EXHIBIT 10.3

TERM NOTE A

U.S. $5,000,000.00

Dated as of September 6, 2018

FOR VALUE RECEIVED, the undersigned, PRO-DEX, INC., a Colorado corporation (the
“Borrower”), promises to pay to the order of MINNESOTA BANK & TRUST, a Minnesota
state banking corporation (the “Lender”), the principal sum of FIVE MILLION AND
No/100ths DOLLARS (U.S. $5,000,000.00) on or before October 1, 2025, or such
earlier date as this promissory note (this “Note”) may be declared due and
payable by Lender pursuant to the terms hereof and the terms of the Credit
Agreement (the “Maturity Date”), together with interest on the principal amount
thereof outstanding from time to time at the rate or rates described below, and
any and all other amounts which may be due and payable hereunder or under any of
the Loan Documents (as hereinafter defined) from time to time.  This Note is
made pursuant to the terms and conditions set forth in that certain Credit
Agreement dated of even date herewith by and between Borrower and Lender (as
amended, modified, supplemented or restated from time to time being the “Credit
Agreement”).  The amount disbursed by the Lender to Borrower, repayment of which
is evidenced by this Note, is referred to as the “Loan”.  All capitalized terms
used and not expressly defined herein shall have the meanings given to such
terms in the Credit Agreement.

Interest Prior to Default.

(a)

Interest Rate.  The Borrower promises to pay interest on the unpaid principal
amount hereof from the date hereof until such principal amount is paid in full
at a per annum rate of interest (the “Interest Rate”) of 5.53%.

(b)

Change in Capital Adequacy Requirements.  If Lender shall determine that the
adoption after the date hereof (for purposes of this Agreement, the Dodd-Frank
Wall Street Reform and Consumer Protection Act and all guidelines and
regulations adopted in connection therewith are deemed to have been adopted
after the date hereof) of any applicable law, rule or regulation regarding
capital adequacy, or any change in any existing law, rule or regulation
regarding capital adequacy, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration of any such law, rule
or regulation regarding capital adequacy, or compliance by Lender (or any of its
branches) with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on Lender’s
capital as a consequence of its obligations hereunder or for the credit which is
the subject matter hereof to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into consideration Lender’s
policies with respect to liquidity and capital adequacy) by an amount deemed by
Lender to be material, then from time to time, within fifteen (15) days after
demand by Lender, Borrower shall pay to Lender such additional

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TERM NOTE A

Page 2

U.S. $5,000,000.00

Dated as of September 6, 2018

amount or amounts reasonably determined by Lender as will compensate Lender for
such reduction.

(c)

Interest After Default.  Upon the occurrence and during the continuance of an
Event of Default, including failure to pay upon final maturity, the interest
rate on this Note shall be increased by adding an additional 3.000 percentage
point margin (“Default Rate Margin”) over the interest rate that would otherwise
be in effect hereunder.  However, in no event will the interest rate exceed the
maximum interest rate limitations under applicable law.

Payment Terms.  

(a)

Principal and Interest.  Payments of principal and interest due under this Note,
if not sooner declared to be due in accordance with the provisions hereof, shall
be made as follows (each such date when a payment is due and payable, a “Payment
Date”):

(i)

On October 1, 2018, the Borrower shall make a payment of accrued interest;

(ii)

On the first day of each subsequent month and continuing until the Maturity
Date, the Borrower shall make payments of principal in the amount of $71,921.43
plus accrued interest; and

(iii)

The Loan shall be due and payable, and Borrower hereby promises to pay the
outstanding principal amount of the Loan to Lender, together with all accrued
interest thereon then remaining unpaid and all other unpaid amounts, charges,
fees and expenses outstanding under this Note or under any of the other Loan
Documents, on the Maturity Date.

(b)

Method of Payments. Both principal and interest are payable in lawful money of
the United States of America to the Lender at 7701 France Avenue South, Edina,
MN 55435 (or other location specified by the Lender) in immediately available
funds.  By its execution of this Note, the Borrower authorizes the Lender to
charge from time to time against any of Borrower’s depository accounts
maintained with the Lender any such payments when due and the Lender will use
its reasonable efforts to notify the Borrower of such charges.

Interest Calculation Method.  Interest on this Note shall be calculated on the
basis of a 360-day year and the actual number of days elapsed in any portion of
a month in which interest is due.  If any payment to be made by the Borrower
hereunder shall become due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.

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TERM NOTE A

Page 3

U.S. $5,000,000.00

Dated as of September 6, 2018

Prepayment; Minimum Interest Charge.  Borrower may voluntarily prepay the loan
evidenced by this Note in whole or in part at any time; provided, however, that
any such prepayment shall be accompanied by a prepayment premium in immediately
available funds (the “Prepayment Premium”) equal to: (1) 4% of the amount
prepaid if such event occurs during the first Loan Year; (2) 3% of the amount
prepaid if such event occurs during the second Loan Year; (3) 2% of the amount
prepaid if such event occurs during the third Loan Year; or (4) 1% of the amount
prepaid if such event occurs in any subsequent Loan Year.  For purposes of this
Note, the term “Loan Year” shall mean the 12-month period commencing on the date
of this Note (or the anniversary date thereof in any subsequent year) and ending
on the day preceding the immediately following anniversary date of this Note
(i.e., the first Loan Year shall end on September 5, 2019 and the second Loan
Year shall commence on September 6, 2019).  Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to
continue to make payments of accrued unpaid interest.  Rather, early payment
will reduce the principal balance due.  Borrower agrees not to send Lender
payments marked “paid in full”, “without recourse”, or similar language.  If
Borrower sends such a payment, Lender may accept it without losing any of
Lender’s rights under this Note, and Borrower will remain obligated to pay any
further amount owed to Lender.  All written communications concerning disputed
amounts, including any check or other payment instrument that indicates that the
payment constitutes “payment in full” of the amount owed or that is tendered
with other conditions or limitations or as full satisfaction of a disputed
amount must be mailed or delivered to: Minnesota Bank & Trust, 7701 France
Avenue South, Edina, MN 55435.

Late Charge.  If a payment due hereunder is not made within seven days after the
date when due, Borrower shall pay to Lender a late payment charge of 5% of the
amount of the overdue payment to compensate Lender for a portion of the cost
related to handling the overdue payment.

Credit Agreement.  This Note is the Term Note A referred to in, and is entitled
to the benefits of, the Credit Agreement.  The Credit Agreement, among other
things, (i) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events prior to the maturity hereof upon the terms
and conditions therein specified; (ii) contains provisions for the mandatory
prepayment hereof upon certain conditions; and (iii) contains provisions for the
voluntary prepayment hereof, upon certain conditions.

Security Agreement.  This Note is secured by, among other things, that certain
Security Agreement dated of even date herewith executed by the Borrower in favor
of the Lender.

Waiver of Presentment and Demand for Payment; Etc.  Borrower and any endorsers
or guarantors hereof severally waive presentment and demand for payment, notice
of intent to accelerate maturity, protest or notice of protest and non-payment,
bringing of suit and diligence in taking any action to collect any sums owing
hereunder or in proceeding against any of the rights and properties securing
payment hereunder, and expressly agree that this Note, or any payment hereunder,
may be extended from time to time, and consent to the acceptance of further
security or the release of any security for this Note, all without in any way
affecting the liability

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TERM NOTE A

Page 4

U.S. $5,000,000.00

Dated as of September 6, 2018

of Borrower and any endorsers or guarantors hereof.  No extension of time for
the payment of this Note, or any installment thereof, made by agreement by
Lender with any person now or hereafter liable for the payment of this Note,
shall affect the original liability under this Note of the undersigned, even if
the undersigned is not a party to such agreement.

Event of Default.   Any Event of Default (as defined in the Credit Agreement)
shall constitute an Event of Default under this Note.  Upon the occurrence of an
Event of Default, in addition to any other rights or remedies Lender may have at
law or in equity or under the Credit Agreement or under any other Loan Document,
Lender may, at its option, without notice to Borrower, declare immediately due
and payable the entire unpaid principal sum hereof, together with all accrued
and unpaid interest thereon plus any other sums owing at the time of such Event
of Default pursuant to this Note, the Security Agreement or any other Loan
Document.  The failure to exercise the foregoing or any other options shall not
constitute a waiver of the right to exercise the same or any other option at any
subsequent time in respect of the same event or any other event.  The acceptance
by the holder of any payment hereunder which is less than payment in full of all
amounts due and payable at the time of such payment shall not constitute a
waiver of the right to exercise any of the foregoing options at that time or at
any subsequent time.

Expense Reimbursement. Borrower agrees to reimburse Lender upon demand for all
reasonable out-of-pocket expenses (including attorneys’ fees and legal expenses)
in connection with Lender’s enforcement of the obligations of the Borrower
hereunder or under the Security Agreement or any other collateral document,
whether or not suit is commenced including, without limitation, attorneys’ fees
and legal expenses in connection with any appeal of a lower court’s order or
judgment.  The obligations of the Borrower under this paragraph shall survive
any termination of the Credit Agreement, this Note, the Security Agreement, and
any other Loan Document.

Successors and Assigns.  This Note shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns except
that  Borrower may not assign or transfer its rights hereunder without the prior
written consent of Lender, which consent may be withheld in Lender’s sole
discretion.  In connection with the actual or prospective sale by the Lender of
any interest or participation in the loan obligation evidenced by this Note,
Borrower hereby authorizes the Lender to furnish any information concerning the
Borrower or any of its affiliates, however acquired, to any person or entity.

Usury.  Borrower and Lender agree that no payment of interest or other
consideration made or agreed to be made by Borrower to Lender pursuant to this
Note shall, at any time, be in excess of the maximum rate of interest
permissible by law.  In the event such  payments of interest or other
consideration provided for in this Note shall result in an effective rate of
interest which, for any period of time, is in excess of the limit of the usury
or any other law applicable to the loan evidenced hereby, all sums in excess of
those lawfully collectible as interest for the period in question shall, without
further agreement or notice between or by any party hereto, be applied to the
unpaid principal balance and not to the payment of interest; if a surplus
remains after full

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TERM NOTE A

Page 5

U.S. $5,000,000.00

Dated as of September 6, 2018

payment of principal and lawful interest, the surplus shall be remitted by
Lender to Borrower, and Borrower hereby agrees to accept such remittance.  This
provision shall control every other obligation of the Borrower and Lender
relating to this Note.

Business Purpose Loan.  The Loan is a business loan.  Borrower hereby represents
that this loan is for commercial use and not for personal, family or household
purposes. The Borrower agrees that the Loan evidenced by this Note is an
exempted transaction under the Truth In Lending Act, 15 U.S.C., §1601, et seq.

Governing Law.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL
BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.

WAIVER OF DEFENSES.  OTHER THAN CLAIMS BASED UPON THE FAILURE OF THE LENDER TO
ACT IN A COMMERCIALLY REASONABLE MANNER, THE BORROWER WAIVES EVERY PRESENT AND
FUTURE DEFENSE (OTHER THAN THE DEFENSE OF PAYMENT IN FULL), CAUSE OF ACTION,
COUNTERCLAIM OR SETOFF WHICH THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVE TO
ANY ACTION BY THE LENDER IN ENFORCING THIS NOTE OR ANY OF THE LOAN DOCUMENTS.
 THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL
ACCOMMODATION TO THE BORROWER.

Waiver of Right to Jury Trial; Venue.  BORROWER WAIVES ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY ACTION RELATING TO OR ARISING FROM THIS NOTE.  AT THE
OPTION OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MINNESOTA OR THE STATE COURT SITTING IN HENNEPIN OR RAMSEY
COUNTY, MINNESOTA. BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH
COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT PROPER OR
CONVENIENT.  IN THE EVENT AN ACTION IS COMMENCED IN ANOTHER JURISDICTION OR
VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS NOTE, LENDER, AT ITS OPTION, SHALL BE ENTITLED TO
HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE
DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO
HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

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TERM NOTE A

Page 6

U.S. $5,000,000.00

 

IN WITNESS WHEREOF, the Borrower has caused this Term Note A to be signed by its
duly authorized officer in favor of MINNESOTA BANK & TRUST and to be dated as of
the date set forth above.

 

PRO-DEX, INC., a Colorado corporation

 

 

 

 

By:

/s/ Richard L. Van Kirk

 

Name:

Richard L. Van Kirk

 

Its:

Chief Executive Officer