PRO-DEX, INC. 2004 AMENDED AND RESTATED STOCK OPTION PLAN RESTRICTED STOCK GRANT AGREEMENT

PRO-DEX, INC.

2004 AMENDED AND RESTATED

STOCK OPTION PLAN

RESTRICTED STOCK GRANT AGREEMENT

This Restricted Stock Grant Agreement (the "Agreement") is made pursuant to that certain 2004 Amended and Restated Stock Option Plan (the "Plan") of Pro-Dex, Inc., a Colorado corporation (the "Company") and that certain Employment Letter Agreement dated August 14, 2006 between the Company and Mark Murphy ("Grantee"), a copy of which is attached hereto as Exhibit A and incorporated by this reference (the "Employment Agreement").  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. 

I.                   NOTICE OF RESTRICTED STOCK GRANT

Grantee's Name and Address: 

Mark Murphy
21295 Clear Haven Drive
Yorba Linda, Ca 92886

The undersigned Grantee has been granted restricted shares of Common Stock (the "Shares") of the Company, subject to the terms and conditions of the Plan and this Agreement, as follows:

II.             AGREEMENT

1.                  Consideration; Grant of Shares; Governing Provisions.  In consideration of his continuing employment with the Company and as a means to advance the interests of the Company and its shareholders by affording the undersigned an opportunity for investment in the Company and the incentive advantages inherent in stock ownership in the Company, the Company hereby grants the Shares to the Grantee.  In the event of a conflict between the terms of this Agreement and the Plan the terms of the Plan shall govern.  In the event of a conflict between the terms of this Agreement and the Employment Agreement the terms of the Employment Agreement shall govern.  In the event of a conflict between the terms of the Plan and the Employment Agreement the terms of the Plan shall govern.  Notwithstanding the foregoing provisions of this Section 1, the Plan administrator shall not use its discretion under Section 3(c) of the Plan to modify to Grantee's detriment, any provision of this Agreement.

2.                  Vesting Schedule.  Subject to the further provisions of this Agreement, the Shares shall vest as follows:  (i) 85,000 Shares shall vest immediately upon execution of this Agreement by the Company and Grantee and (ii) one-third (1/3) of the remaining balance shall vest on each of February 21, 2008, February 21, 2009 and February 21, 2010 such that all Shares shall have fully vested on February 21, 2010.  

3.                  Termination of Service. In the event Grantee ceases to be employed by either the Company or a Related Company, the Shares that have not vested as of the date of the Grantee's termination of employment shall be repurchased by the Company on such termination date (or within seven (7) days thereafter) for One Dollar ($1.00).

4.                  Transferability.  The unvested portion of the Shares shall not be transferred, hypothecated, pledged or otherwise alienated.  The vested Shares shall be freely transferable, subject to the requirements of applicable law, including, but not limited to applicable federal and state securities laws.

5.                  Acceleration.  In the event of a transaction in which the Company's shareholders receive cash or marketable securities for their Company shares (a "Liquidity Event"), the vesting of the unvested Shares will accelerate immediately prior to the Liquidity Event as follows: 100% of the total grant of Shares if the consideration received by Pro-Dex shareholders is $5 per share or greater; 80% if between $4 and $5; and 60% if between $3 and $4.   All such price per share amounts in this letter will be proportionately adjusted in the event of a Company recapitalization such a stock split, stock dividend, reverse split, or the like.

6.                  Grantee's Representations. The Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, Grantee makes the investment representations set forth on Exhibit B and by this reference made a part hereof.

7.                  Legal, Tax and Financial Matters.  Grantee understands and acknowledges that he is solely responsible for obtaining his own independent legal, tax and financial planning advice concerning the grant of the Shares pursuant to this Agreement.

8.                  Entire Agreement; Governing Law. The Plan and this Agreement (including the exhibits incorporated herein by reference) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee's interest except by means of a writing signed by the Company and Grantee. This Agreement shall be governed by, and construed in accordance with the laws of the State of California without resort to that State's conflict of law rules.

9.                  No Guarantee of Continued Service. THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR BEING GRANTED THE SHARES. THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH GRANTEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE THE GRANTEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE EXCEPT AS MAY OTHERWISE BE SET FORTH IN ANY WRITTEN EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND GRANTEE.

The Grantee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Plan Administrator upon any questions arising under the Plan or this Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated below.

21295 Clear Haven Drive
Yorba Linda, Ca 92886
Residence Address of Mark Murphy

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EXHIBIT A

EMPLOYMENT LETTER AGREEMENT

Dated August 14, 2006

(attached)

Mark P. Murphy
21295 Clear Haven Dr.
Yorba Linda, CA 92886

Dear Mark:

On behalf of the Board of Directors I am pleased to confirm an offer of employment as Chief Executive Officer of Pro-Dex Inc. ("the Company") as an "at-will" employee, serving at the pleasure of the Board of Directors and in accordance with the Company's Bylaws (and applicable law). As Chief Executive Officer, you will perform the duties assigned to you from time to time by the Board of Directors. You may also be required to serve as the CEO and/or director of subsidiaries or other related entities of the Company with no additional compensation. This position will initially be based out of our Santa Ana, California office.

Salary
Your official start date will be August 31, 2006 ("the Starting Date"). Your bi-weekly salary will be $10,769.23 which equals $280,000 on an annualized basis , increasing annually by the All Urban Consumers CPI (applicable local metropolitan area) for the preceding twelve calendar months effective the first full pay period following each anniversary of the Starting Date.

Benefits
For PTO purposes only (and only with respect to this Agreement), you will be treated as having been employed on a full time basis for five (5) years as of the Starting Date, and you will be eligible to participate in benefits including health, dental and life insurance and optional employee benefits available to all Company employees except Companywide employee bonuses or profit sharing plans.

You will receive reimbursement for ordinary and necessary business expenses incurred in the ordinary course of business consistent with the Company's policies applicable to all employees and subject to review by the Company's audit committee.

Bonuses/incentive compensation
In addition to the foregoing salary and benefits, you will be eligible for additional compensation as follows if you are still employed by the Company on a full time basis ("Continuing Employment Status") when the conditions to earn such bonus are fully satisfied.

1.  Annual Bonus.  An Annual Bonus equal to (i) 0.75% of your annual salary, times (ii) each one percent (or any portion thereof) increase in pre-tax earnings (including extraordinary gains and losses) per share for fiscal years ending after July 1, 2006 over the prior fiscal year. For example, if pre-tax earnings per share increased by 18.5% and your salary was $280K at the time, the Annual Bonus

would equal $38,850 (0.75% times $280,000 times 18.5). The Annual Bonus shall be payable within ten days after you have signed and the Company has filed with the SEC the required Chief Executive Officer certifications, without qualification, for Form 10-KSB (or Form 10-K, as the case may be ) for the most recent fiscal year. Such Continuing Employment Status shall not be required for additional compensation under this "Annual Bonus" section in the event that during the period (i) following the conclusion of the Company's fiscal year and (ii) prior to the Company's filing of Form 10-KSB (or Form 10-K, as the case may be), your employment is terminated by the Company without "Cause" or you resign for "Good Reason," each as defined below):; If your employment has been terminated by the Company without Cause prior to the time that you have signed such certifications, or by you for Good Reason prior to the time that you have signed such certifications, the Annual Bonus as set forth in this Section 1 which you have earned shall be payable within thirty (30) days following the termination of your employment. If all such filings are not signed and filed, except as specified above, the bonus shall not be payable.

The actual Annual Bonus for fiscal year ending June 30, 2007 shall not exceed $25,000; and shall not exceed $50,000 for fiscal year ending June 30, 2008.

2.  Second Bonus.  A Second Bonus equal to the appreciation of an aggregate of 450,000 shares of the Company's common stock over the closing price of such number of shares on the day preceding the Starting Date. Entitlement to this second bonus shall vest at the rate of 33.333% per year commencing with the first anniversary of the Starting Date (subject to acceleration in certain events as provided below), and all or any part of each incremental vested portion shall be exercisable within five years from the date such increment first vested and payable in cash in the installments described below commencing on the earliest of (i) 90 days written notice from you to the Company, based on the average closing price of the Company's common shares, over the ten trading days immediately preceding receipt of such written 90 day notice outside of any blackout periods applicable to all insiders, (ii) termination of your employment (except for termination of your employment by the Company for "Cause" " or resignation by you without Good Reason), based on the average closing price of the Company's common shares over the ten trading days immediately preceding the date of termination, outside of any blackout periods applicable to all insiders ) or (iii) in case of a Liquidity Event as defined below, based on the price per share received by the Company's shareholders in the Liquidity Event as described herein. Payments of this Second Bonus shall be in quarterly installments equal to 10% of the Company's pretax net income (and with respect to the final quarterly payment, so much as may remain to be paid), including extraordinary gains and losses, as reported in the Company's financial statements contained within Form 10-QSB or Form 10-KSB (as the case may be) for the preceding quarter, payable each quarter within thirty (30) days following the determination of such pretax net income; provided, however, that any payments of this Second Bonus which are earned but remain outstanding as of the date of your termination/severance of employment

shall be paid over a period of twelve (12) months as set forth under "Termination/Severance," below. The unpaid portion shall bear no interest and shall become immediately due and payable upon a Liquidity Event.

This Second Bonus may be replaced at the Company's sole option on or before February 28, 2007 with a grant of 340,000 restricted shares of Common Stock of the Company in accordance with an equity incentive compensation plan if such a plan is approved by the Company's shareholders at the Company's 2006 Annual Shareholders' Meeting (or other such special shareholders' meeting of the Company) vesting at the rate of 85,000 shares per year commencing January 2, 2007 or the grant date, whichever is later. Vested shares shall have no restrictions imposed with respect to their sale or transfer except those required by laws or regulations. If the restricted stock grant is pursuant to the Company's general equity incentive plan for its key employees as approved by the Company's board of directors and shareholders, then the Company shall on a reasonably expedited basis and consistent with past practice, file a Registration Statement on Form S-8 with the Securities and Exchange Commission.

Acceleration
In the event of a transaction in which the Company's shareholders receive cash or marketable securities for their Company shares (a "Liquidity Event"), the vesting of the unvested restricted shares or portion of the second bonus will accelerate immediately prior to the Liquidity Event as follows: 100% of the total grant of restricted shares or second bonus if the consideration received by Pro-Dex shareholders is $5 per share or greater; 80% if between $4 and $5; and 60% if between $3 and $4. All such price per share amounts in this letter will be proportionately adjusted in the event of a Company recapitalization such a stock split, stock dividend, reverse split, or the like.

Termination/Severance
In the event you are terminated involuntarily by the Company without "Cause" or resign with "Good Reason" as defined below, the Company shall pay you your (i) salary up through the date of termination plus (ii) accrued vacation plus (iii) severance equal to $280,000 and (iv) any Annual Bonus or Second Bonus earned but not yet paid pursuant to this letter as of the termination date (the date you are terminated without "Cause" or upon which you resign with "Good Reason"), each of which shall be paid less applicable withholding as required by law. With the exception of the earned amount of your Annual Bonus (to be paid within thirty (30) days of your termination), the severance payment referred to above shall be made in equal incremental payments, consistent with the Company's usual payroll payment periods, over a period of twelve (12) months immediately following your last day of employment with the Company. You hereby acknowledge that such severance will be the total and sole remedy for any claims by you, known or unknown, arising from your employment with the Company and you will be required prior to the receipt of such severance payments to execute a written separation agreement with the Company containing a general release of claims against the Company in form and content acceptable to both you and the Company and our respective counsel.

However, the release agreement will not alter your rights under the indemnification agreement.

As used herein, the term termination for "Cause" shall mean termination due to:

(i)   your failure or inability to perform your duties with the Company or a related entity;

(ii)  your failure to substantially follow and comply with the specific and lawful directives of the Board or any officer of the Company or a related entity to whom you report directly;

(iii)The Board's determination on advice of counsel of your commission of an act of fraud or dishonesty; your engagement in illegal conduct, gross misconduct or an act of moral turpitude; or your material violation of any material written policy, guideline, code, handbook or similar document governing the conduct of directors, officers or employees of the Company or its related entities; or

(iv) a material breach by you of the terms of this letter.

As used herein, the term resignation for "Good Reason" shall mean your resignation due to:

(i)   a reduction in your salary as set forth herein or failure of the Company to pay any amount owing to you hereunder when due; or a material reduction in benefits provided to you under the terms of this Letter;

(ii)  the Company's requiring you to be based full time in any office or location outside of a sixty (60) mile radius from your current residence in Yorba Linda, California;

(iii) your being requested by the Board to execute any documents or take any action in violation of any laws or regulations applicable to the Company, commit an act of fraud or dishonesty violation of any material written policy, guideline, code, handbook or similar document governing the conduct of directors, officers or employees of the Company or its related entities;

(iv) a Liquidity Event, in which you are not being offered an executive position with substantially comparable compensation, benefits and incentives with any successor to the Company based in any office or location inside a sixty (60) miles radius from your current residence in Yorba Linda, California provided that such an offer has not been discouraged by you or your representative; or

(v) a material breach by the Company of the terms of this Letter.

In case of a claim of "Cause" for termination or "Good Reason" for resignation, the Board shall promptly notify you or you shall promptly notify the Board (as the case may be) in writing of the existence of such Cause or Good Reason, and if the basis of such claim is reasonably susceptible of cure and in fact is fully cured within thirty (30) days, it shall no longer be grounds for termination with "Cause" or "Good Reason" for resignation.

Indemnification. Company will continue its commitment to indemnify you in accordance with the Company's standard Indemnification Agreement for its officers and directors (which you have previously executed in your capacity as a director of the Company).

By accepting this offer, you confirm your understanding that your employment will be on an at-will basis meaning that either you or the Company may terminate the employment relationship at any time for any reason with or without notice or Cause, and that neither you nor the Company has entered into any other agreement regarding the duration of your employment. This Letter represents the full and exclusive understanding between us of the matters set forth herein and there is no other agreement, written or oral, which governs such matters. Please sign both copies of this letter to indicate your acceptance of this offer and retain one copy for your records and return the second copy to us.

EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

GRANTEE:      Mark Murphy

COMPANY:   Pro-Dex, Inc.

SECURITY:     Restricted Common Stock

AMOUNT:      340,000 shares

DATE:             February 21, 2007

In connection with the acquisition of the above-referenced securities (the "Securities"), the undersigned Grantee makes the following representations to the Company:

(a)        Grantee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Grantee is acquiring the Securities for investment for Grantee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act").

(b)        Grantee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Grantee's investment intent as expressed herein. In this connection, Grantee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Grantee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Grantee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Grantee further acknowledges and understands that the Company is under no obligation to register the Securities. Grantee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws.

(c)        Grantee is familiar with the provisions of Rule 144 promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a nonpublic offering subject to the satisfaction of certain conditions.

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(d)        Grantee further understands that if all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, or some other registration exemption will be required; and that no assurances can be given that any such other registration exemption will be available in such event.

Signature of Grantee:

/s/ Mark Murphy
Mark Murphy
Date: February 21, 2007

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