8-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported)             December 17, 2008                  

Pro-Dex, Inc.

(Exact name of registrant as specified in its charter)

                Colorado                 (State or other jurisdiction of incorporation) 0-14942 (Commission File Number) 84-1261240 (IRS Employer Identification No.)

                  2361 McGaw Avenue Irvine, California, 92614   (Address of principal executive offices)     (Zip Code)

Registrant’s telephone number, including area code             (949)769-3200                           

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.03.   Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

Pro-Dex, Inc. (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) dated November 16, 2007, among the Company and Wells Fargo Bank, N.A. (the “Bank”), providing for, (i) a Revolving Line of Credit Note (the “Credit Line Note”) in the principal amount of up to $4,000,000 and (ii) a Term Commitment (the “TI Commitment”) in the principal amount of up to $2,000,000 and (iii) a Term Note (the “Term Note”) in the principal amount of $562,500.07.  The Credit agreement, Credit Line Note, TI Commitment and Term Note are all collectively referred to as the “Loan Documents.”  

The Company finalized documentation on December 17, 2008 when the final signatures were received for the conversion of the TI Commitment to a 5 year note and modified various other items in the Loan Documents reflecting the conversion and updated lending terms.

The Company entered into the Term Note (“TI Note”) contemplated in the Credit Agreements (the “TI Commitment”) in the principal amount of $2,000,000 with a reference date of November 17, 2008.  The TI Note will amortize over five (5) years and shall be repaid in sixty (60) monthly installments, pursuant to the terms of a Promissory Note executed by the Company.  Interest rates payable under the TI Note is determined to be 2.50% above one month LIBOR in effect on the first day of each fixed rate term.   The Company subsequently entered into a contract with the Bank effectively fixing the rate at 5.70%

The Company entered into the First Modification of the Credit Line Note with a reference date of November 17, 2008  where (i) The fixed rate of interest on the Credit Line Note was set to 2.50% above LIBOR.  It was previously at 1.75% over LIBOR.  (ii) The variable rate of interest on the Credit Line Note was set to 1.50% above Prime Rate.  It was previously at Prime Rate.  (iii) the fixed Rate Term was defined as a period of three (3) months.  It was previously at the Company’s choice of 1, 2, 3, 6 or 12 month LIBOR.

The Company (i) entered into the First Amendment to the Credit Agreement with a reference date of November 17, 2008 replacing the TI Commitment with the TI Note.  (ii) An unused line fee was established in the amount of 0.25% per anum calculated quarterly on the unused balance of the Credit Line Note. (iii) the earnings and fixed charge coverage ratio covenants were adjusted to exclude the effects of a potential write-off of certain intangible assets, if any.

Copies of the Term Note, First Modification to the Promissory Note, and the First Amendment to Credit Agreement are attached hereto as Exhibits 10.1, 10.2, and 10.3, respectively, and are incorporated herein by reference. The foregoing descriptions of each of the Loan Documents are qualified in their entirety by reference to the full text of the respective agreements.

Item 9.01.       Financial Statements and Exhibits.

(d) Exhibits:

Number	Description
10.1	Term Note, dated as of November 17, 2008, by Pro-Dex, Inc. in favor of Wells Fargo Bank, National Association.
10.2	First Modification to Promissory Note, dated as of November 17, 2008, by Pro-Dex, Inc. in favor of Wells Fargo Bank, National Association.
10.3	First Amendment to Credit Agreement, dated as of November 17, 2008, by Pro-Dex, Inc. in favor of Wells Fargo Bank, National Association.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  January 13, 2009	Pro-Dex, Inc.
	By: /s/ Jeffrey J. Ritchey
	Jeffrey J. Ritchey, Chief Financial Officer,  Secretary and Vice President

EX-10

Exhibit 10.1

TERM NOTE

$2,000,000.00	Irvine, California
	November 17, 2008

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, California, 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 Two Million Dollars ($2,000,000.00), with interest thereon as set forth herein.

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:

(a)        "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.

(b)        "Fixed Rate Term" means a period of one (1) month during which the entire outstanding principal balance of this Note bears interest determined in relation to LIBOR, with the understanding that:

(i)         the initial Fixed Rate Term shall commence on the date this Note is disbursed and shall continue up to, but shall not include, December 1, 2008;

(ii)        thereafter each Fixed Rate Term shall commence automatically, without notice to or consent from Borrower, on the 1st day of each month and shall continue up to, but shall not include, the 1st day of the immediately following month: and

(iii)        if, on the first day of the last Fixed Rate Term applicable hereto the remaining term of this Note is less than one (1) month, said Fixed Rate Term shall be in effect only until the scheduled maturity date hereof.

If any Fixed Rate Term is scheduled to commence on a day which is not a Business Day, then such Fixed Rate Term shall commence on the next succeeding Business Day.

(c)         "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest 1/8 of 1%) and determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% - LIBOR Reserve Percentage

(i)           "Base LIBOR" means the rate per annum for United States dollar 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.

 

(ii)         "LIBOR 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.

(d)         "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.

INTEREST:

(a)                  Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a fixed rate per annum determined by Bank to be two and one half percent (2.50%) above LIBOR in effect on the first day of each Fixed Rate Term. With respect to each Fixed Rate Term hereunder, Bank is hereby authorized to note the date and interest rate 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.

(b)                  Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) 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 LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR 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 LIBOR to the extent they are not included in the calculation of LIBOR. In determining which of the foregoing are attributable to any LIBOR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.

(c)               Payment of Interest. Interest accrued on this Note shall be payable on the 1st day of each month, commencing December 1, 2008; provided however, that if any such interest due date is not a Business Day, interest shall accrue to and be due and payable on the next succeeding Business Day.

(d)               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 four  percent (4%) above the rate of interest in effect on the scheduled maturity date of this Note, or any accelerated maturity date.

REPAYMENT AND PREPAYMENT:

(a)          Repayment. Principal shall be payable on the 1^st day of each month in installments as set forth on Schedule 1 attached hereto and incorporated herein by this reference, commencing December 1, 2008, and continuing up to and including October 1, 2013, with a final installment consisting of all remaining unpaid principal due and payable in full on November 1, 2013,

(b)         Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.

(c)         Prepayment. Borrower may prepay principal on this Note at any time and in the
minimum amount of Fifty Thousand Dollars ($50,000.00); provided however, that if the outstanding principal balance of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance hereof. In consideration of Bank providing this prepayment option to Borrower, or if this Note shall become due and payable at any time prior to the last day of any Fixed Rate Term 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:

(i)           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.

(ii)           Subtract from the amount determined in (i) 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.

(iii)          if the result obtained in (ii) for any month is greater than zero, discount that
difference by LIBOR used in (ii) above.

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. 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 two percent (2,00%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed).

All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid.

   

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of November 1, 2007, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note.

MISCELLANEOUS:

(a)         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 and interest 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 Borrower. 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 Borrower or any other person or entity.

(b)        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.

(c)         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.

 

SCHEDULE 1 TO TERM NOTE

Principal Payment Date	Principal Payment Amount
December 1, 2008 to October 1, 2013	$ 33,333.33
November 1, 2013	Remaining Balance

 

EX-10

Exhibit 10.2

 

FIRST MODIFICATION TO PROMISSORY NOTE

 

THIS MODIFICATION TO PROMISSORY NOTE (this "Modification") is entered into as of November 17, 2008, by and between PRO-DEX, INC. ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Revolving Line of Credit Note in the maximum principal amount of $4,000,000.00, executed by Borrower and payable to the order of Bank, dated as of November 1, 2007 (the "Note"), which Note is subject to the terms and conditions of a loan agreement between Borrower and Bank dated as of November 1, 2007, as amended from time to time (the "Loan Agreement").

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Note, and have agreed to modify the Note to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Note shall be modified as follows:

1.      The fixed rate of interest applicable to the Note is hereby modified to be two and one half percent (2.50%) above LIBOR in effect on the first day of each Fixed Rate Term.

2.      The variable rate of interest applicable to the Note is hereby modified to be one and one half percent (1.50%) above the Prime Rate in effect from time to time.

3.      Paragraph 1.2. under the heading "DEFINITIONS" is hereby deleted in its entirety, and the following substituted therefor:

"1.2. 'Fixed Rate Term' means a period commencing on a Business Day and continuing for 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 LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than One Hundred Thousand Dollars ($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."

4.      The effective date of the changes set forth herein shall be November 17, 2008.

5.      Except as expressly set forth herein, all terms and conditions of the Note remain in full force and effect, without waiver or modification. All terms defined in the Note or the Loan Agreement shall have the same meaning when used in this Modification. This Modification and the Note shall be read together, as one document.

   

6. Borrower certifies that as of the date of this Modification there exists no Event of Default under the Note, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Modification to be executed as of the day and year first written above.

 

 

EX-10

Exhibit 10.3

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of November 17, 2008, by and between PRO-DEX, INC., a Colorado corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITALS

WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of November 1, 2007, as amended from time to time ("Credit Agreement").

WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

1.          Section 1.2. is hereby deleted in its entirety, and the following substituted
therefor:

"SECTION 1.2.             TERM LOAN.

(a)          Term Loan. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make a loan to Borrower in the principal amount of Two Million Dollars ($2,000,000.00) ("Term Loan"), the proceeds of which shall be used to finance Borrower's working capital needs and tenant improvements. Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note dated as of November 17, 2008 ("Term Note"), all terms of which are incorporated herein by this reference. Bank's commitment to grant the Term Loan shall terminate on December 17, 2008.

(b)         Repayment. The principal amount of the Term Loan shall be repaid in accordance with the provisions of the Term Note.

(c)         Prepayment. Borrower may prepay principal on the Term Loan solely in accordance with the provisions of the Term Note."

   

2.         The following is hereby added to the Credit Agreement as Section 1.4. (c):

"(c)       Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one quarter percent (.25%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the line of credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears on each March 31, June 30, September 30, and December 31."

3.         Section 7.2. is hereby deleted in its entirety, and the following substituted therefor:

"SECTION 7.2.             NOTICES. All notices, requests and
demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:       PRO-DEX, INC.

   2361 McGaw Avenue Irvine, CA 92614

BANK:                WELLS FARGO BANK, NATIONAL ASSOCIATION
  Orange County RCBO

  2030 Main Street, Suite #900

  Irvine, CA 92614

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid: and (c) if sent by telecopy, upon receipt."

4.         Section 4.9. (c) and (d) are hereby deleted in their entirety, and the following substituted therefor:

"(c)       Net income after taxes not less than $1.00 on an annual basis, determined as of each fiscal year end, provided, however that Borrower may incur a net loss for either the fiscal year ending 2009 or the fiscal year ending 2010 of up to $1,200,000.00 resulting from the write-off of the Borrower's "Intraflow" product during such year ("Intraflow Write-Off').

(d)        Net income before taxes of not less than $1.00 on a quarterly basis, determined as of each fiscal quarter end, except any one fiscal quarter end during either fiscal year 2009 or fiscal year 2010, where Borrower incurs a net loss of up to $1,200,000.00 resulting from the Intraflow Write-Off.

   

5.         Section 4.9. (e) is hereby deleted in its entirety, and the following substituted therefor:

"(e) Fixed Charge Coverage Ratio not less than 1.25 to 1.0 as of each fiscal quarter end, determined on a rolling 4-quarter basis, with "Fixed Charge Coverage Ratio" defined as the aggregate of net profit after taxes (excluding any Intraflow Write-off during any period permitted herein) plus depreciation expense, amortization expense, cash capital contributions and increases in subordinated debt minus dividends, distributions and decreases in subordinated debt, divided by the aggregate of the current maturity of long-term debt and capitalized lease payments."

6.         Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document.

7.         Borrower hereby remakes all representations and warranties contained in the
Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.