to pay a field
examination fee for each fee examination performed by the lender.
We must pay to the lender all revenues received by us. Following
credit for collected funds, the lender has 3 business days as float
days for which it may not apply such funds against the principal
outstanding. Lender is entitled to charge us for the float days at the
interest rate on all collections received. We must maintain a lock-box
for collection of accounts at a bank designated by the lender. Lender
may charge our accounts or advance funds under the revolving credit
facility to make any payments of principal, interest, fees, costs or
expenses required to be made by us under the Loan Agreement.
Events of default, include, but are not limited to: (i) our
failure to make a payment on any obligation of borrowed money or other
indebtedness or observe a convent which results in the payment of such
obligation to be due before its stated maturity, (ii) the lender
determining that an adverse change has occurred in our financial
condition or business prospects or the prospect for payment or
performance of any covenant, agreement or obligation under the Loan
Agreement is impaired, (iii) bankruptcy, reorganization or insolvency
proceedings are instituted by or against us, (iv) a settlement,
judgment or order for the payment of money by us in excess of $100,000,
(v) any loss, theft, damage or destruction of any item or items of
collateral or our other property which materially and adversely affects
the property, business, operations, prospects, or condition of us, (vi)
an overadvance arises which was not approved by lender, and (vii) we
move any collateral to, or stores or maintains any collateral at, any
location other than as stated in the Loan Agreement.
The Loan Agreement provides that upon the occurrence of an event
of default, the lender may, without notice, (i) discontinue making any
further advances under the revolving credit facility, (ii) terminate
the Loan Agreement, (iii)declare all our obligations under the Loan
Agreement, including principal amount outstanding and accrued interest,
to be immediately due and payable, (iv) take possession of all or any
portion of the collateral, (v) use, without charge, any of our patents,
copyrights, trade names, trade secrets, trademarks, advertising
materials or any license therefore or any property of a similar nature,
in advertising for sale and selling any of the collateral, (vi) renew,
modify or extend any account, grant waivers or indulgences with respect
to any account, accept partial payments on any account, release,
surrender or substitute any security for payment of any account or
compromise with, or release, any person liable on any account in such a
manner as lender may, in its sole discretion deem advisable, all
without affecting or diminishing our obligations; and (vii) obtain the
appointment of a receiver, trustee,
or similar official over us to effect all of the transactions
contemplated by the Loan Agreement or as is otherwise necessary to
perform the Loan Agreement. Additionally, the Loan Agreement provides
that upon the occurrence of an event of default, the lender may, with
notice, sell or otherwise dispose of all or any portion of the
collateral at public or private sale for cash or credit.
The Loan Agreement contains representations, warranties and
covenants that are customary in connection with a transaction of this
type. The Loan Agreement contains certain covenants including, but not
limited to: (i) notifying the lender of any amounts due and owing in
excess of $50,000 that are in dispute by any account debtor on an
eligible account or eligible pre-billed account, (ii) the immediate
payment of any excess amount above the credit limit plus accrued
interest and other charges owed with respect to such excess amount,
(iii) in the event accounts arise out of government contracts, we will
assign to the lender all amounts due under government contracts, (iv)
we may not make a change in management, enter into any merger or
consolidation, or liquidate, wind up or dissolve, or convey, lease,
sell, transfer or otherwise dispose of any substantial portion of our
business or property or acquire all or substantially all of the assets
or business of any other company, person or entity, (v) without
lender's prior written consent, we may not encumber the collateral in
favor of any person other than lender, other than (a) the permitted
prior encumbrances on equipment; or (b) liens permitted under the terms
of any intercreditor agreements, (vi) without lender's prior written
consent, we may not sell, consign, lease, license or remove from our
business locations any of our assets except that, so long as no event
of default has occurred, we may sell inventory in the ordinary course
of our business (any sale or exchange of inventory in satisfaction of
our indebtedness will not be a sale of inventory in the ordinary course
of business) and may sell or dispose of obsolete assets which we have
determined, in good faith, not to be useful in the conduct of our
business and which, in any fiscal year, do not have an aggregate fair
market value in excess of the $100,000, (vii) we may not make any loan
or contribute money, goods or services to any person, or borrow money
or incur any indebtedness from any person, or guaranty or agree to
become liable for any obligation of, any person, other than: (a) loans
to our employees for reimbursable expenses incurred by such employees
in the normal course of our business; (b) extensions of credit in the
ordinary course of business to our customers; (c) purchase money
indebtedness incurred solely for the purchase of equipment; and (d)
indebtedness identified in the Loan Agreement, (viii) we may not make
capital expenditures of any kind or nature, including leases of
property which are required to be capitalized on our balance sheet, in
an aggregate amount in excess of the $250,000 in any fiscal year, (ix)
we may not declare or pay any dividend upon, make any distribution with
respect to, or purchase, redeem or otherwise acquire any of our
capital stock or increase, whether by election, promotion or otherwise,
the aggregate salaries and other compensation paid to our officers by
more than 10% in any fiscal year, (x) we may not cause, permit, or
suffer, directly or indirectly a change in control (as defined in the
Loan Agreement), (xi) we may not enter into or be a party to certain
agreements and transactions with an interested party (as defined in the
Loan Agreement) or borrower affiliate (as defined in the Loan
Agreement), and (xii) we may not make any payment with respect to
indebtedness that is subordinate to our obligations under the Loan
Agreement except as specifically provided for in an intercreditor
agreement. The Loan Agreement also contains certain financial
covenants which we are required to maintain including, but not limited
to, maintaining an adjusted tangible net worth that is not less than $0
and not permit our accounts receivable turnover days to exceed 75 days.
There can be no assurances we will be able to comply with the
covenants or other terms contained in the Loan Agreement. We may not
be successful in obtaining a waiver of non-compliance with these
financial covenants. If we are unable to comply with the covenants or
other terms of the Loan Agreement, absent a waiver, we will be in
default of the Loan Agreement and the lender can take any of the
actions discussed above.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
10.1. Loan and Security Agreement with Textron Financial Corporation
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HALIFAX CORPORATION OF VIRGINIA
Date: July 9, 2008 By: /s/Joseph Sciacca
Joseph Sciacca
Vice President, Finance & CFO
EXHIBIT INDEX
10.1. Loan and Security Agreement with Textron Financial Corporation