8-K

                                  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): October 6, 2005
                                                          ---------------



                                LYNCH CORPORATION
- --------------------------------------------------------------------------------
               (Exact Name of Registrant as specified in Charter)



Indiana                              1-106                    38-1799862
- --------------------------------------------------------------------------------
(State or other jurisdiction       (Commission              (IRS Employer
of incorporation)                   File Number)            Identification No.)

140 Greenwich Avenue, 4Th Floor, Greenwich, CT                    06830
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)                        (Zip Code)

       Registrant's telephone number, including area code: (203) 622-1150
                                                           --------------

- --------------------------------------------------------------------------------
         (Former name or former address, if changed since last report.)

          Check the  appropriate box below if the Form 8-K filing is intended to
simultaneously  satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):

     |_| Written  communications  pursuant to Rule 425 under the  Securities Act
(17 CFR 230.425)

     |_| Soliciting  material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)

     |_|  Pre-commencement  communications  pursuant to Rule 14d-2(b)  under the
Exchange Act (17 CFR 240.14d-2(b))

     |_|  Pre-commencement  communications  pursuant to Rule 13e-4(c)  under the
Exchange Act (17 CFR 240.13e-4(c))





Item 1.01       ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

     LOAN AGREEMENT WITH BRANCH BANKING AND TRUST COMPANY.


     On September  29, 2005,  effective  October 6, 2005,  Lynch  Systems,  Inc.
("Lynch   Systems")  a  wholly-owned   subsidiary  of  Lynch   Corporation  (the
"Registrant"),  entered into a loan agreement (the "Loan Agreement") with Branch
Banking  and Trust  Company  ("BB&T"),  which is filed as  Exhibit  10.1 to this
Current Report on Form 8-K. The Loan Agreement  provides for a line of credit in
the maximum  principal  amount of $3,500,000.  This line of credit  replaces the
working capital  revolving loan that Lynch Systems had with SunTrust Bank, which
loan  expired by its terms on  September  30,  2005.  Borrowings  under the Loan
Agreement  bear  interest  at the One Month  LIBOR Rate plus  2.75% and  accrued
interest is payable on a monthly  basis,  with the  principal  balance due to be
paid on the first  anniversary of the Loan Agreement.  Borrowings under the Loan
Agreement are secured by liens on accounts receivable and inventory.

     The Loan Agreement contains a variety of affirmative and negative covenants
of types customary in an asset-based lending facility,  including those relating
to reporting  requirements,  maintenance  of records,  properties  and corporate
existence,  compliance with laws,  incurrence of other  indebtedness  and liens,
restrictions on certain payments and transactions  and  extraordinary  corporate
events.  The Loan  Agreement  also  contains  financial  covenants  relating  to
maintenance of levels of minimal  tangible net worth, a debt to worth ratio, and
restricting the amount of capital expenditures.  In addition, the Loan Agreement
provides  that the  following  will  constitute  events of  default  thereunder,
subject to certain grace  periods:  (i) payment  defaults;  (ii) failure to meet
reporting  requirements;  (iii)  breach  of  other  obligations  under  the Loan
Agreement;  (iv) default with respect to other material indebtedness;  (v) final
judgment for a material amount not discharged or stayed;  and (vi) bankruptcy or
insolvency.

     Pursuant to a Guaranty  Agreement,  filed as Exhibit  10.2 to this  Current
Report  on  Form  8-K,  the  Registrant  guaranteed  to  BB&T  the  payment  and
performance  of the  obligations  of Lynch Systems under the Loan  Agreement and
ancillary agreements and instruments.

     EXTENSION AGREEMENT WITH SUNTRUST BANK

     On October 6, 2005,  Lynch Systems  entered into an Extension  Agreement by
and among Lynch  Systems,  the  Registrant  and SunTrust Bank  ("SunTrust"),  to
extend until  December 31, 2005 the due date of all  remaining  indebtedness  of
Lynch Systems to SunTrust.  After giving effect to the refinancing  described in
the previous paragraph,  such indebtedness aggregated $389,406, which represents
the unpaid  principal  balance under the term loan.  The Extension  Agreement is
filed as Exhibit 10.3 to this Current Report on Form 8-K.







Item 9.01         FINANCIAL STATEMENTS AND EXHIBITS.


        (c) Exhibits

                NUMBER    EXHIBIT
                 10.1     Loan Agreement, by and among Lynch Corporation,  Lynch
                          Systems and BB&T, dated September 29, 2005,  effective
                          October 6, 2005.

                 10.2     Guaranty  Agreement for Payment and Performance by and
                          between Lynch  Corporation  and BB&T,  dated September
                          29, 2005, effective October 6, 2005.

                 10.3     Extension  Agreement  by and among Lynch  Corporation,
                          Lynch Systems and BB&T, dated October 6, 2005.






                                    SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly caused this Current  Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.



                                     LYNCH CORPORATION


                                     By: /s/ Eugene Hynes
                                         --------------------------------
                                         Eugene Hynes
                                         Vice President
October 11, 2005

EX-10

                                                                    EXHIBIT 10.1

                                      BB&T
                                 LOAN AGREEMENT


                                  9660812870-01
                  --------------------------------------------
                                 Account Number

This Loan Agreement (the  "Agreement") is made this ____ day of September,  2005
by and  between  BRANCH  BANKING AND TRUST  COMPANY,  a North  Carolina  banking
corporation ("Bank"), and:

Lynch Systems, Inc., a South Dakota corporation  ("Borrower"),  having its chief
executive office at Bainbridge, Georgia.

Lynch Corporation as "Guarantor".

The Borrower has applied to Bank for and the Bank has agreed to make, subject to
the terms of this Agreement,  the following  loan(s)  (hereinafter  referred to,
singularly or collectively, if more than one, as "Loan"):

LINE OF CREDIT ("Line of Credit") in the maximum  principal amount not to exceed
$3,500,000 at any one time  outstanding  for the purpose of  pre-export  working
capital which shall be evidenced by the Borrower's  Promissory  Note dated on or
after the date hereof which shall mature twelve months from note date,  when the
entire unpaid  principal  balance then outstanding plus accrued interest thereon
shall be paid in full.  Prior to  maturity  or the  occurrence  of any  Event of
Default hereunder and subject to any Borrowing Base limitations,  as applicable,
the Borrower may borrow,  repay,  and reborrow  under the Line of Credit through
maturity.  The Line of Credit  shall bear  interest at the rate set forth in any
such Note  evidencing  all or any  portion of the Line of  Credit,  the terms of
which are incorporated herein by reference.

Additional  terms,  conditions  and covenants of this Agreement are described in
Schedule  DD,  or other  schedule  attached  hereto,  the  terms  of  which  are
incorporated  herein by reference.  The promissory  note  evidencing the Line of
Credit is  referred to herein as the "Note" and shall  include  all  extensions,
renewals,  modifications and substitutions  thereof. The Line of Credit shall be
secured by the collateral described in the security documents described below.

SECTION 1 CONDITIONS PRECEDENT

The Bank shall not be obligated to make any  disbursement of loan proceeds until
all  of the  following  conditions  have  been  satisfied  by  proper  evidence,
execution,  and/or  delivery to the Bank of the  following  items in addition to
this  Agreement,  all in form  and  substance  satisfactory  to the Bank and the
Bank's counsel in their sole discretion:

NOTE:  The Note evidencing the Loans duly executed by the Borrower.
SECURITY AGREEMENT(S):  Security  Agreement(s)  in which  Borrower and any other
         owner (a "Debtor") of personal property  collateral shall grant to Bank
         a first priority security  interest in the personal property  specified
         therein.  (If  Bank  has  or  will  have  a  security  interest  in any
         collateral  which is  inferior  to the  security  interest  of  another
         creditor,  Borrower  must  fully  disclose  to Bank  any and all  prior
         security  interests,  and  Bank  must  specifically  approve  any  such
         security interest which will continue during the Loan.)
CONTROL  AGREEMENT:   A  Control  Agreement   pertaining  to  Deposit  Accounts,
         Letter-of-Credit Rights and/or Electronic Chattel Paper, as required in
         connection with the Security Agreement(s).
UCC FINANCING  STATEMENTS:  Acknowledged copies of UCC Financing Statements duly
         filed  in  Borrower's   or  other   owner's  state  of   incorporation,
         organization or residence,  and in all jurisdictions  necessary,  or in
         the opinion of the Bank  desirable,  to perfect the security  interests
         granted  in  the  Security   Agreement(s),   and  certified  copies  of
         Information  Requests  identifying all previous financing statements on
         record  for the  Borrower  or  other  owner,  as  appropriate  from all
         jurisdictions  indicating that no security interest has previously been
         granted  in  any  of  the   collateral   described   in  the   Security
         Agreement(s), unless prior approval has been given by the Bank.
AUTHORIZATION AND CERTIFICATE: An Authorization and Certificate executed by each
         Debtor under which such Debtor  authorizes Bank to file a UCC Financing
         Statement describing collateral owned by such Debtor.
COMMITMENT FEE: A commitment  fee (or balance  thereof) of $8,750 payable to the
         Bank on the date of execution of the Loan Documents.
CORPORATE RESOLUTION:  A  Corporate  Resolution  duly  adopted  by the  Board of
         Directors of the Borrower  authorizing  the  execution,  delivery,  and
         performance  of  the  Loan  Documents  on or in a form  provided  by or
         acceptable to Bank.
ARTICLES OF INCORPORATION: A copy of the Articles of Incorporation and all other
         charter documents of the Borrower,  all filed with and certified by the
         Secretary of State of the State of the Borrower's incorporation.
BY-LAWS:  A copy of the By-Laws of the  Borrower,  certified by the Secretary of
the Borrower as to their completeness and accuracy.
CERTIFICATE  OF  INCUMBENCY:  A  certificate  of the  Secretary  of the Borrower
         certifying  the  names  and  true  signatures  of the  officers  of the
         Borrower authorized to sign the Loan Documents.
CERTIFICATE OF EXISTENCE:  A  certification  of the Secretary of State (or other
         government  authority) of the State of the Borrower's  Incorporation or
         Organization  as to the  existence or good standing of the Borrower and
         its charter documents on file.
OPINION OF COUNSEL:  An opinion of counsel for the Borrower  satisfactory to the
        Bank and the Bank's counsel.
GUARANTY:  Guaranty Agreement(s) duly executed by the Guarantor(s).
ADDITIONAL  DOCUMENTS:  Receipt  by the Bank of other  approvals,  opinions,  or
        documents as the Bank may reasonably request.

SECTION 2 REPRESENTATIONS AND WARRANTIES

The Borrower and Guarantor(s) represent and warrant to Bank that:
         2.01. FINANCIAL  STATEMENTS.  The balance sheet of the Borrower and its
         subsidiaries, if any, and the related Statements of Income and Retained
         Earnings  of  the  Borrower  and  its  subsidiaries,  the  accompanying
         footnotes together with the accountant's opinion thereon, and all other
         financial  information  previously  furnished to the Bank, are true and
         correct and fairly reflect the financial  condition of the Borrower and
         its  subsidiaries  as of the dates  thereof,  including all  contingent
         liabilities of every type, and the financial  condition of the Borrower
         and its  subsidiaries as stated therein has not changed  materially and
         adversely since the date thereof. Each Guarantor further represents and
         warrants that all financial  statements  provided by such  Guarantor to
         Bank  concerning  such  Guarantor's  financial  condition  are true and
         correct and fairly represent such Guarantor's financial condition as of
         the dates thereof.
         2.02. NAME,  CAPACITY AND STANDING.  The Borrower's exact legal name is
         correctly  stated in the initial  paragraph of the Agreement.  Borrower
         and/or any  Guarantor  each  warrants  and  represents  that it is duly
         organized and validly  existing under the laws of its respective  state
         of incorporation or organization;  that it and/or its subsidiaries,  if
         any, are duly  qualified  and in good  standing in every other state in
         which the nature of their  business  shall require such  qualification,
         except for any such state in which the failure to be so qualified would
         not reasonably be anticipated to result in a material adverse effect on
         such  corporation,  its  property or  financial  condition (a "Material
         Adverse  Effect"),  and are each  duly  authorized  by  their  board of
         directors,  to enter into and  perform the  obligations  under the Loan
         Documents.
         2.03.  NO  VIOLATION  OF OTHER  AGREEMENTS.  The  execution of the Loan
         Documents, and the performance by the Borrower, by any and all pledgors
         (whether the Borrower or other owners of collateral  property  securing
         payment  of  the  Loan  (hereinafter   sometimes  referred  to  as  the
         "Pledgor"))  or by the  Guarantor(s)  thereunder  will not  violate any
         provision,  as applicable,  of its articles of incorporation,  by-laws,
         articles   of   organization,   operating   agreement,   agreement   of
         partnership,  limited partnership or limited liability partnership,  or
         of any law,  other  agreement,  indenture,  note,  or other  instrument


                                       -1-


                                      BB&T
                                 LOAN AGREEMENT


         binding upon the Borrower,  Pledgor or Guarantor(s),  or give cause for
         the  acceleration of any of the respective  obligations of the Borrower
         or Guarantor(s).
         2.04. AUTHORITY. All authority from and approval by any federal, state,
         or local  governmental  body,  commission  or agency  necessary  to the
         making,  validity,  or  enforceability  of this Agreement and the other
         Loan Documents has been obtained.
         2.05.  ASSET  OWNERSHIP.  The Borrower and each Guarantor have good and
         marketable  title to all of the properties and assets  reflected on the
         balance sheets and financial  statements furnished to the Bank, and all
         such  properties  and assets are free and clear of mortgages,  deeds of
         trust,  pledges,  liens, and all other encumbrances except as otherwise
         disclosed by such financial statements.  In addition,  each other owner
         of collateral has good and marketable  title to such  collateral,  free
         and clear of any liens, security interests and encumbrances,  except as
         otherwise disclosed to Bank.
         2.06.  DISCHARGE OF LIENS AND TAXES. The Borrower and its subsidiaries,
         if any, and each  Guarantor  have filed,  paid,  and/or  discharged all
         taxes  or  other  claims  which  may  become  a lien  on  any of  their
         respective  properties  or assets,  excepting  to the extent  that such
         items are being appropriately  contested in good faith and for which an
         adequate  reserve  (in an amount  acceptable  to Bank) for the  payment
         thereof is being maintained.
         2.07. REGULATION U. None of the Loan proceeds shall be used directly or
         indirectly  for the purpose of  purchasing or carrying any margin stock
         in  violation  of  the  provisions  of  Regulation  U of the  Board  of
         Governors of the Federal Reserve System.
         2.08.  ERISA.  Each  employee  benefit plan, as defined by the Employee
         Retirement   Income  Security  Act  of  1974,  as  amended   ("ERISA"),
         maintained  by the  Borrower or by any  subsidiary  of the  Borrower or
         Guarantor(s)  meets,  as  of  the  date  hereof,  the  minimum  funding
         standards of Section 302 of ERISA, all applicable requirements of ERISA
         and  of  the  Internal  Revenue  Code  of  1986,  as  amended,  and  no
         "Reportable  Event" nor "Prohibited  Transaction" (as defined by ERISA)
         has occurred with respect to any such plan.
         2.09. LITIGATION.  Except as disclosed in filings by Guarantor with the
         Securities and Exchange Commission,  there is no claim, action, suit or
         proceeding  pending,  threatened or reasonably  anticipated  before any
         court, commission,  administrative agency, whether State or Federal, or
         arbitration  which  will  materially  adversely  affect  the  financial
         condition,  operations,  properties, or business of the Borrower or its
         subsidiaries,  if  any,  or the  Guarantor(s),  or the  ability  of the
         Borrower or the  Guarantor(s)  to perform their  obligations  under the
         Loan Documents.
         2.10.  OTHER  AGREEMENTS.  The  representations  and warranties made by
         Borrower  to Bank in the other Loan  Documents  are true and correct in
         all respects on the date hereof.
         2.11. BINDING AND ENFORCEABLE. The Loan Documents, when executed, shall
         constitute valid and binding obligations of the Borrower and Guarantors
         respectively,  the  execution  of such  Loan  Documents  has been  duly
         authorized by the parties  thereto,  and are  enforceable in accordance
         with their terms,  except as may be limited by bankruptcy,  insolvency,
         moratorium, or similar laws affecting creditors' rights generally.
         2.12. COMMERCIAL PURPOSE. The Loan(s) are not "consumer  transactions",
         as defined in the  Georgia  Uniform  Commercial  Code,  and none of the
         collateral  was or will be purchased or held  primarily  for  personal,
         family or household purposes.

SECTION 3 AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that from the date hereof and until payment in
full of all  indebtedness and performance of all obligations owed under the Loan
Documents, Borrower shall:
         3.01. MAINTAIN  EXISTENCE  AND  CURRENT  LEGAL  FORM OF  BUSINESS.  (a)
         Maintain  its   existence  and  good  standing  in  the  state  of  its
         incorporation or  organization,  (b) maintain its current legal form of
         business  indicated above, and, (c), as applicable,  qualify and remain
         qualified  as  a  foreign  corporation,  general  partnership,  limited
         partnership, limited liability partnership or limited liability company
         in each  jurisdiction  in which the  failure to be so  qualified  would
         reasonably be  anticipated  to have a Material  Adverse  Effect.
         3.02.  MAINTAIN RECORDS.  Keep adequate records and books of account, in
         which   complete   entries  will  be  made  in  accordance   with  GAAP
         consistently  applied,  reflecting  all financial  transactions  of the
         Borrower.
         3.03. MAINTAIN  PROPERTIES.  Maintain,  keep,  and  preserve all of its
         properties (tangible and intangible) including the collateral necessary
         or useful in the  conduct of its  business  in good  working  order and
         condition, ordinary wear and tear excepted.
         3.04. CONDUCT OF BUSINESS. Continue to engage in an efficient, prudent,
         and  economical  manner in a business of the same  general  type as now
         conducted.
         3.05. MAINTAIN INSURANCE. Maintain insurance with financially sound and
         reputable  insurance  companies  or  associations  in such  amounts and
         covering such risks as are usually carried by companies  engaged in the
         same or a similar  business,  and  business  interruption  insurance if
         required  by  Bank,   which   insurance  may  provide  for   reasonable
         deductible(s). The Bank shall be named as loss payee (Long Form) on all
         policies which apply to the Bank's  collateral,  and the Borrower shall
         deliver  certificates of insurance at closing evidencing same. All such
         insurance  policies shall provide,  and the  certificates  shall state,
         that no policy will be terminated  without 20 days prior written notice
         to Bank.
         3.06. COMPLY  WITH LAWS.  Comply in all  respects  with all  applicable
         laws, rules,  regulations,  and orders including,  without  limitation,
         paying  before  the   delinquency  of  all  taxes,   assessments,   and
         governmental  charges  imposed  upon it or upon its  property,  and all
         Environmental Laws.
         3.07. RIGHT OF INSPECTION. Permit the officers and authorized agents of
         the  Bank,  at  any  reasonable  time  or  times  in  the  Bank's  sole
         discretion,  to examine  and make  copies of the  records  and books of
         account of, to visit the  properties  of the  Borrower,  and to discuss
         such  matters  with  any  officers,  directors,  managers,  members  or
         partners,  limited  or  general  of the  Borrower,  and the  Borrower's
         independent accountant as the Bank deems necessary and proper.
         3.08. REPORTING  REQUIREMENTS. Furnish to the Bank:
               MONTHLY FINANCIAL  STATEMENTS:  As soon as available and not more
               than  thirty  (30)  days  after  the end of each  month,  balance
               sheets,  statements of income,  cash flow, and retained  earnings
               for the period ended and a statement of changes in the  financial
               position,   all  in  reasonable   detail,  and  all  prepared  in
               accordance with GAAP  consistently  applied and certified as true
               and  correct  by an  officer,  general  partner  or  manager  (or
               member(s)) of the Borrower, as appropriate.
               ANNUAL  FINANCIAL  STATEMENTS:  As soon as available and not more
               than one hundred  twenty  (120) days after the end of each fiscal
               year, balance sheets, statements of income, and retained earnings
               for the period ended and a statement of changes in the  financial
               position,   all  in  reasonable   detail,  and  all  prepared  in
               accordance  with  GAAP   consistently   applied.   The  financial
               statements must be of the following quality or better: Audited.
               LOAN BASE REPORT: On or before the 20th day of each month, a Loan
               Base Report in a form acceptable to Bank signed by the President,
               chief   financial   officer,   general  partner  or  manager  (or
               member(s)) of the Borrower, as appropriate.
               NOTICE OF LITIGATION: Promptly after the receipt by the Borrower,
               or by any Guarantor of which Borrower has knowledge, of notice or
               complaint of any action, suit, and proceeding before any court or
               administrative agency of any type which, if determined adversely,
               could have a material adverse effect on the financial  condition,
               properties,  or  operations  of the  Borrower  or  Guarantor,  as
               appropriate.
               NOTICE OF DEFAULT:  Promptly upon discovery or knowledge thereof,
               notice  of the  existence  of any  event of  default  under  this
               Agreement or any other Loan Documents.
               OTHER  INFORMATION:  Such other  information as the Bank may from
               time to time reasonably request.
         3.09. DEPOSIT  ACCOUNTS.  Maintain  substantially  all  of  its  demand
               deposit/operating  accounts  with  the  Bank.


                                       -2-


                                      BB&T
                                 LOAN AGREEMENT


         3.10. AFFIRMATIVE COVENANTS FROM OTHER LOAN DOCUMENTS.  All affirmative
               covenants  contained in any Security  Deed,  Security  Agreement,
               Assignment  of  Leases  and  Rents,  or other  security  document
               executed  by the  Borrower  which are  described  in  paragraph 2
               hereof are hereby incorporated by reference herein.

SECTION 4 GUARANTOR(S) COVENANTS

Each Guarantor  covenants and agrees that from the date hereof and until payment
in full of all  indebtedness  and performance of all obligations  owed under the
Loan Documents, Guarantor shall:
         4.01. MAINTAIN  EXISTENCE  AND  CURRENT  LEGAL  FORM  OF  BUSINESS.  If
               Guarantor is a  corporation,  partnership,  limited  partnership,
               limited liability  partnership or limited liability company,  (a)
               maintain  its  existence  and good  standing  in the state of its
               incorporation  or  organization,  (b) maintain its current  legal
               form of business as shown on the guaranty  agreement  provided by
               Guarantor  to  Bank  in  connection  with  the  Loan,  and (c) as
               applicable,   qualify   and   remain   qualified   as  a  foreign
               corporation,  general partnership,  limited partnership,  limited
               liability  partnership  or  limited  liability  company  in  each
               jurisdiction in which such qualification is required.
         4.02. [INTENTIONALLY OMITTED]
         4.03. COMPLY  WITH LAWS.  Comply in all  respects  with all  applicable
               laws,  rules,   regulations,   and  orders   including,   without
               limitation,   paying  before  the   delinquency   of  all  taxes,
               assessments,  and  governmental  charges imposed or assessed upon
               Guarantor or upon  Guarantor's  property,  and all  Environmental
               Laws.
         4.04. REPORTING REQUIREMENTS. Furnish to the Bank:
               ANNUAL  FINANCIAL  STATEMENTS:  As soon as available and not more
               than one hundred  twenty  (120) days after the end of each fiscal
               year, balance sheets, statements of income, and retained earnings
               for the period ended and a statement of changes in the  financial
               position,   all  in  reasonable   detail,  and  all  prepared  in
               accordance  with  GAAP   consistently   applied.   The  financial
               statements must be of the following quality or better: Audited.
               NOTICE OF LITIGATION: Promptly after the receipt by Guarantor, or
               by Borrower of which  Guarantor has  knowledge,  of notice of any
               action,  suit,  and proceeding  before any court or  governmental
               agency of any type which, if determined  adversely,  could have a
               material adverse effect on the financial  condition,  properties,
               or operations of the Guarantor or Borrower, as appropriate.
         4.05. [INTENTIONALLY OMITTED]
         4.06. OTHER INFORMATION: Furnish such other information as the Bank may
               from time to time reasonably request.

SECTION 5 FINANCIAL COVENANTS

The Borrower  covenants  and agrees that from the date hereof  until  payment in
full of all indebtedness  and the performance of all obligations  under the Loan
Documents,  the Borrower  shall at all times  maintain the  following  financial
covenants and ratios all in accordance with GAAP unless otherwise specified:
         TANGIBLE  NET  WORTH.  A  minimum  tangible  net worth of not less than
         $4,400,000 through December 31, 2005, and increasing by at least 50% of
         after tax profit over the prior fiscal year-end result each fiscal year
         thereafter.   Tangible  Net  Worth  is  defined  as  net  worth,   plus
         obligations  contractually  subordinated  to debts owed to Bank,  minus
         goodwill,   contract  rights,   and  assets   representing   claims  on
         stockholders or affiliated entities.
         DEBT TO WORTH.  Borrower  shall  maintain a maximum  Debt/Tangible  Net
         Worth  Ratio of 2.0:1 for the term of the  loan.  This  ratio  shall be
         defined as total  liabilities  divided by tangible net worth.  Tangible
         Net Worth is  defined  as net  worth,  plus  obligations  contractually
         subordinated to debts owed to Bank,  minus goodwill,  contract  rights,
         and assets representing claims on stockholders or affiliated entities.

SECTION 6 NEGATIVE COVENANTS

The Borrower covenants and agrees that from the date hereof and until payment in
full of all  indebtedness  and  performance  of all  obligations  under the Loan
Documents,  the Borrower  shall not,  without the prior  written  consent of the
Bank:
         6.01. LIENS. Create, incur, assume, or suffer to exist any lien upon or
         with respect to any of Borrower's properties,  or the properties of any
         Pledgor securing payment of the Loan, now owned or hereafter  acquired,
         except:
               (a) Liens and security interests in favor of the Bank;
               (b) Liens for taxes not yet due and  payable or  otherwise  being
               contested  in good faith and for which  appropriate  reserves are
               maintained;
               (c)  Other  liens  imposed  by law not yet  due and  payable,  or
               otherwise being contested in good faith and for which appropriate
               reserves are maintained;
               (d) Purchase money security  interests on any property  hereafter
               acquired,  provided  that  such  lien  shall  attach  only to the
               property acquired.
               (e) Liens and security interests incurred by refinancing existing
               debt on real property.
         6.02. DEBT. Create, incur, assume, or suffer to exist any debt, except:
               (a) Debt to the Bank;
               (b) Debt  outstanding  on the date  hereof  and shown on the most
               recent financial statements submitted to the Bank;
               (c) Accounts payable to trade creditors  incurred in the ordinary
               course of business;
               (d) Debt secured by purchase money security interests as outlined
               above in Section 6.01 (e);
               (e)  Additional  debt not to exceed  $1,000,000  in the aggregate
               during any fiscal year of the Borrower.
         6.02  CAPITAL EXPENDITURES. Expenditures for fixed assets in any fiscal
         year shall not exceed in the aggregate the sum of $500,000.
         6.03. CHANGE OF LEGAL FORM OF  BUSINESS;  PURCHASE  OF  ASSETS.  Change
         Borrower's  name or the  legal  form of  Borrower's  business  as shown
         above, whether by merger,  consolidation,  conversion or otherwise, and
         Borrower shall not purchase all or  substantially  all of the assets or
         business of any Person.
         6.04. LEASES.  Create,  incur,  assume,  or suffer to exist any leases,
         except:
               (a) Leases outstanding on the date hereof and showing on the most
               recent financial statement submitted to the Bank;
               (b) Operating  Leases for machinery and equipment which do not in
               the  aggregate  require  payments  in excess of  $100,000  in any
               fiscal year of the Borrower.
         6.05. GUARANTIES. Assume, guarantee, endorse, or otherwise be or become
         directly or contingently  liable for obligations of any Person,  except
         guaranties  by  endorsement  of negotiable  instruments  for deposit or
         collection or similar transactions in the ordinary course of business.
         6.06. TRANSFER OF OWNERSHIP.  If Borrower is a corporation,  (a) issue,
         transfer  or sell any new class of stock,  or (b)  issue,  transfer  or
         sell,  in the  aggregate,  from its  treasury  stock  and/or  currently
         authorized but unissued shares of any class of stock,  more than 10% of
         the total  number of all such issued and  outstanding  shares as of the


                                       -3-


                                      BB&T
                                 LOAN AGREEMENT


         date of this Agreement.  If Borrower is a general partnership,  limited
         partnership,   limited  liability   partnership  or  limited  liability
         company, issue, transfer or sell any interest in Borrower.

SECTION 7 HAZARDOUS MATERIALS AND COMPLIANCE WITH ENVIRONMENTAL LAWS

         7.01.  INVESTIGATION.  Borrower  hereby  certifies that it has exercised
         due diligence to ascertain whether its real property, including without
         limitation  the  Mortgaged  Property,  is or has been  affected  by the
         presence  of  asbestos,  oil,  petroleum  or other  hydrocarbons,  urea
         formaldehyde,  PCBs,  hazardous or nuclear waste,  toxic  chemicals and
         substances,  or other  hazardous  materials  (collectively,  "Hazardous
         Materials"),  as defined in  applicable  Environmental  Laws.  Borrower
         represents  and  warrants  that there are no such  Hazardous  Materials
         contaminating  its real  property,  nor have  any such  materials  been
         released on or stored on or improperly disposed of on its real property
         during its ownership,  occupancy or operation thereof.  Borrower hereby
         agrees that, except in strict compliance with applicable  Environmental
         Laws,   it  shall  not  knowingly   permit  any  release,   storage  or
         contamination  as long as any indebtedness or obligations to Bank under
         the Loan Documents remains unpaid or unfulfilled. In addition, Borrower
         does not have or use any  underground  storage tanks on any of its real
         property,  including the Mortgaged  Property  which are not  registered
         with the  appropriate  Federal  and/or State agencies and which are not
         properly  equipped and maintained in accordance with all  Environmental
         Laws.  If  requested  by Bank,  Borrower  shall  provide  Bank with all
         necessary   and   reasonable   assistance   required  for  purposes  of
         determining  the  existence  of Hazardous  Materials  on the  Mortgaged
         Property, including allowing Bank access to the Mortgaged Property, and
         access to Borrower's  employees  having  knowledge of, and to files and
         records within Borrower's  control relating to the existence,  storage,
         or release of Hazardous Materials on the Mortgaged Property.
         7.02.  COMPLIANCE.   Borrower  agrees  to  comply  with  all  applicable
         Environmental Laws, including,  without limitation,  all those relating
         to Hazardous  Materials.  Borrower  further agrees to provide Bank, and
         all appropriate Federal and State authorities, with immediate notice in
         writing of any release of Hazardous Materials on the Mortgaged Property
         and to pursue diligently to completion all appropriate  and/or required
         remedial action in the event of such release.
         7.03.  REMEDIAL  ACTION.   Bank  shall  have  the  right,  but  not  the
         obligation, to undertake all or any part of such remedial action in the
         event of a release of Hazardous Materials on the Mortgaged Property and
         to add any expenditures so made to the principal  indebtedness  secured
         by the  Security  Deed.  Borrower  agrees  to  indemnify  and hold Bank
         harmless  from  any  and  all  loss  or  liability  arising  out of any
         violation of the representations,  covenants, and obligations contained
         in this  Section 7, or  resulting  from the  recording  of the Security
         Deed.

SECTION 8 EVENTS OF DEFAULT

The following shall be "Events of Default" by Borrower or any Guarantor:
         8.01.  The  failure  to  make  prompt  payment  of any  installment  of
         principal  or interest on any of the Note(s)  when due or payable,  and
         the continuation of such failure for a period of 10 days.
         8.02. Should any representation or warranty made in the Loan Documents
         prove to be false or misleading in any material respect.
         8.03. Should any report,  certificate,  financial statement,  or other
         document  furnished  prior to the execution of or pursuant to the terms
         of this  Agreement  prove  to be false or  misleading  in any  material
         respect.
         8.04. Should the Borrower or any Guarantor  default on the performance
         of any other obligation of indebtedness  when due or in the performance
         of any obligation incurred in connection with money borrowed, in either
         case  involving  indebtedness  on  money  in an  amount  in  excess  of
         $100,000.
         8.05.  Should the  Borrower,  any  Guarantor or any Pledgor  breach any
         covenant, condition, or agreement made under any of the Loan Documents,
         and should  such  breach  continue  unremedied  for a period of 30 days
         after the Bank shall have given the Borrower  written  notice  thereof,
         provided however, in the event Borrower cannot complete the cure of the
         breach within such 30-day period, the Borrower shall have an additional
         period,  not to exceed 30 days to cure such breach,  provided  that the
         Borrower has commenced the cure of the breach during the initial 30-day
         period and  thereafter  diligently  pursues  the cure of such breach to
         completion  and provided  further,  that in no event shall the Borrower
         have a period of more than 60 days to cure such breach.
         8.06.  Should a custodian be appointed for or take possession of any or
         all of the  assets of the  Borrower  or any  Guarantor,  or should  the
         Borrower or any Guarantor either  voluntarily or  involuntarily  become
         subject to any insolvency proceeding, including becoming a debtor under
         the United  States  Bankruptcy  Code,  any  proceeding  to dissolve the
         Borrower or any Guarantor, any proceeding to have a receiver appointed,
         or should the  Borrower or any  Guarantor  make an  assignment  for the
         benefit of creditors,  or should there be an attachment,  execution, or
         other  judicial  seizure of all or any portion of the Borrower's or any
         Guarantor's  assets,  including  an action or  proceeding  to seize any
         funds  on  deposit  with  the  Bank,  and  in  the  case  of  any  such
         appointment,  proceeding,  attachment,  execution  or  seizure  that is
         involuntary, the same is not discharged or stayed within 60 days.
         8.07.  Should  final  judgment  for the  payment  of money be  rendered
         against the Borrower or any Guarantor which is not covered by insurance
         and  shall  remain  undischarged  for a period of 30 days  unless  such
         judgment or execution thereon be effectively stayed.
         8.08.  Upon  the  death  of,  or   termination   of  existence  of,  or
         dissolution of, any Borrower, Pledgor or Guarantor.
         8.09.  Should any lien or security  interest  granted to Bank to secure
         payment  of the  Note(s)  terminate,  fail for any  reason  to have the
         priority agreed to by Bank on the date granted,  or become  unperfected
         or invalid for any reason, provided that such failure is not the result
         of gross negligence on the part of the Bank.

SECTION 9 REMEDIES UPON DEFAULT

Upon the  occurrence of any of the above listed Events of Default,  the Bank may
at any time thereafter, at its option, take any or all of the following actions,
at the same or at different times:
         9.01.  Declare the balance(s) of the Note(s) to be immediately  due and
         payable,  both  as to  principal  and  interest,  without  presentment,
         demand,  protest,  or  notice  of any  kind,  all of which  are  hereby
         expressly  waived by Borrower and, each Guarantor,  and such balance(s)
         shall accrue interest at the Default Rate as provided herein until paid
         in full;
         9.02.  Require  the  Borrower  or  Guarantor(s)  to  pledge  additional
         collateral to the Bank from the  Borrower's or any  Guarantor's  assets
         and properties, the acceptability and sufficiency of such collateral to
         be determined in the Bank's sole discretion;
         9.03.  Take  immediate  possession  of and  foreclose  upon  any or all
         collateral  which  may be  granted  to the  Bank  as  security  for the
         indebtedness  and  obligations  of Borrower or any Guarantor  under the
         Loan Documents;
         9.04.  Exercise any and all other rights and remedies  available to the
         Bank  under  the  terms  of the  Loan  Documents  and  applicable  law,
         including the Georgia Uniform Commercial Code;


                                       -4-


                                      BB&T
                                 LOAN AGREEMENT


         9.05.  Any  obligation  of the Bank to advance funds to the Borrower or
         any other  Person  under the terms of under the  Note(s)  and all other
         obligations,  if any,  of the  Bank  under  the  Loan  Documents  shall
         immediately  cease and terminate  unless and until Bank shall reinstate
         such obligation in writing.

SECTION 10 MISCELLANEOUS PROVISIONS

         10.01. DEFINITIONS.
               "BORROWING  BASE" shall mean the lesser of (i) $3,500,000 or (ii)
               the  Total  Available  Loan Base  shown on the Loan  Base  Report
               furnished  by  Borrower to Bank on or before the 20th day of each
               Month  as long as this  Agreement  shall  remain  in  force.  The
               percentages of acceptable  collateral,  as defined by Bank, which
               will be used to determine the Total Available Loan Base, shall be
               the following: Eligible Inventory - 75%; Insured Foreign Accounts
               Receivable -90%.
               "DEFAULT  RATE"  shall  mean a rate of  interest  equal to Bank's
               Prime  Rate plus five  percent  (5%) per annum (not to exceed the
               legal  maximum  rate)  from  and  after  the  date of an Event of
               Default   hereunder   which  shall  apply,  in  the  Bank's  sole
               discretion,  to all sums owing, including principal and interest,
               on such date.
               "LOAN DOCUMENTS" shall mean this Agreement including any schedule
               attached  hereto,   the  Note(s),   the  Security  Deed(s),   the
               Mortgage(s),  the Deed(s) of Trust, the Security Agreement(s),the
               Assignment(s) of Leases and Rents, all UCC Financing  Statements,
               the Guaranty Agreement(s), and all other documents, certificates,
               and  instruments  executed  in  connection  therewith,   and  all
               renewals,   extensions,    modifications,    substitutions,   and
               replacements thereto and therefore.
               "PERSON"  shall  mean an  individual,  partnership,  corporation,
               trust,  unincorporated  organization,  limited liability company,
               limited liability partnership,  association,  joint venture, or a
               government agency or political subdivision thereof.
               "GAAP" shall mean  generally  accepted  accounting  principles as
               established by the Financial  Accounting  Standards  Board or the
               American  Institute of Certified Public  Accountants,  as amended
               and supplemented from time to time.
               "PRIME RATE" shall mean the rate of interest per annum  announced
               by the Bank from  time to time and  adopted  as its  Prime  Rate,
               which is one of several  rate  indexes  employed by the Bank when
               extending  credit,  and may not  necessarily be the Bank's lowest
               lending rate.
         10.02.  NON-IMPAIRMENT.  If any one or more provisions contained in the
         Loan Documents shall be held invalid,  illegal, or unenforceable in any
         respect,  the validity,  legality,  and enforceability of the remaining
         provisions  contained  therein  shall  not in any  way be  affected  or
         impaired thereby and shall otherwise remain in full force and effect.
         10.03.  APPLICABLE  LAW.  The  Loan  Documents  shall be  construed  in
         accordance with and governed by the laws of the State of Georgia.
         10.04. WAIVER. Neither the failure or any delay on the part of the Bank
         in  exercising  any  right,  power  or  privilege  granted  in the Loan
         Documents  shall operate as a waiver  thereof,  nor shall any single or
         partial  exercise thereof preclude any other or further exercise of any
         other right, power, or privilege which may be provided by law.
         10.05.  MODIFICATION.  No  modification,  amendment,  or  waiver of any
         provision of any of the Loan  Documents  shall be  effective  unless in
         writing and signed by the Borrower and Bank.
         10.06.  PAYMENT  AMOUNT  ADJUSTMENT.  In the  event  that  any  Loan(s)
         referenced  herein  has a  variable  (floating)  interest  rate and the
         interest rate increases,  Bank, at its sole discretion, may at any time
         adjust  the  Borrower's  payment  amount(s)  to  prevent  the amount of
         interest  accrued  in a given  period to exceed  the  periodic  payment
         amount or to cause the  Loan(s) to be repaid  within the same period of
         time as originally agreed UPON.
         10.07.  STAMPS and Fees.  The  Borrower  shall pay all federal or state
         stamps,  taxes,  or other fees or  charges,  if any are  payable or are
         determined  to be  payable  by reason of the  execution,  delivery,  or
         issuance of the Loan Documents or any security granted to the Bank; and
         the Borrower and  Guarantor  agree to indemnify  and hold  harmless the
         Bank against any and all liability in respect thereof.
         10.08.  ATTORNEYS'  FEES.  In the event the  Borrower or any Pledgor or
         Guarantor  shall  default in any of its  obligations  hereunder and the
         Bank  believes  it  necessary  to employ an  attorney  to assist in the
         enforcement  or collection of the  indebtedness  of the Borrower to the
         Bank,  to enforce the terms and  provisions of the Loan  Documents,  to
         modify  the Loan  Documents,  or in the event the Bank  voluntarily  or
         otherwise  should  become  a  party  to any  suit or  legal  proceeding
         (including a  proceeding  conducted  under the  Bankruptcy  Code),  the
         Borrower and Guarantors agree to pay the reasonable  attorneys' fees of
         the Bank and all related costs of collection or enforcement that may be
         incurred by the Bank.  The Borrower and  Guarantor  shall be liable for
         such attorneys' fees and costs whether or not any suit or proceeding is
         actually commenced.
         10.09. BANK MAKING REQUIRED PAYMENTS.  In the event Borrower shall fail
         to maintain  insurance,  pay taxes or  assessments,  costs and expenses
         which  Borrower  is,  under  any of the  terms  hereof  or of any  Loan
         Documents,  required to pay, or fail to keep any of the  properties and
         assets constituting collateral free from new security interests, liens,
         or encumbrances,  except as permitted herein,  Bank may at its election
         make expenditures for any or all such purposes and the amounts expended
         together  with  interest  thereon at the  Default  Rate,  shall  become
         immediately  due and payable to Bank,  and shall have benefit of and be
         secured by the collateral;  provided,  however, the Bank shall be under
         no duty or obligation to make any such payments or expenditures.
         10.10.  RIGHT OF OFFSET.  Any indebtedness  owing from Bank to Borrower
         may be set off and applied by Bank on any  indebtedness or liability of
         Borrower  to Bank,  at any time and from time to time  after  maturity,
         whether by acceleration  or otherwise,  and without demand or notice to
         Borrower.  Bank may sell  participations  in or make assignments of any
         Loan made under  this  Agreement,  and  Borrower  agrees  that any such
         participant  or  assignee  shall  have the same  right of  setoff as is
         granted to the Bank herein.
         10.11.  UCC  AUTHORIZATION.  Borrower  authorizes Bank to file such UCC
         Financing  Statements  describing the collateral in any location deemed
         necessary and appropriate by Bank.
         10.12.  MODIFICATION AND RENEWAL FEES. Bank may, at its option,  charge
         any fees for modification,  additional advance, renewal,  extension, or
         amendment of any terms of the Note(s)as permitted by law.
         10.13.  CONFLICTING  PROVISIONS.  If provisions of this Agreement shall
         conflict with any terms or provisions of any of the Note(s) or Security
         Agreement(s),  the provisions of such Note(s) or Security Agreement(s),
         as  appropriate,  shall  take  priority  over  any  provisions  in this
         Agreement.
         10.14.  NOTICES.  All notices,  requests,  demands,  waivers, and other
         communications  given as provided in this Agreement will be in writing,
         and unless otherwise  specifically provided in this Agreement,  will be
         deemed to have been given:  (i) if delivered in person,  upon delivery,
         or (ii) if mailed by certified or  registered  mail,  postage  prepaid,
         return receipt  requested,  and addressed to either Borrower or Bank at
         the addresses  provided below on the second  business day after deposit
         in the United  States Mail if  addressed  to an address  located in the
         same State in which the notice is being mailed or on the third business
         day after  deposit in the United States Mail if addressed to an address
         located  within a State  other  than the State in which  the  notice is
         being mailed,  or (iii) if sent by overnight  express delivery service,
         enclosed in a prepaid envelope and addressed to Bank or Borrower at the
         address  provided  below,  on the first business day after deposit with
         the  service,  or (iv) if sent by  tested  telex,  telegram,  telecopy,
         facsimile, or other form of rapid transmission confirmed by mailing (as
         provided in this section),  at substantially the same time as the rapid
         transmission. Either Borrower or Bank may change its respective address
         as provided in this section by giving  written  notice of the change as
         provided in this section. The addresses for notice are:

               Notice to Borrower:   Lynch Systems, Inc.
                                     601 Independent Street
                                     Bainbridge, GA  39817


                                       -5-


                                      BB&T
                                 LOAN AGREEMENT


                                     Attention:  Chief Executive Officer

                                              and

                                     Lynch Corporation
                                     140 Greenwich Avenue, 4th Floor
                                     Greenwich, Connecticut  06830
                                     Attention:  Chief Executive Officer

               Notice to Bank:       Branch Banking and Trust Company
                                     3233 Thomasville Road
                                     Tallahassee, FL  32312
                                     Attn:  City Executive

         10.15. CONSENT TO JURISDICTION. Borrower hereby irrevocably agrees that
         any legal  action or  proceeding  arising  out of or  relating  to this
         Agreement may be instituted in the Superior  Court of any County in the
         State of Georgia in which Bank  maintains  an office,  or in any United
         States District Court in Georgia,  or in such other  appropriate  court
         and venue as Bank may choose in its sole discretion.  Borrower consents
         to the jurisdiction of such courts and waives any objection relating to
         the  basis  for  personal  or in rem  jurisdiction  or to  venue  which
         Borrower  may  now or  hereafter  have  in any  such  legal  action  or
         proceedings.
         10.16.  COUNTERPARTS.  This  Agreement  may be  executed by one or more
         parties  on any  number  of  separate  counterparts  and  all  of  such
         counterparts  taken  together shall be deemed to constitute one and the
         same instrument.
         10.17. ENTIRE AGREEMENT. The Loan Documents embody the entire agreement
         between  Borrower and Bank with respect to the Loans,  and there are no
         oral or  parol  agreements  existing  between  Bank and  Borrower  with
         respect  to the  Loans  which are not  expressly  set forth in the Loan
         Documents.
         10.18.  ASSIGNMENT BY BORROWER.  Borrower may not assign this Agreement
         or any of its rights or obligations hereunder without the prior written
         consent of Bank,  which consent may be withheld by the Bank in its sole
         and absolute discretion.
         10.19.  SUCCESSORS  AND  ASSIGNED  INCLUDED  PARTIES.  Whenever in this
         Agreement  a party  hereto is named or  referred  to, the heirs,  legal
         representatives,  successors  and  assigns  of such  parties  shall  be
         included,  and all covenants and agreements contained in this Agreement
         by or on behalf of  Borrower  or by or on behalf of Bank shall bind and
         adhere to the benefit of their respective heirs, legal representatives,
         successors and assigns whether so expressed or not.
         10.20. NO PARTNERSHIP OR JOINT VENTURE.  Borrower and Bank  acknowledge
         and agree that nothing contained in this Agreement or in the other Loan
         Documents,  and that  nothing  contained  in any  other  instrument  or
         document  between  Borrower and Bank  relating to the Loan or Mortgaged
         Property,  shall be construed  to establish  Borrower and Bank as joint
         ventures or partners.
         10.21. NO AGENCY.  Bank is not the agent or representative of Borrower,
         and Borrower is not the agent or representative of Bank, and nothing in
         this  Agreement  shall be  construed  to make Bank liable to anyone for
         goods  delivered to or labor or services  performed  upon the Mortgaged
         Property  or for debts or claims  accruing  against  Borrower  or Bank.
         Nothing herein shall be construed to create a relationship  of any kind
         between Bank and anyone supplying labor or materials or services for or
         to the Mortgaged Property.
         10.22. ADDENDA AND EXHIBITS. Any addenda, schedules, riders or exhibits
         to this  Agreement  shall be deemed  incorporated  herein by  reference
         thereto.



                         [SIGNATURES ON FOLLOWING PAGE]
                                 SIGNATURE PAGE

IN WITNESS  WHEREOF,  the Bank,  Borrower  and  Guarantor(s)  have  caused  this
Agreement to be duly executed under seal all as of the date first above written.


                           BORROWER IS A CORPORATION:

                                                   Lynch Systems, Inc.

Attest: /s/ Janet Grimsley                  By:    /s/ Brian Fabacher
        ---------------------------                ---------------------------
        Janet Grimsley                             Brian Fabacher
Title:  Secretary                           Title: President
        ---------------------------                ---------------------------
                                            By:
                                                   ---------------------------
(Corporate Seal)
                                            Title: ---------------------------


                     ADDITIONAL CO-BORROWERS OR GUARANTORS:

WITNESS:
                                                   Lynch Corporation

/s/                                                /s/ John C. Ferrara
- ---------------------------                        --------------------------- (SEAL)

- ---------------------------                        --------------------------- (SEAL)


                                            BRANCH BANKING AND TRUST COMPANY

Attest:  /s/                                By:    /s/ Sterling H. Luce
        ---------------------------                ---------------------------
                                                   Sterling H. Luce

(Corporate Seal)                            Title: Vice President
                                                   -----------------------------


                                      -6-

EX-10.2

                                                                    EXHIBIT 10.2

                                      BB&T

                               GUARANTY AGREEMENT

BRANCH BANKING AND TRUST COMPANY                                      09/29/2005
TALLAHASSEE, FL

Dear Sirs:

            As an  inducement to Branch  Banking and Trust  Company  ("Bank") to
extend credit to and to otherwise  deal with LYNCH SYSTEMS,  INC.  ("Borrower"),
and in  consideration  thereof,  the  undersigned  (and each of the  undersigned
jointly and severally if more than one) hereby  absolutely  and  unconditionally
guarantees to Bank and its successors  and assigns the due end punctual  payment
of any and all notes,  drafts,  debts,  obligations and liabilities,  primary or
secondary  (whether by way of  endorsement or  otherwise),  of Borrower,  at any
time, now or hereafter,  incurred with or held by Bank,  together with interest,
as and when  the  same  become  due and  payable,  whether  by  acceleration  or
otherwise,  in  accordance  with the  terms of any such  notes,  drafts,  debts,
obligations  or  liabilities  or agreements  evidencing  any such  indebtedness,
obligation or liability  including all renewals,  extensions  and  modifications
thereof.  The obligation of the undersigned is a guarantee of payment and not of
collection.

            The undersigned is Bank's debtor for all  indebtedness,  obligations
and  liabilities  for which this  Guaranty  is made,  and Bank shall also at all
times  have a lien on and  security  interest  in all  stocks,  bonds  and other
securities  of the  undersigned  at any time in Bank's  possession  and the same
shall at Bank's  option be held,  administered  and disposed of as collateral to
any such indebtedness,  obligation or liability of the Borrower,  and Bank shall
also at all times have the right of set-off  against any deposit  account of the
undersigned  with Bank in the same  manner and to the same extent that the right
of set-off may exist against the Borrower.

            It is understood that any such notes, drafts, debts, obligations and
liabilities may be accepted or created by or with Bank at any time and from time
to time without notice to the undersigned,  and the undersigned hereby expressly
waives presentment,  demand,  protest, and notice of dishonor of any such notes,
drafts,  debts,  obligations  and  liabilities  or other  evidences  of any such
indebtedness, obligation or liability.

            Bank may  receive  and accept  from time to time any  securities  or
other property as a collateral to any such notes, drafts, debts, obligations and
liabilities, and may surrender,  compromise, exchange and release absolutely the
same or any part  thereof  at any time  without  notice to the  undersigned  and
without in any manner  affecting the obligation and liability of the undersigned
hereby  created.  The  undersigned  agrees that Bank shall have no obligation to
protect, perfect, secure or insure any security interests, liens or encumbrances
now or hereafter held for the  indebtedness,  obligations  and  liabilities  for
which this Guaranty is made.

            This obligation and liability on the part of the  undersigned  shall
be a primary, and not a secondary, obligation and liability, payable immediately
upon demand without  recourse first having been had by Bank against the Borrower
or any other guarantor, person, firm or corporation, and without first resorting
to any property held by Bank as collateral security;  and the undersigned hereby







waives the benefits of all  provisions of law, for stay or delay of execution or
sale of property or other  satisfaction  of judgment  against the undersigned on
account of  obligation  and  liability  hereunder  until  judgment  be  obtained
therefor  against the Borrower and execution  thereon returned  unsatisfied,  or
until  it is  shown  that  the  Borrower  has  no  property  available  for  the
satisfaction of the indebtedness,  obligation or liability guaranteed hereby, or
until any other  proceedings  can be had; and the  undersigned  hereby agrees to
Indemnify the Bank for all costs of collection, including but not limited to the
costs of repossession,  foreclosure, reasonable attorneys' fees, and court costs
incurred by the Bank in the event that the Bank should  first be required by the
undersigned  to resort to any property held by the Bank or in which the Bank has
a security  interest or to obtain execution or other  satisfaction of a judgment
against the Borrower on account of Borrower's  obligation  and liability for its
indebtedness  guaranteed  hereby;  and the  undersigned  further agrees that the
undersigned is responsible  for any obligation or debt, or portion  thereof,  of
the  Borrower  to the Bank which has been paid by the  Borrower  to the Bank and
which the Bank is  subsequently  required to return to the Borrower or a trustee
for the Borrower in any bankruptcy or insolvency proceeding; and the undersigned
further agrees that none of the undersigned shall have any right of subrogation,
reimbursement or Indemnity whatsoever, nor any right of recourse to security for
the debts and  obligations  of the  Borrower to Bank unless and until all of the
debts and  obligations  of the  Borrower  to Bank  have  been paid in full.  The
undersigned  hereby waives,  to the extent  avoidable under any provision of the
Bankruptcy  Code,  any right  arising  upon  payment by the  undersigned  of any
obligation  under this Guaranty to assert a claim against the bankruptcy  estate
of the Borrower.

Check applicable box:

[X]         This  Guaranty  is  unlimited  and  applies to all  Indebtedness  of
            Borrower, whether now existing or hereafter arising.

[ ]         This Guaranty applies to all  indebtedness of Borrower  evidenced by
            its  promissory  note number _____ dated  __________  (including all
            extensions,  renewals,  and modifications  thereof) in the principal
            amount of $_______________.

[ ]         This  Guaranty  is  limited  to an amount of  $_______________  plus
            accrued  interest,  late fees,  costs of collection  (including  all
            attorneys' fees) and all other  obligations and  indebtedness  which
            may  accrue  or  be  incurred   with   respect  to  the   Borrower's
            indebtedness and obligations to Bank.

            To  secure  the  payment  of  all  obligations  of  the  undersigned
hereunder,  the  undersigned  hereby grants a security  interest and lien in the
following     goods     and     property     owned    by    the     undersigned:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________








________________________________________________________________________________
________________________________________________________________ ("Collateral").
The  undersigned  hereby  agrees to execute  and  deliver  to Bank any  security
agreement,  deed of trust,  mortgage,  UCC financing statement or other document
required  by the Bank in order to protect its  security  interest or lien in the
Collateral.  This  document  shall  constitute  a security  agreement  under the
Uniform Commercial Code of Florida ("Code"), and in addition to having all other
legal  rights and  remedies,  the Bank shall have all rights and  remedies  of a
secured party under the Code.







            This  agreement  shall inure to the benefit of Bank,  its successors
and assigns, and the owners and holders of any of the indebtedness,  obligations
and  liabilities  hereby  guaranteed,  and shall remain in force until a written
notice  revoking it has been  received by Bank;  but such  revocation  shall not
release the undersigned  from liability to Bank, its successors and assigns,  or
the owners and holders of any of the  indebtedness,  obligations and liabilities
hereby guaranteed, for any indebtedness, obligation or liability of the Borrower
which  is  hereby  guaranteed  and  then  in  existence  or from  any  renewals,
extensions or modifications  thereof in whole or in part, whether such renewals,
extensions or modifications  are made before or after such  revocation,  with or
without notice to the undersigned.  The undersigned waives presentment,  demand,
protest  and  notices of every kind and  assents to any one or more  extensions,
modifications, renewals or postponements of the time or amount of payment or any
other  indulgences  given to Borrower.  The undersigned shall be responsible for
and shall  reimburse the Bank for all costs and expenses  (including  reasonable
attorneys' fees) incurred by the Bank in connection with the enforcement of this
Guaranty or the protection or  preservation of any right or claim of the Bank in
connection herewith, including without limitation costs and expenses incurred by
the  Bank  in  connection  with  its  attempts  to  collect  the   indebtedness,
obligations, and liabilities guaranteed hereby.

            If the  Borrower  is a  corporation,  general  partnership,  limited
partnership,  limited  liability  company,  limited  liability  partnership,  or
limited liability limited partnership,  this instrument covers all indebtedness,
obligations  and  liabilities  to Bank  purporting  to be made or  undertaken on
behalf of such entity by any such officer,  partner, manager, member or agent of
said entity without regard to the actual authority of such officer or agent. The
term  "corporation"  shall include  associations  of all kinds and all purported
corporations, whether correctly and legally chartered and organized.

            The  undersigned  covenants,  warrants,  and  represents to the Bank
that:  (i) this guaranty is  enforceable  against the  undersigned in accordance
with its terms;  (ii) the  execution  and  delivery  of this  Guaranty  does not
violate or  constitute a breach of any agreement to which the  undersigned  is a
party;  (iii) that there is no litigation,  claim,  action or proceeding pending
or, to the best knowledge of the undersigned, threatened against the undersigned
which  would  materially   adversely  affect  the  financial  condition  of  the
undersigned or his ability to fulfill his obligations  hereunder;  (iv) that the
undersigned has knowledge of the Borrower's financial condition and affairs; and
(v) unless otherwise required in a Loan Agreement, if applicable, as long as any
Obligations  remain  outstanding  or as long as Bank  remains  obligated to make
advances,  the undersigned shall furnish annually an updated financial statement
in a form  satisfactory to Bank,  which, when delivered shall be the property of
Bank.

            This Guaranty is made in and shall be construed in  accordance  with
the laws and judicial decisions of the State of Florida.  The undersigned agrees
that any dispute arising out of this Guaranty shall be adjudicated in either the
state or federal courts of Florida and in no other forum. For that purpose,  the
undersigned  hereby  submits to the  jurisdiction  of the state  and/or  federal
courts of Florida.  The undersigned  waives any defense that venue is not proper
for any action brought in any federal or state court in the State of Florida.







WAIVER OF TRIAL BY JURY.  UNLESS  EXPRESSLY  PROHIBITED BY  APPLICABLE  LAW, THE
UNDERSIGNED  HEREBY  WAIVE THE RIGHT TO TRIAL BY JURY OF ANY  MATTERS  OR CLAIMS
ARISING OUT OF THIS  GUARANTY OR THE  BORROWER'S  NOTE(S),  AND THE RELATED LOAN
DOCUMENTS  EXECUTED  IN  CONNECTION  HEREWITH  OR  OUT  OF  THE  CONDUCT  OF THE
RELATIONSHIP  BETWEEN THE UNDERSIGNED AND THE BANK OR THE BORROWER AND THE BANK.
THIS PROVISION IS A MATERIAL  INDUCEMENT FOR BANK TO ACCEPT THIS GUARANTY AND TO
MAKE THE LOAN(S) TO THE BORROWER.  FURTHER,  THE UNDERSIGNED HEREBY CERTIFY THAT
NO  REPRESENTATIVE  OR AGENT OF  BANK,  NOR  BANK'S  COUNSEL,  HAS  REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT SEEK TO ENFORCE THIS WAIVER OR RIGHT
TO JURY TRIAL PROVISION IN THE EVENT OF LITIGATION.  NO  REPRESENTATIVE OR AGENT
OF BANK,  NOR BANK'S  COUNSEL,  HAS THE AUTHORITY TO WAIVE,  CONDITION OR MODIFY
THIS PROVISION.

            Witness the signature and seal of each of the undersigned.

                         IF GUARANTOR IS A CORPORATION:

WITNESS:                                        LYNCH CORPORATION


/s/ Annmarie Laria                        By: /s/ John C. Ferrara         (SEAL)
- -----------------------------------           ---------------------------------

                                          Title: President

/s/ Margaret Tong                         By: /s/ Eugene Hyes             (SEAL)
- -----------------------------------           ----------------------------------

                                          Title: Vice President


  IF GUARANTOR IS A PARTNERSHIP, LIMITED LIABILITY COMPANY, LIMITED LIABILITY
              PARTNERSHIP OR LIMITED LIABILITY LIMITED PARTNERSHIP:

WITNESS:                                  ______________________________________
                                          NAME OF PARTNERSHIP, LLC, LLP, OR LLLP

___________________________________       By:___________________________________
                                               GENERAL PARTNER OR MANAGER (SEAL)

___________________________________       By:___________________________________
                                               GENERAL PARTNER OR MANAGER (SEAL)

___________________________________       By:___________________________________
                                               GENERAL PARTNER OR MANAGER (SEAL)

                         IF GUARANTOR IS AN INDIVIDUAL:

WITNESS:

__________________________________        ______________________________________







NOTARIZATION OF ACKNOWLEDGEMENT IN AN INDIVIDUAL CAPACITY

STATE OF FLORIDA

COUNTY OF ______________________

            The foregoing  instrument was acknowledged  before me this _____ day
of __________, ______, by ____________________________________________.
                                 (Name of Person Acknowledging)


                                 _______________________________________________
                                 (Signature of Notary Public - State of Florida)

                                 _______________________________________________
                                 (Print, Type, or Stamp Commissioned
                                 Name of Notary Public)


                                 Personally Known _____ OR
                                 Produced Identification _____
                                 Type of Identification Produced ___________


NOTARIZATION OF ACKNOWLEDGEMENT IN REPRESENTATIVE CAPACITY

STATE OF CONN

COUNTY OF FAIRFIELD

            The foregoing instrument was acknowledged before me this 30th day of
Sept, 2005, by

            JOHN FERRARA                  as              PRESIDENT
- ---------------------------------              ---------------------------------
          (Name of Person)                            (Type of Authority)

for         LYNCH CORPORATION
    ---------------------------------------------------------
    (Name of Party on Behalf of Whom Instrument Was Executed)


                                 /s/ Michael McIntosh
                                 -----------------------------------------------
                                 (Signature of Notary Public - State of Florida)

                                 Michael McIntosh
                                 -----------------------------------------------
                                 (Print, Type, or Stamp Commissioned Name of Notary Public)



                                 Personally Known _____ OR
                                 Produced Identification    X
                                                          ----
                                 Type of Identification Produced   CT DRIV LIC
                                                                   -----------

EX-10.3

                                                                    EXHIBIT 10.3


                 FIRST AMENDED AND RESTATED EXTENSION AGREEMENT

            THIS FIRST  AMENDED AND  RESTATED  EXTENSION  AGREEMENT  is made and
entered  into  as  of  October  6,  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,  Guarantor and Lender entered into an Extension  Agreement
dated as of June 24, 2005, and a First Amendment to Extension Agreement dated as
of  August  25,  2005  (collectively,  and as at any time  amended,  the  "Prior
Agreement"). Borrower and Guarantor desire that Lender accept partial payment of
the  obligations  owed to Lender in exchange  for a partial  release of Lender's
security  interests  and  extend  the due date for  repayment  of the  remaining
Obligations to the Termination Date (as hereinafter defined).  Lender is willing
to extend  the due date for  repayment  of the  Obligations  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 to amend and restate
the  Prior  Agreement  so that as so  amended  and  restated,  it shall  read 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 First Amended and Restated  Extension
            Agreement, as at any time amended.

               "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.

               "BB&T" shall mean Branch Banking and Trust Company.

               "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.

               "EXPENSE REIMBURSEMENT" shall mean $2,305, to be paid by Borrower
            to  Lender  by wire  transfer,  which  shall  be used by  Lender  to
            reimburse  it for  legal  fees and  expenses  incurred  by Lender in
            August,  September, and October (through the date of this Agreement)
            of 2005. The amount of the Expense  Reimbursement as provided herein
            is only an estimate,  and Lender  reserves the right to recover from
            Obligors and the Collateral  all costs,  fees and expenses for which
            Borrower  has  agreed  to  indemnify  Lender  pursuant  to the  Loan
            Documents.

               "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 December 31, 2005.

               "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

                                      -2-





            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.

               "NEW LC" shall mean an original  executed  Irrevocable  Letter of
            Credit,  together with a form of Sight Draft, issued by BB&T for the
            benefit of Lender, in the form of or under the terms provided in the
            document attached hereto as EXHIBIT A.

               "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.

               "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.

               "PARTIAL PAYMENT" shall mean a payment by wire transfer from BB&T
            to Lender, for the benefit of (and as an advance to) Borrower, in an
            amount not less than $760,752.17.

               "PARTIAL  RELEASE"  shall  mean a  UCC-3  Amendment  in the  form
            attached hereto as EXHIBIT B.

               "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.

                                      -3-





              (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
October 3, 2005, the aggregate  principal balance of Loans  outstanding  totaled
$756,096.50,  the  aggregate  undrawn  amount of Letters  of Credit  outstanding
totaled $281,690,  and the unpaid principal balance of the Term Loan Obligations
totaled $389,405.53, 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 liens upon or security  interests 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

                                      -4-





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.  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.  Notwithstanding  the
foregoing  and  anything to the  contrary  in this  Agreement,  Lender  shall be
permitted to draw on the New LC at any time in accordance with its terms.

            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;

               (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  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;

               (i) No Person to whom  Borrower  is indebted  for money  borrowed
accelerates the maturity or demands payment of such indebtedness, in whole or in
part;

               (j) On or before the first  Business Day after  execution of this
Agreement,  the Partial Payment,  the New LC and the Expense  Reimbursement  are
delivered to Lender; 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

                                      -5-





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,  and (iii)
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. NO LOANS OR EXTENSIONS OF CREDIT. Borrower shall not be permitted
to obtain any Loans from Lender  pursuant to the Credit  Agreement or otherwise,
but Lender shall be entitled,  in its sole and absolute discretion,  to make one
or more Loans to Borrower to refinance or to reimburse Lender for any Obligation
as provided in the Credit Agreement.

            7. PARTIAL PAYMENT AND PARTIAL RELEASE OF SECURITY  INTEREST.  On or
before the first Business Day after execution of this Agreement,  Borrower shall
cause  the  Partial  Payment,  the  Expense  Reimbursement  and the New LC to be
delivered to Lender. No later than two (2) Business Days after the date on which
Lender has  received  the  Partial  Payment and the  Expense  Reimbursement  (in
immediately  available  funds) and the New LC,  Lender  shall  cause the Partial
Release to be filed with the  Secretary  of State of the State of South  Dakota.
Neither Lender's acceptance of the Partial Payment nor the filing of the Partial
Release  is  intended  or  shall  be  construed  to  constitute  an  accord  and
satisfaction,  a  reinstatement  of the  maturity of any of the  Obligations,  a
release of any of the  Obligations  (other than that portion of the  Obligations
that are repaid by the Partial  Payment),  or a release of any of Lender's liens
upon and  security  interests  in property of Borrower  that is not  included as
released collateral in the Partial Release.

            8. APPLICABLE RATE OF INTEREST.

               (a) From and  after  the date of this  Agreement,  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 5-1/2%  per
annum, calculated and paid in accordance with the terms of the Term Note.

               (b) If by October 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  Obligations  shall be
increased by 100 basis points, effective November 1, 2005.

               (c) If by November 30, 2005, Borrower has not delivered to Lender
an Acceptable  Commitment Letter, then the otherwise applicable rate of interest
with respect to the  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 8), effective December 1, 2005.

                                      -6-





               (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.

            9. 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.

            10.  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.

            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) each
Obligor is entering into this Agreement  freely and voluntarily  with the advice
of legal counsel of his or its own choosing; and (f) each Obligor has freely and
voluntarily  agreed to the releases,  waivers and undertakings set forth in this
Agreement.

            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

                                      -7-





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, the
Prior 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 acceptance of the Partial Payment and filing
of the Partial Release, 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
Lender's execution of and performance under 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;   FACSIMILE  SIGNATURES;  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.  Any signed  counterpart of this Agreement that is
transmitted by facsimile  transmission shall be deemed to constitute an original
counterpart for all purposes. In proving this Agreement,  the Prior 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.

                                      -8-





            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/ Janet Grimsley                             By: /s/ Brian Fabacher
- --------------------------------                   -----------------------------
Secretary                                      Title: President

ATTEST:                                        LYNCH CORPORATION
                                               ("Guarantor")

/s/ Eugene Hyes                                By: /s/ John C. Ferrara
- --------------------------------                   -----------------------------
Secretary                                      Title: President
                                                     ---------------------------
                                                     ---------------------------

                                               Accepted on October  6, 2005.


                                               SUNTRUST BANK
                                               ("Lender")

                                               By:  /s/ Gregory B. Griner
                                                  ------------------------------
                                               Title: Senior Vice President
                                                     ---------------------------
                                                     ---------------------------

                                      -9-