x	Preliminary Proxy Statement

 

¨	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

¨	Definitive Proxy Statement

 

¨	Definitive Additional Materials

 

¨	Soliciting Material Pursuant to §240.14a-12

 

 

Appendix A: Asset Purchase Agreement, dated November 19, 2007, by and between Cryptek, Inc. and ION Networks, Inc. 

Appendix B:  Proposed Certificate of Amendment to the Certificate of Incorporation of ION Networks, Inc. to amend Article FOURTH to increase the Company’s authorized number of shares of Common Stock from 50,000,000 to 750,000,000.

Appendix C:  Proposed Certificate of Amendment to the Certificate of Incorporation of ION Networks, Inc to amend Article FIRST to change the Company’s name to Balanus, Inc.

 

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SUMMARY TERM SHEET – PROPOSAL NO. 2

 

The following information summarizes the material terms of our proposed asset sale to Cryptek (the “Asset Sale”). For a complete description of the terms and conditions of the Asset Sale, you are advised to carefully read this entire Proxy Statement and the other documents referred to herein before voting your shares of Common Stock. The actual terms and conditions of the Asset Sale are contained in the Asset Purchase Agreement, which is included as Appendix A to this Proxy Statement (the “Asset Purchase Agreement”).

§

Ion Networks, Inc. has agreed to sell substantially all of its assets to a privately held Delaware corporation called Cryptek, Inc. We require the approval of our stockholders to consummate this transaction and that approval is being sought by Proposal 2 in this Proxy Statement.  See Proposal No. 2 - “The Parties” on Page 19 herein.

§

The Company is taking this measure as a result of belief of the Board of Directors that this measure will be in the best interests of its stockholders, and that Ion is not able to attract sufficient capital and other resources to grow and expand its business.  See Proposal No. 2 - “Reasons for the Asset Sale” on Page 23 herein.

§	The purchase price is $3.2 million, plus the assumption of certain liabilities by Cryptek.  See Proposal No. 2 - “The Sale of Assets to Cryptek” on Page 19 herein.

§	$320,000 of the purchase price will be held in escrow for 12 months to secure certain representations we made about the condition of our intellectual property, certain financial “true ups” and certain other matters.  See Proposal No. 2 - “The Sale of Assets to Cryptek” on Page 19 herein.

§	We anticipate the net proceeds of the sale to be approximately $1.75 million, after payment of various debts and transaction related expenses and assuming that the escrow proceeds are returned to the Company.  See Proposal No. 2 - “Use of Proceeds” on Page 26 herein.

§	We will continue to operate after the sale as a public company. We will not be distributing the proceeds of the sale, but rather will retain them and seek to acquire or combine with another company.  See Proposal No. 2 - “The Structure of the Company After the Asset Sale” on Page 24 herein.

§

All of the Company’s employees are being hired by Cryptek, except for the Chief Executive Officer and Chief Financial Officer. Those executive officers will stay on with the Company for several months until an appropriate combination or acquisition transaction can be identified and consummated.  See Proposal No. 2 - “The Structure of the Company After the Asset Sale” on Page 24 herein.

What Vote Is Required To Approve The Asset Sale?

Approval of the Asset Sale requires the affirmative vote of holders of a majority in voting power of the outstanding shares of our Common Stock. Each share of our Common Stock is entitled to one vote per share.

 

 

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What Constitutes A Majority In Voting Power Of The Shares?

On the Record Date, there were 32,785,565 outstanding shares of Common Stock outstanding. 16,392,783 shares constitute a majority of the voting power of the outstanding shares of our Common Stock.

What Are The Terms Of The Asset Purchase Agreement?

On November 15, 2007, our Board of Directors, acting at a meeting duly called and held, approved the Asset Purchase Agreement, pursuant to which we have agreed to sell, and Cryptek has agreed to purchase, substantially all of the assets of the Company (including our intellectual property rights and all relevant company records and equipment to sustain the business as it currently exists, along with the existing customer maintenance contracts, and certain assets and liabilities as mutually agreed, all as further described in the Asset Purchase Agreement). As consideration for these assets, Cryptek has agreed to pay us $3.2 million, of which $320,000 will be placed in escrow as security against any “true-up payment” and claims against the indemnities relating to intellectual property which the Company has given to Cryptek pursuant to the terms of the Asset Purchase Agreement. This escrow will be terminated after twelve months at which time any amounts remaining will be paid to the Company, less any amounts released to Cryptek due to valid claims asserted against the escrow and less any amounts subject to unresolved claims.

Why Is The Company Selling its Assets?

In 2003, the Company changed management teams in an attempt to stop the downward spiral of declining revenues and increasing losses. While significant progress was made in halting the decline in revenues and reducing the losses, we feel there is limited growth potential based upon the Company’s current lack of resources. We do not believe that we can raise the necessary capital to organically expand our customer base. We believe that by selling the assets and redeploying the proceeds we may be able to increase shareholder value.

What Will Happen To The Company After The Asset Sale?

After completion of the Asset Sale, the Company will use the proceeds, after paying down all debt and transaction related expenses, to seek to identify and to effect a business combination with a private company, which has potential for growth as a public entity.  It is anticipated that the combined corporation will continue to operate as a public company. The Common Stock will continue to be traded during the search period as IONN.OB.  After combining with the selected candidate, the stock symbol may change.

What Factors Were Considered By Management And Our Board of Directors In

Deciding To Sell Substantially All Of The Company's Assets?

Management and our Board of Directors considered a number of factors before deciding to enter into the Asset Purchase Agreement, including, but not limited to, the following:

 

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1.

The inability to grow the Company based upon the limited resources available to the Company;

2.

The inability to secure additional financing on terms and conditions that the management and Board of Directors considered acceptable;

3.

The terms and conditions of the proposed Asset Sale;

4.

Preliminary indications of interest made by other companies for both the assets of the Company  or the Company as a whole; and

5.

The belief that the offered purchase price by Cryptek is a fair price for the assets of the Business.

Will Our Stockholders Receive Any Of The Proceeds From The Asset Sale?

No. Cryptek is paying us cash for the assets of the Company.  The proceeds we receive from the Asset Sale will be retained by the Company and used to eliminate outstanding debt and payables, pay professional fees for legal and accounting services, fund the costs of maintaining the public status of the remaining entity and identifying and selecting the best possible business combination candidate. We believe that this will provide the best opportunity to increase shareholder value by redeploying the remaining assets.

How Is Cryptek Financing The Purchase Price For The Asset Sale?

Cryptek has provided documentation to us that the $3.2 million of the purchase price to be paid to us at closing will be funded from Cryptek's current investors buying additional capital stock in Cryptek.

What Rights Do Stockholders Have To Dissent From The Asset Sale?

In connection with Asset Sale, our stockholders do not have dissenters’ rights of appraisal under Delaware law.

What Are The Conditions Of The Asset Sale?

The following list includes what our Board of Directors and Management believe are the material conditions to the Asset Sale, all of which must be satisfied at or prior to the time of the closing, unless waived by the party in whose favor the condition exists. In view of the fact that interpretations of "materiality" can be subjective, the list is qualified by reference to the Asset Purchase Agreement, which is attached as Appendix A to this Proxy. You are urged to carefully read this entire document including the Asset Purchase Agreement.

1.

There are no legal restraints rendering the Asset Purchase Agreement unlawful or preventing the consummation of the transactions contemplated there under and no pending litigation that seeks to prohibit, alter, prevent or materially delay those transactions;

2.

Certain consents and waivers to the consummation of the Asset Sale shall have been obtained;

 

 

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3.

The Stockholders of the Company entitled to vote in accordance with the Delaware General Corporation Law and the Company’s Certificate of Incorporation shall have approved the Asset Sale and the name change of the Company;

4.

The respective representations and warranties made in the Asset Purchase Agreement by each of the parties to the Asset Purchase Agreement shall be true and correct;

5.

There shall have been no Material Adverse Effect (as defined in the Asset Purchase Agreement) with respect to the Company whether covered by insurance or not;

6.

Each Transferred Employee shall have resigned from, or been terminated by, Administaff (the Professional Employer Organization (PEO) that provides human resources, outsourcing services, through the use of a co-employment relationship with the Company), effective as of the closing;

7.

Certain employees shall have entered into an inventions assignment agreement, in a form satisfactory to Cryptek, sufficient to assign all rights such employees may have in any intellectual property such employees created while employed by the Company;

8.

The Company shall have procured the discharge of certain encumbrances and indebtedness as set forth in the Asset Purchase Agreement; and

9.

The Company shall be in total compliance with all licenses included in the intellectual property licensed by Company and to be sold to Cryptek and provide evidence of such total compliance.

 

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ION NETWORKS, INC.

120 Corporate Boulevard

South Plainfield, New Jersey 07080

PROXY STATEMENT

 

____________

 

This proxy statement (the “Proxy Statement”) is furnished to the holders of common stock, par value $.001 per share (“Common Stock”) of ION Networks, Inc., a Delaware corporation (the “Company”), in connection with the solicitation by and on behalf of the Board of Directors (“Board of Directors” or the “Board”) of proxies to be voted at the Annual Meeting of Stockholders of the Company to be held on Friday, December 28, 2007 (the “Meeting”), at 10:00 a.m., local time, at 120 Corporate Boulevard, South Plainfield, New Jersey 07080 and at any adjournment or postponement thereof.

 

This proxy solicitation is being made by the Board of Directors. The cost of the solicitation will be borne by the Company. In addition to the use of the mails, proxies may be solicited personally or by telephone, facsimile, email, or other electronic means by officers, directors and employees of the Company.  We will not specially compensate those persons for such solicitation activities. We may retain a proxy-soliciting firm to assist us in soliciting proxies. If so, we would pay the proxy-soliciting firm a fee and reimburse it for certain out-of-pocket expenses. Arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries for forwarding solicitation materials to the beneficial owners of Common Stock held of record by such persons, and we will reimburse such persons for their reasonable expenses incurred in forwarding the materials. This Proxy Statement and the accompanying form of proxy will be first mailed to stockholders on or about December 7, 2007.

 

A form of proxy is enclosed for use at the Meeting.  When such proxy is properly executed and returned, the shares it represents will be voted at the Meeting in accordance with any instructions noted thereon.  If no direction is indicated, all shares represented by valid proxies received pursuant to this solicitation (and not revoked prior to exercise) will be voted as the Board recommends, that is, “FOR” the election of the nominees for director named in this Proxy Statement, “FOR” the approval of the sale of substantially all of the assets of the Company to Cryptek, Inc., “FOR” the amendment of Article FOURTH of the Company’ certificate of incorporation to increase the number of authorized shares of Common Stock from 50,000,000 to 750,000,000, “FOR” the amendment of  Article FIRST of the Company’s certificate of incorporation to change the name of the Company from ION Networks, Inc. to Balanus, Inc., and in connection with the conduct of other business, if properly raised, in accordance with the judgment of the person or persons voting the proxy.  If, for any reason, any of the nominees for director are unable or unavailable to serve or for good cause will not serve, an event that we do not anticipate, the shares represented by the accompanying proxy will be voted for a substitute nominee designated by the Board.

 

If any other matters are properly presented at the Meeting for consideration, such as consideration of a motion to adjourn the Meeting to another time or place, the persons named as proxies will have discretion to vote on those matters according to their best judgment to the same extent as the Stockholder delivering the proxy would be entitled to vote. At the date of this Proxy Statement, we do not anticipate that any other matters will be raised at the Meeting.

 

It is important that your shares are represented at the Meeting, and, therefore, all stockholders are cordially invited to attend the Meeting. However, whether or not you plan to attend the Meeting, you are urged to, as promptly as possible, mark, sign, date and return the enclosed proxy card, which requires no postage if mailed in the United States in the enclosed pre-paid envelope.

 

 

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Any stockholder giving a proxy has the right to attend and vote at the Meeting in person. If you hold shares directly in your name and attend the Meeting, you may vote your shares in person, even if you previously submitted a proxy card. You may revoke your proxy and change your vote by submitting a valid, later-dated proxy card or by giving written notice of such revocation to the Chief Financial Officer of the Company prior to or at the Meeting or by voting in person at the Meeting.  Your attendance at the Meeting itself will not revoke your proxy unless you give written notice of revocation to the Chief Financial Officer before your proxy is voted or you vote in person at the Meeting.  If your shares are held in “street name”, you should contact your bank, brokerage firm or other nominee and follow its procedures for changing your voting instructions. You may also vote in person at the Meeting if you obtain a legal proxy from the record holder.

 

Outstanding Voting Securities, Quorum and Voting Requirements

 

The close of business on December 3, 2007 has been fixed by the Board of Directors as the record date (previously defined as the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournments or postponements thereof.  As of the Record Date, there were 32,785,565 outstanding shares of Common Stock.  Each share of Common Stock that is outstanding on the Record Date is entitled to one vote on each matter to come before the Meeting.  In addition, as of the Record Date, there were 155,557 outstanding shares of the Series A Preferred Stock, par value $.001 per share (“Series A Preferred Stock”), of the Company.  Each share of Preferred Stock is convertible into ten shares of Common Stock. The shares of Series A Preferred Stock do not have voting rights and do not vote on an as converted basis with the Common Stock, except that, under the provisions of the Certificate of Designations which sets forth the terms of such shares, the prior consent of the holders of a majority of the outstanding shares of Series A Preferred Stock were required to approve Proposal No. 3.  Such Proposal No. 3 has been approved by the holders of the Series A Preferred prior to the mailing of this Proxy Statement.

 

The holders of a majority of the shares of Common Stock outstanding on the Record Date, present in person or by proxy, will constitute a quorum for the transaction of business at the Meeting and at any adjournment or postponement thereof.  Votes withheld in the election of directors, and abstentions and broker non-votes with respect to any other proposal, will be deemed as present for purposes of determining a quorum at the Meeting. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary power with respect to that item and has not received instructions from the beneficial owner.

 

Voting requirements for each proposal are discussed below and amplified in the sections dealing with each proposal.

 

Required Vote

 

Proposal No. 1: To elect four directors to the Board of Directors, to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualified.  The affirmative vote of a plurality of the votes cast at the Meeting is required to elect a director. Votes withheld in the election of directors and abstentions or broker non-votes, if any, will not be counted towards the election of any person as director.

 

Proposal No. 2: To approve the sale of substantially all of the assets of the Company to Cryptek, Inc.  The affirmative vote of a majority of the outstanding shares of Common Stock is required to approve this proposal. An abstention or broker non-vote will have the effect of a vote against this proposal.

 

Proposal No. 3: To amend Article FOURTH of the certificate of incorporation of the Company to increase the number of authorized shares of Common Stock from 50,000,000 to 750,000,000.  The affirmative vote of a majority of the outstanding shares of Common Stock is required to approve this proposal. An abstention or broker non-vote will have the effect of a vote against this proposal.  A required affirmative vote by a majority of the holders of the Series A Preferred Stock for the increase in the number of authorized shares of Common Stock has already been obtained.

 

 

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Proposal No. 4: To amend Article FIRST of the certificate of incorporation of the Company to change the name of the Company from ION Networks, Inc. to Balanus, Inc.  The affirmative vote of a majority of outstanding shares of Common Stock is required to approve this proposal. An abstention or broker non-vote will have the effect of a vote against this proposal.

 

Election inspectors appointed for the Meeting will tabulate the votes cast by proxy or in person at the meeting. The election inspectors will determine whether or not a quorum is present, as well as any other matter relating to the tabulation of votes.

 

Multiple Copies of Annual Report and Proxy Statement

 

When more than one holder of Common Stock shares the same address, we may deliver only one annual report and one Proxy Statement to that address unless we have received contrary instructions from one or more of those stockholders. Similarly, brokers and other intermediaries holding shares of Common Stock in “street name” for more than one beneficial owner with the same address may deliver only one annual report and one Proxy Statement to that address if they have received consent from the beneficial owners of the stock.

 

We will deliver promptly upon written or oral request a separate copy of the annual report and one Proxy Statement to any stockholder, including a beneficial owner of stock held in “street name,” at a shared address to which a single copy of either of those documents was delivered. To receive additional copies of our annual report and Proxy Statement, you may call or write Patrick E. Delaney, Chief Financial Officer, ION Networks, Inc., at 120 Corporate Boulevard, South Plainfield, New Jersey 07080, telephone (908) 546-3900.

 

You may also contact the Company’s Chief Executive Officer at the address or telephone number above if you are a stockholder of record of the Company and you wish to receive a separate annual report and Proxy Statement in the future, or if you are currently receiving multiple copies of our annual report and Proxy Statement and want to request delivery of a single copy in the future. If your shares are held in “street name” and you want to increase or decrease the number of copies of our annual report and Proxy Statement delivered to your household in the future, you should contact the broker or other intermediary who holds the shares on your behalf.

 

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The Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 and the Company’s Quarterly Report on Form 10Q-SB for the fiscal quarter ended September 30, 2007 (which are not part of the proxy soliciting material), which contains financial data and other information about the Company, is enclosed herewith.

 

 

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PROPOSAL NO. 1

ELECTION OF DIRECTORS

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At the Meeting, the stockholders will elect four directors to serve until the next annual meeting of stockholders and until their respective successors are elected and qualified.  Unless otherwise directed, the persons named in the Proxy Statement intend to cast all proxies received “FOR” the election of Messrs. Stephen M. Deixler, Frank S. Russo, Philip Levine and Norman E. Corn (the “Nominees”) to serve as directors upon their nomination at the Meeting.  The Company’s bylaws provide that the number of directors consist of one or more, such number of directors to be fixed by the Board from time to time.  The total number of directors of the Company is currently fixed at four. At the Meeting, four nominees will stand for election.  Proxies cannot be voted for more than four nominees for director.  Each of the Nominees has consented to serve as a director if elected.  Each of the Nominees currently serves as a director of the Company.  In the event that any of the Nominees for director should become unavailable for election to the Board of Directors for any reason, the persons named in the proxies will have discretionary authority to vote the proxies for one or more substitute nominees who will be designated by the existing Board or the size of the Board may be reduced.  The Board believes that the named nominees are available and, if elected, will be able to serve. Unless authority to vote for any director is withheld in a proxy, each proxy will be voted “FOR” each of the Nominees.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth (i) the names and ages of the nominees for election as director, (ii) the other positions and offices presently held by such persons with the Company, if any, and (iii) the date upon which such persons began their service on the Board.

 

NOMINEES FOR ELECTION AT 2007 ANNUAL MEETING

 

Name and Position with the Company, if any	Age	Director Since
Stephen M. Deixler, Chairman of the Board	72	May 1982
Norman E. Corn, Chief Executive Officer and Director	61	November 2005
Frank S. Russo, Director	64	November 2000
Philip Levine, Director	60	June 2006

 

 

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Set forth below is the name of, and certain biographical information regarding, the directors of the Company.

 

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 from March 2003 to September 2003, Mr. Deixler 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.

 

NORMAN E. CORN has served as Chief Executive Officer of the Company since August 15, 2003. Prior to joining the Company, 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 Chief Executive Officer 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.  He spent the early part of his career in sales, marketing and executive positions with AT&T Corporation and IBM Corporation.

 

FRANK S. RUSSO has served as a director of the Company since November 2000. Mr. Russo was with AT&T Corporation (AT&T) from September 1980 to September 2000 lastly serving as its Corporate Strategy and Business Development Vice President. While at AT&T, Mr. Russo held a number of other management 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 January 1999 to February 2000, and currently serves on the Board of Directors of Retail Solutions, a private e-commerce company headquartered in Waltham, Massachusetts.

 

PHILIP LEVINE has served as a director of the Company since June 30, 2006.  He has served as Chief Financial Officer and General Counsel of Teldata, which later became Control Point Solutions. Prior positions included Vice President with the American Arbitration Association and the Chief Financial Officer, Treasurer, and Corporate Secretary of both Computron Software and Numerax. Mr. Levine is a certified public accountant and attorney and teaches accounting courses at Berkeley College. He has been an Arbitrator with the National Association of Securities Dealers for over 25 years. He received his JD from Rutgers Law School, his MBA from Baruch Graduate School of the City University of New York, and a BS from Brooklyn College, also CUNY.

 

 

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Executive Officers

 

Set forth below is the name of, and certain biographical information regarding, the executive officers of the Company who do not serve as directors of the Company.

 

Name	Age	Position Held with the Company
Patrick E. Delaney	54	Chief Financial Officer
William Whitney	52	Chief Technology Officer and Vice President of Research and Development
Henry A. Hill	48	Chief Operating Officer

 

PATRICK E. DELANEY has served as Chief Financial Officer of the Company since September 15, 2003. Prior to joining the Company, 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 held executive positions with other companies including RealCom Communications, Argo Communications and ACF Industries.

 

WILLIAM WHITNEY has served as Vice President of Research and Development of the Company since March 2002 and Chief Technology Officer of the Company since October 1, 2002.  Prior to joining the Company, 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.

HENRY A. HILL has served as Chief Operating Officer since August 2006 and prior to that as Senior Vice President of Technical Services since August 31, 2004. Prior to joining ION, from 2002 to 2004 Mr.. Hill was Vice President of Client Services and Operations at Fast Track Systems, Inc., a Pennsylvania-based global provider of protocol design and clinical trial software for the pharmaceutical industry. Mr.. Hill served as Chief Operating Officer at both Liquent, Inc., a software company that provides electronic publishing solutions and TCG Software, Inc., an offshore software services organization providing custom development to large corporate enterprises in the US. Mr.. Hill has also held client services, operations, and technology management positions with global organizations including Accenture and Sea-Land Service.

 

Required Vote

 

Directors are elected by a plurality of the votes of the shares present by in person or represented by proxy at the Meeting and entitled to vote on the election of directors.  Votes withheld in the election of directors and abstentions or broker non-votes, if any, will be deemed as present for the purposes of determining the presence of a quorum at the Meeting, but will not be counted in favor of the election of any person as a director.  Brokers who hold shares of Common Stock as nominees will have discretionary authority to vote such shares on this proposal if they have not received voting instructions from the beneficial owner by the tenth day before the Meeting, provided that this Proxy Statement has been transmitted to the beneficial holder at least 15 days prior to the Meeting.  In the event that any of the nominees should become unavailable before the Meeting, it is intended that shares represented by the enclosed proxy will be voted for such substitute nominee as may be nominated by the current Board of Directors.

 

 

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH NOMINEE NAMED IN THE PROXY STATEMENT.

CORPORATE GOVERNANCE

 

General

 

The Company is committed to establishing sound principles of corporate governance which promote honest, responsible and ethical business practices. The Company’s corporate governance practices are regularly reviewed and evaluated by the Board of Directors. This review includes comparing the Board’s current governance policies and practices with those suggested by authorities active in corporate governance as well as the practices of other public companies. Based upon this evaluation, the Board has adopted those policies and practices that it believes are the most appropriate corporate governance policies and practices for the Company.

 

Board Independence and Composition

 

The Board of Directors has determined that Stephen M. Deixler, Frank S. Russo and Philip Levine, constituting a majority of the directors and all current members of the audit committee, are “independent” within the meaning of Nasdaq Rule 4200(a)(15), and that the members of the audit committee are also “independent” for purposes of Rule 10A-3 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company has further determined that all of the members of the compensation committee and nominating committee are independent within the meaning of Nasdaq Rule 4200(a)(15).

 

In making each of these independence determinations, the Board considered and broadly assessed, from the standpoint of materiality and independence, all of the information provided by each director in response to detailed inquiries concerning the director’s independence and any direct or indirect business, family, employment, transactional or other relationship or affiliation of such director with the Company.

 

Board Meetings and Committees

 

During the Company’s fiscal year ended December 31, 2006, there were seven meetings of the Board of Directors.  Each member of the Board of Directors (other than Mr. Levine during the part of fiscal year 2006 during which he was not a director) attended all of the meetings of the Board of Directors and committees on which each director served during fiscal year 2006.  The Board of Directors has a separate Audit Committee, Nominating Committee and Compensation Committee.

 

The Board does not have a policy regarding attendance by its members at annual meetings of stockholders.  The 2006 annual meeting of stockholders was attended by Messrs. Deixler, Russo, Levine and Corn, all of whom are current members of the Board.

 

Audit Committee

 

The Company’s Audit Committee currently consists of Messrs. Stephen M. Deixler, Frank S. Russo and Philip Levine. The Board of Directors has determined, based on information provided to it by Mr. Levine, that Mr. Levine qualifies as a “audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-B.

 

The function of the Audit Committee is to review and advise the Board with respect to matters concerning the financial condition and operations of the Company, to select independent auditors, to determine the scope of their engagement and their compensation, to review the effectiveness of the Company’s internal accounting methods and procedures and to determine through discussions with the independent auditors whether any instructions or limitations have been placed upon them in connection with the scope of their audit or its implementation. The specific functions and responsibilities of the Audit Committee are set forth in a written charter of the Audit Committee adopted by the Board.  The Audit Committee reviews and reassesses its charter annually and recommends any changes to the Board for approval. A report of the Audit Committee appears under the caption “Audit Committee Report” below. During the fiscal year ended December 31, 2006, the Audit Committee held five meetings.

 

 

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Nominating Committee and Compensation Committee

 

At a meeting on November 8, 2006, the Board of Directors established a separate Nominating Committee and Compensation Committee.  As of the present time, neither the Nominating Committee nor the Compensation Committee has adopted a formal committee charter.  The members of each of the Nominating Committee and the Compensation Committee are Messrs Deixler, Russo and Levine. Mr. Russo was elected as chairperson of the Nominating Committee and Mr. Deixler was elected as chairperson of the Compensation Committee.  Stephen M. Deixler, Frank S. Russo, and Philip Levine, each of whom has been determined by the Board to be “independent” within the meaning of the Nasdaq independence standards, participate in the consideration of director nominees. Norman E. Corn is not “independent” pursuant to the Nasdaq independence standards but does participate, although not as a member of the Nominating Committee, in the nominating process.

The Nominating Committee seeks to identify appropriate board candidates, and recommends nominees to the Board.  The Board nominates current members of the Board of Directors and it will consider nominees recommended by stockholders.  Stockholders may forward the name, address and biographical information of a potential nominee to: c/o ION Networks, Inc., 120 Corporate Boulevard, South Plainfield, NJ 07080, Attn: Patrick Delaney.  A nominee to the Board of Directors must have such experience in business or financial matters as would make such nominee an asset to the Board of Directors.  The Board of Directors will evaluate a potential nominee by personal interview, and/or any other method the Board deems appropriate, which may, but need not, include a questionnaire.

 

The Compensation Committee reviews, establishes and approves salary and benefit levels for officers, equity compensation plans for employees, and directors’ compensation.  The Compensation Committee’s decisions on salary and benefits for officers and equity compensation plans for employees are based in part on recommendations by the Company’s management to the Compensation Committee.  The Compensation Committee considers the recommendations in light of the factors stated below.  Due to the Company’s lack of resources, the Compensation Committee does not employ compensation consultants but rather the Compensation Committee makes decisions based on its members’ business experience, independent research and the financial position of the Company.  The Board evaluates the Compensation Committee’s recommendations and makes the final decisions on employee, officer and director compensation.

 

Audit Committee Report

 

The Audit Committee reviewed and discussed with management of the Company and with Marcum & Kliegman, LLP, the independent auditors of the Company, the audited financial statements of the Company as of December 31, 2006 (the “Audited Financial Statements”). In addition, the Audit Committee discussed with Marcum & Kliegman, LLP the matters required by Codification of Statements on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90.

 

The Audit Committee also received and reviewed the written disclosures and the letter from the Marcum & Kliegman, LLP required by Independence Standards Board Standard No. 1, and has discussed with them their independence from the Company. The Audit Committee also discussed with management of the Company and the independent auditors such other matters and received such assurances from them as it deemed appropriate.

 

 

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Management is responsible for the Company’s internal controls and the financial reporting process. Marcum & Kliegman, LLP is responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and issuing a report thereupon. The Audit Committee’s responsibility is to monitor and oversee these processes.

 

Based on the foregoing review and discussions and a review of the report of the independent auditors with respect to the Audited Financial Statements, and relying thereon, the Audit Committee has recommended to the Company’s Board of Directors the inclusion of the Company’s Audited Financial Statements in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006.

 

Audit Committee

Philip Levine, Chairman

Stephen M. Deixler

Frank S. Russo

Stockholder Communications

 

Stockholders may communicate directly with the Board of Directors by sending communications to the Board of Directors, c/o of ION Networks, Inc., 120 Corporate Boulevard, South Plainfield, New Jersey 07080.

 

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 the Company at 120 Corporate Blvd., South Plainfield, New Jersey 07080.

 

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EXECUTIVE COMPENSATION

 

The following table sets forth the compensation earned, whether paid or deferred, by the Company's Chief Executive Officer and its other three most highly compensated executive officers during the year ended December 31, 2006 (the "Named Executive Officers") for services rendered in all capacities to the Company.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Option Awards ($)(4)	All Other Compensation ($)	Total ($)
Norman E. Corn, Chief Executive Officer	2006 2005	235,000 235,800 (5)	42,000 30,000	3,286	17,881 (1) 9,296 (6,7)	298,167
Patrick E. Delaney, Chief Financial Officer	2006 2005	200,000 210,000 (5)	13,000 27,500	3,286	7,200 (2) 4,500 (6)	223,486
William Whitney, Vice President and Chief Technology Officer	2006 2005	155,000 155,000	9,500 12,500	26,195	-	190,695
Henry A. Hill,  Chief Operating Officer	2006 2005	154,167 150,000	9,500 12,500	3,286	7,200 (3)	174,153