Second Amendment to Loan Agreement between M-Tron Industries, Piezo Technology, and First National Bank of Omaha

 FIRST NATIONAL BANK OF AMERICA SECOND AMENDMENT TO LOAN AGREEMENT THIS Amendment to Loan Agreement made this 30th day of June, 2006, by and between M-TRON INDUSTRIES, INC., a Delaware corporation ("M-TRON"), and PIEZO TECHNOLOGY, INC., a Florida corporation (collectively, the "Borrowers"), and FIRST NATIONAL BANK OF OMAHA (the "Bank"), a national banking association established at Omaha, Nebraska. WHEREAS, M-TRON has existing term loans with the Bank evidenced by term note number 2000001751-6 with a due date of April 30, 2007, term note number 2000001751-8 with a due date of October 14, 2007 pursuant to an existing additional loan agreement with the Bank, which shall remain in full force in accordance with its terms; and WHEREAS, M-TRON has an existing revolving line of credit with the Bank evidenced by revolving note number 2000001751-10 with a due date of May 31, 2007 pursuant to an existing additional loan agreement with the Bank, which shall be paid in full from the proceeds of the Revolving Note; and WHEREAS, the Bank is willing to provide such credit facilities to the Borrowers upon the terms and conditions herein set forth. WHEREAS, the parties hereto desire to amend the AGREEMENT. Now, therefore, in consideration of the AGREEMENT, and their mutual promises made herein, BANK and BORROWERS agree as follows: 1. Terms which are typed herein as all capitalized words and are not defined herein shall have the same meanings as when described in the AGREEMENT. 2. Article I Section 1.01 Defined Terms "Borrowing Base" subsection (b) of the AGREEMENT is hereby amended to read, effective immediately: The aggregate of (i) 80% of the Borrowers' current ELIGIBLE ACCOUNTS (as such term is defined below) on the date reported, plus (ii) 60% of ELIGIBLE FOREIGN ACCOUNTS with a cap of $750,000, plus (iii) 50% of the Borrowers' ELIGIBLE INVENTORY (as defined below) valued at the lower of cost or market. The term "ELIGIBLE ACCOUNTS means an account owing to the Borrower and arising in the ordinary course of the Borrowers' business which meets all of the following specifications at the time it came into existence and continues to meet the same until it is collected in full: (a) The account is due and payable and has been so not more than ninety (90) days after the invoice date stated in the applicable invoice or other writing evidencing such account;  (b) The account is not owing by an account debtor who has failed to pay ten (10%) or more of the aggregate amount of its accounts owing to the Borrower within ninety (90) days after the invoice date stated in the applicable invoice or other writing evidencing such account; (c) The account is due and payable from an account debtor located in the continental United States which is not a subsidiary or affiliate (under common ownership and /or control) of Borrower; (d) The account is not an account due from an affiliate of the Borrowers' and is not an inter-company account; (e) The account is not a credit that is past due 90 days or more; (f) The account arose from a bona fide, outright sale of goods by Borrower or from the performance of services by Borrower and Borrower has possession of and will deliver to Lender, if requested, shipping and delivery receipts evidencing shipment of the goods or inventory and, if representing services, receipts and/or invoices evidencing that the services have been fully performed for the respective account debtor; (g) The account is not subject to any assignment, claim, lien or security interest of any character created by Borrower, or claimed under or through Borrower, except the security interest of Lender, and Borrower will not make any other assignment thereof or create any further security interest therein nor permit its rights therein to be reached by attachment, levy, garnishment or other judicial process; (h) The account is the valid and legally enforceable obligation of the account debtor thereunder and is not subject to any claim for credit, set-off, allowance or adjustment by the account debtor or any counterclaim, and the account debtor has not returned any of the goods from the sale of which the account arose, nor has any partial payment been made thereon; (i) The account arose in the ordinary course of Borrower's business, and not notice of the bankruptcy, insolvency or adverse change in the financial condition of the account debtor has been received; (j) The account is not owing by an account debtor for which Borrower has received or has knowledge of the death or dissolution of the account debtor, the insolvency, termination of existence, business failure or disappearance of the account debtor, the appointment of a receiver for any part of the property of the account debtor or an assignment for the benefit of creditors or the filing by or against the account debtor of a petition under the commencement of any proceeding under any bankruptcy code or process;  (k) The account is not evidenced by a judgment, an instrument or chattel paper; and (l) The account debtor is not an employee of the Borrower An account which is at any time an Eligible Account but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Account. The term ELIGIBLE FOREIGN ACCOUNTS means the account is due and payable from an account debtor located outside of the continental United States which is not a subsidiary or affiliate (under common ownership and /or control) of Borrower and meets the criteria as stated under ELIGIBLE ACCOUNTS (except section c). The term ELIGIBLE INVENTORY shall mean Borrower's inventory which is in good and merchantable condition, is new and not used, is not obsolete, discontinued or, in the opinion of Lender, is not otherwise merchantable, and is not slow moving inventory (slow moving inventory, as defined by the company would be inventory which has not sold in 360 days after acquisition and is reserved 50% plus that which has not sold for 720 days and is reserved 100%), in transit inventory, consigned goods, inventory located outside of the United States and inventory covered by and subject to a seller's right to repurchase or any consensual or nonconsensual lien or security interest (including, without limitation, purchase money security interests) in favor of any party other than Lender. Eligible Inventory shall be valued at the lesser of cost or present value, determined in accordance with generally accepted accounting principles in effect at the time of determination. Any inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory. The term "Tangible Net Worth" of the AGREEMENT is hereby amended to read, effective immediately: "Tangible Net Worth" means total assets less total liabilities (but excluding Subordinated Debt existing on the Closing Date, in an amount of not less than $2,500,000) ... The term "Working Capital" of the AGREEMENT is hereby amended to read, effective immediately: ... exercise of its reasonable discretion.) For calculation purposes for Working Capital and the Current Ratio the BORROWER may reduce current liabilities by the amount of $1,175,000 which is listed as Federal Income Taxes Payable on the Balance Sheet.  3. ARTICLE VIII, Section 8.01 Minimum Working Capital is hereby amended to read effective immediately: The Borrower M-Tron/PTI will maintain at all times after June 30, 2006, an excess of current assets over current liabilities of not less than $2,000,000. 4. ARTICLE VIII, Section 8.04 Current Ratio is hereby amended to read effective immediately: ... At all times after June 30, 2006, the Borrower will maintain a ratio of current assets to current liabilities of not less than 1.2 to 1.0. 5. Article I. Section 1.01. Defined Terms "Revolving Loan Termination Date" (a) of the AGREEMENT is hereby amended to read, effective immediately: (a) May 31, 2007, 6. Article II Section 2.12, Repayment of Revolving Note is hereby amended to read, effective immediately: 2.12 The Revolving Note shall be due and payable on May 31, 2007. Interest only shall be payable monthly on the Revolving Note. All outstanding principal and interest shall be due and payable on May 31, 2007. 7. BORROWER certifies by its execution hereof that all of the representations and warranties set forth in the AGREEMENT are true as of this date, and that no EVENT OF DEFAULT under the AGREEMENT, and no event which, with the giving of notice or passage of time or both, would become such an EVENT OF DEFAULT, has occurred as of execution hereof, except as disclosed to BANK. All other terms and conditions of the AGREEMENT not affected or amended by this AGREEMENT, are hereby ratified and confirmed. 8. GUARANTOR acknowledges and consents to the foregoing amendment, and agrees and confirms that his separate guarantee of BORROWER's obligations to BANK are, and continue to be, valid and binding obligations of GUARANTOR. 9. Except as herein amended, the AGREEMENT continues to be the valid, binding obligation of BORROWER.  IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. M-TRON INDUSTRIES, INC. FIRST NATIONAL BANK OF OMAHA By: /s/ David Rein By: /s/ Mark McMillian ------------------------ --------------------------- Its: Vice President Its: Vice President PIEZO TECHNOLOGY, INC. By: /s/ David Rein ------------------------ Its: Vice President ACKNOWLEDGED BY GUARANTOR: LYNCH CORPORATION By: /s/ Eugene Hynes ------------------------ Its: Vice President