-----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, LsJ9/nIK1ABBUj3C9ZeaGEcUDEbB8EBTnzWNCtCKze3628qQTwfDt+z0qYH6J7Nu Qk5mpzg+FSFwT5V3radlAw== 0001157523-05-002813.txt : 20050324 0001157523-05-002813.hdr.sgml : 20050324 20050324164141 ACCESSION NUMBER: 0001157523-05-002813 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050324 DATE AS OF CHANGE: 20050324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ION NETWORKS INC CENTRAL INDEX KEY: 0000754813 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 222413505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1202 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13117 FILM NUMBER: 05702455 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 10KSB 1 d63089_10-ksb.htm ION NETWORKS 10KSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

 
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2004
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________________.
 

Commission File No.: 0-13117

ION NETWORKS, INC.
(Name of Small Business Issuer in Its Charter)

 
Delaware    
 (State or Other Jurisdiction of 
Incorporation or Organization)
  22-2413505
(IRS Employer Identification Number)
     
120 Corporate Blvd., S. Plainfield, NJ   07080
 (Address of Principal Executive Offices)   (Zip Code)
     
 

(908) 546-3900
(Issuer’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

 
Title of Each Class   Name of Each Exchange
On Which Registered
None   None
     

Securities registered under Section 12(g) of the Exchange Act

Common Stock, $.001 par value
(Title of Class)

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                 No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

The issuer’s revenues for its most recent twelve-months ended December 31, 2004 totaled $ 3,616,261.

The aggregate market value of voting stock held by non-affiliates, based on the closing price of the Common Stock, par value $0.001 (the “Common Stock”) on March 21, 2005 of $0.26, as reported on the OTC Bulletin Board was $5,262,167. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

There were 22,638,280 shares of Common Stock outstanding as of March 24, 2005.


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DOCUMENTS INCORPORATED BY REFERENCE:  None  

Transitional Small Business Disclosure Format (check one):

Yes                 No


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Information Regarding Forward-Looking Statements

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 statements include, but are not limited to, statements regarding the Company’s ability to gain further market recognition and the Company’s cost reduction efforts. These risks and uncertainties include, but are not limited to, uncertainty as to the acceptance of the Company’s products; risks related to technological factors; potential manufacturing difficulties; uncertainty of product development; uncertainty of obtaining or maintaining adequate financing; dependence on third parties; dependence on key personnel and changes in the Company’s sales force and management; the risks associated with the expansion of the Company’s sales channels; competition; a limited customer base; risk of system failure, security risks and liability risks; risk of requirements to comply with government regulations; vulnerability to rapid industry change and technological obsolescence; and general economic conditions. In some cases, you can identify forward-looking statements by our use of words such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative or other variations of these words, or other comparable words or phrases. Unless otherwise required by applicable securities laws, the Company assumes no obligation to update any such forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.

PART I

Item 1: Description of Business

Overview

                ION Networks, Inc and subsidiary (“ION” or the “Company”) designs, develops, manufactures and sells security solutions that protect enterprise network administrative interfaces from improper, unauthorized or otherwise undesirable access from external and internal sources. Administrative interfaces are the network access points used by highly trained technical individuals who are charged with the responsibilities of maintaining and supporting the networks and devices employed within the networks such as servers, routers, PBXs and similar types of equipment. These technicians may be employees of the enterprise or employed by third parties such as managed service providers, consultants, device vendors or application developers. In all cases, they are considered “trusted insiders” since in order to perform their jobs; permission to enter and work within the network must be granted. The Company’s solution, comprised of centralized management and control software, administrative security appliances and soft tokens, are designed to provide secure, auditable access to all administrative interfaces and monitored security once working within the network. Service Providers, Enterprises and Governmental Agencies utilize the ION solution globally in their voice, data and converged environments, to establish and maintain security policies while providing the support and maintenance required of networks and their devices.

                As network complexity continues to rise, particularly with the growing movement toward IP (internet protocol) based networks (converged environments,) security implications for both enterprises and their service providers are growing even more rapidly. The significant growth in outsourcing of network and device support and maintenance functions has required an increasing level of ‘trust’ between enterprise and service provider as well as heightened the level of competition between managed service providers. New compliance and privacy legislation and regulations are having an equally broad impact. Management and control requirements have escalated with the advent of Sarbanes-Oxley and the numerous privacy laws recently enacted such as Gramm-Leach-Bliley, HIPPA, California SB 1386, etc.

                Service providers are struggling to maintain expertise throughout their geographic footprint. They are faced with an expanding deployment of enterprise security strategies and an inability to implement security solutions independently. On the other side, enterprises have become more cost conscious, working to extend the life of their legacy devices and aggregate network connections through the Internet. With all this movement, there is little consistency or standards regarding security and service delivery as the number of trusted insiders increases dramatically. The implications are enormous, particularly when understanding that the average cost of a network breach, reported by the 2003 CSI/FBI Security Survey, is $56,000 when it occurs from external sources (through the perimeter of the network) and in excess of $2.5 Million when it is caused by an “insider.” There are many effective and popular ‘security solutions’ that address the perimeter, such as Firewalls, Intrusion Detection Systems, Virtual Private Networks and anti-virus software, providing protection from the typical hacker as well as end users. However, little attention has been paid to securing administrative interfaces where either maliciously or inadvertently, information and data can be easily compromised or destroyed. This is the arena in which ION focuses.

                ION’s solution provides customers with secure access as well as forensic security within their owned and managed networks. It is a robust solution that is highly scalable, reliable, simple to use and cost effective. The solution also provides monitoring and alarming of the environment such as temperature and contact closures, forensics and buffering, and security logging of all activities down to the keystroke level. Due to the fact it is vendor agnostic, broad connectivity to virtually all network devices is guaranteed. The combination of ION’s single sign-on centralized management and control software,


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PRIISMS, our administrative security appliances and our two factor authentication tokens, mitigates the impact of potential network breaches. These breaches would likely cause financial losses to the enterprise due to lost revenue and lost intellectual property; plummeting customer satisfaction, and corporate embarrassment with most consumers attuned to security issues and where reputations cannot be quickly rebuilt; extensive physical and environmental damage as well as data corruption; and the difficult and costly tasks of detection and recovery. ION’s solutions are used in small, remote branch locations, medium to large local and global networks as well as data centers, ranging from a few to thousands of devices.

                Though the Company’s focus is providing hardware and software solutions, ION also offers support and maintenance programs. Services revenue is typically generated from systems engineering and maintenance services in conjunction with the sale of our solutions.

                ION’s solutions are distributed via three channels: (i) a direct sales force, (ii) indirect channels such as service providers and original equipment manufacturers (OEM) and (iii) resellers both domestically and internationally. In addition to these distribution channels, the company segments its target markets by (i) enterprises, (ii) service providers and (iii) governmental agencies. Each market segment has unique characteristics and provides significant opportunities for future growth.

                ION Networks, Inc. is a Delaware corporation founded in 1999 through the combination of two companies, MicroFrame, Inc. (originally founded in 1982), a New Jersey corporation and SolCom Systems Limited (originally founded in 1994), a Scottish corporation located in Livingston, Scotland. The Scottish corporation was dissolved in 2003. In 1999, the Company expanded through the purchase of certain assets of LeeMAH DataCom Security Corporation. The Company currently has over 300 customers located in 35 countries and more than 50,000 appliances and devices currently in use. References in this document to “we,” “our,” “us,” and “the Company” refer to ION Networks, Inc. Our principal executive offices are located at 120 Corporate Blvd. South Plainfield, New Jersey 07080, and our telephone number is (908) 546-3900.

 Market Background

                The Exposure 

                Accelerated growth of market factors such as increasing network complexity and expansion of network management outsourcing has resulted in a far greater need for security of network administrative interfaces. These interfaces are used for network and device management, maintenance and repair, as well as updates and changes. The administrative ‘sessions’ are active in all types of networks including voice networks, data networks and networks supporting critical infrastructure such as electronic distribution. To perform these functions effectively and efficiently, both local and remote access is required.

                The “Inside” Threat is Real 

                Enterprises and service providers alike must consider the human element in performing network support and maintenance. In addition to the outsourcing of many IT functions, employee turnover at both the enterprise and service provider plays a key role in secure access and network security. Today, the ‘insider’ is everywhere, even outside. The technical environment poses additional challenges. Remote access is necessary to maintain any semblance of cost controls and access is quite simple. The risk of a security breach has never been higher. The ‘trusted’ community is large, knowledgeable and potentially motivated. Inconsistent, ineffective, and non-existent security practices exist in far too many places. An inadvertent breach is as costly as a malicious attack. According to The National Strategy to Secure Cyberspace (part of The President’s Critical Infrastructure Protection Board,) “approximately 70 percent of all cyber attacks on enterprise systems are believed to be perpetrated by trusted insiders.” The former Director of Security Strategies of The Hurwitz Group stated, “For every in-house attack reported, there could be as many as 50 that go either unreported or undetected.” Newspapers, magazines and government publications are littered with articles about security breaches such as the US Department of Justice press release on November 26, 2001 where, “former (network hardware vendor) accountants sentenced for unauthorized access to computer systems to illegally issue almost $8 Million in company stock to themselves” and the US Department of Justice press release on December 18, 2003, where a “Milford man pleads guilty to intrusion and theft of data costs company $5.8 Million.”

                To Make Matters Worse . . .

                Federal regulations are stringent and increasing while new legislation from States has already begun. Fines for mismanagement have been greatly increased. Penalties, formerly just at the corporate level are now targeted at individuals as well. Executives are now personally responsible and liable for fines, incarceration and professional sanctions. Fragile customer trust is fueling negative publicity while legal costs are rising. In an effort to combat these realities, organizations have learned that compliance is not simple. Regulations are sweeping, yet vague. Implications are felt across all departments and ignorance is no longer an accepted excuse. ION’s solutions help mitigate these risks.

                The Market is Growing 


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                IDC and Janney Montgomery Scott Research estimated the worldwide Network Security Market at over $25 Billion in 2004 with a compound annual growth rate of greater than 27%. The US Network Security Market was estimated at approximately $7 Billion in 2004 with 2006 estimates at about $10 Billion by Datamonitor. In addition, a 2003 survey by PricewaterhouseCoopers and CIO magazine showed a 62% increase in security spending with the top strategic initiatives being: blocking unauthorized access and enhancing network security. We believe enterprises, service providers and government agencies are recognizing, in constantly increasing numbers, the vulnerabilities associated with the lack of secure network access and internal network security and the markets for ION’s solutions will continue to grow at higher rates than in the past.

The ION Networks Solution

                At the core of enterprise networks is proprietary data and information. It is typically accessed by its end user population through the perimeter of the network to applications that massage and organize the data and information. In order to gain access, users have to go through firewalls, intrusion detection systems, anti-virus software and other tools. The overall enterprise contains many different networks such as a Data Network with routers and switches, a Voice Network with PBXs and voicemail, an IT Network with servers and network attached storage, and middleware such as databases and applications. In order to maintain and support the various enterprise networks and their devices, internal network support staff along with equipment vendors, managed service providers, IT consultants, etc., must have access. ION’s integrated solution includes PRIISMS, which provides controlled centralized access and administrative management access; a family of administrative security appliances, which provide local security for remote access sessions and include encryption, strong authentication and environmental monitoring; and 3DES soft tokens with two factor authentication, which can be used from a Windows PC, Palm or Blackberry.

                The Value Equation 

                The value of ION’s solution can be viewed through the eyes of the Company’s Enterprise customers, Service Provider customers, and in many cases, both. A sample of elements that provide value to both include: 

 
Scalable across thousands of distributed locations and tens of thousands of protected endpoints. The modular hardware design and robust software allow the solution to be easily expanded.
 
Reduces knowledge of inner workings of networks by masking routes to equipment preventing endpoints from being accessed independently.
 
Provides audit and forensic data through the real-time monitoring of administrative sessions, instantly identifying incorrect network administration as well as a tool for fault diagnostics.
 
Provides alarms for network and device outages, vulnerabilities and environmental events through polling to accelerate fault identification and resolution while allowing immediate response to an impending breach.
 
Provides high availability with both in-band and out-of-band secure access
 
  A few elements of the value equation that address enterprise concerns include:
 
Regulatory compliance support by encrypting, recording and reporting all device management activities, controlling access to information and maintaining privacy.
 
Reduces internal and external threats since access to information is approved or denied at a central point and monitoring of user activity and endpoints is accomplished in real-time.
 
Provides a mechanism to implement and maintain enterprise-wide security policies
 
Provides investment protection with full security and monitoring for legacy devices
 
  A few of the value elements that address the many challenges facing service providers include:
 
Increased margins through more efficient management and a central point of control
 
Reduced costs since less headcount and fewer ‘truck rolls’ are required
 
Enhanced ability to meet their customers’ security policies and service level agreements
 
Differentiated and expanded service offerings
 
Reduced downstream liability due to increased audit controls
 
Lower cost of ownership by providing multiple functions in a single solution along with ease of device management.
 

ION Networks Products and Services

 
  ION Networks provides a complete network and information security solution that provides secure access to enterprise networks through administrative interfaces as well as secure access to devices within the network. The specific devices the

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  technical users may access and work upon, as well as what actions may be performed on those devices, can be controlled from a central point using ION’s PRIISMS software. Once authorization is granted and user authentication completed, the users’ activities can be monitored and tracked, down to the keystroke level. Should the technical user attempt to perform an action without permission, an alarm can be broadcast, preventing a breach before it occurs. Additionally, the environment and devices may be monitored with specific alarms that are sent due to water, heat or other damaging factors, including disconnecting of lines or devices or doors left ajar. The ION security solution is based on centralized security policy management and distributed security policy enforcement. It consists of ION’s Administrative Security Gateway, PRIISMS for centralized management and control, and ION’s Administrative Security Appliances for distributed secure access and monitoring. ION also provides training, consulting and support services to our customers and partners.
 
  ION PRIISMS  - Administrative Security Gateway 
 
  Through its web-based user interface, PRIISMS provides connectivity to a vast array of managed endpoints from nearly every vendor covering a variety of platforms. This administrative security gateway enables authenticated administrators and technicians to configure, troubleshoot and manage geographically dispersed network devices from a central operations center within a secure environment. PRIISMS also provides centralized, 24x7 surveillance and provisioning across the entire suite of ION Administrative Security Appliances.

 
  Key Capabilities include:
 
Single Sign-On Environment for Local and Remote Access.
 
       Multi-factor authentication via ION soft tokens or 3rd party vendor hard tokens
 
       Support for in-band and out-of-band connectivity
 
       Control of all device access information
 
       Masking of IP addresses and phone numbers
 
       Point and click access to all authorized devices
 
Secure Environment for all Administrative Access
 
       Instant VPN tunneling for automatic encrypted sessions
 
       HTTPS or SSH connections for all users
 
Centralized Administration for large Device Networks
 
       User management of access to each device
 
       Centralizes alarm notification, logging and consolidation
 
       Device polling
 
       Real-time, forensic monitoring and control of user sessions to the keystroke level
 
Scalable, Web-Based Architecture
 
       Easily manage large (5000+) device communities
 
       Easily handle great number of concurrent users
 

ION Administrative Security Appliances

           ION appliances provide a connection point for secure, authorized access, and also act as a barrier to access by unauthorized systems and individuals. ION appliances integrate secure connectivity, monitoring, alarming and event logging of administrator level users into a single appliance, providing simplified and cost effective protection against unintentional or malicious security threats. ION’s suite of appliances support 2, 4, 16 or 28 serial ports, 1 or 2 modems, up to 2 Ethernet ports, multifactor authentication, and environmental sensor inputs including up to 144 contact closures, 2 relay connectors, 2 temperature sensor inputs and 1 analog input. In addition, the majority of ION appliances include support for encrypted sessions and a firewall.

Key Capabilities include:

 
Connectivity
 
       Serial and Ethernet Connectivity
 
       Built-in VPN, Router, Firewall capability
 
Security
 
       Appliance logs
 
       Logging of All Sessions – Distribution over Dial-up, Ethernet or via PRIISMS
 
       PBX, VM, Router Monitoring (ASCII, PING)
 
       Control of external devices for Device Reboot (intelligent power controller)
 
Monitoring and Alarming
 
       Environment
 
Hi Temperature, Low Temperature
 
Water, Humidity

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Contact Closures – Monitor UPS, Doors, Motion
 
       Relays – Remotely Open Doors, Turn on Fan, Turn on Alarm or Flashing Light
 
       Access – Notification of Login Success, Failure
 
       Cables – Notification of Device Disconnect or Failure
 
       Multiple Delivery Methods, Locations (SNMP, SMTP, Pager, ASCII)
 
Buffering / Forensics
 
       Session Buffering
 
       Host Port Buffering
 
       Core Dump
 

ION Soft Tokens

           ION soft tokens are simple to use. Each user may be assigned a ‘disposable’ ION soft token via email or the web which can be loaded onto a Windows®, RIM® Blackberry™ or PalmOS® device. Each time the user requests connectivity to PRIISMS or an appliance, they are challenged to enter additional criteria generated by the token that will positively identify them. ION soft tokens utilize strong 3DES encryption and can be quickly activated and deactivated through PRIISMS.

Wide Range of Protected Infrastructure Devices

ION network and information security solutions protect a growing variety of infrastructure devices provided by leading IT and telecommunications network and system vendors, including vendors of:

             
  Access Servers     Multi-Service Switches
      
  Routers     Optical Switches
      
  VoIP Platforms     PBXs (Switched & IP)
      
  Call Management Systems     Power Protection Systems (UPS)
      
  Carrier Grade Multi-Service Switches     Application Servers
      
  Cellular Switches     SONET Switches
      
  CSU/DSUs     SS7 Switches
      
  Databases     DSLAMs
      
  Integrated Access Devices     Storage Area Networks
      
  LAN Switches     Terminal Servers
      
  Mail Servers     UNIX Servers
      
  Messaging Servers     Wireless Switches
 

Strategy

                Having narrowed our focus over the last year, the Company’s goal is to concentrate on providing secure administrative access to enterprise networks while delivering a full security solution to our target markets. Our emphasis will be on the value provided to Service Providers, Enterprises and Government agencies rather than simply our technology. Key items of value include:

 
Scalability across thousands of distributed locations and tens of thousands protected endpoints
 
       Modular hardware design and robust centralized management and control software
 
       Easily expandable solutions
 
Reduction in the knowledge of the inner workings of networks
 
       Routes to devices and information are masked
 
       Endpoints cannot be independently accessed
 
Provision of audit and forensic data and real-time monitoring of administrative sessions
 
       Identifying incorrect network administration
 
       Providing a tool for fault diagnosis
 
Providing alarms to devices and environmental elements through polling
 
       Mechanism for fault identification and resolution
 
       Provide for immediate response to an impending breach
 
Enabling compliance with current legislation
 
       Providing control over access to information
 
       Maintaining privacy
 
Reduction of internal and external threats
 
       Approval or denial, at a central point, of access to information

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       Monitoring user activities and endpoints in real-time
 
Reduction of costly administrative activities
 
       Providing a single sign-on, central point of administration
 
       Eliminating time and costs associated with password changes
 
       Significantly reducing the requirement for on-site support
 
Continuing to be completely vendor agnostic
 
Providing high availability through secure in-band and out-of-band access
 

                Our goal is to become recognized by our target markets as an industry leader and the standard by which secure access and network security solutions are measured. Key elements of our strategy include:

                Increase Percent of Value Delivered through Software.  Continuing upon the direction of providing most of our new and enhanced value through our software technology, changing the hardware / software mix of the ION solution and enabling the Company to deliver greater value more rapidly.

                Expand, Update Product Line, Develop New Products, and Reduce Manufacturing Costs.  The Company is pursuing a strategy of leveraging the open source development community and intends to expand our current offerings at both the entry and top end of our product offerings. The Company also intends to better align its solutions with its target markets, recognizing the different value equations for each. By reducing manufacturing costs we will be able to maintain margins while addressing the price pressures of the market.

                Establish the ION Networks Brand.  We believe that strong brand recognition in our target markets is important to our long-term success. We intend to continue to strengthen our brand names through increased corporate marketing, a newly refreshed web site, direct mailings to customers in all our target markets and public relations. The positioning of our solutions and the value they provide will contribute both our direct and more importantly, our indirect sales efforts.

                Expand Indirect Channels.  Our strategy is to build and expand our base of indirect channel partners domestically and internationally through new marketing programs and by leveraging current relationships.

                Expand Strategic Original Equipment Manufacturer Relationships.  By entering into original equipment manufacturer (“OEM”) arrangements to sell our products, we intend to leverage our sales capabilities and expand penetration of our target markets.

Customers

                During the year ended December 31, 2004, 54 customers generated $3,616,261 in revenue from hardware, software, services, maintenance and repairs. Historically, our largest customers have been service providers primarily in the United States and in Europe. See also “Risk Factors - We rely on several key customers for a significant portion of our business, the loss of which would likely significantly decrease our revenues” on page 13. While ION has begun to penetrate the corporate market and, in particular, the financial services sector, the majority of revenues continue to come from our traditional customer base.

ION customers can be categorized based on three target markets: Enterprises, Service Providers and Governmental Agencies:

                Enterprises. The Enterprise target market consists of non-governmental organizations that use their network infrastructure as a platform to provide their own goods or services. There are many sectors in the enterprise market, including, but not limited to, banking, financial services, insurance, energy, manufacturing, retailers, pharmaceuticals, healthcare, technology and transportation.

                Service Providers. The service provider target market consists of businesses that use their network infrastructure to provide services to their customers and provide managed services to enterprises, supporting their networks and devices. It also includes resellers of solutions such as ION’s, who provide complementary services to their customer base.

                Governmental Agencies. The Government target market consists of domestic and foreign governmental agencies that provide internal services to their constituencies. Particular emphasis is placed on agencies within the Department of Defense and the Department of Energy.


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Sales and Marketing

                Our marketing programs are intended to promote ION Networks and brand awareness to build our reputation as a supplier of highly scalable, robust, reliable, easy-to-use and cost-effective secure access and network security solutions. During the year ended December 31, 2004, the Company did not have the financial resources to adequately promote and strengthen our brand. ION attempted to repair damaged customer relationships by frequent, direct executive communications with customers. The relative effectiveness of this customer retention program has been demonstrated by improved operating results in 2004. We intend to expand and strengthen our customer and channel relationships through additional marketing programs and staff, as well as increased promotional activities as resources become available.

                While we believe ION solutions are suited for both direct sale to customers and indirect channels where it is not economically efficient for us to sell directly to end user organizations, we are focusing on the opportunity to leverage the sales forces of our service provider customers and resellers.

                Direct Sales. On December 31, 2004, the Company’s sales and marketing headcount stood at 4. For the year ended December 31, 2004, approximately 15% of ION’s revenue came from direct sales.

                Indirect Sales/Channel Partners. We also market and sell our solutions via indirect channels through Service providers and reseller partners in the United States and in Europe. Indirect sales accounted for approximately 47% of our total revenue for the year ended December 31, 2004. Our VAR partnerships are non-exclusive.

                Original Equipment Manufacturers (OEMs). We enter into select original equipment manufacturer relationships in order to take advantage of well-established companies that sell into our target markets. We believe these relationships expand our overall market penetration. The terms of our agreements with these customers vary by contract, but have typically been for three year terms. For the year ended December 31, 2004, our original equipment manufacturer revenue accounted for approximately 38% of total revenue.

                Geographic Distribution. We divide our sales organization regionally into three territories: (1) the United States and Canada, (2) Europe, the Middle East and Africa, and (3) other locations.

For the year ended December 31, 2004, approximately 80% of ION’s sales were in the United States and Canada and 20% Europe, the Middle East, Africa and other locations. (Refer to Note 12 in the Company’s Consolidated Financial Statements.)

Technical Services

                We offer our customers a range of support services that includes technical support either by phone or electronically, product maintenance and repair, custom development and professional support services. Our technical services staff, including quality assurance, is located at our corporate headquarters in South Plainfield, New Jersey.

Competition

                The market for secure network access and security solutions is worldwide, highly competitive, and growing rapidly. Competitors can be generally categorized as either: (i) vendors who provide high performance, security point products, or (ii) suppliers of network management appliances that provide limited security features. Many of these individual solutions require additional products in order to implement a comprehensive network access and security solution. Current and potential competitors in our markets include, but are not limited to the following companies, all of which sell worldwide or have a presence in most of the major markets for such products:

•               Alarm and Buffer Box vendors such as: Data Track, Teltronics, OmniTronics;

•               Network vendors such as: Cisco, Juniper ;

•               Terminal Server vendors such as: MRV, Cyclades, Digi;

•               Secure Modem vendors such as: US Robotics, Multitech.

                Many competitors have generally targeted large organizations’ perimeter security needs with VPN, firewall and intrusion detection systems that range in price from under one thousand to hundreds of thousands of dollars. These offerings may increase competitive pressure on some of our solutions, resulting in both lower prices and gross margins. Many of our current or potential competitors have greater name recognition, larger customer bases and significantly greater financial, technical, marketing and other resources than ION. Nothing prevents or hinders these actual or potential competitors from entering our target markets at


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any time. In addition, our competitors may bundle products competitive to ours with other products that they may sell to our current or potential customers. These customers may accept these bundled products rather than separately purchasing our products. If these companies were to use their greater financial, technical and marketing resources in our target markets, it could adversely affect our business. See also “Risk Factors - We face significant competition and if we do not compete successfully, our results of operations may be adversely affected” on page 12.

Sources And Availability Of Materials

                The Company designs its security appliances utilizing readily available parts manufactured by multiple suppliers and relies on and intends to continue to rely on these suppliers. Our principal suppliers are Arrow Electronics, Inc., PPI Time Zero, Ituner Networks Corp., AVNET, Inc. and ACE Electronics, Inc.. The Company has been and expects to continue to be able to obtain the parts required to manufacture its products without any significant interruption or sudden price increase, although there can be no assurance that it will be able to continue to do so.

                The Company sometimes utilizes a component available from only one supplier. If a supplier were to cease to supply this component, the Company would most likely have to redesign a feature of the affected device. In these situations, the Company maintains a greater supply of the component on hand in order to allow the time necessary to effect a redesign or alternative course of action should the need arise.

Dependence On Particular Customers

                Historically, the Company has been dependent on several large customers each year, but they are not necessarily the same every year. In general, the Company cannot predict with certainty, which large customers will continue to order our products. The loss of any of these large customers, or the failure to attract new large customers, could have a material adverse effect on the Company’s business.

Intellectual Property, Licenses And Labor Contracts

                The Company holds no patents on its technology. Although it licenses some of its technology from third parties, the Company does not consider any of these licenses to be critical to its operation.

                The Company has made a consistent effort to minimize the ability of competitors to duplicate the software technology utilized in its solutions. However, the possibility of duplication of its products remains, and competing products have already been introduced.

Governmental Approvals And Effect Of Governmental Regulation

                The Company’s solutions may be exported to any country in the world except those countries restricted by the anti-terrorism controls imposed by the Department of Commerce. These anti-terrorism controls prohibit the Company from exporting some of its solutions to Cuba, Libya, Iran, Iraq, North Korea, Sudan and Syria without a license. As with all U.S. origin items, the Company’s solutions are also subject to the Bureau of Export Administration’s ten general prohibitions that restrict exports to certain countries, organizations, and persons.

                As required by law or demanded by customer contract, the Company obtains approval of its solutions by Underwriters’ Laboratories. Additionally, because many of the products interface with telecommunications networks, the Company’s products are subject to several key Federal Communications Commission (“FCC”) rules requiring FCC approval.

                Part 68 of the FCC rules contains the majority of the technical requirements with which telephone systems must comply in order to qualify for FCC registration for interconnection to the public telephone network. Part 68 registration requires telecommunication equipment interfacing with the public telephone network to comply with certain interference parameters and other technical specifications. FCC Part 68 registration for ION’s products has been granted, and the Company intends to apply for FCC Part 68 registration for all of its new and future products.

                Part 15 of the FCC rules requires equipment classified as containing a Class A computing device to meet certain radio and television interference requirements, especially as they relate to operation of such equipment in a residential area. Certain of ION’s products are subject to and comply with Part 15.

                The European Community has developed a similar set of requirements for its members and the Company has begun the compliance process for its products in Europe. Additionally, ION has certified certain of its products to the NEBS (Network Equipment Business Specification) level of certification. This is a certification that was developed by Bellcore (now Telcordia Technologies) and is required by many of ION’s telecommunications customers.


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Research And Development Activities

                As of December 31, 2004, the Company had 5 R&D staff members devoting part of their time to research and development activities. We believe the effort of these employees will be minimally sufficient to allow the Company to keep up with technology advances for the foreseeable future. However, the Company intends to increase staff during 2005, as resources become available, in order to more rapidly introduce new and enhanced products. In 2004, the Company incurred a charge of $598,012 for R&D activities.

                The current R&D staff was primarily responsible for the successful completion and delivery of the most recent ISOS software releases and enhancing PRIISMS functionality. They also enhanced the code base to meet major customer requirements and significantly reduced the number of product issues affecting our customers. In addition, the quality assurance function was reestablished and has designed a new QA lab for product testing.

Employees

                As of December 31, 2004, the Company had 23 employees, 21 full-time employees and 2 part-time employees. This headcount includes 9 technical and production, 7 sales, marketing and support, and 7 financial, administrative and executive capacities. None of the Company’s employees are represented by labor unions. The Company considers it has generally satisfactory relations with its employees.

RISK FACTORS

We are vulnerable to technological changes, which may cause our products and services to become obsolete which could materially and negatively impact our cash flow.

                Our industry experiences rapid technological changes, changing customer requirements, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. As a result, more advanced products produced by competitors could erode our position in existing markets or other markets that they choose to enter and prevent us from expanding into existing markets or other markets. It is difficult to estimate the life cycles of our products and services, and future success will depend, in part, upon our ability to enhance existing products and services and to develop new products and services on a timely basis. We might experience difficulties that could delay or prevent the successful development, introduction and marketing of new products and services. New products and services and enhancements might not meet the requirements of the marketplace and achieve market acceptance. If these things happen, they would materially and negatively affect cash flow, financial condition and the results of operations.

Hardware and software incorporated in our products may experience bugs or “errors” which could delay the commercial introduction of our products and require time and money to alleviate.

                Due to the complex and sophisticated hardware and software that is incorporated in our products, our products have in the past experienced errors or “bugs” both during development and subsequent to commercial introduction. We cannot be certain that all potential problems will be identified, that any bugs that are located can be corrected on a timely basis or at all, or that additional errors will not be located in existing or future products at a later time or when usage increases. Any such errors could delay the commercial introduction of new products, the use of existing or new products, or require modifications in systems that have already been installed. Remedying such errors could be costly and time consuming. Delays in debugging or modifying products could materially and adversely affect our competitive position.

We have difficulty predicting our future operating results or profitability due to the fluctuation in our quarterly and annual revenues.

                In the past, we experienced fluctuations in our quarterly and annual revenues and we anticipate that such fluctuations will continue therefore making it difficult for us to predict our future operating results or profitability. Our quarterly and annual operating results may vary significantly depending on a number of factors, including:

•              the timing of the introduction or acceptance of new products and services;

•              changes in the mix of products and services provided;

•              long sales cycles;

•              changes in regulations affecting our business;


11



•               increases in the amount of research and development expenditures necessary for new product
                development and innovation;

•               changes in our operating expenses;

•               uneven revenue streams;

•               volatility in general economic conditions;

•               volatility in the network security market; and

•               threats of terror and war.

                We cannot assure you that our revenues will not vary significantly among quarterly periods or that in future quarterly periods our results of operations will not be below prior results or the expectations of public market analysts and investors. If this occurs, the price of our common stock could significantly decrease. See also “Risks Associated with Our Securities - There is potential for fluctuation in the market price of our securities” page 14.

In the past we have experienced significant losses and negative cash flows from operations. If this trend reoccurs in the future, it could adversely affect our financial condition.

                ION has incurred significant, though declining, losses but for the year 2004 has reversed a trend of negative cash flows from operations. For the year ended December 31, 2004 and 2003, we experienced net losses of $249,840 and $603,792, respectively, and cash flows provided by (used in) operations of $108,279 and ($376,940), respectively. There can be no assurance that our business will become profitable in the future and that additional losses and negative cash flows from operations will not be incurred. If these trends continue in the future, it could have a material adverse affect on our financial condition.

As of December 31, 2004, the Company continues to have a marginal working capital balance, which could inhibit future growth and impact the Company’s financial viability.

                Although the Company’s working capital balance increased to $372,860 at December 31, 2004 as compared to $287,930 at December 31, 2003 this balance is still lower than the Company’s optimal requirements. This low working capital balance, while improving, may continue to impact the ability of the Company to attract new customers and employees and could have a material adverse affect upon our business.

We face significant competition and if we do not compete successfully, our results of operations may be adversely affected.

                We are subject to significant competition from different sources for our different products and services. We cannot assure you that the market will continue to accept our hardware and software technology or that we will be able to compete successfully in the future. We believe that the main factors affecting competition in the network security business are:

   
the products’ ability to meet various network security requirements;
   
the products’ ability to conform to the network and/or computer systems;
   
the products’ ability to avoid becoming technologically outdated;
   
the willingness and the ability of distributors to provide support customization, training and installation; and
   
•  the price.
 
                Although we believe that our present products and services are competitive, we compete with a number of large data networking, network security and network device manufacturers which have financial, research and development, marketing and technical resources far greater than ours. Our competitors may succeed in producing and distributing competitive products more effectively than we can produce and distribute our products, and may also develop new products which compete effectively with our products. Many of our current or potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and other resources than we do. Nothing prevents or hinders these actual or potential competitors from entering our target markets at any time. In addition, our competitors may bundle products competitive to ours with other products that they may sell to our current or potential customers. These customers may accept these bundled products rather than separately purchasing our products. If our current or potential competitors were to

12



use their greater financial, technical and marketing resources in our target markets and if we are unable to compete successfully, our business, financial condition and results of operations may be materially and adversely affected.

We may be unable to protect our proprietary rights, permitting competitors to duplicate our products and services, which could negatively impact our business and operations.

                We hold no patents on any of our technology. If we are unable to license any technology or products that we may need in the future, our business and operations may be materially and adversely impacted. We have made a consistent effort to minimize the ability of competitors to duplicate our software technology utilized in our products. However, there remains the possibility of duplication of our products, and competing products have already been introduced. Any such duplication by our competitors could negatively impact our business and operations.

We rely on several key customers for a significant portion of our business, the loss of which would likely significantly decrease our revenues.

                Historically, we have been dependent on several large customers each year, but they are not necessarily the same every year. For the year ended December 31, 2004, our most significant customers (stated as an approximate percentage of revenue) were Avaya 38% and MCI 9% compared to the year ended December 31, 2003, of Avaya 18%, Siemens 12%. Qwest 8% and MCI 7%. In general, we cannot predict with certainty, which large customers will continue to order. The loss of any of these large customers, or the failure to attract new large customers would likely significantly decrease our revenues and future prospects, which could materially and adversely affect our business, financial condition and results of operations.

We depend upon key members of our employees and management, the loss of which could have a material adverse effect upon our business, financial condition and results of operations.

                Our business is greatly dependent on the efforts of the Chief Executive Officer, Mr. Norman E. Corn, Chief Financial Officer, Mr. Patrick E. Delaney, and Chief Technology Officer, Mr. William Whitney and other key employees, and on our ability to attract key personnel. Other than with respect to Messrs. Corn, Delaney, and Whitney, we do not have employment agreements with our other key employees. Our success depends in large part on the continued services of our key management, sales, engineering, research and development and operational personnel and on our ability to continue to attract, motivate and retain highly qualified employees and independent contractors in those areas. Competition for such personnel is intense and we cannot assure you that we will successfully attract, motivate and retain key personnel. While all of our employees have entered into non-compete agreements, there can be no assurance that any employee will remain with us. Our inability to hire and retain qualified personnel or the loss of the services of our key personnel could have a material adverse effect upon our business, financial condition and results of operations. Currently, we do not maintain “key man” insurance policies with respect to any of our employees.

We rely on several contract manufacturers to supply our products. If our product manufacturers fail to deliver our products, or if we lose these suppliers, we may be unable to deliver our product and our sales and revenues could be negatively impacted.

                We rely on three primary contract manufacturers to supply our products: PPI Time Zero, Ituner Networks Corp., and ACE Electronics, Inc. If these manufacturers fail to deliver our products or if we lose these suppliers and are unable to replace them, then we would not be able to deliver our products to our customers. This could negatively impact our sales and revenues and have a material adverse affect on our business, financial condition and results of operations.

Our certificate of incorporation and bylaws contain limitations on the liability of our directors and officers, which may discourage suits against directors and executive officers for breaches of fiduciary duties.

                Our Certificate of Incorporation, as amended, and our Bylaws contain provisions limiting the liability of our directors for monetary damages to the fullest extent permissible under Delaware law. This is intended to eliminate the personal liability of a director for monetary damages on an action brought by or in our right for breach of a director’s duties to us or to our stockholders except in certain limited circumstances. In addition, our Certificate of Incorporation, as amended, and our Bylaws contain provisions requiring us to indemnify our directors, officers, employees and agents serving at our request, against expenses, judgments (including derivative actions), fines and amounts paid in settlement. This indemnification is limited to actions taken in good faith in the reasonable belief that the conduct was lawful and in, or not opposed to our best interests. The Certificate of Incorporation and the Bylaws provide for the indemnification of directors and officers in connection with civil, criminal, administrative or investigative proceedings when acting in their capacities as agents for us. These provisions may reduce the likelihood of derivative litigation against directors and executive officers and may discourage or deter stockholders or management from suing directors or executive officers for breaches of their fiduciary duties, even though such an action, if successful, might otherwise benefit our stockholders and directors and officers.


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RISKS ASSOCIATED WITH OUR SECURITIES

We do not anticipate the payment of dividends.

                We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain all available funds for use in the operation of our business. Thus, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

There is potential for fluctuation in the market price of our securities.

                Because of the nature of the industry in which we operate, the market price of our securities has been, and can be expected to continue to be, highly volatile. Factors such as announcements by us or others of technological innovations, new commercial products, regulatory approvals or proprietary rights developments, and competitive developments all may have a significant impact on our future business prospects and market price of our securities.

Shares that are eligible for sale in the future may affect the market price of our common stock.

                As of March 24, 2005, an aggregate of 5,423,675 of the outstanding shares of our common stock are “restricted securities” as that term is defined in Rule 144 of the Securities Act of 1933 (Rule 144). These restricted shares may be sold pursuant only to an effective registration statement under the securities laws or in compliance with the exemption provisions of Rule 144 or other securities law provisions. In addition, 3,750,650 shares are issuable pursuant to currently exercisable options, 1,168,000 shares are issuable pursuant to currently exercisable warrants, 1,555,570 shares are issuable pursuant to currently convertible preferred stock of 155,557 shares and 2,409,000 shares are issuable pursuant to a convertible debenture. Future sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could negatively affect the price of our common stock.

We may be restricted from issuing new equity securities.

In September 2002, we issued shares of Series A Preferred Stock to several investors. Under the terms of the preferred stock, any issuances of equity securities or securities convertible into or exercisable for equity securities require the prior approval of the holders of a majority of the outstanding shares of Series A Preferred Stock. While two of our directors currently own a significant portion (48.75 %) they do not constitute a majority of such preferred stock. While the Company has been successful in obtaining the consent of a majority of the series a preferred stock when the Board of Directors has requested, there can be no assurance that the company will continue to be able to obtain such consent. If the Company is unable to obtain this approval, the Company would be prevented from issuing equity securities which would preclude the Company from raising equity financing, utilizing equity based compensation plans and from other actions requiring the issuance of equity securities. In addition, the consent of certain of our existing investors (which consent may not be unreasonably withheld or delayed) is required in connection with certain financings involving (subject to certain exclusions) the issuance of securities in which the purchase price, number of securities, exercise price or conversion rate are subject to future adjustment. Failure to obtain such consent could restrict the Company’s ability to avail itself of the benefits of such financings.

We may be in default of certain registration rights obligations

                In February 2002, we issued a total of 4,000,000 shares and warrants to purchase 1,200,000 shares for a total of $3,480,000 received from various investors. In connection with this financing, we registered such securities for resale on a form S-3 pursuant to a registration rights agreement which obligated us to do so. Since our stock is no longer listed on NASDAQ, we are no longer eligible to use a Form S-3 registration statement and we may be in default under the registration rights agreement. This may render us liable for damages to the holders of the registration rights for losses they may incur as a result of the Company not maintaining an effective registration statement for their securities.

Item 2: Description of Property

The Company entered into a lease on August 1, 2003 for approximately 7,000 square feet for its principal executive offices at 120 Corporate Blvd., South Plainfield, New Jersey. The base rent is $4,505 per month effective October 2003 through July 2006. The Company is also obligated to make additional payments to the landlord relating to certain taxes and operating expenses.

The Company abandoned the lease space at 48834 Kato Road, Fremont, California in the Bedford Fremont Business Center. This lease commenced on June 1, 1999 and is for a term of 60 months with monthly rent payable by the Company to the landlord as follows: $7,360 per month for the first 12 months of the term; $7,590 per month for months 13-24; $7,820 per month for months 25-36; $8,050 per month for months 37-48; and $8,280 per month for months 49-60. The Company entered into an abandonment agreement with the landlord in March of 2003. As a result, the Company recorded a one-time charge to Restructuring of $123,510


14



in the quarter ended March 31, 2003. This amount represents the total lease payments from December 2002 to May 2004 offset by landlords stated sub-lease rental payments. The Company has not occupied the space since approximately March 2003. In 2004, Management revaluated the current status of the ongoing negotiations and reversed its prior reserve amount by approximately $63,716. Management believes that the final settlement amount should not exceed the reserved amount of $60,000 at December 31, 2004. However, the Company and Landlord have no settlement agreement in place at this time.

Item 3: Legal Proceedings

None

Item 4: Submission of Matters to a Vote of Security Holders 

None


15



PART II

Item 5: Market For Common Equity and Related Stockholder Matters

Market Information

The Company’s common stock, par value $.001 per share (the “Common Stock”), is currently quoted on the OTC Bulletin Board under the symbol “IONN.OB”. The following table sets forth the high ask and low bid prices of the Common Stock for the periods indicated as quoted on the OTC Bulletin Board (except that the prices for the quarter ended March 31, 2003 are based on prices reported on the NASDAQ Small Cap Market). The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

 
Year Ended December 31, 2004, Quarter Ending HIGH   LOW  


 
 
             
March 31, 2004 $ 0.20   $ 0.04  
June 30, 2004   0.14     0.05  
September 30, 2004   0.37     0.06  
December 30, 2004   0.44     0.19  
             
Year Ended December 31, 2003, Quarter Ending

             
March 31, 2003 $ 0.28   $ 0.05  
June 30, 2003   0.11     0.05  
September 30, 2003   0.11     0.05  
December 31, 2003   0.11     0.04  
                 
Small Business Issuer Purchases of Equity Securities 
                 
Period (a) Total
Number
of Shares
(or Units)
Purchased
(b) Average
Price Paid per
Share (or Unit)
(c) Total Number
of Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
(d) Maximum
Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet
Be Purchased Under
the Plans or Programs

 
   
 
 
Month # 1 (October 1, 2004 –
October 31, 2004)
  600,000   $ 0.3615        
Month # 2 (November 1, 2004 –
November 30, 2004)
               
Month # 3 (December 1, 2004 –
December 31, 2004)
               
Total   600,000   $ 0.3615        
 

On October 14, 2004, the Company agreed to a final separation agreement with its former Executive Vice President and Chief Operating Officer. As part of the agreement, the Company agreed to accept the return of 600,000 shares of the Company’s common stock as full payment for the former officers’ total indebtedness to the Company of $216,926. In addition, the former officer released the Company from any obligations, other than the sum of $8,000 to cover certain expenses, which may have arisen from the separation of the officer from the Company.

Security Holders

As of March 4, 2005 there were 408 holders of record of the Common Stock.

Dividends

The Company has not paid any cash dividends on its Common Stock during the years ended December 31, 2004 and December 31, 2003. The Company presently intends to retain all earnings to finance its operations and therefore does not presently anticipate paying any cash dividends in the foreseeable future.


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Item 6: Management’s Discussion and Analysis or Plan of Operation

Overview

ION Networks, Inc (“ION” or the “Company”) designs, develops, manufactures and sells security solutions that protect enterprise network administrative interfaces from improper, unauthorized or otherwise undesirable access from external and internal sources. Administrative interfaces are the network access points used by highly trained technical individuals who are charged with the responsibilities of maintaining and supporting the networks and devices employed within the networks such as servers, routers, PBXs and similar network equipment. These technicians may be employees of the enterprise or employed by third parties such as managed service providers, consultants, device vendors or application developers. In all cases, they are considered “trusted insiders” since in order to perform their jobs; permission to enter and work within the network must be granted. The Company’s solution, comprised of centralized management and control software, administrative security appliances and soft tokens, are designed to provide secure, auditable access to all administrative interfaces and monitored security once working within the network. Service Providers, Enterprises and Governmental Agencies utilize the ION solution globally in their voice, data and converged environments, to establish and maintain security policies while providing the support and maintenance required of networks and their devices.

The Company is a Delaware corporation founded in 1999 through the combination of two companies - MicroFrame (“MicroFrame”), a New Jersey Corporation (the predecessor entity to the Company, originally founded in 1982), and SolCom Systems Limited (“SolCom”), a Scottish corporation located in Livingston, Scotland (originally founded in 1994). The Scottish corporation was dissolved in 2003. The Company’s principal objective was to address the need for security and network management and monitoring solutions, primarily for the PBX-based telecommunications market, resulting in a significant portion of our revenues being generated from sales to various telecommunications companies.

During 2004, the Company’s financial condition improved particularly with the operating results in the last half of 2004 where the company posted two successive quarters of earnings and over $1.0 million in revenue for each quarter. The Company generated $108,279 in cash provided by operating activities in 2004 compared to $376,940 used in 2003. Also, in 2004 the Company increased its investments in new products to be rolled-out in 2005 and still was able to improve the overall annual usage of cash and cash equivalent of $70,274 versus $507,973 in 2003. The Company continues to have a delicate cash position and while the future viability of the organization has significantly improved, it is necessary for it to continue to strictly manage expenditures and to increase product revenues.

Results Of Operations

Explanatory Note

The Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Revenues for the year ended December 31, 2004 were $3,616,261 as compared to $3,342,620 for the year ended December 31, 2003, an increase of approximately 8% or $273,641. This increase is attributable mainly to the growth in the number of units sold for the year 2004 compared to 2003 offset in part by a slight reduction in maintenance revenues. This reversal in the trend for the Company of declining year over year revenues was caused primarily by the growth of the ION’s Original Equipment Manufacturing (OEM) business and by a general rebound in the telecommunications sector of the economy. The Company’s prices declined slightly in 2004 when compared to 2003 reducing gross margin as a percentage of revenue from 73.3% in 2003 to 70.5% in 2004.

Research and development expenses, net of capitalized software development, increased to $598,012 for the year ended December 31, 2004 from $503,146 for the year ended December 31, 2003, an increase of 18.8%. This increase for research and development expenditures was primarily due to the higher expenses related to the conversion of certain products to a Linux based platform from a proprietary software platform and the preliminary outside consulting services related to new product development.

Selling, general and administrative expenses decreased 5.6% from $2,452,031 for the year ended December 31, 2003 to $2,314,834 for the year ended December 31, 2004. This decline in expense was due primarily to certain cost containment programs implemented by management particularly for insurances, professional services and the full year impact of the move in 2003 of the Company’s headquarters to a more efficient facility.

Depreciation and amortization was $409,485 for the year ended December 31, 2004 compared to $736,694 for the year ended December 31, 2003, a decrease of $327,209 or approximately 44.4%. The primary reason for this reduction in 2004 as compared to 2003 was that the Company did not purchase depreciable fixed assets at a rate equal to prior periods due to a shift of the


17



Company’s reduction in staff and outsourcing of certain manufacturing processes.

The Company acquired a corporation business tax benefit certificate pursuant to New Jersey law, which relates to the surrendering of unused net operating losses. For the year ended December 31, 2004 and for the year ended December 31, 2003, the Company received a benefit of $322,831 and $227,151, respectively.

During the year ended December 31, 2004 the Company recognized benefits from restructuring in the amount of $180,533 compared to $405,402 for the year ended December 31, 2003.

The Company had a loss of $249,840 for the year ended December 31, 2004 compared to a loss of $603,792 for the year ended December 31, 2003 or an improvement of $353,952.

Financial Condition And Capital Resources  

The Company’s working capital balance as of December 31, 2004 was $372,860 compared to $287,930 as of December 31, 2003.

Net cash provided by operating activities during the year ended December 31, 2004 was $108,279, compared to net cash used in operating activities of $376,940 during the year ended December 31, 2003. The $485,219 improvement in cash provided from operations was primarily a result of the decrease in net losses of $353,952 for the year ended December 31, 2004 compared to the year ended December 31, 2003.

Net cash used in investing activities during the year ended December 31, 2004 was $321,963, compared to net cash used of $59,167 in year ended December 31, 2003. The increase of $262,796 of the net cash used in investing activities during the year ended December 31, 2004, was due to a slight increase of capitalized software expenditures in 2004 of $310,223 compared to $214,996 in 2003 and that in the prior year their were offsets against capital spending for the release of restricted cash of $125,700 and sale of certain assets of $30,129.

Net cash provided by financing activities during the year ended December 31, 2004 was $143,410, compared to $85,135 used in the year ended December 31, 2003. Financing activities during the year ended December 31, 2004 include the sale of a $200,000 convertible debenture to Mr. Steven Deixler in August 2004 (see item 5 – Recent Sales of unregistered securities) and exercise of $11,250 of employee stock options. During 2003 there were no financings.

Critical Accounting Policies 

Use of Estimates -

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

The significant estimates include the allowance for doubtful accounts, allowance for inventory obsolescence, capitalized software including estimates of future gross revenues, and the related amortization lives, deferred tax asset valuation allowance and depreciation and amortization lives.

Allowance for Doubtful Accounts Receivable -

Accounts receivable are reduced by an allowance to estimate the amount that will actually be collected from our customers. If the financial condition of our customers were to materially deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Inventory, net -

Inventory is stated at the lower of cost (average cost) or market. Reserves for slow moving and obsolete inventories are provided based on historical experience and current product demand. If our estimate of future demand is not correct or if our customers place significant order cancellations, inventory reserves could increase from our estimate. We may also receive orders for inventory that has been fully or partially reserved. To the extent that the sale of reserved inventory has a material impact on our financial results, we will appropriately disclose such effects. Our inventory carrying costs are not material; thus we may not physically dispose of reserved inventory immediately.

Capitalized Software -

The Company capitalizes computer software development costs in accordance with the provisions of Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”). SFAS No. 86 requires that the Company capitalize computer software development costs upon the


18



establishment of the technological feasibility of a product, to the extent that such costs are expected to be recovered through future sales of the product. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization. These costs are amortized by the greater of the amount computed using (i) the ratio that current gross revenues from the sales of software bear to the total of current and anticipated future gross revenues from the sales of that software, or (ii) the straight-line method over the estimated useful life of the product. As a result, the carrying amount of the capitalized software costs may be reduced materially in the near term.

We record impairment losses on capitalized software and other long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our estimates.

Reclassifications -

Certain amounts in the financial statements for the year ended December 31, 2003 have been reclassified to conform to the presentation of the financial statements for the year ended December 31, 2004.

Item 7: Financial Statements

The financial statements required hereby are located on pages 37 through 54.

Item 8: Changes in and Disagreements with Accountants on Accounting and Financial Disclosures  

The Company with the Approval of the Audit Committee of the Company’s Board of Directors appointed Deloitte & Touche LLP as the Company’s independent public accountants for the nine months ended December 31, 2002.

On November 11, 2003 the Company filed an 8-K/A announcing the appointment of Marcum and Kliegman LLP as the Company’s independent public accountants for the year ended December 31, 2003, effective as of October 7, 2003. The Board of Directors formally approved the appointment at its October 16, 2003 meeting.

On November 11, 2003 the Company filed an 8-K/A announcing Deloitte & Touche LLP declination to be reappointed as the Company’s independent public accountants. During the nine month period ended December 31, 2002 and the fiscal year ended March 31, 2002 and the subsequent interim period through October 6, 2003, there were no disagreements with Deloitte & Touche LLP regarding any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference to the subject matter of the disagreement in their report on the financial statements for such years. The Company requested that Deloitte & Touche LLP furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. The letter, dated October 31, 2003 has been filed as Exhibit 16.1 to the Company’s Form 10KSB for the year ended December 31, 2003.

Item 8A: Controls and Procedures

Prior to the filing date of this annual report, the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.


19



Part III

Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.

The directors and executive officers of the Company are as follows:

 
Name Age Position Held with the Company



      
Norman E. Corn   58   Chief Executive Officer
         
Patrick E. Delaney   51   Chief Financial Officer
         
William Whitney   50   Chief Technology Officer and
Vice President of Research and Development
         
Stephen M. Deixler   69   Chairman of the Board of Directors
         
Harry F. Immerman   61   Director
         
Frank S. Russo   62   Director
 
NORMAN E. CORN has served as Chief Executive Officer since August 15, 2003. Prior to joining ION, from 2000 until 2003, Mr. Corn was Executive Vice President of Liquent, Inc., a Pennsylvania-based software company that provides electronic publishing solutions, focused on the life sciences industry. Mr. Corn has also served from 1994 to 2000 as CEO of TCG Software, Inc., an offshore software services organization providing custom development to large corporate enterprises in the US. Mr. Corn has led other companies, including Axiom Systems Group, The Cobre Group, Inc., The Office Works, Inc. and Longview Results, Inc., having spent the early part of his career in sales, marketing and executive positions in AT&T and IBM.

PATRICK E. DELANEY has served as Chief Financial Officer since September 15, 2003. Prior to joining ION, from 2000 until 2003, Mr. Delaney was the President of Taracon, Inc. a privately owned independent consulting firm that provides management consulting for early and mid-stage technology and financial services companies. Mr. Delaney also served as Chief Financial Officer for two publicly traded telecommunications providers, Pointe Communications Corporation from 1993 to 2000 and Advanced Telecommunications Corporation from 1986 to 1993. Mr. Delaney has served other companies in executive capacities including RealCom Communications, Argo Communications and ACF Industries.

WILLIAM WHITNEY has served as Vice President of Research and Development since March 2002 and Chief Technology Officer since October 1, 2002. Prior to joining ION, from April 2000 to February 2002, Mr. Whitney served as the Vice President of Development and Chief Technology Officer for Outercurve Technologies, a provider of wireless application development and deployment solutions. Previously from, May 1998 to March 2002, Mr. Whitney served as President of CTO Systems.

STEPHEN M. DEIXLER has been Chairman of the Board of Directors since May 1982 and served as Chief Executive Officer of the Company from April 1996 to May 1997. He was President of the Company from May 1982 to June 1985 and served as Treasurer of the Company from its formation in 1982 until September 1993. During the period since March 2003 to September 2003, Mr. Deixler has served as the interim Chief Financial Officer of the Company. He also serves as Chairman of the Board of Trilogy Leasing Co., LLC and President of Resource Planning Inc. Mr. Deixler was the Chairman of Princeton Credit Corporation until April 1995 and Chief Financial Officer of Multipoint Communications, LLC until November 2002.

HARRY F. IMMERMAN joined the ION Network Board of Directors in October, 2004. Mr. Immerman retired from PricewaterhouseCoopers LLP (“PwC”) in July, 2003, having worked at the firm since July, 1966. He became a partner in the firm on October 1, 1973. During his career with PwC, he served in several management and client service positions. Mr. Immerman served as the Global Tax Leader for the Pharmaceutical Industry Sector from 1999 to 2003, the National Director of Industry Programs from 1996 to 1999 and as the Partner-in-Charge of the New York Metro Region and New York office tax department from 1983 to 1993. From 1983 to 1995, he also was a member of the Firm Council, the partner group responsible for management oversight and governance. Throughout his career with PwC, Mr., Immerman served as the client service tax partner on large multinational companies with a focus on pharmaceutical and telecommunication enterprises.


20



FRANK S. RUSSO has served as a director of the Company since November 2000. Mr. Russo was with AT&T Corporation from September 1980 to September 2000 and most recently served as its Corporate Strategy and Business Development Vice President. While at AT&T Solutions, Mr. Russo held a number of other positions including that of General Manager, Network Management Services from which he helped architect and launch AT&T’s entry into the global network outsourcing and professional services business. Mr. Russo retired from AT&T in 2000. Prior to joining AT&T, Mr. Russo was employed by IBM Corporation in a variety of system engineering, sales and sales management positions. Mr. Russo served on the Board of Directors of Oak Industries, Inc., a manufacturer of highly engineered components, from January1999 to February 2000, and currently serves on the Board of Directors of Advance-com, a private e-commerce company headquartered in Boston, Massachusetts.

Involvement in Certain Legal Proceedings

The Chairman of the Board of Directors of the Company served as the Chief Financial Officer of Multipoint Communications, LLC (“Multipoint”) until November 2002. On or about January 16, 2003, Multipoint filed for voluntary Ch. 7 bankruptcy with the U.S. Bankruptcy Court for the District of New Jersey.

Financial Expert

The Company’s Board of Directors has determined that none of its current members meets the standard of an audit committee “financial expert” as defined in the Sarbanes-Oxley Act of 2002. The Company has determined that its current financial position makes it impractical to obtain the services of an additional director meeting this standard.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors, executive officers and persons who own more than 10% of the Company’s Common Stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership of the Company’s Common Stock with the Securities and Exchange Commission. Copies of these reports are also required to be delivered to the Company.

The Company believes, based solely on its review of copies of such reports received or written representations from certain Reporting Persons, that during the Company’s fiscal year Mr. Deixler failed to file Forms 4s with respect to the reporting of various stock options granted to him and with respect to the issuance of a convertible debenture to him and Mr. Russo and Mr. Whitney failed to file various Forms 4s with respect to the reporting of various stock options granted to them.

Code of Ethics

The Company has a Code of Ethics in place for all of its employees. A copy of the Company’s Code of Ethics will be provided free of charge, upon written request to ION Networks, Inc 120 Corporate Blvd., South Plainfield, NJ 07080.


21



Item 10: Executive Compensation

The following table sets forth the compensation earned, whether paid or deferred, by the Company’s Chief Executive Officer and its other two most highly compensated executive officers during the year ended December 31, 2004 (the “Named Executive Officers”) for services rendered in all capacities to the Company.

 
Summary Compensation Table
                 
    Annual Compensation         Long-term Compensation  
   
       
 
                        Awards          Payouts   
               
     
 
Principal
Position
  Year Ending*   Salary($)   Bonus($)   Other
Annual
Compen-
sation
($)
  Restricted
Stock
Award(s)($)
  Securities
Underying
Options (#)
  LTIP
Payouts($)
  All Other
Compen-
sation($)/(1)/
 

 
 
 
 
 
 
 
 
 
                                   
Norman E. Corn/(3)/   12/31/2004     217,400 /(5)   20,000     1,723         1,550,000          
Chief Executive   12/31/2003     60,000                          
Officer                                                
                                                 
Patrick E. Delaney/(4)/   12/31/2004     181,400 /(5)   10,000     4,125         800,000          
Chief Financial   12/31/2003     35,323                          
Officer                                                
                                                 
William Whitney/(1)(2)/   12/31/2004     150,000                 400,000          
Vice President &   12/31/2003     117,692                          
Chief Technology   12/31/2002     112,500                            
 
————————
 
*Please note the 12/31/02 year end represents the nine-month period from 4/1/02 to 12/31/02.
   
(1)
Mr. Whitney joined the Company on 3/11/02. Pursuant to his employment agreement, he receives an annualized base salary of $150,000.
 
(2)
Refer to the Employment Contracts, Termination of Employment and Change of Control Arrangements section below for a more detailed description of all consulting and employment agreements.
 
(3)
Mr. N. Corn joined the Company on 08/15/03. Pursuant to his employment agreement, he receives an annualized base salary of $180,000 for the fiscal year ended December 31, 2003. In the year ended December 31, 2004, his annualized base salary is $200,000.
 
(4)
Mr. P. Delaney joined the Company on 09/15/03. Pursuant to his employment agreement, he receives an annualized base salary of $175,000 and $120,000 for the fiscal year ended December 31, 2004 and 2003, respectively.
   
(5) Includes $9,900 in auto allowance.

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Option Grants for the Year Ended December 31, 2004

The following table sets forth certain information concerning stock option grants during the year ended December 31, 2004 to the Named Executive Officers:

 
    Individual Grants  
                   
Name   Number of
Securities
Underlying
Options
Granted(#)
  Percent
of Total
Options
Granted to
Employees in
Fiscal Year
  Exercise
or Base
Price
($/Sh)
  Expiration
Date
 

 
 
 
 
 
                   
Norman E. Corn (1)     800,000     35.77 % $ 0.115   1/29/2009  
      750,000           0.06   1/29/2009  
                         
Patrick E. Delaney (2)     800,000     24.53     0.115   1/29/2009  
      250,000           0.045   1/29/2009  
                         
William Whitney (3)     200,000     9.23     0.115   1/28/2012  
      200,000           0.35   11/02/2012  
   
(1)
Represents options granted upon hire as part of an Employment Agreement dated September 8, 2003.
 
(2)
Represents options granted upon hire as part of an Employment Agreement dated September 15, 2003
   
(3) Represents options granted for continued service.
 

Aggregated Option Exercises for Year Ended December 31, 2004
And Year Ended Option Values

The following table sets forth certain information concerning each exercise of stock options during year ended December 31, 2004 by each of the Named Executive Officers and the number and value of unexercised options held by each of the Named Executive Officers on December 31, 2004.

 
Name     Shares
Acquired on
Exercise (#)
  Value
Realized($)
  Number of
Securities Underlying
Unexercised Options
at FY-End(#)
Exercisable/Unexercisable
    Value of
Unexercised
In-the-Money
Options at
FY-End($)/(1)/
Exercisable/Unexercisable
 

   
 
 
   
 
                               
Norman E. Corn                     1,550,000/0       $250,500/0  
                               
Patrick E. Delaney       250,000     11,250           800,000/0       $108,000/0  
                               
William Whitney                     91,750/408,250       0/$27,000  
 
(1) The average price for the Common Stock as reported by the OTC Bulletin Board on December 30, 2004, was $0.25 per share. Value is calculated on the basis of the difference between the option exercise price and $0.25 multiplied by the number of shares of Common Stock underlying the options.

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Compensation of Directors

Standard Arrangements For the year ended December 31, 2004 the company reestablished the plan such that, each of the members of the Board of Directors who is not also an employee of the Company (“Non-Employee Directors”) received fully vested options to purchase 10,000 shares of Common Stock at exercise prices per share equal to the fair market value of the Common Stock on the date of grant on an annual basis. Non-Employee Directors were also granted fully vested options to purchase an additional 1,500 shares of Common Stock for each meeting of the Board of Directors attended by such Non-Employee Director at exercise prices per share equal to the fair market value of the common stock on the date of the grant. Non-Employee Directors serving on committees of the Board of Directors were granted, on an annual basis, fully vested options to purchase 1,500 shares of Common Stock for each committee served thereby at exercise prices per share equal to the fair market value of the common stock on the date of the grant. In addition, the Company reimburses all Non-Employee Directors traveling more than fifty miles to a meeting of the Board of Directors for all reasonable travel expenses

Employment Contracts, Termination of Employment and Change of Control Arrangements  

The Company entered into an employment agreement with Norman E. Corn dated August 15, 2003. Pursuant to the agreement Mr. Corn shall serve as Chief Executive Officer at the will of the Company. Mr. Corn’s annual base salary as of March 15, 2004 was $200,000. In addition, he will receive a monthly car allowance of $900 plus, reimbursement for additional life and disability insurances. On January 28, 2004, the Company awarded Mr. Corn 1,550,000 options to purchase common stock at $0.115 per share for 800,000 incentive stock options and $0.06 per share for 750,000 non-incentive stock options. These options vested immediately. If the Company terminates Mr. Corn’s employment it is obligated to make a severance payment equal to 18 months of the then current annual salary.

The Company entered into an employment agreement with Patrick E. Delaney dated September 15, 2003. Pursuant to the agreement Mr. Delaney shall serve as Chief Financial Officer at the will of the Company. Mr. Delaney’s annual base salary as of March 15, 2004 was $170,000. In addition, he will receive a monthly car allowance of $900 plus, reimbursement for additional life and disability insurances. On January 28, 2004, the Company awarded Mr. Delaney 1,050,000 options to purchase common stock at $0.115 per share for 800,000 incentive stock options and $0.045 per share for 250,000 non-incentive stock options. These options vested immediately. If the Company terminates Mr. Delaney’s employment, it is obligated to make a severance payment equal to 18 months of the then current annual salary.

The Company entered into an employment agreement with William Whitney dated March 11, 2002. Pursuant to the agreement, Mr. Whitney shall receive a base salary at an annual rate of $150,000. Pursuant to the agreement, Mr. Whitney was granted stock options consisting of 100,000 shares of the Company’s Common Stock at a price of $0.70 per share. These options vest as follows: 34,000 vest on March 11, 2003, and 8,250 at the end of each three month period, commencing with the period ending June 11, 2003, and ending with the period ending March 11, 2005. In the event of a change in control event (as described in the employment agreement) all options will become immediately vested.


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Item 11: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information
As of December 31, 2004

 
    (a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
  (b)
Weighted-average
exercise price of
outstanding options,
warrants, and rights
  (c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflecting in column (a))
 
   
 
 
 
               
Plan Category        
               
Equity compensation plans approved by              
security holders/(1)/ 4,207,629   0.50   1,674,371
               
Equity compensation plans not approved              
by security holders/(2)/ 1,358,000   0.58  
             
Total   5,565,629   0.54   1,674,371
 

 (1) Shareholder Approved Plans

In November 2000, the Company adopted its 2000 Stock Option Plan (the “2000 Plan”). The aggregate number of shares of common stock for which options may be granted under the 2000 Plan is 3,000,000. The maximum number of options which may be granted to an employee during any calendar year under the 2000 Plan is 400,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair value of one share of common stock on the date of grant. During the year ended December 31, 2004 and 2003, the Company granted options to purchase 2,048,000 and zero shares, respectively. As of December 31, 2004, 2,626,000 options were outstanding under the 2000 Plan, of which 1,544,750 options were exercisable.

The aggregate number of shares of common stock for which options may be granted under the 1998 Stock Option Plan (the “1998 Plan”) is 3,000,000. The maximum number of options which may be granted to an employee during any calendar year under the 1998 Plan is 400,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair value of one share of common stock on the date of grant. During the year ended December 31, 2004 and 2003, the Company granted options to purchase 1,285,000 and zero shares, respectively. As of December 31, 2004, 1,556,629 options were outstanding under the 1998 Plan, of which 1,020,900 options were exercisable.

In August 1994, the Company adopted its 1994 Stock Option Plan (the “1994 Plan”). The 1994 Plan, as amended, increased the number of shares of common stock for which options may be granted to a maximum of 1,250,000 shares. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair market value of one common stock on the date of grant. During the year ended December 31, 2004 and 2003, there were no option grants provided under the 1994 Plan. As of December 31, 2004, 25,000 options were outstanding and exercisable under the 1994 Plan.

During the years ended 2004 and 2003, there were no options granted under the Company’s Time Accelerated Restricted Stock Award Plan (“TARSAP”). The options vest after seven years, however, under the TARSAP, the vesting is accelerated to the last day of the fiscal year in which the options are granted if the Company meets certain predetermined sales targets. The Company did not meet the targets for 2001 and, as such, all options granted under the TARSAP in 2001 will vest seven years from the original date of grant.

(2) Non-Shareholder Approved Awards

During the year ended December 31, 2004 the Company granted options and warrants to purchase 1,000,000 shares of Common Stock outside of the shareholder approved plans. The awards have been made to employees, directors and consultants, and except as noted below, have been granted with an exercise price equal to the fair market value of the Common Stock on the date of grant. The Company has not reserved a specific number of shares for such awards. The non-shareholder approved awards are more specifically described below.

During July 2001 in connection with services being performed by a consultant, the Company issued warrants to purchase 48,000 shares of the Company’s Common Stock at $0.62 per share. The warrants vested immediately and expire five years from the date of the grant.


25



During January 2002 in connection with services being performed by a consultant, the Company issued warrants to purchase 100,000 shares of the Company’s Common Stock at $1.35 per share and 50,000 shares of Common Stock at $1.80 per share. The warrants vested immediately and expired in January 2005.

On March 19, 1999, the Company issued options to certain consultants and employees to purchase an aggregate of 20,000 shares of the Company’s Common Stock, all of which vested on the first year anniversary of the date of grant. The options expire six years from the date of grant. However, in the event of (a) the liquidation or dissolution of the Company or (b) a merger in which the Company is not the surviving corporation or a consolidation involving the Company, the options shall terminate, unless other provision is made therefore in the transaction. The exercise price of the options is $2.41 and equals to the market value of the Company’s Common Stock on the date of grant. At December 31, 2004, 10,000 options were outstanding and exercisable.

On September 25, 1996, the Company issued options to certain officers and directors to purchase 620,000 shares of the Company’s Common Stock, of which 420,000 vested immediately and 100,000 vested on April 1, 1998 and 1999. The options expire ten years from the date of grant. However, in the event of (a) the liquidation or dissolution of the Company or (b) a merger in which the Company is not the surviving corporation or a consolidation involving the Company, the options shall terminate, unless other provision is made in the transaction. There were no stock option exercised during the year ended December 31, 2004 and 2003. The exercise price of the options is $1.156 and equals to the market value of the Company’s Stock on the date of grant. At December 31, 2004, 400,000 options were outstanding and exercisable.

In January 2004, the Company issued options to certain officers to purchase 1,000,000 shares of the Company’s Common Stock, which vested immediately. The exercise price of the options ranged from $0.045 to $0.06. At December 31, 2004, 750,000 options were outstanding and exercisable.


26



Beneficial Ownership Information

The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of February 28, 2004 by each person (or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) known by the Company to own beneficially 5% percent or more of the Company’s Common Stock, and by the Company’s directors and named executive officers, both individually and as a group.

As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. A person is deemed to be the beneficial owner of securities that can be acquired within sixty days from March 15, 2004 through the exercise of any option, warrant or right. Shares of Common Stock subject to options, warrants or rights (including conversion from Preferred Stock) which are currently exercisable or exercisable within sixty days are deemed outstanding for computing the ownership percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 22,638,280 shares of Common Stock and 155,557 shares of Preferred Stock outstanding as of March 24, 2005.

 
    Common Stock   Percent of Class  
   
 
 
           
Norman E. Corn   1,565,000/(5)/   6.5%  
           
Patrick E. Delaney   1,050,000/(6)/   4.5%  
           
Stephen M. Deixler   3,840,900/(1)/   14.8%  
           
Frank S. Russo   381,780/(2)/   1.7%  
           
Harry F. Immerman   54,500/(7)   *  
           
William Whitney   168,704/(3)/   *  
   
5% or more beneficial owners:  
           
AWM Investment Company   2,731,000/(4)/   11.03%  
153 East 53rd Street, 55th Floor  
New York, NY 10022  
           
Directors and Executive Officers as a   7,060,884   24.5%  
group 6 persons)          
      
(1)   Does not include 220,000 shares of Common Stock owned by Mr. Deixler’s wife, mother, children and grandchildren as to which shares Mr. Deixler disclaims beneficial ownership. Includes 480,560 shares of Common Stock subject to conversion from 48,056 shares of Preferred Stock within 60 days of March 15, 2004 and 355,500 shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of March 15, 2005. Includes 2,409,638 shares issuable pursuant to conversion of a $200,000 debenture.
 
(2)   Includes 277,780 shares of Common Stock subject to conversion from 27,778 shares of Preferred Stock within 60 days of March 15, 2004 and 86,500 shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of March 15, 2005.
 
(3)  Includes 38,890 shares of Common Stock subject to conversion from 3,889 shares of Preferred Stock within 60 days of March 15, 2004 and 67,000 shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of March 15, 2004.
 
(4)  Based on American Stock and Transfer & Trust list of shareholders dated February 27, 2004; and includes currently exercisable warrants to purchase 1,120,000 shares of common stock.
 
(5)  Includes 15,000 shares of Common Stock and 1,550,000 shares of Common Stock subject to options that are currently exercisable.
 
(6)  Includes 250,000 shares of Common Stock and 800,000 shares of Common Stock subject to options that are currently exercisable.
 
(7)   Consist of 54,500 shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of March 15, 2005.

27



(8)   Unless otherwise noted, the address of each such person is c/o the Company, 120 Corporate Blvd., S. Plainfield, New Jersey 07080.

*Indicates ownership of Common Stock of less than one (1%) percent of the total issued and outstanding Common Stock on March 15, 2004.

Item 12: Certain Relationships and Related Transactions  

The Company entered into a definitive Sublease Agreement with Multipoint Communications, LLC (the “Tenant”) on April 17, 2002 to sublease approximately 5,400 square feet of its Piscataway, NJ facility for a period of 24 months. The rental rate and the other material terms of the lease with Multipoint Communications, LLC (“Multipoint”) were negotiated through a real estate broker and separate attorneys representing each party. The rental rate was established by prorating the amount of space leased by Multipoint by the current rent paid by the Company to its landlord. Given the current real estate market condition in the area, the Company believes that the terms of the lease with Multipoint are comparable to terms of leases that might have been obtained from a non-affiliate. The rent will be $5,200 per month for the first nine months and $10,400 per month for the last fifteen months, but with a 100% abatement for the first three months. As part of the rental payment the Tenant was to issue shares totaling the value of $77,400, which were to be based on the per share price of the Tenant’s common stock as priced in the first round of institutional financing (the “Financing”) which were to have closed on or before June 30, 2002. These shares were to have had the registration rights as other shares issued in the Financing. Since the Financing did not close on or before June 30, 2002, the Tenant owes the Company additional rent in the amount of $4,300 per month commencing on July 1, 2002. The Chairman of the Board of Directors of the Company served as the Chief Financial Officer of the Tenant until November 2002. On or about January 16, 2003, the Tenant filed for voluntary Ch. 7 bankruptcy with the U.S. Bankruptcy Court for the District of New Jersey. As a result in 2002, the Company wrote off an amount of $122,550 which is included in selling, general and administrative expenses.

During April 2000, the Company made a loan (the “Loan”) to the former Chief Executive Officer (the “Former CEO”) of the Company in the amount of $750,000. At the time that the Loan was made to the Former CEO in April 2000, the Company was contemplating a secondary public offering and potential mergers and acquisitions opportunities. As a result, the Company did not want the Former CEO to exercise his stock options. In consideration for not exercising his stock options at that time, the Company issued the Loan to him. At that time, the Company had sufficient cash and it was contemplated that the Loan would be repaid within one year. The Loan accrues interest at a rate of LIBOR plus 1%. The LIBOR plus one percent interest rate in April 2000 was 7.197% as compared to the first mortgage interest rate in April 2000 of 6.90% for a 1-year ARM, 7.97% for a 15-year FRM and 8.30% for a 30-year FRM. 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 for the Loan 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 “Separation and Forbearance Agreement”). The Loan is collateralized by a first mortgage interest on the personal residence of the Former CEO. The Company agreed to extend the repayment date of the Loan so that the Former CEO would be able to repay the Loan to the Company by selling his personal residence. In addition to the Loan, pursuant to the terms of the Separation and Forbearance Agreement between the Company and the Former CEO, 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. These certain expenses were incurred by the Former CEO as part of his personal expense account arrangement with the Company. During the year ended March 31, 2001, $50,000 of the amounts owed to the Company by the Former CEO was repaid and $22,000 has been recorded as a non-cash offset as a result of earned but unpaid vacation owed to the Former CEO. During the year ended March 31, 2002, $813,593 was repaid which included proceeds in the amount of $777,713.48 received by the Company on August 3, 2001 for the sale of the Former CEO’s personal residence. At December 31, 2003, the total amount owed to the Company by the Former CEO was approximately $175,154, which includes interest accrued through December 31, 2003. The full amount has been recorded as a reserve against the note receivable. Because these amounts were not paid by their respective maturity dates, interest is accruing at the default interest rate of 12%. The Company will continue to attempt to collect the note receivable.

On March 29, 2004, the Company agreed to a final separation agreement with its former President and Chief Executive Officer. As part of the agreement, the Company agreed to accept the return of 2,000,000 shares of the Company’s common stock as full payment for the former officers’ total indebtedness to the Company of $294,493. In addition, the former officer released the Company from any obligations, which may have arisen from the separation of the officer from the Company.

On October 14, 2004, the Company agreed to a final separation agreement with its former Executive Vice President and Chief Operating Officer. As part of the agreement, the Company agreed to accept the return of 600,000 shares of the Company’s common stock as full payment for the former officers’ total indebtedness to the Company of $216,926. In addition, the former officer released the Company from any obligations, other than the sum of $8,000 to cover certain expenses, which may have arisen from the separation of the officer from the Company.


28



On August 5, 2004, the Company issued, for $200,000 cash, a convertible debenture (the “Debenture”) to Stephen M. Deixler, one of the Company’s directors. The Debenture matures on August 5, 2008 and bears interest at five (5%) percent per annum, compounded annually. The principal amount of the Debenture is convertible into shares of the Company’s common stock, $.001 par value at a conversion price equal to $0.083 per share (the “Conversion Price”), which is equal to the ten (10) day average of the closing prices of the Company’s common stock, as quoted on the OTC Bulletin Board during the five (5) trading days immediately prior to and subsequent to August 5, 2004. The principal amount of the Debenture is convertible at the Conversion Price at the option of the holder, or after August 5, 2005 at the Company’s option if the Company’s common stock trades at a price of at least $0.166 for twelve (12) trading days in any fifteen (15) trading day period. The Company is also entitled to prepay the principal amount of the Debenture, at any time after August 5, 2005, but shall be required to pay a premium of two (2%) percent in the second year after issuance of the Debenture of the principal amount prepaid, for prepayments made during that period. The Company has granted certain “piggyback” registration rights to the holder to register for resale the shares issuable upon conversion of the Debenture. In 2004, the Company recorded $4,167 of related party interest expense as part of the statement of operations.


29



Item 13. Exhibits and Reports on Form 8-K
 
(a) Exhibits:
 
Exhibit
No.
Description
 
 
         
3.1 (i) Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on August 5,1998./(2)/
 
(ii) Certificate of Amendment of the Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on December 11, 1998./(2)/
 
(iii) Certificate of Amendment of the Certificate of Incorporation, as filed with the Secretary of state of the State of Delaware an October 12, 1999./(3)/
 
(iv) Amended and Restated Certificate of Designation of Rights Preferences, Privileges and Restrictions of Series A Preferred Stock of ION Networks, Inc. /15/
 
3.2 By-Laws of the Company./(2)/
 
3.3 Form of Specimen Common Stock Certificate of the Company./(4)/
 
4.1 1994 Stock Option Plan of the Company. /(1)/+
 
4.2 1998 Stock Option Plan of the Company./(2)/+
 
4.3 1998 U.K. Sub-Plan of the Company, as amended./(2)/+
 
4.4 2000 Stock Option Plan of the Company./(12)/+
 
4.5 Form of Warrant Agreement dated July 17, 2001./(11)/+
 
4.6 Form of Warrant Agreement dated February 14, 2002./(11)/
 
4.7 Convertible Debenture dated August 5, 2004./19/
 
10.3 Agreement dated as of December 19, 1994 by and between LeeMAH DataCom Security Corporation and Siemens Rolm Communications Inc./(4)/
 
10.4 Equipment Lease Agreements dated October 29, 2003 by and between the Company and GE Capital Corporation. *
 
10.5 (i) Non-negotiable Promissory Note in the principal amount of $750,000 issued by Stephen B. Gray to the Company./(5)/
 
(ii) First Amendment to Promissory Note dated as of August 5, 2000 by and between the Company and Stephen B.Gray./(5)/

30



     Exhibit
 No.
  Description
   
 
         
     10.6    (i) Separation and Forbearance Agreement made as of October 5, 2000 between the Company and Stephen B. Gray./(6)/
         
         (ii) Promissory Note in the amount of $163,000 dated October 5, 2000 made by Stephen B. Gray to the Company./(6)/
         
     10.7     Materials and Services Contract dated January 16, 2001, between the Company and SBC Services, Inc./(7)/
         
     10.8     Stock Purchase Agreement dated August 11, 2000 by and between the Company and the parties identified therein./(7)/
         
     10.9     Purchase Agreement by and between the Company and the Selling Shareholders set forth therein dated February 7, 2002./(13)/
         
    10.10     Employment Agreement dated October 4, 2001 between the Company and Kam Saifi./(9)/+
         
    10.11     Employment Agreement dated October 17, 2001 between the Company and Cameron Saifi./(10)/+
         
    10.12     Employment Agreement dated February 25, 2002, between the Company and William Whitney./15/+
         
    10.13     Amended and Restated Employment Agreement dated August 15, 2003, between the Company and Norman E. Corn./16/+
         
    10.14     Employment Agreement dated September 15, 2003, between the Company and Patrick E. Delaney./14/+
         
    10.15     Lease Agreement dated July 21, 2003 by and between the Company and 116 Corporate Boulevard, LLC, Inc. /(17)/
         
    10.16     Separation Agreement dated March 29, 2004 between the Company and Kam Saifi. *
         
    10.17     Separation Agreement dated October 14, 2004 between the Company and Cameron Saifi. *
         
    10.18     First Amendment to the Amended and Restated Employment Agreement dated September 8, 2003 by and between the Company and Norman E. Corn dated November 10, 2004 *+
         
    10.19     First Amendment to the Employment Agreement dated September 15, 2003 by and between the Company and Patrick E. Delaney dated November 10, 2004. *+
         
    10.20     Employment Agreement dated August 31, 2004 by and between the Company and Henry A. Hill. /20/+
         
    10.21     Severance Agreement dated September 2, 2004 by and between the Company and William Whitney. *+
         
    10.22     Severance Agreement dated September 2, 2004 by and between the Company and Henry Gold. *+

31



    Exhibit
No.
  Description
   
 
         
    10.23    Option Agreement dated January 28, 2004 by and between the Company and Norman E. Corn. *+
         
    10.24    Option Agreement dated January 28, 2004 by and between the Company and Patrick E. Delaney. *+
         
    10.25    Agreement dated February 25, 2005 by and between the Company and Sprint/Untied Management Company. *
         
    10.26    Agreement dated October 28, 2004 by and between the Company and General Dynamics Network Systems. *
         
    16.1     Letter dated October 31,2003, from Deloitte & Touche, LLP. To the Securities and Exchange Commission./(8)/
         
    21.1     List of Subsidiaries.*
         
    23.1     Independent Auditors Consent *
         
    31.1     Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*
         
    31.2     Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.*
         
    32.1     Certification of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*
         
    32.2     Certification of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*
 

(1) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on August 15, 1995.

(2) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on April 22, 1999.

(3) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on March 17, 2000.

(4) Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999.

(5) Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on June 28, 2000.

(6) Incorporated by reference to the Company’s Quarterly report on Form 10-QSB filed on November 14, 2000

(7) Incorporated by reference to the Company’s Annual report on Form 10-KSB filed on June 29, 2001.

(8) Incorporated by reference to the Company’s Annual report on Form 8-KSB filed on October 31, 2003.

(9) Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 23, 2001.

(10) Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 24, 2001.

(11) Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 2002, as filed on July 1, 2002.

(12) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on January 11, 2002.

(13) Incorporated by reference to the Company’s Registration Statement on Form S-3 filed on March 4, 2002.

(14) Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed on November 17, 2003.

(15) Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, as filed on April 15, 2003.

(16) Incorporated by reference to the Company’s Quarterly Report on Form 10QSB filed on September 12, 2003.

(17) Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed for the year ended December 31, 2003.

(18) Incorporated by reference to the Company’s Annual Report on Form 10-KSB/A, Amendment No.2, for the fiscal year ended March 31, 2002, as filed on August 2, 2002.

(19) Incorporated by reference to the Company’s Quarterly Report on Form 10QSB filed on August 13, 2004.

(20) Incorporated by reference to the Company’s Quarterly Report on Form 10QSB filed on November 15, 2004

* Filed herewith


32



+ Management contract for compensatory plan or arrangement

(b) Reports on Form 8-K

On November 8, 2004, the Company filed a report on Form 8-K, reporting the appointment of Mr. Harry Immerman to the Board of Directors.

On November 12, 2004, the Company filed a report on Form 8-K, reporting the award of a contract by General Dynamics.

Item 14. Principal Accountant Fees and Services

 
Year Ended
December 31, 2004
  Year Ended
December 31, 2003
 
             
Audit Fees $ 60,500   $ 116,870  
             
Audit Related Fees   0     0  
             
Tax Fees   0     0  
             
All Other Fees   0     0  
 
The audit committee has adopted a procedure under which all fees charged by Marcum and Kliegman, LLP must be pre-approved by the audit committee.

33



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 23, 2005

 
  ION NETWORKS, INC.
       
  By:       /s/ Norman E. Corn            
      Norman E. Corn
Chief Executive Officer
 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 2005:

 
 Signature Title


   
/s/ Norman E. Corn Chief Executive Officer
Norman E. Corn  
   
/s/ Patrick E. Delaney Chief Financial Officer
Patrick E. Delaney  
   
/s/ Stephen M. Deixler Chairman of the Board of Directors
Stephen M. Deixler   
   
/s/ Harry Immerman Director
Harry Immerman  
   
/s/ Frank Russo Director
Frank Russo  

34



ION Networks, Inc. and Subsidiary Consolidated Financial Statements
For the Years Ended December 31,  2004 and 2003


35



ION Networks, Inc. and Subsidiary

Index to Consolidated Financial Statements
For the Year Ended December 31, 2004 and 2003

 
Page(s)
Report of Independent Registered Public Accounting Firm     37
Consolidated Financial Statements:  
     Consolidated Balance Sheet as of December 31, 2004     38
     Consolidated Statements of Operations for the Years Ended December 31, 2004 and 2003     39
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003     40
     Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2004 and 2003     41-42
Notes to Consolidated Financial Statements     43-54

36



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ION Networks, Inc.
South Plainfield, New Jersey

We have audited the accompanying consolidated balance sheet of ION Networks, Inc. and Subsidiary as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ION Networks, Inc. and Subsidiary as of December 31, 2004, and the consolidated results of their operations and their cash flows for each of the years ended December 31, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcum & Kliegman LLP

New York, New York
February 11, 2005


37



ION Networks, Inc. and Subsidiary
Consolidated Balance Sheet

 
Assets     December 31,
2004
 
     
 
Current assets          
   Cash and cash equivalents     $ 287,437  
   Accounts receivable, less allowance for doubtful accounts of    
      $ 16,923       578,491  
   Inventory, net       511,426  
   Prepaid expenses and other current assets       78,436  

     Total current assets       1,455,790  
           
   Property and equipment, net       11,847  
   Capitalized software, net       406,351  
   Other assets       12,836  

   Total assets     $ 1,886,824  

     
Liabilities and Stockholders’ Equity    
Current liabilities          
   Current portion of long-term debt       2,311  
   Accounts payable       354,602  
   Accrued expenses       549,730  
   Deferred income       160,212  
   Sales tax payable       6,074  
   Other current liabilities       10,000  

   Total current liabilities     $ 1,082,929  

           
Convertible debenture – related party       204,167  
Long term debt, net of current portion       6,942  

   Total liabilities     $ 1,294,038  

     
Commitments and contingencies    
           
Stockholders’ equity          
     Preferred stock – par value $.001 per share; authorized 1,000,000 shares,    
     200,000 shares designated Series A; 158,335 shares issued and outstanding    
     (Aggregate Liquidation Preference $285,003)       158  
     Common stock – par value $.001 per share; authorized 50,000,000 shares;
     22,610,500 shares issued and outstanding
      22,611  
     Additional paid-in capital       44,146,595  
     Accumulated deficit       (43,576,578 )

Total stockholders’ equity       592,786  

Total liabilities and stockholders’ equity     $ 1,886,824  

 

The accompanying notes are an integral part of these consolidated financial statements.


38



ION Networks, Inc. and Subsidiary
Consolidated Statements of Operations

 
      Years Ended December 31,  
      2004   2003  
     
 
 
             
Net sales     $ 3,616,261   $ 3,342,620  
                 
Cost of sales       1,065,443     892,373  
 
 
 
   Gross margin       2,550,818     2,450,247  
                 
Research and development expenses       598,012     503,146  
Selling, general and administrative expenses, including $58,750 and                
$(95,000) of non-cash stock based compensation/(recovery) for the                
years ended December 31, 2004 and 2003, respectively       2,314,834     2,452,031  
Depreciation and amortization expenses       409,485     736,694  
Restructuring, asset impairments and other credits       (180,533 )   (405,402 )
 
 
 
   Loss from operations       (590,980 )   (836,222 )
                 
   Interest income       25,810     19,872  
   Interest income/(expense)- related party       (4,167 )    
   Interest income/(expense)       (3,334 )   (14,593 )
 
 
 
                 
   Loss before income taxes       (572,671 )   (830,943 )
     
Income tax benefit       322,831     227,151  
 
 
 
                 
   Net loss     $ (249,840 ) $ (603,792 )
 
 
 
Per share data                
                 
   Basic and diluted     $ (0.01 ) $ (0.03 )
 
 
 
         
Weighted average number of common shares outstanding                
   Basic and diluted       23,294,325     23,900,500  
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.


39



ION Networks, Inc. and Subsidiary
Consolidated Statements of Cash Flows

 
      Years Ended December 31,  
      2004   2003  
     
 
 
Cash flows from operating activities                
     Net loss     $ (249,840 ) $ (603,792 )
     
Adjustments to reconcile net loss to net cash from operating activities:    
   Restructuring, asset impairments and other charges, non-cash       (180,533 )   (405,402 )
   Depreciation and amortization       409,485     736,694  
   Provision for inventory reserves       (48,880 )   (26,002 )
   Other       (39,171 )    
   Non-cash stock-based compensation charge (credit)       58,750     (95,000 )
   Non-cash interest income from notes receivable from officers       (24,884 )   (13,130 )
   Changes in operating assets and liabilities:                
     Accounts receivable, net       (180,747 )   164,018  
     Inventory       239,496     583,228  
     Prepaid expenses and other current assets       49,702     75,796  
     Other assets       465     1,577  
     Accounts payable       126,723     (690,303 )
     Accrued expenses       20,714     (82,543 )
     Deferred income       (40,093 )   45,284  
     Sales tax payable       (32,908 )   (31,385 )
     Other current liabilities           (35,980 )
 
 
 
       Net cash provided by (used in) operating activities       108,279     (376,940 )
 
 
 
     
Cash flows from investing activities    
   Acquisition of property and equipment       (11,740 )    
   Capitalized software expenditures       (310,223 )   (214,996 )
   Proceeds from sale of equipment           30,129  
   Restricted cash           125,700  
 
 
 
       Net cash used in investing activities       (321,963 )   (59,167 )
 
 
 
     
Cash flows from financing activities    
   Principal payments on debt and capital leases       (67,840 )   (85,135 )
   Issuance of convertible debenture       200,000      
   Proceeds from the exercise of stock options       11,250      
 
 
 
       Net cash provided by (used in) financing activities       143,410     (85,135 )
 
 
 
                 
Effect of exchange rates on cash           13,269  
 
 
 
                 
Net decrease in cash and cash equivalents       (70,274 )   (507,973 )
                 
Cash and cash equivalents – beginning of year       357,711     865,684  
 
 
 
                 
Cash and cash equivalents – end of year     $ 287,437   $ 357,711  
 
 
 
     
Supplemental information                
   Cash paid during period for interest     $ 3,334   $ 13,650  
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.


40



ION Networks, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31, 2004 and 2003

 
    Preferred     Common   Additional
Paid-In
Capital
  Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
(Loss)
 
    Shares     Stock     Shares   Stock          
 
   
   
 
 
 
   
 
Balance, December 31, 2002   166,835     $ 167       24,875,500   $ 24,876   $ 44,680,740   $ (42,722,946 )   $ (13,269 )
                                                 
Comprehensive loss                                                
   Net loss                                     (603,792 )        
                                                 
   Translation                                                
   adjustments                                             13,269  
                                                 
   Total                                                
   comprehensive loss                                                
                                                 
Notes receivable                                                
from officers                                                
–accrued interest                                                
                                                 
Non-cash stock-based                                                
compensation to                                                
officers                               (95,000 )              
 
   
   
 
 
 
   
 
                                                 
Balance, December                                                
31, 2003   166,835     $ 167       24,875,500   $ 24,876   $ 44,585,740   $ (43,326,738 )   $  
                                                 
Net loss                                     (249,840 )        
Conversion of                                                
preferred stock to                                                
common stock   (8,500 )     (9 )     85,000     85     (76 )              
                                                 
Issuances of common                                                
stock upon exercise                                                
of options                   250,000     250     11,000                
                                                 
Notes receivable                                                
from officers –                                                
accrued interest                                                
                                                 
Cancellation of                                                
restricted shares                                                
from former officers                   (2,600,000 )   (2,600 )   (508,819 )              
                                                 
Non-cash stock-based                                                
compensation issued                                                
to officers                               58,750                
 
   
   
 
 
 
   
 
Balance, December 31,                                                
2004   158,335     $ 158       22,610,500   $ 22,611   $ 44,146,595   $ (43,576,578 )   $  
 
   
   
 
 
 
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.


41



ION Networks, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31, 2004 and 2003

 
 
  Notes
Receivable
from former
Officers
    Total
Stockholders’
Equity
   
 
   
   
Balance, December 31, 2002 $ (473,405 )   $ 1,496,163  
                 
Comprehensive loss            
    Net loss       (603,792 )  
             
    Translation adjustments       13,269  
         
   
             
    Total comprehensive loss       (590,523 )  
           
Notes receivable from officers – accrued interest (13,130 )   (13,130 )  
           
Non-cash stock-based compensation to officers       (95,000 )  
 
   
   
             
Balance, December 31, 2003 $ (486,535 )   $ 797,510  
           
Net loss       (249,840 )  
                 
Conversion of preferred stock to common stock       -  
           
Issuances of common stock upon exercise of options       11,250  
           
Notes receivable from officers – accrued interest (24,884 )   (24,884 )  
           
Cancellation of restricted shares from former officers 511,419        
           
Non-cash stock-based compensation issued to officers       58,750  
 
   
   
             
Balance, December 31, 2004 $   $ 592,786  
 
   
   
 

The accompanying notes are an integral part of these consolidated financial statements.


42



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements  

1. Organization and Basis of Presentation

The Company

ION Networks, Inc. (the “Company”), a Delaware corporation founded in 1999 through the combination of two companies -- MicroFrame, a New Jersey Corporation (the predecessor entity to the Company, originally founded in 1982), and SolCom Systems Limited, a Scottish corporation located in Livingston, Scotland (originally founded in 1994), designs, develops, manufactures and sells network and information security and management products to corporations, service providers and government agencies. The Company’s hardware and software suite of products are designed to form a secure auditable portal to protect IT and network infrastructure from internal and external security threats. ION’s products operate in the IP, data center, telecommunications and transport, and telephony environments and are sold by a direct sales force and indirect channel partners mainly throughout North America and Europe.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ION Networks, Inc. and a single Subsidiary in 2004 and two subsidiaries in 2003. All material inter-company balances and transactions have been eliminated in consolidation. Due to Management’s cost containment programs, the Company ceased its operations in Belgium and Scotland in 2003.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

The significant estimates include the allowance for doubtful accounts, allowance for inventory obsolescence, capitalized software costs including estimates of future gross revenues, and the related amortization lives, deferred tax asset valuation allowance and depreciation and amortization lives.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.

Allowance for Doubtful Accounts Receivable

Accounts receivable are reduced by an allowance to estimate the amount that will actually be collected from our customers. If the financial condition of our customers were to materially deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.

Inventory, net

Inventory is stated at the lower of cost (average cost) or market. Reserves for slow moving and obsolete inventories are provided based on historical experience and current product demand. If our estimate of future demand is not correct or if our customers place significant order cancellations, inventory reserves could increase from our estimate. We may also receive orders for inventory that has been fully or partially reserved. To the extent that the sale of reserved inventory has a material impact on our financial results, we will appropriately disclose such effects. Our inventory carrying costs are not material; thus we may not physically dispose of reserved inventory immediately.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally two to five years. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal.


43



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Capitalized Software

The Company capitalizes computer software development costs in accordance with the provisions of Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”). SFAS No. 86 requires that the Company capitalize computer software development costs upon the establishment of the technological feasibility of a product, to the extent that such costs are expected to be recovered through future sales of the product. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization. These costs are amortized by the greater of the amount computed using (i) the ratio that current gross revenues from the sales of software bear to the total of current and anticipated future gross revenues from the sales of that software, or (ii) the straight-line method over the estimated useful life of the product. As a result, the carrying amount of the capitalized software costs may be reduced materially in the near term.

We record impairment losses on capitalized software and other long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our estimates.

The Company capitalized $310,223 and $214,996 of software development costs for the year ended December 31, 2004 and 2003, respectively. Amortization expense totaled $352,160 and $531,136 for the year December 31, 2004 and 2003, respectively.

Research and Development Costs

The Company charges all costs incurred to establish the technological feasibility of a product or enhancement to research and development expense in the period incurred.

Advertising Costs

The Company incurred approximately $30,000 and $1,000 for the year ended December 31, 2004 and 2003, respectively.

Revenue Recognition Policy

The Company recognizes revenue from product sales to end users, value-added resellers (VARs) and original equipment manufacturers (OEMs) upon shipment if no significant vendor obligations exist and collectibility is probable. We do not offer our customers the right to return products, however the Company records warranty costs at the time revenue is recognized. Management estimates the anticipated warranty costs but actual results could differ from those estimates. Maintenance contracts are sold separately and maintenance revenue is recognized on a straight-line basis over the period the service is provided, generally one year.

Shipping and Handling Costs

Shipping and handling costs incurred are billed to the customer and included as part of cost of sales.

Fair Value of Financial Instruments

The carrying value of items included in working capital and debt approximates fair value because of the relatively short maturity of these instruments.

Net Loss Per Share of Common Stock

Basic net loss per share excludes dilution for potentially dilutive securities and is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities of 9,327,672 and 4,783,505 at December 31, 2004 and 2003 are excluded from the computation of diluted net loss per share as their inclusion would be antidilutive.


44



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Stock Compensation

The Company records stock-based employee compensation arrangements in accordance with provisions of Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees“, and complies with the disclosure requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123, issued in December 2002. Under APB Opinion No. 25, compensation expense is based on the difference, if any, generally on the date of grant, between the fair value of our stock and the exercise price of the option. Equity instruments issued to non-employee vendors are recorded in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees from Acquiring, or in Conjunction with Selling, Goods and Services”. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counter party’s performance is complete.

The Company issued certain stock options in 2004. The fair value of each option grant for the Company’s common stock is estimated on the date of the grant using the Black Scholes option-pricing model. The assumptions used to value the 2004 options issued are as follows:

 
Expected Volatility 214.97%    
Risk-free interest rate 4.00    
Expected option lives 5.00 years    
 

During the year ended December 31, 2003, the Company issued no stock options. The fair value of each option grant for the Company’s common stock is estimated on the date of the grant using the Black Scholes option-pricing model. If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards, consistent with the provisions of SFAS No. 123, the Company’s net loss and basic and diluted net loss per share would have increased to the pro forma amounts indicated below:

 
Years Ended December 31,  
2004 2003
 
 
 
             
Net loss as reported $ (249,840 ) $ (603,792 )
             
Add: Stock based compensation expense (recovery) included in net loss   58,750     (95,000 )
             
Deduct: Stock based employee compensation determined under the fair value method   (454,493 )   (217,158 )


Pro forma net loss $ (645,583 ) $ (915,950 )


             
Basic and diluted net loss per share of common stock            
As reported   (0.01 )   (0.03 )


Pro forma   (0.03 )   (0.04 )


 

Foreign Currency Translation

The financial statements of the foreign subsidiaries were prepared in local currency and translated into U.S. dollars based on the current exchange rate at the end of the period for the balance sheet and a weighted-average rate for the period on the statement of operations. Translation adjustments are reflected as foreign currency translation adjustments in stockholders’ equity and, accordingly, have no effect on net loss. Transaction adjustments for the foreign subsidiaries are included in income and are not material. The Company ceased its foreign operations during the year ended December 31, 2003.

Income Taxes

Deferred income tax assets and liabilities are computed annually based on enacted tax laws and rates for temporary differences between the financial accounting and income tax bases of assets and liabilities. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized.


45



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Warranty Costs

The Company estimates its warranty costs based on historical warranty claim experience. Future costs for warranties applicable to sales recognized in the current period are charged to cost of sales. Adjustments are made when actual warranty claim experience differs from estimates. The warranty accrual included in other current liabilities as of December 31, 2004 is $10,000.

 
  For the years ended    
  December 31,
2004
  December 31,
2003
   
   
 
   
  Balance at beginning of the year $ 48,388   $ 48,388    
  Change in liability due to preexisting warranty   (38,388 )      


  Balance at the end of the year $ 10,000   $ 48,388    


 

Reclassifications

Certain amounts in the consolidated financial statements for the year ended December 31, 2003 have been reclassified to conform to the presentation of the consolidated financial statements for the year ended December 31, 2004.

3.  Restructuring, Asset Impairments and Other Credits

The total amount of restructuring, asset impairments and other credits for the year ended December 31, 2004 was $180,533. This amount consisted of three items for which the Company recognized credits; $67,671 for forgiveness of debt related to legal, taxes and loan amounts; $63,716 related to a change in management estimate reducing potential liability for damages previously accrued for related to the abandonment of an office lease and $49,146 related to the write-off of certain payables for which management believes are not valid liabilities.

As a result of the Company being notified by the landlord to cancel its lease effective August 15, 2003 at the Piscataway, NJ facility, the net book value of leasehold improvements amounting to $28,955 were written-off. In addition, the Company was required to sell property and equipment in order to move into its smaller newly leased facility. At June 30, 2003 the Company recorded an impairment loss of $163,662 which represents the difference between the cash proceeds of the August 2003 sale and carrying value prior to the impairment.

During the quarter ended June 30, 2003, the Company completed its voluntary liquidation of its UK subsidiary. As a result of the liquidation, the Company reversed its prior restructuring accrual of $508,458, which was recorded in fourth quarter 2002, related to a charge for the remaining long-term occupancy lease that expires August 31, 2011.

During the quarter ended September 30, 2003, the Company successfully negotiated a settlement of a $243,071 open payable due to Xetel for a payment of $30,000 and a forgiveness of debt in the amount of $213,071.

The components of the restructuring, asset impairments and other credits recorded in 2004 and 2003 are as follows:

 
Asset
Impairment
  Restructuring   Other Credits   Total  
 
 
 
 
 
First Quarter 2004 charges $   $   $   $  
Second Quarter 2004 charges (reversals)           (59,570 )    
Third Quarter 2004 charges (reversals)       (63,716 )        
Fourth Quarter2004 charges (reversals)           (57,247 )    




                                     Total $   $ (63,716 ) $ (116,817 ) $ (180,533 )




First Quarter 2003 charges $   $ 123,510   $   $ 123,510  
Second Quarter 2003 charges (reversals)   192,617     (508,458 )       (315,841 )
Third Quarter 2003 charges (reversals)           (213,071 )   (213,071 )
Fourth Quarter2003 charges                




                                     Total $ 192,617   $ (384,948 ) $ (213,071 ) $ (405,402 )





46



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

The Company is in negotiations with the landlord from the Fremont, California location for the disposition of the reserved amount of $123,510 recorded in 2003. The Company has not occupied the space since approximately March 2003. In 2004, Management revaluated the current status of the ongoing negotiations and reversed its prior reserve amount by $63,716. Management believes that the final settlement amount should not exceed the reserved amount of $60,000 at December 31, 2004.

In January 2003, the Company’s sub-tenant, Multipoint voluntarily filed for Chapter 7 Bankruptcy with the U.S. Bankruptcy Court for the District of New Jersey. As a result of consideration of Multipoint’s financial condition, culminating with the bankruptcy, the Company wrote-off an amount of $122,550 for the unpaid balance of rent due from Multipoint which is included in selling and general and administrative expenses.

4. Inventory

Inventory, net of reserves of $149,853, consists of the following:

 
December 31,
2004
 
   
         
Finished goods $ 448,742    
Raw materials   61,844    
Work-in-progress   840    
 
   
         
Inventory, net $ 511,426    
 
   
 

The Company evaluates the inventory reserves on a quarterly basis. In 2004, the Company adjusted its inventory reserves which resulted in a benefit of $48,880 and this amount was included as part of cost of sales in its consolidated statements of operations. In 2003, the Company recorded a charge of $26,002 to cost of sales related to reserves for excess and obsolete inventory.

5. Property and Equipment, net

Property and equipment consists of the following:

 
December 31,
2004
 
   
         
Computer and other equipment $ 764,900    
Furniture and fixtures   68,408    
 
   
    833,308    
         
Less accumulated depreciation   (821,461 )  
 
   
         
Property and equipment, net $ 11,847    
 
   
 

Depreciation expense for property and equipment for the year ended December 31, 2004 and 2003, amounted to $57,325 and $205,558, respectively. During the year ended December 31, 2004 and 2003, the Company retired both fully and not fully depreciated assets amounting to $53,963 and $1,730,369, respectively. During the year ended December 31, 2003, the Company relocated its headquarters and therefore, recorded an asset impairment charge of $192,617 to recognize the retirement of assets not fully depreciated (see Note 3).

6. Debt – Related Party

On August 5, 2004, the Company issued, for $200,000 cash, a convertible debenture (the “Debenture”) to Stephen M. Deixler, one of the Company’s directors. The Debenture matures on August 5, 2008 and bears interest at five (5%) percent per annum, compounded annually. The principal amount of the Debenture is convertible into shares of the Company’s common stock, $.001 par value at a conversion price equal to $0.083 per share (the “Conversion Price”), which is equal to the ten (10) day average of the closing prices of the Company’s common stock, as quoted on the OTC Bulletin Board during the five (5) trading days immediately prior to and subsequent to August 5, 2004. The principal amount of the Debenture is convertible at the Conversion Price at the option of the holder, or after August 5, 2005 at the Company’s option if the Company’s common stock trades at a


47



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

price of at least $0.166 for twelve (12) trading days in any fifteen (15) trading day period. The Company is also entitled to prepay the principal amount of the Debenture, at any time after August 5, 2005, but shall be required to pay a premium of two (2%) percent in the second year after issuance of the Debenture of the principal amount prepaid, for prepayments made during that period. The Company has granted certain “piggyback” registration rights to the holder to register for resale the shares issuable upon conversion of the Debenture. In 2004, the Company recorded $4,167 of related party interest expense as part of the statement of operations.

7. Income Taxes

As of December 31, 2004, the Company has available federal and state net operating loss carry forwards of approximately $42,773,686 and $26,340,185, respectively, to offset future taxable income. The federal net operating loss carry forwards expire during the years 2011 through 2024. In addition, the Company has investment credit and research and development credit carry forwards aggregating approximately $405,000, which may provide future tax benefits, expiring from 2008 through 2020. The Internal Revenue Code contains provisions which will limit the net operating loss carry forward available for use in any given year if significant changes in ownership interest of the Company occur.

The Company obtained a corporation business tax benefit certificate pursuant to New Jersey law which allows the sale of unused state net operating losses. For the years ended December 2004 and 2003, the Company received a benefit of $322,831 and $227,151, respectively.

The tax effect of temporary differences which make up the significant components of the net deferred tax asset and liability at December 31, 2004 are as follows:

 
December 31,
2004
   
   
  Current deferred tax assets      
           
              Inventory reserves $ 88,727    
              Accrued expenses   196,526    
              Allowance for doubtful accounts   85,239    

                    Total current deferred tax assets   370,492    
              Valuation allowance   (370,492 )  

                    Net current deferred tax assets      

   
  Noncurrent deferred tax assets
   
              Depreciation and amortization   245,425    
              Net operating loss carry forwards   16,103,494    
              Research and development credit   405,078    

                    Total noncurrent deferred tax assets   16,753,997    
              Valuation allowance   (16,591,457 )  

                    Net noncurrent deferred tax assets   162,540    
         
  Noncurrent deferred tax liabilities        
           
              Capitalized software   (162,540 )  

                    Total noncurrent deferred tax liabilities   (162,540 )  

                    Net noncurrent deferred tax (liabilities) assets $    

 

The Company has recorded a full valuation allowance against the deferred tax assets, including the federal and state net operating loss carry forwards as management believes that it is more likely than not that substantially all of the deferred tax assets will not be realized. During the year ended December 31, 2004, the Company had an annual change in the valuation allowance of $1,948,386.

8. Stockholders’ Equity

Preferred Stock – On September 13, 2002 the Company received equity financing in the amount of $300,303 ($285,303, net of issuance costs) for the issuance of 166,835 unregistered shares of the Company’s preferred stock at $1.80 per share. The Company has designated 200,000 of the 1,000,000 authorized shares of preferred stock as Series A Preferred Stock (“Preferred Stock”). Each share of Preferred Stock is convertible into 10 shares of the Company’s common stock at the conversion price of $0.18 per share of common stock, which was the closing bid price of the Company’s common stock on September 13, 2002. The Preferred Stock is non-voting, has a standard liquidation preference equal to its purchase price, and does not pay dividends. Proceeds of the


48



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

equity financing will be used for working capital and general corporate purposes. All of the shares of Preferred Stock were purchased by directors and management of the Company. On December 27, 2004 8,500 of preferred stock was converted to 85,000 shares of common stock.

Restricted Stock –  Effective October 2001, the Company approved and granted 2,600,000 shares of restricted stock (the “Restricted Shares”) to two executives stockholders at fair value. The Restricted Shares are subject to a repurchase right which will permit the Company to repurchase any shares which have not yet vested at the effective date of termination of the officers’ employment, as defined in their employment agreements, for an amount equal to the purchase price per share paid by the officers. The Company received a series of partial recourse interest bearing (5.46% on an annual basis) promissory notes for the value of the Restricted Shares to be repaid by the officers. As of December 31, 2003 Mr. Kam Saifi owes approximately $282,618 (including approximately $24,618 of interest) for 2,000,000 Restricted Shares and; Mr. Cameron Saifi owes approximately $203,917 (including approximately $18,517 of interest) for 600,000 Restricted Shares.

The notes are to be repaid by the officers at the earlier of ten years or the date upon which the employees dispose of their shares or under certain circumstances, when the borrower’s employment with the Company terminates for any reason. The issuance of the restricted shares and the notes receivable due from the former officers is recorded in the Company’s financial statements. On July 7, 2003, Mr. Kam Saifi and Mr. Cameron Saifi separated from the Company.

On March 29, 2004, the Company agreed to a final separation agreement with its former President and Chief Executive Officer. As part of the agreement, the Company agreed to accept the return of 2,000,000 shares of the Company’s common stock as full payment for the former officers’ total indebtedness to the Company of $294,493. In addition, the former officer released the Company from any obligations, which may have arisen from the separation of the officer from the Company.

On October 14, 2004, the Company agreed to a final separation agreement with its former Executive Vice President and Chief Operating Officer. As part of the agreement, the Company agreed to accept the return of 600,000 shares of the Company’s common stock as full payment for the former officers’ total indebtedness to the Company of $216,926. In addition, the former officer released the Company from any obligations for the sum of $8,000 as full compensation for said release.

The variable accounting method used to account for the partial recourse restricted stock granted to management resulted in a cashless charge of $95,000 for the period ended December 31, 2002. In accordance with accounting guidance for the partial recourse restricted stock granted to management resulted in a reversal of the cashless charge of $95,000 for the period ended December 31, 2003.

Common Stock  - On February 14, 2002 the Company sold 4,000,000 shares of common stock at a price of $0.87 per share, for total consideration of $3,480,000. In connection with this sale, warrants to purchase 1,120,000 shares of common stock with an exercise price of $1.25 were issued. The warrants expire on February 14, 2007.

Stock Option Plans  

In November 2000, the Company adopted its 2000 Stock Option Plan (the “2000 Plan”). The aggregate number of shares of common stock for which options may be granted under the 2000 Plan is 3,000,000. The maximum number of options which may be granted to an employee during any calendar year under the 2000 Plan is 400,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair value of one share of common stock on the date of grant. During the year ended December 31, 2004 and 2003, the Company granted options to purchase 2,048,000 and zero shares, respectively. As of December 31, 2004, 2,626,000 options were outstanding under the 2000 Plan, of which 1,544,750 options were exercisable.

The aggregate number of shares of common stock for which options may be granted under the 1998 Stock Option Plan (the “1998 Plan”) is 3,000,000. The maximum number of options which may be granted to an employee during any calendar year under the 1998 Plan is 400,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair value of one share of common stock on the date of grant. During the year ended December 31, 2004 and 2003, the Company granted options to purchase 1,285,000 and zero shares, respectively. As of December 31, 2004, 1,556,629 options were outstanding under the 1998 Plan, of which 1,020,900 options were exercisable.


49



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

In August 1994, the Company adopted its 1994 Stock Option Plan (the “1994 Plan”). The 1994 Plan, as amended, increased the number of shares of common stock for which options may be granted to a maximum of 1,250,000 shares. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair market value of one common stock on the date of grant. During the year ended December 31, 2004 and 2003, there were no option grants provided under the 1994 Plan. As of December 31, 2004, 25,000 options were outstanding and exercisable under the 1994 Plan.

Warrants

In connection with the sale of common stock on February 14, 2002, warrants to purchase 1,120,000 shares of common stock with an exercise price of $1.25, subject to certain adjustments, were issued. As of March 18, 2005 the exercise price is $1.08. The warrants expire on February 14, 2007.

During July 2001 in connection with services being performed by a consultant, the Company issued warrants to purchase 48,000 shares of the Company’s Common Stock at $0.62 per share. The warrants expire five years from the date of the grant.

During January 2002 in connection with services being performed by a consultant through June 30, 2002, the Company issued warrants to purchase 100,000 shares of the Company’s common stock at $1.35 per share. Warrants to purchase an additional 50,000 shares of common stock are exercisable at $1.80. All 150,000 warrants expired in January 2005.

Other Options  

On September 25, 1996, the Company issued options to certain officers and directors to purchase 620,000 shares of the Company’s Common Stock, of which 420,000 vested immediately and 100,000 vested on April 1, 1998 and 1999. The options expire ten years from the date of grant. However, in the event of (a) the liquidation or dissolution of the Company or (b) a merger in which the Company is not the surviving corporation or a consolidation involving the Company, the options shall terminate, unless other provision is made in the transaction. There were no stock option exercised during the year ended December 31, 2004 and 2003. The exercise price of the options is $1.156 and equals to the market value of the Company’s Stock on the date of grant. At December 31, 2004, 400,000 options were outstanding and exercisable.

During March 1999, the Company issued options to certain employees and consultants to purchase 20,000 shares of the Company’s common stock, all of which vested on the first year anniversary of the date of the grant. The options expire six years from the date of the grant. The exercise price of the options is equal to the market value of the Company’s common stock on the date of the grant. There were no stock options exercised during the year ended December 31, 2004 and 2003. At December 31, 2004, 10,000 options were outstanding and exercisable.

In January 2004, the Company issued options to certain officers to purchase 1,000,000 shares of the Company’s common stock, which vested immediately. The exercise price of the below market options ranged from $0.045 to $0.06 on the date of grant. The Company recorded a stock based compensation charge of $58,750. At December 31, 2004, 750,000 options were outstanding and exercisable.


50



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Accounting for Stock-Based Compensation  

The Company continues to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations in accounting for its options. During the year ended December 31, 2004 and 2003 the Company has recorded compensation expense (benefit) of $58,750 and ($95,000), respectively.

Details of the options granted are as follows:

 
Shares   Weighted Average
Exercise Price ($)
 
         
Options outstanding at December 31, 2002 3,667,102   1.62  
 
     
         
     Granted    
     Canceled (1,821,947 ) 3.55  
     Exercised    
         
 
     
Options outstanding at December 31, 2003 1,845,155   1.59  
         
     Granted 4,333,000   0.15  
     Expired (73,250 ) 5.63  
     Canceled (487,276 ) 1.16  
     Exercised (250,000 ) 0.05  
 
     
         
Options outstanding at December 31, 2004 5,367,629   0.51  
 
     
         
Options exercisable at December 31, 2004 3,750,650   0.50  
 
     
         
Range of Exercise   Number
Outstanding
  Weighted Average
Remaining Years of
Contractual Life
  Weighted
Average
Exercise Price
  Number
Exercisable
  Weighted
Average
Exercise Price
 
                     
$0.00 – 7.53   5,320,694   4.67   $ 0.36   3,737,550   $ 0.40  
$7.54 – 15.06   36,605   4.85     13.62   3,600     13.62  
$15.06 – 22.59   1,500   .05     22.00   1,500     22.00  
$22.59 – 30.12   1,500   .25     29.25   1,500     29.25  
$30.12 – 37.65   7,060   .49     34.69   6,500     34.66  
                     





                     
$0.00 – 37.65   5,367,629   4.67   $ 0.51   3,750,650   $ 0.50  





 

9.           Commitments

Operating Leases

The Company entered into a lease on August 1, 2003 for approximately 7,000 square feet for its principal executive offices at 120 Corporate Blvd., South Plainfield, New Jersey. The base rent is $4,505 per month effective October 2003 through July 2006. The Company is also obligated to make additional payments to the landlord relating to certain taxes and operating expenses.

As a result of the Company being notified by the landlord of their intent to cancel its lease effective August 15, 2003, the Company no longer occupies the space at 1551 S. Washington Avenue, Piscataway, New Jersey. The Company entered into the lease on February 18, 1999 for approximately 26,247 square feet for its principal executive offices. On March 17, 2003, the Company signed an amendment with the landlord reducing the space from 26,247 to 12,722 square feet and the rent from $50,153.64 to $20,143.17 per month effective March 1, 2003. The Company was also obligated to make additional payments to the landlord relating to certain taxes and operating expenses.

The Company leases certain equipment under agreements which are classified as capital leases. Each of the capital lease agreements expire within five years and have purchase options at the end of the lease term.


51



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Future minimum payments, by year and in the aggregate, under non-cancelable capital and operating leases as of December 31, 2004 are as follows:

 
Capital Leases Operating Leases


         
Year ending December 31,            
     2005     $ 2,691   $ 77,016  
     2006       2,691     44,926  
     2007       2,691      
     2008       2,243      


                 
   Total minimum lease payments     $ 10,316   $ 121,942  
 
 
 
         
Less amount representing interest       1,063        
 
     
           
Present value on net minimum lease payment     $ 9,253  
 
     
 

Rent expense under operating leases for the year ended December 31, 2004 and 2003 was approximately $74,500 and $210,800, respectively.

Employment Contracts

The Company has entered into certain employment contracts with various officers. Included in these contracts is a provision for severance, where by such officers if terminated without cause as defined in the agreement is entitled to severance ranging in terms of three to eighteen months. At December 31, 2004 the Company had a potential loss for severance costs of approximately $735,000 under these employment contracts.

10. Contingent Liabilities

In the normal course of business the Company and its Subsidiary may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

11. Employee Benefit Plans

Effective April 1, 1993, the Company adopted a defined contribution savings plan. The terms of the plan provide for eligible employees who have met certain age and service requirements to participate by electing to contribute up to 15% of their gross salary to the plan, as defined, with a discretionary contribution by the Company matching 30% of an employee’s contribution in cash up to a maximum of 6% of gross salary, as defined. Company contributions vest at the rate of 25% of the balance at each employee’s second, third, fourth, and fifth anniversary of employment. The employees’ contributions are immediately vested. As of January 1, 2003, the Company per the provisions of the plan decided not to make discretionary contributions until further notice.

12. Geographic Information

The Company’s headquarters, physical production and shipping facilities are located in the United States. The Company’s domestic and foreign export sales for each of the years ended December 31, 2004 and 2003 are as follows:

 
Year Ended
December 31, 2004
Year Ended
December 31, 2003


United States     $ 2,875,996   $ 2,743,170  
Europe       723,222     477,153  
Pacific Rim       16,657     122,188  
Other       386     109  


      $ 3,616,261   $ 3,342,620  



52



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Historically, we have been dependent on several large customers each year, but they are not necessarily the same every year. For the year ended December 31, 2004, our most significant customers (stated as an approximate percentage of revenue) were Avaya 38% and MCI 9%, with remaining accounts receivables of $275,662 and $20,170, respectively, compared to the year ended December 31, 2003, of Avaya 18%, Siemens 12%. Qwest 8% and MCI 7% with remaining accounts receivables of $80,929, $0, $0, $176,947, respectively.. In general, we cannot predict with certainty, which large customers will continue to order. The loss of any of these large customers, or the failure to attract new large customers would likely significantly decrease our revenues and future prospects, which could materially and adversely affect our business, financial condition and results of operations.

The loss of any of these customers or a significant decline in sales volumes from any of these customers could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

13. Concentration of Credit Risk

The Company maintains deposits in a financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. At December 31, 2004 and periodically throughout 2004, the Company had deposits in this financial institution in excess of the amount insured by the FDIC.

The Company designs its products utilizing readily available parts manufactured by multiple suppliers and the Company currently relies on and intends to continue to rely on these suppliers. The Company has been and expects to continue to be able to obtain the parts generally required to manufacture its products without any significant interruption or sudden price increase, although there can be no assurance that the Company will be able to continue to do so.

The Company sometimes utilizes a component available from only one supplier. If a supplier were to cease to supply this component, the Company would most likely have to redesign a feature of the affected device. In these situations, the Company maintains a greater supply of the component on hand in order to allow the time necessary to effectuate a redesign or alternative course of action should the need arise.

14. Supplemental Cash Flow Information

In 2004 the Company converted 8,500 shares of preferred stock into 85,000 of common stock.

15. New Accounting Pronouncements

During 2003, SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”) was issued. SFAS 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain cases). The provisions of SFAS 150 are effective for instruments entered into or modified after May 31,2003 and pre-existing instruments as of July 1, 2003. On October 29, 2003, the FASB voted to indefinitely defer the effective date of SFAS 150 for mandatory redeemable instruments as they relate to minority interests in consolidated finite-lived entities through the issuance of FASB Staff Position 150-3. The adoption of SFAS No. 150 did not have a material impact on the Company’s results of operations or financial position.

In December 2003, a revision of SFAS 132 “Employers’ Disclosures about Pensions and Other Postretirement Benefits” was issued, revising disclosures about pension loans and other post retirements benefits plans and requiring additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The adoption of SFAS No. 132 did not have a material impact on the Company’s results of operations or financial position.

In December 2004, the FASB issued SFAS No. 123R “Shared Based Payment.” This statement is a revision of SFAS Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R addresses all forms of shared based payment (“SBP”) awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will be reflected as compensation cost in the historical financial statements. This statement is effective for public entities that file as small business issuers – as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The Company is in the process of evaluating whether the SFAS No. 123R will have a significant impact on the Company’s overall results of operations or financial position.


53



ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements

16. Subsequent Events

Subsequent to December 31, 2004 the Company converted 2,778 shares of preferred stock into 27,780 of common stock.


54


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Equipment Lease Agreement
CHALLENGE R12
  Agreement # 7259053002
      
  EQUIPMENT          
  Equipment Model & Description   Serial Number   Accessories  
   Savin 3210MFP   J2036500921
  Duplex, Bypass Tray
 
           Doc Feed, Print/ Scanner  
           Fax board, scan router
 
          & Desktop binder, Power
conditioner
 
  See attached schedule for additional Equipment/Accessories  
    Equipment Location (if different from Billing Address) _____________________________________________________________________  

 SUPPLIER

   

 PURCHASE OPTION AT END OF TERM

                 
           Stewart Industries, Inc.        
    Name        
            77 Elbo Lane             Fair Market Value
    Address        
           Mt. laurel               NJ        
    City                      State                Zip        

YOU HAVE SELECTED THE EQUIPMENT. THE SUPPLIER AND ITS REPRESENTATIVES ARE NOT OUR AGENTS AND ARE NOT AUTHORIZED TO MODIFY THE TERMS OF THIS LEASE. YOU ARE AWARE OF THE NAME OF THE MANUFACTURER OF EACH ITEM OF EQUIPMENT AND YOU WILL CONTACT EACH MANUFACTURER FOR A DESCRIPTION OF YOUR WARRANTY RIGHTS. WE MAKE NO WARRANTIES TO YOU, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, SUITABILITY, OR OTHERWISE. WE PROVIDE THE EQUIPMENT TO YOU AS-IS. WE SHALL NOT BE LIABLE FOR CONSEQUENTIAL OR SPECIAL DAMAGES.

YOUR PAYMENT OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL AND ARE NOT SUBJECT TO CANCELLATION, REDUCTION OR SETOFF FOR ANY REASON WHATSOEVER. BOTH PARTIES AGREE TO WAVE ALL RIGHTS TO A JURY TRIAL. THIS LEASE SHALL BE GOVERNED BY THE LAWS OF MISSOURI. YOU CONSENT TO THE JURISDICTION AND VENUE OF FEDERAL AND STATE COURTS IN MISSOURI .

 

 TRANSACTION TERMS

   

Lease Payment    $ 463, 00         Term 60 months

                           (Plus applicable taxes)
   

Billing Period:  Monthly

   

The following additional payments are due on the date this Agreement is signed by your

     
      SECURITY DEPOSIT    $ ______
      ADVACE PAYMENT **$______  ** Applied to : O first O last
                                    (Plus applicable taxes)
      DOCUMENT FEE         $75.00  (included on first invoice)

BY SIGNING THIS LEASE, YOU ACKNOWLEDGE RECEIPT OF PAGE 2 OF THIS LEASE, AND AGREE TO THE TERMS ON BOTH PAGES 1 AND 2 ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU AND US FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING. WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.

 

LESSEE (“You”)

   

      Ion Networks, Inc

 
    Full Legal Name  
   

      

   

D/B/A

 
         120 Corporate       Boulevard
    Billing Address
 
LESSOR (“We”, “Us”)    

      

 
   General Electric Capital Corporation
   1961 First Drive. Moberly. MO 65270
      City                       State                  Zip   
     

       

     

Contact Name             Phone               E-mail Address

 
   By: ________________________________________     By: X                                     OCT 29’ 03 AM 9:52          
               Signature of Authorized Signer  
   Name: _____________________________________     Name:      Peter Paulson                                                
                  Please Print  
   Title: ______________________________________     Title:       IT Manager                                                    
   Date :                 10/29/03                                        Date :      10/27/03               Fed Tax ID                         
                Date of Signature  
 

Page 1 of 2



ADDITIONAL TERMS AND CONDITIONS OF AGREEMENT

1.  COMMENCEMENT OF LEASE. Commencement of this Lease and acceptance of the Equipment shall occur upon delivery of the Equipment to you. You agree to inspect the Equipment upon delivery and verify by telephone or in writing such information as we may require. If you signed a purchase order or similar agreement for the purchase of the Equipment, by signing this Lease you assign to us all of your rights, but none of your obligations under it. All attachments, accessories, replacements, replacement parts, substitutions, additions and repairs to the Equipment shall form part of the Equipment under the Lease.

2.  SECURITY DEPOSIT. The Security Deposit will be held by us, without interest, and may be commingled (unless otherwise required by law), until all obligations under this Lease are satisfied, and may be applied at our option against amounts due under this Lease. The Security Deposit will be returned to you upon termination of the Lease, provided you are not in default, or applied to the last Lease Payment or to the amount we may quote for any purchase or upgrade of the Equipment.

3.  LEASE PAYMENTS. You agree to remit to us the Lease Payment and all other sums when due and payable each Billing Period at the address we provide to you from time to time. Lease Payments are due whether or not you are invoiced. You authorize us to adjust the Lease Payments by not more than 15% to reflect any reconfiguration of the Equipment or adjustments to reflect applicable sales taxes or the cost of the Equipment by the manufacturer/supplier. If the Commencement of this Lease falls on any day other than the 20th day of a month, you agree to pay to us interim rent from Commencement through, but not including, the 20th day of the month next following Commencement (the Interim Rent Period’) at a rate equal to 1/30th of the Lease Payment set forth herein for each calendar day during the Interim Rent Period.

4.  LEASE CHARGES. You agree to: (a) pay all costs and expenses associated with the use, maintenance, servicing, repair or replacement of the Equipment; (b) pay all premiums and other costs of Insuring the Equipment; (c) reimburse us for all costs and expenses (including reasonable attorneys’ fees and court costs) incurred in enforcing this Lease; and (d) pay all other costs and expenses for which you are obligated under this Lease. You agree, at our discretion, to either (1) reimburse us annually for all personal property and other similar taxes and governmental charges associated with the ownership, possession or use of the Equipment, or (2) remit to us each Billing Period our estimate of the pro-rated equivalent of such taxes and governmental charges. You agree to pay us an administrative fee for the processing of taxes, assessments or fees which may be due and payable under this Lease. We may take on your behalf any action required under this Lease which you fall to take, and upon receipt of our invoice you will promptly pay our costs (including insurance premiums and other payments to affiliates), plus reasonable processing fees. Restrictive endorsements on checks you send to us will not reduce your obligations to us. We may charge you a return check or non-sufficient funds charge of $25.00 for any check which is returned by the bank for any reason (not to exceed the maximum amount permitted by law).

5.  LATE CHARGES. For any payment which is not received by its due date, you agree to pay a late charge equal to the higher of 10% of the amount due or $22.00 (not to exceed the maximum amount permitted by law) as reasonable collection costs.

6.  OWNERSHIP, USE, MAINTENANCE AND REPAIR. We own the Equipment and you have the right to use the Equipment under the terms of this Lease. If this Lease is deemed to be a secured transaction, you grant us a security interest in the Equipment to secure all of your obligations under this Lease. You hereby assign to us all your rights, but none of your obligations, under any purchase agreement for the Equipment. We hereby assign to you all our rights under any manufacturer or supplier warranties, so long as you are not in default hereunder. You must keep the Equipment free of liens. You may not remove the Equipment from the address indicated on the front of this Lease without first obtaining our approval. You agree to: (a) keep the Equipment in your exclusive control and possession; (b) USE THE EQUIPMENT ONLY IN THE LAWFUL CONDUCT OF YOUR BUSINESS, AND NOT FOR PERSONAL HOUSEHOLD OR FAMILY PURPOSES; (c) use the Equipment in conformity with all insurance requirements, manufacturer’s instructions and manuals; (d) keep the Equipment repaired and maintained in good working order and as required by the manufacturer’s warranty, certification and standard full service maintenance contract; and (e) give us reasonable access to inspect the Equipment and its maintenance and other records.

7.  INDEMNITY. You are responsible for all losses, damage, claims, infringement claims, injuries and attorneys’fees and costs (“Claims”), Incurred or asserted by any person, in any manner relating to the Equipment, including its use, condition or possession. You agree to defend and indemnify us against all Claims, although we reserve the right to control the defense and to select or approve defense counsel. This indemnity continues beyond the termination of this Lease, for acts or omissions which occurred during the Term of this Lease. You also agree that this Lease has been entered into on the assumption that we will be entitled to certain tax benefits available to the owner of the Equipment. You agree to indemnity us for the loss of any Income tax benefits caused by your acts or omissions inconsistent with such assumption or this Lease. In the event of any such loss, we may increase the Lease Payments and other amounts due to offset any such adverse effect.

8.  LOSS OR DAMAGE. If any item of Equipment is lost, stolen or damaged you will, at your option and cost, either: (a) repair the item or replace the item with a comparable item reasonable acceptable to us; or (b) pay us the sum of: (i) all past due and current Lease Payments and Lease Charges. (ii) the present value of all remaining Lease Payments and Lease Charges for the item, discounted at the rate of 6% per annum (or the lowest rate permitted by law, whichever is higher) and (iii) the Fair market Value of the Equipment. We will then transfer to you all our right, title and interest in the Equipment. AS-IS AND WHERE-IS, WITHOUT ANY WARRANTY AS TO CONDITION, TITLE OR VALUE. Insurance proceeds shall be applied towards repair, replacement or payment hereunder, as applicable. In this Lease, “Fair Market Value” of the Equipment means its fair market value at the end of the Term, assuming good order and condition (except for ordinary wear and tear from normal use), as estimated by us.

9. INSURANCE.  You agree, at your cost, to: (a) keep the Equipment Insured against all risks of physical loss or damage for its full replacement value, naming us as loss payee; and (b) maintain public liability insurance, covering personal Injury and Equipment damage for not less than $300,000 per occurrence, naming us as additional insured. You have a choice in how you satisfy these insurance requirements. First, you may obtain coverage on your own and provide us with evidence of insurance coverage. If you elect this option, the policy must be issued by an insurance carrier rated B+ or better by A.M. Best Company, must provide us with not less than 15 days’ prior written notice of cancellation, non-renewal or amendment, and must provide deductible amounts acceptable to us. Second, you may elect to have us directly obtain coverage protecting our interests.

UNLESS YOU PROVIDE EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS LEASE. WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST IN THE EQUIPMENT. THIS INSURANCE MAY, BUT NEED NOT, PROTECT YOUR INTERESTS. THE COVERAGE THAT WE PURCHASE MAY NOT PAY ANY CLAIM THAT YOU MAKE OR ANY CLAIM THAT IS MADE AGAINAST YOU IN CONNECTION WITH THE EQUIPMENT. YOU MAY LATER CANCEL ANY INSURANCE PURCHASED BY US, BUT ONLY AFTER PROVIDING EVIDENCE THAT YOU HAVE OBTAINED INSURANCE AS REQUIRED BY THIS LEASE. IF WE PURCHASE INSURANCE FOR THE EQUIPMENT. YOU WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING THE INSURANCE PREMIUM, INTEREST AND ANY OTHER CHARGES WE MAY IMPOSE IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE. UNTIL THE EFFECTIVE DATE OF CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO YOUR TOTAL OUTSTANDING BALANCE OR OBLIGATION. THE COSTS OF THE INSURANCE MAY BE ADDED TO YOUR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO YOUR TOTAL OUTSTANDING BALANCE OR OBLIGATION. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE YOU MAY BE ABLE TO OBTAIN ON YOUR OWN. The insurance coverage we obtain may be through an insurance carrier which may be affiliated with us or our assignee. There will be no deductible and the coverage will include protection for earthquakes, floods and employee theft. We will pay the premium, but you must reimburse us. Each Billing Period, you must pay us with your Lease Payment the pro-rated portion of the insurance premium. At the end of the Term you must pay us any remaining portion of the premium.

10.  DEFAULT.  You will be in default under the Lease if; (a) you fail to remit to us any payment within ten (10) days of the due date or breach any other obligation under this Lease; (b) a petition is filed by or against you or any Guarantor under any bankruptcy or insolvency law; or (c) you default under any other agreement with us.

11.  REMEDIES.  If you default, we may do one or more of the following: (a) recover from you. AS LIQUIDATED DAMGES FOR LOSS OF BARGAIN AND NOT AS A PENALTY, the sum of: (i) all past due and current Lease Payments and Lease Charges, (ii) the present value of all remaining Lease Payments and Lease Charges, discounted at the rate of 6% per annum (or the lowest rate permitted by law, whichever is higher) and (iii) the Fair Market Value of the Equipment; (b) declare any other agreements between us in default; (c) require you to return all of the Equipment in the manner outlined in Section 12, or take possession of the Equipment, in which case we shall not be held responsible for any losses directly or indirectly arising out of, or by reason of the presence and/or use of any and all proprietary information residing on or within the Equipment, and to lease or sell the Equipment or any portion thereof, and to apply the proceeds, less reasonable selling and administrative expenses, to the amounts due hereunder, (d) charge you interest on all amounts due us from the due date until paid at the rate of 1-1/2% per month, but in no event more than the lawful maximum rate; (e) charge you for expenses incurred in connection with the enforcement of our remedies including, without limitation, repossession, repair and collection costs, attorneys’ fees and court costs. These remedies are cumulative, are in addition to any other remedies provided for by law, and may be exercised concurrently or separately. Any failure or delay by us to exercise any right shall not operate as a waiver of any other right or future right.

12.  END OF TERM OPTIONS: RETURN OF EQUIPMENT. If you are not in default, at least 60 days (but not more than 120 days) prior to the end of the Term (or the Renewal Term) you shall give us written notice of your intention at the end of the Term (or the Renewal Term) which election cannot be revoked, to either (a) return all the Equipment, or (b) purchase all of the Equipment AS-IS AND WHERE-IS, WITHOUT ANY WARRANTY AS TO CONDITION, TITLE OR VALUE, for the Fair Market Value plus applicable sales and other taxes. IF YOU FAIL TO PROVIDE US WITH SUCH 60 DAY PRIOR WRITTEN NOTICE, OR HAVING NOTIFIED US, YOU FAIL THE RETURN THE EQUIPMENT, THE TERM OF THIS LEASE SHALL AUTOMATICALLY RENEW FOR ONE ADDITIONAL TERM OF TWELVE (12) MONTHS (the “Renewal Term”) and all of the provisions of this Lease shall continue to apply, including your obligation to remit Lease Payments and Lease Charges. If you are in default or you do not purchase the Equipment at the end of the Term (or the Renewal Term), you shall return all of the Equipment, freight and Insurance prepaid at your cost and risk, to wherever we indicate in the continental United States, with all manuals and logs, in good order and condition (except for ordinary wear and tear from normal use), packed per the shipping company’s specifications, and pay an inspection, restocking and handling fee of $50 per item of Equipment (not to exceed $200 or the maximum permitted by law), as reasonable compensation for our costs in processing returned equipment. You will pay us for any loss in value resulting from the failure to maintain the Equipment in accordance with this Lease or for damages incurred in shipping and handling.

13. ASSIGNMENT.  You may not assign or dispose of any rights or obligations under this Lease or sub-lease the Equipment, without our prior written consent. We may, without notifying you, (a) assign this Lease or our interest in the Equipment; and (b) release information we have about you and this Lease to the manufacturer, supplier or any prospective investor, participant or purchaser of this Lease. If we do make an assignment under subsection 13(a) above, our assignee will have all of our rights under this Lease, but none of our obligations. You agree not to assert against our assignee claims, offsets or defenses you may have against us.

14.  MISCELLANEOUS. Notices must be writing and will be deemed given 5 days after mailing to your (or our) business address. You represent that; (a) you have authority to enter into this Lease and by so doing you will not violate any law or agreement; and (b) this Lease is signed by your authorized officer or agent. This Lease is the entire agreement between us, and cannot be modified except by another document signed by us. This Lease is binding on you and your successors and assigns. All financial information you have provided is true and a reasonable representation of your financial condition. You authorize us or our agent to: (a) obtain credit reports and make credit inquiries; (b) furnish payment history to credit reporting agencies; and (c) be your attorney-in-fact for the sole purpose of signing UCC financing statements. Any claim you have against us must be made within two (2) years after the event which caused it. If a court finds any provision of this Lease to be unenforceable, all other terms shall remain in effect and enforceable. You authorize us to insert or correct missing information on this Lease, including your proper legal name, serial numbers and any other information describing the Equipment. If you so request, and we permit the early termination of this Lease, you agree to pay (in addition to the prepayment amount we quote to you) a fee of $100 per item of Equipment (not to exceed $400 or the maximum permitted by law) for such privilege. THE PARTIES INTEND THIS TO BE A “FINANCE LEASE” UNDER ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE (“UCC”). YOU WAIVE ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UCC.


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120 Corporate Blvd.
South Plainfield, NJ  07080
908-546-3900 (voice)
908-546-3901 (fax)

 
  March 29, 2004
 

Mr. Kam Saifi
2041 Winding Brook Way
Westfield, New Jersey  07090

 
Re:  Separation Agreement Including a General Release
 

Dear Mr. Saifi:

                This letter (the “Agreement”) sets forth the terms of our agreement with respect to your separation from employment with ION Networks, Inc. (“ION”) and the end of your tenure as President and Chief Executive Officer of ION. This Agreement will become effective on the eighth (8th) day after you sign and return this letter in accordance with its terms (the “Effective Date).

                1.              (a)          You resigned from all offices and positions of any kind that you held at ION (other than the position of director) as of July 7, 2003 (the “Separation Date.). You also resigned as a director on July 31, 2003. You hereby agree that, as of the Separation Date and, except to the extent otherwise provided in this Agreement, all of ION’s and your obligations under the Employment Agreement dated as of October 4, 2001, as amended on September 30, 2002 and January 8, 2003, between you and ION (the “Employment Agreement”), have become null and void, except for the obligations set forth in Section 6 (captioned “Developments and Confidential Information”) of the Employment Agreement. You and ION hereby terminate the Employment Agreement, except for the provisions set forth in the immediately preceding sentence, as of the Separation Date. Without limiting the generality of the foregoing, all compensation, including bonuses, and all other benefits and perquisites of employment with ION, have (as of the Separation Date and except to the extent otherwise provided in this Agreement) ceased, and all rights heretofore granted to you to purchase or otherwise obtain equity securities of ION, including the Stock Purchase Agreement dated as of October 8, 2001 (the “Stock Purchase Agreement”) between you and ION (but excluding 13,158 shares of Series A Preferred Stock, par value $0.001 per share, of ION purchased on September 13, 2002), have been terminated and are of no further force and effect. You agree that you are not entitled to any severance payments or held-back pay as provided in the Employment Agreement.

                                (b)            You acknowledge and confirm that (i) with your separation from ION, an Acceleration Event, as defined in Section 4(b) of the Partial-Recourse Promissory Notes, dated October 8, 2001, made by you in favor of ION (collectively, the “Notes”), has occurred, (ii) the aggregate unpaid principal amount and accrued interest in the amount of $167,777.24 ( the “Accelerated Amount”), became due and payable as of the Separation Date, and (iii) you did not




repay the Accelerated Amount within a ten (10) day period after the Separation Date, resulting in an event of default under the Stock Pledge Agreements, dated as of October 8, 2001 between you and ION (collectively, the “Stock Pledge Agreements”). As a result, the entire principal sum and accrued interest under the Notes became due and payable ten (10) days after such ten (10) day period, which, with accrued interest, currently amounts to $290,720. You and ION agree that ION will exercise its rights under the Notes and the Stock Pledge Agreements in connection with these defaults, and ION will accept all 2,000,000 shares of common stock of ION pledged by you to ION pursuant to the Stock Pledge Agreements, in full payment of all amounts due under the Notes. You hereby assign, transfer and set over to the Company all 2,000,000 shares of Common Stock owned by you, pursuant to the Stock Power annexed hereto as Annex A. For the purposes of this paragraph, we have agreed that the shares have a value at $.14536 per share. You waive written notice from ION regarding the occurrence of an Acceleration Event and of an event of default under the Stock Pledge Agreement and the ten-day cure period set forth in the Notes and in the Stock Pledge Agreements, as well as any duties with respect to the disposition of the collateral under applicable law. ION hereby agrees to release you from all claims and obligations arising out of the Notes and the Stock Pledge Agreements.

                                (c)            You acknowledge and agree that all amounts due from any of the Released Parties (as defined below) under your Employment Agreement or otherwise, have been paid to you.

                2.              You and ION agree to the following General Release, and related provisions, all effective as of the date hereof:

                                (a)            In return for the discharge of indebtedness and other benefits described above as well as the mutual promises contained herein, you completely release ION, its subsidiaries and affiliates and their respective officers, directors, employees, agents, representatives and assigns (the “ION Released Parties”) from all claims of any kind, known and unknown, which you may now have or have ever had against the ION Released Parties, including claims for compensation, bonuses, severance pay, stock options, tax indemnity and all claims arising from your employment with ION, whether based on contract, tort, statute, federal or state law, local or municipal ordinance, regulation or any comparable law in any jurisdiction, other than any claims arising or resulting from fraud or willful misconduct on the part of the ION (excluding such claims arising or resulting from any matters in which you were involved or of which you were aware prior to the Separation Date) (the “ION Released Claims”). By way of example and not in limitation, the ION Released Claims shall include any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, and the New Jersey Law Against Discrimination, as well as any claims asserting wrongful termination, breach of contract, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract, and defamation.

                                (b)            In return for the benefits described above as well as the mutual promises contained herein, ION completely releases you and your heirs, executors, administrators and assigns (the “Released Parties”) from all claims of any kind, known and unknown, which ION may now have or have ever had against the Released Parties, including all claims arising from your employment with ION, whether based on contract, tort, statute, federal or state law, local or


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municipal ordinance, regulation or any comparable law in any jurisdiction, other than any claims arising or resulting from fraud or willful misconduct on the part of the Released Parties (the “Released Claims”).

                                (c)            You acknowledge and understand that a release of claims under the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621-634, is subject to special waiver protection under 29 U.S.C. § 626(f). In accordance with that section, you specifically agree that you knowingly and voluntarily release and waive any rights or claims of discrimination under the ADEA. In particular, you represent that you have carefully read this Agreement in its entirety, that you have had an opportunity to consider fully the terms of this Agreement for twenty-one (21) days (although you need not take all 21 days) and that you have seven (7) days after you sign this Agreement in which to revoke this Agreement. You further represent that you have been advised by ION to consult with an attorney of your choosing in connection with this Agreement, that you have discussed the Agreement with your independent legal counsel or have had a reasonable opportunity to do so, and that you are signing this agreement voluntarily and of your own free will.

                                (d)            You represent that you have not filed or authorized to be filed on your behalf any claims, administrative proceedings or lawsuits against ION, and you agree that you will not do so at any time in the future with respect to the subject matter of any ION Released Claim.

                                (e)            ION represents that it has not filed or authorized to be filed on its behalf any claims, administrative proceedings or lawsuits against you, and it agrees that it will not do so at any time in the future with respect to the subject matter of any Released Claim.

                                (f)             The releases above do not apply to claims arising from the breach of the provisions of this letter agreement.

                3.              You understand and agree that you are not entitled to any severance payments or tax indemnity from ION, except that ION agrees to indemnify you with respect to any capital gains taxes in connection with the transfer of the shares to ION hereunder.

                4.              You hereby represent and warrant to ION that:

                                (a)            You have the full legal capacity and unrestricted power to execute and deliver this Agreement, and to perform, your obligations hereunder. Your execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of law, any order of any court or other agency of government, or any provision of any indenture, agreement or other instrument to which you are a party or by which you are bound.

                                (b)            This Agreement has been duly executed and delivered by you and constitutes your legal, valid and binding obligation, enforce­able in accordance with its terms, except as enforceability may be limited by bankruptcy, reorganization, insolvency and similar laws, by moratorium laws from time to time in effect and by general equity principles.


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                5.              (a) You and ION agree to characterize your separation from employment as being a mutual decision.

                                (b)            You will not intentionally make any public statement to third parties, the public, the press, the media, or any administrative agency that disparages, or is likely to cause injury to, ION. Likewise, ION will instruct its directors and officers not to make any public statement to third parties, the public, the press, the media, or any administrative agency that disparages, or is likely to cause injury to, you.

                6.              ION acknowledges that you have returned to ION all ION property (including, without limitation, keys to all offices and facilities, employee handbooks, business cards, customer files, corporate credit cards, telephone calling cards, files and sales material and Blackberry as well as any and all reproductions thereof) that is in your possession. You acknowledge that you have taken a copy of your personal computer files and electronic information in your personal computer, which files and electronic information does not include any property of ION, and ION acknowledges that you will keep such files and electronic information.

                7.              You agree that you will, upon a reasonable request made by the Chairman of the Board of Directors (the “Chairman”) or by the Board of Directors (the “Board”) or any committee thereof, cooperate with ION and its counsel (internal and external) in connection with (i) any matter with which you were involved while employed with ION or of which you have knowledge as a result of your employment with ION and (ii) any administrative proceeding or litigation relating to any such matter, by providing information, answering questions, or appearing as a witness. The Company will reimburse reasonable expenses and pay a per diem amount based on your last salary if it requests your assistance.

                8.              You agree that:

                                (a)   You will not at any time use or disclose any confidential or proprietary information of ION.

                                (b)   You and ION acknowledge and agree that a remedy at law for any breach or threatened breach of the provisions of Sections 5(b) and 8 would be inadequate, and, therefore agree that ION would be entitled to injunctive relief in addition to any other rights and remedies in cases of any such breach or threatened breach.

                9.              Any and all inventions, creations, ideas relating to the business of ION, improvements and software of any nature whatsoever, whether or not patentable, developed by you prior to the Separation Date in the course of your employment with ION will always be the property of ION.

                10.           This Agreement will be governed, construed and enforced in accordance with its express terms and otherwise in accordance with the laws of the State of New Jersey, without regard for its conflict of laws principles.


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                11.           Miscellaneous.

                                (a)            You and ION also agree that this Agreement contains all of the agreements and understandings between you and ION concerning the subject matter of this Agreement, and fully supersedes any prior agreements or understandings that we may have had with respect thereto.

                                (b)            No provision in this Agreement may be amended unless such amendment is set forth in a writing that expressly refers to this Agreement and that is signed by you and by the Company (by its Chief Executive Officer as of the time of such amendment). No waiver by any person of any breach of any condition or provision contained in this Agreement will be deemed a waiver of any similar or dissimilar condition or provision at the same or any prior or subsequent time. To be effective, any waiver must be set forth in a writing signed by the waiving person (in the case of ION, such waiver shall be executed by the Chief Executive Officer at the time of such waiver) and must specifically refer to the condition(s) or provision(s) of this Agreement being waived. In the event of any inconsistency between this Agreement and the terms of any plan, program, arrangement or agreement or other document of you or ION, the terms of this Agreement will govern and control.

                                (c)            You hereby represent and warrant that there are no verbal or written agreements with any parties of which you have knowledge, which have not been documented and communicated to ION’s Chief Executive Officer, Norm Corn.

                                (d)            ION shall be entitled to withhold from any amounts or benefits payable under this Agreement or otherwise taxes that are required to be withheld by applicable law, such withholding to be at the minimum statutory rate(s) permitted by law.

                                (e)            You acknowledge you have been represented by counsel of your own choosing and that you have chosen to enter into this Agreement and based upon your own judgment and not in reliance upon any promises made by ION other than those contained in this Agreement.

                                (f)             You and ION agree to take all such acts and execute any documents necessary to give effect to the purposes and intents of this Agreement.

                If this letter comports with your understanding of our agreement, please sign on the line provided below and return the original by hand delivery.

 
  Sincerely,
 
  ION NETWORKS, INC.
 
—————————————
  Norm Corn
  Chief Executive Officer

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                I have read and understand the agreement above and agree to be bound by its terms and conditions.

 
__________________________ Dated:_______________________
KAM SAIFI  March __, 2004

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APPENDIX A

ASSIGNMENT SEPARATE FROM CERTIFICATE

                FOR VALUE RECEIVED, Kam Saifi hereby sells, assigns and transfers unto Ion Networks, Inc. (the “Company”), two million (2,000,000) shares of the Common Stock of the Company standing in my name on the books of the Company represented by Certificate No(s). _________________________ herewith and does hereby irrevocably constitute and appoint American Stock Transfer & Co. as Attorney to transfer said stock on the books of the Company with full power of substitution in the premises.

 
Dated:_________________________  
  Signature: _________________________

7


GRAPHIC 7 image001.jpg GRAPHIC begin 644 image001.jpg M_]C_X``02D9)1@`!`0$`8`!@``#_VP!#``H'!P@'!@H("`@+"@H+#A@0#@T- M#AT5%A$8(Q\E)"(?(B$F*S7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7& MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$! M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$" M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$ MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4 MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#V6J5YK6E: M?,(;W4K2VE(W!)IE0X]<$U=KP/XI7(N?'=XH.1`D<8_[Y!/ZFM:-/VDK&56? M)&Y[I9W]GJ,1EL;N&YC5MI>&0.`?3(JQ7%_">U^S^!H9,8-Q-))]>=O_`++5 MWQ1XO_LBYBTG2X!>ZQVN)(3]J;#1N5/Z5[3IGAF5MMWX@O9-3O#R49B((O94'!^IK5N='TR\C,=S MIUK,A&,/"I_I6E&I[-W:(KTE+2+/#-$^)'B31I%W7K7T`ZQ71W<>S=17L?A; MQ9I_BNP-Q:$QS1X$UNY^:,_U'H:XWQC\*;5[62_\.(8ID&YK/.5D'?;GH?;H M?:O/O".NS>'/$MK>JS+'O$=PG3U9?\`PE'A_P#Z#FG_`/@4G^-.\278LO#&IW6?]7:R$'WVG%?,^!CI M6%&BJB;;-JM7D:1]5`A@&4@@\@CO39IHK:%YIY4BBC&YW=L*H]2:XCX5^)O[ M8T'^S;A\W>G@+R>7C_A/X=/P%:/Q*N?LO@/43G!E58Q^+`'],UFZ;4^1FG.G M#F1KQ>(]#GF2&'6+&221@J(EPA+$]`!FLZ]\90V$OE2Z9>/(&((C4,,#OG/? MG\J\;^'MK]K\=:6F,A)3(?\`@*D_TKZ'JZM.-.5MR*:0GZDG_Z];81:MF6 M)>B1[YHES'X:^&=G=S#BWLA+M]689`_$D"N?^%UG)J>H:EXEOCYMR\GEHY[$ M\L1^&!]*T/B6#8^`X+1#A?-BB./103_[**9\(KA'\.75N"-\5T68>S*,?R-< M4G>5SVZ4.3!2DMWI\CO:***#SPKY^^).F1Z9XVO$@4+'(6.GW.I3M!:1F218WDVCJ54%C^@KU[XRW/E>&;.V!QYUT# MCV53_B*Y7X/6OG>+9IR,B"T8_B2!_+-;47R4G(RJKFJJ)S/A;7Y?#?B"VU*/ M)C4[9D'\<9^\/ZCW`KT[XN:C%+X.LA!('CO+A'1AT90I.?U%<)\0_#7_``CG MB200IML[O,L&.B\_,OX']"*R+S7;F^T"PTB;YH[!Y&C;/.ULXJM-SDGT)/B)IDFI^#KI8E+26Y$Z@=]O7]":\J\&>*'\+ZR+A ME:2TF&RX1>N.S#W'^->]D`@@C(/4&O(O&GPZNK"YEU#18&N+-R6:!!EX?7`[ MK_*N5GO8&M3<'0J;,]5T_4;/5;1+NQN$GA<<,AS^!]#[59KYLLM0OM,G,EE= MSVLHX8QN5/XC_&N^\&^)=3UE;RWU?^T]3B15VK:`*5SG.XJ5//UH3(Q&72IQ M+C8EM'T.,W^MS#:D,0W"#_:?L,>AH\#>#E\+V,DUTXGU.[^:XEZ MX[[0?KU/7:("Q]2=V3^-6_^$D?_H`:S_X#K_\` M%5HYVCRQ/.5";=VD>)KY+S4O#OB!I4C$:[$"@#)/3=[U;\/"P\,6DMMIGAW7%CE?S&\R(, M2<8Z[O:MG5C[+D6YDL+4]KSLN>//#0\2^&Y8(U!NX/WML?\`:'5?Q''Y5\]D M%20001P0>U?1W_"2/_T`-9_\!U_^*KDK_P`*^&]1OY[V;PQKZRSN7<1J%7)Z MX&[BG0KJ"M(5;"3F[HL_!RU\KPG/<$\1X[:W<2)DJ'.Z7K@$J>_I6L;'5;B/0(EU"^C4EWO)%F4$KMR` M>N?FP..V:**UZ%M;/*6B,D?E/"$Q&`,[MQ;)).***.;R#E\RAI\/C)-&U`3W, MOVZ86Z6^Z=75&8Y=\\8P#C'/3C-+JYQ3Z**P-C_]D_ ` end EX-10.17 8 d63089_ex10-17.htm EXHIBIT 10.17
 

120 Corporate Blvd.
South Plainfield, NJ  07080
908-546-3900 (voice)

908-546-3901 (fax)

 
  October 15, 2004
 

Mr. Cameron Saifi
1407 Deer Path
Mountainside, New Jersey 07092

 
Re:  Separation Agreement Including a General Release
 

Dear Mr. Saifi:

                This letter (the “Agreement”) sets forth the terms of our agreement with respect to your separation from employment with ION Networks, Inc. (“ION”) and the end of your tenure as Executive Vice President and Chief Operating Officer of ION. This Agreement will become effective on the eighth (8th) day after you sign and return this letter in accordance with its terms, and have not revoked the letter pursuant to par. 2(c) (the “Effective Date”).

                1.              (a)          You resigned from all offices and positions of any kind that you held at ION as of July 7, 2003 (the “Separation Date”). You hereby agree that, as of the Separation Date and, except to the extent otherwise provided in this Agreement, all of ION’s and your obligations under the Employment Agreement dated as of October 17, 2001, as amended on September 30, 2002 and January 8, 2003, between you and ION (the “Employment Agreement”), have become null and void, except for the obligations set forth in Section 6 (captioned “Developments and Confidential Information”) of the Employment Agreement. You and ION hereby terminate the Employment Agreement, except for the provisions set forth in the immediately preceding sentence, as of the Separation Date. Without limiting the generality of the foregoing, all compensation, including bonuses, and all other benefits and perquisites of employment with ION, have (as of the Separation Date) ceased, and all rights heretofore granted to you to purchase or otherwise obtain equity securities of ION, including the Stock Purchase Agreement dated as of October 17, 2001 (the “Stock Purchase Agreement”) between you and ION (but excluding 8,500 shares of Series A Preferred Stock, par value $0.001 per share, of ION purchased on September 13, 2002), have (as of the Separation Date) been terminated and are of no further force and effect. You agree that because you and the Company mutually agreed to your separation from your positions at ION you are not entitled to any severance payments or held-back pay as provided in the Employment Agreement.

                                (b)            You acknowledge and confirm that you hereby assign and transfer to ION all of your right, title and interest in 600,000 shares ION Common Stock represented by certificates # IN0878, IN0879, IN0880, IN0881, IN0882, IN0883, IN0884, IN0885, IN0886, and IN0887, in cancellation of all indebtedness to ION under those certain Partial Recourse




Promissory Notes dated October 17, 2001, made by you in favor of ION (collectively, the “Notes”). The aggregate principal amount of the Notes is equal to $185,400, with $31,526 of accrued interest; for a total aggregate indebtedness hereby discharged equal to $216,926. You hereby assign, transfer and set over to the Company all 600,000 shares of common stock owned by you, pursuant to the stock power annexed hereto as Annex A. For the purposes of this paragraph, we have agreed that the shares have a value at $0.3615 per share. Ion hereby agrees to release you from all claims and obligations arising out of the Notes and the Stock Pledge Agreements dated October 17, 2001.

                                (c)            Ion will pay you $8,000 to cover certain expenses of yours in connection with this Agreement. This payment will be made on the Effective Date. Other than with respect to this payment, you acknowledge and agree that all amounts due from any of the ION Released Parties (as defined below) under your Employment Agreement or otherwise, have been paid to you.

                2.              You and ION agree to the following General Release, and related provisions, all effective as of the date hereof:

                                (a)            In return for the discharge of indebtedness and other benefits described above as well as the mutual promises contained herein, you, on behalf of yourself, and your heirs, executors, administrators and assigns completely release ION, its subsidiaries and affiliates and their respective officers, directors, employees, agents, representatives and assigns (the “ION Released Parties”) from all claims of any kind, known and unknown, which you may now have or have ever had against the ION Released Parties, including claims for compensation, bonuses, severance pay, stock options, tax indemnity and all claims arising from your employment with ION, whether based on contract, tort, statute, federal or state law, local or municipal ordinance, regulation or any comparable law in any jurisdiction, other than any claims arising or resulting from fraud or willful misconduct on the part of the ION (excluding such claims arising or resulting from any matters in which you were involved or of which you were aware prior to the Separation Date) (the “ION Released Claims”). By way of example and not in limitation, the ION Released Claims shall include any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, and the New Jersey Law Against Discrimination, as well as any claims asserting wrongful termination, breach of contract, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract, and defamation.

                                (b)            In return for the benefits described above as well as the mutual promises contained herein, ION completely releases you and your heirs, executors, administrators and assigns (the “Saifi Released Parties”) from all claims of any kind, known and unknown, which ION may now have or have ever had against the Saifi Released Parties, including all claims arising from your employment with ION, whether based on contract, tort, statute, federal or state law, local or municipal ordinance, regulation or any comparable law in any jurisdiction, other than any claims arising or resulting from fraud or willful misconduct on the part of any of the Saifi Released Parties (the “Saifi Released Claims”).


2



                                (c)            You acknowledge and understand that a release of claims under the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621-634, is subject to special waiver protection under 29 U.S.C. § 626(f). In accordance with that section, you specifically agree that you knowingly and voluntarily release and waive any rights or claims of discrimination under the ADEA. In particular, you represent that you have carefully read this Agreement in its entirety, that you have had an opportunity to consider fully the terms of this Agreement for twenty-one (21) days (although you need not take all 21 days) and that you have seven (7) days after you sign this Agreement in which to revoke this Agreement. You further represent that you have been advised by ION to consult with an attorney of your choosing in connection with this Agreement, that you have discussed the Agreement with your independent legal counsel or have had a reasonable opportunity to do so, and that you are signing this agreement voluntarily and of your own free will.

                                (d)            You represent that you have not filed or authorized to be filed on your behalf any claims, administrative proceedings or lawsuits against ION, and you agree that you will not do so at any time in the future with respect to the subject matter of any ION Released Claim.

                                (e)            ION represents that it has not filed or authorized to be filed on its behalf any claims, administrative proceedings or lawsuits against you, and it agrees that it will not do so at any time in the future with respect to the subject matter of any Saifi Released Claim.

                3.              You understand and agree that you are not entitled to any severance or tax indemnity from ION.

                4.              You hereby represent and warrant to ION that:

                                (a)            You have the full legal capacity and unrestricted power to execute and deliver this Agreement, and to perform, your obligations hereunder. Your execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of law, any order of any court or other agency of government, or any provision of any indenture, agreement or other instrument to which you are a party or by which you are bound.

                                (b)            This Agreement has been duly executed and delivered by you and constitutes your legal, valid and binding obligation, enforce­able in accordance with its terms, except as enforceability may be limited by bankruptcy, reorganization, insolvency and similar laws, by moratorium laws from time to time in effect and by general equity principles.

                5.              (a)            You and ION agree to characterize your separation from employment as being a mutual decision.

                                (b)            You will not intentionally make any public statement to third parties, the public, the press, the media, or any administrative agency that disparages, or is likely to cause injury to, ION. Likewise, ION will instruct its directors and officers not to make any public


3



statement to third parties, the public, the press, the media, or any administrative agency that disparages, or is likely to cause injury to, you.

                6.              ION acknowledges that you have returned to ION all ION property (including, without limitation, keys to all offices and facilities, employee handbooks, business cards, customer files, corporate credit cards, telephone calling cards, files and sales material as well as any and all reproductions thereof) that is in your possession. You acknowledge that you have taken a copy of your personal computer files and electronic information in your personal computer, which files and electronic information does not include any property of ION, and ION acknowledges that you will keep such files and electronic information.

                7.              (a)             You agree that you will, upon a reasonable request made by the Chairman of the Board of Directors (the “Chairman”) or by the Board of Directors (the “Board”) or any committee thereof, cooperate with ION and its counsel (internal and external) in connection with (i) any matter with which you were involved while employed with ION or of which you have knowledge as a result of your employment with ION and (ii) any administrative proceeding or litigation relating to any such matter, by providing information, answering questions, or appearing as a witness. The Company will reimburse reasonable expenses and pay a per diem amount based on your last salary if it requests your assistance.

                8.              (a)            You agree that you will not at any time use or disclose, any confidential or proprietary information of ION.

                                (b)            You and ION acknowledge and agree that a remedy at law for any breach or threatened breach of the provisions of Sections 5(b) and 8 would be inadequate, and, therefore agree that ION would be entitled to injunctive relief in addition to any other rights and remedies in cases of any such breach or threatened breach.

                9.              Any and all inventions, creations, ideas relating to the business of ION, improvements and software of any nature whatsoever, whether or not patentable, developed by you prior to the Separation Date in the course of your employment with ION will always be the property of ION.

                10.           This Agreement will be governed, construed and enforced in accordance with its express terms and otherwise in accordance with the laws of the State of New Jersey, other than those that would defer to the substantive laws of another jurisdiction.

                11.           (a)            You and ION also agree that this Agreement contains all of the agreements and understandings between you and ION concerning the subject matter of this Agreement, and fully supersedes any prior agreements or understandings that we may have had with respect thereto.

                                (b)            No provision in this Agreement may be amended unless such amendment is set forth in a writing that expressly refers to this Agreement and that is signed by you and by the Company (by its Chief Executive Officer as of the time of such amendment). No waiver by any person of any breach of any condition or provision contained in this Agreement will be


4



deemed a waiver of any similar or dissimilar condition or provision at the same or any prior or subsequent time. To be effective, any waiver must be set forth in a writing signed by the waiving person (in the case of ION, such waiver shall be executed by the Chief Executive Officer at the time of such waiver) and must specifically refer to the condition(s) or provision(s) of this Agreement being waived. In the event of any inconsistency between this Agreement and the terms of any plan, program, arrangement or agreement or other document of you or ION, the terms of this Agreement will govern and control.

                                (c)            You hereby represent and warrant that there are no verbal or written agreements with any parties of which you have knowledge, which have not been documented and communicated to ION’s Chief Executive Officer, Norm Corn.

                                (d)            ION shall be entitled to withhold from any amounts or benefits payable under this Agreement or otherwise taxes that are required to be withheld by applicable law, such withholding to be at the minimum statutory rate(s) permitted by law.

                                (e)            You acknowledge you have been represented by counsel of your own choosing and that you have chosen to enter into this Agreement and based upon your own judgment and not in reliance upon any promises made by ION other than those contained in this Agreement.

                If this letter comports with your understanding of our agreement, please sign on the line provided below and return the original by hand delivery.

 
  Sincerely,
 
  ION NETWORKS, INC.
 
  ________________________
  Norm Corn
  Chief Executive Officer
 

                I have read and understand the agreement above and agree to be bound by its terms and conditions.

 
______________________________ Dated:_________________________
CAMERON SAIFI              October __, 2004

5


EX-10.18 9 d63089_ex10-18.htm EXHIBIT 10.18

EMPLOYMENT AGREEMENT

AMENDMENT 1

This will amend the AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated 8th day of September 2003, by and between ION Networks, Inc., a Delaware corporation, with its principle place of business at 120 Corporate Boulevard, South Plainfield, New Jersey 07080, (the “Company”) and Norman E. Corn, an individual residing at 29 Lalique Drive, Montville, New Jersey 07045 (the “Executive”).

Effective the 10th day of November 2004, Section 2 of the Agreement shall be amended to include the following:

   
 

Severance.

Executive’s employment may be terminated, at any time immediately upon written notice by the Company, without “Cause”. If Executive is terminated without “Cause”, or effectively terminated pursuant to a Change in Control provision for any reason other than for “Cause,” Executive shall be entitled to a lump sum severance payment equal to eighteen (18) months of base salary in effect as of the termination date, less withholdings and deductions required by law. Executive and Company agree that such severance payment shall also constitute liquidated damages and is a reasonable approximation of Employee’s damages as a result of such termination.

“Cause” is defined as termination of Executive by the Company for the following infractions by the Executive: gross negligence, felony conviction and significant breach of Executive’s duties pursuant to this agreement.

A Change in Control is defined as (i) a sale of all or substantially all of the assets or all of the outstanding equity of the Company or (ii) the merger or consolidation of the Company with or into another entity or any other corporate reorganization if persons who were not shareholders of the Company immediately prior to such merger, consolidation or reorganization own immediately after such merger,


- 1 -



 

consolidation or other reorganization fifty percent (50%) or more of the voting powers of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity.

 

IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Agreement as of the day and year shown above.

 
 

ION NETWORKS, INC.

 
 

 

By: ————————————————
Stephen M. Deixler
Chairman of the Board

  ————————————————

Norman E. Corn


- 2 -



 

consolidation or other reorganization fifty percent (50%) or more of the voting powers of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity.

 

IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Agreement as of the day and year shown above.

 
 

ION NETWORKS, INC.

 
 

 

By: —————————————————
Stephen M. Deixler     
Chairman of the Board

  —————————————————

Norman E. Corn


- 2 -


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EMPLOYMENT AGREEMENT


AMENDMENT 1

This will amend the EMPLOYMENT AGREEMENT dated 15th day of September 2003, by and between ION Networks, Inc., a Delaware corporation, with its principle place of business at 120 Corporate Boulevard, South Plainfield, New Jersey 07080, (the “Company”) and Patrick E. Delaney, an individual residing at 141 Main Street, Unit I, Tuckahoe, New York, 10707 (the “Executive”).

   

Effective the 10th day of November 2004, Section 2 of the Agreement shall be amended to include the following:

   
  Severance.
 

Executive’s employment may be terminated, at any time immediately upon written notice by the Company, without “Cause”. If Executive is terminated without “Cause”, or effectively terminated pursuant to a Change in Control provision for any reason other than for “Cause”, Executive shall be entitled to a lump sum severance payment equal to eighteen (18) months of base salary in effect as of the termination date, less withholdings and deductions required by law. Executive and Company agree that such severance payment shall also constitute liquidated damages and is a reasonable approximation of Employee’s damages as a result of such termination.

       
 

“Cause” is defined as termination of Executive by the Company for the following infractions by the Executive: gross negligence, felony conviction and significant breach of Executive’s duties pursuant to this agreement.

       
 

A Change in Control is defined as (i) a sale of all or substantially all of the assets or all of the outstanding equity of the Company or (ii) the merger or consolidation of the Company with or into another entity or any other corporate reorganization if persons who were not shareholders of the Company immediately prior to such merger, consolidation or reorganization own immediately after such merger,

       

 



  consolidation or other reorganization fifty percent (50%) or more of the voting powers of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity.
       
 

IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Agreement as of the day and year shown above.

       
  ION NETWORKS, INC
   
 
By: ———————————————
 

Norman E. Corn
           Chief Executive Officer

 
    ———————————————
 

     Patrick E. Delaney


 


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ION Networks, Inc.
120 Corporate Blvd.
Suite A
South Plainfield, NJ 07080

T: +1 908 546 3900
F: +1 908 546 3901
TF: 800 722 8986

www.ion-networks.com

 

September 2, 2004

William Whitney
720 Dartmoor
Westfield, NJ 07090

RE: Severance

Dear Bill,

I am pleased to inform you that ION Networks has agreed to alter the terms of your employment to include a provision for severance should your employment be terminated by the Company without “Cause”. Effective immediately, be advised that:

Your employment may be terminated at any time immediately upon notice by the Company, without “Cause”. If you are terminated by the Company without “Cause”, you shall be entitled to a severance payment equal to a payment of salary for the next 6 months as if the Agreement had not been terminated less withholdings and deductions required by law. You and Company agree that such severance payment shall also constitute liquidated damages and is a reasonable approximation of Employee’s damages as a result of such termination.

For the purpose of this document, “Cause” shall be defined as (1) conviction of a felony, or (2) acts of dishonesty or moral turpitude constituting fraud or embezzlement or otherwise materially adversely affecting the business or properties of the Company and/or its Affiliates; (3) failure to obey the reasonable and lawful directions of the Chief Executive Officer; (4) repeated negligence by the Employee in the performance of, or willful disregard by Employee of his obligations under this Agreement; or (5) if Employee is indicted for a criminal violation of security laws.

Very truly yours,

ION Networks, Inc.

Norman E. Corn
CEO


 


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ION Networks, Inc.
120 Corporate Blvd.
Suite A
South Plainfield, NJ 07080

T: +1 908 546 3900
F: +1 908 546 3901
TF: 800 722 8986

www.ion-networks.com

 

September 2, 2004

Henry Gold
16 Vom Eigen Drive
Convent Station, NJ 07960

RE: Severance

Dear Henry,

I am pleased to inform you that ION Networks has agreed to alter the terms of your employment to include a provision for severance should your employment be terminated by the Company without “Cause”. Effective immediately, be advised that:

Your employment may be terminated at any time immediately upon notice by the Company, without “Cause”. If you are terminated by the Company without “Cause”, you shall be entitled to a severance payment equal to a payment of salary for the next 3 months as if the Agreement had not been terminated less withholdings and deductions required by law. You and Company agree that such severance payment shall also constitute liquidated damages and is a reasonable approximation of Employee’s damages as a result of such termination.

For the purpose of this document, “Cause” shall be defined as (1) conviction of a felony, or (2) acts of dishonesty or moral turpitude constituting fraud or embezzlement or otherwise materially adversely affecting the business or properties of the Company and/or its Affiliates; (3) failure to obey the reasonable and lawful directions of the Chief Executive Officer; (4) repeated negligence by the Employee in the performance of, or willful disregard by Employee of his obligations under this Agreement; or (5) if Employee is indicted for a criminal violation of security laws.

Very truly yours,

ION Networks, Inc.

Norman E. Corn
CEO


 


EX-10.23 17 d63089_ex10-23.htm EXHIBIT 10.23

1998 Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Norman E. Corn Grant Date January 28, 2004
  29 Lalique Drive Shares Granted: 400,000
  Montville, Price per Share: $0.115
  NJ  07045 Option Type: ISO
    Option Plan: 1998 Plan
    Option ID: 1998 Plan - 688
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
Exercise     

January 28, 2004   400,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Norman E. Corn By:   /s/ Steve Deixler
———————————————       ————————————
                   1.               Norman E. Corn       Name: Steve Deixler
      Title: Chairman of the Board



ION NETWORKS, INC.

1998 Plan

STOCK OPTION AGREEMENT

The Optionee (the “Employee”) named on the preceding Certificate of Stock Option Grant (the “Certificate”) has been granted an option to purchase Common Stock, $0. 001 par value (“Common Stock”), of ION NETWORKS, INC., a New Jersey corporation (the “Company”) subject to terms as and conditions as set forth on the Certificate and in this Agreement.

 
  Vesting:
 
  Subject to the terms of the Plan as set forth on the Certificate and in this Agreement, shares vest according to the vesting schedule indicated on the Certificate (“Vesting Schedule”).
 
  1. Notwithstanding anything herein to the contrary, if at any time the Corporation shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to this option on any securities exchange or under any applicable law, or the consent or approval of any governmental agency or regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of an option, or the issue of shares of Common Stock thereunder, this option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation.
 
  2. Nothing herein shall confer upon the Optionee any right to continue as an employee of the Corporation, its parent, or any of its subsidiaries, or interfere in any way with any right of the Corporation, its parent or its subsidiaries to terminate such employment at any time for any reason whatsoever without liability to the Corporation, its parent or any of its subsidiaries. Neither the Optionee nor his legal representatives shall have any of the rights or privileges of a shareholder of the Corporation I respect of any of the shares issuable upon the exercise of this option, unless and until certificates representing such shares shall have been issued and delivered; provided, however, that until such certificates are issued, the Optionee shall be treated as owning any previously acquired shares of Common Stock used to exercise such option.
 
  3. The Corporation may withhold cash and/or shares of Common Stock in the amount, if any, necessary to satisfy its obligation to withhold taxes or other amounts by reason of the grant, exercise or disposition of the option or the shares of Common Stock underlying the option, or may require the Optionee to pay the Corporation such amount. The Optionee agrees to pay any such amount to the Corporation in cash upon demand.



  4. The Company may affix appropriate legends upon the certificates for shares and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of any agreement between the Corporation and the Optionee with respect to such shares.
 
  5. The Optionee represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of the option and the disposition of the shares of Common Stock acquired upon exercise of the option, including without limitation, Federal and state securities and “blue sky” laws.
 
  6. This option is not transferable by the Optionee other than by will or the laws of descent and distribution and may be exercisable during the lifetime of the Optionee, only by him or his legal representatives. Neither this option nor any of the rights and privileges conferred hereby shall be transferred, assigned, pledged (as collateral for a loan, or as security for the performance of an obligation, or for any other purpose), or hypothecated in any way (whether voluntarily, by operation of law or otherwise) or be subject to execution, attachment, or similar process. Any attempted transfer, assignment, pledge (as collateral for a loan or as security for the performance of any obligation, or for any other purpose), hypothecation, execution, attachment or similar process shall be null and void and of no force or effect.
 
  7. In the event that, prior to the issuance by the Corporation of all the shares pursuant to this option, there shall be any change in the outstanding Common Stock of the Corporation by reason of a stock dividend, stock split, spin-off, stock combination, recapitalization, merger in which the Corporation is the surviving corporation or the like, the remaining number of shares still subject to this option and the exercise price therefor shall be proportionally adjusted by the Board of Directors of the Corporation to reflect such change. Such adjustment may provide for the elimination of fractional shares which might otherwise be subject to options, without payment therefor. The determination of the Board of Directors with respect thereto shall be conclusive and binding ion the parties. Notwithstanding anything herein to the contrary, in the event of (a) the liquidation or dissolution of the Corporation or (b) a merger in which the Corporation is not the surviving corporation or a consolidation involving the Corporation, this option shall terminate, unless other provision is made therefor in the transaction.
 
  8. The invalidity, unenforceability, or illegality of any provision herein shall not affect the validity, enforceability, or legality of any other provision.
 
  9. This Agreement shall be binding upon and inure to the benefit of any successor or assign of the Corporation and to any heir, distributee, executor, administrator or legal representative entitled by law to the Optionee’s rights hereunder. This Agreement may not be amended except in writing signed by the parties.
 
  10. Whenever notice is required to be given under the terms of this Agreement, such notice shall be in writing and shall be deemed delivered:



  (a) if to the Corporation, upon receipt by the Corporation, at the Corporation’s address set forth above, Attention: Compensation/Stock Option Committee, or such other address as the Corporation may designate by notice to the Optionee, effective upon receipt of such notice by the Optionee.
 
  (b) if to the Optionee, as of the day it is personally delivered, or 5 days after mailing, by registered or certified mail, return receipt requested, postage prepaid, at the Optionee’s address last provided to the Corporation, or such other address as the Optionee may designate by notice to the Corporation. Effective upon receipt of such notice by the Corporation.
 
  11. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to conflict of law provisions.
 

12. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes any prior agreements




2000 Stock Option Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Norman E. Corn Grant Date January 28, 2004
  29 Lalique Drive Shares Granted: 400,000
  Montville, Price per Share: $0.115
  NJ  07045 Option Type: ISO
    Option Plan: 2000 Stock Option Plan
    Option ID: 2000 SOP - 695
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
 Exercise     

January 28, 2004   400,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Norman E. Corn By:   /s/ Steve Deixler
———————————————       ————————————
                   2.               Norman E. Corn       Name: Steve Deixler
      Title: Chairman of the Board



 THIS STOCK OPTION CONTRACT entered into as of the date of grant (“Grant Date”) indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) between Ion Networks, Inc., a Delaware corporation (the “Company”), and the Employee (the “Optionee”).

WITNESSETH:

1.The Company, in accordance with the allotment made by the Board of Directors of the Company or the committee of the Board of Directors designated to administer the Plan (collectively, the “Administrators”) and subject to the terms and conditions of the 2000 Stock Option Plan of the Company (the “Plan”), grants to the Optionee an option to purchase an aggregate number of shares of the Common Stock, $.001 par value per share, of the Company, indicated on the Certificate (the “Option to Purchase”) at the exercise price indicated on the Certificate (“Grant Price”). This option is intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), although the Company makes no representation or warranty as to such qualification.

2. (a) The term of this option shall be five (5) years from final vesting (the “Grant Expiration Date”), subject to earlier termination as provided in the Plan.

(b) Except as provided in Paragraph 4 hereof, this option shall, provided the Optionee is then an employee of the Company, become exercisable in whole or in part in accordance with the vesting schedule as indicated on the Certificate.

(c) The right to purchase Shares under this option shall be cumulative, so that if the full number of Shares purchasable in a period shall not be purchased, the balance may be purchased at any time or from time to time thereafter, but not after the expiration of the option. Notwithstanding the foregoing, in no event may a fraction of a Share be purchased under this option.

3. This option shall be exercised by giving written notice to the Company at its then principal office, Attention: Chief Financial Officer, stating that the Optionee is exercising the option hereunder, specifying the number of Shares being purchased and accompanied by payment in full of the aggregate purchase price therefor (a) in cash or by certified check, (b) with the authorization of the Administrators, with previously acquired shares of Common Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised, or (c) with the authorization of the Administrators, any combination of the foregoing.

4. The Company may withhold cash and/or, with the authorization of the Administrators, Shares to be issued to the Optionee in the amount which the Company determines is necessary to satisfy its obligation to withhold taxes or other amounts incurred by reason of the grant or exercise of this option or the disposition of the underlying Shares. Alternatively, the Company may require the Optionee to pay the Company such amount in cash promptly upon demand.

5. In the event of any disposition of the Shares acquired pursuant to the exercise of this option within two years from the date hereof or one year from the date of transfer of such Shares to him, the Optionee shall notify the Company thereof in writing within thirty (30)




days after such disposition. In addition, the Optionee shall provide the Company on demand with such information as the Company shall reasonably request in connection with determining the amount and character of the Optionee’s income, the Company’s deduction and its obligation to withhold taxes or other amount incurred by reason of such disqualifying disposition, including the amount thereof. The Optionee shall pay the Company in cash on demand the amount, if any, which the Company determines is necessary to satisfy such withholding obligation.

6. Notwithstanding the foregoing, this option shall not be exercisable by the Optionee unless (a) a Registration Statement under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the Shares to be received upon the exercise of this option shall be effective and current at the time of exercise or (b) there is an exemption from registration under the Securities Act for the issuance of the Shares upon such exercise. The Optionee hereby represents and warrants to the Company that, unless such a Registration Statement is effective and current at the time of exercise of this option, the Shares to be issued upon the exercise of this option will be acquired by the Optionee for his own account, for investment only and not with a view to the resale or distribution thereof. In any event, the Optionee shall notify the Company of any proposed resale of the Shares issued to him upon exercise of this option. Any subsequent resale or distribution of Shares by the Optionee shall be made only pursuant to (x) a Registration Statement under the Securities Act which is effective and current with respect to the sale of Shares being sold or (y) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the Optionee shall, prior to any offer of sale or sale of such Shares, provide the Company (unless waived by the Company) with a favorable written opinion of counsel, in form and substance satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. Such representations and warranties shall also be deemed to be made by the Optionee upon each exercise of this option. Nothing herein shall be construed as requiring the Company to register the Shares subject to this option under the Securities Act.

7. The Company may affix appropriate legends upon the certificates for Shares issued upon exercise of this option and may issue such “stop transfer” instructions to its transfer agent in respect of such Shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of the Plan or this Contract or any other agreement between the Company and the Optionee with respect to such Shares or (c) permit the Company to determine the occurrence of a “disqualifying disposition,” as described in Section 421(b) of the Code, of the Shares transferred upon the exercise of this option.

8. Nothing in the Plan or herein shall confer upon the Optionee any right to continue in the employ of the Company, any Parent or any of its Subsidiaries, or interfere in any way with any right of the Company, any Parent or any of its Subsidiaries to terminate such employment at any time for any reason whatsoever without liability to the Company, any Parent or any of its Subsidiaries.

9. The Company and the Optionee agree that they will both be subject to and bound by all of the terms and conditions of the Plan. Any capitalized term not defined herein shall have




the meaning ascribed to it in the Plan. In the event of a conflict between the terms of this Contract and the terms of the Plan, the terms of the Plan shall govern.

10. The Optionee represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of this option and the disposition of the Shares acquired upon exercise of the option, including without limitation, federal and state securities and “blue sky” laws.

11. This option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee or the Optionee’s legal representatives.

12. This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to any heir, distributee, or Legal Representative entitled to the Optionee’s rights hereunder.

13. This Contract shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to the conflicts of law rules thereof.

14. The invalidity or illegality of any provision herein shall not affect the validity of any other provision.

15. The Optionee agrees that the Company may amend the Plan and the options granted to the Optionee under the Plan, subject to the limitations contained in the Plan.




Outside Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Norman E. Corn Grant Date January 28, 2004
  29 Lalique Drive Shares Granted: 750,000
  Montville, Price per Share: $0.06
  NJ  07045 Option Type: NQ
    Option Plan: Outside Plan
    Option ID: Outside Plan - 693
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
 Exercise     

January 28, 2004   750,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Norman E. Corn By:   /s/ Steve Deixler
———————————————       ————————————
                   3.               Norman E. Corn       Name: Steve Deixler
      Title: Chairman of the Board



ION NETWORKS
NONQUALIFIED STOCK OPTION CONTRACT

                This Non-Qualified Stock Option Contract (this “Contract”) is between ION Networks, Inc., a Delaware corporation (the ”Company”), and Norman E. Corn, an individual (the “Optionee”).

                The parties agree as follows:

                                4.               Option Granted. The Company, in accordance with the determination of the Company’s Board of Directors (the “Board”) and subject to the terms and conditions of this Contract, hereby grants to the Optionee an option to purchase up to the number of shares of the Company’s common stock (”Common Stock”) at the exercise price (the “Exercise Price”) specified in the Notice of Grant of Stock Option (the “Grant Notice”) accompanying this Contract, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. This option is not intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the ”Code”), and is not an option issued under any of the Company’s stock option plans.

                                5.               Term.

                                (a)             The term of this option shall be as stated in the Grant Notice, subject to earlier termination as provided in this Contract. This option vests and is exercisable in accordance with the terms specified in the Grant Notice.

                                (b)             The right to purchase shares of Common Stock under this option shall be cumulative, so that if the full number of shares purchasable in a period shall not be purchased, the balance may be purchased at any time or from time to time thereafter, but not after the expiration of the term of this option as herein provided.

                                6.               Exercise. This option may be exercised only by executing and delivering to the Company at its then principal office (currently 120 Corporate Blvd., South Plainfield, NJ 07080), Attention: Chief Financial Officer, accompanied by payment in full of the aggregate Exercise Price therefor (a) in cash or by certified check, (b) with the consent of the Company, with previously acquired shares of Common Stock (i) that are fully paid, vested, transferable and have been held by the Optionee for the requisite period to avoid a charge to the Company’s earnings for financial accounting purposes, and (ii) having an aggregate Fair Market Value (as defined below), on the date of exercise, equal to the aggregate exercise price of all options being exercised, or (c) with the consent of the Company, with a combination of the foregoing.

                                7.               Withholding Taxes. The Company (or a Parent or any of its Subsidiaries) may withhold cash and/or shares of Common Stock to be issued to the Optionee in the amount that the Company (or a Parent or any of its Subsidiaries) determines is necessary to satisfy its obligation to withhold taxes or other amounts incurred by reason of the grant, exercise or disposition of this option or the disposition of the underlying shares of Common Stock.




Alternatively, the Company (or any Parent or any of its Subsidiaries) may require the Optionee to pay the Company such amount (or any Parent or any of its Subsidiaries) and the Optionee agrees to pay such amount to the Company (or any Parent or any of its Subsidiaries) in cash, promptly upon demand.

                                8.               Termination of Relationship. If Optionee’s employment or consulting or advisory relationship with the Company, any Parent or any of its Subsidiaries, has terminated for any reason other than the death or Disability of the Optionee, Optionee may exercise this option to the extent exercisable on the date of such termination, at any time within three (3) months after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if such relationship is terminated for Cause, such option shall terminate immediately. A change of status from that of an employee to that of a consultant, or from consultant to employee, shall not be deemed to trigger a termination of the Optionee’s status as an employee or consultant.

                For the purposes of this Contract, an employment or consulting relationship shall be deemed to exist between Optionee and the Company if, at the time of the determination, the individual was an employee of the Company, its Parent, any of its Subsidiaries for purposes of Section 422(a) of the Code. As a result, an individual on military leave, sick leave or other bona fide leave of absence shall continue to be considered an employee or consultant for purposes of the Contract during such leave if the period of the leave does not exceed ninety (90) days, or, if longer, so long as the Optionee’s right to re-employment with the Company, any of its Subsidiaries or a Parent is guaranteed either by statute or by contract. If the period of leave exceed ninety (90) days and the Optionee’s right to re-employment is not guaranteed by statute or by contract, the employment or consulting relationship shall be deemed to have terminated on the ninety-first (91st) day of such leave.

                                9.               Death or Disability of Optionee. If Optionee dies (a) while Optionee is employed by, or is a consultant to, the Company, any Parent or any of its Subsidiaries, (b) within three (3) months after the termination of the Optionee’s employment or consulting relationship with the Company, any Parent and its Subsidiaries (unless such termination was for Cause) or (c) within one (1) year following the termination of such employment or consulting relationship by reason of the Optionee’s Disability, the options granted hereunder may be exercised, to the extent exercisable on the date of the Optionee’s death, by the Optionee’s Legal Representative, at any time within one (1) year after death, but not thereafter and in no event after the date such option would otherwise have expired. If Optionee’s employment or consulting relationship with the Company, any Parent and its Subsidiaries has terminated by reason of the Optionee’s Disability, the Optionee may exercise the options granted hereunder, to the extent exercisable upon the effective date of such termination, at any time within one (1) year after such date, but not thereafter and in no event after the date such options would otherwise have expired.

                                10.             Compliance with Securities Laws.

                                (a)             Notwithstanding anything herein to the contrary, this option shall not be exercisable by the Optionee unless (i) a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Common Stock to be received upon the exercise of this option shall be effective and current and which remains effective and




current at the time of exercise or (ii) there is an exemption (without the necessity of any action on the part of the Company to take any action to implement such exemption) from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise, and in any event shall be exercisable only to the extent vested at the time of exercise. Nothing herein shall be construed as requiring the Company to register the shares subject to this option under the Securities Act or any state securities laws or to keep any registration statement effective or current.

                                (b)             Notwithstanding anything herein to the contrary, if at any time the Board determines, in its sole discretion, that the listing or qualification of the shares of Common Stock subject to this option on any securities exchange, Nasdaq or under any applicable law, or the consent or approval, or filing with, of any governmental agency or regulatory body, is necessary or desirable as a condition to, or in connection with, the issue of shares of Common Stock hereunder, this option may not be exer­cised in whole or in part unless such filing, listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board.

                                11.             Investment Representations.

                                (a)             The Optionee hereby represents and warrants to the Company that, unless a registration statement under the Securities Act with respect to the shares of Common Stock to be received upon an exercise of this option is effective and current at the time of exercise of this option, the shares of Common Stock to be issued upon the exercise of this option will be acquired by the Optionee for the Optionee’s own account, for invest­ment only and not with a view to the resale or distribution thereof. In any event, the Optionee shall notify the Company of any proposed resale of the shares of Common Stock issued to him upon exercise of this option. Any subsequent resale or distribution of shares of Common Stock by the Optionee shall be made only pursuant to (i) a reg­istration statement under the Securities Act that is effective and current with respect to the sale of shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemp­tion, the Optionee shall, prior to any offer of sale or sale of such shares of Common Stock, provide the Company (unless waived by the Company) with a favor­able written opinion of counsel satisfactory to the Company, in form, substance and scope satisfac­tory to the Company, as to the applicability of such exemption to the proposed sale or distribution and, in each such case, in full compliance with all applicable state securities laws. Such representations and warranties shall also be deemed to be made by the Optionee upon each exercise of this option.

                                (b)             The Optionee represents and agrees that the Optionee will comply with all applicable laws relating to the grant and exercise of this option and the disposition of the shares of Common Stock acquired upon exercise of the option, including without limitation, federal and state securities and “blue sky” laws.

                                12.             Adjustments upon Changes in Common Stock. (a) In the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, spin-off, split-up, combination, merger, consolidation, sale of all or substantially all of the assets of the Company, or exchange of shares or the like which results in a change in the number or kind of shares of Common Stock which are outstanding immediately prior to such event, then, subject




to paragraph (b) of this Section 9, the aggregate number and kind of shares subject to this Contract, and the exercise price thereof, shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive and binding. Such adjustment may provide for the elimination of fractional shares that might otherwise be subject to this Contract without payment therefor. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 9 if such adjustment would cause this Contract to fail to comply with Rule 16b-3 of the Exchange Act (if applicable to this Contract).

                                (b)             In the event of (i) a proposed dissolution or liquidation of the Company, or (ii) a proposed sale of all or substantially all of the assets or outstanding equity of the Company, or (iii) the merger or consolidation of the Company with or into another entity or any other corporate reorganization if persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization fifty percent (50%) or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity, the Board of Directors of the Company shall, as to this Contract, either (1) make appropriate provision for the protection of any outstanding options hereunder by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to one share of Common Stock of the Company; provided that the excess of the aggregate fair market value of the share subject to this Contract immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the shares subject to this Contract immediately before such substitution over the purchase price hereof, or (2) upon written notice to Optionee, provide that the options underlying this Contract must be exercised within a specified number of days of the date of such notice or they will be terminated.

                                13.             Escrow/Legends. The Company may affix such appropriate legend or legends upon the certificates for shares of Common Stock issued upon exercise of this option and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary, appropriate or desirable to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or any applicable state securities law, or (b) implement the provisions or this Contract or any other agreement between the Company and the Optionee with respect to such shares of Common Stock. To the extent that any shares of Common Stock issued upon exercise of this option are unvested, the certificates for such shares shall be endorsed with an appropriate legend evidencing the Company’s repurchase rights and may be held in escrow with the Company until such shares vest.

                                14.             No Right to Employment. Nothing in this Contract shall confer upon the Optionee any right to continue as an employee, officer or director of, or consultant to, the Company, any Parent or any of its Subsidiaries, or interfere in any way with any right of the Company, any Parent or its Subsidiaries to terminate the Optionee’s relationship therewith at any time for any reason whatsoever without liability to the Company, any Parent or any of its Subsidiaries.




                                15.             Transfer Limitations. This option is not transferable by the Optionee and may be exer­cised (a) during the lifetime of the Optionee, only by the Optionee and (b) after the death of the Optionee, only by the personal representative of the Optionee’s estate.

                                16.             Successors and Assigns. This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to the personal representative of the Optionee’s estate.

                                17.             Governing Law. This Contract shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, other than those laws that would defer to the substantive laws of another jurisdiction.

                                18.             Partial Invalidity. The invalidity, illegality or unenforceability of any term or provision herein shall not affect the validity, legality or enforceability of any other term or provision, all of which shall be valid, legal and enforceable to the fullest extent permitted by applicable law. This Contract shall not be construed or interpreted with any presumption against the Company by reason of the Company causing this Contract to be drafted.

                                19.             Amendments. This Contract may not be amended or modified except by an instrument in writing signed by the parties hereto, and no term or provision hereof may be waived by any party except by an instrument in writing signed by such party.

                                20.             Definitions.

                                (a)            Cause”, in connection with the termination of the Optionee, shall mean (A) indictment of the Optionee for any illegal conduct, (B) failure of the Optionee to ade­quately perform any of the Optionee’s duties and responsibilities in any capacity held with the Company, any of its Subsidiaries or any Parent (other than any such failure resulting solely from the Optionee’s physical or mental incapacity), (C) the commission of any act or failure to act by the Optionee that involves moral turpitude, dis­honesty, theft, destruction of property, fraud, embezzlement or unethical business con­duct, or that is otherwise injurious to the Company, any of its Sub­sidiaries or any Parent or any other affiliate of the Company (or its or their respective employees), whether financially or otherwise, or (D) any violation by the Optionee of any Company rule or policy, in each case as determined by the Board.

                                (b)            Disability” shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code.

                                (c)            Fair Market Value” of a share of Common Stock on any day shall be (a) if the principal market for the Common Stock is a national securities exchange, the average of the highest and lowest sales prices per share of the Common Stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on the Nasdaq Stock Market (“Nasdaq”), and (i) if actual sales price information is available with respect to the Common Stock, the average of the highest and lowest sales prices per share of the Common Stock on such day on Nasdaq, or (ii) if such information is not available, the average of the highest bid and the lowest asked prices per share for the Common Stock on such day on Nasdaq, or (c) if the principal market for the Common Stock is not a




national securities exchange and the Common Stock is not quoted on Nasdaq, the average of the highest bid and lowest asked prices per share for the Common Stock on such day as reported on the OTC Bulletin Board Service or by National Quotation Bureau, Incorporated or a comparable service; provided, however, that if clauses (a), (b) and (c) of this Section 3 are all inapplicable because the Company’s Common Stock is not publicly traded, or if no trades have been made or no quotes are available for such day, the fair market value of a share of Common Stock shall be determined by the Board by any method consistent with any applicable regulations adopted by the United States Treasury Department relating to stock options.

                                (d)            Legal Representative” shall mean the executor, administrator or other person who at the time is entitled by law to exercise the rights of the Optionee in the event that the Optionee is deceased or incapacitated.

                                (e)            Parent” shall mean a “parent corporation” within the meaning of Section 424(e) of the Code.

                                (f)             Subsidiary” shall mean a “subsidiary corporation” within the meaning of Section 424(f) of the Code.



GRAPHIC 18 image002.jpg GRAPHIC begin 644 image002.jpg M_]C_X``02D9)1@`!`0$`8`!@``#_VP!#``H'!P@'!@H("`@+"@H+#A@0#@T- M#AT5%A$8(Q\E)"(?(B$F*S7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBI MJK*SM+6VM[BYNL+#Q,7&Q\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W M^/GZ_]H`"`$!```_`/9J***************************HZMJB:5;1S-!) M.TLJQ1QQD`LS=!R0*;I>LVNJ>9'&LL-Q#CSK>=-DD>>F1Z>XXK0HHHHHHHIK M,J*68X4#))[5EG5=0=@]KHD\L!Y#M,D98>RDY_/%2:=K5O?W$EHT4UK>1`,] MO.NUL?WAV8>X)K2HHJ.>:*V@DGF=8XHU+.['`4#DDUBVFN:CJZ";2]**6KC, M=S>OY8<=BJ#+8/7)Q5U(=9;)EN[1/01P,:=KTX'V;7TM3GG%DKY_, MU#+8^*EC40:U8NZ]3+9$!OKAJ=:Q>+(]WVJZTF;^[LAD3^IK6M?M?EG[9Y._ M/'DYQC\:FP?:EHJMJ%A!J=E):7*Y1QU'!4]F![$'D&N.?5)=%\76<&KL9VM[ M23S-0B!.821M\U1]T[@>>GTKLQ>6K6GVL7,1M]N[SMXV8]<],50;Q)I^TM`) M[E1U:&%BO_?73]:@M_$=SJ,*3Z9H\UU`V?WIGC1>./4YJ5]4UE-I/AZ1E+`' M9=1D@>N.*UZR8]4FB\43:7=E1'/"LUDV,;L<2+GN0<'Z&M:EK-U]9)-(EA@F MCBGE*K"9#A6?((4_7&*@A\4:>"L6HEM,N3P8KH;!GV;[I'T-5O%4ENNEPZS; MW$8GL94DAD1@=X)"LF>X8''Y5T!8!=Q.`!DY[4%T"ABP`/0YZTM9^OV#ZIH% M]91G#S0LJ\XYQP#[9I/#^I1ZMH5G>QJ$WQ@,@&-C#AEQVP016E1111245!>: MA9Z?$9;RZB@11DM(X6O/OLOC:*_FD\-WT]QILDA=&U``%5/4*&Y('8\?C5_1 MD\6:6)5/AVVNFN&W7%S+>!9)3_M=>,=AP*;J/@_6M9+6JFRT6PG'[^.V=Y"W M.>%("@YP01W%7'\`L9(Y#KU[=^7&%$6H`3Q%AT;;P*71O#7B#1-2\VVU'3Q8 MS.&N+..V9$)_B=.3M)].E==2UEZ[H<6N6L<9N)K2>%]\-S`0)(CT."?49!K- MB\)WME;FQT[Q'>6MCNW",HLDBYZ@2-D@$Y/M6OH]G?6-@MO?Z@;^5"0LS1A& M*]MV.I]35B\LX-0M7MKE-\3]1G!'H0>QK&_X1W5$#11>)KMH"N%2X@BE(_X$ M1S^-4H?AQHIN8KG4-][)&N`I58HS[E4`!([5JR>%-%FC:.2S+HX*LIF<@CW& M:@M?`_AVUBCC_L\3)$1 MY"H7+.Q8X`Z#)-:E%%%%)4%Y8V]_"(;E"Z!@PPQ4@COD57MM!TNUE\Z*RC,O M_/1_G8?B EX-10.24 19 d63089_ex10-24.htm EXHIBIT 10.24

1998 Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Patrick E. Delaney Grant Date January 28, 2004
  149 Mill Road Shares Granted: 400,000
  North Hampton, Price per Share: $0.115
  NH  03862 Option Type: ISO
    Option Plan: 1998 Plan
    Option ID: 1998 Plan - 689
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
Exercise      

January 28, 2004   400,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Patrick E. Delaney By:    /s/ Steve Deixler
————————————————       ————————————
                   1.               Patrick E. Delaney       Name: Steve Deixler
      Title: Chairman of the Board



 ION NETWORKS, INC.

1998 Plan

STOCK OPTION AGREEMENT

The Optionee (the “Employee”) named on the preceding Certificate of Stock Option Grant (the “Certificate”) has been granted an option to purchase Common Stock, $0. 001 par value (“Common Stock”), of ION NETWORKS, INC., a New Jersey corporation (the “Company”) subject to terms as and conditions as set forth on the Certificate and in this Agreement.

 
  Vesting:
 
  Subject to the terms of the Plan as set forth on the Certificate and in this Agreement, shares vest according to the vesting schedule indicated on the Certificate (“Vesting Schedule”).
 
  1. Notwithstanding anything herein to the contrary, if at any time the Corporation shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to this option on any securities exchange or under any applicable law, or the consent or approval of any governmental agency or regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of an option, or the issue of shares of Common Stock thereunder, this option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation.
 
  2. Nothing herein shall confer upon the Optionee any right to continue as an employee of the Corporation, its parent, or any of its subsidiaries, or interfere in any way with any right of the Corporation, its parent or its subsidiaries to terminate such employment at any time for any reason whatsoever without liability to the Corporation, its parent or any of its subsidiaries. Neither the Optionee nor his legal representatives shall have any of the rights or privileges of a shareholder of the Corporation I respect of any of the shares issuable upon the exercise of this option, unless and until certificates representing such shares shall have been issued and delivered; provided, however, that until such certificates are issued, the Optionee shall be treated as owning any previously acquired shares of Common Stock used to exercise such option.
 
  3. The Corporation may withhold cash and/or shares of Common Stock in the amount, if any, necessary to satisfy its obligation to withhold taxes or other amounts by reason of the grant, exercise or disposition of the option or the shares of Common Stock underlying the option, or may require the Optionee to pay the Corporation such amount. The Optionee agrees to pay any such amount to the Corporation in cash upon demand.



  4. The Company may affix appropriate legends upon the certificates for shares and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of any agreement between the Corporation and the Optionee with respect to such shares.
 
  5. The Optionee represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of the option and the disposition of the shares of Common Stock acquired upon exercise of the option, including without limitation, Federal and state securities and “blue sky” laws.
 
  6. This option is not transferable by the Optionee other than by will or the laws of descent and distribution and may be exercisable during the lifetime of the Optionee, only by him or his legal representatives. Neither this option nor any of the rights and privileges conferred hereby shall be transferred, assigned, pledged (as collateral for a loan, or as security for the performance of an obligation, or for any other purpose), or hypothecated in any way (whether voluntarily, by operation of law or otherwise) or be subject to execution, attachment, or similar process. Any attempted transfer, assignment, pledge (as collateral for a loan or as security for the performance of any obligation, or for any other purpose), hypothecation, execution, attachment or similar process shall be null and void and of no force or effect.
 
  7. In the event that, prior to the issuance by the Corporation of all the shares pursuant to this option, there shall be any change in the outstanding Common Stock of the Corporation by reason of a stock dividend, stock split, spin-off, stock combination, recapitalization, merger in which the Corporation is the surviving corporation or the like, the remaining number of shares still subject to this option and the exercise price therefor shall be proportionally adjusted by the Board of Directors of the Corporation to reflect such change. Such adjustment may provide for the elimination of fractional shares which might otherwise be subject to options, without payment therefor. The determination of the Board of Directors with respect thereto shall be conclusive and binding ion the parties. Notwithstanding anything herein to the contrary, in the event of (a) the liquidation or dissolution of the Corporation or (b) a merger in which the Corporation is not the surviving corporation or a consolidation involving the Corporation, this option shall terminate, unless other provision is made therefor in the transaction.
 
  8. The invalidity, unenforceability, or illegality of any provision herein shall not affect the validity, enforceability, or legality of any other provision.
 
  9. This Agreement shall be binding upon and inure to the benefit of any successor or assign of the Corporation and to any heir, distributee, executor, administrator or legal representative entitled by law to the Optionee’s rights hereunder. This Agreement may not be amended except in writing signed by the parties.
 
  10. Whenever notice is required to be given under the terms of this Agreement, such notice shall be in writing and shall be deemed delivered:



  (a) if to the Corporation, upon receipt by the Corporation, at the Corporation’s address set forth above, Attention: Compensation/Stock Option Committee, or such other address as the Corporation may designate by notice to the Optionee, effective upon receipt of such notice by the Optionee.
 
  (b) if to the Optionee, as of the day it is personally delivered, or 5 days after mailing, by registered or certified mail, return receipt requested, postage prepaid, at the Optionee’s address last provided to the Corporation, or such other address as the Optionee may designate by notice to the Corporation. Effective upon receipt of such notice by the Corporation.
 
  11. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to conflict of law provisions.
   
  12. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes any prior agreements



2000 Stock Option Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Patrick E. Delaney Grant Date January 28, 2004
  149 Mill Road Shares Granted: 400,000
  North Hampton, Price per Share: $0.115
  NH  03862 Option Type: ISO
    Option Plan: 2000 Stock Option Plan
    Option ID: 2000 SOP - 696
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
Exercise      

January 28, 2004   400,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Patrick E. Delaney By:   /s/ Steve Deixler
————————————————       ————————————
                   2.               Patrick E. Delaney       Name: Steve Deixler
      Title: Chairman of the Board



 THIS STOCK OPTION CONTRACT entered into as of the date of grant (“Grant Date”) indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) between Ion Networks, Inc., a Delaware corporation (the “Company”), and the Employee (the “Optionee”).

WITNESSETH:

1.The Company, in accordance with the allotment made by the Board of Directors of the Company or the committee of the Board of Directors designated to administer the Plan (collectively, the “Administrators”) and subject to the terms and conditions of the 2000 Stock Option Plan of the Company (the “Plan”), grants to the Optionee an option to purchase an aggregate number of shares of the Common Stock, $.001 par value per share, of the Company, indicated on the Certificate (the “Option to Purchase”) at the exercise price indicated on the Certificate (“Grant Price”). This option is intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), although the Company makes no representation or warranty as to such qualification.

2. (a) The term of this option shall be five (5) years from final vesting (the “Grant Expiration Date”), subject to earlier termination as provided in the Plan.

(b) Except as provided in Paragraph 4 hereof, this option shall, provided the Optionee is then an employee of the Company, become exercisable in whole or in part in accordance with the vesting schedule as indicated on the Certificate.

(c) The right to purchase Shares under this option shall be cumulative, so that if the full number of Shares purchasable in a period shall not be purchased, the balance may be purchased at any time or from time to time thereafter, but not after the expiration of the option. Notwithstanding the foregoing, in no event may a fraction of a Share be purchased under this option.

3. This option shall be exercised by giving written notice to the Company at its then principal office, Attention: Chief Financial Officer, stating that the Optionee is exercising the option hereunder, specifying the number of Shares being purchased and accompanied by payment in full of the aggregate purchase price therefor (a) in cash or by certified check, (b) with the authorization of the Administrators, with previously acquired shares of Common Stock having an aggregate fair market value, on the date of exercise, equal to the aggregate exercise price of all options being exercised, or (c) with the authorization of the Administrators, any combination of the foregoing.

4. The Company may withhold cash and/or, with the authorization of the Administrators, Shares to be issued to the Optionee in the amount which the Company determines is necessary to satisfy its obligation to withhold taxes or other amounts incurred by reason of the grant or exercise of this option or the disposition of the underlying Shares. Alternatively, the Company may require the Optionee to pay the Company such amount in cash promptly upon demand.

5. In the event of any disposition of the Shares acquired pursuant to the exercise of this option within two years from the date hereof or one year from the date of transfer of such Shares to him, the Optionee shall notify the Company thereof in writing within thirty (30)




days after such disposition. In addition, the Optionee shall provide the Company on demand with such information as the Company shall reasonably request in connection with determining the amount and character of the Optionee’s income, the Company’s deduction and its obligation to withhold taxes or other amount incurred by reason of such disqualifying disposition, including the amount thereof. The Optionee shall pay the Company in cash on demand the amount, if any, which the Company determines is necessary to satisfy such withholding obligation.

6. Notwithstanding the foregoing, this option shall not be exercisable by the Optionee unless (a) a Registration Statement under the Securities Act of 1933, as amended (the “Securities Act”) with respect to the Shares to be received upon the exercise of this option shall be effective and current at the time of exercise or (b) there is an exemption from registration under the Securities Act for the issuance of the Shares upon such exercise. The Optionee hereby represents and warrants to the Company that, unless such a Registration Statement is effective and current at the time of exercise of this option, the Shares to be issued upon the exercise of this option will be acquired by the Optionee for his own account, for investment only and not with a view to the resale or distribution thereof. In any event, the Optionee shall notify the Company of any proposed resale of the Shares issued to him upon exercise of this option. Any subsequent resale or distribution of Shares by the Optionee shall be made only pursuant to (x) a Registration Statement under the Securities Act which is effective and current with respect to the sale of Shares being sold or (y) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the Optionee shall, prior to any offer of sale or sale of such Shares, provide the Company (unless waived by the Company) with a favorable written opinion of counsel, in form and substance satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. Such representations and warranties shall also be deemed to be made by the Optionee upon each exercise of this option. Nothing herein shall be construed as requiring the Company to register the Shares subject to this option under the Securities Act.

7. The Company may affix appropriate legends upon the certificates for Shares issued upon exercise of this option and may issue such “stop transfer” instructions to its transfer agent in respect of such Shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act, (b) implement the provisions of the Plan or this Contract or any other agreement between the Company and the Optionee with respect to such Shares or (c) permit the Company to determine the occurrence of a “disqualifying disposition,” as described in Section 421(b) of the Code, of the Shares transferred upon the exercise of this option.

8. Nothing in the Plan or herein shall confer upon the Optionee any right to continue in the employ of the Company, any Parent or any of its Subsidiaries, or interfere in any way with any right of the Company, any Parent or any of its Subsidiaries to terminate such employment at any time for any reason whatsoever without liability to the Company, any Parent or any of its Subsidiaries.

9. The Company and the Optionee agree that they will both be subject to and bound by all of the terms and conditions of the Plan. Any capitalized term not defined herein shall have




the meaning ascribed to it in the Plan. In the event of a conflict between the terms of this Contract and the terms of the Plan, the terms of the Plan shall govern.

10. The Optionee represents and agrees that he will comply with all applicable laws relating to the Plan and the grant and exercise of this option and the disposition of the Shares acquired upon exercise of the option, including without limitation, federal and state securities and “blue sky” laws.

11. This option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee or the Optionee’s legal representatives.

12. This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to any heir, distributee, or Legal Representative entitled to the Optionee’s rights hereunder.

13. This Contract shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to the conflicts of law rules thereof.

14. The invalidity or illegality of any provision herein shall not affect the validity of any other provision.

15. The Optionee agrees that the Company may amend the Plan and the options granted to the Optionee under the Plan, subject to the limitations contained in the Plan.




Outside Plan

ION NETWORKS, INC.

STOCK OPTION AGREEMENT

 
Optionee: Patrick E. Delaney Grant Date January 28, 2004
  149 Mill Road Shares Granted: 250,000
  North Hampton, Price per Share: $0.045
  NH  03862 Option Type: NQ
    Option Plan: Outside Plan
    Option ID: Outside Plan - 694
    Vesting Start Date: January 28,2004
    Grant Expiration Date: January 29, 2009
 

Definitions:

For the purpose of this document, “Cause” is defined as termination of Executive by the Company for infractions by the Executive’s gross negligence, felony conviction and significant breach of Executive’s duties pursuant to the Employment Agreement.

Vesting:

Subject to the terms of the Plan as set forth on the following pages, 100% of the total number of shares subject to each option will vest immediately.

 
 Date of Vest        Shares Vesting Over
 the Period
 

 Vesting in Period
 Occurs

  Last Date to
 Exercise       

January 28, 2004   250,000   End of Period   January 28, 2009
             
                                IN WITNESS WHEREOF, the Company and the Employee have caused this instrument to be executed as of the date first above written.
 
 
/s/ Patrick E. Delaney By: /s/ Steve Deixler
————————————————       ————————————
                   3.               Patrick E. Delaney       Name: Steve Deixler
      Title: Chairman of the Board



ION NETWORKS
NONQUALIFIED STOCK OPTION CONTRACT

                This Non-Qualified Stock Option Contract (this “Contract”) is between ION Networks, Inc., a Delaware corporation (the “Company”), and Patrick E. Delaney, an individual (the “Optionee”).

                The parties agree as follows:

                                4.               Option Granted. The Company, in accordance with the determination of the Company’s Board of Directors (the “Board”) and subject to the terms and conditions of this Contract, hereby grants to the Optionee an option to purchase up to the number of shares of the Company’s common stock (“Common Stock”) at the exercise price (the “Exercise Price”) specified in the Notice of Grant of Stock Option (the “Grant Notice”) accompanying this Contract, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. This option is not intended to constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and is not an option issued under any of the Company’s stock option plans.

                                5.               Term.

                                (a)             The term of this option shall be as stated in the Grant Notice, subject to earlier termination as provided in this Contract. This option vests and is exercisable in accordance with the terms specified in the Grant Notice.

                                (b)             The right to purchase shares of Common Stock under this option shall be cumulative, so that if the full number of shares purchasable in a period shall not be purchased, the balance may be purchased at any time or from time to time thereafter, but not after the expiration of the term of this option as herein provided.

                                6.               Exercise. This option may be exercised only by executing and delivering to the Company at its then principal office (currently 120 Corporate Blvd., South Plainfield, NJ 07080), Attention: Chief Financial Officer, accompanied by payment in full of the aggregate Exercise Price therefor (a) in cash or by certified check, (b) with the consent of the Company, with previously acquired shares of Common Stock (i) that are fully paid, vested, transferable and have been held by the Optionee for the requisite period to avoid a charge to the Company’s earnings for financial accounting purposes, and (ii) having an aggregate Fair Market Value (as defined below), on the date of exercise, equal to the aggregate exercise price of all options being exercised, or (c) with the consent of the Company, with a combination of the foregoing.

                                7.               Withholding Taxes. The Company (or a Parent or any of its Subsidiaries) may withhold cash and/or shares of Common Stock to be issued to the Optionee in the amount that the Company (or a Parent or any of its Subsidiaries) determines is necessary to satisfy its obligation to withhold taxes or other amounts incurred by reason of the grant, exercise or disposition of this option or the disposition of the underlying shares of Common Stock.




Alternatively, the Company (or any Parent or any of its Subsidiaries) may require the Optionee to pay the Company such amount (or any Parent or any of its Subsidiaries) and the Optionee agrees to pay such amount to the Company (or any Parent or any of its Subsidiaries) in cash, promptly upon demand.

                                8.               Termination of Relationship. If Optionee’s employment or consulting or advisory relationship with the Company, any Parent or any of its Subsidiaries, has terminated for any reason other than the death or Disability of the Optionee, Optionee may exercise this option to the extent exercisable on the date of such termination, at any time within three (3) months after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if such relationship is terminated for Cause, such option shall terminate immediately. A change of status from that of an employee to that of a consultant, or from consultant to employee, shall not be deemed to trigger a termination of the Optionee’s status as an employee or consultant.

                For the purposes of this Contract, an employment or consulting relationship shall be deemed to exist between Optionee and the Company if, at the time of the determination, the individual was an employee of the Company, its Parent, any of its Subsidiaries for purposes of Section 422(a) of the Code. As a result, an individual on military leave, sick leave or other bona fide leave of absence shall continue to be considered an employee or consultant for purposes of the Contract during such leave if the period of the leave does not exceed ninety (90) days, or, if longer, so long as the Optionee’s right to re-employment with the Company, any of its Subsidiaries or a Parent is guaranteed either by statute or by contract. If the period of leave exceed ninety (90) days and the Optionee’s right to re-employment is not guaranteed by statute or by contract, the employment or consulting relationship shall be deemed to have terminated on the ninety-first (91st) day of such leave.

                                9.               Death or Disability of Optionee. If Optionee dies (a) while Optionee is employed by, or is a consultant to, the Company, any Parent or any of its Subsidiaries, (b) within three (3) months after the termination of the Optionee’s employment or consulting relationship with the Company, any Parent and its Subsidiaries (unless such termination was for Cause) or (c) within one (1) year following the termination of such employment or consulting relationship by reason of the Optionee’s Disability, the options granted hereunder may be exercised, to the extent exercisable on the date of the Optionee’s death, by the Optionee’s Legal Representative, at any time within one (1) year after death, but not thereafter and in no event after the date such option would otherwise have expired. If Optionee’s employment or consulting relationship with the Company, any Parent and its Subsidiaries has terminated by reason of the Optionee’s Disability, the Optionee may exercise the options granted hereunder, to the extent exercisable upon the effective date of such termination, at any time within one (1) year after such date, but not thereafter and in no event after the date such options would otherwise have expired.

                                10.             Compliance with Securities Laws.

                                (a)             Notwithstanding anything herein to the contrary, this option shall not be exercisable by the Optionee unless (i) a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Common Stock to be received upon the exercise of this option shall be effective and current and which remains effective and




current at the time of exercise or (ii) there is an exemption (without the necessity of any action on the part of the Company to take any action to implement such exemption) from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise, and in any event shall be exercisable only to the extent vested at the time of exercise. Nothing herein shall be construed as requiring the Company to register the shares subject to this option under the Securities Act or any state securities laws or to keep any registration statement effective or current.

                                (b)             Notwithstanding anything herein to the contrary, if at any time the Board determines, in its sole discretion, that the listing or qualification of the shares of Common Stock subject to this option on any securities exchange, Nasdaq or under any applicable law, or the consent or approval, or filing with, of any governmental agency or regulatory body, is necessary or desirable as a condition to, or in connection with, the issue of shares of Common Stock hereunder, this option may not be exer­cised in whole or in part unless such filing, listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board.

                                11.             Investment Representations.

                                (a)             The Optionee hereby represents and warrants to the Company that, unless a registration statement under the Securities Act with respect to the shares of Common Stock to be received upon an exercise of this option is effective and current at the time of exercise of this option, the shares of Common Stock to be issued upon the exercise of this option will be acquired by the Optionee for the Optionee’s own account, for invest­ment only and not with a view to the resale or distribution thereof. In any event, the Optionee shall notify the Company of any proposed resale of the shares of Common Stock issued to him upon exercise of this option. Any subsequent resale or distribution of shares of Common Stock by the Optionee shall be made only pursuant to (i) a reg­istration statement under the Securities Act that is effective and current with respect to the sale of shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemp­tion, the Optionee shall, prior to any offer of sale or sale of such shares of Common Stock, provide the Company (unless waived by the Company) with a favor­able written opinion of counsel satisfactory to the Company, in form, substance and scope satisfac­tory to the Company, as to the applicability of such exemption to the proposed sale or distribution and, in each such case, in full compliance with all applicable state securities laws. Such representations and warranties shall also be deemed to be made by the Optionee upon each exercise of this option.

                                (b)             The Optionee represents and agrees that the Optionee will comply with all applicable laws relating to the grant and exercise of this option and the disposition of the shares of Common Stock acquired upon exercise of the option, including without limitation, federal and state securities and “blue sky” laws.

                                12.             Adjustments upon Changes in Common Stock. (a) In the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, spin-off, split-up, combination, merger, consolidation, sale of all or substantially all of the assets of the Company, or exchange of shares or the like which results in a change in the number or kind of shares of Common Stock which are outstanding immediately prior to such event, then, subject




to paragraph (b) of this Section 9, the aggregate number and kind of shares subject to this Contract, and the exercise price thereof, shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive and binding. Such adjustment may provide for the elimination of fractional shares that might otherwise be subject to this Contract without payment therefor. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 9 if such adjustment would cause this Contract to fail to comply with Rule 16b-3 of the Exchange Act (if applicable to this Contract).

                                (b)             In the event of (i) a proposed dissolution or liquidation of the Company, or (ii) a proposed sale of all or substantially all of the assets or outstanding equity of the Company, or (iii) the merger or consolidation of the Company with or into another entity or any other corporate reorganization if persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization fifty percent (50%) or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity, the Board of Directors of the Company shall, as to this Contract, either (1) make appropriate provision for the protection of any outstanding options hereunder by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to one share of Common Stock of the Company; provided that the excess of the aggregate fair market value of the share subject to this Contract immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the shares subject to this Contract immediately before such substitution over the purchase price hereof, or (2) upon written notice to Optionee, provide that the options underlying this Contract must be exercised within a specified number of days of the date of such notice or they will be terminated.

                                13.             Escrow/Legends. The Company may affix such appropriate legend or legends upon the certificates for shares of Common Stock issued upon exercise of this option and may issue such “stop transfer” instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary, appropriate or desirable to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act or any applicable state securities law, or (b) implement the provisions or this Contract or any other agreement between the Company and the Optionee with respect to such shares of Common Stock. To the extent that any shares of Common Stock issued upon exercise of this option are unvested, the certificates for such shares shall be endorsed with an appropriate legend evidencing the Company’s repurchase rights and may be held in escrow with the Company until such shares vest.

                                14.             No Right to Employment. Nothing in this Contract shall confer upon the Optionee any right to continue as an employee, officer or director of, or consultant to, the Company, any Parent or any of its Subsidiaries, or interfere in any way with any right of the Company, any Parent or its Subsidiaries to terminate the Optionee’s relationship therewith at any time for any reason whatsoever without liability to the Company, any Parent or any of its Subsidiaries.




                                15.             Transfer Limitations. This option is not transferable by the Optionee and may be exer­cised (a) during the lifetime of the Optionee, only by the Optionee and (b) after the death of the Optionee, only by the personal representative of the Optionee’s estate.

                                16.             Successors and Assigns. This Contract shall be binding upon and inure to the benefit of any successor or assign of the Company and to the personal representative of the Optionee’s estate.

                                17.             Governing Law. This Contract shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, other than those laws that would defer to the substantive laws of another jurisdiction.

                                18.             Partial Invalidity. The invalidity, illegality or unenforceability of any term or provision herein shall not affect the validity, legality or enforceability of any other term or provision, all of which shall be valid, legal and enforceable to the fullest extent permitted by applicable law. This Contract shall not be construed or interpreted with any presumption against the Company by reason of the Company causing this Contract to be drafted.

                                19.             Amendments. This Contract may not be amended or modified except by an instrument in writing signed by the parties hereto, and no term or provision hereof may be waived by any party except by an instrument in writing signed by such party.

                                20.             Definitions.

                                (a)            Cause”, in connection with the termination of the Optionee, shall mean (A) indictment of the Optionee for any illegal conduct, (B) failure of the Optionee to ade­quately perform any of the Optionee’s duties and responsibilities in any capacity held with the Company, any of its Subsidiaries or any Parent (other than any such failure resulting solely from the Optionee’s physical or mental incapacity), (C) the commission of any act or failure to act by the Optionee that involves moral turpitude, dis­honesty, theft, destruction of property, fraud, embezzlement or unethical business con­duct, or that is otherwise injurious to the Company, any of its Sub­sidiaries or any Parent or any other affiliate of the Company (or its or their respective employees), whether financially or otherwise, or (D) any violation by the Optionee of any Company rule or policy, in each case as determined by the Board.

                                (b)            Disability” shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code.

                                (c)            Fair Market Value” of a share of Common Stock on any day shall be (a) if the principal market for the Common Stock is a national securities exchange, the average of the highest and lowest sales prices per share of the Common Stock on such day as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is quoted on the Nasdaq Stock Market (“Nasdaq”), and (i) if actual sales price information is available with respect to the Common Stock, the average of the highest and lowest sales prices per share of the Common Stock on such day on Nasdaq, or (ii) if such information is not available, the average of the highest bid and the lowest asked prices per share for the Common Stock on such day on Nasdaq, or (c) if the principal market for the Common Stock is not a




national securities exchange and the Common Stock is not quoted on Nasdaq, the average of the highest bid and lowest asked prices per share for the Common Stock on such day as reported on the OTC Bulletin Board Service or by National Quotation Bureau, Incorporated or a comparable service; provided, however, that if clauses (a), (b) and (c) of this Section 3 are all inapplicable because the Company’s Common Stock is not publicly traded, or if no trades have been made or no quotes are available for such day, the fair market value of a share of Common Stock shall be determined by the Board by any method consistent with any applicable regulations adopted by the United States Treasury Department relating to stock options.

                                (d)            Legal Representative” shall mean the executor, administrator or other person who at the time is entitled by law to exercise the rights of the Optionee in the event that the Optionee is deceased or incapacitated.

                                (e)            Parent” shall mean a “parent corporation” within the meaning of Section 424(e) of the Code.

                                (f)             Subsidiary” shall mean a “subsidiary corporation” within the meaning of Section 424(f) of the Code.



EX-10.25 20 d63089_ex10-25.htm EXHIBIT 10.25
 

MASTER PURCHASE AND RESELLER AGREEMENT

BETWEEN

SPRINT/UNITED MANAGEMENT COMPANY

AND

ION NETWORKS, INC.

____________________________________

1.0          SCOPE AND DEFINITIONS

 
2.0          AFFILIATE TRANSACTIONS
 
  2.1      SPRINT AFFILIATES’ PURCHASE RIGHTS.
 
             CONTRACTUAL LIABILITY.  
             SPRINT SERVICES.
 

4,0          TERM & TERMINATION   

 
  4.1      TERM 
 
  4.2      TERMINATION FOR CONVENIENCE.
 
  4.3      TERMINATION FOR CAUSE.
             OBLIGATIONS RELATING TO TERMINATION OR EXPIRATION.
 
  4.6      TRANSITION PERIOD.
 
  4.7      TERMINATION FOR FINANCIAL INSTABILITY.
 
  4.8      EFFECT OF TERMINATION.
 

5.0          PRICE AND TERMS OF SALE

 
6.0          INVOICING,  PAYMENT AND OFFSET RIGHT
 
  7.1      PURCHASE ORDERS
 
  7.2      PURCHASE ORDER ACKNOWLEDGEMENT
 
  7.3      SPRINT’S PURCHASE ORDER TERMINATION RIGHTS
 
  7.4      SPRINT’S PURCHASE ORDER CHANGE RIGHTS
 

8.0          SHIPPING AND RISK OF LOSS OF PRODUCT

 
  8.1      GENERAL
 
  8.2      RISK OF LOSS
 
  8.3      LATE SHIPMENT
 
  8.4      EARLY SHIPMENT
 

9.0          INSPECTION, ACCEPTANCE AND QUALITY CONTROL


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  9.1      INSPECTION.
             ACCEPTANCE.
             QUALITY CONTROL.
 

10.0        CANCELLATION

 
  10.1    CANCELLATION FOR CAUSE.
 
  10.2    CANCELLATION FOR CONVENIENCE:
 

11.0        TERRITORY

 
12.0        SERVICE AND DELIVERABLE WARRANTIES
 
  12.1    GENERAL PRODUCT AND SYSTEM WARRANTY
 
  12.2    INTEROPERABILITY WARRANTY
 
  12.3    BACKWARDS COMPATIBILITY WARRANTY
 
  12.4    MEDIA WARRANTY
 
  12.5    NON-INFRINGEMENT WARRANTY
 
  12.6    REPLACEMENT DELIVERABLES
 
  12.7    SERVICES WARRANTY
 
  12.8    SUPPLIER PERSONNEL WARRANTY
 

13.0        SECURITY

 
  13.1    VIRUS WARRANTY
 
  13.2    ILLICIT TECHNOLOGY REMEDIES
 
  13.3    ILLICIT TECHNOLOGY AND UNMITIGATED VULNERABILITIES WARRANTY
 
  13.4    SCANNING REQUIREMENTS AND FIXES
 

14.0        PRODUCT CHANGES AND FEATURE ENHANCEMENTS

 
  14.1    EQUIPMENT CHANGES
 
  14.2    SOFTWARE CHANGES
 
  14.3    SUPPLIER’S NOTICE OBLIGATIONS
 
  14.4    SUPPLIER’S OBLIGATIONS IF ADVERSE EFFECT ON OTHER DELIVERABLES
 

15.0        DISCONTINUATION OF PRODUCT

 
  15.1    PRODUCT
 
  15.2    REPLACEMENT PARTS
 
  15.3    CHRONIC CONDITIONS
 
  15.4    REMEDIES
 

16.0        PERSONNEL

 
  16.1    REQUIRED COMPLIANCE WITH AGREEMENT.
 
             REMOVAL.
 
  16.3    SUPPLIER’S REPRESENTATIVE.
 
  16.4    SAFETY.
 
  16.5    WEAPONS PROHIBITION.

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  16.6    BACKGROUND CHECKS.
   
  16.7    SECURITY ADHERENCE AND ACCESS RIGHTS.
   
  16.8    INVESTIGATIONS.
 

17.0        SUPPLIER ADDITIONAL OBLIGATIONS

 
18.0        OWNERSHIP
 
  18.1    SPRINT OWNED PROPERTY.
   
  18.2    DEVELOPED PROPERTY.
 

19.0        CONFIDENTIAL INFORMATION

 
  19.1    GENERAL.
   
  19.2    CONFIDENTIALITY.
   
  19.3    EXCEPTIONS.
   
  19.4    THIRD PARTY CONFIDENTIAL INFORMATION.
   
  19.5    INFORMATION SECURITY.
   
  19.6    NO PUBLICITY.
   
  19.7    INJUNCTIVE RELIEF.
 

20.0        LICENSE OF SOFTWARE

 
21.0        ESCROW AGREEMENT
 
22.0        USE OF PRODUCTS
 
23.0        INDEMNITY  
 
  23.1    SUPPLIER’S GENERAL THIRD PARTY INDEMNITY
   
  23.2    SPRINT’S GENERAL THIRD PARTY INDEMNITY
   
  23.3    SUPPLIER’S INTELLECTUAL PROPERTY INDEMNIFICATION
   
  23.4    INDEMNIFICATION PROCEDURES
 

24.0        LIMITATION OF DAMAGES

 
25.0        INSURANCE
 
  25.1    REQUIRED INSURANCE COVERAGE.
   
  25.2    CERTIFICATES OF INSURANCE.
 

26.0        RIGHT OF AUDIT

 
27.0        NOTICES
 
28.0        DISPUTE RESOLUTION
 
  28.1    OPTION TO NEGOTIATE DISPUTES.
   
  28.2    CONTINUING PERFORMANCE.
   
  28.3    FORUM SELECTION.                   
   
  28.4    WAIVER OF JURY TRIAL.
   
  28.5    ATTORNEY’S FEES.
 

29.0        GENERAL


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  29.1    ETHICS CODE.
   
  29.2    SUPPLIER PERFORMANCE.
   
  29.3    INDEPENDENT CONTRACTOR.
   
  29.4    SURVIVAL.
   
  29.5    SEVERABILITY.
   
  29.6    WAIVER.
   
  29.7    ASSIGNMENT.
   
  29.8    FEDERAL ACQUISITION REGULATIONS; EXECUTIVE ORDER 11246.
   
  29.9    DIVERSITY.
   
  29.10  GOVERNING LAW.
   
  29.11 REMEDIES.
   
  29.12  SPRINT MARKS.
   
  29.13 MATERIAL/MECHANIC’S LIEN
   
  29.14  CONSTRUCTION.
 

30.0        ENTIRE AGREEMENT


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This MASTER PURCHASE AND RESELLER AGREEMENT (the “Agreement”) effective February, 2005 (“Effective Date”), between Sprint/United Management Company, a Kansas corporation (“Sprint”) and Ion Networks, Inc., a Delaware corporation (“Supplier”).

BACKGROUND:

 
A. Supplier is in the business of providing certain products, systems and services to its customers.
   
B. Sprint and Supplier contemplate that they will enter into one or more Purchase Orders for the provision of Deliverables by Supplier to Sprint.
   
C. Sprint and Supplier desire to specify the standard terms that will apply to those Purchase Orders.
 

The parties agree as follows:

1.             DEFINITIONS AND SCOPE 

1.1           DEFINITIONS

“Backwards Compatibility” means the referenced prior Revision Level or Levels of the applicable Product or System remain fully functional after the integration with the respective succeeding Revision Level or Levels and that after such integration the prior Revision Level or Levels do not lose any functionality and the new Revision Level or Levels Interoperates with all functionalities of the prior Revision Level or Levels.

“Confidential Information”  means (i) this Agreement and the discussions, negotiations and proposals related to this Agreement and (ii) any information exchanged in connection with this Agreement concerning the other party’s business including, tangible, intangible, visual, electronic, written, or oral information, such as: (w) Sprint Data and trade secrets, (x) financial information and pricing, (y) technical information, such as research, development, procedures, algorithms, data, designs, and know-how, and (z) business information, such as operations, planning, marketing interests, and products, whether, under each of the clauses (i) and (ii) of this definition, received directly or indirectly from the other party, or in the case of Sprint, from Sprint Customers.

“Control”  means: (i) the power to vote 15% or more of the voting interests of an entity; or (ii) ownership of 15% or more of the beneficial interests in income or capital of an entity.

“Deliverable”  means any Product, System or Service delivered or to be delivered by Supplier under this Agreement and any applicable Purchase Order.

“Documentation”  means all written instructions, manuals, descriptions, and any other documents (i) related to the Deliverables, (ii) necessary for Sprint to support Sprint’s business requirements (such as provisioning, testing, operating and troubleshooting) in connection with the Deliverables and (iii) detailed, comprehensive, and prepared in conformance with generally accepted industry standards of professional care, skill, diligence and competence applicable to telecommunications and operational practices similar to Sprint’s.

“Embedded Software” means software that is embedded in hardware and is not intended to be separated from the hardware to function.

“End User”  means any person or entity purchasing Supplier’s Products or Services from Sprint.

 “Equipment” means all hardware and other items of personal property as well as Embedded Software, that are provided or to be provided by Supplier under this Agreement, including the Equipment listed in Exhibit A and Equipment Upgrades and Equipment Feature Enhancements.

“Equipment Feature Enhancement”  means (i) feature enhancements that materially improve functionality or performance of Equipment and that Supplier markets as separate commercially available


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product or (ii) custom developed features for Sprint or another customer of Supplier.

“Equipment Upgrade”  means any upgrade, enhancement, modification, patch, fix, alteration, improvement, correction, revision, release, new version or any other change to the Equipment, except for Equipment Feature Enhancements.

“Illicit Technology”  means any software, electronic, mechanical or other means, device of function (e.g. key, node, lock, time-out, virus, “back door,” “trapdoor,” “booby trap,” “drop dead device,” “data scrambling device,” “Trojan Horse”), that would allow Supplier or a third party to: (i) monitor or gain unauthorized access to a Sprint System, (ii) use any electronic self-help mechanism, or (iii) restrict, disable, limit, or impair the performance of a Sprint System or Sprint Customer system.

 “Interoperability”  or “Interoperate” means the ability of a Product and System to interconnect and successfully operate with other products and systems.

“Maintenance Services”  means the maintenance services with respect to the Products and Systems further described in ) and Exhibit A.

“Net Price” means the final price paid by any customer of Supplier, including Sprint, after all discounts, reductions, rebates, or adjustments of any kind are applied.

“Purchase Order”  or “Order” means any written purchase order for Deliverables issued by Sprint under this Agreement.

“Product”  means the collective reference to Equipment and Software.

“Replacement Costs”  means all costs that Sprint incurs in obtaining, internally or from a third party, replacement Deliverables, including (i) the cost of deinstallation, disassembly and return shipping of any non-conforming Product or System, and (ii) purchase, shipping, installation, training, and other service related costs of the replacement products.

“Shrinkwrap License”  means Supplier’s Software license that requires an End User to accept it before the Software can be operated (e.g., by opening a sealed package or accepting the license terms electronically during installation).

“Revision Level”  means, with respect to any Product or System, any change from the immediately preceding version, including, any Software Upgrade, Software Feature Enhancement, Equipment Upgrade and Equipment Feature Enhancement.

 “Services”  means any services related to the Products or System that Supplier may offer, such as Maintenance Services, installation services and training services.

“Software” means the computer software programs provided or to be provided by Supplier under this Agreement, including the Software listed in Exhibit A, any Software Upgrade, Software Feature Enhancement and any related Documentation.

“Software Feature Enhancement”  means (i) feature enhancements that materially improve functionality or performance of a Software and that Supplier markets as a separate commercially available product or (ii) custom developed features for Sprint.

“Software License” with respect to End Users means (i) Supplier’s software license attached as Exhibit A to this Addendum, (ii) Supplier’s Shrinkwrap License that accompanies or is otherwise included in the Software, or (iii) an applicable third-party software license. The term “Software License” as used in this Agreement does not mean Sprint’s license for internal use of the Software, the terms of which are included in the Agreement

“Software Upgrade”  means any commercially available upgrade, enhancement, modification, patch, fix, alteration, improvement, correction, revision, release, new version or any other change to the Software or


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Documentation, except for Software Feature Enhancements.

“Specifications”  means the specifications and associated performance standards set forth in Exhibit A.

“Sprint Affiliate”  means (i) any entity, directly or indirectly, Controlling, Controlled by or under common Control with Sprint; (ii) any entity that has entered into an agreement to construct, manage, and maintain a wireless service network in a defined geographical territory and is authorized to sell telecommunication services in that territory under the “Sprint” or Sprint PCS” brand name(s) or any successor brand name(s); (iii) any entity to which any Sprint Affiliate, as defined in clause (i) or (ii) of this definition, is required by law, regulation or contract to provide services or products or (iv) any direct or indirect wholly owned affiliate of Sprint Corporation that is subsequently divested.

“Sprint Customer”  or “Customer” means a customer of one or more services or products offered by Sprint or a Sprint Affiliate.

“Sprint Data”  means all information collected or developed by (i) Sprint or a Sprint Affiliate regarding Sprint Customers or (ii) by Supplier regarding Sprint Customers (but only in their capacity as Sprint Customers), including, under each of the clauses (i) and (ii) of this definition, location-based information, all phone or other identification numbers issued to Sprint Customers, all electronic serial numbers, all Sprint Customers personalization information and all automatic number identification information and all information described in the Federal Communications Commission’s definition of “Customer Proprietary Network Information” as set forth in 47 USC Section 222(h)(1) (as amended and interpreted from time to time).

 “Supplier Personnel” means any employees, subcontractors or agents of Supplier who perform Services, act on Supplier’s behalf or are paid by Supplier in connection with this Agreement.

“Supplier System”  means any program, system, data or network of Supplier or any Supplier Customer.

“Sprint Routing Guide”  is attached as Exhibit B.

“Sprint System”  means any program, system, data or network of Sprint or any Sprint Customer.

“Standalone Software”  means Software that is not embedded in hardware and intended to operate separately on a computer.

“Supplier Personnel Compensation”  means wages, salaries, fringe benefits and other compensation, including contributions to any employee benefit, medical or savings plan and all payroll taxes, unemployment compensation benefits, including withholding obligations.

“System”  means the following configuration of Products:

“Unmitigated Vulnerability”  means any technology or configuration that, from a security perspective induces unacceptable operational risks and, is (i) inconsistent with industry-accepted practices, (ii) susceptible to being hacked, broken into or compromised, or (iii) referenced by the Carnegie Mellon CERT® Coordination Center at www.cert.org.

“Uptime Availability Standard”  is the number of hours a System or Product is available for use by Sprint in a calendar month, expressed as a percentage of the total hours during that calendar month.

1.0           SCOPE

                General. This Agreement contains the terms that will apply to any Purchase Order that Sprint may place with Supplier during the term of this Agreement for Products and Services offered by Supplier more fully described in Exhibit A, to this Agreement. The terms of this Agreement control over any additional or inconsistent terms found in any Purchase Order under this Agreement or in any acknowledgment or other form used by Supplier, or any exhibits attached to this Agreement.


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1.1           No Volume Commitment.

Sprint is not committed to purchasing any minimum order or aggregate dollar volume of Products or Services during the term of this Agreement. Any forecast provided to Supplier by Sprint is provided for planning purposes only and is not a commitment other than what is specified in the terms in Exhibit A on Sprint’s part to purchase certain quantities.

1.2           Grant Of Rights. During the term of this Agreement, Supplier grants to Sprint a non-transferable, non-exclusive right to resell to End Users the Products, Software and Services described in Exhibit A, and to deliver any accompanying Documentation to End Users.

2. AFFILIATE TRANSACTIONS

 
  2.1          Sprint Affiliates’ Purchase Rights.
 
 
Any Sprint Affiliate may request Supplier to provide Products and Services under this Agreement. For Products and Services that are being provided to Sprint under a then existing Order, the existing Order will apply to the Sprint Affiliate and upon receipt of the Sprint Affiliate’s request, Supplier is obligated to provide those Products and Services to the Sprint Affiliate. For Products and Services that are not being provided to Sprint under a then existing Order, the Sprint Affiliate and Supplier will negotiate in good faith a new Order, consistent with this Agreement.
 
  2.2          Contractual Liability.
 

All references to Sprint in this Agreement refer equally to Sprint or the Sprint Affiliate executing a particular Order. Only the entity executing the particular Order incurs any obligation or liability to Supplier under that Order.

                2.3          Sprint Services.

Supplier will use Sprint as a provider of telecommunications services. Sprint will provide the service at competitive prices and services based on Supplier’s volume and competitor’s pricing. Supplier will roll its telecommunications services to Sprint as its current commitments expire. Telecommunications services include voice (wireline and wireless), data, Internet connectivity, local, phone systems, teleconferencing and video.

 
 
Supplier agrees that Sprint may share (1) Supplier’s commitment purchase additional telecommunications services and related products from Sprint as set forth in this Section 3.1 with any wholly-owned subsidiary of Sprint Corporation, including for the purpose of marketing existing and new service offerings to Supplier and (2) Supplier’s current and periodic spend information with any wholly-owned subsidiary of Sprint Corporation, including for the purpose of marketing existing and new service offerings to Supplier.
 
 
This subsection serves as notice to Supplier of its rights governing the use of Customer Proprietary Network Information (CPNI) as required by the Federal Communications Commission under 47 CFR Section 64.200 et seq. through Sprint’s normal procedures. Supplier grants Sprint the right to share with any Sprint-Controlled entity, for purposes of marketing services to Supplier: (1) Supplier’s commitment to purchase telecommunications services and related products and (2) Supplier’s current and periodic spend information in the aggregate or by product purchased from Sprint. Supplier grants this right regardless of Supplier’s CPNI opt-in or opt-out status related to products purchased from Sprint.
 

3.0          TERM & TERMINATION


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  3.1          Term.
 

The initial term of this Agreement begins on February 1, 2005 and expires on February 1, 2008. The term of this Agreement will be automatically renewed on a month-to-month basis, unless either party gives notice of its intent not to renew at least 30 days before the expiration of the initial term or the then current term.

The terms of this Agreement continue in effect for any Order that is outstanding at the time of termination or expiration of this Agreement.

 
  3.2           Termination for Convenience.
 

                Either party may terminate this Agreement at any time without liability by providing a termination notice in writing to the other party. Unless otherwise provided in the notice, the termination is effective 10 days after the date of the notice.

 
  3.3           Termination for Cause.
 

                If a party materially breaches this Agreement or an Order or both, the other party may give the breaching party a material breach notice, identifying the action or inaction that is the basis of the breach. The party that gave the breach notice may terminate this Agreement or the affected Order or both if the breaching party has not cured the breach within 30 days after the date of the material breach notice. Unless otherwise provided in the notice or unless the breach has been cured, the termination is effective 31 days after the date of the notice.

 
  3.4          Obligations Relating to Termination or Expiration.
 

                Upon termination or expiration of this Agreement, the parties will perform the following obligations:

                (a)              Supplier will assist Sprint in an orderly transition of Services to Sprint or a third party designated by Sprint as required by Section 3.5 Transition Period.);

                (b)             Within 15 days, Supplier will return Sprint-Owned Property to location(s) designated by Sprint;

                (c)             Within 30 days, Supplier will invoice Sprint for any final amounts due. Both parties will immediately discontinue making any statements or taking any actions that might cause third parties to infer that any business relationship continues to exist between the parties under Agreement., or both, and where necessary or advisable, the parties will inform third parties that the parties no longer have a business relationship under the Order(s) or Agreement or both.

 
  3.5          Transition Period.
 

                Upon termination or expiration of an Order or this Agreement or both, Sprint may, at its discretion, require Supplier to provide a Transition Period for Services. The required Transition Period will not exceed three months, unless mutually agreed to by both parties. If Sprint initially designates a Transition Period of less than three months, it may by mutual agreement subsequently extend the Transition Period up to the maximum period of three months, with 5 days’ written notice to Supplier. Sprint and Supplier may, in their discretion, terminate the Transition Period by mutual written agreement. During the Transition Period, the parties will continue to be bound by and perform in accordance with this Agreement.

 
  3.6           Termination for Financial Instability.
 

                If Supplier becomes Insolvent, Sprint may terminate this Agreement without liability with at least 30 days notice to Supplier. “Insolvent” means: (i) Supplier does not meet its undisputed obligations, including judgments, to third parties as those obligations become due, (ii) Supplier’s stock is removed or delisted from a trading exchange, (iii) Supplier’s  long term debt goes on a watch or warning list, or (iv) Supplier’s long term debt rating is downgraded more than two levels from its debt rating as of the Effective Date.


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  3.7           Effect of Termination.
 

                Termination of this Agreement is without prejudice to any other right or remedy of the parties. Termination of this Agreement for any cause does not release either party from any liability which, at the time of termination, has already accrued to the other party, or which may accrue in respect of any act or omission prior to termination or from any obligation which is expressly stated to survive the termination. Except that prices given under a forecast need to be adjusted to reflect non-attainment of forecasted levels per the terms in Exhibit A.

4.0          PRICE AND TERMS OF SALE

The current list prices, discounts, and product manufacturing lead times for the Products and Services are set forth in Exhibit A. Supplier must detail any sales, use, excise, or similar taxes payable by Sprint as separate line items on each applicable invoice. The prices in Exhibit A are complete and inclusive of packaging, labeling, custom duties, storage, shipping, insurance and similar items. Supplier will not increase the price of Products and Services during the term of this Agreement.

                If Supplier:

                a)              announces package pricing for Products and does not provide Sprint with at least 45 days prior written notice of the new decreased pricing, then

                b)              Supplier will credit Sprint with the difference between the prior price and the new price for Products purchased by Sprint during the 45-day period before the effective date of the new price.

                Supplier warrants that the terms of this Agreement and the prices on Exhibit A are no less favorable than the terms given to any third party that purchases or licenses similar Products or Services from Supplier under similar terms and conditions. If Supplier offers more favorable prices to any customer during the term of this Agreement, the prices will be applicable to Sprint Orders.

                Supplier warrants that the prices on Exhibit A are complete. Prices do not include special Sprint packaging and labeling nor any taxes and duties which may be charged to the purchaser by any domestic or foreign governmental agency nor storage and insurance liability for units in excess of 50.

          5.0                Expenses 

 
                         Sprint will reimburse Supplier for travel, living, and other expenses if they are (i) authorized in the Purchase Order, (ii) reasonably incurred and documented, and (iii) in conformance with Sprint’s travel and reimbursement policy set forth below:
 
  (a)   Sprint will reimburse Supplier only for expenses if Supplier submits the expense report for reimbursement to Sprint within 60 days after the relevant expenses are incurred.
 
  (b)    Supplier must book all travel arrangements, including, without limitation, air travel, vehicle rentals and hotel accommodations, through the Sprint Business Travel Center by calling (800) 347-2639. All air travel must be coach or economy. When making travel arrangements, Supplier must identify itself as a supplier for Sprint.
 
  (c) Sprint will reimburse Supplier for use of a personal vehicle for business purposes at the rate set forth in the IRS regulations in effect at the time the expense is incurred. Sprint will not reimburse Supplier for personal expenses, including, without limitation, phone calls, meals and vehicle use not related to the Services or Products supplied under this Agreement.
 
  (d) For reimbursement, Supplier must submit, as applicable, the following in Supplier’s expense report: (i) passenger flight coupon and travel itinerary, (ii) the original receipt for meals and parking and toll fees, in excess of $15 (tear tab receipts are not accepted), (ii) the original receipt for hotel accommodations, vehicle rental costs, fuel costs for rental vehicle usage, parking fees and toll fees (regardless of the amount).

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  6.0          Taxes 
   
                  Sprint is responsible for any sales or use taxes upon the compensation paid by Sprint for Deliverables. Supplier will itemize sales or use taxes separately on Supplier’s invoices. Except as otherwise provided in this Agreement, Supplier is responsible for all other taxes, duties and fees however SPRINT is responsible for all taxes, duties and fees incurred related to the shipment of finished product. If Sprint is exempt from taxation for the purposes of a Purchase Order, it will submit an exemption certificate to Supplier
   
  7.0          Invoicing, Itemization and Payment Procedures 
 
  Invoices will include: (i) Supplier’s name and remit address, (ii) invoice number, (iii) invoice date, (iv) the name of Supplier’s Sprint contact, (v) the contract number that Sprint assigned to this Agreement, and (vi) the Sprint business unit and cost center or the Sprint Purchase Order number. Supplier must submit invoices and receive payments electronically utilizing a Sprint-approved electronic platform outlined in Exhibit F. If Supplier is unable to submit invoices and receive payments electronically on the Effective Date, Supplier must enroll for automated invoicing and payment no later than 30 days from the Effective Date and, in the interim, Supplier must send invoices to the following address: 
 
                         Sprint/United Management Company
                         Supplier Disbursements Department
                         Mailstop:  KSOPHW318
                         P.O. Box 7977
                         Overland Park, KS  66207-0977
 
  If Supplier fails to enroll for automated invoicing and payment within 30 days from the Effective Date, Sprint may delay payment until Supplier completes enrollment.
 
  With respect to Products, the invoice must include a description of the Products being ordered, the date shipment was made and the shipping origination and destination. In addition, the line item on the invoice must match the line item on the Purchase Order, including the Net Price and description, unless there has been a price reduction since the Purchase Order date. Undisputed amounts will be paid within 45 days of receipt of Supplier’s invoice. Sprint will receive a 2% discount against the undisputed amount of any invoice under this Agreement or any Contract Order if payment is made on any undisputed amount within 10 business days of the date Sprint receives Supplier’s invoice. Disputed amounts will be paid, if owed, within 30 days of resolution of the dispute.
 

Sprint may specify additional invoicing instructions on the Order. Supplier may not invoice Sprint until Products are shipped to a SPRINT, customer or warehouse, per SPRINT’s instructions or Services have been provided to Sprint.

 
  7.1          Authorized Charges 
   
                  The only charges, amounts, or fees that Supplier may invoice Sprint are those set forth in this Agreement and expressly authorized on a Sprint Purchase Order; unless otherwise expressly authorized, in writing, by a member of Sprint Supply

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                Chain Management

 
                7.2          Prompt Invoicing
 
  Supplier must invoice Sprint promptly and may not (i) invoice Sprint more than 90 days after Supplier is permitted to issue an invoice for Services or Deliverables or both under this Agreement (“Late Invoices”) or (ii) make a claim for payment related to an already issued invoice more than 365 days after the invoice date (“Late Claims”). Sprint is not obligated to pay Late Invoices or Late Claims and Supplier waives all rights and remedies related to Late Invoices and Late Claims.
 
                7.3          Electronic Transactions 
 
  Sprint and Supplier may agree to facilitate electronic ordering through either the use of an electronic data interchange or an Internet-based e-commerce solution.
 
  Under Section 7.0, Supplier must submit invoices and receive payments through either the use of an electronic data interchange or an Internet-based e-commerce solution.
 

8.0          OFFSET RIGHT

 
  Both parties have the right to offset (i) any amount owed by either party under this Agreement or any other agreement (ii) against  any undisputed amounts owed by either party under this Agreement or any other agreement.
 

9.0    ORDERING

 
  9.1           Purchase Orders
   
                   Sprint will purchase Deliverables by issuing Purchase Orders to Supplier. Each Purchase Order will specify, at a minimum, (i) with respect to Products, the quantity, the Net Price, the ship date, the shipping method and the carrier, the delivery date, and the shipping location and, (ii) with respect to Services, the amount, the Net Price, and the location for the Supplier provided Services.
   
9.2           Purchase Order Acknowledgement
   
  Within 5 business days of receipt of a Purchase Order, Supplier will issue a written acknowledgment (electronically or by facsimile). The Purchase Order will specify the Products and Services ordered, Net Price and delivery schedule. If Supplier does not acknowledge the Purchase Order within 5 business days, and as long as the purchase order is prepared in accordance with the terms and conditions of this agreement or any subsequent updates to said document, supplier will be considered to have accepted the Purchase Order term in the acknowledgment that is inconsistent with this Agreement or the Purchase Order or both will be of no force or effect. If Supplier does not accept any term or provision of a Purchase Order, Supplier will reject same (stating which terms are objectionable) and Sprint may then choose to modify the Purchase Order to make it acceptable to Supplier. In any event, the terms of any accepted Purchase Order shall control over the acknowledgment of this agreement.
 

10.00                     SHIPPING AND RISK OF LOSS OF PRODUCT


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  10.1         General
   
  Supplier will ship Products to the location specified in the applicable Purchase Order using the method of shipping and specified in the applicable Purchase Order and in accordance with the Sprint Routing Guide. Unless otherwise indicated, Supplier must ship Products using ground transportation. Sprint will pay shipping costs. In the absence of written shipping directions, Supplier will select the carrier and insurance that is consistent with the parties’ past practice, using Supplier’s best commercial efforts.
   
  All shipments will be identified with large, easily readable type, including the shipping location, the Purchase Order number, and any other special purchase or shipping instructions required by Sprint. Supplier may not ship partial Purchase Orders of Product without Sprint’s prior written consent.
   
  10.2         Risk of Loss
   
  Equipment title and risk of loss or damage will transfer to Sprint upon either (i) delivery of the Equipment to Sprint’s designated carrier, (ii) Sprint taking possession of the Equipment at Supplier’s facility, or (iii) Supplier’s delivery of the Equipment to Sprint’s designated location.
   
  10.3         Late Shipment
   
  Products will be shipped in accordance with Purchase Orders for Supplier will be responsible for all expedited shipping charges.
   
  10.4         Early Shipment
 
  If Supplier ships materially ahead of the time period required pursuant to the terms of the Purchase Order. ), Sprint may, at its option, (i) return the Product to Supplier at Supplier’s expense for timely re-delivery, or (ii) withhold payment for the Product until after the scheduled delivery date or (iii) place the Product in storage at Supplier’s expense.
 

11.0        RETURN AUTHORIZATION PROCESS 

 
  Upon request by Sprint for a return authorization for credit, refund, repair, or replacement of Product, whether or not under warranty, Supplier will either issue a return authorization or provide Sprint with written substantiation for the refusal to issue the return authorization within 24 hours of receipt of a request to return. If Supplier fails to provide the return authorization or the substantiation for the refusal, Sprint may deduct from its payments to Supplier under this Agreement the Net Price of the Product. Unless otherwise provided in this Agreement, all returns of Product are subject to the terms of Exhibit A and E. Both Exhibits list (i) the return authorization process for Product and (ii) the repair and replacement Services and associated fees for “out-of-warranty” Product.
 

12.0        INSPECTION, ACCEPTANCE AND QUALITY CONTROL

 
  12 .1        Inspection.
   
  Sprint may inspect Products according to an agreed upon incoming inspection procedure and rejection rate. Products that  fail to meet inspection criteria will be returned to Supplier, at Supplier’s expense. Supplier will pay for reshipping conforming Products to Sprint. Sprint may place a hold on all pending Orders until Supplier has

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  demonstrated that the cause for rejection has been corrected. If the cause for rejection is not corrected within 30 days after rejection, Sprint may cancel outstanding Orders without further obligation or liability. Sprint may conduct a site inspection at Supplier’s facility during business hours by providing 7 days notice to Supplier.
 
  12.2         Inspection and Testing Remedies 
 
  If any Product or System is found to be defective upon inspection or testing, Sprint may, at its option: (i) cancel the affected Purchase Order; (ii) reject the Product or System and return it to Supplier at Supplier’s cost and require Supplier to ship conforming replacement Product or System within 20 days of Sprint’s rejection; or (v) require Supplier to refund the amount paid.
 
  13.3         Quality Control.
 
  In order for the Products to be connected to the Sprint public communications network, the Products must pass Sprint’s certification tests. This includes modifications made to any Products to ensure operability and backward compatibility with Sprint’s network. Accordingly, Supplier will provide Sprint up to 2 units of Product at no charge, along with cables, and Documentation, to enable Sprint to perform its ongoing certification process.
 

14.0        This section deleted.

15.0        CANCELLATION

 
  15.1         Cancellation for Cause.
 
  Sprint may cancel an accepted Order, in whole or in part, if Supplier fails or refuses to deliver Products or Services as ordered on the delivery date, or within 3 business days or if Supplier is not performing in accordance with Supplier-published Specifications as set forth in this Agreement. If an Order is cancelled pursuant to this Section 15.1, in whole or in  part, and the Deliverables have been shipped or delivered, Sprint will return the Deliverables at Supplier’s expense. Sprint may procure similar Products or Services from a third party, and Supplier must pay Sprint for the excess cost for the replacement Products or Services. If cancellation is partial, Supplier must continue the performance of the remaining portion of the Order.
   
  Sprint’s acceptance of all or any part of the Products or Services will not waive claims which Sprint may have for delays.
 

16.0        SERVICE AND DELIVERABLE WARRANTIES

 
  16.1        General Product and System Warranty
 

Supplier warrants to Sprint that any Product and any System:

 
a)       is new; 
   
  b)       conforms with the applicable Purchase Order;
 
c)       complies with the Specifications;

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d)       with respect to Software, is free from programming errors and material defects;
 
i. with respect to Equipment that is not Software, is free from defects in materials, workmanship and design;
 
ii. with respect to any Software or part thereof that has been licensed to Supplier by a third party, Supplier has the full power and authority to sublicense the third party software as part of its license grant to Sprint for the Software.;
 
iii. will perform and process date arithmetic and date/time data in a consistent and accurate manner, accepting and responding to two-digit year-date input, correcting or supplementing as necessary, and in a manner that is unambiguous as to century;
 
iv.  is suited for Sprint’s intended use as advised to Supplier; and
   
v.  is free from any lien or other encumbrance.
 

                16.2         Supplier’s General Product and System Warranty of a warranty,

                Sprint may return the System or Product to Supplier, at 120 Corporate Blvd, South Plainfield NJ 08854, for correction or replacement at Supplier’s discretion, even if the period to perform those corrections extends beyond the System or Product warranty period. Supplier’s Warranty is extended only to Sprint and not to Sprint’s Customers

 
                16.3        Interoperability Warranty
 

                Supplier warrants that any System and any Product will Interoperate with (i) the Products previously purchased under this Agreement.

 
                16.4        Backwards Compatibility Warranty
 

                Supplier warrants that any System or Product will be compatible with any Software Upgrade or Equipment Upgrade so that no changes are required to obtain the full functionality and compliance with the Specifications that existed before the installation of the Software Upgrade or the Equipment Upgrade.

                Supplier also warrants that any Software Upgrade or Equipment Upgrades will be Backwards Compatible (i) with all Revision Levels provided in the immediately preceding 2-year period and (ii) with the immediately preceding 2 Revision Levels.  

   
                16.5       Media Warranty
 
                Supplier warrants that all tapes, diskettes, or other media delivered to Sprint under this Agreement will be free of defects in materials and workmanship under normal use for a period of 90 days following Sprint’s acceptance. During the 90-day period, Sprint may return the defective media to Supplier, and Supplier will, at its expense, promptly replace the defective media with functionally equivalent new media.
 
                16.6        Non-Infringement Warranty
 

                Supplier warrants that it has the full power and authority to grant the Software licenses granted under this Agreement, and neither the license nor use of any Product or System, as permitted under this Agreement, will in any way constitute an infringement or other violation of any copyright, patent, trade secret, trademark, nondisclosure agreement, or any other intellectual property right or right of publicity.

 
                16.7        Replacement Deliverables
 

                Replacement or corrected Products or Systems are covered under all warranty provisions in this Agreement. The length of the warranty is governed by the original shipping date. By example, if a


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Product or System is returned after 4 years, the repaired or replaced Product or System will have 1 year left on a 5-year warranty.

 
  16.8        Services Warranty
 

                Supplier warrants that the Services will conform to the Specifications set forth in the applicable Exhibits, be provided in a workmanlike manner and that, Supplier’s employees, subcontractors, or agents assigned to provide Services under this Agreement have the proper expertise, skills, training, and professional education to perform the Services in a professional manner and consistent with applicable industry standards.

                If there is a breach of a warranty of Section 17.8  Services Warranty), Supplier will promptly correct the defects or replace nonconforming Services at Supplier’s cost as outlined in the product warranty. If Supplier fails to promptly correct defects or replace nonconforming Services, Sprint’s remedy is to return Product or Service to company for refund.

 
  16.9        Supplier Personnel Warranty
 

                Supplier warrants that neither Supplier nor its personnel performing Services has any existing obligation that would violate or infringe upon the rights of third parties, including property, contractual, employment, trademark, trade secrets, copyright, patent, Confidential Information and non-disclosure rights, that might affect Supplier’s ability to fulfill its obligations under this Agreement.

 
  16.10 Supplier General Warranty. Supplier warrants the Products, Software and Services Sprint purchases and resells, and which are installed within the Territory, in accordance with the Agreement and any additional Product-specific warranty provisions.
     
17.0 SECURITY  
 
17.1        Virus Warranty
 

                Supplier warrants that any System or Product delivered to Sprint under this Agreement will be free from any viruses, disabling programming codes, instructions, or other such items that may interfere with or adversely affect Sprint’s permitted use of the System or Product.

 
  17.2         Illicit Technology Remedies
 

                Supplier warrants that Software will not: (i) contain any hidden files; (ii) replicate, transmit or activate itself without control of a person operating the computing equipment on which it resides; (iii) alter, damage or erase any data or computer programs without control of a person operating the computing equipment on which it resides; and (iv) contain any Illicit Code. If any Software contains any Illicit Code, then notwithstanding anything to the contrary in this Agreement, Supplier will be in default and no “right to cure” period will apply. To protect Sprint from any damages that may be intentionally or unintentionally caused by the introduction of Illicit Code to Sprint’s computer network, Supplier will not install, use or execute any software on any Sprint computer without Sprint’s written approval. Supplier acknowledges that it does not have any right to electronically repossess or use any self-help related to the Software.

 
17.3           Illicit Technology and Unmitigated Vulnerabilities Warranty
 

                The Supplier warrants that to the best of its knowledge the Deliverables will not contain any Illicit Technology or Unmitigated Vulnerability.

 
  17.4           Scanning Requirements and Fixes
 

                Sprint may request that Supplier provide Documentation that demonstrates that the applicable Deliverable has been scanned for Illicit Technology and Unmitigated Vulnerabilities prior to delivery to Sprint. The Supplier shall show that the most recent, industry-standard signature files available, as of the applicable delivery date, were used to perform the security scan. The Documentation provided by Supplier should include a description of applicable security testing, audit trails of anti-virus detection and


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vulnerability scanner tolls, with date/time of the signature file used for each scan. If an Unmitigated Vulnerability has been published, but Supplier Software patches, hot-fixes, or system updates have not been publicly released, the Supplier will provide risk mitigation procedures in the form of compensating controls until such a time that the Supplier provides an industry-approved resolution at the Supplier’s expense.

 
      18.0             PRODUCT CHANGES AND FEATURE ENHANCEMENTS
 
                  18.1         Equipment Changes
 

                Supplier will provide Equipment Feature Enhancements to Sprint, if requested by Sprint, and Sprint will pay for those Equipment Feature Enhancements consistent with Section 5.0 (Pricing and Terms of Sale). Sprint is not obligated to pay for any Equipment Feature Enhancement supplied to Sprint at the initiative of Supplier unless Sprint elects to utilize any new feature included therein. The fee for any Equipment Feature Enhancement utilized by Sprint will be due within 30 days of Sprint’s notice to Supplier that Sprint has elected to use the new feature and has accepted the new feature under Section 9.0 (Inspection, Acceptance and Quality Control). If Supplier issues an Equipment Upgrade that is combined with an Equipment Feature Enhancement (collectively the “Equipment Combined Release”), Supplier will provide the Combined Release to Sprint at no charge, unless and until Sprint elects to use the Equipment Feature Enhancement included within the Combined Release and has accepted the new feature under Section 9.0 (Inspection, Acceptance and Quality Control).

 
                  18.2        Software Changes
 

                Supplier will provide Software Upgrades to Sprint at no charge during the applicable warranty period. Supplier will provide Software Feature Enhancements to Sprint, if requested by Sprint, and Sprint will pay for those Software Feature Enhancements consistent with Section 5.0 (Price and Terms of Sale). Sprint is not obligated to pay for any Software Feature Enhancement supplied to Sprint at the initiative of Supplier unless Sprint elects to utilize any new feature included therein. If Sprint decides to acquire the Software Feature Enhancement, it will operate on Products previously purchased from Supplier. The fee for any Software Feature Enhancement utilized by Sprint will be due within 45 days of Sprint’s notice to Supplier that Sprint has elected to use the new feature and has accepted the new feature under Section 9.0 In section 9 we deleted acceptance.(Inspection, Acceptance and Quality Control). If Supplier issues a Software Upgrade that is combined with a Software Feature Enhancement (collectively the “Software Combined Release”), Supplier will provide the Combined Release to Sprint at no charge, unless and until Sprint elects to use the Software Feature Enhancement included within the Combined Release and has accepted the new feature under Section 9.0 (Inspection, Acceptance, and Quality Control). Any Software Feature Enhancement is subject to Section 20.0 (License of Software).                       

                  18.3        Supplier’s Notice Obligations 
 
  Supplier will give Sprint at least _30__ days’ prior written notice of the introduction of any Equipment Feature Enhancement, Equipment Combined Release, Software Feature Enhancement, or Software Combined Release. In addition, Supplier may not materially modify Deliverables that Sprint is expected to purchase or license under this Agreement without at least 30_ days’ prior written notice of to Sprint. Examples of material modifications include: (i) modifying the operation of the Deliverables from the level of performance set forth in the Specification; (ii) improving the performance or functionality of Deliverables; and (iii) engineering changes that improve installation or configuration of the Deliverables. In addition to any other obligations in this Section 18.3 Supplier’s Notice Obligations), every January 1 and July 1 of each year, Supplier will provide Sprint with its development plans for the Deliverables previously ordered by Sprint.
 
18.4 Supplier’s Obligations if Adverse Effect on Other Deliverables

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                If any Equipment Upgrade, Equipment Feature Enhancement, Equipment Combined Release, Software Upgrade, Software Feature Enhancement or Software Combined Release has the effect of preventing any Product or System from performing in accordance with the Specifications for that Product or System or otherwise adversely affects the functionality or features of any Product or System, Supplier will, at its own expense, promptly take whatever corrective action may be necessary to ensure proper Product or System functioning.

19.0        DISCONTINUATION  OF PRODUCT

 
                  19.1  Supplier will manufacture any Product for at least 5 years from the Effective Date at current or better pricing for said parts. In the event that a product is discontinued, supplier agrees to either make best efforts to make said product available for SPRINT’s purposes, and/or offer a replacement product that meets the capabilities of the discontinued product as well as the backward compatibility requirements for products on SPRINT’s network, at current at better pricing for said parts. During the term of this Agreement, Supplier agrees to provide Sprint at least 180 days’ notice of its intent to discontinue any Product supplied by Supplier to Sprint.
 
                  19.2         Replacement Parts 
 

                Supplier will continue to manufacture or otherwise provide replacement parts to support any Product purchased by Sprint for at least 5 years after shipment to Sprint of the particular Product. By example, Supplier will provide replacement parts and support Product shipped to Sprint on May 1, 2000 until at least May 2, 2005.

 
                  19.3        Remedies 
 

                If Sprint determines, within 45 days of the installation of the first units that a Product or System is chronically defective, Supplier will accept return of all chronically defective Product or System and replace the chronically defective Product or System according to Exhibit E (Warranty and Maintenance Services) or provide a refund of the amount paid.

 
          20.0         PERSONNEL
 
                 20.1       Required Compliance with Agreement.
 

                Supplier will require Supplier Personnel to comply with the applicable terms of this Agreement. The term “Supplier Personnel” means Supplier’s employees, subcontractors and agents assigned to provide Services.

 
                  20.2       Removal.
 

                Sprint may reject or require Supplier to remove Supplier Personnel from providing Services to Sprint for any lawful reason. Supplier must remove Supplier Personnel promptly upon Sprint’s written request. Sprint is not obligated to pay for Services provided by the removed Supplier Personnel following Sprint’s request for removal. Sprint is not obligated to pay for any costs associated with replacing Supplier Personnel.

 
                 20.3        Supplier’s Representative.
 

                Supplier will designate a member of Supplier Personnel as Supplier’s representative (“Supplier Representative”) for each Order. The Supplier Representative will be available to Sprint on a priority basis and will have the authority to monitor the quality of Services, resolve any disputes, and approve change requests.

 
                  20.4       Safety.
 

                Supplier must immediately notify Sprint by telephone (followed by written confirmation within


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24 hours) of any Deliverable, which fails to comply with any applicable safety rules or standards of any government agency or which contains a defect which could present a substantial risk to the health of the public or the environment.

 
                  20.5        Weapons Prohibition.
 

                Supplier Personnel are prohibited from carrying weapons or ammunition onto Sprint’s premises or using or carrying weapons while performing Services or attending Sprint-sponsored activities. Supplier further agrees to comply with any postings or notices located at Sprint’s premises regarding safety, security or weapons.

 
                  20.6        Compliance with Laws
 
  Each party will comply with all applicable laws, orders, codes, and regulations in the performance of this Agreement. Supplier will obtain all applicable permits relating to its ability to perform its obligations under this Agreement.
 
                  20.7        Public Software  
 
  Supplier will not use in the performance of Services or incorporate into any Product any Software that refers to, or is based upon, a license from GNU Public License, the Free Software Foundation, or that is “copylefted.”
 
                  20.8         No Unapproved Subcontractors
 
  Supplier may not subcontract any portion of Services without Sprint’s prior written approval, and will remain fully liable for the work performed and for the acts or omissions of any approved subcontractor. Supplier will require any approved subcontractor to comply with the applicable terms of this Agreement.
 
                  20.9        Security Adherence and Access Rights.
 

                Supplier will adhere to Sprint security requirements. Security access rights to Sprint premises will be designated by Sprint in accordance with Sprint security guidelines. Supplier will abide by all procedures and policies applicable to Sprint premises access rights. All Supplier Personnel will receive a security badge from Sprint prior to performing any portion of Services on Sprint’s premises and will be required to wear such badge at all times while on Sprint’s premises.

 
                  20.10      Investigations.
 

                Any security breach will be referred to Sprint’s Corporate Security. Supplier must make Supplier Personnel available to Sprint for purposes of investigating accidents or incidents.

 
20.11 Background Checks
 

                Supplier will perform reasonable background checks on Supplier Personnel. Supplier Personnel will not include anyone with a positive drug test or felony conviction. Supplier must immediately remove a Supplier Personnel with a felony conviction or positive drug test from any Sprint project.

 
21.0                          GENERAL REPRESENTATIONS AND WARRANTIES
 
21.1        Formation; Authorization; Litigation.
 
  Each party represents and warrants that:
 
a)        it is validly existing and in good standing, and is qualified  to do business in each jurisdiction that it will conduct business under this Agreement, unless the failure to do so will not have a material adverse effect on its

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  ability to perform under this Agreement;
   
b)          the signing, delivery and performance of this Agreement by the party has been properly authorized; and
 
c)          there are no claims, actions or proceedings pending or, to the knowledge of the party, threatened against or affecting the party that may, if adversely determined, reasonably be expected to have a material adverse effect on the party’s ability to perform.
 
21.2        No Violations; Approvals.
 
  Each party represents and warrants to the other party that neither the execution, delivery or performance of this Agreement:
 
(a) will violate any existing law, regulation, order, determination or award of any governmental authority or  arbitrator, applicable to the party;
 
(b) will violate or cause a breach of the terms of the party’s  governing documents or of any material agreement that binds the party;
 
(c) will require approval or filing with any governmental authority; or
 
(d) will require any license to use the intellectual property of a third party, other than any licenses currently held by a party with the good faith belief that the licenses will  endure or are renewable and will be renewed by the party for the Agreement term.
 
21.3          Litigation
 
  There are no claims, actions, suits or proceedings pending or, to the knowledge of the party, threatened against or affecting the party which could, if adversely determined, reasonably be expected to have a material adverse effect on the party’s ability to perform its obligations under this Agreement.
 
                22.0        SUPPLIER ADDITIONAL OBLIGATIONS  
 

                Supplier agrees to provide to Sprint the support Services detailed in Exhibit A. Additional Supplier Warranties and Services that must be provided by Supplier are included in Exhibit A.

 
          23.0        OWNERSHIP
 
                  23.1        Sprint Owned Property.
 

                All tangible and intangible items or information that Supplier receives from Sprint or from a third party on behalf of Sprint, or that is paid for, in whole or in part, by Sprint,other than Software licensed to Sprint by Supplier under Section 20.0, is the property of Sprint (“Sprint-Owned Property”). Supplier must return all Sprint-Owned Property to Sprint upon Sprint’s request, or upon the termination or expiration of this Agreement, whichever is earlier. Supplier is responsible and must account for all Sprint-Owned Property, and bears the risk of loss while the property is in Supplier’s possession. Sprint-Owned Property may only be used in connection with Supplier’s performance of its obligations under this Agreement. Sprint may inspect any agreements and associated records including, without limitation, invoices by which Supplier acquires Sprint-Owned Property.

 
                  23.2        Developed Property
 

                Supplier assigns and agrees to assign and disclose to Sprint all intellectual property generated, conceived or developed under this Agreement including, without limitation, inventions conceived or reduced to practice and any resulting patents. Any works of authorship in any form of expression including, without limitation, manuals and software, belong exclusively to Sprint. If, by operation of law, the ownership of developed property does not automatically vest in Sprint, Supplier will take necessary steps to assign ownership to Sprint. Supplier will provide reasonable assistance to Sprint to secure


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intellectual property protection, including, without limitation, assistance in the preparation and filing of any patent applications, copyright registrations, and the execution of all applications, assignments or other instruments for perfection or protection of title. Supplier will pay Supplier Personnel any compensation due in connection with the assignment of any intellectual property or invention developed under this Agreement. Supplier warrants to Sprint that Supplier Personnel are and will continue to be throughout the term of this Agreement subject to agreements that will secure Sprint’s rights under this subsection. A.Patent License In consideration for the purchase of Deliverables from Supplier, Supplier grants to Sprint, under patents associated with the Product or parts thereof in which Supplier owns or has an unconditional and absolute right to license, a fully paid up, world-wide, non-exclusive license to utilize Supplier’s patents. The patent license includes the right to use the licenses purchased and any combinations of the Product with other products and Software that are used by Sprint. The patent license includes those patents existing on the Effective Date and those patents which come into existence during the term of this Agreement. The patent license will continue for the entire unexpired term of the patent.

 
  24.0                CONFIDENTIAL INFORMATION
 
                  24.1        General.
 

                Each party acknowledges that while performing its obligations under this Agreement it may have access to Confidential Information of the other party. A party receiving the Confidential Information has a duty to protect the Confidential Information for 2 years from the first date that the Confidential Information was received.

 
                  24.2        Confidentiality
 
  Each party will keep the Confidential Information of the other confidential and will only use such the Confidential Information to perform their respective obligations under this Agreement. Each party must protect the Confidential Information of the other from both unauthorized use and unauthorized disclosure by exercising the same degree of care that is used with respect to information of its own of a similar nature, except that the receiving party must at least use reasonable care. Upon cessation of work, or upon written request, each party will return or destroy all the Confidential Information of the other. A party reserves the right to require upon 5 days notice the other party to have its personnel with access to the Confidential Information sign Exhibit G.
 
                  24.3 Exceptions.
 

                                Confidential Information does not include information that is: 

 
                                                  a            rightfully known to the receiving party before negotiations leading up to this Agreement;
 

                                                  b            independently developed by the receiving party without any reliance on the disclosing party’s Confidential Information;

                                                  c            part of the public domain or is lawfully obtained by the receiving party from a third party not under an obligation of confidentiality;

                                                  d            required to be disclosed by law or legal process, so long as the receiving party uses reasonable efforts to cooperate with the disclosing party in limiting disclosure;

                                                  e            free of confidentiality restrictions by agreement of the disclosing party; or

                                                  f            is governed by different non-disclosure provisions than this Agreement.

 
                  24.4         Third Party Confidential Information.

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                Neither party will disclose to the other any Confidential Information of a third party without the consent of such third party.

 
                  24.5        Information Security.
 

                To protect Sprint’s Confidential Information from unauthorized use, including disclosure, loss or alteration, Supplier will: (i) meet the Security Standards; and (ii) inventory and test Security Standards before accepting Sprint’s Confidential Information; and (iii) strictly adhere to standards contained in Sprint’s most current Detailed Security Requirements Job Aid that correlate to the specific Services or Deliverables provided by Supplier. Sprint’s Detailed Security Requirements Job Aid is posted on http://www.sprint.com/supplierdiversity/securitypolicy/shtml and will be provided to Supplier upon request.

                Suppliers who need to access, process, use, store, or transmit sensitive information will be subjected to review of their demonstrated capability to protect such information. Upon Sprint’s reasonable request, Supplier will provide information to Sprint to enable Sprint to determine compliance with Section-24 above. As part of Sprint’s assessment of Supplier’s internal control structure, Supplier may be requested, without limitation, to answer security questionnaires or conduct scans of servers, databases and other network hardware.

                Supplier will promptly inform Sprint of any known or suspected compromises of Sprint’s Confidential Information as a result of Supplier’s failure to comply with the Security Standards.

                On a periodic basis, but in no event more than twice in any 12-month period, Sprint may, upon 10 days notice, perform a vulnerability assessment to determine Supplier’s compliance with the Security Standards. If Sprint has a reasonable basis to believe that Supplier has breached or is likely to breach the Security Standards, Sprint may, upon 5 days notice, perform a vulnerability assessment, which assessment will be in addition to any assessment in the ordinary course.

                At Sprint’s reasonable request, Supplier will promptly cooperate with Sprint to develop a plan to protect Sprint’s Confidential Information from failures or attacks on the Security Standards, which plan will include prioritization of recovery efforts, identification of and implementation plans for alternative data centers or other storage sites and backup capabilities.

                If Supplier fails to meet the obligations in this Section 19.5 Information Security.

                Sprint will notify Supplier of this failure as provided in this Agreement. Supplier will have 30 days from receiving that notice to correct the cause for such failure. If Supplier has failed to remedy its failure within this 30-day period, Sprint has the right to terminate this Agreement as provided in Section (4.3  Termination for Cause.) 

 
                24.6         No Publicity.
 

                Supplier will not, without Sprint Corporate Communication’s prior written consent, make any news release, public announcement, denial or confirmation of this Agreement, its value, or its terms and conditions, or in any other manner advertise or publish this Agreement, its value, or its terms and conditions. Nothing in this Agreement is intended to imply that Sprint will agree to any publicity whatsoever, and Sprint may, in its sole discretion, withhold its consent to any publicity.

 
                24.7        Injunctive Relief.
 

                Each party agrees that the wrongful disclosure of Confidential Information may cause irreparable injury that is inadequately compensable in monetary damages. Accordingly, either party may seek injunctive relief in any court of competent jurisdiction for the breach or threatened breach of this Section 19.7 Injunctive Relief.) in addition to any other remedies in law or equity.

 
                      a.     Testing and Evaluation
   
  Sprint may provide Confidential Information to a third party to perform testing and evaluation Services if the third party agrees to protect the Confidential Information

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  using restrictions substantially similar to the requirements of this Agreement.
 
25.0                                 LICENSE OF SOFTWARE  
 

                25.1        Except as may be provided in any Purchase Order,  Supplier grants to Sprint a non-exclusive, fully paid-up for Sprint’s own use, perpetual license to use the object code of the Software with the right to sublicense the object code to Sprint Customers, provided that the object code will only be used in connection with the Products for which it was acquired and by Sprint’s consultants and agents on a need-to-know basis A sublicense in language acceptable to Supplier shall be included with any Software provided to Sprint’s Customers. In the case of Software included in any appliance, the price of the appliance includes the Software license. In the case of Software not included in any appliance, e.g., PRIISMS, separate Software License fees will be negotiated on a case-by-case basis. Any restrictions on use, term of license and other provisions may be agreed to in any Purchase Order and incorporated into a Software license as provided below.

                Sprint acknowledges that Supplier claims that the Software is proprietary to Supplier and third parties from whom Supplier has acquired license rights. Title to the Software will remain with Supplier or the third-party owners. Sprint will enter into a Software License agreement with its Customers, prior to providing the object code of the Software. The Software License will be either a separate agreement or a master sublicense agreement under which various products are sublicensed by Sprint and will contain provisions that are no less restrictive than those of this Section 25 LICENSE OF SOFTWARE).

                Sprint may copy the object code of the Software for the purpose of distributing it to its Customers. Additionally, Sprint, its distributors, Customers and prime contractors may copy the object code of the Software for back-up or archival purposes. Each copy of the Software made by Sprint, its distributors, Customers, and prime contractors will include the proprietary notice contained in the Software as delivered by Supplier.

                During the warranty period, and if Sprint has purchased software maintenance Services from Supplier, Sprint may distribute copies of any Software correction, modification, or update provided to Sprint or its Customers at no additional cost.

                Sprint will not, and will not assist any third party to, reverse assemble, reverse compile or reverse engineer the Software.

                The expiration or termination of this Agreement will not terminate the right of Sprint or its Customers to use the Software.

                Supplier warrants that it is not necessary for Sprint, or its Customers to obtain a license from any third party in order to use the Products, other than the license granted by Supplier under Sections LICENSE OF SOFTWARE) and 22.0 USE OF PRODUCTS).

                Failure to comply with Section 25 LICENSE OF SOFTWARE) is a material breach of this Agreement.

 
 
25.2        Software. Sprint may resell Software only to End Users which (i) acquire from Sprint the title to the accompanying Equipment Products, or (ii) hold title to the companying Equipment Products acquired from another party. Additionally, Sprint may resell Software only to End Users which have signed either a Software License or a separate contractual commitment with Sprint that incorporates the terms of the Software License; provided, this requirement does not apply to Products installed by End Users that utilize Shrinkwrap Licenses.

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27.0                USE OF PRODUCTS
 

                Subject to applicable license fees, the Products purchased under this Agreement may either be used by Sprint or Sprint may sell, lease, sublicense or distribute in any manner the Equipment or Software (as applicable) directly to its Customers. Supplier licenses to Sprint and authorizes Sprint to sublicense to Customers the right to use any intellectual property, if any, contained in the Products.

                Sprint may make copies of Product Documentation if Sprint reproduces Supplier’s proprietary notice on each copy.

 
28.0                INDEMNITY
 
                        28.1         Supplier’s General Third Party Indemnity
 

                Except for claims covered by Section 23.3 Supplier’s Intellectual Property Indemnification), Supplier will indemnify and defend Sprint, the Sprint Affiliates, and their respective directors, officers, agents, employees and customers (each, a “Sprint Indemnitee”) from and against all claims, damages, losses, liabilities, costs, expenses and reasonable attorney’s fees (collectively “Damages”) arising out of a claim by a third party against a Sprint Indemnitee resulting from any act or omission of Supplier under or related to this Agreement.

 
                        28.2         Sprint’s General Third Party Indemnity
 

                Sprint will indemnify and defend Supplier, its affiliates, and their respective directors, officers, agents and employees (each, a “Supplier Indemnitee”) from and against all Damages arising out of a claim by a third party against a Supplier Indemnitee to the extent resulting from or alleged to have resulted from any act or omission of Sprint under or related to this Agreement.

 
                        28.3         Supplier’s Intellectual Property Indemnification
 

                Supplier will indemnify and defend the Sprint Indemnitees from and against all Damages arising out of any claim that the Products and any resulting use or sale of any Products constitutes an infringement of any patent, trademark or copyright of any country or the misappropriation of any trade secret. In addition, if Sprint’s right to sell or use the Products is enjoined, Supplier must, at Sprint’s option and Supplier’s expense either,

 
  a)             procure for Sprint and its customers the right to use the Products;         
   
  b)             replace the Products with equivalent non-infringing products; modify the Products so they become non-infringing; or
   
  c)             remove the Products and refund the price paid by Sprint for the Products, including incidental charges, such as transportation, installation and removal.
   
                        28.4         Indemnification Procedures
 
  a) Promptly, upon becoming aware of any matter which is subject to the provisions of Section 1 (a “Claim”), the party seeking indemnification (the “Indemnified Party”) must give notice of the Claim to the other party (the “Indemnifying Party”), accompanied by a copy of any written Documentation regarding the Claim received by the Indemnified Party.
     
  b) The Indemnifying Party will, at its option, settle or defend, at its own expense and with its own counsel, the Claim. The Indemnified Party have the right, at its option, to participate in the settlement or defense of the Claim, with its own counsel and at its own expense; but the Indemnifying Party will have the right to control the settlement or defense. The Indemnifying Party will not enter into any settlement that imposes any liability or obligation on the Indemnified Party without the Indemnified Party’s prior written consent. The parties will cooperate in the settlement or defense and give each other full access to all relevant

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  information.
     
  c) If the Indemnifying Party (i) fails to notify the Indemnified Party of the Indemnifying Party’s intent to take any action within 30 days after receipt of a notice of a Claim or (ii) fails to proceed in good faith with the prompt resolution of the Claim, the Indemnified Party, with prior written notice to the Indemnifying Party and without waiving any rights to indemnification, including reimbursement of reasonable attorney’s fees and legal costs, may defend or settle the Claim without the prior written consent of the Indemnifying Party. The Party will reimburse the Indemnified Party on demand for all Damages incurred by the Indemnified Party in defending or settling the Claim.
     
  (d) Neither party is obligated to indemnify and defend the other with respect to a Claim (or portions of a Claim):
     
    (i) if the Indemnified Party fails to promptly notify the Indemnifying Party of the Claim and fails to provide reasonable cooperation and information to defend or settle the Claim; and
       
    (ii) if, and only to the extent that, that failure materially prejudices the Indemnifying Party’s ability to satisfactorily defend or settle the Claim.
       
  29.0                                 LIMITATION OF DAMAGES
 

                                Neither party will be liable to the other for consequential, indirect, special, punitive or exemplary damages for any cause of action, whether in contract, tort or otherwise, except for:

     
    a) Damages for which a party has an obligation of indemnity under this Agreement;
       
    b) Fraudulent act or omission; or
       
    c) Any breach of Confidential Information section, Sprint Marks section, or Indemnity section.
       

  29 .1                Supplier Performance

                Consequential damages include, but are not limited to, lost profits, lost revenues and lost business opportunities, whether or not a party was or should have been aware of the possibility of these damages.

 
  30.0                    INSURANCE
 
  30.               Required Insurance Coverage.
 

                Supplier will obtain and keep in force during the term of this Agreement not less than the following insurance: 

     
  a) Commercial General Liability insurance, including bodily injury, property damage, personal and advertising injury liability, and contractual liability covering operations, independent contractor and products/completed operations hazards, with limits of not less than $1,000,000 combined single limit per occurrence and $2,000,000 annual aggregate, naming Sprint, its officers, directors and employees as additional insureds;
     
  b) Workers’ Compensation as provided for in any jurisdiction where work is performed by Supplier Personnel who are engaged in the performance of Services under this Agreement with an Employer’s Liability limit of not less than $1,000,000 for bodily injury by accident or disease;
     
  d) Umbrella/Excess Liability with limits of not less than $2,000,000 combined

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    single limit in excess of the above-referenced Commercial General Liability, Employer’s Liability and Business Auto Liability.
     
                30.2        Certificates of Insurance.
 

                All required insurance policies must be taken out with financially reputable insurers reasonably acceptable to Sprint and licensed to do business in all jurisdictions where Services are provided under this Agreement. Supplier will provide Sprint with a certificate of insurance, satisfactory in form and content to Sprint, evidencing that all the required coverages are in force and have been endorsed to provide that no policy will be canceled or materially altered without first giving Sprint 7 days’ prior notice. Nothing contained in this Section 25.0 INSURANCE), limits Supplier’s liability to Sprint to the limits of insurance certified or carried.

 
                25.3        No Liability Limit
 
  Nothing contained in this Section 25 limits Supplier’s liability to Sprint to the limits of insurance certified or carried.
 

32.0      RIGHT OF AUDIT

 
  a)         Records Maintenance.  Supplier will maintain complete auditable records of all financial and non-financial transactions relating to this Agreement for a period of at least 3 years after the termination or expiration of this Agreement. Supplier will provide to Sprint, its internal and external auditors, inspectors and regulators access, at reasonable times, to sites where either Supplier or any of its subcontractors are providing Services, to personnel, and to data and records relating to the Services for any reasonable business purpose, including audits, examinations and inspections relating to (a) the accuracy of charges and invoices, (b) Supplier’s compliance with applicable laws or regulations, (c) Supplier’s compliance with the terms of this Agreement, (d) Supplier’s compliance with safety and security procedures with respect to its facilities, if any , and Sprint Data, and (e) the conduct of Supplier’s operations and procedures.
   
  b)         Procedures.
   
  Sprint will provide Supplier with at least 5 business days’ prior notice of an audit. Supplier will make the information reasonably required to conduct the audit available on a timely basis and assist Sprint and its internal or external auditors as reasonably necessary. Supplier will not be responsible for Sprint’s expenses incurred for an audit, unless the audit discloses (i) an overbilling in excess of 5% during the period covered by the audit or (ii) a material non-compliance with this Agreement, in which case Supplier will pay for the entire cost of the audit. Supplier will immediately, but in no event more than 10 days after discovery of an over billing, reimburse Sprint for any overbilling disclosed by the audit for the preceding 365 day period from the presentation of audit by SPRINT of overbilling claim together with simple interest for the period of time between the date on which overpayment was made and the date on which Sprint was reimbursed at a rate of 1% per month.
   
33.0    NOTICES
 

Unless otherwise provided, notices provided under this Agreement must be in writing and delivered by (i) certified mail, return receipt requested, (ii) hand delivered, (iii) facsimile with receipt of a “Transmission OK” acknowledgment, (iv) e-mail, or (v) delivery by a reputable overnight carrier service (in the case delivery by facsimile or e-mail the notice must be followed by a copy of the notice being delivered by a means provided in (i), (ii) or (v)). The notice will be deemed given on the day the notice is received. In the case of notice by facsimile or e-mail, the notice is deemed received at the local time of the receiving machine, and if not received, then the date the follow-up copy is received. Notices must be delivered to


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the following addresses or at such other addresses as may be later designated by notice:

 
Sprint:   Supplier:  
       
Sprint Jerry Beneventi, Group Manager   ION Networks  
6580 Sprint Parkway   Henry Hill  
Overland Park, KS   120 Corporate Blvd.  
Phone: 913-794-8881   South Plainfield, NJ 07080  
Fax: _________________________________   _________________________________  
    __________________________________  
    __________________________________  
    Fax: (908)546-3901  
       
With a copy to:   With a copy to:  
Sprint   ION Networks  
Sprint Law Department   Patrick E. Delaney  
Director, Procurement Law Group   120 Corporate Blvd.  
6450 Sprint Parkway   South Plainfield, NJ 07080  
Overland Park, KS 66251   _________________________________  
Mailstop: KSOPHN0312-3A321   __________________________________  
Fax: (913) 523-9848   Fax:  (908)546-  
    3901__________________________  

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      34.0                DISPUTE RESOLUTION
 
                              34.1        Option to Negotiate Disputes.
 

                The parties may, but are not obligated to, resolve any issue, dispute, or controversy arising out of or relating to this Agreement using the following procedures. Any party may give the other party notice of any dispute not resolved in the normal course of business. Within 10 days after delivery of such notice, representatives of both parties may meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute by the respective representatives of both parties within the time frames and escalation process set forth below:

 
    Sprint   Supplier  
                 
Within 10 days   Jerry Beneventi   Brent Kephart  
    Group Manager   Account Executive  
           
Within 20 days   Tom Gennarelli   Henry Hill  
    Director   VP of Operations  
           
Within 30 days   Marvin Motley   Patrick E. Delaney  
    Vice President   CFO  
           
                If a party intends to be accompanied at a meeting by an attorney, the other party will be given at least 2 business days’ notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this Section 23.0 are confidential and will be treated as compromise and settlement negotiations for purposes of the Federal Rules of Evidence and State Rules of Evidence.
 
                              34.2        Continuing Performance.
 

                Both parties  will continue performance during the pendency of any dispute, unless either party terminates this Agreement under Section 4.3 (Termination for Cause).

 
                              34.3        Forum Selection.
 

                Except to the extent necessary for Sprint to enforce indemnity or defense obligations under this Agreement, any court proceeding brought by either party must be brought, as appropriate, in Kansas District Court located in Johnson County Kansas, or in the United States District Court for the District of Kansas in Kansas City, Kansas. Each party agrees to personal jurisdiction in either court.

 
                              34.4        Waiver of Jury Trial.
 

                Each party waives its right to a jury trial in any court action arising among the parties, whether under this Agreement or otherwise related to this Agreement, and whether made by claim, counterclaim, third party claim or otherwise.

                If for any reason the jury waiver is held to be unenforceable, the parties agree to binding arbitration for any dispute arising out of this Agreement or any claim arising under any federal, state or local statutes, laws or regulations, under the applicable commercial rules of the American Arbitration Association and 9 U.S.C. § 1, et. seq. Any arbitration will be held in the Kansas City, Missouri


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metropolitan area and be subject to the Governing Law provision set forth in Section 36.11 Governing Law.). Discovery in the arbitration will be governed by the local rules applicable in the United States District Court for the District of Kansas.

 
                34.5        Attorney’s Fees.
 

                The prevailing party in any formal dispute will be entitled to reasonable attorney’s fees and costs, including reasonable expert fees and costs. If the prevailing party rejected a written settlement offer that exceeds its recovery, the offering party will be entitled to its reasonable attorney’s fees and costs.

 
      35.0                GENERAL
 
                35.1        Business Conduct Code
 
Supplier agrees to conduct business with Sprint in an ethical manner that is consistent with The Sprint Principles of Business Conduct for Consultants, Contractors, and Suppliers, which Supplier acknowledges has been provided to Supplier as a reference.
 
                 35.2         Ethics Code.
 

                Supplier agrees to conduct business with Sprint in an ethical manner that is consistent with The Sprint Principles of Business Conduct for Consultants, Contractors and Suppliers, which Supplier acknowledges has been provided to Supplier as a reference.

 
                 35.3         Supplier Performance.
 

                Time is of the essence in Supplier’s performance under this Agreement. Sprint is not obligated to pay for Products delivered or Services performed which do not conform to accepted Purchase Order.

 
                 36.4         Independent Contractor.
 

                Supplier and Supplier Personnel are independent contractors for all purposes and at all times. Supplier has the responsibility for, and control over, the methods and details of performing Services. Supplier will provide all tools, materials, training, hiring, supervision, work policies and procedures, and be responsible for the compensation, discipline and termination of Supplier Personnel. Supplier is responsible for the payment of all Supplier’s Personnel Compensation. Neither Supplier nor Supplier Personnel have any authority to act on behalf of, or to bind Sprint to any obligation.

                Supplier is solely responsible for payment of wages, salaries, fringe benefits and other compensation of, or claimed by, Supplier’s employees including, without limitations, contributions to any employee benefit, medical or savings plan and is responsible for all payroll taxes including, without limitation, the withholding and payment of all federal, state and local income taxes, FICA, unemployment taxes and all other payroll taxes. Supplier is also solely responsible for compliance with applicable Workers’ Compensation laws with respect to maintenance of workers’ compensation coverages on Supplier’s employees. Supplier will indemnify and defend Sprint from all claims by any person, government or agency relating to payment of taxes and benefits, including without limitation, any penalties and interest which may be assessed against Sprint. Supplier will similarly indemnify and defend Sprint from all claims by any person or governmental agency which arise directly or indirectly from any failure by Supplier to comply with applicable Workers’ Compensation laws with respect to maintenance of workers’ compensation coverage on Supplier’s employees.

                 If Sprint determines that a Supplier-provided employee, agent or subcontractor is not providing satisfactory service, Sprint will advise Supplier and may require Supplier to remove that individual or subcontractor. Sprint will only pay for work actually performed by the removed individual or subcontractor prior to Sprint’s notice for removal and not for transportation or per diem costs associated with replacing the individual.

                Supplier will require its employees, agents and subcontractors to comply with the terms and conditions of this Agreement.


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              36.5                 Survival.  
 

                In addition to any other provisions that by their content are intended to survive the expiration or termination of this Agreement, the following sections will survive expiration or termination of this Agreement for any reason:

                 2.2           Contractual Liability

                3.5           Transition Period

                3.7           Effect of Termination

                4.0           Price and Terms of Sale

                5.0           Invoicing, Payment and Offset Right

                16.0         Service and Deliverables Warranties

                23.0         Ownership

                24.0         Confidential Information

                25.0         License of Software

                28.0         Indemnity

                29.0         Limitation of Damages

                32.0         Right of Audit

                34.0         Dispute Resolution

                36.8         Assignment

                36.11       Governing Law

                36.13       Sprint Marks

                36.6       Severability.  If any provision of this Agreement is held to be unenforceable, the remaining provisions will remain in effect and the parties will negotiate in good faith a substantively comparable enforceable provision to replace the unenforceable provision.

 
                36.7        Waiver.  
 

The waiver of a breach of any term or condition of this Agreement will not constitute the waiver of any other breach of the same or any other term. To be enforceable, a waiver must be in writing signed by a duly authorized representative of the waiving party.

 
                36.8        Assignment.
 
  Sprint may assign any of its rights or delegate any of its obligations under this Agreement in whole or in part to any Sprint Affiliate without Supplier’s consent. Supplier may assign any of its rights or delegate any of its obligations under this Agreement in whole or in part to any Controlled Supplier affiliate, unless it is a Sprint Competitor, without the consent of Sprint. As used in this Section, “Controlled” means: (i) the power to vote 50% or more of the voting interests of an entity; or (ii) ownership of 50% or more of the beneficial interests in income or capital of an entity. “Sprint Competitor” means any entity that sells or resells telecommunications Services. But if Sprint believes that any assignee or proposed assignee of Supplier may not be capable of performing Supplier’s obligations under this Agreement, Sprint will place Supplier on notice of the objection and will have the right to request reasonable assurances of the assignee’s or proposed assignee’s capabilities including technical and financial capability to perform Supplier’s obligations, including representations and Warranties. If such assurances are not provided to Sprint’s sole satisfaction within 30 days of the request, then Sprint may reject

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  the assignment or proposed assignment and the assignment will be null and void. Otherwise, neither party may assign any of its rights or delegate any of its obligations under this Agreement in whole or in part without the other party’s prior written consent. This Agreement is binding on and enforceable by each party’s permitted successors and assignees. Any assignment in violation of this Section is null and void.
 
                36.9         Federal Acquisition Regulations; Executive Order 11246.
 

                If Sprint determines that an Order supports specific requirements included in a contract or subcontract between Sprint and the federal government, Supplier will be subject to certain federal acquisition regulations, such as requirements related to equal opportunity and affirmative action for Vietnam era veterans, and Executive Order 11246. Supplier will comply with the applicable laws as soon as it receives notice from Sprint or otherwise learns of its obligations under the applicable laws. Supplier will be subject only to those laws that must be included in all subcontracts as a matter of law.

       36.10 SUPPLIER DIVERSITY

 
       Sprint’s Supplier Diversity Policy.
 

Sprint’s supplier diversity policy requires that Certified Diverse Suppliers will have the maximum practicable opportunity to participate in providing Deliverables and Services to the fullest extent consistent with efficient performance of this Agreement. “Certified Diverse Supplier” means a supplier that has been certified by a qualified independent third party agency as a “service-disabled veteran-owned small business concern,” a “HUBZone small business concern,” a “small disadvantaged business concern,” a “women-owned small business concern” or a small business concern that is controlled by one or more “socially and economically disadvantaged individuals,” as those terms are used in 48 C.F.R. 2.101 or 13 C.F.R. 124.1003.

 
       Registration.
 

Before the Effective Date, Supplier must register at the following Sprint website: www.sprint.com\supplierregistration. A list of agencies that Sprint deems to be qualified independent third party agencies for certification purposes can be found at this website.

 
       Supplier Diversity Schedule.
 

If Supplier expects to receive $500,000 or more from Sprint under this Agreement, Supplier must comply with the terms and conditions of Schedule K (Supplier Diversity). Sprint may terminate this Agreement for cause if Supplier fails make a good faith effort to meet its diversity requirement set forth in Exhibit D (Supplier Diversity).

 
                36.11      Governing Law.
 

                This Agreement and the rights and obligations of the parties are governed by the laws of the state of Kansas, without regard to any conflict of laws principles. This Agreement will not be governed or interpreted in any way by referring to any law based on the Uniform Computer Information Transaction Act (UCITA), even if such law is adopted in Kansas.

 
                36.12      Remedies.
 

                All rights and remedies of the parties, under this Agreement, in law or at equity, are cumulative and may be exercised concurrently or separately. The exercise of one remedy will not be an election of that remedy to the exclusion of other remedies.

 
                36.13      Sprint Marks.
 

                Nothing in this Agreement grants Supplier the right to use any trademarks, tradenames or logos proprietary to Sprint. If Supplier is granted a right to use such marks, Supplier will do so only in strict compliance with Sprint guidelines provided by Sprint.


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                36.14      Supplier Marks.
 

                Sprint will not alter, obliterate, cover or remove any Supplier Marks, serial numbers or other Supplier symbols appearing on any Product or any associated packaging, labels, manuals or Documentation. All Supplier Marks are proprietary to Supplier.

 
                36.15      Material/Mechanic’s Lien
 

                Supplier will promptly pay for all services, materials, Product, and labor used under this Agreement, and will keep Sprint’s property free of claims or liens.

36.16       Construction

                This Agreement will not be construed against either party due to authorship. Except for the indemnification rights and obligations in Section 23.0 (INDEMNITY), nothing in this Agreement gives anyone, other than the parties and any permitted assignees, any rights or remedies under this Agreement.

36.17       Acquisitions and Divestitures.

If a company becomes a Sprint Affiliate (“New Sprint Affiliate”) and licenses a software product that is the same as, or substantially similar to, the Software Product pursuant to a license agreement between Supplier and New Sprint Affiliate (the “New Sprint Affiliate License Agreement”), Supplier agrees, at Sprint’s option, to consent to either (i) an assignment of the New Sprint Affiliate License Agreement from New Sprint Affiliate to Sprint, or (ii) New Sprint Affiliate’s transfer of the licenses acquired under the New Sprint Affiliate License Agreement to Sprint, or (iii) Sprint’s conversion of any of New Sprint Affiliate’s licenses to licenses granted under this Agreement. Supplier will not charge New Sprint Affiliate or Sprint any fees in connection with any assignment, transfer or conversion under this section.

                If Sprint divests a Sprint Affiliate or other portion of its business (“Divested Business”), such Divested Business will be entitled to continue using the Software Product for one year after the divestiture without either Sprint or the Divested Business incurring any additional license or other fees and will be entitled to continue purchasing under this Agreement for the remaining term of this Agreement.

                The Divested Business will be responsible for any Services and Deliverables purchased after the divestiture.

 
       37.0                ENTIRE AGREEMENT
 

                This Agreement, including all Orders, and all Exhibits listed below, contains the entire agreement between the parties as to the Products and Services and supersedes all prior or contemporaneous agreements, proposals, inquiries, commitments, discussions and correspondence, whether written or oral. This Agreement, the Orders and Exhibits may not be amended or modified except in writing, signed by a duly authorized representative of either party. If there is an inconsistency between the terms of this Agreement and the terms of any Order, the terms of this Agreement will control unless otherwise provided in the Order. If there is an inconsistency between the body of this Agreement and the exhibits, the body of this Agreement controls:

 
Exhibit A: Annual Volume Commitment Pricing   Exhibit B: Sprint Transportation Routing Guide  
       
Appliances Warranty, Maintenance & Support Options; PRIISMS      
       
Exhibit C: Supplier Diversity   Exhibit D: Warranty and Maintenance Services  
       
Exhibit E: Supplier Support Obligations   Exhibit F: Electronic Transactions  

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SIGNED:      
       
SPRINT/UNITED MANAGEMENT COMPANY   ION NETWORKS, INC.  
       
(signature)   (signature)  
       
(print name)   (print name) Patrick E. Delaney  
       
(title)   (title) Chief Financial Officer  
       
(date)   (date) February 24, 2005  

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EX-10.26 21 d63089_ex10-26.htm EXHIBIT 10.26

AGREEMENT OF SUBCONTRACT

 
  THIS AGREEMENT OF SUBCONTRACT (hereinafter referred to as this “Subcontract”), made as of the       day of             2004, is by and between General Dynamics Government Systems Corporation, a Delaware Corporation, having an office and place of business at Needham, Massachusetts (hereinafter called “GD” or the “Contractor”) and ION Networks Inc., a Delaware Corporation, having an office and place of business at 120 Corporate Blvd., South Plainfield, NJ 07080 (hereinafter called “ION” or the “Subcontractor”).
 

WITNESSETH, THAT:

WHEREAS IT IS UNDERSTOOD THAT:

 
                    (i) The United States of America (hereinafter referred to as the “Government”) acting through a duly authorized Contracting Officer of the Department of Defense has heretofore entered into a contract identified as Prime Contract No. DAAB07-01-D-H101 (which contract is hereinafter referred to as the “Prime Contract”) whereunder certain work was undertaken to be performed for the Government; and
 
                    (ii) The Contractor by such Prime Contract has undertaken the performance of all or a portion of such work; and
 
                    (iii) The Contractor desires to have the Subcontractor perform the work called for by this Agreement and the Subcontractor desires to so perform upon the terms and conditions in this Agreement set forth.
 

Now, therefore, in consideration of the foregoing and the undertaking hereinafter set forth, and subject to the approval of the Government, the parties hereto do hereby agree as follows:

                    This Subcontract is intended to establish and set forth any and all special or unusual conditions of the Subcontract upon which the Subcontract Parties have mutually agreed to:

                    1. All terms and conditions required by federal law and regulations in full text or by incorporation by reference,

                    2. All terms and conditions necessary for Subcontractor to fully satisfy all of its subcontract requirements under LTLCS3 Prime Contract Number DAAB07-01-D-H101 by and between the U.S. Army, CECOM and Contractor.                   

 
  ARTICLE 1:  Object and Scope of Subcontract
   
  The object of this Subcontract is to set forth the parties respective rights and obligations with regard to the design, fabrication, testing, delivery, maintenance and operation of

1



  the equipment, materials and services to be supplied hereunder when and as provided in the Price Schedule and Statement of Work (SOW) included herein.
   
  ARTICLE 2:  Documents Comprising Subcontract
   
  The Subcontract is comprised of the following Subcontract Documents, each of which is an integral part hereof:
   
  2.1           Agreement of Subcontract
 

                                                Part I:             Special and General Provisions
                                                Part II:            Statement of Work
                                                Part III:           Attachments

                                                                             Attachment 1 - Price Schedule
                                                                             Attachment 2 - Representations, Certifications and Instructions
 

                    ARTICLE 3:    Interpretation and Precedence

 
                    3.1  In the event of a conflict with or inconsistencies between the provisions of this Subcontract, such conflicts or inconsistencies shall be resolved by giving precedence to the various portions of the Subcontract in the following order:
   
  3.1.1        Articles            1 through 7
3.1.2        Part I:               Special and General Provisions
3.1.3        Part II:              Statement of Work
   
                    3.2 The title and captions of any parts, sections or paragraphs of this Subcontract are for convenience or reference only and shall have no meaning in the construction or interpretation of this Subcontract.
 
                    3.3 This Subcontract incorporates one or more clauses by Reference with the same force and effect as if it were given in full text.
 

                    ARTICLE 4:  Controlling Law and Severability

 
                    4.1 Irrespective of the place of performance, this Subcontract shall be construed, interpreted and enforced and the rights of the Parties hereto shall be determined in accordance with the United Stated federal common law of government contracts as enunciated and applied by federal judicial bodies, boards of contract appeals and other judicial and quasi-judicial agencies of the Federal Government of the United States. To the extent that the federal common law of government contracts is not dispositive, the laws, without regard to its laws concerning conflicts of law, of the Commonwealth of Massachusetts, which is the State wherein this Subcontract was made, shall apply. Any dispute, controversy or claim, arising out of or in connection with this Subcontract, that

2



  cannot be resolved in accordance with the Disputes Clause hereof, shall be submitted to and finally resolved by a court of competent jurisdiction in the Commonwealth of Massachusetts.
 
                    4.2 Over and above the governing laws listed above, the Subcontractor is obligated to subscribe to the laws and regulations of the foreign state in which they are performing pursuant to this subcontract, and in Agreements between the U.S. Government and these foreign countries for work performance pursuant to this subcontract.
   
                    4.3 Any provision hereof which is held invalid or unenforceable shall not affect the validity or enforceability of any other provisions hereof. In the event that any provision of this Subcontract is held invalid or unenforceable, the Parties shall make every effort to mutually agree to and incorporate into the Subcontract by Modification, a new provision in regard to the same subject.
 

                    ARTICLE 5:    Communication and Authority

 
                    5.1 The Contractor’s duly authorized representative of the Contractor’s Contractual Relations Department shall be the only Contractor individual authorized to issue Subcontract changes and stop-work orders, altering the time or place of performance under the Subcontract, or otherwise varying the terms of the Subcontract. No other Contractor or Government communications shall have any contractual validity or be binding on the Contractor.
 
                    5.2 Except as otherwise specified herein, all correspondence, notices and approvals permitted or required hereunder shall be made to or by the duly authorized representative of parties as set forth below:
 

                                    Contractor:                Margery A. Cunningham
                                    Title:                           Subcontract Manager

                                    Subcontractor:          Patrick E. Delaney
                                    Title:                           CFO

 
                                    5.2.1 The Parties shall promptly notify each other in writing of any changes made to their respective designated representatives hereunder.
 

                    ARTICLE 6:    Integration and Merger

 
  This Subcontract constitutes the final and entire expressed agreements of the Parties concerning the subject matter hereof, and supersedes all prior negotiations, discussions, representations, correspondence, promises or agreements, either written or oral, that

3



  may have been made in connection with the subject matter hereof. This Subcontract or any Contract Document which is a part hereof may only be amended by written agreement of the Parties. The only person authorized to modify this Subcontract on behalf of Contractor is the duly authorized representative of the Contractual Relations Department as specified in Article 5.
   
  ARTICLE 7:    Force and Effect
   
  This Subcontract shall enter into full force and effect and shall be binding on the Parties upon signature by the duly authorized representatives of the Parties. The Effective Date shall be the date specified in the attestation below:
   
  ATTESTATION
   
  IN WITNESS WHEREOF, the Parties hereto have caused this Subcontract to be signed by their duly authorized representatives as of the day and year first written.
 

                  GD GOVERNMENT SYSTEMS CORPORATION
                  Network Systems
                  (Contractor)

 
                  BY: _____________________________ WITNESS:  __________________________
   
                  NAME: __________________________  DATE: _____________________________
   
                  TITLE: ___________________________  
   
                  DATE: ___________________________  
 

                  ION Networks Inc.
                  (Subcontractor)

 
                  BY: ______________________________ WITNESS:  __________________________
   
                  NAME: Patrick E. Delaney ___________  DATE: _____________________________
   
                  TITLE: CFO ______________________  
   
                  DATE: ___________________________  
 
                  The Effective Date of this Subcontract is:                                                  

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PART I
 
SPECIAL AND GENERAL PROVISIONS
 
SPECIAL PROVISIONS
 
1.0   SUBCONTRACT TYPE
   
  It is understood that this is a Firm Fixed-Price, Indefinite Delivery Infinite Quantity (IDIQ) subcontract for equipment, supplies and services in support of the LTLCS Prime Contract DAAB07-01-D-H101. As required, Contractor may order any of the items specified in Attachment 1 from the Subcontractor that are necessary to be purchased by the Contractor in order to fulfill its obligations under the LTLCS Program. The minimum ordering guarantee hereunder is $__________ not to exceed a maximum of $445,299.
   
2.0  TERM OF THE SUBCONTRACT
   
  2.1 For the purpose of this subcontract the following option years are established: 
   
  (a) Base Year 1 effective 21 August 2001 through 20 August 2002.
   
  (b) Option Year 1 effective from 21 August 2002 through 20 August 2003.
   
  (c) Option Year 2 effective from 21 August 2003 through 20 August 2004.
   
  (d) Option Year 3 effective from 21 August 2004 through 20 August 2005.
   
  (e) Option Year 4 effective from 21 August 2005 through 20 August 2006.
                    
2.2     The Subcontract shall be applicable to all Purchase Orders dated and placed in the mail by the Contractor up to the expiration date of the Subcontract.
   
3.0 PRICES, SCHEDULES, AND PERFORMANCE
   
  All prices shall be as provided in Part III, Attachment 1. Travel prices will be based on the JTR per diem rate in effect at the time of the proposal.
   
  Specific requirements will be attached to each purchase order.

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  The prices in Part III, Attachment 1 are firm fixed prices granted by the Subcontractor which the Contractor may exercise with the Subcontractor at any time during the Option period delineated in Paragraph 2.1 Term of the Subcontract.
 
                     The four (4) Option Years may be exercised individually, at the sole discretion of Contractor. In the event the Contractor decides not to exercise its option hereunder, the Contractor shall provide the Subcontractor with written notification of its decision not later than thirty (30) days prior to the expiration of the Subcontract. If said notice is not provided, the option to extend the term of the contract shall be considered to have been exercised, and the Term of the Contract will be extended without further action by the Parties.
 
  Neither this Subcontract nor its Attachments shall be construed to expressly or implicitly commit Contractor to exercise in whole or in part any of the options set out in this Subcontract. The options are independent and if any option(s) are not exercised the Subcontractor will not be entitled to any reimbursement or adjustment and all future options will remain in effect.
   
4.0 CONSIDERATION AND PAYMENT
   
  4.1   Prices
   
  In consideration for the equipment, services and other items ordered by Contractor and supplied by Subcontractor when and as specified herein, Contractor shall pay to Subcontractor the Subcontract firm fixed prices set forth in Attachment 1 hereto for any options exercised.
   
  4.2   Payment
   
4.2.1 Payment for Firm Fixed Price Items
   
  Contractor shall pay the Subcontractor for firm fixed price items less any deductions permitted hereunder or at law, net thirty (30) days upon:
 
                                                (1)  Contractor’s acceptance of the item(s) invoiced; and
   
                                                (2)  Contractor’s receipt of Subcontractor’s invoice, specifying the Prime Contract Number, Subcontract Number, Line Item Number(s), Quantity(s) and unit prices together with:
 
  (i) Two (2) copies of the Contractor Approved Acceptance Test Results (if applicable); and,
 
  (ii) A statement signed by a duly authorized representative of Subcontractor certifying that the items covered under the invoice were manufactured or procured by Subcontractor and delivered to Contractor in conformance with this Subcontract.

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(1) Subcontractor may submit invoices based upon the price schedule at Attachment 1.
   
 

4.3   Invoicing

Invoices are to be submitted to:

GD Government Systems Corporation
77 “A” Street
Needham, MA 02194-9123
Attention: Margery Cunningham

Payment is to be
remitted to:

ION Networks Inc.
120 Corporate Blvd
South Plainfield, NJ 07080

   
4.4 Offsets and Reductions
   
  Contractor reserves the right to withhold and offset any amounts due to Subcontractor from Contractor under the terms of this Subcontract from any payments due or which may become due to Subcontractor pursuant to the provisions of the claims/disputes clauses herein.
   
  4.5   Release of Claims
   
           As condition precedent to any payments under this Agreement, Contractor may require the Subcontractor to furnish his affidavits that no liens or rights in rem of any kind lie upon or have attached against the work, or materials, article or equipment therefor, or any part thereof, either for or on account of any work done upon or about such work, or any materials, articles or equipment furnished therefore or in connection therewith, or any other cause or thing, or any claims or demands of any kind (except claims of the Government.)
   
5.0  PURCHASE ORDER MECHANISM
   
  5.1 For purposes of Subcontract procedure, the equipment, materials, services and other items to be supplied hereunder shall be ordered and delivered in accordance with Purchase Orders to be placed by Contractor.
 
  5.2 Notwithstanding any provisions on any form supplied by Contractor or Subcontractor to the contrary, all Purchase Orders issued pursuant to this Subcontract shall be subject to and governed by the terms of this Subcontract. Any terms and

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  conditions that may appear on any form supplied by Contractor or Subcontractor which alters, revises, conflicts with or supplements the terms of this Subcontract shall have no force or effect unless such provisions are mutually agreed to in writing and expressly incorporated into this Subcontract by duly authorized representatives of the Parties.
 
  5.3  Each Purchase Order shall include a description of the equipment, materials or services as well as delivery date and ship to address(es). As applicable, each Purchase Order shall contain a reference to the Prime Contract Number in addition to a separate Order Number assigned to the Purchase Order by Contractor.
   
6.0 DELIVERY/PERFORMANCE
   
  6.1   Delivery Schedule
   
  The Subcontractor shall provide all supplies, services and data ordered in accordance with the delivery dates specified in the accepted purchase order.
   
  6.2   Time of Performance
   
  All work shall be completed within the time period(s) specified. Subcontractor agrees to comply with the schedule and completion dates as agreed upon herein.
   
  6.3   Delays in Delivery
   
           6.3.1  In the event the Subcontractor anticipates difficulty in complying with the Subcontract delivery schedule, the Subcontractor shall immediately notify the Contractor’s Subcontract Administrator in writing, giving pertinent details, including the date by which it expects to make delivery. This data shall be informational only and receipt thereof shall not be construed as a waiver by the Contractor of any Subcontract delivery schedule, or any rights or remedies provided by law under this Subcontract.
 
           6.3.2  If at any time it appears that the Subcontractor has not or will not meet the Subcontract delivery schedule, or any extension thereof, the Contractor shall have the right to require the Subcontractor to submit a revised delivery schedule together with adequate information and documentation to support the reasonableness of the proposed schedule. The proposed delivery schedule shall provide a date certain for each deliverable item or service under the terms of the Subcontract. Such delivery schedules shall take into consideration all contingencies based upon events or circumstances which are known to the Subcontractor or reasonably foreseeable at the time of submission. The Subcontractor shall submit the revised delivery schedule within twenty-five (25) days after receipt of notification by the Contractor. Such notification shall not be deemed a waiver of the existing Subcontract delivery schedule. The Contractor shall have thirty-five (35) days within which to approve or disapprove the Subcontractor’s proposed revision to the delivery schedule. If approved by the Contractor, the proposed delivery schedule shall be incorporated into the Subcontract by bilateral modification.

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  If Subcontractor fails to submit a revised delivery schedule within the time specified above, or any extension thereof granted in writing by the Contractor, the Subcontractor shall be deemed to have failed to make delivery within the meaning of the “Default” clauses of this Subcontract and this Subcontract may be subject to termination.
 
  6.3.3 Notwithstanding any other remedies available to the Contractor, in the event that Subcontractor fails to deliver items or services to be supplied hereunder on or by the Delivery Dates specified, Subcontractor shall, at its expense, ship such items in accordance with Contractor’s instructions so as to ensure expeditious delivery.
   
7.0  ACCEPTANCE OF SERVICES
   
  Notwithstanding acceptance of any services provided herein, all such services remain subject to meeting all the SOW requirements of this Subcontract and the remedies contained therein.
   
8.0  WARRANTY OF SUPPLIES AND SERVICES 
   
  8.1 Warranty shall be provided in accordance with Statement of Requirements.
   
  8.2 All defective parts which are removed and replaced during the warranty period shall become the property of the Subcontractor.
 
  8.3 The warranty shall not apply to maintenance and or repair required due to the fault or negligence of the Contractor or Government or third persons (eg. vandal(s), saboteur(s), visitor(s), etc.) or due to Acts of God.
 
  8.4 The Subcontractor will not be responsible for providing a warranty on any Government Furnished Equipment (i.e. excess switches in the Government inventory) provided under this Subcontract.
 
8.5  Replacement items that are provided in exchange for defective equipment during warranty shall be warranted for a period of 90 days, or for the remainder of the warranty period of the original equipment, whichever is greater.
   
9.0   SUBCONTRACTOR RESPONSIBILITY
   
  The Subcontractor warrants that Subcontractor has reviewed all specifications, drawings and documents that are applicable to this Subcontract and agrees that deliverable items will meet or exceed all requirements of this Subcontract.
   
10.0  LIAISON WITH THE CONTRACTOR’S CUSTOMER

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  Except in emergency situations or where authorized in the specification, the Subcontractor shall not communicate with the Contractor’s customer regarding this Subcontract without the express permission of the Contractor. The Subcontractor shall provide assistance to the Contractor, upon request, in the preparation for and/or conducting of meetings with the Contractor’s customer.
 
  The Subcontractor shall be responsible for immediately notifying the Contractor by telephone, facsimile or telegram should the Contractor’s Customer or anyone other than the Subcontractor’s suppliers communicate in any manner directly with him regarding this Subcontract. Communication(s) to the Government from the Subcontractor and all other subcontractors regarding this Subcontract shall be conducted through the Contractor.
 
  The Subcontractor shall notify the Contractor, in writing, of any impending visit by Government personnel relative to this Subcontract or its subcontractor’s facilities or on-site installation offices immediately upon being advised thereof.
 
For the purpose of this clause, the Contractor’s customer(s) is U.S. Army CECOM.
   
11.0   DEFENSE PRIORITY RATING
   
  Subcontractor acknowledges that Contractor has informed it that the Prime Contract has been assigned a Defense Order Rating D0-A7 and agrees to extend this rating to this Subcontract and all lower tier subcontractors and suppliers and to comply with the requirements of FAR 52.211-15.
   
12.0 DISCLOSURE OF INFORMATION
   
  Subcontractor shall not in any manner, advertise or publish the fact that it has furnished or has contracted to furnish the Contractor with any items ordered unless authorized in writing by the Contractor. Such authorization shall not be unreasonably withheld.
   
13.0  CERTIFICATIONS AND REPRESENTATIONS
   
  All the Subcontractor Certifications and Representations, enclosed herewith as Attachment 2 - Representations, Certification and Instructions, are incorporated into this Subcontract.
   
14.0 DISPUTES
   
A. Disputes Related to the Government Prime Contract
 
 
Any dispute that arises under or is related to this Subcontract, and which also relates to Government action under the Prime Contract shall be resolved in accordance with the “Disputes” clause of the Prime Contract as follows:

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(1)   Provided Subcontractor has afforded Contractor prior notice of the claim, Subcontractor will submit to Contractor a fully-supported written claim concerning any such dispute within one (1) year after the claim accrues, but in no event later than final payment under this Subcontract or delivery order issued thereunder. Subcontractor shall be barred from any remedy for such claim if Subcontractor fails to provide the required notice specified herein;
 
 
(2)   Subcontractor shall cooperate fully with Contractor in prosecuting any such dispute and shall be bound by the outcome unless: (a) without Subcontractor’s consent, Contractor settles the dispute; or (b) Contractor, having determined to discontinue its own prosecution of the dispute, does not afford Subcontractor an opportunity to continue to prosecute the dispute in Contractor’s name;
 
 
(3)   Each party shall bear its own costs of prosecuting any such dispute under this subparagraph;
 
 
(4)   Any final decision of the contracting officer if not appealed, and any decision or judgment upon appeal, shall be final and conclusive upon Contractor and Subcontractor insofar as it relates to this Subcontract;
 
 
(5)   If the dispute is solely between Subcontractor and Contractor and is not otherwise subject to a final decision of the contracting officer, the dispute will be decided in accordance with the procedures set forth in subparagraph B below;
 
 
(6)   Nothing in this Subcontract gives Subcontractor a direct right of action under the Disputes clause of the Prime Contract.
 
B. Disputes Between Contractor and Subcontractor Only
 
 
(1)   For any dispute arising under this Subcontract which is not based on Government action under the Prime Contract and which relates solely to a dispute between the parties, the parties agree to seek an amicable resolution of such dispute through good faith negotiations. Any dispute which cannot be resolved through good faith negotiations shall be decided by the Contractor upon submission by the Subcontractor of a written claim. Contractor shall make reasonable efforts to decide such claim within sixty (60) days, or such longer period as may be practical given the size and complexity of the claim. In no event shall Subcontractor submit a claim under this subparagraph more than one (1) year after such claim accrues.
 
 
(2)   Within thirty (30) days after receipt of Contractor’s decision denying any such claim, Subcontractor shall notify Contractor in writing of its disagreement with the decision. In the absence of such notice, such decision shall be final. As appropriate, and consistent with this clause, either party may pursue resolution of any dispute under this subparagraph at law or in equity through litigation. Any

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such action shall be filed only in a court of competent jurisdiction in the Commonwealth of Massachusetts, subject to Subcontractor’s compliance with paragraph D below; provided, however, that the parties hereby expressly waive any rights to a trial by jury and agree that any legal proceeding hereunder shall be tried by a judge without a jury. The parties agree that the governing law applicable to any such action under this Subcontract shall be the federal law of government contracts, as interpreted by federal judicial bodies and administrative boards of contract appeals. To the extent federal government contract law is not dispositive, the parties agree that the law of the Commonwealth of Massachusetts shall govern. Any such action by the Subcontractor must be commenced within one (1) year from the date of Contractor’s final decision, if applicable.
 
C.
As used in this clause, “claim” means a written demand or assertion seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of subcontract terms or other relief arising under or relating to this Subcontract. Any claim submitted for decision hereunder shall:
 
 
                 (a)     specify the facts, contract terms and conditions and authorities relied upon by the Subcontractor in support of the relief sought; and
 
 
                 (b)     if for an amount of $100,000 or more, be accompanied by a certification executed by a senior company official authorized to bind the Subcontractor who has knowledge of the basis of the claim, knowledge of the accuracy and completeness of the supporting data and knowledge of the claim stating that:
 
  (i)    The claim is made in good faith;
   
  (ii)    All data supporting the claim are accurate and
complete to the best of the certifier’s
knowledge and belief;
   
  (iii)    The amount requested accurately
reflects the contract adjustment for which the
Subcontractor believes the Contractor is liable; and
   
  (iv)     The certifier is duly authorized to
certify the claim on behalf of the
Subcontractor.
   
  D.
Pending final resolution of any dispute hereunder, Subcontractor shall diligently proceed with performance of this Subcontract in accordance with the decision and instructions of Contractor.

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  E.
The parties may, by mutual agreement, elect to submit the dispute to an Alternative Dispute Resolution (ADR) Process with a mutually acceptable neutral mediator or dispute resolution firm (“arbitrator”) and mutually acceptable procedures. The arbitrator selected shall have demonstrated experience in the area of telecommunications and federal government contracts, and shall not be related to, employed by, or have any substantial or ongoing business or ownership relationship with, any party, its affiliates or subcontractors. The arbitrator shall have no power or authority to make awards or issue orders of any kind except as permitted by this Subcontract or by written agreement of the parties, and in no event shall the arbitrator have the authority to make any award that provides for consequential, punitive or exemplary damages. The arbitrator shall follow the plain meaning of the relevant documents and render a decision that is consistent, to the extent applicable, with the federal law of government contracts as interpreted by federal judicial bodies and administrative boards of contract appeals. To the extent federal government contract law is not dispositive, the arbitrator shall apply the law of the Commonwealth of Massachusetts. The costs of the ADR process shall be shared equally by the parties. Each party shall bear the cost of preparing and presenting its own case.
   
15.0  TERMINATION FOR CONVENIENCE OF THE CONTRACTOR
   
  (a)  The Contractor may terminate performance of work under this subcontract in whole or, from time to time, in part, if—
 
          (1)  The Contractor determines that a termination is in the Contractor’s interest; or if the Contractor is ordered to terminate by the Government in accordance with FAR 52.249; or
 
          (2)  The Subcontractor defaults in performing this subcontract by failing to: (i) deliver the supplies or perform the services within the time specified in the subcontract or any extension; (ii) make progress, so as to endanger performance of this subcontract; or (iii) perform any other provisions of this subcontract. The Contractor’s right to terminate this subcontract under (a)(2)(ii) or (a)(2)(iii) above may be exercised if the Subcontractor does not cure such failure within ten (10) days (or more if authorized in writing by the Contractor) after receipt of the notice from the Contractor specifying the failure.
 
(b) If the Contractor terminates this subcontract in whole or in part pursuant to (a)(2) above, it may acquire, under the terms and in the manner the Contractor considers appropriate, supplies or services similar to those terminated, and the Subcontractor will be liable to the Contractor for any excess costs for such supplies or services. However, the Subcontractor shall be required to continue to work on the portions of the subcontract not terminated.

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(c) The Contractor shall terminate by delivering to the Subcontractor a Notice of Termination specifying whether termination is for default of the Subcontractor or for convenience of the Contractor or of the Government, the extent of termination, and the effective date. If, after termination for default, it is determined that the Subcontractor was not in default or that the Subcontractor’s failure to perform or to make progress in performance is due to causes beyond the control and without the fault or negligence of the Subcontractor as set forth in the Excusable Delays clause, the rights and obligations of the parties will be the same as if the termination was for the convenience of the Contractor or of the Government.
 
  (d)   After receipt of a Notice of Termination and except as directed by the Contractor, the Subcontractor shall immediately proceed with the following obligations, regardless of any delay in determining or adjusting any amounts due under this clause:
   
           1.  Stop work as specified in the notice.
   
           2.  Place no further lower tier subcontracts or orders (referred to as subcontracts in this clause) except as necessary to complete the continued portion of the Subcontract.
 
           3.  Terminate all lower tier subcontracts to the extent they relate to the work terminated.
 
           4.  Assign to the Contractor or the Government, as directed by the Contractor, all right, title and interest of the Subcontractor under the subcontracts terminated, in which case the Contractor or the Government shall have the right to settle or to pay any termination settlement proposals arising out of those terminations.
 
           5.  With approval or ratification to the extent required by the Contractor or the Government, settle all outstanding liabilities and termination settlement proposals arising from the termination of subcontracts, the cost of which would be reimbursable in whole or in part, under this contract; approval or ratification will be final for purposes of this clause.
 
           6.  As directed by the Contractor, transfer title and deliver to the Contractor or the Government (i) the fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced or acquired for the work terminated, and (ii) the completed or partially completed plans, drawings, information and other property that, if the Subcontract or Prime Contract had been completed, would be required to be furnished to the Contractor or the Government and (iii) the jigs, dies, fixtures, and other special tools and tooling acquired or manufactured for this subcontract, the cost of which, the Subcontractor has been or will be reimbursed under this contract.
   
           7.  Complete performance of the work not terminated.
   
           8.  Take any action that may be necessary, or that the Contractor may direct, for the protection and preservation of the property related to this Subcontract that is in the

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  possession of the Subcontractor and in which the Contractor or the Government has or may acquire an interest.
 
           9.  Use its best efforts to sell, as directed or authorized by the Contractor, any property of the types referred to in subparagraph (6) above; provided, however, that the Subcontractor (i) is not required to extend credit to any purchaser and (ii) may acquire the property under the conditions prescribed by, and at prices approved by, the Contractor and the Government. The proceeds of any transfer or disposition will be applied to reduce any payments to be made by the Contractor under this Subcontract, credited to the price or cost of the work, or paid in any other manner directed by the Contractor.
 
  (e)   After expiration of the plant clearance period as defined in Subpart 45.6 of the Federal Acquisition Regulation, the Subcontractor may submit to the Contractor a list, certified as to quantity and quality, of termination inventory not previously disposed of, excluding items authorized for disposition by the Contractor. The Subcontractor may request the Contractor or the Government to remove those items or enter into an agreement for their storage. Within 15 days, the Contractor or the Government will accept title to those items and remove them or enter into a storage agreement. The Contractor may verify the list upon removal of the items, or if stored, within 45 days from submission of the list, and shall correct the list, as necessary, before final settlement.
 
  (f)   After termination, the Subcontractor shall submit a final termination settlement proposal to the Contractor in the form and with the certification prescribed by the Contractor. The Subcontractor shall submit the proposal promptly, but no later than six (6) months from the effective date of termination, unless extended in writing by the Contractor upon written request of the Contractor within this six (6) month period. However, if the Contractor determines that the facts justify it, a termination settlement proposal may be received and acted on after six months or any extension. If the Subcontractor fails to submit the proposal within the time allowed, the Contractor may determine, on the basis of information available, the amount, if any, due the Subcontractor because of the termination and shall pay the amount determined.
 
  (g)   Subject to paragraph (f) above, the Subcontractor and the Contractor may agree upon the whole or any part of the amount to be paid (including an allowance for fee) because of the termination. The contract shall be amended, and the Subcontractor paid the agreed amount.
 
  (h)   If the Subcontractor and Contractor fail to agree in whole or in part on the amount of costs and/or fee to be paid because of the termination of work, the Contractor shall determine, on the basis of information available, the amount, if any, due the Subcontractor, and shall pay that amount, which shall include the following:
 
           (1)  All costs reimbursable under this contract, not previously paid, for the performance of this subcontract before the effective date of the termination, and those

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  costs that may continue for a reasonable time with the approval of or as directed by the Contractor; however, the Subcontractor shall discontinue these costs as rapidly as practicable.
 
           (2)  The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the subcontract if not included in subparagraph (1) above.
 
           (3)  The reasonable costs of settlement of the work terminated, including-
 
                   (i)      Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data;
 
                   (ii)    The termination and settlement of lower tier subcontracts (excluding the amounts of such settlements); and
 
                   (iii)   Storage, transportation, and other costs incurred, reasonably necessary for the preservation, protection, or disposition of the termination inventory. If the termination is for default, no amounts for the preparation of the Subcontractor’s termination settlement proposal may be included.
 
           (4)  A portion of the fee payable under the subcontract, determined as follows:
 
                   (i)  If the subcontract is terminated for the convenience of the Contractor or the Government, the settlement shall include a percentage of the fee equal to the percentage of completion of work contemplated under the subcontract, but excluding subcontract effort included in subcontractors’ termination proposals, less previous payments for fee.
 
                   (ii)  If the subcontract is terminated for default, the total fee payable shall be such proportionate part of the fee as the total number of articles (or amount of services) delivered to and accepted by the Contractor is to the total number of articles (or amount of services) of a like kind required by the subcontract.
 
           (5)  If the settlement includes only fee, it will be determined under subparagraph (h)(4) above.
 
  (i)  The cost principles and procedures in Part 31 of the Federal Acquisition Regulation, in effect on the date of this subcontract, shall govern all costs claimed, agreed to, or determined under this clause.
 
  (j)  The Subcontractor shall have the right of appeal, under the Disputes clause, from any determination made by the Contractor under paragraph (f) or (h) above, or paragraph (k) below, except that if the Subcontractor failed to submit the termination settlement proposal within the time provided in paragraph (f) and failed to request a time extension, there is no right of appeal. If the Contractor has made a determination

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  of the amount due under paragraph (f), (h), or (l), the Contractor shall pay the Subcontractor (1) the amount determined by the Contractor if there is no right of appeal or if no timely appeal has been taken, or (2) the amount finally determined on an appeal.
 
  (k) In arriving at the amount due the Subcontractor under this clause, there shall be deducted—
 
          (1)   All unliquidated advance or other payments to the Subcontractor, under the terminated portion of this subcontract;
 
          (2)   Any claim which the Contractor has against the Subcontractor under this subcontract; and
 
          (3)   The agreed price for, or the proceeds of sale of materials, supplies, or other things acquired by the Subcontractor or sold under this clause and not recovered by or credited to the Contractor.
 
  (l)  The Subcontractor and the Contractor must agree to any equitable adjustment in fee for the continued portion of the contract when there is a partial termination. The Contractor shall amend the contract to reflect the agreement.
 
          (1)  The Contractor may, under the terms and conditions it prescribes, make partial payments and payments against costs incurred by the Subcontractor for the terminated portion of the contract, if the Contractor believes the total of these payments will not exceed the amount to which the Subcontractor will be entitled.
 
           (2)  If the total payments exceed the amount finally determined to be due, the Subcontractor shall repay the excess to the Contractor upon demand, together with interest computed at the rate established by the Treasury under 50 U.S.C. App. 1215(b)(2). Interest shall be computed for the period from the date the excess payment is received by the Subcontractor to the date the excess is repaid. Interest shall not be charged on any excess payment due to a reduction in the Subcontractor termination settlement proposal because of retention or other disposition of termination inventory until 10 days after the date of the retention or disposition, or a later date determined by the Contractor because of the circumstances.
 
(m) The provisions of this clause relating to fee are inapplicable if this contract does not include a fee.
 
(n) Unless otherwise provided in this subcontract or by statute, the Subcontractor shall maintain all records and documents related to the terminated portion of this subcontract for three (3) years after final settlement. This includes all books and other evidence related to the Subcontractor’s costs and expenses under this subcontract. The Subcontractor shall make these records and documents available to the Government (or Contractor, as appropriate) at a place designated by the

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  Government or Contractor at all reasonable times, without any direct charge under this subcontract. If approved by the Contractor, photographs, microphotographs or other authentic reproductions may be maintained instead of original records and documents.
   
16.0   DEFAULT FOR NONPERFORMANCE
   
  (a) (1) The Contractor may, subject to paragraphs (c) and (d) below, by written notice of default to the Subcontractor, terminate this Subcontract in whole or in part if the Subcontractor fails to —
 
                   (i)   Deliver the supplies or to perform the services within the time specified in this Subcontract or any extension;
 
                   (ii)  Make progress, so as to endanger performance of this Subcontract (but see subparagraph (a)(2) below); or
 
                   (iii)  Perform any of the other provisions of this Subcontract (but see paragraph (a)(2) below).
 
           (2)  The Contractor’s right to terminate this Subcontract under subdivisions (1)(ii) and (1)(iii) above, may be exercised if the Subcontractor does not cure such failure within ten (10) days (or more if authorized in writing by the Contractor) after receipt of the notice from the Contractor specifying the failure.
 
  (b)  If the Contractor terminates this Subcontract in whole or in part, the Contractor may acquire, under the terms and in the manner the Contractor considers appropriate, supplies or services similar to those terminated, and the Subcontractor will be liable to the Contractor for any excess costs for those supplies or services. However, the Subcontractor shall continue the work not terminated.
 
  (c)  Except for defaults of subcontractors at any tier or Force Majeure, the Subcontractor shall not be liable for any excess costs if the failure to perform this Subcontract arises from cause beyond the control and without the fault or negligence of the Subcontractor. Examples of such cause include (1) acts of God, (2) acts of the government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance the failure to perform must go beyond the control and without the fault or negligence of the Subcontractor.
 
  (d)  If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Subcontractor and lower tier subcontractor, and without the fault or negligence of either, the Subcontractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or

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  services were obtainable from other sources in sufficient time for the Subcontractor to meet the required delivery schedule.
 
  (e)  If this Subcontract is terminated for default, the Contractor may require the Subcontractor to transfer title and deliver to the Contractor or the Government, as directed by the Contractor, any (1) completed supplies, and (2) partially completed supplies and materials, parts, tools, dies, jigs, fixtures, plans, drawings, information, and contract rights (collectively referred to as “manufacturing materials” in this clause) that the Subcontractor has specifically produced or acquired for the terminated portion of this Subcontract. Upon direction of the Contractor or the Government, the Subcontractor shall also protect and preserve property in its possession in which the Contractor has an interest.
 
  (f)  The Contractor shall pay the Subcontract price for completed supplies delivered and accepted. The Subcontractor and Contractor shall agree on the amount of payment for manufacturing materials delivered and accepted and for the protection and preservation of the property. Failure to agree will be a dispute under the applicable clause of this Subcontract. The Contractor may withhold from these amounts any sum the Contractor determines to be necessary to protect the Contractor or the Government against loss because of outstanding liens or claims of former lien holders.
 
  (g)  If, after termination, it is determined that the Subcontractor was not in default, or that the default was excusable, the rights and obligations of the Parties shall be the same as if the termination had been issued for the convenience of the Contractor or the Government.
 
  (h)  The rights and remedies of the Contractor or the Government in this clause are in addition to any other rights and remedies provided by law or under this Subcontract.
   
17.0  STOP-WORK ORDER
   
  17.1   The Contractor may, at any time, by written order to the Subcontractor, require the Subcontractor to stop all, or any part, of the work called for by this Subcontract for a period of 90 days after the stop-work order is delivered to the Subcontractor, and for any further period to which the parties may agree. The order shall be specifically identified as a stop-work order issued under this clause. Upon receipt of the order, the Subcontractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Within a period of 90 days after a stop-work order is delivered to the Subcontractor, or within any extension of that period to which the parties shall have agreed, the Contractor shall either —
     
  1. Cancel the stop-work order; or
     
  2. Terminate the work covered by the order as provided in the Default, or the Termination for Convenience clause of this Subcontract.

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  17.2    If a stop-work order issued under this clause is canceled or the period of the order or any extension thereof expires, the Subcontractor shall resume work. The Contractor shall make an equitable adjustment in the delivery schedule or subcontract price or both, and the Subcontract shall be modified, in writing, accordingly, if —
 
  1. The stop-work order results in an increase in the time required for, or in the Subcontractor’s costs properly allocable to, the performance of any part of this Subcontract; and
 
  2. The Subcontractor asserts a claim for the adjustment within 20 business days after the end of the period of work stoppage; provided, that, if the Contractor decides the facts justify the action, the Contractor may receive and act upon the claim asserted at any time before final payment under this Subcontract.
 
  17.3    If a stop-work order is not canceled and the work covered by the order is terminated in accordance with the Termination for Convenience Clause, the Contractor shall allow reasonable costs resulting from the stop-work order in arriving at the termination settlement.
 
  17.4    If stop-work order is not canceled and the work covered by the order is terminated for default, the Contractor shall allow, by equitable adjustment or otherwise, reasonable costs resulting from the stop-work order.
   
18.0  ASSIGNMENT AND SUBCONTRACTING
   
18.1 Subcontractor shall not assign any interest herein, in whole or in part, without the prior written consent of the Contractor.
 
18.2 Neither all nor substantially all of the work to be performed under this Subcontract may be further subcontracted by Subcontractor without the prior written consent of Contractor.
   
19.0 TITLE AND RISK OF LOSS OR DAMAGE TO PURCHASED EQUIPMENT 
   
  Title and risk of loss passes to the Contractor upon acceptance.
   
  In the event loss or damage to Subcontractor equipment is caused by nuclear reaction, nuclear radiation or radioactive contamination for which the U.S. Government is legally responsible or when loss or damage is due to the negligence of the Government, Subcontractor shall be indemnified by Contractor to the extent Contractor is indemnified by the U.S. Government therefor.
 
  Risk of loss to equipment, accessories and devices rented under the Subcontract shall remain with the Subcontractor.

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20.0 NOTICE OF LOSS OR DAMAGE
   
  Each party shall be liable for any loss of or damage to the other parties property, including Government Property which it proximately caused by negligence, theft, or willful misconduct of its agents, servants, and employees. The responsible party shall submit a full written report to the other party within sixteen (16) hours following the occurrence of such damage, loss or injury.
   
21.0   SAFETY AND HEALTH
   
  21.1   The Subcontractor will comply with all Department of Army (DA) Safety and Health regulations and Department of Labor, Occupational Safety and Health Administration (OSHA) Standards.
 
  21.2   The Subcontractor shall report on a monthly basis to the Contractor the number of employees performing on the job site. All Subcontractor accidents occurring on Government property resulting in loss of one full scheduled shift or $1,000.00 in damage to Government property must be submitted to the Contractor.
   
22.0   SUBCONTRACTOR PERSONNEL
   
  22.1   The Subcontractor is responsible for selecting personnel who are well qualified to perform under this Subcontract, for supervising the techniques used in performance and for keeping them informed of all improvements, changes, methods or operations.
 
  22.2   The Subcontractor shall have the right to replace or transfer his personnel and to substitute other personnel of equal or greater qualification in lieu thereof, provided that such transfers or replacements will not cause a delay in performance.
 
  22.3   The Contractor may direct, at its sole discretion, the Subcontractor to remove, and the Subcontractor shall remove, any employee from assignment to this Subcontract for reasons of security or misconduct. Replacement shall be at the Subcontractor’s expense and not chargeable to the Contractor.
   
23.0 PERMITS, TAXES, LICENSES, ORDINANCES AND REGULATIONS
   
  Subcontractor shall, at his own expense, obtain all necessary permits, give all notices, pay all license fees and taxes, comply with all Federal, State, municipal, county and local Board of Health ordinances, rules and regulations applicable to the business carried on under this Subcontract and be responsible for all applicable State and Use Taxes. The Subcontractor warrants that he has been duly authorized to operate and do business in the countries in which this contract is to be performed; that he has obtained, at no cost to the U.S. Government, all necessary license and permits required with this contract; and

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  that he will fully comply with all the laws, decrees, labor standards and regulations of such countries during performance of this contract.
   
24.0  NORMAL WORKING HOURS
   
  The Subcontractor shall schedule his working hours to coincide with the normal work hours of each location. In the event that hours are required beyond normal work hours, Subcontractor shall notify the cognizant GD site project manager for written concurrence. E-mail authorization is acceptable.
   
25.0  LOCAL, STATE AND FEDERAL REGULATIONS
   
  The Subcontractor is responsible for knowledge and compliance with all local, state and federal regulations which may have impact on the performance of this Subcontract. These include, but are not limited to, laws and regulations pertaining to environmental laws such as hazardous material handling and disposition, Occupational Safety and Health Administration (OSHA) regulations, zoning and construction regulations and requirements imposed by historical commissions and landmark preservation committees.
   
26.0 SUBCONTRACTOR ACCESS TO INSTALLATIONS
   
  Each installation will identify the appropriate procedures and policies regarding Subcontractor access to the areas where services will be required. Clarification of Terms: “installation”, “site”, “facility” and “Government” shall be deemed to mean “U.S. Government”.
   
27.0   NON-WAIVER OF RIGHTS
   
  The failure or delay of Contractor to insist upon strict performance of any of the terms and conditions in the Subcontract or to exercise any rights or remedies, shall not be construed as a waiver of its rights to assert any of the same or to rely on any such terms or conditions at any time thereafter. The invalidity in whole or in part of any terms or conditions of this Subcontract shall not affect the validity of other parts thereof.
   
28.0  SUBCONTRACT FLOWDOWN REQUIREMENTS
   
  Subcontractor agrees to flowdown any mandatory FAR and DFAR clauses of this Subcontract, and other sections of this Subcontract to lower tier subcontractors. Subcontractor agrees to furnish all information requested by Contractor respective to such subcontracts. If Subcontractor does not choose to pass these clauses down, it does not relieve Subcontractor of its responsibilities and obligations.
   
29.0   PASSPORTS AND VISAS

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  All Subcontractor personnel who are required to travel OCONUS under this Subcontract, shall possess all required passports and visas and will have obtained all required immunizations prior to such employment. In addition, the Subcontractor shall obtain for those personnel departing from CONUS all necessary security clearances and identification. Inability by the Subcontractor to obtain, or delay in obtaining required passports, visas or other requirements in conjunction therewith, shall not be construed as a cause for an excusable delay in performance of the Subcontract. Expense for passports, visas and immunizations are solely those of the Subcontractor, and are not direct reimbursable hereunder.
 
30.0 REQUEST OVERSEAS AREA CLEARANCES, TRAVEL AUTHORIZATION ORDERS, LOGISTICAL PRIVILEGES AND SECURITY CLEARANCES
 
  The Subcontractor shall submit a request for Travel Authorization Orders, Logistical Privileges and Security Clearances (if required) to the Contractor. Normally a security clearance will not be required. The Subcontractor must allow thirty days for the Contractor to solicit and obtain Government approval of overseas clearances for Subcontractor personnel. Failure, due to the fault or negligence of Subcontractor, to obtain such clearances shall not excuse timely Subcontract performance. As a minimum, the request shall include the following:
 
                            a.     Subject:  Invitational Travel Order
   
                            b.     Last, First, Middle Name of Visitor:
   
                            c.     Passport Information: Number and date of issue
   
                            d.     Position:
   
                            e.     Citizenship:
   
                            f.      Social Security Number:
   
                            g.     Date/Place of Birth:
   
                            h.     Security Clearance:  Date/Agency of Issue
   
                            i.      Date, Purpose of Duration of Visit:
   
                            j.      Subcontract Number:
   
                            k.     Prime Contract Number:
   
31.0  SUPPORT IN HOST COUNTRY
   
  31.1   The United States citizen Subcontractor employees who are authorized entry to the overseas command will be authorized the following Logistical Support Services with the approval of the applicable site commander, subject to availability, and in accordance with Army costing methods:
       
  31.1.1   Civilian Personnel Administrative Services (Reimbursable)
       
  31.1.2   Legal Services (Reimbursable)
       
  31.1.3   Mail Pickup and Delivery (Nonreimbursable)

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  31.1.4   Administrative Office Space (Reimbursable)
       
  31.1.5   Custodial/Disposal Services (Reimbursable)
       
  31.1.6   Fire Protection (Nonreimbursable)
       
  31.1.7   Police Services (Nonreimbursable)
       
  31.1.8   Housing/Lodging (Reimbursable)
       
  31.1.9   Laundry and Dry Cleaning (Reimbursable)
       
  31.1.10   Health Services (Reimbursable)
       
  31.1.11   Utilities Services (Reimbursable)
       
  31.1.12   Real Property Maintenance
      (Reimbursable/Nonreimbursable)
       
  31.1.13   Chaplain/Religious Services (Nonreimbursable)
       
  31.1.14   Social Actions (Nonreimbursable)
       
  31.1.15   Expendable/General Supplies (Reimbursable)
       
  31.1.16   Commissary and Base Exchange Privileges
      (Reimbursable
       
  31.1.17   Use of Military Banking Facilities (Reimbursable)
       
  31.1.18   Telephone/Message Services (Reimbursable)
       
  31.1.19   Pet and Firearm Registration (Reimbursable)
       
  31.1.20   Ground Transportation (Regularly Scheduled-
      Nonreimbursable); taxi, U–Drive and Rental
      Reimbursable)
       
  31.1.21   Mortuary Services (Reimbursable) The
      support/facilities to be provided shall be further
      defined by the Contractor on a site-by-site basis.
       
  31.1.22   Driver Licensing and Vehicle Registration
       
  31.1.23   Use of Officer’s and NCO Clubs

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  31.1.24   Government Messing Facilities
       
  31.1.25   Local and Government Recreational Facilities
      (Space Available)
       
  31.1.26   Subcontractor personnel may travel by military
      aircraft in host country subject to availability.
       
                    31.2 Subcontractor employee dependents who are authorized entry to the overseas command will also be authorized the above logistical support with the approval of the applicable site commander, subject to availability, and in accordance with Army costing methods.
 
                    31.3 Subcontractor employees requests for Logistic Support and Privileges while in Host Country will be processed through the Contractor.
 

32.0         LIABILITY AND INDEMNIFICATION

 
                32.1 GD or its employees shall not be liable for any injury to the person or property of Subcontractor, except where such injury was directly caused by the fault or negligence of GD or such employees in the course of their employment.
 
32.2 Subcontractor shall indemnify, defend and hold GD harmless from and against:
 
(i) Subcontractor’s failure to deduct and pay taxes required by law on compensation Subcontractor pays to its officers, employees or independent contractors.
 
(ii) Personal injury or death occurring to any of its officers, employees and independent contractors engaged in the performance of the work under this Subcontract.
 
(iii) Damage or loss to property of Subcontractor, its officers, employees or independent contractors related to performance of the work of this Subcontract.
 
33.0 SUBCONTRACTOR OR TECHNICAL REPRESENTATIVES STATUS-REPUBLIC OF KOREA (ROK) (Applies to Korea sites only)
 
  33.1   As obtained through the Contractor’s Prime Contract, Invited-Subcontractor or technical representatives status under the US-ROK Status of Forces Agreement (SOFA) is subject to the written approval of HQ USFK, Attn.: ACJ, APO SF 96301-0010.
 
  33.2   The Contractor and the Government will coordinate with the HQ USFK in accordance with DFARS subpart 25.77 and USFK Reg. 700-19. The ACofs,

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  Acquisition Management, HQ USFK, will determine the appropriate Subcontractor status under the SOFA and notify the Contractor and the Government of the determination.
 
  33.3   Subject to the Government providing the above approval to Contractor based upon Subcontractor’s timely submittal of required documentation, the Subcontractor, including their employees and lawful dependents, may be accorded such privileges and exemptions as specified in the US-ROK SOFA and implemented per USFK Reg. 700-19, subject to the conditions and limitations imposed by the SOFA and that regulation. These privileges and exemptions may be furnished during the performance period of the Subcontract, subject to their availability and provided the Invited Subcontractor or technical representatives status is not withdrawn by USFK.
 
  33.4   The Subcontractor officials and employees performing under this contract collectively and separately warrant that they are not now performing nor will perform during the period of this Subcontract, any subcontract, service or otherwise engage in business activities in the ROK other than those pertaining to the U.S. Armed Forces.
 
  33.5   During performance of work in the ROK required by this Subcontract, the Subcontract will be governed by USFK regulations pertaining to the direct hiring and the personnel administration of Korean National employees.
 
  33.6   The authorities of the ROK will have the right to exercise jurisdiction over Invited-Subcontractors and technical representatives including officials and employees, and their dependents, for offenses committed in the ROK and punishable by the Laws of the ROK. In recognition of the role of such persons in the defense of the ROK, they will be subject to the provisions of paragraph 5, 7(b), and 9 of the US-ROK SOFA and the related agreed minutes of SOFA, Article XXII. In those cases in which the authorities of the ROK decide not to exercise jurisdiction, they shall notify the US Military authorities as soon as possible. On such notification, the military authorities will have the right to exercise such jurisdiction over the person(s) referred to, as is conferred on them by the law of the United States.
 
  33.7   Invited-Subcontractors and technical personnel agree to cooperate fully with the USFK sponsoring agency and responsible officer on all matters pertaining to logistical support. In particular, Subcontractors will provide prompt and accurate reporting of changes in employee status as required by this regulation to the assigned sponsoring agency. All U.S. Subcontractors performing work on classified Subcontracts will report to the nearest Security Police Information Security Section for the geographical area where the Subcontract is to be performed.
 
33.8   Invited-Subcontractor and technical representatives status will be withdrawn by USFK upon:
 
          33.8.1 Completion of termination of the Subcontract.

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                   33.8.2 Proof that the Subcontractor or its employees are engaged in business activities other than those pertaining to the US Armed Forces in the ROK or are violating USFK regulations.
 
                   33.8.3 Proof that the Subcontractor or its employees are engaged in practices illegal in the ROK or are violating USFK regulations.
 
  33.9 It is agreed that the withdrawal of the Invited-Subcontractor or technical representative status or any of the privileges associated therewith by the U.S. Government due to the fault or negligence of the Subcontractor, will not constitute grounds for excusable delay by the Subcontractor in the performance of the Subcontractor, nor will it justify or excuse the Subcontractor defaulting the performance of this Subcontract; and such withdrawal will not serve as a basis for the filing of any claims against the U.S. Government if withdrawal is made for the reasons stated above. Under no circumstances will the withdrawal of such status privileges be considered or construed as a breach of contract by the Contractor or the U.S. Government. The determination to withdraw SOFA status and privileges by USFK shall be final and binding on the parties unless it is patently arbitrary, capricious and lacking in good faith.
   
34.0 SUPPORT OFFERED IN SOUTHWEST ASIA (SAUDI ARABIA)
   
  U.S. Subcontractor employees are not authorized in-host country Logistics Support Services and Privileges in accordance with the Status of Forces Agreement (SOFA) with the Saudi Arabia Government. Only Military personnel permanently assigned to U.S. Military Units in Saudi Arabia are authorized typical US Military support such as indicated in 29.0 Support in Host Country. Further, Subcontractors doing business in Saudi Arabia may be required to provide a yearly tax payment to the Saudi Arabian Government.
 
  Subcontractor employee dependents who are authorized entry to the overseas command will also be authorized logistical support as applicable in accordance with above.
 
  Subcontractor employees requests for Logistic Support Services and Privileges while in Host Country will be processed through the Overseas Contract Administration Office who will assist with procedures required for obtaining individual support.
   
35.0 CONFORMITY TO JAPANESE LAWS AND REGULATIONS
   
                     The subcontractor shall be responsible for assuring that employees assigned to this subcontract comply, while in Japan, with the applicable Laws and Regulations of the Government of Japan (GOJ) and political subdivisions thereof. In addition, the subcontractor’s employees must comply with the military rules and regulations when employed in areas under the jurisdiction of the Commander, U.S. Forces Japan. In the event that a subcontractor’s employee is barred from continuing to perform under the subcontract for failure to comply with the Laws, Rule and Regulations described in the

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  foregoing paragraph, any costs incurred by the subcontractor as the result of the removal of the employee or the substitution of a replacement employee for the overseas assignment shall not be allowed. The disallowed costs include relocation costs incurred by the subcontractor to furnish a substitute employee for the overseas assignment. The subcontractor shall be responsible for obtaining the required authorization and licenses from the Government of Japan (GOJ) necessary for the performance of this subcontract. The subcontractor shall comply with the applicable articles of the Status of Forces Agreement (SOFA) between the U.S. Government and the Government of Japan (GOJ).
   
36.0 CENTURY COMPLIANCE CLAUSE 
   
  36.1 Century Compliance
   
  When used in this Agreement with initial capital letters, the following terms have the respective meanings given below:
 
  “Procured System” means the computer software, computer firmware, computer hardware (whether general or special purpose), documentation, data, and other similar or related items of the automated, computerized, and/or software system(s) that are provided by or through Vendor pursuant to this Agreement, or any component part thereof, and any services provided by or through Vendor in connection therewith.
 
  “Calendar-Related” refers to date values based on the Gregorian calendar as defined in Encyclopedia Britannica, 15th  edition, 1982, page 602, and to all uses in any manner of those date values, including without limitation manipulations, calculations, conversions, comparisons, and presentations.
 
  “Date Data” means any Calendar-Related data in the inclusive range January 1, 1900, through December 31, 2050, which the Procured System uses in any manner.
 
  “System Date” means any Calendar-Related data value in the inclusive range from January 1, 1985, through December 31, 2035, (including the natural transition between such values), which the Procured System shall be able to use as its current date while operating.
 
  “Century Compliant” means that the Procured System satisfies the requirements set forth in sections 36.2, 36.3 and 36.4 below.
 
  “Century Noncompliance” means any failure of the Procured System to be Century Compliant.

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  36.2   Vendor represents that, in connection with Calendar-Related data and Calendar-Related processing of the Date Data or of any System Date, the Procured System will not malfunction, will not cease to function, will not generate incorrect data, and will not produce incorrect results.
 
  36.3   Vendor further represents that, in connection with providing Calendar-Related data to and accepting Calendar-Related data from other automated, computerized, and/or software systems and users via user interfaces, electronic interfaces, and data storage, the Procured System represents dates without ambiguity as to century.
 
  36.4   Vendor further represents that Vendor has verified through testing that the Procured System is Century Compliant and that testing included, without limitation, each of the following specific dates and the transition to and from such date: December 31, 1998; January 1, 1999; September 9, 1999; September 10, 1999; December 31, 1999; January 1, 2000; February 28, 2000; February 29, 2000; March 1 2000; December 31, 2000; January 1, 2001; and December 31, 2004; and January 1, 2005.
 
  36.5   These representations survive the expiration or earlier termination of this Agreement.
 
  36.6   Interfacing.  If the Procured System is a commercial-off-the-shelf (COTS) product, it shall have the present capability, which can be readily utilized by GD, of providing Calendar-Related data to and accepting Calendar-Related data from other automated, computerized, and/or software systems and users in a four-digit CCYY format, where CC are the two digits expressing the century and YY are the two digits expressing the year with that century (e.g., 1996, 2003, and 2007).
 
  36.7   Century Noncompliance Remedy. In the event that the Procured System is Century Noncompliant in any respect, Vendor shall, at no cost to GD, promptly under the circumstances, including without limitation GD’s schedule commitments (prior to delivery under the subcontract) correct the Century Noncompliance and provide the corrected Century Compliant Procured System to GD.
 
  36.8    Noncompliance Notice. In the event Vendor becomes aware of (i) a possible or an actual Century Noncompliance in the Procured System or (ii) any international, governmental, industrial, or other standard (proposed or adopted) regarding Calendar-Related data and/or processing, or Vendor begins any significant effort to conform the Procured System to any such standard, Vendor shall promptly inform GD of all relevant information (and timely provide GD updates to such information) with respect to Vendor’s knowledge. Vendor shall respond promptly and fully to inquiries by GD (and timely provide updates to any responses provided to GD) with respect to (i) any possible Century Noncompliance in the Procured System or to (ii) any international, governmental, industrial, or other standards. In the foregoing, the use of “timely” means promptly after the relevant information becomes known to or is developed by or for Vendor.

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37.0   YEAR 2000 (Y2K) WARRANTY (COMMERCIAL ITEMS)

 
(a)
The Subcontractor warrants that any Information Technology including, but not limited to, hardware, software, firmware and middleware delivered under this contract shall accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations, to the extent that other information, used in combination with other information technology being acquired, properly exchanges date/time data with it.
 
(b)
Contractor’s obligation. The contractor’s warranties under this clause shall apply only to those defects discovered by either the Government or the Contractor on or before 31 December 2001. Should a warranted item fail to meet the requirements set out in the foregoing paragraph, the Contractor agrees to correct or replace the item at no cost to the Government. The parties agree that this correction or replacement shall not act as a limitation of remedies and that the Government may seek such additional remedies as may be available through this contract or at law or equity.
 
(c)
This clause takes precedence over any other warranty or disclaimer thereof in this contract. It is in addition to the rights and remedies set forth in any other warranty for this item.
   
38.0  MINIMUM SUGGESTED INSURANCE REQUIREMENTS
   
  Recommended minimum coverage limits are as follows:
 
Type of Insurance Minimum Limit


        
Commercial General Liability $1,000,000 - Personal Injury & Property Damage - Combined single limit per occurrence
 
Automobile Liability $1,000,000 - Bodily Injury & Property Damage - Combined single limit per occurrence
 
Workers’ Compensation  Statutory ----------
 
Employer’s Liability $1,000,000 - per occurrence

        
1) General Dynamics Corporation should be added as an Additional Insured regarding
Commercial General Liability (CGL) and Automobile Liability (AL).
 
2) As is regards Workers’ Compensation (WC), the insurance carrier must agree in
writing to waive its right to subrogation.

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3) General Dynamics Corporation should be provided thirty (30) days advanced written
notice if any coverage is suspended, voided, cancelled or reduced in limits.
 
4) The insurance shall be primary as respects General Dynamics Corporation,
subsidiaries, and employees.
   
38.0 GENERAL PROVISIONS
   
A. In addition to the clauses specifically set forth herein, this Subcontract is subject to and the Subcontractor will comply with the below listed provisions of the Federal Acquisition Regulations (FAR) and DoD FAR Supplement (DFAR) modified to the extent indicated, and which are incorporated herein by reference with the same force and effect as though set forth at length.
 
B. The changes noted in this paragraph (B)(i) through (v) below are applicable to all clauses of the FAR and DFAR referenced in this Part II as General Provisions of this subcontract unless otherwise specifically noted at the clause as it appears:
 
(i) The term “Contract” means this “Subcontract.”
 
(ii) The term “Subcontract” means “Lower Tier Subcontract”.
 
(iii) The term “Contractor” means “Subcontractor” or “Seller”
 
(iv) The term “Contracting Officer” means the GD Government Systems duly authorized representative unless otherwise indicated.
 
(v) The term “Government” means “GD Government Systems Corporation,” or “Buyer” unless otherwise indicated.
 
C. The FAR and DFAR clauses incorporated herein are those in effect on the dates specified in this Part III.
 
D. It is the intention of the parties hereto that the above substitutions shall obligate the Subcontractor directly to the Contractor, where applicable, in the same manner as if it were the Government referred to herein.
 
E. Pursuant to the General Provision clauses FAR 52.227-7013, “Rights in Technical Data and Computer Software” the acquisition of the rights in technical data and computer software prescribed by these clauses, is by the Government and not the Contractor.

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  CLAUSE  DESCRIPTION
       
  52.202-1   DEFINITIONS (OCT 95)
       
  52.203-3   GRATUITIES (APR 84)
       
  52.203-05   COVENANT AGAINST CONTINGENT FEES (APR 84)
       
   52.203-6      RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT, WITH ALTERNATE 1 (41 U.S.C. 253G AND 10 U.S.C. 2402) (JUL 95)
       
  52.203-7   ANTI-KICKBACK PROCEDURES (JUL 95)
       
  52.211-14   NOTICE OF PRIORITY RATING FOR NATIONAL DEFENSE USE (SEPT 1990)
       
  52.211-15   DEFENSE PRIORITY AND ALLOCATIONS REQUIREMENTS (SEP 90)
       
  52.211-16   VARIATION IN QUANTITY (APR 84)
       
  52.212-1   INSTRUCTIONS TO OFFERORS - COMMERCIAL IEMS (OCT 2000)
       
   52.212-3      OFFEROR REPRESENETATIONS AND CERTIFICATIONS - COMMERCIAL
ITEMS (JUN 1999) AND ALTERNTES I AND III (JAN 99) (OCT 2000)
       
  52.212-4   CONTRACT TERMS AND CONDITIONS - COMMERCIAL ITEMS (MAY 99)
       
  55.212-5   CONRACT TERMS AND CONDITIONS REQUIRED TO IMPLEMENT
STATUTES OR EXECUTIVE ORDERS - COMMERCIAL ITEMS (FEB 2000)
       
  52.215-02   AUDIT AND RECORDS - NEGOTIATION (JUN 99)
       
  52.215-05   CONTRACT TERMS AND CONDITIONS REQUIRED TO IMPLEMENT
STATUTES OR EXECUTIVE ORDERS - COMMERCIAL ITEMS (FEB 2000)
       
  52.216-18   ORDERING (OCT 95)
       
  52.216-22   INDEFINITE QUANTITY (OCT 1995)
       
  52.219-04   NOTICE OF PRICE EVALUATION PREFERENCE FOR HUBZONE SMALL
BUSINESS CONCERNS (JAN 99)
       
  52.219-8   UTILIZATION OF SMALL BUSINESS CONCERNS (OCT 2000)
       
  52.219-9   SMALL BUSINESS SUBCONTRACTING PLAN (OCT 2000)
       
  52.219-16   LIQUIDATED DAMAGES - SUBCONTRACTING PLAN (JAN 99)
       
  52.222-03   CONVICT LABOR (AUG 96)
       
  52.222-19   CHILD LABOR - COOPERATION WITH AUTHORITIES AND REMEDIES (FEB 2000)

32



  52.222-20   WALSH-HEALEY PUBLIC CONTRACTS ACT (DEC 96)
       
  52.222-21   PROHIBITION OF SEGREGATED FACILITIES (FEB 99)
       
  52.222-26   EQUAL OPPORTUNITY (FEB 99)
       
   52.222-35      AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE
VIETNAM ERA (38 U.S.C. 4212) (APRIL 98)
       
   52.222-36      AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES (29 U.S.C. 793) (JUN 98)
       
  52.222-37   EMPLOYMENT REPORTS ON DISABLED VETERANS AND VETERANS OF
THE VIETNAM ERA (38 U.S.C 4212) (JAN 99)
       
  52.222-41   SERVICE CONTRACT ACT OF 1965 AS AMENDED (41 U.S.C. 351, ET SEQ.) (MAY 89)
       
  52.225-08   DUTY FREE ENTRY (FEB 2000)
       
  52.225-13   RESTRICTIONS ON CERTAIN FOREIGN PURCHASES ( E.O. 12722, 12724,
13059, 13067, 13121 AND 13129) (FEB 2000)
       
  52-225-16   SANCTIONED EUROPEAN UNION COUNTRY SERVICES (E.O. 12849)
(FEB 2000)
       
  52.227-01   AUTHORIZATION AND CONSENT (JUL 95)
       
  52.227-02   NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT
INFRINGEMENT (AUG 96)
       
  52.227-03   PATENT INDEMNITY (APR 84)
       
  52.227-9   REFUND OF ROYALTIES (APR 84)
       
  52.227-10   FILING OF PATENT APPLICATION—CLASSIFIED SUBJECT MATTER
(APR 84)
       
  52.228-05   INSURANCE - WORK ON A GOVERNMENT INSTALLATION (JAN 1977)
       
  52.232.29   TERMS FOR FINANCING OF PURCHASES OF COMMERCIAL ITEMS (OCT 95)
       
  52.237-02   PROTECTION OF GOVERNMENT BUILDINGS, EQUIPMENT, AND
VEGETATION (APR 84)
       
  52.242-17   GOVERNMENT DELAY OF WORK (APR 84)
       
  52.243-1   CHANGES —FIXED PRICE (AUG 87)
       
  52.244-01   SUBCONTRACTS (FIXED-PRICE CONTRACTS) (FEB 95)

33



  52.244-03   SUBCONTRACTS (TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS)
       
  52.244-05   COMPETITION IN SUBCONTRACTING (DEC 96)
       
  52.244-06   SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS
(OCT 98)
       
  52.245-2   GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS AND
ALTERNATE I (APR 84)
       
  52.246-2   INSPECTION OF SUPPLIES - FIXED PRICE (AUG 96)
       
  52.246-23   LIMITATION OF LIABILITY (FEB 97)
       
  52.246-25   LIMITATION OF LIABILITY SERVICES (FEB 97)
       
  52.247-34   F.O.B. DESTINATION (NOV 1991)
       
  52.252-01   SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (JUN 88)
       
  52.XXX   CONTINUED PERFORMANCE DURING CRISIS SITUATIONS (JULY 1988)
       
  52.6081   REPORTING OF CONTRACTOR MANPOWER DATA ELEMENTS (JAN 2001)
       
  52.6126   HAZARDOUS MATERIAL IDENTIFICATION AND MATERIAL SAFETY DATA
SHEET (MSDS) (APR 1992)
       
  52.6130   SCHEDULE OF GOVERNMENT FURNISHED PROPERTY(EQUIP)(SEPT 2000)
       
  52.6195   CONTRACTOR AND COTR IDENTIFICATION (OCT 1999)
       
  52.7025   PLACE OF PERFORMANCE AND SHIPPING POINT (MAR 99)
       
  52.7043   STANDARD PRACTICE FOR COMMERCIAL PACKAGING (APR99)
       
  52.7410   DEPLOYMENT OF CONTRACTORS TO THE FAR EAST (FE) (SEP 99)
       
  52.7625   Y2K WARRANTY (COMMERCIAL ITEMS) (FEB 99)
       
  52.7650   YEAR 2000 (Y2K) WARRANTY
       
  52.7910   INSURANCE (STATEMENT OF WORK (SEPT. 1992)
       
  252.203-7002   DISPLAY OF DOD HOTLINE POSTER (DEC 1991)
       
  252.204-7004   REQUIRED CENTRAL CONTRACTOR REGISTRATION (CCR) (MAR 2000)
       
  252.205-7000   PROVISION OF INFORMATION TO COOPERATIVE AGREEMENT HOLDERS
(10 U.S.C. 2416) (DEC 91)
       
  252.209-7001   DISCLOSURE OF OWNERSHIP OR CONTROL BY THE GOVERNMENT OF A
TERRORIST COUNTRY (SEPT 94)

34



  252.212-7001        CONTRACT TERMS AND CONDITIONS REQUIRED TO IMPLEMENT
STATUTES
OR EXECUTIVE ORDERS APPLICABLE TO DEFENSE
ACQUISITIONS OF
COMMERCIAL ITEMS (DEC 2000)
       
    252.219-7003        SMALL, SMALL DISADVANTAGED BUSINESS AND WOMEN- OWNED
SMALL BUSINESS SUBCONTRACTING P LAN (DOD CONTRACTS

(15 U.S.C. 637) (APR 96)
       
  252.225-7001   BUY AMERICAN ACT AND BALANCE OF PAYMENTS PROGRAM
(41 U.S.C.10A-10D, E. O. 10582) (MAR 98)
       
  252.225-7008   SUPPLIES TO BE ACCORDED DUTY-FREE ENTRY SUPPLIES (MAR 98)
       
  252.225-7009   DUTY-FREE ENTRY - QUALIFYING COUNTRY (END PRODUCTS AND
COMPONENTS) (AUG 2000)
       
  252.225-7010   DUTY FREE ENTRY - ADDITIONAL PROVISIONS (AUG 2000)
       
  252.225-7012   PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES (AUG 2000)
       
  252-225-7014   PREFERENCE FOR DOMESTIC SPECIALTY METALS, ALTERNATE 1
(10 U.S.C. 2241 NOTE) (MAR 98)
       
  252-225-7031   SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 92)
       
  252-225-7043   ANTITERRORISM/FORCE P ROTECTION POLICY FOR DEFENSE
CONTRACTORS OUTSIDE THE U.S. (JUN 98)
       
  252.227-7015   TECHNICAL DATA—COMMERCIAL ITEMS (10 U.S.C. 2320) (NOV 95)
       
  252.227-7016   RIGHTS IN BID OR PROPOSAL INFORMATION (JUN 95)
       
  252.227-7019   VALIDATION OF ASSERTED RESTRICTIONS - COMPUTER SOFTWARE
(JUN 95)
       
  252.227-7027   DEFERRED ORDERING OF TECHNICAL DATA OR COMPUTER SOFTWARE (APR 88)
       
  252.227-7028   TECHNICAL DATA OR COMPUTER SOFTWARE PREVIOUSLY DELIVERED
TO THE GOVERNMENT (JUN 95)
       
  252.227-7030   TECHNICAL DATA - WITHHOLDING OF PAYMENT (OCT 98)
       
  252.227-7036   DECLARATION OF TECHNICAL DATA CONFORMITY (JAN 1997)
       
  252.227-7037   VALIDATION OF RESTRICTIVE MARKINGS ON TECHNICAL DATA (10 U.S.C.2321) (SEP 97)

35



  252.243-7002   REQUESTS FOR EQUITABLE ADJUSTMENT (10 U.S.C. 2410) (MAR 98)
       
  252.246-7000   MATERIAL INSPECTION AND RECEIVING REPORT (DEC 91)
       
  252.247-7023   TRANSPORTATION OF SUPPLIES BY SEA (10 U.S.C. 2631)
(ALTERNATE I) (ALTERNATE II) (9 U.S.C. 2631) (MAR 2000)
       
  252.247-7024   NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA (10 U.S.C.
2631) (MAR 2000)

36


EX-21.1 22 d63089_ex21-1.htm EXHIBIT 21.1
 
List of Subsidiaries
 
Name of Subsidiary   Jurisdiction of Incorporation   Names under which Subsidiary
does Business (if different than
corporate name)

 
 
ION Networks Holdings   Belgium   None
ION Networks NV   Belgium   None


EX-31.1 23 d63089_ex31-1.htm EXHIBIT 31.1
 

CERTIFICATIONS

I, Norman E. Corn, certify that:

 
1. I have reviewed this annual report on Form 10-KSB for ION Networks, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
 
4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
 
c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
 
d) Disclosed in this report any changes in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting: and
 
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
 
 
Date:   March 23, 2005
   ————————————————————
   
By:   /s/ Norman E. Corn
  —————————————————————
    Norman E. Corn, Chief Executive Officer

55


EX-31.2 24 d63089_ex31-2.htm EXHIBIT 31.2
 

CERTIFICATIONS

I, Patrick E. Delaney, certify that:

 
1. I have reviewed this annual report on Form 10-KSB for ION Networks, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
 
4. The small business issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
 
c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
 
d) Disclosed in this report any changes in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting: and
 
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
 
 
Date:   March 23, 2005
   ————————————————————
     
   
By:   /s/ Patrick E. Delaney
  —————————————————————
    Patrick E. Delaney, Chief Financial Officer

56


EX-32.1 25 d63089_ex32-1.htm EXHIBIT 32.1
 

ION Networks, Inc.

CERTIFICATION PURSUANT
TO 18U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
  CERTIFICATION
 

In connection with the periodic report of ION Networks, Inc. (the “Company”) on Form 10-KSB for the year ended December 31, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Norman E. Corn, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 
  (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
 
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ION Networks, Inc. and will be retained by ION Networks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 
 
Date:       March 23, 2005  By:    /s/ Norman E. Corn 
  ————————   —————————————
        Norman E. Corn
        Chief Executive Officer

57


EX-32.2 26 d63089_ex32-2.htm EXHIBIT 32.2
 

ION Networks, Inc.

CERTIFICATION PURSUANT
TO 18U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
  CERTIFICATION
 

In connection with the periodic report of ION Networks, Inc. (the “Company”) on Form 10-KSB for the year ended December 31, 2004 as filed with the Securities and Exchange Commission (the “Report”), I, Patrick E. Delaney, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

 
  (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
 
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ION Networks, Inc. and will be retained by ION Networks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 
 
Date:       March 23, 2005  By:    /s/ Patrick E. Delaney
  ————————   —————————————
        Patrick Delaney
        Chief Financial Officer

58


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