Extension Agreement to Amended and Restated Credit Agreement among Lynch Systems, Inc., Lynch Corporation, and SunTrust Bank (June 24, 2005)

 EXHIBIT 10.1 EXTENSION AGREEMENT THIS EXTENSION AGREEMENT is made and entered into as of June 24, 2005, by and among LYNCH SYSTEMS, INC. ("Borrower"), a South Dakota corporation; LYNCH CORPORATION, an Indiana corporation ("Guarantor"); and SUNTRUST BANK ("Lender"), a Georgia banking corporation. RECITALS: Lender and Borrower entered into a certain Amended and Restated Credit Agreement dated June 10, 2002 (as at any time amended, the "Credit Agreement"), pursuant to which Lender made available a revolving credit and letter of credit facility to Borrower, which revolving credit and letter of credit facility is secured by security interests in and liens upon all or substantially all of the assets of Borrower and are guaranteed unconditionally by Guarantor. Lender made a term loan (the "Term Loan") to Borrower as evidenced by a certain Term Loan Promissory Note, dated August 4, 2003 in the original principal amount of $498,000 (as at any time amended, the "Term Note"), payment of which is secured by, among other things, a lien upon and security title to certain real property of Borrower pursuant to the terms of a certain Security Deed and Agreement made as of March 30, 2001, between Borrower and Lender (as at any time amended, the "Security Deed"; together with the Term Note and all other agreements and instruments executed in connection therewith, the "Term Loan Documents"). Events of Default under (and as defined in) the Credit Agreement exist and are continuing, in consequence of which Lender is entitled to terminate further advances to Borrower, to declare the entire balance owing to it from Borrower to be immediately due and payable, to enforce its liens and security interests in the collateral securing its claims against Borrower, and to enforce its claims against Guarantor. All of the liabilities and obligations under the Credit Agreement and the Term Note became due and payable on May 31, 2005. Borrower and Guarantor desire that Lender extend the due date for repayment of the Obligations to the Termination Date (as hereinafter defined); continue to make credit available to Borrower prior to the Termination Date; and allow Borrower to use Cash Collateral (as hereinafter defined) prior to the Termination Date. Lender is willing to extend the due date for repayment of the Obligations, to continue making credit available to Borrower, and to allow Borrower to use Cash Collateral under the terms and conditions of this Agreement. NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and in consideration of the premises and the mutual covenants herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:  1. DEFINITIONS; RULES OF CONSTRUCTION. (a) Capitalized terms used in this Agreement, unless otherwise defined, shall have the meaning ascribed to such terms in the Credit Agreement. In addition, as used herein, the following terms shall have the meanings ascribed to them: "ACCEPTABLE COMMITMENT LETTER" shall mean a commitment letter that is issued by a bank or other financial institution acceptable to Lender, provides for Take-Out Financing on or before the last day of the Extension Period and has no due diligence, credit approval or other conditions precedent to funding other than customary conditions relating to documentation and closing. "AGREEMENT" shall mean this Agreement. "APPLICABLE LAW" shall mean all laws, rules and regulations applicable to the Person, conduct, transaction, covenant or Loan Document in question, including all applicable common law and equitable principles; all provisions of all applicable state, federal and foreign constitutions, statutes, rules, regulations and orders of governmental bodies; and all orders, judgments and decrees of all courts and arbitrators. "AVAILABILITY" shall mean, on any date, the sum of (i) eighty-five percent (85%) of Borrower's aggregate Eligible Receivables less taxes, discounts, credits, allowances and Retainages, plus (ii) fifty percent (50%) of the value (at the lower of cost or market and in accordance with GAAP) of Borrower's Eligible Inventory. "BORROWING BASE CERTIFICATE" shall mean a certificate executed by Borrower in favor of Lender, in a form acceptable to Lender, by which Borrower shall certify to Lender the amount of Availability on the date of such certificate (and showing the calculation thereof, including all Eligible Accounts and Eligible Inventory as of the date of the certificate) "CASH COLLATERAL" shall mean cash proceeds of Borrower's Accounts Receivable collected by Borrower from its Account Debtors in the ordinary course of business. "COLLECTIONS" shall mean all proceeds received from a sale, lease or other disposition of any of the Collateral, including payments by Borrower's customers and any proceeds of insurance relating to any of the Collateral. "ELIGIBLE RECEIVABLE" shall mean each Eligible Export-Related Accounts and each Accounts Receivable that is not an Export-Related Account Receivable but that is acceptable to Lender and deemed to be eligible by Lender in the exercise of its customary credit judgment; PROVIDED, HOWEVER, that no Account Receivable shall qualify as an Eligible Receivable if (a) it does not arise from the sale of goods or the performance of services in the ordinary course of Borrower's business, (b) it is not subject to a valid, perfected first priority Lien in favor of Lender, (c) any covenant, representation or warranty contained in the Credit Documents with respect to such Account Receivable has been breached, (d) it is not owned by Borrower or it is is subject to any right, claim or interest of another Person other than the Lien in favor of Lender, (e) with -2-  respect to such Account Receivable an invoice has not been sent, except in the case of Percentage of Completion Accounts Receivable, (f) it arises from the sale of defense articles or defense services, (g) it is due and payable more that one hundred eighty (180) days from the date of the invoice, with the exception of an Account Receivable for Retainage which may not (x) exceed ten percent (10%) of the aggregate amount that Borrower is to receive under a particular Domestic Contract and (y) be for a term greater than thirteen (13) months, (h) it is not paid within sixty (60) calendar days from its original due date, (i) it arises from a sale of goods to or performance of services from an Affiliate of Borrower, an employee of borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a controlling interest in Borrower or a Person which shares common controlling ownership with Borrower, (j) it is backed by a letter of credit unless the goods covered by the subject letter of credit have been shipped, except in the case of Percentage of Completion Accounts Receivable, (k) Lender, in its reasonable judgment, deems such Account Receivable uncollectible for any reason, (l) it is due and payable in a currency other than Dollars, (m) it is due and payable from a military Account Debtor, (n) it is due and payable from an Account Debtor who applies for, suffers, or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting of its creditors; admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases operations of its present business; makes a general assignment for the benefit of creditors; commences a voluntary case under any state or federal bankruptcy laws (as now or hereinafter in effect); is adjudicated as bankruptcy or insolvent; files a petition seeking to take advantage of any other petition which is filed against it in any involuntary case under such bankruptcy laws; or takes any action for the purpose of effecting any of the foregoing, (o) it arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper, (p) the goods giving rise to such Account Receivable have not been shipped to the Account Debtor or the services giving rise to such Account Receivable have not been performed by Borrower or the Account Receivable otherwise does not represent a final sale, except in the case of Percentage of Completion Accounts receivable, (q) it is subject to any offset, deduction, defense, dispute, or counterclaim or the Account Debtor is also a creditor or supplier of Borrower or the Account Receivable is contingent in any respect or for any reason, (r) Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice releated thereto, or (s) any of the goods giving rise to such Account Receivable have been returned, rejected or repossesed. "ELIGIBLE INVENTORY" shall mean all Eligible Export-Related Inventory and all Inventory that is not Export-Related Inventory but that is finished goods and is acceptable to Lender and deemed to be eligible by Lender in the exercise of its customary credit judgment; PROVIDED, HOWEVER, that no Inventory shall qualify as Eligible Inventory if (a) it is not subject to a valid, perfected first priority Lien in favor of Lender, (b) it is located at an address that has not been disclosed to Lender in writing, (c) it is placed by Borrower on consignment or held by Borrower on consignment from another Person, (d) it consists of raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's -3-  business or in the processing, production, packaging, promotion, delivery or shipping of Inventory, (e) it is in the possession of a processor or bailee, or located on premises leased or subleased to Borrower, or on premises subject to a mortgage in favor of a Person other than Lender, unless such processor or bailee or mortgagee or the lessor or sublessor of such premises, as the case may be, has executed and delivered all documentation which Lender shall require to evidence the subordination or other limitation or extinguishment of such Person's rights with respect to such Inventory and Lender's right to gain access thereto, (f) it is produced in violation of the Fair Labor Standards Act or subject to the "hot goods" provisions contained in 29 U.S.C. ss. 215 or any successor statute or section, (g) as to such Inventory, any covenant, representation or warranty with respect to such Inventory contained in the Credit Documents has been breached, (h) it is not located in the United States, (i) it is demonstration Inventory, (j) it consists of proprietary software (i.e. software designed solely for Borrower's internal use and not intended for resale), (k) it is damaged, obsolete, returned, defective, recalled or unfit for further processing, (l) it has been previously exported from the United States, (m) it constitutes defense articles or defense services, or (n) it is to be incorporated into goods whose sale would result in an Account Receivable which would not be an Eligible Receivable. "EXTENSION CONDITIONS" shall mean the conditions to Lender's extension of the due date of the Obligations set forth in Section 4 of this Agreement. "EXTENSION PERIOD" shall mean the period commencing on the date of this Agreement and ending at 5:00 o'clock p.m. on the close of business on August 31, 2005; provided that if Borrower delivers to Lender an Acceptable Commitment Letter after July 31, 2005, but before August 31, 2005, and each of the Extension Conditions remains satisfied, the Extension Period shall be deemed to have been extended to 5:00 o'clock p.m. on the close of business on the date that is 30 days after the date of Lender's receipt of the Acceptable Commitment Letter. "INSOLVENCY PROCEEDING" shall mean any action, case or proceeding commenced by or against a Person, or any agreement of such Person, for (a) the entry of an order for relief under any chapter of the Bankruptcy Code or other insolvency or debt adjustment law (whether state, federal or foreign); (b) the appointment of a receiver, trustee, liquidator or other custodial for such Person or any part of its property; (c) an assignment or trust mortgage for the benefit of creditors of such Person; or (d) the liquidation, dissolution or winding up of the affairs of such Person. "LOAN DOCUMENTS" shall mean the Credit Documents and the Term Loan Documents. "OBLIGATIONS" shall mean all liabilities, indebtedness and obligations at any time owing by Borrower to Lender, whether direct or indirect, absolute or contingent, due or to become due, secured or unsecured or liquidated or unliquidated, including all of the Revolver Obligations and all of the Term Loan Obligations. "OBLIGORS" shall mean Borrower and Guarantor. -4-  "OVERADVANCE" shall mean, on any date of determination, the amount by which the outstanding Revolver Obligations (including all undrawn Letters of Credit at 102% of the face amount of such Letters of Credit and all fees and expenses incurred by Lender) exceeds the Availability. "PAID IN FULL" shall mean, with reference to the Obligations, the full, final and indefeasible payment in full of all of such Obligations, the termination of all commitments and any other obligations that Lender may have under any of the Credit Documents to extend or renew credit, and the depositing with Lender by Borrower of cash in an amount equal to 102% of the aggregate undrawn amount of all Letters of Credit outstanding and all other contingent obligations at the time due and owing Lender. "PAYROLL TAXES" shall mean all taxes and deposits required to be paid or withheld from the wages or salaries of Borrower's employees. "REVOLVER OBLIGATIONS" shall mean all of the "Obligations" under (and as defined in) the Credit Agreement. "STIPULATED DEFAULTS" shall mean the Events of Default referenced in Section 2(c) of this Agreement. "TAKE-OUT FINANCING" shall mean financing procured by Borrower from a third-party financing source in an amount sufficient to cause all of the Obligations to be Paid in Full at or before the end of the Extension Period. "TERMINATION DATE" shall mean the sooner to occur of (a) 5:01 o'clock p.m. on the last day of the Extension Period or (b) the date on which the Extension Period terminates as provided in Section 5 of this Agreement. "TERM LOAN OBLIGATIONS" shall mean all indebtedness, liabilities and obligations at any time owed by Borrower to Lender under any of the Term Loan Documents. (b) The terms "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; to any of the Loan Documents shall include any and all modifications thereto and any and all restatements, extensions or renewals thereof; to any Person shall mean and include the successors and permitted assigns of such Person; to "including" and "include" shall be understood to mean "including, without limitation" (and, for purposes of this Agreement and each other Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned); or to the time of day shall mean the time of day on the day in question in Atlanta, Georgia, unless otherwise expressly provided in this Agreement. 2. ACKNOWLEDGMENTS AND STIPULATIONS BY OBLIGORS. Each Obligor acknowledges, stipulates and agrees that (a) as of the opening of business on June 20, 2005, the aggregate principal balance of Loans outstanding totaled -5-  $1,756,096.50, the aggregate undrawn amount of Letters of Credit outstanding totaled $2,322,762.40, and the unpaid principal balance of the Term Loan Obligations totaled $406,005.53, in each case exclusive of interest, fees, other charges and attorneys' fees at any time payable by Borrower under any of the Loan Documents; (b) all of the Obligations (other than contingent obligations with respect to the undrawn amount of Letters of Credit) are absolutely due and payable by Obligors to Lender without any defense, deduction, offset or counterclaim (and, to the extent Obligors had any defense, deduction, offset or counterclaim on the date hereof, the same is hereby waived); (c) Events of Default have occurred and now exist under the Credit Documents and are continuing by reason of Borrower's failure to cause the Obligations to be Paid in Full on May 31, 2005, and Borrower's breach of its obligations under Section 8.07 of the Credit Agreement (and, such Event of Default under the Credit Agreement is also a default under the Term Note); (d) the Loan Documents executed by Borrower are legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their terms; (e) the security interests and other liens granted by Borrower to Lender in the Collateral are duly perfected, first priority security interests and liens; (f) the Guaranty is a legal, valid and binding obligation of the Guarantor and is enforceable against Guarantor in accordance with its terms; (g) each of the recitals contained at the beginning of this Agreement are true and correct; and (h) prior to executing this Agreement, each Obligor consulted with and had the benefit of advice of legal counsel of its own selection and each has relied upon the advice of such counsel, and in no part upon any representation of Lender concerning the legal effects of this Agreement or any provision hereof. 3. AGREEMENT TO EXTEND. If and for so long as each of the Extension Conditions is satisfied, Lender agrees that during the Extension Period it will not, solely by reason of the existence on this date of the Stipulated Defaults, (i) exercise any default remedy available to Lender under any of the other Loan Documents or Applicable Law to enforce collection from Obligors of any of the Obligations or to foreclose its security interest in any of the Collateral during the Extension Period; or (ii) enforce Section 10.14 of the Credit Agreement, which requires the deposit to the Cash Collateral Account of monies equal to 102% of the undrawn amount of outstanding Letters of Credit, but the foregoing shall not in any event be deemed to constitute a waiver of any Lender's right to require the deposit of such monies to the Cash Collateral Account on or after the Termination Date or in accordance with the provisions of Section 6 of this Agreement. Nothing in this Agreement shall be construed to alter the demand nature of that portion of the Obligations payable on demand under the terms of any of the Loan Documents. 4. EXTENSION CONDITIONS. The following conditions shall constitute Extension Conditions, the timely satisfaction of each and every one of which during the Extension Period shall be a condition to all agreements of Lender hereunder: (a) Each Obligor duly and punctually observes, performs and discharges each and every obligation and covenant on its part to be performed under this Agreement; (b) No Event of Default occurs or exists (other than the Stipulated Defaults that are in existence on the date hereof) and each Obligor strictly complies with all of the terms, conditions and covenants contained in each of the Loan Documents that are applicable to such Obligor; -6-  (c) No Insolvency Proceeding is commenced by or against either Obligor; (d) No material adverse change occurs in either Obligor's business, prospects or financial condition after the date hereof; (e) All of the Obligations are Paid in Full on or before the last day of the Extension Period; (f) Guarantor does not attempt to revoke or terminate, or dispute Guarantor's liability under, Guarantor's Guaranty; (g) No representation or warranty made by either Obligor in this Agreement proves to have been false or misleading in any material respect; (h) Borrower timely deducts from the wages of its employees and makes timely and proper deposits for all Payroll Taxes as the same became due and payable, and if, as and when requested to do so by Lender, provides Lender with proof of all deposits for Payroll Taxes; (i) Borrower is able to pay and does pay, as the same shall become due and payable, all debts incurred by Borrower on or after the date hereof; (j) No Person to whom Borrower is indebted for money borrowed accelerates the maturity or demands payment of such indebtedness, in whole or in part; and (k) Borrower diligently and in good faith attempts to procure Take-Out Financing on or before the last day of the Extension Period and periodically apprises Lender of the status of its attempts to procure such Take-Out Financing. 5. TERMINATION OF EXTENSION. If any one or more of the Extension Conditions is not satisfied, then (i) Lender's agreement to extend the maturity of the Obligations shall at Lender's election, but without further notice to or demand upon Obligors, terminate, (ii) all of the Obligations shall be immediately due and payable without any further notice to or demand upon Obligors, all of which notice and demand each Obligor hereby waives, (iii) all Cash Collateral and other Collections in the possession of Borrower shall be immediately remitted by Borrower to Lender, and (iv) Lender shall thereupon have and may exercise from time to time all of the remedies available to it under the Loan Documents and Applicable Law as a consequence of an Event of Default. On and after the Termination Date, all of the Obligations shall be immediately due and payable and Lender shall be authorized, at any time and without further notice to or demand upon Obligors or any other Person, to enforce all of its remedies under the Loan Documents and Applicable Law. 6. FINANCING DURING EXTENSION PERIOD; USE OF CASH COLLATERAL. (a) During the period from the date hereof through the Termination Date, Borrower shall not be permitted to obtain any Loans pursuant to the Credit Agreement or otherwise, but may obtain renewals or extensions of existing Letters of Credit and may obtain the issuance of new Letters of Credit, provided that (i) each Letter of Credit that is renewed, extended or issued on -7-  or after the date hereof is secured by a deposit with Lender of cash collateral in an amount equal to 102% of the undrawn amount of such Letter of Credit, (ii) each Letter of Credit that is renewed, extended or issued after the date of this Agreement has an expiry date that does not extend beyond August 31, 2005 and (iii) the aggregate undrawn amount of all Letters of Credit issued after the date hereof does not exceed $200,000. Except as expressly stated above, Lender shall have no obligation to extend credit to Borrower at any time. (b) During the period from the date hereof through the Termination Date, but only for so long as each of the Extension Conditions is and remains satisfied, Borrower shall be permitted to utilize Cash Collateral in the ordinary course of business to pay costs and expenses of its operations, but not for any purpose for which Borrower would be prohibited from using proceeds of Loans; PROVIDED, HOWEVER, that Borrower shall cease spending, using or otherwise disposing of any Cash Collateral and shall turn over all Cash Collateral then or thereafter in its possession to Lender on the earlier to occur of (i) the Termination Date or (ii) the date on which any of the Extension Conditions is not satisfied; and PROVIDED, FURTHER, that on any date that an Overadvance exists, Borrower shall use all Cash Collateral then or thereafter coming into its possession to repay such Overadvance prior to using Cash Collateral for any other purpose. 7. APPLICABLE RATE OF INTEREST. (a) From and after the date of this Agreement, and except as otherwise provided in this Section 7, interest shall accrue (i) on the principal amount of the Revolver Obligations outstanding from time to time at a variable rate per annum equal to the Adjusted Monthly LIBOR Index Rate (adjusted on the first LIBOR Business Day of each LIBOR period) plus 200 basis points, all as more fully set forth in the Credit Agreement, and (ii) on the unpaid principal balance of the Term Loan Obligations outstanding at the rate of 5-1/2% per annum, calculated and paid in accordance with the terms of the Term Note. (b) If by June 30, 2005, Borrower has not delivered to Lender a term sheet, proposal letter or other writing definitively evidencing the fact that Borrower is engaged in active discussions with a bank or other financial institution to provide Take-Out Financing, then the otherwise applicable rate of interest with respect to the principal balance of the Revolver Obligations and the Term Loan Obligations shall be increased by 100 basis points, effective July 1, 2005. (c) If by July 31, 2005, Borrower has not delivered to Lender an Acceptable Commitment Letter, then the otherwise applicable rate of interest with respect to the Revolver Obligations and Term Loan Obligations shall be increased by an additional 100 basis points (in addition to and after giving effect to any increase provided for in paragraph (b) of this Section 7), effective August 1, 2005. (d) During the Extension Period, and provided that each of the Extension Conditions is satisfied, Lender shall not be authorized to charge or collect any default rate of interest that Lender would otherwise be entitled to charge or collect in the absence of this Agreement, but on and after the Termination Date Lender may charge and collect such default rate of interest to the extent authorized by the Loan Documents. -8-  8. ADDITIONAL COVENANTS. During the Extension Period and thereafter for so long as any of the Obligations is outstanding, Borrower shall not pay any cash or distribute any other property to or for the benefit of Parent, any Subsidiary of Borrower or any Affiliate of Borrower, Parent or any Subsidiary, whether as a dividend or other distribution or as payment of any management, consulting or other fees at any time incurred by Borrower to or in favor of any of such Persons; and Borrower shall not incur any Indebtedness for borrowed money unless at the time of such incurrence, and from the proceeds thereof, all of the Obligations are Paid in Full. If an Overadvance occurs or exists at any time during the Extension Period, then without further notice to or demand upon the Obligors, Borrower shall pay to Lender the amount of such Overadvance in immediately available funds. 9. APPLICATION OF PROCEEDS. Each Obligor hereby waives the right, if any, to direct the manner in which Lender applies any payments, Collections or other Collateral proceeds to the Obligations and agrees that notwithstanding anything to the contrary in the Credit Agreement, Lender may apply and reapply all such payments, Collections or proceeds to the Obligations as Lender in its sole and absolute discretion elects from time to time. 10. BORROWING BASE CERTIFICATES; AUDITS AND INSPECTION OF COLLATERAL. On or before June 15, 2005, June 30, 2005, July 15, 2005 and August 15, 2005, and in addition not later than five (5) Business Days after Borrower's receipt of a written request for a Borrowing Base Certificate from Lender, Borrower shall provide to Lender a current, duly completed and executed Borrowing Base Certificate. Without limiting Lender's audit and inspection rights under the Loan Documents, Borrower shall permit Lender and Lender's representatives and agents to inspect, evaluate and audit the Collateral and to inspect, audit and make copies of any of Borrower's books and records (including computer records) maintained by or on behalf of Borrower at any time. 11. REPRESENTATIONS AND WARRANTIES OF OBLIGORS. Each Obligor represents and warrants that (a) no Default or Event of Default exists under the Loan Documents, except for the Stipulated Defaults that are in existence on the date hereof; (b) subject to the existence of the Stipulated Defaults, the representations and warranties of Borrower contained in the Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects on the date hereof; (c) the execution, delivery and performance by Obligors of this Agreement and the consummation of the transactions contemplated hereby are within the corporate powers of Obligors and have been duly authorized by all necessary corporate action on the part of Obligors, do not require any approval or consent, or filing with, any governmental agency or authority, do not violate any provisions of any law, rule or regulation or any provision of any order, writ, judgment, injunction, decree, determination or award presently in effect in which either Obligor is named or any provision of the charter documents of either Obligor and do not result in a breach of or constitute a default under any agreement or instrument to which either Obligor is a party or by which it or any of its properties are bound; (d) this Agreement constitutes the legal, valid and binding obligation of each Obligor, enforceable against such Obligor in accordance with its terms; (e) all Payroll Taxes required to be withheld from the wages of Borrower's employees have been paid or deposited when due; (f) each Obligor is entering into this Agreement freely and voluntarily with the advice of legal counsel of his or its own choosing; and (g) each Obligor has freely and voluntarily agreed to the releases, waivers and undertakings set forth in this Agreement. -9-  12. REAFFIRMATION OF OBLIGATIONS. Borrower hereby ratifies and reaffirms the Loan Documents and all of its obligations and liabilities thereunder. Guarantor hereby ratifies and reaffirms the validity, legality and enforceability of the Guaranty and agrees that such Guaranty is and shall remain in full force and in effect until all the Obligations have been paid in full. 13. SPECIFIC WAIVERS. Each Obligor hereby waives, to the fullest extent permitted by Applicable Law, (a) any and all rights to receive notice in connection with the enforcement by Lender of its liens and security interests with respect to any of the Collateral, including notices under or in connection with O.C.G.A. Sections 11-9-610 through 613 and Section 11-9-623, and (b) the benefit of any statute of limitations that might otherwise bar the recovery of any of the Obligations from any one or more of them. 14. RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall be construed to alter the existing debtor-creditor relationship between Borrower and Lender, nor is this Agreement intended to change or affect in any way the relationship between Lender and Guarantor to one other than a debtor-creditor relationship. This Agreement is not intended, nor shall it be construed, to create a partnership or joint venture relationship between or among any of the parties hereto. No Person other than a party hereto is intended to be a beneficiary hereof and no Person other than a party hereto shall be authorized to rely upon or enforce the contents of this Agreement. 15. ENTIRE AGREEMENT; MODIFICATION OF AGREEMENT. This Agreement and the other Loan Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof. This Agreement may not be modified, altered or amended except by agreement in writing signed by all the parties hereto. 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia. 17. NON-WAIVER OF DEFAULT. Neither this Agreement, nor Lender's agreements hereunder nor Lender's continued providing of extensions of credit at any time extended to Borrower to Borrower in accordance with this Agreement and the Loan Documents shall be deemed a waiver of or consent to the Stipulated Defaults or any of other Event of Default. Obligors agree that such Events of Default shall not be deemed to have been waived, released or cured by virtue of extensions of credit at any time extended to Borrower, Lender's agreements or the execution of this Agreement. 18. NO NOVATION, ETC. This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction and the Credit Agreement and the other Loan Documents shall remain in full force and effect. Notwithstanding any prior mutual temporary disregard of any of the terms of any of the Loan Documents, the parties agree that the terms of each of the Loan Documents shall be strictly adhered to on and after the date hereof, except as expressly modified by this Agreement. 19. COUNTERPARTS; WAIVERS OF NOTICE OF ACCEPTANCE. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall constitute an original, but all of which taken together shall be one and the same instrument. -10-  In proving this Agreement or any of the other Loan Documents, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Notice of Lender's acceptance hereof is hereby waived. 20. REIMBURSEMENT FOR LEGAL EXPENSES. Borrower agrees to reimburse Lender for all reasonable costs and expenses, including legal fees, incurred by Lender in connection with the drafting, negotiation, execution and closing of this Agreement. 21. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 22. RELEASE OF CLAIMS. TO INDUCE LENDER TO ENTER INTO THIS AGREEMENT, EACH OBLIGOR HEREBY RELEASES, ACQUITS AND FOREVER DISCHARGES LENDER, AND LENDER'S OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL LIABILITIES, CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION OF ANY KIND (IF ANY THERE BE), WHETHER ABSOLUTE OR CONTINGENT, DUE OR TO BECOME DUE, DISPUTED OR UNDISPUTED, LIQUIDATED OR UNLIQUIDATED, AT LAW OR IN EQUITY, OR KNOWN OR UNKNOWN, THAT ANY ONE OR MORE OF THEM NOW HAVE OR EVER HAVE HAD AGAINST LENDER, WHETHER ARISING UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS OR OTHERWISE. 23. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above. ATTEST: LYNCH SYSTEMS, INC. ("Borrower") /s/ By: /s/ - -------------------------------- ---------------------------- Secretary Title: ____________________________ ATTEST: LYNCH CORPORATION ("Guarantor") /s/ - ---------------------------------- By: Witness Title: /s/ ---------------------------- ____________________________ -11-  Accepted on June 29, 2005. SUNTRUST BANK ("Lender") By: Title: /s/ ---------------------------- ____________________________ -12-