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Commitments and Contingencies
 12 Months Ended
Jun. 30, 2012
Commitments and Contingencies [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Leases

We lease our office, production and warehouse facilities in Irvine, California and Beaverton, Oregon under agreements that expire in March 2018 and April 2014, respectively. Both leases require us to pay insurance, taxes, and other expenses related to the leased space. Rent expense in 2012 and 2011 was $574,000 and $563,000, respectively. Minimum lease payments for future fiscal years ending June 30 are:

 

         

2013

   $ 527,000  

2014

     532,000  

2015

     478,000  

2016

     495,000  

2017

     511,000  

Thereafter

     393,000  
   

 

 

  
    $ 2,936,000  
   

 

 

  

Compensation Arrangements

Retirement Savings 401(k) Plan

The Pro-Dex, Inc. Retirement Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Employees are eligible to participate in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first day of each calendar quarter. Participants are eligible to receive non-discretionary Pro-Dex matching contributions of 25% of their contributions up to 5% of eligible compensation, once they have completed six months of service. For the years ended June 30, 2012 and 2011, we recognized compensation expense amounting to $44,000 and $49,000, respectively, in connection with the 401(k) Plan.

Annual Incentive Plan (“AIP”)

The AIP provides annual incentive opportunities for our key employees based upon the attainment of certain performance goals. Compensation expense under the terms of the AIP amounted to $29,000 and $474,000 in fiscal year 2012 and 2011, respectively, which amounts were included in accrued liabilities in the accompanying consolidated balance sheets.

Long-Term Incentive Plan (“LTIP”)

The LTIP provides incentive opportunities to our executives and other key employees, and are conditioned on attainment of certain performance goals for one or more fiscal years. Awards under the LTIP are accrued when payment of such awards becomes probable. For the year ended June 30, 2012 compensation expense under the terms of the LTIP amounted to $43,000, all of which was included in accrued liabilities at June 30, 2012. No compensation expense had been accrued under the terms of the LTIP as of June 30, 2011.

Directors Compensation Plan

The compensation plan for non-employee directors of the Board provides for the following:

 

  •  

An annual retainer of $24,000 for each director;

 

  •  

An additional annual retainer of $7,000 for the Board Chairman or Lead Director, and $5,000 for each Board Committee Chair;

 

  •  

Fees ranging from $500 to $1,000 for participation in Board or Committee meetings in excess of six per year; and

 

  •  

An option grant under the Directors Plan (as defined in Note 9) for the purchase of (i) 15,000 shares of common stock upon the director’s initial election or appointment to the Board, and (ii) 10,000 shares of common stock upon the director’s re-election to the Board.

For the years ended June 30, 2012 and 2011, director compensation expense amounted to $138,000 and $136,000, respectively.

Chief Executive Officer Employment Arrangement

Effective April 20, 2012 (the “Separation Date”), Mark P. Murphy, Chief Executive Officer, President and a member of the Board of Directors of Pro-Dex and its subsidiaries, resigned from all of such positions. On that date, the Company and Mr. Murphy entered into a Separation Agreement and General Release of All Claims (“Separation Agreement”).

 

Under the terms of the Separation Agreement, we, among other actions, (i) paid Mr. Murphy severance compensation of $300,000, in accordance with the terms of our employment letter agreement with Mr. Murphy dated July 14, 2010, and (ii) will pay the monthly premiums for continued health insurance coverage under COBRA for a period from the Separation Date through March 31, 2013, an estimated aggregate amount of $16,000.

On the Separation Date we also entered into an Independent Contractor Agreement with Mr. Murphy under which he earns a consulting fee of $5,000 per month. The Independent Contractor Agreement has a term through October 23, 2012, unless otherwise terminated earlier by either party upon three days’ notice.

Also on April 20, 2012, we executed an employment letter agreement with Michael J. Berthelot under which he commenced employment as Chief Executive Officer and President of Pro-Dex and its subsidiaries. Mr. Berthelot has been a member of our Board of Directors since 2009 and will continue in that capacity, although, concurrent with the commencement of his employment with us, Mr. Berthelot resigned from his positions on the Board’s Audit, Compensation, and Nominating and Governance Committees.

The terms of our employment letter with Mr. Berthelot provide, among other things, for the following:

 

  •  

A base annual salary of $300,000

 

  •  

Participation in our AIP and LTIP upon his becoming eligible under the terms of each of those Plans

 

  •  

Participation in the Employees Stock Option Plan (Note 9), under which our Board of Directors approved an initial grant, effective May 14, 2012 (the “Grant Date”), of an option for Mr. Berthelot to purchase up to 200,000 shares of our common stock. The option will vest in its entirety on the third anniversary following the Grant Date and have a term of ten years, such term period commencing on the Grant Date, and

 

  •  

Participation in all our employee benefit plans, except for our Company-wide employee bonus plan in which none of our officers participates.

Legal Matters

In April 2011, we settled the lawsuit for alleged groundwater contamination previously brought against us by the Orange County Water District (“OCWD”). Under the terms of the settlement the parties agreed to the following: (i) Pro-Dex paid to OCWD a total lump sum of $250,000, the entire amount of which was funded by our insurance company; (ii) the complaint filed by OCWD against Pro-Dex was dismissed, with prejudice; and (iii) OCWD released and discharged Pro-Dex and certain related parties of any and all claims related to the litigation and of any other claims that are connected with any contamination of groundwater or any other aspect of the environment in the area that is the subject of the litigation that has been caused by contaminants released at or are migrating from our former Santa Ana site. We also provided a release to OCWD concerning the litigation.

 

In February 2011, we became aware of a report entitled “Site Discovery Report, Southeast Santa Ana Project DTSC – Cypress Region,” dated February 2010 (the “Report”), that was prepared by the Cypress regional office of the Cal/EPA Department of Toxic Substances Control (“DTSC”) for Region 9 of the U.S. Environmental Protection Agency (“USEPA”) under an agreement between the two agencies. The purpose of the Report was to identify sites within an area of southeast Santa Ana, California that may be sources of groundwater contamination previously detected in that area. The Report identified 25 sites, including our former Santa Ana site, for further screening by DTSC staff over the next two years. DTSC has informed us that no further evaluation of our former site took place during either fiscal year 2011 or 2012. It is uncertain whether future developments, if any, from DTSC’s screening process would have any application to our former site.

In general, we are from time to time a party to various legal proceedings incidental to our business, none of which we consider may be material. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and adverse.