Item 2.02 Results of Operations and Financial Condition
The following information is being provided pursuant to Item 2.02. Such
information, including the exhibit attached hereto, shall not be deemed "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
On June 17, 2009, Halifax Corporation of Virginia issued a press release
reporting, among other things, financial results for the year ended March 31,
2009. A copy of this press release is attached hereto as an exhibit and is
incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant
On June 15, 2009, we entered into a Business Loan Agreement, referred to as
the Loan Agreement, and a Commercial Security Agreement, referred to as the CSA,
with Sonabank, referred to as the lender. We also executed a promissory note in
favor of the lender, referred to as the Note. Collectively, the Loan Agreement,
the CSA and the Note are referred to as the Loan Documents herein. The Loan
Documents replaced our Loan and Security Agreement with Textron Financial
Corporation, which terminated on June 15, 2009, referred to as the Old Credit
Facility.
The Loan Agreement has a term of one year. In the event that we pay and close
the facility prior to June 15, 2010, we must pay a 2% penalty assessed based on
the maximum credit limit of the facility.
Under the Loan Documents, we may borrow an amount that may not exceed the
lesser of: (i) $1,500,000 or (ii) the borrowing base which is 85% of the value
of our eligible accounts (as defined in the Note). At June 15, 2009, we had
$571,000 outstanding under the new facility. We used approximately $571,000 from
the new facility plus cash on hand of approximately $1.9 million to pay off the
amount outstanding under the Old Credit Facility.
Interest accrues on the outstanding balance of the Note at an initial rate of
8% per annum. The interest rate on the loan is a variable rate per annum
adjusted daily based upon the Wall Street Journal's prime lending rate plus
2.75%. Under no circumstances will the interest rate be less than 8%. We must
pay regular monthly payments of all accrued unpaid interest due as of each
payment date, beginning July 15, 2009.
Under the Loan Agreement, we may not pay cash dividends or, other than in the
ordinary course of our business, make principal payments on our other debt,
including our 8% promissory notes issued to Nancy Scurlock and the Arch C.
Scurlock Children's Trust. Accordingly, in connection with entering into the
Loan Documents, Nancy Scurlock and the Arch C. Scurlock Children's Trust agreed
to forego receiving principal payments on their outstanding notes until our loan
with the lender is satisfied. We may only make interest payments on such notes
with advance written approval from the lender.
The lender is not required to disburse funds to us if, among other things,
(i) we or any guarantor is in default under the terms of the Loan Documents,
(ii) any guarantor dies or becomes incompetent or we or any guarantor becomes
insolvent, files a bankruptcy petition or is
involved in a similar proceeding, or (iii) there occurs a material adverse
change in our or a guarantor's financial condition or in the value of any
collateral securing the loan. A default includes, among other things, our
failure to make payment when due, the failure to comply with or perform any
term, obligation covenant or condition contained in the Loan Documents or a
guarantor dies or becomes incompetent. If a default, other than a default on
indebtedness (as defined in the Loan Agreement), is curable and if we have not
received notice of a similar default within the preceding 12 months, it may be
cured if we, after receiving written notice from the lender demanding cure of
such default: (i) cure the default within 30 days; or (ii) if the cure requires
more than 30 days, immediately initiate steps which the lender deems in the
lender's sole discretion to be sufficient to cure the default and thereafter
continue and complete all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practicable. If an event of default occurs or
is not cured as described in the preceding sentence, the commitments and
obligations of the lender under the Loan Documents will immediately terminate
and, at lender's option, the amounts outstanding under the Loan Documents,
including principal and interest, may become immediately due and payable. Upon a
default, the interest rate will be increased to 21% per annum.
The facility is secured by all of our assets. Additionally, Charles L. McNew,
our Chief Executive Officer, and Joseph Sciacca, our Chief Financial Officer,
personally guaranteed the loan under the Loan Documents.
We are required to assign all receivables payments, collections, and proceeds
of receivables to Sonabank and post any of these amounts to the designated
lock-box account.
We are required to maintain our primary operating accounts with Sonabank
throughout the term of the loan. In the event that any main or primary operating
accounts are not maintained with Sonabank, the effective interest rate will be
increased by 2.0% over the rate noted in the Loan Documents.
The Loan Agreement contains representations, warranties and covenants that
are customary in connection with a transaction of this type.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
10.1. Business Loan Agreement dated June 15, 2009 between Halifax Corporation of
Virginia and Sonabank
10.2. Commercial Security Agreement dated June 15, 2009 between Halifax
Corporation of Virginia and Sonabank
10.3. Promissory Note dated June 15, 2009 issued by Halifax Corporation of
Virginia in favor of Sonabank
99.1 Press Release dated June 17, 2009
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