Filed
by the Registrant
|
x
|
Filed
by a Party other than the Registrant
|
o
|
Check
the appropriate box:
|
|
¨
|
Preliminary
Proxy Statement
|
¨
|
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|
ý
|
Definitive
Proxy Statement
|
¨
|
Definitive
Additional Materials
|
¨
|
Soliciting
Material under Rule 14a-12
|
|
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
|
|
Payment
of Filing Fee (Check the appropriate box):
|
||
ý
|
No
fee required.
|
|
¨
|
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
|
(1)
|
Title
of each class of securities to which transaction applies:
|
|
(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 (set forth the amount on which the filing fee is calculated and state
how it was determined):
|
|
(4)
|
Proposed
maximum aggregate value of transaction:
|
|
(5)
|
Total
fee paid:
|
|
¨
|
Fee
paid previously with preliminary materials.
|
|
¨
|
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
|
|
(1)
|
Amount
Previously Paid:
|
|
(2)
|
Form,
Schedule or Registration Statement No.:
|
|
(3)
|
Filing
Party:
|
|
(4)
|
Date
Filed:
|
1.
|
To
approve the increase in the number of shares authorized under our 2006
Stock Option Plan from 5,000,000 to
10,000,000.
|
2.
|
To
approve an amendment to our Certificate of Incorporation to increase the
number of authorized shares of Common Stock, $0.0001 par value, from
500,000,000 to 600,000,000.
|
3.
|
To
ratify the selection by our board of directors of KMJ Corbin & Company
to serve as our independent auditors for the fiscal year ending May 31,
2009.
|
|
4.
|
To
elect our board of directors.
|
|
5.
|
To
transact such other business as may properly come before the
meeting.
|
BY
ORDER OF THE BOARD OF DIRECTORS
|
||
September
22, 2008
|
/s/ Clifford L.
Flowers
|
|
San
Diego, California
|
Clifford
L. Flowers
|
|
Corporate
Secretary
|
Name
|
Amount
& Nature of
Beneficial
Ownership
|
Percent
of Class
|
||||||
Gloria
H. Felcyn, CPA
|
1,479,700 | (1) | * | |||||
Helmut
Falk, Jr.
|
3,593,231 | (2) | * | |||||
Carlton
M. Johnson, Jr.
|
1,675,000 | (3) | * | |||||
Harry
(Nick) L. Tredennick III
|
100,000 | (4) | * | |||||
Donald
E. Schrock
|
89,822 | (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)
|
7,956,503 | (9) | 2.06% |
(1)
|
Includes
950,000 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
(2)
|
Includes
1,000,000 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
(3)
|
Includes
1,400,000 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
(4)
|
Represents
shares issuable upon the exercise of outstanding stock options exercisable
within 60 days of August 29, 2008.
|
(5)
|
Represents
shares issuable upon the exercise of outstanding stock options exercisable
within 60 days of August 29, 2008.
|
(6)
|
Includes
300,000 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
(7)
|
Represents
shares issuable upon the exercise of outstanding stock options exercisable
within 60 days of August 29, 2008.
|
(8)
|
Includes
200,000 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
(9)
|
Includes
4,208,572 shares issuable upon the exercise of outstanding stock options
exercisable within 60 days of August 29,
2008.
|
NAME
|
AGE
|
POSITION,
OFFICE and TERM
|
Carlton
M. Johnson, Jr.
|
48
|
Director
(since August 2001)
|
Helmut
Falk, Jr.
|
52
|
Director
(since December 1997)
|
Gloria
H. Felcyn
|
61
|
Director
(since October 2002)
|
Harry
(Nick) L. Tredennick, III
|
62
|
Director
(since August 2007)
|
Donald
E. Schrock
|
63
|
Director
(since April 2008)
|
Frederick
(Rick) C. Goerner
|
60
|
President
and Chief Executive Officer (since February 29, 2008)
|
Paul
R. Bibeau
|
50
|
Vice
President of Business Development (since March 17,
2008)
|
Clifford
L. Flowers
|
50
|
Chief
Financial Officer/Secretary (since September 17,
2007)
|
●
|
Serve
as an independent and objective party to monitor our financial reporting
process and internal control system;
|
|
● |
Review
and appraise the audit efforts of our independent
accountants;
|
|
● |
Evaluate
our quarterly financial performance as well as our compliance with laws
and regulations;
|
|
● |
Oversee
management's establishment and enforcement of financial policies and
business practices; and
|
|
● |
Provide
an open avenue of communication among the independent accountants,
financial and senior management, counsel, and the
Board.
|
●
|
reward
the achievement of desired corporate and individual performance
goals;
|
|
● |
provide
compensation that enables us to attract and retain key executives;
and
|
|
● |
provide
compensation opportunities that are linked to our performance and that
directly link the interests of executives with the interests of
stockholders.
|
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
|
1.
|
Represents
the compensation costs of stock options for financial reporting purposes
for fiscal 2008, computed in accordance with SFAS 123R, rather than an
amount paid to or realized by the Named Executive Officer. See Note 2 to
the financial statements included in our Annual Report on Form 10-K for
the fiscal year ended May 31, 2008 for the assumptions made in determining
SFAS 123R values. The SFAS 123R value as of the grant date for
options is spread over the number of months of service required for the
grant to become non-forfeitable. In addition, ratable amounts
expensed for grants that were granted in prior years are
included. There were no forfeited awards of options granted to
Named Executive Officers for the fiscal year ended May 31,
2007. For the fiscal year ended May 31, 2008, Mr. Turley
forfeited 1,500,000 options due to vesting criteria not being met upon his
resignation (for more information see the Potential Payments on
Termination or Change in Control section of this
report).
|
2.
|
See
the All Other Compensation Table below for details of the total amounts
represented.
|
(a)
|
Mr.
Turley served as CEO from June 5, 2007 until February 28, 2008 and was
replaced by Mr. Goerner
|
(b)
|
Mr.
Pohl served as CEO until June 5, 2007 and was replaced by Mr.
Turley.
|
(c)
|
Mr.
Sweeney served as CFO until September 17, 2007 and was replaced by Mr.
Flowers.
|
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
|
1.
|
We
reimbursed Mr. Turley for relocation expenses per provisions of his
employment contract.
|
2.
|
Includes
amounts both accrued and paid in fiscal year 2008 for Mr.
Turley. Mr. Pohl’s severance was paid entirely in fiscal
2008.
|
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
|
1.
|
Represents
options granted under our 2001 Stock Option
Plan.
|
2.
|
Represents
options granted under our 2003 Stock Option
Plan.
|
3.
|
Represents
options granted under our 2006 Stock Option
Plan.
|
4.
|
Represents
the aggregate SFAS 123R values of options granted during the year. The
per-option SFAS 123R grant date value for Mr. Goerner's options was $0.29,
Mr. Turley’s was $0.36, Mr. Flowers’ was $0.33, Mr. Sweeney’s was
$0.35 and Mr. Bibeau’s was $0.29. See Note 2 to the financial
statements included in our Annual Report on Form 10-K for the fiscal year
ended May 31, 2008 for the assumptions made in determining SFAS 123R
values. There can be no assurance that the options will ever be exercised
(in which case no value will be realized by the executive) or that the
value on exercise will equal the SFAS 123R
value.
|
Name
|
Number
of
Securities
Underlying
Options
(#)Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price($)
|
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
|
1. | All of the options are fully vested at May 31, 2008 and have a term of five years. |
2.
|
700,000
of the options vest upon completion of the CEO’s interim period on
November 29, 2008. 1,000,000 and 1,000,000 options granted
under the 2003 and 2006 Stock Option Plans, respectively, are performance
grants which vest upon any one of the following: the successful
closing of a merger or acquisition brought forth primarily due to the
efforts of the optionee, the listing of the Company on the AMEX or NASDAQ
stock exchanges, a sustained substantial increase in shareholder value
directly resulting from an optionee action approved by the Board of
Directors, or approval by the Board of Directors for the partial vesting
of the option.
|
3.
|
The
options vest over a period of four years beginning September 17,
2008.
|
4.
|
200,000
options fully vest on September 17, 2008. 74,000, 123,000 and
3,000 options granted under the 2001, 2003 and 2006 Stock Option Plans,
respectively, are performance grants which vest upon successful closure of
one or more M&A transactions which exceed a certain dollar amount in
cash/equity consideration for the
Company.
|
Name
|
Number
of Shares Acquired on
Exercise
(#)
|
Value
Realized
On
Exercise ($)
|
||||||
David
H. Pohl
|
1,157,846 | $ | 517,100 |
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 |
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
|
1.
|
Represents
the compensation costs of stock options for financial reporting purposes
for fiscal 2008, computed in accordance with SFAS 123R, rather than an
amount paid to or realized by the director. See Note 2 to the financial
statements included in our Annual Report on Form 10-K for the fiscal year
ended May 31, 2008 for the assumptions made in determining SFAS 123R
values. There can be no assurance that the SFAS 123R amounts
will ever be realized. The per-option SFAS 123R grant date
value was $0.35 for options granted to Mr. Tredennick and $0.26 for
options granted to Mr. Schrock in fiscal
2008.
|
2.
|
Consists
of $36,000 board fee, $36,000 Phoenix Digital Solutions, LLC management
committee fee, $36,000 Compensation Committee Chair fee and $36,000
Executive Committee Chair fee.
|
3.
|
Consists
of $36,000 board fee and $78,000 Audit Committee Chair fee. In
August 2007, the Audit Committee Chair fee was increased from $4,000 per
month to $7,000 per month.
|
4.
|
Mr.
Pohl retired as CEO on June 5, 2007. Mr. Pohl continued to
serve on our board and the management committee of Phoenix Digital
Solutions, LLC until February 2008. Consists of $45,000
chairman fee and $27,000 Phoenix Digital Solutions, LLC management
committee fee.
|
5.
|
Mr.
Tredennick joined our board in August 2007 and served as chair of the
Technology Committee until March 2008. Consists of $30,000
board fee and $16,000 Technology Committee Chair
fee.
|
6.
|
Mr.
Schrock joined our board April 17, 2008 and serves as chair of the
Corporate Development, M & A Committee. Consists of $3,000
board fee and $3,000 Corporate Development, M & A Committee Chair fee
for the month of May 2008.
|
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
|
1.
|
Effective
from June 2007 until February 2008.
|
2.
|
Effective
May 2008.
|
3.
|
Effective
August 2007, the Audit Committee Chair fee was increased from $4,000 per
month to $7,000 per month.
|
4.
|
Effective
from August 2007 until March 2008. The Technology Committee was
disbanded in March 2008.
|
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
|
●
|
Appointment
of the independent accountants.
|
●
|
Select
and evaluate the independent accountants to be ratified by the
shareholders to audit the Company's accounts, or where appropriate, the
replacement of the independent accountants, and approve the compensation
of the independent accountants for audit
services.
|
●
|
Evaluate
the independence of the independent accountant, including a review of non
audit-related services provided by and related fees charged by the
independent accountant.
|
●
|
Obtain
a formal written statement, as required by the Independence Standards
Board, from the independent accountant delineating relationships between
the accountant and the company and actively engage in dialogue with the
independent accountants regarding matters that might reasonably be
expected to affect their
independence.
|
●
|
Pre-approving
all audit and non-audit services to be provided by the independent
accountants. The Audit Committee may delegate the authority to grant such
pre-approvals to one or more members of the committee, provided that the
per-approval decision and related services are presented to the Audit
Committee at its next regularly scheduled
meeting.
|
●
|
Review
and approve the audit activities at the
Company.
|
●
|
Meet
with the independent accountants and financial management of the Company
to review the scope of the proposed audit for the current year and the
audit procedures to be utilized, and upon the completion thereof review
such audit, including any comments or recommendations of the independent
accountants.
|
●
|
Review
financial results.
|
●
|
Prior
to the release of the Company's unaudited quarterly financial results,
review the results with management and the independent accountants,
considering reports from senior finance management as to major accounting
matters and any material deviations from prior practice, and consultations
with the. Company's independent
accountants.
|
●
|
Ensure
that the independent accountant conducts a SAS 100 (“Interim Financial
Information”) review prior to the filing of the Company's Form
10-Q.
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●
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Prior
to the release of the Company's fiscal year end operating results, review
and discuss with Company management and the independent accountants the
audited financial results for the fiscal year, including their judgment
about the quality, not just the acceptability, of accounting principles,
the reasonableness of significant judgments, and the clarity of the
disclosures in the financial
statements.
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●
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At
least annually discuss with the independent accountants the matters
described in SAS 61(“Communications with Audit
Committees”).
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Review
with management and the independent accountants the Company's critical
accounting policies and the disclosure regarding those policies in the
Company's periodic filings with the Securities and Exchange
Commission.
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●
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Systems
and reports.
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●
|
Review
with Company senior management and the independent accountants the
adequacy and effectiveness of the accounting and financial systems
controls of the Company.
|
●
|
Review
and discuss the audited financial statements with management and, if
necessary, the independent accountants, prior to recommending the
inclusion of the audited financial statements in the Company's Annual
Report on Form 10-K.
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●
|
Report
annually in the Company's proxy statement such information as may be
required by the rules and regulations of the Securities and Exchange
Commission.
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●
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The
committee will meet at least quarterly and more often as
necessary.
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●
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Provide
sufficient opportunity for the independent accountants to meet with the
Audit Committee without members of management present. Among the items to
be discussed in these meetings are the independent accountants' evaluation
of the Company's financial, accounting and auditing personnel and the
cooperation that the independent accountants received during the course of
the audit and quarterly reviews.
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●
|
Review
corporate financial policies relating to compliance with laws and
regulations, ethics, conflicts of interest and the investigation of
misconduct and fraud.
|
●
|
Review
the Company's treasury policy.
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●
|
Review
the Company's program of risk management, including insurance
coverage.
|
●
|
Regularly
prepare minutes of all meetings and report its activities to the general
meeting of the Board of Directors.
|
●
|
Review
and reassess the adequacy of the Audit Committee Charter on an annual
basis.
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●
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Establish
procedures to receive and process complaints regarding accounting,
internal auditing controls or auditing matters and for employees to make
confidential, anonymous complaints regarding questionable accounting or
auditing matters.
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●
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Perform
such other specific functions as the Board of Directors may from time to
time direct, including reviewing and approving all transactions between
the Company and any related party, and making such investigations and
reviews of the Company and its operations as the Board of Directors may
from time to time request.
|
|
o
FOR
|
|
o
AGAINST
|
|
o
ABSTAIN
|
|
|
o
FOR
|
|
o
AGAINST
|
|
o
ABSTAIN
|
|
|
o
FOR
all nominees listed above (except as marked to the contrary
below)
|
|
o
WITHHOLD
AUTHORITY (do not vote for any of the nominees listed
above)
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|
Dated:
,
2008
(Signature)
(Signature
if jointly held)
(Printed
name(s))
(Please
date and sign exactly as name or names appear on your stock
certificate(s). When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign
in full the corporate name by President or other authorized officer. If a
partnership, please sign in the partnership name by authorized person. IF
THE STOCK IS HELD JOINTLY, BOTH OWNERS MUST
SIGN.)
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