SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): October 25, 2005
SONEX RESEARCH, INC.
(Exact name of registrant as specified in Charter)
Maryland 000-14465 52-1188993
(State or other (Commision file (IRS employer
jurisdiction of number) identification no.)
incorporation)
23 Hudson Street, Annapolis, MD 21401
(Address of principal executive offices)
(410) 266-5556
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On October 31, 2005, Sonex Research, Inc. (the "Company" or the "Registrant")
announced on its website (www.sonexresearch.com) that it has reached a
settlement of a lawsuit filed in April 2005 by three Maryland shareholders
alleging the fraudulent transfer of ownership of the Company's patents to its
officers. While Sonex continues to deny the allegations and asserts that the
Company maintains title to its patents, the Company settled the lawsuit by
reaching agreement to stay the case until March 31, 2006 in order to minimize
the expense and disruption to its business of continuing to litigate the case.
The Complaint against Sonex, Dr. Andrew A. Pouring, Chairman of the Board,
CEO and President, and George E. Ponticas, CFO, Secretary and director, was
filed in the Circuit Court for Anne Arundel County. Plaintiffs Robert T. Emmet
of Annapolis, Sidney L. Gulick, 3d of Adelphi, and Robert Martin, Jr. of
Myersville, sought a $1 million judgment in their favor for alleged violations
of Maryland law regarding actions by directors who have a financial interest in
a particular transaction or contract approved by the Board. Dr. Pouring and Mr.
Ponticas currently are the only officers and members of the Board of Directors
of Sonex, as a vacancy in the Board has existed since November 2004.
The Complaint concerned actions taken by management early in 2005 during a
period of cash flow difficulties to insure that key personnel would continue to
provide services and make loans to Sonex in order for the Company to remain in
operation. The Company executed a First Loan and Security Agreement (the "FLSA")
effective as of January 2005 granting a priority security interest in its
patents to Dr. Pouring, Mr. Ponticas, and Michael I. Keller, the consultant who
serves as the Company's Director of Business Development and Technical Program
Manager, to secure payment of compensation being deferred on an ongoing and
future basis, new loans made to the Company, and personal financial guaranties
by Dr. Pouring of Company credit card obligations. The FLSA also provides for
acceptance by the Company of new loans from sources other than Pouring, Ponticas
and Keller.
The Company also executed a Second Loan and Security Agreement (the "SLSA"),
subordinated to the FLSA, in favor of these individuals for financial
obligations incurred prior to 2005. The SLSA also applied to notes payable to
Plaintiff Gulick.
In exchange for the grant of the security interests in the patents, Dr. Pouring,
Mr. Ponticas, and Mr. Keller agreed to stay, through March 31, 2005, any demand
for immediate payment of unpaid compensation earned beginning in January 2005.
Although that date has passed, no demand for payment has been made to date. Each
individual continues to defer most or all of his current compensation.
Under the litigation settlement, the parties agreed to stay the case until March
31, 2006. The Plaintiffs agreed to dismiss all monetary claims without prejudice
(meaning they have the right to refile monetary claims within the applicable
statute of limitations). In exchange, Dr. Pouring, Mr. Ponticas, and Mr. Keller
have agreed to stay any demand for immediate payment of unpaid current
compensation through March 31, 2006 if they continue in the service of the
Company or if no event of default under the FLSA or SLSA occurs. The Company
also has agreed to invite the Plaintiffs to participate in discussions and offer
assistance and suggestions regarding the appointment of independent directors to
the Board of Directors of Sonex. In addition, Mr. Gulick has agreed to extend
the due dates of notes payable to him by the Company through March 31, 2006. The
principal amounts of such notes total $106,000, while interest payments are
current through June 30, 2005.
As of September 30, 2005, the FLSA applies to total financial obligations of
approximately $359,000, consisting of shareholder loans of approximately
$68,000, unpaid compensation of approximately $263,000, and Company credit card
obligations under personal financial guaranties of approximately $28,000, while
the SLSA applies to total financial obligations of approximately $718,000,
consisting of shareholder loans of approximately $133,000, unpaid compensation
of approximately $558,000, and Company credit card and equipment lease
obligations under personal financial guaranties of approximately $27,000.
The Plaintiffs will have 30 days from March 31, 2006 to petition the court to
reopen the case; otherwise, the case shall be dismissed with prejudice, meaning
that the Plaintiffs will be barred from making such claims in the future.
The October 25, 2005 Agreement to Stay is provided as Exhibit 99.1 to this Form
8-K. Also provided as exhibits are the FLSA, the SLSA, and the amendments to
both documents executed in connection with the settlement.
ITEM 9.01 - FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 October 25, 2005 Agreement to Stay
99.2 October 25, 2005 Amendment to First Loan and Security Agreement
99.3 October 25, 2005 Amendment to Second Loan and Security Agreement
99.4 First Loan and Security Agreement dated March 3, 2005
99.5 Second Loan and Security Agreement dated March 3, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 31, 2005
SONEX RESEARCH, INC.
Registrant
/s/ George E. Ponticas
----------------------
George E. Ponticas
Chief Financial Officer and Secretary
EXHIBIT 99.1
AGREEMENT TO STAY
This Agreement to Stay (hereinafter "Agreement") is made and entered into
this 25th day of October, 2005 by and between SONEX RESEARCH, INC. ("SONEX"),
ANDREW A. POURING ("POURING"), GEORGE E. PONTICAS ("PONTICAS"), ROBERT T. EMMET
("EMMET"), SIDNEY L. GULICK, III ("GULICK"), ROBERT MARTIN, JR. ("MARTIN"), and
MICHAEL I. KELLER ("KELLER").
WHEREAS, EMMET, GULICK, and MARTIN filed a civil action against SONEX,
POURING, and PONTICAS, in the Circuit Court for Anne Arundel County, Maryland in
the case styled as Robert T. Emmet, et al. v. SONEX Research, Inc., et al., Case
No. 02-C-05-104907 CN (hereinafter referred to as the "Lawsuit"); and
WHEREAS, EMMET, GULICK, and MARTIN sued SONEX, POURING, and PONTICAS
for alleged violations of Section 2-419 of the Corporations and Associations
Article of Maryland's Annotated Code regarding a "First Loan and Security
Agreement" and "Second Loan and Security Agreement," both dated March 3, 2005
(hereinafter referred to as "Security Agreements") which created security
interests in all patents and trademarks owned by SONEX;
WHEREAS, SONEX, POURING, AND PONTICAS categorically deny that they were
involved in any wrongdoing relating to the Lawsuit or the Security Agreements,
and specifically deny any liability for any of the claims made by EMMET, GULICK,
AND MARTIN in the Lawsuit; and
WHEREAS, it is in the mutual interest of all the parties to this
Agreement to stay the Lawsuit and any and all claims and demands of whatever
sort between them, without the use of costly Court proceedings.
WITNESSETH, NOW, THEREFORE, in consideration of the foregoing recitals
and the terms and promises, premises and covenants contained herein, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby agree as follows:
AGREED:
1. Incorporation of Recitals.The recitals to this Agreement are
incorporated as referenced herein.
2. Terms of Stay:
(a) Plaintiffs have filed a Motion to Dismiss all claims for monetary
damage without prejudice in the Lawsuit. (See Exhibit A)
(b) The parties filed a Joint Motion to Stay the remainder of the Lawsuit
until March 31, 2006. (See Exhibit B). After March 31, 2006, Plaintiffs shall
have thirty (30) days to petition to the court to reopen the Lawsuit. If
Plaintiffs do not petition to reopen within this time period, the Lawsuit shall
be dismissed with prejudice.
(c) Defendants have provided an affidavit of Charles C. McGettigan, a
representative of the Preferred Stockholders of SONEX, regarding his discussions
with PONTICAS regarding the Security Agreements and the liens on the patents.
Mr. McGettigan has certified that he has reviewed the Security Agreements. (See
Exhibit C -- Affidavit of Charles C. McGettigan).
(d) PONTICAS, POURING, KELLER, AND GULICK hereby agree to amend the First
and Second Loan and Security Agreements to reflect the fact that they are
willing to stay any demand for payments under the Security Agreements and stay
any enforcement against the patents securing the Security Agreements until March
31, 2006, as set forth in the Amendments to the Security Agreements attached as
Exhibit D.
(e) GULICK hereby agrees to stay any demand for payment under his
Promissory Notes with SONEX in the aggregate principal amount of $106,000.00
through March 31, 2006, as set forth in the Promissory Notes attached as Exhibit
E.
(f) PONTICAS intends to pursue an Employment Agreement with SONEX securing
his employment through March 31, 2006, with provisions that he may only be
terminated "for cause."
(g) POURING AND KELLER currently have Consulting Agreements with SONEX.
They intend to pursue amendments of those Consulting Agreements with SONEX
securing their services for SONEX through March 31, 2006, and stating that such
Consulting Agreement may not be canceled except "for cause."
(h) Plaintiffs understand that PONTICAS, POURING AND KELLER will pursue
these agreements and/or amendments with SONEX, and agree not to oppose any such
agreements or amendments.
(i) SONEX agrees that Plaintiffs will be invited to participate in
discussions and offer assistance and suggestions regarding the appointment of
outside / independent directors to the Board of Directors of SONEX. (j) The
parties will mutually agree upon acceptable language for a press release
discussing the terms of this settlement before such release is issued to the
public. (See Exhibit F).
3. No Admission. It is understood and agreed that in entering into this
Agreement that SONEX, POURING, AND PONTICAS specifically deny liability of any
and every sort and state that they have made no agreement to do or omit to do
any act or thing not set forth herein. It is further understood and agreed that
this Agreement is not to be construed as an admission of liability by SONEX,
POURING, AND PONTICAS but rather as a compromise and stay of the claims which
are specifically denied and disputed. This Agreement is entered as a compromise
in order to avoid expense.
4. Miscellaneous.
(a) Fully Integrated Agreement. This writing constitutes the complete,
final and entire understanding of the parties hereto, and they shall not be
bound by any terms, covenants, conditions or representations not expressly
herein contained, in writing.
(b) Modification. This Agreement may not be modified or changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any such change is sought.
(c) Choice of Law. This Agreement shall be governed by and interpreted
according to the Laws of the State of Maryland.
(d) This Agreement maybe executed in two or more counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 25th day
of October, 2005.
WITNESS:
___________________________ ________________________________(SEAL)
SONEX RESEARCH, INC.
____________________________ ________________________________(SEAL)
ANDREW A. POURING
___________________________ ________________________________(SEAL)
GEORGE E. PONTICAS
___________________________ ________________________________(SEAL)
ROBERT T. EMMET
___________________________ ________________________________(SEAL)
SIDNEY L. GULICK, III
___________________________ ________________________________(SEAL)
ROBERT MARTIN, JR.
___________________________ ________________________________(SEAL)
MICHAEL I. KELLER
CONSENT OF SONEX PREFERRED SHAREHOLDERS
I, Charles C. McGettigan, am a general partner of Proactive Investment
Managers, L.P., which is the general partner of Proactive Partners, L.P.
("Proactive"), owner of approximately 725,000 shares (47%) of the Sonex Reseach,
Inc. ("Sonex" or the "Company") Preferred Stock. An affiliated entity, Lagunitas
Partners, L.P. ("Lagunitas"), is the owner of approximately 725,000 shares (47%)
of the Sonex Preferred Stock. I am a representative of 94% of the Sonex
Preferred Stockholders held by Proactive and Lagunitas. I have reviewed this
Agreement to Stay and all the Exhibits attached and consent to its terms.
----------------------------- -------------------
Charles C. McGettigan, Date
Representative of Sonex Preferred Stockholders
EXHIBIT 99.2
AMENDMENT TO FIRST LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is made as of October 25, 2005, by and between Sonex Research,
Inc. ("Borrower") and Andrew A. Pouring ("Pouring"), George E. Ponticas
("Ponticas") and Michael I. Keller ("Keller") (collectively sometimes referred
to as the "Lender").
WHEREAS, Borrower and Lender are parties to a First Loan and Security Agreement
dated March 3, 2005 (the "FLSA") pursuant to which the Lender agreed to stay,
through March 31, 2005, any demand for immediate payment of unpaid compensation
earned beginning in January 2005, and
WHEREAS, the parties desire to amend the FLSA,
NOW, THEREFORE, the parties agree that the FLSA is hereby amended to extend to
March 31, 2006 the date through which the Lender agrees to stay any demand for
immediate payment of unpaid compensation earned beginning in January 2005,
provided that the Lender shall continue in the employment of, or serve as a
consultant to, the Borrower, or that no Event of Default, as that term is
defined in the FLSA, shall occur. The parties agree that all other terms and
conditions of the FLSA shall remain the same.
This instrument shall be interpreted in accordance with the laws of the State of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the FLSA to
be executed as of the day and year first above written.
SONEX RESEARCH, INC.
By: --------------------------
Andrew A. Pouring,
Chief Executive Officer
LENDER
--------------------------
Andrew A. Pouring
--------------------------
George E. Ponticas
--------------------------
Michael I. Keller
EXHIBIT 99.3
AMENDMENT TO SECOND LOAN AND SECURITY AGREEMENT
THIS AMENDMENT is made as of October 25, 2005, by and between Sonex Research,
Inc. ("Borrower") and Andrew A. Pouring ("Pouring"), George E. Ponticas
("Ponticas"), Michael I. Keller ("Keller"), and Sidney L. Gulick, 3d ("Gulick")
(collectively sometimes referred to as the "Lender").
WHEREAS, Borrower and Lender are parties to a Second Loan and Security Agreement
dated March 3, 2005 (the "SLSA") pursuant to which Pouring, Ponticas and Keller
agreed to stay, through March 31, 2005, any demand for immediate payment of
unpaid compensation earned as of December 31, 2004, and pursuant to which Gulick
agreed to extend, to March 31, 2005, the due dates of notes payable outstanding
as of December 31, 2004, and
WHEREAS, the parties desire to amend the SLSA,
NOW, THEREFORE, the parties agree that the SLSA is hereby amended to (1) extend
to March 31, 2006 the date through which Pouring, Ponticas and Keller agree to
stay any demand for immediate payment of unpaid compensation earned as of
December 31, 2004, provided that each shall continue in the employment of, or
serve as a consultant to, the Borrower, or that no Event of Default, as that
term is defined in the SLSA, shall occur, and (2) extend, to March 31, 2006, the
due dates of notes payable to Gulick which were outstanding as of December 31,
2004, provided that no Event of Default, as that term is defined in the SLSA,
shall occur. The parties agree that all other terms and conditions of the SLSA
shall remain the same.
This instrument shall be interpreted in accordance with the laws of the State of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the FLSA to
be executed as of the day and year first above written.
SONEX RESEARCH, INC.
By: -------------------------------------
Andrew A. Pouring, Chief Executive Officer
LENDER
-------------------------- --------------------------
Andrew A. Pouring Michael I. Keller
-------------------------- --------------------------
George E. Ponticas Sidney L. Gulick, 3d
EXHIBIT 99.4
FIRST LOAN AND SECURITY AGREEMENT
THIS FIRST LOAN AND SECURITY AGREEMENT (the "Agreement") dated March 3, 2005, is
made between Sonex Research, Inc. ("Borrower") and Andrew A. Pouring
("Pouring"), George E. Ponticas ("Ponticas") and Michael I. Keller ("Keller")
(collectively sometimes referred to as the "Lender").
EXPLANATORY STATEMENT
WHEREAS, Pouring has been associated with the Borrower since 1980 as
its founder and, at various times, as an employee, executive officer, director
and consultant, and is currently serving as the Borrower's Chairman, Chief
Executive Officer, President and Chief Technical Officer, and has personally
guaranteed credit card and equipment lease obligations of the Borrower (the
"Financial Guarantees");
WHEREAS, Ponticas has been associated with the Borrower since 1987, at
various times as an employee, executive officer and director, and is currently
serving as the Borrower's Chief Financial Officer, Secretary, Treasurer, and
Vice President of Finance;
WHEREAS, Keller has been a valued consultant to the Borrower since
1998, serving as Director of Business Development and technical program manager,
and has been a source of working capital loans for the Borrower since 2004;
WHEREAS, on January 7, 2005 the Borrower and the Lender executed a
Statement of Intent, a copy of which is attached hereto as Exhibit 1, to
document an agreement in principle by the parties for the conditions under which
Pouring, Ponticas and Keller, acting as a group for the mutual benefit of the
Borrower, its creditors, its shareholders, and themselves, would undertake to
keep the Borrower in operation for the immediately foreseeable future;
WHEREAS, the Lender is needed to provide future services to the
Borrower and is prepared to defer certain compensation that the Lender is
entitled to receive for services to be performed for the benefit of the Borrower
and to stay any demand for immediate payment of such deferred compensation
through March 31, 2005;
WHEREAS, the Borrower also seeks from the Lender additional loans for
working capital and additional Financial Guarantees;
WHEREAS, the Lender has required that the Borrower provide security
beginning on the effective date of this Agreement for the amount of the future
deferred compensation due the Lender by the Borrower, additional loans for
working capital from the Lender, additional Financial Guarantees by the Lender,
and reimbursement for expenses incurred by the Lender related to the providing
of services to the borrower or paid by the Lender on behalf of the Borrower for
which reimbursement is sought (together referred to as "Reimbursable Expenses");
WHEREAS, Keller has loaned the Borrower an additional $25,000 for
working capital pursuant to a Promissory Note dated January 7, 2005 (the "Keller
Note"), Pouring has loaned the Borrower $5,000 for working capital pursuant to a
Promissory Note dated March 3, 2005 (the "Pouring Note"), and Ponticas has
loaned the Borrower $5,000 for working capital pursuant to a Promissory Note
dated March 3, 2005 (the "Ponticas Note") (the Keller Note, the Pouring Note and
the Ponticas Note are collectively referred to hereafter as the "Notes");
WHEREAS, on February 15, 2005 Pouring executed a Financial Guarantee
for the payment of credit card obligations of the Borrower to Advanta Bank Corp.
in the current amount of $15,200 up to a credit limit of $27,500;
WHEREAS, Pouring, Ponticas and Keller have agreed to be secured by the
Borrower on a shared basis pursuant to the terms of a separate agreement between
and amongst themselves, and it is their intention to further share the security
interest in the Collateral with additional potential lenders or others as
necessary for the benefit of the Borrower and its shareholders;
WHEREAS, the Borrower is agreeable to secure the future deferred
compensation, additional loans for working capital, additional Financial
Guarantees, and Reimbursable Expenses, and to pay the expenses of perfecting
such security interest;
NOW, THEREFORE, in consideration of the Explanatory Statement, which is
incorporated herein by reference, and the covenants, agreements, warranties and
representations contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
do hereby agree as follows:
ARTICLE I
EFFECTIVENESS AND TERM
This Agreement shall be effective for all purposes as of January 7,
2005, except with respect to Pouring's Financial Guarantee to Advanta Bank
Corp., for which the effective date shall be February 15, 2005, and the Pouring
Note and the Ponticas Note, for which Notes the effective date shall be March 3,
2005. This Agreement shall remain in effect until all the Indebtedness (defined
below) has been repaid in full.
ARTICLE II
DEFINITIONS
SECTION 2.1. DEFINITIONS. As used in this Agreement and in the Loan Documents
(defined below), the following terms shall have the meanings indicated below
unless the specific context requires a different meaning. All capitalized terms
which are not otherwise defined herein and which are defined in the Maryland
Uniform Commercial Code - Secured Transactions, Title 9, Commercial Law Article,
Annotated Code of Maryland, as amended, shall have the meanings set forth
therein.
"Collateral" means all of the following property in which the Borrower
has granted a security interest to the Lender pursuant to Article IV of this
Agreement, both now owned and existing and hereafter owned, existing, acquired,
created and arising, regardless of where located, and all of the Borrower's both
now existing and hereafter acquired rights, title and interest in and to such
property together with all replacements thereof and substitutions therefore (all
of such property described below and such rights, title and interest being
herein collectively called the "Collateral"): All patents and trademarks
registrations and applications made by, or on behalf of, the Borrower to the
Patent and Trademark Office or to any similar office or agency of any foreign
country or political subdivision thereof for the registration, now of record or
in the future to become of record;
All cash and noncash proceeds and products of the above, including,
without limitation, all cash and noncash proceeds of, and all other profits,
rentals or receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or realization upon,
any asset or property which constitutes Collateral, including, without
limitation, all claims of Borrower against third parties for loss of, damage to
or theft or destruction of, or for proceeds payable under, or unearned premiums
with respect to, policies of insurance covering any asset or property which
constitutes Collateral, any condemnation or requisition payments with respect to
any asset or property which constitutes Collateral, in each case whether both
now existing and hereafter arising, and all cash, checks, draft and instruments
received or held for the benefit of the Secured Party.
"Encumbrance" means any mortgage, lien, pledge, adverse claim, charge,
security interest or other encumbrance in or on, or any interest or title of any
vendor, lessor, lender, or other secured party under any conditional sale or
other title retention agreement or lease with respect to, any property or
collateral.
"Event of Default" and "Default" shall have the meaning set forth in
Section 8.1 hereof.
"Indebtedness" or "Loan" means any obligation owed by the Borrower to the
Lender for all deferred compensation, loans for working capital, Financial
Guarantees, and Reimbursable Expenses accruing, or entered into, from and after
the effective date of this Agreement. A listing of the Indebtedness accumulated
as of March 3, 2005 is attached hereto as Exhibit 2. Such listing is to be
updated from time to time by the Borrower and appended to Exhibit 2. Additional
Indebtedness entered into by agreement of the parties subsequent to March 3,
2005 shall be listed and attached hereto as Exhibit 3.
"Loan Documents" means all documents executed by the Borrower in
connection with the Notes, Financial Guarantees, Reimbursable Expenses, and the
employment of the Lender, including but not limited to, this Agreement, the
Employment Agreements and/or Consulting Agreements between Lender and Borrower,
salary amounts authorized by the Board of Directors of the Borrower, the
compensation records of the Borrower, and any financing statements relating to
the Collateral.
"Obligations" means the absolute obligation of the Borrower to pay to
the Lender (a) any and all sums due to the Lender under the stated terms of the
Indebtedness, this Agreement or the Loan Documents, and (b) in the event of any
proceeding to enforce the collection of the Obligations, or any of them, after
Default, the reasonable expenses of retaking, holding, preparing for sale,
selling or otherwise disposing of or realizing on the Collateral or of any
exercise by the Lender of the Lender's rights in the Event of Default, together
with attorneys' fees, expenses of collection and court costs, as provided in the
Loan Documents.
ARTICLE III
TERMS OF THE INDEBTEDNESS
The terms of the Indebtedness are more fully described in the Loan
Documents.
ARTICLE IV
SECURITY FOR THE LOAN
SECTION 4.1 SECURITY. The Borrower's Obligations under the Indebtedness are
evidenced and secured by (a) this Agreement and (b) the Loan Documents. In order
to secure the full and timely payment and performance of the Obligations, the
Borrower hereby pledges and grants to the Lender all of the Borrower's right,
title and interest in, the Collateral.
SECTION 4.2 EXERCISE OF RIGHTS. Until such time as the Borrower is in
default in paying the principal sum of the Indebtedness or any interest accrued
thereon, or in performing any of the Borrower's other obligations under the
provisions of the Loan Documents, after notice and beyond applicable cure
periods, if any, the Lender shall be entitled to exercise all of the rights held
by it under the provisions of this Agreement and the Loan Documents.
SECTION 4.3 INTENTIONALLY OMITTED.
SECTION 4.4 PROCEEDS AND PRODUCTS. The Lender's security interest shall
apply to and cover any and all proceeds of the Collateral, including but not
limited to, insurance proceeds and the products of any Collateral.
SECTION 4.5 PRIORITY OF LIEN AND SECURITY INTEREST. The lien and
security interest granted by the Borrower to the Lender pursuant to this
Agreement shall be and remain, at all times that any portion of the Indebtedness
remains outstanding and unpaid, a first and indefeasible perfected security
interest in and to the Collateral, unless otherwise agreed to be the Lender. It
is agreed that any security given by the Borrower to the Lender to secure
antecedent deferred compensation shall be specifically subordinated to deferred
compensation that accrued from and after the effective date of this Agreement.
SECTION 4.6 LOSS OF SECURITY. The Lender shall not be liable for any loss
of any Collateral in its possession, nor shall such loss diminish the debt due,
unless said loss results from Lender's gross negligence or willful misconduct.
SECTION 4.7 TERMINATION OF SECURITY INTEREST. Upon payment in full of
such principal sum, interest and other Indebtedness, and all other sums owed to
the Lender under the provisions of the Loan Documents, this Agreement or any
other document executed in connection therewith, the security interest in the
Collateral shall be and become void and of no further effect; provided, that the
affidavit, certificate, letter or statement of any officer, agent or attorney of
the Lender that any of such principal sum, interest, indebtedness or other sums
remain unpaid shall be and constitute conclusive evidence of the validity,
effectiveness and continuing force of the assignment, and any person may, and is
hereby authorized to, rely thereon. The Borrower hereby authorizes and directs
the licensee under each present or future Patent or Trademark, upon receipt from
the Lender of written notice that a default exists thereunder or under this
Agreement, after notice and beyond applicable cure periods to pay over to the
Lender all rents, income and profits arising or accruing under such Patent and
Trademark and to continue to do so until otherwise notified in writing by the
Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
BY THE BORROWER
SECTION 5.1 REPRESENTATIONS AND WARRANTIES BY THE BORROWER. The Borrower
makes the following representations and warranties:
(a) Existence. The Borrower is a corporation duly organized and existing
and in good standing under the laws of the State of Maryland and the Borrower
has the power to own its properties and to carry on its business as now being
conducted, and the Borrower is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned by
it therein or in which the transaction of its business makes such qualification
necessary.
(b) Authority. The Borrower has full power and authority to enter into and
execute and deliver this Agreement and each of the other Loan Documents executed
and delivered by it and to incur and perform the Borrower's Obligations provided
for herein and therein (including the borrowing under the Indebtedness). No
further consent or approval of any other person or public authority or
regulatory body is required as a condition to the validity or enforceability of
this Agreement or any of the other Loan Documents, or if required, the
same has been obtained.
(c) Binding Agreements. This Agreement and each of the other Loan Documents
executed and delivered by the Borrower have been duly and properly executed by
the Borrower, constitute the valid and legally binding obligations of the
Borrower and are fully enforceable against the Borrower in accordance with their
respective terms.
(d) Litigation. There is no litigation or proceeding pending or threatened,
before any court or administrative agency which will materially adversely affect
the financial condition of the Borrower or the authority of the Borrower to
enter into, or the validity or enforceability of, this Agreement or any of the
other Loan Documents or the ability of the Borrower to perform the Borrower's
Obligations which has not been disclosed to the Lender.
(e) No Conflicting Agreements. There is (i) no provision in any existing
mortgage, indenture, contract or agreement binding on the Borrower or affecting
any of the Borrower's property and (ii) no provision of law or order of court
binding upon the Borrower or affecting any of the Borrower's property which
would conflict with or in any way prevent the execution, delivery or performance
of the terms of this Agreement or of any of the other Loan Documents executed
and delivered by the Borrower, or which would be in
default or violated as a result of such execution, delivery or performance.
(f) Taxes. The Borrower has timely and accurately filed all required
federal, state and local tax or information returns, and it is not currently
being audited by either the state or federal governments. The Borrower is not
delinquent in the payment of any income, property or other federal, state or
local tax or assessment.
(g) Place of Business of Borrower. The Borrower has a place of business in
Anne Arundel County, Maryland, which is the only place where the Borrower
maintains a place of business.
(h) Name. The Borrower has never operated under or used any other name or
title to all of the Collateral. The Lender's security interest shall constitute
a first and indefeasible security interest therein, unless otherwise agreed to
by the Lender.
(i) No Untrue Statements. Neither this Agreement, the Loan Documents nor
any other document, certificate or statement furnished or to be furnished by the
Borrower or by any other party to the Lender in connection herewith contains, or
at the time of delivery will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein and therein not materially misleading.
ARTICLE VI
AFFIRMATIVE COVENANTS OF BORROWER
The Borrower hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Obligations, unless the Lender shall otherwise
consent in writing, the Borrower shall do the following:
SECTION 6.1 NOTICE OF CHANGE OF BUSINESS LOCATION. The Borrower shall
notify the Lender in writing thirty (30) days in advance of any change in the
location of any of its places of business or of the establishment of any new, or
the discontinuance of any existing, place of business.
SECTION 6.2 EXISTENCE; CERTAIN RIGHTS; LAWS. The Borrower shall do all
things necessary to preserve and keep in full force and effect in each
jurisdiction in which it conducts business, the business existence, licenses,
permits, rights, patents, trademarks, trade names and franchises of the Borrower
and comply with all present and future laws, ordinances, rules, regulations,
judgments, orders and decrees which affect in any material way the Borrower, its
assets or the operation of its business.
SECTION 6.3 NOTICE OF LITIGATION OR OTHER PROCEEDINGS. The Borrower
shall give immediate notice to the Lender of (i) the existence of any continuing
material dispute with respect to any of the Collateral, (ii) the institution of
any litigation, administrative proceeding or governmental investigation
involving the Borrower and/or any of the Collateral, any of which might
materially and adversely affect the operation, financial condition, property or
business of the Borrower or any of the Collateral or affect the enforceability
of this Agreement or any of the other Loan Documents.
SECTION 6.4 INDEBTEDNESS. The Borrower shall pay or cause to be paid when
due (or within applicable grace periods) all Indebtedness of the Borrower.
SECTION 6.5 NOTICE OF EVENTS OF DEFAULT. The Borrower shall give immediate
notice to the Lender if the Borrower becomes aware of the occurrence of any
Event of Default, or of any facts, condition or event which with the giving of
notice or lapse of time, or both, would be an Event of Default, or of the
failure of the Borrower to observe or perform any of the conditions or covenants
to be observed or performed by it under this Agreement or any of the other Loan
Documents.
SECTION 6.6 FURTHER ASSURANCES. The Borrower shall execute such other
and further documents, including without limitation, promissory notes, security
agreements, agreements, financing statements, continuation statements, and
similar instruments as may from time to time, in the sole opinion of the Lender
or the Lender's counsel, be necessary, proper or convenient, to perfect,
confirm, establish, re-establish, continue or complete the security interest in
the Collateral and the purposes and intentions of this Agreement, it being the
intention of the Borrower to hereby provide a full and absolute warranty of
further assurance to the Lender. In the event the Borrower shall fail for any
reason to execute, within ten (10) days of the Lender's written demand, any
document of the aforementioned type which the Lender requests the Borrower to
execute, the Borrower shall and hereby irrevocably and automatically appoint the
Lender as the Borrower's attorney-in-fact to execute such document in the
Borrower's name, place and stead and on the Borrower's behalf, and such power of
attorney shall constitute a power of attorney coupled with an interest and shall
be irrevocable unless and until the subject document is fully and effectively
executed.
ARTICLE VII
NEGATIVE COVENANTS
The Borrower covenants and agrees that, until satisfaction in full of
all Obligations, it will not do or permit to be done or to cause to occur any of
the acts or happenings set forth below without the prior written consent of the
Lender.
SECTION 7.1 FUNDAMENTAL CHANGES. Change its name, enter into or effect any
merger, consolidation, share exchange, division, conversion, reclassification,
recapitalization, reorganization or other transactions of like effect which
changes the control of the affairs of Borrower from that which exists on the
date hereof, or dissolve, sell, transfer, lease or otherwise dispose of all or
(except in the ordinary course of business for adequate consideration) any
material portion of its assets or any significant product
line or process.
SECTION 7.2 ENCUMBRANCE OR DISPOSAL OF COLLATERAL. The Borrower shall not
sell, lease, convey, or otherwise dispose of, or mortgage, pledge, assign, grant
or permit to exist any liens, claims, encumbrances or security interests in or
upon any of the Collateral, except liens, if any, required by this Agreement.
SECTION 7.3 ASSIGNMENT OF THIS AGREEMENT. The Borrower shall not assign or
attempt to assign this Agreement to any person.
SECTION 7.4 PREPAYMENT OF INDEBTEDNESS. Make any voluntary prepayments of
Indebtedness other than in ordinary course of business.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.1 EVENTS OF DEFAULT DEFINED. The following shall be "Events of
Default" under this Agreement, and the terms "Events of Default", "Event of
Default" and "default" shall mean, whenever they are used in this Agreement, any
one or more of the following events:
(a) Any representation or warranty made herein or in any statement or
representation made in any certificate, report, financial statement or other
instrument furnished in connection with this Agreement, or in any of the other
Loan Documents, shall prove to have been incorrect in any material respect when
made or shall be breached in any material respect; or
(b) The Borrower shall fail to pay within five (5) days written notice that
the same is due and payable any payment of principal of or interest under
Indebtedness or with respect to any other sums or charges due on or under the
Indebtedness or any repayment required by the security agreement executed in
connection with this transaction;
(c) There shall occur a default in the due and punctual
performance or observance of any term, covenant, condition, agreement or
provision, other than as specified in the foregoing Paragraph (b), contained in
any of the Loan Documents associated with this transaction, to be performed or
observed by the Borrower, which is not cured within thirty (30) days of notice
of said default, provided Borrower shall be given a greater period to cure if it
commences to cure within said thirty (30) day period and diligently proceeds
towards cure;
(d) The Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or any of its property or assets, (ii) become generally
unable to pay its debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a debtor under 11 U.S.C. section 101
et. seq., (v) file a voluntary petition in bankruptcy or a petition or answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if any action
shall be taken by the Borrower for the purposes of affecting any of the
foregoing, or (vi) by any act indicate its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
trustee for the Borrower or any of its property or assets, or suffer any such
receivership, trusteeship or proceeding to continue undischarged for a period of
sixty (60) days, or
(e) An order, judgment or decree shall be entered, without the application,
approval or consent of the Borrower by any court of competent jurisdiction,
approving a petition seeking the dissolution or reorganization of the Borrower
or of all or any substantial part of the assets of the Borrower, or appointing a
receiver, trustee or liquidator of the Borrower and such order, judgment or
decree shall continue unstayed and in effect for any period of sixty (60) days;
or
(f) Any judgment against the Borrower, or any attachment or any levy
against any property of the Borrower with respect to a claim for an amount in
excess of Twenty-Five Thousand Dollars ($25,000) remains unpaid, undischarged,
unbonded or undismissed for a period of sixty (60) days; or
(g) An Event of Default shall occur under any of the other Loan Documents;
or
(h) The Borrower is dissolved, terminated and/or liquidated.
SECTION 8.2 REMEDIES ON DEFAULT. In addition to all other rights and
remedies provided to it by law and under the Loan Documents, the Lender on the
happening of any Event of Default may in its sole and absolute discretion do any
or all of the following:
(a) Declare the unpaid principal of the Indebtedness and interest accrued
thereon, together with all other monies payable to the Lender by the Borrower,
to be immediately due and payable by notice in writing to that effect, delivered
to the Borrower, and upon such declaration, all such monies shall be immediately
due and payable at the place of payment provided in such notice, anything in the
Loan Documents or in this Agreement to the contrary notwithstanding.
(b) Foreclose on any of the Collateral, or any collateral in which Lender
has an interest pursuant to the terms of any other Indebtedness outstanding
between Borrower and the Lender;
(c) File suit against the Borrower under any Document associated with this
transaction;
(d) Seek specific performance or injunctive relief to enforce performance
of the undertakings, duties and agreements provide in the documents associated
with this transaction, whether or not a remedy exits as law or is adequate;
(e) The rights and remedies provided in this Agreement or in
the Loan Documents or under applicable law shall be cumulative and the exercise
of any particular right or remedy shall not preclude the exercise of any other
rights or remedies in addition to or as an alternative of such right or remedy.
No delay or omission to exercise any right or power accruing upon an Event of
Default shall impair any such right or power or be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed prudent.
SECTION 8.3 SALE OF COLLATERAL. In addition to any other remedy
provided herein, the Lender may, subject to applicable law, sell at public or
private sale or otherwise realize upon, in Annapolis, Maryland or elsewhere, the
whole or, from time to time, any part of the Collateral or any interest which
the Borrower may have therein. After deducting from the proceeds of sale or
other disposition of the Collateral all expenses, including all expenses for
legal services, the Lender shall apply such proceeds toward the satisfaction of
the Indebtedness. Any remainder of the proceeds after satisfaction in full of
all amounts due and owing under the Indebtedness shall be distributed as
required by applicable law. Notice of any sale or other disposition shall be
given to the Borrower at least fifteen (15) working days (or such longer period
as may be required by law) before the time of any intended public sale or of the
time after which the intended private sale or other disposition of the
Collateral is to be made, which the Borrower hereby agrees shall be reasonable
notice of such sale or other disposition. The Borrower agrees to assemble, or to
cause to be assembled, at the Borrower's own expense, the Collateral at such
place or places as the Lender shall designate. At any such sale or other
disposition, the Lender may, to the extent permissible under applicable law,
purchase the whole or any part of the Collateral. Without limiting the
generality of any of the rights and remedies conferred upon the Lender under
this Agreement, the Lender may, to the full extent permitted by applicable law
(a) enter upon the premises of the Borrower and exclude therefrom the Borrower
or any affiliate thereof, and take immediate possession of the Collateral,
either personally or by means of a receiver appointed by a court of competent
jurisdiction, using all necessary force to do so, (b) at the Lender's option,
use, operate, manage and control the Collateral in any lawful manner, (c)
collect and receive all rents, income, revenue, earnings, issues and profits
therefrom, and (d) maintain, repair, renovate, alter or remove the Collateral as
the Lender may determine in the Lender's sole and absolute discretion.
SECTION 8.4 ATTORNEY'S FEES AND EXPENSES. The Borrower shall pay all
reasonable attorneys' fees and expenses which the Lender may incur as a result
or in consequence of the happening of an Event of Default, even if the Event of
Default is cured and the Indebtedness is placed in good standing.
SECTION 8.5 CONFESSED JUDGMENT. UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT, THE BORROWER HEREBY AUTHORIZES ANY ATTORNEY DESIGNATED BY THE LENDER OR
ANY CLERK OF ANY COURT OF RECORD TO APPEAR FOR THE BORROWER IN ANY COURT OF
RECORD IN THE STATE OF MARYLAND AND CONFESS JUDGMENT WITHOUT PRIOR HEARING
AGAINST THE BORROWER IN FAVOR OF THE LENDER FOR AND IN THE AMOUNT OF THE UNPAID
PRINCIPAL SUM, ALL INTEREST ACCRUED AND UNPAID THEREON, ALL OTHER AMOUNTS
PAYABLE BY THE BORROWER TO THE LENDER UNDER THE TERMS OF THE INDEBTEDNESS OR ANY
OF THE OTHER LOAN DOCUMENTS, COSTS OF SUIT, AND ATTORNEYS' FEES OF FIFTEEN
PERCENT (15%) OF THE UNPAID PRINCIPAL SUM AND INTEREST THEN DUE HEREUNDER
(PROVIDED THAT, IF SUCH JUDGMENT IS NOT APPEALED OR CONTESTED BY THE BORROWER
THEN, FOLLOWING THE PASSAGE OF TIME FOR APPEAL, AND COLLECTION OF THE AMOUNT OF
SUCH JUDGMENT AND ALL SUCH FEES AND COSTS, THE LENDER WILL REMIT TO THE BORROWER
THE EXCESS, IF ANY, OF THE ATTORNEY'S FEES AWARDED AND COLLECTED AND THE ACTUAL
ATTORNEY' FEES REASONABLY INCURRED BY LENDER IN ENFORCING ITS RIGHTS HEREUNDER
OR UNDER THE OTHER LOAN DOCUMENTS). THE BORROWER HEREBY RELEASES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ALL ERRORS AND ALL RIGHTS OF EXEMPTION, APPEAL,
STAY OF EXECUTION, INQUISITION, AND OTHER RIGHTS TO WHICH THE BORROWER MAY
OTHERWISE BE ENTITLED UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR OF ANY
STATE OR POSSESSION OF THE UNITED STATES OF AMERICA NOW IN FORCE AND WHICH MAY
HEREAFTER BE ENACTED. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT
AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF OR
BY ANY IMPERFECT EXERCISE THEREOF AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO. SUCH AUTHORITY MAY BE EXERCISED ON ONE OR MORE
OCCASIONS OR FROM TIME TO TIME IN THE SAME OR DIFFERENT JURISDICTIONS AS OFTEN
AS THE LENDER SHALL DEEM NECESSARY OR DESIRABLE, FOR ALL OF WHICH THIS NOTE
SHALL BE A SUFFICIENT WARRANT.
SECTION 8.6 WAIVERS; CONSENT TO JURISDICTION. The Borrower irrevocably
submits to the jurisdiction of any state or federal court sitting in the State
of Maryland over any suit, action, or proceeding arising out of or relating to
this Agreement. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection that the Borrower may now or hereafter have to the laying
of venue of any such suit, action, or proceeding brought in any such court and
any claim that any such suit, action, or proceeding brought in any such court
has been brought in an inconvenient forum. Final judgment in any such suit,
action, or proceeding brought in any such court shall be conclusive and binding
upon the Borrower and may be enforced in any court in which the Borrower is
subject to jurisdiction by a suit upon such judgment provided that service of
process is effected upon the Borrower as provided in this Agreement or as
otherwise permitted by applicable law. The Borrower hereby consents to process
being served in any suit, action, or proceeding instituted in connection with
this Agreement by (a) the mailing of a copy thereof by certified mail, postage
prepaid, return receipt requested, to the Borrower and (b) serving a copy
thereof any agent hereafter designated in writing to the Lender by the Borrower
as the Borrower's agent for service of process. The Borrower irrevocably agrees
that such service shall be deemed to be service of process upon the Borrower in
any such suit, action, or proceeding. Nothing in this Section shall affect the
right of the Lender to serve process in any manner otherwise permitted by law
and nothing in this Section will limit the right of the Lender otherwise to
bring proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (A) THIS INDEBTEDNESS, OR (B) ANY DOCUMENT
ASSOCIATED WITH THIS TRANSACTION. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAVIER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS INDEBTEDNESS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY
THE BORROWER, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT
OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAVIER OF TRIAL BY
JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER HAS HAD AN
OPPORTUNITY TO CONSULT COUNSEL REGARDING THIS WAIVER OR HAD KNOWINGLY ELECTED
NOT TO CONSULT WITH COUNSEL PRIOR TO MAKING THIS WAIVER.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 INCONSISTENCIES. The terms and conditions of the Loan Documents
are incorporated by reference and made a part hereof as if fully set forth
herein. In the event of any inconsistencies between this Agreement and any other
Loan Documents, such inconsistencies shall be construed, interpreted and
resolved so as to benefit the Lender.
SECTION 9.2 BENEFIT; BURDENS. This Agreement shall inure to the benefit of
and shall be binding upon the Lender, the Borrower and their respective
successors and permitted assigns and shall not inure to the benefit of any other
party.
SECTION 9.3 NOTICES. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
or when mailed by first class, certified mail, postage prepaid, return receipt
requested, addressed to the Borrower, the Lender or to any other Person to whom
any such notice or certificate or other communication is to be given, at the
following addresses:
If to the Lender: Andrew A. Pouring George E. Ponticas
Edgewater, Maryland 21037 Timonium, Maryland 21093
Michael I. Keller
Alexandria, Virginia 22311
If to the Borrower: Sonex Research, Inc
c/o Andrew A. Pouring
23 Hudson Street
Annapolis, Maryland 21401
SECTION 9.4 AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may not
be amended, changed, modified, altered or terminated except by a written
instrument executed by the Lender and the Borrower.
SECTION 9.5 LAW GOVERNING. This Agreement is prepared and entered into with
the intention that the law of the State of Maryland shall govern its
construction and interpretation.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be
executed and sealed as of the day and year first above written.
WITNESS/ATTEST: SONEX RESEARCH, INC.
--------------- --------------------
Andrew A. Pouring,
Chief Executive Officer
EXHIBIT 1
STATEMENT OF INTENT
January 7, 2005
Sonex Research, Inc. ("Sonex" or the "Company") has been unable for an
extended period of time to keep current with its compensation payments to
consultant Michael I. Keller and to officers Andrew A. Pouring and George E.
Ponticas, or to timely repay loans made by Keller and shareholder Sidney L.
Gulick, 3d. The Company's accounting records provide detailed listings of the
significant amounts owed to these individuals.
The Company requires an immediate infusion of cash for urgent working
capital needs. The Company needs Pouring, Ponticas and Keller to continue to
provide services in their present capacities in order for the Company to
continue in operation, yet the Company presently does not have sufficient cash
to pay current compensation as earned. Through March 31, 2005 the Company
anticipates cash receipts of $116,807 upon payment on the Company's remaining
invoices issued and to be issued to the Defense Advanced Research Projects
Agency (DARPA) totaling $104,341, and $12,466 under a current purchase order
from XXXXXX XXXXXXX XXXXXXXX XXXXX, yet such cash receipts are restricted as to
use because they are currently securing amounts due under notes payable to
Gulick and Keller. In addition, Keller has offered to provide the Company
additional cash for working capital of $25,000 on the good faith promise of the
Company to provide promptly adequate security for such note and for previous
notes and assurances as to the availability of Pouring and Ponticas to continue
to provide services to Sonex.
This Statement of Intent serves to provide preliminary documentation of an
agreement in principle by Sonex, Keller, Pouring and Ponticas for the conditions
under which these individuals will undertake to keep Sonex in operation for the
immediately foreseeable future. Pouring, Ponticas and Keller have agreed to act
as a group for the mutual benefit of the Company, its shareholders, Gulick,
other creditors and themselves. Pouring is also acting individually for the
benefit of consultant David A. Blank. In consideration, Sonex agrees to execute
a pledge, assignment or grant to Keller, Pouring, Ponticas and Gulick of a
shared security interest in the Company's patents (the "Collateral") with
respect to the following services, personal guarantees, and liabilities which
are detailed in the Company's accounting records:
1. Accrued compensation, comprised of wages, vacation, bonus and/or
consulting fees owed to Keller, Pouring and Ponticas, and to Blank
in an amount to be determined by Pouring.
2. Reimbursable expenses owed to Keller, Pouring and Ponticas.
3. Notes plus accrued interest payable to Keller and Gulick.
4. Personal financial guarantees by Pouring for the payment by the
Company of charges accumulated with respect to business credit card
accounts and pursuant to equipment leases.
5. Payments for continued services by Pouring, Ponticas and Keller.
Sonex is to receive the following consideration:
1. Keller will provide the Company additional cash for working capital of
$25,000 pursuant to a Promissory Note payable by March 31, 2005.
2. Keller and Gulick will agree to extend to March 31, 2005 the due dates
of all presently outstanding notes and will agree to amend such notes
to release the collateral presently provided by cash payments received
from Company revenues.
3. Pouring, Ponticas and Keller will agree to continue to provide services
to the Company in their present capacities under existing compensation
arrangements for the immediately foreseeable future under the risk of
the Company's being unable to pay outstanding compensation and/or
current compensation as earned.
4. Pouring, Ponticas and Keller will agree to stay any demand for
immediate payment of outstanding compensation through March 31, 2005.
It is the intention of Sonex to obtain legal counsel as soon as
practical to prepare a security and/or other similar agreement(s) to be
effective January 7, 2005 (the "Security Agreement") to record formally the
intent of the parties as outlined herein. It is the intention of the parties to
further share the security interest in the Collateral with additional potential
lenders or others as necessary for the benefit of the Company and its
shareholders.
Signed this 7th day of January, 2005, at Annapolis, Maryland.
------------------
Michael I. Keller
------------------
Andrew A. Pouring
------------------
George E. Ponticas
SONEX RESEARCH, INC.
By: ------------------ ------------------
Andrew A. Pouring George E. Ponticas
Chief Executive Officer Chief Financial Officer
EXHIBIT 2
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
MARCH 3, 2005
First security:
Ongoing and future services (Jan 2005 through March 3, 2005 ):
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 22,384
Ponticas CFO & Secretary 18,461
Keller Director of Business Development & Program Manager 13,616 54,461
New loans plus interest:
Date and Description
--------------------
Keller 1/7/05 - Operating cash 25,000
Ponticas 3/3/05 - Legal fee retainer 5,000
Pouring 3/3/05 - Legal fee retainer 5,000 35,000
Financial guarantees:
Pouring Since 1/1/05 - Capital One VISA 1,565
Pouring Since 2/15/05 - Advanta Mastercard 15,200 16,765
-------
Total 106,226
EXHIBIT 2.1
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
MARCH 31, 2005
First security:
Ongoing and future services (Jan 2005 through March 31, 2005 ):
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 36,147
Ponticas CFO & Secretary 31,499
Keller Director of Business Development & Program Manager 24,332 91,978
New loans plus interest:
Date and Description
--------------------
Keller 1/7/05 - Operating cash 25,345
Ponticas 3/3/05 - Legal fee retainer 5,024
Pouring 3/3/05 - Legal fee retainer 5,024
Keller 3/28/05 - Operating cash 12,008 47,401
Financial guarantees:
Pouring Since 1/1/05 - Capital One VISA 3,263
Pouring Since 2/15/05 - Advanta Mastercard 15,200 18,463
-------
Total 157,842
EXHIBIT 2.2
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
JUNE 30, 2005
First security:
Ongoing and future services (Jan 2005 through June 2005):
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 57,842
Ponticas CFO & Secretary 66,690
Keller Director of Business Development & Program Manager 46,606 171,138
New loans plus interest:
Date and Description
--------------------
Keller 1/7/05 - Operating cash 25,719
Ponticas 3/3/05 - Legal fee retainer 5,098
Pouring 3/3/05 - Legal fee retainer 5,098
Keller 3/28/05 - Operating cash 12,188
Keller 5/3/05 - Operating cash 10,097
Keller 5/19/05 - Operating cash 10,069
Keller 6/15/05 - Operating cash 10,026 78,295
Financial guarantees:
Pouring Since 1/1/05 - Capital One VISA 6,259
Pouring Since 2/15/05 - Advanta Mastercard 13,950 20,209
-------
Total 269,642
EXHIBIT 2.3
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
September 30, 2005
First security:
Ongoing and future services (Jan 2005 through September 2005):
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 90,719
Ponticas CFO & Secretary 97,266
Keller Director of Business Development & Program Manager 74,945 262,929
New loans plus interest:
Date and Description
--------------------
Keller 1/7/05 - Operating cash 25,378
Keller 3/28/05 - Operating cash 12,182
Keller 5/3/05 - Operating cash 10,151
Keller 5/19/05 - Operating cash 10,151
Keller 6/15/05 - Operating cash 10,151 68,013
Financial guarantees:
Pouring Since 1/1/05 - Capital One VISA 14,807
Pouring Since 2/15/05 - Advanta Mastercard 13,050 27,857
-------
Total 358,799
EXHIBIT 3
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
September 30, 2005
INDEBTEDNESS ADDED TO FIRST SECURITY
Date Lender Description Amount
---- ------ ----------- ------
3/28/05 Michael I. Keller Note payable $ 12,000
5/3/05 Michael I. Keller Note payable 10,000
5/19/05 Michael I. Keller Note payable 10,000
6/15/05 Michael I. Keller Note payable 10,000
--------
Total $ 42,000
EXHIBIT 99.5
SECOND LOAN AND SECURITY AGREEMENT
THIS SECOND LOAN AND SECURITY AGREEMENT (the "Agreement") dated March 3,
2005 is made between Sonex Research, Inc. (the "Borrower") and Andrew A. Pouring
("Pouring"), George E. Ponticas ("Ponticas"), Michael I. Keller ("Keller"), and
Sidney L. Gulick, 3d ("Gulick") (collectively sometimes referred to as the
"Lender").
EXPLANATORY STATEMENT
WHEREAS, Pouring has been associated with the Borrower since 1980 as
its founder and, at various times, as an employee, executive officer, director
and consultant, and is currently serving as the Borrower's Chairman, Chief
Executive Officer, President and Chief Technical Officer;
WHEREAS, Pouring is owed unpaid compensation of $325,513 as of December
31, 2004 that has been earned since his employment by the Borrower, consisting
of wages, vacation, and bonus compensation of $257,548 and unpaid consulting
fees of $67,965 (together, "Pouring's Accrued Compensation"). Pouring is also
owed deferred salary of $486,423 as of December 31, 2004, the timing of payment
of which is currently subject to the conditions of the 1992 Consent to Deferral
agreement between Pouring and the Borrower. Pouring also has personally
guaranteed the payment by the Borrower of charges accumulated on two VISA
business credit card accounts with a combined credit limit of $46,500, the
outstanding balances on which accounts totaled $40,889 as of December 31, 2004.
Pouring also has personally guaranteed payment by the Borrower of principal and
interest on two equipment lease obligations with unpaid principal of $27,021 as
of December 31, 2004. The personal guarantees by Pouring of VISA business credit
card accounts and equipment lease obligations are referred to as "Financial
Guarantees".
WHEREAS, Ponticas has been associated with the Borrower since 1987 at
various times as an employee, executive officer and director, and is currently
serving as the Borrower's Chief Financial Officer, Secretary, Treasurer, and
Vice President of Finance;
WHEREAS, Ponticas is owed unpaid compensation of $219,324 as of December
31, 2004 that has been earned since his employment by the Borrower, consisting
of wages, vacation, and bonus compensation ("Ponticas' Accrued Compensation").
Ponticas is also owed deferred salary of $155,326 as of December 31, 2004, the
timing of payment of which is currently subject to the conditions of the 1992
Consent to Deferral agreement between Ponticas and the Borrower.
WHEREAS, Keller has been a valued consultant to the Borrower since
1998, serving as Director of Business Development and technical program manager,
and has been a source of working capital loans for the Borrower since 2004;
WHEREAS, Keller is owed from the Borrower a total of $25,000 plus
accrued interest pursuant to Promissory Notes dated August 13, 2004 in the
principal amount of $7,500 and December 17, 2004 in the principal amount of
$17,500 (the "2004 Keller Notes"), as well as unpaid consulting fees of $83,270
("Keller's Accrued Compensation");
WHEREAS, Gulick is owed by the Borrower a total of $106,000 plus accrued
interest pursuant to Promissory Notes dated March 27, 2002, June 25, 2003, and
March 16, 2004 (the "Gulick Notes");
WHEREAS, all of the above-described Accrued Compensation is payable
upon demand, and payment of principal and interest under the Gulick Notes and
the Keller Notes were due on December 31, 2004 and are secured by revenues of
the Borrower, with the exception of the December 17, 2004 Promissory Note to
Keller which is due on March 31, 2005 and is not secured by revenues of the
Borrower;
WHEREAS, on January 7, 2005 the Borrower and the Lender executed a
Statement of Intent, a copy of which is attached hereto as Exhibit 1, to
document an agreement in principle by the parties for the conditions under which
Pouring, Ponticas and Keller, acting as a group for the mutual benefit of the
Borrower, its creditors, its shareholders, and themselves, would undertake to
keep the Borrower in operation for the immediately foreseeable future;
WHEREAS, the Borrower needs the Lender to agree to stay any demand for
payment of the above-described Accrued Compensation and Notes and to release the
security of the Notes presently provided by revenues of the Borrower;
WHEREAS, the Lender is willing to stay any demand for payment of the
above-described Accrued Compensation through March 31, 2005 and to amend the
Notes to extend the due dates to March 31, 2005 and to release the collateral
presently provided by revenues of the Borrower, in exchange for which the Lender
requires that the Borrower provide security for the payment of the Accrued
Compensation, Notes and Financial Guarantees;
WHEREAS, Pouring, Ponticas, Keller, and Gulick have agreed to be
secured by the Borrower on a shared basis pursuant to the terms of a separate
agreement between and amongst themselves;
WHEREAS, the Borrower is agreeable to secure the Accrued Compensation,
Notes and Financial Guarantees, and to pay the expenses of perfecting such
security interest;
NOW, THEREFORE, in consideration of the Explanatory Statement, which is
incorporated herein by reference, and the covenants, agreements, warranties and
representations contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
do hereby agree as follows:
ARTICLE I
EFFECTIVENESS AND TERM
This Agreement shall be effective for all purposes as of January 7,
2005 and shall remain in effect until all the Indebtedness (defined below) has
been repaid in full.
ARTICLE II
DEFINTIONS
SECTION 2.1. DEFINITIONS. As used in this Agreement and in the Loan
Documents (defined below), the following terms shall have the meanings indicated
below unless the specific context requires a different meaning. All capitalized
terms which are not otherwise defined herein and which are defined in the
Maryland Uniform Commercial Code - Secured Transactions, Title 9, Commercial Law
Article, Annotated Code of Maryland, as amended, shall have the meanings set
forth therein.
"Collateral" means all of the following property in which the Borrower
has granted a security interest to the Lender pursuant to Article IV of this
Agreement, both now owned and existing and hereafter owned, existing, acquired,
created and arising, regardless of where located, and all of the Borrower's both
now existing and hereafter acquired rights, title and interest in and to such
property together with all replacements thereof and substitutions therefore (all
of such property described below and such rights, title and interest being
herein collectively called the "Collateral"): All patents and trademarks
registrations and applications made by, or on behalf of, the Borrower to the
Patent and Trademark Office or to any similar office or agency of any foreign
country or political subdivision thereof for the registration, now of record to
in the future to become of record;
All cash and noncash proceeds and products of the above, including,
without limitation, all cash and noncash proceeds of, and all other profits,
rentals or receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or realization upon,
any asset or property which constitutes Collateral, including, without
limitation, all claims of Borrower against third parties for loss of, damage to
or theft or destruction of, or for proceeds payable under, or unearned premiums
with respect to, policies of insurance covering any asset or property which
constitutes Collateral, any condemnation or requisition payments with respect to
any asset or property which constitutes Collateral, in each case whether both
now existing and hereafter arising, and all cash, checks, draft and instruments
received or held for the benefit of the Secured Party.
"Encumbrance" means any mortgage, lien, pledge, adverse claim, charge,
security interest or other encumbrance in or on, or any interest or title of any
vendor, lessor, lender, or other secured party under any conditional sale or
other title retention agreement or lease with respect to, any property or
collateral.
"Event of Default" and "Default" shall have the meaning set forth in
Section 8.1 hereof.
"Indebtedness" or "Loan" means any obligation owed by the Borrower to
the Lender for all Accrued Compensation, Notes and Financial Guarantees as
described in this Agreement and the 2004 Keller Notes and Gulick Notes
(collectively referred to hereafter as the "Notes"). A listing of the
Indebtedness accumulated as of December 31, 2004 is attached hereto as Exhibit
2. Such listing is to be updated from time to time by the Borrower to reflect
payments made and is to be appended to Exhibit 2.
"Loan Documents" means all documents executed by the Borrower in
connection with the employment of the Lender or loans made by the Lender to the
Borrower and evidenced by notes, including but not limited to, this Agreement,
the Notes, salary amounts authorized by the Board of Directors of the Borrower,
the compensation records of the Borrower, and any financing statements relating
to the Collateral.
"Obligations" means the absolute obligation of the Borrower to pay to
the Lender (a) any and all sums due to the Lender under the stated terms of the
Indebtedness, this Agreement or the Loan Documents, and (b) in the event of any
proceeding to enforce the collection of the Obligations, or any of them, after
Default, the reasonable expenses of retaking, holding, preparing for sale,
selling or otherwise disposing of or realizing on the Collateral or of any
exercise by the Lender of the Lender's rights in the Event of Default, together
with attorneys' fees, expenses of collection and court costs, as provided in the
Loan Documents.
ARTICLE III
TERMS OF THE INDEBTEDNESS
The terms of the Indebtedness are more fully described in the Loan
Documents.
ARTICLE IV
SECURITY FOR THE LOAN
SECTION 4.1 SECURITY. The Borrower's Obligations under the Indebtedness are
evidenced and secured by (a) this Agreement and (b) the Loan Documents. In order
to secure the full and timely payment and performance of the Obligations, the
Borrower hereby pledges and grants to the Lender all of the Borrower's right,
title and interest in, to the Collateral.
SECTION 4.2 EXERCISE OF RIGHTS. Until such time as the Borrower is in
default in paying the principal sum of the Indebtedness or any interest accrued
thereon, or in performing any of the Borrower's other obligations under the
provisions of the Loan Documents, after notice and beyond applicable cure
periods, if any, the Lender shall be entitled to exercise all of the rights held
by it under the provisions of this Agreement and the Note.
SECTION 4.3 INTENTIONALLY OMITTED.
SECTION 4.4 PROCEEDS AND PRODUCTS. The Lender's security interest shall
apply to and cover any and all proceeds of the Collateral, including but not
limited to, insurance proceeds and the products of any Collateral.
SECTION 4.5 PRIORITY OF LIEN AND SECURITY INTEREST. The lien and
security interest granted by the Borrower to the Lender pursuant to this
Agreement shall be and remain, at all times that any portion of the Indebtedness
remains outstanding and unpaid, a second and indefeasible perfected security
interest in and to the Collateral, unless otherwise agreed to be the Lender. It
is agreed that any security given by the Borrower to the Lender to secure future
deferred compensation shall be a first and indefeasible perfected security
interest in and to the Collateral and this lien shall be specifically
subordinated to said first lien.
SECTION 4.6 LOSS OF SECURITY. The Lender shall not be liable for any loss
of any Collateral in its possession, nor shall such loss diminish the debt due,
unless said loss results from Lender's gross negligence or willful misconduct.
SECTION 4.7 TERMINATION OF SECURITY INTEREST. Upon payment in full of
such principal sum, interest and other indebtedness, and all other sums owed to
the Lender under the provisions of the Loan Documents, this Agreement or any
other document executed in connection therewith, the security interest in the
Collateral shall be and become void and of no further effect; provided, that the
affidavit, certificate, letter or statement of any officer, agent or attorney of
the Lender that any of such principal sum, interest, indebtedness or other sums
remain unpaid shall be and constitute conclusive evidence of the validity,
effectiveness and continuing force of the assignment, and any person may, and is
hereby authorized to, rely thereon. The Borrower hereby authorizes and directs
the licensee under each present or future Patent or Trademark, upon receipt from
the Lender of written notice that a default exists thereunder or under this
Agreement, after notice and beyond applicable cure periods to pay over to the
Lender all rents, income and profits arising or accruing under such Patent and
Trademark and to continue to do so until otherwise notified in writing by the
Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
BY THE BORROWER
SECTION 5.1 REPRESENTATIONS AND WARRANTIES BY THE BORROWER. The Borrower
makes the following representations and warranties:
(a) Existence. The Borrower is a corporation duly organized and existing
and in good standing under the laws of the State of Maryland and the Borrower
has the power to own its properties and to carry on its business as now being
conducted, and the Borrower is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned by
it therein or in which the transaction of its business makes such qualification
necessary.
(b) Authority. The Borrower has full power and authority to enter into and
execute and deliver this Agreement and each of the other Loan Documents executed
and delivered by it and to incur and perform the Borrower's Obligations provided
for herein and therein (including the borrowing under the Indebtedness). No
further consent or approval of any other person or public authority or
regulatory body is required as a condition to the validity or enforceability of
this Agreement or any of the other Loan Documents, or if required, the
same has been obtained.
(c) Binding Agreements. This Agreement and each of the other Loan Documents
executed and delivered by the Borrower have been duly and properly executed by
the Borrower, constitute the valid and legally binding obligations of the
Borrower and are fully enforceable against the Borrower in accordance with their
respective terms.
(d) Litigation. There is no litigation or proceeding pending or threatened,
before any court or administrative agency which will materially adversely affect
the financial condition of the Borrower or the authority of the Borrower to
enter into, or the validity or enforceability of, this Agreement or any of the
other Loan Documents or the ability of the Borrower to perform the Borrower's
Obligations which has not been disclosed to the Lender.
(e) No Conflicting Agreements. There is (i) no provision in any existing
mortgage, indenture, contract or agreement binding on the Borrower or affecting
any of the Borrower's property and (ii) no provision of law or order of court
binding upon the Borrower or affecting any of the Borrower's property which
would conflict with or in any way prevent the execution, delivery or performance
of the terms of this Agreement or of any of the other Loan Documents executed
and delivered by the Borrower, or which would be in
default or violated as a result of such execution, delivery or performance.
(f) Taxes. The Borrower has timely and accurately filed all required
federal, state and local tax or information returns, and it is not currently
being audited by either the state or federal governments. The Borrower is not
delinquent in the payment of any income, property or other federal, state or
local tax or assessment.
(g) Place of Business of Borrower. The Borrower has a place of business in
Anne Arundel County, Maryland, which is the only place where the Borrower
maintains a place of business.
(h) Name. The Borrower has never operated under or used any other name or
title to all of the Collateral. The Lender's security interest shall constitute
a first and indefeasible security interest therein, unless otherwise agreed to
by the Lender.
(i) No Untrue Statements. Neither this Agreement, the Loan Documents nor
any other document, certificate or statement furnished or to be furnished by the
Borrower or by any other party to the Lender in connection herewith contains, or
at the time of delivery will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein and therein not materially misleading.
ARTICLE VI
AFFIRMATIVE COVENANTS OF BORROWER
The Borrower hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Indebtedness, unless the Lender shall
otherwise consent in writing, the Borrower shall do the following:
SECTION 6.1 NOTICE OF CHANGE OF BUSINESS LOCATION. The Borrower shall
notify the Lender in writing thirty (30) days in advance of any change in the
location of any of its places of business or of the establishment of any new, or
the discontinuance of any existing, place of business.
SECTION 6.2 EXISTENCE; CERTAIN RIGHTS; LAWS. The Borrower shall do all
things necessary to preserve and keep in full force and effect in each
jurisdiction in which it conducts business, the business existence, licenses,
permits, rights, patents, trademarks, trade names and franchises of the Borrower
and comply with all present and future laws, ordinances, rules, regulations,
judgments, orders and decrees which affect in any material way the Borrower, its
assets or the operation of its business.
SECTION 6.3 NOTICE OF LITIGATION OR OTHER PROCEEDINGS. The Borrower
shall give immediate notice to the Lender of (i) the existence of any continuing
material dispute with respect to any of the Collateral, (ii) the institution of
any litigation, administrative proceeding or governmental investigation
involving the Borrower and/or any of the Collateral, any of which might
materially and adversely affect the operation, financial condition, property or
business of the Borrower or any of the Collateral or affect the enforceability
of this Agreement or any of the other Loan Documents.
SECTION 6.4 INDEBTEDNESS. The Borrower shall pay or cause to be paid when
due (or within applicable grace periods) all Indebtedness of the Borrower.
SECTION 6.5 NOTICE OF EVENTS OF DEFAULT. The Borrower shall give immediate
notice to the Lender if the Borrower becomes aware of the occurrence of any
Event of Default, or of any facts, condition or event which with the giving of
notice or lapse of time, or both, would be an Event of Default, or of the
failure of the Borrower to observe or perform any of the conditions or covenants
to be observed or performed by it under this Agreement or any of the other Loan
Documents.
SECTION 6.6 FURTHER ASSURANCES. The Borrower shall execute such other
and further documents, including without limitation, promissory notes, security
agreements, agreements, financing statements, continuation statements, and
similar instruments as may from time to time, in the sole opinion of the Lender
or the Lender's counsel, be necessary, proper or convenient, to perfect,
confirm, establish, re-establish, continue or complete the security interest in
the Collateral and the purposes and intentions of this Agreement, it being the
intention of the Borrower to hereby provide a full and absolute warranty of
further assurance to the Lender. In the event the Borrower shall fail for any
reason to execute, within ten (10) days of the Lender's written demand, any
document of the aforementioned type which the Lender requests the Borrower to
execute, the Borrower shall and hereby irrevocably and automatically appoint the
Lender as the Borrower's attorney-in-fact to execute such document in the
Borrower's name, place and stead and on the Borrower's behalf, and such power of
attorney shall constitute a power of attorney coupled with an interest and shall
be irrevocable unless and until the subject document is fully and effectively
executed.
ARTICLE VII
NEGATIVE COVENANTS
The Borrower covenants and agrees that, until satisfaction in full of
all Obligations, it will not do or permit to be done or to cause to occur any of
the acts or happenings set forth below without the prior written consent of the
Lender.
SECTION 7.1 FUNDAMENTAL CHANGES. Change its name, enter into or effect any
merger, consolidation, share exchange, division, conversion, reclassification,
recapitalization, reorganization or other transactions of like effect which
changes the control of the affairs of Borrower from that which exists on the
date hereof, or dissolve, sell, transfer, lease or otherwise dispose of all or
(except in the ordinary course of business for adequate consideration) any
material portion of its assets or any significant product
line or process.
SECTION 7.2 ENCUMBRANCE OR DISPOSAL OF COLLATERAL. The Borrower shall not
sell, lease, convey, or otherwise dispose of, or mortgage, pledge, assign, grant
or permit to exist any liens, claims, encumbrances or security interests in or
upon any of the Collateral, except liens, if any, required by this Agreement.
SECTION 7.3 ASSIGNMENT OF THIS AGREEMENT. The Borrower shall not assign or
attempt to assign this Agreement to any person.
SECTION 7.4 PREPAYMENT OF INDEBTEDNESS. Make any voluntary prepayments of
Indebtedness other than in ordinary course of business.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 8.1 EVENTS OF DEFAULT DEFINED. The following shall be "Events of
Default" under this Agreement, and the terms "Events of Default", "Event of
Default" and "default" shall mean, whenever they are used in this Agreement, any
one or more of the following events:
(a) Any representation or warranty made herein or in any statement or
representation made in any certificate, report, financial statement or other
instrument furnished in connection with this Agreement, or in any of the other
Loan Documents, shall prove to have been incorrect in any material respect when
made or shall be breached in any material respect; or
(b) The Borrower shall fail to pay within five (5) days written notice that
the same is due and payable any payment of principal of or interest under
Indebtedness or with respect to any other sums or charges due on or under the
Indebtedness or any repayment required by the security agreement executed in
connection with this transaction;
(c) There shall occur a default in the due and punctual
performance or observance of any term, covenant, condition, agreement or
provision, other than as specified in the foregoing Paragraph (b), contained in
any of the Loan Documents associated with this transaction, to be performed or
observed by the Borrower, which is not cured within thirty (30) days of notice
of said default, provided Borrower shall be given a greater period to cure if it
commences to cure within said thirty (30) day period and diligently proceeds
towards cure;
(d) The Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or any of its property or assets, (ii) become generally
unable to pay its debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a debtor under 11 U.S.C. section 101
et. seq., (v) file a voluntary petition in bankruptcy or a petition or answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if any action
shall be taken by the Borrower for the purposes of affecting any of the
foregoing, or (vi) by any act indicate its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
trustee for the Borrower or any of its property or assets, or suffer any such
receivership, trusteeship or proceeding to continue undischarged for a period of
sixty (60) days, or
(e) An order, judgment or decree shall be entered, without the application,
approval or consent of the Borrower by any court of competent jurisdiction,
approving a petition seeking the dissolution or reorganization of the Borrower
or of all or any substantial part of the assets of the Borrower, or appointing a
receiver, trustee or liquidator of the Borrower and such order, judgment or
decree shall continue unstayed and in effect for any period of sixty (60) days;
or
(f) Any judgment against the Borrower, or any attachment or any levy
against any property of the Borrower with respect to a claim for an amount in
excess of Twenty-Five Thousand Dollars ($25,000) remains unpaid, undischarged,
unbonded or undismissed for a period of sixty (60) days; or
(g) An Event of Default shall occur under any of the other Loan Documents;
or
(h) The Borrower is dissolved, terminated and/or liquidated.
SECTION 8.2 REMEDIES ON DEFAULT. In addition to all other rights and
remedies provided to it by law and under the Loan Documents, the Lender on the
happening of any Event of Default may in its sole and absolute discretion do any
or all of the following:
(a) Declare the unpaid principal of the Indebtedness and interest accrued
thereon, together with all other monies payable to the Lender by the Borrower,
to be immediately due and payable by notice in writing to that effect, delivered
to the Borrower, and upon such declaration, all such monies shall be immediately
due and payable at the place of payment provided in such notice, anything in the
Loan Documents or in this Agreement to the contrary notwithstanding.
(b) Foreclose on any of the Collateral, or any collateral in which Lender
has an interest pursuant to the terms of any other Indebtedness outstanding
between Borrower and the Lender;
(c) File suit against the Borrower under any Document associated with this
transaction;
(d) Seek specific performance or injunctive relief to enforce performance
of the undertakings, duties and agreements provide in the documents associated
with this transaction, whether or not a remedy exits as law or is adequate;
(e) The rights and remedies provided in this Agreement or in
the Loan Documents or under applicable law shall be cumulative and the exercise
of any particular right or remedy shall not preclude the exercise of any other
rights or remedies in addition to or as an alternative of such right or remedy.
No delay or omission to exercise any right or power accruing upon an Event of
Default shall impair any such right or power or be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed prudent.
SECTION 8.3 SALE OF COLLATERAL. In addition to any other remedy
provided herein, the Lender may, subject to applicable law, sell at public or
private sale or otherwise realize upon, in Annapolis, Maryland or elsewhere, the
whole or, from time to time, any part of the Collateral or any interest which
the Borrower may have therein. After deducting from the proceeds of sale or
other disposition of the Collateral all expenses, including all expenses for
legal services, the Lender shall apply such proceeds toward the satisfaction of
the Indebtedness. Any remainder of the proceeds after satisfaction in full of
all amounts due and owing under the Indebtedness shall be distributed as
required by applicable law. Notice of any sale or other disposition shall be
given to the Borrower at least fifteen (15) working days (or such longer period
as may be required by law) before the time of any intended public sale or of the
time after which the intended private sale or other disposition of the
Collateral is to be made, which the Borrower hereby agrees shall be reasonable
notice of such sale or other disposition. The Borrower agrees to assemble, or to
cause to be assembled, at the Borrower's own expense, the Collateral at such
place or places as the Lender shall designate. At any such sale or other
disposition, the Lender may, to the extent permissible under applicable law,
purchase the whole or any part of the Collateral. Without limiting the
generality of any of the rights and remedies conferred upon the Lender under
this Agreement, the Lender may, to the full extent permitted by applicable law
(a) enter upon the premises of the Borrower and exclude therefrom the Borrower
or any affiliate thereof, and take immediate possession of the Collateral,
either personally or by means of a receiver appointed by a court of competent
jurisdiction, using all necessary force to do so, (b) at the Lender's option,
use, operate, manage and control the Collateral in any lawful manner, (c)
collect and receive all rents, income, revenue, earnings, issues and profits
therefrom, and (d) maintain, repair, renovate, alter or remove the Collateral as
the Lender may determine in the Lender's sole and absolute discretion.
SECTION 8.4 ATTORNEY'S FEES AND EXPENSES. The Borrower shall pay all
reasonable attorneys' fees and expenses which the Lender may incur as a result
or in consequence of the happening of an Event of Default, even if the Event of
Default is cured and the Indebtedness is placed in good standing.
SECTION 8.5 CONFESSED JUDGMENT. UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT, THE BORROWER HEREBY AUTHORIZES ANY ATTORNEY DESIGNATED BY THE LENDER OR
ANY CLERK OF ANY COURT OF RECORD TO APPEAR FOR THE BORROWER IN ANY COURT OF
RECORD IN THE STATE OF MARYLAND AND CONFESS JUDGMENT WITHOUT PRIOR HEARING
AGAINST THE BORROWER IN FAVOR OF THE LENDER FOR AND IN THE AMOUNT OF THE UNPAID
PRINCIPAL SUM, ALL INTEREST ACCRUED AND UNPAID THEREON, ALL OTHER AMOUNTS
PAYABLE BY THE BORROWER TO THE LENDER UNDER THE TERMS OF THE INDEBTEDNESS OR ANY
OF THE OTHER LOAN DOCUMENTS, COSTS OF SUIT, AND ATTORNEYS' FEES OF FIFTEEN
PERCENT (15%) OF THE UNPAID PRINCIPAL SUM AND INTEREST THEN DUE HEREUNDER
(PROVIDED THAT, IF SUCH JUDGMENT IS NOT APPEALED OR CONTESTED BY THE BORROWER
THEN, FOLLOWING THE PASSAGE OF TIME FOR APPEAL, AND COLLECTION OF THE AMOUNT OF
SUCH JUDGMENT AND ALL SUCH FEES AND COSTS, THE LENDER WILL REMIT TO THE BORROWER
THE EXCESS, IF ANY, OF THE ATTORNEY'S FEES AWARDED AND COLLECTED AND THE ACTUAL
ATTORNEY' FEES REASONABLY INCURRED BY LENDER IN ENFORCING ITS RIGHTS HEREUNDER
OR UNDER THE OTHER LOAN DOCUMENTS). THE BORROWER HEREBY RELEASES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ALL ERRORS AND ALL RIGHTS OF EXEMPTION, APPEAL,
STAY OF EXECUTION, INQUISITION, AND OTHER RIGHTS TO WHICH THE BORROWER MAY
OTHERWISE BE ENTITLED UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR OF ANY
STATE OR POSSESSION OF THE UNITED STATES OF AMERICA NOW IN FORCE AND WHICH MAY
HEREAFTER BE ENACTED. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT
AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF OR
BY ANY IMPERFECT EXERCISE THEREOF AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO. SUCH AUTHORITY MAY BE EXERCISED ON ONE OR MORE
OCCASIONS OR FROM TIME TO TIME IN THE SAME OR DIFFERENT JURISDICTIONS AS OFTEN
AS THE LENDER SHALL DEEM NECESSARY OR DESIRABLE, FOR ALL OF WHICH THIS NOTE
SHALL BE A SUFFICIENT WARRANT.
SECTION 8.6 WAIVERS; CONSENT TO JURISDICTION. The Borrower irrevocably
submits to the jurisdiction of any state or federal court sitting in the State
of Maryland over any suit, action, or proceeding arising out of or relating to
this Agreement. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection that the Borrower may now or hereafter have to the laying
of venue of any such suit, action, or proceeding brought in any such court and
any claim that any such suit, action, or proceeding brought in any such court
has been brought in an inconvenient forum. Final judgment in any such suit,
action, or proceeding brought in any such court shall be conclusive and binding
upon the Borrower and may be enforced in any court in which the Borrower is
subject to jurisdiction by a suit upon such judgment provided that service of
process is effected upon the Borrower as provided in this Agreement or as
otherwise permitted by applicable law. The Borrower hereby consents to process
being served in any suit, action, or proceeding instituted in connection with
this Agreement by (a) the mailing of a copy thereof by certified mail, postage
prepaid, return receipt requested, to the Borrower and (b) serving a copy
thereof any agent hereafter designated in writing to the Lender by the Borrower
as the Borrower's agent for service of process. The Borrower irrevocably agrees
that such service shall be deemed to be service of process upon the Borrower in
any such suit, action, or proceeding. Nothing in this Section shall affect the
right of the Lender to serve process in any manner otherwise permitted by law
and nothing in this Section will limit the right of the Lender otherwise to
bring proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (A) THIS INDEBTEDNESS, OR (B) ANY DOCUMENT
ASSOCIATED WITH THIS TRANSACTION. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER
CONSTITUTES A WAVIER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH
ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS INDEBTEDNESS. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY
THE BORROWER, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT
OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAVIER OF TRIAL BY
JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER HAS HAD AN
OPPORTUNITY TO CONSULT COUNSEL REGARDING THIS WAIVER OR HAD KNOWINGLY ELECTED
NOT TO CONSULT WITH COUNSEL PRIOR TO MAKING THIS WAIVER.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 INCONSISTENCIES. The terms and conditions of the Loan Documents
are incorporated by reference and made a part hereof as if fully set forth
herein. In the event of any inconsistencies between this Agreement and any other
Loan Documents, such inconsistencies shall be construed, interpreted and
resolved so as to benefit the Lender.
SECTION 9.2 BENEFIT; BURDENS. This Agreement shall inure to the benefit of
and shall be binding upon the Lender, the Borrower and their respective
successors and permitted assigns and shall not inure to the benefit of any other
party.
SECTION 9.3 NOTICES. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
or when mailed by first class, certified mail, postage prepaid, return receipt
requested, addressed to the Borrower, the Lender or to any other Person to whom
any such notice or certificate or other communication is to be given, at the
following addresses:
If to the Lender: Andrew A. Pouring George E. Ponticas
Edgewater, Maryland 21037 Timonium, Maryland 21093
Michael I. Keller Sidney Gulick, 3d
Alexandria, Virginia 22311 Adelphi, Maryland 20783
If to the Borrower: Sonex Research, Inc
c/o Andrew A. Pouring
23 Hudson Street
Annapolis, Maryland 21401
SECTION 9.4 AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement may not
be amended, changed, modified, altered or terminated except by a written
instrument executed by the Lender and the Borrower.
SECTION 9.5 LAW GOVERNING. This Agreement is prepared and entered into with
the intention that the law of the State of Maryland shall govern its
construction and interpretation.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be
executed and sealed as of the day and year first above written.
WITNESS/ATTEST: SONEX RESEARCH, INC.
--------------- --------------------
Andrew A. Pouring,
Chief Executive Officer
EXHIBIT 1
STATEMENT OF INTENT
January 7, 2005
Sonex Research, Inc. ("Sonex" or the "Company") has been unable for an
extended period of time to keep current with its compensation payments to
consultant Michael I. Keller and to officers Andrew A. Pouring and George E.
Ponticas, or to timely repay loans made by Keller and shareholder Sidney L.
Gulick, 3d. The Company's accounting records provide detailed listings of the
significant amounts owed to these individuals.
The Company requires an immediate infusion of cash for urgent working
capital needs. The Company needs Pouring, Ponticas and Keller to continue to
provide services in their present capacities in order for the Company to
continue in operation, yet the Company presently does not have sufficient cash
to pay current compensation as earned. Through March 31, 2005 the Company
anticipates cash receipts of $116,807 upon payment on the Company's remaining
invoices issued and to be issued to the Defense Advanced Research Projects
Agency (DARPA) totaling $104,341, and $12,466 under a current purchase order
from XXXXXX XXXXXXX XXXXXXXX XXXXX, yet such cash receipts are restricted as to
use because they are currently securing amounts due under notes payable to
Gulick and Keller. In addition, Keller has offered to provide the Company
additional cash for working capital of $25,000 on the good faith promise of the
Company to provide promptly adequate security for such note and for previous
notes and assurances as to the availability of Pouring and Ponticas to continue
to provide services to Sonex.
This Statement of Intent serves to provide preliminary documentation of an
agreement in principle by Sonex, Keller, Pouring and Ponticas for the conditions
under which these individuals will undertake to keep Sonex in operation for the
immediately foreseeable future. Pouring, Ponticas and Keller have agreed to act
as a group for the mutual benefit of the Company, its shareholders, Gulick,
other creditors and themselves. Pouring is also acting individually for the
benefit of consultant David A. Blank. In consideration, Sonex agrees to execute
a pledge, assignment or grant to Keller, Pouring, Ponticas and Gulick of a
shared security interest in the Company's patents (the "Collateral") with
respect to the following services, personal guarantees, and liabilities which
are detailed in the Company's accounting records:
1. Accrued compensation, comprised of wages, vacation, bonus and/or
consulting fees owed to Keller, Pouring and Ponticas, and to Blank
in an amount to be determined by Pouring.
2. Reimbursable expenses owed to Keller, Pouring and Ponticas.
3. Notes plus accrued interest payable to Keller and Gulick.
4. Personal financial guarantees by Pouring for the payment by the
Company of charges accumulated with respect to business credit card
accounts and pursuant to equipment leases.
5. Payments for continued services by Pouring, Ponticas and Keller.
Sonex is to receive the following consideration:
1. Keller will provide the Company additional cash for working capital of
$25,000 pursuant to a Promissory Note payable by March 31, 2005.
2. Keller and Gulick will agree to extend to March 31, 2005 the due dates
of all presently outstanding notes and will agree to amend such notes
to release the collateral presently provided by cash payments received
from Company revenues.
3. Pouring, Ponticas and Keller will agree to continue to provide services
to the Company in their present capacities under existing compensation
arrangements for the immediately foreseeable future under the risk of
the Company's being unable to pay outstanding compensation and/or
current compensation as earned.
4. Pouring, Ponticas and Keller will agree to stay any demand for
immediate payment of outstanding compensation through March 31, 2005.
It is the intention of Sonex to obtain legal counsel as soon as
practical to prepare a security and/or other similar agreement(s) to be
effective January 7, 2005 (the "Security Agreement") to record formally the
intent of the parties as outlined herein. It is the intention of the parties to
further share the security interest in the Collateral with additional potential
lenders or others as necessary for the benefit of the Company and its
shareholders.
Signed this 7th day of January, 2005, at Annapolis, Maryland.
------------------
Michael I. Keller
------------------
Andrew A. Pouring
------------------
George E. Ponticas
SONEX RESEARCH, INC.
By: ------------------ ------------------
Andrew A. Pouring George E. Ponticas
Chief Executive Officer Chief Financial Officer
EXHIBIT 2
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
DECEMBER 31, 2004
SECOND SECURITY
Services:
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 325,513
Ponticas CFO & Secretary 219,659
Keller Director of Business Development & Program Manager 86,015 631,187
Notes & interest payable:
Date and Description
--------------------
Gulick 3/27/02, 6/25/03 & 3/16/04 - Operating cash 109,206
Keller 8/13/04 & 12/17/04 - Operating cash 25,217 134,423
Financial guarantees:
Pouring Capital One VISA 24,797
Pouring Bank of America (Fleet) VISA 16,092
Pouring Equipment lease obligations 27,021 67,910
-------
Total 833,520
EXHIBIT 2.1
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
MARCH 3, 2005
Second security:
Services through Dec 2004:
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 323,254
Ponticas CFO & Secretary 210,598
Keller Director of Business Development & Program Manager 83,270 617,122
Pre-2005 notes & interest payable:
Date and Description
--------------------
Gulick 3/27/02, 6/25/03 & 3/16/04 - Operating cash 109,206
Keller 8/13/04 & 12/17/04 - Operating cash 25,217 134,423
Pre-2005 financial guarantees:
Pouring Capital One VISA 23,415
Pouring Equipment lease obligations 25,012 48,427
-------
Total 799,972
EXHIBIT 2.2
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
MARCH 31, 2005
Second security:
Services through Dec 2004:
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 323,513
Ponticas CFO & Secretary 207,713
Keller Director of Business Development & Program Manager 83,270 614,496
Pre-2005 notes & interest payable:
Date and Description
--------------------
Gulick 3/27/02, 6/25/03 & 3/16/04 - Operating cash 110,774
Keller 8/13/04 & 12/17/04 - Operating cash 25,587 136,361
Pre-2005 financial guarantees:
Pouring Capital One VISA 21,717
Pouring Equipment lease obligations 23,986 45,703
-------
Total 796,560
EXHIBIT 2.3
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
JUNE 30, 2005
Second security:
Services through Dec 2004:
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 323,513
Ponticas CFO & Secretary 195,599
Keller Director of Business Development & Program Manager 83,270 602,382
Pre-2005 notes & interest payable:
Date and Description
--------------------
Gulick 3/27/02, 6/25/03 & 3/16/04 - Operating cash 112,360
Keller 8/13/04 & 12/17/04 - Operating cash 25,961 138,321
Pre-2005 financial guarantees:
Pouring Capital One VISA 18,721
Pouring Equipment lease obligations 20,818 39,539
-------
Total 780,242
EXHIBIT 2.4
SONEX RESEARCH, INC.
OBLIGATIONS SECURED BY PATENTS
SEPTEMBER 30, 2005
Second security:
Services through Dec 2004:
Name Services Amount
---- -------- ------
Pouring Chairman, CEO, President & Chief Technical Officer 317,513
Ponticas CFO & Secretary 165,022
Keller Director of Business Development & Program Manager 75,250 557,785
Pre-2005 notes & interest payable:
Date and Description
--------------------
Gulick 3/27/02, 6/25/03 & 3/16/04 - Operating cash 107,603
Keller 8/13/04 & 12/17/04 - Operating cash 25,378 132,981
Pre-2005 financial guarantees:
Pouring Capital One VISA 10,713
Pouring Equipment lease obligations 17,512 27,685
-------
Total 718,451