FIRST AMENDMENT TO FIRST AMENDED AND RESTATED EXTENSION AGREEMENT

Exhibit 10.1

FIRST AMENDMENT TO FIRST

AMENDED AND RESTATED EXTENSION AGREEMENT

THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED EXTENSION AGREEMENT (“First Amendment”) is made and entered into as of December 21, 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, Borrower and Guarantor entered into a First Amended and Restated Extension Agreement dated October 6, 2005 (the “Extension Agreement”) pursuant to which, among other things, the maturity date for repayment of the obligations owed by Borrower and Guarantor to Lender was extended under the terms and conditions stated in the Extension Agreement. Capitalized terms used herein, to the extent not otherwise defined, shall have the meanings ascribed to such terms in the Extension Agreement.

Borrower has not been able to meet the deadlines for delivery of a term sheet or an Acceptable Commitment Letter as provided in Section 8 of the Extension Agreement. As a result, the rate of interest that accrues on the principal amount of the Obligations has increased as and to the extent provided in Section 8 of the Extension Agreement.

Borrower has requested that Lender further extend the maturity date of the Obligations, and Lender is willing to do so, subject to all of the terms and conditions in the Extension Agreement and this First Amendment.

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. All capitalized terms used in this First Amendment, unless otherwise defined, shall have the meanings ascribed to such terms in the Extension Agreement.

2.          Amendment to Extension Agreement. The Extension Agreement is hereby amended as follows:

(a)        In Section 1, by deleting the definition of “Extension Period” and by substituting in lieu thereof the following definition:

“Extension Period” shall mean the period commencing on October 6, 2005, and ending at 5:00 o’clock p.m. on March 1, 2006.

(b)        By deleting Section 8 in its entirety and by substituting in lieu thereof the following Section 8:

8.                Applicable Rate of Interest.  

(a)               From October 6, 2005, through and including October 31, 2005, interest shall accrue on the unpaid principal balance of the Obligations outstanding at the rate of five and one-half percent (5.5%) per annum, calculated and paid in accordance with the terms of the Term Note.

(b)               From November 1, 2005, through and including November 30, 2005, interest shall accrue on the unpaid principal balance of the Obligations outstanding at the rate of six and one-half percent (6.5%) per annum, calculated and paid in accordance with the terms of the Term Note.

(c)               From and after December 1, 2005, and except as otherwise provided in this Section 8, interest shall accrue on the unpaid principal balance of the Obligations outstanding at the rate of seven and one-half percent (7.5%) per annum, calculated and paid in accordance with the terms of the Term Note.

(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.

3.              Representations, Acknowledgments and Warranties. Each Obligor hereby acknowledges, stipulates and warrants to Lender that (i) the Loan Documents and the Extension Agreement are legal, valid and binding obligations of such Obligor and are enforceable against such Obligor in accordance with the terms thereof; (ii) all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by such Obligor); (iii) the security interests and liens granted by Borrower in favor of Lender are duly perfected, first priority security interests and liens; (iv) as of the opening of business on December 19, 2005, the aggregate undrawn amount of Letters of Credit outstanding totaled $281,690, and the unpaid principal balance of the Term Loan Obligations totaled $381,105.53, in each case exclusive of interest, fees, other charges and attorneys’ fees at any time payable by Borrower under any of the Loan Documents; and (v) each of the warranties and representations of such Obligor contained in the Extension Agreement was true, accurate and complete at the time of execution of the Extension Agreement and remains true, accurate and complete as of the date hereof.

4.              Ratification and Reaffirmation. Borrower hereby ratifies and reaffirms the Loan Documents, the Extension Agreement and all of its obligations and liabilities thereunder. Guarantor hereby ratifies and reaffirms the validity, legality and enforceability of the Guaranty and the Extension Agreement and agrees that the Guaranty is and shall remain in full force and in effect until all of the Obligations have been paid in full.