PDEX

Business Context and Reporting Period

Company: PRO-DEX, INC. (PDEX)
Filing Type: Form 8-K (Current Report)
Date of Report: July 31, 2024
Reporting Period: Event date of July 31, 2024
Business Context: The Company entered into Amendment No. 4 to its Amended and Restated Credit Agreement with Minnesota Bank and Trust (MBT) to restructure its debt facilities and fund a share repurchase program.

Key Financial Metrics and Debt Structure

Debt and Liquidity:

• New Term Loan (Term Loan C): $5,000,000 principal amount.
• Revolving Credit Capacity: $7,000,000 available under the Amended Revolving Note following the transaction.
• Repayment of Prior Debt: Proceeds from Term Loan C were used to repay the entire $3,000,000 outstanding balance on the Amended Revolving Note.
• Termination: The $3,000,000 Supplemental Revolving Credit Note (undrawn) was terminated.
• Loan Fees: $10,000 in loan origination fees payable to MBT.

Interest and Repayment Terms:

• Interest Rate: Greater of 5.0% or Adjusted Term SOFR (SOFR + 2.5%).
• Default Rate: Interest rate increases by 3% upon an event of default.
• Principal Payments: Monthly payments of $83,333 beginning September 1, 2024.
• Maturity Date: August 1, 2029.
• Collateral: Secured by substantially all of the Company's assets.

Revenue and Profit: The filing text does not provide a clear value for revenue, profit, cash flow, or margins as this is a current report regarding a specific financing event.

Material Changes Versus Prior Period

The primary material change is the restructuring of the Company's credit facilities effective July 31, 2024:

• Debt Conversion: Conversion of a $3,000,000 revolving note balance into a new 5-year term loan.
• Capacity Restoration: Restoration of the full $7,000,000 revolving borrowing capacity previously reduced by the outstanding balance.
• Facility Termination: Elimination of the unused $3,000,000 Supplemental Revolving Credit Note.
• Use of Proceeds: The balance of Term Loan C (after repaying the $3M revolving note) is designated to finance the repurchase of common stock under a 10b5-1 plan.

Guidance, Outlook, and Risks

Management Commentary and Use of Funds:
The Company intends to use the net proceeds from Term Loan C to refinance existing debt and fund share repurchases. The transaction was structured to provide long-term financing (5-year term) while freeing up revolving credit capacity for working capital needs.

Risks and Contingencies:

• Covenants: The Credit Agreement and Term Note C contain customary affirmative, negative, and financial covenants.
• Default Consequences: An event of default triggers a 3% interest rate penalty and allows the lender to declare the entire loan immediately due and payable.
• Collateral Risk: The loan is secured by substantially all of the Company's assets.

Unusual Items: None reported beyond the standard debt restructuring and share repurchase funding.

Investor Verification Checklist

• Verify the specific financial covenants in the attached Amendment No. 4 (Exhibit 10.1) to assess compliance risks.
• Confirm the status and execution of the 10b5-1 share repurchase plan referenced for the use of proceeds.
• Monitor the Company's ability to meet the monthly principal payment of $83,333 starting September 1, 2024.
• Review the impact of the 5.0% floor on interest expenses compared to current SOFR rates.
• Check subsequent filings for any events of default or covenant waivers.