-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDrxuaOsW4G6C2ZspLWsT7njn9O0S2hLmvRyotty85IIUZcgY/+6ADq8gg5FbKK0 1tiqnfwexNNzQvtmJFMijw== /in/edgar/work/0000910680-00-000837/0000910680-00-000837.txt : 20001116 0000910680-00-000837.hdr.sgml : 20001116 ACCESSION NUMBER: 0000910680-00-000837 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ION NETWORKS INC CENTRAL INDEX KEY: 0000754813 STANDARD INDUSTRIAL CLASSIFICATION: [3577 ] IRS NUMBER: 222413505 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13117 FILM NUMBER: 768396 BUSINESS ADDRESS: STREET 1: 1551 S WASHINGTON AVE CITY: PISCATAWAY STATE: NJ ZIP: 08854 BUSINESS PHONE: 2014944440 MAIL ADDRESS: STREET 1: 1551 S WASHINGTON AVE CITY: PISCATAWAY STATE: NJ ZIP: 08854 FORMER COMPANY: FORMER CONFORMED NAME: MICROFRAME INC DATE OF NAME CHANGE: 19920703 10QSB 1 0001.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB --- / X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ----- ACT OF 1934 For the quarterly period ended September 30, 2000 OR --- /___/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No.: 0-13117 ION NETWORKS, INC. ------------------ (Exact Name of Small Business Issuer in Its Charter) Delaware 22-2413505 -------- ---------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 1551 South Washington Avenue Piscataway, New Jersey 08854 (Address of Principal Executive Offices) (732) 529-0100 (Issuer's telephone number, including area code) ----------------------------------------------- 21 Meridian Road, Edison, New Jersey 08820 (Former Address of Principal Executive Offices) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- There were 18,133,435 shares of Common Stock outstanding as of November 8, 2000. Transitional Small Business Disclosure Format: Yes ___ No X ----- ION NETWORKS, INC. AND SUBSIDIARIES FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I. FINANCIAL INFORMATION Page ---- Item 1. Condensed Consolidated Financial Information 2 Condensed Consolidated Balance Sheets as of September 30, 2000 and March 31, 2000 (Unaudited) 3 Condensed Consolidated Statements of Operations for the Three and Six Months ended September 30, 2000 and September 30, 1999 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2000 and September 30, 1999 (Unaudited) 5 Condensed Consolidated Statement of Stockholders' Equity for the Six Months ended September 30, 2000 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis 9 PART II. OTHER INFORMATION Item 2. Changes in Securities 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
PART I. Financial Information Item 1. Condensed Consolidated Financial Information -------------------------------------------- The condensed consolidated financial statements included herein have been prepared by the registrant without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Although the registrant believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and the notes thereto included in the registrant's Annual Report on Form 10-KSB for the year ended March 31, 2000.
ION Networks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) September 30, March 31, 2000 2000 -------------------- ------------------ Assets Current assets: Cash and cash equivalents............................................... $ 7,372,359 $ 10,381,612 Accounts receivable, net of allowance for doubtful accounts of $163,133 and $251,000, respectively....................... 2,216,117 4,569,546 Other receivables ...................................................... 51,964 1,560,697 Inventory, net.......................................................... 2,988,253 1,924,671 Prepaid expenses and other current assets............................... 494,593 602,874 -------------------- ------------------ Total current assets........................................... 13,123,286 19,039,400 Restricted cash............................................................. 375,000 - Property and equipment at cost, net of accumulated depreciation of $1,496,990 and $1,566,366, respectively................. 1,997,723 2,146,956 Capitalized software, less accumulated amortization of $6,060,011 and $4,259,851, respectively............................................ 3,261,610 4,185,911 Goodwill and other acquisition - related intangibles, less accumulated amortization of $1,519,949 and $1,030,334, respectively................. 1,449,101 1,938,716 Related party notes receivable.............................................. 750,000 - Other assets................................................................ 87,782 79,258 -------------------- ------------------ Total assets ...................................................... $ 21,044,502 $ 27,390,241 ==================== ================== Liabilities and stockholders' equity Current liabilities: Current portion of capital leases....................................... $ 67,900 $ 67,900 Current portion of long-term debt....................................... 96,000 96,000 Accounts payable and accrued expenses................................... 2,097,778 2,632,135 Accrued payroll and related liabilities................................. 512,244 2,139,524 Deferred income......................................................... 128,993 275,657 Other current liabilities............................................... 366,589 352,093 -------------------- ------------------ Total current liabilities.......................................... 3,269,504 5,563,309 Long-term portion of capital leases......................................... 275,099 302,866 Long-term debt, net of current portion...................................... 72,605 128,129 Commitments and contingencies Stockholders' equity: Preferred stock-par value $.001 per share; authorized 1,000,000 shares, none issued................................................. - - Common stock, par value $.001 per share; authorized 50,000,000 shares, issued 18,077,210 shares and outstanding 18,015,179 shares at September 30, 2000; issued 15,111,617 shares and outstanding 15,049,586 shares at March 31, 2000..................... 18,077 15,112 Additional paid-in capital.............................................. 40,535,024 35,063,207 Accumulated deficit..................................................... (22,903,680) (13,488,379) Accumulated other comprehensive (loss) income........................... (14,927) 13,196 -------------------- ------------------ 17,634,494 21,603,136 Less-Treasury stock 62,031 shares, at cost at September 30, 2000 and March 31, 2000................................... (207,199) (207,199) -------------------- ------------------ Total stockholders' equity.................................................. 17,427,295 21,395,937 -------------------- ------------------ Total liabilities and stockholders' equity.................................. $ 21,044,502 $ 27,390,241 ==================== ==================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3
ION Networks, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) For the Three Months Ended For the Six Months Ended September 30, September 30, 2000 1999 2000 1999 --------- -------- ------- ------- Revenue........................................... $ 2,788,497 $ 5,792,325 $ 4,872,001 $ 10,681,346 Cost of sales..................................... 1,972,478 2,048,130 3,126,077 3,656,004 ----------------- ----------------- ----------------- ----------------- Gross margin...................................... 816,019 3,744,195 1,745,924 7,025,342 Research and development expenses............ 1,044,421 636,740 2,256,539 1,739,866 Selling, general and administration.......... 2,990,461 2,674,686 6,342,074 5,020,551 Depreciation and amortization................ 1,624,508 1,016,169 2,712,545 1,939,820 ----------------- ----------------- ----------------- ----------------- Loss from operations.............................. (4,843,371) (583,400) (9,565,234) (1,674,895) Interest income................................... 89,322 48,318 219,314 48,318 Interest (expense)................................ (6,982) (86,481) (27,653) (152,017) ----------------- ----------------- ----------------- ----------------- Loss before income tax expense.................... (4,761,031) (621,563) (9,373,573) (1,778,594) ----------------- ----------------- ----------------- ----------------- Income tax expense................................ 19,034 --- 41,728 --- ----------------- ----------------- ----------------- ----------------- Net loss.......................................... $ (4,780,065) $ (621,563) $ (9,415,301) $ (1,778,594) ================= ================= ================= ================= Per share data Net loss per share Basic........................................ $ (0.29) $ (0.05) $ (0.53) $ (0.16) Diluted...................................... $ (0.29) $ (0.05) $ (0.53) $ (0.16) Weighted average number of common shares outstanding: Basic.......................................... 16,649,608 11,391,360 17,927,379 11,218,396 Diluted........................................ 16,649,608 11,391,360 17,927,379 11,218,396
The accompanying notes are an integral part of these condensed consolidated financial statements. 4
ION Networks, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity For the six months ended September 30, 2000 (Unaudited) Accumulated Additional Other Total Paid-in Accumulated Comprehensive Treasury Stockholder's Shares Par Value Capital Deficit (Loss) Income Stock Equity ------ --------- --------- ---------- -------------- -------- ------------ Balance March 31, 2000 15,111,617 $ 15,112 $ 35,063,207 $ (13,488,379) $ 13,196 $ (207,199) $ 21,395,937 Net loss (9,415,301) (9,415,301) Exercise of stock options and warrants 108,451 108 392,072 392,180 Issuance of common stock 2,857,142 2,857 4,997,143 5,000,000 Noncash stock-based compensation - - 82,602 82,602 Translation adjustments (28,123) (28,123) ---------- --------- ------------- -------------- ----------------- ----------- -------------- Balance September 30, 2000 18,077,210 $ 18,077 $ 40,535,024 $ (22,903,680) $ (14,927) $ (207,199) $ 17,427,295 ========== ========= ============= ============== ================ ============ =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5
ION Networks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended September 30, 2000 1999 ---- ----- Cash flows from operating activities Net loss............................................................. $ (9,415,301) $ (1,778,594) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization.................................... 2,712,545 1,939,820 Provision for doubtful accounts.................................. - 95,434 Provision for inventory obsolescence............................. 526,095 - Noncash stock-based compensation charges......................... 82,602 - Changes in operating assets and liabilities: (Increase) decrease in Accounts receivable.............................................. 2,353,429 (2,843,520) Other receivables................................................ 1,508,733 - Inventory........................................................ (1,589,677) 203,098 Prepaid expenses and other current assets........................ 108,281 212,440 Other assets..................................................... (8,524) 23 Increase (decrease) in Accounts payable and accrued expenses............................ (534,356) (680,740) Accrued payroll and related liabilities.......................... (1,627,280) (304,011) Deferred income.................................................. (146,664) (66,016) Other current liabilities........................................ 14,496 (1,311,798) ------------------ ------------------ Net cash used in operating activities................................ (6,015,621) (4,533,864) Cash flows from investing activities Acquisition of property and equipment............................ (301,662) (736,725) Capitalized software............................................. (875,859) (927,664) Related party notes receivable, net of repayments................ (750,000) Increase in restricted cash...................................... (375,000) - ------------------ ------------------ Net cash used in investing activities................................ (2,302,521) (1,664,389) Cash flows from financing activities Borrowings on revolving line of credit........................... - 253,720 Proceeds from debt............................................... - 450,000 Principal payments on debt and capital leases.................... (83,291) (2,477,362) Proceeds from sales of common stock / exercise of stock options and warrants..................................................... 5,392,180 14,666,571 ------------------ ------------------ Net cash provided by financing activities............................ 5,308,889 12,892,929 ------------------ ------------------ Net (decrease) increase in cash...................................... (3,009,253) 6,694,676 Cash and cash equivalents, beginning of year......................... 10,381,612 165,994 ------------------ ------------------ Cash and cash equivalents, end of period............................. $ 7,372,359 $ 6,860,670 ================== ==================
6 The accompanying notes are an integral part of these condensed consolidated financial statements. ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (Unaudited) Note 1 - Condensed Consolidated Financial Statements: - ----------------------------------------------------- The condensed consolidated balance sheets as of September 30, 2000 and March 31, 2000, the condensed consolidated statements of operations for the three and six month periods ended September 30, 2000 and for the same periods in 1999 and the condensed consolidated statements of cash flows for the six month periods then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the Company's financial position, results of operations and cash flows at September 30, 2000 and 1999 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto included in the annual report on Form 10-KSB for the year ended March 31, 2000. During the first two quarters of fiscal 2001, the Company significantly increased its research and development activities and expanded its sales and marketing infrastructure and related costs in order to execute its growth plans. As a result of these actions, and a sharp downturn in the Company's sales, the Company has continued to incur significant losses from operations. The Company's management is in the process of performing an evaluation of the Company's strategic direction. This evaluation includes an assessment of the Company's business plan and other alternatives in an effort to stabilize the Company's operating performance. Management's plans, when completed and if approved by the Board of Directors, may result in the impairment of certain of the Company's assets including inventory, capitalized software, and other purchased intangibles, as well as a reduction in costs. The amount of assets on the balance sheet as of September 30, 2000 that may be impaired upon completion and approval of the plans approximate $925,000. As the plans mature and are approved, additional assets may be determined to be impaired. To the extent that the Company's revenue assumptions included in its operating plan are not met, the Company will have to raise additional equity and/or debt financing, and will have to curtail expenditures. There can be no assurance that the Company will be able to obtain any such financing on acceptable terms, if at all. 7 Note 2 - Restricted Cash: - ------------------------ On September 7, 2000, due to the expiration of the Company's $1.5 million line of credit on September 30, 2000, $375,000 was pledged as collateral on an outstanding letter of credit related to the required security deposit for the Company's Piscataway, New Jersey facility. Note 3 - Inventory: - ------------------ Inventory, net of reserve for obsolescence of $809,000 and $283,000 at September 30, 2000 and March 31, 2000, respectively, consists of the following: September 30, 2000 March 31, 2000 ------------------ -------------- Raw materials $ 818,078 $ 782,813 Work in process 193,996 259,180 Finished goods 1,976,179 882,678 ----------- ----------- Total $ 2,988,253 $ 1,924,671 =========== =========== The Company increased its reserve for obsolete inventory in the quarter to reflect a build up of certain raw materials that the Company believes are slow moving based on current sales projections of the ultimate finished product. Note 4 - Earnings Per Share: - --------------------------- The computation of Basic Earnings Per Share is based on the weighted average number of common shares outstanding for the period. Diluted Earnings Per Share is based on the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents, comprised of outstanding stock options and warrants. The following is a reconciliation of the denominator used in the calculation of basic and diluted earnings per share:
Three Months Three Months Six Months Six Months Ended Ended Ended Ended 9/30/00 9/30/99 9/30/00 9/30/99 ------- ------- ------- ------- Weighted Average # of Shares Outstanding 16,649,608 11,391,360 17,927,379 11,218,396 Incremental Shares for Common Equivalents 653,559 715,210 2,054,866 562,312 ---------- ------- ---------- ------- Diluted Shares Outstanding 17,303,167 12,106,570 19,982,245 11,780,708 =========== ========== =========== ==========
The potential common shares of 653,559 and 2,054,866, respectively, were excluded from the computation of diluted earnings per share for the three and six months ended September 30, 2000 because their inclusion would have had an antidilutive effect on earnings per share due to the Company's net loss for each respective period. 8 Note 5- Comprehensive Income: - ----------------------------- The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The following table reflects the reconciliation between net loss per the financial statements and comprehensive loss.
Three Months Three Months Six Months Six Months Ended Ended Ended Ended 9/30/00 9/30/99 9/30/00 9/30/99 ----------- ---------- ---------- ------------ Net loss $(4,780,065) $(621,563) $(9,415,301) $(1,778,594) Effect of foreign currency translation 30,395 206 (28,123) (15,353) ------------ ---------- ------------ ------------ Comprehensive loss $(4,749,670) $(621,357) $(9,443,424) $(1,793,947) ============ ========== ============ ============
Note 6 - Stockholders' Equity - ----------------------------- On August 18, 2000, the Company sold 2,857,142 shares of Common Stock at a price of $1.75 per share, for total consideration of $5,000,000. Pursuant to the transaction, the Company has undertaken to register these shares of Common Stock for resale. Note 7 - Asset Impairment Charge - -------------------------------- As a result of the Company's significant decreases in revenues during the first six months of fiscal 2001 as compared to the prior year and significant increases in operating losses due to its growth strategy, management concluded that circumstances indicated that the carrying amount of certain long-lived assets may not be recoverable and a review for recoverability was performed. The Company has made the strategic decision to abandon certain products and technologies which were acquired in the acquisition of SolCom Systems, Ltd. on March 31, 1999. As a result of the above decisions, the Company recorded an impairment charge of $488,295 on the capitalized core technology from this acquisition. This charge has been recorded within Depreciation and Amortization on the Company's Statement of Operations for the three and six months ended September 30, 2000. Note 8 - Income Taxes: - ---------------------- The Company's valuation allowance against its federal, state and foreign net operating loss carryforwards and its research and development credits increased by $3,114,367 during the six months ended September 30, 2000. The Company has recorded a full valuation allowance against the federal and state net operating loss carryforwards and a full valuation allowance against the foreign net operating loss carryforwards and the research and development credit because management believes that it is more likely than not that substantially all of the net operating loss carryforwards and credits will expire unutilized. Note 9 - New Accounting Pronouncements: - ---------------------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Among other provisions, it requires that 9 entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains and losses resulting from changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. This standard, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, and Amendment of FASB Statement No. 133", is effective for fiscal years beginning after June 15, 2000, though earlier adoption is encouraged and retroactive application is prohibited. For the Company, this means the standard must be adopted no later than April 1, 2001. Management, based on its current operations, does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial position or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The SEC delayed the effective date of this SAB from June 30, 2000 to the fourth quarter of fiscal 2001 for the Company. The Company has assessed the impact of SAB 101 on its results of operations and believes that its results of operations for the quarter ended September 30, 2000 have been presented in accordance with the provisions of the SAB. The adoption of the SAB is not expected to have an effect on the Company's financial statements. Note 10 - Related Party Transactions: - ------------------------------------- During April 2000, the Company issued a loan to the former Chief Executive Officer (the "Former CEO") of the Company in the amount of $750,000. The loan accrues interest at a rate of LIBOR plus 1%. This loan had an original maturity date of the earlier of April 2005 or thirty days after the Company for any reason no longer employed the Former CEO. The Former CEO resigned his position at the Company effective September 29, 2000. On October 5, 2000, the Company entered into an agreement with the Former CEO pursuant to which the $750,000 promissory note was amended to extend the due date to April 30, 2001, and to provide that interest on the note shall accrue through September 29, 2000. The loan is collateralized by the receipt of a first mortgage interest on the personal residence of the Former CEO. Pursuant to this agreement, the Former CEO also agreed to reimburse the Company for certain expenses totaling $200,000, to be paid over a period of six months ending March 31, 2001. Subsequent to the signing of this agreement, $15,000 was repaid immediately and $22,000 will be recorded as a non-cash offset as a result of earned but unpaid vacation owed to the Former CEO. The $200,000 reimbursement will be recorded during the third quarter of fiscal 2001. On June 29, 2000, the Company made an advance of $135,000 to the Former CEO. The advance was subsequently repaid in full on July 26, 2000. Note 11 - Commitments: - ---------------------- On September 18, 2000, the Company entered into a consulting agreement with Venture Consulting Group, Inc. ("VCGI") whereby VCGI is to provide the services of Ronald C. Sacks as Chief Executive Officer of the Company, and the services of three additional consultants. The fees for the consultants' services are $500,000 over a one-year period. In addition, October 5, 2000 the individual 10 consultants were issued options to purchase 240,000 shares of common stock at the fair market value on the date of grant. Such options vest ratably over a one-year period. The Company will record compensation expense based upon the fair value of the options during each reporting period beginning in October 2000 in connection with the one-year vesting period. Item 2. Management's Discussion and Analysis ------------------------------------ A number of statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the applicable statements. These risks and uncertainties include, but are not limited to, the recent introduction of, and the costs associated with, a new product line; dependence on the acceptance of this new family of products; risks related to technological factors; potential manufacturing difficulties; dependence on third parties; a limited customer base; and liability risks. RESULTS OF OPERATION For the three months ended September 30, 2000 compared to the same period in 1999 Revenue for the three months ended September 30, 2000, was $2,788,497 compared to revenue of $5,792,325 for the same period in 1999, a decrease of $3,003,828 or 51.9%. The decrease in revenue was primarily due to reduced order activity, the delay from first quarter to the end of the second quarter of the introduction of an updated version of PRIISMS Manager, a slower than anticipated ramp-up of new sales personnel, and a non-recurring realization from a sale of a perpetual technology license to an existing customer in 1999. The Company is beginning to experience increased activity and order levels for both newer and older customers. During the quarter ended September 30, 2000, the Company recognized $391,830 in revenues related to the $1.1 million sales backlog reported in the Company's Form 10-KSB for the fiscal year ended March 31, 2000. It recognized $378,500 in such revenues during the quarter ended June 30, 2000. While the Company expects to recognize additional revenue from this sales backlog in future quarters, there can be no assurance that all revenue associated with this sales backlog will ultimately be realized by the Company. Cost of goods sold for the three months ended September 30, 2000 was $1,972,478 compared to $2,048,130 for the same period in 1999. Included in the $1,972,478 is a $526,000 reserve that the Company believes are slow moving based on current sales projections of the ultimate finished product. Cost of goods sold as a percentage of revenue for the three months ended September 30, 2000 increased to 70.7% from 35.4% for the same period in 1999. Without the inventory reserve, the percentage is 52.8%. The increase is due to the impact of certain fixed manufacturing costs that are spread over a decreased revenue base resulting in a deterioration of product margins. Research and development expense, net of capitalized software development, for the three months ended September 30, 2000 was $1,044,421 compared to $636,740 for the same period in 1999. As a percentage of net revenue, research and development expenses were 37.5% 11 compared to 11.0% for the same period in 1999. The increase was the result of additional engineering manpower and other expenditures required to support and to enhance the Company's product portfolio. The significant increase in the percentage of research and development to net revenue was primarily caused by lower sales volume combined with increased spending levels, as discussed above. Selling, general and administrative expenses ("SG&A") for the three months ended September 30, 2000 were $2,990,461 compared to $2,674,686 for the same period in 1999. As a percentage of revenue, SG&A increased to 107.2% compared to 46.2% for the same period in 1999, due primarily to lower sales volume. The increase in SG&A expenses for the quarter ended September 30, 2000 compared to the same quarter in 1999 was a result of additional spending related to increased sales and marketing personnel as well as administrative infrastructure necessary to execute the Company's growth plans. Depreciation and amortization expenses - amortization of capitalized software, goodwill and other acquisition related intangibles, and depreciation on equipment, furniture and fixtures - was $1,624,508 for the three months ended September 30, 2000 compared to $1,016,169 in the same period in 1999. The increased expense was primarily the result of management's strategic decision to abandon certain of the products and technology associated with the SolCom acquisition in March 1999. This resulted in a $488,295 impairment charge for certain of the Company's capitalized software. Income tax provision for the three months ended September 30, 2000 was $19,034 compared to $0 at September 30, 1999 due to the required provision for the reported taxable earnings of the Company's UK subsidiary. Net loss for the three months ended September 30, 2000 was $4,780,065 compared to a loss of $621,563 for the same period in 1999 based on the factors discussed above. For the six months ended September 30, 2000 compared to the same period in 1999 Revenue for the six months ended September 30, 2000, was $4,872,001 compared to revenue of $10,681,346 for the same period in 1999, a decrease of $5,809,345 or 54.4%. The decrease in revenue was primarily due reduced order activity, the delay from first quarter to the end of the second quarter of the introduction of an updated version of PRIISMS Manager, a slower than anticipated ramp-up of new sales personnel, and the non-recurring realization of revenue from a sale of a perpetual technology license to an existing customer in 1999. During the quarter ended September 30, 2000, the Company recognized $391,830 in revenues related to the $1.1 million sales backlog reported in the Company's Form 10-KSB for the fiscal year ended March 31, 2000. It recognized $378,500 in such revenues during the quarter ended June 30, 2000. While the Company expects to recognize additional revenue from this sales backlog in future quarters, there can be no assurance that all revenue associated with this sales backlog will ultimately be realized by the Company. Cost of goods sold for the six months ended September 30, 2000 was $3,126,077 compared to $3,656,004 for the same period in 1999, a decrease of $529,927 or 14.5%, due to lower sales volume. Included in the $3,126,077 is a $526,000 reserve for raw materials inventory that the 12 Company believes are slow moving based on current sales projections of the ultimate finished product. Without this reserve, the decrease would be 28.2%. Cost of goods sold as a percentage of revenue increased to 64.2% for the six months ended September 30, 2000 as compared to 34.2% for the same period in 1999. Without the reserve, the percentage is 53.9% because lower sales volume increased the negative impact that certain fixed manufacturing costs had on margins. Research and development expenses, net of capitalized software development, for the six months ended September 30, 2000 was $2,256,539 compared to $1,739,866 for the same period in 1999. As a percentage of revenue, research and development expenses increased to 46.3% compared to 16.3% for the same period in 1999, due primarily to lower sales volume. SG&A expenses for the six months ended September 30, 2000 were $6,342,074 compared to $5,020,551 for the same period in 1999. As a percentage of revenue, SG&A expenses increased to 130.2% compared to 47.0% for the same period in 1999 due primarily to lower sales volume. The increased expenditures resulted primarily from the Company's aggressive growth plans and associated sales and marketing support. Depreciation and amortization expenses - amortization of capitalized software goodwill and other acquisition related intangibles, and depreciation on equipment, furniture and fixtures - was $2,712,545 for the six months ended September 30, 2000 compared to $1,939,820 for the same period in 1999. The increased expense was primarily the result of management's strategic decision to abandon certain of the products and technology associated with the SolCom acquisition in March 1999. This resulted in a $488,295 impairment charge for certain of the Company's capitalized software. Income tax provision for the six months ended September 30, 2000 was $41,728 compared to $0 at September 30, 1999 due to the required provision for the reported taxable earnings of the Company's United Kingdom subsidiary. Net loss for the six months ended September 30, 2000 was $9,415,301 compared to a loss of $1,778,594 for the same period in 1999, based on the factors discussed above. FINANCIAL CONDITION AND CAPITAL RESOURCES During the first six months ended September 30, 2000, the Company's working capital position deteriorated as the Company's reduced revenues combined with continuing expenditure levels utilized significant operating cash. This cash utilization was offset partially by the $5,000,000 raised through the issuance of new shares in a private placement. Working capital at September 30, 2000 decreased $3,247,309 to $10,228,782 from $13,476,091 at March 31, 2000. Net cash used in operating activities during the six months ended September 30, 2000 was $6,015,621 compared to net cash used during the same period in 1999 of $4,533,864. The increase in net cash used resulted primarily from the build-up of inventory due to lower than expected revenues, the payment of accounts payable and accrued expenses, and the significant increase in the net loss. 13 Net cash used in investing activities during the six months ended September 30, 2000 was $2,302,521 compared to net cash used during the same period in 1999 of $1,664,389. Investing activities during the six months ended September 30, 2000 include the restriction of $375,000 in cash relating to the Piscataway, New Jersey operating lease and the notes receivable issued to the Former CEO in the amount of $885,000, offset by the repayment of $135,000 during the current quarter. This use of cash was offset partially by the decrease in expenditures for property and equipment. Net cash provided by financing activities during the six months ended September 30, 2000 was $5,308,889 compared to net cash provided during the same period in 1999 of $12,892,929. Financing activities during the six months ended September 30, 2000 include the sales of 2,857,142 shares of Common Stock at a price of $1.75 per share, for total consideration of $5,000,000 in a private equity transaction. Pursuant to the transaction, the Company has undertaken to register these shares of Common Stock for resale. On September 30, 1999, the Company entered into a $2,500,000 line of credit agreement. The line of credit was available through July 15, 2000. This line of credit has been terminated and effectively replaced with the $1,500,000 line as noted below. On July 15, 2000, the Company entered into a line of credit agreement for $1,500,000. The line of credit was available through September 30, 2000. The line of credit expired on September 30, 2000 with no amounts having been drawn down on such line. During the first two quarters of fiscal 2001, the Company significantly increased its research and development activities and expanded its sales and marketing infrastructure and related costs in order to execute its growth plans. As a result of these actions, and a sharp downturn in the Company's sales, the Company has incurred significant losses from operations. The Company's management is in the process of performing an evaluation of the Company's strategic direction. This evaluation includes an assessment of the Company's business plan in an effort to stabilize the Company's operating performance. Management's plans, once completed and approved by the Board of Directors, may result in the impairment of certain of the Company's assets including inventory, capitalized software, and other purchased intangibles, as well as a reduction in costs. The amount of assets on the balance sheet as of September 30, 2000 that may be impaired upon completion and approval of the plans approximate $925,000. As the plans mature and are approved, additional assets may be determined to be impaired. The Company believes, based on current revenue assumptions in its operating plan, that it has sufficient cash to meet its operating requirements over the next twelve months. To the extent that the Company's revenue assumptions included in its operating plan are not met, the Company will have to raise additional equity and/or debt financing, and will have to curtail expenditures. There can be no assurance that the Company will be able to obtain any such financing on acceptable terms, if at all. 14 PART II. OTHER INFORMATION Item 2. Changes in Securities On August 18, 2000, the Company sold 2,857,142 shares of Common Stock at a price of $1.75 per share to a group of accredited investors in consideration of an amount equal to $5,000,000, pursuant to Rule 506 promulgated under the Securities Act of 1933. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits: 10.1. Consulting Agreement entered into September 18, 2000 between the Company and Venture Consulting Group, Inc. 10.2. Separation and Forebearance Agreement made as of October 5, 2000 between the Company and Stephen B. Gray 10.3. Promissory Note in the amount of $163,000 dated October 5, 2000 made by Stephen B. Gray to the Company 10.4. First Amendment to Promissory Note dated as of August 5, 2000 by and between the Company and Stephen B. Gray 27. Financial Data Schedule (b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2000 ION NETWORKS, INC. /s/ Ronald C.Sacks ----------------------------------------------- Ronald C. Sacks, Chief Executive Officer and Interim Principal Financial Officer EX-10.1 2 0002.txt CONSULTING AGREEMENT VENTURE CONSULTING GROUP, INC. MASTER CONSULTING AGREEMENT THIS MASTER CONSULTING AGREEMENT (the "Agreement") is entered into this 18th day of September, 2000 (the "Effective Date"), by and between Venture Consulting Group, Inc., having an address at 5 Whitney Woods Lane, Cohasset, Massachusetts ("Consultant"), and ION Networks, Inc., having an address at 1551 South Washington Avenue, Piscataway, NJ 08854 ("Customer"). WHEREAS, Consultant is in the business of providing certain business consulting services; WHEREAS, Customer desires to engage Consultant, and Consultant desires to be engaged by Customer, to render such services upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises set forth below and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Services -------- 1.1 Description of Services. Consultant will perform the business consulting services specified in Statements of Work to this Agreement (the "Services"). Consultant shall be appointed by the Board of Directors to provide the Services to Customer. Both Consultant and any of its employees appointed as an officer of the Customer shall report to the Board of Directors of Customer and shall be accountable to the Board for fulfilling the obligations described herein. Each Statement of Work is hereby incorporated into this Agreement by this reference. The Statement of Work will be executed by the parties concurrently with the execution of this Agreement and is attached hereto as Statement of Work No. 1. Any additional Statements of Work shall be initially generated by Consultant and shall become effective when signed by both parties. 1.2 Statements of Work. Each Statement of Work should include the following: (a) the services, functions, equipment, software, facilities, personnel and other materials, documentation and resources to be provided by each party; (b) the requirements and specifications for any work product to be developed by Consultant and delivered to Customer (the "Deliverables"); (c) estimated delivery dates for the Deliverables; and (d) fees payable to Consultant for the Services and Deliverables along with a fee payment schedule. 1.3 Change Procedure. Unless otherwise stated in an applicable Statement of Work, changes to the parties' respective obligations under a Statement of Work shall be made as set forth in this Section 1.3. Customer may request changes to a Statement of Work by providing Consultant with a written request for changes (a "Change Request") that specifies the desired change with at least the same degree of specificity as that contained in the original Statement of Work. Following Consultant's receipt of a Change Request, Consultant shall submit to Customer a written response which should outline the tasks to be performed by each party, schedule and cost changes, and any other items applicable to the Change Request (a "Change Response"). Consultant will charge Customer on a time and, if applicable, material basis, at Consultant's then-current time and, if applicable, material rates, for the time spent by Consultant in analyzing Customer's Change Request and preparing a Change Response. If, within five (5) days after Consultant's delivery of such Change Response to Customer, Customer provides Consultant with written notice of acceptance of the Change Response, the Change Response will amend and become a part of, the applicable Statement of Work. In the event of a conflict among the terms and conditions of the Change Response and the applicable Statement of Work, the terms and conditions of the Change Response shall govern and control. If Customer fails to provide Consultant with written notice of acceptance of the Change Response within said five (5) day period, the Change Response will be deemed rejected by Customer and the original Statement of Work shall remain in full force and effect. 1.4 Cooperation. Customer acknowledges that the successful and timely rendering of the Services will require the good faith cooperation of Customer. Customer shall fully cooperate with Consultant, including without limitation, by: (a) providing Consultant with all information as may be reasonably required by Consultant; and (b) making available to Consultant at least one employee, consultant or director of Customer, reasonably acceptable to Consultant, who shall have substantial relevant knowledge and experience to act as a Project Manager in connection with the rendering of the Services. The name of Customer's Project Manager should be set forth in the applicable Statement of Work. All estimated dates specified in a Statement of Work shall be extended by delays caused by Customer, including without limitation, Customer's submission of Change Requests which impact Consultant's normal schedule. 1.5 Consultant Personnel. Customer acknowledges and agrees that Consultant shall have the right, in its sole discretion, to remove or reassign Consultant's employees, agents, consultants or subcontractors who are assigned to provide the Services hereunder. Consultant agrees to CONFIDENTIAL notify Customer before such removal or reassignment if such notice is possible. In the event Customer believes that any of Consultant's employees, agents, consultants or subcontractors are failing to perform the Services in a satisfactory manner, Customer shall notify Consultant as to the reasons for such failure. Upon receipt of such notice or as soon as reasonably practical thereafter, Consultant and Customer shall mutually determine the best course of action to take to resolve such failure, which action may include replacing such personnel. 2. Payment ------- 2.1 Customer will pay Consultant in accordance with the fee and payment schedule set forth in the applicable Statement of Work. If the Statement of Work does not designate the fees and/or payment schedule, Customer will pay Consultant in accordance with Consultant's then-current time and material rates no later than the fifteenth day of the month following the period during which the Services were performed by Consultant. Any amount due under this Agreement which is not paid within thirty (30) days after the payment due date shall bear interest from the payment due date to the date of payment at the lesser of one and one half percent (1 1/2%) per month or the highest rate allowable under applicable law. 2.2 Customer shall pay Consultant for all reasonable, documented out-of-pocket and other expenses incurred by Consultant in connection with this Agreement, including without limitation, travel and lodging expenses, long distance calls, and costs of materials and supplies. Payment for such expenses shall be made within thirty (30) days from the date of Consultant's invoice. 2.3 Customer shall be responsible to pay all taxes, however designated, that are levied or imposed by reason of the transactions contemplated by this Agreement, including without limitation all sales, use, transfer, privilege, excise and other taxes and duties, whether international, national, state or local, excluding, however, taxes based on Consultant's net income. 3. Ownership; Grant of Licenses ---------------------------- 3.1 Except as otherwise provided herein or in any applicable Statement of Work, the parties agree that all documents, designs, inventions, products, pricing, costs, future plans, business information, process information, technical information, customer lists, computer programs, computer systems, data, computer documentation, ideas, processes, techniques, know-how, knowledge and other proprietary and/or tangible materials authored or prepared by Consultant (and its employees, agents, consultants or subcontractors) for Customer as the Deliverables are the sole and exclusive property of Consultant or its third party licensees. 3.2 Customer acknowledges that Consultant provides business consulting services to other clients, and agrees, subject to Consultant's confidentiality obligations hereunder, that nothing in this Agreement shall be deemed or construed to prevent Consultant from carrying on such business during the Term of this Agreement. In particular, Customer agrees that as part of Consultant's provision of the Services hereunder, Consultant may utilize proprietary works of authorship that have not been created specifically for Customer, including without limitation, software, methodologies, tools, specifications, drawings, sketches, models, samples, records and documentation, as well as copyrights, trademarks, service marks, ideas, concepts, know-how, techniques, knowledge or data, which have been originated, developed or purchased by Consultant or by third parties under contract to Consultant (all of the foregoing, collectively, "Consultant's Information"), and Consultant's Information and Consultant's administrative communications, records, files and working papers relating to the Services are and shall remain the sole and exclusive property of Consultant. 3.3 Except as otherwise provided herein or in any applicable Statement of Work, upon payment in full of all fees and other amounts due under this Agreement and provided that Customer is not in material breach of this Agreement, Consultant grants to Customer a perpetual, worldwide, non-exclusive, non-transferable license to use Deliverables solely for the purpose expressly set forth in any applicable Statement of Work, and Consultant's Information incorporated into the Deliverables solely in connection with Customer's use of the Deliverables. Except as otherwise provided herein or in any applicable Statement of Work, Customer shall not have the right to license, sublicense or otherwise transfer to others the right to use the Deliverables or Consultant's Information without Consultant's prior written consent. 3.4 Any and all data, information, reports, analysis, artwork, logos, graphics, video, text, and other materials, including without limitation, financial data supplied by Customer to Consultant in connection with this Agreement, if any, shall remain the sole and exclusive property of Customer (the "Customer Content"). 3.5 Consultant shall have the right to use Customer's name and trademark in its advertising, customer lists and marketing materials, subject to Customer's approval. 4. Confidentiality --------------- 4.1 A party disclosing Confidential Information shall herein be referred to as the "Disclosing Party," and a party receiving Confidential Information hereunder shall herein be referred to as the "Receiving Party." 4.2 "Confidential Information" shall mean, without limitation, (i) any idea, proposal, plan, information, procedure, technique, formula, technology or method of operation, any written or oral information of a proprietary nature, and any intellectual property owned or licensed by a Disclosing Party or relating to a Disclosing Party's or any of its principals' or affiliates' business, projects, operations, finances, activities or affairs, whether of a technical nature or not (including trade secrets, know-how, processes, and other technical or business information), and any proposed change thereto; (ii) any other information disclosed by a Disclosing Party and designated by a Disclosing Party as confidential; and (iii) the Deliverables (until paid for by Customer as provided hereunder), Consultant's Information -2- CONFIDENTIAL and Customer Content. By way of illustration, but not limitation, Confidential Information includes, without limitation, information regarding (i) all of the computer software and technologies, systems, structures, architectures, processes, formulae, compositions, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods, and information and databases developed, acquired, owned, produced or practiced at any time by a Disclosing Party or any affiliate thereof, software programs and documentation licensed by third parties to a Disclosing Party, and any other similar information or material; (ii) customer lists, telemarketing lists, vendor lists, employee personnel information and policies and procedures; (iii) a Disclosing Party 's products and services; (iv) business or financial information directly or indirectly related to a Disclosing Party's companies and investments; and (v) other processes and procedures employed by a Disclosing Party. 4.3 Notwithstanding Section 4.2, Confidential Information shall not include information: (i) in the public domain (other than as a result of a breach of this Agreement); (ii) in a Disclosing Party's possession prior to its receipt from Receiving Party pursuant to this Agreement; (iii) independently developed by a Receiving Party or known through a party other than Disclosing Party, which party has no duty of confidentiality to Disclosing Party, as demonstrated by written record; or (iv) disclosed pursuant to applicable law or regulation or by operation of law, provided that the Receiving Party may disclose only such information as is legally required, and provided further that the Receiving Party shall provide reasonable notice to the Disclosing Party of such requirement and a reasonable opportunity to object to such disclosure. 4.4 Obligations. Receiving Party agrees to hold all Confidential Information in strict confidence and shall not, without the express prior written permission of Disclosing Party: (i) disclose any Confidential Information to third parties or (ii) use the Confidential Information for any purpose other than to perform its obligations under this Agreement or for the purpose expressly set forth in the applicable Statement of Work. Without limiting the generality of the foregoing, Receiving Party shall be permitted to disclose Confidential Information only to its officers, employees and consultants who have an absolute need to know such Confidential Information and who are informed of and agree to be bound by the confidentiality obligations set forth herein; provided that Receiving Party will be liable for breach by any such person or entity. Receiving Party shall not make any copies of the Confidential Information except as necessary for the performance of its obligations under this Agreement and for its officers, employees, consultants, attorneys and accountants with a need to know. Any copies which are made shall be identified as belonging to Disclosing Party and marked "confidential," "proprietary" or with a similar legend. Receiving Party shall use commercially reasonable efforts to assist Disclosing Party in identifying and preventing any unauthorized use or disclosure of any Confidential Information. Without limiting the foregoing, Receiving Party shall promptly advise Disclosing Party in the event that it learns or has reason to believe that any person who has had access to Confidential Information has violated or intends to violate the terms of this Section 4, and shall cooperate in seeking injunctive relief against any such person. 4.5 Title. Except as otherwise provided herein, title or the right to possess Confidential Information as between the parties shall remain in Disclosing Party. Receiving Party shall not gain any interest or rights in or to the Confidential Information by virtue of its being disclosed to Receiving Party. 4.6 Return of Confidential Information. Unless the Receiving Party has a license to use the Confidential Information pursuant to Section 3, upon any termination of this Agreement, or at any time upon Disclosing Party's request, Receiving Party shall promptly, at Disclosing Party's option, either return or destroy all (or, if Disclosing Party so requests, any part) of the Confidential Information previously disclosed, and all copies thereof, and Receiving Party shall certify in writing as to its compliance with the foregoing. 4.7 Confidentiality of Agreement. Customer and Consultant will not disclose the terms and conditions of this Agreement to anyone other than their respective attorneys, accountants and other professional advisors, except as required by applicable law or regulation or by operation of law, provided that each party may disclose only such information as is legally required, and provided further that each party shall provide the other with reasonable notice of such requirement and a reasonable opportunity to object to such disclosure. 4.8 Injunctive Relief. The parties agree that, in the event of any breach of any provision hereof, the non-breaching party will not have an adequate remedy in money or damages. The parties therefore agree that, in such event, the non-breaching party shall be entitled to obtain injunctive relief against such breach in any court of competent jurisdiction, without the necessity of posting a bond even if otherwise normally required. Such injunctive relief will in no way limit the non-breaching party's right to obtain other remedies available under applicable law. 5. Warranties ---------- 5.1 Warranties of Consultant. Consultant represents and warrants that: (a) the Services will be performed in a commercially reasonable manner in accordance with the standards generally prevailing in the industry; (b) it has all necessary rights and authority to execute and deliver this Agreement and perform its obligations hereunder; and (c) neither this Agreement nor Consultant's performance of its obligations hereunder will place Consultant in breach of any other contract or obligation and will not violate the rights of any third party. 5.2 Warranties of Customer. Customer represents and warrants that (a) it has all necessary rights and authority to execute and deliver this Agreement and perform its obligations hereunder; (b) neither this Agreement nor Customer's performance of its obligations hereunder will place Customer in breach of any other contract or obligation and will not violate the rights of any -3- CONFIDENTIAL third party; (c) the Customer Content is, to Customer's knowledge, accurate, valid and true in all material respects as of the date it is provided to Consultant; and (d) Customer will not use the Deliverables in any manner which is in violation of any law or regulation. 5.3 EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 5, CONSULTANT EXPRESSLY DISCLAIMS AND CUSTOMER HEREBY EXPRESSLY WAIVES ANY AND ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 5, ALL SERVICES AND DELIVERABLES ARE PROVIDED "AS IS." CONSULTANT IS PROVIDING SERVICES TO ASSIST CUSTOMER. CUSTOMER IS RESPONSIBLE FOR REVIEWING THE DELIVERABLES TO ENSURE THEIR ACCURACY AND COMPLETENESS AND FOR THE RESULTS OBTAINED FROM ITS USE OF THE DELIVERABLES. WITH THE EXCEPTION OF CONSULTANT'S INDEMNIFICATION OBLIGATIONS FOR THIRD PARTY CLAIMS AS SET FORTH IN SECTION 6, CONSULTANT'S ENTIRE LIABILITY AND CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THIS WARRANTY IS CONSULTANT'S REPERFORMANCE OF THE SERVICES. 6. Indemnification --------------- 6.1 Customer and Consultant hereby agree to indemnify, defend and hold harmless each other from and against any and all actual or threatened claims, actions, damages, liabilities, costs and expenses, including without limitation reasonable attorney's fees and expenses, arising out of or in connection with: (a) the accuracy, validity or truthfulness of the Customer Content, in the case of the Customer, or Deliverables, in the case of the Consultant, and any representations made by the other party in any documents (including without limitation, any prospectus or business plan); (b) the other party's failure to comply with any applicable law or regulation; (c) third party claims of infringement of any patents, trade secrets, copyrights, trademarks, service marks, trade names or similar proprietary rights alleged to have occurred with respect to Customer Content, in the case of the Customer, or Deliverables, in the case of the Consultant; (d) the death or bodily injury of any person, to the extent that such death or bodily injury was caused by the other party's gross negligence or willful misconduct; (e) the damage, loss or destruction of real or tangible personal property, to the extent that such damage, loss or destruction was caused by the other party's gross negligence or willful misconduct; and (f) any damages incurred directly or by virtue of a claim made by a third party, in either case, arising out of a breach of a party's representations, warranties, covenants or duties arising out of, or in connection with, this Agreement. 6.2 For purposes of this Section 6, each of Consultant and Customer shall be responsible for the actions of their respective directors, employees, agents, consultants, subcontractors and clients whose actions or activities are, either directly or indirectly, under or subject to the reasonable control of Consultant or Customer, as the case may be. For the avoidance of doubt, if Consultant is required to indemnify Customer, then the term consultant as used in this Section 6.2 shall not include Consultant, nor will any of Consultant's actions, or the actions of the employees or agents thereof, be deemed to be the actions of Customer. 7. Limitation of Liability ----------------------- 7.1 REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER IN CONTRACT, TORT, STRICT LIABILITY OR CAUSE OF ACTIONS OF ANY NATURE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, CONSEQUENTIAL OR RELIANCE, LOSS, DAMAGE OR EXPENSE, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOSS OF USE OR REVENUES, WHETHER OR NOT EITHER PARTY WAS ADVISED, SHOULD HAVE KNOWN OR WAS AWARE OF THE POSSIBILITY OF SUCH LOSS, DAMAGE, OR EXPENSE ARISING OUT OF OR IN CONNECTION WITH ANY ACT OR OMISSION OF SUCH PARTY RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE SERVICES DELIVERABLES AND PRODUCTS, OR ANY PART THEREOF, IN THE CASE OF CONSULTANT, OR THE CUSTOMER CONTENT, CUSTOMER'S PRODUCTS AND SERVICES, OR ANY PART THEREOF, IN THE CASE OF CUSTOMER. 7.2 CONSULTANT'S TOTAL LIABILITY FOR ALL CLAIMS MADE UNDER THIS AGREEMENT SHALL NOT UNDER ANY CIRCUMSTANCES EXCEED THE GREATER OF: (A) $100,000; OR (B) THE SUM TOTAL OF THE FEES PAID BY CUSTOMER TO CONSULTANT UNDER THIS AGREEMENT FOR THE SERVICES. CUSTOMER'S TOTAL LIABILITY FOR ALL CLAIMS MADE HEREUNDER SHALL NOT UNDER ANY CIRCUMSTANCES EXCEED $100,000 PLUS ANY UNPAID FEES DUE TO CONSULTANT HEREUNDER. THE OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT RUN ONLY TO EACH OTHER AND NOT TO ANY OTHER PERSONS OR ENTITIES. NOTWITHSTANDING ANY OTHER TERMS AND CONDITIONS OF THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY AS TO ANY THIRD PARTY INFORMATION OR PRODUCTS PROVIDED TO EACH OTHER, ALL OF WHICH ARE PROVIDED, SOLD OR LICENSED "AS IS," AND THE PARTIES AGREE TO LOOK SOLELY TO THE WARRANTIES AND REMEDIES, IF ANY, PROVIDED BY THE THIRD PARTY. THE LIMITATIONS IN THIS SECTION 7.2 DO NOT APPLY TO THE INDEMNIFICATION OBLIGATIONS OF CONSULTANT OR CUSTOMER FOR THIRD PARTY CLAIMS AS SET FORTH IN SECTION 6. -4- CONFIDENTIAL 7.3 No action arising out of breach of this Agreement or transactions related to this Agreement may be brought by either party more than one (1) year after the cause of action accrued, regardless of the form of the action. 7.4 Both parties understand and agree that the limitations and exclusions set forth herein represent the parties' agreement as to the allocation of risk between the parties in connection with Consultant's obligations under this Agreement. The fees payable to Consultant hereunder reflect, and are set in reliance upon, the allocation of risk and the exclusions and limitations of liability set forth in this Agreement. 8. Term and Termination -------------------- 8.1 Term. This Agreement shall commence on the Effective Date and shall remain in effect, unless sooner terminated by either party upon thirty (30) days written notice (the "Term"). 8.2 Rights Upon Termination. In the event that this Agreement or any Statement(s) of Work are terminated by either party pursuant to this Section 8, Customer shall have no right to use or exploit in any manner, the Deliverables or the Consultant's Information related to such Statement(s) of Work unless Customer has paid the full fees related thereto. In the event of any termination of this Agreement, Consultant and Customer shall promptly comply with Section 4.6 regarding return or destruction of Confidential Information. 9. Non-Solicitation of Employees ----------------------------- The parties shall not, during the Term and for a period of eighteen (18) months thereafter, directly or indirectly solicit, employ, offer to employ, or engage as a consultant, any employee, agent, consultant or subcontractor of the other party. The parties agree that, in the event of any breach of this Section 9, the non-breaching party will not have an adequate remedy in money or damages. The parties therefore agree that, in such event, the non-breaching party shall be entitled to obtain injunctive relief against such breach in any court of competent jurisdiction, without the necessity of posting a bond even if otherwise normally required. Such injunctive relief will in no way limit the non-breaching party's right to obtain other remedies and damages available under applicable law. 10. Non-Competition --------------- 10.1 During the Term and for a period of eighteen (18) months thereafter, Customer will not directly or indirectly, either individually, in partnership, jointly, or in conjunction with or through the activities of any third person, firm, partnership, corporation or organization of any kind, offer to any person or entity of any kind, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, principal, agent, employee or independent contractor, manage, control, own, operate, be employed by or otherwise render business consulting services similar to or competitive with the services offered by Consultant within any territory in which Consultant offers its services. Customer acknowledges that Consultant offers its services throughout the United States, Canada and the world. 10.2 The parties agree that the restrictions contained in this Agreement are reasonable and necessary because the parties have expended substantial time, money and effort in their business and their Confidential Information, the parties will, during the Term, be entrusted with and exposed to each other's business and Confidential Information and both could, after having been exposed to each other's business and having accessed each other's Confidential Information, become a competitor and either party will suffer great loss and irreparable harm if the other were to directly or indirectly enter into competition with it. 10.3 The parties agree that, in the event of any breach of this Section 10, the non-breaching party will not have an adequate remedy in money or damages. The parties therefore agree that, in such event, the non-breaching party shall be entitled to obtain injunctive relief against such breach in any court of competent jurisdiction, without the necessity of posting a bond even if otherwise normally required. Such injunctive relief will in no way limit the non-breaching party's right to obtain other remedies available under applicable law. 10.4 The parties agree that the duration, geographical scope, activity and subject matter of the non-solicitation and non-competition terms and conditions set forth in this Agreement are fair, reasonable and not excessively broad and are necessary to protect each party's goodwill and Confidential Information and that each party would not have entered into this Agreement but for the other party's agreement to comply with such terms and conditions. 10.5 For purposes of this Section 10, the terms Consultant and Customer shall include its officers, directors, employees, agents, consultants, subcontractors and clients whose actions and activities are controlled by Consultant or Customer, as the case may be, either directly or indirectly. For the avoidance of doubt, the term consultant as used in this Section 10.5 shall not include Consultant, nor will any of Consultant's actions, or the actions of the employees or agents thereof, be deemed to be the actions of Customer. 11. Independent Contractor ---------------------- Consultant (including any and all Consultant employees, agents, consultants or subcontractors), in performance of this Agreement, is acting as an independent contractor and not as an employee or agent of Customer. Consultant shall have exclusive control of the manner and means of performing its obligations under this Agreement. Each party shall be solely responsible for the supervision, daily direction and control of its employees and payment of their salaries (including withholding of appropriate payroll taxes), workers' compensation, disability, health insurance and other benefits. Nothing in this Agreement shall be construed as making either party the agent of the other party, as granting to the other party the right to enter into any contract on behalf of the other party, or as establishing a partnership, franchise or joint venture between the -5- CONFIDENTIAL parties. Under no circumstances shall the employees of one party be deemed to be employees of the other party for any purpose. 12. Security Rules -------------- Each party agrees to comply with the other party's reasonable security rules and measures when on the other party's premises and to instruct all of its personnel who enter upon the other party's premises to comply with such security rules and measures. Each party agrees, at its own cost and expense, to provide the other party with sufficient work space and supplies solely for the purpose of each party's performance of its obligations under this Agreement. 13. Force Majeure ------------- Neither party shall be deemed in default or otherwise liable for any delay in or failure of its performance under this Agreement or any Statement of Work (other than payment obligations) by reason of any Act of God, fire, natural disaster, accident, riot, act of government, strike or labor dispute, shortage of materials or supplies, failure of transportation or communication or of suppliers of goods or services, or any other cause beyond the reasonable control of such party. Performance times shall be considered extended for a period of time equivalent to the time lost because of such delay. 14. Governing Law; Entire Agreement ------------------------------- This Agreement and each Statement of Work shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to its conflict of laws provisions. The exclusive jurisdiction and venue for all legal actions arising out of or related to this Agreement shall be in courts of competent subject matter jurisdiction located in the Middlesex County, New Jersey, and the parties hereby consent to the jurisdiction of such courts. This Agreement, together with any Statements of Work executed pursuant hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all previous or contemporaneous agreements, proposals, understandings and representations, written or oral, with respect to the subject matter hereof. Neither this Agreement nor any Statement of Work may be modified or amended except in a writing signed by duly authorized representatives of each party. To the extent there is such a conflict between the terms and conditions of a Statement of Work and the terms and conditions of this Agreement, the terms and conditions of the Statement of Work shall govern and control unless otherwise specified in the Statement of Work. 15. Notices ------- All notices, consents and approvals, including notices of address changes, required or permitted to be given by either party under this Agreement shall be in writing and shall be deemed given when delivered in person or sent by registered or certified mail or by reputable overnight commercial delivery to the address set forth on page 1; provided, however, that notices to Consultant shall be sent to the attention of its General Counsel. 16. Severability ------------ It is the desire and intent of Consultant and Customer that the terms and conditions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated to be overly broad, invalid or unenforceable as written, it is the desire and intent of Consultant and Customer that the court will revise such provision as it deems necessary to make it consistent with the law and public policy of the jurisdiction and governing law and enforce the provision as so revised. In particular, if any one or more provisions contained in this Agreement shall for any reason be adjudicated to be excessively broad as to duration, geographical scope, activity or subject matter, it is the desire and intent of Consultant and Customer that the court shall modify such provisions to reduce their breadth to whatever extent and in whatever manner it deems necessary to render them reasonable and enforceable to the maximum extent compatible with applicable law. In the event that any one or more of the provisions of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected. 17. Survival -------- In the event of any termination of this Agreement, the parties agree that Sections 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 14, 16, 20, 21 and 22 shall survive such termination. In addition, certain terms in the Statement of Work shall also survive the termination of the Agreement if so specified therein. In addition, the parties agree that certain other terms and conditions may, by their nature, survive any termination of this Agreement. 18. Waiver ------ No waiver or forbearance by either party hereto of any rights hereunder in any particular instance shall act to preclude such party from exercising those rights in any other instance. 19. Assignment ---------- The parties shall not assign their rights, duties or obligations under this Agreement, in whole or in part, without the prior written consent of the other party. 20. Conflict -------- The terms and conditions of this Agreement, including all Statements of Work executed pursuant hereto, shall prevail notwithstanding any different or additional terms and conditions of any purchase order or other form for purchase or payment submitted by Customer to Consultant, all of which are hereby rejected. -6- CONFIDENTIAL 21. Headings -------- The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 22. Counterparts ------------ This Agreement may be executed on separate counterparts, any one of which need not contain signatures of more than one party, but all of which when taken together shall constitute one and same agreement. IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly executed by their respective duly authorized representatives as of the Effective Date. VENTURE CONSULTING GROUP, INC. CUSTOMER By /s/ Ronald Sacks By /s/ Stephen M. Deixler ------------------------------------ ------------------------- Signature Signature Ronald Sacks Stephen M. Deixler - --------------------------------------- ------------------------- Print Name Print Name President and Managing Partner Chairman - --------------------------------------- ------------------------- Print Title Print Title September 18, 2000 September 18, 2000 - --------------------------------------- ----------------------- Print Date Print Date Form 9902 (v. 1) -7- CONFIDENTIAL Master Consulting Agreement Venture Consulting Group, Inc. ------------------------------ Statement of Work No. 1 Customer: ION Networks, Inc. ------------------ Customer Address: 1551 South Washington Avenue, Piscataway, NJ 08854 Customer Project Manager: Name: Stephen M. Deixler - COB Address: 1551 South Washington Avenue, Piscataway, NJ 08854 Telephone: 732-529-0100 ------------ Fax: 732-529-0115 ------------ E-mail: Stephen.Deixler@ion-networks .com This Statement of Work No. 1 ("Statement of Work") is in accordance with and is hereby made a part of the Master Consulting Agreement between Ion Networks, Inc. ("Customer") and Venture Consulting Group, Inc. ("Consultant") with an Effective Date of September 18, 2000, (the "Agreement"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Agreement. In the event of a conflict among the terms and conditions of this Statement of Work and the terms and conditions of the Agreement, the terms and conditions of this Statement of Work shall govern and control such conflict. The following services will be performed by Consultant. 1. Description of Services (a) Ron Sacks. Beginning on September 18, 2000, Consultant shall provide the services of Ron Sacks on a full time basis, for a period of 1 year (the "Services"). During this period, Mr. Sacks will work exclusively for Customer except that he will continue in his capacity as the Managing Partner of Venture Consulting Group, Inc. Mr. Sacks will be appointed by the Customer's Board of Directors to the position of interim and acting Chief Executive Officer ("CEO") and will be an officer of Customer. Mr. Sacks will report to the Customer's Board of Directors and shall have all of the rights, privileges, and responsibilities of the CEO as provided in Customer's charter and by-laws, and pursuant to any and all applicable laws, including being accountable for the fiduciary duties and obligations of an officer of Customer. His duties shall include, but not be limited to, assisting in assessing Customer's current business situation, developing a turn-around plan, presenting a turn-around plan to Customer's Board of Directors, and initiating critical elements of the turn-around plan (collectively, the "Deliverables"). (b) William Gilbert, George Jarrold, and Daniel Hunt. Beginning on September 18, 2000, Consultant shall provide the services of William Gilbert, George Jarrold, and Daniel Hunt (hereinafter referred to as "Advisors") in the capacity of advisors to Mr. Sacks. Each of the Advisors shall devote ten (10) days (a day is defined as nine (9) hours) per quarter to the Customer. 2. Obligations of Customer Mr. Sacks shall report directly to Customer's Board of Directors. The Board of Directors shall appoint Mr. Sacks to the position of Chief Executive Officer of Customer and give him access to its Board of Directors, resources, staff, contractors, and other parties as deemed necessary to complete the Services described herein. Customer shall cover Mr. Sacks under a D&O policy with at least the same rights and coverage provided to all other officers of Customer. Customer will provide proof of such D&O coverage prior to October 15, 2000 and will use reasonable commercial efforts to obtain a waiver of subrogation rights by the insurance company providing the D&O coverage after the execution of this Agreement by Consultant. Mr. Sacks shall be entitled to the same indemnification that is provided to other officers of Customer pursuant to Customer's by-laws, charter and any and all applicable laws. CONFIDENTIAL 3. Warranties For purposes of Section 1 of this Statement of Work only, add the following to the end of Section 5.3 of the Agreement: "The foregoing exclusive remedy shall not apply to any claims arising out of or resulting from the fraudulent activity of Ron Sacks or the misappropriation of Customer's funds by Ron Sacks. In addition, the foregoing exclusive remedy shall not apply to any claims arising out of or resulting from the willful misconduct or gross negligence of Ron Sacks or of the Advisors in connection with the Services provided by them under this Statement of Work; provided, however, that the total liability for all such claims arising out of or resulting from such willful misconduct or gross negligence shall not under any circumstances, exceed Five Hundred Thousand Dollars ($500,000.00)." 4. Limitation of Liability For purposes of Section 1 of this Statement of Work only, add the following to the end of Section 7.2 of the Agreement: "The foregoing limitations shall not apply to any claims arising out of or resulting from the fraudulent activity of Ron Sacks or the misappropriation of Customer's funds by Ron Sacks. In addition, the foregoing limitations shall not apply to any claims arising out of or resulting from the willful misconduct or gross negligence of Ron Sacks or of the Advisors in connection with the Services provided by them under this Statement of Work; provided, however, that the total liability for all such claims arising out of or resulting from such willful misconduct or gross negligence shall not under any circumstances, exceed Five Hundred Thousand Dollars ($500,000.00)." 5. Use of Deliverables Upon payment of all fees and other amounts as they become due hereunder and provided that Customer is not in material breach of this Agreement, Consultant assigns to Customer all right, title and interest in the Deliverables, which shall thereafter be the sole, exclusive property of Customer. 6. Fees (a) Fees for Services of Ron Sacks. Customer shall pay to Consultant a fee of Four Hundred Thousand Dollars ($400,000.00) in consideration of the services of Ron Sacks, to be pro-rated over one (1) year and to be paid as described below. (b) Fees for Services of Advisors. Customer shall pay to Consultant a fee of One Hundred Thousand Dollars ($100,000.00) in consideration of the services of the Advisors, to be pro-rated over one (1) year and to be paid as described below. 7. Payment Schedule Customer shall pay a retainer fee of Forty Two Thousand Dollars ($42,000.00) to Consultant upon Customer's execution of the Agreement and this Statement of Work. Thereafter payments of the above fees shall be made to Consultant every 2 weeks. 8. Non-Competition Ron Sacks, in his individual capacity, agrees that during the term of the Agreement and for a period of time after termination of the Agreement that is equal to the amount of time in which he provided the Services described in Section 1(a) of this Statement of Work, up to a maximum of twelve (12) months, he shall not, either directly or indirectly, act or serve in any capacity (including but not limited to as employee, consultant, agent, principal, shareholder, partner, joint venturer) with any of the entities listed on Schedule A annexed hereto. Notwithstanding this Section 8, it is expressly agreed that nothing in the Agreement or Statement of Work will prevent Ron Sacks from continuing in his capacity as Managing Partner of Venture Consulting Group Inc. or, from owning up to ten percent (10%) of any company or business, either privately or publicly held. Ron Sacks further agrees that (i) the restrictions described above are reasonable and necessary for the protection of Customer's business interest, (ii) in the event of any breach of Mr. Sacks' obligations hereunder, Customer will not have an adequate remedy in money or damages, and Customer shall be entitled to obtain injunctive relief against such breach in any court of competent jurisdiction without the necessity of posting a bond even if otherwise normally required, and (iii) such injunctive relief will in no way limit Customer's right to seek or obtain other remedies available to it under applicable law for such breach or threatened breach. If any court determines that any of the restrictions provided for in this Section 6, or any part thereof, is unenforceable because of the duration or scope of such restrictions, such court shall have the power to reduce the duration or scope of such restrictions, as the case may be, and, in their reduced form, such restrictions shall be enforceable. -2- CONFIDENTIAL The Advisors shall not be bound by the restrictions set forth above. However, each Advisor, in his individual capacity, hereby agrees that in the event they are to perform duties similar or related to the same subject matter as those they perform for Customer during the term of the Agreement, for any entity which is a competitor of Customer, they will advise Customer's Board of Directors in advance of accepting any such duties, and will disclose, to the extent not circumscribed by a non-disclosure and /or confidentiality agreement, the scope and the nature of the duties to be performed for such competitor. In the event of any termination of the Agreement, this Section 8 of the Statement of Work, as it applies to Mr. Sacks, shall survive any such termination. The Effective Date of this Statement of Work is September 18, 2000. IN WITNESS WHEREOF, the parties to this Statement of Work have caused it to be duly executed by their respective duly authorized representatives as of the Effective Date. VENTURE CONSULTING GROUP, INC. CUSTOMER By /s/ Ronald Sacks By /s/ Stephen M. Deixler --------------------------- --------------------------- Signature Signature Ronald Sacks Stephen M. Deixler - ------------------------------ --------------------------- Print Name Print Name President and Managing Partner Chairman - ------------------------------ --------------------------- Print Title Print Title September 18, 2000 September 18, 2000 - ----------------------------- -------------------------- Print Date Print Date The undersigned are hereby executing this Statement of Work for the purposes of agreeing to the provisions of Section 8 hereof. By /s/ Ronald Sacks By /s/ William Gilbert --------------------------------- ------------------------------ Ron Sacks William Gilbert By /s/ George Jarrold By /s/ Daniel Hunt --------------------------------- ------------------------------ George Jarrold Daniel Hunt -3- CONFIDENTIAL EX-10.2 3 0003.txt SEPARATION AGREEMENT SEPARATION AND FOREBEARANCE AGREEMENT, made as of this 5th day of October, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided herein, this "Agreement"), between Stephen B. Gray, an individual currently having an address at 9 Pavilica Road, Stockton, New Jersey 08559 ("Gray"), Kathleen D. Gray, to the limited extent as provided herein, and an individual currently having an address at 9 Pavilica Road, Stockton, New Jersey 08559 ("Kathleen Gray"), and ION Networks, Inc. a Delaware corporation currently having an address at 1551 South Washington Avenue, Piscataway, New Jersey 08854 (the "Company"). The parties referred to above are sometimes referred to herein individually as a "Party" and collectively as the "Parties." WHEREAS, Gray has resigned as the Chief Executive Officer and President of the Company, and as a director of the Company; and WHEREAS, the parties wish to provide for their respective rights and obligations with respect to Gray's resignation from the Company and an extension of the due date for certain amounts owed by Gray to the Company. NOW THEREFORE, for and in consideration of the mutual promises and covenants hereinafter contained, and other good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged by each Party, the Parties hereby agree as follows: 1. $200,000 Payment. Gray hereby acknowledges that he currently owes the Company an aggregate amount of Two Hundred Thousand ($200,000) Dollars, which would otherwise be due and payable now, and that in consideration of the execution and delivery of this Agreement, the Mortgage and the Guaranty (both as hereinafter defined), the Company hereby agrees to temporarily forebear such amounts due to it, and Gray hereby agrees to pay the Company such amounts, as follows: (a) Fifteen Thousand ($15,000) Dollars shall be paid by Gray in cash, in readily available funds, upon the execution of this Agreement; (b) Twenty Two Thousand ($22,000) Dollars shall be credited against payment for all of Gray's accrued and unused vacation time, such payment to be credited against such $200,000 upon the execution of this Agreement; and (c) One Hundred and Sixty Three Thousand ($163,000) Dollars which shall be paid by Gray in installment payments as specified hereinafter, of at least Twenty Thousand ($20,000) Dollars, with the first such installment payment due on the last to occur of (i) November 1, 2000, or (ii) the tenth business day following the date of the earnings press release by the Company for the quarter ended September 30, 2000; the second such installment payment due on December 11, 2000; the third such installment payment due on January 11, 2001; the fourth such installment payment due on February 9, 2001; the fifth such installment payment due on March 9, 2001; and the entire remaining balance due on or before March 31, 2001. This obligation shall be evidenced by a promissory note dated as of the date hereof in the form of Exhibit A hereto (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "$163,000 Note"), which shall be executed by Gray and delivered to the Company upon the execution of this Agreement . 2. Repayment of Loan. (a) Gray has previously issued to the Company that certain promissory note dated as of June 27, 2000 in the amount of Seven Hundred and Fifty Thousand ($750,000) Dollars, plus any interest accrued thereon (the "Existing Note"). (b) Gray acknowledges and agrees that the full $750,000 in principal and accrued interest is outstanding under the Existing Note, that the Existing Note was due in full thirty (30) days after Gray leaves the employ of the Company, and that in consideration of the execution and delivery of this Agreement, the Mortgage and the Guaranty, the Company has agreed to temporarily forebear payment, and Gray agrees to repay the $750,000 Note (as defined below) in full, together with interest accrued thereon through September 29, 2000, on April 30, 2001, in accordance with the Existing Note and First Amendment to the Existing Note (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided for therein), dated as of the date hereof, which Existing Note and Form of First Amendment to the Existing Note are both attached as Exhibit B hereto, and which First Amendment to the Existing Note shall be executed by Gray and delivered to the Company upon the execution of this Agreement. The Existing Note together with the First Amendment thereto are referred to herein as the "$750,000 Note", and, together with the $163,000 Note, the "Notes." 3. Collateralization and Guaranty of Obligations. (a) For the purpose of securing the payment obligations pursuant to the Notes and Guaranty, Gray and Kathleen Gray shall execute and deliver to the Company upon the execution of this Agreement a mortgage in the amount of Nine Hundred and Thirteen Thousand ($913,000) Dollars, in favor of the Company, with respect to the property known as 9 Pavilica Road, Stockton, New Jersey 08559 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Mortgage"), such Mortgage attached hereto as Exhibit C. The Mortgage shall thereafter be reduced by the amount of any payment made to the Company pursuant to the Notes, until all amounts due thereunder are fully paid. Gray and Kathleen Gray hereby represent and warrant that they own all right, title and interest in such property, free and clear of claims, liens, security interests and encumbrances (other than the Mortgage). (b) In addition, Kathleen Gray shall execute and deliver to the Company a Guaranty Agreement containing a continuing guaranty of the Notes (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Guaranty") upon the execution of this Agreement, such Guarantee attached hereto as Exhibit D. 4. Stock Options. (a) The Parties understand and agree that it is anticipated that the primary source for repayment of the Notes to the Company shall be the stock options described below. For the purpose of facilitating the payments due hereunder, the Company accepts and consents to Gray's resignation as an employee, officer and director of the Company, and acknowledges that Gray will exercise and sell any stock options of the Company that he owns and that currently are exercisable, as listed in Exhibit F hereto, and Gray agrees to so exercise and sell such options in the following manner: (i) all exercises and sales shall be made by Gray through a brokerage firm designated by the Company (the "Broker"), provided such Broker allows the options to be exercised and sold through an irrevocable payment instruction from Gray to the Broker, pursuant to which the exercise price of any options exercised and sold will be paid with proceeds received by the Broker from the sale of the shares underlying such options; Gray further agrees that he will not exercise and sell any of the foregoing stock options other than through the Broker; (ii) all proceeds from such sales, not to exceed the total aggregate amount due to the Company hereunder plus the aggregate exercise price of any options sold, will be remitted by the Broker to the Company, and such proceeds (not including proceeds so remitted in connection with the payment of the aggregate exercise price) will be applied by the Company (i) first, towards payment of the exercise price of any options exercised; (ii) second, payment of withholding required under any federal, state and local tax laws or regulation (including FICA) (it being understood that Gray shall pay such amounts to the Company irrespective whether any resale proceeds are -2- received by Gray or the Company as a result of sale of the shares underlying such options); (iii) third, against the amounts due under $163,000 Note, and (iv) fourth, against the amounts due under the $750,000 Note, until all amounts due under the Notes have been paid in full. Any funds, if any, remaining after the payment of all such amounts shall be paid to Gray or as Gray may otherwise direct; (iii) Gray shall execute and deliver a directional agreement, attached hereto as Exhibit E, to the Broker to the same effect as specified in subparagraph (a)(ii) above. (b) In connection with the exercise and sale by Gray of options as specified above, the Company shall use its best efforts to register for sale under the Securities Act of 1933, as amended, the shares underlying any options owned by Gray which are currently exercisable and are not registered, within 4 days after the filing of its Report on Form 10-QSB for the quarter ended September 30, 2000. If the Company fails to or is unable to so register all of Gray's option shares (other than those pertaining to shares that have already been so registered) by December 31, 2000, then the final maturity and payment dates for the $750,000 Note shall be extended to December 31, 2001, instead of April 30, 2001. (c) Gray and Kathleen Gray each acknowledges and agrees with the Company that (i) any fluctuation in the value of the options or option shares are the sole risk of Gray (whether resulting from any delay or failure in the registration of the shares or otherwise), and (ii) Gray will be liable for the full amount due under the Notes, and will pay and satisfy all of his remaining obligations under the Notes in full after the application of any net proceeds from the exercise of the options and the sale of the option shares, in each case irrespective of the then fair market value of the option shares or the net amounts (if any) raised and so applied in any exercise of options and sale of option shares. To the extent that Kathleen Gray has any right, title or interest in the foregoing options or the shares underlying such options, she hereby authorizes and agrees to the foregoing exercises and sales of options, and the foregoing application of the proceeds from such exercises and sales. (d) The Company and Gray acknowledge that the stock options specified in Exhibit F are currently exercisable and that Gray has no claim with respect to any options other than those listed in Exhibit F. 5. Release by Gray. (a) For and in consideration of good and valuable consideration, receipt of which is hereby acknowledged, Gray, and Kathleen Gray (individually and/or in her capacity as Gray's wife), on behalf of himself or herself and their respective heirs, family members, executors, administrators, successors and assigns, hereby fully and forever releases and discharges the Company, its present and former officers, directors, employees, agents, investors, shareholders, administrators, representatives, affiliates, divisions, subsidiaries, parent corporations, predecessor and successor corporations and assigns from any and all liability for any claim, duty, covenant, warranty, promise, undertaking, obligation, actions, suit, cause of action, debts, accounts, judgments, losses, liabilities or damages (collectively "Claims"), of whatsoever kind or nature, at law, in equity or otherwise, whether presently known or unknown, suspected or unsuspected, that Gray may possess arising from any omission, act or fact that has occurred from the beginning of time up to and including the date of this Agreement. Such released claims include, but are not limited to: (i) any Claims for wages, separation pay, severance pay, bonuses, accrued vacation, personal days, holidays, stock options (other than those set forth in Exhibit F) which are not currently exercisable, other benefits, attorneys fees, costs or expenses, including, without limitation, any such Claims arising out of any written or oral employment agreement with or any policy, plan or procedure of the Company; -3- (ii) any other Claims arising out of Gray's employment with the Company or his resignation from the Company; (iii) any Claims arising under the common law, including, without limitation, all claims pursuant to public policy or tort law; (iv) all Claims arising under any employment or other agreement, contract, arrangement, understanding or promise (in each case whether oral or written and whether express or implied) between Gray and the Company; (v) all Claims arising under any federal, state or local constitution, statute, regulation or ordinance to the extent such claims may be validly waived, including, without limitation, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act of 1990, the Equal Pay Act, as amended, the Fair Labor Standards Act of 1938, as amended, the Family and Medical Leave Act of 1993, as amended; the New Jersey Constitution; the New Jersey Law Against Discrimination; the New Jersey Conscientious Employee Protection Act; and (vi) all Claims for any other expense, loss or damage. (b) Gray acknowledges that the consideration provided to him under this Agreement exceeds any payment, benefit and/or other thing of value to which he might otherwise be entitled pursuant to any policy, plan or procedure of the Company or pursuant to any prior agreement or contract with the Company. Gray understand that he is not waiving any rights or Claims that arise after the effective date of this Agreement and that he is not releasing the Company with respect to any rights he may have under any employee benefit plans as defined in Section 3(3) of ERISA. (c) Gray further agrees that, except for the purpose of seeking enforcement of the terms of this Agreement, he will not file or institute any civil actions, complaints, charges, claims or other proceedings of any nature or description against the Company before any judicial, administrative or other forum based upon or arising out of any claims, whether asserted or unasserted, that he may possess against the Company. If Gray violates this Agreement by filing or instituting any such civil actions, complaints, charges, claims or other proceedings, Gray agrees to pay all costs and expenses of defending against the suit incurred by the Company, including its reasonable attorneys' fees, disbursements and costs. 6. Release by the Company. (a) For and in consideration of good and valuable consideration, receipt of which is hereby acknowledged, and except with respect to any obligations under this Agreement, the Notes and the Mortgage, the Company hereby fully and forever releases and discharges Gray from any and all liability for any claim, duty, covenant, warranty, promise, undertaking, obligation, actions, suit, cause of action, debts, accounts, judgments, losses, liabilities or damages, of whatsoever kind or nature, at law, in equity or otherwise, whether presently known or unknown, suspected or unsuspected that the Company may possess arising from any omission act or fact that has occurred from the beginning of time up to any including the date of the Agreement; provided, however, Gray hereby represents and warrants that Gray has no knowledge of any issue, fact or circumstance constituting fraud against the Company or missapropriation of Company funds or property, and Gray acknowledges and agrees that the Company's release of Gray as to claims unknown to the Company (not imputing Gray's knowledge to the Company) is contingent on the accuracy of such representation and warranty. Gray agrees to indemnify and hold harmless the Company from and against any and all charges, claims, causes of action, losses or other expenses, including attorney's fees, incurred by the Company to the extent arising from the issues, facts or circumstances constituting such fraud or misappropriation. -4- (b) The Company agrees that, except for the purpose of seeking enforcement of the terms of this Agreement and any claims for breach thereof (including but not limited to with respect to the Notes and Mortgage), it will not file or institute any civil actions, complaints, charges, claims or other proceedings of any nature or description against Gray before any judicial, administrative or other forum based upon or arising out of any claims, whether asserted or unasserted, that the Company may possess against Gray. If the Company violates this Agreement by filing or instituting any such civil actions, complaints, charges, claims or other proceedings, the Company agrees to pay all costs and expenses of defending against the suit incurred by Gray, including his reasonable attorney's fees, disbursements and costs. 7. Entire Agreement. This Agreement and the exhibits thereto contain the entire understanding between the Parties with respect to, and contain all terms and conditions pertaining to, the subject matter hereof. This Agreement and the exhibits thereto supersede any prior agreements, arrangements or understandings between the Parties, whether written or oral, relating to the subject matter hereof. 8. Severability. If any provision of this Agreement shall be determined to be invalid or unenforceable to any extent, the remainder of the terms and provisions of and obligations in this Agreement and the application of such terms, provisions and undertakings shall not be affected and shall be enforced to the greatest extent permitted by law. 9. Legal Representation. The Parties represent and warrant to the other that he, she or it has had full opportunity to obtain, and has in fact obtained, the advice of his, her or its own legal counsel with respect to this Agreement. 10. Notices. Any notice or demand required or permitted to be given or made hereunder to or upon either Party hereto shall be deemed to have been duly given or made for all purposes if (a) in writing and sent by (i) messenger or an overnight courier service against receipt, or (ii) certified or registered mail, postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex, e-mail or similar electronic means, provided that a written copy thereof is sent on the same day by postage paid first-class mail, to such party at the following address: If to Gray or Stephen and Kathleen Gray Kathleen Gray: 9 Pavilica Road Stockton, New Jersey 08559 with a copy to: Vito A. Gagliardi, Jr. Porzio, Bromberg & Newman, P.C. 163 Madison Avenue Morristown, New Jersey 07962-1997 If to the Company: ION Networks, Inc. 1551 South Washington Avenue Piscataway, New Jersey 08854 Attn: Chairman of the Board of Directors with a copy to: James Alterbaum, Esq. Parker Chapin LLP 405 Lexington Avenue New York, NY 10174 or such other address as either Party may at any time direct by notice given to the other Party in accordance with this paragraph. The date of giving any such notice shall be, in the case of clause (a)(i), the date of receipt; in the case of clause (a) (ii), five (5) business days after such notice is sent; and in the case of clause (b), the business day next following the date such notice is sent. -5- 11. Governing Law; Jurisdiction. This Agreement shall be governed by the laws of the State of New Jersey, without giving effect to principles of conflicts or choice of law thereof. The Parties hereto consent to the exclusive jurisdiction of any state or federal court located within the County of Middlesex, New Jersey, and irrevocably agree that all disputes relating to this Agreement shall be litigated in such courts, and the Parties waive any objection which they may have based on improper venue or forum non-conveniens to conduct the proceeding in any such court. 12. Survival of Obligations. The rights and obligations of the Parties pursuant to this Agreement shall survive the execution of this Agreement. 13. Counterpart Signature; Facsimile. This Agreement may be signed in counterparts, each of which shall constitute an original, and shall become effective as if executed in a single, complete document upon execution by the undersigned parties. Facsimile signatures of the undersigned parties will have the same force and effect as original signatures. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. ION NETWORKS, INC. By: /s/ Stephen M. Deixler --------------------------- Name: Stephen M. Deixler Title: Chairman /s/ Stephen B. Gray ------------------------------- Stephen B. Gray By signing below, the undersigned hereby agrees to be bound by the terms and provisions of this Agreement, including (without limitation) Sections 3(a), 3(b), 4(c), 5 and 7 through 13 hereof. /s/ Kathleen D. Gray ------------------------------------- Kathleen D. Gray EX-10.3 4 0004.txt PROMISSORY NOTE THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS (I) A REGISTRATION STATEMENT FOR SUCH PROMISSORY NOTE UNDER THE SECURITIES ACT OF 1933 IS IN EFFECT OR (II) PAYEE (AS DEFINED BELOW) HAS RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO THE PAYEE, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. PROMISSORY NOTE Principal: $163,000.00 Piscataway, NJ October 5, 2000 FOR VALUE RECEIVED, Stephen B. Gray, an individual currently residing at 9 Pavilica Road, Stockton, NJ 08559 (the "Maker"), hereby promises to pay to ION NETWORKS, INC., a Delaware corporation currently having an address at 1551 South Washington Avenue, Piscataway, New Jersey 08854 (the "Payee"), the aggregate sum of One Hundred Sixty-Three Thousand Dollars ($163,000.00) (the "Principal Amount"), without interest, all upon the terms and provisions set forth in this promissory note (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided herein, this "Note"). Payments shall be made at the address set forth above or at such other place as may be designated from time to time in writing by the Payee. 1. Payment of Principal. The Principal Amount shall be paid by the Maker to the Payee in installments of at least $20,000 each, with the first such installment payment due on the last to occur of (a) November 1, 2000, or (b) the tenth Business Day following the date of the earnings press release by the Company for the quarter ended September 30, 2000, the second such installment payment due on December 11, 2000, the third such installment payment due on January 11, 2001, the fourth such installment payment due on February 9, 2001, the fifth such installment payment due on March 9, 2001, and the entire remaining balance due in a single payment on or before the earliest to occur of: (i) March 31, 2001; or, (ii) the occurrence of an Event of Default (as defined below); or (iii) such earlier date as may be otherwise provided herein (the earliest such applicable date being referred to herein as the "Maturity Date"). 2. Prepayment. The Maker shall have the right to prepay the outstanding Principal Amount of this Note, in whole at any time, or in part at any time and from time to time, without penalty or premium. 3. Security. This Maker's obligations under this Note: (i) are subject to and supported by certain agreements made by the Maker under the Separation and Forebearance Agreement between the Maker and the Payee dated as of October 5, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Separation Agreement"), (ii) are assured by the guaranty of Kathleen D. Gray, the Maker's wife (the "Guarantor"), pursuant to her Guaranty Agreement with the Payee dated as of October 5, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Guaranty"), and (iii) are secured by the Mortgage on the property located at 9 Pavilica Road, Stockton, New Jersey 08559, from the Maker and the Guarantor, as mortgagors, to the Payee, as mortgagees, dated as of October 5, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Mortgage"), which Mortgage also secures the obligations of the Guarantor under her Guaranty. The Guaranty and Mortgage also support the Promissory Note issued by the Maker to the Payee on June 27, 2000, as amended by a first amendment dated as of the date hereof, -1- in the amount of Seven Hundred and Fifty Thousand ($750,000) Dollars (as so amended, and as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein the "$750,000 Note"). 4. Events of Default. An "Event of Default" shall be deemed to occur hereunder (i) upon the commencement of any proceedings by the Maker, or with the consent or non-objection of Maker, under any law or statute concerning bankruptcy, arrangement of debt, insolvency or readjustment of debt, or the commencement of any such proceedings without the consent of the Maker and such proceedings shall continue undischarged for a period of sixty (60) days; (ii) the failure to pay any amount under this Note when due; (iii) any "Event of Default" under (and as defined in) the $750,000 Note, (iv) any breach or default by Maker or the Guarantor under the Separation Agreement, the Guaranty or the Mortgage, , or (v) upon the death or disability of Maker or Guarantor. 5. Payment Upon Default. Without limiting any other rights or remedies of the Payee in accordance with this Note or applicable law, in the event of the occurrence of an Event of Default, Payee, at its election, may accelerate and demand immediate payment of the Principal Amount and all other obligations due under this Note and Maker shall be liable for all such amounts. Payee shall also be entitled to the payment of interest at the rate of 12% per annum on the outstanding Principal Amount from and after the date of any Event of Default. In addition, the Maker shall pay or reimburse ON DEMAND any and all costs and expenses incurred by the Payee, whether directly or indirectly, in connection with all waivers, releases, satisfactions, modifications, amendments and consents, all payments made and actions taken in the name of or on behalf of the Maker or the Guarantor, and the administration, maintenance, enforcement and adjudication of this Note and the Payee's rights, powers, privileges and other interests under this Note and applicable law, including (without limitation) the disbursements, expenses and fees of counsel to the Payee. 6. Waiver of Presentment, Etc. Presentment for payment, notice of dishonor, protest, notice of protest, notice of acceptance and all similar notices are hereby expressly waived by the Maker. Any waiver or consent respecting any term or provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Payee at any time or times to require performance of, or to exercise its rights with respect to, any term or provision of this Agreement in no manner shall affect the Payee's right at a later time to enforce any such provision. No notice to or demand on the Maker or Guarantor in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. The acceptance by the Payee of (a) any partial or late payment shall not constitute a satisfaction or waiver of the full amount then due or the resulting Event of Default or (b) any payment during the continuance of an Event of Default shall not constitute a waiver or cure thereof; and the Payee may accept or reject any such payment without affecting any of the Payee' rights, powers, privileges, remedies and other interests under this Agreement and applicable law. All representations, warranties and covenants of the Maker and all rights, powers, privileges, remedies and other interests of the Payee hereunder are cumulative and not alternatives, and they are in addition to and shall not limit (except as other-wise expressly provided herein) any other right, power, privilege, remedy or other interest of the Payee under this Agreement, any related document or applicable law. 7. Governing Law. This Note shall be governed by, and construed in accordance with, the laws of the State of New Jersey, without regard to principles of conflicts or choice of laws thereof. This Note shall not be interpreted or construed with any presumption against the Payee by virtue of the Payee causing this Note to be drafted. 8. Amendments. No amendment, modification, or waiver of any provision of this Note nor consent to any departure by the Maker therefrom shall be effective unless the same shall be in writing and signed by the Payee and the Maker. -2- 9. Successors And Assigns. This Note shall not be negotiable, transferable or assignable by the Maker without the prior written consent of Payee. This Note shall be binding upon and shall inure to the benefit of the Payee and its successors and assigns, if any, subject to the provisions hereof. 10. Entire Agreement. This Note, the $750,000 Note, the Separation Agreement, the Mortgage and the Guaranty contain the entire agreement of the parties and supersede all other representations, warranties, agreements and understandings, oral or otherwise, among the parties with respect to the matters contained herein and therein. 11. Waiver of the Right to Trial by Jury. The Maker hereby irrevocably waives the right to trial by jury in any action, suit, claim, counterclaim or other proceeding, whether in contract or tort, at law or in equity, in any manner connected with this Note or any transactions contemplated hereunder. The exclusive jurisdiction of any disputes arising hereunder shall be in the federal or state courts of the State of New Jersey in Middlesex County. 12. Notices. Any notice, request, demand or other communication permitted or required to be given hereunder shall be in writing, shall be sent by one of the following means to the addressee at the address set forth above (or at such other address as shall be designated hereunder by notice to the other parties and persons receiving copies, effective upon actual receipt) and shall be deemed conclusively to have been given: (a) on the first Business Day (as hereinafter defined) following the day timely deposited with Federal Express (or other equivalent national overnight courier) or United States Express Mail, with the cost of delivery prepaid; (b) on the fifth Business Day following the day duly sent by certified or registered United States mail, postage prepaid and return receipt requested; or (c) when otherwise actually delivered to the addressee. Copies may be sent by regular first-class mail, postage prepaid, to such person(s) as a party may direct from time to time by notice to the others, but failure or delay in sending copies shall not affect the validity of any such notice, request, demand or other communication so given to a party. For purposes hereof, "Business Day" shall mean any day during which banks are open for business in New York, New York, other than any Saturday, Sunday or a day on which commercial banks in New York State are authorized or required to close. IN WITNESS WHEREOF, the Maker has executed this Note as of the date first written above. MAKER: /s/ Stephen B. Gray ---------------------------- Stephen B. Gray -3- EX-10.4 5 0005.txt FIRST AMENDMENT TO PROMISSORY NOTE FIRST AMENDMENT TO PROMISSORY NOTE This Agreement, dated as of October 5, 2000 (this "Amendment"), is by and between Stephen B. Gray, an individual currently residing at 9 Pavilica Road, Stockton, NJ 08559 (the "Maker"), and ION NETWORKS, INC., a Delaware corporation currently having an address at 1551 South Washington Avenue, Piscataway, New Jersey 08854 (the "Payee"). The Maker issued his Promissory Note to the Payee in the principal amount of $750,000 dated June 27, 2000 (the "Existing Note", and as amended by this Amendment, and as the same may be hereafter supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Note"). The Maker and the Payee have entered into the Separation Agreement (as defined below), pursuant to which (among other things) the Payee agreed to temporarily forebear on the repayment of the Existing Note, and the Maker agreed to secure his obligations under the Existing Note with the Mortgage. The parties have entered into this Amendment in order to approve and reflect the foregoing and certain other changes, all upon the terms and provisions and subject to the conditions hereinafter set forth. Agreement --------- In consideration of the foregoing, the mutual covenants and agreements set forth below and in the Separation Agreement, and other good and valuable consideration (the receipt and adequacy of which are hereby acknowledged by the parties), the parties hereto hereby agree as follows: Section 1. Amendment to Existing Note. The Existing Note is hereby amended as follows, effective as of the date first written above: (a) The interest rate on the Existing Note, as hereby amended, shall be determined and fixed as of June 27, 2000, and shall cease to accrue as of September 29, 2000. (b) Section 1 of the Existing Note is hereby deleted in its entirety, and the following new section is hereby inserted in its place: "1. Payment of Principal and Interest. The Principal Amount, together with all accrued and unpaid interest thereon, shall be paid by Maker to the Payee on the first to occur of: (i) April 30, 2001, provided that if the Payee is unable to register the shares underlying certain options owned by maker by December 31, 2000, as required by Section 4(b) of the Separation Agreement (as hereinafter defined) such date shall be December 31, 2001, instead of April 30, 2001; or (ii) the occurrence of an Event of Default (as defined below); or (iii) such earlier date as may be otherwise provided herein (the earliest such applicable date being referred to herein as the "Maturity Date")." (c) The last two sentences of Section 2 ("Prepayment") of the Existing Note, beginning with the language "Maker agrees" and ending with "compensation committee or CFO", are hereby deleted in their entirety. (d) At the end of Section 2 of the Existing Note, the following Section 2A is hereby inserted without the modification of any other provision: "2A. Security. This Maker's obligations under this Note: (i) are subject to and supported by certain agreements made by the Maker under the Separation and Forebearance Agreement between the Maker and the Payee dated as of October 5, 2000 (as the same may -1- be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Separation Agreement"), (ii) are assured by the guaranty of Kathleen D. Gray, the Maker's wife (the "Guarantor"), pursuant to her Guaranty Agreement with the Payee dated as of October 5, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Guaranty"), and (iii) are secured by the Mortgage on the property located at 9 Pavilica Road, Stockton, New Jersey 08559, from the Maker and the Guarantor, as mortgagors, to the Payee, as mortgagees, dated as of October 5, 2000 (as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "Mortgage"), which Mortgage also secures the obligations of the Guarantor under her Guaranty. The Guaranty and Mortgage also support the Promissory Note issued by the Maker to the Payee, dated as of the date hereof, in the amount of One Hundred and Sixty Three Thousand ($163,000) Dollars (as so amended, and as the same may be supplemented, modified, amended, restated or replaced from time to time in the manner provided therein, the "$163,000 Note")". (e) Section 3 of the Existing Note is deleted in its entirety, and the following new section is hereby inserted in its place: "3. Events of Default. An "Event of Default" shall be deemed to occur hereunder (i) upon the commencement of any proceedings by the Maker or Guarantor, or with the consent or non-objection of the Maker or Guarantor, under any law or statute concerning bankruptcy, arrangement of debt, insolvency or readjustment of debt, or the commencement of any such proceedings without the consent of the Maker or Guarantor and such proceedings shall continue undischarged for a period of sixty (60) days; (ii) the failure to pay any amount under this Note when due; (iii) any "Event of Default" under (and as defined in) the $163,000 Note, (iv) any breach or default by Maker or the Guarantor under the Separation Agreement, the Guaranty or the Mortgage, or (v) upon the death or disability of the Maker or Guarantor. Payee shall also be entitled to the payment of interest at the rate of 12% per annum on the outstanding Principal Amount from and after the date of any event of Default." (f) After the last sentence of Section 4 of the Existing Note, the following is hereby inserted without the modification of any other provision: " In addition, the Maker shall pay or reimburse ON DEMAND any and all costs and expenses incurred by the Payee, whether directly or indirectly, in connection with all waivers, releases, satisfactions, modifications, amendments and consents, all payments made and actions taken in the name of or on behalf of the Maker or the Guarantor, and the administration, maintenance, enforcement and adjudication of this Note and the Payee's rights, powers, privileges and other interests under this Note and applicable law, including (without limitation) the disbursements, expenses and fees of counsel to the Payee." (g) At the end of Section 4 of the Existing Note, the following Section 4A is hereby inserted without the modification of any other provision: "4A. Waiver of Presentment, Etc. Presentment for payment, notice of dishonor, protest, notice of protest, notice of acceptance and all similar notices are hereby expressly waived by the Maker. Any waiver or consent respecting any term or provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Payee at any time or times to require performance of, or to exercise its rights with respect to, any term or provision of this Agreement in no manner shall affect the Payee's right at a later time to enforce any such provision. No notice to or demand on the Maker or Guarantor in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. -2- The acceptance by the Payee of (a) any partial or late payment shall not constitute a satisfaction or waiver of the full amount then due or the resulting Event of Default or (b) any payment during the continuance of an Event of Default shall not constitute a waiver or cure thereof; and the Payee may accept or reject any such payment without affecting any of the Payee' rights, powers, privileges, remedies and other interests under this Agreement and applicable law. All representations, warranties and covenants of the Maker and all rights, powers, privileges, remedies and other interests of the Payee hereunder are cumulative and not alternatives, and they are in addition to and shall not limit (except as other-wise expressly provided herein) any other right, power, privilege, remedy or other interest of the Payee under this Agreement, any related document or applicable law." Section 2. Acknowledgment of Outstanding Loans. The Maker hereby acknowledges, certifies and agrees that: (a) pursuant to the Existing Note, the Payee has made loans to the Maker that are outstanding as of the date of this Amendment in the aggregate principal amount of $750,000.00; and (b) the obligations of the Maker to repay those loans (with interest) to the Payee and to perform or otherwise satisfy his other obligations under the Existing Note (i) each remain and shall continue in full force and effect, both before and after giving effect to this Amendment, (ii) are not subject to any defense, counterclaim, setoff, right of recoupment, abatement, reduction or other claim or determination, and (iii) are and shall continue to be governed by the terms and provisions of the Existing Note as supplemented, modified and amended by this Amendment. Section 3. Counterparts. This Amendment may be signed in two or more counterpart copies of the entire document or of signature pages to the document, each of which may be executed by one or more of the parties hereto, but all of which, when taken together, shall constitute a single agreement binding upon all of the parties hereto. Section 4. Governing Law, Etc. This Amendment shall be governed by and construed in accordance with the applicable terms and provisions of Sections 5 through 10 (as well as any applicable definitions or provisions appearing elsewhere) of the Existing Note as amended hereby as if this amendment were the "Note" referred to in those provisions, which terms and provisions are incorporated herein by reference. Section 5. Agreement to Continue as Amended. The Existing Note, as supplemented, modified and amended by this Amendment, shall remain and continue in full force and effect after the date hereof. Section 6. Entire Agreement. This Amendment, the Note, the $163,000 Note, the Separation Agreement, the Mortgage and the Guaranty contain the entire agreement of the parties and supersede all other representations, warranties, agreements and understandings, oral or otherwise, among the parties with respect to the matters contained herein and therein. In Witness Whereof, the parties hereto have executed and delivered this Amendment as of the date first written above. MAKER: /s/ Stephen B. Gray ------------------- Stephen B. Gray PAYEE: ION NETWORKS, INC. By: /s/Stephen M. Deixler -------------------------------- Name: Stephen M. Deixler Title: Chairman -3- EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 0000754813 ION NETWORKS, INC. 3-MOS 6-MOS Mar-31-2001 Mar-31-2001 Jul-1-2000 Apr-1-2000 Sep-30-2000 Sep-30-2000 0 7,372,359 0 0 0 2,431,214 0 163,133 0 2,988,253 0 13,498,286 0 1,997,723 0 1,496,990 0 21,044,502 0 3,269,504 0 0 0 0 0 0 0 18,077 0 17,409,217 0 21,044,502 2,788,497 4,872,001 2,788,497 4,872,001 1,972,478 3,126,077 5,659,390 11,311,158 0 0 0 0 82,340 191,661 (4,761,031) (9,373,573) 19,034 41,728 (4,780,065) (9,415,301) 0 0 0 0 0 0 (4,780,065) (9,415,301) (0.29) (0.53) (0.29) (0.53)
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