NOTE 12. SUBSEQUENT EVENTS

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. Because the payments discussed in (i) and (ii) above were both probable of incurrence and estimatable at March 31, 2011, such amounts were accrued in our March 31, 2012 condensed consolidated financial statements.

On the Separation Date we also entered into an Independent Contractor Agreement with Mr. Murphy under which he will earn 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 subsidiary. 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 for the following:

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A base annual salary of $300,000

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Participation in our Annual Incentive Plan and Long-Term Incentive Plan upon his becoming eligible under the terms of each of those Plans

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Participation in the Employees Stock Option Plan (see Note 8), under which our Board of Directors approved an initial grant, effective on the sixth day following the public release of our financial results for the fiscal quarter ended March 31, 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.

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

We also entered into our standard form of a Change of Control Agreement with Mr. Berthelot, which previously had been approved by the Board for eligible officers.

We have evaluated events or transactions that occurred after the balance sheet date of March 31, 2012 and have identified no such events or transactions, other than as described in Note 6 and this Note 12, which require adjustment to, or disclosure in, these financial statements.