Exhibit 10.1

PRO-DEX, INC.
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.

 

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).

 

 

 

 

 

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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.

 

 

 

 

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

 

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

 

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 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.

 

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

 

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.

 

 

 

 

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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.

 

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

 

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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. .

 

 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.

 

 

 

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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 [to LTIP]

 

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)

 

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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.

 

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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