Exhibit 10.5

 

LOGO [g149634g77z81.jpg]   SECURITY AGREEMENT

This Security Agreement is executed at Irvine, California on February 4, 2011 ,
by Pro-Dex, Inc., a Colorado corporation (herein called “Debtor”).

As security for the payment and performance of all of Debtor’s obligations to
UNION BANK, N.A., (herein called “Bank”), regardless of the manner in which or
the time at which such obligations arose or shall arise, whether direct or
indirect, alone or with others, or absolute or contingent, Debtor hereby grants
a continuing security interest in, and assigns and transfers to Bank, the
following personal property, whether or not delivered to or in the possession or
control of Bank or its agents, and whether now or hereafter owned or in
existence, and all proceeds thereof (hereinafter called the “Collateral”):

All present and hereafter acquired personal property including but not limited
to all accounts, chattel paper, instruments, contract rights, general
intangibles, goods, equipment, inventory, documents, certificates of title,
deposit accounts, returned or repossessed goods, fixtures, commercial tort
claims, insurance claims, rights and policies, letter of credit rights,
investment property, supporting obligations, and the proceeds, products, parts,
accessories, attachments, accessions, replacements, substitutions, additions,
and improvements of or to each of the foregoing.

Entities executing this Security Agreement as Debtor agree not to change their
state of organization, principal place of business (if a general partnership or
other nonregistered entity) or name, as identified below, without Bank’s prior
written consent:

 

LEGAL NAME OF DEBTOR

 

STATE OF ORGANIZATION / PRINCIPAL PLACE OF BUSINESS

Pro-Dex, Inc.   State of Colorado

AGREEMENT

1. The term “credit” or “indebtedness” is used throughout this Agreement in its
broadest and most comprehensive sense. Credit may be granted at the request of
any one Debtor without further authorization by or notice to any other Debtor.
Collateral shall be security for all nonconsumer indebtedness of Debtor to Bank
in accordance with the terms and conditions herein.

2. Debtor will: (a) pay when due all indebtedness to Bank; (b) execute such
other documents and do such other acts and things as Bank may from time to time
require to establish and maintain a valid perfected security interest in
Collateral, including payment of all costs and fees in connection with any of
the foregoing when deemed necessary by Bank; (c) furnish Bank such reasonable
information concerning Debtor and Collateral as Bank may from time to time
request, including but not limited to current financial statements; (d) keep
Collateral separate and identifiable where such Collateral is currently located
and permit Bank and its representatives to inspect Collateral and/or records
pertaining thereto from time to time during normal business hours; (e) not sell,
assign or create or permit to exist any lien on or security interest in
Collateral in favor of anyone other than Bank unless Bank consents thereto in
writing and at Debtor’s expense upon Bank’s request remove any unauthorized lien
or security interest and defend any claim affecting the Collateral; (f) pay all
charges against Collateral prior to delinquency including but not limited to
taxes, assessments, encumbrances, insurance and diverse claims, and upon
Debtor’s failure to do so Bank may pay any such charge as it deems necessary and
add the amount paid to the indebtedness of Debtor hereunder; (g) protect, defend
and maintain the Collateral and the perfected security interest of Bank and
initiate, commence and maintain any action or proceeding to protect the
Collateral; (h) reimburse Bank for any expenses, including but not limited to
reasonable attorneys’ fees and expenses (including the allocated costs of Bank’s
in-house counsel and legal staff) incurred by Bank in seeking to protect,
collect or enforce any rights in Collateral; (i) when required, provide
insurance in form and amounts and with companies acceptable to Bank and when
required, assign the policies or the rights thereunder to Bank; (j) maintain
Collateral in good condition and not use Collateral for any unlawful purpose;
(k) perform all of the obligations of the Debtor under the Collateral and save
Bank harmless from the consequence of any failure to do so; and (l) at its own
expense, upon request of Bank following a default, notify any parties obligated
to Debtor on any Collateral to make payment to Bank and Debtor hereby
irrevocably grants Bank power of attorney to make said notifications and
collections. Debtor hereby appoints Bank the true and lawful attorney of Debtor
and authorizes Bank to perform any and all acts which Bank in good faith deems
necessary for the protection and preservation of Collateral or its value or
Bank’s perfected security interest therein, including transferring any
Collateral into its own name and receiving the income thereon as additional
security hereunder. Bank does not assume any of the obligations arising under
the Collateral.

3. Debtor warrants that: (a) it is and will be the lawful owner of all
Collateral free of all claims, liens, encumbrances and setoffs whatsoever, other
than the security interest granted pursuant hereto; (b) it has the capacity to
grant a security interest in Collateral to Bank; (c) all information furnished
by Debtor to Bank heretofore or hereafter, whether oral or written, is and will
be correct and true as of the date given; and (d) if Debtor is an entity, the
execution, delivery and performance hereof are within its powers and have been
duly authorized.

4. The term default shall mean the occurrence of any of the following events:
(a) failure of Debtor to make any payment of any indebtedness to Bank when due;
(b) deterioration or impairment of the value of any of the Collateral; (c) any
breach, misrepresentation or other default by Debtor under this Agreement or any
other agreements between Bank and Debtor; (d) “intentionally deleted” (e) the
deterioration of financial condition of Debtor which results in Bank deeming
itself, in good faith, insecure.

5. Whenever a default exists, Bank, at its option, may: (a) without notice
accelerate the maturity of any part or all of the indebtedness and terminate any
agreement for the granting of further credit to Debtor; (b) sell, lease or
otherwise dispose of Collateral at public or private sale; (c) transfer any
Collateral into its own name or that of its nominee; (d) retain Collateral in
satisfaction of obligations secured hereby, with notice of such retention sent
to Debtor as required by law; (e) notify any parties obligated on any Collateral
consisting of accounts, instruments, chattel paper, choses in action or the like
to make payment to Bank and enforce collection of any Collateral; (f) file any
action or proceeding which Bank may deem necessary or appropriate to protect and
preserve the right, title and interest of the Bank in the Collateral;
(g) require Debtor to assemble and deliver any Collateral to Bank at a
reasonably convenient place designated by Bank; (h) apply all sums received or
collected from or on account of Collateral, including the proceeds of any sale
thereof, to the payment of the costs and expenses incurred in preserving and
enforcing rights of Bank, including reasonable attorneys’ fees (including the
allocated costs of Bank’s in-house counsel and legal staff), and indebtedness
secured hereby in such order and manner as Bank in its sole discretion
determines; Bank shall account to Debtor for any surplus remaining thereafter,
and shall pay such surplus to the party entitled thereto, including any second
secured party who has made a proper demand upon Bank and has furnished proof to
Bank as requested in the manner provided by law; in like manner, Debtor agrees
to pay to Bank without demand any deficiency after any Collateral has been
disposed of and proceeds applied as aforesaid; and (i) exercise its banker’s
lien or right of setoff in the same manner as though the credit were unsecured.
Bank shall have all the rights and remedies of a secured party under the Uniform
Commercial Code of California and in any jurisdiction where enforcement is
sought, whether in said state or elsewhere. All rights, powers and remedies of
Bank hereunder shall be cumulative and not alternative. No delay on the part of
Bank in the exercise of any right or remedy shall constitute a waiver thereof
and no exercise by Bank of any right or remedy shall preclude the exercise of
any other right or remedy or further exercise of the same remedy.

6. Debtor waives: (a) all right to require Bank to proceed against any other
person including any other Debtor hereunder or to apply any Collateral Bank may
hold at any time or to pursue any other remedy; Collateral, endorsers or
guarantors may be released, substituted or added without affecting the liability
of Debtor hereunder; (b) the defense of the Statute of Limitations in any action
upon any obligations of Debtor secured hereby; (c) any right of subrogation and
any right to participate in Collateral until all obligations secured hereby have
been paid in full; (d) to the fullest extent permitted by law, any right to
oppose the appointment of a receiver or similar official to operate Debtor’s
business.

7. The right of Bank to have recourse against Collateral shall not be affected
in any way by the fact that the credit is secured by a mortgage, deed of trust
or other lien upon real property.

8. The security interest granted herein is irrevocable and shall remain in full
force and effect until there is payment in full of the indebtedness or the
security interest is released in writing by Bank.

 

 

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9. Debtor shall be obligated to request the release, reassignment or return of
Collateral after the payment in full of all existing obligations. Bank shall be
under no duty or obligation to release, reassign or return any Collateral except
upon the express written request of Debtor and then only where all of Debtor’s
obligations hereunder have been paid in full.

10. If more than one Debtor executes this Agreement, the obligations hereunder
are joint and several. All words used herein in the singular shall be deemed to
have been used in the plural when the context and construction so require. Any
married person who signs this Agreement expressly agrees that recourse may be
had against his/her separate property for all of his/her obligations to Bank.

11. This Agreement shall inure to the benefit of and bind Bank, its successors
and assigns and each of the undersigned, their respective heirs, executors,
administrators and successors in interest. Upon transfer by Bank of any part of
the obligations secured hereby, Bank shall be fully discharged from any
liability with respect to Collateral transferred therewith.

12. Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but, if any
provision of this Agreement shall be prohibited or invalid under applicable law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such or the remaining
provisions of this Agreement.

The grant of a security interest in proceeds does not imply the right of Debtor
to sell or dispose of any Collateral without the express consent in writing by
Bank.

 

 

“Debtor”

 

Pro-Dex, Inc., a Colorado corporation

By:   /s/ Mark P. Murphy   Mark Murphy, CEO By:   /s/ Harold A. Hurwitz   Harold
A. Hurwitz, CFO & Secretary

 

 

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