THIRD AMENDMENT TO CREDIT AGREEMENT

EXHIBIT 10.38

THIRD AMENDMENT TO CREDIT AGREEMENT

This Third Amendment to Credit Agreement is made as of this 29^th day of January, 2003, by and between Cape Cod Bank and Trust Company, NA (“Lender”), a National Association, with offices at 0 Xxxxxxx Xxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxxxx 00000 and Benthos, Inc. (“Borrower”), a Massachusetts corporation with its principal place of business at 00 Xxxxxxxx Xxxxx, Xxxxx Xxxxxxxx, Xxxxxxxxxxxxx 00000.

RECITALS:

A. Borrower and Lender entered into a certain Credit Agreement dated August 18, 1999, as amended by a First Amendment to Credit Agreement and Amendment to Revolving Note and Term Note dated March 23, 2001 and as further amended by a Second Amendment to Credit Agreement dated December 12, 2001 (the “Credit Agreement”) regarding: (i) a Commercial Variable Rate Revolving or Draw Note dated August 18, 1999, as amended by an Amendment dated December 8, 2000, a Second Amendment dated March 23, 2001, a Third Amendment dated July 9, 2001 and a Fourth Amendment dated December 12, 2001 (the “Revolving Note”), (ii) a Commercial Variable Rate Promissory Note August 18, 1999, as amended by an Amendment dated October 17, 2000, a Second Amendment dated March 23, 2001 and a Third Amendment dated December 12, 2001 (the “Term Note”), and (iii) other instruments and agreements executed in conjunction therewith;

B. Borrower and Lender now desire to further amend the Credit Agreement and to further amend the Revolving Note as set forth herein and in a separate amendment of even date herewith to said Revolving Note.

AGREEMENTS:

Now, therefore, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Lender and the Borrower hereby agree as follows:

1. Capitalized terms used herein shall have the meaning given to them in the Credit Agreement unless separately defined herein.

2. As of January 29th, 2003, the outstanding principal balance of the Revolving Loan under the Revolving Note is $300,000.00 and the outstanding principal balance of the Term Loan under the Term Note is $2,815,472.21.

3. The definition of “Expiration Date” as set forth in Section 1.01 of the Credit Agreement is hereby amended to be January 31, 2004.

4. Section 6.02 of the Credit Agreement is hereby amended by adding the following paragraph:

“(e) assurance in form and substance satisfactory to Lender from the Borrower’s auditors that the Borrower’s year end September 30, 2002 audit (and future assurances for future year end audits) will not contain a “going concern opinion”.

5. Section 8.02(a) of the Credit Agreement is hereby deleted and replaced with the following paragraph:

a. “The Borrower will maintain a ratio of Current Assets to Current Liabilities of greater than or equal to:

(i) 1.53 to 1.00 as of December 31, 2002;

(ii) 1.49 to 1.00 as of March 31, 2003;

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(iii) 1.52 to 1.00 as of June 30, 2003; and

(iv) 1.64 to 1.00 as of September 30, 2003.”

6. Section 8.02(b) of the Credit Agreement is hereby deleted and replaced with the following:

b. “The Borrower shall maintain a ratio of Total Debt to Tangible Net Worth less than or equal to:

(i) 2.71 to 1.00 as of December 31, 2002;

(ii) 2.71 to 1.00 as of March 31, 2003;

(iii) 2.35 to 1.00 as of June 30, 2003; and

(iv) 1.87 to 1.00 as of September 30, 2003.

Tangible Net Worth shall equal total assets minus total liabilities minus intangible assets.”

7. Section 8.02(c) of the Credit Agreement is hereby deleted and replaced with the following:

c. “The Borrower shall maintain a ratio of Cash Flow to Debt Service Payments, which on a cumulative basis for the applicable period shall be greater than or equal to the following:

(i) (negative) - .32 to 1.00 for quarter ending December 31, 2002;

(ii) .13 to 1.00 for quarter ending March 31, 2003;

(iii) .73 to 1.00 for quarter ending June 30, 2003; and

(iv) .96 to 1.00 for quarter ending September 30, 2003.

This ratio will be calculated on a cumulative basis and will be determined as follows: (x) Net profit after taxes (a) plus interest

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expense, (b) plus seventy-five percent (75%) of depreciation, (c) plus amortization (y) divided by interest expense plus the current maturity of principal for the year.”

8. Section 10.01 of the Credit Agreement is hereby amended by deleting from subsection (b) the words “Xxxxxx Xxxxxxxx, LLP” and inserting the words “BDO Xxxxxxx, LLP” in its place and by adding the following paragraph:

“(o) promptly upon receipt thereof, copies of all management letters and other reports which are submitted to Borrower by its independent auditors.”

9. Section 11.01(m) of the Credit Agreement is amended by deleting “September 20, 2001” and inserting “September 30, 2002” in its place.

10. Except as provided herein, the Credit Agreement, as previously amended, shall remain unchanged. The Credit Agreement as previously amended and as further amended hereby is hereby ratified and confirmed.

Witness:				BENTHOS, INC.
/s/    XXXXXXX X. XXXXX, XX.				By:		/s/    XXXXXX X. XXXXXXXXX
				Name:		Xxxxxx X. Xxxxxxxxx
				Title:		Chief Executive Officer and President
Witness:				CAPE COD BANK AND TRUST COMPANY, NA
/s/    XXXXX X. XXXXXXXXX				By:		/s/    XXXXXXX X. XXXXXXXX III
				Name:		Xxxxxxx X. Xxxxxxxx III
				Title:		Senior Vice President

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