UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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| Preliminary Proxy Statement | |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ¨ | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material under Rule 14a-12 |
PATRIOT SCIENTIFIC CORPORATION
(Name of Registrant as Specified Inin Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
| Payment of Filing Fee (Check the appropriate box): | ||
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| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i) | |
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| (2) | Aggregate number of securities to which transaction applies: | |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 | |
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March 17, 2016
Dear Patriot Scientific Corporation Shareholder:
On behalf of the Board of Directors and the management of Patriot Scientific Corporation, I'm pleased to extend a personal invitation to you to attend via the internet the annual meeting of shareholdersstockholders of Patriot Scientific Corporation, whichCorporation. We will be held from 10:00 AM until noon on Thursday, October 30, 2008 at the Hilton Garden Inn in Carlsbad, California. Coffee and light pastries will be offered just prior tohold the meeting at 9:30 AM. 10:00 a.m. Pacific Time on Thursday, April 28, 2016.
We hope you'll join us forare offering a live webcast of the annual meeting whichfor our stockholders at www.virtualshareholdermeeting.com/PTSC2016 where you will include a brief Patriotbe able to attend the annual meeting and vote electronically.
This booklet includes the Notice of Annual Meeting and the Proxy Statement. The Proxy Statement describes the business update followingto be transacted at the formal session.
Thank you for your support and interest in February, to provide our shareholders with periodic updates regarding Patriot’s business activitiesPatriot.
Sincerely,
/s/ Clifford L. Flowers
Clifford L. Flowers
CFO, Interim CEO and as such I won’t dwell on a lot of detail in the context of this letter.Corporate Secretary
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PATRIOT SCIENTIFIC CORPORATION
701 Palomar Airport Road, Suite 180
Carlsbad, California 92011
(760) 547-2700
NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS
| TIME AND DATE: | 10:00 a.m. (Pacific Time) on Thursday, April 28, 2016 |
| PLACE: | Via the internet only atwww.virtualshareholdermeeting.com/PTSC2016 |
| AGENDA: | 1. | Election of our board of directors; |
| 2. | Ratify the appointment of KMJ Corbin & Company LLP as our independent registered public accounting firm for the current fiscal year ending May 31, 2016; |
| 3. | To approve, on an advisory basis, the |
| To approve an amendment to our |
| 5. | To authorize the adjournment of the 2015 Annual Meeting of Stockholders, if necessary to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2015 Annual Meeting of Stockholders to approve any of the foregoing proposals; and |
| 6. | Transact other business that may properly come before the meeting or any adjournment thereof. |
| RECORD DATE: | March 1, 2016.A list of stockholders entitled to vote at the annual meeting of stockholders will be available at our corporate offices for 10 days prior to the date of the meeting,and electronically during the annual meeting atwww.virtualshareholdermeeting.com/PTSC2016when you enter your Control Number. |
| MEETING ADMISSION: | You are entitled to attend and vote at the annual meeting only if you were a Patriot Scientific Corporation stockholder as |
| ADMISSION VOTING: | Please vote as soon as possible to record your vote promptly, even if you plan to attend the annual meeting via the internet. You have three options for submitting your vote before the annual meeting: |
| · | Internet |
| · | Phone |
| · |
| INTERNET AVAILABILITY: | Pursuant to rules promulgated by the Securities and Exchange Commission, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the internet. The enclosed Proxy Statement and accompanying 2015 Annual Report are available on the internet athttp://www.hivedms.com/ptsc/.Information on the website does not constitute a part of this Proxy Statement. |
BY ORDER OF THE BOARD OF DIRECTORS
| /s/ Clifford L. Flowers |
| Clifford L. Flowers |
| CFO, Interim CEO and Corporate Secretary |
| March 17, 2016 |
| Carlsbad, California |
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PROXY STATEMENT
General information
Your vote is very important. For this reason, the board of directors of Patriot Scientific Corporation, a Delaware corporation (referred to as “we,” “us,” “our”, or “the Company,”), is soliciting your proxy to vote your shares of common stock at the 2015 Annual Meeting of Stockholders (the “annual meeting”), or at any continuation, postponement or adjournment thereof, for the purposes discussed in this proxy statement and in the accompanying Notice of Annual Meeting and any business properly brought before the annual meeting.
Why am I receiving these materials?
Proxies are solicited to give all stockholders of record an opportunity to vote on matters properly presented at the annual meeting. This proxy statement is being sent to all stockholders of record as of the close of business on March 1, 2016 in connection with the solicitation of proxies on behalf of the board of directors for use at the 2015 annual meeting of stockholders to be held on April 28, 2016. We intend to commence mailing this proxy statement and accompanying proxy card on or about March 18, 2016 to all stockholders entitled to vote at the annual meeting.
Our financial information
Our annual report to stockholders for the fiscal year ended May 31, 2015, including audited consolidated financial statements, has been mailed to the stockholders concurrently herewith, but such report is not incorporated in this proxy statement and is not deemed to be a part of the proxy solicitation material.
Who is eligible to vote?
Stockholders of Patriot Scientific Corporation, as recorded in our stock register at the close of business on March 1, 2016, can vote at the annual meeting. Each share of our common stock is entitled to one vote. As of March 1, 2016, there were 401,392,948 shares of our common stock outstanding and entitled to vote.
How do I vote?
There are three ways to vote by proxy:
| (1) | by internet; |
| (2) | by telephone; or |
| (3) | by mail. |
If you vote by telephone or via the internet, please do not return a signed proxy card. If you choose to vote by mail, mark your proxy card enclosed with the proxy statement, date and sign it, and mail it in the postage-paid envelope.
You may also vote via the internet during the meeting. Stockholders attending via the internet will need to follow the instructions atwww.virtualshareholdermeeting.com/PTSC2016 in order to vote at the meeting. Voting via the internet by a stockholder will revoke and replace any previous votes submitted.
Who pays the cost of proxy solicitation?
Our board of directors is soliciting the enclosed proxy. We will make proxy solicitations by electronic or regular mail and we will bear the costs of this solicitation. We will request banks, brokerage houses, nominees and other fiduciaries nominally holding shares of our common stock to forward the proxy soliciting materials to the beneficial owners of such common stock and to obtain authorization for the execution of proxies. We will, upon request, reimburse such parties for their reasonable expenses in forwarding proxy materials to the beneficial owners. In the event we decide to hire a service to solicit proxies, we would expect such service to cost approximately $15,000 plus reasonable and approved out-of-pocket expenses.
What is a proxy?
Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of our director candidates. You may also vote for or against the other proposals or abstain from voting.
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How do I specify how I want my shares voted?
If you are a registered stockholder, you can specify how you want your shares voted on each proposal by marking the appropriate boxes on the proxy card. Please review the voting instructions on the proxy card and read the entire text of the proposals and the positions of the board of directors in the proxy statement prior to marking your vote.
If your proxy card is signed and returned without specifying a vote or an abstention on a proposal, it will be voted according to the recommendation of the board of directors on that proposal. That recommendation is shown for each proposal on the proxy card.
How do I vote if I am a beneficial stockholder?
If you are a beneficial stockholder, you have the right to direct your broker or nominee on how to vote the shares. You should complete a Voting Instruction Card which your broker or nominee is obligated to provide you.
Brokerage firms have the authority under the various exchange rules to vote shares on routine matters for which their customers do not provide voting instructions.
What are broker “non-votes”?
Broker non-votes occur when nominees, such as banks and brokers holding shares on behalf of beneficial owners, do not receive voting instructions from the beneficial holders at least ten days before the meeting. If that happens, the nominees may vote those shares only on matters deemed "routine" by the New York Stock Exchange (“NYSE”), such as the ratification of auditors. Nominees cannot vote on non-routine matters unless they receive voting instructions from beneficial holders, resulting in so-called "broker non-votes." The effect of “broker non-votes” on each of the proposals that will be considered at the Annual Meeting is described below and in our proxy statement.
We believe that the proposal for the ratification of our independent registered public accounting firm and the proposal to adjourn the meeting are considered to be "routine" matters, and hence we do not expect that there will be a significant number of “broker non-votes” on such proposal.
The proposals to: elect directors; approve, on an advisory basis, the compensation of the named executive officers; and approve an amendment to our certificate of incorporation to effect a reverse stock split are non-routine and the record owner may not vote your shares on these proposals if it does not get instructions from you. If you do not provide voting instructions on these three matters, a broker non-vote will occur. Broker non-votes, as well as “ABSTAIN” votes, will each be counted towards the presence of a quorum but will not be counted towards the vote total for any Proposal, other than Proposal Nos. 2 and 5. Accordingly, it is particularly important that beneficial owners instruct their brokers how they wish to vote their shares.
Can I revoke a proxy?
Stockholders of record may revoke their proxy at any time before the polls close by submitting a later-dated vote electronically at the annual meeting, via the internet, by telephone, by mail, or by delivering instructions to our Corporate Secretary before the annual meeting. If you hold shares through a brokerage firm, you may revoke any prior voting instructions by contacting that firm.
What is a quorum?
In order to carry on the business of the meeting, we must have a quorum. This means that at least a majority of the outstanding shares eligible to vote on the record date must be present at the meeting, either by proxy or in person. Abstentions and broker non-votes are counted as present at the meeting for determining whether we have a quorum. A broker non-vote occurs when a broker returns a proxy but does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received voting instructions from the beneficial owner.
What are the Board of Directors’ voting recommendations?
For the reasons set forth in more detail later in the proxy statement, our board of directors unanimously recommends that you vote “For” for the following proposals:
| Proposal No. 1 - | the election of our directors; | |
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to approve an amendment to our certificate of incorporation, as amended, to effect a reverse stock split of shares of our issued and outstanding common stock, par value of $.00001 per share, at a ratio to be established by our board of directors in its discretion, of up to one for fifteen (but not less than one for five; and | ||
| Proposal No. 5 - | ||
to authorize the adjournment of the 2015 Annual Meeting of Stockholders, if necessary to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2015 Annual Meeting of Stockholders to approve any of the foregoing proposals. |
How many votes are needed to be held on October 30, 2008 at the Hilton Garden Inn Carlsbad Beach, located at 6450 Carlsbad Blvd, Carlsbad, California at 10 a.m. (Pacific Time), and any and all postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. Our telephone number is (760) 547-2700 and our facsimile number is (760) 547-2705. This Proxy Statement and the accompanying form of proxy are expected to be mailed to stockholders on or about September 30, 2008.
The board of revocation to our Secretary, by executing a proxy bearing a later date, or by attending the Annual Meeting and, having notified the Secretary in writing of revocation, voting in person. Subject to any such revocation, all shares represented by properly executed proxiesdirectors will be voted in accordance with the specifications on such proxy.
In order for Proposal Nos. 2, 3, and 5 to pass, the affirmative vote of a majority of the voting shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Directors will be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote onat the election of directors. Abstentions will have no effectannual meeting is required for the purpose of determining whether a director has been elected. Unless otherwise instructed, proxies solicited and received by us will be voted “FOR” the approvaleach proposal.
In order for Proposal No. 4 to increase the number of shares authorized under our 2006 Stock Option Plan from 5,000,000 to 10,000,000, “FOR” the approval of an amendment to our Certificate of Incorporation to increase the number of authorized shares of Common Stock, $0.00001 par value, from 500,000,000 to 600,000,000, “FOR” ratification of the selection of KMJ Corbin & Company to serve as our independent auditors for the fiscal year ending May 31, 2009, and “FOR” the nominees named herein for election as directors.
Only proxies and ballots indicating votes “FOR,” “AGAINST” or “ABSTAIN” on the OTC Bulletin Board under symbol “PTSC”proposals or providing the designated proxies with the right to vote in their judgment and traded indiscretion on the over-the-counter market.
| Name | Amount & Nature of Beneficial Ownership | Percent of Class | ||||||
| Gloria H. Felcyn, CPA | 1,479,700 | (1) | * | |||||
| Helmut Falk, Jr. | 3,528,231 | (2) | * | |||||
| Carlton M. Johnson, Jr. | 1,675,000 | (3) | * | |||||
| Harry (Nick) L. Tredennick III | 100,000 | (4) | * | |||||
| Donald E. Schrock | 104,175 | (5) | * | |||||
| Frederick (Rick) C. Goerner | 600,000 | (6) | * | |||||
| Clifford L. Flowers | 168,750 | (7) | * | |||||
| Paul R. Bibeau | 250,000 | (8) | * | |||||
| All directors & officers as a group (8 persons) | 7,905,856 | (9) | 1.94 | % | ||||
Voting Results
We will report final results on Form 8-K which we will file reports of beneficial ownership and changes in beneficial ownership with the Securities and Exchange Commission (“SEC”). Directors, no later than May 4, 2016.
What is “Householding” of annual meeting materials?
Some banks, brokers and other nominee record holders may be “householding” our proxy statements and annual reports. This means that only one copy of our proxy statement and annual report to stockholders may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of either document to you if you call or write us at our principal executive officers and greater than 10% stockholders are required by the rules and regulations of the SECoffices, 701 Palomar Airport Road, Suite 170, Carlsbad, California, 92011-1045, Attn: Clifford L. Flowers, Corporate Secretary, telephone: (760) 547-2700. If you want to furnish us with copies of all reports filed by them in compliance with Section 16(a).
PROPOSAL NUMBER 1
ELECTION OF AMENDMENT OF THE PATRIOT SCIENTIFIC CORPORATION 2006 STOCK OPTION PLAN
The first proposal on the Board adopted the Patriot Scientific Corporation 2006 Stock Option Plan (the “Plan”). The Plan is intended to promote our interests and those of our stockholders by: (i) attracting and retaining exceptional directors, employees and consultants (including prospective directors, employees and consultants), and (ii) enabling such individuals to participate in our long-term growth and financial success. The plan currently providesagenda for the issuance of up to 5,000,000 options. The proposal before the shareholders is to increase that maximum number to 10,000,000 options. The Stock Option Plan, as proposed to be amended, is attached hereto as Appendix C.
Under Delaware law, the three nominees receiving the highest number of votes will be elected as directors at the Annual Meeting. As a result, proxies voted to “Withhold Authority” and broker non-votes will have no practical effect.
Each person nominated for election is currently serving as a director of the Company and has consented to serve as a director for the Board: (i) Carlton M. Johnson, Jr., (ii) Helmut Falk, Jr., (iii) Gloria H. Felcyn, (iv) Harry (Nick) L. Tredennick III and (v) Donald E. Schrock.ensuing year. If elected, each directorany nominee becomes unavailable to serve for any reason before the election, then the enclosed proxy will each serve a one-year term and until their respective successors have been elected and qualified.be voted for the election of such substitute nominee, if any, as shall be designated by the board of directors. The Boardboard of directors has no reason to expectbelieve that any of the nominees will not stand for election or declinebecome unavailable to serve if elected. There is no arrangement between anyserve.
Information with respect to the number of shares of common stock beneficially owned by each director or nomineeas of March 1, 2016 appears under the heading “Security Ownership of Certain Beneficial Owners, Directors and any other person pursuant to which such director or nominee was or is to be selected as a director or nominee.
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Director Qualifications – We believe that individuals who serve on our Board should possess the members of the Board, the nominees forrequisite education and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and dedication to serving the interests of our executive officers as of August 29, 2008. There is no blood or other familial relationship between or amongstockholders. The following are qualifications, experience and skills for Board members which are important to our nominees, directors or executive officers.
| · | Leadership Experience – We seek directors who demonstrate extraordinary leadership qualities. Strong leaders bring vision, diverse perspectives, and broad business insight to the company. They demonstrate practical management experience, skills for managing change, and knowledge of industries, geographies and risk management strategies relevant to the company. |
| · | Finance Experience – We believe that all directors should possess an understanding of finance and related reporting processes. We also seek directors who qualify as “audit committee financial experts” as defined in rules of the SEC for service on the Audit Committee. |
| · | Industry Experience – We seek directors who have relevant industry experience including: existing and new technologies, new or expanding businesses and a deep understanding of the Company’s business environments. |
| NAME | AGE | POSITION |
| Carlton M. Johnson, Jr. | Director (since August 2001) | |
| Gloria H. Felcyn | Director (since October 2002) | |
| Clifford L. Flowers | Chief Financial Officer/Secretary (since September 17, 2007) Interim CEO (since October 5, 2009) Director (since January 19, 2011) |
CARLTON M. JOHNSON, JR.
Carlton Johnson has served as aThe Board of Directors concluded that Mr. Johnson should serve as a director in light of the Pacific in 1987extensive public company finance and his B.S. in Biology fromcorporate governance experience that he has obtained through serving on the Universityboards and audit committees of California, Irvine in 1983. Dr. Falk is the son of the late Helmut Falk, who was the sole shareholder of nanoTronicsPeregrine Pharmaceuticals, Inc., Cryoport, Inc., and the Chairman and CEO of the Company until his death in July 1995. Dr. Falk is also an heir to the Helmut Falk Estate, which is the beneficial owner of the Company's shares held by the Helmut Falk Family Trust.
GLORIA H. FELCYN.
Gloria Felcyn has served as aThe Board of Directors concluded that Ms. Felcyn should serve as a director and the chairperson of the Audit Committee in light of the capacity of Interim Presidentextensive financial and CEO.
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CLIFFORD L. FLOWERS.
Cliff Flowers became our Chief Financial Officer and Secretary on September 17,The Board of Directors concluded that Mr. Flowers should serve as a director due to his leadership and holds a CPA license in California.
Vote Required; Board Recommendation
Directors are elected by plurality vote, meaning that (should there be more nominees than seats available) the nominees who receive the most votes will be elected for the term nominated, even if the number of votes received by any one or more nominees is less than a majority of the votes cast. Cumulative voting is not allowed in the election of directors. The Board recommends a vote in favor of each nominee set forth above.
CORPORATE GOVERNANCE
Our Board of Directors strongly believes in good corporate governance policies and practices. We expect to continue to seek and implement those corporate governance practices that we believe will promote a high level of performance from our Board of Directors, officers and employees. This section describes key corporate governance guidelines and practices that our Board has adopted. Copies of the following corporate governance documents are posted on our website at www.ptsc.com (the information contained on our website is not intended to be a part of this Proxy Statement): (1) Code of Ethics for Senior Financial Officers, (2) Charter of the Compensation Committee of the Board of Directors, and (3) Charter of the Audit Committee of the Board of Directors. If you would like a printed copy of any of these corporate governance documents, please send your request to Patriot Scientific Corporation, Attention: Corporate Secretary, 701 Palomar Airport Road, Suite 170, Carlsbad, California 92011-1045.
Board of Directors
Our business is managed under the direction of our Board of Directors pursuant to the Delaware General Corporation Law and our Bylaws. Our Board of Directors has responsibility for establishing broad corporate policies and reviewing our overall performance. Among the primary responsibilities of our Board of Directors is the oversight of the management of our Company. Our directors remain informed of our business and management’s activities by reviewing documents provided to them before each board meeting and by attending presentations made by our chief executive officer and other members of management. The Board of Directors held five (5) formal meetings during the fiscal year ended May 31, 2015. Each incumbent director attended at least seventy-five percent (75%) of the meetings of the Board and of the committees on which the director served during the fiscal year ended May 31, 2015. In addition, members of the Board of Directors have access to our books, records and reports and independent auditors and advisors. Members of our management frequently interact with and are at all times available to our directors.
Director Independence
Under NASDAQ Marketplace Rule 5605(a)(2), a director will not be considered an “independent director” if, such director at any time during the past three years was an employee of the Company, or if a director (or a director’s family member) accepted compensation from the Company (other than compensation for board or board committee service) in excess of $120,000 during any twelve month period within the three years preceding the determination of independence. In addition, a director will not qualify as an “independent director” if, in the opinion of our Board of Directors, that person has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board of Directors has determined that each of the current directors, as well as those standing for re-election, are independent directors as defined by the NASDAQ Marketplace Rules governing the independence of directors, except for Clifford L. Flowers, our Chief Financial Officer and Interim Chief Executive Officer.
Our Audit and Compensation Committees are composed entirely of independent directors as required by applicable SEC and NASDAQ rules, including Rule 10A-3 under the Exchange Act of 1934, as amended (the “Exchange Act”). In addition, there are no family relationships among any of the directors or executive officers of the Company.
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Meetings of Independent Directors
The independent members of our Board of Directors have a practice of meeting in executive sessions without the presence of our management.
Board Committees
Our Board has two standing committees:committees, the Audit Committee and the Compensation Committee. In addition, the Board from time to time establishes special purpose committees and utilizes an Executive Committee for executive transitions and other matters.
Audit Committee
Our Audit Committee has been established in accordance with Section 3(a) (58) (A) of the Exchange Act, and is currently comprised of: Gloria H. Felcyn (Committee Chair) and Carlton M. Johnson, Jr. Each member of our Audit Committee is independent as defined under the applicable rules of the SEC and NASDAQ listing standards. The Board has determined that Gloria H. Felcyn, who serves on the Audit Committee, is an “audit committee financial expert” as defined in applicable SEC rules.
The Board has adopted a written charter for the Audit Committee, a copy of which is available on our Web site—www.ptsc.com. The responsibilities of the Audit Committee, as more fully described in its charter, include reviewing our: (i) financial reports and information, (ii) systems of internal controls, (iii) auditing, accounting and financial reporting processes, (iv) compliance with legal requirements, (v) independent auditor’s qualifications and independence, and (vi) internal audit function performance and that of our independent auditors. During the fiscal year ended May 31, 2008,2015, the Board of DirectorsAudit Committee held a total of 16three (3) meetings. Board committees met as follows during the 2008 fiscal year: Audit
Compensation Committee 3 times;
Our Compensation Committee 8 times; andis currently comprised of the Executive Committee 3 times. During the 2008 fiscal year,following, each of our directors attended at least 75%whom is independent as defined under applicable NASDAQ and SEC rules: Carlton M. Johnson, Jr. (Committee Chair) and Gloria H. Felcyn. In addition, each member is a “non-employee director” under Section 16 of the aggregate of (i) the total number of Board meetings and (ii) the total number of meetings held by all committees of the Board on which such director served during 2008. The Board expects all directors to attend its annual stockholder meetings. All of our directors except Mr. Falk attended the 2007 Annual Meeting of Stockholders held October 23, 2007.
The Compensation Committee reviews and recommends to the Board the salaries, bonuses and perquisites of our executive officers. The Compensation Committee also reviews and recommends to the Board any new compensation or retirement plans and administers our 2001, 2003 and 2006 Stock Option Plans.Plan. The Compensation Committee also reviews and approves corporate goals and objectives relevant to the compensation of our executive officers and evaluates their performance in light of these goals and objectives. The Compensation Committee operates under a charter, that it reviews annually.a copy of which is available on our Web site — www.ptsc.com. Changes to the charter are recommended by the Compensation Committee and must be approved by the Board.
Nominating Committee consists of three non-employee directors, each of whom is independent as defined under the NASDAQ listing standards and by the SEC. The Compensation Committee approves the compensation for any executive officer who also serves as a director, and acts on such other matters relating to their compensation, as it deems appropriate. Beginning October 2002, the Compensation Committee has also approved the compensation for our other executive officers and acts on such other matters relating to their compensation, as it deems appropriate. With respect to all eligible recipients except members of the Compensation Committee, the Compensation Committee also administers our 2001, 2003 and 2006 Stock Option Plans and determines the participants in the plans and the amount, timing and other terms and conditions of awards under these plans. The Board as a whole exercises these responsibilities with respect to members of the Compensation Committee as eligible recipients under these plans. The Compensation Committee operates under a written charter adopted by the Board, a copy of which is attached as an appendix to this Proxy Statement.
We do not have a standing nominating committee and therefore do not have a nominating committee charter. We believe that we will pay “compensation” withinit is appropriate not to have such a committee because the meaning of Section 162(m) to such executive officers in excess of $1,000,000full Board participates in the foreseeable future. Therefore,decision of who to nominate to the Board.
Although we do not have a formal policy at this time regarding qualifying compensation paidthat outlines a process whereby stockholders may submit recommendations for Board nominees, we do facilitate communications from stockholders to our executive officersBoard on any topic as described in the section of this Proxy Statement entitled “STOCKHOLDER PROPOSALS AND COMMUNICATIONS.” We believe that this process is adequate for deductibility under Section 162(m),considering the recommendations of our stockholders.
Qualifications for Director nominees are considered on a case by case basis, and may include factors including diversity in background, specific skills needed for committee roles, and in general experience that can complement the backgrounds of existing Board members. The Board has no specific process for identifying and evaluating nominees to the Board, but generally tries to identify individuals known to existing Board members who will formulateprovide a broad range of characteristics, including diversity, management skills, financial, technological and business experience, as well as the ability to commit the requisite time for preparation and attendance at regularly scheduled meetings and to participate in other matters necessary for good corporate governance. The Board has no policy if compensation levels ever approach $1,000,000.
Board Leadership Structure
Our bylaws provide that the Chairman of compensationthe Board shall preside over all meetings of the Board of Directors. Our bylaws also state that is used in determining the amountChairman of contributions permitted under our 401(k) plan.
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Our independent directors meet in executive sessions without management present to evaluate whether management is performing its responsibilities in a manner consistent with the direction of revenue and profit goals and the other half on achievement of specific strategic objectives.Board. Additionally, all Board committee members are independent directors. The Compensation Committeecommittee chairs have authority to hold executive sessions without management present. The Board has determined that there will be no payoutits current structure is in the best interests of the Company and its stockholders. We believe the independent nature of the Audit Committee and the Compensation Committee as well as the practice of regular meetings of the independent directors in executive session without Mr. Flowers present ensures that the Board maintains a level of independent oversight of management that is appropriate for the portions based on revenueCompany.
Board Risk Oversight
Our Board oversees and profit unless at least 90%maintains our governance and compliance processes and procedures to promote the conduct of our business in accordance with applicable laws and regulations and with the revenuehighest standards of responsibility, ethics and profit goals have been met.
Director Legal Proceedings
During the fair market value ofpast ten years, no director, executive officer or nominee for our common stock on the date of grant. Fair market value is determined as the closing price of our stock on the grant date. We do not backdate options or grant options retroactively. We do not loan funds to employees to enable them to exercise stock options.
Related Party Transactions
We have not entered into any transaction during fiscal year ended May 31, 20082015 in which any related person, as defined in Item 404 of Regulation S-K, had or will have a direct or indirect material interest.
We have established policies and other procedures regarding approval of transactions between the following Named Executive OfficersCompany and any employee, officer, director, and certain of their family members and other related persons, including those required to be reported under Item 404 of Regulation S-K. These policies and procedures are generally not in writing, but are evidenced by long standing principles set forth in our Code of Ethics or adhered to by our Board. As set forth in the Audit Committee Charter, as and to the extent required under applicable federal securities laws and related rules and regulations, and/or the NASDAQ Rules, related party transactions are to be reviewed and approved, if appropriate, by the Audit Committee. Generally speaking, we enter into such transactions only on terms that we believe are at least as favorable to the Company as those that we could obtain from an unrelated third party.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Ethics is available on our website at www.ptsc.com under the link “Investors” and “Management Team”.
Communicating with the Board of Directors
We have established a hotline for the confidential, anonymous submission by our directors, officers and employees of concerns regarding violations or suspected violations of our ethics policy including matters relating to accounting and auditing. In addition, the Audit Committee has established procedures for the receipt, retention and treatment of communications received optionsby us, our Board of Directors and the Audit Committee regarding accounting, internal controls or auditing matters. Written communications from our stockholders and employees may be sent to: Patriot Scientific Corporation, Attention: Audit Committee Chair, 701 Palomar Airport Road, Suite 170, Carlsbad, California 92011-1045.
In addition, our annual meeting of stockholders provides an opportunity each year for stockholders to purchase our common stock: Mr. Turley - 1,900,000 options, Mr. Sweeney – 100,000 options, Mr. Flowers - 750,000 options, Mr. Goerner - 3,000,000 options, and Mr. Bibeau – 400,000 options. Allask questions of or otherwise communicate directly with members of the option grants are subject to vesting provisions except for Mr. Sweeney’s grant and 300,000Board on appropriate matters. In addition, stockholders may communicate in writing with any particular director, or the directors as a group, by sending such written communication to: Board of Mr. Goerner’s options which were fully vested on the dateDirectors, Attention: Corporate Secretary, Patriot Scientific Corporation, 701 Palomar Airport Road, Suite 170, Carlsbad, California 92011-1045. Copies of grant.
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Director Attendance at Annual Meetings of Stockholders
We have no policy requiring directors to attend annual meetings of stockholders, but directors are encouraged to attend our annual meetings at which they stand for re-election.
DIRECTOR COMPENSATION
The following information outlines the compensation paid to our non-employee directors, including annual base retainer fees and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-Koption awards for the fiscal year ended May 31, 2008.2015:
| Name | Fees Earned or Paid in Cash ($) | Option Awards ($)(3) | All Other Compensation | Total Compensation ($) | ||||||||||||
| Carlton M. Johnson, Jr. | $ | 122,400 | (1) | $ | 10,802 | $ | – | $ | 133,202 | |||||||
| Gloria H. Felcyn | 96,000 | (2) | 10,802 | – | 106,802 | |||||||||||
| 1. | Consists of $28,800 board fee, $36,000 Phoenix Digital Solutions, LLC management committee fee, $28,800 Compensation Committee Chair fee and $28,800 Executive Committee Chair fee. |
| 2. | Consists of $28,800 board fee and $67,200 Audit Committee Chair fee. |
| 3. | Represents the aggregate grant date fair value of grants awarded in fiscal year 2015 computed in accordance with authoritative guidance issued by the Financial Accounting Standards Board. |
Director Outstanding Equity Awards
As of May 31, 2015
| Name | Number of Securities Underlying Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||||
| Carlton M. Johnson, Jr. | 300,000 | – | $ | 0.12 | 6/4/2018 | |||||||||||
| Carlton M. Johnson, Jr. | 500,000 | – | $ | 0.03 | 5/4/2020 | |||||||||||
| Gloria H. Felcyn | 300,000 | – | $ | 0.12 | 6/4/2018 | |||||||||||
| Gloria H. Felcyn | 500,000 | – | $ | 0.03 | 5/4/2020 | |||||||||||
Directors who are not our employees are compensated for their service as a director as shown in the table below:
Schedule of Director Fees
May 31, 2015
| Compensation Item | Amount | |||
| Board | $ | 28,800 | ||
| Audit Committee Chair | 67,200 | |||
| Compensation Committee Chair | 28,800 | |||
| Executive Committee Chair | 28,800 | |||
| Phoenix Digital Solutions, LLC Management Committee Board Member | 36,000 | |||
All retainers are paid in monthly installments.
Other
We reimburse all directors for travel and other reasonable business expenses incurred in the performance of their services for us.
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PROPOSAL NUMBER 2
RATIFICATION OF THE APPOINTMENT OF KMJ CORBIN & COMPANY LLP
The next proposal on the agenda for the annual meeting will be ratifying the Board’s appointment of KMJ Corbin & Company LLP as our independent registered public accounting firm for current fiscal year ending May 31, 2016. The Audit Committee of the Board has appointed KMJ Corbin & Company LLP, certified public accountants to serve as our independent registered public accounting firm for the fiscal year ending May 31, 2016. Our stockholders are being requested to ratify the appointment. KMJ Corbin & Company LLP has served as our independent auditors and accountants since November 23, 2005. Since November 23, 2005, there were no disagreements between us and KMJ Corbin & Company LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. The Audit Committee recommended to the Board that KMJ Corbin & Company LLP be re-appointed for fiscal year 2016. A representative of KMJ Corbin & Company LLP will be available at the annual meeting. They will have the opportunity to make a statement if they desire to do so, and they are expected to be available to respond to appropriate questions.
Stockholder ratification of the selection of KMJ Corbin & Company LLP as our independent auditors is not required by the Bylaws or otherwise. However, the Board is submitting the selection of KMJ Corbin & Company to the stockholders LLP for ratification as a matter of corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of us and our stockholders.
Vote Required; Board Recommendation
The Board recommends a vote in favor of this proposal. The affirmative vote of a majority of the votes cast will be required to approve this proposal.
Independent Registered Public Accounting Firm Fees
The following summarizes aggregate fees billed to us for the fiscal years ended May 31, 2015 and 2014 by KMJ Corbin & Company LLP, our independent registered public accounting firm:
| 2015 | 2014 | |||||||
| Audit fees | $ | 91,850 | $ | 103,400 | ||||
| Tax fees | 12,525 | 12,200 | ||||||
| Total fees | $ | 104,375 | $ | 115,600 | ||||
Audit fees pertain to the audit of our annual consolidated financial statements for fiscal years 2015 and 2014, and timely reviews of our quarterly consolidated financial statements, consents, comfort letters, and review of documents filed with the SEC.
Tax fees relate to tax compliance services rendered in the preparation of our tax returns.
Pre-Approval Policy for Services Provided by our Independent Registered Public Accounting Firm
Pursuant to the Policy on Engagement of Independent Auditor, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent auditor. The Audit Committee pre-approves all audit services and non-audit services to be provided by the independent auditor and has approved 100% of the audit, audit-related and tax fees. The Audit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented at the next Audit Committee meeting for ratification.
Each audit, non-audit and tax service that is approved by the Audit Committee will be reflected in a written engagement letter or writing specifying the services to be performed and the cost of such services, which will be signed by either a member of the Audit Committee or by one of our officers authorized by the Audit Committee to sign on our behalf.
The Audit Committee will not approve any prohibited non-audit service or any non-audit service that individually or in the aggregate may impair, in the Audit Committee’s opinion, the independence of the independent auditor.
In addition, since January 1, 2003, our independent auditor may not provide any services to our officers or Audit Committee members, including financial counseling or tax services.
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Report of the Audit Committee of the Board of Directors (*)
Each year, the Board of Directors appoints an Audit Committee to review the Company’s financial matters. We operate pursuant to a written Audit Committee Charter adopted by the Board of Directors. In accordance with the Audit Committee Charter, we must meet the independence requirements and other criteria set by the NASDAQ Marketplace Rules as currently in effect. As part of our oversight of the Company’s financial statements, our Chair of the Audit Committee reviews and discusses with both management and KMJ Corbin & Company LLP all annual and quarterly financial statements prior to their issuance. In addition, our responsibilities include recommending to the Board an accounting firm to be hired as the Company’s independent registered public accounting firm. We are also responsible for recommending to the Board that the Company’s financial statements be included in its Annual Report. We have taken the following steps in making our recommendation that the Company’s financial statements be included in its Annual Report:
| 1. | The Audit Committee discussed with KMJ Corbin & Company LLP, the Company’s independent registered public accounting firm, for fiscal year ended May 31, 2015, those matters required to be discussed by Statement on Auditing Standards No. 61, including information regarding the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. |
| 2. | The Audit Committee discussed with KMJ Corbin & Company LLP, its independence and received from KMJ Corbin & Company LLP a letter concerning independence as required under applicable independence standards for auditors of public companies. This discussion and disclosure helped the Audit Committee in evaluating such independence. |
| 3. | The Audit Committee reviewed and discussed with the Company’s management and KMJ Corbin & Company LLP, the Company’s audited consolidated balance sheet at May 31, 2015, and consolidated statements of operations, cash flows and stockholders’ equity for the fiscal year ended May 31, 2015. |
Based on the reviews and discussions explained above, the Audit Committee recommended to the Board that the Company’s financial statements be included in its annual report for its fiscal year ended May 31, 2015. The Audit Committee also recommended to the Board the selection of KMJ Corbin & Company LLP to serve as the Company’s independent registered public accounting firm for fiscal year 2016.
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Gloria H. Felcyn,Chair of the Audit Committee
Carlton M. Johnson, ChairpersonJr.
* The report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.
PROPOSAL NUMBER 3
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) enables our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement. This advisory vote is commonly referred to as a “say-on-pay” proposal. Consistent with the mandate of the Dodd-Frank Act, we are seeking our stockholders’ approval, on an advisory basis, of the compensation of our named executive officers as disclosed pursuant to the SEC’s compensation disclosure rules (which disclosure includes the related compensation tables on pages 21 and 22 in this Proxy Statement). Our stockholders previously voted that the frequency of the “say-on-pay” vote will be annually.
The Compensation Committee, which is responsible for designing and administering our executive compensation program, has designed our executive compensation program to provide a competitive and internally equitable compensation and benefits package that reflects the Company performance, job complexity, and strategic value of the position while seeking to ensure the individual’s long-term retention and motivation and alignment with the long-term interests of our stockholders. We are asking our stockholders to indicate their support for our named executive officers compensation as described in this proxy statement. This vote is not intended to address any specific item of compensation, but rather the overall fiscal year 2015 compensation of our named executive officers described in this proxy statement. Accordingly, we are asking our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that our stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in our proxy statement for the 2015 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the SEC.”
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Vote Required; Board Recommendation
Adoption of this resolution will require the affirmative vote of the majority of the shares of common stock represented in person or by proxy at the meeting. Abstentions will not be counted as either votes cast for or against the Proposal.
The results of this advisory vote are not binding upon us. However, the Compensation Committee values the opinions expressed by stockholders in their vote, and will consider the outcome of the vote in deciding whether any actions are necessary to address concerns raised by the vote and when making future compensation decisions for named executive officers.
The Board of Directors unanimously recommends that stockholders vote for the advisory proposal on executive compensation.
PROPOSAL NUMBER 4
APPROVAL OF AN AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECTUATE THE REVERSE STOCK SPLIT
Overview
The Board of Directors has approved, and is hereby soliciting stockholder approval of, an amendment to our Certificate of Incorporation in the form set forth in APPENDIX A to this proxy statement (the “Reverse Stock Split Amendment”) to effect a reserve split of our issued and outstanding shares of common stock, at a ratio to be established by our board of directors in its discretion, of up to one for fifteen (but not less than one for five), with any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split being rounded up to the nearest whole share.
A vote “FOR” this proposal will constitute approval of the Reverse Stock Split Amendment providing for the combination of up to fifteen (but not less than five) shares of common stock into one share of Common Stock. If our stockholders approve this proposal, the Board of Directors will have the authority, but not the obligation, in its sole discretion and without further action on the part of our stockholders, to select the ratio for the Reverse Stock Split in the range above and implement the Reverse Stock Split by filing the Reverse Stock Split Amendment with the Secretary of State of the State of Delaware at any time after the approval of the Reverse Stock Split Amendment.
Except for any changes as a result of the treatment of fractional shares, each stockholder will hold the same percentage of Common Stock outstanding immediately following the Reverse Stock Split as such stockholder held immediately prior to the Reverse Stock Split.
In determining the ratio of the Reverse Stock Split, if any, following receipt of stockholder approval of this proposal, the Board of Directors may consider, among other things, various factors such as:
| · | the historical trading price and trading volume of the common stock; |
| · | the then prevailing trading price and trading volume of the common stock and the expected impact of the Reverse Stock Split on the trading market for the common stock; |
| · | the number of shares of our common stock outstanding; |
| · | the minimum price per share requirements of the OTCQB; |
| · | which Reverse Stock Split ratio would result in the least administrative cost to us; and |
| · | prevailing general market and economic conditions. |
The Reverse Stock Split will not change the number of authorized shares of Common Stock or Preferred Stock as designated by our Amended and Restated Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of Common Stock will decrease, the number of shares of Common Stock remaining available for future issuance will increase. As of the date of this proxy statement, we do not have any plans, proposals, or arrangements, written or otherwise, to issue any of such newly available authorized shares of Common Stock for any purpose, including future acquisitions and/or financings.
If our stockholders approve the Reverse Stock Split, it is expected that the Reverse Stock Split will be implemented promptly. However, the Board of Directors reserves the right, notwithstanding stockholder approval of this proposal and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split if, at any time the Board of Directors, in its sole discretion, determines that it is no longer in our best interest and the best interests of the stockholders to proceed with the Reverse Stock Split.
Purpose of the Reverse Stock Split Amendment
The purpose of the Reverse Stock Split is to decrease the total number of shares of our Common Stock outstanding and thereby potentially increasing the market price of our common stock. Our common stock currently trades on the OTCQB under the symbol “PTSC,” and we are required to continually meet the listing requirements of the OTCQB (including a minimum bid price for our common stock of $0.01 per share) to maintain the listing of our common stock on the OTCQB.
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On December 14, 2015, we received a deficiency letter from the OTC Markets Group indicating that for 30 consecutive trading days, our common stock had a closing bid price below the $0.01 per share minimum. In accordance with OTCQB listing rules, we were provided a compliance period of 180 calendar days, or until June 11, 2016, to regain compliance with this requirement. We can regain compliance with the minimum closing bid price requirement if the bid price of our Common Stock closes at $0.01 per share or higher for a minimum of 10 consecutive business days. If we do not regain compliance with the minimum closing bid price requirement by June 11, 2016, the OTC Markets Group will provide written notice that our securities are subject to delisting.
The Board of Directors has considered the potential harm to us and our stockholders should OTC Markets Group delist our common stock on OTCQB. If our common stock is delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a material decline. Delisting may also impair our ability to raise capital, which would have a negative effect on our business plans and operations.
IF OUR STOCKHOLDERS DO NOT APPROVE THIS PROPOSAL 4, WE WOULD LIKELY BE DELISTED FROM THE OTCQB DUE TO OUR FAILURE TO MAINTAIN A MINIMUM BID PRICE FOR OUR COMMON STOCK OF $0.01 PER SHARE AS REQUIRED BY THE APPLICABLE OTCQB LISTING RULES.
Impact of the Reverse Stock Split Amendment if Implemented
If approved and implemented, the Reverse Stock Split will be realized simultaneously and in the same ratio for all of our issued and outstanding shares of common stock. Any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split will be rounded up to the nearest whole share. The Reverse Stock Split will affect all stockholders uniformly and will not affect any stockholder’s percentage ownership interest in the Company (subject to the treatment of fractional shares). In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares).
Stockholders should also recognize that once the Reverse Stock Split is effected, they will own fewer number of shares than they owned prior to the Reverse Stock Split (a number equal to the quotient of the number of shares owned immediately before the Reverse Stock Split divided by, for example, 10, assuming a ratio of 1-for-10).
Our authorized capital stock currently consists of 600,000,000 shares of common stock and 5,000,000 shares of preferred stock. If the Reverse Stock Split is implemented, the number of authorized shares of Common Stock would remain at 600,000,000 shares, thereby effectively increasing the number of shares of common stock available for future issuance. In addition, the total number of authorized shares of Preferred Stock would remain at 5,000,000 shares.
The principal effects of the Reverse Stock Split Amendment will be as follows:
| · | each five to fifteen shares of common stock, as determined in the sole discretion of the Board of Directors, owned by a stockholder, will be combined into one new share of common stock, with any fractional shares that would otherwise be issuable as a result of the split being rounded up to the nearest whole share; |
| · | the number of shares of common stock issued and outstanding will be reduced; |
| · | proportionate adjustments will be made to the per share exercise prices and/or the number of shares issuable upon exercise or conversion of outstanding options, warrants, and any other convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock, which will result in approximately the same aggregate price being required to be paid for such securities upon exercise or conversion as had been payable immediately preceding the Reverse Stock Split; |
| · | the number of shares reserved for issuance or under the securities described immediately above will be reduced proportionately; and |
| · | the number of shares of common stock available for future issuance will increase accordingly. |
Certain Risks Associated with the Reverse Stock Split
Certain risks associated with the Reverse Stock Split are as follows:
| · | There can be no assurance that we can regain compliance with the minimum closing bid price requirements of the OTCQB for our common stock, and there can be no assurance that we will continue to meet the other listing requirements of the OTCQB; |
| · | If the Reverse Stock Split is approved and implemented and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of the Reverse Stock Split; |
| · | There can be no assurance that the Reverse Stock Split will increase the per share price for our common stock. While we expect that the Reverse Stock Split will result in an increase in the per share price of our common stock, the Reverse Stock Split may not increase the per share price of our common stock in proportion to the reduction in the number of shares of our common stock outstanding. It also may not result in a permanent increase in the per share price, which depends on many factors, including our performance, prospects and other factors that may be unrelated to the number of shares outstanding. |
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| · | We will have fewer shares that are publicly traded. As a result, the trading liquidity of our common stock may decline. Accordingly, the total market capitalization of our common stock after the may be lower than the total market capitalization before the Reverse Stock Split. Moreover, in the future, the market price of our common stock following the Reverse Stock Split may not exceed or remain higher than the market price prior to the Reverse Stock Split. |
| · | The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares. |
| · | The number of shares of common stock available for future issuance will effectively be increased, which potentially allows us to raise additional capital in the future through the issuance and sale of equity securities from time to time, as the Board of Directors may deem advisable. The issuance in the future of such additional authorized shares may have the effect of diluting the earnings or loss per share and book value per share, as well as the ownership and voting rights of the holders of our then-outstanding shares of capital stock. In addition, an increase in the number of authorized but unissued shares of our common stock may have a potential anti-takeover effect, as our ability to issue additional shares could be used to thwart persons, or otherwise dilute the stock ownership of stockholders, seeking to control us. The Reverse Stock Split is not being recommended by the Board of Directors as part of an anti-takeover strategy. |
Effective Time
If approved and implemented, the Reverse Stock Split would become effective on the date specified in the Reverse Stock Split Amendment filed with the office of the Secretary of State of the State of Delaware (the “Effective Time”). Except as explained below with respect to fractional shares, at the Effective Time, shares of our Common Stock issued and outstanding immediately prior thereto will be combined, automatically and without any action on the part of our stockholders, into one share of our Common Stock in accordance with the Reverse Stock Split ratio of between 1-for-5 and 1-for-15, inclusive.
After the Effective Time, our Common Stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our equity securities, and stock certificates with the old CUSIP numbers will need to be exchanged for stock certificates with the new CUSIP numbers by following the procedures described below.
After the Effective Time, we will continue to be subject to periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless our Common Stock is delisted by the OTC Markets Group because of our failure to comply with the $0.01 minimum bid price requirement, our common stock will continue to be listed on the OTCQB under the symbol “PTSC.”
The table below sets forth, as of the Record Date and for illustrative purposes only, certain approximated effects of potential Reverse Stock Split ratios between 1-for-5 and 1-for-15 on our common stock, inclusive (without giving effect to the treatment of fractional shares). The percentages for each line item in the table represent the percentage of the total number of authorized shares of common stock both prior to and after giving effect to the Reverse Stock Split and the assumed ratios.
| Prior to Reverse Stock Split | After Reverse Stock Split Assuming Certain Ratios | |||||||||||||||||||||||||||||||
| % | 1-for-5 | % | 1-for-10 | % | 1-for-15 | % | ||||||||||||||||||||||||||
| Number of Shares Authorized | 600,000,000 | 100 | % | 600,000,000 | 100 | % | 600,000,000 | 100 | % | 600,000,000 | 100 | % | ||||||||||||||||||||
| Number of Shares Issued and Outstanding | 401,392,948 | 66.9 | % | 80,278,590 | 13.4 | % | 40,129,295 | 6.7 | % | 26,759,530 | 4.5 | % | ||||||||||||||||||||
| Number of Shares Reserved for Issuance | 3,410,000 | 0.6 | % | 682,000 | 0.1 | % | 341,000 | 0.1 | % | 227,333 | 0.0 | % | ||||||||||||||||||||
| Number of Shares Authorized and Unissued | 198,607,052 | 33.1 | % | 519,721,410 | 86.6 | % | 559,860,705 | 93.3 | % | 573,240,470 | 95.5 | % | ||||||||||||||||||||
Board Discretion to Implement the Reverse Stock Split Amendment
If stockholder approval is obtained for the Reverse Stock Split Amendment to effect the Reserve Stock Split, the Board expects to select an appropriate ratio and implement the Reverse Stock Split promptly. However, the Board reserves the authority to decide, in its sole discretion, to delay or abandon the Reverse Stock Split after such vote and before the effectiveness of the Reverse Stock Split if it determines that the Reverse Stock Split is no longer in the best interests of the Company and the stockholders.
Fractional Shares
Our stockholders will not receive fractional post-Reverse Stock Split shares in connection with the Reverse Stock Split. Instead, any fractional shares that would otherwise be issuable as a result of the Reverse Stock Split will be rounded up to the nearest whole share.
No Going-Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, the Board of Directors does not intend for the Reverse Stock Split to be the first step in a “going-private transaction” within the meaning of Rule 13e-3 of the Exchange Act. In fact, since all fractional shares of Common Stock resulting from the Reverse Stock Split will be rounded up to the nearest whole share, there will be no reduction in the number of stockholders of record that could provide the basis for a going-private transaction.
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Effect on Beneficial Holders of Common Stock (i.e., Stockholders Who Hold In “Street Name”)
Upon the Reverse Stock Split, we intend to treat shares held by stockholders in “street name,” through a bank, broker or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our common stock in “street name.” However, these banks, brokers or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. If a stockholder holds shares of our common stock with a bank, broker or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker or other nominee.
Effect on Registered “Book−Entry” Holders of Common Stock
Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
If a stockholder holds registered shares in book-entry form with the transfer agent, no action needs to be taken to receive post-Reverse Stock Split shares. If a stockholder is entitled to post-Reverse Stock Split shares, a transaction statement will automatically be sent to the stockholder’s address of record indicating the number of shares of common stock held following the Reverse Stock Split.
Effect on Certificated Shares
Some of our registered stockholders hold all their shares in certificate form or a combination of certificate and book-entry form. If any of your shares are held in certificate form before the Effective Time (the “Old Certificates”), you do not need to take any action to exchange your Old Certificates unless you want to make a sale or transfer of stock. After the Effective Time, upon request, we will issue new certificates (the “New Certificates”) to anyone who holds Old Certificates in exchange therefor. Any request for New Certificates into a name different from that of the registered holder will be subject to normal stock transfer requirements and fees, including proper endorsement and signature guarantee, if required.
No New Certificates will be issued to a stockholder until the stockholder has surrendered all Old Certificates to the transfer agent. Stockholders will then receive one or more New Certificates representing the number of whole shares of common stock to which they are entitled as a result of the Reverse Stock Split. Until surrendered, we will deem outstanding Old Certificates held by stockholders to be cancelled and only to represent the number of whole shares of post-Reverse Stock Split common stock to which these stockholders are entitled.
Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates. If an Old Certificate has one or more restrictive legends on the back of the Old Certificate, the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATE UNTIL REQUESTED TO DO SO.
Accounting Matters
The Reverse Stock Split will not affect the par value of a share of our common stock. As a result, as of the Effective Time, the stated capital attributable to common stock on our balance sheet will be reduced proportionately based on the Reverse Stock Split, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding. In our future financial statements, per share net income or loss and other per share amounts for periods ending before the Reverse Stock Split would be recast to give retroactive effect to the Reverse Stock Split.
Material United States Federal Income Tax Considerations
The following is a discussion of certain material U.S. federal income tax consequences of the Reverse Stock Split to U.S. holders (as defined below). This discussion is included for general information purposes only and does not purport to address all aspects of U.S. federal income tax law that may be relevant to U.S. holders in light of their particular circumstances. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), and current Treasury regulations, administrative rulings and court decisions, all of which are effective as of the date hereof and subject to change, possibly on a retroactive basis. Any such change could affect the continuing validity of this discussion. There can be no assurances that the Internal Revenue Service (“IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS, or an opinion from counsel, with respect to the U.S. federal income tax consequences of the Reverse Stock Split.
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ALL STOCKHOLDERS, IN PARTICULAR THOSE THAT ARE NON-U.S. HOLDERS, ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT.
This discussion generally applies only to beneficial owners of shares of common stock that are held as “capital assets,” as such term is defined in Code Section 1221 (i.e., generally for investment). This discussion does not address tax consequences to stockholders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, real estate investment trusts, personal holding companies, U.S. holders whose functional currency is not the U.S. dollar, partnerships (or other flow-through entities for U.S. federal income purposes and their partners or members), persons who acquired their shares in connection with employment or other performance of services, broker-dealers, foreign entities, nonresident alien individuals, U.S. expatriates, tax-exempt entities, dealers in securities, traders in securities who elect to use a mark-to-market method of accounting, and banks.
If a partnership (or other flow-through entity) is a beneficial owner of shares of our common stock, then the tax treatment of a partner (or equity holder of such flow-through entity) will generally depend upon the status of such partner (or equity holder) and the activities of the partnership (or flow-through entity). A beneficial owner of our shares of common stock that is a partnership (or other flow-through entity) and the partners (or equity holders) of such partnership (or other flow-through entity) are urged to consult with their own tax advisors regarding the tax consequences discussed herein.
As used herein, the term “U.S. holder” means a beneficial owner of shares of common stock that is, for U.S. federal income tax purposes:
| · | an individual citizen or resident of the United States; |
| · | a corporation or other entity taxed as a corporation created or organized in or under the laws of the United States or any State or political subdivision thereof; |
| · | an estate the income of which is subject to U.S. federal income tax regardless of its source; or |
| · | a trust (A) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more “U.S. persons” (as defined in the Code) have the authority to control all substantial decisions of the trust or (B) that has a valid election in effect to be treated as a U.S. person. |
Pursuant to the Reverse Stock Split, each holder of our common stock outstanding immediately before the effectiveness of the Reverse Stock Split will become the holder of fewer shares of our common stock after consummation of the Reverse Stock Split.
The Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Therefore, other than with respect to any stockholder that receives one whole share for each fractional share (as described below), a stockholder generally will not recognize gain or loss by reason of such stockholder’s receipt of post-Reverse Stock Split shares pursuant to the Reverse Stock Split solely in exchange for pre-Reverse Stock Split shares held by such stockholder immediately before the Reverse Stock Split. Subject to the following discussion regarding a stockholder’s receipt of a whole post-Reserve Stock Split share in exchange for a fractional share, a stockholder’s aggregate tax basis in the post-Reverse Stock Split shares received pursuant to the Reverse Stock Split will equal the stockholder’s aggregate basis in pre-Reverse Stock Split shares exchanged therefor (excluding any portion of the holder’s basis allocated to fractional pre-Reverse Stock Split shares) and will be allocated among the post-Reverse Stock Split shares received in the Reverse Stock Split on a pro-rata basis.
A stockholder may recognize gain or loss from the disposition of a fractional pre-Reverse Stock Split share in exchange for a whole post-Reverse Stock Split share, which may affect such stockholder’s adjusted basis and holding period in such whole share received. The treatment of the exchange of a fractional share for a whole share in the Reverse Stock Split is not clear. We intend to treat the issuance to a stockholder of a whole share in exchange for a fractional share as a nontaxable event, but there can be no assurance that the Internal Revenue Service would not contend, or that a court would not find, that a stockholder should recognize gain or loss on its receipt of a whole share in exchange for a fractional share. If you are a stockholder who receives a whole post-Reverse Stock Split share pursuant to the Reverse Stock Split solely in exchange for a fractional pre-Reverse Stock Split share, you should consult your tax advisor regarding the tax consequences of the Reverse Stock Split. To the extent gain or loss is recognized, such gain or loss will equal the difference between (i) the portion of the tax basis of the pre-Reverse Stock Split shares allocated to the fractional share, and (ii) the fair market value of the post-Reverse Stock Split whole share received in exchange for such fractional share. Any such gain or loss will be a capital gain or loss and will be short-term if the pre-split shares were held for one year or loss, and long-term if held for more than one year. Stockholders who have used the specific identification method to identify their basis in the pre-Reverse Stock Split shares held immediately before the Reverse Stock Split should consult their own tax advisors to determine their basis in the post-Reverse Stock Split shares received in exchange therefor in the Reverse Stock Split.
Subject to the discussion above regarding a stockholder’s receipt of a whole post-Reserve Stock Split share in exchange for a pre-Reverse Stock Split fractional share, a stockholder’s holding period in the post-Reverse Stock Split shares received pursuant to the Reverse Stock Split will generally include the stockholder’s holding period in the pre-Reverse Stock Split shares surrendered in exchange therefor, provided the pre-Reverse Stock Split shares surrendered are held as capital assets at the time of the Reverse Stock Split.
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Required Vote of Stockholders
Approval of this Proposal 4 requires the affirmative vote of a majority of the Company’s outstanding shares of capital stock entitled to vote. Abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD RECOMMENDS A VOTE “FOR” THE PROPOSAL
TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO EFFECTUATE THE REVERSE STOCK SPLIT.
PROPOSAL NO. 5
THE ADJOURNMENT PROPOSAL
The Annual Meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Meeting to approve any of Proposal Nos. 1 through 4. The Meeting may be adjourned from time to time to a date that is not more than 120 days after the original record date for the Meeting.
If, at the Meeting, the number of shares of Common Stock present or represented and voting in favor of the approval of any of Proposal Nos. 1 through 4 is not sufficient to approve that proposal, we currently intend to move to adjourn the Meeting in order to enable our Board of Directors to solicit additional proxies for the approval of any of Proposal Nos. 1 through 4. In that event, we will ask our stockholders to vote only upon the adjournment proposal, and not upon any of Proposal Nos. 1 through 4.
In this proposal, we are asking our stockholders to authorize the holder of any proxy solicited by our Board of Directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the Meeting to another time and place for the purpose of soliciting additional proxies. If the stockholders approve the adjournment proposal, we could adjourn the Meeting and any adjourned session of the Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders who have previously voted.
Vote Required for Approval
If the proposal to adjourn the Meeting for the purpose of soliciting additional proxies is submitted to the stockholders for approval, such proposal will be approved by the affirmative vote of a majority of the votes cast at the Meeting.
Recommendation of the Board
The Board of Directors unanimously recommends that stockholders vote “FOR” Proposal No. 5, as to the adjournment of the Meeting if necessary or appropriate to solicit additional proxies in favor of the approval of any of Proposal Nos. 1 through 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL NO. 5.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth, as of March 1, 2016, the stock ownership of our executive officer and directors, of our executive officer and directors as a group, and of each person known to us to be a beneficial owner of 5% or more of our Common Stock. In general, “Beneficial Ownership” refers to shares that an individual or entity has the power to vote or dispose of, and any rights to acquire common stock that are currently exercisable or will become exercisable within 60 days of March 1, 2016. The number of shares of Common Stock outstanding as of March 1, 2016, was 401,392,948. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power over such shares. Each individual’s address is 701 Palomar Airport Road, Suite 170, Carlsbad, California 92011-1045.
| Name | Amount & Nature of Beneficial Ownership | Percent of Class |
| Gloria H. Felcyn, CPA | 1,751,690 (1) | * |
| Carlton M. Johnson, Jr. | 1,325,000 (2) | * |
| Clifford L. Flowers | 775,000 (3) | * |
| All directors & officers as a group (3 persons) | 3,851,690 (4) | 0.96% |
*Less than 1%
| (1) | Includes 800,000 shares issuable upon the exercise of outstanding stock options exercisable within 60 days of March 1, 2016. |
| 19 |
| (2) | Includes 800,000 shares issuable upon the exercise of outstanding stock options exercisable within 60 days of March 1, 2016. |
| (3) | Includes 700,000 shares issuable upon the exercise of outstanding stock options exercisable within 60 days of March 1, 2016. |
| (4) | Includes 2,300,000 shares issuable upon the exercise of outstanding stock options exercisable within 60 days of March 1, 2016. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish us with copies of all reports filed by them in compliance with Section 16(a).
Based solely on our review of the copies of such forms received by us, or written representations from reporting persons, we believe that our insiders complied with all applicable Section 16(a) filing requirements during fiscal year 2015.
EXECUTIVE COMPENSATION
The following table summarizes the compensation of the Named Executive Officersnamed executive officers for the fiscal years ended May 31, 20082015 and 2007.2014. For fiscal 2008,years 2015 and 2014, the Named Executive Officersnamed executive officers are our Chief Executive Officer, Chief Financial Officer and Vice President of Business Development. For fiscal 2007, the Named Executive Officers are ourInterim Chief Executive Officer and our Chief Financial Officer.
Summary Compensation Table
For Fiscal Years Ended May 31, 20082015 and 2007
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($)(1) | All Other Compensation ($) (2) | Total Compensation ($) | ||||||||||||||||
| Frederick C. Goerner, CEO | 2008 | $ | 66,508 | $ | 83,000 | $ | 153,849 | $ | - | $ | 303,357 | |||||||||||
James L. Turley, CEO (a) | 2008 | 174,145 | - | 144,157 | 118,782 | 437,084 | ||||||||||||||||
David H. Pohl, CEO (b) | 2008 | 5,668 | - | - | 104,893 | 110,561 | ||||||||||||||||
| David H. Pohl, CEO | 2007 | 247,279 | 50,000 | 1,636,137 | 7,368 | 1,940,784 | ||||||||||||||||
| Clifford L. Flowers, CFO | 2008 | 160,096 | - | 62,530 | 2,856 | 225,482 | ||||||||||||||||
Thomas J. Sweeney, CFO (c) | 2008 | 82,688 | - | 34,763 | -- | 117,451 | ||||||||||||||||
| Thomas J. Sweeney, CFO | 2007 | 223,875 | 15,000 | 123,763 | -- | 362,638 | ||||||||||||||||
| Paul R. Bibeau, | 2008 | 47,541 | 11,000 | 22,245 | -- | 80,786 | ||||||||||||||||
| V.P. Business Development | ||||||||||||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($)(1) | All Other Compensation ($) (2) | Total Compensation ($) | ||||||||||||||||||
| Clifford L. Flowers, Interim | 2015 | $ | 327,750 | $ | – | $ | 12,963 | $ | 9,896 | $ | 350,609 | |||||||||||||
| CEO and CFO | ||||||||||||||||||||||||
| Clifford L. Flowers, Interim | 2014 | 327,750 | – | 8,213 | 10,200 | 346,163 | ||||||||||||||||||
| CEO and CFO | ||||||||||||||||||||||||
| 1. | Represents the | |
| 2. | See the All Other Compensation Table below for details of the total amounts represented. | |
All Other Compensation Table
For Fiscal Years Ended May 31, 20082015 and 2007
| Name and Principal Position | Year | Vacation Payout On Termination ($) | Relocation ($) (1) | 401(k) Company Match ($) | Severance($) (2) | Total ($) | ||||||||||||||||
| James L. Turley, CEO | 2008 | $ | 6,761 | $ | 13,608 | $ | 3,221 | $ | 95,192 | $ | 118,782 | |||||||||||
| David H. Pohl, CEO | 2008 | 4,723 | - | 170 | 100,000 | 104,893 | ||||||||||||||||
| David H. Pohl, CEO | 2007 | - | - | 7,368 | - | 7,368 | ||||||||||||||||
| Clifford L. Flowers, CFO | 2008 | - | - | 2,856 | - | 2,856 | ||||||||||||||||
| Name | Grant Date | Board Approval Date | All Other Option Awards: Number of Securities Underlying Options | Exercise Price of Option Awards | Closing Price on Grant Date | Grant Date Fair Value of Option Awards (4) | ||||||||||||||
| Frederick C. Goerner | 2/29/08 | 2/29/08 | 300,000 | (1) | $ | 0.40 | $ | 0.40 | $ | 86,818 | ||||||||||
| 2/29/08 | 2/29/08 | 1,700,000 | (2) | 0.40 | 0.40 | 472,462 | ||||||||||||||
| 2/29/08 | 2/29/08 | 1,000,000 | (3) | 0.40 | 0.40 | 274,972 | ||||||||||||||
| James L. Turley | 6/5/07 | 6/5/07 | 1,900,000 | 0.485 | 0.485 | 610,536 | ||||||||||||||
| Clifford L. Flowers | 9/17/07 | 9/17/07 | 750,000 | 0.45 | 0.45 | 220,899 | ||||||||||||||
| Thomas J. Sweeney | 8/16/07 | 8/16/07 | 100,000 | 0.47 | 0.47 | 34,692 | ||||||||||||||
| Paul R. Bibeau | 3/17/08 | 3/17/08 | 74,000 | (1) | 0.38 | 0.38 | 12,244 | |||||||||||||
| 3/17/08 | 3/17/08 | 123,000 | (2) | 0.38 | 0.38 | 20,352 | ||||||||||||||
| 3/17/08 | 3/17/08 | 203,000 | (3) | 0.38 | 0.38 | 54,353 | ||||||||||||||
| Name and Principal Position | Year | 401(k) Company Match ($) | Total ($) | |||||||||
| Clifford L. Flowers, Interim | 2015 | $ | 9,896 | $ | 9,896 | |||||||
| CEO and CFO | ||||||||||||
| Clifford L. Flowers, Interim | 2014 | 10,200 | 10,200 | |||||||||
| CEO and CFO | ||||||||||||
The following table shows the number of shares covered by exercisable and un-exercisable options held by our Named Executive Officers for the fiscal year ended May 31, 2008.
| Name | Number of Securities Underlying Options (#)Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price($) | Option Expiration Date | |||||||||
| Frederick C. Goerner | 300,000 | (1) | 2,700,000 | (2) | $ | 0.40 | 2/28/2013 | ||||||
| Clifford L. Flowers | 150,000 | (1) | 650,000 | (3) | $ | 0.45 | 9/17/2012 | ||||||
| Paul R. Bibeau | - | 400,000 | (4) | 0.38 | 3/17/2013 | ||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized On Exercise ($) | ||||||
| David H. Pohl | 1,157,846 | $ | 517,100 | |||||
Outstanding Equity Awards
As of shares of our common stock issuable under the plan from 5,000,000 to 7,000,000. Proposal number 1 in this proxy statement solicits shareholder approval to increase the maximum number of options under the Plan to 10,000,000.
| Name | Number of Securities Underlying Options (#)Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price($) | Option Expiration Date | ||||||||||||
| Clifford L. Flowers | 100,000 | – | $ | 0.12 | 6/4/2018 | |||||||||||
| Clifford L. Flowers | 600,000 | – | $ | 0.03 | 5/4/2020 | |||||||||||
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Plan Category | Number of securities to be issued upon exercise of outstanding options and warrants | Weighted-average exercise price of outstanding options and warrants | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plans approved by security holders | 8,195,000 | $ | 0.44 | 3,352,404 | ||||||||
Equity compensation plan not approved by security holders | 300,000 | $ | 0.57 | — | ||||||||
| Total | 8,495,000 | 3,352,404 | ||||||||||
Employment Contracts
In connection with Mr. Flowers'Flowers’ appointment as Chief Financial Officer on September 17, 2007, we entered into an Employment Agreement (the “Agreement”“Flowers Agreement”) with Mr. Flowers for an initial 120-day term if not terminated pursuant to the Flowers Agreement, with an extension period of one year and on a day-to-day basis thereafter. Pursuant to the Flowers Agreement, Mr. Flowers is to receive aFlowers’ initial base salary ofwas $225,000 per year and he is eligible to receive an annual merit bonus of up to 50% of his base salary, as determined in the sole discretion of the Board of Directors. Effective October 1, 2008, October 5, 2009 and December 15, 2011, Mr. Flowers’ base salary was increased to $231,750, $291,750 and $327,750, respectively. Also pursuant to the Flowers Agreement and on the date of the Flowers Agreement, Mr. Flowers received a fully vested grant of non-qualified stock options to purchase 150,000 shares of our common stockCommon Stock and a grant of non-qualified stock options to purchase 600,000 shares of our common stock.Common Stock vesting over four years. Mr. Flowers’ right to exercise the foregoing stock options became fully vested on October 9, 2009, in connection with his appointment as Interim CEO. The Flowers Agreement also provides for Mr. Flowers to receive customary employee benefits, including health, life and disability insurance.
Pursuant to the Flowers Agreement, if Mr. Flowers is terminated without cause or resigns with good reason within the first two years of employment, he is entitled to receive an amount equal to his annual base salary for the greater of (i) 6 months or (ii) the period remaining in the extended one-year term. If Mr. Flowers is terminated without cause or resigns with good reason any time after two years of continuous employment, he is entitled to receive an amount equal to 12 months of his annual base salary. Mr. Flowers is also entitled to certain payments upon a change of control of the Company if the surviving corporation does not retain him. All such payments are conditional upon the execution of a general release.
| Name | Severance Pay ($) | Severance Payable Through | |||
| Frederick C. Goerner | $ | 187,500 | 2/28/09 | ||
| Clifford L. Flowers | 112,500 | 11/17/08 | |||
| Name | Severance Pay ($) | Stock Options (Black-Scholes Value) ($) | Total ($) | |||||||||
| Clifford L. Flowers | $ | 112,500 | $ | 165,109 | $ | 277,609 | ||||||
| Name | Fees Earned or Paid in Cash ($) | Option Awards ($) (1) | All Other Compensation | Total Compensation ($) | ||||||||||||
| Carlton M. Johnson, Jr. | $ | 144,000 | (2) | $ | - | -- | $ | 144,000 | ||||||||
| Gloria H. Felcyn | 114,000 | (3) | - | -- | 114,000 | |||||||||||
| Helmut Falk, Jr. | 36,000 | - | -- | 36,000 | ||||||||||||
| David H. Pohl | 72,000 | (4) | - | -- | 72,000 | |||||||||||
| Harry L. Tredennick, III | 46,000 | (5) | 34,763 | -- | 80,763 | |||||||||||
| Donald E. Schrock | 6,000 | (6) | 7,008 | -- | 13,008 | |||||||||||
| Compensation Item | Amount | |||
| Board | $ | 36,000 | ||
| Chairman | 45,000 | (1) | ||
| Corporate Development, M & A Committee Chair | 3,000 | (2) | ||
| Audit Committee Chair | 78,000 | (3) | ||
| Compensation Committee Chair | 36,000 | |||
| Executive Committee Chair | 36,000 | |||
| Technology Committee Chair | 16,000 | (4) | ||
| Phoenix Digital Solutions, LLC Management Committee Board Member | 36,000 | |||
| 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
| Patriot Scientific Corporation | $ | 100 | $ | 117 | $ | 250 | $ | 1,693 | $ | 918 | $ | 486 | ||||||||||||
| NASDAQ Composite Index | 100 | 124 | 130 | 137 | 163 | 158 | ||||||||||||||||||
| Philadelphia Semiconductor Index | 100 | 128 | 112 | 122 | 128 | 109 | ||||||||||||||||||
OTHER MATTERS:
STOCKHOLDER PROPOSALS AND COMMUNICATIONS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders are entitled to have us include stockholdermay present proper proposals for inclusion in our proxy statement for presentation at a meeting of stockholders. We intend to hold our next annual meeting of stockholders in October 2009. Stockholders who desire to have their proposal included on our proxy card and includedstockholders. To be eligible for inclusion in our fiscal 2016 proxy statement, for the next annual meeting of stockholdersyour proposal must submit such proposals tobe received by us in writing no later than June 1, 2009.November 17, 2016 and must otherwise comply with Rule 14a-8. Proposals received by us after such date will be considered untimely. Stockholder proposals should be directed to the attention of the Corporate Secretary, addressed as follows: Patriot Scientific Corporation, Mr. Clifford L. Flowers, Corporate Secretary, 6183 Paseo Del Norte,701 Palomar Airport Road, Suite 180,170, Carlsbad, CA 92011. The submission of a proposal does not guarantee that itWhile the Board will be included inconsider stockholder proposals, we reserve the right to omit from our proxy statement or proxy. Shareholderstockholder proposals that we are subjectnot required to certain regulations and requirementsinclude under the federal securities laws.
We encourage stockholders to communicate with members of the Board. ShareholdersStockholders wishing to communicate with directors may send correspondence addressed as follows: Patriot Scientific Corporation, Mr. Clifford L. Flowers, Corporate Secretary, 6183 Paseo Del Norte,701 Palomar Airport Road, Suite 180,170, Carlsbad, CA 92011. All communications will be provided directly to the Board.
OTHER MATTERS
Neither the Board of Directors nor the management knows of any other business to be presented at the Annual Meeting, but if other matters do properly come before the Annual Meeting, it is intended that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
FINANCIAL AND OTHER AVAILABLE INFORMATION
We are subject to the informational and reporting requirements of Section 13 of the Exchange Act and in accordance with those requirements file reports and other information with the SEC. Such reports and other information filed with the SEC are available for inspection and copying at the Public Reference BranchRoom of the SEC, located at Room 1024, 450 Fifth100 F Street, N.W.N.E., Washington, DC 20549, at prescribed rates. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings under the Exchange Act may also be accessed through the SEC's web site (http://www.sec.gov).
Our Annual Report on Form 10-K for the year ended May 31, 2008,2015, including theour annual financial statements, as filed with the SEC under the Exchange Act, constitutes the annual report to stockholders and is being mailed with this Proxy Statement. UPON REQUEST AND PAYMENT OF A REASONABLE FEE TO COVER OUR EXPENSES, WE WILL FURNISH ANY PERSON WHO WAS A STOCKHOLDER AS OF THE RECORD DATE, A COPY OF ANY EXHIBIT TO THE FORMUpon request and payment of a reasonable fee to cover our expenses, we will furnish any person who was a stockholder as of the record date, a copy of any exhibit to the Form 10-K FOR THE FISCAL YEAR ENDED MAYfor the fiscal year ended May 31, 2008. ANY SUCH WRITTEN REQUEST MAY BE ADDRESSED TO CLIFFORD2015. Any such written request may be addressed to: Clifford L. FLOWERS, SECRETARY, PATRIOT SCIENTIFIC CORPORATION, 6183 PASEO DEL NORTE, SUITE 180, CARLSBAD,Flowers, Secretary, Patriot Scientific Corporation, 701 Palomar Airport Road, Suite 170, Carlsbad, CA 92011. THE WRITTEN REQUEST MUST CONTAIN A GOOD FAITH REPRESENTATION THAT, AS OF THE RECORD DATE, THE PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF OUR COMMON STOCK.
By Order of the Board of Directors. The Audit Committee will consistDirectors
/s/ Clifford L. Flowers
Clifford L. Flowers
CFO, Interim CEO and Corporate Secretary
| 21 |
APPENDIX A
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF
PATRIOT SCIENTIFIC CORPORATION
PATRIOT SCIENTIFIC CORPORATION (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows:
1. That at least two membersa meeting of the Board of Directors all of whom are “independent” as defined in applicable stock exchange rules and are otherwise free of any relationship that in the opinion of the Board of Directors would interfere with their exercise of independent judgment. All committee members must be able to read and understand fundamental financial statements, including the company's balance sheet, income statement and cash flow statement. At least one member must have past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background which results in the individual's financial sophistication, includingCorporation resolutions were duly adopted setting forth a current or past position as a chief executive or financial officer or other senior officer with financial oversight responsibilities. The Board will designate committee members and the committee chair annually.
RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the Article FIFTH thereof by adding the following paragraph at the end of such Article FIFTH:
“Upon the filing and effectiveness (the “Effective Time”) pursuant to the Delaware General Corporation Law of this Certificate of Amendment to the Certificate of Incorporation of the Company which meeting involves a contest for the election of at least one directorship, do not constitute at least a majority of the Directors following such meeting or election;
2. That thereafter, pursuant to resolution of time as is specified inits Board of Directors, the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expirationannual meeting of the termstockholders of such Option as set forthsaid corporation was duly called and held upon notice in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination.
3. That said amendment was duly adopted in accordance with the lawsprovisions of descent and distribution. In the absence of a specified time in the Option Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death.
4. All other provisions of the conflictCertificate shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of laws provisions thereof.
| Patriot Scientific Corporation | |||
| By: | |||
| Name: | |||
| Title: | |||
VOTE BY INTERNET Before The Meeting- Go towww.proxyvote.com | ||
| PATRIOT SCIENTIFIC CORPORATION | Use the Internet to transmit your voting instructions and for | |
| ATTN: CLIFF FLOWERS | electronic delivery of information up until 11:59 P.M. Eastern | |
| 701 PALOMAR AIRPORT ROAD, STE 170 | Time the day before the cut-off date or meeting date. | |
| CARLSBAD, CA 92011-1045 | Have your proxy card in hand when you access the web site | |
| and follow the instructions to obtain your records and to | ||
| create an electronic voting instruction form. | ||
During The Meeting- Go towww.virtualshareholdermeeting.com/PTSC2016 You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO AMEND OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 500,000,000 TO 600,000,000.
E01845-P75760 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
