10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

   FOR THE QUARTER PERIOD ENDED SEPTEMBER 30, 2004

   OR

      (  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

   For the transition period from                     to                    

   Commission file Number 1-08964

Halifax Corporation

(Exact name of registrant as specified in its charter)

Virginia	54-0829246
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

5250 Cherokee Avenue, Alexandria, VA		22312
(Address of principal executive offices)	(Zip code)

(703) 750-2400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes (  ) No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). (  ) Yes (X) No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 3,167,206 shares of common stock outstanding as of November 8, 2004.

HALIFAX CORPORATION

CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets - September 30, 2004 (Unaudited) and March 31, 2004		1
	Consolidated Statements of Operations – For the Three and Six Months ended September 30, 2004 and 2003 (Unaudited)		2
	Consolidated Statements of Cash Flows - For the Six Months Ended September 30, 2004 and 2003 (Unaudited)		3
	Notes to Consolidated Financial Statements (Unaudited)		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22
Item 4.	Controls and Procedures		23
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings		24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3.	Defaults Upon Senior Securities		24
Item 4.	Submission of Matters to a Vote of Security Holders		24
Item 5.	Other Information		24
Item 6.	Exhibits		25
	Signatures		26

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements
HALIFAX CORPORATION CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)	September 30, 2004			March 31, 2004
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	18		$	430
Accounts receivable, net		11,990			9,364
Inventory, net		5,935			5,845
Prepaid expenses and other current assets		768			599
Deferred Tax Asset		1,148			1,204
TOTAL CURRENT ASSETS		19,859			17,442
PROPERTY AND EQUIPMENT		1,806			1,598
GOODWILL		6,699			3,879
INTANGIBLE ASSETS		661			727
OTHER ASSETS		146			149
DEFERRED TAX ASSET		2,685			2,696
TOTAL ASSETS	$	31,856		$	26,491
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	4,430		$	3,024
Accrued expenses		3,678			3,699
Notes payable		1,068			494
Deferred maintenance revenue		3,990			2,543
Current portion of long-term debt		27			29
TOTAL CURRENT LIABILITIES		13,193			9,789
LONG-TERM BANK DEBT		7,423			7,227
SUBORDINATED DEBT – PAYABLE TO AFFILIATE		2,400			2,400
OTHER LONG-TERM DEBT		407			19
DEFERRED INCOME		308			337
TOTAL LIABILITIES		23,731			19,772
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY
Preferred stock, no par value authorized 1,500,000, issued 0 shares		—			—
Common stock, $.24 par value Authorized - 6,000,000 shares
Issued - 3,422,390 as of September 30, 2004 and 3,167,096 as of March 31, 2004
Outstanding - 3,165,706 shares as of September 30, 2004 and 2,910,412 shares as of March 31, 2004		825			764
Additional paid-in capital		9,172			7,962
Accumulated deficit		(1,660	)		(1,795	)
Less Treasury stock at cost – 256,684 shares		(212	)		(212	)
TOTAL STOCKHOLDERS’ EQUITY		8,125			6,719
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	31,856		$	26,491

See notes to Consolidated Financial Statements.

1

HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
(Amounts in thousands, except share data)	2004			2003			2004			2003
Revenues	$	14,809		$	12,461		$	28,250		$	23,137
Costs		13,138			10,965			24,914			20,320
Gross margin		1,671			1,496			3,336			2,817
Selling		348			297			758			581
Marketing		58			123			139			253
General and administrative		872			773			1,760			1,481
Abandonment of facility		179			—			179			—
Operating income		214			303			500			502
Interest expense		(158	)		(136	)		(297	)		(279	)
Income before income taxes		56			167			203			223
Income taxes		12			15			68			20
Net income	$	44		$	152		$	135		$	203
Earnings per common share — basic:	$	.02		$	.06		$	.05		$	.09
Earnings per common share — diluted:	$	.01		$	.06		$	.05		$	.08
Weighted number of shares outstanding:
Basic		2,926,676			2,557,391			2,919,647			2,364,783
Diluted		2,969,726			2,627,282			2,970,515			2,400,428

See notes to the Consolidated Financial Statements.

2

HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2004 (UNAUDITED)

	Six Months Ended
	September 30,
(Amounts in thousands)	2004			2003
Cash flows from operating activities:
Net income	$	135		$	203
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		443			329
Deferred tax benefit		67			—
Changes in operating assets and liabilities:
Accounts receivable		(1,864	)		(519	)
Inventory		104			(290	)
Prepaid expenses and other assets		(131	)		(333	)
Accounts payable and accrued expenses		867			622
Income taxes payable		(41	)		(67	)
Deferred maintenance revenue		603			797
Deferred income		(29	)		(36	)
Total adjustments		19			503
Net cash provided by operating activities		154			706
Cash flows from investing activities:
Acquisition of property and equipment		(516	)		(150	)
Payment for the purchase of acquired entities (net of cash acquired)		(303	)		75
Net cash used in investing activities		(819	)		(75	)
Cash flows from financing activities:
Proceeds from borrowing of long-term bank debt		9,411			9,682
Retirement of long-term bank debt		(9,229	)		(10,336	)
Retirement of subordinated debt-affiliate		—			(1,600	)
Proceeds from private placement		—			1,200
Common stock issued upon the exercise of options		71			—
Net cash provided by (used in ) financing activities		253			(1,099	)
Net decrease in cash		(412	)		(468	)
Cash at beginning of period		430			568
Cash at end of period	$	18		$	100
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	299		$	295
Cash paid for income taxes	$	102		$	27

See notes to the Consolidated Financial Statements.

3

Halifax Corporation
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with the accounting principles generally accepted in the United States of America for interim financial information. Certain information and footnote disclosure normally included in the annual financial statements have been omitted pursuant to those rules and regulations.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all necessary adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for fair presentation for the period presented. The results of the three and six months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. It is suggested that these unaudited consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in Halifax Corporation’s (the “Company”) annual report on Form 10-K for the year ended March 31, 2004 filed with the Securities and Exchange Commission. Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.

Note 2 — Acquisition

On September 30, 2004, the Company acquired 100% of the outstanding capital stock of AlphaNational Technology Services, Inc. (AlphaNational) in a merger transaction, for total consideration of approximately $1.9 million excluding the contingent earnout payment described below. The primary reasons for acquiring AlphaNational were to increase our geographic coverage, expand the depth of management and increase the breadth of our product serviceability. AlphaNational is a high availability maintenance company. The merger consideration was comprised of:

     (i) 235,294 shares of Company’s common stock having an aggregate value of $1,200,000, based upon the closing price of $5.10 on September 30, 2004, cash in an amount equal to $200,000, and notes in an aggregate original principal amount of $500,000 with an interest rate of 6% per annum of which $100,000 of the aggregate principal amount has a term of 90 days and $400,000 has a term of 18 months, and

     (ii) A contingent earnout payment pursuant to which an additional $150,000 in cash or Halifax common stock at the discretion of certain former AlphaNational shareholders. The earnout is payable if certain agreed upon financial targets are met over the next 12 months.

The purchase price is also subject to upward or downward adjustment based upon the final closing balance sheet to be delivered prior to November 30, 2004 from AlphaNational.

4

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition. The Company is in the process of obtaining third-party valuations of certain intangible assets subject to amortization. Such intangible assets may consist of client contracts, trade names and non-competition agreements.

(amounts in thousands)
Current assets	$	984
Property and equipment		80
Goodwill and Intangible assets		2,211
Other assets		298
Total assets acquired		3,573
Total liabilities assumed		(1,362	)
Purchase price	$	2,211

The total purchase price of $2.2 million includes approximately $300 thousand of direct acquisition costs related to investment banking, legal and accounting services.

As AlphaNational was acquired on September 30, 2004, the results of its operations will be included in the Company’s statement of operations beginning October 1, 2004.

The following unaudited proforma financial information presents the results of operations as if the acquisition had occurred at the beginning of the respective periods.

	Six Months ended
(amounts in thousand except per share data)	September 30, 2004		September 30, 2003
Revenues	$	31,350	$	26,039
Net income	$	135	$	276
Earnings per share
Basic	$	.04	$	.11
Diluted	$	.04	$	.10

These proforma results have been prepared for comparative purposes only and include certain adjustments arising from the acquisition such as interest expense, additional amortization expense, increased interest expense, and charges for income taxes as a result of the acquisition. The unaudited pro-forma information provided above is not necessarily indicative of the results of operations that may have actually occurred had the acquisition occurred on the dates specified, or of the future results of the combined companies.

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Note 3 — Abandonment of Facility

During September 2004, The Company recorded a charge of approximately $179 thousand related to the future sub-leasing of excess office space. The decision to close this office was based upon the consolidation of the Company’s operations and acquisition of AlphaNational, which resulted in excess space. The abandonment of facility charge is net of minimum sub-lease rental income of approximately $334 thousand.

Note 4 — Accounts Receivable consists of the following:

(amounts in thousands)	September 30, 2004			March 31, 2004
Amounts billed	$	11,585		$	9,332
Amounts unbilled		602			180
Allowance for doubtful accounts		(197	)		(148	)
Accounts receivable, net	$	11,990		$	9,364

Note 5 — Inventory

Inventory consists principally of spare parts, computers and computer peripherals, hardware and software. Inventory was recorded on the balance sheet net of allowances for inventory valuation reserve of $1.2 million and $952 thousand at September 30, 2004 and March 31, 2004, respectively.

Note 6 — Tax Matters

Deferred tax assets and liabilities on the balance sheets reflect the net tax effect of temporary differences between carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. The deferred tax assets and liabilities are classified on the balance sheets as current or non-current based on the classification of the related assets and liabilities. During the year ended March 31, 2004, the Company recorded a non-recurring income tax benefit of which resulted in a deferred tax asset of $3.9 million. Deferred tax assets are recognized for deductible temporary timing differences, along with net operating loss carryforwards and credit carryforwards, if it is more likely than not that the deferred tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance must be established. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. Management periodically evaluates the recoverability of the deferred asset.

6

Note 7 — Debt Obligations

Long-Term Debt

On November 8, 2004, the Company renewed and amended its revolving credit agreement with a commercial bank, increasing the amount of available credit from $9.0 million to $12.0 million. The loan has a maturity date of November 7, 2006. The amounts outstanding under the revolving credit agreement bear interest at the bank’s prime rate plus 1/4%. Advances under the revolving credit agreement are collateralized by a first priority security interest in all of the Company’s assets as defined in the revolving credit agreement. The amount available to be borrowed under the revolving credit agreement is determined by applying stated percentages to the eligible receivables (defined as receivables not aged beyond ninety days and limitations on the total amounts due from certain customers) . The renewed and amended revolving credit agreement contains certain customary covenants including debt service coverage, current ratio, and net worth ratio. At September 30, 2004, $7.4 million was outstanding under the revolving credit agreement and $1.6 million was available to the Company. The interest rate at September 30, 2004 was 5.0%.

Notes Payable

On September 30, 2004, in conjunction with the acquisition of AlphaNational, the Company issued notes to the former AlphaNational shareholders in the aggregate amount of $500 thousand bearing interest at 6% of which $100 thousand of principal is payable on December 31, 2004, and $400 thousand on March 31, 2006. Interest is payable quarterly and in arrears.

Also included in notes payable are notes in the aggregate principal amount of $494 thousand payable to former shareholders of Microserv, Inc. The notes bear interest at the rate of 5%. Interest is paid on the notes quarterly in arrears. The notes mature on February 28, 2005.

In addition, in conjunction with the acquisition of AlphaNational, the Company assumed the outstanding balance of its notes payable to a financial institution of approximately $474 thousand. The notes were paid in full on November 8, 2004.

Subordinated Debt — Affiliates

The Arch C. Scurlock Children’s Trust Owns 392,211 shares of the Company’s common stock and Nancy M. Scurlock owns 392,211 shares of the Company’s common stock or 25% of the Company’s common stock. The Arch C. Scurlock children’s Trust and Nancy M. Scurlock are affiliates of the Company (Affiliates).

The Company has a series of notes outstanding to the affiliates that are subordinated to the revolving credit agreement described above. At September 30, 2004, subordinated debt held by affiliates consisted of the following:

7% Convertible subordinated note with a conversion price of $4.11 per common share	$	400,000
8% Subordinated notes		2,000,000
	$	2,400,000

7

With the extension of the Company’s revolving credit agreement, the maturity date of the subordinated notes was extended to November 7, 2006.

The 7% convertible note contains a provision that provides for an adjustment if the Company issues additional shares for consideration less than the then applicable conversion price. As a result of a private placement on July 23, 2003, the conversion price of the 7% convertible subordinated note was adjusted from $11.72 to $4.11 per share of common stock.

The Company’s revolving credit agreement requires bank approval for the payment of dividends or distributions as well as the payment of principal or interest on the Company’s outstanding subordinated debt, which is owned by the Company’s affiliates. Interest expense on the subordinated debt owned by affiliates is accrued on a current basis.

During the quarter ended September 30, 2004, the Company paid $75 thousand of accrued interest due to the Company’s affiliates. A waiver from the bank was received for this transaction.

Note 8 — Stock Based Compensation

The Company recognizes expense for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation cost is recognized for the excess of the estimated fair value of the stock at the grant date over the exercise price, if any.

8

In accordance with SFAS No. 148, Accounting for Stock-Based Compensation- Transition and Disclosure (SFAS 148), the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation is as follows:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
(Amounts in thousand except share data)	2004			2003			2004			2004
Net income as reported	$	44		$	152		$	135		$	203
Deduct: stock-based compensation expense under the fair value method, net of tax		(31	)		(53	)		(62	)		(105	)
Pro-forma net income	$	13		$	99		$	73		$	98
Earnings per common share (as reported):
Basic	$	.02		$	.06		$	.05		$	.09
Diluted	$	.01		$	.06		$	.05		$	.08
Pro-forma earnings per common share:
Basic	$	—		$	.04		$	.03		$	.04
Diluted	$	—		$	.04		$	.02		$	.04

These proforma amounts are not necessarily indicative of future effects of applying the fair value-based method due to, among other things, the vesting period of the stock options and the fair value of the additional stock options issued in future years.

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements in this document constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. While forward-looking statements sometimes are presented with numerical specificity, they are based on various assumptions made by management regarding future circumstances over many of which Halifax Corporation (“we” “our” or “us”) have little or no control. Forward-looking statements may be identified by words including “anticipate,” “believe,” “estimate,” “expect” and similar expressions. We caution readers that forward-looking statements, including without limitation, those relating to future business prospects, revenues, working capital, liquidity, and income, are subject to certain risks and uncertainties that would cause actual results to differ materially from those indicated in the forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include the concentration of our revenues, risks involved in contracting with our customers including incurrence of start-up costs prior to receiving revenues and contracts with fixed priced provisions, government contracting risks, potential conflicts of interest, difficulties we may have in attracting and retaining management, professional and administrative staff, fluctuation in quarterly results, risks related to acquisitions and our acquisition strategy, continued favorable banking relationships, the availability of capital to finance operations and planned growth and ability to make payments on outstanding indebtedness, acts of terrorism, risks related to competition and our ability to continue to perform efficiently on contracts, and other risks and factors identified from time to time in the reports we file with the Securities and Exchange Commission (“SEC”). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

Forward-looking statements are intended to apply only at the time they are made. Moreover, whether or not stated in connection with a forward-looking statement, we undertake no obligation to correct or update a forward-looking statement should we later become aware that it is not likely to be achieved. If we were to update or correct a forward-looking statement, investors and others should not conclude that we will make additional updates or corrections thereafter.

Overview

Halifax is a nationwide high availability, multi-vendor, enterprise maintenance service provider for enterprises, including businesses, global services providers, governmental agencies and other organizations. Halifax has undertaken significant changes to its business in recent years to a predominantly services model. On September 30, 2004, we completed the acquisition of AlphaNational Technology Services, Inc. and in August 2003, we completed the acquisition of Microserv, Inc., which significantly expanded our geographic base, strengthened our nationwide service delivery capabilities, bolstered management depth, and added several prestigious customers.

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We offer a growing list of services to businesses, global service providers, governmental agencies, and other organizations. Our services are customized to meet each customer’s needs providing 7x24x365 service, personnel with required security clearances for certain governmental programs, project management services, depot repair and roll out services. We believe the flexible services we offer to our customers enables us to tailor a solution to obtain maximum efficiencies within their budgeting constraints.

The industry in which we operate has experienced unfavorable economic conditions and competitive challenges. We continue to see significant price competition and customer demand for higher service attainment levels. In addition, we continue to see significant pressure in the market for state and local government contracts as a result of budget issues, political pressure and other factors beyond our control.

When we are awarded a contract to provide services, we may incur expenses before we receive any contract payments. This may result in a cash short fall that may impact our working capital and financing. This may also cause fluctuations in operating results as start-up costs are expensed as incurred.

Due to the intense competition in our industry we must continue to expand our service offerings and persist in cost reduction efforts. We also have to leverage technology to gain efficiencies in our back office. We have also concentrated on, and will continue to concentrate on cost containment, particularly within costs of services, selling, marketing and general and administrative expenses.

For this fiscal year, our priorities include:

• expanding our customer base through our existing global service provider partners;

• seeking new global service provider partners;

• winning additional contracts for secure network services in government and the intelligence community; and

• enhancing the technology we utilize to deliver cost-effective services to our growing customer base.

Our recent results have shown increased profitability on contracts due to a combination of efficiencies gained in the change of mix in our business from the resale of product to more of a services orientation, as well as reduced cost achieved through containment measures including reducing occupancy cost, consolidating administrative functions, reducing staffing and higher utilization of our workforce.

On September 30, 2004, the Company acquired 100% of the outstanding capital stock of AlphaNational Technology Services, Inc. (AlphaNational) in a merger transaction, for total consideration of approximately $1.9 million excluding the contingent earnout payment described below. The primary reasons for acquiring AlphaNational were to increase our geographic coverage,

11

expand the depth of management and increase the breadth of our product serviceability. AlphaNational is a high availability maintenance company. The merger consideration was comprised of:

     (i) 235,294 shares of Company’s common stock having an aggregate value of $1,200,000, based upon the closing price of $5.10 on September 30, 2004, cash in an amount equal to $200,000, and notes in an aggregate original principal amount of $500,000 with an interest rate of 6% per annum of which $100,000 of the aggregate principal amount has a term of 90 days and $400,000 has a term of 18 months, and

     (ii) A contingent earnout payment pursuant to which an additional $150,000 in cash or Halifax common stock at the discretion of certain former AlphaNational shareholders. The earnout is payable if certain agreed upon financial targets are met over the next 12 months.

The purchase price is also subject to upward or downward adjustment based upon the final closing balance sheet to be delivered prior to November 30, 2004 from AlphaNational.

12

Results of Operations

The following table sets forth the relative percentages of certain items of expense and earnings to revenue for the three months ended September 30, 2004 and 2003, respectively, and should be read in conjunction with the consolidated financial statements and notes thereto.

	Three Months Ended September 30,												Six Months Ended September 30,
Results of Operations	2004			2003			Change			%			2004			2003			Change			%
Revenues	$	14,809		$	12,461			2,348			19	%	$	28,250		$	23,137			5,113			22	%
Costs		13,138			10,965			2,173			20	%		24,914			20,320			4,594			23	%
Percent of revenues		89	%		88	%		—						88	%		88	%		—
Gross margin		1,671			1,496			175			12	%		3,336			2,817			519			18	%
Percentage of revenues		11	%		12	%								12	%		12	%
Selling		348			297			51			17	%		758			581			177			30	%
Percent of revenues		2	%		2	%								3	%		3	%
Marketing		58			123			(65	)		-53	%		139			253			(114	)		-45	%
Percent of revenues		0	%		1	%								0	%		1	%
General & administrative		872			773			99			13	%		1,760			1,481			279			19	%
Percent of revenues		6	%		6	%								6	%		6	%
Abandonment of facility		179			—			179			100	%		179			—			179			100	%
Percent of revenues		1	%		—			—			—			1	%		—			—			—
Total selling, marketing and general & administrative expense & impairment charge		1,457			1,193			264			22	%		2,836			2,315			521			23	%
Percent of revenues		9	%		10	%								10	%		10	%		—			—
Operating income		214			303			(89	)		-29	%		500			502			(2	)		—
Percent of revenues		1	%		2	%								3	%		2	%
Interest expense		158			136			22			16	%		297			279			18			6	%
Percent of revenues		1	%		1	%		—			—			1	%		1	%		—			—
Income before income tax		56			167			(11	)		67	%		203			223			(20	)		-9	%
Income tax expense		12			15			(3	)		-2	%		68			20			48			2.4	%
Net income		44		$	152			(108	)		-71	%		135		$	203			(68	)		-34	%
Earnings per share – basic:	$	.02		$	.06								$	.05		$	.09
Earnings per share – diluted:	$	.01		$	.06								$	.05		$	.08
Weighted average number of common shares outstanding
Basic		2,926,676			2,557,391									2,919,647			2,364,783
Diluted		2,969,726			2,627,282									2,970,515			2,400,428

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Revenues

Revenues are generated from the sale of high availability enterprise maintenance services, technology deployment and secure network services (consisting of professional services, seat management and deployment services, product sales, and secure network services). Services revenues include monthly recurring fixed unit-price contracts as well as time-and-material contracts. Amounts billed in advance of the services period are recorded as unearned revenues and recognized when earned. The revenues and related expenses associated with product sales are recognized when the products are delivered and accepted by the customer.

The composition of revenues for:

	Three Months Ended September 30,										Six Months Ended September 30,
(Amounts in
thousands)	2004		2003		Change			%			2004		2003		Change			%
Services		14,018		10,533		3,485			33	%		26,504		20,117		6,387			32	%
Product		791		1,928		(1,137	)		-59	%		1,746		3,020		(1,274	)		42	%
Total Revenue		14,809		12,461		2,348			19	%		28,250		23,137		5,113			22	%

Revenues for the three months ended September 30, 2004 increased 19%, or $2.3 million, to $14.8 million from $12.5 million for the three months ended September 30, 2003. For the six months ended September 30, 2004, revenues increased $5.1 million from $23.1 million to $28.3 million compared to the same period ended September 30, 2003.

Revenues from services for the three months ended September 30, 2004 increased 33% or $3.5 million to $14.0 million from $10.5 million for the three months ended September 30, 2003. For the six months ended September 30, 2004, revenue increased 32% or $6.4 million to $26.5 million compared to $20.1 million for the comparable period ended September 30, 2003. The revenue growth for the three and six month periods was due primarily to the start of several new contracts in both high availability maintenance services and secure network services, which was partially offset by decreased product sales.

Product sales for the three months ended September 30, 2004 decreased $1.1 million or 59% from $1.9 million to $791 thousand compared to the three months ended September 30, 2003. Product sales for the six months ended September 30, 2004 decreased 42% or $1.3 million to $1.7 million from $3.0 million for the six months ended September 30, 2003. The product marketplace has been characterized by intense competition, a declining rate of orders and lower margins. We have de-emphasized product sales and intend to focus primarily on our recurring services revenue model for enterprise maintenance solutions. As a result, we do not expect to see any increases in product sales in future periods.

Costs

Included within costs are direct costs, including fringe benefits, product and part costs, and other costs.

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A large part of our service costs are support costs and expenses that include direct labor and infrastructure costs to support our service offerings. As we continue to expand our service offerings, we anticipate that the direct costs to support these service offerings will continue to increase this fiscal year.

On long-term fixed unit-price contracts, part costs vary depending upon the call volume received from customers during the period. Many of these costs are volume driven and as volumes increase, these costs as a percentage of revenues increase, generating a negative impact to profit margins.

The variable components of these costs are product and part costs, overtime, subcontracted work and freight. Product is broken into two categories: parts and equipment to support our service base and product held for resale. Part costs are highly variable and dependent on several factors. On long-term fixed unit-price contracts, parts and peripherals are consumed on service calls. For installation services and seat management services, product may consist of hardware, software, cabling and other materials that are components of the service performed. Product held for resale consists of hardware and software.

Costs were comprised of the following components:

	Three Months Ended September 30,										Six Months Ended September 30,
(Amounts in thousands)	2004		2003		Change			%			2004		2003		Change		%
Direct costs		12,109		9,844		2,265			23	%		22,945		18,425		4,520		25	%
Indirect costs		1,029		1,121		(92	)		-8	%		1,969		1,895		74		4	%
Total costs		13,138		10,965		2,173			20	%		24,914		20,320		4,594		23	%

Total costs for the three months ended September 30, 2004 increased to $13.1 million from $10.9 million for the same period in 2003, an increase of 20%. For the six months ended September 30, 2004 total costs increased $4.6 million or 23% to $24.9 million compared to the same period in 2003. As further discussed below, the increase in costs was attributed to start-up costs related to new contracts and increased personnel costs associated with increases in secure network services revenue.

Direct costs include the direct labor for technical services, parts and products, and other associated costs in providing our service offerings to our customers. For the three months ended September 30, 2004, direct costs increased $2.3 million, or 23%, to $12.1 million from $9.8 million for the three months ended September 30, 2003. For the six months period ended September 30, 2004, the increase was 25%, or $4.5 million, to $22.9 million compared to $18.4 million for the same period ended September 30, 2003. The increase in cost of services was attributable to start-up costs related to the commencement of a long-term nationwide contract and higher costs associated with increases in secure network services revenue.

Indirect costs include costs related to operating our call center, logistics dispatch operations, facility costs and other costs incurred to support the field service technicians and engineers. Indirect costs decreased $92 thousand from $1.1 million for the three months ended September 30, 2003 to $1.0 million for the three months ended September 30, 2004. For the six months ended September 30, 2004 indirect costs increased 4% or $74 thousand from $1.9 million.

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Gross Margin

As a percentage of revenues, gross margin was 11%, for the three month period ended September 30, 2004 and 12%, for the same period ended September 30, 2003. For each of the six month periods ended September 30, 2004 and 2003 respectively, gross margin was 12%. The decrease in gross margin percentage during the three months ended September 30, 2004 was primarily due to initial start-up costs associated with the commencement of a new long-term contract.

We expect that the shift towards long term service contracts will have a positive effect on our gross margins, and for such margins to improve as we continue to increase our enterprise maintenance solutions service base.

Selling Expense

Selling expense for the three months ended September 30, 2004 was $348 thousand compared to $297 thousand for the three months ended September 30, 2003, an increase of $51 thousand. For the six months ended September 30, 2004 compared to September 30, 2003, selling expense was $758 and $581, respectively, a 30% increase. The increase in selling expense is a result of higher commissions on new sales revenue.

Marketing Expense

Marketing expense for the three and six months ended September 30, 2004 versus September 30, 2003 was $58 thousand compared to $123 thousand and $139 thousand compared to $253 thousand, respectively. The decrease was the result of reduction in marketing efforts and related personnel reductions.

General and Administrative

Our general and administrative expenses consist primarily of non-allocated overhead costs. These costs include executive salaries, accounting, contract administration, professional services such as legal and audit, business insurance, occupancy and other costs.

For the three months ended September 30, 2004, general and administrative expense increased when compared to the three months ended September 30, 2003 from $773 thousand to $872 thousand, an increase of $99 thousand, or 13%. For the six months ended September 30, 2004 compared to September 30, 2003, expenses increased 19% or $279 thousand to $1.8 million from $1.5 million. The increase in general and administrative expense was attributable to higher professional fees, occupancy costs, travel, and increases in business insurance. Various factors such as changes in the insurance markets and related costs associated with complying with new Securities and Exchange Commission regulations may increase general and administrative expenses and have a negative impact on our earnings in future periods.

Abandonment of Facility

During September 2004, we recorded a charge for the abandonment of a facility of approximately $179 thousand related to the sub-leasing of certain office space. In conjunction with the acquisition of AlphaNational we conducted a review of our facility requirements and determined that after the

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completion of the acquisition we would have excess space. We have leased the excess space effective October 1, 2004. The abandonment charge is net of minimum sub-lease rents of approximately $334 thousand.

Operating Income

For the three months ended September 30, 2004, we generated operating income of $44 thousand compared to $152 thousand during the three months ended September 30, 2003, a decrease of 71%. For the six months ended September 30, 2004 compared to September 30, 2003, operating income decreased 34%, from $203 thousand to $135 thousand. As discussed above, the decrease in operating income was primarily a result of the abandonment of a facility charge of $179 thousand.

Interest Expense

Interest expense for the three and six months ended September 30, 2004 and 2003 was $160 thousand and $142 thousand compared to $299 thousand and $289 thousand, respectively, and related to slightly higher borrowings compared to the prior periods.

Income Taxes

Income taxes for the three months ended September 30, 2004 and September 30, 2003, related primarily to state obligations, were $12 thousand and $15 thousand, respectively. For the six months ended September 30, 2004 and 2003, income taxes were $68 thousand and $20 thousand, respectively.

Net Income

For the three months ended September 30, 2004, net income was $44 thousand compared to $152 thousand for the comparable period in 2003, a decrease of 71%. For the six months ended September 30, 2004 compared to the same period in 2003, net income decreased 34% from $203 thousand to $135 thousand. As discussed above, the primary reason for the reduction in income for the three and six months ended September 30, 2004 was the charge for abandonment of a facility.

Factors That May Affect Future Results

Our future operating results may be affected by a number of factors including uncertainties relative to national economic conditions and terrorism, especially as they affect interest rates, industry factors and our ability to successfully increase our sales of services and effectively manage expenses.

We must continue to effectively manage expenses in relation to revenues by directing new business development towards markets that complement or improve our existing service lines. Management must also continue to emphasize operating efficiencies through cost containment strategies, reengineering efforts and improved service delivery techniques.

We serve our customer base by providing a broad range of enterprise maintenance solutions. This industry has been characterized by rapid technological advances that have resulted in intense competition and aggressive pricing practices, which also impacts the pricing of our service activities. Our operating future results could be adversely affected by industry-wide pricing

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pressures, the ability to recruit, train and retain personnel integral to our operations and the presence of competitors with greater financial and other resources than ours. Also, our operating results could be adversely impacted should our Company be unable to effectively achieve the revenue growth necessary to provide profitable operating margins in various operations. Our plan for growth includes intensified marketing efforts, an expanded national sales program, forging strategic alliances and, where appropriate, acquisitions that expand market share. There can be no assurances that these efforts will be successful, or if successful of the timing thereof.

Liquidity and Capital Resources

On November 8, 2004 we renewed our revolving credit agreement with a commercial bank, increasing the amount of available credit from $9.0 million to $12.0 million. See “Recent Developments”. The term of the loan as a maturity date of November 7, 2006. The amounts outstanding under the revolving credit agreement bear interest at the bank’s prime rate plus 1/4%. Advances under the revolving credit agreement are collateralized by a first priority security interest in all of our assets as defined in the revolving credit agreement. The amount available to be borrowed under the revolving credit agreement is determined by applying stated percentages to the eligible receivables. We were in compliance with all of the covenants in the revolving credit agreement at September 30, 2004. Although we expect to remain in compliance with the covenants, no assurance can be given that we will do so.

The revolving credit agreement contains covenants including debt service coverage, current ratio, and net worth ratio. We were in compliance with the covenants at September 30, 2004. At September 30, 2004, $7.4 million was outstanding under the revolving credit agreement and $1.6 million was available to us. The interest rate at September 30, 2004 was 5.0%.

The new revolving credit agreement prohibits the payment of dividends or distributions, as well as limits the payment of principal or interest on our subordinated debt.

On September 30, 2004, the Company acquired 100% of the outstanding capital stock of AlphaNational Technology Services, Inc. (AlphaNational) in a merger transaction, for total consideration of approximately $1.9 million excluding the contingent earnout payment described below. The primary reasons for acquiring AlphaNational were to increase our geographic coverage, expand the depth of management and increase the breadth of our product serviceability. AlphaNational is a high availability maintenance company. The merger consideration was comprised of:

     (i) 235,294 shares of Company’s common stock having an aggregate value of $1,200,000, based upon the closing price of $5.10 on September 30, 2004, cash in an amount equal to $200,000, and notes in an aggregate original principal amount of $500,000 with an interest rate of 6% per annum of which $100,000 of the aggregate principal amount has a term of 90 days and $400,000 has a term of 18 months, and

     (ii) A contingent earnout payment pursuant to which an additional $150,000 in cash or Halifax common stock at the discretion of certain former AlphaNational shareholders. The earnout is payable if certain agreed upon financial targets are met over the next 12 months.

The purchase price is also subject to upward or downward adjustment based upon the final closing balance sheet to be delivered prior to November 30, 2004 from AlphaNational.

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On August 29, 2003, we acquired 100% of the outstanding common stock of Microserv, Inc. for approximately $3.3 million. The purchase price included 442,078 shares of our common stock, 5% notes to the former Microserv shareholders of an aggregate principal amount of approximately $494 thousand, and cash of $360 thousand. Acquisition costs including severance and fees totaled approximately $721 thousand. The notes payable to former Microserv Shareholders mature on February 28, 2005.

On July 23, 2003, we completed a private placement of $1.2 million of our common stock. We issued 291,970 shares of common stock at $4.11 to an investor group including four members of the management team as well as certain of our directors and one of our existing shareholders. The private placement also involved the issuance of warrants to purchase 58,394 shares of common stock at an exercise price of $4.93.

Our subordinated debt agreements with the Arch C. Scurlock Children’s Trust and Nancy M. Scurlock (“affiliates”), totaled $2.4 million at September 30, 2004. Concurrent with the renewal of our revolving credit agreement, the principal repayment and interest payable on the subordinated debt agreements have been extended to November 7, 2006. At September 30, 2004, the affiliates held our 7% convertible subordinated note dated January 27, 1998 with an outstanding balance of $400 thousand and 8% promissory notes with an outstanding principal balance of $2.0 million.

During fiscal year 2004, in conjunction with the private placement of $1.2 million and following receipt of a waiver from the bank, we made principal repayments of $1.6 million on the 7% subordinated note.

Interest expense on subordinated debt accrues on a current basis. During the quarter ended September 30, 2004, after receiving a waiver from the bank, we made payments of $75,000 for the interest accrued on the subordinated debt.

Capital expenditures for the three months and six months ended September 30, 2004 and September 30, 2003 were $516 thousand and $150 thousand, respectively.

We believe that funds generated from operations, bank borrowings, and investing activities should be sufficient to meet our cash requirements through November 7, 2006, although there can be no assurances that all the aforementioned sources of cash can be realized.

Our future capital requirements will depend on many factors, including revenue growth, acquisition activity and expansion of our service offerings.

When we are awarded a contract to provide services, we may incur expenses before we receive any contract payments. These expenses include, purchasing equipment and hiring personnel. For example, contracts may not fund program start-up costs and we may be required to invest significant sums of money before receiving related contract payments. Additionally, any resulting cash shortfall could be exacerbated if we fail to either invoice our customer or to collect our fee in a timely manner. A cash shortfall could result in significant consequences. For example, it:

• could increase our vulnerability to general adverse economic and industry conditions;

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• will require us to dedicate a substantial portion of our cash flow from operations to service payments on our indebtedness, reducing the availability of our cash flow to fund future capital expenditures, working capital, execution of our growth strategy, research and development costs and other general corporate requirements;

• could limit our flexibility in planning for, or reacting to, changes in our business and our industry, which may place us at a competitive disadvantage compared with competitors; and

• could limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

Off Balance Sheet Arrangements

In conjunction with a government contract, we act as a conduit in a financing transaction on behalf of a third party. We routinely transfer receivables to a third party in connection with equipment leased to end users. The credit risk passes to the third party at the point of sale of the receivables. Under the provisions of Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” transfers were accounted for as sales, and as a result, the related receivables have been excluded from the accompanying consolidated balance sheets. The amount paid to the us for the receivables by the transferee is approximately equal to our carrying value and therefore the gain recognized is not material. The end user remits its monthly payments directly to an escrow account held by a third party from which payments are made to the transferee and us, for various services provided to the end users. We provide limited monthly servicing whereby we invoice the end user on behalf of the transferee. The off-balance sheet transactions had no impact on our liquidity or capital resources. We are not aware of any event, demand or uncertainty that would likely terminate the agreement or have an adverse affect on our operations.

Recent Developments

1) On November 8, 2004, the Company has renewed and amended its revolving credit agreement with Provident Bank (the “Bank”)

The Company had a previous banking relationship with the Bank.

2) The terms of the agreement are:

a)	Credit facility of $12.0 million.
b)	Advances on the revolving credit agreement are available up to 85% of eligible receivables, and 50% of eligible inventory to a maximum of $6.0 million.
c)	The interest rate is the Bank’s prime plus 1/4% and a fee or the unused commitment of 1/4% payable on the last day of each quarter.
d)	A commitment fee of $30,000 and a monthly account maintenance fee of $1,000.
e)	The term of the agreement is through November 7, 2006.

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3) Financial covenants are:

a)	Debt service coverage ratio equal to or greater than 1.25 defined as EBITDA divided by interest expense plus the current portion of long-term debt for the prior quarter.
b)	Current ratio of greater than 1.4 to measured quarterly.
c)	Tangible net worth (defined as net worth including goodwill and intangible assets) plus subordinated debt equal to or greater than $3.0 million.
d)	Total liabilities less subordinated debt to tangible net worth plus subordinated debt equal to or less than 6%

The Company intends to draw significantly on the credit facility, which may be as much as the maximum amount, from time to time as the financial situation warrants.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates, primarily as a result of using bank debt to finance our business. The floating interest debt exposes us to interest rate risk, with the primary interest rate exposure resulting from changes in the prime rate. It is assumed in the table below that the prime rate will remain constant in the future. Adverse changes in the interest rates or our inability to refinance our long-term obligations may have a material negative impact on our results of operations and financial condition.

The definitive extent of the interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. We do not customarily use derivative instruments to adjust our interest rate risk profile.

The information below summarizes our sensitivity to market risks as of September 30, 2004. The table presents principal cash flows and related interest rates by year of maturity of our funded debt. Note 6 to the consolidated financial statements in our annual report on Form 10-K for the year ended March 31, 2004 contains descriptions of funded debt and should be read in conjunction with the table below.

(Amounts in thousands)

	Period Ending		Fair Value
	September 30,		September 30,
Debt obligations	2004		2004
Revolving credit agreement at the prime rate plus 1/4%. Due November 7, 2006. Average interest rate of 5.00%.	$	7,423	$	7,423
Line of credit — AlphaNational due April 28, 2005		474		474
7% convertible subordinated note payable to affiliate due November 7, 2006.		400		400
8% subordinated notes payable to affiliate due November 7, 2006.		2,000		2,000
5% notes issued to former Microserv shareholders		494		494
6% notes issued to former AlphaNational shareholders		500		500
Notes Payable GMAC interest rate 0.0% to 1.9% due in 48 and 36 months.		34		34
Total fixed rate debt		3,902		3,902
Total debt		11,325		11,325

At September 30, 2004, we had $11.3 million of debt outstanding of which $3.9 million bears fixed interest rates. If the interest rates charged to us on our variable rate debt were to increase significantly, the effect could be materially adverse to our future operations.

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We conduct a limited amount of business overseas, principally in Western Europe. At the present, all transactions are billed and denominated in U.S. dollars and consequently, we do not currently have any material exposure to foreign exchange rate fluctuation risk.

Item 4. Controls and Procedures

Quarterly evaluation of the Company’s Disclosure Controls and Internal Controls. The Company evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (“Disclosure Controls”) as of the end of the period covered by this Form 10-Q. This evaluation (“Controls Evaluation”) was done under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluation of its internal controls to enhance, where necessary, its procedures and controls.

Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded that the Disclosure Controls are effective in reaching a reasonable level of assurance that management is alerted on a timely basis to material information relating to the Company as the end of the period when its periodic reports are being prepared.

In accordance with SEC requirements, the CEO and CFO note that, since the date of the Controls Evaluation to the date of this Quarterly Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II. OTHER INFORMATION

Item 1 Legal Proceedings

There are no material pending legal proceedings to which we are a party. From time to time, we are engaged in ordinary routine litigation incidental to our business. While we cannot predict the ultimate outcome of these matters, or other routine litigation matters, it is management’s opinion that the resolution of these matters should not have a material effect on our financial position or results of operations.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 Defaults Upon Senior Securities

None

Item 4 Submission of Matters to a Vote of Security Holders

The Company held its Annual Shareholders Meeting on July 23, 2004

1. Election of Directors. The following directors were elected for a term of one year:

					%OF		%OF
					VOTING		OUTSTANDING
NOMINEE	FOR		AGAINST		SHARES		SHARES
JOHN H. GROVER		2,657,509		—		99.7		91.1
CHARLES L. MCNEW		2,657,509		—		99.7		91.1
JOHN M. TOUPS		2,657,509		—		99.7		91.1
THOMAS L. HEWITT		2,657,509		—		99.7		91.1
DANIEL R. YOUNG		2,657,509		—		99.7		91.1
ARCH C. SCURLOCK, JR.		2,657,509		—		99.7		91.1
GERALD F. RYLES		2,660,687		—		98.8		91.2

Item 5. Other Information

The Company filed a current report on Form 8-K on September 7, 2004 announcing $29 million award from the U.S. Army.

The Company filed current report on Form 8-K on September 24, 2004 announcing a new maintenance service contract.

The Company filed a current report on Form 8-K on October 6, 2004 announcing the acquisition of enterprise maintenance firm.

The Company filed a current report on Form 8-K on November, 4, 2004 to report its second quarter results.

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Item 6. Exhibits

Exhibit 10.1	Amended Banking Agreement
Exhibit 10..2	Registration Rights Agreement
Exhibit 10..3	Employee Severance and Restrictive Covenant Agreement
Exhibit 31.1	Certification of Charles L. McNew, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Joseph Sciacca, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of Charles L. McNew, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.2	Certification of Joseph Sciacca, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

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SIGNATURES

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 thereunto duly authorized.

		HALIFAX CORPORATION
		(Registrant)
Date: November 12, 2004	By:	/s/Charles L. McNew
		Charles L. McNew
		President & Chief Executive Officer
		(principal executive officer)
Date: November 12, 2004	By:	/s/Joseph Sciacca
		Joseph Sciacca
		Vice President, Finance &
		Chief Financial Officer
		(principal financial officer)

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

     It is hereby agreed as of the 8th day of November, 2004, 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 Amended and Restated Loan and Security Agreement (the “Agreement”) combines, amends and replaces the Security Agreement dated as of March 6, 2002, Change in Terms Agreements dated as of March 12, 2002 and April 3, 2003 and ARTS Security and Finance Agreement dated as of September 9, 2003, each executed by Halifax 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.	“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.	“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.
5.	“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.
6.	“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.
7.	“Government” means the United States of America or any agency or instrumentality thereof.
8.	“Government Contract” means any contract with the Government under which Borrower is the prime contractor.
9.	“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.
10.	“Line of Credit” means any line of credit facility extended by Bank to Borrower pursuant to Paragraph II.A of this Agreement and otherwise in accordance with the terms of this Agreement.
11.	“Loan” means one or more credit facilities, including any Line of Credit, 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.
12.	“Maximum Line of Credit Amount” means Twelve Million Dollars ($12,000,000).

Page 1 of 21

13.	“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.
14.	“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.
15.	“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.
16.	“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.
17.	“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.	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.
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.
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

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	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, with the next review expected to be completed by August 31, 2005. 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. 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 December 31, 2004, 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 (other than Halifax) hereby grants and pledges to Bank, and Halifax 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.

Borrower also hereby grants and pledges (or with respect to Halifax, 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

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	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 of America or The Savings Bank of Manchester as secured party (each of which shall be terminated within sixty (60) days of the date of this Agreement), (ii) naming Bank as secured party or (iii) 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.
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.
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.

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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. Until the first full-scope field examination has been completed and its results communicated to the Bank, Borrower’s advances under the Line of Credit shall not exceed Ten Million Five Hundred Thousand Dollars ($10,500,000).
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 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:

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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 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.
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.

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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 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).
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, (iii) payments to the former shareholders of the predecessor by merger to Microserv pursuant to certain notes dated August 29, 2003 in the original principal amount of $494,000 and maturing on February 1, 2005, and (iv) 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

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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 fifteen (15) days after written notice thereof has been given to the Borrower; provided, however, that the occurrence of an event under Paragraphs VI.D, VI.F, VI.H or VI.I or a failure by Borrower to make any payment hereunder when due shall automatically be a default hereunder:

A.	Nonperformance. Default by Borrower 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 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;
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

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	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.
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.

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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 Commercial Finance 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.
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

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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.	Conditions to Advances. Prior to or contemporaneously with any advance hereunder, Liberty Bank shall release any lien it may have on Borrower’s assets.
B.	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]

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          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
	By:		(SEAL)
(Signature)		Joseph Sciacca
		Chief Financial Officer
	HALIFAX ENGINEERING, INC.
	By:		(SEAL)
(Signature)		Joseph Sciacca
		Vice President, Secretary and Treasurer
	MICROSERV LLC
	By:		(SEAL)
(Signature)		Joseph Sciacca
		Vice President, Secretary and Treasurer
	HALIFAX ALPHANATIONAL ACQUISITION, INC.
	By:		(SEAL)
(Signature)		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

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FINANCIAL COVENANTS ADDENDUM

THIS FINANCIAL COVENANTS ADDENDUM (“Addendum”) is dated as of November 8, 2004, 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 (“Bank”), a Maryland banking corporation. This Addendum is given to supplement and amend the Amended and Restated Loan and Security Agreement dated as of November 8, 2004, by and between Borrower and Bank (“Loan Agreement”).

I. 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):

A.	“Current Assets” means, at any time, the aggregate amount of all current assets, including, but not limited to, cash, cash equivalents, marketable securities, receivables maturing within twelve (12) months from such time, inventory (net of allowances for inventory valuation reserve), and prepaid expenses but excluding officer, stockholder and employee advances and receivables, all as determined in accordance with G.A.A.P.
B.	“Current Liabilities” means, at any time, the aggregate amount of all liabilities and obligations which are due and payable on demand or within twelve (12) months from such time, or should be properly reflected as attributable to such twelve (12) month period in accordance with G.A.A.P. Current Liabilities shall not include deferred income tax liabilities.
C.	“Current Ratio” means the ratio of Current Assets to Current Liabilities.
D.	“Debt Service Coverage Ratio” means the ratio of EBITDA to the sum of (i) Interest Expense and (ii) the current portion of long term debt for the prior quarter.
E.	“EBITDA” means the sum of (i) the net income of Borrower, plus (ii) depreciation expense and amortization, plus (iii) Interest Expense, plus (iv) taxes, all determined in accordance with G.A.A.P.
F.	“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.
G.	“Interest Expense” means all finance charges reflected on the income statement as interest expense for all obligations of Borrower to any person, including, but not limited to, Bank, as shown on the balance sheet in accordance with G.A.A.P.
H.	“Obligations” means the “Obligations,” as defined in the Loan Agreement.
I.	“Subordinated Debt” means all obligations of Borrower to any person, payment of which has been expressly subordinated to all of the Obligations pursuant to a written agreement signed by Bank and the holder of such debt.
J.	“Tangible Net Worth” means the net worth of Borrower excluding all intangibles, including but not limited to, good will and intangible assets, all determined in accordance with G.A.A.P.
K.	“Total Liabilities” means all liabilities and obligations.

II. FINANCIAL COVENANTS. Borrower shall remain in compliance with each of the covenants set forth in the Paragraphs below.

Borrower’s Initials:

x	A.	Borrower shall at all times maintain Tangible Net Worth plus Subordinated Debt of not less than $3,000,000, measured on September 30, 2004 and the last date of each subsequent quarter.
x	B.	Borrower shall maintain a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not greater than 6.8:1 on September 30, 2004 and the last date of each subsequent quarter.

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x	C.	Borrower shall at all times maintain a Debt Service Coverage Ratio greater than or equal to 1.25:1 for the quarter ending on September 30, 2004 and the last day of each subsequent quarter.
x	D.	Borrower shall maintain a Current Ratio equal to or greater than 1.4:1 on September 30, 2004 and the last day of each subsequent quarter.

III. GENERAL PROVISIONS. This Addendum is hereby made a part of the Loan Agreement.

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

WITNESS OR ATTEST*:

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

WITNESS/ATTEST:	HALIFAX CORPORATION
(Signature)	By:		(SEAL)
		Joseph Sciacca
(Print Name)		Chief Financial Officer
	HALIFAX ENGINEERING, INC.
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	MICROSERV LLC
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	HALIFAX ALPHANATIONAL ACQUISITION, INC.
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	ACCEPTED AT FALLS CHURCH, VIRGINIA
	AS OF THE DATE HEREOF
	PROVIDENT BANK
	By:		(SEAL)
		E Gaye Boyette
		Senior Vice President

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FORMULA ADVANCE ADDENDUM

     THIS FORMULA ADVANCE ADDENDUM (“Addendum”) is dated as of November 8, 2004, 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 (“Bank”), a Maryland banking corporation. This Addendum is given to supplement and amend the Amended and Restated Loan and Security Agreement dated as of November 8, 2004 by and between Borrower and Bank (“Loan Agreement”).

I. DEFINITIONS. All capitalized terms used in this Addendum without definition shall have the meanings assigned to them in the Loan Agreement. 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.	“At Risk Work” means work performed under any Government Contract or any other contract (i) for which funds have not been appropriated or allocated, (ii) that has not been awarded or (iii) for which all required contract documents, including any documents required to modify or renew a contract previously awarded, have not been executed.
3.	“Borrowing Base” means: (i) an amount of up to 85% of Eligible Billed Receivables; plus (ii) an amount of up to 50% of Eligible Inventory; provided, however, that the portion of the Borrowing Base constituting Eligible Inventory shall not exceed $6 million; minus (iii) such reserves and allowances as Bank in its sole discretion may from time to time deem necessary to protect the interests of Bank.
4.	“Eligible Billed Receivables” means Eligible Receivables that have been billed to the appropriate Account Debtor, are aged less than 90 days from the date of the initial invoice. For the purposes of this definition, the term “initial invoice” shall mean the first invoice relating to the applicable goods shipped or services rendered, and not any subsequent invoice relating thereto.
5.	“Eligible Inventory” means Inventory of Borrower which is deemed by Bank in Bank’s sole discretion to be eligible to be included in the Borrowing Base. Inventory which is at any time Eligible Inventory, but which subsequently fails to meet the requirements of Bank for eligibility, shall cease for all purposes to be Eligible Inventory. In addition to any other criteria for eligibility determined by Bank from time to time, Inventory shall not be deemed to be eligible without the written consent of Bank unless it meets the following minimum requirements: (i) it is owned by Borrower and it is not subject to any lien, assignment or claim (including any VDOT Vendor Liens/Assignments) except for the benefit of Bank; (ii) it is held for sale or lease or for furnishing under contracts of service in the ordinary course of Borrower’s business; (iii) it is new and unused or refurbished; (iv) it does not constitute work in progress; (v) it is not stored with a bailee, warehouseman or similar person or entity without Bank’s prior written approval and without appropriate documentation acceptable to Bank; (vi) it is not returned or repossessed merchandise; (vii) it constitutes finished goods; (viii) it does not constitute raw materials; and (ix) it complies with any additional criteria set forth from time to time in any written supplements to this Addendum or the Loan Agreement. Eligible Inventory does not include any Inventory delivered pursuant to the VDOT Contract. The value of Eligible Inventory shall be determined by Bank in Bank’s sole discretion at the least of: (i) Borrower’s net purchase cost or manufacturing cost; (ii) the lowest market prices or (iii) any price ceiling established under applicable laws.
6.	“Eligible Receivables” means Receivables of Borrower which are deemed by the Bank in its sole discretion to be eligible to be included in the Borrowing Base. A Receivable which is at any time an Eligible Receivable, but which subsequently fails to meet the requirements of Bank for eligibility, shall cease for all purposes to be an Eligible Receivable. In addition to any other criteria for eligibility determined by Bank from time to time, a Receivable shall not be deemed to be eligible without the written consent of Bank unless it meets the following minimum requirements: (i) it is genuine and is in all respects what it purports to be; (ii) it arises from goods sold or leased or from services performed in the ordinary course of Borrower’s business and the delivery or performance has been completed and unconditionally accepted by the Account Debtor, without dispute, offset, contingency (other than final audits of costs incurred under the Government Contracts) or allowance; (iii) Borrower has possession of, or has delivered to Bank, receipts or other satisfactory documentation evidencing delivery and acceptance; (iv) it is not subject to any security interest, lien, assignment or encumbrance (including any VDOT Vendor Liens/Assignments) except in favor of Bank; (v) it is not payable from an Account Debtor who is the subject of any bankruptcy or insolvency proceedings, and it is not in Bank’s opinion unlikely to be paid because of insolvency, potential bankruptcy, death or any other reason; (vi) it is not subject to any potential claim of a surety or bonding company; (vii) it does not arise from any transaction with any affiliated entity or person of Borrower, or employee of Borrower; (viii) it is not payable from any Account Debtor located outside of the United States unless the transaction giving rise to the Receivable is supported by a letter of credit, acceptance or other credit enhancement acceptable to Bank; (ix) it does not arise from any sale on approval or consignment, and it is not otherwise subject to any repurchase or return agreement; (x) if the Account Debtor is the Government and Borrower is a prime contractor, Borrower has as assigned its rights to receive payment to Bank in compliance with the Assignment of Claims Act; (xi) other than with respect to Receivables arising out of a Government Contract, the aggregate dollar amount of Receivables due from the Account Debtor does not exceed $500,000 or any other limit established by Bank in writing for the Account Debtor; (xii) less than ninety (90) days have elapsed from the initial invoice date; (xiii) it is not payable by an Account Debtor with respect to which 50% or more of the dollar amount of that Account Debtor’s Receivables to Borrower have remained unpaid for more than ninety (90) days from the date of invoice or more than ninety (90) days from

Page 15 of 21

	the due date of invoice; (xiv) it is not evidenced by chattel paper or instruments unless Bank has agreed in writing that it may be deemed eligible and all originals of such chattel paper or instruments have been endorsed and delivered to Bank; (xv) it is not subject to any offset and is not payable by any Account Debtor who is owed any sum by Borrower; (xvi) it does not include At-Risk Work, cost overruns, progress payments, costs incurred in excess of approved or allowed billing rates, rebilling or retainages; and (xvii) it complies with any additional criteria set forth from time to time in any written supplements to this Addendum or the Loan Agreement. Eligible Receivables do not include any Receivables from the VDOT Contract assigned to or subject to the lien of a third party.
7.	“Government” means the United States of America or any agency or instrumentality thereof.
8.	“Government Contract” means any contract with the Government under which Borrower is a prime contractor or a subcontractor.
9.	“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.
10.	“Receivables” means all of Borrower’s now owned and hereafter acquired and/or created accounts, accounts receivable, contracts, contract rights, instruments, documents, chattel paper, notes, notes receivable, drafts, acceptances, general intangibles (including, but not limited to, trademarks, tradenames, licenses 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.

II. COVENANTS. Borrower covenants that:

A. Eligibility of Receivables and/or Inventory. Within fifteen (15) days after learning thereof, Borrower shall notify Bank of any event or circumstance which disqualifies as an Eligible Receivable any Receivable reported to Bank as an Eligible Receivable, and any event or circumstance which Borrower has reason to know or believe would cause any Receivable reported to Bank as an Eligible Receivable to be disqualified as an Eligible Receivable. Within fifteen (15) days after learning thereof, Borrower shall notify Bank of any event or circumstance which disqualifies as Eligible Inventory any Inventory reported to Bank as Eligible Inventory, and any event or circumstance which Borrower has reason to know or believe would cause any Inventory reported to Bank as Eligible Inventory to be disqualified as Eligible Inventory. Bank may, at any time and without prior notice to Borrower and without the consent of Borrower, directly contact Account Debtors of Borrower and verify the existence and status of the Receivables.

III.	REMEDIES. In addition to all other rights and remedies provided by law, the Loan Agreement and the Loan documents, Bank, on the occurrence of any default hereunder or thereunder, may reduce the Maximum Line of Credit Amount and/or the Borrowing Base.
IV.	GENERAL PROVISIONS. This Addendum is hereby made a part of the Loan Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Page 16 of 21

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

WITNESS OR ATTEST*:

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

WITNESS/ATTEST:	HALIFAX CORPORATION
	By:		(SEAL)
(Signature)		Joseph Sciacca
		Chief Financial Officer
(Print Name)
	HALIFAX ENGINEERING, INC.
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	MICROSERV LLC
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	HALIFAX ALPHANATIONAL ACQUISITION, INC.
	By:		(SEAL)
		Joseph Sciacca
		Vice President, Secretary and Treasurer
	ACCEPTED AT FALLS CHURCH, VIRGINIA
	AS OF THE DATE HEREOF
	PROVIDENT BANK
	By:		(SEAL)
		E Gaye Boyette
		Senior Vice President

Page 17 of 21

Baltimore, Maryland
November 8, 2004	$12,000,000

PROMISSORY NOTE
(Revolving Line of Credit)

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

     FOR VALUE RECEIVED, the undersigned (collectively “Borrower”) promises to pay to the order of PROVIDENT BANK, a Maryland banking corporation (“Lender”), at the Lender’s offices at 114 East Lexington Street, Baltimore, Maryland 21202 or at such other place as the holder of this Promissory Note may from time to time designate, the principal sum of Twelve Million and NO/100 Dollars ($12,000,000), or so much as has been disbursed to the Borrower hereunder, together with interest thereon at the rate or rates hereafter specified and any and all other sums which may be owing to the Lender by the Borrower pursuant to this Promissory Note. The following terms shall apply to this Promissory Note.

1.	INTEREST. The unpaid principal amount outstanding from time to time pursuant to this Promissory Note shall bear interest at one-quarter percent (0.25%) per annum above the rate of interest announced from time to time by the Lender as its prime commercial lending rate of interest, it being understood that such announced rate bears no inference, implication, representation, or warranty that such announced rate is charged to any particular customer or customers of the Lender. Interest on the principal amount outstanding shall be adjusted daily with the rate for each day being the rate in effect at the close of business on that day.
2.	CALCULATION OF INTEREST. Interest shall be calculated on the basis of a three hundred sixty (360) days per year factor applied to the actual days on which there exists an unpaid balance hereunder.
3.	REPAYMENT.

(a) Principal: The principal balance of this Promissory Note and any accrued but unpaid interest shall be paid in full by the Borrower in immediately available funds on or before November 7, 2006.

(b) Interest: Accrued interest shall be paid by the Borrower, in arrears, in immediately available funds on the first day of each successive month beginning on December 1, 2004.

All amounts owed by the Borrower to the Lender shall be payable by preauthorized debit of Account #20-65310679 and Borrower agrees to maintain a balance in such account which is at least equal to the payment amount on each payment due date.

4.	LATE PAYMENT CHARGE. If any payment due hereunder (including any payment in whole or in part of principal) is not received by the holder within fifteen (15) calendar days after its due date, the Borrower shall pay a late payment charge equal to five percent (5%) of the amount then due.
5.	APPLICATION OF PAYMENTS. All payments made pursuant to this Promissory Note shall be applied first to late payment charges or other sums owed to the holder, next to accrued interest, and then to principal, or in such other order or proportion as the holder, in the holder’s sole and absolute discretion, may elect from time to time.
6.	PREPAYMENT. The Borrower may prepay this Promissory Note in whole or in part at any time or from time to time without premium or additional interest.
7.	DEFAULT. Upon a failure to pay any sum due pursuant to this Promissory Note or a default in the performance of any of the covenants, conditions or terms of the Amended and Restated Loan and Security Agreement, dated the date hereof, executed by Borrower and Lender (the “Agreement”), or of any other agreement or document made by any Borrower for the benefit of the Lender or any holder (collectively with the Agreement and the “Loan Documents”), the holder of this Promissory Note, in the holder’s sole and absolute discretion and without notice or demand, may exercise any of the following rights, in addition to any rights or remedies under applicable law or any of the Loan Documents:

(a) Default Rate of Interest. The holder may raise the rate of interest accruing on the unpaid balance due under this Promissory Note by two (2) percentage points above the rate of interest otherwise applicable until such time as such default has been cured to the Lender’s entire satisfaction, independent of whether the holder of this Promissory Note elects to accelerate the unpaid principal balance as a result of such default.

Page 18 of 21

(b)

Acceleration. The holder may declare the entire unpaid principal balance plus accrued interest and all other sums due hereunder immediately due and payable. Reference is made to the Loan Documents for further and additional rights of the holder to declare the entire unpaid principal balance plus accrued interest and all other sums due hereunder immediately due and payable. The Borrower agrees that a default under this Promissory Note or a default by the Borrower under any of the Loan Documents is a default by the Borrower under all other liabilities and obligations of the Borrower to the holder, and that the holder shall have the right to declare immediately due and payable all of such other liabilities and obligations.

(c)

Confession of Judgment. The Borrower authorizes any attorney admitted to practice before any court of record in the United States to appear on behalf of the Borrower in any court in one or more proceedings, or before any clerk thereof or prothonotary or other court official, and to confess judgment against the Borrower, without prior notice or opportunity of the Borrower for prior hearing, in favor of the holder of this Promissory Note in the full amount due on this Promissory Note (including principal, accrued interest and any and all penalties, fees and costs) plus court costs and reasonable legal fees. In addition to all other courts in which judgment may be confessed against the Borrower upon this Promissory Note, the Borrower agrees that venue and jurisdiction shall be proper in the Circuit Court of any County of the State of Maryland or of Baltimore City, Maryland, or in the United States District Court For The District Of Maryland. For the purpose of allowing the holder of this Promissory Note to file a confession of judgment in the Commonwealth of Virginia to recover any sums of money due hereunder, the Borrower hereby duly constitutes and appoints David Matuszewski its attorney in fact to confess judgment against the Borrower in the Circuit Court for the County of Fairfax, Virginia and in any other circuit court or court located in the Commonwealth of Virginia, and the Borrower acknowledges and agrees that jurisdiction and venue shall be proper in such court and in any other city or county in the Commonwealth of Virginia The Borrower waives the benefit of any and every statute, ordinance, or rule of court which may be lawfully waived conferring upon the Borrower any right or privilege of exemption, homestead rights, stay of execution, or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment. The authority and power to appear for and enter judgment against the Borrower shall not be exhausted by one or more exercises thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto; such authority and power may be exercised on one or more occasions from time to time, in the same or different jurisdictions, as often as the holder shall deem necessary or advisable.

8.	INTEREST RATE AFTER JUDGMENT. If judgment is entered against the Borrower on this Promissory Note, the amount of the judgment entered (which may include principal, interest, penalties, fees, and costs) shall bear interest at the higher of the above described default interest rate as determined on the date of the entry of the judgment, or the legal rate of interest then applicable to judgments in the jurisdiction in which judgment was entered.
9.	EXPENSES OF COLLECTION. If this Promissory Note is referred to an attorney for collection, whether or not judgment has been confessed or suit has been filed, the Borrower shall pay all of the holder’s costs, fees (including, but not limited to, the holder’s attorneys’ fees, paralegal charges and expenses) and all other expenses resulting from such referral.
10.	WAIVERS. The Borrower, and all parties to this Promissory Note, whether maker, indorser, or guarantor, waive presentment, notice of dishonor and protest.
11.	EXTENSIONS OF MATURITY. All parties to this Promissory Note, whether maker, indorser, or guarantor, agree that the maturity of this Promissory Note, or any payment due hereunder, may be extended at any time or from time to time without releasing, discharging, or affecting the liability of such party.
12.	NOTICES. Any notice or demand required or permitted by or in connection with this Promissory Note 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 the Borrower shall be considered to be effective upon the receipt thereof by the Borrower regardless of the procedure or method utilized to accomplish delivery thereof to the Borrower.
13.	LIABILITY; ASSIGNABILITY; BINDING NATURE. If more than one person or entity is executing this Promissory Note as a Borrower, all liabilities under this Promissory Note shall be joint and several with respect to each of such persons or

Page 19 of 21

	entities. This Promissory Note may be assigned by the Lender or any holder at any time. This Promissory Note shall inure to the benefit of and be enforceable by the Lender and the Lender’s successors and assigns and any other person to whom the Lender may grant an interest in the Borrower’s obligations to the Lender, and shall be binding and enforceable against the Borrower and the Borrower’s personal representatives, successors and assigns.
14.	INVALIDITY OF ANY PART. If any provision or part of any provision of this Promissory Note shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Promissory Note and this Promissory Note shall be construed as if such invalid, illegal or unenforceable provision or part thereof had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability.
15.	MAXIMUM RATE OF INTEREST; COMMERCIAL LOAN. Notwithstanding any provision of this Promissory Note or the Loan Documents to contrary, the Borrower shall not be obligated to pay interest pursuant to this Promissory Note in excess of the maximum rate of interest permitted by the laws of any state determined to govern this Promissory Note or the laws of the United States applicable to loans in such state. If any provision of this Promissory Note shall ever be construed to require the payment of any amount of interest in excess of that permitted by applicable law, then the interest to be paid pursuant to this Promissory Note shall be held subject to reduction to the amount allowed under applicable law, and any sums paid in excess of the interest rate allowed by law shall be applied in reduction of the principal balance outstanding pursuant to this Promissory Note. The Borrower acknowledges that it has been contemplated at all times by the Borrower that the laws of the State of Maryland will govern the maximum rate of interest that it is permissible for the holder of this Promissory Note to charge the Borrower pursuant to this Promissory Note. The Borrower warrants that this Promissory Note evidences a commercial loan transaction within the meaning of Sections 12-101(c) and 12-103(e), Commercial Law Article, Annotated Code of Maryland, as amended, and that no proceeds of such loan transaction are being used by the Borrower for any consumer purpose.
16.	CHOICE OF LAW; CONSENT TO VENUE AND JURISDICTION; ACTIONS AGAINST LENDER. This Promissory Note shall be governed, construed and interpreted strictly in accordance with the laws of the State of Maryland. The Borrower consents to the jurisdiction and venue of the courts of any county in the State of Maryland or the courts of Baltimore City, Maryland or 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 Promissory Note. The Borrower agrees to stipulate in any future proceeding that this Promissory Note is to be considered for all purposes to have been executed and delivered within the geographical boundaries of the State of Maryland, even if it was, in fact, executed and delivered elsewhere. Any action brought by the Borrower against the Lender which is based, directly or indirectly, or in whole or in part, upon this Promissory Note or any matter related to this Promissory Note or any other Loan Document shall be brought only in the courts of the State of Maryland.
17.	WAIVER OF JURY TRIAL. The Borrower (by its execution hereof) and the Lender (by its acceptance of this Promissory Note) agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by the Borrower, the Lender or any successor or assign of the Borrower or the Lender on or with respect to this Promissory Note or any other Loan Document or which in any way relates, directly or indirectly, to the obligations of the Borrower to the Lender pursuant to this Promissory Note or any other Loan Document, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. The Borrower and the Lender hereby expressly waive any right to a trial by jury in any such suit, action, or proceeding.

     IN WITNESS WHEREOF, and intending to be legally bound hereby, the undersigned execute this Promissory Note under seal, as Borrower, as of the date first written above.

WITNESS/ATTEST:	HALIFAX CORPORATION
	By:		(SEAL)
		Joseph Sciacca
Name:		Chief Financial Officer
		5250 Cherokee Avenue
		Alexandria, Virginia 22312

Page 20 of 21

MICROSERV LLC
By:		(SEAL)
	Joseph Sciacca
	Vice President, Secretary and Treasurer
	5250 Cherokee Avenue
	Alexandria, Virginia 22312
HALIFAX ALPHANATIONAL ACQUISITION, INC.
By:		(SEAL)
	Joseph Sciacca
	Vice President, Secretary and Treasurer
	5250 Cherokee Avenue
	Alexandria, Virginia 22312

Notice Address For Lender:

Provident Bank
7799 Leesburg Pike
North Tower – Suite 200
Falls Church, Virginia 22043
Attention: E Gaye Boyette

With a copy to:

Provident Bank
Legal and Compliance Department
114 East Lexington Street
Baltimore, Maryland 21202
Attention: General Counsel

Page 21 of 21

EX-10.2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made by and among Halifax Corporation, a Virginia corporation (the “Company”), and L. L. Whiteside, Charles A. Harper, Morris Horn and Dan Lane (each, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

     A. Pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”) dated of even date herewith by and among the Company, Halifax-AlphaNational Acquisition, Inc., a Texas corporation and subsidiary of the Company (“Buyer”), AlphaNational Technology Services, Inc., a Texas corporation (“Target”), and each of the Purchasers, Target will be merged with and into Buyer through the consummation of the transactions more fully described in the Merger Agreement (the “Transactions”).

     B. Pursuant to the Merger Agreement, each of the Purchasers will receive from the Company and the Company will issue to each of the Purchasers shares of the Company’s common stock, $0.24 par value per share (“Common Stock”). Such issuance of shares of Common Stock pursuant to the Merger Agreement is referred to herein as the “Offering”.

     C. To induce the Purchasers to accept Common Stock in the Offering and to otherwise close the Transactions, the Company is willing, under certain circumstances, to register under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the “Securities Act”), the Common Stock issued to the Purchasers.

     D. The parties desire to impose certain rights and restrictions on the transfer of the Common Stock issued pursuant to the Offering.

     NOW THEREFORE, intending to be legally bound, the parties hereto agree as follows:

     1. Required Registration.

          (a) At any time after the twelve month anniversary of the closing of the Transactions, but subject to Section 7.5.3 of the Merger Agreement, and assuming the Company is eligible to register its securities as a secondary offering on Form S-3 (or a successor form), holders of at least fifty percent (50%) of the then outstanding shares of the Registrable Securities (as defined in Section 8 hereof) may request, in writing, that the Company effect the registration of Registrable Securities owned by such holders on a Form S-3 (or a successor form) that may be used for the registration of Registrable Securities. If the holders initiating the registration intend to distribute the Registrable Securities by means of an underwriting, they shall so advise the Company in their request. In the event such registration is underwritten, the right of other holders to participate shall be conditioned on such holders’ participation in such underwriting. Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all holders of the Registrable Securities and holders of Common Stock who have

been granted registration rights. Such holders shall have the right, by giving written notice to the Company within thirty (30) days after the Company provides its notice, to elect to have included in such registration a number of their securities, including the Registrable Securities, as such holders may request in such notice of election; provided that if the underwriter (if any) managing the offering determines that, because of marketing factors, all of the securities, including the Registrable Securities, requested to be registered by all holders may not be included in the offering, then the number of shares to be included in such offering shall be reduced, and shares shall be excluded from such offering in a number deemed necessary by such managing underwriter. In the event an exclusion of shares is necessary, subject to priority rights, if any, of holders of shares subject to registration rights agreements dated prior to the date hereof, if any (“Prior Registration Rights Holders”), the Company shall include shares in such registration in the following order: (i) first, the securities of the Prior Registration Rights Holders; (ii) second, the securities of the Purchasers or their successors or assigns where such persons hold Registrable Securities; and (iii) third, the other securities requested to be included therein by the other holders of the Company securities requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of shares owned by each such holder. To the extent that all of the Registrable Securities requested to be included in the underwritten offering cannot be included, holders of Registrable Securities shall participate in such offering pro rata, based on the number of shares of Registrable Securities each holder proposed to include. Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration (on a form that may be used for the registration of the Registrable Securities) of all the Registrable Securities which the Company has been requested to so register.

          (b) The Company shall not be required to effect more than one registration pursuant to the first sentence of paragraph (a) above; provided, however, in the event of a proration pursuant to the foregoing paragraph (a) which results in any Purchaser and/or other holders of Registrable Securities having less than all of the requested securities being included in a current registration, then, to the extent of such unincluded Registrable Securities, each of the Purchasers and/or other holders of Registrable Securities shall receive an additional demand registration right upon the expiration of any blackout period, upon the request of the holders of fifty percent (50%) of the remaining Registrable Securities, and the Company shall be obligated to file an additional registration statement on Form S-3 (or a successor form), which registration statement shall contain a current prospectus, relating to the Registrable Securities; and (ii) the Company shall use its best efforts to effect the registration of such Registrable Securities as promptly as practicable thereafter.

          (c) The Registration Expenses (as defined in Section 4) shall be paid by the Company with respect to all registrations effected pursuant to this Section.

          (d) The Company may delay the filing or effectiveness of any registration statement for a period of up to 120 days after the date of a request pursuant to this Section 1 if at the time of such request to register Registrable Securities: (i) the Company is engaged or has fixed plans to engage within thirty (30) days of the time of the request in a firm commitment underwritten public offering, or (ii) the Company furnishes to the Purchasers and other holders of Registrable Securities requesting registration a certificate signed by a senior executive officer of the Company stating that the Company is engaged in any other activity which, in the good faith

2

determination of the Company’s Board of Directors, is a material non-public event which would be adversely affected by the requested registration to the material detriment of the Company. In such case, the Company may at its option direct that such request be delayed for a period not in excess of 120 days from the effective date of such offering or the date of commencement of such other material activity, as the case may be, provided, however, the Company may not utilize the right set forth in this clause (ii) more than once in any 12-month period.

     2. Piggyback Registration.

          (a) Each time that the Company proposes to register a public offering solely of its authorized but unissued Common Stock or shares held in Treasury (“Primary Shares”) or other securities, other than pursuant to a Registration Statement on Form S-4 or Form S-8 or similar or successor forms (collectively, “Excluded Forms”), the Company shall promptly give written notice of such proposed registration to all holders of the Registrable Securities, which shall offer such holders the right to request inclusion of any Registrable Securities in the proposed registration statement.

          (b) Each holder of the Registrable Securities shall have twenty (20) days or such longer period as shall be set forth in the notice from the receipt of such notice to deliver to the Company a written request specifying the number of shares of Common Stock such holder intends to sell and the holder’s intended plan of disposition.

          (c) In the event that the proposed registration by the Company is, in whole or in part, an underwritten public offering of securities of the Company, any request under Section 2(b) may specify that the Registrable Securities be included in the underwriting on the same terms and conditions as the shares of Common Stock, if any, otherwise being sold through underwriters under such registration.

          (d) Upon receipt of a written request pursuant to Section 2(b), the Company shall promptly use its best efforts to cause all such Registrable Securities to be registered to the extent required to permit sale or disposition as set forth in the written request.

          (e) Notwithstanding the foregoing, if the managing underwriter of an underwritten public offering determines and advises in writing that the inclusion of all Registrable Securities proposed to be included in the underwritten public offering, together with any other issued and outstanding shares of Common Stock proposed to be included therein by holders other than the holders of Registrable Securities (such other shares hereinafter collectively referred to as the “Other Shares”), would interfere with the successful marketing of the securities proposed to be included in the underwritten public offering, then the number of such shares to be included in such underwritten public offering shall be reduced, and shares shall be excluded from such underwritten public offering in a number deemed necessary by such managing underwriter. In the event an exclusion of shares is necessary, shares shall be included in the following order: (i) first, the Primary Shares; (ii) second, the shares of Prior Registration Rights Holders requested to be included in the registration pursuant to the terms of the registrations rights agreement with such holders; (iii) third, the securities held by any of the Purchasers or their respective successors or assigns requesting registration; (iv) fourth, the Other Shares not included in items (i) and (ii) above. To the extent all of the Registrable Securities requested to be included in the underwritten

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public offering can not be included, holders of Registrable Securities shall participate in such offering pro rata based on the number of shares of Registrable Securities each holder proposes to include.

          (f) All shares of Common Stock that are not included in the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed ninety (90) days following any public offering, that the managing underwriter reasonably determines as necessary in order to effect the underwritten public offering. The holders of such shares shall execute such documentation as the managing underwriter reasonably requests to evidence this lock-up.

     3. Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof; and pursuant thereto the Company shall as expeditiously as possible:

          (a) prepare and file with the Securities and Exchange Commission (the “Commission”) a registration statement on the appropriate form under the Securities Act, which form shall be available for the sale of such Registrable Securities in accordance with the intended method or methods of distribution thereof, and use its commercially reasonable efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel);

          (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Commission, such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary or appropriate to keep such registration statement effective for the period required for sale of the Registrable Securities, (provided that in no event shall the Company be obligated to keep such registration statement effective (i) if the Company is eligible to use the Form S-3, at such time as there are no longer any Registrable Securities outstanding, and (ii) if the Company is not eligible to register on Form S-3, until such time as each of the Purchasers are eligible to sell all of the Registrable Securities pursuant to Rule 144 (k)), cause such prospectus as so supplemented to be filed as required under the Securities Act, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to the prospectus;

          (c) if requested by the managing underwriter or underwriters or a holder of Registrable Securities being sold in connection with an underwritten offering, immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the holders of a majority in interest of the Registrable Securities being sold reasonably agree should be included therein relating to the plan of distribution with respect to

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such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering, and make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;

          (d) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

          (e) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions where such registration or qualification is required as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction);

          (f) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which the prospectus included in such registration statement as then in effect, contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and, at the request of any such seller, the Company shall promptly prepare a supplement or amendment to such prospectus so that, thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact required to be stated therein or omit to state any fact necessary to make the statements therein not misleading;

          (g) cause all such Registrable Securities to be listed on the securities exchange on which similar securities issued by the Company are then listed or traded, and, if not so listed or traded, to be listed on the AMEX;

          (h) cooperate with the selling holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; enable such Registrable Securities to be in such denominations and registered in such names as the selling holders or the managing underwriters, if any, may request at least ten Business Days prior to any sale of Registrable Securities; and provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;

          (i) enter into such customary agreements (including, if there is an underwriter, underwriting agreements in customary form including, without limitation, the requirement to

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obtain an opinion of counsel to the Company and a “comfort letter” from the independent public accountants to the Company in the usual and customary form for such an underwritten offering);

          (j) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company that are customary, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;

          (k) cooperate, and cause the Company’s officers, directors, employees and independent accountants to cooperate, with the selling holders of Registrable Securities and the managing underwriters, if any, in the sale of the Registrable Securities and take any actions necessary to promote, facilitate or effectuate such sale;

          (l) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earning statement covering the period of at least twelve months, beginning with the first fiscal quarter beginning after the effective date of the registration statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act;

          (m) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order; and

          (n) otherwise use its best effects to take all other steps necessary to effect the registration of the Registrable Securities.

     4. Registration Expenses.

          (a) All expenses incident to the Company’s performance of or compliance with this Agreement, including without limitation all registration and filing fees (including, if applicable, the fees and expenses of any “qualified independent underwriter” and its counsel as may be required under the rules and regulations of the NASD), fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters or selling holders in connection with blue sky qualifications and determination of their eligibility for investment under applicable laws), printing expenses, messenger, telephone and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any special audit and “cold comfort” letters required by or incident to such performance), underwriters (excluding underwriters’ discounts and commissions) and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”), shall be borne by the Company and the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the

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expense of any annual audit or quarterly review, the expense of any liability insurance if such insurance coverage is obtained by the Company and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the American Stock Exchange.

          (b) Each holder of securities included in any registration hereunder shall pay those expenses which are not Registration Expenses which are allocable to the registration of such holder’s securities so included (such as the fees and disbursements of any counsel engaged by any holder of the Registrable Securities), and any such expenses not so allocable, such as the underwriting discount and any selling commissions shall be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered.

     5. Indemnification and Contribution.

          (a) The Company agrees to indemnify and hold harmless each holder of Registrable Securities which is included in a registration statement pursuant to the terms of this Agreement, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses, including without limitation attorneys’ fees, except as limited by Paragraph 5(c), which arise out of or are based upon: (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or with respect to a prospectus, necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same; and (ii) any violation by the Company of the Securities Act, the Exchange Act (as defined below), any applicable state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities.

          (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company and any underwriter reasonably requests for use in connection with any such registration statement or prospectus and shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses, including without limitation attorneys’ fees, except as limited by Paragraph 5(c), resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make

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the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder.

          (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person’s right to indemnification hereunder to the extent such failure has not materially prejudiced the indemnifying party) and (ii) unless in such indemnified party’s reasonable judgment (based upon a written opinion of counsel) a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim.

          (d) If the indemnification provided for in this Section 5 is unavailable to an indemnified party under paragraphs (a) or (b) hereof in respect to any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the Company and the holder of Registrable Securities in connection with the statements or omissions that resulted in such losses, claim, damages, liabilities or expenses. The relative fault of the Company and the holder of Registrable Securities in connection with the statements that resulted in such losses, claims, liabilities or expenses shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material facts or the omission or alleged omission to state a material fact relates to information supplied by the Company or the holder of the Registrable Securities and the parties relative intent, knowledge, access to information and opportunity to correct such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 5(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or, except as provided in Section 5(c), defending any such action or claim.

          (e) Notwithstanding any other provision of this Section, the liability of any holder of Registrable Securities for indemnification or contribution under this Section shall be individual to each holder and shall not exceed an amount equal to the number of shares sold by such holder of Registrable Securities multiplied by the net amount per share which such holder receives in such underwritten offering.

          (f) The indemnification and contribution provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall

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survive the transfer of securities.

     6. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements; provided that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties directly regarding such holder and such holder’s intended method of distribution.

     7. Restrictions on Transfer of Common Stock. Prior to the twelve month anniversary of the Closing Date (as defined in the Merger Agreement) and/or such later date in accordance with Section 7.5.3 of the Merger Agreement, none of the Purchasers shall transfer, sell, assign, pledge, encumber or otherwise dispose of (collectively, “Transfer”) their respective shares of Common Stock issued pursuant to the Offering without the prior written consent of the Company. Thereafter, Transfers, if any, of the Common Stock issued pursuant to the Offering shall be in accordance with all securities laws applicable thereto.

     8. Definitions.

     “AMEX” means the American Stock Exchange.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “NASD” means the National Association of Securities Dealers.

     “Person” means any individual, corporation, partnership, limited liability company, trust, estate, association, cooperative, government or governmental entity (or any branch, subdivision or agency thereof) or any other entity.

     “Registrable Securities” means (i) any of the shares of Common Stock issued in the Offering and (ii) any other securities that subsequently may be issued or issuable with respect to such shares of Common Stock as a result of a stock split or dividend or any sale, transfer, assignment or other transaction involving such shares of the Company and any securities into which such shares of Common Stock may thereafter be changed as a result of merger, consolidation, recapitalization or other similar transaction. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or eligible to be sold to the public pursuant to Rule 144(k) under the Securities Act (or any such rule then in force) or, if held by an affiliate of the Company, when all such securities of such person are eligible for resale pursuant to Rule 144 and could be sold in one transaction in accordance with the volume limitations contained in Rule 144(e)(1)(i). For purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a

9

transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected.

     “Securities Act” means the Securities Act of 1933, as amended.

     9. Rule 144. In order to permit each of the Purchasers to sell the securities of the Company that such Purchaser holds from time to time pursuant to Rule 144 promulgated by the Commission or any successor to such rule or any other rule or regulation of the Commission that may at any time permit such Purchaser to sell his securities to the public without registration (“Resale Rules”), the Company will:

          (a) comply with all rules and regulations of the Commission applicable in connection with use of the Resale Rules;

          (b) make and keep adequate and current public information available, as those terms are understood and defined in the Resale Rules, at all times;

          (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act;

          (d) furnish annually to each of the Purchasers material containing the information required by Rule 14a-3(b) under the Exchange Act;

          (e) furnish to any Purchaser promptly upon request (i) a written statement by the Company that it has complied with the reporting requirements of the Resale Rules, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and any other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing such Purchaser of any rule or regulation of the Commission which permits the selling of any shares of Common Stock held by such Purchaser without registration; and

          (f) take any action (including cooperating with any Purchaser to cause the transfer agent to remove any restrictive legend on certificates evidencing the shares of Common Stock held by such Purchaser) as shall be reasonably requested by any Purchaser or which shall otherwise facilitate the sale of shares of Common Stock held by such Purchaser from time to time pursuant to the Resale Rules.

     10. Miscellaneous.

          (a) No Inconsistent Agreements. The Company shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement, or grant to any person any registration rights, (“New Registration Rights”) with respect to securities of the Company if such New Registration Rights are, in the reasonable opinion of the Purchasers, superior in any fashion to the registration rights granted to the Purchasers pursuant to this Agreement, unless the holders of a majority of the Registrable Securities then outstanding consent in writing to such Registration Rights or such other inconsistent agreement; provided however, this limitation shall not apply to

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any registration rights currently outstanding or which the Company is legally obligated to grant as of the date hereof.

          (b) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities.

          (c) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of the Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of the Registrable Securities. A person is deemed to be a holder of the Registrable Securities whenever such person is the registered holder of the Registrable Securities. Upon the transfer of any Registrable Securities, the transferring holder of the Registrable Securities shall cause the transferee to execute and deliver to the Company a counterpart of this Agreement.

          (d) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

          (e) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, including by facsimile, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

          (f) Descriptive Heading. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

          (g) Governing Law. The corporate law of Virginia shall govern all issues and questions concerning the relative rights of the Company and its shareholders. All issues and questions concerning the construction, validity, interpretation and enforcement of this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Virginia, without giving effect to any choice of law or conflict of law rules or provisions (whether of Virginia or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than Virginia.

          (h) Neutral Construction. In view of the fact that each of the parties hereto has been represented by its own counsel (or has had the opportunity to consult with counsel of its choice) and this Agreement has been fully negotiated by all parties, the legal principle that ambiguities in a document are construed against the draftsperson of that document shall not apply to this Agreement.

          (i) Notices. All notices, requests, demands and other communications required

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or which may be given hereunder shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:

(a)	if to the Purchasers, to:
	L. L. Whiteside
	1618 Forest Bend Lane
	Keller, Texas 76248
	Morris Horn
	3205 Denbury Street
	Fort Worth, TX 76133
	Dan Lane
	3921 Hamilton Avenue
	Fort Worth, TX 76107
	Charles A. Harper
	338 Pine Top Drive
	Valentines, VA 23887
	with a copy, given in the manner prescribed above, to:
	Holland, Johns, Schwartz & Penny LLP
	306 West Seventh Street
	Suite 500
	Fort Worth, TX 76102-4982
	Attn: Margaret E. Holland
	Telefax:
(b)	If to the Company, to:
	Halifax Corporation
	5250 Cherokee Avenue
	Alexandria, Virginia 22312
	Attn: Joseph Sciacca, Chief Financial Officer
	Telefax: (703) 658-2426
	with a copy, given in the manner prescribed above, to
	Blank Rome LLP
	One Logan Square
	Philadelphia, PA 19103
	Attn: Barry H. Genkin, Esq.  Telefax: (215) 832-5514

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               In addition, notice by mail shall be by air mail if posted outside of the continental United States.

               Any party may alter the addresses to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section for the giving of notice.

          (j) Use of Pronouns. All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or entities referred to may require. Without in any way limiting the generality of the foregoing, use of the pronoun “he” or “his” herein with respect to any Purchaser shall be deemed to refer to any Purchaser that the context requires, regardless of whether such Purchaser is male, female or an entity.

[Signature page follows]

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     IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement this 30th day of September 2004.

HALIFAX CORPORATION

By:

Name: Charles L. McNew

Title: President and Chief Executive Officer

PURCHASERS:

L.L. Whiteside

Charles A. Harper

Morris Horn

Daniel Lane

[Signature page to Registered Rights agreement]

EX-10.3

Exhibit 10.3

EMPLOYEE SEVERANCE AND RESTRICTIVE COVENANT AGREEMENT

     THIS EMPLOYEE SEVERANCE AND RESTRICTIVE COVENANT AGREEMENT (“Agreement”) is made as of this 30th day of September, 2004, by and between Halifax Corporation, a Virginia corporation (“Company”), and L.L. Whiteside (“Employee”).

BACKGROUND

     A. Pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”) dated the date hereof by and among Company, Employee, AlphaNational Technology Services, Inc., a Texas corporation (“ANTS”), AlphaNational Acquisition Inc., a Delaware corporation, and certain shareholders of ANTS parties thereto, Company has agreed to acquire ANTS through the consummation of merger transactions more fully described in the Merger Agreement (the “Transactions”).

     B. Company and Employee desire to set forth certain arrangements in the event of Employee’s separation from the Company.

     C. It is a condition precedent to the respective obligations of the parties to the Merger Agreement to consummate the Transactions that Company and Employee enter into this Agreement.

     NOW, THEREFORE, in consideration of the facts, mutual promises, and covenants contained herein and intending to be legally bound hereby, the parties hereto agree as follows:

          1. Office and Duties. During the term of this Agreement, Employee shall serve as Senior Vice President Service & Support of the Company and shall report to the President and Chief Executive Officer of the Company, which as of the date hereof is Charles L. McNew.

          2. Base Salary. In consideration of the services rendered by Employee to Company, Employee shall receive an annual base salary (“Base Salary”) of $193,000, payable in equal periodic installments in accordance with Company’s regular payroll practices in effect from time to time.

          3. Severance.

               (a) In the event Employee’s employment with Company is terminated for other than “Cause” or “Good Reason” (as defined below) or as permitted in Section 3(c) during the period beginning on the date hereof and ending on the third annual anniversary of the date hereof, Employee’s base salary shall continue as severance payments until, and terminate upon, the 12 month anniversary of the date of such termination. Upon termination of Employee’s employment with Company, whether for Cause or otherwise, Employee shall be entitled to any earned and unpaid benefits (other than base salary) up to the date of termination, provided, however, that Company may set off any amounts owed by Employee to Company or its affiliates (including but not limited to any unearned salary advances or outstanding loans)

against any payments due Employee hereunder (whether for severance or otherwise). The severance payments referenced above shall be payable during the applicable severance period specified above in accordance with Company’s regular payroll practices in effect and shall be subject to such withholding as may be required by applicable law.

               (b) For purposes of this Agreement, the term “Cause” shall mean the following: (i) if Employee is in material violation or breach of the terms of this Agreement or neglects or refuses to perform his employment duties reasonably assigned to him by the person referred to in Section 1 hereof as the person to whom Employee reports or fails to attempt in good faith to follow any material express written direction of any lawful rule or regulation established by the Company or its Board of Directors which is consistent with the scope of Employee’s employment duties and such neglect, refusal, violation or breach continues uncured for thirty (30) days following receipt by Employee of written notice of such breach (specifying in reasonable detail the basis therefore and stating that it is grounds for Cause); provided, however, the Employee shall be permitted to respond and to defend himself before the Board of Directors or any appropriate committee thereof within a reasonable period of time following written notification of any proposed termination; provided, further, however, that Employee shall have this cure right only twice during each twelve (12) consecutive month period; provided, further, that the cure provision contained in this Section 3(b)(i) shall not apply to any breaches of the covenants contained in Section 4 hereof; or (ii) if Employee commits fraud or theft against Company and/or its subsidiaries or affiliates or is convicted of a felony offense or any crime involving moral turpitude.

               For purposes of this Agreement, termination by Employee of employment with Company for “Good Reason” shall mean termination based on any of the following: (i) a reduction by Company in Employee’s salary, compensation or benefits (as set forth in Section 1 hereof or as increased at any time during the term of this Agreement); (ii) a demotion in Employee’s position with the Company from the position referenced in Section 1 hereof; (iii) a material breach by Company of the terms of this Agreement; or (iv) Company’s requiring Employee to be based more than 25 miles from the greater Fort Worth, Texas area.

               (c) The Company shall have the right to terminate Employee’s employment without the payment of severance (i) in the event of Employee’s death or (ii) if, due to any physical or mental illness, disability or incapacity, Employee is prevented from performing the essential functions of his employment duties for a period of not less than ninety (90) consecutive days or for an aggregate of one hundred fifty days during any period of twelve consecutive months, even with reasonable accommodations.

               (d) Recognition. Employee recognizes and accepts that (i) Employee is employed by Company on an “at will” basis, (ii) this Agreement does not guarantee or otherwise provide for employment and that, at any time and for any reason, Employee may resign or Company may terminate Employee’s employment with Company, and (iii) Company shall not, in any case, be responsible for any additional amount, severance pay, termination pay, severance obligation or other damages whatsoever arising from the termination of his employment, above and beyond those specifically provided for in this Agreement.

          4. Restrictive Covenants.

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               (a) Employee will not, during the term of his employment with Company and for one year thereafter and in any event no earlier than two years from the date hereof (the “Restricted Period”), in any capacity (including, but not limited to, owner, member, partner, shareholder, consultant, advisor, financier, agent, employee, officer, director, manager or otherwise), whether directly, indirectly or through affiliates, within the State of Texas and within a 100 mile radius of the location of any office of Company or its subsidiaries or affiliates, for his own account or for the benefit of any person or entity, establish, engage in or be connected with (i) the Business (as defined herein) or (ii) any business which is similar to or in competition with the business conducted by Company (or any subsidiaries or affiliates thereof) during the Restricted Period.

               (b) Employee will not, during the Restricted Period, in any capacity (including, but not limited to, owner, member, partner, shareholder, consultant, advisor, financier, agent, employee, officer, director, manager or otherwise), whether directly, indirectly or through affiliates, for their own account or for the benefit of any other person or entity, including without limitation, a person or entity in (i) the Business or (ii) any business in competition with Company (or any subsidiaries or affiliates thereof) during the Restricted Period:

                    (i) Solicit, hire, contract, engage, retain, divert, induce or accept business from or otherwise take away or interfere with any customer of Company (or any subsidiaries or affiliates thereof) or any prospective customer of Company (or any subsidiaries or affiliates thereof) with which Company (or any subsidiaries or affiliates thereof) has had a substantial business contact during the Restricted Period for the purpose of providing the same or similar services or goods as that of Company (or any subsidiaries or affiliates thereof); and/or

                    (ii) Solicit, divert or induce any of the employees or consultants of Company (or any subsidiaries or affiliates thereof) to leave or to work for Employee or any person or entity with which Employee is connected.

               (c) Employee will not, at any time after the date hereof, whether directly, indirectly or through affiliates, disclose, communicate or divulge to any person or entity, or use for the benefit of any person or entity, any secret, confidential or proprietary knowledge or information with respect to the conduct or details of the business (including, without limitation, the Business) conducted by Company (or any subsidiaries or affiliates thereof) including, but not limited to, know-how, processes, customers, prospects, costs, pricing information, trade secrets, products, employees, agents, representatives, policies, marketing methods and strategies, finances, financial condition and suppliers.

               (d) Neither Company nor Employee will, at any time after the date hereof, whether directly, indirectly or through affiliates, publish or communicate disparaging or derogatory statements or opinions about the other (and with respect to the Company or ANTS, including but not limited to, disparaging or derogatory statements or opinions about Company’s, ANTS’ and/or their respective subsidiaries’ or affiliates’ management, products or services) to any third party. It shall not be a breach of this Section for either party to testify truthfully in any judicial or administrative proceeding or to make statements or allegations in legal filings that are based on his reasonable belief and are not made in bad faith.

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               (e) Employee agrees that at no time will it take any action, directly or indirectly, to circumvent its respective obligations under, or to deprive Company (or its subsidiaries or affiliates) of any benefit intended by, any provision of this Agreement. Without limiting the generality of the foregoing, Employee shall not in any way assist or enable any person or entity to take any action that Employee is prohibited from taking himself pursuant to this Agreement.

               (f) Employee and Company agree that any breach by either party of the covenants and agreements contained in this Section 4 may result in irreparable injury to the other (including, with respect to the Company, its subsidiaries and affiliates) for which money damages may not adequately compensate the injured party and, therefore, in the event of any such breach, Employee or Company, as the case may be, shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to seek to have an injunction issued by any competent court of equity enjoining and restraining Employee or Company, as the case may be, and any other person or entity involved therein from continuing such breach.

               (g) If any portion of the covenants and agreements contained in this Section 4, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. If any covenant or agreement in this Section 4 is held to be unenforceable because of the area covered, the duration thereof, or the scope thereof, then the court making such determination shall have the power to reduce the area and/or duration and/or limit the scope thereof, and the covenant or agreement shall then be enforceable in its reduced form.

               (h) The term, “Business”, as used herein, means providing onsite computer/network repairs, help desk support, and related computer services.

               (i) This Section 4 shall be void and of no force and effect if Employee is terminated without Cause or if Employee terminates his employment for Good Reason.

          5. Miscellaneous.

               (a) Waivers and Amendments. This Agreement may be amended or modified only by a written instrument signed by all the parties. Neither the failure, nor any delay, on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, remedy, power or privilege hereunder, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege hereunder.

               (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware (notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary), and without the aid of any canon, custom or rule of law

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requiring construction against the draftsman.

               (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:

	(i)	If to Employee:
		L.L. Whiteside
		1618 Forest Bend Lane
		Keller, TX 76248
	(ii)	If to Company:
		Halifax Corporation
		5250 Cherokee Avenue
		Alexandria, Virginia 22312
		Attn: Joseph Sciacca, Chief Financial Officer
		Telefax: (703) 658-2426
with a copy, given in the manner prescribed above, to
		Blank Rome LLP
		One Logan Square
		Philadelphia, PA 19103
		Attn: Barry H. Genkin, Esq.
		Telefax: (215) 832-5514

     In addition, notice by mail shall be by air mail if posted outside of the continental United States.

     Any party may alter the addresses to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section for the giving of notice.

               (d) Binding Nature of Agreement. The rights and obligations of both parties under this Agreement shall inure to the benefit of and shall be binding upon their heirs, successors and assigns.

               (e) Assignment. This Agreement may not be assigned by Employee. Company, without the consent of Employee, may assign its rights and obligations hereunder to an affiliate thereof or in connection with a sale of substantially all of its assets.

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               (f) Execution in Counterparts. This Agreement may be executed in any number of counterparts, including by facsimile, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

               (g) Provisions Severable. If any provision of this Agreement is construed to be invalid or unenforceable, such determination shall not affect the remaining provisions of this Agreement, all of which shall remain in full force and effect.

               (h) Entire Agreement. This Agreement contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.

               (i) Section Headings. The Section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation.

               (j) Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate.

[Signature page follows]

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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement, intending to be legally bound hereby, as of the date first above written.

HALIFAX CORPORATION

By:

Name: Charles McNew

Title: President & CEO

EMPLOYEE:

L.L. WHITESIDE

[Signature Page to Employee Severance and Restrictive Covenant Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Charles L. McNew, Chief Executive Officer of Halifax Corporation, certify that:

1.	I have reviewed this report on Form 10-Q of Halifax Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (Intentionally omitted);

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s forth fiscal quarter in the case of any annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: November 12, 2004	/s/ Charles L. McNew
	Charles L. McNew
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Joseph Sciacca, Chief Financial Officer of Halifax Corporation, certify that:

1.	I have reviewed this report on Form 10-Q of Halifax Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (Intentionally omitted);

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s forth fiscal quarter in the case of any annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: November 12, 2004	/s/ Joseph Sciacca
	Joseph Sciacca Chief Financial Officer

EX-32.1

Exhibit 32.1

HALIFAX CORPORATION

CERTIFICATION PURSUANT TO #18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This Certification is intended to accompany the Report of Halifax Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), and is given solely for the purpose of satisfying the requirements of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The undersigned, in his capacity as set forth below, hereby certifies, with respect to the Report, that:

1	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Charles L. McNew	Date: November 12, 2004
Charles L. McNew
Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of chapter 63 of Title 18 of the United States code) and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

Exhibit 32.2

HALIFAX CORPORATION

CERTIFICATION PURSUANT TO #18 U.S.C. 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This Certification is intended to accompany the Report of Halifax Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), and is given solely for the purpose of satisfying the requirements of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The undersigned, in his capacity as set forth below, hereby certifies, with respect to the Report, that:

1	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Joseph Sciacca	Date: November 12, 2004
Joseph Sciacca
Chief Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of chapter 63 of Title 18 of the United States code) and is not being filed as part of the Report or as a separate disclosure document.