7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): August 29, 2003
HALIFAX CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 1-08964 54-0829246
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
5250 Cherokee Avenue, Alexandria, Virginia 22312
(Address of principal executive offices/Zip Code)
Registrant's telephone number, including area code: (703) 750-2202
Former name, former address, and former fiscal year, if changed since
last report: N/A
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 we have little or no control. Forward-looking
statements may be identified by words including "anticipate,"
"believe," "estimate," "expect" and similar expressions. Halifax
Corporation ("Halifax" or the "Company") cautions 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 the
Company's revenues, risks involved in contracting with its customers,
government contracting risks, absence of dividends, potential conflicts
of interest, difficulties in attracting, and retaining management,
professional and administrative staff, fluctuation in quarterly
results, risks related to acquisitions and risks related to the
Company's acquisition strategy, continued favorable banking
relationships, the availability of capital to finance operations and
planned growth, ramifications of the embezzlement matter referenced
herein, risks related to competition and the Company's ability to
continue to perform efficiently on contracts, and other risks and
factors identified from time to time in the Company's Annual Report on
Form 10-K. 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, the Company undertakes no obligation to
correct or update a forward-looking statement should we later become
aware that it is not likely to be achieved. If the Company were to
update or correct a forward-looking statement, you should not conclude
that the Company will make additional updates or correction thereafter.
Item 2. Acquisition or Disposition of Assets
On August 29, 2003, Halifax acquired all of the outstanding Common
Stock of Microserv, Inc. ("Microserv"), a Washington corporation, from
the shareholders of Microserv (the "Microserv Shareholders"), through
the merger of Microserv with and into wholly-owned subsidiaries of
Halifax as described below and in the Agreement and Plan of Merger
dated August 29, 2003 for the acquisition of Microserv (the "Merger
Agreement") attached hereto as Exhibit 99.1. All capitalized terms not
defined herein shall have the meaning ascribed to them in the Merger
Agreement. All summaries of documents filed as exhibits hereto are
qualified as reference to the actual documents.
Microserv was founded in 1985 and provides high availability
hardware maintenance services to a nationwide customer base.
The Merger
Halifax acquired Microserv in a tax-free reorganization. Prior to
the closing of the Merger (the "Closing"), Halifax created a new wholly-
owned corporation ("Corporate Sub") and a new limited liability company
of which Halifax is the sole member ("LLC Sub"). At the Closing,
Corporate Sub merged into Microserv in a statutory merger (with
Microserv surviving such merger), and immediately thereafter, Microserv
merged into LLC Sub in a statutory merger (with LLC Sub surviving such
second merger). The merger consideration received by the Microserv
Shareholders is as follows:
The amount of the merger consideration was determined through arms-
length negotiations among the parties. The cash portion of the merger
consideration came from Halifax's cash flow from operations and the
common stock, par value $0.24 per share (the "Common Stock"), was
issued by Halifax from authorized but unissued shares.
Common Stock. The Microserv Shareholders received 442,078 shares
of Common Stock on the date of Closing.
Cash. The Microserv Shareholders received an aggregate of
$360,000 in cash.
Notes. The Microserv Shareholders received notes in an aggregate
original principal amount of $493,934 (the "Notes"). All principal and
any unpaid interest shall be due and payable 18 months after the
Closing date, subject to certain set off rights of the Company.
Interest shall accrue on principal at a rate of 5% per annum and shall
be payable to each Microserv Shareholder quarterly in cash.
The Notes are unsecured and in the event of a liquidation shall
rank subordinate to Halifax's senior and subordinated debt; provided,
however, that Halifax shall have the right and obligation to pay its
obligations under the Notes to Microserv Shareholders as and when such
obligations become due unless a default is declared under Halifax's
senior and subordinated loan documents. The Notes contain covenants,
protective provisions, default provisions and remedies. The full text
of the form of Note is attached hereto as Exhibit 99.6.
Reductions in merger consideration. The merger consideration
shall be reduced pursuant to the formula set forth in the Merger
Agreement.
As required, Halifax paid in full $1,200,000 of the $2,000,000
portion of Halifax's debt to Research Industries Incorporated ("RII")
which is convertible into equity securities of Halifax. At least
$400,000 of the remaining portion of the debt referenced in the
preceding sentence shall be paid within thirty days of receipt by
Halifax of certain additional funds to be received in the form of
advance payment from a certain large customer of Halifax.
Registration Rights and Right of First Offer. Microserv
Shareholders who acquired shares of the Common Stock in the Merger will
have certain "demand" and "piggyback" registration rights, and will be
subject to a twelve month prohibition on any transfers of Common Stock
acquired in the Merger, which prohibition period may be extended under
certain circumstances. In addition, the Microserv Shareholders are
required to provide the Company with a right of first offer to purchase
the shares of Common Stock acquired in the Merger under certain
circumstances. The full text of the Registration Rights and Right of
First Offer Agreement is attached hereto as Exhibit 99.2.
Deferred Merger Consideration. Microserv Shareholders may,
subject to certain set-off rights of the Company, receive up to
$250,000 of additional merger consideration (the "Deferred Merger
Consideration") based on certain agreed upon Microserv accounts
achieving net revenues (for the twelve month period beginning on
September 1, 2003 and ending on August 31, 2004 (the "Earnout Period")
of equal to or greater than 105% of an agreed upon revenue target. If
the Deferred Merger Consideration is earned as described above, such
Deferred Merger Consideration shall be paid in cash or, subject to
certain limitations, a combination of cash and Common Stock.
Employees of Microserv. Gary Lukowski and Jonathan Scott have
entered into severance and restrictive covenant agreements with
Halifax. See "Employee Severance and Restrictive Covenant Agreements."
Election of Director. To the extent Microserv Shareholders
continue to hold greater than 50% of the aggregate number of shares of
Common Stock issued in connection with the Merger, Microserv
Shareholders shall collectively have the right to nominate one member
to Halifax's board of directors. The Microserv Shareholders have
designated Gerald F. Ryles (the "Microserv Nominee"). Halifax shall
recommend, consistent with the fiduciary duties of its Board of
Directors, such nominee to its shareholders and undertake its best
efforts to secure the election of such nominee. Certain shareholders
of the Company have agreed to vote their shares of the Company in favor
of such nominee. The full text of the Voting Agreement is attached
hereto as Exhibit 99.5.
Representations, Warranties, Covenants and Indemnification. The
Merger Agreement contains customary representations, warranties,
conditions, covenants, indemnification provisions and other agreements,
including, without limitation, a general release of claims against
Microserv from certain agreed upon Microserv Shareholders and holders
of Microserv's options.
Halifax's sole remedy, subject to certain agreed upon exceptions,
with respect to indemnification claims made pursuant to the Merger
Agreement is to (a) setoff any sums for which Halifax is entitled to
indemnification thereunder against (i) first, up to $400,000 due under
the Notes and (ii) second, payments of Deferred Merger Consideration
and (b) under certain circumstances and subject to certain limitations,
to require delivery to Halifax by Microserv Shareholders of shares of
Common Stock issued in the transaction. If any indemnification
claim(s) for which Halifax is the indemnitee is pending at a time when
Halifax is required to pay or deliver any such amounts due under the
Notes and/or Deferred Merger Consideration, then Halifax shall have the
right, upon notice to the Microserv Shareholders, to withhold from such
payment or delivery, until final determination of such pending
indemnification claim or claims the total amount for which the
applicable Microserv Shareholder or Shareholders, as the case may be,
may become liable as a result thereof, as determined by Halifax
reasonably and in good faith.
Interests of Persons in the Merger. Except as described below,
the Board of Directors and Officers of Microserv have no interest in
the Merger other than as shareholders of Microserv. The Board of
Directors and officers of Microserv collectively owned approximately
90% of the Microserv Common Stock (assuming the exercise of all options
issued by Microserv).
It is anticipated that following the completion of the Merger, the
Halifax Board of Directors will be expanded to include the Microserv
Nominee. It is currently intended that Gerald Ryles will be the
Microserv nominee. From January, 1994 to January, 2001, Mr. Ryles was
Chairman of the Board and Chief Executive Officer of Microserv. From
January, 2001 until the date hereof, Mr. Ryles has held the position of
Chairman of the Board of Microserv.
In addition, each of Gary Lukowski and Jonathan Scott, executive
officers of Microserv, will be employed by the Company upon completion
of the Merger.
There was no other material relationship between Microserv or the
Microserv Shareholders and Halifax, its affiliates, directors or
officers or any associate of the Halifax directors or officers.
Employee Severance and Restrictive Covenant Agreements. Gary
Lukowski and Jonathan Scott will be employed by the Company as of the
date of the closing of the Mergers and shall have certain
responsibility with respect to the continued operation of Microserv's
business. In connection with such employment, the Company will agree
to pay such individuals severance in the event such employment is
terminated (i) by the Company, for other than "Cause" (as such term is
defined in applicable severance agreement) or death or disability, or
(ii) by the applicable employee, for "Good Reason" (as defined in the
applicable agreement). In consideration for such employment and the
severance benefits referenced above, such employees will be prohibited
from (i) either competing with Microserv and the Company for their
respective periods of employment plus a one year period thereafter (and
in any event no earlier than two years after Closing) or soliciting the
customers or employees of Microserv and the Company for the same
period, and (ii) either disclosing confidential or proprietary
information about Microserv or the Company or publishing disparaging
remarks about them. The full text of the Employee Severance and
Restrictive Covenant Agreements are attached hereto as Exhibits 99.3
and 99.4.
General Release. Each Microserv Shareholder has released
Microserv, and Halifax, as successor in interest to Microserv, from any
and all claims that such Microserv Shareholder has against Microserv.
The full text of the General Release is attached hereto as Exhibit
99.7.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired. Audited financial
statements are not required pursuant to Rule 3-05(b)(2) of Regulation S-
X as the company acquired does not meet the 20% tests set forth
therein.
(b) Proforma Financial Information.
The following proforma financial information will be
filed within 75 days of the due date of this currrent report:
(i) Consolidated Pro-Forma Statement of Operations for
year ended March 31, 2003.
(ii) Consolidated Pro-Forma Statement of Operations for
the three months ended June 30, 2003.
(iii) Consolidated Pro-Forma Balance Sheet as of
June 30, 2003.
(c) Exhibits.
The following exhibits are filed herewith:
S-K Item
Number Description
32.1 Section 906 Certification
32.2 Section 906 Cerfification
99.1 Agreement and Plan of Merger, dated August 29, 2003 for
the Acquisition of Microserv, Inc. by Halifax Corporation
99.2 Registration Rights and Right of First Offer Agreement
dated August 29, 2003
99.3 Employee Severance and Restricted Covenant Agreement with
Gary Lukowski dated August 29, 2003
99.4 Employee Severance and Restricted Covenant Agreement with
Jonathan Scott dated August 29, 2003
99.5 Voting Agreement dated August 29, 2003
99.6 Form of Note to Microserv Shareholders
99.7 General Release dated August 29, 2003
99.8 Press Release dated August 29, 2003 (Incorporated by
reference from the Current Report on Form 8-K dated
August 29, 2003)
99.9 Proforma Financial Statements (to be filed by amendment)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HALIFAX CORPORATION
Date: 9/12/03 By: /s/Joseph Sciacca
Name: Joseph Sciacca
Title: Chief Financial Officer:
EXHIBIT INDEX
S-K Item
Number Description
32.1 Section 906 Certification
32.2 Section 906 Cerfification
99.1 Agreement and Plan of Merger, dated August 29, 2003 for
the Acquisition of Microserv, Inc. by Halifax Corporation
99.2 Registration Rights and Right of First Offer Agreement
dated August 29, 2003
99.3 Employee Severance and Restricted Covenant Agreement
with Gary Lukowski dated August 29, 2003
99.4 Employee Severance and Restricted Covenant Agreement with
Jonathan Scott dated August 29, 2003
99.5 Voting Agreement dated August 29, 2003
99.6 Form of Note to Microserv Shareholders
99.7 General Release dated August 29, 2003
99.8 Press Release dated August 29, 2003 (Incorporated by
reference from the Current Report on Form 8-K dated
August 29, 2003)