8-K

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)

October 6, 2010

PRO-DEX, INC.

(Exact name of registrant as specified in its charter)

COLORADO	0-14942	84-1261240
(State or other	(Commission File Number)	(I.R.S. Employer
jurisdiction of		Identification Number)
incorporation)

2361 McGaw Avenue

Irvine, Ca. 92614

(Address of principal executive offices, zip code)

(949) 769-3200

(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))

Item 5.02.                   Departure of Directors or Certain Officers; Election of Directors;

                                    Appointment of Certain Officers; Compensatory Arrangements of

                                    Certain Officers.

(b)

Resignation of Chief Financial Officer.

            On October 6, 2010, Pro-Dex, Inc. (the “Company”) reported that Jeffrey S. Ritchey, the Company’s Chief Financial Officer, resigned from his employment with the Company, effective October 5, 2010 (the “Separation Date”). On October 7, 2010, the Company and Mr. Ritchey entered into a Separation Agreement and General Release of All Claims (“Separation Agreement”) concerning the conclusion of Mr. Ritchey’s employment services with the Company. A complete copy of the Separation Agreement is attached to this report as Exhibit 10.1 and the summary set forth below is qualified in its entirety by the full text of the Separation Agreement.

            Under the terms of the Separation Agreement, Mr. Ritchey will be paid all unpaid base salary, unreimbursed business expenses, less state and federal taxes and other required withholding, for the period through the Separation Date.

            Provided that the Separation Agreement has not been revoked by Mr. Ritchey prior to the expiration of the seven day revocation period described below, the Company will, among other things, also: (i) pay Mr. Ritchey severance compensation in the gross amount of $85,000, representing six months of Mr. Ritchey’s base salary at the annual rate in effect as of the Separation Date, which will be paid in substantially equal installments on the Company’s regularly scheduled payroll dates over a six month period beginning with the next regularly scheduled payroll date following the Separation Date; and (ii) provided Mr. Ritchey elected coverage under the Company’s group health insurance program prior to the Separation Date and makes a timely election for continued coverage pursuant to COBRA, continue to pay the Company’s portion of the monthly premiums for such continued coverage under the Company’s group health insurance program for a period from the Separation Date through April 30, 2011.

            Mr. Ritchey has provided the Company and its affiliates with a general release of claims, subject to certain statutory exceptions set forth in the Separation Agreement.

            Pursuant to applicable law, Mr. Ritchey has a period of seven calendar days to revoke the Separation Agreement by providing the Company with written notice of such revocation. Any revocation of the Separation Agreement, however, shall not affect the finality of the separation of Mr. Ritchey’s employment with the Company on the Separation Date.

            In connection with Mr. Ritchey’s resignation, the Company has entered into a consulting agreement to engage Mr. Ritchey as an independent contractor through December 31, 2010, for a total consulting fee of $20,000.  In the event the Company requests, and Mr. Ritchey performs, services for the Company in excess of 200 hours during the term of the consulting agreement, the Company will pay $100 per hour for each such excess hour of service performed.

(c)

Appointment of New Chief Financial Officer and Employment Arrangement Between the Company and Harold A. Hurwitz.

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            On October 6, 2010, pursuant to authorization by the Board of Directors (the “Board”) of the Company, Harold A. Hurwitz began service as the Company’s Chief Financial Officer.  Prior to his appointment, Mr. Hurwitz, age 58, was an independent consultant.  From April 2008 to February 2010, Mr. Hurwitz served as Chief Financial Officer and Vice President of Interventional Spine, Inc., a medical device company.  Prior to joining Interventional Spine in April 2008, Mr. Hurwitz served as Principal Consultant with McDermott & Bull from December 2005 to March 2008.  Mr. Hurwitz has also served as an independent consultant from December 2004 to December 2005.  He was Chief Financial Officer of Micro Therapeutics Inc. from December 1997 to December 2004 and also served as its Principal Accounting Officer until December 2004.  Earlier in his career, Mr. Hurwitz was an employee and Partner with Coopers & Lybrand L.L.P., where he was a Business Assurance Partner, Team Leader of its Orange County Medical Device Practice and an SEC Review Partner. He has a broad financial background that includes more than 30 years of public accounting and financial management experience.  In addition, he has leadership experience in human resources and information technology, diversified fund raising and Sarbanes-Oxley compliance.  Mr. Hurwitz holds a B.A. in Economics from the University of California, Los Angeles.

            In connection with the appointment, the Company and Mr. Hurwitz entered into an at-will employment arrangement (“Employment Arrangement”).  The Employment Arrangement is attached to this report as Exhibit 10.2, which exhibit is incorporated herein by this reference.  Under the terms of the Employment Arrangement, Mr. Hurwitz will report to the Chief Executive Officer of the Company and his compensation will consist of the following components:

• A base salary at an annualized rate of $185,000.

• Participation in the Company’s Annual Incentive Plan and Long Term Incentive Plan.

• Mr. Hurwitz is permitted to participate in any program of stock options or other equity grants which the Company may from time to time provide key employees. Such grants are made under the terms and provisions of the First Amended and Restated 2004 Stock Option Plan.   Subject to the foregoing, the initial grant under this program is 20,000 options to purchase the Company’s common shares at the average of the high and low prices for the Company’s shares on the grant date and which will vest ratably over the 36 month period following the grant date.  The options will have a term of ten years from the grant date and to the maximum extent permissible under the relevant Internal Revenue Service regulations, will be made as Incentive Stock Options.

• Health, dental, disability and life insurance, qualified retirement plans, and optional employee benefits of the Company on the same terms as other employees of the Company, except Mr. Hurwitz will not participate in the Company-wide employee bonus plan.

(e)

Amendment to Compensatory Plan.

On October 7, 2010, the Board, upon recommendation of the Company’s Compensation Committee, approved certain amendments to the Company’s Long-Term Incentive Plan (the “LTIP”) to make clear its conformity with the terms and provisions of the Company’s First Amended and Restated 2004 Stock Option Plan.  The LTIP, as amended, is attached to this report as Exhibit 10.3, which exhibit is incorporated herein by reference.

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Item 9.01                    Financial Statements and Exhibits.

(d)	Exhibit.
	Exhibit 10.1	Separation Agreement between Pro-Dex, Inc. and Jeffrey S. Ritchey, dated October 7, 2010.
	Exhibit 10.2	Employment Arrangement between Pro-Dex, Inc. and Harold A. Hurwitz.
	Exhibit 10.3	Long-Term Incentive Plan as amended on October 7, 2010.

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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:  October 11, 2010	PRO-DEX, Inc (Registrant).
	By:       /s/  Mark P. Murphy
	Mark P. Murphy              Chief Executive Officer

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INDEX TO EXHIBITS

   Exhibit

  Number        Description                                                                                                                

Exhibit 10.1	Separation Agreement between Pro-Dex, Inc. and Jeffrey S. Ritchey, dated October 7, 2010.
Exhibit 10.2	Employment Arrangement between Pro-Dex, Inc. and Harold A. Hurwitz.
Exhibit 10.3	Long-Term Incentive Plan as amended on October 7, 2010.

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EX-10.1

EXHIBIT 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS

This SEPARATION AGREEMENT AND GENERAL RELEASE OF ALL CLAIMS, (“Agreement”) is made and entered into by and between JEFFREY J. RITCHEY (“Employee”) and PRO-DEX, Inc., a Colorado corporation (“the Company”).

RECITALS

WHEREAS, Employee has been employed by the Company in the positions of Treasurer, Chief Financial Officer, and Secretary. 

WHEREAS, Employee and the Company are parties to that certain December 5, 2007 letter agreement signed by Employee and by Mark P. Murphy on behalf of the Company, the provisions of which letter agreement the parties intend to supersede through their entry into this Agreement; and

WHEREAS, Employee’s employment with the Company will separate on October 5, 2010 (the “Separation Date”), and the Company and Employee mutually desire to settle fully and finally all obligations to Employee that the Company may have of any nature whatsoever, as well as any asserted or unasserted claims that Employee may have arising out of his employment with the Company or the separation of that employment.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual covenants and agreements and the terms and conditions set forth herein and other valuable consideration, the parties agree as follows:

1.          Compensation Through Separation Date.  On the Separation Date, Employee will be paid all unpaid base salary, unpaid bonuses earned, unreimbursed business expenses, together with any accrued but unused vacation pay, less state and federal taxes and other required withholding, for the period from the last regular pay day through the Separation Date.  Employee acknowledges and agrees that upon the receipt of the foregoing payment, the Company will have paid to him all salary, bonuses, benefits, accrued vacation pay, or other consideration owed to him at any time and for any reason through the Separation Date.  Employee further represents and agrees that no further sums are or were due and owing Employee either by the Company or by any individual or entity related to the Company in any way, except as provided for in this Agreement. 

2.          Effective Date.  The Effective Date of this Agreement shall be the eighth day after Employee’s dated execution of this Agreement, provided that Employee has not revoked this Agreement pursuant to Paragraph 13. 

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3.         Special Additional Compensation.  In consideration of this Agreement, and provided that none of the provisions of Paragraph 4 has been violated, and that the revocation period referenced in Paragraph 13 shall have expired without this Agreement having been revoked, the Company also will do the following: 

A.      Continue to pay Employee, over a period of six months from the Separation Date, in regular installments on the Company’s regular payroll pay dates for exempt employees, a gross amount equal to Employee’s last regular bi-weekly salary until the total gross payments have reached the amount of Eighty-Five Thousand Dollars ($85,000), less applicable legal deductions and withholdings (the “Separation Agreement Payment”).   

B.      As additional consideration for the promises and obligations contained herein, and provided Employee elected coverage under the Company’s group health insurance program prior to the Separation Date and makes a timely election for continued coverage pursuant to COBRA, the Company further agrees to pay the Company’s portion of the monthly premiums for such continued coverage under the Company’s group health insurance program for a period from the Separation Date through April 30, 2011 (provided Employee remains eligible for COBRA continuation coverage).  Thereafter, if applicable, continuation coverage pursuant to COBRA will be available to Employee at Employee’s sole expense, and Employee will be responsible for the full COBRA premium for any remaining months of the COBRA coverage period made available pursuant to applicable law.

C.      Provide Employee with an outplacement services package to assist with Employee’s transition into a new position.

4.         Return of Company Property.  Employee understands that, except as otherwise provided by this Paragraph 4, as of the Separation Date he was required to return to the Company, and Employee represents that he has returned to the Company, all tangible property and information belonging to the Company that is within his possession or subject to his control, including but not limited to any equipment, supplies, credit cards, and office machines, and also including any electronic or tangible documents or files relating to the Company, except for (i) such personnel and compensation records provided to Employee during the course of his employment, and (ii) the following tangible items which were assigned for Employee’s use prior to the Separation Date, and which the Company has agreed Employee may retain thereafter: cell phone and cell phone number, laptop computer and docking station (but excluding Company data files and documents, which Company shall be entitled to remove from the computer and any related storage devices).

5.          Health Insurance Benefits. Employee is entitled to continue his health insurance benefits at his own expense (except as otherwise provided in Paragraph 3) and for such period as may be permitted by law.

6.          Complete Release of Claims by Employee. 

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A.      In consideration for this Agreement, and to the maximum extent permitted by law, Employee, for himself, and his heirs, assigns, executors, administrators, agents and successors (collectively, “Employee’s Affiliates”) hereby fully releases, covenants not to sue and forever discharges the Company and each of its predecessors, successors, assigns, employees, officers, directors, shareholders, agents, attorneys, subsidiaries, parent companies, divisions or affiliated corporations or organizations, expressly including, but not limited to, PRO-DEX, Inc., whether previously or hereafter affiliated in any manner (collectively, “Released Parties”), from any and all claims, demands, actions, causes of action, charges of discrimination, obligations, damages, attorneys’ fees, costs, expenses, and liabilities of any nature whatsoever, whether or not now known, suspected or claimed (the “Claims”), that Employee or Employee’s Affiliates ever had, now have, or may claim to have as of the date of this Agreement against the Released Parties (whether directly or indirectly), or any of them, by reason of any act or omission concerning any matter, cause or thing occurring on or before the Effective Date of this Agreement.  This release includes, without limiting the generality of the foregoing, the waiver of any claims related to or arising out of Employee’s employment with the Company or the separation of that employment. In giving this release, Employee waives and releases any and all rights to employment or re-employment with the Company.

B.       Without limiting the generality of the foregoing, Employee understands and agrees that the release provisions of this Paragraph 6 apply to any Claims that Employee or the Employee’s Affiliates now have, or may ever have had, against the Company or any of the other Released Parties occurring on or before the Effective Date of this Agreement that arise out of or are in any manner related to Employee’s employment with the Company or with any of the other Released Parties, as well as the separation of that employment, including without limitation any Claims arising out of or related to violation of any federal or state employment discrimination laws, including the California Fair Employment and Housing Act; the California Family Rights Act; the Family and Medical Leave Act; Title VII of the Civil Rights Act of 1964; the federal Age Discrimination in Employment Act, as amended; the Americans With Disabilities Act; the National Labor Relations Act; the Equal Pay Act; the Employee Retirement Income Security Act of 1974; as well as all Claims arising out of or related to violations of the provisions of the California Labor Code; the California Government Code; the California Business & Professions Code, including Business & Professions Code Section 17200, et seq.; state and federal wage and hour laws, including the federal Fair Labor Standards Act; breach of contract; fraud; misrepresentation; common counts; unfair competition; unfair business practices; negligence; defamation; infliction of emotional distress; invasion of privacy; assault; battery; false imprisonment; wrongful termination; and any other state or federal law, rule, or regulation.

	Initials: ____
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C.      Employee acknowledges and represents that he did not suffer any work-related injuries while working for the Company.  Employee acknowledges and represents that he has no intention of filing any claim for workers’ compensation benefits of any type against the Company, and that he will not file or attempt to file any claims for workers’ compensation benefits of any type against the Company.  Employee acknowledges that the Company has relied upon these representations, and that the Company would not have entered into this Agreement but for these representations.  As a result, Employee agrees, covenants, and represents that the Company may, but is not obligated to, submit this Agreement to the Workers’ Compensation Appeals Board for approval as a compromise and release as to any workers’ compensation claim that Employee files at any time against the Company.

7.         Older Workers Benefit Protection Act.  This Agreement is subject to the terms of the Older Workers Benefit Protection Act of 1990 (the “OWBPA”).  The OWBPA provides that an individual cannot waive a right or claim under the Age Discrimination in Employment Act (“ADEA”) unless the waiver is knowing and voluntary.  Pursuant to the terms of the OWBPA, Employee acknowledges and agrees that he has executed this Agreement voluntarily, and with full knowledge of its consequences.  In addition, Employee hereby acknowledges and agrees that: (a) this Agreement has been written in a manner that is calculated to be understood, and is understood, by Employee; (b) the release provisions of this Agreement apply to rights and claims that Employee may have under the ADEA, including the right to file a lawsuit against the Released Parties for age discrimination; (c) the release provisions of this Agreement do not apply to any rights or claims that Employee may have under the ADEA that arise after the date Employee executes this Agreement; and (d) the Company does not have a preexisting duty to pay the special additional compensation identified in this Agreement (except to the extent otherwise provided in the December 5, 2007 letter agreement). 

8.          General Nature of Release; Claims Not Released.  The Release set forth above in Paragraph 6 of this Agreement is a general release of all claims, demands, causes of action, obligations, damages, and liabilities of any nature whatsoever that are described in the Release and is intended to encompass all known and unknown, foreseen and unforeseen claims that Employee may have against the Released Parties, or any of them, except for any claims that may arise from the terms of this Agreement, or any claims which may not be released as a matter of law.  It is further understood by the Parties that nothing in this Agreement shall affect any rights Employee may have under any Pension Plan and/or Savings Plan (i.e., 401(k) plan) provided by the Company as of the Separation Date, such items to be governed exclusively by the terms of the applicable plan documents.  Employee covenants and agrees never to commence, aid in any way, prosecute or cause to be commenced or prosecuted any action or other proceeding based upon any claims, demands, causes of action, obligations, damages or liabilities which are the subject of this Agreement; provided however, that Employee does not relinquish any protected rights to file a charge, testify, assist or participate in any manner in an investigation, hearing or proceeding conducted by the Equal Employment Opportunity Commission, the Office of Federal Contract Compliance or any similar state human rights agency.  However, Employee may not recover additional compensation or damages as a result of any such action.

9.          Release of Section 1542 Rights.  Employee expressly waives and relinquishes all rights and benefits he may have under Section 1542 of the California Civil Code.  Section 1542 is intended to protect against an inadvertent release of unknown or unsuspected claims that would be material to this Agreement.  This Paragraph 9 provides that Employee also is releasing any such unknown or unsuspected claims.  Section 1542 reads as follows:

“Section 1542.  [General Release; extent.]  A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

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10.        Non-Admission of Liability.  Employee and the Company acknowledge and agree that this Agreement is a settlement agreement and shall not in any way be construed as an admission by any of the Released Parties of any wrongful act against, or any liability to, Employee or any other person.

11.        Protection of Trade Secrets.  Employee agrees to keep in strict confidence at all times, and that he will not at any time, either directly or indirectly, make known, reveal, make available or use, any Trade Secrets as defined herein, which Employee obtained during or by virtue of his employment with the Company.  The parties agree that “Trade Secrets” as used herein means all confidential information which (i) has been the subject of reasonable efforts by the Company to maintain as secret and confidential, (ii) pertains in any manner to the business of the Company, including proprietary information entrusted to the Company in confidence by its customers or suppliers (except to the extent such information is generally known or made available to the public or to the Company’s competitors through lawful means), and (iii) has independent economic value by virtue of not being generally known to other persons who could obtain economic value from its disclosure or use.  Employee acknowledges that all Trade Secrets, as well as all other confidential information or data of the Company, are and remain the exclusive property of the Company (or, in the case of proprietary information belonging to a customer or supplier who has entrusted it to the Company, the exclusive property of that person or entity).  Employee and the Company further agree that the following information constitutes a non-exclusive listing of Trade Secrets coming within the terms of this Agreement:  the customer contacts and business requirements of the Company’s current customers with respect to the Company’s products; the supplier contacts and business requirements of the Company’s suppliers with respect to the Company’s products; the specific nature and amount of business conducted by the Company with its customers and suppliers; the product specifications required by the Company’s customers or required by the Company of its suppliers; customer and supplier pricing information and discount schedules with respect to the Company’s products or supplies; and the Company’s business plans and strategies for acquiring new products, customers, or manufacturing sources or otherwise expanding or improving its product offerings to customers.  Employee further agrees that he shall not directly or indirectly solicit business from or with respect to any customers or suppliers of the Company through the use of any Trade Secrets.  To the maximum extent permitted by law, Employee further covenants and agrees to observe and comply with all other agreements previously made with the Company with respect to the protection of the Company’s intellectual property and confidential information, and that all such agreements shall survive the parties’ entry into this Agreement to their maximum lawful extent except as specifically superseded by this Agreement. 

12.        Twenty-One Day Consideration Period.  This Agreement is being given to Employee on October 7, 2010.  Employee acknowledges that he is entitled to take up to twenty-one (21) calendar days to consider whether to accept this Agreement, and that if he signs this Agreement before expiration of the 21-day period, he has done so voluntarily.  Employee agrees that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original twenty-one (21) calendar day consideration period. 

	Initials: ____
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13.         Seven Day Revocation Period.  After signing this Agreement, Employee shall have a period of seven (7) calendar days to revoke the Agreement by providing the Company with written notice of his revocation.  To be effective, such revocation must be in writing, must specifically revoke this Agreement, and must be received by the Company prior to the eighth calendar day following Employee’s execution of this Agreement. This Agreement shall become effective, enforceable, and irrevocable on the eighth calendar day following Employee’s execution of this Agreement.  Any revocation of this Agreement, however, shall not affect the finality of the separation of Employee’s employment with the Company on the Separation Date.

14.         Acknowledgment of Being Advised to Consult Legal Counsel.  This Agreement is an important legal document.  Employee acknowledges that the Company has advised him in writing to consult with an attorney of his choice prior to signing this Agreement, and that he has had the opportunity to consult with an attorney to the extent he so desires.

15.         Confidentiality.  As a material inducement to the Company to enter into this Agreement, Employee promises and agrees to maintain confidentiality regarding this Agreement to the extent permitted by applicable law, except to the extent the Company publicly discloses its terms in accordance with public company disclosure requirements.  Therefore, except to the extent of any public disclosure by the Company, Employee promises and covenants not to disclose, publicize, or cause to be publicized any of the terms and conditions of this Agreement except to his immediate family, and to his attorney or accountant to the extent reasonably necessary to obtain professional advice with respect to the parties’ rights and obligations as stated herein, or otherwise as permitted by law.  Employee further promises and covenants to use his best efforts to prevent any further disclosure of this Agreement by any such persons to whom he does make disclosure.

16.         Ambiguities.  Employee and the Company agree that the general rule that ambiguities shall be construed against the drafting party shall not apply to any interpretation of this Agreement.

17.         Interpretation.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be valid and effective under applicable law.  If any provision of this Agreement shall be unlawful, void or for any reason unenforceable, it shall be deemed separable from, and shall in no way affect the validity or enforceability of, the remaining provisions of this Agreement, and the rights and obligations of the parties shall be enforced to the fullest extent possible.  All captions are for convenience of reference only and shall be disregarded in interpreting this Agreement.

18.         Entire Agreement.  Employee acknowledges that he is not relying, and has not relied, on any representation or statement by the Company with regard to the subject matter or terms of this Agreement, except to the extent set forth fully in this Agreement.  This Agreement constitutes the entire agreement between Employee and the Company with respect to the subject matter of this Agreement, and supersedes any and all other agreements, understandings or discussions between Employee and the Company with respect to the subject matter of this Agreement (specifically including the December 5, 2007 letter agreement between Employee and the Company), other than (a) the Confidentiality, Unfair Competition, Non-Recruiting, and Assignment of Inventions Agreement signed by Employee on August 4, 2010, and (b) the Indemnification Agreement between the parties, dated October 24, 2008, each of which agreements shall survive the execution of this Agreement and the separation of Employee’s employment.

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19.         Risk of New or Different Facts.  Employee acknowledges that he may discover new information different from or inconsistent with facts he presently believes to be true, and expressly agrees to assume the risk of such new or different information.

20.         Acknowledgment by Company of No Known Claims Against Employee.  The Company represents and acknowledges that it knows of no claims it has against Employee, and hereby confirms that the Company has no present intention of pursuing any claim or claims against Employee. 

21.         Modification.  This Agreement cannot be modified or terminated, except by a writing signed by the party against whom enforcement of the modification or termination is sought.

22.         Voluntary Agreement.  This Agreement in all respects has been voluntarily and knowingly executed by the parties hereto.  Employee specifically represents that he has carefully read and fully understands all of the provisions of this Agreement, and that he is voluntarily entering into this Agreement.

23.         Execution in Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

24.         Governing Law.  The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to conflicts of laws principles.

IN WITNESS WHEREOF, the parties hereto have executed this Separation Agreement and General Release of All Claims, and have initialed each page hereof, on the dates set forth below.

Dated: October 7, 2010	/s/ Jeffrey J. Ritchey                         Jeffrey J. Ritchey Employee
Dated: October 7, 2010	PRO-DEX, INC. /s/ Mark P. Murphy                         By: Mark P. Murphy  Its: Chief Executive Officer

EX-10.2

EXHIBIT 10.2

Offer Letter to Mr. Hurwitz

August 23, 2010

Mr. Harold (Hal) Hurwitz

21 Lexington
Irvine, CA  92620

Dear Hal:

On behalf of Pro-Dex, Inc., I am pleased to extend our offer of employment to you for the position of Vice President and Chief Financial Officer under the terms and conditions described in this letter.

Date of Hire

Your employment with Pro-Dex, Inc. will begin on a date to be mutually determined, but no later than September 30, 2010.  Should your start date occur later than September 15, 2010, we will enter a consulting arrangement with you at the same base salary from September 15^th through your start date, but no later than September 30th.

Base Compensation

Your rate of pay will be $7,115.38, payable bi-weekly on every other Thursday, for an annual compensation of $185,000.  This is a full-time, exempt position.

Bonus Compensation

You, will be eligible to participate in the Annual Incentive Plan which is the company’s executive performance bonus program..  Your initial target bonus award under this plan will be 25% of your base salary.  Your actual incentive under this plan is dependent upon achievement of the Company operating income targets and your individual goals and the terms of the plan. Upon its implementation, you will also be eligible to participate in the Company’s Long Term Incentive Plan with a target award that has not yet been determined.  You will not be eligible to participate in the company wide bonus plan.

Equity Grants

You will be eligible to participate in any program of stock option or other equity grants which the Company may from time to time provide key employees.  Such grants are made under the terms and provisions of the First Amended and Restated 2004 Stock Option Plan in varying amounts to individual participants based upon their perceived impact upon the long term success of the Company and are made at the sole and absolute discretion of the Board, generally at the first Board meeting following the filing of the Company’s Form 10-K for the previous fiscal year.   Subject to the foregoing, your initial grant under this program will be 20,000 options to purchase the Company’s common shares at the average of the high and low prices for the Company’s shares on the grant date and which will vest ratably over the 36 month period following the grant date.   The options will have a term of ten years from the grant date and to the maximum extent permissible under the relevant Internal Revenue Service regulations, will be made as Incentive Stock Options. 

Associate Benefits

You will be eligible for health benefits the first of the month following one (1) month of full-time active employment.  Assuming a September 18^th start date, you will become eligible to participate in health benefit programs starting November 1, 2010.  These benefits include health, dental, vision, and life insurance.  Optional benefits include supplemental insurance products, flexible medical and dependent care savings plans, and health savings accounts.

In addition, associates may enroll in the Company’s 401(k) program quarterly, beginning January 1, April 1, July 1 and October 1.  Following the completion of six months of employment, Pro-Dex matches associate 401(k) contributions at a rate of $0.25 per dollar up to a total employee contribution of 5% of an associate’s base salary.  Further details of such benefits will be explained in your Orientation Meeting on your first day of employment. 

You should note that, if you were previously covered for medical insurance and you obtain a certificate of insurance from your previous employer, HIPAA regulations prohibit restrictions of pre-existing conditions when you enroll with a new employer provided that you attach a copy of the certificate to your enrollment form.

You will receive Paid Time Off (PTO) in accordance with the plan applicable to other senior executives in the company.

Reporting Relationship

This position is based in Irvine, California and reports to the Chief Executive Officer.

Employment Relationship

Your employment will be “at-will.”  This means that you or Pro-Dex, Inc. may decide to change the status of your employment or terminate the employment relationship at any time, for any reason or no reason, with or without cause or prior notice.  Your “at-will” employment relationship may not be changed except in writing signed by the CEO of Pro-Dex, Inc. with the approval of the Board of Directors.

Employment Contingency

This offer of employment and/or your employment by Pro-Dex, Inc. is contingent upon the fulfillment of items listed in Exhibit A.

Agreements with Prior Employers

By your signature below, you represent to us that, as of such signature date, you are not bound by any proprietary or confidentiality agreements or covenants with any prior employers, customers, clients, etc. that would have a bearing on or create a conflict of interest with the position you are being offered with our Company.

* * * * * * * * * * * * * * *

Hal, I want you to know how excited I am to have you join the Pro-Dex team.  I am confident that we will enjoy a mutually rewarding relationship.  If you have any questions, please let me know.

If the terms of this letter are agreeable to you, please sign in the space provided below indicating your understanding of and agreement to the provisions of this offer of employment and return it to me as soon as possible.

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Sincerely,

Mark P. Murphy

Chief Executive Officer

I have read the above terms of this offer of employment and I accept and agree to them.

/s/ Harold (Hal) Hurwitz                  ________________

Harold (Hal) Hurwitz                                  Date

Enclosures

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EX-10.3

EXHIBIT 10.3

PRO-DEX INC.
AMENDED AND RESTATED
LONG-TERM INCENTIVE PLAN

INTRODUCTION

The Pro-Dex, Inc. Long-Term Incentive Plan (the "Plan") is a long-term incentive plan for eligible employees of the Company. The Plan is intended to provide equity-based incentive opportunities to executives and other key employees of the Company. Plan payments, if any, will be conditioned on attainment of certain Performance Goals for one or more fiscal years as approved by the Committee and ratified by its Board of Directors.

I.  PURPOSE

The purpose of the Plan is to allow the Company to attract, motivate and retain highly qualified employees; to obtain from each employee the best possible performance; to establish Performance Measures that support the Company's long-term business strategies; and to provide consistency in and alignment with the Company's approach to performance-based pay and overall executive compensation strategy.

The Plan is established under, and constitutes part of, the First Amended and Restated 2004 Stock Option Plan (the “2004 Plan”) adopted by the Company and approved by the shareholders.  In the event of any conflict between the Plan and the 2004 Plan, the provisions of the 2004 Plan shall govern.

II. DEFINITIONS

For purposes of the Plan, the following terms shall have the following meanings:
 

AWARD PARAMETERS DESCRIPTION. A document or compilation of documents approved by the Committee and ratified by the Board of Directors, in writing, to set forth the parameters necessary for determining a Long-Term Incentive Compensation Award, including the (i) Award Period, (ii) the Performance Measures, (iii) the Performance Goals and (iv) the amount of Long-Term Incentive Compensation Award payable with respect to the achievement of each Performance Goal. The award parameters described in the Award Parameters Description need not be identical for all the Participants.
 

AWARD PERIOD. Unless otherwise provided by the Committee and ratified by the Board of Directors, the Award Period to which a Long-Term Incentive Compensation Award relates shall encompass three (3) consecutive fiscal years.

BOARD OF DIRECTORS. The Board of Directors of Pro-Dex, Inc.; provided that, with respect to any Long-Term Incentive Compensation Awards of the Chief Executive Officer of Pro-Dex, Inc. , "Board of Directors" shall mean only the members of the Board of Directors who qualify as "outside directors" under Section 162(m) of the Code and who meet the independence requirements of applicable law and the NASDAQ Listing Rule 5605(a)(2) (or any such comparable provision of any other primary exchange on which the company's shares are listed).

CAUSE. Cause has the meaning given to such term in any employment agreement with the Company to which the Participant is a party and in the absence of such agreements (and not intended to modify or add to any such existing agreement terms), it shall mean: (i) conviction for the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud; (ii) conduct that brings or is reasonably likely to bring the Company into public disgrace or disrepute, (iii) repeated failure to perform duties as reasonably directed by the Company; (iv) gross negligence or willful misconduct with respect to the Company; and/or (v) habitual insobriety, or use of illicit drugs or other controlled substances following one medically supervised course of treatment for such drug or alcohol use or upon refusal to participate in such course of treatment.

CHANGE IN CONTROL. "Change in the ownership or effective control of the corporation" or "change in the ownership of a substantial portion of the assets of the corporation", as such terms are defined in Section 1.409A-3(i)(5) of the final regulations and other applicable guidance promulgated under Section 409A of the Code.

CODE. The Internal Revenue Code of 1986, as amended, and any regulations thereunder, and any successors thereto.

COMMITTEE. The Compensation Committee of the Board of Directors.

COMPANY. Pro-Dex Inc., its subsidiaries and any other entity which is a "service recipient" (as such term is defined in Section 1.409A1(g) of the final regulations and other applicable guidance promulgated under Section 409A of the Code) with respect to persons performing services for the Company.

DISABILITY. "Disability", as such term is defined in Section 1.409A-3(i)(4) of the final regulations and other applicable guidance promulgated under Section 409A of the Code.

LONG-TERM INCENTIVE COMPENSATION AWARD. Any award paid pursuant to the Plan. A Long-Term Incentive Compensation Award shall be determined by the Committee and ratified by the Board of Directors, in its sole and absolute discretion. Unless otherwise specified by the Committee and ratified by the Board of Directors, with respect to any Performance Measure: (i) the Long-Term Incentive Compensation Award payable with respect to the maximum Performance Goal shall not exceed one hundred and fifty percent (150%) of the Long-Term Incentive Compensation Award payable with respect to the target Performance Goal; and (ii) the Long-Term Incentive Compensation Award payable with respect to a minimum Performance Goal shall not be less than fifty percent (50%) of the Long-Term Incentive Compensation Award payable with respect to the target Performance Goal. The Long-Term Incentive Compensation Award payable to any individual Participant with respect to any particular Award Period shall not exceed $1,000,000. (one million dollars).

PARTICIPANT. An executive or other key employee of the Company, or a person who has agreed to commence serving in any of such capacities, and who is designated by the Committee to participate in the Plan. No person shall be a Participant in the Plan prior to the execution by such person of the Participation Agreement.

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PARTICIPATION AGREEMENT. An agreement executed by the Participant in substantially the form attached hereto as Exhibit A. Executed Participation Agreements are incorporated into the Plan by reference and made a part thereof to the same extent and with the same force and effect as if fully set forth therein.

PERFORMANCE GOAL. Performance Goal means, with respect to a Performance Measure, a measure of achievement of such Performance Measure, approved by the Committee and ratified by the Board of Directors and set forth in the Award Parameters Description. Unless otherwise provided by the Committee and ratified by the Board of Directors, there shall be three (3) Performance Goals with respect to each Performance Measure – (i) minimum Performance Goal, (ii) target Performance Goal and (iii) maximum Performance Goal. Performance Goals shall be deemed to be achieved only if achieved in the course of the applicable Award Period.

PERFORMANCE MEASURES. Certain performance categories set forth in Section V of the Plan. Performance Measures shall be set forth by the Committee in the Award Parameters Description.

PRO-DEX, INC. Pro-Dex, Inc., a Colorado corporation.

SEPERATION FROM SERVICE. "Separation from service", as such term is defined in Section 1.409A-1(h) of the final regulations and other applicable guidance promulgated under Section 409A of the Code.

TSR. TSR (total shareholder return) shall mean A minus B expressed as a percentage of B (A-B)/x100)], where A is the per-share price of a Company's common stock at the end of the applicable Award Period and B is the average per-share price of the Company's common stock at the beginning of the applicable Award Period. For purposes of calculations of TSR, cash dividends paid on a share of common stock shall be deemed to be reinvested in the Company's common stock on the day they are paid at the average of the high and the low per-share price of that Company's common stock on that day, as quoted on the primary exchange on which the Company's shares are listed. The value at the end of the applicable Award Period of such common stock deemed purchased with cash dividends shall be added to A (above) for purposes of calculation of TSR. If in the course of the Award Period the outstanding shares of common stock of the Company are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, reorganization, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock of the Company or other increase or decrease in such shares effected without receipt of consideration by the Company, an appropriate and proportionate adjustment approved by the Committee shall be made to the calculation of TSR set forth above. For purposes of determining TSR, the stock price at the beginning date and end date of an Award Period shall be the average of the closing stock prices for the ninety (90) days immediately preceding such dates as quoted on the primary exchange on which the company's shares are listed.

III. EFFECTIVE DATE

The Plan is effective as of July 1, 2010.

IV. DETERMINATION OF AMOUNTS OF AND ELIGIBILITY FOR LONG-TERM INCENTIVE COMPENSATION AWARDS

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Unless otherwise provided in the Plan, if the Performance Goals are achieved in the course of the applicable Award Period and such achievements are certified by the Committee based upon the audited financial statements for the last fiscal year of the Award Period contained in the Company's annual report filed with the Securities and Exchange Commission, then Long-Term Incentive Compensation Awards will be paid in amounts determined by the Committee and ratified by the Board of Directors pursuant to the Plan and the Award Parameters Description. Unless otherwise set forth in the Award Parameters Description with respect to any Participant: (i) the amount of the Long-Term Incentive Compensation Award payable in connection with achieving any Performance Goal of TSR shall not exceed fifty percent (50%) of the maximum Long-Term Incentive Compensation Award that can be made under the Plan in connection with the applicable Award Period; and (ii) the amount of the Long-Term Incentive Compensation Award payable in connection with achieving any Performance Goal(s) other than TSR shall not exceed fifty percent (50%) of the maximum Long-Term Incentive Compensation Award that can be made under the Plan in connection with the applicable Award Period.

V. PERFORMANCE MEASURES

A. Generally. Unless otherwise provided in the Plan, payment of Long-Term Incentive Compensation Awards is conditioned on the attainment in the course of the Award Period of Performance Goals set with respect to Performance Measures. The Performance Goals and Performance Measures need not be identical with respect to all the Participants. Performance Goals may be established based upon the Company's performance in isolation or by judging the Company's performance relative to one or more comparator companies or upon the performance of one or more of the Company's subsidiaries or divisions. Performance Goals and the amount of Long-Term Incentive Compensation Award payable with respect to the achievement of any Performance Goal for any Long-Term Incentive Award that is intended to qualify as "performance-based compensation" under Section 162(m) of the Code must be established in writing no later than September 13 (i.e. 75 days) following the beginning of the applicable Award Period and may be based on one or more of the following objective criteria (the "Performance Measures"):

(1)	TSR, including its components of stock price appreciation, dividends and/or dividend yield;
(2)	Return on assets, equity, invested capital, cash flow, investment, or sales;
(3)	Sales, including gross margin;
(4)	Pre-tax or after-tax profit levels, including: earnings per share; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; net operating profits after tax, and net income;
(5)	Cash flow and cash flow return on investment;
(6)	Economic profit and/or cost of capital;
(7)	Turnover of assets, capital, or inventory;
(8)	Levels of operating expense or other expense items as reported on the income statement, including operating and maintenance expense;
(9)	Measures of customer satisfaction and customer service, including the relative improvement therein; and
(10)	Market share, including by product line or geographic market or submarkets.

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Performance Goals may be determined by reference to levels of and/or growth in a Performance Measure. Performance Goals with respect to Performance Measures shall be objectively measurable and established for a period coinciding with or ending within the Award Period.

B. Certain Factors and Events Excluded. In establishing Performance Goals and Performance Measures for Participants and in certifying the achievement of Performance Goals as the end of an Award Period, the Committee may include or exclude the impact of specified objective events, including any of the following: expenses as a result of restructuring or productivity initiatives, non-operating items; acquisition expenses; and any other items of gain, loss or expense that are determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or to a change of accounting principles.

C. Default Performance Measures. Unless otherwise specified by the Committee and ratified by the Board of Directors, the Performance Measures shall consist of: (i) TSR relative to a group of comparator companies; and (ii) one or more Performance Goals other than TSR.

VI.     PAYMENT OF LONG-TERM INCENTIVE COMPENSATION AWARDS

A.  Type of Payment.  Unless otherwise provided in the Plan, the payment of a Long-Term Incentive Compensation Award shall be made on the first day following the approval of such award by the Committee and the filing of the fiscal year end Form 10-K for the final year of the Award Period to which it relates; provided that, subject to Section VII, the Participant is actively employed with the Company on such date. Unless otherwise provided in the Plan, Long-Term Incentive Compensation Awards shall be paid in shares of Company restricted stock valued at the closing price of the Company’s shares on the day preceding such payment.  For the purposes of this Section VI, payment within 75 days following a specified payment date shall be deemed to constitute payment on the specified payment date.

B.  Restriction.  Unless otherwise specified by the Committee and ratified by the Board of Directors, no restricted stock awarded under the Plan may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of by the Participant receiving such restricted stock until 30 days after its payment to Participant as described in subsection A of Section VI herein.  The restrictions described herein shall be evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Committee and shall contain an appropriate legend clearly stating the restricted stock represented by the certificate is restricted according to the terms of the Plan.

C.  Source of Long-Term Incentive Compensation Awards.  In the case of a Long-Term Incentive Compensation Award under the Plan that is paid in shares of restricted Company stock, such shares shall be distributed as part of and in accordance with the 2004 Plan as amended from time to time.  The aggregate number of shares of restricted stock issued under the Plan, when combined with all other shares issued by the Company under the 2004 Plan, shall not exceed the number of shares authorized under the 2004 Plan.  Furthermore, any Long-Term Incentive Compensation Award shall be of the same type of awards authorized under the 2004 Plan.

VII.  TERMINATION OF SERVICE, SPIN-OFFS AND SIMILAR TRANSACTIONS DURING THE AWARD PERIOD

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A. Involuntary Separation from Service, Death or Disability. Subject to Section VII. C., if before the end of an Award Period a Participant experiences a Separation from Service with the Company by virtue of termination of the Participant's service by the Company, other than for Cause, or if a Participant experiences Separation from Service with the Company due to death or Disability, the Participant's Long-Term Incentive Compensation Awards for any Award Period in effect at the time of such Separation from Service will be prorated on the basis of the ratio of the number of days of Participant's service during such Award Period prior to such Separation from Service to the total number of days in such Award Period. The determination of such prorated Long-Term Compensation Awards will be based on the attainment of the Performance Goals with respect to the applicable Performance Measure(s) and will be paid on the date the Participant would have received payments with respect to such Long-Term Compensation Awards had the Participant not experienced a Separation from Service with the Company.

B. Termination by the Company for Cause, Voluntary Separation from Service. In the event a Participant experiences a Separation from Service with the Company by virtue of termination of the Participant's service by the Company for Cause, or by virtue of voluntary termination of service by the Participant, the Participant shall have no rights whatsoever to any unpaid Long-Term Compensation Awards and no payments with respect to any unpaid Long-Term Compensation Awards shall be made to the Participant.

C. Termination Close In Time To the Change in Control of Pro-Dex, Inc. In the event the Participant experiences a Separation from Service with the Company (not including separation caused by death or Disability) by virtue of termination of the Participant's service by the Company less than six (6) months following a Change in Control of Pro-Dex, Inc., and such Separation from Service occurs prior to the end of the Award Period, then upon the Participant's Separation from Service, all Performance Goals with respect to Performance Measures shall be deemed to have been met with respect to such Participant and any applicable Long-Term Incentive Compensation Awards shall be paid to such Participant on the date of Separation from Service. This Section VII. C. shall not apply if the Participant's service with the Company is terminated by the Company for Cause. Additionally, this Section VII. C. shall not apply unless at the time of Change in Control of Pro-Dex, Inc., the entity for whom the Participant is performing services is Pro-Dex, Inc. or Pro-Dex, Inc. is the "majority shareholder" (as such term is defined in Section 1.409A-3(i)(5)(ii)(3) of the final regulations promulgated under Section 409A of the Internal Revenue Code) of such entity.

D. Spin-Offs and Similar Transactions. In the event an entity ("Departed Entity") that is a part of the Company ceases to be a part of the Company (the "Departure"), a Participant who at the time of the Departure is performing services for the Departed Entity, shall be considered, for purposes of Section VII. A.., to have experienced a Separation from Service with the Company by virtue of termination of the Participant's service by the Company without Cause; provided that such Participant does not perform any services for the Company immediately after the Departure. Such Separation from Service with the Company will be deemed to have occurred at the time of the Departure.

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E. Specified Employees. Notwithstanding anything in the Plan to the contrary, if as of the date of Participant's Separation from Service, Participant is a "specified employee", as defined under Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A") or any regulations or Treasury guidance promulgated thereunder ("Section 409A Guidance"), Participant shall not be entitled to any payments paid upon such Separation from Service until the earlier of (i) the date which is six months after his Separation from Service for any reason other than death or (ii) the date of his death. The provisions of this Section VII. E. shall apply solely to payments made pursuant to a plan that provides for deferral of compensation. Whether a plan provides for deferral of compensation shall be determined pursuant to Section 409A or Section 409A Guidance. Any payments that would have been paid to Participant prior to the earlier of (i) the date which is six months after his separation from service for any reason other than death or (ii) the date of his death, were it not for this Section VII. E., shall be accumulated and paid to Participant on the first day of the 7th month following Participant's Separation from Service. Notwithstanding the foregoing, the provisions of this Section VII. E. shall not apply to payments made under the circumstances described in Section 1.409A-3(j)(4)(ii) (domestic relations order), 1.409A-3 (j)(4)(iii) (conflicts of interest) or 1.409A-3 (j)(4)(vi) (payment of employment taxes) of the final Treasury Department regulations issued pursuant to Section 409A.

F. Timing of Payments. For the purposes of this Section VII, payment within 75 days following a specified payment date shall be deemed to constitute payment on the specified payment date.

VIII. RETURN OF OR REDUCTION IN THE LONG-TERM INCENTIVE COMPENSATION AWARD

In the event that following the end of the Award Period, it is determined by the Committee and ratified by the Board of Directors that a Long-Term Incentive Compensation Award was, in whole or in part, based on incorrect data (including financial results which pursuant to applicable laws, roles, regulations or applicable accounting principles are required to be restated), the Participant shall return to the Company the Overpayment Amount, where the Overpayment Amount shall be equal to the Long-Term Incentive Compensation Award distributed to the Participant, reduced by the Long-Term Incentive Compensation Award the Participant would have received had the correct data been used in the calculation of the Long-Term Incentive Compensation Award, as determined by the Committee in good faith. The determinations made by the Committee and ratified by the Board of Directors pursuant to this Section shall be conclusive and binding on the Participant unless reached in an arbitrary and capricious manner.

IX. SPECIAL AWARDS AND OTHER PLANS

Nothing contained in the Plan shall prohibit the Company or any of its subsidiaries from granting special performance or recognition awards, under such conditions and in such form and manner as it sees fit, to employees (including Participants) for meritorious service of any nature. In addition, nothing contained in the Plan shall prohibit the Company or any of its subsidiaries from establishing other incentive compensation plans providing for the payment of incentive

compensation to employees (including Participants).

X. ADMINISTRATION, AMENDMENT AND INTERPRETATION OF THE PLAN

A.  Amendment and Termination.  The Board of Directors shall have the right to amend the Plan from time to time or to repeal it entirely or to direct the discontinuance of Long-Term Incentive Compensation Awards either temporarily or permanently; provided, however, that no amendment of the Plan shall operate to annul a Long-Term Incentive Compensation Award with respect to an Award Period in effect at the time of the amendment. Notwithstanding the foregoing, and subject to Section VII. C., in the event this Plan is terminated before the last day of an Award Period, Long-Term Incentive Compensation Awards payable for such Award Period will be prorated on the basis of the ratio of the number of weeks in such Award Period prior to such termination to the aggregate number of weeks in such Award Period and will be based on the attainment of Performance Goals with respect to the applicable Performance Measures and paid only after the end of such Award Period in accordance with Section VI above which will be deemed to continue until the expiration thereof as if this Plan had not been terminated. .

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 B. Administration. The Committee shall determine the parameters necessary to grant Long-Term Incentive Compensation Awards, including Award Periods, Performance Measures, Performance Goals and the amounts of Long-Term Incentive Compensation Awards with respect to each Performance Goal. The Committee shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Long-Term Incentive Compensation Awards issued under it and to adopt such rules and regulations for administering the Plan as it may deem necessary. Decisions of the Committee shall be final and binding on all parties and all decisions, determinations, selections and other actions permitted or required to be taken or made by the Committee with respect to the Plan shall be subject to the absolute discretion of the Committee.

C. Delegation to Officers or Employees.  The Board of Directors and the Committee, as applicable, may designate officers or employees of the Company to assist the Committee in the administration of the Plan.

M. MISCELLANEOUS

A.  Expenses. All expenses and costs in connection with the operation of the Plan shall be borne by the Company (including any employment taxes which applicable law requires the Company to pay).

B.  Taxes. All Long-Term Incentive Compensation Awards under the Plan are subject to withholding, where applicable, for federal, state and local taxes.

C.  Unsecured Obligation. Unless otherwise determined by the Committee, all Long-Term Incentive Compensation Awards will be paid from the Company's general assets, and nothing contained in this Plan will require the Company to set aside or hold in trust any funds for the benefit of any Participant, who will have the status of a general unsecured creditor of the Company.

D.  No Right to Employment. This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any subsidiary, nor will it interfere in any way with any right the Company or any subsidiary would otherwise have to terminate or modify the terms of such Participant's employment or other service at any time.

E.   No Assignment, Alienation. Except as otherwise provided in this Plan, no right or benefit under this Plan will be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge such right or benefit will be void. No such right or benefit will in any manner be liable for or subject to the debts, liabilities, or torts of a Participant.

F.    Separate Provisions. If any provision in this Plan is held to be invalid or unenforceable, no other provision of this Plan will be affected thereby.

G.   Applicable Law. This Plan will be governed by and construed in accordance with applicable United States Federal law and, to the extent not preempted by such Federal law, in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws thereof.

H.   Liability for the Long-Term Incentive Compensation Awards. Only the entity for which the Participant performs services at the commencement of the Award Period shall be liable with respect to the Long-Term Incentive Compensation Award which relates to an Award Period.

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EXHIBIT A

Participation Agreement for ____________________ for the award dated ____________

A.       Total Shareholder Return (TSR):  (50% of Award)

The TSR will be measured against the comparator companies as set forth in the Long-Term Incentive Plan.

TSR Award will be based as follows:

Minimum	Company TSR must be at the 40th percentile of comparator companies	12.5% of Annual Base Pay at the end of fiscal year
Target	Company TSR must be at the 60th percentile of comparator companies	25.0% of Annual Base Pay at the end of fiscal year
Maximum	Company TSR must be at the 75th percentile of comparator companies.	37.5% of Annual Base Pay at the end of the fiscal year

If the minimum Performance Goal of 40th percentile is not met, the amount payable is $0.00.  If the maximum Performance Goal is exceeded, the amount payable will not exceed the amount set forth above.  For performance between minimum and target Performance Goals and between target and maximum Performance goals, the amount payable will be determined based upon straight-line interpolation.

B.   Strategic Objectives (note – the objectives reflected below are only examples and are not intended to be indicative of objectives for each participant): 

1.  (Example) Turn around our Program into a profitable business by achieving $3.0M Operating Income by end of fiscal 2013.

	2010	2013
Operating Income	$1.2M	$3.0M
Net Sales	$18.4M	$25.0M

2.  (Example) Achieve customer satisfaction rating of 95% based on a third party survey.

3.  (Example) Achieve Net Sales of $30M by the end of 2013.  Currently it is $18M.  This is an increase of 66% from 2010 year end results.

Award for strategic goals will be based on the following: (50% of Award)

Minimum	Must meet at least 80% of established goals	12.5% of Annual Base Pay at the end of fiscal year
Target & Maximum	Based on 100% achievement of established goals	25.0% of Annual Base Pay at the end of fiscal year
Maximum	Based on 150% achievement of established goals	37.5% of Annual Base Pay at the end of the fiscal year

If the minimum Performance Goal of 80% is not met, the amount payable is $0.00.  If the maximum Performance Goal is exceeded, the amount payable will not exceed the amount set forth above.  For performance between minimum and target Performance Goals and between target and maximum Performance goals, the amount payable will be determined based upon straight-line interpolation.

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Any amount payable as a Long-Term Incentive Compensation Award pursuant to this Participation Agreement will be determined and paid pursuant to, and subject to, the terms and conditions set forth herein and in the Plan.  All terms and provisions of the Plan are incorporated herein and made part hereof as if stated herein.  If any provision hereof and of the Plan shall be in conflict, the terms of the Plan shall govern.  All capitalized terms used herein and not defined shall have the meanings assigned to them in the Plan.

I agree and understand these long term performance objectives. 

Signature (Key Executive)

Date:

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