Commitments and Contingencies

12 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

Leases

We lease our office, production and warehouse facilities in Irvine, California and Beaverton, Oregon under agreements that expire in April 2018 and July 2017, respectively. Both leases require us to pay insurance, taxes, and other expenses related to the leased space. Rent expense in 2014 and 2013 was $518,000 and $592,000, respectively. On December 13, 2013, we entered into a first amendment with respect to our Beaverton, Oregon lease which extended the lease termination from April 30, 2014 to July 31, 2017, reduced the occupied square footage, reduced the corresponding monthly base rent by $1,352 and provided for one month of rent abatement over each of the next three years of the extended lease term. On July 15, 2013, we entered into an amendment with respect to our Irvine, California lease which provides for a $4,227 reduction in the monthly base rent (as compared to the monthly base rent that would have been payable under the original lease terms) beginning on July 1, 2013 and continuing for the remainder of the term of the lease. Minimum lease payments for future fiscal years ending June 30 are as follows (in thousands):

	Operating Leases
Fiscal Year:
2015	$	488
2016		504
2017		527
2018		361
Total minimum lease payments	$	1,880

Compensation Arrangements

Retirement Savings 401(k) Plan

The Pro-Dex, Inc. Retirement Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Employees are eligible to participate in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first day of each calendar quarter. Participants are eligible to receive non-discretionary Pro-Dex matching contributions of 25% of their contributions up to 5% of eligible compensation, once they have completed six months of service. For the years ended June 30, 2014 and 2013, we recognized compensation expense amounting to $31,000 and $41,000, respectively, in connection with the 401(k) Plan.

Annual Incentive Plan (“AIP”)

The AIP provides annual incentive opportunities for our key employees based upon the attainment of certain performance goals. Compensation expense under the terms of the AIP amounted to $29,000 in fiscal year 2012. No compensation expense was accrued under the terms of the AIP in either fiscal year 2014 or 2013, however a reversal of approximately $9,000 of previously accrued compensation expense was recorded in fiscal 2014 due to the separation from employment with us of one of the fiscal 2012 AIP participants whose separation released us from payment under the terms of the AIP. Accrued AIP awards included in accrued liabilities in the accompanying consolidated balance sheets as of June 30, 2014 and 2013 were $20,000 and $29,000, respectively.

In September 2013, our Board approved an AIP that provides sets of incentives to achieve performance goals on an annual and a multi-year basis.

Long-Term Incentive Plan (“LTIP”)

The LTIP provides incentive opportunities to our executives and other key employees, and are conditioned on attainment of certain performance goals for one or more fiscal years. Awards under the LTIP are accrued when payment of such awards becomes probable. For the years ended June 30, 2014 and 2013, compensation expense reductions under the terms of the LTIP amounted to $4,000 and $52,000, respectively. Accrued LTIP awards related to the fiscal 2012 – 2015 award period included in accrued liabilities in the accompanying consolidated balance sheets as of June 30, 2014 and 2013 were $6,000 and $10,000, respectively.

Concurrent with our Board’s approval in September 2013 of an AIP that provides incentives over a multi-year basis of achievement as described above, the LTIP was discontinued for years subsequent to the fiscal 2012 – 2015 award period.

Change of Control Agreements

Through July 2014, we were party to Change of Control Agreements (the “CIC Agreements”) with members of senior management, including our former Chief Executive Officer, Michael J. Berthelot, our current Chief Executive Officer and Chief Financial Officer, Harold A. Hurwitz, and our Chief Operating Officer, Richard L. Van Kirk. The CIC agreements provided for awards to be paid to individuals whose employment with us involuntarily terminated (as such term is defined in the CIC Agreements) within 12 months after a change of control.

As a result of a contested election of directors in fiscal year 2013, our shareholders, at our January 17, 2013 Annual Meeting of Shareholders, elected four new directors and one then-incumbent director to fill the five seats on our Board. This degree of change in the composition of our Board of Directors constituted a “change of control” as defined in the CIC Agreements. On February 25, 2013, Mr. Berthelot, then our Chief Executive Officer, was separated from the Company. In connection with the separation, Mr. Berthelot was paid, among other items, $165,423 as contemplated by his CIC Agreement. In addition, on June 19, 2013, we effected a reduction in force that included one additional member of senior management, resulting in a $97,000 benefit to such individual as contemplated by this individual’s CIC Agreement, which was included in accrued expenses as of June 30, 2013 and paid in July 2013.

After giving effect to our payments to Mr. Berthelot and the additional member of senior management under their respective CIC Agreements as described above, we had remaining CIC Agreements with Messrs. Hurwitz and Van Kirk that expired in July 2014 in conformity with their CIC Agreements’ terms.

Legal Matters

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