|
Exhibit
10.1
EMPLOYMENT AGREEMENT
THIS
EMPLOYMENT AGREEMENT ("Agreement") is by and between Patriot
Scientific Corporation, a Delaware corporation ("Employer" or
the "Company") and Clifford Flowers
("Executive").
In
consideration of the promises and mutual covenants contained
herein, and for other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto do hereby
agree as follows:
1.
Employment
. Upon
the terms and conditions hereinafter set forth, Employer
hereby employs Executive to serve as the Chief Financial Officer of
the Company ("CFO"), and Executive hereby accepts such employment
under the terms and conditions set forth herein.
2.
Effective
Date . The effective date of the Agreement shall
be September 17, 2007 (the "Effective Date"). The employment
relationship pursuant to this Agreement shall be for an initial one
hundred twenty (120) day period commencing on the
Effective Date set forth above ("Initial Term"), unless sooner
terminated in accordance with Section
7 below. On completion of the Initial Term specified above, and if
not terminated pursuant to Section 7 below, this Agreement will
extend for a one year term ("One Year Term") and will be terminable
by either party, with or without cause as set forth in Sections 4
and 7 of this Agreement. If neither party has terminated the
Agreement within one year of the expiration of the Initial Term,
the employment relationship as set forth in this Agreement shall
continue in accordance with the terms of this Agreement on a day to
day basis.
3.
Duties
. Executive shall perform such duties as are customarily
performed by a Chief Financial Officer, and such other duties
and responsibilities that may be assigned to him by the Chief
Executive Officer ("CEO") and/or the Board of Directors.
Specifically, Executive shall manage the Company's budget,
business development, financial affairs, and perform such
duties and responsibilities as set forth in the CFO job
description, a current copy of which is attached hereto as
Exhibit "B".
Executive
shall report to the President/CEO and Audit Committee and have
such authority as is delegated by the President/CEO and Audit
Committee. Executive shall be governed by the policies and
practices established by the Company. Employer requires that:
(1) Executive will devote his utmost knowledge and best skill
to the performance of his duties; (ii) Executive shall devote
his full business time (not less than 40 hours per week) to
the rendition of such services, subject to absences for
customary vacations and for temporary illness; and (iii)
Executive will not engage in any other gainful occupation
which requires his personal attention and/or creates a
conflict of interest with his job responsibilities under this
Agreement without the prior written consent of the Board of
Directors of the Company, with the exception that Executive
may personally trade in stock, bonds, securities, commodities
or real estate investments for his own benefit to the extent
permitted by the provisions herein and applicable
law.
Executive's
job performance will be reviewed annually. Executive
acknowledges and understands that performance reviews do not
necessitate or correlate with salary increases and that a
favorable performance review neither guarantees continued
employment nor increased compensation.
4.
At-Will
Employment. . Executive and Employer agree
that Executive's employment may be terminated by Executive or by
Employer, with or without cause any time prior to the expiration of
the Initial Term and/or the One Year Term and any time after the
One Year Term in accordance with paragraph 7 of this Agreement.
Executive and Employer expressly agree that this provision is
intended by Executive and Employer to be the complete and final
expression of their understanding regarding the terms and
conditions under which Executive's employment may be terminated.
Executive and Employer further understand and agree that no
representation contrary to this provision is valid, and that this
provision may not be augmented, contradicted or modified in any
way, except in writing signed by Executive, the President/CEO and
the Chairperson of the Auditing Committee.
5.
Compensation .
5.1
Base
Salary . Executive shall be paid an annual
base salary of Two Hundred Twenty-Five Thousand Dollars
($225,000), payable according to Employer's payroll schedule
and subject to applicable state and federal withholdings and
other payroll deductions.
5.2
Bonus
. In addition to Executive's base salary, Executive
shall be eligible to receive an additional annual
discretionary bonus of up to fifty percent (50%) of his then
in effect base salary, as determined by the CEO and Board of
Directors/Compensation Committee in their sole discretion.
Executive acknowledges that although a discretionary bonus may
be provided by the Company, any such bonus is neither required
nor guaranteed by this Agreeme nt.
5.3
Stock
Options . Employer agrees to provide stock
options to Executive as follows
(collectively, the "Options"):
(i) The
Company shall provide Executive with a non-qualified
stock option
for exercise into One Hundred Fifty Thousand (150,000) shares
of the Company's common stock effective as of the Effective
Date (the "Signing Bonus Option"). The grant price of the
Signing Bonus Option shall be the closing sales price of the
Company's common stock on September 17, 2007 as quoted on the
OTC Bulletin Board, or if there is no closing sales price on
that date, the closing selling price on the last preceding
date for which such quotation exists. 100% of the shares
subject to the Signing Bonus Option will vest immediately upon
the expiration of the Initial Term, provided that Executive is
still employed by the Company at such time.
(ii) Effective
as of the Effective Date, the Company shall provide
Executive
with a non-qualified stock option for exercise into Six
Hundred Thousand (600,000) shares of the Company's common
stock, with a grant price equal to the closing sales price of
the Company's common stock on September 17, 2007 as quoted on
the OTC Bulletin Board, or if there is no closing sales price
on that date, the closing selling price on the last preceding
date for which such quotation exists, to vest as follows: (i)
regular vesting to commence after twelve
(12)
months employment at 1/48
th over a period of four (4) years; and (ii) automatic
accelerated vesting to occur for a percentage of unvested options,
which amount shall be determined by the CEO and the Board of
Directors, but in no event, less than twenty-five percent (25%),
upon the "effective date" of a major event which shall include an
acquisition of the Company or merger or the listing of the Company
on the Amex or NASDAQ stock exchanges. Any remaining unvested
options, if any, will vest according to the regular vesting
schedule set forth above in this Section 5.3 (ii).
(iii) The
options referenced above will be granted pursuant to, and will
be subject to the terms of the Company's Stock Option
Plan.
6.
Fringe Benefits .
6.1
Benefits . Executive shall, in accordance with
Company policy and the terms
of the applicable plan documents, be eligible to participate
in benefits under any Company benefit plan or arrangement
which may be in effect from time to time and made available to
its management employees. Such benefits currently include:
health insurance, which is a PPO plan with the Company paying
90% of employee cost and 50% of dependent cost; life insurance
with disability coverage, 401K plan with Employer matching up
to 6% of employee's annual salary, with 3 year vesting on
Employer match. 401K vesting to accelerate in the case of a
Change of Control in accordance with the terms of the
applicable plan.
6.2
Vacation . Upon the expiration of the Initial
Term, Executive shall begin to
earn and accrue vacation days at the rate of fifteen (15) days
per year. Unused vacation shall carry over to the next year,
but Executive shall cease accruing further vacation at any
time Executive has accrued twenty-three (23) vacation days,
and shall not accrue further vacation days until Executive has
used some or all of the accrued vacation days. Unused vacation
days which are not in excess of twenty-three (23) vacation
days shall be paid in a cash lump sum payment promptly after
Executive's termination of employment. Executive shall earn
vacation days at the rate of twenty (20) days per year after
five (5) years of employment.
6.3
Expenses . Employer shall reimburse Executive on
a monthly basis for receipts Executive submits for all
reasonable and necessary travel and other business expenses
incurred by Executive in the performance of Executive's duties
hereunder, consistent with Employer's normal expense
reimbursement policy. Such expenses shall include professional
society membership dues. Additionally, Employer will reimburse
Executive up to a maximum of One Thousand Five Hundred Dollars
($1,500) per year for successful completion (with a passing
grade) of job-related continuing education
courses.
7.
Termination .
7
.1
Termination With Cause . If Executive (a)
breaches in any material respect or fails to fulfill any
fiduciary duty owed to Employer; (b) breaches in any material
respect this Agreement or any other confidentiality or
non-solicitation, non-competition agreement between Employer
and Executive; (c) pleads guilty to or is convicted of a
felony, a crime of moral turpitude or any other crime; (d) is
found to have engaged in any reckless, fraudulent, dishonest
or grossly negligent misconduct, or act of moral turpitude,
(e) fails to satisfactorily perform his
duties
to the Company or comply with Company policies and rules
(excluding those policies set forth in paragraph 7.1(f) for
which no opportunity to cure is requires), provided that
Executive fails to cure any such failure within thirty (30)
days after written notice from Employer of such failure,
provided further, however, that such right to cure shall not
apply to any repetition of the same failure previously cured
hereunder; or (f) violates any material rule, regulation or
policy of the Company relating to harassment, discrimination,
retaliation, violence, theft/embezzlement, business ethics,
and drug and alcohol use, that may be established and made
known to Employer's employees from time to time, including
without limitation, the Company Employee Handbook, a copy of
which has been provided to Executive, Employer may terminate
immediately his employment and Executive shall have no right
to receive any compensation or benefit hereunder after such
termination other than base salary and vacation earned or
accrued but unpaid as of the date of termination. Executive
shall not be entitled to any bonus, or proration thereof, if
terminated under this paragraph.
7.2
Termination Without Cause . As stated in Section
4 of this Agreement, Executive or the Company may at any time
terminate Executive's employment with or without cause. If
the Company terminates Executive's employment within two
years of the Effective Date and such termination is not a
Termination With Cause as defined above, the Company shall
continue to pay Executive's base salary then in effect as of
the date of such termination on a prorated basis
according to Employer's payroll schedule and subject to
applicable withholdings for a period of six (6) months or the
remainder of the one-year time period from the Effective
Date, whichever time period is greater (and if the Company,
terminates Executive's employment any time after two (2)
years of continuous employment without Cause as defined
above, the Company shall continue to pay Executive's base
salary for twelve (12) months) (collectively "Severance"),
provided only if Executive signs a general release. Such
Severance does not include the continuation of the benefits
allowance after termination or the proration of any bonus. At
the Company's sole option, any Severance to which Executive
is entitled may be paid in a lump sum less applicable
withholdings in lieu of payment made over time in accordance
with Employer's payroll schedule.
In
order to be entitled to the Severance reflected herein,
Executive must sign a general release of all claims known and
unknown, against Employer, its officers and directors, agents
and employees and any related entities or persons. Although a
copy of the Company's current standard general release shall
be available for Executive's review upon his request,
Executive acknowledges that such release is subject to change
at the Company's discretion. Nothing herein will be construed
to limit or modify the duty of Executive to mitigate
Executive's damages in the event Employer terminates
Executive's employment without Cause.
7.3
Termination Upon Death or Disability .
Executive's employment shall terminate upon his death or
disability ("disability" being defined as any mental or
physical condition which, in the reasonable opinion of a
mutually agreed upon licensed physician and/or psychiatrist
(as the case may be), renders Executive unable or incompetent
to carry out Executive's duties under this Agreement, with or
without reasonable accommodation, for a period of at least
three months). In the event of a termination of Executive's
employment for death or disability, Executive shall have no
right to receive any further compensation or benefit
hereunder after such termination other than base salary and
vacation earned or accrued but unpaid as of the date of
termination.
7.4
Change of
Control . In the event of any merger,
acquisition .or consolidation of the Company where the
Company is not the surviving or resulting corporation, or
upon transfer of all or substantially all of the assets of
the Company, and Employee is not retained by the surviving or
resulting corporation in a substantially similar position or
position satisfactory to Employee ("Change of Control"),
Employee shall be paid a lump sum equivalent to six (6)
months of Employee's base salary then in effect (or twelve
(12) months if such Change of Control occurs after two
continuous years of employment) upon the execution of a
general release. Such lump sum payment shall be considered to
be in full and complete satisfaction of any and all rights
which Employee may enjoy under the terms of this Agreement,
except that any and all of Executive's unvested stock options
shall become fully vested and exercisable.
7.5
Resignation For Good
Reason . In the event Executive resigns his
employment and such resignation is with "Good Reason" as
defined below, Executive will be entitled to receive
Severance in accordance with the terms set forth in paragraph
7.2 above, provided Executive complies with the conditions in
paragraph 7.2 above. In the event Executive resigns without
Good Reason, Executive will not be entitled to receive the
Severance described in paragraph 7.2 above. Executive will be
deemed to have resigned with "Good Reason" upon the
occurrence of any of the following events without Executive's
consent: (i) a material reduction in Executive's duties,
authority, or responsibilities relative to the duties,
authority, or responsibilities in effect immediately prior to
such reduction; (ii) the relocation of Executive's principal
place of business to a point more than sixty (60) miles from
Carlsbad, California; or (iii) a material reduction by the
Company of Executive's base salary as initially set forth
herein or as the same may be increased from time to time.
Provided
however that, such termination by
Executive shall only be deemed for Good Reason pursuant to
the foregoing definition if: (i) Executive gives the Company
written notice of the intent to terminate for Good Reason
within thirty (30) days following the first occurrence of the
condition(s) that Executive believes constitutes Good Reason,
which notice shall describe such condition(s); (ii) the
Company fails to remedy such condition(s) within thirty (30)
days following receipt of the written notice (the "Cure
Period"); and (iii) Executive terminates his employment
within thirty (30) days following the end of the Cure
Period.
7.6
280G Limitation on Payments .
(i)
In the
event that the severance and other benefits provided for in
this Agreement or otherwise payable to the Executive (i)
constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the
"Code") and (ii) but for this Section 7.6 would be subject to
the excise tax imposed by Section 4999 of the Code, then the
Executive's severance and other benefits provided under this
Agreement shall be payable either (i) in full, or (ii) as to
such lesser amount which would result in no portion of such
benefits being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account
the applicable federal, state and local income taxes and the
excise tax imposed by Section 4999, results in the receipt by
the Executive on an after-tax basis, of the greatest amount of
benefits under this Agreement, notwithstanding that all or
some portion of such benefits may be taxable under Section
4999 of the Code.
(ii)
If a
reduction in the payments and benefits that would otherwise be
paid or provided to the Executive under the terms of this
Agreement is necessary to comply with
the
provisions of Section 7.6(i), the Executive shall be entitled
to select which payments or benefits will be reduced and the
manner and method of any such reduction of such payments or
benefits (including but not limited to the number of options
that would vest under Sections 5.3 or 7.4) subject to
reasonable limitations (including, for example, express
provisions under the Company's benefit plans) so long as the
requirements of Section 7.6(i) are met. Within thirty (30)
days after the amount of any required reduction in payments
and benefits is finally determined in accordance with the
provisions of Section 7.6(iii), the Executive shall notify the
Company in writing regarding which payments or benefits are to
be reduced. If no notification is given by the Executive, the
Company will determine which amounts to reduce. If, as a
result of any reduction required by Section 7.6(i), amounts
previously paid to the Executive exceed the amount to which
the Executive is entitled, the Executive will promptly return
the excess amount to the Company.
(iii)
Any
determination required under this Section 7.6(iii) shall
be made
in writing by a nationally recognized accounting or consulting
firm appointed by the Company, which firm shall not then be
serving as accountant or auditor for or consultant to the
Company or the person or entity that effected the Change in
Control and whose determinations shall be conclusive and
binding upon the Executive and the Company for all purposes.
For purposes of making the calculations required by this
Section 7.6, such firm may make reasonable assumptions and
approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company
and the Executive shall furnish to such firm such information
and documents as such firm may reasonably request in order to
make a determination under this Section 7.6. The Company shall
bear all costs such firm may reasonably incur in connection
with any calculations contemplated by this Section
7.6.
7.7
Application of Internal Revenue Code Section 409A
. Severance payable under Sections 7.2 and 7.5 of this
Agreement are intended to be payable pursuant to the "short-
term deferral" rule set forth in Section 1.409A-1(b)(4) of the
Treasury Regulations. Severance payable pursuant to Section
7.4 of this Agreement are intended to be payable pursuant to a
window program pursuant to Section 1.409A-1(b)(9)(iii) of the
Treasury Regulations to the maximum extent permitted by said
provision, with any excess amount being regarded as subject to
the distribution requirements of Section 409A(a)(2)(A) of the
Code, including, without limitation, the requirement of
Section 409A(a)(2)(B)(i) of the Code that payment to Executive
be delayed until 6 months after Executive's separation from
service if Executive is a "specified employee' within the
meaning of the aforesaid section of the Code at the time of
such separation from service
8.
Trade Secrets, Confidential Information and Inventions
.
8.1
Trade Secrets In General . During the course of
Executive's employment, Executive will have access to various
trade secrets, confidential information and inventions of
Employer as defined below.
(i)
"Confidential Information" means all information and
material which is proprietary to the Company, whether or not
marked as "confidential" or "proprietary" and which is
disclosed to or obtained from the Company by the Executive,
which relates to the Company'
past,
present or future research, development or business
activities. Confidential Information is all information or
materials prepared by or for the Company and includes, without
limitation, all of the following: designs, drawings,
specifications, techniques, models, data, source code, object
code, documentation, diagrams, flow charts, research,
development, processes, systems, methods, machinery,
procedures, "know-how", new product or new technology
information, formulas, patents, patent applications, product
prototypes, product copies, cost of production, manufacturing,
developing or marketing techniques and materials, cost of
production, development or marketing time tables, customer
lists, strategies related to customers, suppliers or
personnel, contract forms, pricing policies and financial
information, volumes of sales, and other information of
similar nature, whether or not reduced to writing or other
tangible form, and any other Trade Secrets, as defined by
subparagraph (iii), or non-public business information.
Confidential Information does not include any information
which (1) was in the lawful and unrestricted possession of the
Executive prior to its disclosure by the Company, (2) is or
becomes generally available to the public by acts other than
those of the Executive after receiving it, or (3) has been
received lawfully and in good faith by the Executive from a
third party who did not derive it from the
Company.
(ii)
"Inventions"
means all discoveries, concepts and ideas, whether patentable or
not, including but not limited to, processes, methods, formulas,
compositions, techniques, articles and machines, as well as
improvements thereof or "know-how" related thereto, relating at the
time of conception or reduction to practice to the business engaged
in by the Company, or any actual or anticipated research or
development by the Company.
(iii) "Trade
Secrets" shall mean any scientific or technical data,
information, design, process, procedure, formula or
improvement that is commercially available to the Company and
is not generally known in the industry.
This
section includes not only information belonging to Employer
which existed before the date of this Agreement, but also
information developed by Executive for Employer or its
employees during his employment and thereafter.
8.2
Restriction on Use of Confidential Information .
Executive agrees that his use of Trade Secrets and other
Confidential Information is subject to the following restrictions
during the term of the Agreement and for an indefinite period
thereafter so long as the Trade Secrets and other Confidential
Information have not become generally known to the
public.
8.2.1
Non-Disclosure . Except as required by the performance of
the Executive's services to the Company under the terms of this
Agreement, neither the Executive nor any of his agents or
representatives, shall, directly or indirectly, publish or
otherwise disclose, or permit others to publish, divulge,
disseminate, copy or otherwise disclose the Company's Trade
Secrets, Confidential Information and/or Inventions as defined
above.
8.2.2
Use
Restriction . Executive shall use the Trade Secrets,
other Confidential Information and/or Inventions only for the
limited purpose for which they were disclosed. Executive shall
not disclose the Trade Secrets, other Confidential Information
and/or Inventions to any third party without first obtaining
written consent from the CEO and shall disclose the Trade
Secrets, other Confidential Information and/or Inventions only
to Employer's
own
employees having a need know. Executive shall promptly notify
the CEO of any items of Trade Secrets prematurely
disclosed.
8.2.3
Surrender Upon Termination . Upon termination of his
employment with Employer for any reason, Executive will surrender
and return to Employer all documents and materials in his
possession or control which contain Trade Secrets, Inventions and
other Confidential Information. Executive shall immediately return
to the Company all lists, books, records, materials and documents,
together with all copies thereof, and all other Company property in
his possession or under his control, relating to or used in
connection with the past, present or anticipated business of the
Company, or any affiliate or subsidiary thereof. Executive
acknowledges and agrees that all such lists, books, records,
materials and documents, are the sole and exclusive property of the
Company.
8.2.4
Prohibition Against Unfair Competition . At any time
after the termination of his employment with Employer for any
reason, Executive will not engage in competition with Employer
while making use of the Trade Secrets of Employer.
8.2.5
Patents and Inventions . The Executive agrees
that any inventions made, conceived or completed by him during
the term of his service, solely or jointly with others, which
are made with the Company's equipment, supplies, facilities or
Confidential Information, or which relate at the time of
conception or reduction to purpose of the invention to the
business of the Company or the Company's actual or
demonstrably anticipated research and development, or which
result from any work performed by the Executive for the
Company, shall be the sole and exclusive property of the
Company. The Executive promises to assign such inventions to
the Company. The Executive also agrees that the Company shall
have the right to keep such inventions as trade secrets, if
the Company chooses. The Executive agrees to assign to the
Company the Executive's rights in any other inventions where
the Company is required to grant those rights to the United
States government or any agency thereof. In order to permit
the Company to claim rights to which it may be entitled, the
Executive agrees to disclose to the Company in confidence all
inventions which the Executive makes arising out of the
Executive's service and all patent applications filed by the
Executive within one year after the termination of his
service.
The
Executive shall assist the Company in obtaining patents on all
inventions, designs, improvements and discoveries patentable
by the Company in the United States and in all foreign
countries, and shall execute all documents and do all things
necessary to obtain letters patent, to vest the Company with
full and extensive title thereto, and to protect the same
against infringement by others.
9.
Solicitation of Employees or Customers .
9.1
Information About Other Employees . Executive
will be called upon to work closely with employees of Employer
in performing services under this Agreement. All information
about such employees which becomes known to Executive during
the course of his employment with Employer, and which is not
otherwise known to the public, including compensation or
commission structure, is a Trade Secret of Employer and shall
not be used by
Executive
in soliciting employees of Employer at any time during or
after termination of his employment with
Employer.
9.2
Solicitation
|
