Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Check the appropriate box:
[ ] Preliminary Proxy statement
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Sonex Research, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Stattement, if other than the Registrant)
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[ ] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11.
SONEX RESEARCH, INC.
23 Hudson Street
Annapolis, Maryland 21401
August 2002
Dear Fellow Shareholders:
Sonex will hold its Annual Meeting here in Annapolis on October 9,
2002, and I look forward to seeing many of you at that time. In preparation for
the meeting, I offer this brief overview of the Company's recent activities and
progress toward the refinement and commercialization of the Sonex Combustion
System (SCS) for in- cylinder control of ignition and combustion in engines.
At the end of 2001, financial constraints resulted in a reduction in
staffing and Sonex officers voluntarily deferred receipt of all salaries for an
extended period. The Company also received substantial cooperation from its
part-time consultants and legal and auditing professionals in terms of flexible
payment arrangements. These reductions in cash outflows combined with additional
financial support from investors and modest contract revenue helped the Company
persevere. Today, Sonex finds itself with numerous business opportunities and is
increasing staffing to support new projects.
In early August 2002 we announced the award of a $200,000 Department of
Defense (DoD) subcontract to begin the conversion of a gasoline engine to
start and operate on diesel-type, kerosene-based military fuels (also
referred to as "heavy fuels") for use in an unmanned aerial vehicle (UAV)
weapon system. The DoD prime contractor, Science Applications International
Corporation (SAIC), is a leader in the development of advanced gun weapon
systems including launchers and smart projectiles. Following the selection
of a commercially available 70hp to 80hp lightweight, spark-ignited,
two-stroke, gasoline engine, Sonex will begin development of an SCS
modified combustion chamber design and proprietary starting system to
permit the converted engine to start and operate on heavy fuels. This
initial funding permits a multi-phase heavy fuel engine (HFE) program to
begin immediately, while follow-on funding needed to complete the design
and testing process to achieve a prototype HFE is expected to be approved
by the DoD sponsor later this year. Sonex is pursuing additional
commercialization opportunities for HFEs as a result of U.S. and NATO
military directives for a single battlefield fuel that will eliminate
gasoline in favor of less volatile heavy fuels.
Late in 2001 one the world's leading engine engineering and powertrain
consulting firms, Ricardo Consulting Engineers Ltd, confirmed the soot
reduction capability of the SCS "Low Soot" design. Ricardo published the
findings, plus additional results from a later Computational Fluid Dynamics
study of the combustion process, in a paper presented at the Society of
Automotive Engineers' May 2002 Fuels and Lubricants Conference. Ricardo is
introducing the SCS "Low Soot" design results to potential customers, and
is working with Sonex on securing joint commercialization projects with
engine manufacturers.
This fall the Senate and House will resume debate on a national energy bill
that upon enactment is expected to include provisions assigning the
Department of Transportation (DOT) the task of issuing new fuel mileage
standards within two years of enactment. In response, Sonex plans to
complete development, commercialize and market its SCS Stratified Charge
Radical Ignition (SCRI) combustion process to the automotive industry.
Presently, high mileage five- passenger automobiles using gasoline direct
injected (GDI) engines are sold in Japan and Europe but are not available
in the U.S. due to high NOx (oxides of nitrogen) emissions. Sonex intends
to demonstrate that SCS-SCRI can lead to high mileage, emissions compliant,
GDI engined vehicles without sacrificing weight and vehicle safety. In
addition, the evolution of U.S. produced hybrid powered vehicles would be
accelerated since a major improvement in fuel mileage would provide
opportunities for tradeoff of vehicle weight versus power. The anticipated
passage of the national energy bill will provide Sonex the time needed to
continue SCRI technology maturation work for GDI engines. To date, Sonex
has provided specific input to the energy bill legislative process and
submitted supporting data, industry analyses and other materials to DOT.
Additional anticipated contracts to Sonex from the government involve
development efforts that should provide definitive conclusions as to the
commercial viability of the patented SCS technology for in-cylinder control
of ignition and combustion. In particular, outcomes from these programs
will be useful to the development of the SCRI combustion process for high
mileage, low emissions GDI engined automobiles. Acceptance of our
technology by the government will enable Sonex to bring a third party
validation to any commercial discussions we may undertake, as well as
critical data and test results that support numerous applications of our
technology.
Sonex is poised to leverage its proprietary SCS technology against the
demands of government, as they impact the automotive industry and ongoing
military innovation. The Company is seeking business partners and strategic
alliances that will help bring SCS to commercialization. The Company already has
begun adding to its technical staff to meet the demands of the recent
subcontract from SAIC, and will need to continue hiring as new contracts are
secured. Management also recognizes that commercialization will require the
hiring of additional executives with industry experience. While revenue is
expected to increase as new contracts are signed, the Company may also need to
raise capital to reach its goals.
In anticipation of the contracts that have just begun to materialize and
the resulting expected change in the Company's profile in the automotive and
defense industries as well as the investment community, in June 2002 Sonex
announced that it had retained The Scottsdale Group (TSG) as its investor
relations and financial communications consultant. TSG is undertaking a
financial communications campaign that will bring Sonex to the attention of a
broader investor base, as well as institutional investors, as the Company
continues to grow. In the coming months, TSG will take our story to the media,
existing and potential investors, and specialists who follow the automotive and
defense industries.
Sonex has endured serious hardships in the past year, but our efforts
are being rewarded in the form of the many opportunities described above. Thanks
to the dedication and hard work of our core personnel group and the timely
financial support from investors, the Company is about to emerge from one of the
most trying periods in its history. Finally, I extend my heartfelt thanks to our
shareholders for their continued patience and support. I look forward to this
year's Annual Meeting and to receiving your input, questions and comments.
Sincerely,
Andrew A. Pouring, D.Eng.
Chief Executive Officer
SONEX RESEARCH, INC.
23 Hudson Street
Annapolis, Maryland 21401
2002 ANNUAL MEETING OF SHAREHOLDERS
NOTICE OF MEETING AND PROXY STATEMENT
To the Shareholders of Sonex Research, Inc.:
The 2002 Annual Meeting of Shareholders of Sonex Research, Inc. (the
"Corporation") will be held on Wednesday, October 9, 2002 at 10:00 a.m. local
time in the Dorsey Room in the Hampton Inn & Suites, located in the ARINC
Corporate Park, 124 Womack Drive, Annapolis, Maryland. Holders of record of the
Common Stock and Preferred Stock of the Corporation at the close of business on
August 20, 2002 will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournment thereof.
Shareholders will act upon the following matters and such other matters as may
properly come before the Annual Meeting or any adjournment thereof:
COMMON STOCK PROPOSAL: To elect one individual to serve as a Class II
Common Stock director until the Annual Meeting of Shareholders in 2003
and until his successor is duly elected and qualified.
PREFERRED STOCK PROPOSAL: To elect one individual to serve as a Class II
Preferred Stock director until the Annual Meeting of Shareholders in
2003 and until his successor is duly elected and qualified, and to elect
two individuals to serve as Class I Preferred Stock directors until the
Annual Meeting of Shareholders in 2005 and until their successors are
duly elected and qualified.
Whether or not you plan to attend the Annual Meeting, please complete, date,
sign and promptly return the Proxy or voting instructions form in the
accompanying envelope to assure that your shares are represented at the Annual
Meeting. If no direction is indicated, returned Proxies will be voted "FOR" the
Common Stock Proposal.
You may attend the Annual Meeting and vote shares registered in your name
(represented by stock certificates) in person either by submitting a completed
Proxy or by completing a ballot at the Annual Meeting; however, if your shares
are on deposit in an account with a financial institution such as a brokerage or
bank (i.e., held in "street name") and you wish to vote in person, you must mark
the appropriate box on the accompanying proxy voting instructions form and
return it to the proxy processing firm, which will then send you a Legal Proxy
to allow you to vote the shares by ballot at the Annual Meeting. If you own
shares registered in your name and have returned the Proxy to the Corporation
but later decide to attend the Annual Meeting in person, you may revoke your
Proxy at the Annual Meeting and cast your vote in person by ballot.
By Order of the Board of Directors
George E. Ponticas
Secretary
September 12, 2002
PROXY SOLICITATION
This Notice of Meeting and Proxy Statement is furnished to shareholders of Sonex
Research, Inc. (the "Corporation") in connection with the solicitation of
Proxies on behalf of the Board of Directors of the Corporation for use at the
Annual Meeting of Shareholders of the Corporation to be held on October 9, 2002
for the purposes set forth on the cover page of this Notice of Meeting and Proxy
Statement. The Board of Directors has fixed August 20, 2002 as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
Annual Meeting. The cost of preparing, assembling and mailing of proxy materials
will be borne by the Corporation.
The Corporation will supply Proxies and proxy materials as requested to
brokerage houses and other custodians, nominees and fiduciaries for transmission
to the beneficial owners of the Corporation's Common Stock. The Corporation will
reimburse such brokerage houses and other custodians for their expenses. The
approximate mailing date of this Notice of Meeting and Proxy Statement is
September 12, 2002.
VOTING
A quorum is required in order for the Corporation to conduct business at the
Annual Meeting. The presence, in person or by Proxy, of the majority in number
of the outstanding shares of Common Stock and the Preferred Stock as of the
record date constitutes a quorum. If a quorum is attained at the Annual Meeting,
directors will be elected by a plurality of the shares present and entitled to
vote. Unless otherwise directed by the shareholder, the shares represented by
executed Proxies returned to the Corporation will be voted "FOR" the election of
directors, and in the discretion of the Proxy holders as to other matters coming
before the Annual Meeting.
A Proxy may be revoked at any time before it is voted by giving written notice
of revocation, or by delivery of a later dated Proxy, to the Corporation's
Secretary prior to the Annual Meeting. A Proxy may also be revoked if the
shareholder is present at the Annual Meeting and gives written notice to the
Corporation's Secretary of his revocation at such time.
If you own shares of Common Stock registered in your name (represented by stock
certificates), you will have received these proxy materials directly from the
Corporation, and the accompanying Proxy return envelope will be addressed to the
Corporation. If, however, your shares are on deposit in an account with a
financial institution such as a brokerage or bank (i.e., held in "street name"),
you will have received proxy materials, including a computer-generated voting
instructions form, from a proxy processing firm. Please return this form for
shares held in street name in the accompanying return envelope that is addressed
to the proxy processing firm, or follow the instructions for voting by telephone
or on the internet. If you own some shares registered in your name and other
shares in street name, you may receive separate mailings of proxy materials.
Please be sure to use the proxy form and return envelope supplied with each
mailing. The Corporation cannot accept voting instructions forms for shares held
in street name.
Shares held in street name may be voted by the bank or broker for "routine"
matters such as the election of directors if you do not provide voting
instructions before the Annual Meeting. As a result, if you do not vote your
proxy, your bank or broker may either vote your shares or leave your shares
unvoted.
BOARD OF DIRECTORS
The Corporation's Board of Directors is divided into two categories: (1) "Common
Stock" directors elected by the holders of Common Stock; and (2) "Preferred
Stock" directors elected by the holders of Preferred Stock. Pursuant to the
Corporation's Charter, the holders of the Preferred Stock, voting as a separate
class, have the right to elect that number of directors of the Corporation which
represents a majority of the total number of directors. These two categories of
directors are further divided into three classes as nearly equal in number as
possible, with the term of one of the three classes of directors expiring at
each annual meeting of shareholders. The members of each class of directors are
to hold office for terms of three years until their successors have been elected
and qualified. The terms of Class I, Class II and Class III directors are
scheduled to expire at the annual meetings of shareholders to be held in 2002,
2003, and 2004, respectively.
The Corporation's By-laws state that the Board of Directors shall consist of not
fewer than three directors, with the total number of directors to be set by the
Board by resolution. Following the resignation of three Preferred Stock
directors and one Common Stock director in July 1997, the Board acted to fix the
number of directors at five, consisting of two Preferred Stock directors and
three Common Stock directors. At the time of these changes in the membership of
the Board of Directors, the Preferred stockholders waived their right to fill
the vacancies created by the resignations of the three Preferred Stock
Directors. The Preferred Stockholders continued to waive their right to elect a
majority of the total number of directors through December 4, 2001.
At the 2001 Annual Meeting of Shareholders held September 27, 2001, the
Corporation announced the retirement of Mr. Lawrence H. Hyde as its president,
although Mr. Hyde remains a member of the Board. The Corporation also announced
that Mr. John H. Drewanz would be joining the Board in October 2001, while Mr.
Nuno Brandolini, a director of the Corporation since 1982, agreed to resign his
position as a Class II Common Stock director to create a vacancy for Mr.
Drewanz. Because he was elected by the Board to fill a vacancy rather than by
the shareholders at an annual meeting, Mr. Drewanz's term will expire at the
next (2002) Annual Meeting of Shareholders. At that time, Mr. Drewanz, or such
other person as may be validly nominated to fill the vacancy, shall be elected
by the shareholders to serve the remaining scheduled term as a Class II director
or until his successor is elected and qualified.
With respect to the position of president, the Corporation announced that there
were no immediate plans to name a replacement because the position has been
part-time given the focus of the Corporation on research. The Company will seek
to fill the position if and when potentially significant business and financial
transactions require more attention such that the position of president will
become prominent.
After giving consideration to the changes in the Board of Directors announced at
the 2001 Annual Meeting, the Preferred stockholders again asserted their right
to elect a majority of the total number of directors. Additionally, the Board
took steps to make the three classes of directors once again as nearly equal in
number as possible as specified in the Corporation's Charter. As a result, the
Board of Directors took the following actions effective as of December 5, 2001:
Re-affirmed the number of directors currently is set at five, to
consist of three Preferred Stock directors and two Common Stock
directors;
Decreased the number of Class I directors from three to two and
increased the number of Class II directors from one to two; and
Accepted the resignation of Mr. Hyde from his position as a Class I
Common Stock director and then elected him as a Class II Preferred
Stock director
Because he was elected by the Board to fill a vacancy rather than by the
shareholders at an annual meeting, Mr. Hyde's term also will expire at the next
(2002) Annual Meeting of Shareholders. At that time, Mr. Hyde, or such other
person as may be validly nominated to fill the vacancy, shall be elected by the
shareholders to serve the remaining scheduled term as a Class II director or
until his successor is elected and qualified.
The Board has an Executive Committee, consisting of Mr. Wick, Dr. Pouring and
Mr. Hyde, which meets on short notice when required during intervals between
meetings of the full Board. The Executive Committee has authority to exercise
all of the powers of the Board of Directors, subject to specific directions of
the Board of Directors and subject to the limitations of the Maryland
Corporation Law. The Executive Committee did not hold any meetings during 2001.
The Board does not have Nominating, Compensation or Audit Committees; however,
the functions of these committees have been performed by the Board as a whole.
In performing the duties typically assigned to an audit committee, the entire
Board of Directors has (1) reviewed and discussed the 2001 audited financial
statements of the Corporation with management; (2) discussed with the
independent accountants of the Corporation the independent accountants'
judgments about the quality, not just the acceptability, of the Corporation's
accounting principles, including the clarity and completeness of the financial
statements and related note disclosures; (3) received written assurance from the
independent accountants with respect to independence; and (4) recommended that
the 2001 audited financial statements be included in the December 31, 2001
Annual Report on Form 10-KSB for filing with the Securities and Exchange
Commission (SEC).
The function of recommending potential nominees for Board positions is performed
by the Board as a whole. It is also the policy of the Board to consider nominees
recommended by security holders. Such recommendations should be addressed to the
Chairman of the Board, at the address of the Corporation, and should include the
name and address of the security holder submitting the nomination and a detailed
listing of the business experience and particular qualifications of the nominee.
The Board will review the nomination at its next meeting following receipt of
the nomination and respond accordingly to the security holder who submitted the
nomination.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Corporation has two classes of voting securities: its $.01 par value common
stock (the "Common Stock") and its $.01 par value convertible preferred stock
(the "Preferred Stock"). Each share of Preferred Stock is convertible at any
time at the option of the holder into Common Stock at the rate of $.35 per share
of Common Stock. The Preferred Stock has priority in liquidation over the Common
Stock, but it carries no stated dividend. Additionally, the holders of Preferred
Stock, voting as a separate class, have the right to elect that number of
directors of the Corporation which represents a majority of the total number of
directors. The only other matters with respect to which holders of Preferred
Stock are entitled to vote concern a consolidation, merger, share exchange or
transfer of assets. Each share of Preferred Stock outstanding on the record date
will be entitled to one vote on the Preferred Stock Proposal.
The Corporation is presently authorized to issue up to 48 million shares of
Common Stock and 2 million shares of Preferred Stock. There were 21,588,669
shares of Common Stock and 1,540,001 shares of Preferred Stock issued and
outstanding at the close of business on August 20, 2002. Each share of Common
Stock outstanding on the record date will be entitled to one vote on the Common
Stock Proposal and on all other matters to come before the Annual Meeting.
Abstentions and broker non-votes will not be counted as affirmative votes at the
Annual Meeting.
The following table sets forth as of August 20, 2002 information relating to
beneficial ownership of Common Stock by directors and executive officers of the
Corporation, individually and as a group, and any other persons known by the
Corporation to be the beneficial owner of more than five percent of the
currently issued and outstanding Common Stock. A reporting person is considered
the "beneficial owner" of a security if that person has or shares the power to
vote or to direct the voting of such security, or the power to dispose or to
direct the disposition of such security. Under this definition, more than one
person may be a beneficial owner of securities as to which he has no record
ownerhip interest, and the same shares may be beneficially owned by more than
one reporting person.
Beneficial ownership includes securities which the reporting person currently
owns or has the right to acquire or the obligation to dispose within sixty days,
such as through the exercise of options, warrants, puts and calls, or through
the conversion of Preferred Stock. The percentage of beneficial ownership for a
reporting person is based on the number of outstanding shares of Common Stock of
the Corporation plus the number of shares which the reporting person has the
right to acquire within sixty days, but does not include shares which any other
reporting person has the right to acquire. Unless otherwise noted, all shares
are beneficially owned and sole voting and investment power is held by the
persons named.
Total Beneficial Ownership
--------------------------
Common Rights to Total shares
shares acquire beneficially Percent
Name and address (1) owned shares owned of class
-------------------- --------- --------- --------- --------
John H. Drewanz 600,000 195,000 795,000 3.6
Lawrence H. Hyde 644,986 1,601,786 2,246,772 10.2
Charles C. McGettigan 1,351,618 1,851,785 3,203,403 (3) 13.7
George E. Ponticas 326,262 365,178 691,440 3.2
Andrew A. Pouring 853,239 387,744 1,240,983 5.6
Myron A. Wick, III 1,351,618 1,851,785 3,203,403 (3) 13.7
All directors & officers
as a group (6 persons) 3,776,105 4,726,493 8,502,598 32.3
Herbert J. Mitschele, Jr.
Far Hills, NJ 1,051,655 90,000 1,141,655 5.3
Proactive, et.al. (2)
San Francisco, CA 2,574,064 3,053,570 5,627,634 22.8
-----------------------------
(1) The business address for each director and named executive officer is 23
Hudson Street, Annapolis, Maryland, 21401.
(2) Includes shares beneficially owned directly and indirectly by Proactive
Partners, L.P. and six affiliated entities and individuals
("Proactive et.al."), as reported in a Form 13D filing with the Securities
and Exchange Commission.
(3) Includes 2,878,403 shares beneficially owned by Proactive et.al.,
which shares could be deemed to be beneficially owned by both Mr.
McGettigan and Mr. Wick by virtue of their executive and ownership
positions in Proactive et.al. Both individuals exercise shared voting
and investment power with respect to such shares.
Rights to Acquire Shares
------------------------
Total
Exercisable Preferred rights to
Exercisable (put)/ Exercisable stock acquire
Name options call (2) warrants converted shares
-------------------- ---------- --------- --------- --------- ---------
John H. Drewanz 100,000 95,000 195,000
Lawrence H. Hyde 512,500 1,089,286 1,601,786
Charles C. McGettigan (1) 325,000 (544,643) 2,071,428 1,851,785
George E. Ponticas 283,750 80,000 1,428 365,178
Andrew A. Pouring 293,816 92,500 1,428 387,744
Myron A. Wick, III (1) 325,000 (544,643) 2,071,428 1,851,785
All directors & officers
as a group (6 persons) 1,840,066 544,643 267,500 2,074,284 4,726,493
Herbert J. Mitschele, Jr. 50,000 40,000 90,000
Proactive , et.al. (2)
San Francisco, CA (1,089,286) 4,142,856 3,053,570
---------------------------
(1) Includes 1,526,785 shares beneficially owned by Proactive, et.al.,
which shares could be deemed to be beneficially owned by both Mr.
McGettigan and Mr. Wick by virtue of their executive and ownership
positions in Proactive, et.al. Both individuals exercise shared voting
and investment power with respect to such shares.
(2) Represents the currently exercisable portions of ten-year options granted
in December 1997 and December 1999 by Proactive, et.al. to Mr. Hyde to
purchase 714,286 shares and 500,000 shares, respectively, of Common Stock
presently owned by Proactive, et.al., at an exercise price of $.35 and $.50
per share, respectively. The December 1997 and December 1999 options become
exercisable at the rate of 20% and 25%, respectively, per year beginning
with the date of grant. Because these agreements relate to shares which are
already outstanding, the exercise of such rights will not result in an
increase in the total number of the Corporation's outstanding shares for
purposes of computing the percentage of beneficial ownership of each
reporting person. Mr. McGettigan and Mr. Wick each has indirect beneficial
ownership in 50% of the shares subject to these agreements.
STOCK OPTION PLAN
The Corporation maintains a non-qualified stock option plan adopted in 1987 (the
"Plan") which has made available for issuance a total of 7.5 million shares of
Common Stock. The Corporation does not have any other stock option or other
similar equity compensatory plans. Shareholder approval was not required for the
adoption of the Plan, nor is it required for any amendments to the Plan. All
directors, full-time employees and consultants to the Corporation are eligible
for participation. Option awards are determined at the discretion of the Board
of Directors. Upon a change in control of the Corporation, all outstanding
options granted to employees and directors become vested with respect to those
options which have not already vested. Options outstanding expire at various
dates through July 2012. A copy of the Plan has been filed with the SEC and is
incorporated by reference to the Corporation's Registration Statement No.
33-34520 on Form S-8.
Pertinent information as of August 20, 2002 regarding shares of Common Stock
issuable pursuant to options granted or available for future grant under the
Plan is as follows:
Number
of shares
Issuable upon exercise of outstanding options 4,127,878
Weighted average exercise price per share $0.46
Available for future issuance 1,936,454
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Corporation for the
last three years to its executive officers who earned annual compensation during
the most recently completed year in excess of $100,000 (together referred to as
the "Named Executives").
Summary Compensation Table
Annual compensation
--------------------------------
Salary Long-term
-------------------- Accrued compensation
Name and Position Year In cash Deferred bonus # of options
----------------- ---- --------- -------- -------- ------------
Dr. Andrew A. Pouring 2001 $ 87,500(1) $ 37,500 $ 25,000 100,000
CEO & Chief Scientist 2000 87,500 37,500 10,000 35,000
1999 84,000 36,000 7,500 35,000
Mr. George E. Ponticas 2001 $ 86,400 1) $ 9,600 $ 25,000 100,000
CFO & Secretary 2000 86,400 9,600 10,000 30,000
1999 82,800 9,200 6,000 125,000
(1) Includes $33,656 for Dr. Pouring and $33,232 for Mr. Ponticas of current
wages for which payment has been deferred voluntarily and at their own
discretion in order to help the Company conserve its limited cash
resources.
The authorized full annual salaries for Dr. Pouring and Mr. Ponticas were
increased in January 2000 from $120,000 to $125,000 and from $92,000 to $96,000,
respectively, representing the first increase since January 1997.
In order to help conserve the Company's limited cash resources, however, the
Named Executives for several years have voluntarily deferred receipt of payment
of significant portions of their authorized annual salaries upon request by the
Board of Directors. By agreement with the Company, these individuals and other
current and former employees have consented to the deferral of payment of
amounts so accumulated until the Company has received licensing revenue of at
least $2 million or at such earlier date as the Board of Directors determines
that the Company's cash flow is sufficient to allow such payment.
For many years through 1998, Dr. Pouring had been deferring 40% of his annual
salary. In January 1999, the percentage deferral was reduced to 30%. Mr.
Ponticas has been deferring 10% of his annual salary for the last several years.
The conditions that would require repayment of deferred amounts have yet to
occur. As of December 31, 2001, a total of $409,980 and $115,357 in deferred
salary is owed to Dr. Pouring and Mr. Ponticas, respectively, that is payable
under the conditions described above.
Beginning in the first quarter of 2001, the Company's officers have voluntarily
and at their own discretion deferred receipt of payment of significant portions
of their current wages to reduce the Company's monthly cash requirements. The
amount and timing of payment of these unpaid wages will be determined at the
discretion of the Company's officers, as these accrued wages are not subject to
the terms for the repayment of ongoing salary deferrals as described above. Such
unpaid wages due to the Company's two officers totaled $66,888 as of December
31, 2001. Through July 31,2002, the officers have deferred an additional
$102,021.
In December of each of the last three years, the Company awarded bonuses
totaling $57,500 in 2001, $30,000 in 2000, and $25,000 in 1999, to its officers
and employees, including the amounts reported above for the Named Executives.
The bonus awards in each year were made with the stipulation that payment of
such bonuses would be deferred until the Board of Directors determines that the
Company's cash resources are sufficient to enable such payments. As of December
31, 2001, $32,500 and $35,000 in accrued bonuses remained payable to Dr.
Pouring and Mr. Ponticas, respectively.
The December 2001 bonus awards and option grants to the Named Executives were
higher than in the previous year to reflect the fact in 2001 these individuals
made extraordinary sacrifices, both financially in the amount of wages that have
gone unpaid, and personally, to enable the Company to remain in operation given
its poor financial condition, and to provide incentive for the Named Executives
to remain in the employment of the Company under such continuing conditions.
In order to avoid long-term financial commitments, the Company does not have
employment agreements with any of its personnel. The salaries of executive
officers are set by the Board of Directors on an annual basis.
With the exception of the granting of stock options, the Company does not pay
its Named Executives any bonuses or any type of long-term compensation in the
form of restricted stock awards, stock appreciation rights (SARs) or other form
of long-term incentive plan payments.
Option Grants In Last Fiscal Year
Individual Grants
-------------------------------------------------------------------
Number of % of total
securities options
underlying granted to
options employees in Exercise Market Expiration
Name granted fiscal year price price date
---- ------- ----------- ----- ----- -------------
Pouring 100,000 41% $.25 $.17 Dec. 19, 2011
Ponticas 100,000 41% $.25 $.17 Dec. 19, 2011
Aggregated Option/SAR Exercises In Last Fiscal Year
And Fiscal Year-end Option/SAR Values
Number of securities Value of unexercised
underlying unexercised in-the-money
options/SARs at options/SARs at
December 31, 2001 December 31, 2001
# of shares
acquired on Value Exercisable/ Exercisable/
Name exercise realized unexercisable unexercisable
-------- ----------- -------- ---------------------- -------------------
Pouring:
Exercisable @ $.25 $0 67,500 / 67,500 $0/$0
Exercisable @ $.50 $0 211,316 / 8,750 $0/$0
Exercisable @ $.75 $0 25,000 / 0 $0/$0
Ponticas:
Exercisable @ $.25 $0 65,000 / 65,000 $0/$0
Exercisable @ $.50 $0 218,750 / 6,250 $0/$0
Exercisable @ $.75 $0 20,000 / 0 $0/$0
The exercise price of all options held by the Named Executives was higher than
the December 31, 2001 market price of $.17 of the Company's publicly traded
common stock.
COMPENSATION OF DIRECTORS
Directors of the Corporation do not receive fees for their services, but are
eligible to receive stock option grants and are reimbursed for expenses related
to their activities as directors. It has been the Corporation's policy to grant
outside directors stock options every three years that have a term of ten years
and vest over a number of years. When an individual ceases to be a director of
the Corporation, he loses the rights to any shares under these options which
have not vested as of that date.
INDEPENDENT ACCOUNTANTS
C. L. Stewart & Company have served as independent accountants for the
Corporation since 1997. The Corporation has had no disagreements with C. L.
Stewart & Company on any matter of accounting principles or practices or
financial statement disclosure. It is expected that a representative of C. L.
Stewart & Company will be present at the Annual Meeting and will have an
opportunity to make a statement, should they desire to do so, and will be
available to answer appropriate questions.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Corporation's 2001 Annual Report on Form 10-KSB containing
financial statements of the Corporation has been mailed to all shareholders with
this Notice of Meeting and Proxy Statement.
COMMON STOCK PROPOSAL - ELECTION OF COMMON STOCK DIRECTOR
COMMON STOCK DIRECTORS
Year first
elected to Year term
Name Age Class the Board expires
---------------------- --- ----- --------- -------
John H. Drewanz (nominee) 62 II 2001 2002
Andrew A. Pouring 70 III 1980 2004
Mr. John H. Drewanz became a director of the Corporation in October 2001 when he
was elected by the remaining Board members to fill a Class II vacancy to serve
until the next annual meeting of shareholders. Mr. Drewanz is a private investor
who spent thirty years as a college professor at the University of Maryland,
University of Baltimore, American University and Anne Arundel (Maryland)
Community College. Mr. Drewanz also owned his own real estate firm and has
developed many properties in the Baltimore and Annapolis vicinity. He received
an MBA from the Harvard Business School and a law degree from the University of
Maryland. Mr. Drewanz is also a Certified Public Accountant.
Dr. Andrew A. Pouring has been a full-time employee, director, and Chief
Scientist of the Corporation since 1980, serving as President from April 1980
through November 1991, and as Chief Executive Officer since May 1985. In
November 1991 he was elected a Vice Chairman of the Board of Directors. He has
co-authored all of the Corporation's patented inventions. Prior to forming the
Corporation, Dr. Pouring served as a Professor of Aerospace Engineering at the
U.S. Naval Academy, including four years as the Chairman of the Academy's
Department of Aerospace Engineering. Dr. Pouring is a member of various
professional and scientific societies, including the American Society of
Mechanical Engineers and the Society of Automotive Engineers. Dr. Pouring
received his Bachelors and Masters degrees in mechanical engineering from
Rensselaer Polytechnic Institute. He received his Doctor of Engineering degree
from Yale University, where he also was a post doctoral research fellow and
lecturer.
Because Mr. Drewanz was elected by the Board to fill a vacancy rather than by
the shareholders, his term will expire at the next annual meeting of
shareholders. Mr. Drewanz was nominated by the Board of Directors at its meeting
on June 25, 2002 for election at the 2002 Annual Meeting of Shareholders as a
Class II Common Stock director. If elected by the shareholders, Mr. Drewanz will
serve the remaining term for a Class II director through the 2003 Annual Meeting
of Shareholders or until his successor is elected and qualified.
The persons named in the enclosed Proxy have the intention of voting for the
election of the nominee unless the shareholder specifies otherwise. Although the
Board of Directors does not contemplate that the nominee will be unable to
serve, if such a situation arises prior to the Annual Meeting the persons named
in the Proxy will vote in accordance with their best judgment.
PREFERRED STOCK PROPOSAL - ELECTION OF PREFERRED STOCK DIRECTORS
PREFERRED STOCK DIRECTORS - NOMINEES
Year first
elected to Year term
Name Age Class the Board expires
---------------------- --- ----- --------- -------
Lawrence H. Hyde 78 II 1986 2002
Charles C. McGettigan 57 I 1992 2002
Myron A. ("Mike") Wick, III 58 I 1991 2002
Mr. Lawrence H. Hyde has been a director of the Corporation since September
1986, serving as Chairman of the Board from June 1987 to June 1993 and as
President from October 1997 through September 2001. Mr. Hyde is a private
investor with interests in a number of publicly and privately held companies. He
spent the majority of his business career as an executive in the automotive
industry, serving in various engineering, marketing, international, and chief
executive capacities for AM General Company, American Motors Corporation and
Ford Motor Co. Currently, Mr. Hyde also serves as a trustee of the American
University in Cairo, where he is also chairman of the Karnak Equity Fund. Mr.
Hyde is a graduate of Harvard College and Harvard Business School.
Mr. Charles C. McGettigan has been a director of the Corporation since February
1992. He was a founding partner in 1991 and is a general partner of Proactive
Investment Managers, L.P., which is the general partner of Proactive Partners,
L.P. In 1988 Mr. McGettigan co-founded McGettigan, Wick & Co., Inc., an
investment banking firm, following a career as an executive with major
investment banking firms, including Hambrecht & Quist, Inc. and Dillon, Read &
Co. Inc. He currently serves on the Boards of Directors of Cuisine Solutions,
Inc., Modtech, Inc., PMR Corporation, Tanknology -NDE Corporation, and Onsite
Energy, Inc., of which he is the Chairman. Mr. McGettigan is a graduate of
Georgetown University, and received his MBA in Finance from The Wharton School
of the University of Pennsylvania.
Mr. Myron A. ("Mike") Wick, III, has been a director of the Corporation since
November 1991 and was elected Chairman of the Board of Directors in June 1993.
He was a founding partner in 1991 and is a general partner of Proactive
Investment Managers, L.P., which is the general partner of Proactive Partners,
L.P. In 1988 Mr. Wick co-founded McGettigan, Wick & Co., Inc., an investment
banking firm. From 1985 to 1988 Mr. Wick was Chief Operating Officer of
California Biotechnology, Inc. in Mountain View, California. He currently serves
on the Boards of Directors of Modtech, Inc., StoryFirst Communications, Inc.,
and Tanknology - NDE Corporation. Mr. Wick received a B.A. degree from Yale
University and an MBA from the Harvard Business School.
Because Mr. Hyde was elected by the Board to fill a vacancy rather than by the
shareholders, his term will expire at the next annual meeting of shareholders.
Mr. Hyde was nominated by the Board of Directors at its meeting on June 25, 2002
for election at the 2002 Annual Meeting of Shareholders as a Class II Common
Stock director. If elected by the shareholders, Mr. Hyde will serve the
remaining term for a Class II director through the 2003 Annual Meeting of
Shareholders or until his successor is elected and qualified. Also at its
meeting on June 25, 2002, the Board of Directors nominated the incumbent Class I
Preferred Stock directors, Mr. McGettigan and Mr. Wick, for election at the 2002
Annual Meeting of Shareholders to serve terms through the 2005 Annual Meeting of
Shareholders or until their successors are elected and qualified. Although the
Board of Directors does not contemplate that any of the nominees will be unable
to serve, if such a situation arises prior to the Annual Meeting the persons
named in the Proxy will vote in accordance with their best judgment.
OTHER EXECUTIVE OFFICERS
Mr. George E. Ponticas, age 43, has been Vice President of Finance, Chief
Financial Officer, Secretary and Treasurer of the Corporation since September
1991. From May 1987 through August 1991, he served as the Corporation's
Controller and Assistant Secretary. Prior to joining the Corporation, Mr.
Ponticas was a member of the auditing staff of Price Waterhouse in Baltimore,
Maryland, attaining the position of audit manager. Mr. Ponticas is a Certified
Public Accountant, and is a member of the American Institute of Certified Public
Accountants and the Maryland Association of Certified Public Accountants. He
received his B.S. in Accounting from Loyola College in Maryland.
SECTION 16(a) REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and directors, and persons who beneficially own more than 10% of a
registered class of the Corporation's equity securities, to file initial reports
of beneficial ownership and reports of changes in beneficial ownership with the
SEC, and to provide copies of all such reports to the Corporation. Based solely
on its review of the copies of such reports received by it, or written
representations from certain reporting persons that no reports were required for
those persons, the Corporation believes that all of its officers, directors, and
greater than 10% shareholders complied with all such filing requirements related
to beneficial ownership of Common Stock except as indicated below.
In August 2002 the Corporation was informed that certain members of the
Proactive, et.al. Form 13D filing group of affiliated entities and individuals,
beneficial owners of 22.8% of the Corporation's Common Stock, had failed to
report to the Corporation, and failed to file Form 4s, covering the following
sales of the Corporation's Common Stock in 2000 and 2001:
Number
Period of Transactions of shares
June 2000 - September 2000 78,000
December 2000 6,000
November 2001 11,000
In late July 2002 pursuant to a Form 144 filing with the SEC dated July 23,
2002, Proactive, et.al. sold an additional 15,000 shares of the Corporation's
Common Stock for which Form 4s had not been filed as of August 20, 2002. Two of
the Corporation's directors, Mr. McGettigan and Mr. Wick, held beneficial
ownership of the shares sold in July 2002 by virtue of their executive and
ownership positions in Proactive, et.al. To the best of the knowledge of the
Secretary of the Corporation, neither individual filed a Form 4 covering these
sales.
In addition, pursuant to the Form 144 in August 2002 to date, Proactive has sold
an additional 48,000 shares of the Corporation's Common Stock beneficially owned
by Mr. McGettigan and Mr. Wick.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those specifically set forth in this Notice of Meeting
and Proxy Statement. If any such matters should arise, it is intended that the
persons named in and acting under the enclosed form of Proxy or their
substitutes will vote thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be included in the Corporation's proxy
statement and form of proxy for presentation at the next annual shareholder
meeting must comply with certain rules and regulations with respect to the
number and length of proposals, eligibility of persons entitled to have such
proposals included, and other aspects. Interested persons should refer to the
Securities Exchange Act of 1934 and other applicable laws and regulations.
Proposals intended to be included in the Corporation's proxy statement and form
of proxy for presentation at the 2003 Annual Meeting of Shareholders must be
received at the Corporation's principal executive offices in Annapolis, Maryland
at least 120 days before the anniversary date of mailing of the 2002 proxy
materials. Based on the date of mailing of this year's proxy materials, the date
for receipt of proposals intended to be included in the Corporation's proxy
statement and form of proxy for presentation at the 2003 Annual Meeting of
Shareholders is May 6, 2003.
APPENDIX A - FORM OF PROXY
PROXY Sonex Research, Inc. - Common Stock
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ANDREW A. POURING and GEORGE E. PONTICAS, or
each of them, as Proxies, each with the power to appoint his substitute, to
represent and vote all shares of Common Stock of and on behalf of the
undersigned, as designated below and upon or in connection with the transaction
of all other business at the Annual Meeting of Holders of Common Stock of Sonex
Research, Inc. ("Sonex") to be held October 9, 2002, and any adjournments
thereof, with all powers the undersigned would possess if personally present and
voting at such meeting.
The Board of Directors unanimously recommends a vote "FOR" the following:
COMMON STOCK PROPOSAL 1: Election of Directors
John H. Drewanz [ ] FOR [ ] WITHHOLD AUTHORITY
WHEN PROPERLY EXECUTED AND RETURNED THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED "FOR" COMMON STOCK PROPOSAL 1 AS SET FORTH ON THIS CARD.
Dated _______________ , 2002
----------------------------
Signature
----------------------------
Signature (if held jointly)
PLEASE SIGN EXACTLY AS NAME(S) APPEAR(S) HEREON. If shares are held in the
names of two or more persons, all must sign. When signing in a representative or
fiduciary capacity, give full title as such. If signer is a corporation, sign
corporate name by fully authorized officer.