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UNITED STATES
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)
August 14, 2006
PRO-DEX, INC.
(Exact name of registrant as specified in its charter)
COLORADO 0-14942 84-1261240
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
151 East Columbine Avenue
Santa Ana, California 92707
(Address of Principal Executive Offices)
(714) 241-4411
(Registrant's Telephone Number, Including Area Code)
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):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On August 14, 2006, Pro-Dex, Inc. (the "Company") entered into an
employment agreement (the "Agreement") with Mark Murphy pursuant to which Mr.
Murphy will serve as the Company's Chief Executive Officer. Mr. Murphy is
currently a director of the Company. A copy of the Agreement is attached to this
report as Exhibit 10.1.
Under the terms of the Agreement, Mr. Murphy is to receive an annual salary
of $280,000, subject to annual CPI adjustment, plus health and life insurance
benefits available to all Company employees.
In addition to the foregoing salary and benefits, Mr. Murphy is eligible
for additional compensation if he remains employed by the Company on a full time
basis ("Continuing Employment Status") including the following:
o An Annual Bonus equal to (i) 0.75% of his annual salary, times (ii)
each one percent (or any portion thereof) increase in pre-tax earnings
(including extraordinary gains and losses) per share for fiscal years
ending after July 1, 2006 over the prior fiscal year. The Annual Bonus
shall be payable within ten days after Mr. Murphy has signed and the
Company has filed with the SEC the required Chief Executive Officer
certifications, without qualification, for Form 10-KSB for the most
recent fiscal year. Such Continuing Employment Status shall not be
required for additional compensation under the "Annual Bonus" benefits
in the event that during the period (i) following the conclusion of
the Company's fiscal year and (ii) prior to the Company's filing of
Form 10-KSB (or Form 10-K, as the case may be), his employment is
terminated by the Company without "Cause" or he resigns for "Good
Reason," each as defined below). If his employment has been terminated
by the Company without Cause prior to the time that he has signed such
certifications, or by Mr. Murphy for Good Reason prior to the time
that he has signed such certifications, the Annual Bonus shall be
payable within thirty (30) days following the termination of his
employment. The actual Annual Bonus for fiscal year ending June 30,
2007 shall not exceed $25,000; and shall not exceed $50,000 for fiscal
year ending June 30, 2008.
o A Second Bonus equal to the appreciation of an aggregate of 450,000
shares of the Company's common stock over the closing price of such
number of shares on the day preceding the starting date of his
employment with the Company. Entitlement to this second bonus shall
vest at the rate of 33.333% per year commencing with the first
anniversary of such starting date (subject to acceleration in certain
events as described below), and all or any part of each incremental
vested portion shall be exercisable within five years from the date
such increment first vested and payable in cash in the installments
described below commencing on the earliest of (i) 90 days written
notice from Mr. Murphy to the Company, based on the average closing
price of the Company's common shares, over the ten trading days
immediately preceding receipt of such written 90 day notice outside of
any blackout periods applicable to all insiders, (ii) termination of
his employment (except for termination of your employment by the
Company for "Cause" or resignation by him without Good Reason), based
on the
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average closing price of the Company's common shares over the ten
trading days immediately preceding the date of termination, outside of
any blackout periods applicable to all insiders ) or (iii) in case of
a Liquidity Event as defined below, based on the price per share
received by the Company's shareholders in the Liquidity Event as
described in the Agreement. Payments of this Second Bonus shall be in
quarterly installments equal to 10% of the Company's pretax net income
(and with respect to the final quarterly payment, so much as may
remain to be paid), including extraordinary gains and losses, as
reported in the Company's financial statements contained within Form
10-QSB or Form 10-KSB (as the case may be) for the preceding quarter,
payable each quarter within thirty (30) days following the
determination of such pretax net income; provided, however, that any
payments of this Second Bonus which are earned but remain outstanding
as of the date of his termination/severance of employment shall be
paid over a period of twelve (12) months as set forth in the
Agreement. The unpaid portion shall become immediately due and payable
upon a Liquidity Event.
o The Second Bonus may be replaced at the Company's sole option on or
before February 28, 2007 with a grant of 340,000 restricted shares of
Common Stock of the Company in accordance with an equity incentive
compensation plan if such a plan is approved by the Company's
shareholders at the Company's 2006 Annual Shareholders' Meeting (or
other such special shareholders' meeting of the Company) vesting at
the rate of 85,000 shares per year commencing January 2, 2007 or the
grant date, whichever is later. If the restricted stock grant is
pursuant to the Company's general equity incentive plan for its key
employees as approved by the Company's board of directors and
shareholders, then the Company shall register such shares with the
Securities and Exchange Commission.
In the event of a transaction in which the Company's shareholders receive
cash or marketable securities for their Company shares (a "Liquidity Event"),
the vesting of the unvested restricted shares or portion of the second bonus
will accelerate immediately prior to the Liquidity Event based on the amount
received by the Pro-Dex shareholders.
In the event Mr. Murphy is terminated involuntarily by the Company without
"Cause" or resigns with "Good Reason" as defined below, the Company shall pay
him his (i) salary up through the date of termination plus (ii) accrued vacation
plus (iii) severance equal to $280,000 and (iv) any Annual Bonus or Second Bonus
earned but not yet paid as of the termination date. With the exception of the
earned amount of his Annual Bonus (to be paid within thirty (30) days of his
termination), the severance payment referred to above shall be made in equal
incremental payments over a period of twelve (12) months.
The Agreement defines "Cause" shall mean termination due to: (i) Mr.
Murphy's failure or inability to perform your duties with the Company or a
related entity; (ii) his failure to substantially follow and comply with the
specific and lawful directives of the Board or any officer of the Company or a
related entity to whom he reports directly; (iii) the Board's determination on
advice of counsel of his commission of an act of fraud or dishonesty; his
engagement in illegal conduct, gross misconduct or an act of moral turpitude; or
his material violation of any material written policy, guideline, code, handbook
or similar document
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governing the conduct of directors, officers or employees of the Company or its
related entities; or (iv) a material breach by Mr. Murphy of the terms of the
Agreement. The Agreement defines "Good Reason" as: (i) a reduction in Mr.
Murphy's salary or failure of the Company to pay any amount owing to him under
the Agreement when due; or a material reduction in benefits provided to him
under the Agreement; (ii) the Company's requiring him to be based full time in
any office or location outside of a sixty (60) mile radius from your current
residence in Yorba Linda, California; (iii) his being requested by the Board to
execute any documents or take any action in violation of any laws or regulations
applicable to the Company, commit an act of fraud or dishonesty violation of any
material written policy, guideline, code, handbook or similar document governing
the conduct of directors, officers or employees of the Company or its related
entities; (iv) a Liquidity Event, in which he is not offered an executive
position with substantially comparable compensation, benefits and incentives
with any successor to the Company based in any office or location inside a sixty
(60) miles radius from his current residence in Yorba Linda; or (v) a material
breach by the Company of the Agreement.
Each party has a 30 day cure period following a notice of "Cause" or "Good
Reason" as the case may be.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS
(a) On August 14, 2006, Pro-Dex, Inc. (the "Company") entered into an
employment agreement (the "Agreement") with Mark Murphy pursuant to which Mr.
Murphy will serve as the Company's Chief Executive Officer. Mr. Murphy will
commence service as the Company's Chief Executive Officer on August 31, 2006.
The Agreement and its material terms are described in response to Item 1.01,
above.
(b) In connection with the Company's entry into the Agreement with Mark
Murphy, the Company's interim Chief Executive Officer, Jeff Ritchey, will resign
as Chief Executive Officer on August 31, 2006. Mr. Ritchey shall retain his
positions as the Company's Chief Financial Officer and Secretary.
(c) Also in connection with Mr. Murphy's commencement of service as Chief
Executive Officer, he has resigned his position on the Company's Audit
Committee. George Isaac, a member of the Company's Board, shall fill the vacancy
on the Audit Committee.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 10.1 Employment Agreement with Mark Murphy dated August 14, 2006.
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SIGNATURES
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: August 17, 2006 PRO-DEX, INC.
By: /s/ Jeff Ritchey
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Jeff Ritchey
Chief Financial Officer