Document:

exv10w1

 

EXHIBIT 10.1

     FOURTH AMENDMENT dated as of June 16, 2004 (this
“Amendment”), to the Credit Agreement dated as of July 21,
1999 as amended and restated as of March 30, 2004 (as
amended, supplemented or otherwise modified from time to
time, the “Credit Agreement”), among ALLIED WASTE
INDUSTRIES, INC. (“Allied Waste”), ALLIED WASTE NORTH
AMERICA, INC. (the “Borrower”); the lenders party thereto
(the “Lenders”); and JPMORGAN CHASE BANK, as administrative
agent (in such capacity, the “Administrative Agent”) and
collateral agent for the Lenders and as collateral trustee
for the Shared Collateral Secured Parties.

          The Borrower has requested that the Lenders amend certain provisions of
the Credit Agreement, and the Lenders are willing so to amend the Credit
Agreement, on the terms and subject to the conditions set forth herein.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.

          Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto agree as follows:

          SECTION 1. Amendment of Credit Agreement. The Credit Agreement is hereby
amended, effective as of the Amendment Effective Date (as defined in Section
3), as follows:

     (a) Amendment of Section 1.01. The definition of “Excess Cash Flow”
in Section 1.01 is amended by deleting the word “and” at the end of
clause (b)(viii) thereof, replacing the period at the end of clause
(b)(ix) thereof with “; and” and adding a new clause (b)(x) as follows:

     “(x) The aggregate amount of cash payments made in respect of
Optional Repurchases of 10% Notes made during such Excess Cash
Flow Calculation Period pursuant to Section 6.11(a)(ii)(u), other
than any such payments made with the proceeds of Revolving Loans
or other Indebtedness.”

     (b) Amendment of Section 2.11. Section 2.11 is amended by adding a
new paragraph (g) to read as follows:

     “(g) In the event and on each occasion that any Optional
Repurchase is made pursuant to Section 6.11(a)(ii)(u), the
Borrower shall, on the last day of the fiscal quarter during which
such Optional Repurchases were effected, prepay Term Loans in an
aggregate amount

 

 

equal to the aggregate amount of cash expenditures made
during such fiscal quarter for such Optional Repurchases; provided
that if the amount of any such required prepayment when taken
together with the aggregate amount of all other such prepayments
required pursuant to this paragraph (g) that have not yet been
made (the “Cumulative Amount”) is at any time greater than
$20,000,000, the Borrower shall prepay Term Loans in an aggregate
amount equal to the Cumulative Amount not later than the fifth
Business Day after the Cumulative Amount exceeds $20,000,000. Any
prepayments of Term Loans pursuant to this paragraph (g) will be
treated as mandatory prepayments for purposes of the definition of
Excess Cash Flow and paragraph (d) of this Section.”

     (c) Amendment of Section 6.11. Section 6.11 is amended by revising
clause (ii)(u) of paragraph (a) thereof to read in its entirety as
follows:

     “Optional Repurchases of 10% Notes effected after June 16,
2004 in an aggregate principal amount not in excess of
$275,000,000, provided that any prepayment of Term Loans required
pursuant to Section 2.11(g) in connection therewith is made as
required thereby,”

          SECTION 2. Representations and Warranties. To induce the other parties
hereto to enter into this Amendment, each of the Borrower and Allied Waste
represents and warrants to each of the Lenders, the Administrative Agent, the
Collateral Agent and the Collateral Trustee that, as of the Amendment Effective
Date:

     (a) This Amendment has been duly authorized, executed and delivered
by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally
and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).

     (b) The representations and warranties set forth in Article III of
the Credit Agreement are true and correct in all material respects on and
as of the Amendment Effective Date with the same effect as though made on
and as of the Amendment Effective Date, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case they were true and correct in all material respects as of such
earlier date).

     (c) After giving effect to the amendments herein, no Default or
Event of Default has occurred and is continuing.

          SECTION 3. Effectiveness. This Amendment shall become effective on the
first date on which the Administrative Agent shall have received counterparts
of this Amendment that, when taken together, bear the signatures of the
Required Lenders, the Borrower and Allied Waste, provided that such date is not
later than 30 days after the date of this Amendment (the “Amendment Effective
Date”).

2

 

          SECTION 4. Effect of Amendment. Except as expressly set forth herein,
this Amendment shall not by implication or otherwise limit, impair, constitute
a waiver of or otherwise affect the rights and remedies of the Lenders, the
Administrative Agent, the Collateral Agent or the Collateral Trustee under the
Credit Agreement or any other Loan Document, and shall not alter, modify, amend
or in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement or any other provision of the
Credit Agreement or of any other Loan Document, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrower or Allied Waste to a consent to,
or a waiver, amendment, modification or other change of, any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.
This Amendment shall apply and be effective only with respect to the provisions
of the Credit Agreement specifically referred to herein.

          SECTION 5. Costs and Expenses. The Borrower and Allied Waste, jointly and
severally, agree to reimburse the Administrative Agent for its reasonable
out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent.

          SECTION 6. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.

          SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

          SECTION 8. Headings. The headings of this Amendment are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.

3

 

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

	 	 	 	 	 	 	 
	 	 	ALLIED WASTE INDUSTRIES, INC.,
	 
	 	 	 	 	 	 
	 	 	 	 	by                                                         
	

	 	 	 	 	 	Name:
	

	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 
	 	 	ALLIED WASTE NORTH AMERICA, INC.,
	 
	 	 	 	 	 	 
	 	 	 	 	by                                                         
	

	 	 	 	 	 	Name:
	

	 	 	 	 	 	Title:
	 
	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, individually

and as Administrative Agent,
	 
	 	 	 	 	 	 
	 	 	 	 	by                                                         
	

	 	 	 	 	 	Name:
	

	 	 	 	 	 	Title:

4

 

	 	 	 	 	 	 	 
	 	 	SIGNATURE PAGE TO FOURTH AMENDMENT DATED AS OF
JUNE 16, 2004 TO THE ALLIED WASTE NORTH
AMERICA, INC. CREDIT AGREEMENT DATED AS OF
JULY, 21 1999, AS AMENDED AND RESTATED AS OF
MARCH 30, 2004
	 
	 	 	 	 	 	 
	 	 	Name of Institution:
	 
	 	 	 	 	 	 
	 	 	 	 	by                                                         
	

	 	 	 	 	 	Name:
	

	 	 	 	 	 	Title:

5exv10w2

 

EXHIBIT 10.2

Schedule of employee directors and officers who signed Indemnity Agreements
substantially identical to Exhibit 10.18 to the Allied Waste Industries, Inc.
Form 10-Q for the quarter ended March 31, 2004, as filed on May 6, 2004.

Name of Employee

Robert A. Alberico

Michael S. Burnett

James E. Gray

Steven M. Helm

Dale Parker

Greg Reddy

Donald W. Slager

James G. Van Weelden

Jo Lynn White

Douglas W. Borro

Charles H. Cotros

Peter S. Hathaway

Thomas P. Martin

John S. Quinn

Thomas W. Ryan

Donald A. Swierenga

Thomas H. Van Weeldenexv10w3

 

EXHIBIT 10.3

Schedule of non-employee directors who signed Indemnity Agreements
substantially identical to Exhibit 10.19 to the Allied Waste Industries, Inc.
Form 10-Q for the quarter ended March 31, 2004, as filed on May 6, 2004.

Name of Non-employee director

Robert M. Agate

Leon D. Black

James W. Crownover

Michael S. Gross

Dennis R. Hendrix

J. Tomilson Hill

Lawrence V. Jackson

Nolan Lehmann

Howard A. Lipson

Antony P. Ressler

Warren B. RudmanWELLS FARGO

 

 

EXHIBIT
10.1

WELLS
FARGO

LOAN
AGREEMENT   

This
Loan Agreement {this "Agreement"} IS entered Into by and between
Pro-Dex, Inc. ("Borrower") and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") and sets forth the terms and conditions which govern all
Borrower's commercial credit accommodations from Bank, whether now existing or
hereafter granted (each, a "Credit" and collectively,
"Credits"), which terms and conditions are in addition to those set
forth in any other contract, instrument or document (collectively with this
Agreement, the "Loan Documents") required by this Agreement or
heretofore or at any time hereafter delivered to Bank in connection with any
Credit.  

1.
REPRESENTATIONS AND WARRANTIES, Borrower makes the following representations
and warranties to Bank, which representations and warranties shall be true as
of the date hereof and on the date of each extension of credit under each
Credit with the same effect as though made on each such date:  

1.1
Legal Status. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Colorado, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required or in which the failure to be qualified
or licensed could have a material adverse effect on Borrower.  

1.2
Authorization and Validity. Each of the Loan Documents has been duly authorized,
and upon its execution and delivery to Bank will constitute a legal, valid and
binding obligation of Borrower or the party which executes the same,
enforceable in accordance with its respective terms.  

1.3
No Violation. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of law or regulation,
or contravene any provision of Borrower's Articles of Incorporation or By-Laws,
or result in any breach of or default under any agreement, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound.
 

1.4
No Litigation. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative
agency which could have a material adverse effect on the financial condition or
operation of Borrower except as disclosed by Borrower to Bank in writing prior
to the date hereof.  

1.5
Financial Statements. The most recent annual financial statement of
Borrower, and all interim financial statements delivered to Bank since the date
of said annual financial statement, true copies of which have been delivered by
Borrower to Bank prior to the date hereof, are complete and correct, present
fairly the financial condition of Borrower and disclose all liabilities of
Borrower, and have been prepared in accordance with generally accepted
accounting principles, Since the dates of such financial statements there has
been no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.  

1.6
Tax Returns. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year except as
disclosed by Borrower to Bank in writing prior to the date hereof.  

2.
  ADDITIONAL TERMS.  

2.1
Conditions Precedent. The obligation of Bank to grant any Credit is
subject to the condition that Bank shall have received all contracts, instruments
and documents, duly executed where applicable, deemed necessary by Bank to
evidence such Credit and all terms and conditions applicable thereto, all of
which shall be in form and substance satisfactory to Bank.  

 

2.2
Application of Payments. Each payment made on each Credit shall be
applied first, to any interest then due, second, to any fees and charges then
due, and third, to the outstanding principal balance thereof.  

3.
 COVENANTS. So long as any Credit remains available or any amounts
under any Credit remain outstanding,
Borrower shall, unless Bank otherwise consents in writing:  

3.1
Insurance. Maintain and keep in force, for each business in which
Borrower is engaged, insurance of the types and in amounts customarily carried
in similar lines of business, including but not limited to fire, extended
coverage, public liability, flood, property damage and workers' compensation,
carried with companies and in amounts satisfactory to Bank, and deliver to Bank
from time to time at Bank's request schedules setting forth all insurance then
in effect.  

3.2
Compliance: Laws and Regulations. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of Borrower's business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern
Borrower's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to Borrower
and/or its business, including without limitation, all state or federal
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any operations
and/or properties of Borrower.  

3.3
Other Indebtedness. Not create, incur, assume or permit to exist any
indebtedness or other liabilities, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, direct or contingent
(including any contingent liability under any guaranty of the obligations of
any person or entity), except (a) the liabilities of Borrower to Bank, (b)
trade debt incurred by Borrower in the normal course of its business, and (c)
any other liabilities of Borrower existing as of, and disclosed to Bank in
writing prior to, the date
hereof.  

3.4
Merger: Consolidation: Transfer of Assets. Not merge into or consolidate
with any other entity; nor make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other person or entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
 

3.5
Pledge of Assets. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except in favor of Bank and except any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.  

3.6
Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank, together with such current financial and other
information as Bank from time to time may reasonably request:  

(a)
As soon as available, but in no event later than 90 days after and as of the
end of each fiscal year, an audited financial statement of Borrower, prepared
by an independent certified public accountant acceptable to Bank, to include a
balance sheet, income statement and statement of cash flow, together with all
supporting schedules and footnotes.  

(b)
As soon as available, but in no event later than 45 days after and as of the
end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower
and certified as correct by an officer of Borrower authorized to borrow under
the most current Corporate Borrowing Resolution delivered by Borrower to Bank,
to include a balance sheet and income statement, together with all supporting schedules
and footnotes.  

3.7
Financial Condition. Maintain Borrower's financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices, except to the extent modified by the
following definitions:  

Page 2

(a)
Total Liabilities divided by Tangible Net Worth not at any time greater than
..15 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity plus subordinated debt less any intangible assets.  

(b)
Net income after taxes not less than $1.00
on an annual basis, determined as of each
fiscal year end, and pre-tax profit not less than $1.00 on a
quarterly basis, determined as of each fiscal quarter end.  

4.     DEFAULT;
REMEDIES.  

4.1  
Events of Default. The occurrence of any of the following
shall constitute an "Event of Default" under this
Agreement:  

(a)
          The failure to pay any principal, interest, fees or other charges
when due under any of the Loan Documents.
 

(b)
          Any representation or warranty hereunder or under any other Loan
Document shall prove to be incorrect,
false or misleading in any material respect when made.  

(c)
          Any violation or breach of any term or condition of this Agreement or
any other of the Loan Documents.
 

(d)           Any default in the payment or performance of any obligation, or any defined
event of default, under any provisions of any contract, instrument or document
pursuant to which Borrower or any guarantor hereunder has incurred debt or any
other liability of any kind to any person or entity, including Bank.
 

(e)           The filing of a notice of judgment lien against Borrower or any guarantor
hereunder; or the recording of any abstract of judgment against Borrower or any
such guarantor in any county in which Borrower or such guarantor has an
interest in real property; or the service of a notice of levy and/or of a writ
of attachment or execution, or other like process, against the assets of
Borrower or any such guarantor; or the entry of a judgment against Borrower or
any such guarantor.  

(f)           The filing of a petition by or against Borrower or any guarantor hereunder
under any provisions of the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time, or under any similar
or other law relating to bankruptcy, insolvency, reorganization or other relief
for debtors; the appointment of a receiver, trustee, custodian or liquidator of
or for any part of the assets or property of Borrower or any such guarantor; or
Borrower or any such guarantor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they
become due.  

(g)
          Any material adverse change, as determined solely by Bank, in the
financial condition of Borrower.  

(h)
          The death or incapacity of any individual guarantor hereunder; or the
dissolution or liquidation of Borrower
or of any guarantor hereunder which is a corporation, partnership or other type
of entity.  

(i)            Any
change in ownership during the term hereof of an aggregate of 25% or more of
the common stock
of Borrower.  

4.2
Remedies. Upon the occurrence of any Event of Default: (a) the entire
balance of principal, interest, fees and other charges on each Credit shall, at
Bank's option, become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are expressly waived by Borrower;
(b) the obligation, if any, of Bank to extend any further credit to Borrower
under any of the Loan Documents shall immediately cease and terminate; and (c)
Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any security for any Credit. All rights, powers and remedies of Bank
shall be cumulative.  

Page 3
 

5.
  Miscellaneous.  

5.1
No Waiver. No delay, failure or discontinuance of Bank in exercising any
right, power or remedy under any of the Loan Documents shall affect or operate
as a waiver of such right, power or remedy; nor shall any single or partial
exercise of any such right, power or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
breach of or default under any of the Loan Documents, or any such waiver of any
provisions or conditions hereof must be in writing and shall be effective only
to the extent set forth
in writing.  

5.2
Notices. All notices, requests and demands required under this Agreement
must be in writing, addressed to the applicable party at its address specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.  

5.3
Costs. Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, and Bank's continued administration of
each Credit, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with
any bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or any other person)
relating to Borrower or any other person or entity.  

5.4
Successors: Assignment. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interests or rights hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's
rights and benefits under each of the Loan Documents. In connection therewith,
Bank may disclose all documents and information which Bank now has or may
hereafter acquire relating to any Credit, Borrower or its business, any
guarantor of any Credit or the business of any such guarantor, or any
collateral for
any Credit.  

5.5
Controlling Agreement: Amendment. In the event of any direct conflict
between any provision of this Agreement and any provision of any other Loan
Document, the terms of this Agreement shall control. This Agreement may be
amended or modified only in writing signed by Bank and Borrower.  

5.6
No Third Party Beneficiaries. This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other Loan Document to which it
is not a party.  

5.7
Severability of Provisions. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.  

5.8
Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.  

5.9
Cancellation of Prior Loan Agreements. This Agreement cancels and
supersedes all prior loan agreements
between Borrower and Bank relating to any Credit.  

Page 4

6.
  ARBITRATION.  

6.1
Arbitration. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or
relating to in any way (a) the loan and related Loan Documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (b) requests for additional
credit.  

6.2
Governing Rules. Any arbitration proceeding will (a) proceed in a
location in California selected by the American Arbitration Association ("
AAA It); (b) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (c) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance
with the AAA's commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA's optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the "Rules"). If there is any inconsistency between
the terms hereof and the Rules, the terms and procedures set forth herein shall
control. Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any dispute. Nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. §91 or any
similar applicable state law.  

6.3
No Waiver of Provisional Remedies. Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (a) foreclose
against real or personal property collateral; (b) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or
repossession; or (c) obtain provisional or ancillary remedies such as replevin,
injunctive relief, attachment or the appointment of a receiver, before during
or after the pendency of any arbitration proceeding. This exclusion does not
constitute a waiver of the right or obligation of any party to submit any
dispute to arbitration or reference hereunder, including those arising from the
exercise of the actions detailed in sections (a), (b) and (c) of this
paragraph.  

6.4
Arbitrator Qualifications and Powers. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations. The arbitrator will be
a neutral attorney licensed in the State of California or a neutral retired
judge of the state or federal judiciary of California, in either case with a
minimum of ten years experience in the substantive law applicable to the
subject matter of the dispute to be arbitrated. The arbitrator will determine
whether or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim. In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator's
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication. The arbitrator
shall resolve all disputes in accordance with the substantive law of California
and may grant any remedy or relief that a court of such state could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award. The arbitrator shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.  

 

 

Page 5

6.5
Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no
later than 20 days before the hearing date and within 180 days of the filing of
the dispute with the AAA. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by
the arbitrator upon a showing that the request for discovery is essential for
the party's presentation and that no alternative means for obtaining
information is available.  

6.6
Class Proceedings and Consolidations. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.  

6.7
Payment of Arbitration Costs and Fees. The arbitrator shall award all
costs and expenses of the arbitration proceeding.  

6.8
Real Property Collateral: Judicial Reference. Notwithstanding anything
herein to the contrary, no dispute shall be submitted to arbitration if the
dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (a) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (b) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to
a referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to
the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.  

6.9
Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.  

 

 

 

 

Page
6  

 

IN
WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of  
October
31, 2004.  

Pro-Dex,
Inc.  

 

 

 

Address:
151 E. Columbine Avenue 

              Santa Ana, CA 92707
 

 

 Page 7
 

 

WELLS
FARGO

DISBURSEMENT ORDER   

 

DATE:
    October 31, 2004  

OFFICE:

Orange County RCBO, 2030 Main Street, Suite #900, Irvine, CA 92614
 

WELLS
FARGO BANK, NATIONAL ASSOCIATION, is hereby authorized to pay the proceeds of
the credit accommodation to the undersigned granted in the principal amount of $2,000,000.00
to the order of:  

	

  	
  AMOUNT
  
  

	
		
		$    --
  

  

  
	
   

  	

  
	

   	
   

  
	
   	
  $
  
  

  
	
   	
  $
  
  

  
	
   	
  $
  
  

  
	
   	
  $
  
  

  
	
   	
  $
  
  

  
	
   	
  $
  
  

  

 

Pro-Dex,
Inc. 

 

 

 

 

 

 Page 1
 

 

WELLS
FARGO

CERTIFICATE OF INCUMBENCY
   

TO:
WELLS FARGO BANK, NATIONAL ASSOCIATION  

        The
undersigned, Jeffrey Ritchey, Secretary of Pro-Dex, Inc., a
corporation created and existing under the laws of the state of Colorado,
hereby certifies to Wells Fargo Bank, National Association ("Bank")
that (a) the following named persons are duly elected officers of this
corporation and presently hold the titles specified below, (b) said officers
are authorized to act on behalf of this Corporation in transactions with Bank,
and (c) the signature opposite each officer's name is his or her true
signature:  

		

TITLE

President,
CEO 

CFO,
Treasurer, Secretary

			

				
			NAME

			Patrick
Johnson 

			Jeffrey
Ritchey
	
	

 

				 	 
	

 

				 	 
	

 

				 	 
	

 

				 	 
	

 

				 	 
	

 

				 	 

        The
undersigned further certifies that if any of the above-named officers change,
or if, at any time, any of said officers are no longer authorized to act on
behalf of this corporation in transactions with Bank, this corporation shall
immediately provide to Bank a new Certificate of Incumbency. Bank is hereby
authorized to rely on this Certificate of Incumbency until a new Certificate of
Incumbency certified by the Secretary of this corporation
is received by Bank.  

        IN
TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate seal
of said corporation as of       October
21, 2004.  

(SEAL)

 

 

Page 1
 

 

CONTINUING SECURITY AGREEMENT

RIGHTS  
TO PAYMENT AND INVENTORY

WELLS
FARGO 

1.
GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned
Pro-Dex, Inc., or any of them ("Debtor"), hereby grants and transfers
to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security
interest in all accounts, deposit accounts, chattel paper (whether electronic
or tangible), instruments, promissory notes, documents, general intangibles,
payment intangibles, software, letter of credit rights, health-care insurance
receivables and other rights to payment (collectively called "Rights to
Payments"), now existing or at any time hereafter, and prior to the
termination hereof, arising (whether they arise from the sale, lease or other
disposition of inventory or from performance of contracts for service,
manufacture, construction, repair or otherwise or from any other source
whatsoever), including all securities, guaranties, warranties, indemnity
agreements, insurance policies, supporting obligations and other agreements
pertaining to the same or the property described therein, and in all goods
returned by or repossessed from Debtor's customers, together with a security
interest in all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts and embedded software, work in process or materials used or
consumed in Debtor's business and all warehouse receipts, bills of lading and
other documents evidencing goods owned or acquired by Debtor, and all goods
covered thereby, now or at any time hereafter, and prior to the termination
hereof, owned or acquired by Debtor, wherever located, and all products thereof
(collectively called "Inventory"), whether in the possession of
Debtor, warehousemen, bailees or any other person, or in process of delivery
and whether located at Debtor's places of business or elsewhere (with all
Rights to Payment and Inventory referred to herein collectively as the
"Collateral"), together with whatever is receivable or received when
any of the Collateral or proceeds thereof are sold, leased, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation, all rights to payment, including
returned premiums, with respect to any insurance relating to any of the
foregoing, and all rights to payment with respect to any claim or cause of
action affecting or relating to any of the foregoing (hereinafter called
"Proceeds").  

2.
OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)
all obligations of Debtor and rights of Bank under this Agreement; and (c) all
present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of Debtor, or
any of them, heretofore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly, or whether recovery upon
such Indebtedness may be or hereafter becomes unenforceable.  

3.
TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor
of the termination of this Agreement.  

4.
OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any
money received by Bank in respect of the Collateral may be deposited, at Bank's
option, into a non-interest bearing account over which Debtor shall have no
control, and the same shall, for all purposes, be deemed Collateral hereunder.
 

5.
REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that:
(a) Debtor's legal name is exactly as set forth on the first page of this Agreement,
and all of Debtor's organizational documents or agreements delivered to Bank
are complete and accurate in every respect; (b) Debtor is the owner and has
possession or control of the Collateral and Proceeds; (c) Debtor has the
exclusive right to grant a security interest in the Collateral and Proceeds;
(d) all Collateral and Proceeds are genuine, free from liens, adverse claims,
setoffs, default, prepayment, defenses and conditions precedent of any kind or
character, except the lien created hereby or as otherwise agreed to by Bank, or
heretofore disclosed by Debtor to Bank,  

Page 1

 

in
writing; (e) all statements contained herein and, where applicable, in the
Collateral are true and complete in all material respects; (f) no financing statement
covering any of the Collateral or Proceeds, and naming any secured party other
than Bank, is on file in any public office; (g) all persons appearing to be
obligated on Rights to Payment and Proceeds have authority and capacity to
contract and are bound as they appear to be; (h) all property subject to
chattel paper has been properly registered and filed in compliance with law and
to perfect the interest of Debtor in such property; and (i) all Rights to
Payment and Proceeds comply with all applicable laws concerning form, content
and manner of preparation and execution, including where applicable Federal
Reserve Regulation Z and any State consumer credit laws.  

6.
  COVENANTS OF DEBTOR.  

6.1
Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due; (b)
to indemnify Bank against all losses, claims, demands, liabilities and expenses
of every kind caused by property subject hereto; (c) to pay all costs and
expenses, including reasonable attorneys' fees, incurred by Bank in the perfection
and preservation of the Collateral or Bank's interest therein and/or the
realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (d) to permit Bank to exercise its powers; (e) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; (f) not to change its name, and as
applicable, its chief executive office, its principal residence or the
jurisdiction in which it is organized and/or registered without giving Bank
prior written notice thereof; (g) not to change the places where Debtor keeps
any Collateral or Debtor's records concerning the Collateral and Proceeds
without giving Bank prior written notice of the address to which Debtor is
moving same; and (h) to cooperate with Bank in perfecting all security
interests granted herein and in obtaining such agreements from third parties as
Bank deems necessary, proper or convenient in connection with the preservation,
perfection or enforcement of any of its rights hereunder.  

6.2
Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees
otherwise in writing: (a) that Bank is authorized to file financing statements
in the name of Debtor to perfect Bank's security interest in Collateral and
Proceeds; (b) to insure Inventory and, where applicable, Rights to Payment with
Bank named as loss payee, in form, substance and amounts, under agreements,
against risks and liabilities, and with insurance companies satisfactory to
Bank; (c) not to use any Inventory for any unlawful purpose or in any way that
would void any insurance required to be carried in connection therewith; (d)
not to remove Inventory from Debtor's premises, except for deliveries to buyers
in the ordinary course of Debtor's business and except Inventory which consists
of mobile goods as defined in the California Uniform Commercial Code, in which
case Debtor agrees not to remove or permit the removal of the Inventory from
its state of domicile for a period in excess of 30 calendar days; (e) not to
permit any security interest in or lien on the Collateral or Proceeds,
including without limitation, liens arising from the storage of Inventory,
except in favor of Bank; (f) not to sell, hypothecate or otherwise dispose of,
nor permit the transfer by operation of law of, any of the Collateral or
Proceeds or any interest therein, except sales of Inventory to buyers in the
ordinary course of Debtor's business; (g) to furnish reports to Bank of all
acquisitions, returns, sales and other dispositions of the Inventory in such
form and detail and at such times as Bank may require; (h) to permit Bank to
inspect the Collateral at any time; (i) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral and Proceeds, and to permit Bank to inspect the same and make copies
thereof at any reasonable time; (j) if requested by Bank, to receive and use
reasonable diligence to collect Rights to Payment and Proceeds, in trust and as
the property of Bank, and to immediately endorse as appropriate and deliver
such Rights to Payment and Proceeds to Bank daily in the exact form in which
they are received together with a collection report in form satisfactory to
Bank; (k) not to commingle Rights to Payment, Proceeds or collections
thereunder with other property; (I) to give only normal allowances and credits
and to advise Bank thereof immediately in writing if they affect any Rights to
Payment or Proceeds in any material respect; (m) on demand, to deliver to Bank
returned property resulting from, or payment equal to, such allowances or
credits on any Rights to Payment or Proceeds or to execute such documents and
do such other things as Bank may reasonably request for the purpose of
perfecting, preserving and enforcing its security interest in such returned
property; (n) from time to time, when requested by Bank, to prepare and deliver
a schedule of all Collateral and Proceeds subject to this Agreement and to
assign in writing and deliver to Bank all accounts, contracts, leases and other
chattel paper, instruments, documents and other evidences  

 Page 2
 

 

 

 

thereof;
(0) in
the event Bank elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Bank in connection therewith,
including expenses of accounting, correspondence, collection efforts, reporting
to account or contract debtors, filing, recording, record keeping and expenses
incidental thereto; and (p) to provide any service and do any other acts which
may be necessary to maintain, preserve and protect all Collateral and, as
appropriate and applicable, to keep all Collateral in good and saleable
condition in accordance with the standards and practices adhered to generally
by users and manufacturers of like property, and to keep all Collateral and
Proceeds free and clear of all defenses, rights of offset and counterclaims.
 

7.
POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any
of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not Debtor is in
default: (a) to perform any obligation of Debtor hereunder in Debtor's name or
otherwise; (b) to give notice to account debtors or others of Bank's rights in
the Collateral and Proceeds, to enforce or forebear from enforcing the same and
make extension or modification agreements with respect thereto; (c) to release
persons liable on Proceeds and to give receipts and acquittances and compromise
disputes in connection therewith; (d) to release or substitute security; (e) to
resort to security in any order; (f) to prepare, execute, file, record or
deliver notes, assignments, schedules, designation statements, financing
statements, continuation statements, termination statements, statements of
assignment, applications for registration or like papers to perfect, preserve
or release Bank's interest in the Collateral and Proceeds; (g) to receive, open
and read mail addressed to Debtor; (h) to take cash, instruments for the
payment of money and other property to which Bank is entitled; (i) to verify
facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Bank,
at Bank's sole option, toward repayment of the Indebtedness or replacement of
the Collateral; (I) to exercise all rights, powers and remedies which Debtor
would have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; (m) to enter onto Debtor's premises in inspecting the
Collateral; (n) to make withdrawals from and to close deposit accounts or other
accounts with any financial institution, wherever located, into which Proceeds
may have been deposited, and to apply funds so withdrawn to payment of the
Indebtedness; (0) to preserve or release the interest evidenced by
chattel paper to which Bank is entitled hereunder and to endorse and deliver
any evidence of title incidental thereto; and (p) to do all acts and things and
execute all documents in the name of Debtor or otherwise, deemed by Bank as
necessary, proper and convenient in connection with the preservation,
perfection or enforcement
of its rights hereunder.  

8.
 PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to
delinquency, all insurance premiums, taxes, charges, liens and assessments
against the Collateral and Proceeds, and upon the failure of Debtor to do so,
Bank at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of this Agreement, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.
 

9.
EVENTS OF DEFAULT, The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default,
under (i) any contract or instrument evidencing any Indebtedness, or (ii) any
other agreement between Debtor and Bank, including without limitation any loan
agreement, relating to or executed in connection with any Indebtedness; (b) any
representation or warranty made by Debtor herein shall prove to be incorrect,
false or misleading in any material respect when made; (c) Debtor shall fail to
observe or perform any obligation or agreement contained herein; (d) any
impairment of the rights of Bank in any Collateral or Proceeds or any
attachment or like levy on any property of Debtor; and (e) Bank, in good faith,
believes any or all of the Collateral and/or Proceeds to be in danger of
misuse, dissipation, commingling, loss, theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory in character or value.  

 Page 3  

 

 

10.
REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the
right to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Bank shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right (a)
to contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank, and (b) to sell, lease, license or otherwise dispose of any or all
Collateral. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any
right, power, privilege or remedy hereunder shall affect or operate as a waiver
of such right, power, privilege or remedy; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any default hereunder, or any such waiver of
any provisions or conditions hereof, must be in writing and shall be effective
only to the extent set forth in writing. It is agreed that public or private
sales or other dispositions, for cash or on credit, to a wholesaler or retailer
or investor, or user of property of the types subject to this Agreement, or
public auctions, are all commercially reasonable since differences in the
prices generally realized in the different kinds of dispositions are ordinarily
offset by the differences in the costs and credit risks of such dispositions.
 

While
an Event of Default exists: (a) Debtor will deliver to Bank from time to time,
as requested by Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any Collateral or Proceeds except on terms approved
by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral
and Proceeds, and books and records pertaining thereto, to Bank at a reasonably
convenient place designated by Bank; and (d) Bank may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral.
With respect to any sale by Bank of any Collateral subject to this Agreement,
Debtor hereby expressly grants to Bank the right to sell such Collateral using
any or all of Debtor's trademarks, trade names, trade name rights and/or
proprietary labels or marks. Debtor further agrees that Bank shall have no
obligation to process or prepare any Collateral for sale or other disposition.
 

11.
DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In disposing
of Collateral hereunder, Bank may disclaim all warranties of title, possession,
quiet enjoyment and the like. Any proceeds of any disposition of any Collateral
or Proceeds, or any part thereof, may be applied by Bank to the payment of
expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as
Bank may from time to time elect, Upon the transfer of all or any part of the
Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds
and shall be fully discharged thereafter from all liability and responsibility
with respect to any of the foregoing so transferred, and the transferee shall
be vested with all rights and powers of Bank hereunder with respect to any of
the foregoing so transferred; but with respect to any Collateral or Proceeds
not so transferred Bank shall retain all rights, powers,
privileges and remedies herein given.  

12,
STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and
all commitments by Bank to extend credit to Debtor have been terminated, the
power of sale or other disposition and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
 

13.
MISCELLANEOUS. When there is more than one Debtor named herein: (a) the word
"Debtor" shall mean all or anyone or more of them as the context
requires; (b) the obligations of each Debtor hereunder are joint and several;
and (c) until all Indebtedness shall have been paid in full, no Debtor shall
have any right of subrogation or contribution, and each Debtor hereby waives
any benefit of or right to participate in any of the Collateral or Proceeds or
any other security now or hereafter held by Bank. Debtor hereby waives any
right to require Bank to (i) proceed against Debtor or any other person, (ij) proceed
against or exhaust any security from Debtor or any other person, (iii) perform
any obligation of Debtor with respect to any Collateral or Proceeds,
and (d) make any presentment or demand, or give any notice of nonpayment or
nonperformance, protest, notice of protest or notice of dishonor hereunder or
in connection with any Collateral or Proceeds. Debtor further waives any right
to direct the application of payments or security for any Indebtedness of Debtor
or indebtedness of customers of Debtor.  

Page 4
 

 

14.
NOTICES. All notices, requests and demands required under this Agreement must
be in writing, addressed to Bank at the address specified in any other loan
documents entered into between Debtor and Bank and to Debtor at the address of
its chief executive office (or principal residence, if applicable) specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed to have been given or made as follows:
(a) if personally delivered, upon delivery; (b) if sent by mail, upon the
earlier of the date of receipt or 3 days after deposit in the U. S. mail, first
class and postage prepaid; and
(c) if sent by telecopy, upon receipt.  

15.
COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon
demand the full amount of all payments, advances, charges, costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), expended or incurred by Bank in
exercising any right, power, privilege or remedy conferred by this Agreement or
in the enforcement thereof, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by
Bank or any other person) relating to Debtor or in any way affecting any of the
Collateral or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor with interest
from the date of demand until paid in full at a rate per annum equal to the
greater of ten percent (10%) or Bank's Prime Rate in effect from time to
time,  

16.
SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties, and may be amended or modified only in
writing signed by Bank and Debtor.  

17.
OBLIGATIONS OF MARRIED PERSONS .Any married person who signs this Agreement as
Debtor hereby expressly agrees that recourse may be had against his or her
separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.  

18.
SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.  

19.
GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.  

Debtor
warrants that Debtor is an organization registered under the laws of the State
of Colorado.  

Debtor
warrants that its chief executive office (or principal residence, if
applicable) is located at the following address: 151 E. Columbine Avenue, Santa
Ana, CA 92707  

Debtor
warrants that the Collateral (except goods in transit) is located or domiciled
at the following additional addresses: NONE  

 

 Page 5  

 

IN
WITNESS WHEREOF, this Agreement has been duly executed as  
of October 31, 2004.

Pro-Dex,

 

 

 

 

 

 Page 6
 

 

 

WELLS
FARGO  

SECURITY AGREEMENT 

EQUIPMENT  

1.
GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned
Pro-Dex, Inc., or any of them ("Debtor"), hereby grants and transfers
to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security
interest in all goods, tools, machinery, furnishings, furniture and other
equipment, now or at any time hereafter, and prior to the termination hereof,
owned or acquired by Debtor, wherever located, whether in the possession of
Debtor or any other person and whether located on Debtor's property or
elsewhere, and all improvements, replacements, accessions and additions thereto
and embedded software included therein (collectively called
"Collateral"), together with whatever is receivable or received when
any of the Collateral or proceeds thereof are sold, leased, collected, exchanged
or otherwise disposed of, whether such disposition is voluntary or involuntary,
including without limitation, (a) all accounts, contract rights, chattel paper
(whether electronic or tangible), instruments, promissory notes, documents,
general intangibles, payment intangibles and other rights to payment of every
kind now or at any time hereafter arising from any such sale, lease,
collection, exchange or other disposition of any of the foregoing, (b) all
rights to payment, including returned premiums, with respect to any insurance
relating to any of the foregoing, and (c) all rights to payment with respect to
any claim or cause of action affecting or relating to any of the foregoing
(hereinafter called "Proceeds").  

2.
OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)
all obligations of Debtor and rights of Bank under this Agreement; and (c) all
present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of Debtor, or
any of them, heretofore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly, or whether recovery upon
such Indebtedness may be or hereafter becomes unenforceable.  

3.
TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor
of the termination of this Agreement.  

4.
OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any
money received by Bank in respect of the Collateral may be deposited, at Bank's
option, into a non-interest bearing account over which Debtor shall have no
control, and the same shall, for all purposes, be deemed Collateral hereunder.
 

5.
REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that:
(a) Debtor's legal name is exactly as set forth on the first page of this
Agreement, and all of Debtor's organizational documents or agreements delivered
to Bank are complete and accurate in every respect; (b) Debtor is the owner and
has possession or control of the Collateral and Proceeds; (c) Debtor has the
exclusive right to grant a security interest in the Collateral and Proceeds;
(d) all Collateral and Proceeds are genuine, free from liens, adverse claims,
setoffs, default, prepayment, defenses and conditions precedent of any kind or
character, except the lien created hereby or as otherwise agreed to by Bank, or
heretofore disclosed by Debtor to Bank, in writing; (e) all statements
contained herein are true and complete in all material respects; (f) no
financing statement covering any of the Collateral or Proceeds, and naming any
secured party other than Bank, is on file in any public office; and (g) Debtor
is not in the business of selling goods of the kind included within the
Collateral subject to this Agreement, and Debtor acknowledges that no sale or
other disposition of any Collateral, including without limitation, any
Collateral which Debtor may deem to be surplus, has been or shall be consented
to or acquiesced in by Bank, except as specifically set forth in writing by
Bank.  

6.
 COVENANTS OF DEBTOR.  

 Page 1
 

 

6.1
Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due; (b)
to indemnify Bank against all losses, claims, demands, liabilities and expenses
of every kind caused by property subject hereto; (c) to pay all costs and
expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (d) to permit Bank to exercise its powers; (e) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; (f) not to change its name, and as
applicable, its chief executive office, its principal residence or the
jurisdiction in which it is organized and/or registered without giving Bank
prior written notice thereof; (g) not to change the places where Debtor keeps
any Collateral or Debtor's records concerning the Collateral and Proceeds
without giving Bank prior written notice of the address to which Debtor is
moving same; and (h) to cooperate with Bank in perfecting all security
interests granted herein and in obtaining such agreements from third parties as
Bank deems necessary, proper or convenient in connection with the preservation,
perfection or enforcement of any of its rights hereunder.  

6.2
Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise
in writing: (a) that Bank is authorized to file financing statements in the
name of Debtor to perfect Bank's security interest in Collateral and Proceeds;
(b) to insure the Collateral with Bank named as loss payee, in form, substance
and amounts, under agreements, against risks and liabilities, and with
insurance companies satisfactory to Bank; (c) to operate the Collateral in
accordance with all applicable statutes, rules and regulations relating to the
use and control thereof, and not to use the Collateral for any unlawful purpose
or in any way that would void any insurance required to be carried in
connection therewith; (d) not to permit any security interest in or lien on the
Collateral or Proceeds, including without limitation, liens arising from
repairs to or storage of the Collateral, except in favor of Bank; (e) to pay
when due all license fees, registration fees and other charges in connection
with any Collateral; (f) not to remove the Collateral from Debtor's premises
unless the Collateral consists of mobile goods as defined in the California
Uniform Commercial Code, in which case Debtor agrees not to remove or permit
the removal of the Collateral from its state of domicile for a period in excess
of 30 calendar days; (g) not to sell, hypothecate or otherwise dispose of, nor
permit the transfer by operation of law of, any of the Collateral or Proceeds
or any interest therein; (h) not to rent, lease or charter the Collateral; (i)
to permit Bank to inspect the Collateral at any time; (j) to keep, in
accordance with generally accepted accounting principles, complete and accurate
records regarding all Collateral and Proceeds, and to permit Bank to inspect
the same and make copies thereof at any reasonable time; (k) if requested by
Bank, to receive and use reasonable diligence to collect Proceeds, in trust and
as the property of Bank, and to immediately endorse as appropriate and deliver
such Proceeds to Bank daily in the exact form in which they are received
together with a collection report in form satisfactory to Bank; (I) not to
commingle Proceeds or collections thereunder with other property; (m) to give
only normal allowances and credits and to advise Bank thereof immediately in
writing if they affect any Collateral or Proceeds in any material respect; (n)
in the event Bank elects to receive payments of Proceeds hereunder, to pay all
expenses incurred by Bank in connection therewith, including expenses of
accounting, correspondence, collection efforts, reporting to account or
contract debtors, filing, recording, record keeping and expenses incidental
thereto; and (0) to provide any service and do any other acts which may
be necessary to maintain, preserve and protect all Collateral and, as
appropriate and applicable, to keep the Collateral in good and saleable
condition and repair, to deal with the Collateral in accordance with the
standards and practices adhered to generally by owners of like property, and to
keep all Collateral and Proceeds free and clear of all defenses, rights of
offset and counterclaims.  

7.
POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any
of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not Debtor is in
default: (a) to perform any obligation of Debtor hereunder in Debtor's name or
otherwise; (b) to give notice to account debtors or others of Bank's rights in
the Collateral and Proceeds, to enforce or forebear from enforcing the same and
make extension or modification agreements with respect thereto; (c) to release
persons liable on Proceeds and to give receipts and acquittances and compromise
disputes in connection therewith; (d) to release or substitute security; (e) to
resort to security in any order; (f) to prepare, execute, file, record or
deliver notes, assignments, schedules, designation statements, financing
statements, continuation statements, termination statements, statements of assignment,
applications for registration or like papers to perfect, preserve or release
Bank's interest in the Collateral and Proceeds; (g) to receive, open and
read mail addressed to Debtor; (h) to take cash, instruments for the payment of
money and other property to which Bank is entitled; 0) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Bank,
at Bank's sole option, toward repayment of the Indebtedness or replacement of
the Collateral; (I) to exercise all rights, powers and remedies which Debtor would
have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; (m) to enter onto Debtor's premises in inspecting the
Collateral; and (n) to do all acts and things and execute all documents in the
name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient
in connection with the preservation, perfection
or enforcement of its rights hereunder.  

 Page 2
 

 

8.
 PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to
delinquency, all insurance premiums, taxes, charges, liens and assessments
against the Collateral and Proceeds, and upon the failure of Debtor to do so,
Bank at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of this Agreement, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.
 

9.
EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default,
under (i) any contract or instrument evidencing any Indebtedness, or (i) any
other agreement between Debtor and Bank, including without limitation any loan
agreement, relating to or executed in connection with any Indebtedness; (b) any
representation or warranty made by Debtor herein shall prove to be incorrect,
false or misleading in any material respect when made; (c) Debtor shall fail to
observe or perform any obligation or agreement contained herein; (d) any
impairment of the rights of Bank in any Collateral or Proceeds or any
attachment or like levy on any property of Debtor; and (e) Bank, in good faith,
believes any or all of the Collateral and/or Proceeds to be in danger of
misuse, dissipation, commingling, loss, theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory in character or value.  

10.
REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the
right to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Bank shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right (a)
to contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank, and (b) to sell, lease, license or otherwise dispose of any or all
Collateral. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any
right, power, privilege or remedy hereunder shall affect or operate as a waiver
of such right, power, privilege or remedy; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any default hereunder, or any such waiver of
any provisions or conditions hereof, must be in writing and shall be effective
only to the extent set forth in writing. It is agreed that public or private
sales or other dispositions, for cash or on credit, to a wholesaler or retailer
or investor, or user of property of the types subject to this Agreement, or
public auctions, are all commercially reasonable since differences in the
prices generally realized in the different kinds of dispositions are ordinarily
offset by the differences in the costs and credit risks of such dispositions.
 

While
an Event of Default exists: (a) Debtor will deliver to Bank from time to time,
as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor
will not dispose of any Collateral or Proceeds except on terms approved by
Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral
and Proceeds, and books and records pertaining thereto, to Bank at a reasonably
convenient place designated by Bank; and (d)
Bank may, without notice to Debtor, enter onto Debtor's premises and take
possession of the Collateral. Debtor further agrees that Bank shall have no
obligation to process or prepare any Collateral for sale or other disposition.
 

 

 Page 3  

 

11.
DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In disposing
of Collateral hereunder, Bank may disclaim all warranties of title, possession,
quiet enjoyment and the like. Any proceeds of any disposition of any Collateral
or Proceeds, or any part thereof, may be applied by Bank to the payment of
expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as
Bank may from time to time elect. Upon the transfer of all or any part of the
Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds
and shall be fully discharged thereafter from all liability and responsibility
with respect to any of the foregoing so transferred, and the transferee shall
be vested with all rights and powers of Bank hereunder with respect to any of
the foregoing so transferred; but with respect to any Collateral or Proceeds
not so transferred Bank shall retain all rights, powers, privileges and
remedies herein given.  

12.
STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and
all commitments by Bank to extend credit to Debtor have been terminated, the
power of sale or other disposition and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.  

13.
MISCELLANEOUS. When there is more than one Debtor named herein: (a) the word
"Debtor" shall mean all or anyone or more of them as the context
requires; (b) the obligations of each Debtor hereunder are joint and several;
and (c) until all Indebtedness shall have been paid in full, no Debtor shall
have any right of subrogation or contribution, and each Debtor hereby waives
any benefit of or right to participate in any of the Collateral or Proceeds or
any other security now or hereafter held by Bank. Debtor hereby waives any
right to require Bank to (i) proceed against Debtor or any other person, (ii)
proceed against or exhaust any security from Debtor or any other person, (iii)
perform any obligation of Debtor with respect to any Collateral or Proceeds,
and (d) make any presentment or demand, or give any notice of nonpayment or
nonperformance, protest, notice of protest or notice of dishonor hereunder or
in connection with any Collateral or Proceeds. Debtor further waives any right
to direct the application of payments or security for any Indebtedness of
Debtor or indebtedness of customers of Debtor.  

14.
NOTICES. All notices, requests and demands required under this Agreement must
be in writing, addressed to Bank at the address specified in any other loan
documents entered into between Debtor and Bank and to Debtor at the address of
its chief executive office (or principal residence, if applicable) specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed to have been given or made as follows:
(a) if personally delivered, upon delivery; (b) if sent by mail, upon the
earlier of the date of receipt or 3 days after deposit in the U. S. mail, first
class and postage prepaid; and (c) if sent by telecopy, upon receipt.  

15.
COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon
demand the full amount of all payments, advances, charges, costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), expended or incurred by Bank in
exercising any right, power, privilege or remedy conferred by this Agreement or
in the enforcement thereof, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by
Bank or any other person) relating to Debtor or in any way affecting any of the
Collateral or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor with interest from
the date of demand until paid in full at a rate per annum equal to the greater
of ten percent (10%) or Bank's Prime Rate in effect from time to
time.  

Page 4
 

16.
SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties, and may be amended or modified only in
writing signed by Bank and Debtor.  

17.
OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as
Debtor hereby expressly agrees that recourse may be had against his or her
separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.  

18.
SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.  

19.
GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.  

Debtor
warrants that Debtor is an organization registered under the laws of the State
of Colorado.  

Debtor
warrants that its chief executive office (or principal residence, if
applicable) is located at the following address: 151 E. Columbine Avenue, Santa
Ana, CA 92707  

Debtor
warrants that the Collateral (except goods in transit) is located or domiciled
at the following additional addresses: NONE  

 

 

 

 

 

 Page 5
 

IN
WITNESS WHEREOF, this Agreement has been duly executed as of October 31, 2004.

 

Pro-Dex,

 

 

 

 

 

 

 

6

 

 

WELLS FARGO 

REVOLVING LINE OF CREDIT NOTE 

$2,000,000.00 

Irvine, California 

October 31, 2004 

FOR VALUE RECEIVED, the undersigned Pro-Dex,
Inc. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Orange County RCBO, 2030 Main Street,
Suite #900, Irvine, CA 92614, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $2,000,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.

1 .      DEFINITIONS: 

As used herein, the following terms shall
have the meanings set forth after each, and any other term defined in this Note
shall have the meaning set forth at the place defined: 

1.1     "Business Day" means any day except
a Saturday, Sunday or any other day on which commercial banks in California are
authorized or required by law to close. 

1.2 "Fixed Rate Term" means a period
commencing on a Business Day and continuing for 1, 2 or 3 months, as designated
by Borrower, during which all or a portion of the outstanding principal balance
of this Note bears interest determined in relation to UBOR; provided however,
that no Fixed Rate Term may be selected for a principal amount less than
$100,000.00; and provided further, that no Fixed Rate Term shall extend beyond
the scheduled maturity date hereof. If any Fixed Rate Term would end on a day
which is not a Business Day, then such Fixed Rate Term shall be extended to the
next succeeding Business Day. 

1.3 "UBOR" means the rate per annum
(rounded upward, if necessary, to the nearest whole 1/8 of 1 %) determined by
dividing Base UBOR by a percentage equal to 100% less any UBOR Reserve
Percentage. 

(a) "Base' UBOR"
means the rate per annum for United States doflar deposits quoted by Bank as the
Inter-Bank Market Offered Rate, with the understanding that such rate is quoted
by Bank for the purpose of calculating effective rates of interest for loans
making reference thereto, on the first day of a Fixed Rate Term for delivery of
funds on said date for a period of time approximately equal to the number of
days in such Fixed Rate Term and in an amount approximately equal to the
principal amount to which such Fixed Rate Term applies. Borrower understands and
agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate
upon such offers or other market indicators of the Inter-Bank Market as Bank in
its discretion deems appropriate including, but not limited to, the rate offered
for U.S. dollar deposits on the London Inter-Bank Market. 

(b) "UBOR
Reserve Percentage" means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for "Eurocurrency
Liabilities" (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Bank for expected changes in such reserve percentage
during the applicable Fixed Rate Term. 

1.4 "Prime Rate" means at any time the rate
of interest most recently announced within Bank at its principal office as its
Prime Rate, with the understanding that the Prime Rate is one of Bank's base
rates and serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto, and is evidenced by the
recording thereof after its announcement in such internal publication or
publications as Bank may designate. 

Page 1 

 

2.   INTEREST: 

2.1 Interest. The outstanding
principal balance of this Note shall bear interest (computed on the basis of a
360-day year, actual days elapsed) either (a) at a fluctuating rate per annum
equal to the Prime Rate in effect from time to time, or (b} at a fixed rate per
annum determined by Bank to be 2.50000% above LlBOR in effect on the first day
of the applicable Fixed Rate Term. When interest is determined in relation to
the Prime Rate, each change in the rate of interest hereunder shall become
effective on the date each Prime Rate change is announced within Bank. With
respect to each LlBOR selection hereunder, Bank is hereby authorized to note the
date, principal amount, interest rate and Fixed Rate Term applicable thereto and
any payments made thereon on Bank's books and records {either manually or by
electronic entry} and/or on any schedule attached to this Note, which notations
shall be prima facie evidence of the accuracy of the information noted. 

2.2 Selection of Interest Rate Ootions.
At any time any portion of this Note bears interest determined in relation to
LlBOR, it may be continued by Borrower at the end of the Fixed Rate Term
applicable thereto so that all or a portion thereof bears interest determined in
relation to the Prime Rate or to LlBOR for a new Fixed Rate Term designated by
Borrower. At any time any portion of this Note bears interest determined in
relation to the Prime Rate, Borrower may convert all or a portion thereof so
that it bears interest determined in relation to LlBOR for a Fixed Rate Term
designated by Borrower. At such time as Borrower requests an advance hereunder
or wishes to select a LlBOR option for all or a portion of the outstanding
principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall
give Bank notice specifying: (a) the interest rate option selected by Borrower;
(b) the principal amount subject thereto; and (c) for each LlBOR selection, the
length of the applicable Fixed Rate Term. Any such notice may be given by
telephone (or such other electronic method as Bank may permit) so long as, with
respect to each LlBOR selection, O} if requested by Bank, Borrower provides to
Bank written confirmation thereof not later than 3 Business Days after such
notice is given, and (ii) such notice is given to Bank prior to 10:00 a.m. on
the first day of the Fixed Rate Term, or at a later time during any Business Day
if Bank, at it's sale option but without obligation to do so, accepts Borrower's
notice and quotes a fixed rate to Borrower. If Borrower does not immediately
accept a fixed rate when quoted by Bank, the quoted rate shall expire and any
subsequent LlBOR request from Borrower shall be subject to a redetermination by
Bank of the applicable fixed rate. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.

2.3 Taxes and Requlatorv Costs.
Borrower shall pay to Bank immediately upon demand, in addition to any other
amounts due or to become due hereunder, any and all (a) withholdings, interest
equalization taxes, stamp taxes or other taxes (except income and franchise
taxes) imposed by any domestic or foreign governmental authority and related in
any manner to LlBOR, and (b) future, supplemental, emergency or other changes in
the LlBOR Reserve Percentage, assessment rates imposed by the Federal Deposit
Insurance Corporation, or similar requirements or costs imposed by any domestic
or foreign governmental authority or resulting from compliance by Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority and related in any manner to LlBOR to the
extent they are not included in the calculation of LlBOR. In determining which
of the foregoing are attributable to any UBOR option available to Borrower
hereunder, any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower. 

2.4  Pavment of Interest. Interest
accrued on this Note shall be payable on the 1st day of each month, commencing
November 1, 2004. 

2.5 Default Interest. From and after
the maturity date of this Note, or such earlier date as all principal owing
hereunder becomes due and payable by acceleration or otherwise, the outstanding
principal balance of this Note shall bear interest until paid in full at an
increased rate per annum (computed on the basis of a 360-day year, actual days
elapsed) equal to 4% above the rate of interest from time to time applicable to
this Note. 

Page 2 

 

2.6 Commitment Fee. Prior to the initial extension
of credit under this Note, Borrower shall pay to Bank a non-refundable
commitment fee of $3,500.00. 

2.7 Collection of Pavments. Borrower
authorizes Bank to collect all interest and fees due hereunder by charging
Borrower's deposit account number 4169-538501 with Bank, or any other
deposit account maintained by any Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such deposit account to pay
all such sums when due, the full amount of such deficiency shall be immediately
due and payable by Borrower. 

3.   BORROWING AND REPAYMENT: 

3.1 Use of Proceeds. Advances under this Note shall
be available solely to finance working capital requirements. 

3.2 Borrowing and Repayment.
Borrower may from time to time during the term of this Note borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject to all of the
limitations, terms and conditions of this Note and of any document executed in
connection with, or at any time as a supplement to, this Note; provided however,
that the total outstanding borrowings under this Note shall not at any time
exceed the principal amount stated above. All payments credited to principal
shall be applied first, to the outstanding principal balance of this Note which
bears interest determined in relation to the Prime Rate, if any, and second, to
the outstanding principal balance of this Note which bears interest determined
in relation to UBOR, with such payments applied to the oldest Fixed Rate Term
first. The unpaid principal balance of this obligation at any time shall be the
total amounts advanced hereunder by the holder hereof less the amount of any
principal payments made hereon by or for any Borrower, which balance may be
endorsed hereon from time to time by the holder. The outstanding principal
balance of this Note shall be due and payable in full on November 1, 2005.

3.3  Advances. Advances hereunder,
to the total amount of the principal sum available hereunder, may be made by the
holder at the oral or written request of (a) Patrick Johnson or Jeffrey
Ritchey, anyone acting alone, who are authorized to request advances and
direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (b)
any person, with respect to advances deposited to the credit of any deposit
account of any Borrower, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower. 

 4.  PREPAYMENT: 

4.1  Prime Rate. Borrower may prepay principal on
any portion of this Note which bears interest determined in relation to the
Prime Rate at any time, in any amount and without penalty. 

4.2  LIBOR, Borrower may prepay
principal on any portion of this Note which bears interest determined in
relation to LIBOR at any time and in the minimum amount of $100,000.00; 
provided however, that if the outstanding principal balance of such portion of
this Note is less than said amount, the minimum prepayment amount shall be the
entire outstanding principal balance thereof. In consideration of Bank providing
this prepayment option to Borrower, or if any such portion of this Note shall
become due and payable at any time prior to the last day of the Fixed Rate Term
applicable thereto by acceleration or otherwise, Borrower shall pay to Bank
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:

(a) Determine
the amount of interest which would have accrued each month on the amount
prepaid at the interest rate applicable to such amount had it remained
outstanding until the last day of the Fixed Rate Term applicable thereto. 

 Page 3 

 

(b) Subtract
from the amount determined in (a) above the amount of interest which would
have accrued for the same month on the amount prepaid for the remaining term of
such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans
made for such term and in a principal amount equal to the amount prepaid. 

(c) If the result obtained in
(b) for any month is greater than zero, discount that difference by LIBOR used
in (b) above. 

Each Borrower acknowledges that prepayment
of such amount may result in Bank incurring additional costs, expenses and/or
liabilities, and that it is difficult to ascertain the full extent of such
costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the
above-described prepayment fee and agrees that said amount represents a
reasonable estimate of the prepayment costs, expenses and/or liabilities of
Bank. If Borrower fails to pay any prepayment fee when due, the amount of such
prepayment fee shall thereafter bear interest until paid at a rate per annum 
2.000% above the Prime Rate in effect from time to time (computed on the
basis of a 360-day year, actual days elapsed). Each change in the rate of
interest on any such past due prepayment fee shall become effective on the date
each Prime Rate change is announced within Bank. 

5 .     COLLATERAL: 

As security for the payment and performance
of all obligations of Borrower under this Note, Borrower grants to Bank security
interests of first priority (except as agreed otherwise by Bank in writing) in
the following property of Borrower, now owned or at any time hereafter acquired:
all accounts receivable, other rights to payment and general intangibles; all
inventory; all equipment, together with security interests in all other
personal property of Borrower now or at any time hereafter pledged to Bank as
collateral for any other commercial credit accommodation granted by Bank to
Borrower. All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon demand for all costs and expenses incurred
by Bank in connection with any of the foregoing security, including without
limitation, filing fees and allocated costs of collateral audits. 

6.     EVENTS OF DEFAULT: 

Any default in the payment or performance
of any obligation under this Note, or any defined event of default under any
loan agreement now or at any time hereafter in effect between Borrower and Bank
(whether executed prior to, concurrently with or at any time after this Note),
shall constitute an "Event of Default" under this Note.

7.     MISCELLANEOUS: 

7.1 Remedies. Upon the occurrence of
any Event of Default, the holder of this Note, at the holder's option, may
declare all sums of principal, interest, fees and other charges outstanding
hereunder to be immediately due and payable without presentment, demand, notice
of nonperformance, notice of protest, protest or notice of dishonor, all of
which are expressly waived by each Borrower, and the obligation, if any, of the
holder to extend any further credit hereunder shall immediately cease and
terminate. Each Borrower shall pay to the holder immediately upon demand the
full amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of the holder's in.house counsel), expended or incurred by the holder in
connection with the enforcement of the holder's rights and/or the collection of
any amounts which become due to the holder under this Note, and the prosecution
or defense of any action in any way related to this Note, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity. 

 Page 4 

 

7.2 Obligations Joint and Several. Should more than
one person or entity sign this Note as a Borrower, the obligations of each such
Borrower shall be joint and several. 

7.3 Governing Law. This Note shall be governed by
and construed in accordance with the laws of the State of California.

IN WITNESS WHEREOF, the undersigned has executed this Note
as of the date first written above. 

Pro-Dex, Inc. 

                               

 

 

 

 

 

 

 

 

Page 5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}], [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}], [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}]]