Exhibit 10.3


 


THIRD AMENDMENT TO
SECOND LIEN CREDIT AGREEMENT


 


This Third Amendment
to Second Lien Credit Agreement (this “Amendment”)
is entered into as of October 16, 2009 (the “Amendment Effective Date”), by and among KRATOS DEFENSE AND SECURITY SOLUTIONS, INC.,
a Delaware corporation (“Borrower”),
the guarantors referred to in the Credit Agreement (as defined below), KEYBANK NATIONAL ASSOCIATION, as
Administrative Agent (“Administrative Agent”)  and the Lenders party hereto.


 


RECITALS


 


WHEREAS, reference is made to that certain Second Lien Credit Agreement, dated
as of December 31, 2007 (as amended from time to time, the “Credit Agreement”; capitalized terms used
herein without definition have the meanings ascribed to such terms in the
Credit Agreement), among Borrower, KeyBank National Association, as
administrative agent and issuing lender thereunder, and the lenders party
thereto;


 


WHEREAS, Borrower has requested
that the Administrative Agent and the Lenders agree to amend the Credit
Agreement to effect certain changes thereto;


 


WHEREAS,
subject to the terms and conditions hereof, the
Administrative Agent and the Lenders have agreed to make such requested
amendments to the Credit Agreement;


 


NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto hereby agree as follows:


 


Section References.  Unless otherwise expressly
stated herein, all Section references herein shall refer to Sections of
the Credit Agreement.


 


Amendments to Section 1.1 of the
Credit Agreement.  Section 1.1 of the Credit Agreement is
hereby amended by:


 


adding the following clause (m) to
the definition of “Consolidated EBITDA”,
immediately after existing clause (l) thereof:


 


“(m)        the amount of any insurance proceeds received from and after the Third
Amendment Effective Date during any period by Borrower or any of its
Subsidiaries to reimburse Borrower or such Subsidiary for costs that reduced
Consolidated Net Income and were recorded in such


 


1

















 


period or a prior period but in any case
subsequent to January 1, 2008, to the extent such amount has not otherwise
been included in the calculation of Consolidated Net Income or been added to
Consolidated Net Income pursuant to any other clause of this definition;”;


 


adding the following clause (w) to
the definition of “Consolidated EBITDA”,
immediately before existing clause (x) thereof:


 


“(w)        the amount of any insurance proceeds increasing Consolidated Net Income
received from and after the Third Amendment Effective Date during any period by
Borrower or any of its Subsidiaries to reimburse costs recorded in periods
prior to January 1, 2008;”;


 


inserting the following defined terms in
alphabetical order therein:


 


““Third Amendment” means that certain Third
Amendment to Second Lien Credit Agreement, dated as of October 16, 2009,
by and among Borrower, the Guarantors, the Administrative Agent and the Lenders
party thereto.


 


“Third
Amendment Effective Date” means
the “Amendment Effective Date” as defined in the Third Amendment.”


 


Amendment to Schedule 7.12(c) of
the Credit Agreement.  Schedule 7.12(c) of the Credit Agreement
is hereby amended by deleting the text thereof in its entirety and inserting
the following in lieu thereof:


 


SCHEDULE 7.12(c)


 


MINIMUM LIQUIDITY RATIO


 


	
  Fiscal Quarter

  Ending

  	
   

  	
  Liquidity

  Ratio

  	
   

  
	
  December 31,
  2007

  	
   

  	
  1.17:1.00

  	
   

  
	
  March 31, 2008

  	
   

  	
  1.25.1.00

  	
   

  
	
  June 30, 2008

  	
   

  	
  1.25:1.00

  	
   

  
	
  September 30,
  2008

  	
   

  	
  1.26:1.00

  	
   

  
	
  December 31,
  2008

  	
   

  	
  1.39:1.00

  	
   

  



 


2

















 


	
  Fiscal Quarter

  Ending

  	
   

  	
  Liquidity

  Ratio

  	
   

  
	
  March 31, 2009

  	
   

  	
  1.24:1.00

  	
   

  
	
  June 30, 2009

  	
   

  	
  1.22:1.00

  	
   

  
	
  September 30,
  2009

  	
   

  	
  1.20:1.00

  	
   

  
	
  December 31,
  2009

  	
   

  	
  1.18:1.00

  	
   

  
	
  March 31, 2010

  	
   

  	
  1.07:1.00

  	
   

  
	
  June 30, 2010

  	
   

  	
  1.05:1.00

  	
   

  
	
  September 30,
  2010

  	
   

  	
  1.05:1.00

  	
   

  
	
  December 31,
  2010

  	
   

  	
  1.04:1.00

  	
   

  
	
  March 31, 2011

  	
   

  	
  1.03:1.00

  	
   

  
	
  June 30, 2011

  	
   

  	
  1.03:1.00

  	
   

  
	
  September 30,
  2011

  	
   

  	
  1.04:1.00

  	
   

  
	
  December 31,
  2011

  	
   

  	
  0.92:1.00

  	
   

  
	
  March 31, 2012

  	
   

  	
  0.97:1.00

  	
   

  
	
  June 30, 2012

  	
   

  	
  1.02:1.00

  	
   

  
	
  September 30,
  2012

  	
   

  	
  1.09:1.00

  	
   

  
	
  December 31,
  2012

  	
   

  	
  1.25:1.00

  	
   

  



 


Conditions Precedent.  The effectiveness of this
Amendment is subject to the satisfaction of each of the following conditions
precedent:


 


The Lenders shall have received all of
the following, in form and substance satisfactory to the Lenders:


 


Amendment.  This Amendment, duly executed
and delivered by each Credit Party, the Administrative Agent and the Lenders;


 


Settlement
Agreement and Releases.  A copy of the Settlement Agreement and
General Release of Claims, in the form attached hereto as Exhibit A, and
evidence that such Settlement Agreement and General Release of Claims has been
duly executed and delivered by Borrower, KeyBank National Association, Field
Point III, Ltd. and SPF CDO I, Ltd.;


 


3

















 


First
Lien Amendment.  A copy of the Third Amendment to First Lien
Credit Agreement, in the form attached hereto as Exhibit B (the “Third Amendment to First Lien Credit Agreement”),
and evidence that such Third Amendment to First Lien Credit Agreement has been
duly executed and delivered by each Credit Party, the First Lien Administrative
Agent and the lenders party to the First Lien Credit Agreement;


 


Costs
and Expenses.  The costs, expenses and other amounts payable
on the Amendment Effective Date referred to in Section 8 hereof; and


 


Additional
Information.  Such additional documents, instruments and
information as Administrative Agent may reasonably request to effect the
transactions contemplated hereby, including, without limitation, evidence of
corporate authorization and an opinion of Borrower’s outside counsel as to
typical corporate matters such as authorization, lack of conflicts and
enforceability.


 


PIPE Transaction.  Borrower shall have
consummated a PIPE transaction (the “PIPE
Transaction”) that shall have yielded Net Cash Equity Proceeds (as
defined in the Third Amendment to First Lien Credit Agreement) of at least
$17,000,000.  The Net Cash Equity
Proceeds from such PIPE Transaction shall have been applied as set forth in Section 11(b) of
the Third Amendment to First Lien Credit Agreement on the terms set forth
therein.


 


Representations and Warranties.  On the Amendment Effective
Date, the representations and warranties contained herein and in the other Loan
Documents shall be true and correct in all material respects on and as of the
Amendment Effective Date to the same extent as though made on and as of that
date, except to the extent such representations and warranties 


 


4

















 


specifically relate to an earlier date, in
which case such representations and warranties shall have been true and correct
in all material respects on and as of such earlier date.


 


Completion of Proceedings.  All partnership, corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby shall be satisfactory in form and substance to
Administrative Agent and its counsel, and Administrative Agent and such counsel
shall have received all such counterpart originals or certified copies of such
documents as Administrative Agent may reasonably request.


 


No Default.  On the Amendment Effective
Date after giving effect to this Amendment, no event shall have occurred and be
continuing that would constitute a Default or an Event of Default.


 


Representations and Warranties;
Reaffirmation of Grant.  Each Credit Party hereby represents and
warrants to the Administrative Agent and the Lenders that, as of the Amendment
Effective Date and after giving effect to this Amendment, (a) all
representations and warranties of the Credit Parties set forth in the Credit
Agreement and in any other Loan Document are true and correct in all material
respects on and as of the Amendment Effective Date to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date, (b) no Default or Event of Default
has occurred and is continuing, (c) the Credit Agreement (as amended by
this Amendment) and all other Loan Documents are and remain legally valid,
binding obligations of the Credit Parties, enforceable against each such Credit
Party in accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors’ rights generally or by equitable principles relating to
enforceability, and (d) each of the Security Documents to which such
Credit Party


 


5

















 


is a party and all of the Collateral described
therein do and shall continue to secure the payment of all Obligations as set
forth in such respective Security Documents. 
Each Credit Party that is a party to the Pledge and Security Agreement
or any of the other Security Documents hereby reaffirms its grant of a security
interest in the Collateral to the Administrative Agent for the ratable benefit
of the Secured Parties (as defined in the Pledge and Security Agreement), as
collateral security for the prompt and complete payment and performance when
due of the Obligations.


 


Survival of Representations and
Warranties.  All representations and warranties made in
this Amendment or any other Loan Document shall survive the execution and
delivery of this Amendment, and no investigation by the Administrative Agent or
the Lenders shall affect the representations and warranties or the right of the
Administrative Agent and the Lenders to rely upon them.  If any representation or warranty made in
this Amendment is false in any material respect as of the date made or deemed
made, then such shall constitute an Event of Default under the Credit Agreement.


 


Reference to Agreement.  Each of the Loan Documents,
including the Credit Agreement, and any and all other agreements, documents or
instruments now or hereafter executed and/or delivered pursuant to the terms
hereof or pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference in such Loan Documents to the Credit
Agreement, whether direct or indirect, shall mean a reference to the Credit
Agreement as amended hereby.  This
Amendment shall constitute a Loan Document under the Credit Agreement.


 


Costs and Expenses of the Lenders.  Company shall pay on the Third
Amendment Effective Date the fees set forth in Section 15 of the Third
Amendment to First Lien Credit Agreement.


 


6

















 


Governing Law.  THIS AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.


 


Execution.  This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of a
signature page to this Amendment by telecopier (or electronic mail (in PDF
format)) shall be effective as delivery of a manually executed counterpart of
this Amendment.


 


Limited Effect.  This Amendment relates only to
the specific matters expressly covered herein, shall not be considered to be a
waiver of any rights, claims or remedies the Borrower or any Lender may have
under, or compliance by the Borrower or any Lender with any term or provision
of, the Credit Agreement or any other Loan Document or applicable law, and
shall not be considered to create a course of dealing or to otherwise obligate
in any respect any Lender to execute similar or other amendments or grant any
waivers under the same or similar or other circumstances in the future.


 


Ratification by Guarantors.  Each of the Guarantors
acknowledges that its consent to this Amendment is not required, but each of
the undersigned nevertheless does hereby agree and consent to this Amendment
and to the documents and agreements referred to herein.  Each of the Guarantors agrees and
acknowledges that (i) notwithstanding the effectiveness of this Amendment,
such Guarantor’s guaranty shall remain in full force and effect without
modification thereto and (ii) nothing herein shall in any way limit any of
the terms or provisions of such Guarantor’s guaranty or any other Loan Document
executed by such Guarantor (as the same may be amended from time to time),


 


7

















 


all of which are hereby ratified, confirmed and
affirmed in all respects.  Each of the
Guarantors hereby agrees and acknowledges that no other agreement, instrument,
consent or document shall be required to give effect to this section.  Each of the Guarantors hereby further
acknowledges that Borrower, the Administrative Agent and any Lender may from
time to time enter into any further amendments, modifications, terminations
and/or waivers of any provisions of the Loan Documents without notice to or
consent from such Guarantor and without affecting the validity or
enforceability of such Guarantor’s guaranty or giving rise to any reduction,
limitation, impairment, discharge or termination of such Guarantor’s guaranty.


 


[signature pages follow]


 


8














 


IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.


 


	
   

  	
  KRATOS DEFENSE AND SECURITY
  SOLUTIONS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTORS

  
	
   

  	
   

  	
   

  
	
   

  	
  MADISON RESEARCH CORPORATION, an Alabama corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KRATOS COMMERCIAL SOLUTIONS,
  INC. (f/k/a
  SecurePlanet, Inc.), a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WFI NMC CORP., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KRATOS TEXAS, INC. (f/k/a
  WFI Texas, Inc.),  a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  KRATOS SOUTHEAST, INC. (f/k/a
  WFI Georgia Inc.), a Georgia
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KRATOS MID-ATLANTIC, INC.
  (f/k/a WFI Delaware Inc.), a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KRATOS GOVERNMENT SOLUTIONS,
  INC. (f/k/a WFI Government Services, Inc.), a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEFENSE SYSTEMS,
  INCORPORATED, a Virginia
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JMA ASSOCIATES, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  HAVERSTICK CONSULTING, INC., an Indiana corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HGS HOLDINGS, INC., an Indiana corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HAVERSTICK GOVERNMENT
  SOLUTIONS, INC., an Ohio
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DTI ASSOCIATES, INC., a Virginia corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ROCKET SUPPORT SERVICES, LLC, an Indiana limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By: HGS Holdings, Inc., its sole member
  and sole manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  KRATOS SOUTHWEST L.P. (f/k/a
  WFI Southwest L.P.), a Texas
  limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By: Kratos Texas, Inc., a Texas
  corporation, its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SYS, a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  POLEXIS, INC., a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SHADOW I, INC., a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  SHADOW II, INC., a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SHADOW III, INC., a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  REALITY BASED IT SERVICES,
  LTD., a Maryland corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AI METRIX, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DIGITAL FUSION, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  DIGITAL FUSION SOLUTIONS,
  INC., a Florida corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SUMMIT RESEARCH CORPORATION, an Alabama corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit
  Agreement Signature Page

  



 

















 


	
   

  	
  KEYBANK NATIONAL ASSOCIATION, as Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit Agreement
  Signature Page

  



 

















 


	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  KEYBANK NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Third Amendment to Second Lien Credit Agreement Signature Page

  



 

















 


Exhibit A


 


Settlement
Agreement and General Release of Claims


 

















 


Exhibit B


 


Third
Amendment to First Lien Credit Agreement


 


18