Exhibit 10.1


 


LOAN
AND SECURITY AGREEMENT


 


Between 


 


SUMMIT
FINANCIAL RESOURCES, L.P. 


Lender 


 


and 


 


PRO-DEX,
INC. 


Borrower 


 


Effective
Date: September 9, 2015


 






    	 



    	 



    

 


LOAN AND
SECURITY AGREEMENT


 


This Loan and Security
Agreement is made and entered into by and between SUMMIT FINANCIAL RESOURCES, L.P., and PRO-DEX, INC.


 


For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


 


1.             Definitions. Terms defined in the singular shall have the same meaning when used in the plural and vice versa.
Terms defined in the UCC shall have the meanings set forth in the UCC, except as otherwise defined herein. As used herein, the
term:


 


“Account”
shall have the meaning set forth in the UCC.


 


“Account Debtor”
means any person or entity obligated for payment of an Account.


 


“Accounting Standards”
means (a) in the case of financial statements and reports, conformity with generally accepted accounting principles and fully and
fairly representing the financial condition as of the date thereof and the results of operations for the period or periods covered
thereby, consistent with other financial statements of Borrower and Guarantor previously delivered to Lender, and (b) in the case
of calculations, definitions, and covenants, generally accepted accounting principles consistent with those used in the preparation
of financial statements of Borrower and Guarantor previously delivered to Lender.


 


“Advance Rate”
means eighty-five percent (85%), or such other percent as may be determined from time to time by Lender in its sole discretion.


 


“Banking Business
Day” means any day not a Saturday, Sunday, legal holiday in the State of Utah, or day on which national banks in the State
of Utah are authorized to close.


 


“Borrower”
means PRO-DEX, INC., a corporation organized and existing under the laws of the State of Colorado, its successors and, if permitted,
assigns.


 


“Collateral”
means the following personal property of Borrower, wherever located, now owned or existing or hereafter acquired or created, all
additions and accessions thereto, all replacements, insurance or condemnation proceeds, all documents covering any of the Collateral,
all leases of any of the Collateral, all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance,
collection, or any other temporary or permanent disposition of any of the Collateral or any interest therein, all amendments, modifications,
renewals, extensions, and replacements thereof, and all products and proceeds thereof: (a) all Inventory; (b) all Accounts; (c) all
equipment, goods and motor vehicles (collectively, the “Equipment”); (d) all general intangibles, including, without
limitation, any and all patents, trademarks and copyrights (registered or unregistered), trade secrets, domain names and addresses,
and intellectual property licenses; (e) any and all promissory notes and instruments payable to or owing to Borrower or held by
Borrower; any and all leases under which Borrower is the lessor; any and all chattel paper in favor of, owing to, or held by Borrower,
including, without limitation, any and all conditional sale contracts or other sale agreements, whether Borrower is the original
party or the assignee; and any and all security agreements, collateral and titles to motor vehicles which secure any of the foregoing
obligations; all deposit accounts, including, without limitation, all interest, dividends or distributions accrued or to accrue
thereon, whether or not due; all investment property, including, without limitation, all interest, dividends or distributions accrued
or to accrue thereon, whether or not due, all documents; all letter-of-credit rights; and all supporting obligations (collectively,
the “Financial Obligations”); and (f) all balances, deposits, debts or any other amounts or obligations of Lender owing
to Borrower, including, without limitation, any Reserve, whether or not due.


 


“Collected Payments”
means collections and payments received by Lender on Accounts of Borrower. Credits for Collected Payments shall be provisional
and subject to final payment and collection of the deposited item.


 






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“Collected Reserve”
means such amounts as may be determined from time to time by Lender in its sole discretion that are deducted from Collected Payments
or withheld by Lender from disbursements of the Loan.


 


“Default Rate”
means a variable interest rate computed on the basis of a three hundred sixty (360) day year as follows: twelve percent (12%) per
annum above the Prime Rate, adjusted as of the date of any change in the Prime Rate.


 


“Effective Date”
shall mean the date the parties intend this Loan and Security Agreement to become binding and enforceable, which is the date stated
at the conclusion of this Loan and Security Agreement.


 


“Eligible Account”
means an Account of Borrower which meets the following specifications at the time it is created and at all times thereafter until
collected in full:


 


a.         The Account meets all applicable representations, warranties, and covenants concerning the Collateral set forth in Section
4.4 Representations and Warranties Concerning Collateral and Section 4.5 Covenants Concerning Collateral.


 


b.         The Account is due
and payable not more than sixty (60) days from the date of the invoice evidencing the Account and is not more than ninety (90)
days past the date of the invoice evidencing the Account.


 


c.         Performance of all
services giving rise to the Account has been completed and all goods giving rise to the Account have been delivered.


 


d.         The Account Debtor is located or authorized to do business within the United States or Canada (excluding the province of
Newfoundland, the Northwest Territories, and the Territory of Nunavut) and maintains an office and transacts business in the United
States or Canada (excluding the province of Newfoundland, the Northwest Territories, and the Territory of Nunavut), or payment
of the Account (i) has been assured by a letter of credit in a form and upon terms acceptable to Lender or (ii) is covered under
a policy of credit insurance acceptable to Lender which has been assigned to Lender or names Lender as an additional insured and
lender loss payee in a form and manner acceptable to Lender.


 


e.         No proceeding has been commenced or petition filed under any bankruptcy or insolvency law by or against the Account Debtor;
no receiver, trustee or custodian has been appointed for any part of the property of the Account Debtor; and no property of the
Account Debtor has been assigned for the benefit of creditors.


 


f.          Neither the Account,
nor any invoice, credit application, bill, billing memorandum, correspondence, or any other document relating to an Account, contracts
for or charges any interest or any other charge in excess of the maximum non-usurious rate allowed pursuant to applicable law.


 


g.         If twenty-five percent (25%) or more of the Accounts owing to Borrower by any particular Account Debtor do not qualify as
Eligible Accounts, all Accounts owing by such Account Debtor shall not be Eligible Accounts.


 


h.         The Account is not owing by an Account Debtor for whom the terms of sale by Borrower are cash on delivery (“COD”)
or considered a cash sale.


 


i.          Borrower does not owe an account payable to the Account Debtor which could be set off against the Account.


 


j.          If the total of all outstanding Accounts owing by any single Account Debtor equals seventy percent (70%) or more of the
total outstanding Accounts owing to Borrower, the amount of Accounts owing by that Account Debtor in excess of this limit shall
not be Eligible Accounts.


 






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k.          If the Account is subject to any type of retainage, only the non-retainage portion of the Account shall be an Eligible Account.


 


l.           The Account is not owing with respect to any job which is bonded.


 


m.         The Account does not arise from goods placed on consignment, guaranteed sale, or other terms by reason of which the payment
by the Account Debtor may be conditional.


 


n.          The Account is not owing by an employee, officer, or director of Borrower or by a parent, subsidiary, sister company, or
other company or entity related to or an affiliate of Borrower.


 


o.          For all Accounts arising under any contract, subcontract, purchase order, or any other agreement with or related to the
United States Government, or any agency, branch, division, or subdivision thereof, the Account Debtor has acknowledged and consented
to Borrower’s assignment of Accounts to Lender and has agreed, in a form acceptable to Lender, to remit payments directly
to Lender.


 


p.          The Account will not be paid by credit card or other form of electronic payment other than wire or ACH transfer sent directly
to a deposit account specified by Lender.


 


q.          The Account has not been deemed by Lender to be unacceptable and is not owing by an Account Debtor deemed by Lender to be
unacceptable.


 


“Equipment”
shall have the meaning set forth in the definition of Collateral.


 


“Escrow Reserve”
means the amount of Eligible Accounts withheld by Lender on which disbursements of the Loan are based equal to one (1) minus the
Advance Rate multiplied by the face amount of the Eligible Accounts.


 


“Event of Default”
shall have the meaning set forth in Section 9.1 Events of Default.


 


“Guarantee”
means each guarantee executed pursuant to Section 5.1 Guarantee.


 


“Guarantor”
means each person or entity that executes a Guarantee, and its successors, heirs, and assigns.


 


“Inventory”
shall have the meaning set forth in the UCC.


 


“Lender”
means SUMMIT FINANCIAL RESOURCES, L.P., a Hawaii limited partnership, its successors and assigns.


 


“Liquidation
Costs” means the reasonable costs and out of pocket expenses incurred by Lender in obtaining possession of any Collateral,
in storage and preparation for sale, lease or other disposition of any Collateral, in the sale, lease, or other disposition of
any or all of the Collateral, and/or otherwise incurred in foreclosing on any of the Collateral, including, without limitation,
(a) reasonable attorneys’ fees and legal expenses, (b) transportation and storage costs, (c) advertising costs, (d) sale
commissions, (e) sales tax and license fees, (f) costs for improving or repairing any of the Collateral, and (g) costs for preservation
and protection of any of the Collateral.


 


“Loan”
means the loan to be made pursuant to Section 2 Loan Description.


 


“Loan and Security
Agreement” means this agreement, together with any exhibits, amendments, addendums, and modifications.


 


“Loan Commitment
Period” means an initial period of eighteen (18) months commencing on the Effective Date and thereafter successive periods
of one (1) year each commencing upon completion of each prior Loan Commitment Period.


 






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“Loan Documents”
means the Loan and Security Agreement, Guarantee, Security Documents, all other agreements and documents contemplated by any of
the aforesaid documents, and all amendments, modifications, addendums, and replacements, whether presently existing or created
in the future.


 


“Lock Box”
means that certain Lock Box owned by Lender located at PO Box 844223, Los Angeles, CA 90084-4223.


 


“Material Adverse
Effect” means a material adverse effect on Borrower’s or any Guarantor’s financial condition, conduct of its
business, or ability to perform its obligations under the Loan Documents.


 


“Maximum Loan
Amount” means one million dollars ($1,000,000).


 


“Monthly Minimum”
means one thousand dollars ($1,000).


 


“Notice of Assignment”
shall have the meaning set forth in Section 4.2 Notice of Assignment.


 


“Organizational
Documents” means, in the case of a corporation, its Articles of Incorporation and By-Laws; in the case of a general partnership,
its Articles of Partnership; in the case of a limited partnership, its Articles of Limited Partnership; in the case of a limited
liability company, its Articles of Organization and Operating Agreement or Regulations, if any; in the case of a limited liability
partnership, its Articles of Limited Liability Partnership; and all amendments, modifications, and changes to any of the foregoing
which are currently in effect.


 


“Permitted Encumbrances”
means liens for taxes and assessments not yet due and payable or, if due and payable, those being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained, security interests and liens created by the Loan Documents, and
security interests and liens authorized in writing by Lender.


 


“Prime Rate”
means the Prime Rate as published in the Money Rates section of The Wall Street Journal. This definition of Prime Rate is
to be strictly interpreted and is not intended to serve any purpose other than providing an index to determine the variable interest
rate used herein. It is not the lowest rate at which Lender may make loans to any of its customers, either now or in the future.


 


“Reserve”
means, individually and collectively, the Escrow Reserve and the Collected Reserve.


 


“Security Documents”
means all security agreements, including, without limitation, this Loan and Security Agreement, assignments, pledges, financing
statements, and other documents which create or evidence any security interest, assignment, lien or other encumbrance in favor
of Lender to secure any or all of the obligations created or contemplated by any of the Loan Documents, and all amendments, modifications,
addendums, and replacements, whether presently existing or created in the future.


 


“UCC” means
the Uniform Commercial Code as adopted now or in the future in the State of Utah.


 


2.             Loan Description.


 


 2.1        Amount of Loan. Upon fulfillment of all conditions precedent set forth in this Loan and Security Agreement, and so
long as no Event of Default exists and no other breach has occurred under the Loan Documents, Lender may, in its sole discretion,
loan Borrower up to the Maximum Loan Amount.


 


 2.2        Nature and Duration of Loan. The Loan shall be a revolving loan payable in full upon the date and upon the terms
and conditions provided in this Loan and Security Agreement. Lender and Borrower intend the Loan to be in the nature of a line
of credit under which Borrower may repeatedly draw funds on a revolving basis in accordance with the terms and conditions of this
Loan and Security Agreement. The right of Borrower to draw funds and the obligation of Lender to advance funds shall not accrue
until all of the conditions set forth in Section 6 Conditions to Loan Disbursements have been fully satisfied, and shall
terminate: (a) upon occurrence of an Event of Default or (b) upon the expiration of the final Loan Commitment Period.


 






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2.3        Notice and Manner of Borrowing. Requests by Borrower for advances of the Loan shall be given in writing or orally
no later than one (1) Banking Business Day prior to the date on which the advance is to be made. Each request for an advance shall
be accompanied by such reports and information as requested by Lender, in the form requested by Lender, including, without limitation,
an itemization of outstanding Eligible Accounts, details and information concerning outstanding Eligible Accounts, and an updated
report on collections on Eligible Accounts.


 


2.4        Interest. So long as no Event of Default has occurred, interest shall accrue on the outstanding principal balance
of the Loan from the date of disbursement of the principal amount of the Loan, or any portion thereof, until paid, both before
and after judgment, at a variable rate computed on the basis of a three hundred sixty (360) day year as follows: two percent (2%)
per annum above the Prime Rate from time to time in effect, adjusted as of the date of any change in the Prime Rate.


 


Interest shall be paid
monthly in arrears commencing on September 30, 2015, and on the last day of each month thereafter. For purposes of calculating
interest owing, payments delivered to a bank or other agent on behalf of Lender shall be deemed received four (4) Banking Business
Days after the date of receipt of advice by Lender from the bank or agent that the payments received have been credited to the
account of Lender.


 


2.5        Collected Payments; Setoff and Deduction by Lender. Lender shall apply all Collected Payments to the Loan and to
payment of all other obligations owing by Borrower under the Loan Documents in such order as set forth in Section 11.12 Interest
on Expenses and Indemnification, Collateral, Order of Application. As to all amounts owing to Lender by Borrower, Lender may
(a) deduct such amount from Collected Payments, (b) setoff and deduct such amount against disbursements of the Loan, (c) demand
payment from Borrower whereupon Borrower shall promptly pay such amount to Lender, or (d) exercise any combination of the alternatives
set forth in this Section or available under the Loan Documents, at law, or in equity.


 


2.6        Limitations on Advances. Notwithstanding anything to the contrary in the Loan Documents, no advances shall be made
on the Loan if, after making the requested advance, the total, aggregate, principal amount of all advances outstanding will exceed
the total, face amount of all outstanding Eligible Accounts multiplied by the Advance Rate.


 


Borrower will maintain
at all times Eligible Accounts so that the total, aggregate, principal amount of all advances at any time outstanding and unpaid
shall be in compliance with this formula. If at any time the total, aggregate, principal amount of all such advances outstanding
and unpaid exceeds the amount allowable under this formula, Borrower shall immediately make payment to Lender in a sufficient amount
to bring the amount of such advances back into compliance, and if such payment is not immediately made, interest shall accrue on
such amount at the Default Rate, regardless of whether Lender waives the Event of Default caused by such non-payment.


 


2.7        Administration Fees. Borrower shall pay Lender a monthly administration fee in an amount equal to seven-tenths percent
(0.7%) of the average outstanding daily principal balance on the Loan for each calendar month, or portion thereof. The administration
fees are for monitoring of the Collateral and for collection of the Accounts and are not intended to be and shall not be construed
to be interest. The administration fees shall be due and payable monthly in arrears. Lender is authorized and directed to disburse
a sufficient amount of the Loan as necessary each month to pay the administration fees.


 


2.8        Supplemental Fee. Borrower shall pay Lender a monthly supplemental fee in an amount equal to the amount by which
the Monthly Minimum exceeds the amount of administration fees for each month plus the amount of interest paid for each month. The
supplemental fee shall be due and payable monthly in arrears. Lender is authorized and directed to disburse a sufficient amount
of the Loan as necessary to pay the monthly supplemental fees.


 


2.9        Origination Fee. Borrower shall pay Lender an origination fee in an amount equal to one percent (1%) of the Maximum
Loan Amount. The origination fee shall be due and payable upon execution of this Loan and Security Agreement. In the event the
Maximum Loan Amount is increased during the first year of this Loan and Security Agreement, an additional origination fee shall
be charged on the amount of the increase, prorated from the date of the increase to the anniversary date of this Loan and Security
Agreement. Any additional origination fee shall be due and payable on the effective date of the increase in the Maximum Loan Amount.
No portion of any 


 






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such fee shall be refunded in the event of early termination of this Loan and Security Agreement or any termination
or reduction of the right of Borrower to request advances under this Loan and Security Agreement. Lender is authorized and directed,
upon execution of this Loan and Security Agreement, to disburse a sufficient amount of the Loan as necessary to pay the origination
fee in full.


 


2.10      Annual Facility Fee. On each anniversary of the Effective Date, so long as the Loan has not been terminated, Borrower
shall pay Lender an annual facility fee in an amount equal to one percent (1%) of the Maximum Loan Amount. In the event the Maximum
Loan Amount is increased after the first anniversary date of this Loan and Security Agreement, an additional annual facility fee
shall be charged on the amount of the increase, prorated from the date of the increase to the next anniversary date of this Loan
and Security Agreement. Any additional annual facility fee shall be due and payable on the effective date of the increase in the
Maximum Loan Amount. No portion of such fee shall be refunded in the event of early termination of this Loan and Security Agreement
or any termination or reduction of the right of Borrower to request advances under this Loan and Security Agreement. Lender is
authorized and directed to disburse a sufficient amount of the Loan as necessary to pay each annual facility fee in full.


 


2.11      Reserve. The Reserve shall be a contingent obligation owing to Borrower by Lender and shall be disbursed only in
accordance with the terms and conditions of this Loan and Security Agreement. Lender may use the Reserve, in Lender’s sole
discretion, to repay any obligations owing by Borrower to Lender as set forth in Section 2.5 Collected Payments; Setoff and
Deduction by Lender. Interest shall not accrue on the Reserve and Borrower shall not be entitled to any interest on the Reserve.
Lender shall have no obligation to segregate, not commingle, or otherwise account for the use of the Reserve, and Lender shall
be free to use the Reserve as working capital or as Lender otherwise determines. From time to time and upon Borrower’s request,
Lender may, in its sole discretion, elect to release all or any portion of the Collected Reserve to Borrower. In addition, upon
termination and payment in full of the Loan and all other obligations owing by Borrower and Guarantor under the Loan Documents,
any balance of the Reserve shall be paid to Borrower, provided that if Lender has reasonable grounds to believe that any collections
or other payments received by Lender may be dishonored, voided, or preferential, or claims may be made against Lender for which
Borrower would be liable, Lender may continue to hold the Reserve so long as such matters are outstanding and unresolved.


 


2.12      Excess Interest. It is the intent of the parties to comply with any usury law applicable to the Loan and to all amounts
owing pursuant to the Loan Documents and it is understood and agreed that in no event and upon no contingency shall Borrower or
any Guarantor be required to pay interest in excess of the rate allowed by any laws of any state which are determined to be applicable
and governing. The intention of the parties being to conform strictly to any applicable usury laws, the Loan Documents shall be
held to be subject to reduction to the amount allowed under any applicable and governing usury laws as now or hereafter construed
by the courts having jurisdiction. In the event Lender receives any interest under the Loan Documents in excess of any highest
permissible rate under any applicable and governing law, such excess interest (including simple interest thereon at the interest
rate at the highest permissible rate which is applicable and governing) shall be promptly applied to any unpaid principal balance
owed by Borrower. To the extent such excess interest is greater than the unpaid principal balance, Lender shall promptly remit
such overage to Borrower.


 


3.             Renewal of Loan Commitment Period; Termination of Loan. Each Loan Commitment Period shall automatically renew
for an additional Loan Commitment Period unless Borrower or Lender provides written notice of non-renewal at least sixty (60) days
prior to the end of the current Loan Commitment Period. If Borrower elects to terminate the Loan at any time other than the last
day of a Loan Commitment Period, or if an Event of Default accelerates payment of the Loan or terminates the right of Borrower
to receive advances hereunder, Borrower shall pay Lender an early termination fee equal to three percent (3%) of the Maximum Loan
Amount.


 


Upon any such non-renewal
or termination of the Loan, all other terms and provisions of this Loan and Security Agreement, including, without limitation,
the security interests granted in favor of Lender, shall remain in full force and effect until all amounts owing to Lender hereunder
have been finally paid in full.


 






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4.             Security for Loan.


 


4.1        Grant of Security Interest. Borrower hereby grants Lender a security interest in the Collateral. Borrower and Lender
acknowledge their mutual intent that all security interests contemplated herein are given as a contemporaneous exchange for new
value to Borrower, regardless of when advances to Borrower are actually made or when the Collateral is created or acquired.


 


The Collateral shall
secure all of Borrower’s present and future debts, obligations, and liabilities of whatever nature, and without any limitation
whatsoever, to Lender, including, without limitation, (a) the Loan, (b) all obligations of Borrower under the Loan Documents,
(c) all advances of the same kind and quality relating to this transaction, and (d) transactions in which the documents evidencing
the indebtedness refer to this grant of security interest as providing security thereof.


 


Borrower’s obligations
under this Loan and Security Agreement may also be secured by other collateral as may be evidenced by other documentation apart
from this Loan and Security Agreement.


 


4.2        Notice of Assignment. Upon execution and delivery of this Loan and Security Agreement, Borrower shall immediately
execute and deliver to Lender a notice of assignment in a form acceptable to Lender (the “Notice of Assignment”). Lender
is hereby authorized to, and may at any time and from time to time, use the Notice of Assignment, or any other form of notice as
determined by Lender, to notify any or all Account Debtors that the Accounts of Borrower have been assigned to Lender and that
all payments of the Accounts are to be paid directly to Lender. Borrower shall not amend, modify, or otherwise alter the payment
instructions contained in the Notice of Assignment or otherwise interfere in any manner with such payment instructions. In addition,
unless directed otherwise in writing by Lender, Borrower shall promptly mail an invoice to each Account Debtor on each Account,
which invoice shall be stamped or printed with a notice, in a form acceptable to Lender, stating that the Account is payable to
Lender and providing Lender’s payment instructions.


 


Borrower does hereby
make, constitute, and appoint Lender and its designees as Borrower’s true and lawful attorney in fact, with full power of
substitution, to endorse Borrower’s name upon notes, checks, acceptances, drafts, money orders, and other forms of payment
of the Accounts of Borrower. Borrower agrees to execute and deliver any documents and take such actions as may be reasonably requested
by Lender to give effect to the foregoing. This power of attorney is irrevocable and coupled with an interest.


 


4.3        Collection of Accounts. Until such time as provided in this Section, Borrower is authorized to collect the Accounts
in a commercially reasonable manner, provided that (a) Borrower instructs all Account Debtors to remit all payments on all
Accounts directly and exclusively to the Lock Box as instructed in the Notice of Assignment, and (b) in the event Borrower receives
any payment from an Account Debtor on an Account, Borrower immediately delivers such payment to the Lock Box. Borrower agrees to
use diligent and good faith efforts to collect the Accounts. Notwithstanding the foregoing, Borrower authorizes Lender to contact
Account Debtors concerning verification and payment of Accounts.


 


Upon Borrower’s
receipt of notice from Lender that an Event of Default or event which, with the passage of time or giving of notice or both, would
constitute an Event of Default, has occurred or that Lender deems itself insecure, the following terms and conditions shall thereafter
apply to all Accounts:


 


a.               Unless directed otherwise in writing by Lender, Borrower shall promptly mail an invoice to each Account Debtor on each Account,
which invoice shall be stamped or printed with a notice, in a form acceptable to Lender, stating that the Account is payable to
Lender and providing Lender’s payment instructions. Except as agreed otherwise in writing by Lender, Lender shall have the
exclusive right to collect and to receive all payments on all Accounts. Borrower shall not otherwise bill for, submit any invoice,
or otherwise attempt to collect any Account. Lender is authorized to use the Notice of Assignment, or any other form of notice
as determined by Lender, to notify Account Debtors of the assignment of Borrower’s Accounts and to direct Account Debtors
to make all payments on Accounts directly to Lender.


 






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b.               Borrower authorizes Lender to contact Account Debtors concerning verification, payment, and collection of Accounts and to
settle or compromise any Account, in the sole discretion of Lender subject only to acting in good faith. Borrower hereby waives
and releases any and all claims relating to or arising out of any act or omission by Lender in the verification and collection
of Accounts, excluding those based on gross negligence or intentional misconduct.


 


c.               Borrower shall promptly and completely respond to all requests from Lender for any information or records requested to assist
in collection of Accounts. If Borrower fails to respond to any request within two (2) Banking Business Days, Lender may deem the
Account to no longer be an Eligible Account.


 


d.               Upon inquiry from a customer or upon request of Lender, Borrower shall notify the customer to make payment directly to or
as directed by Lender.


 


e.               All collections of Accounts shall be handled by Lender. Collection of Accounts in a commercially reasonable manner does
not require, and Lender is not obligated, to commence any legal action, including, without limitation, the sending of an attorney’s
demand letter, to collect any Account. Borrower acknowledges and agrees that Lender is not a collection agency and will not provide
debt collection services for Borrower’s Accounts. If any Account is not timely paid, Lender may, but is not obligated to,
engage a collection agency, attorney or other service provider to collect the Accounts. All commissions, fees and charges of any
such collection agency, attorney or other service provider shall be paid by Borrower.


 


f.                Lender may, but has no duty to, and Borrower hereby authorizes Lender to, execute and file, on behalf of Borrower or
in Lender’s name, mechanic’s liens and all other notices and documents to create, perfect, preserve, foreclose and/or release
any lien for work performed or materials provided to improve real property.  Except as otherwise instructed by Lender,
Borrower is authorized to file any such mechanic’s liens and other notices and documents in Borrower’s discretion.


 


g.               Any payments received by Borrower on Accounts shall be held in trust by Borrower for Lender. In the event an Account Debtor
makes payment to Borrower on any Account, Borrower shall immediately notify Lender of the payment and deliver the payment to Lender.
If payment is made by check or similar instrument, such instrument shall be immediately delivered to Lender in the form received
without negotiation. If any payment received by Borrower on any Account is deposited or negotiated by Borrower, or if Borrower
fails to tender the payment to Lender within two (2) Banking Business Days of receipt by Borrower, Borrower shall promptly pay
Lender a payment conversion fee equal to ten percent (10%) of the amount of the payment. Lender is authorized and directed to disburse
a sufficient amount of the Loan as necessary to pay any payment conversion fees.


 


4.4        Representations and Warranties Concerning Collateral. Borrower represents and warrants that:


 


a.               Borrower is the sole owner of the Collateral.


 


b.               The Inventory and Accounts are not subject to any security interest, lien, prior assignment, or other encumbrance of any
nature whatsoever except Permitted Encumbrances.


 


c.                The Account is a bona fide obligation of the Account Debtor for the amount identified on the records of Borrower and there
have been no payments, deductions, credits, payment terms, or other modifications or reductions in the amount owing on such Account
except as reported to Lender prior to Lender making any advance based upon the Account.


 


d.               There are no defenses or setoffs to payment of the Account which can be asserted by way of defense or counterclaim against
Borrower or Lender and the Account will be timely paid in full by the Account Debtor.


 


e.                There is presently no default or delinquency in any payment of the Accounts, except for any default or delinquency which
has been reserved against by Borrower in accordance with generally accepted


 






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accounting principles and the Accounts will be timely
paid in full by the obligors, except for normal and customary disputes which arise in the ordinary course of business and which
do not affect a material portion of the Accounts.


 


f.                Borrower has no knowledge of any fact or circumstance which would materially impair the ability of any obligor on the Accounts
to timely perform its obligations thereunder, except those which arise in the ordinary course of business and which do not affect
a material portion of the Accounts.


 


g.               All services performed or goods sold giving rise to the Accounts have been rendered or sold in compliance with applicable
laws, ordinances, rules, and regulations and in the ordinary course of Borrower’s business.


 


h.               There have been no extensions, modifications, or other agreements relating to payment of the Accounts, except those granted
in the ordinary course of business and which do not affect a material portion of the Accounts.


 


4.5        Covenants Concerning Collateral. Borrower covenants that:


 


a.               Borrower will keep the Accounts and Inventory free and clear of any and all security interests, liens, assignments or other
encumbrances, except Permitted Encumbrances.


 


b.               Borrower will immediately notify Lender of any dispute concerning any Account and of any bankruptcy filing, lien, garnishment,
or other legal action concerning any Account or Account Debtor.


 


c.                Borrower hereby authorizes Lender to file UCC Financing Statements concerning the Collateral. Borrower will execute and
deliver any documents (properly endorsed, if necessary) reasonably requested by Lender for perfection or enforcement of any security
interest or lien, give good faith, diligent cooperation to Lender, and perform such other acts reasonably requested by Lender for
perfection and enforcement of any security interest or lien, including, without limitation, obtaining control for purposes of perfection
with respect to Collateral consisting of deposit accounts, investment property, letter-of-credit rights, and electronic chattel
paper. Lender is authorized to file, record, or otherwise utilize such documents as it deems necessary to perfect and/or enforce
any security interest or lien granted hereunder.


 


d.               Borrower shall keep the Equipment in good repair, ordinary wear and tear and obsolescence excepted, and be responsible for
any loss or damage to the Equipment. Borrower shall pay when due all taxes, license fees, and other charges on the Equipment. Borrower
shall not sell, convey, transfer, assign, conceal, or in any way dispose of the Equipment. Borrower shall not misuse or permit
the Equipment to be used unlawfully or for hire or contrary to the provisions of any insurance coverage. Risk of loss of the Equipment
shall be on Borrower at all times unless Lender takes possession of the Equipment. Loss of or damage to the Equipment or any part
thereof shall not release Borrower from any of the obligations secured by the Equipment.


 


e.                Borrower agrees to insure the Equipment and Inventory, at Borrower’s expense, against loss, damage, theft, and such
other risks as Lender may request to the full insurable value thereof with insurance companies and policies satisfactory to Lender.
Proceeds from such insurance shall be payable to Lender as its interest may appear. Such policies shall name Lender as an additional
insured and as lender loss payee and shall provide for a minimum thirty (30) days written cancellation notice to Lender. Upon request,
policies or certificates attesting to such coverage shall be delivered to Lender. Insurance proceeds may be applied by Lender toward
payment of any obligation secured by this Loan and Security Agreement, whether or not due, in such order of application as Lender
may elect.


 


f.                Borrower will at all times keep accurate and complete records of the Collateral. Lender or its representatives may, at any
time and from time to time, enter any premises where the Collateral and/or the records pertaining to the Collateral are located
and inspect, inventory, audit, check, copy, and otherwise review the Collateral and the records concerning the Collateral.


 






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g.               So long as no Event of Default has occurred, Borrower shall have the right to sell or otherwise dispose of the Inventory
in the ordinary course of business. No other disposition of the Inventory may be made without the prior written consent of Lender.


 


h.               So long as no Event
of Default has occurred, Borrower is authorized to collect payment on all Financial Obligations Collateral in a commercially reasonable
manner. Borrower agrees to use diligent and good faith efforts to collect the Financial Obligations Collateral.


 


4.6        Release of Lender as Condition to Lien Termination. In recognition of Lender’s right to have all its attorneys’
fees and expenses incurred in connection with this Loan and Security Agreement secured by the Collateral, notwithstanding payment
in full of the Loan and all other obligations secured by the Collateral, Lender shall not be required to release, reconvey, or
terminate any Security Document unless and until Borrower and all Guarantors have executed and delivered to Lender general releases
in form and substance satisfactory to Lender.


 


5.             Guarantee.


 


5.1        Guarantee. Upon execution and delivery of this Loan and Security Agreement, and from time to time as Lender may request,
Borrower shall cause to be executed and delivered to Lender Guarantees, in a form acceptable to Lender, from such persons and/or
entities that Lender may designate. Except as agreed otherwise in writing by Lender, the Loan and all obligations of Borrower owing
to Lender shall be guaranteed by the Guarantors under the Guarantees.


 


5.2        Payments on Indebtedness Owing to Guarantor. Borrower agrees to not make any payments on any indebtedness owing to
any Guarantor without the prior written consent of Lender so long as any amount is outstanding and owing under or arising from
the indebtedness owing to Lender pursuant to the Loan Documents.


 


6.             Conditions to Loan Disbursements.


 


6.1        Conditions to Loan Disbursements. Lender’s obligation to advance any funds at any time pursuant to this Loan
and Security Agreement is discretionary, and Lender shall have no obligation to disburse any portion of the Loan under this Loan
and Security Agreement, notwithstanding anything to the contrary in the Loan Documents. Lender may, at any time and from time to
time, decline to advance all or any portion of the Loan under this Loan and Security Agreement for any reason or for no reason,
without notice, regardless of any course of conduct or past advances or disbursements by Lender. In addition, Lender shall not
consider making any disbursements of the Loan until all of the conditions set forth below have been satisfied, and each disbursement
of the Loan shall be expressly subject to such conditions. All of the documents referred to below must be in a form and substance
acceptable to Lender.


 


a.               All of the Loan Documents and all other documents contemplated to be delivered to Lender prior to funding have been fully
executed and delivered to Lender.


 


b.               All of the documents contemplated by the Loan Documents which require filing or recording have been properly filed and recorded
so that all of the liens and security interests granted to Lender in connection with the Loan will be properly created and perfected
and will have a priority acceptable to Lender.


 


c.               All
other conditions precedent provided in or contemplated by the Loan Documents or any other agreement or document have been performed.


 


d.               As of the date of disbursement of all or any portion of the Loan, the following shall be true and correct: (i) all representations
and warranties made by Borrower and Guarantor in the Loan Documents are true and correct as of the date of such disbursement; and
(ii) no Event of Default has occurred and no conditions exist and no event has occurred, which, with the passage of time or the
giving of notice, or both, would constitute an Event of Default.


 






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e.                For each requested disbursement, Lender has received such reports and information concerning outstanding Eligible Accounts
and payments as requested by Lender pursuant to Section 2.3 Notice and Manner of Borrowing.


 


All conditions precedent
set forth in this Loan and Security Agreement and any of the Loan Documents are for the sole benefit of Lender and may be waived
unilaterally by Lender.


 


6.2        No Default, Adverse Change, False or Misleading Statement. Lender’s agreement to make the Loan available to
Borrower pursuant to this Loan and Security Agreement shall, at Lender’s sole discretion, terminate upon the occurrence of
any Event of Default, any event which could have a Material Adverse Effect, or upon the determination by Lender that any of Borrower’s
or any Guarantor’s representations made in any of the Loan Documents were false or materially misleading when made. Upon
the exercise of such discretion, Lender shall be relieved of all further obligations under the Loan Documents.


 


7.            Representations and Warranties.


 


7.1        Organization and Qualification. Borrower represents and warrants that: (a) it is a corporation organized and existing
under the laws of the State of Colorado; (b) it has delivered to Lender or Lender’s counsel accurate and complete copies
of its Organizational Documents which are operative and in effect as of the Effective Date; (c) its complete and exact name is
PRO-DEX, INC.; (d) the organizational identification number, if any, assigned to it by its state of organization is 19941010033;
(e) its chief executive office and place of business is located at 2361 McGaw Avenue, Irvine, California 92614; and (f) during
the five (5) years preceding the date of this Loan and Security Agreement, it has not (i) been known by nor used any legal, fictitious
or trade name other than Fineline Molds, Huber Precision, Oregon Micro Systems, Inc., and OMS; (ii) changed its name in any
respect; (iii) been the surviving entity of a merger or consolidation; or (iv) acquired all or substantially all of the assets
of any person or entity, except that in 2014, Borrower acquired all or substantially all of the assets of Fineline Molds, a California
corporation, and all or substantially all of the assets of Hans Huber, an individual doing business as Huber Precision, related
to the Huber Precision business.


 


7.2        Authorization. Borrower represents and warrants that the execution, delivery, and performance by Borrower of the
Loan Documents has been duly authorized by all necessary action on the part of Borrower and are not inconsistent with Borrower’s
Organizational Documents or any resolution of the Board of Directors of Borrower, do not and will not contravene any provision
of, or constitute a default under, any indenture, mortgage, contract, or other instrument to which Borrower is a party or by which
it is bound, and that upon execution and delivery thereof, the Loan Documents will constitute legal, valid, and binding agreements
and obligations of Borrower, enforceable in accordance with their respective terms.


 


7.3        Accuracy of Financial Statements. Borrower represents and warrants that (a) all of its audited financial statements
heretofore delivered to Lender have been prepared in accordance with Accounting Standards; (b) all of its unaudited financial statements
heretofore delivered to Lender fully and fairly represent its financial condition as of the date thereof and the results of its
operations for the period or periods covered thereby and are consistent with other financial statements previously delivered to
Lender; (c) since the dates of the most recent audited and unaudited financial statements delivered to Lender, there has been no
event which would have a Material Adverse Effect on its financial condition; and (d) all of its pro forma financial statements
heretofore delivered to Lender have been prepared consistently with its actual financial statements and fully and fairly represent
its anticipated financial condition and the anticipated results of its operation for the period or periods covered thereby.


 


7.4        Full and Accurate Disclosure. Borrower represents and warrants that this Loan and Security Agreement, the financial
statements referred to herein, any loan application submitted to Lender, and all other statements furnished by Borrower to Lender
in connection herewith contain no untrue statement of a material fact and omit no material fact necessary to make the statements
contained therein or herein not misleading. Borrower represents and warrants that it has not failed to disclose in writing to Lender
any fact that would have a Material Adverse Effect.


 






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7.5        Compliance with Export Controls. Borrower represents and warrants that it is not listed and does not appear on any
United States governmental restricted, debarred, suspended, or prohibited transaction export control designation lists and is able
to make and receive any advance or extension of credit from or otherwise conduct business in accordance with applicable export
control laws with Lender.


 


7.6        Compliance with All Other Applicable Law. Borrower represents and warrants that it has complied with all applicable
statutes, rules, regulations, orders, and restrictions of any domestic or foreign government, or any instrumentality or agency
thereof having jurisdiction over the conduct of Borrower’s business or the ownership of its properties, which may have a
Material Adverse Effect.


 


7.7        Operation of Business. Borrower represents and warrants that Borrower possesses all licenses, permits, franchises,
patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its business substantially as now conducted and
as presently proposed to be conducted, and Borrower is not in violation of any valid rights of others with respect to any of the
foregoing.


 


7.8        Payment of Taxes. Borrower represents and warrants that Borrower has filed all tax returns (federal, state, and local)
required to be filed and has paid all taxes, assessments, and governmental charges and levies, including interest and penalties,
on Borrower’s assets, business and income, except such as are being contested in good faith by proper proceedings and as
to which adequate reserves are maintained.


 


8.             Borrower’s Covenants. Borrower makes the following agreements and covenants, which shall continue so
long as this Loan and Security Agreement is in effect and so long as Borrower is indebted to Lender for obligations arising out
of, identified in, or contemplated by this Loan and Security Agreement.


 


8.1        Compliance with Export Controls. Borrower will notify Lender in writing within ten (10) days of any written or oral
notification by any governmental entity that administrative, civil, or criminal proceedings have been initiated and that could
result in Borrower being listed or appearing on any United States governmental restricted, debarred, suspended, or prohibited transaction
export control designation lists. Borrower will immediately notify Lender in writing of any notification by any governmental entity
that Borrower has actually been listed or appears on any United States governmental restricted, debarred, suspended, or prohibited
transaction export control designation lists. Upon request from Lender, Borrower will provide documentary and other evidence of
Borrower’s identity or to comply with any applicable law or regulation.


 


8.2        Continued Compliance with Applicable Law. Borrower shall conduct its business in a lawful manner and in material
compliance with all applicable federal, state, and local laws, ordinances, rules, regulations, and orders; shall maintain in good
standing all licenses and organizational or other qualifications reasonably necessary to its business and existence; and shall
not engage in any business not authorized by and not in accordance with its Organizational Documents and other governing documents.


 


8.3        Payment of Taxes and Obligations. Borrower shall pay when due all taxes, assessments, and governmental charges and
levies on Borrower’s assets, business, and income, and all material obligations of Borrower of whatever nature, except such
as are being contested in good faith by proper proceedings and as to which adequate reserves are maintained.


 


8.4        Financial Statements and Reports; Audits. Borrower shall provide Lender with such financial statements and reports
as Lender may reasonably request. Audited financial statements and reports shall be prepared in accordance with Accounting Standards.
Unaudited financial statements and reports shall fully and fairly represent Borrower’s financial condition as of the date
thereof and the results of Borrower’s operations for the period or periods covered thereby and shall be consistent with other
financial statements previously delivered to Lender. In addition, Borrower shall, at any reasonable time and from time to time,
permit Lender or any representative of Lender to conduct field audits, examine, audit, make copies of and extracts from the records
and books of Borrower, visit and inspect the properties and assets of Borrower, and to discuss the affairs, finances, and Accounts
of Borrower with any of Borrower’s officers, directors, and partners with Borrower and with Borrower’s independent
accountants.


 






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8.5        Inventory and Accounts Receivable. Borrower shall promptly notify Lender in writing upon any Eligible Account ceasing
to be or being determined to have been incorrectly identified as an Eligible Account. Borrower shall provide Lender with such reports
and records concerning Inventory, Accounts, and accounts payable as Lender may reasonably request.


 


8.6        Operation of Business. Borrower shall maintain all licenses, permits, franchises, patents, copyrights, trademarks,
and trade names, or rights thereto, necessary or advisable to conduct its business and Borrower shall not violate any valid rights
of others with respect to any of the foregoing. Borrower shall continue to engage in a business of the same general type as now
conducted. Borrower will not change its name, use any other legal, fictitious or trade name (other than Fineline Molds, Huber Precision,
Oregon Micro Systems, Inc., and OMS), merge or consolidate with any other business or entity, or acquire all or substantially all
of the assets of any person or entity without the prior written consent of Lender.


 


8.7        Insurance. Borrower shall maintain general liability and product liability 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 similarly situated. Proceeds from such insurance shall be payable to Lender as its interest may
appear, shall name Lender as an additional insured and as a lender loss payee, and such policies shall provide for a minimum thirty
(30) days written cancellation notice to Lender. Upon request, policies or certificates attesting to such coverage shall be delivered
to Lender. Insurance proceeds may be applied by Lender toward payment of any obligation secured by this Loan and Security Agreement,
whether or not due, in such order of application as Lender may elect.


 


8.8        Change of Control. No Change of Control of Borrower or any Guarantor shall occur without Lender’s prior written
consent.


 


“Change of Control”
means (1) in the case of a corporation, any sale, assignment, or other transfer of more than twenty-five percent (25%) of the stock
of such corporation, the persons who are the directors of such corporation as of the Effective Date fail to constitute a majority
of the Board of Directors of such corporation, or the president or any other executive officer of such corporation resigns, is
terminated, or otherwise ceases to function in such position; (2) in the case of a partnership, any sale, assignment, or other
transfer of more than twenty-five percent (25%) of the partnership interests of such partnership, any of the persons or entities
who are a partner of such partnership as of the Effective Date ceases to be a partner of such partnership, the occurrence of any
Change of Control in any partner in such partnership, or any general manager or person holding a similar position in such partnership
resigns, is terminated, or otherwise ceases to function in such position, (3) in case of a limited partnership, (a) as to all general
partners, any general partner resigns, is terminated, or otherwise ceases to function in such position or the occurrence of any
Change of Control in any such general partner, (b) as to all limited partners, any sale, assignment, or other transfer of more
than twenty-five percent (25%) of the limited partnership interest in such limited partnership, any of the persons or entities
who are limited partners of such limited partnership as of the Effective Date ceases to be a limited partner in such limited partnership,
or the occurrence of any Change of Control in any such limited partner; (4) in the case of a limited liability company, any sale,
assignment, or other transfer of more than twenty-five percent (25%) of the ownership interests of such limited liability company,
any of the persons or entities who are members of such limited liability company as of the Effective Date ceases to be a member
of such limited liability company, any managing member or manager of such limited liability company resigns, is terminated or otherwise
ceases to function in such position, or the occurrence of any Change of Control in any such member, managing member or manager
of such limited liability company.


 


9.             Default.


 


9.1        Events of Default. Time is of the essence of this Loan and Security Agreement. The occurrence of any of the following
events shall constitute a default under this Loan and Security Agreement and under the Loan Documents and shall be termed an “Event
of Default”:


 


a.               Borrower fails in the payment or performance of any obligation, covenant, agreement, or liability created by any of the
Loan Documents or Borrower otherwise fails to comply with, or any default occurs on, any term in any of the Loan Documents.


 






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b.               Any representation, warranty, or financial statement made by or on behalf of Borrower in any of the Loan Documents, or any
document contemplated by the Loan Documents, is materially false or materially misleading.


 


c.               Any indebtedness of Borrower under any note, indenture, contract, agreement, or undertaking is accelerated.


 


d.               Default or an event which, with the passage of time or the giving of notice or both, would constitute a default, by Borrower,
occurs on any note, indenture, contract, agreement, licensing agreement, or undertaking.


 


e.                Borrower is dissolved or substantially ceases business operations.


 


f.                A receiver, trustee, or custodian is appointed for any part of Borrower’s property, or any part of Borrower’s
property is assigned for the benefit of creditors.


 


g.               Any proceeding is commenced or petition filed under any bankruptcy or insolvency law by or against Borrower.


 


h.               Any judgment or regulatory fine is entered against Borrower which may have a Material Adverse Effect.


 


i.                 The attachment or filing of any Federal or State tax lien against Borrower or its assets.


 


j.                 All or any part of the property of Borrower is attached, levied upon, or otherwise seized by legal process.


 


k.                Borrower becomes insolvent or fails to pay its debts as they mature.


 


l.                 Any change occurs in Borrower’s condition or any event occurs which may have a Material Adverse Effect.


 


m.               Any of the foregoing events occur concerning any Guarantor.


 


n.               Any Guarantor dies or takes any action to repudiate its Guarantee or any Guarantee otherwise ceases to be in full force
and effect.


 


9.2        No
Waiver of Event of Default. No course of dealing or delay or failure to assert any Event of Default shall constitute a waiver
of that Event of Default or of any prior or subsequent Event of Default.


 


10.          Remedies.


 


10.1      Remedies upon Event of Default. Upon the occurrence of an Event of Default, and at any time thereafter, all or any
portion of the Loan and the other obligations due or to become due from Borrower to Lender, whether arising under this Loan and
Security Agreement, the Security Documents or otherwise, at the option of Lender and without notice to Borrower of the exercise
of such option, shall accelerate and become at once due and payable in full without presentment, demand, protest, or notice or
other requirements of any kind (all of which are expressly waived by Borrower), and interest shall thereafter accrue on the principal
amount of the Loan and on all other obligations owing by Borrower to Lender until paid in full, both before and after judgment,
at the Default Rate. In addition, Lender shall have the following rights and remedies, in addition to all other rights and remedies
existing at law, in equity, or by statute or provided in the Loan Documents:


 


a.                Lender shall have the right, immediately and without prior notice or demand, to set off against Borrower’s obligations
to Lender, whether or not due, all money and other amounts owed by Lender in any capacity to Borrower.


 






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b.               If at any time Lender so requests, all collections and other proceeds from the Financial Obligations Collateral, if any,
shall be deposited into an account designated by Lender (the “Cash Collateral Account”), which account shall be under
the sole and exclusive control of Lender. Such proceeds and collections shall not be commingled with any other funds and shall
be promptly and directly deposited into such account in the form in which received by Borrower. Such proceeds and collections shall
not be deposited in any other account and said Cash Collateral Account shall contain no funds other than such proceeds and collections.
All or any portion of the funds on deposit in said Cash Collateral Account may, in the sole discretion of Lender, be applied from
time to time as Lender elects to payment of obligations secured by the Loan and Security Agreement or Lender may elect to turn
over to Borrower, from time to time, all or any portion of such funds.


 


c.               Upon an Event of Default, Lender may terminate the authority of Borrower to collect Financial Obligations Collateral at
any time whereupon Lender is authorized, without further act, to notify any and all obligors to make payment thereon directly to
Lender, and to take possession of all proceeds from the Financial Obligations Collateral, and to take any action which Borrower
might or could take to collect the Financial Obligations Collateral, including, without limitation, the right to make any compromise,
discharge, or extension. Upon request of Lender after an Event of Default, Borrower agrees to execute and deliver to Lender a notice
to the obligors instructing said obligors to pay Lender. Borrower further agrees to execute and deliver to Lender, after an Event
of Default, all other notices and similar documents requested by Lender to facilitate collection of the Financial Obligations Collateral.
All costs of collection of the Financial Obligations Collateral, if any, including, without limitation, attorneys’ fees and
legal expenses, shall be borne solely by Borrower, whether such costs are incurred by or for Borrower or Lender. Borrower agrees
to deliver to Lender, if so requested, all books, records, and documents in Borrower’s possession or under its control as
may relate to the Financial Obligations Collateral or as may be helpful to facilitate such collection. Lender shall have no obligation
to cause an attorney’s demand letter to be sent, to file any lawsuit, or to take any other legal action in collection of
the Financial Obligations Collateral. It is agreed that collection of the Financial Obligations Collateral in a commercially reasonable
manner does not require that any such legal action be taken.


 


d.               Borrower does hereby make, constitute, and appoint Lender and its designees as Borrower’s true and lawful attorney
in fact, with full power of substitution, such power to be exercised only upon an Event of Default and in the following manner:
(i) Lender may receive and open all mail addressed to Borrower and remove therefrom any payments of the Financial Obligations Collateral,
if any; (ii) Lender may cause mail relating to the Accounts and Financial Obligations Collateral to be delivered to a designated
address of Lender where Lender may open all such mail and remove therefrom any payments of the Accounts and Financial Obligations
Collateral; (iii) Lender may endorse Borrower’s name upon notes, checks, acceptances, drafts, money orders, or other
forms of payment of the Financial Obligations Collateral; (iv) Lender may settle or adjust disputes or claims in respect to
the Financial Obligations Collateral for amounts and upon such terms as Lender, in its sole discretion and in good faith, deems
to be advisable, in such case crediting Borrower with only the proceeds received and collected by Lender after deduction of Lender’s
costs, including, without limitation, reasonable attorneys’ fees and legal expenses; and (v) Lender may do any and all other
things necessary or proper to carry out the intent of this Loan and Security Agreement and to perfect and protect the liens and
rights of Lender created under this Loan and Security Agreement. This power of attorney is irrevocable and coupled with an interest.


 


e.                Lender shall have all the rights and remedies available under the UCC.


 


f.                Lender shall have the right to enter upon any premises where the Collateral or records relating thereto may be and take
possession of the Collateral and such records.


 


g.               Upon request of Lender, Borrower shall, at the expense of Borrower, assemble the Collateral and records relating thereto
at a place designated by Lender and tender the Collateral and such records to Lender.


 


h.               Without notice to Borrower, Lender may obtain the appointment of a receiver of the business, property and assets of Borrower
and Borrower hereby consents to the appointment of Lender or such person as Lender may designate as such receiver.


 






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i.                 Lender may sell, lease or otherwise dispose of any or all of the Collateral and, after deducting the Liquidation Costs,
apply the remainder to pay, or to hold as a reserve against, the obligations secured by this Loan and Security Agreement.


 


j.                 Lender may credit bid at any UCC, bankruptcy, trustee or other sale, including, without limitation, any sale under Section
363 of the United States Bankruptcy Code.


 


Borrower shall be liable
for all deficiencies owing on any obligations secured by this Loan and Security Agreement after liquidation of the Collateral.
Lender shall not have any obligation to clean-up or otherwise prepare any Collateral for sale, lease, or other disposition.


 


10.2      Rights and Remedies Cumulative. The rights and remedies herein conferred are cumulative and not exclusive of any
other rights and remedies and shall be in addition to every other right, power and remedy herein specifically granted or hereafter
existing at law, in equity, or by statute which Lender might otherwise have, and any and all such rights and remedies may be exercised
from time to time and as often and in such order as Lender may deem expedient.


 


10.3      No Waiver of Rights. No delay or omission in the exercise of any right, power or remedy or in the pursuance of any
remedy shall impair any right, power or remedy or be construed to be a waiver thereof or of any default or to be an acquiescence
therein.


 


11.           General Provisions.


 


11.1      Governing Agreement. In the event of conflict or inconsistency between this Loan and Security Agreement and the other
Loan Documents, the terms, provisions and intent of this Loan and Security Agreement shall govern.


 


11.2      Borrower’s Obligations Cumulative. Every obligation, covenant, condition, provision, warranty, agreement, liability,
and undertaking of Borrower contained in the Loan Documents shall be deemed cumulative and not in derogation or substitution of
any of the other obligations, covenants, conditions, provisions, warranties, agreements, liabilities, or undertakings of Borrower
contained herein or therein.


 


11.3      Payment of Expenses and Attorneys’ Fees. Borrower shall pay all reasonable expenses of Lender relating to the
negotiation, drafting of documents, documentation of the Loan, and administration and supervision of the Loan, including, without
limitation, appraisal fees, environmental inspection fees, field examination expenses, title insurance, recording fees, filing
fees, and reasonable attorneys’ fees and legal expenses, whether incurred in making the Loan, in future amendments or modifications
to the Loan Documents, or in ongoing administration and supervision of the Loan.


 


Upon occurrence of
an Event of Default, Borrower agrees to pay all costs and expenses, including, without limitation, reasonable attorneys’
fees and legal expenses, incurred by Lender in enforcing, or exercising any remedies under, the Loan Documents, and any other rights
and remedies. Additionally, Borrower agrees to pay all Liquidation Costs. Any and all such costs, expenses, and Liquidation Costs
shall be payable by Borrower upon demand, together with interest thereon from the date of the advance until repaid, both before
and after judgment, at the Default Rate.


 


Borrower agrees to
pay all expenses, including, without limitation, reasonable attorneys’ fees and legal expenses, incurred by Lender in any
bankruptcy proceedings of any type involving Borrower, Guarantor, the Loan Documents, or the Collateral, including, without limitation,
expenses incurred in modifying or lifting the automatic stay, determining adequate protection, use of cash collateral or relating
to any plan of reorganization.


 


11.4      Right to Perform for Borrower. Lender may, in its sole discretion and without any duty to do so, elect to discharge
taxes, tax liens, security interests, or any other encumbrance upon the Collateral or any other property or asset of Borrower,
to pay any filing, recording, or other charges payable by Borrower, or to perform any other obligation of Borrower under this Loan
and Security Agreement or under the Security Documents.


 






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11.5      Assignability. Borrower may not assign or transfer any of the Loan Documents and any such purported assignment or
transfer is void. Lender may assign or transfer any of the Loan Documents. Funding of this Loan may be provided by an affiliate
of Lender.


 


11.6      Third Party Beneficiaries. The Loan Documents are made for the sole and exclusive benefit of Borrower and Lender
and are not intended to benefit any other third party. No third party may claim any right or benefit or seek to enforce any term
or provision of the Loan Documents.


 


11.7      Governing Law. The Loan Documents shall be governed by and construed in accordance with the laws of the State of
Utah without regard to its conflict of laws principles, and the Loan Documents shall be deemed to have been executed by the parties
in the State of Utah. The Loan Documents shall not be deemed to have been entered into until accepted by Lender at its chief executive
office in Salt Lake City, Utah, and shall be performed by Lender, and the Loan administered by Lender, in Salt Lake City, Utah.


 


11.8      Severability of Invalid Provisions. Any provision of this Loan and Security Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other jurisdiction.


 


11.9      Interpretation of Loan and Security Agreement. The article and section headings in this Loan and Security Agreement
are inserted for convenience only and shall not be considered part of the Loan and Security Agreement nor be used in its interpretation.


 


All references in this
Loan and Security Agreement to the singular shall be deemed to include the plural when the context so requires, and vice versa.
References in the collective or conjunctive shall also include the disjunctive unless the context otherwise clearly requires a
different interpretation.


 


11.10    Survival and Binding Effect of Representations, Warranties, and Covenants. All agreements, representations, warranties,
and covenants made herein by Borrower shall survive the execution and delivery of this Loan and Security Agreement and shall continue
in effect so long as any obligation to Lender contemplated by this Loan and Security Agreement is outstanding and unpaid, notwithstanding
any termination of this Loan and Security Agreement. All agreements, representations, warranties, and covenants made herein by
Borrower shall survive any bankruptcy proceedings involving Borrower. All agreements, representations, warranties, and covenants
in this Loan and Security Agreement shall bind the party making the same, its successors and, in Lender’s case, assigns,
and all rights and remedies in this Loan and Security Agreement shall inure to the benefit of and be enforceable by each party
for whom made, their respective successors and, in Lender’s case, assigns.


 


11.11    Indemnification. Borrower shall indemnify Lender for any and all claims and liabilities, and for damages which may
be awarded or incurred by Lender, and for all reasonable attorneys’ fees, legal expenses, and other out-of-pocket expenses
incurred in defending such claims, arising from or related in any manner to the negotiation, execution, or performance by Lender
of any of the Loan Documents, but excluding any such claims based upon breach or default by Lender or gross negligence or willful
misconduct of Lender. Lender shall have the sole and complete control of the defense of any such claims. Lender is hereby authorized
to settle or otherwise compromise any such claims as Lender in good faith determines shall be in its best interests. The obligations
of Borrower and the rights of Lender under this Section will survive payment and performance of all obligations owing under the
Loan Documents and will remain in full force and effect without termination.


 


11.12    Interest on Expenses and Indemnification, Collateral, Order of Application. All expenses, out-of-pocket costs, attorneys’
fees and legal expenses, amounts advanced in performance of obligations of Borrower, and indemnification amounts owing by Borrower
to Lender under or pursuant to this Loan and Security Agreement, and/or any Security Documents shall be due and payable upon demand.
If not paid upon demand, all such obligations shall bear interest at the Default Rate from the date of disbursement until paid
to Lender, both before and after judgment. Lender is authorized and directed to disburse a sufficient amount of the Loan as necessary
for payment of all such obligations and for any other obligations owing by Borrower to Lender under the Loan


 






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Documents or otherwise.
Payment of all such obligations shall be secured by the Collateral and by the Security Documents.


 


All payments and recoveries
received by Lender under the Loan Documents shall be applied to payment of the foregoing obligations, the Loan, and all other amounts
owing to Lender by Borrower in such order and priority as determined by Lender. Unless otherwise elected by Lender, payments on
the Loan shall be applied first to accrued interest and the remainder, if any, to principal.


 


11.13    Limitation of Consequential Damages. Lender and its officers, directors, employees, representatives, agents, and
attorneys, shall not be liable to Borrower or any Guarantor for consequential damages arising from or relating to any breach of
contract, tort, or other wrong in connection with the negotiation, documentation, administration or collection of the Loan.


 


11.14    Revival Clause. If the incurring of any debt by Borrower or the payment of any money or transfer of property to Lender
by or on behalf of Borrower or Guarantor should for any reason subsequently be determined to be “voidable” or “avoidable”
in whole or in part within the meaning of any state or federal law (collectively “voidable transfers”), including,
without limitation, fraudulent conveyances or preferential transfers under the United States Bankruptcy Code or any other federal
or state law, and Lender is required to repay or restore any voidable transfers or the amount or any portion thereof, or upon the
advice of Lender’s counsel is advised to do so, then, as to any such amount or property repaid or restored, including, without
limitation, all reasonable costs, expenses, and attorneys’ fees of Lender related thereto, the liability of Borrower and
Guarantor, and each of them, shall automatically be revived, reinstated and restored and shall exist as though the voidable transfers
had never been made.


 


11.15    Consent to Utah Jurisdiction, Exclusive Jurisdiction of Utah Courts, and Jury Waiver. Borrower acknowledges that
by execution and delivery of the Loan Documents, Borrower has transacted business in the State of Utah, and Borrower voluntarily
submits to, consents to, and waives any defense to the jurisdiction of courts located in the State of Utah as to all matters relating
to or arising from the Loan Documents and/or the transactions contemplated thereby. EXCEPT AS EXPRESSLY AGREED IN WRITING BY LENDER,
THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF UTAH SHALL HAVE SOLE AND EXCLUSIVE JURISDICTION OF ANY AND ALL CLAIMS, DISPUTES,
AND CONTROVERSIES, ARISING UNDER OR RELATING TO THE LOAN DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED THEREBY. NO LAWSUIT, PROCEEDING,
OR ANY OTHER ACTION RELATING TO OR ARISING UNDER THE LOAN DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED THEREBY MAY BE COMMENCED
OR PROSECUTED IN ANY OTHER FORUM EXCEPT AS EXPRESSLY AGREED IN WRITING BY LENDER.


 


BORROWER HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR IN TORT AT LAW OR IN
EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THE LOAN DOCUMENTS.


 


11.16    Joint and Several Liability. Borrower shall be jointly and severally liable with each Guarantor for all obligations
and liabilities arising under the Loan Documents.


 


11.17    Notices. All notices or demands by any party to this Loan and Security Agreement shall, except as otherwise provided
herein, be in writing and may be sent by certified mail, return receipt requested. Notices so mailed shall be deemed received when
deposited in a United States post office box, postage prepaid, properly addressed to Borrower or Lender at the mailing addresses
stated herein or to such other addresses as Borrower or Lender may from time to time specify in writing. Any notice so addressed
and otherwise delivered shall be deemed to be given when actually received by the addressee.


 


Mailing addresses: 


 


Lender:


  


 SUMMIT FINANCIAL RESOURCES,
L.P. 


 2455 East Parleys Way,
Suite 200


 






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 Salt Lake City, Utah
84109 


 Attention: Senior Portfolio
Manager 


 


Borrower: 


 


 PRO-DEX, INC. 


 2361 McGaw Avenue 


 Irvine, California 92614 


 Attention: Chief Executive Officer


 


11.18    Duplicate Originals; Counterpart Execution. Two or more duplicate originals of the Loan Documents may be signed by
the parties, each duplicate of which shall be an original but all of which together shall constitute one and the same instrument.
Any Loan Documents may be executed in several counterparts, without the requirement that all parties sign each counterpart. Each
of such counterparts shall be an original, but all counterparts together shall constitute one and the same instrument.


 


11.19    Disclosure of Financial and Other Information. Borrower hereby consents to Lender disclosing to any other lender
who may participate in the Loan, to any financial institution or investor providing financing or capital for Lender, or to any
other third party that executes a confidentiality agreement acceptable to Lender, any and all information, knowledge, reports,
and records, including, without limitation, financial statements, relating in any manner whatsoever to the Loan and Borrower. In
addition, Borrower hereby authorizes and directs Lender to report or otherwise disclose to any credit reporting agency or other
similar agency or entity any payment history, defaults, aging reports, and other financial and credit information regarding Borrower,
the Loan, all Accounts, and all Account Debtors. Borrower acknowledges that such disclosures and reporting may be subject to the
Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., or other Federal or State laws and hereby voluntarily authorizes
such disclosures. Borrower releases Lender and its employees, officers, directors, members, partners, and agents from any and all
liability for furnishing such information.


 


11.20    Identity Verification Notification. Lender hereby notifies Borrower that pursuant to the requirements of the applicable
United States and other laws and regulations, Lender may be required to obtain, verify, and record information that identifies
Borrower, which information includes the name and address of Borrower and other information that will allow Lender to identify
Borrower in accordance with the applicable law.


 


11.21    Integrated Agreement and Subsequent Amendment. The Loan Documents constitute the entire agreement between Lender
and Borrower, and may not be altered or amended except by written agreement signed by Lender and Borrower. BORROWER ACKNOWLEDGES
AND AGREES THAT THE LOAN DOCUMENTS ARE A FINAL EXPRESSION OF THE AGREEMENTS BETWEEN LENDER AND BORROWER AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF ALLEGED ORAL AGREEMENT.


 


All prior and contemporaneous
agreements, arrangements, understandings, or representations, oral, written, express, or implied, between the parties hereto as
to the subject matter hereof are, except as otherwise expressly provided herein, rescinded.


 


[Remainder of Page Intentionally Left Blank]


 






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Effective Date: September 9,
2015. 





	 	 
	 	Lender:
	 	 	 
	 	SUMMIT FINANCIAL RESOURCES, L.P., a Hawaii limited partnership
	 	 	 
	 	By: 	





	 	Name: 	James Baugh



	 	Title: 	VP – NUM



 





	 	Borrower:
	 	 	 
	 	PRO-DEX, INC., a Colorado
corporation
	 	 	 
	 	By: 	 





	 	Name: 	Rick Van Kirk



	 	Title: 	Chief Executive Officer



 



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