EXTENSION AGREEMENT

                                                                    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

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            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

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            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