Note 13: Commitments and Contingencies

12 Months Ended

Aug. 31, 2013

Notes

Note 13: Commitments and Contingencies

Note 13:  Commitments and Contingencies

On May 22, 2013, we entered into an employment agreement with our President and Chief Executive Officer, Harold R. Wolcott (the “Employment Agreement”).  The Employment Agreement memorializes the parties’ agreement with respect to Mr. Wolcott’s continued employment as the President and Chief Executive Officer of the Company.

The Employment Agreement provides that Mr. Wolcott’s base salary shall be $275,000, which base salary will be reviewed at least annually by the Compensation Committee of the Board of Directors, and the Board may increase (but not decrease) the base salary.  In addition to the base salary, Mr. Wolcott is entitled to participate in any annual incentive bonus programs and employee benefit plans adopted or maintained by the Company.  Mr. Wolcott is also eligible to participate in our Stock Incentive Plan.

We also agree to indemnify Mr. Wolcott for expenses associated with defending certain claims made against him as a result of his positions with the Company.  We also agreed to purchase directors’ and officers’ liability insurance providing coverage to Mr. Wolcott during the term of the Employment Agreement and for a period of six years following the termination of the Employment Agreement.

If Mr. Wolcott is terminated by the Company other than for cause, or if Mr. Wolcott resigns for good reason and if Mr. Wolcott complies with certain requirements, we are obligated to pay him an amount equal to his base salary for one year (the “Severance Payment”) and he shall be entitled to receive all applicable employee benefits for one year following termination.  If the Employment Agreement is terminated for cause, Mr. Wolcott shall receive only the portion of his base salary that is due to him through the effective date of his termination.  If the Employment Agreement is terminated by reason of Mr. Wolcott’s death, his estate shall receive his salary through the end of the month in which he died plus all employee benefits due to him through the end of such month.

If a Change in Control (as defined in the Employment Agreement) occurs with respect to the Company, and during the six months immediately following the Change of Control, (i) the Company terminates Mr. Wolcott without cause; (ii) Mr. Wolcott terminates his employment with good reason; or (iii) Mr. Wolcott terminates the Employment Agreement but also agrees to continue serving as President and Chief Executive Officer for the longer of (a) six months and (b) until a new President and Chief Executive Officer is appointed, then in addition to the Severance Payment, all options or incentive awards granted to Mr. Wolcott will immediately vest and become exercisable for a period of 180 days following the termination.

The Employment Agreement also contains a confidentiality agreement, and a one-year non-competition and non-solicitation agreement.  The Employment Agreement contains a claw back provision that enables the Company to claw back any incentive-based compensation or other compensation from Mr. Wolcott if required by any law, government regulation, stock exchange listing requirement, or Company policy adopted as required by such law, government regulation, or stock exchange listing requirement.

We entered into an employment agreement with our Chief Technical Officer (“CTO”) dated November 2, 1988.  The agreement sets the CTO’s annual base salary for each year until October 1, 1993 and provides that after October 1, 1993 the CTO’s annual base salary will be based upon a reasonable mutual agreement between the CTO and the Company.  The CTO’s annual base salary was raised to $220,500 effective August 5, 2013.  In the event of termination of the CTO’s employment with the Company without cause (as defined in the agreement) or the CTO’s resignation for good reason (as defined in the agreement), the agreement provides that the CTO will receive severance pay for a one-year period, which pay includes an extension of all of his rights, privileges and benefits as an employee (including medical insurance).  The one-year severance pay shall be equal to the CTO’s average annual salary for the 12-month period immediately prior to the termination.  The agreement also requires us to pay the CTO for any accrued, unused vacation at the time of termination.  We are also obligated to pay the CTO $1,000 (or the equivalent value in stock options) for each newly issued patent obtained by us as a result of the CTO’s efforts (the CTO receives only $500 if multiple inventors are involved).  The CTO’s agreement includes a non-competition covenant prohibiting him from competing with us for one year following his termination.  We may continue the non-competition period for up to four additional years by notifying the CTO in writing and by continuing the severance payments for the additional years during which the non-competition period is extended.

We have an exclusive worldwide license for a unique temperature probe.  The license has no determinable life.  We pay royalties based upon sales of this probe.  Accrued royalties were $840 and $1,015 as of August 31, 2013 and 2012, respectively.  Royalty expense amounted to $1,960, $2,275 and $3,535 for the years ended August 31, 2013, 2012 and 2011, respectively.