As Filed: August 9, 2000 SEC File No. 333-34298
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Amendment No. 2 to
Form S-4
Registration Statement Under
the Securities Act of 1933
__________
SENSAR CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 3826 87-0429944
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
organization) Code Number)
50 West Broadway, Suite 501, Salt Lake City, Utah 84101 (801) 350-0587
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Howard S. Landa, 50 West Broadway, Suite 501, Salt Lake City, Utah 84101
(801) 350-0587
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Keith L. Pope
Keith L. Pope, LLC
1000 Boston Building
Nine Exchange Place
Salt Lake City, Utah 84111
Telephone (801) 531-6686
Telecopy (801) 531-6690
Approximate date of commencement of proposed sale to the public: The
common stock being registered hereby will be delivered as soon as practicable
after the effective date of this registration statement and the completion of
the merger of Sensar and Net2Wireless Corporation.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Unit Offering Price(2) Fee
-------------------------------- ------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Common stock, par value $0.001
Options, and Warrants(3) 19,295,060 N/A $27,718,673 $ 7,253
Common stock issuable on the
exercise of Options and Warrants
15,266,649 $2.70 $41,194,827 $10,876
Totals $68,668,571 $18,129
<FN>
(1) There are also registered pursuant to rule 416 such additional number of securities as may be
issuable under the antidilution provisions of the securities registered above.
(2) Solely to estimate the aggregate offering price for the purpose of calculating the registration
fee, the offering price of the common stock, options, and warrants issued in the merger is equivalent
to the book value of the securities of Net2Wireless to be cancelled in the transaction as of March 31,
2000 (rule 457(f)(2)), and the common stock subject to the options and warrants is valued at the
exercise price of the options and warrants for those that have been granted to date and the last sale
price of the Sensar common stock on June 28, 2000, of $23.6875 as reported by Nasdaq for those options
not yet issued (rule 457(g)).
(3) All share amounts give effect to the two-for-one split of the common stock of Sensar that took
effect January 17, 2000.
</TABLE>
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
<PAGE>
Preliminary Copy, Subject to Completion, Dated August 9, 2000
SENSAR
CORPORATION
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
Telephone: (801) 350-0587
Telecopy: (801) 350-0825
[current date]
Dear Stockholder:
We are pleased to send you the enclosed Joint Proxy Statement/Prospectus
relating to the proposed merger of Sensar Corporation and Net2Wireless
Corporation, a Delaware corporation and developer of wireless communication
technology. The proposal essentially contemplates that the business of
Net2Wireless will become the business of the public company.
Sensar will issue 18,295,060 shares of common stock to the holders of
equity interests in Net2Wireless and 1,000,000 shares of common stock to certain
individuals involved in introducing Sensar and Net2Wireless. In addition,
Sensar will grant options and warrants to acquire up to 15,266,649 shares of
common stock to the holders of similar options and warrants to acquire shares of
Net2Wireless stock. As a result of these actions, the current stockholders of
Net2Wireless will own approximately 71% of the issued stock of the combined
company, plus the 15,266,649 options, while the current stockholders of Sensar
will own approximately 25% and options to acquire an additional 2,509,256
shares. Immediately prior to the merger, the domicile of Sensar will be
changed from Nevada to Delaware and the name of Sensar will be changed to
"Net2Wireless Corporation."
In connection with the merger, you will also be asked to approve a Stock
Option Plan and to ratify options previously granted to current management and
directors. Subsequent to the merger, the current directors of Sensar will
resign, nominees of Net2Wireless will be elected to the board of directors of
the combined company, and the current officers of Net2Wireless will become
officers of Sensar.
The proposed merger with Net2Wireless completes the program that Sensar
started during 1999 to liquidate some of its assets and operations as a basis
for entering into business opportunities other than those in which it had been
historically engaged that would provide the potential for greater value to its
stockholders. Under this plan, during the last year Sensar has disposed of its
noise and vibration instrument business, its Jaguar and CrossCheck product
lines, its real property, and other assets, leaving Sensar primarily with cash
and notes receivable.
Completion of the proposed merger and other proposals submitted to the
stockholders depends on approval by the requisite holders of the issued and
outstanding common stock of Sensar and the satisfaction of customary closing
conditions, all as set forth in detail in the attached Joint Proxy
Statement/Prospectus. In addition, the merger requires the elimination of the
obligations of Sensar under its deferred compensation plan which requires
stockholder ratification of options previously granted to directors, officers,
and consultants of Sensar. Directors, executive officers, and stockholders of
Sensar holding an aggregate of 81,076 shares, or approximately 1.2% of the
shares issued and outstanding, have indicated their intention to vote in favor
of the merger and the other proposals.
The board of directors of Sensar has unanimously approved the merger and
the other matters to be submitted to the stockholders, and recommends that the
Sensar stockholders vote to approve each matter set forth in the attached Notice
of Special Meeting of Stockholders. As discussed in the enclosed Joint Proxy
Statement/Prospectus, the board of directors had potential conflicts of interest
in considering the merger. These issues should be considered by stockholders in
connection with their vote.
<PAGE>
The enclosed Joint Proxy Statement/Prospectus sets forth details regarding
the proposed merger and other matters to be submitted to the stockholders for
consideration. We urge you to read and study it carefully. So that your shares
of stock can be represented at the stockholders' meeting, please complete, sign,
date, and return the enclosed form of proxy promptly. By doing so, you are
assured of representation whether or not you attend the meeting.
Subsequent to the merger, the transfer agent will mail a letter of
transmittal to each stockholder of record with specific instructions as to the
procedure for exchanging Sensar certificates for certificates issued in the new
corporate name, Net2Wireless Corporation. Please do not submit your
certificates prior to receiving these instructions. Your old certificates will
continue to represent your ownership interest in the combined company, whether
or not you submit them for exchange. The name, address, and telephone number of
the transfer agent is Progressive Transfer Company, 1981 East 4800 South, Suite
100, P.O. Box 17561, Salt Lake City, Utah 84117, telephone number (801)
277-1400.
Please complete, sign, date, and return the enclosed form of proxy in the
postage prepaid envelope provided for your convenience. No postage is required
if mailed in the United States.
Sincerely,
Sensar Corporation
Howard S. Landa, Chairman of the Board
<PAGE>
Preliminary Copy, Subject to Completion, Dated August 9, 2000
SENSAR
CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Sensar Corporation:
Notice is hereby given that a special meeting in lieu of an annual meeting
of the stockholders of Sensar Corporation, a Nevada corporation ("Sensar"), will
be held on [September ___, 2000], at ________ a.m., local time, at
<meeting place>, New York, New York, to consider and take action upon the
following matters:
1. to approve the merger of Net2Wireless Corporation with and into
Sensar Corporation in accordance with the merger agreement attached to the
Joint Proxy Statement/Prospectus as Appendix "A";
2. to approve a change in the corporate domicile of Sensar Corporation
from Nevada to Delaware and a change in the corporate name of Sensar Corporation
to Net2Wireless Corporation;
3. to approve the adoption of a Stock Option Plan covering up to
6,000,000 shares of common stock;
4. to ratify options granted to current management, directors, and
consultants to acquire up to 2,200,000 shares of common stock; and
5. to transact such other business as may properly come before the
meeting.
Your board of directors unanimously recommends a vote "for" each of the
above proposals. Members of the board were subject to potential conflicts of
interest in connection with the proposals, which are described in more detail in
the accompanying Joint Proxy Statement/Prospectus.
Only stockholders of record as of the close of business on [August ___,
2000], the record date, are entitled to notice of and to vote at the meeting.
The attendance at and/or vote of each stockholder at the meeting is important,
and each stockholder is encouraged to attend.
By Order of the Board of Directors
Howard S. Landa, Chairman of the Board
Salt Lake City, Utah
_______________, 2000
<PAGE>
Preliminary Copy, Subject to Completion, Dated August 9, 2000
Net2Wireless Corporation
Dear Stockholders:
On behalf of the board of directors of Net2Wireless Corporation
("Net2Wireless"), I cordially invite you to attend our Special Meeting of
Stockholders.
At the Special Meeting, stockholders will vote whether to approve a
proposed merger of Net2Wireless with and into Sensar Corporation ("Sensar").
The Board asks you to vote in favor of the merger.
Our board of directors has unanimously approved the merger, but the
approval of our stockholders is required in order to proceed with the completion
of the merger. As part of the merger, the outstanding Series A Preferred Stock
of Net2Wireless will be converted to common stock of Net2Wireless and then each
share of Net2Wireless common stock will be exchanged for one share of Sensar
common stock.
Your board of directors has determined that the merger is fair to you and
is in your best interests. The board of directors therefore unanimously
recommends that you vote to approve and adopt the merger. Please be aware that
a vote of the Sensar stockholders is also required to approve and adopt the
merger.
The affirmative vote of Net2Wireless stockholders holding at least a
majority of the outstanding shares of Net2Wireless common stock and Series A
Preferred Stock voting together as a class is required to approve and adopt the
merger agreement. Please be advised that Net2Wireless has irrevocable proxies
from holders of 67% of the Net2Wireless common stock and that all of the holders
of the Series A Preferred Stock have agreed to vote in favor of the merger.
Accordingly, the vote of no additional stockholders will be required to approve
the merger.
We estimate that the shares of Sensar common stock to be issued to the
holders of Net2Wireless common stock will represent approximately 71% of the
outstanding Sensar common stock after the merger.
Attached to this letter you will find a formal Notice of Special Meeting
and a related Joint Proxy Statement/Prospectus. The Joint Proxy
Statement/Prospectus provides detailed information about the Special Meeting and
the matters to be considered at the Special Meeting. Please read this entire
Joint Proxy Statement/Prospectus carefully.
The attached notice and Joint Proxy Statement/Prospectus are dated
_______________, and were first mailed to stockholders on or about
________________. Those of you who were holders of record of our common stock
or Series A Preferred Stock at the close of business on [August___, 2000], are
entitled to receive notice of and to vote at the stockholders' meeting. On that
day, [17,253,920] shares of Net2Wireless common stock and 1,041,140 shares of
Series A Preferred Stock were outstanding. Each share entitles the holder to
one vote.
As explained in the attached Joint Proxy Statement/Prospectus, stockholders
who have not delivered an irrevocable proxy may withdraw their proxy at any time
before it is actually voted at the meeting. If you plan to attend the meeting
in person, please remember to bring a form of personal identification with you
and, if you are acting as a proxy for another stockholder, please bring written
confirmation from the record owner that you are acting as a proxy.
Even if you do not plan to attend the Special Meeting of Net2Wireless
stockholders, if you are a holder of Net2Wireless common stock, please take the
time to vote by completing and mailing the enclosed proxy card to us.
On behalf of the board of Net2Wireless, we urge you to vote "FOR" approval
and adoption of the merger agreement and the other matters to be considered at
the Special Meeting.
Sincerely,
David Rubner, Chairman of the Board
Nechemia Davidson, CEO
<PAGE>
Preliminary Copy, Subject to Completion, Dated August 9, 2000
Net2Wireless Corporation
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Net2Wireless Corporation:
Notice is hereby given that a special meeting of the stockholders of
Net2Wireless Corporation, a Delaware corporation ("Net2Wireless"), will be held
on [September ___, 2000], at ___________ a.m., local time, at
<meeting location>, New York, New York, to consider and take action upon
the following matters:
1. to approve the merger of Net2Wireless Corporation with and into
Sensar Corporation in accordance with the terms of the merger agreement
attached to the Joint Proxy Statement/Prospectus as Appendix "A"; and
2. to transact such other business as may properly come before the
participants at the meeting.
Your board of directors unanimously recommends a vote "for" the above
proposals, which are described in more detail in the accompanying Joint Proxy
Statement/Prospectus. Members of the board were subject to potential conflicts
of interest in connection with the proposed merger. These issues are described
in the Joint Proxy Statement/Prospectus.
Only stockholders of record as of the close of business on [August ___,
2000], the record date, are entitled to notice of and to vote at the meeting.
The attendance at and/or vote of each stockholder at the meeting is important,
and each stockholder is encouraged to attend.
By Order of the Board of Directors
Yaron Sobol, Secretary
Rosh Ha'ayin, Israel
_____, 2000
<PAGE>
The information contained in this Joint Proxy Statement/Prospectus is not
complete and may be changed. Sensar Corporation may not issue the securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This Joint Proxy Statement/Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Preliminary Joint Proxy Statement/Prospectus
Subject to Completion, Dated August 9, 2000
JOINT PROXY STATEMENT AND PROSPECTUS
SENSAR CORPORATION NET2WIRELESS CORPORATION
50 West Broadway, Suite 501 11 Ha'amal Street
Salt Lake City, Utah 84101 Afek Park, Rosh Ha'ayin 48092
Telephone: (801) 350-0587 Israel
Telecopy: (801) 350-0825 Telephone: 011-972-3-902-8600
Telecopy: 011-972-3-902-8601
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the board of directors of Sensar Corporation for use
at the special meeting of the stockholders of Sensar and by the board of
directors of Net2Wireless Corporation for use at the special meeting of the
stockholders of Net2Wireless, or any adjournments or postponements of the
meetings. The meetings are being called to seek your approval of a merger
between Sensar and Net2Wireless in which the business of Net2Wireless will
become the business of Sensar, the current directors and management of
Net2Wireless will become the directors and management of Sensar and the current
stockholders of Net2Wireless will receive 18,295,060 shares of Sensar common
stock, approximately 71% of the stock of the combined company outstanding
subsequent to the merger, in exchange for their shares of Net2Wireless common
stock. Both meetings are scheduled for [September ___, 2000].
Outstanding options and warrants to purchase Net2Wireless common stock will
also be exchanged for options and warrants of like tenor to purchase 15,266,649
shares of common stock of the combined company. In addition, Sensar will issue
1,000,000 shares of common stock to individuals involved in introducing
the two parties. If the transaction contemplated by the stock purchase
agreement between Net2Wireless and Nextel Finance Company is completed prior
to the merger, Sensar will issue an additional 1,000,000 shares.
In addition to the merger, Sensar stockholders will be asked to approve a
change in the corporate domicile of Sensar to Delaware and a change in its
corporate name to Net2Wireless Corporation, to adopt a Stock Option Plan
covering up to 6,000,000 shares, and to ratify the grant of 2,200,000 options to
the current management, directors, and consultants of Sensar previously
authorized by the board of directors of Sensar.
The stockholders of Sensar and Net2Wireless should consider the matters set
forth under "RISK FACTORS" beginning on page 18 in determining whether or not to
approve the matters submitted to them at the stockholder meetings.
The Sensar stock is traded in the over-the-counter market and is currently
included on the Nasdaq SmallCapSM Market under the symbol "SCII." On August 1,
2000, the closing price for the Sensar common stock as reported by Nasdaq was
$21.50.
The securities to be issued in the merger have not been approved or
disapproved by the Securities and Exchange Commission or any state or other
regulatory authority, nor has the commission or any state or regulatory
authority passed on the accuracy or adequacy of this Joint Proxy
Statement/Prospectus or endorsed the merits of this transaction. Any
representation to the contrary is a criminal offense.
This Joint Proxy Statement/Prospectus is first being mailed to stockholders
of Sensar and Net2Wireless on <mailing date>, 2000.
IMPORTANT
Regardless of whether you plan to attend the stockholders' meeting in person,
please fill in, sign, date, and return the enclosed proxy promptly in the
self-addressed, stamped envelope provided. No postage is required if mailed in
the United States.
SPECIAL REQUEST
If your shares are held in the name of a brokerage firm, nominee, or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
The date of this Joint Proxy Statement/Prospectus is _______________, 2000.
<PAGE 1>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Proposed Business of Net2Wireless . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Directors of the Combined Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Change in Corporate Domicile and Name . . . . . . . . . . . . . . . . . . . . . . . . 8
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Ratification of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Sensar Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net2Wireless Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Ownership of the Combined Company . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . . . . 11
Market Price for Sensar Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Principal Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
New Certificates for Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Comparison of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Restrictions on Resale of Common Stock of the Combined Company. . . . . . . . . . . . 17
FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Risks Related to Net2Wireless' Proposed Business. . . . . . . . . . . . . . . . . . . 19
Risks Related to Operations in Israel . . . . . . . . . . . . . . . . . . . . . . . . 23
Risks Related to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
BUSINESS OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Development of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Advantages Offered by Net2Wireless Technology . . . . . . . . . . . . . . . . . . . . 30
Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Source of Anticipated Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Agreements With Cellular Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Proposed Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
MANAGEMENT OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Summary Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Option/SAR Grants in Fiscal 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Option/SAR Exercises in Fiscal 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 41
Compensation Agreements With Executive Officers . . . . . . . . . . . . . . . . . . . 41
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . 42
Transactions With I.T.E.S. - Imaging Technologies Enterprises Systems Ltd.. . . . . . 42
Transactions With Significant Shareholders. . . . . . . . . . . . . . . . . . . . . . 42
Transactions With Directors and Executive Officers. . . . . . . . . . . . . . . . . . 43
Transactions With Immediate Family Members of Directors and Executive Officers. . . . 44
PRINCIPAL STOCKHOLDERS OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . 45
BUSINESS OF SENSAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SELECTED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Selected Historical financial Information of Net2Wireless . . . . . . . . . . . . . . 47
Management's Discussion and Analysis of Financial Condition and Results of Operations 47
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE 3>
Expenses and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Disclosure About Market Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SENSAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Selected Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Management's Discussion and Analysis of Financial Condition and Results of Operations 52
COMBINED PRO FORMA FINANCIAL STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 53
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Reasons for the Merger--Advantages and Disadvantages. . . . . . . . . . . . . . . . . 62
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Interests of Certain Individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Attendance of Representative of Accountants . . . . . . . . . . . . . . . . . . . . . 72
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Accounting for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Delivery of Certificates for Common Stock of the Combined Company . . . . . . . . . . 76
Payment in Lieu of Issuing Fractional Shares. . . . . . . . . . . . . . . . . . . . . 76
Expenses of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Restrictions on Transfer of Common Stock of the Combined Company. . . . . . . . . . . 76
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
COMPARISON OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Comparison of Nevada Law and Delaware Law--Certificates of Incorporation and Bylaws . 78
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Pro Forma After the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Sensar Prior to the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
United States Federal Tax Consequences of the Merger. . . . . . . . . . . . . . . . . 85
United States Federal Tax Consequences of the Change of Domicile. . . . . . . . . . . 86
OTHER SENSAR STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Change in Corporate Domicile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Adoption of the Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Ratification of Previously Granted Options. . . . . . . . . . . . . . . . . . . . . . 90
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
VALIDITY OF NEW COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 92
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . 92
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
INDEX TO APPENDICES
A. Agreement dated December 8, 1999, as amended
B. Stock Option Plan
C. Form of Certificate of Incorporation of the Combined Company
D. Copy of Delaware Law relating to Net2Wireless stockholders'
dissenters' rights of appraisal
E. Copy of Nevada Law relating to Sensar stockholders' dissenters'
rights
F. Form of Sale Restriction Agreement
<PAGE 4>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Who are Sensar and Net2Wireless?
A. Sensar is a publicly-held corporation with its common stock
currently traded under the symbol "SCII" on the Nasdaq SmallCapSM Market.
Sensar was, until 1999, engaged in the business of manufacturing instruments to
analyze sound and vibration, as well as instruments intended for chemical
analysis. During 1999, it disposed of its principal businesses and
technologies. Currently, Sensar's assets consist primarily of cash, cash
equivalents, and short-term notes receivable.
Net2Wireless is a privately-held company which has products that are
in the beta testing stage that are intended to permit the wireless connection to
the Internet using portable devices such as palm computers, personal digital
assistants, and cellular phones and to permit cellular carriers to offer new
services to their customers.
Q. Why are Sensar and Net2Wireless proposing to merge?
A. Because we believe the combined company offers benefits, including
the implementation of a potentially promising technology and access to public
capital markets, to the stockholders of both companies. For Sensar, the merger
provides a communications technology that has promising applications in a
rapidly developing market. For Net2Wireless, the merger provides liquidity for
its stockholders and enhances its ability to raise public capital to fund its
development work and product implementation.
Q. What risks should I consider?
A. You should review the information under the caption "RISK FACTORS"
beginning on page 18 for a discussion of various risks associated with the
merger and the operations of Sensar and Net2Wireless.
<PAGE 5>
Q. What are the tax consequences of the merger?
A. For purposes of U.S. federal income tax law the merger will be
tax-free, except to the extent that stockholders receive cash pursuant to the
exercise of dissenters' rights. To review the tax consequences in greater
detail, see page 75.
Q. When do you expect to complete the merger?
A. The merger agreement provides for the merger to be completed within
10 days of obtaining stockholder approval.
Q. Should stockholders send in their stock certificates now?
A. No. After we complete the merger, Progressive Transfer, the
transfer agent, 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117,
will send instructions to Sensar stockholders and Net2Wireless stockholders
explaining how to exchange their certificates for certificates representing
stock of the combined company.
Q. How do I vote?
A. Mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares may be represented at the stockholders meeting.
You may attend the meeting in person whether or not you submit a proxy. If your
shares are held in "street name" by your broker, you cannot vote your shares
directly. Your broker will vote your shares only if you provide instructions to
the broker on how you would like your shares to be voted. You should follow the
directions provided by your broker regarding how to transmit those instructions.
Q. Can I change my vote after mailing my proxy?
A. Yes. Unless you have delivered an irrevocable proxy, you may change
your vote by delivering a signed notice of revocation, or a signed proxy card
that bears a later date, to Sensar or Net2Wireless, as appropriate, before the
stockholder meeting, or by attending the stockholder meeting and voting in
person. Net2Wireless stockholders who have delivered an irrevocable proxy may
not change or withdraw their vote.
Q. Who can I call with questions?
A. If you are a Sensar shareholder with questions about the merger,
please call Howard S. Landa at (801) 530-0587.
If you are a Net2Wireless stockholder with questions about the merger,
please call Yaron Sobol at 011-972-3-902-8600.
<PAGE 6>
SUMMARY
The following is a brief summary and is intended merely to highlight
certain information included in this Joint Proxy Statement/Prospectus. The
summary is qualified in its entirety by the more detailed information contained
elsewhere in this Joint Proxy Statement/Prospectus.
Proposed Business
of Net2Wireless
Net2Wireless is organized under the laws of the state of Delaware.
References to Net2Wireless include its three subsidiaries, Net2Wireless
Israel Limited, which is an Israeli corporation engaged in research and
development, Vintage Global, Inc., which is a British Virgin Islands
corporation that holds the intellectual property of Net2Wireless, and
FastNet.com, Inc., a Delaware corporation formed to pursue applications
of its technology using traditional physical lines. Net2Wireless
currently has no revenues and does not know when it will begin to
generate revenues. Net2Wireless acquired wireless communication
technologies and rights from I.T.E.S. - Imaging Technologies
Enterprises Systems, Ltd, an Israeli corporation, in December, 1999.
Products based on the technology held by Net2Wireless are in the
preliminary testing stage and are intended to permit wireless communication
devices to gain access to the Internet. The goal is to permit the following
services to be available to portable devices such as palm computers, personal
digital assistants, and cellular phones:
- browsing standard Internet sites using standard browsers;
- transmission of live video using existing wireless communication networks;
- providing instant messaging with full graphics support;
- providing messaging services (e-mail, voice mail, fax, etc.); and
- providing full graphics applications with network based storage.
The basic technology uses proprietary software that greatly speeds up
the transmission time for complex content over the existing wireless
communication infrastructure, principally by compressing the data. Net2Wireless
intends to provide services and license its software directly to cellular
carriers. Licensing and transactional fees will be based on the number of users
of the system and, in some cases, the number of uses of a particular service.
Net2Wireless currently has a beta-site installation at Partner Communications
Company, Ltd., a cellular telephone carrier in Israel, and has installed its
platform for a second beta test at PelePhone Communications, Ltd., another
cellular carrier in Israel. Net2Wireless recently signed a memorandum of
understanding with Nextel Finance Company for the field testing and potential
future purchase of Net2Wireless' proposed products for use in the United
States.
See "NET2WIRELESS: BUSINESS OF NET2WIRELESS"
The Merger
The merger agreement between Sensar and Net2Wireless provides for the
merger of Net2Wireless with and into Sensar. The merger was unanimously
approved by the board of directors of both Sensar and Net2Wireless. Neither
board obtained a fairness opinion in connection with their consideration of the
merger. As part of the merger:
<PAGE 7>
- the shares of Net2Wireless outstanding immediately prior to the merger
will be converted into 18,295,060 shares of common stock of Sensar and 1,000,000
shares of common stock of Sensar will be issued to finders. If the transactions
contemplated by the stock purchase agreement between Net2Wireless and Nextel
Finance Company is completed prior to the closing of the merger, Sensar will
issue an additional 1,000,000 shares of common stock in the merger. The number
of shares to be issued to Net2Wireless stockholders will be reduced in the event
that any Net2Wireless stockholders exercise their right to dissent. The number
of shares may also be increased if Sensar does not meet certain financial
conditions, but this is not anticipated.
- Options and warrants to acquire Net2Wireless common stock will be
converted into options and warrants to acquire up to 15,266,649 shares of Sensar
common stock. Net2Wireless has granted 15,145,612 of these options through June
28, 2000, with a weighted average exercise price of $2.39 per share. Of these
options, 13,396,130 are currently exercisable.
- At the initial meeting of the directors approximately two weeks subsequent
to the merger, the current directors of Sensar will resign and the current
directors of Net2Wireless, Nechemia Davidson, David Rubner, and Joav Avtalion
will be appointed as directors of the combined company. The current management
of Net2Wireless will become the management of the combined company.
The complete terms and conditions of the merger are set forth in the
merger agreement between Sensar and Net2Wireless dated December 8, 1999,
as amended, a copy of which is included as Appendix "A" and incorporated
herein by this reference.
See "THE MERGER."
Directors of the
Combined Company
Nechemia Davidson is the founder and principal
shareholder of Net2Wireless and will serve as the chief executive officer and a
director of the combined company. David Rubner, who recently retired as chief
executive officer of ECI Telecom, Ltd. (Nasdaq: ECIL), Israel's largest
telecommunication equipment company, will serve as chairman of the board of the
combined company. Joav Avtalion, co-founder, executive, and director until 1999
of NICE Systems, Ltd. (Nasdaq: NICE), a telecommunication company, co-founder
and chairman of Mindsense Biosystems, Ltd., a technology company, and director
and chairman of Basense, Ltd., a knowledge management company, will serve as the
third director of the combined company.
See "MANAGEMENT."
Change in Corporate
Domicile and Name
As part of the merger, immediately prior to closing,
Sensar will change its corporate domicile from Nevada to Delaware and its
corporate name to Net2Wireless Corporation. As a result, the combined public
company will be incorporated in Delaware, which has a more fully defined body of
corporate law than Nevada and is more familiar to bankers, venture capitalists,
financial institutions, and others who may be dealing with the combined company.
The change in the corporate name will permit the combined company to carry on
<PAGE 8>
its business under a name that is more indicative of its proposed business. The
change in corporate domicile and the corporate name will not be completed unless
the merger is approved. These changes are not a condition to the completion of
the merger.
Stock Option Plan
The Stock Option Plan is being proposed to provide the
combined company with the flexibility to grant options to new or existing
employees, officers, and directors in order to attract, retain, and motivate
these individuals and further align their interests with the interests of the
stockholders. The approval of the Stock Option Plan is not a condition to the
completion of the merger. If approved, the Stock Option Plan will be adopted
whether or not the merger is completed.
Ratification of Options
At the time the current directors of Sensar were
appointed, Sensar agreed to grant each outside director an option to acquire
200,000 shares, with an exercise price of $1.50 for 100,000 shares and $2.50 for
100,000 shares. On April 21, 1999, the day Messrs. Strasser, and Lewis were
appointed, the closing price of the stock was $1.094. On May 5, 1999, the day
Ms. Hale was appointed, the closing price was $1.938. On November 16, 1999, the
board of directors agreed to grant options with an exercise price of $2.00 per
share, 800,000 shares to Howard S. Landa, 650,000 shares to Andrew C.
Bebbington, the chief consultant to Sensar, and 50,000 shares each to Mr.
Strasser, Mr. Lewis, and Ms. Hale. The closing price of the stock on November
16, 1999, was $3.375. Under Nasdaq guidelines, the foregoing options require
shareholder approval and hence each of the grants was made subject to that
approval. Each of the foregoing individuals holds an interest in Sensar's
deferred compensation plan and has agreed to forego that interest on stockholder
approval of the options. If approved, the options will be granted whether or
not the merger is completed. The approval of the options is not a condition to
the merger. However, if the options are not approved, each of the individuals
would be entitled to receive a cash payment based on their interest in the
deferred compensation plan. Under such circumstances, Sensar's liabilities at
closing would exceed the limitations contained in the merger agreement between
Sensar and Net2Wireless, and Net2Wireless would not be obligated to complete
the merger. See "THE MERGER: Interests of Certain Individuals" and "OTHER
SENSAR STOCKHOLDER MATTERS."
Sensar Stockholders'
Meeting
Record Date and Time
Sensar stockholders of record as of the close of
business on [August ___, 2000], are entitled to vote at the Sensar
stockholders' meeting. The meeting will be held at _______ a.m., local time,
on [September ___, 2000], at ___________________, New York, New York.
Purpose of Meeting
At the meeting, the Sensar stockholders will be
asked to consider and take action on the following:
1. the proposed merger;
2. the change in the corporate name to "Net2Wireless
Corporation" and the change of the corporate domicile to Delaware;
3. the adoption of the Stock Option Plan;
4. the ratification of options previously granted to officers
and directors of Sensar; and
<PAGE 9>
5. the transaction of such other business as may properly
come before the meeting,
all as more particularly set forth in the official Notice of Meeting
accompanying this Joint Proxy Statement/Prospectus.
Shares Outstanding and
Entitled to Vote
On the record date, there were 6,548,546 shares of
Sensar common stock outstanding, with each share entitled to one vote on each
matter submitted at the stockholders' meeting.
Vote Required
The merger and the change in corporate domicile must be
approved by the holders of a majority of the outstanding Sensar common stock.
The members of the board of directors, who collectively hold 81,076 shares of
Sensar stock, or approximately 1.2%, have indicated their intention to vote
their shares in favor of the merger and change in corporate domicile. As a
result, the affirmative vote of an additional 3,193,198 shares will be required.
The vote of a majority of the votes cast at a meeting at which a quorum is
present, in person or by proxy, is required to approve the Stock Option Plan,
and to ratify the options previously granted to officers and directors of
Sensar. The directors have indicated their intention to also vote in favor of
these proposals. The bylaws of Sensar require that at least 33-1/3% of the
issued and outstanding Sensar common stock be represented in person or by proxy
at the stockholders' meeting in order to constitute a quorum for conducting
business.
Representative of
Accountants
It is anticipated that a representative of Grant Thornton
LLP and a representative of Kost, Forer & Gabbay, a member of Ernst & Young
International, will be in attendance at the meeting, either in person or via
video conference, to respond to appropriate questions from the Sensar
stockholders and, if so desired, to make a statement.
Net2Wireless Stockholders'
Meeting
Record Date and Time
Stockholders of record of Net2Wireless as of the
close of business on [August ___, 2000], are entitled to notice of, and to vote
at, the meeting of the Net2Wireless stockholders to be held at _____________
a.m., local time, on [September ___, 2000], at ______________________, New York,
New York.
Purpose of Meeting
At the meeting, the Net2Wireless stockholders will
be asked to consider and take action on the following:
1. the proposed merger; and
2. the transaction of such other business as may properly
come before the meeting,
Vote Required
The merger must be approved by the holders of a majority
of the issued and outstanding shares of Net2Wireless common stock and Series A
Preferred Stock, voting together as a class. The holders of 12,316,866 shares
of the Net2Wireless common stock, or approximately 67% of the voting power of
the stock entitled to vote on the merger, have delivered their irrevocable
<PAGE 10>
proxies to vote their shares in favor of the merger, therefore, the vote of no
additional shares will be required. The bylaws of Net2Wireless require that at
least a majority of the issued and outstanding Net2Wireless common stock and
Series A Preferred Stock, taken together as a single class, be represented in
person or by proxy at the Net2Wireless stockholders' meeting in order to
constitute a quorum for conducting business.
Representatives of
Accountants
It is anticipated that a representative of Kost, Forer &
Gabbay, a member of Ernst & Young International, will be in attendance at the
meeting, either in person or via video conference, to respond to appropriate
questions from the Net2Wireless stockholders and, if so desired, to make a
statement.
Ownership of the
Combined Company
The percentage ownership by the current stockholders of
Sensar and the current stockholders of Net2Wireless before and after the merger
is set forth below:
<TABLE>
<CAPTION>
Record Subsequent
Date Percentage to Merger(1) Percentage
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sensar Stockholders 6,548,546 100.0% 6,548,546 25.3%
Net2Wireless Stockholders - 0.0% 18,295,060(2) 70.8%
Others - 0.0% 1,000,000 3.9%
--------- ------ ---------- ------
Total 6,548,546 100.0% 25,843,606 100.0%
<FN>
(1) Subject to stockholder approval, members of Sensar management and others
will hold options to acquire 2,509,256 shares of Sensar, with a weighted average
exercise price of $2.31 per share, that can be exercised at any time. Options
to acquire an aggregate of up to 15,266,649 additional shares which will be held
by Net2Wireless employees, directors, stockholders, advisors, and Partner
Communications Company, Ltd., will be assumed by Sensar in the merger. As of
June 28, 2000, Net2Wireless had granted 15,145,612 of these options with a
weighted average exercise price of $2.39 per share. If all of the options
potentially outstanding at closing were exercised, it would increase the issued
and outstanding shares of the combined company to 43,619,511, of which the
Sensar stockholders would hold 21% and the Net2Wireless stockholders would hold
77%. The remaining 2% would be held by others.
(2) If the transaction contemplated by the stock purchase agreement between
Net2Wireless and Nextel Finance Company is completed prior to the merger, an
additional 1,000,000 shares of common stock will be issued by Sensar in the
merger in exchange for the shares of Net2Wireless issued to Nextel Finance
Company.
</TABLE>
Interests of Certain Persons
in the Merger
In considering the recommendations of the Sensar board of
directors and the Net2Wireless board of directors with respect to the merger,
the stockholders of Sensar and Net2Wireless should be aware that certain
directors and officers of Sensar and Net2Wireless may have interests in the
merger that are different from, or in addition to, the interests of stockholders
generally, including:
- the grant to Howard S. Landa, Chairman and Chief Executive Officer of
Sensar, of stock options to acquire 800,000 shares of Sensar common stock at an
exercise price of $2.00 per share in substitution for Mr. Landa's interest in
Sensar's deferred compensation plan, subject to consummation of the merger and
ratification of the stock options by the Sensar stockholders;
<PAGE 11>
- the grant to Mickey Hale, Steve Strasser, and Brian B. Lewis, directors of
Sensar of stock options to acquire 50,000 shares of Sensar common stock each at
an exercise price of $2.00 per share in substitution for their respective
interests in Sensar's deferred compensation plan, subject to the ratification of
the stock options by the Sensar stockholders;
- the distribution to Mr. Landa, effective March 1, 2000, of
non-operating assets of Sensar with a book value of $352,992 as of December 31,
1999, in consideration for Mr. Landa's agreement to indemnify the combined
company for all costs and liabilities arising from a pending lawsuit against
Sensar, the termination of his executive employment agreement, his assumption of
the unexpired lease obligations of Sensar for its Salt Lake City, Utah, offices,
and his agreement to provide up to 100 hours of transitional services to the
combined company; and
- the grant of fully vested stock options to entities controlled by Nechemia
Davidson, founder, director, and officer of Net2Wireless; David Rubner, chairman
of the board; Joav Avtalion, director, and Yaron Sobol, an executive officer of
Net2Wireless, to acquire an aggregate of 4,768,888 shares of the combined
company's common stock at a price of $1.86 per share. See "THE MERGER:
Interests of Certain Individuals."
Market Price
for Sensar Stock
Sensar's common stock is traded on the Nasdaq SmallCapSM
Market under the trading symbol "SCII." The following table sets forth high and
low closing sale prices for Sensar's common stock as reported on Nasdaq for the
periods indicated. All amounts have been adjusted to give effect to the 1:5
consolidation of the outstanding common stock of Sensar effective May 3, 1999
and the 2:1 forward split of the outstanding common stock effective January 17,
2000.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1998 High Low
----------------------------------- ------- -------
<S> <C> <C>
First Quarter $ 9.219 $ 5.781
Second Quarter $ 7.969 $ 4.375
Third Quarter $ 5.00 $ 1.094
Fourth Quarter $ 1.484 $ 0.625
Fiscal Year Ended December 31, 1999 High Low
----------------------------------- ------- -------
First Quarter $ 1.094 $ 0.703
Second Quarter $ 3.594 $ 0.859
Third Quarter $ 2.797 $ 1.50
Fourth Quarter $34.25 $ 2.094
Fiscal Year Ended December 31, 2000 High Low
----------------------------------- ------- -------
First Quarter $79.688 $22.625
Second Quarter $41.50 $10.00
Third Quarter through August 1, 2000 $30.438 $21.25
</TABLE>
<PAGE 12>
The following table sets forth the closing sales price for Sensar's common
stock, as reported by Nasdaq (a) as of October 6, 1999, the date preceding the
public announcement of the proposed transaction to acquire the wireless
communications technology; and (b) as of August 1, 2000, a recent practicable
date prior to the date of this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Sensar Stock
Date Closing Sales Price
--------------- -------------------
<S> <C>
October 6, 1999 $ 3.00
August 1, 2000 $21.50
</TABLE>
Per Share Data
The following table presents compensation per share data of Sensar and
Net2Wireless on a historical and pro forma basis. The data should be read in
conjunction with the historical and pro forma financial information and the
notes thereto under the caption "Combined Pro Forma Financial Statement."
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1999 March 31, 2000
----------------- ------------------
<S> <C> <C>
Sensar
Loss per share from continuing operations(1) $ (2.11) $ (1.15)
Book Value per share(2) $ (0.02) $ (0.44)
Cash dividends per share - -
</TABLE>
<TABLE>
<CAPTION>
Period from
commencement of
operations (April 1,
1999) through Three months ended
December 31, 1999 March 31, 2000
-------------------- ------------------
<S> <C> <C>
Net2Wireless
Loss per share from continuing operations(1) $ (0.06) $ (9.80)
Book value per share(2) $ (0.14) $ 1.61
Cash dividends per share - -
Pro Forma
Loss per share from continuing operations(1) $ (3.07)(3) $ (13.04)(3)
Book value per share(2) $ 0.25 $ 1.31
Cash dividends per share - -
<FN>
(1) Earnings per share are based on the weighted average number of shares
outstanding during the period. The pro forma loss per share is based on the
<PAGE 13>
losses of the continuing business of Net2Wireless, plus transaction costs. In
determining the weighted average number of shares outstanding, the shares held
by the Sensar stockholders are assumed to be issued on completion of the merger.
(2) Book value per share is based on the number of shares outstanding at the
end of the period. The pro forma book value per share is based on the equity of
Net2Wireless, plus the net assets acquired from Sensar.
(3) Excludes the shares to be issued on exercise of 15,145,612 options
granted by Net2Wireless and 2,509,256 options to be outstanding in Sensar on
stockholder ratification of options granted to management and others.
</TABLE>
Risk Factors
The business of the combined company following completion of
the merger is subject to significant risks (see "RISK FACTORS").
- the risks associated with a development stage company;
- the business has not generated revenues to date, does not know
when it will generate revenues, and expects to operate at a substantial loss at
least through fiscal 2000;
- the inability to predict customer acceptance of the products and
services made available in this developing market;
- the combined company may not be successful in obtaining the
necessary adoption of its products by cellular carriers; and
- competition in the area of Net2Wireless' proposed business and
the size and success of some of its principal competitors;
Principal Conditions
The merger is conditioned on the following:
- approval of the merger agreement by the holders of a majority
of the issued and outstanding Sensar common stock and a majority of the issued
and outstanding Net2Wireless common stock and Series A Preferred Stock, voting
together as a single class;
- the elimination by Sensar of all liabilities, except current
liabilities not yet due and not in excess of $50,000;
- the compliance by each of the parties with their respective
representations, warranties, and covenants as set forth in the merger
agreement, unless waived by the other party;
- the absence of any material adverse change in the condition of
either party not consented to by the other party;
- the absence of material regulatory limitations or prohibitions
on the consummation of the transaction or the continuation of the business of
the combined enterprise thereafter; and
- other customary closing conditions.
See "THE MERGER: Terms of the Merger."
The merger could be terminated even after approval by the Sensar
stockholders and Net2Wireless stockholders if one or more of the conditions is
not satisfied or waived by the parties.
<PAGE 14>
No federal or state regulatory requirements must be met as a condition
to completion of the merger.
Dissenters' Rights of Appraisal
Sensar
Holders of Sensar common stock have the right to dissent from
the merger and obtain payment of the fair market value of their shares upon
compliance with applicable procedures as provided in sections 92A.300 through
92A.500 of the Nevada corporate law. See "THE MERGER: Dissenters' Rights of
Appraisal."
Net2Wireless
Holders of Net2Wireless common stock have appraisal rights
in connection with the merger as provided in section 262 of the Delaware
corporate law. The merger agreement provides that the transaction may be
terminated at the election of Sensar if stockholders of Net2Wireless owning
more than 5% of the issued and outstanding Net2Wireless common stock perfect
their dissenters' rights. The holders of 12,316,866 shares, or 67%, of the
voting power of the outstanding Net2Wireless stock have delivered their
irrevocable proxies to vote their shares in favor of the merger and will be
deemed to have elected not to exercise their dissenters' rights. See
"THE MERGER: Dissenters' Rights of Appraisal."
New Certificates for
Common Stock
Net2Wireless stockholders will receive one share of common
stock of the combined company for each share of common stock or Series A
Preferred Stock they hold in Net2Wireless. Record holders of Net2Wireless stock
will receive a letter from the transfer agent of Sensar with instructions for
submitting certificates representing Net2Wireless stock in exchange for
certificates representing common stock of the combined company. Record holders
of Sensar common stock will receive a similar letter with instructions for
submitting their certificates for new certificates issued in the name of the
combined company. Sensar stockholders will have the same number of shares in
the combined company as they now hold in Sensar.
Accounting Treatment
The merger will be accounted for as a reverse
acquisition of Sensar by Net2Wireless. Although Sensar will be the surviving
legal entity, for financial reporting purposes, the entity whose shareholders
hold in excess of 50% of the combined company, Net2Wireless, will be treated as
the continuing entity. The reverse acquisition will be treated as a capital
stock transaction in which Net2Wireless will be deemed to have issued the shares
of common stock held by the Sensar stockholders for the net assets of Sensar.
The costs of the transaction will be charged to stockholders' equity. To the
extent that the costs of the transaction exceed the net assets acquired from
Sensar, the excess will be charged to the statement of operations. No goodwill
will be recorded. See "THE MERGER: Accounting for the Merger."
Tax Consequences
Sensar and Net2Wireless will not obtain a private revenue
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the merger. See "TAX CONSEQUENCES."
Sensar
The merger is intended, subject to certain restrictions and
qualifications, to qualify as a tax-free reorganization under section 368(a) of
the Internal Revenue Code for U.S. federal income tax purposes. As such, no
gain or loss will be recognized by Sensar upon completion of the merger.
<PAGE 15>
The receipt of new certificates in the name of the combined company,
"Net2Wireless Corporation" will not result in any taxable consequence to the
Sensar stockholders.
Sensar stockholders who exercise and perfect their dissenters' rights
will generally recognize gain or loss on the transaction as if it constituted a
sale of their Sensar stock.
Net2Wireless
No gain or loss will be recognized by Net2Wireless upon
completion of the merger.
No gain or loss will be recognized for U.S. federal income tax
purposes by Net2Wireless stockholders upon completion of the merger or on the
exchange of shares, options or warrants to acquire shares of Net2Wireless common
stock for shares, options and warrants to acquire shares of common stock of the
combined company (including any contingent shares), except for any cash payments
made to dissenting stockholders.
Net2Wireless stockholders will have, in the aggregate, a tax basis in
the shares of common stock of the combined company (including any contingent
shares) equal to their aggregate basis in the shares of Net2Wireless common
stock exchanged. The holding period for tax purposes for the common stock of
the combined company will include the period for which they held Net2Wireless
common stock.
Net2Wireless stockholders who exercise and perfect their dissenters'
rights will generally recognize gain or loss on the transaction as if it
constituted a sale of their Net2Wireless common stock.
Comparison of Securities
If stockholder approval is received, immediately prior to the merger
Sensar will change its domicile to Delaware, and stockholders' rights will
be governed by Delaware law. Although the corporate statutes of Nevada and
Delaware are substantially similar, there are differences that might affect
the stockholders. See "Comparison of Securities" for a more complete
analysis of each of these differences. Below is a summary of some of the
differences:
Restrictions on Business Combinations. Both Delaware and Nevada
corporate statutes have provisions restricting the ability of a corporation to
engage in business combinations with an interested stockholder. However,
Delaware law has higher thresholds for becoming an "interested stockholder" and
more lenient exclusions from the three year waiting period.
Indemnification of Officers and Directors and Advancement of Expenses.
Delaware and Nevada corporate statutes are substantially identical with respect
to indemnification of officers and directors, except that Nevada law provides
broader indemnification in connection with stockholder derivative lawsuits
against a company. A corporation governed under the laws of Delaware has
discretion in deciding whether or not to advance expenses incurred by an officer
or director in defending any civil, criminal, administrative, or investigative
proceeding, whereas a corporation governed under Nevada law must advance such
expenses without any discretion in such instances.
Limitation on Personal Liability of Directors: A Delaware corporation
is permitted to adopt provisions in its certificate of incorporation limiting or
eliminating the liability of a director to a company and its stockholders for
monetary damages for breach of a fiduciary duty as a director, provided that
such liability does not arise from proscribed conduct, including the breach of
the duty of loyalty. Nevada corporate law goes further in that (i) the
provision applies to both directors and officers, and (ii) there are no
exceptions to the limitation on liability.
<PAGE 16>
Restrictions on Resale of
Common Stock
of the Combined Company
Except for shares issued to "affiliates" of Net2Wireless, as
that term is defined in Rule 144 promulgated by the Commission, and
shares held by affiliates of the combined company, all shares of Sensar
common stock to be issued in connection with the merger will be transferable
without further registration under the Securities Act. Sales by affiliates must
be made in accordance with the requirements of Rules 144 and 145 promulgated
under the Securities Act.
Certain Sensar stockholders will be contractually precluded from
selling up to 50% of the common stock received on the conversion of their
options at the closing until 180 days following the effectiveness of a
registration statement filed by Sensar to permit the sale. See "THE MERGER:
Restrictions on Transfer of Common Stock of the Combined Company."
<PAGE 17>
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains forward looking statements.
These forward looking statements reflect Sensar's and Net2Wireless' current
expectations concerning future results and events. These forward looking
statements generally can be identified by the use of phrases such as "believe,"
"expect," "anticipate," "intent," "plan," "foresee," "likely," "will,"
"potential," "proposed," or other similar words. Generally, the statements
describe the objectives, plans, or goals of the companies. These forward
looking statements involve known and unknown risks, uncertainties, and other
factors which may cause the actual results or the performance or achievement of
such goals to differ from those anticipated by these statements. Many of the
important factors that could cause actual results to differ materially from
expectations are discussed under the caption "Risk Factors" beginning on the
following page. In addition to those risk factors specifically addressed, there
may be other factors that have not been considered by Sensar and/or Net2Wireless
or that are not currently considered to be significant, that may in fact turn
out to be material and cause actual results to differ substantially from the
forward looking statements. Stockholders should be aware that such forward
looking statements are not intended to be precise descriptions of the future and
that actual results will differ, either based on one or more of the factors
specifically discussed or on other factors or influences that may develop in the
future. Neither Sensar, Net2Wireless, nor the combined company undertakes any
obligation to update the forward-looking statements contained herein or
elsewhere to reflect actual results, changes in assumptions, or changes in other
factors affecting the forward-looking statements.
<PAGE 18>
RISK FACTORS
The merger and proposed business of Net2Wireless involves a high degree of
risk. Set forth below is a discussion of what Sensar and Net2Wireless consider
to be the material risk factors as of the date of this Joint Proxy
Statement/Prospectus. In addition to considering the information set forth
elsewhere in this Joint Proxy Statement/Prospectus, you should specifically
evaluate the following risk factors during your consideration of whether to vote
for the merger and the related transactions. If any of these risks occur, or if
other risks not currently anticipated or fully appreciated by the companies
occur, the business and prospects of the combined company could be materially
adversely affected, which could have an adverse effect on the trading price for
the stock of the combined company.
Risks Related to Net2Wireless' Proposed Business
Net2Wireless is recently formed, does not have an operating history, and,
consequently, lacks a historical basis on which to predict future results.
Net2Wireless was formed in December 1999. Shortly after its formation,
Net2Wireless acquired technology from I.T.E.S., a development company in Israel.
The initial product based on this technology was installed for pilot site
testing in February 2000. The technology has not generated any operating
revenues or binding contractual commitments to purchase products or services to
date. Net2Wireless does not have a historical basis on which to evaluate
whether or not its proposed business will be successful, including whether it
can:
- develop products that successfully address a market need;
- successfully resolve problems that arise in designing and
implementing the manufacturing process for its proposed products or in marketing
these products;
- implement a business model that will permit it to operate profitably;
- hire and retain employees with the technical skills necessary to
continue to develop and support products; and
- successfully develop the necessary administrative support systems
such as personnel management, accounting records and controls, marketing
supervision and control, service and support, and record keeping and office
administration.
If Net2Wireless is not successful in addressing these issues, it will likely not
be successful in implementing its proposed business.
Net2Wireless expects to operate at a substantial loss at least during
fiscal 2000 and possibly for substantially longer, lacks internal funding, and
may be unable to obtain the additional financing that it needs.
Net2Wireless has not generated any operating revenues and expects to
operate at a loss at least during fiscal 2000 and possibly for substantially
longer. Expenses are expected to grow significantly and more rapidly than
revenues during the implementation stage. The combined company may, from time
to time, incur additional non-cash charges in connection with future grants of
options or warrants to purchase common stock, which charges may be material. It
is not anticipated that in the short term expenses can be met through the
internal generation of cash flow from the operation of the business. The
proposed sale of 1,000,000 shares of Net2Wireless stock to Nextel Finance
Company may not be completed because it is subject to customary closing
conditions as well as the requirement that Nextel Finance Company be satisfied
with its due diligence inquiry. The combined company may need to seek
additional funding from outside sources, including equity financing. We cannot
be sure that the combined company will be able to obtain the needed financing.
<PAGE 19>
If an equity financing is completed in the future, it would result in dilution
of the percentage of ownership of existing stockholders and could result in
dilution of the per share book value. If financing is not available, or only
available on unfavorable terms, the combined company may not be able to
successfully implement its business plan.
The display screens of most currently available wireless devices are
inadequate to take full advantage of the services made available by
Net2Wireless' proposed products.
The display screens currently available to most mobile wireless devices are
inadequate to display the full color video and graphic information made
available by Net2Wireless' proposed products. In order for consumers to have
access to the full range of services and convenience of the proposed products,
the combined company will be dependent on the continued development of
sophisticated display technology by others and the adoption of that technology
by wireless device manufacturers.
Factors beyond the control of Net2Wireless such as product and services
acceptance, competitive pressures, and the strategic decisions of wireless
carriers, may adversely affect its proposed business.
Net2Wireless may not be able to achieve or sustain its revenue or profit
goals as a result of factors outside of its control, including:
- the lack of market acceptance of the products and services to be
offered by Net2Wireless;
- the lack of acceptance by consumers of the services to be made
available as a result of the application of Net2Wireless' products;
- competitive pressures, including the announcement of competing
products and services or a decrease in the prices of such competing products and
services; and
- the lack of dedication, by the telecommunications carriers and
manufacturers of wireless devices, of the resources necessary to successfully
market the services potentially made available as a result of Net2Wireless'
products.
Net2Wireless may not be successful in obtaining the necessary adoption of
its products by cellular carriers, which adoption is critical for its success.
Net2Wireless' proposed products are based on an enabling technology that
permits the transmission of graphic, sound, and video information between the
Internet and wireless devices. This technology differs from standards recently
adopted for wireless access to services on the Internet. The initial business
strategy of Net2Wireless is to make products and services based on this
technology available to wireless telecommunications carriers to permit them to
offer new services to their customers. The success of this strategy is
dependent on one or more carriers with significant customers adopting
Net2Wireless' technology and products as the standard for offering their
customers these services. Net2Wireless may not succeed in finding these
strategic partners, as some of them may have invested in adopting alternative
technologies. In addition, in the course of trying to form relationships with
strategic partners, Net2Wireless may forego revenue opportunities in the short
term in order to establish market acceptance of its products. As a result, the
search for strategic partners could initially adversely affect Net2Wireless'
revenues and profitability.
The combined company may not be able to successfully manage its growth.
Net2Wireless has expanded from having 22 employees at December 31, 1999, to
having 91 employees at June 15, 2000, which has strained its management
resources. Additionally, the diversion of the attention of Net2Wireless'
management caused by the process of completing the merger and combining the
companies could cause a disruption of the business activities of Net2Wireless.
If the combined company is successful in the introduction of its products, it
will be required to continue to rapidly expand the number of its employees in
all areas of operations, including administration, development, support,
<PAGE 20>
marketing, sales, consulting, and distribution. Net2Wireless cannot assure you
that it will be able to locate and hire, or retain, the necessary personnel, nor
that it will be able to successfully manage the growth and expansion of its
business.
Net2Wireless may not successfully complete the development of its current
platform or develop additional products for other wireless technologies.
There are a number of wireless technologies currently in use. Currently,
Net2Wireless' only product is in beta testing and is designed to work with
global system for mobile communications, or GSM, a wireless protocol that is
used in Israel and Europe. If the beta test is successful, Net2Wireless will
need to complete the development of this platform, as well as develop products
for other wireless protocols, including the dominant systems used for digital
cellular mobile networks in North America, code division multiple access, or
CDMA, and time division multiple access, or TDMA. In addition, there are many
unique wireless protocols based on these general standards and many operating
systems which are unique to individual carriers. Integration with different
systems can be a long and costly process. There can be no assurance that the
combined company will be able to successfully complete the development of its
GSM platform or develop additional products compatible with other platforms.
Even if it successfully completes these products, there can be no assurance that
the combined company will be able to successfully recover its development costs
for any particular system.
The technology of Net2Wireless is not entirely based on the current
industry standard for wireless communications and, as a result, may not be
accepted.
In 1998, the Wireless Application Protocol Forum, or WAP Forum, adopted
open, worldwide specifications for wireless data transmission, designed to
establish a standard for wireless data transmission. These standards were based
on, among other things, the concept that Internet sites to be accessed by
wireless devices should be specifically designed streamlined sites that require
less data to be transmitted and received by the wireless device. Major
telecommunications companies, equipment manufacturers, and software and service
companies are members of the WAP Forum. While Net2Wireless' products are
expected to be compatible with the wireless application protocol used to allow
cellular phones access to the Internet adopted by the WAP Forum, they will
utilize proprietary software and technology not included in the WAP standards.
Telecommunications companies and others may be reluctant to adopt new technology
that is not wholly based on the WAP standard.
New products and services developed by Net2Wireless' competitors may
perform better than those developed by Net2Wireless and, therefore,
Net2Wireless' products and services may not be accepted in the marketplace.
The market for the delivery of Internet services through wireless
communication devices is evolving extremely rapidly and is characterized by
intense competition by a large number of companies seeking to establish a
dominant market presence. As a result of the very recent development of this
market, Net2Wireless cannot estimate the potential product lifecycle.
Net2Wireless may not be able to successfully introduce its products or continue
to develop and enhance its products at a pace sufficient to keep up with the
introduction of new products and services by others. In addition, the
prediction of the demand for these services is extremely speculative and the
overall market and pricing for these services may not grow at the pace or to the
size currently anticipated. Competition could also adversely affect the
combined company's ability to develop new products and service offerings.
Increasing competition could have a material adverse affect on future revenues
and profitability.
Net2Wireless' potential competitors have access to significantly greater
resources, limiting Net2Wireless' ability to compete.
The telecommunications industry is highly competitive. The
telecommunications industry is changing rapidly due to, among other things,
deregulation, privatization, consolidation, technological improvements,
expansion of infrastructure, the globalization of the world's economies, the
expansion of free trade, and new service offerings rapidly being added. These
changes create new international and domestic competitors, new network service
providers and new competitive infrastructures and services. There can be no
assurance that the combined company will be able to compete effectively under
these rapidly changing market conditions.
<PAGE 21>
A number of companies have announced their intent to address the potential
market for access to the Internet with wireless communication devices. These
include large device manufacturers such as (i) Ericsson, Motorola, Qualcomm,
AT&T, and Nokia; (ii) developers of operating systems, software, and browsers
such as Microsoft, and Wireless Knowledge, a joint venture of Microsoft and
Qualcomm; (iii) systems integrators, such as CMG and APiON; and (iv) software
companies such as Oracle and Sendit.
It is anticipated that this market will continue to be the focus of
telephone and wireless device manufacturers, telecommunications companies, and
software and browser companies, some of which are among the largest and most
successful companies in the world. These companies have resources, including
access to technical ability, funding, manufacturing, marketing, and
distribution, far in excess of those of Net2Wireless. As a result, Net2Wireless
may not be able to successfully compete in this marketplace.
Net2Wireless may not be able to recruit and retain key management and
technical personnel, in which case its proposed business will be adversely
affected.
The success of Net2Wireless is dependent, in part, on its ability to
attract and retain key management and technical personnel. Net2Wireless does
not have an employment agreement or carry life insurance on Nechemia Davidson,
its founder and chief executive officer. In addition, Net2Wireless' full
management team has not yet been assembled. The combined company will be
required to assemble a worldwide administrative and marketing team in order to
be successful. Net2Wireless has recently hired a number of technical employees
and is seeking to identify and attract additional executive management and
technical personnel. Net2Wireless receives management assistance from two of
its directors under consulting agreements. These individuals do not dedicate
their full business time to the affairs of Net2Wireless, and there can be no
assurance their services will remain available. If the combined company is
unable to attract management with the necessary experience and expertise, or if
it loses the services of Mr. Davidson or other key members of its executive or
technical team, it may be unable to successfully implement its planned business
operations.
Net2Wireless may not be able to adequately protect its intellectual
property rights, which would substantially harm the combined company's
competitive position.
The ability of the combined company to establish a position in the market
for wireless communication with the Internet is dependent to a large degree on
its proprietary technology having advantages over competing products.
Net2Wireless presently relies on copyright and trademark laws, trade secret
laws, and confidentiality and noncompetition contractual provisions to protect
its intellectual property. Net2Wireless has filed two patent applications and
anticipates seeking patent protection for other aspects of its technology that
may be patentable. Until patents are actually issued, of which there can be no
assurance, Net2Wireless will not be able to determine the full extent of the
protection they may afford. The effectiveness of all of the above protections
varies from country to country and may not adequately protect Net2Wireless'
rights. If Net2Wireless cannot adequately protect its technology, other
competitors could potentially use the intellectual property developed by
Net2Wireless to their own competitive advantage.
The combined company could be sued for violations of the intellectual
property rights of others.
There are a large number of patents and products constantly being developed
in the areas of telecommunications and Internet applications. The highly
technologically-dependent aspect of these industries and the rapid development
of products and services enhance the possibility of claims based on violations
of intellectual property rights. Any such claim brought against the combined
company, even if ultimately determined to be without merit, could be expensive
and time consuming and detract from the implementation of the products and
services of the combined company. In addition, the combined company may be
required to obtain licenses to patents or other proprietary rights of third
parties. There can be no assurance that any licenses would be available on
terms acceptable to the combined company, or at all.
<PAGE 22>
The telecommunications industry in which the combined company will compete
is highly regulated and the proposed business of the combined company may be
adversely affected by existing regulations or new regulations adopted in the
future.
The telecommunications industry is rapidly changing and highly regulated.
Cellular carriers require licenses from governmental authorities to use the
airwaves. If a cellular carrier using the combined company's products and
services lost its license, was restricted in the use of airwaves, or did not
gain access to the third generation licenses currently being granted by
countries around the world, it could adversely affect the proposed business of
the combined company. Other aspects of the combined company's business will
also be subject to the authority of regulatory bodies of the countries in which
it operates. Regulations established by such regulatory bodies may impose
limits on the combined company's operations, and there can be no assurance that
such restrictions will not place burdens on the combined company. In addition,
the combined company's business may be adversely affected by regulatory changes
resulting from judicial decision or the adoption of treaties, legislation, or
regulations by the national authorities where the combined company operates.
Significant charges associated with stock-based compensation may adversely
affect the market price of the common stock and the ability of the combined
company to obtain financing.
For the quarter ended March 31, 2000, Net2Wireless had a non-cash expense
of approximately $121 million associated with the grant of options with exercise
prices below the fair market value of its stock at the date of grant. To the
extent that Net2Wireless, or the combined company, continues to use stock based
compensation for employees and others in the future, it may incur associated
compensation expenses. Any expense will reduce the earnings of the combined
company, which may have a negative impact on the market price of the common
stock and the ability of the combined company to obtain financing.
Risks Related to Operations in Israel
Conditions in Israel affect operations and may limit the combined company's
ability to produce and sell products.
Net2Wireless' principal research and development and manufacturing
facilities are located in the state of Israel. Political, economic, and
military conditions in Israel directly affect its operations. Some of its
officers and employees in Israel are obligated to perform up to 39 days of
military reserve duty annually. The absence of these employees for significant
periods during the work week may cause Net2Wireless to operate inefficiently
during these periods. Additionally, a number of countries continue to restrict
or ban business with Israel or Israeli companies, which may limit the ability of
Net2Wireless to make sales in those countries.
The Israeli rate of inflation may negatively impact the costs of the
combined company if its exceeds the rate of devaluation of the New Israeli
Shekel against the U.S. dollar.
A portion of the cost of the Israeli operations, mainly personnel and
facility-related, will be incurred in New Israeli Shekels. As a result, the
combined company will bear the risk that the rate of inflation in Israel will
exceed the rate of devaluation of the New Israeli Shekel in relation to the
dollar, which will increase costs of the combined company as expressed in
dollars.
To date, Net2Wireless has not engaged in hedging transactions. In the
future, the combined company might enter into currency hedging transactions to
decrease the risk of financial exposure from fluctuations in the exchange rate
of the dollar against the New Israeli Shekel. These measures may not adequately
protect the combined company from material adverse effects due to the impact of
inflation in Israel.
<PAGE 23>
It may be difficult to enforce a U.S. judgment against the officers and
directors of the combined company and some of the experts named in this Joint
Proxy Statement/Prospectus or to assert U.S. securities law claims in Israel.
Substantially all of the executive officers and directors of the combined
company and the independent certified public accountants of Net2Wireless are
nonresidents of the United States, and a substantial portion of the assets of
the combined company and the assets of these persons are located outside the
United States. Therefore, it may be difficult to enforce a judgment obtained in
the United States against the combined company or any such persons.
Additionally, it may be difficult for you to enforce civil liabilities under
U.S. federal securities laws in original actions instituted in Israel.
Risks Related to the Merger
The exchange ratio is fixed so that Net2Wireless stockholders will receive
the same number of shares whether the price of the Sensar stock increases or
decreases.
The exchange ratio in the merger is fixed and will not be adjusted in the
event of any increase or decrease in the price of Sensar common stock. The
price of the common stock that Net2Wireless stockholders receive may be lower
than its price as of the date of this Joint Proxy Statement/Prospectus or the
date of the Sensar or Net2Wireless stockholders' meetings. There can be no
assurance that the price of the Sensar common stock on the date of the
stockholders' meetings will be indicative of the price of the common stock of
the combined company on the date the merger is closed or thereafter.
The trading price for the stock of the combined company may be volatile.
The market price of Sensar common stock has been and may continue to be
volatile. For example, from October 6, 1999, through August 1, 2000, the
closing price for Sensar's common stock, as reported by Nasdaq, has been as high
as $79.688 and as low as $2.094. The trading price can be affected by a number
of factors unrelated to the business prospects and results of the combined
company. These factors include:
- announcements of developments by competitors;
- acquisitions or strategic alliances by the combined company or others in
the industry;
- changes in the estimates as to the potential market and Net2Wireless'
share of that market;
- changes in the recommendations of security analysts; and
- changes in the trading prices of telecommunications companies or others in
related industries generally.
There can be no prediction as to the price or trading volume of the stock
of the combined company subsequent to the merger.
The concentration of control of the combined company in the members of
management may limit the ability of other stockholders to influence the
direction and policies of the combined company.
The executive officers and directors of Net2Wireless will own approximately
26% of the outstanding common stock of the combined company subsequent to the
merger. In addition, they will hold options, at $1.86 per share, to increase
their stock ownership to approximately 38%. Consequently, these stockholders
may, as a practical matter, be able to exert significant influence over those
matters requiring approval by the stockholders, limiting the ability of other
stockholders of the combined company to effectively influence the direction and
policies of the combined company. This concentration of ownership could also
discourage, delay, or prevent others from a takeover attempt that could
otherwise be beneficial to the other stockholders of the combined company.
The authorization of 10,000,000 shares of preferred stock in the
certificate of incorporation of the combined company, and the authority of the
board of directors to determine the attributes of and to issue the preferred
stock, may discourage, delay, or prevent a merger or acquisition that may be
favorable to the stockholders of Net2Wireless.
<PAGE 24>
The terms of the merger may not reflect the value of Sensar or
Net2Wireless.
The terms of the merger and the determination of the number of shares and
options to be held by the stockholders of Sensar and Net2Wireless represent
determinations arrived at during the negotiation process merely for the purpose
of calculating the relative ownership percentages of the parties. Such
calculations do not, and are not intended to, represent any price at which the
common stock of Sensar could be sold or the value of Net2Wireless or the
combined company, either before or after giving effect to the merger. The
amounts that may be realized following the merger upon the sale by the former
Net2Wireless stockholders of the common stock received by them in the merger may
vary widely from the historical trading prices of the Sensar common stock.
Lack of an independent assessment or opinion regarding the fairness of the
merger transaction requires the stockholders to rely exclusively on the
recommendation of the boards of directors and the stockholders' own analysis of
the transaction.
Neither Sensar nor Net2Wireless has obtained an assessment or opinion from
any qualified independent expert regarding the fairness of the merger from a
financial point of view to either Sensar or Net2Wireless or their respective
stockholders. In addition, neither board formed a disinterested special
committee to evaluate the fairness of the proposed merger to unaffiliated
stockholders. The lack of a fairness opinion or recommendation by a
disinterested committee means that the stockholders will be relying exclusively
on the recommendation of the boards of directors, financial information
concerning Net2Wireless and Sensar contained in this Joint Proxy
Statement/Prospectus, and their own analysis of the condition of both companies,
the prospects for the proposed business of Net2Wireless, and the terms of the
merger in deciding whether or not to approve the transaction. The boards of
directors did not receive independent advice concerning whether the terms of the
transaction were fair to the parties in arriving at their decision to approve
the transaction and to recommend approval by the stockholders and had interests
in the transaction that were different than, and in addition to, those of the
other stockholders.
Following the merger, Sensar stockholders will no longer control the vote
of the combined company.
The Sensar stockholders who are currently entitled to elect directors and
vote on such other matters as may be presented to the stockholders will, as a
result of the merger, hold only approximately 25% of the issued and outstanding
common stock of the combined company. The ownership of the Sensar stockholders
will be reduced even further if additional shares are issued under the
contractual provisions of the merger agreement. The percentage of ownership of
the Sensar stockholders may be reduced further as a consequence of the exercise
of options to acquire up to 15,266,649 shares of Net2Wireless. As of June 28,
2000, Net2Wireless had granted 15,145,612 of these options with a weighted
average exercise price of $2.39 per share. Consequently, the Sensar
stockholders will suffer a substantial dilution to their voting power and,
subsequent to the merger, will not be able to elect any representatives to the
board of directors of the combined company or to control the vote with respect
to any other matter submitted to the stockholders.
Additional shares that become available for sale may have an adverse affect
on the trading price.
All of the shares to be issued to the Net2Wireless stockholders in
connection with the merger have been registered under this Joint Proxy
Statement/Prospectus and, except for the stock held by affiliates of
Net2Wireless, will be freely available for sale. In addition, following the
merger, the combined company will have outstanding options and warrants to
purchase up to an aggregate of 17,775,905 shares of our common stock. The
currently granted options to acquire 17,654,868 shares of stock have a weighted
average exercise price of $2.37 per share significantly below the current
trading price of the common stock. Of these options, 15,905,386 will be
immediately exercisable. The holders of these warrants and options have
registration rights requiring the combined company to register the sale of the
common stock issuable upon exercise. Sensar will also file a registration
statement permitting the resale of 5,689,278 shares of restricted common stock
issued on the conversion of options held by current directors, officers, and
consultants of Sensar and Net2Wireless. The sale of the stock issued under this
registration statement to Net2Wireless stockholders and stock issuable on the
exercise of outstanding options and warrants covered by registration statements,
or even the potential for the sale of such stock, may adversely affect the
trading price for the common stock of the combined company.
<PAGE 25>
Certain individuals may have interests in the merger different from other
stockholders.
The terms of the transaction were determined through negotiations between
executive management of Sensar and Net2Wireless and approved by the board of
directors of each company. These individuals have interests in the merger
different than, or in addition to, those of the stockholders generally. In
order to meet its contractual obligation to eliminate liabilities, Sensar
entered into an agreement with its chief executive officer, Howard S. Landa,
pursuant to which he assumed specified liabilities of Sensar in exchange for the
transfer of non-operating assets, and each of the directors of Sensar agreed to
forego their rights under a deferred compensation plan on approval by the
stockholders of options granted to them with an exercise price of $2.00 per
share. Directors of Net2Wireless each received options with an exercise price
of $1.86 per share, and two of the directors entered into agreements that
provide for compensation for their services. None of these transactions were at
arm's length. Consideration of these interests may have influenced these
individuals in negotiating and approving the transaction. See "THE MERGER:
Interests of Certain Individuals."
NET2WIRELESS
BUSINESS OF NET2WIRELESS
General
Net2Wireless is a privately-held Delaware corporation with a research and
development subsidiary located in Israel and a British Virgin Islands subsidiary
that holds its intellectual property. Net2Wireless is developing technology
which is intended to enable and enhance a wide variety of wireless communication
services. The goal of Net2Wireless is to permit the following services to be
provided to cellular subscribers carrying wireless devices such as palm
computers, personal digital assistants, and cellular phones:
(a) browsing the Internet through standard websites and using standard
browsers;
(b) transmission of live video over the 9600 bps wireless link to the
wireless device;
(c) providing instant messaging with full graphics support;
(d) providing messaging services (e-mail, voice mail, fax, etc.); and
(e) providing full graphics applications with network-based storage.
The basic technology uses proprietary technology that greatly speeds up
content transmission over the wireless cellular infrastructure, principally by
compressing data. The goal is to permit the customers of cellular carriers to
use a wide range of hand-held wireless devices to browse the Internet and to
receive Internet-based television and other Internet based multimedia services.
Net2Wireless expects that its technology will potentially enable cellular
carriers to provide many other additional enhanced services to their customers.
History
Net2Wireless was incorporated on December 7, 1999, and on December 15,
1999, purchased its business and assets from I.T.E.S., an Israeli corporation
doing business in Israel. I.T.E.S. was formed on March 21, 1995, but did not
begin active operations until 1998. In 1998, I.T.E.S. commenced research and
development efforts for two multimedia streaming video products based on video
and audio compression technology: (i) Lightning Video - a video/audio
Internet/Intranet system; and (ii) DeskTop Communicator - a multimedia
communication software for desktop applications. I.T.E.S. presented its
<PAGE 26>
technology at the "Internet World 98" exhibition that took place on October 7 -
9, 1998, at the Javitz Center in New York. By the end of 1998, I.T.E.S. became
aware of major competition in the field of Internet video streaming - Microsoft
and Real Networks were heavily involved in this field and had invested
significant time and money in the development of their Internet video streaming
products. In light of this competition, I.T.E.S. began to explore other avenues
to utilize its technology.
In April 1999, Partner Communications approached I.T.E.S. about adapting
its Internet streaming technology to a wireless environment. In response to
that inquiry, I.T.E.S. focused all of its research and development efforts on
developing wireless multimedia streaming video products. The wireless unit
completed feasibility studies on the core technology by the end of 1999, and was
ready to commence product design. The result of this research and development
was the wireless video streaming which was the subject of the October 1999
agreement with Partner (subsequently superseded by the March 2000 agreement).
As a result of the negotiations between I.T.E.S., Sensar and early
investors in I.T.E.S., Net2Wireless was organized as a Delaware corporation to
acquire the wireless technology from I.T.E.S. Shareholders of I.T.E.S. became
shareholders of Net2Wireless and other investors in Net2Wireless provided the
funds necessary for the acquisition of the technology from I.T.E.S.
Net2Wireless entered into the merger agreement with Sensar and an agreement with
Partner Communications that replaced the earlier agreements with I.T.E.S.
Subsequent to the purchase of the wireless technology, Net2Wireless continued
its research efforts on wireless data transmission that is expected to
eventually provide a new family of products for Internet connections and
communication, e-mail, instant messaging, and unified messaging for wireless
mobile devices.
The value added line of services developed by Net2Wireless are in the stage
of field trials, trial utilization of the platform, and beta testing.
Net2Wireless currently conducts a majority of its research and development
operations in Israel because (i) one of its founders and its chief technical
architect, Nechemia Davison, lives there; and (ii) of the availability of
qualified research and development personnel.
Development of the Industry
Growth of Wireless and Mobile Communications
Wireless telecommunications has grown rapidly as cellular and other
emerging wireless communications services have become available and affordable
for both business and consumer markets. Advances in technology, changes in
telecommunications regulations and the allocation and licensing of additional
frequencies for this use have contributed to this growth worldwide.
Wireless Network Carriers
The competitive environment among cellular carriers in major markets
worldwide is extremely intense. Efforts to attract and retain subscribers for
digital wireless communications services have resulted in significant price- and
service-based competition. Increased competition has (i) resulted in a decrease
in the fees that can be charged for initiation and ongoing service; (ii)
increased costs of the carrier acquiring new subscribers; and (iii) increased
the propensity of subscribers to switch from one carrier to another. For these
reasons, carriers are looking for new methods to compete, new services they can
offer to their wireless subscribers for additional fees, and ways in which to
differentiate their product in an effort to retain customers. In addition, they
are focused on finding and deploying solutions that enable them to deliver and
support their services in a more cost-effective manner.
Growth of the Internet
The Internet has emerged as a global system enabling millions of people to
share information and conduct business electronically. The dramatic growth in
the number of business and consumer Internet users has led to a proliferation of
useful information and services on the Internet, including e-mail, news,
electronic commerce, educational and entertainment applications and a multitude
of other services. As a result, the Internet has become a primary resource for
millions of people.
<PAGE 29>
The Convergence of the Internet and Wireless Communications Devices
As people have become increasingly dependent on Internet-based services,
mass-market wireless communication devices that provide mobile access to these
resources have begun to become available. Current interest levels in addressing
the market for wireless Internet access are on the rise and will impact the
services to be offered by the wireless carriers.
A substantial number of companies have emerged to provide the service of
transmitting voice and data over the Internet. Recently, new developments have
permitted the link between these Internet-based services and wireless
communication devices.
Advantages Offered by Net2Wireless Technology
Current Limitations of Wireless Internet Access
Wireless Internet access has not yet become widespread. Existing wireless
application protocol, or WAP,-based technology has limitations compared to
computer based access as a result of a lack of existing applications, reduced
communication speed, and less-than-ideal wireless communication devices. These
limitations have restricted wireless communication over the Internet to
primarily text-based interface and require that either the Internet content be
formatted in a different language than the language typically used to create
sites on the Internet, Hypertext Markup Language, or HTML, or that the network
carrier offer its own content specifically designed for Wireless Markup
Language, or WML, a subset of HTML created to support WAP. As a result,
wireless users cannot directly access the seemingly unlimited content currently
available on the Internet.
In addition, in order to use WAP-based technology, users must undergo a
period of technology adaptation and education to learn to browse the Internet
through WML or Extensible Mark-up Language, XML, formats rather than standard
HTML formats. Furthermore, WAP requires new, dedicated WAP phones that the
carrier will have to subsidize in order to induce the clients to move to WAP.
The Net2Wireless Approach
The server and wireless browser technology system being developed by
Net2Wireless is intended to make all of the information on the Internet
accessible to wireless mobile devices using existing affordable access to
information services. The goal is to permit cellular carriers to provide new
information services and to serve as an Internet portal for their customers. By
offering access to new content and expanded communication services, it is
anticipated that airtime consumption and revenues for carriers will increase.
Net2Wireless seeks to address the limitations of the current WAP based
technology in a number of ways. Net2Wireless is developing a more efficient way
of utilizing the narrow bandwidth of wireless communications devices to transfer
graphic and multimedia information. Net2Wireless uses state-of-the-art digital
data compression with its proprietary advanced pattern recognition and streaming
technology. This permits the transmittal of streaming video and other
multimedia content in real time over the very limited bandwidth of wireless
communications devices.
<PAGE 30>
The differences between Net2Wireless' proposed products and WAP-based
products are summarized on the following table.
<TABLE>
<CAPTION>
Net2Wiress WAP
---------- ---
<S> <C> <C>
Supported Protocol HTML, the standard Internet WML, XML
protocol
Device Type Personal Digital Assistant or WAP compliant phone
Notebook, in conjunction with
a cellular phone
Access to web pages Any standard HTML web site Only web pages specifically
adapted for WAP
Surfing behavior HTML standard -- no adaptation Adaptation to new way of
surfing, text only
Content used Graphic, Text, Multimedia, Text only
Music
Usable applications All fixed Internet applications Text applications only
Intranet Supported Not supported
</TABLE>
Net2Wireless allows the transfer of standard HTML pages, thus avoiding the
need to convert to WML or XML formats. Net2Wireless' technology also eliminates
the time spent on further technology adaptation and education. Users will be
able to connect, via Net2Wireless technology, to the Internet and surf the web
as they do over the current wired connection.
The technology has been designed to utilize the power, speed, and storage
capacity of the Wireless Application Server, or WAS. Existing wireless
communication devices which have limited processing power are treated as
application devices. As such, the devices themselves do not need to be very
sophisticated in terms of computing power, and are used simply to provide access
to the WAS servers, where the necessary software is loaded, and to store and
retrieve information from the server.
Net2Wireless' technology is designed to create an application that works
seamlessly with both the existing systems of cellular carriers and wireless
communications devices. Net2Wireless intends to develop its technology to be
compatible with all major digital wireless telephone standards. In addition, it
is intended to be compatible with existing and emerging operating systems for
wireless devices. The Net2Wireless system would provide the opportunity for a
common communications platform and standard between different device families to
make mobile Internet communications widespread. Further, Net2Wireless' software
and communications systems are designed to be fully compatible with WML and
other WAP-based systems.
Net2Wireless' systems will be installed on its WAS at the cellular
carrier's facilities as an overlay to the carrier's existing systems. They are
designed to be compatible with the carrier's existing technology so that no
modifications or changes to the underlying cellular communication network are
necessary. Therefore, network carriers should not be required to change or
reconfigure their systems to accommodate the installation of Net2Wireless'
technology.
Because wireless networks have limited bandwidth and wireless communication
devices have limited processing power and memory, software programs that reside
on the server are used to provide processing power and other computing resources
to the wireless devices. These allow certain operations to be offloaded from
the devices to Net2Wireless servers, including translating existing Internet
protocols such as HTML to wireless Internet protocols such as WML. This
translation will allow WAP-based users to benefit from Net2Wireless services as
well.
<PAGE 31>
Wireless communication devices are mass-market consumer items with imbedded
software that is difficult to modify in the field. To address this issue, the
Net2Wireless' translation programs are designed to translate content in
real-time. Net2Wireless intends to distribute its software to cellular carriers
who can make it available to their customers either for a fee or free of charge.
Software translators that transparently translate content to make it compatible
with older versions of digital wireless devices may be developed by Net2Wireless
in the future, depending on the demand for such software. The software will be
included with the packages purchased by the cellular carrier and downloaded to
the device during the initial log on. Updates to the software are similarly
downloaded. The cellular carrier may or may not charge a fee for these
downloads.
Net2Wireless' hardware and software systems are designed to run in parallel
on multiple servers, which will allow the system to balance the workload among
the servers. The system is also designed to include redundant hardware on
mission critical components, to permit it to survive a potential failure of any
server with minimal downtime. The system is designed to permit additional
capacity to be added quickly and easily by adding additional servers without
incurring significant development costs.
There are limitations associated with Net2Wireless' technology.
Net2Wireless' technology requires the use of servers which are limited as to the
number of registered users and subscribers which can be supported at a single
time. Widespread implementation of Net2Wireless' technology may require
carriers to acquire substantial numbers of servers and use significant, scarce
resources to locate and manage the servers. Net2Wireless also faces a
competitive disadvantage in that equipment manufacturers and carriers have
committed to the WAP standard and made substantial investments, which they will
be reluctant to abandon in favor of a new technology. While Net2Wireless'
services work with currently available wireless devices, typically the user also
needs a device with a more sophisticated display, such as a notebook or
hand-held computer, to take full advantage of the capabilities of the product.
Net2Wireless anticipates that the ongoing improvements in display technology
will continue and will ultimately result in screens being available in hand-held
wireless devices that will be capable of displaying all of the services made
available by Net2Wireless' products.
Products
Net2Wireless is developing several proprietary products:
- Wireless Application Server
Wireless Application Servers, or WAS, provide access to real-time Internet
multimedia and a multimedia service that sends recorded video content to users
of cellular phones and other handheld devices. They enable cellular carriers to
offer content services consisting of news, stock quotes, sports, business
communications, message services, mailboxes, datebooks, directories, airline
schedules, reference materials, business enterprise data, and similar items, or
access to all Internet content and commerce. The WAS serves as the system on
which software programs and data reside because of the limited processing and
storage power of most hand-held wireless devices.
- Wireless Instant Messaging Suite
The Wireless Instant Messaging Suite is a software and storage system for
instant messaging technology to allow wireless subscribers to receive and send
messages regardless of the user's on- or off-line position on the wireless
network or the Internet. The IM Suite Server offers wireless carriers a
complete solution to enable their subscribers to access and connect with
Internet-based instant messaging systems.
- Wireless Browser Technology
The Wireless Browser Technology is a text, audio and video browser that allows
web browsing from existing cellular phones and other portable devices. Unlike
existing text-mode-only Internet browsers, the wireless browser technology
allows extensive web browsing, including sending and receiving graphics files,
using very little computing or battery power on the handheld device.
<PAGE 32>
- Fixed Line Technology
Through its subsidiary, FastNet.com, Inc., Net2Wireless intends to design and
develop a line of products that will enhance traffic utilization on the Internet
and intranets. Traffic on the Internet is often congested during peak times.
It is anticipated FastNet.com, Inc.'s fixed line technology will improve
bandwidth utilization and transmission times directly to the end user's
computer. FastNet.com, Inc., will use high-capacity compression technology
developed by its parent entity, Net2Wireless, in order to develop its product in
a timely manner.
Prototype versions of each of the above wireless products have been
developed and tested internally by Net2Wireless. Net2Wireless has completed the
installation of its 3Gate system and the video and Internet Wireless
Application Servers at the facilities of Partner Communications Company, Ltd.,
and PelePhone Communications, Ltd., cellular carriers in Israel, and a joint
evaluation of the products as installed is proceeding.
Net2Wireless' wireless browser technology and wireless device software is
intended to be compatible with most existing mobile device technology and
requires less computing power than browser-based mobile communication systems
based exclusively on wireless application protocol, or WAP, standards. With the
wireless browser technology, there is no loss of bandwidth with multiple users
accessing the single carrier.
Source of Anticipated Revenues
Net2Wireless intends to sell hardware and services and to license its
software directly to cellular carriers. Licensing and transactional fees will
be based on the number of users of the system. To the extent that wireless
carriers are able to offer new services based on the technology and charge their
customers incremental fees for such services, Net2Wireless intends to seek a
percentage of these new revenue streams. The hardware servers will be
manufactured directly by Net2Wireless or through original equipment
manufacturers and marketed by direct sales to cellular carriers or through
distributors or representatives. Net2Wireless has not generated any revenues
from these activities to date and does not have historical experience by which
to judge whether its business model will be successful.
Agreements With Cellular Carriers
Partner Communications
Net2Wireless has entered into a pilot agreement with Partner Communications
Company Ltd., a cellular telephone operator in Israel which is the Israeli
affiliate of Orange Plc, a United Kingdom-based cellular carrier. Partner
Communications uses the global system for mobile communications, or GSM,
wireless protocol.
Under the pilot agreement, Net2Wireless is testing, on Partner
Communications' system, and at Net2Wireless' cost, its multimedia streaming
media platform, a service that allows the user to receive video programs in real
time on mobile wireless devices. Net2Wireless' equipment has been installed on
Partner Communications' system and initial tests of the system have been
completed by Partner Communications. Partner Communications has not yet made
the system available to its customers. At the time of the execution of the
pilot agreement, Partner Communications received an option to purchase 3,020,576
shares of Net2Wireless common stock or, subsequent to the merger, the common
stock of the combined company, at a price of $1.84 per share. If the merger is
not completed, the number of shares subject to the option will be reduced so
that Partner Communications has the right to purchase a 10% interest in
Net2Wireless. The option is exercisable until the later of (1) October 6, 2000;
or (2) two months after completion of the merger with Sensar. If Partner
Communications exercises the option, it will have the right to have its shares
registered under the Securities Act. The number of shares subject to the option
will be adjusted for any capital restructuring of Net2Wireless or Sensar and the
exercise price will be reduced in the event that the combined company has a
market capitalization of less than $50 million immediately following the merger,
by a factor equal to the market capitalization divided by $50 million.
<PAGE 33>
The parties agreed to negotiate and execute an agreement for the purchase
of a Net2Wireless video platform system by Partner Communications within 90 days
of the date of the pilot agreement, although Net2Wireless agreed to supply the
software necessary for the initial 50,000 users free of charge. This purchase
agreement has not been finalized, although the parties continue to negotiate.
Since the purchase agreement was not executed within 90 days of the pilot
agreement with Partner Communications, Partner Communications lost a right of
first offer with regard to new Net2Wireless products in Israel. Under the terms
of the pilot agreement, if Net2Wireless sells products to other affiliates of
Orange Plc, or if Partner Communications assists in the sales of Net2Wireless
products, if previously requested by Net2Wireless, to any other GSM based
cellular carriers, Partner Communications will receive a fee of 15% of the
revenues received from these sales by Net2Wireless. Net2Wireless has notified
Partner Communications that its exclusive rights with respect to the video
platform and its right of first offer with respect to any other technologies or
products of Net2Wireless have expired.
Net2Wireless cannot assure you that a purchase agreement will ultimately be
signed with Partner Communications or as to the terms and conditions of the
purchase agreement. The terms of the purchase agreement must be mutually agreed
to by the parties.
PelePhone Communications, Ltd.
Net2Wireless has also entered into a memorandum of understanding dated
March 27, 2000, with PelePhone Communications, Ltd., a cellular carrier in
Israel that uses CDMA technology. Pursuant to the memorandum of understanding,
Net2Wireless has agreed to lend to PelePhone various hardware and software
products of Net2Wireless and to customize its products for use with PelePhone's
CDMA technology platform and Samsung cellular phones, which PelePhone has agreed
to supply, together with all necessary infrastructure. PelePhone will field
test the customized products for a period of one month, that is currently
anticipated to commence in the fourth quarter of 2000. Net2Wireless has given
PelePhone an option to purchase the customized products within the 60-day period
following completion of the field test. At the time of entering into the
memorandum of understanding with PelePhone, Net2Wireless notified Partner
Communications in accordance with Partner Communication's then existing right of
first refusal, and the period during which Partner Communications had to
exercise its right expired. Net2Wireless completed installation of its platform
on PelePhone's CDMA cellular infrastructure on June 21, 2000. The platform will
enable PelePhone to provide a variety of third generation wireless
communications services, without requiring bandwidth and infrastructure
upgrades.
Nextel Finance Company
Net2Wireless signed a memorandum of understanding, dated as of July 26,
2000, with Nextel Finance Company, a wholly-owned subsidiary of Nextel
Communications, Inc., for the field testing and potential future purchase of
Net2Wireless' proposed products for use in the United States. The initial field
testing is expected to commence by August 15, 2000.
In a separate agreement, dated July 26, 2000, Nextel Finance Company and
Net2Wireless also agreed to the terms and conditions that would apply to an
investment in 1,000,000 shares of Net2Wireless capital stock at a per share
price of $32. Consummation of this investment transaction is subject to several
conditions, including the satisfactory completion of due diligence by Nextel
Finance Company. The closing of this transaction is scheduled for October 15,
2000, although we cannot assure you that the conditions to closing will be
satisfied.
<PAGE 34>
Competition
Current and Potential Competitors
The widespread adoption of open industry standards, such as the WAP
specifications, may make it easier for new market entrants and existing
competitors to introduce products that compete with the proposed products of
Net2Wireless. Net2Wireless will compete primarily on the basis of technology,
ease-of-use, functionality and quality, and breadth of product and service
offerings. Some of the competitive advantages and disadvantages are:
Advantages
- Uses the existing second generation wireless communications
infrastructure, referred to as 2G, but provides value added services which are
not expected to be available until a new telecommunications infrastructure, or
3G, is adopted.
- Single platform solution for multiple applications.
- Efficient utilization of the carriers' frequencies.
- Telecommunications standard for wire and wireless carriers, or Telco
grade, solution, high availability, scalable and redundant system.
- Data services that the cellular operators can provide their customers and
collect additional revenue.
Disadvantages
- The switch, or server, employed by Net2Wireless currently has limited
capacity for subscribers or registered users. Therefore, significant investment
in equipment and real estate is required in order to roll out a large scale
system.
<PAGE 35>
- The large investment being made by various equipment vendors in WAP-based
technology will make them reluctant to adopt this new standard.
The competitors include the following:
Wireless Equipment Manufacturers
- Ericsson, Motorola, Qualcomm, AT&T, and Nokia, which are developing server
and application software products. These companies already sell wireless
telephones and other telecommunications products to network carriers who are our
potential customers and may use their existing relationships to influence the
adoption of competing technologies.
- Microsoft and Wireless Knowledge, a joint venture of Microsoft and
Qualcomm, which has announced its intention to further develop Microsoft's
Windows CE operating system for application on wireless handheld devices.
- Systems integrators, such as CMG and APiON, and software companies, such
as Oracle and Sendit, which are developing and marketing server software that is
compliant with WAP specifications.
Providers of Internet Services, Applications and Content
- Cisco Systems Inc., which announced that it will develop products using
its proposed standard for broadband wireless Internet services.
- Oracle Corp. and Phone.com, which announced they are working together to
enhance an end-to-end solution for enabling Internet and intranet information
access and services from wireless handsets.
- Hewlett-Packard, which announced an integrated hardware/software platform
solution for delivering wireless Internet services on a pay-per-use basis from
infrastructure equipment owned and operated by Hewlett-Packard. Motorola and
Nokia have also committed to working with Hewlett-Packard to advance wireless
connectivity to the Internet.
- IBM and Nokia, which have announced a global partnership to develop
solutions using the WAP approved standards.
- CMG, a European information technology service group, and diAx, a Swiss
mobile operator, which offer Telekurs Financial real-time financial information
to mobile wireless users who can access financial indices, currency exchange
rates, world stock exchanges, and financial headlines and obtain stock quotes
and, eventually, conduct wireless banking in the mobile environment.
- Net2Phone, which is a provider of voice-enhanced Internet communications
services to individuals and businesses worldwide. It is possible that Net2Phone
will seek to integrate mobile communication capabilities into their Web access.
Several of the world's major providers of telecommunications equipment,
such as Alcatel and Lucent have developed network equipment that may be used in
connection with the provision of similar Web services, including routers,
servers and related hardware and software. By developing this equipment, these
manufacturers may exert substantial influence over the technology that is used
in connection with transmission of voice over the Web, and may develop products
that facilitate the quality and timely roll-out of these networks.
These competitors are established manufacturers, software and hardware
developers, and service providers which have access to significantly greater
financial, technical, and managerial resources than Net2Wireless. Net2Wireless
may not be able to successfully compete in this industry.
<PAGE 36>
Intellectual Property
Net2Wireless relies on a combination of trademark, copyright and trade
secret laws, as well as technical measures to establish and protect its
proprietary rights. Net2Wireless is in the process of preparing and filing
approximately 20 applications for patent protection of its technology. Patent
protection is being sought in the following technological areas:
- providing new, enhanced and integrated services through cellular networks.
- still images processing.
- video and audio streaming through extremely narrow channels.
- information transmission through channels with highly variable
characteristics.
In addition to seeking patent protection, as part of its confidentiality
procedures, Net2Wireless has entered into agreements with its employees and
consultants and limits access to and distribution of its documentation and other
proprietary information.
Employees
Net2Wireless currently employs 91 people. 7 employees are senior
management, 65 employees are part of Net2Wireless' research and development and
technical teams, and 19 employees are in marketing. Net2Wireless plans to
continue to add additional professional and administrative personnel.
Facilities
Net2Wireless' principal administrative, engineering, and marketing
facilities are located at 11 Ha'amal Street in Afek Park, a technology center,
in Rosh Ha'ayin, 48092, Israel.
Proposed Merger
Under the terms of the merger agreement with Net2Wireless, Sensar agreed to
provide Net2Wireless with interim funding of $2 million. $500,000 of this
amount was advanced February 2, 2000. This loan is due September 30, 2000, and
bears interest at 8% per annum.
Sensar was also granted an option to acquire Net2Wireless through the
merger of the two companies. This option was exercisable at any time after the
commencement of the pilot program at Partner Communications, and was exercised
by Sensar on March 24, 2000. Net2Wireless was also granted an option to require
the completion of the merger. The option held by Net2Wireless is exercisable at
any time 30 days subsequent to the completion of the pilot program of Partner
Communications and, in any event, prior to December 31, 2000.
The merger agreement, as amended, provides for the merger to be
accomplished by the issuance of 18,295,060 shares of common stock of the
combined company to the holders of all equity interests in Net2Wireless, other
than the options and warrants to acquire Net2Wireless stock and the 1,000,000
shares that may be issued under the agreement with Nextel Finance Company, if
the transaction closes prior to the merger. Upon completion of the merger, such
options and warrants to acquire Net2Wireless stock will be converted into
options and warrants to acquire up to 15,266,649 shares of common stock of the
combined company. As of June 28, 2000, Net2Wireless had granted 15,145,612 of
these options, with a weighted average purchase price of $2.39 per share.
<PAGE 37>
Additional shares of common stock will be issued, pro rata, to Net2Wireless
stockholders in the event that the net cash held by Sensar at the closing of the
merger, as defined in the merger agreement, plus all amounts collected on the
note receivables held by Sensar within 60 days of the due date of such
receivables, is less than $4.45 million. The number of additional shares to be
issued will be determined by dividing any shortfall by $1.86. These contingent
shares would be delivered to former Net2Wireless stockholders within 10 business
days of the final determination of the number of shares. At March 31, 2000,
Sensar had approximately $6 million of net cash under the definition used in the
merger agreement, assuming the full collection of short-term receivables from
third parties of approximately $1.3 million. All of these third-party
receivables had been collected by July 31, 2000.
Completion of the merger is subject to the approval of the transaction by
the shareholders of both Sensar and Net2Wireless and the satisfaction of
customary contractual conditions.
MANAGEMENT OF NET2WIRELESS
The following table sets forth the name, age, and position of each director
and executive officer of Net2Wireless.
<TABLE>
<CAPTION>
Elected/ Term
Name Age Position Appointed Expires
----------------- --- ------------------------------------ --------- -------
<S> <C> <C> <C> <C>
Nechemia Davidson 37 Director and Chief Executive Officer December 1999 Next annual
shareholders'
meeting
David Rubner 60 Chairman of the Board and Director February 2000 Next annual
shareholders'
meeting
Joav Avtalion 48 Director February 2000 Next annual
shareholders'
meeting
Yitzhak Feldman 38 Executive Vice-President Marketing December 1999 N/A
and Sales
Robert Rokni 49 Vice-President Management December 1999 N/A
Information Systems
Yaron Sobol 41 General Counsel March 2000 N/A
</TABLE>
There is no family relationship among the current directors and executive
officers. Mr. Rubner's son, Joseph Rubner, is vice-president of research and
development of Net2Wireless.
Mr. Davidson is a founder, principal shareholder, and a director of
Net2Wireless. Mr. Davidson also was a founder of I.T.E.S., the entity from
which Net2Wireless acquired its wireless technology and Image Store Systems,
Ltd. Mr. Davidson received his software engineering degree from the Be'er-Sheva
Technical College in 1984.
<PAGE 38>
Mr. Rubner was appointed as a director and chairman of the board in
February, 2000. Mr. Rubner recently retired from his position as president and
CEO of ECI Telecom Ltd., Israel's largest telecommunication equipment company.
Mr. Rubner established ECI's worldwide sales and marketing organization, with a
broad technological basis. Under Mr. Rubner's leadership, ECI's revenues grew
from $74 million in 1990 to close to $1.1 billion in the year 1999. Prior to
his appointment as president and CEO, Mr. Rubner filled various management
positions with ECI, including executive vice-president and general manager of
the telecommunications division, vice-president of operations, and chief
engineer. Prior to his joining ECI in 1970, Mr. Rubner was manager of the
electronics division of Electra Ltd. From 1963 until 1969, Mr. Rubner was
engaged in computer development at the Westinghouse Research Laboratories in
Pittsburgh, Pennsylvania. Mr. Rubner holds a bachelor of science degree with
honors in electronic engineering from Queen Mary College, University of London,
and a master of science in electrical engineering degree from Carnegie Mellon
University, Pittsburgh. Mr. Rubner was recipient of the Industry Prize of
Israel for 1995. Mr. Rubner serves on the board of directors of ECI Telecom,
ECTel, and Checkpoint Software.
Mr. Avtalion was appointed as a director of Net2Wireless in February, 2000.
Mr. Avtalion also currently serves as the chairman of the board and is a founder
of Mindsense Biosystems, Ltd., a privately-held company involved in
biotechnology, and Basense, Ltd., a privately-held company involved in knowledge
management. Mr. Avtalion was a co-founder in 1986, and served as an executive
and director of the board until 1999, of Nice System Ltd. Mr. Avtalion received
his bachelor of science in mathematics, physics, and biology from Hebrew
University in 1973 and his master of business administration from Tel-Aviv
University in 1981.
Mr. Feldman has served as executive vice-president of marketing and sales
of Net2Wireless since December 1999. Prior to joining Net2Wireless, Mr. Feldman
served as the vice-president of international sales for Foxcom Ltd., an Israeli
corporation. From 1993 until 1999, Mr. Feldman served in various capacities at
ECI Telecom, ranging from international marketing and sales director to
associate vice-president of sales. Mr. Feldman received a B.S. in computer
science from the Jerusalem College of Technology in 1989 and an M.B.A. from the
University of Bar Ilan in 1996.
Mr. Rokni has served as vice-president of management information systems of
Net2Wireless since December 1999. Prior to joining Net2Wireless, Mr. Rokni
served as the manager of information systems and microcomputers at the computer
center of First International Bank of Israel from 1983 until 1999. During his
employment there, Mr. Rokni also served as manager of training and the human
resources department. Mr. Rokni received a B.A. from the University of Bar Ilan
in 1981.
Mr. Sobol is a founder, minor shareholder, and the general counsel of
Net2Wireless. Mr. Sobol was appointed as the general counsel of Net2Wireless in
March 2000. Prior to his joining Net2Wireless, Mr. Sobol had his own law
practice, where he specialized in the field of corporate securities and
technology law. From 1991 until 1996, Mr. Sobol was an associate at the law
offices of M. Seligman & Co. Mr. Sobol received his L.L.B. in law from the Tel
Aviv University in 1987, and his L.L.M. in law from American University in 1990.
<PAGE 39>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the annual and long term compensation earned
by, awarded to, or paid to Nechemia Davidson, the chief executive officer of
Net2Wireless, who will become the chief executive officer of the combined
company during the last fiscal year. No information is provided for earlier
periods since Net2Wireless was organized in 1999. No information is provided
with respect to other executive officers of the combined company since their
compensation did not exceed $100,000 during 1999.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Period
From
Commence-
ment
of
Operations
(April 1, Other Securities
1999) Annual Restricted Underlying All Other
Through Compen- Stock Options/ LTIP Compen-
Name and Principal December Salary Bonus sation Award(s) SARs Payouts sation
Position 31, 1999 ($) ($) ($) ($) (#) ($) ($)
-------------------- ------- ------- ------ ------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nechemia Davidson $65,000 0 0 0 3,222,222 0 $0
Chief Executive
Officer
</TABLE>
Option/SAR Grants in Fiscal 1999
The following table sets forth information respecting all individual grants
of options and stock appreciation rights ("SARs") made during fiscal 1999 to the
chief executive officer of Net2Wireless.
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual
Rates of Stock
Appreciation for
Individual Grants Option Term
------------------------------------------------------------------------------------------- ------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees During Base Price Expiration
Name Granted (#) Fiscal Year ($/share) Date 5%($) 10%($)
------------------- ----------- ---------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Nechemia Davidson(1) 3,222,222 100% $1.86 12/06/05 $ 0 $0
Chief Executive
Officer
<FN>
(1) These options are held by Cedar Investment Services, Ltd., an entity
controlled by Mr. Davidson.
</TABLE>
<PAGE 40>
Option/SAR Exercises in Fiscal 1999
The following table sets forth the information concerning the options
exercised by the named executive officer during the year ended December 31,
1999, and the value of unexercised options as of December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY End (#) FY End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Nechemia Davidson 0 $ 0 3,222,222/0(1) N/A
Chief Executive Officer
<FN>
(1) These options are held by Cedar Investment Services, Ltd., an entity
controlled by Mr. Davidson.
</TABLE>
Compensation Agreements With Executive Officers
Net2Wireless is currently negotiating a management services agreement with
a corporation owned by Nechemia Davidson, who will be the chief executive
officer of the combined company that will have an initial term of five years,
renewable for additional terms of two years. Net2Wireless anticipates that the
agreement will provide for an annual management fee of $600,000 to be increased
by 10% each year, and is currently compensating Mr. Davidson on this basis. The
agreement will not entitle Mr. Davidson to any additional payment or benefit
from Net2Wireless. In the event Net2Wireless terminates such agreement without
cause, it will owe an amount equal to five times the annual management fees.
There can be no assurance that such an agreement will be entered into or that
when entered into, such agreement will necessarily contain these specific
provisions.
Net2Wireless has entered into an agreement with Yitzhak Feldman, who will
serve as executive vice-president of marketing and sales for the combined
company. The agreement provides for annual compensation of $144,000, a company
car, executive insurance equal to 13.33% of the compensation, disability
insurance equal to 2.5% of the compensation, advanced study fund equal to 7.5%
of the compensation, and 21 days of vacation with pay annually. The agreement
requires a termination notice of three months. It also provides for 128,889
options with an exercise price of $1.86 per share, to vest in equal part over
four years.
Net2Wireless has entered into an agreement with Robert Rokni who will serve
as vice-president of management information systems. The agreement provides for
annual compensation of $150,000, a company car, executive insurance equal to
13.33% of the compensation, disability insurance equal to 2.5% of the
compensation, advanced study fund equal to 7.5% of the compensation, and 21 days
of vacation with pay annually. The agreement requires a termination notice of
three months. The agreement also provides for 107,407options with an exercise
price of $1.86 per share, to vest in equal parts over three years.
Net2Wireless has entered into a management services agreement with a
corporation owned by Yaron Sobol, who will be general counsel for the combined
company, that has an initial term of three years, renewable for additional terms
of two years each. The agreement provides for annual management fees of
$301,500 to be increased by 10% each year. The agreement does not entitle Mr.
Sobol to receive any additional payment and/or benefit from Net2Wireless. In
the event Net2Wireless terminates this agreement, it will owe an amount equal to
one-half of the annual management fee, payable at the election of the
corporation owned by Mr. Sobol, in a lump sum or in six equal monthly payments.
The agreement provides that either party must give six months prior notice
before terminating this agreement.
<PAGE 41>
Compensation Committee Interlocks and Insider Participation
Net2Wireless' board of directors does not currently have a compensation
committee. During the past fiscal year, Nechemia Davidson was the sole director
of Net2Wireless and determined executive officer compensation. Messrs. Rubner
and Avtalion became directors in February 2000, and participate in deliberations
concerning executive officer compensation. Mr. Rubner and Mr. Avtalion both
have consulting agreements with Net2Wireless. However, when the board of
directors considered contemplated compensation agreements between Net2Wireless
and a director, the interested director removed himself from the board
determination as to the fairness of the terms and conditions of the agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Net2Wireless believes that the transactions described in this section were
on terms which are fair and reasonable to Net2Wireless. However, as these
transactions are with affiliated parties, there can be no assurance that they
were entered into on terms as favorable as could have been obtained from
nonaffiliated parties.
Transactions With I.T.E.S. - Imaging Technologies Enterprises Systems Ltd.
On December 15, 1999, pursuant to an asset acquisition agreement, Vintage
Global Inc., a wholly-owned British Virgin Islands subsidiary of Net2Wireless
Corporation, purchased all of the intellectual property of the wireless business
of I.T.E.S.- Imaging Technologies Enterprise Systems Ltd., an Israeli company
controlled by Nechemia Davidson, a director of Net2Wireless Corporation, for $1
million in cash and $200,000 in convertible notes. In connection with this
agreement, Net2Wireless Corporation, purchased all of the assets and assumed all
liabilities of the wireless business of I.T.E.S. The notes were redeemed for
$200,000 on March 22, 2000.
On March 13, 2000, Net2Wireless entered into an agreement with I.T.E.S.-
Imaging Technologies Enterprise Systems Ltd. and Partner Communications Company
Ltd., the Israeli affiliate of Orange PLC, and a cellular telephone operator in
Israel, relating to a pilot program. I.T.E.S. is an Israeli company controlled
by Nechemia Davidson, a director of Net2Wireless Corporation. Under the
agreement, Partner Communications received an option to purchase 3,020,576
shares of Net2Wireless common stock, subject to adjustment, or, subsequent to
the merger, the common stock of the combined company, at a price of $1.84 per
share, below the fair market value of the shares of common stock of $27.93 as of
the date of grant. This agreement supersedes a previous agreement made and
entered into by Partner and I.T.E.S. on October 6, 1999, which was part of the
assets of I.T.E.S. that Net2Wireless purchased under the December 15, 1999,
agreement. See "NET2WIRELESS: Agreements With Cellular Carriers."
On March 28, 2000, Net2Wireless loaned to I.T.E.S. an amount of $60,928, to
be repaid no later than March 31, 2001. The loan is linked to the Israeli
consumer price index and bears an interest rate of 7% per annum. Net2Wireless
made the loan to I.T.E.S. in order to help I.T.E.S. meet its working capital
needs.
Transactions With Significant Shareholders
In January, 2000, Alexander/Rachel L.L.C. purchased 1,862,249 shares of
common stock of Net2Wireless Corporation and notes that have been converted into
1,040,387 shares of common stock for an aggregate consideration of $453,345,
pursuant to a stock and note purchase agreement, dated as of December 15, 1999,
between Net2Wireless Corporation and a group of investors listed therein. The
loan bore interest at the rate of 6-1/2% per annum.
<PAGE 42>
In January, 2000, Meridian Trading Investment Ltd., an entity controlled by
Oded Graucher and the holder of 234,036 shares issued in connection with the
formation of Net2Wireless, purchased 545,118 shares of common stock of
Net2Wireless Corporation and notes that have been converted into 304,313 shares
of common stock for an aggregate consideration of $132,643, pursuant to a stock
and note purchase agreement, dated as of December 15, 1999, between Net2Wireless
Corporation and a group of investors listed therein. The loan bore interest at
the rate of 6-1/2% per annum. On March 20, 2000, Net2Wireless granted options
to Meridian to purchase 214,815 shares of common stock at a price of $1.86 per
share, below the fair market value of the common stock of Net2Wireless of $27.93
as of the date of grant. Mr. Graucher is also entitled to receive 125,000 of
the 1,000,000 shares to be issued to finders in connection with the introduction
of Sensar and Net2Wireless.
In January, 2000, NBDB LLC purchased 1,862,249 shares of common stock of
Net2Wireless Corporation and notes that have been converted into 1,040,387
shares of common stock for an aggregate consideration of $453,345, pursuant to a
stock and note purchase agreement, dated as of December 15, 1999, between
Net2Wireless Corporation and a group of investors listed therein. The loan bore
interest at the rate of 6-1/2% per annum.
Transactions With Directors and Executive Officers
On formation, Cedar Investment Services Ltd., a British Virgin Islands
corporation controlled by Nechemia Davidson, who is a director of Net2Wireless
Corporation, was issued 5,428,127 shares of Net2Wireless. On December 7, 1999,
Cedar Investment Services Ltd., was granted an option to purchase 3,222,222
shares of common stock at an exercise price of $1.86 per share, above the fair
market value of the Net2Wireless common stock as of the date of grant.
On March 20, 2000, Net2Wireless Corporation granted to Joav Avtalion, a
director of Net2Wireless Corporation, options to purchase 322,222 shares of
common stock at a price of $1.86 per share, below the fair market value of the
Net2Wireless common stock as of the date of grant. Net2Wireless Corporation is
currently finalizing an agreement with Beneficial Investment Services Ltd., a
British Virgin Islands corporation controlled by Mr. Avtalion, under which
Beneficial Investment Services Ltd. is to receive consulting fees of $1,500 for
the period November 1999 through March 2000, and $2,000 per day as of April 2000
in connection with Mr. Avtalion's consulting services and business development.
Mr. Avtalion has extensive entrepreneurial and executive management experience
and has taken an active role in providing Net2Wireless with management advice in
connection with negotiations with potential strategic partners, recruiting
executive management, and investor relationships. Net2Wireless believes the
compensation is the fair market value for Mr. Avtalion's services. The term of
this agreement is for one year, retroactive to January 1, 2000.
On March 20, 2000, Net2Wireless Corporation granted to David Rubner (or an
entity controlled by him), a director of Net2Wireless Corporation, options to
purchase 1,074,074 shares of common stock at a price of $1.86 per share, below
the fair market value of the Net2Wireless common stock as of the date of grant.
Net2Wireless Corporation is currently finalizing a written agreement with Mr.
Rubner (or an entity controlled by him), under which he (or an entity controlled
by him) is to receive compensation of $100,000 per year, in consideration for
his services as a director and chairman of the board of directors. Mr. Rubner
has extensive executive management experience and is knowledgeable in the
telecommunications industry. Mr. Rubner is familiar with many of the
participants in the telecommunications industry and he plays an active role in
investor relations and seeking strategic partners for Net2Wireless.
Net2Wireless believes the compensation is the fair market value for Mr. Rubner's
services. The term of this agreement is for one year, retroactive to January 1,
2000.
On formation, Yaron Sobol, general counsel to Net2Wireless, was issued
78,010 shares of common stock of Net2Wireless. On December 7, 1999, Mr. Sobol
was granted options to purchase 42,963 shares of common stock with an exercise
price of $1.86 per share, above the fair market value of the common stock of
Net2Wireless as of the date of grant. On January 18, 2000, Net2Wireless granted
Mr. Sobol options to purchase an addition 107,407 shares with an exercise price
of $1.86 per share, above the fair market value of the common stock of
Net2Wireless as of the date of grant.
<PAGE 43>
Transactions With Immediate Family Members of Directors and Executive Officers
In addition, David Rubner's son, Joseph Rubner is employed by Net2Wireless
as the Vice President - Research & Development. In connection with his
employment, he has entered into an employment agreement with Net2Wireless, dated
December 20, 1999, with an initial term of one year. The agreement is
automatically renewable for a three-year renewal term, which in turn is
automatically renewable for successive one-year terms, subject to a decision not
to renew by either of the parties. Under the agreement, in addition to benefits
relating to an executive's insurance and provident fund, advanced study fund,
recreation and vacation pay, Joseph Rubner currently is entitled to receive
compensation of $11,250 per month and the use of, and expenses relating to, a
company car. Pursuant to the agreement, Joseph Rubner was granted options on
January 1, 2000, to purchase 182,593 shares of Net2Wireless Corporation common
stock at a price of $1.86 per share, above the fair market value of the common
stock of Net2Wireless as of the date of grant, which vest over four years at a
rate of 25% upon the end of each successive 12 month period commencing on the
date of his employment agreement.
<PAGE 44>
PRINCIPAL STOCKHOLDERS OF NET2WIRELESS
The table below sets forth information as to each person owning of record
or who was known by Net2Wireless to own beneficially more than 5% of the common
stock of Net2Wireless as of August 1, 2000, and information as to the ownership
of Net2Wireless common stock by each of its directors and by all directors and
executive officers as a group. Except as otherwise indicated, all shares are
owned directly, and the persons named in the table have sole voting and
investment power with respect to shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Name and Address Nature of Number of
of Beneficial Owners Ownership Shares Owned Percent(1)
-------------------- --------- ------------ ----------
<S> <C> <C> <C>
Principal Stockholder
Cedar Investment Services, Ltd./
Nechemia Davidson(2) Common Stock 5,428,127 29.7%
Options 3,222,222 15.0%
----------
Total 8,650,349 40.2%
Alexander/Rachel LLC/
Laura Huberfeld Common Stock 2,902,636 15.9%
Warrants(5) 176,819 1.0%
----------
Total 3,079,455 16.7%
NBDB, LLC/
Naomi Bodner Common Stock 2,902,636 15.9%
Warrants(5) 176,819 1.0%
----------
Total 3,079,455 16.7%
Yitzchak Bachar(3)
David Rubner Common Stock 1,085,652 5.9%
Options 1,074,074 5.5%
----------
Total 2,159,726 11.2%
Meridian Trading Investment, Ltd./
Oded Graucher Common Stock 1,083,467 5.9%
Options 214,815 1.2%
----------
Total 1,298,282 7.0%
ML Partners, LLC/
Susan Meyers Common Stock 0 0.0%
Warrants 5,000,341 21.5%
----------
Total 5,000,341 21.5%
Partner Communications Company, Ltd. Common Stock 0 0%
Options 3,020,576 14.2%
----------
Total 3,020,576 14.2%
Directors and Executive Officers
Nechemia Davidson - - - - -- - -- - See Above - - -- -- - - - -
David Rubner - - - - -- --- - - See Above - - -- - - - - -
Joav Avtalion(4) Common Stock 0 0.0%
Options 322,222 1.7%
----------
Total 322,222 1.7%
Yitzhak Feldman Common Stock 0 0.0%
Options 128,889 0.7%
----------
Total 128,889 0.7%
Robert Rokni Common Stock 0 0.0%
Options 107,407 0.6%
Total 107,407 0.6%
----------
Yaron Sobol Common Stock 78,010 0.4%
Options 150,370 0.8%
----------
Total 228,380 1.2%
All Executive Officers and Common Stock 6,591,789 36.0%
Directors as a Group Options 5,005,184 21.5%
(6 persons) ----------
Total 11,596,973 49.8%
(footnotes contained on following page)
<PAGE 45>
<FN>
(1) The percentages shown for common stock are based on the total issued and
outstanding stock of Net2Wireless as of the closing of 18,295,060. The amounts
shown for options reflect the percentage ownership if all options held by that
stockholder were exercised and the outstanding stock increased by that amount.
The total reflects aggregate common stock held after exercise of the option,
with the issued and outstanding stock increased by the individual exercise.
(2) Cedar Investment Services, Ltd. is an entity controlled by Mr. Nechemia
Davidson.
(3) The common stock is presently being held by Mr. Bachar in trust on
behalf of a company in formation for the ultimate benefit of Mr. David Rubner.
(4) Held of record by Beneficial Investment Services, Ltd., an entity
controlled by Mr. Avtalion.
(5) These Warrants were acquired from ML Partners, LLC.
</TABLE>
BUSINESS OF SENSAR
Information regarding the business of Sensar can be found in its annual
report on Form 10-K for the year ended December 31, 1999, which is incorporated
herein by this reference.
<PAGE 46>
SELECTED FINANCIAL INFORMATION
NET2WIRELESS
Selected Historical Financial Information of Net2Wireless
The following selected historical financial data should be read in
conjunction with the consolidated financial statements of Net2Wireless, the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" below. The selected financial data of Net2Wireless
has been derived from the consolidated financial statements of Net2Wireless,
which have been audited by the independent public accountants of Net2Wireless,
Kost, Forer & Gabbay, a member of Ernst & Young International. The consolidated
financial statements of Net2Wireless (a development stage company) at March 31,
2000 (unaudited), and December 31, 1999, and for the period of three months
ended on March 31, 2000 (unaudited), and for the period from the commencement of
business on April 1, 1999 through March 31, 2000 (unaudited), together with the
report of Kost, Forer & Gabbay, a member of Ernst & Young International, can be
found beginning on page F-1 in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Statement of Operations Data Period from commencement
Three months of operations (April 1, 1999)
ended through
March 31, 2000 December 31, 1999
-------------- -----------------------------
(unaudited) (audited)
<S> <C> <C>
Operating expenses:
Research and development $ 804,910 $ 337,189
Marketing 329,821
General and administrative 448,761 144,509
Amortization of stock-based compensation (121,148,018)
Operating loss (122,731,510) (481,698)
Interest and other expenses 35,700 11,480
Net loss $(122,767,210) $(493,178)
Basic and diluted net loss per share $ (9.80) $ (0.06)
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Total assets $29,530,476 $ 286,684
Total liabilities $ 1,811,803 $ 1,452,933
Working capital $27,138,600 $(1,361,793)
Stockholders' equity (deficiency) $27,718,673 $(1,166,249)
Cash dividends declared $ 0 $ 0
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with consolidated
financial statements of Net2Wireless and related notes thereto beginning on page
F-1 in this document. This Joint Proxy Statement/Prospectus contains
forward-looking statements that involve risks and uncertainties. Net2Wireless
actual results could differ significantly from those projected in the
forward-looking statements as a result of many factors, including those
discussed in "FORWARD LOOKING STATEMENTS," "RISK FACTORS," and elsewhere in this
Joint Proxy Statement/Prospectus. Net2Wireless assumes no obligation to update
the forward-looking statements or these factors.
<PAGE 47>
Overview
Net2Wireless, a Delaware corporation, was formed on December 7, 1999, by
the principal stockholders of I.T.E.S. and other founders. Net2Wireless and
its subsidiaries are engaged in the research and development of wireless
multimedia applications, including real time broadcasting content via wireless.
From April 1, 1999 through December 15, 1999, operations were conducted as
a semi-autonomous business unit within I.T.E.S. - Imaging Technologies
Enterprises Systems, Ltd., an Israeli based company under common control with
Net2Wireless. I.T.E.S. was engaged in the development of wireless multimedia
applications and Internet communications applications. All of I.T.E.S.'s
operating and other expenses from April 1, 1999, through December 31, 1999, were
related to the wireless business and are reflected in Net2Wireless' statement of
operations for that period. Effective as of December 15, 1999, Net2Wireless,
through a wholly-owned subsidiary, acquired all of I.T.E.S.' assets (including
intellectual property) and assumed all liabilities related to the wireless
business (the "Asset Acquisition Agreement") for an aggregate amount of
$1,200,000, of which $1,000,000 was to be paid in cash and $200,000 in a
promissory note, due upon the earlier of December 31, 2002, or upon the closing
of a public offering of Net2Wireless' common stock with gross proceeds to
Net2Wireless of at least $30,000,000. The note bears interest at 8% per annum,
and is convertible at any time into Net2Wireless' common shares at the then
market value of the underlying shares. Subsequent to December 31, 1999, the
entire amount due of $1,200,000 was paid to I.T.E.S.
These transactions, which effected a combination of entities under common
control, have been accounted for in a manner similar to an "as pooling" of
interests. Accordingly, the financial statements of Net2Wireless for the period
prior to December 31, 1999, have been prepared using the combined historical
carrying amounts of the assets and liabilities of I.T.E.S. transferred to
Net2Wireless and the results of operations reflect the operations of I.T.E.S.
from April 1, 1999, through December 31, 1999. The total obligation to I.T.E.S.
in excess of the amounts funded by I.T.E.S. at the date of transfer to
Net2Wireless, $673,071, has been recorded in the financial statements of
Net2Wireless as a capital distribution.
Net2Wireless expects that its expenses will continue to increase due to the
expected rapid growth in operations. Net2Wireless expanded from 22 employees at
December 31, 1999, to 91 employees at June 15, 2000. It is anticipated that the
combined company will continue to rapidly expand the number of employees in all
areas of operations, including administration, development, support, marketing,
sales, consulting, and distribution.
Expenses and Results of Operations
Three months ended March 31, 2000, and the period from commencement of
operations (April 1, 1999) through December 31, 1999
Research and Development Costs. Research and development costs consist
primarily of personnel and related costs, depreciation of equipment, and supply
costs. Research and development expenses are charged to operations as incurred.
Research and development costs for the three months ended March 31, 2000, and
for the period from commencement of operations (April 1, 1999) through December
31, 1999, were approximately $805,000 and $337,000, respectively. The increase
in research and development costs derive mostly from the personnel costs related
directly to new employees being hired to develop Net2Wireless' technology.
Net2Wireless expects that research and development costs will continue to
increase mainly due to increases in personnel costs related directly to new
employees being hired to further develop Net2Wireless' technology.
Marketing Costs. Marketing costs consist primarily of personnel and
related costs, professional services, public relations and travel expenses.
Marketing costs were $329,821 for the three months ended March 31, 2000.
Net2Wireless expects marketing expenses to significantly increase in the future
due to increases in personnel costs related directly to new employees being
hired to develop business partnerships, create market awareness, and develop
Net2Wireless' brand.
<PAGE 48>
General and Administrative Costs. General and administrative costs consist
primarily of personnel and related costs, professional services, facility costs,
and travel expenses. General and administrative costs were $448,761 for the
three months ended March 31, 2000, and $144,509 for the period from commencement
of operations (April 1, 1999) through December 31, 1999. Net2Wireless expects
general and administrative costs to increase mainly due to increased personnel
and related costs, including the recruitment of key executives, higher facility
costs associated with additional personnel, and other costs necessary to support
and develop Net2Wireless technology.
Amortization of Stock-Based Compensation and Stock Based Employee Deferred
Compensation. Net2Wireless' amortization of stock-based compensation increased
from $0 for the period from commencement of operations (April 1, 1999) through
December 31, 1999, to $121,148,018 for the three months ended March 31, 2000,
mainly because of the option granted to Partner Communications and the
recruiting of management and employees in this period. The amount of the
compensation has been calculated based on the fair value of the underlying stock
using the per share price received by Net2Wireless in its private placement
completed March 21, 2000. The amortization of stock-based compensation was
allocated to research and development ($79,039,233), marketing ($8,519), and
general and administrative ($42,100,266). The stock-based employee deferred
compensation increased from $0 for the period from commencement of operations
(April 1, 1999) through December 31, 1999, to $5,403,170 for the three months
ended March 31, 2000.
Interest Expense and Other, Net. Interest expense and other, net, consists
primarily of interest payments on short-term borrowings and convertible note
financing. These expenses were approximately $36,000 for the three months ended
March 31, 2000, and approximately $11,000 for the period from commencement of
operations (April 1, 1999) through December 31, 1999. Net2Wireless expects to
have net interest income in the second quarter mainly due to increased cash and
cash equivalents generated from the $29 million private placement completed on
March 21, 2000, partially offset by convertible note payables and working
capital and capital expenditures required to support and develop Net2Wireless
technology.
Liquidity and Capital Resources
Since commencement of operations of the wireless business on April 1, 1999,
I.T.E.S. has financed its operations primarily through convertible note
financings and the private placement of its equity. Net2Wireless is a
development stage company with no revenues to date. For the three months ended
March 31, 2000, and the period from commencement of operations (April 1, 1999)
through December 31, 1999, Net2Wireless had net loss of approximately
$122,767,000 and $493,000, respectively. The loss for December 31, 1999, was
incurred by I.T.E.S., the predecessor to Net2Wireless, while performing research
and development activities for the wireless business. Net2Wireless (through
I.T.E.S.) has experienced substantial increases in its expenditures since the
commencement of operations consistent with the growth in Net2Wireless operations
and personnel. Net2Wireless anticipates that its expenditures will continue to
increase significantly for the foreseeable future. The net loss at March 31,
2000, includes approximately $121,148,000 of non-cash expenses relating to stock
based compensation. As of March 31, 2000, Net2Wireless had approximately
$28,574,000 of cash and cash equivalents on hand.
Net cash provided by financing activities was approximately $29.8 million
for the three months ended March 31, 2000. This amount consists primarily of
the proceeds from the private placement of Net2Wireless' equity stock and the
exercise of options. Net cash used in operating activities was approximately
$0.8 million for the three months ended March 31, 2000. The net loss for the
three months ended March 31, 2000, was partially offset by depreciation and
amortization expenses, increases in accounts payable, employee and payroll
accruals, and accrued expenses. Net cash used in investing activities was
approximately $0.5 million for the three months ended March 31, 2000. These
investing activities consisted primarily of purchases of property and equipment.
<PAGE 49>
Net2Wireless believes that its cash and cash equivalents, combined with the
cash and cash equivalents of Sensar, will be sufficient to meet Net2Wireless'
anticipated needs for working capital and capital expenditures for at least the
next 12 months. Thereafter, however, Net2Wireless may need to raise additional
funds to fund expansion, including significant increases in personnel and office
facilities to develop its technology, bring it to the market, respond to
competitive pressures or to acquire or invest in complementary businesses,
technologies, services, or products. In addition, to meet Net2Wireless'
long-term liquidity needs, Net2Wireless may need to raise additional funds,
establish credit facilities, or seek other financing arrangements. Additional
funding may not be available on favorable terms on a timely basis or at[/R] all.
Disclosure About Market Risks
Net2Wireless intends to continue to develop its technology in Israel and it
expects to provide services and license products in North America, Europe, and
Asia. Net2Wireless' financial results could be affected by factors such as
changes in currency exchange rates or weak economic conditions in various
markets. It is expected that most of Net2Wireless' sales will be in U.S.
dollars, so a strengthening of the U.S. dollar could make the products and
services less competitive in other markets. The majority of the investments of
Net2Wireless are in short-term deposits (maturities of 90 days or less) in high
quality financial institutions. Net2Wireless intends to invest only in high
quality instruments. Due to the nature of the investments held, Net2Wireless
has concluded that there is no material risk exposure. Therefore, no
quantitative tabular disclosure is required.
<PAGE 50>
SENSAR
The financial data set forth in the following table, except for the quarter
ended March 31, 2000, which is unaudited, has been selected by Sensar and has
been derived from the audited financial statements for the periods indicated.
The selected financial data should be read in conjunction with the
consolidated financial statements of Sensar and the notes thereto and the
discussion under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference from Sensar's
report on Form 10-K for the year ended December 31, 1999, and Sensar's report on
Form 10-Q for the quarter ended March 31, 2000.
<TABLE>
<CAPTION>
Selected Financial Information
Quarter Ended Year Ended December 31,
March 31, -----------------------------------------
2000 1999 1998 1997
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data(1):
Revenues: $ 85,699 $ 147,944 $ 137,814 $ 140,870
=========== ============ =========== ============
Loss from continuing operations (7,490,589) (11,995,158) (1,221,025) (2,324,262)
Income (loss) from
discontinued operations - 22,528 (5,702,419) (12,493,549)
Gain on sale of
discontinued operations 178,875 3,268,250 - -
----------- ------------ ----------- ------------
Net loss $(7,311,714) $ (8,704,380) $(6,923,444) $(14,817,811)
=========== ============ =========== ============
Basic earnings
(loss) per common shares
from continuing operations $ (1.15) $ (2.11) $ (0.51) $ (0.51)
Basic earnings (loss)
per common share from
discontinued operations 0.02 0.58 (1.12) (2.71)
----------- ------------ ----------- ------------
Basic earnings
(loss) per common share $ (1.13) $ (1.53) $ (1.63) $ (3.22)
=========== ============ =========== ============
Weighted average
common shares outstanding 6,498,117 5,693,514 5,073,463 4,603,080
=========== ============ =========== ============
Balance Sheet Data:
Working capital $ 6,116,426 $ 5,034,089 $ 4,038,840 $ 6,784,305
Total assets 6,204,287 5,568,839 4,317,769 7,104,476
Long-term liabilities
and deferred gain 9,118,025 5,542,040 - -
Stockholders' equity (deficit) (2,913,738) (154,959) 4,049,572 6,853,003
Cash dividends declared
per common share - - - -
</TABLE>
(table continued on following page)
<PAGE 51>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
December June 30,
31, ------------------------
1996 1996(2) 1995(3)
----------- ----------- ----------
<S> <C> <C> <C>
Statement of Operations Data(1):
Revenues: $ 59,638 $ 12,320 $ 7,302
=========== =========== ==========
Loss from continuing operations (326,242) (463,637) (510,863)
Income (loss) from
discontinued operations (1,317,678) (1,242,611) 199,246
Gain on sale of
discontinued operations - - -
----------- ----------- ----------
Net loss $(1,643,920) $(1,706,248) $ (311,617)
=========== =========== ==========
Basic earnings
(loss) per common shares
from continuing operations $ (0.08) $ (0.16) $ (0.21)
Basic earnings (loss)
per common share from
discontinued operations (0.32) (0.38) 0.08
Basic earnings
(loss) per common share $ (0.40) $ (0.54) $ (0.13)
=========== =========== ==========
Weighted average
common shares outstanding 4,164,328 3,255,489 2,440,397
=========== =========== ==========
Balance Sheet Data:
Working capital $15,584,953 $15,737,295 $6,549,131
Total assets 15,716,524 16,032,158 6,827,550
Long-term liabilities and
deferred gain - 45,792 134,354
Stockholders' equity (deficit) 15,591,513 15,661,097 6,415,511
Cash dividends declared
per common share - - -
<FN>
(1) During the year ended December 31, 1999, Sensar discontinued the
operations of its Analytical Instrumentation Business. The results of these
operations have been segregated from continuing operations for all periods
presented.
(2) Effective October 27, 1995, Sensar acquired Sensar Instruments, Inc.
(formerly Sensar Corporation), in a transaction accounted for as a purchase.
(3) During the year ended June 30, 1995, Sensar discontinued the operations
of its Airport Noise Monitoring Business. The results of these operations have
been segregated from continuing operations for all periods presented.
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Information regarding Sensar's financial condition and results of
operations can be found in its annual report on Form 10-K for the year ended
December 31, 1999, and its quarterly report on Form 10-Q for the quarter ended
March 31, 2000, which are incorporated herein by this reference.
<PAGE 52>
COMBINED PRO FORMA FINANCIAL STATEMENT
The following unaudited pro forma condensed combined balance sheet is based
on the March 31, 2000, historical consolidated balance sheet of Sensar and its
subsidiaries and the March 31, 2000, historical consolidated balance sheet of
Net2Wireless and its subsidiaries. The unaudited pro forma condensed combined
balance sheet assumes that the merger was completed March 31, 2000, with
Net2Wireless treated as the acquiring entity for financial reporting purposes.
The unaudited pro forma condensed combined financial statement has been
prepared by management of Sensar and Net2Wireless based on the financial
statements included elsewhere herein. The pro forma adjustments include certain
assumptions and preliminary estimates as discussed in the accompanying notes,
and are subject to change. This pro forma statement may not be indicative of
the results that actually would have occurred if the merger had been in effect
on the dates indicated, and may not be indicative of financial result that may
be obtained in the future. This pro forma financial statement should be read in
conjunction with the accompanying notes and with the historical financial
information of both Sensar and Net2Wirelss included in this Joint Proxy
Statement/Prospectus. See "FINANCIAL STATEMENTS."
According to the agreement between Sensar and Net2Wireless, Sensar will
issue 18,295,060 shares of common stock to the former holders of equity
interests in Net2Wirelss and 1,000,000 shares of common stock to certain
individuals involved in introducing Sensar and Net2Wireless. In addition,
Sensar will grant options and warrants to acquire up to 15,266,649 shares of
common stock to the holders of similar options and warrants to acquire shares of
Net2Wireless stock. As of June 28, 2000. Net2Wireless had granted options to
acquire 15,145,612 shares, with a weighted average exercise price of $2.39 per
share. As a result of this action, the current stockholders of Net2Wireless
will own approximately 71% of the combined company, while the current
stockholders of Sensar will own approximately 25%, without giving effect to the
potential exercise of options. If all options outstanding at closing were
exercised, the Net2Wireless stockholders would hold approximately 77% of the
combined company and the Sensar stockholders approximately 21% of the combined
company. If the value of the assets defined in the agreement held by Sensar at
the closing is less than $4.5 million, the number of shares of Sensar stock to
be delivered to the former holders of Net2Wireless stock will be increased, in
the aggregate, by the number of shares calculated by dividing the short fall by
$1.36. At March 31, 2000, Sensar had approximately $6 million in net cash as
defined in the agreement.
The merger will be accounted for as a reverse acquisition of Sensar by
Net2Wireless. Although Sensar will be the surviving legal entity, for financial
reporting purposes, the entity whose shareholders hold in excess of 50% of the
combined company, Net2Wireless, will be treated as the continuing accounting
entity. The reverse acquisition will be treated as a capital stock transaction
in which Net2Wireless will be deemed to have issued the shares of common stock
held by the Sensar stockholders for the net assets of Sensar. No goodwill will
be recorded. The costs of the transaction will be charged to stockholders'
equity. To the extent the costs of the transaction exceed the net assets
acquired from Sensar, the excess will be charged to the statement of operations.
<PAGE 54>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Combined
Sensar Net2Wireless Adjustments Balance
<S> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and Cash equivalents $ 4,352,730 $ 28,573,929 $ (32,440) (2) $ 32,894,219
Notes receivable 1,800,609 - (500,000) (1) 1,300,609
Government authorities - 150,829 - 150,829
Loan to I.T.E.S. - 60,928 - 60,928
Accounts receivable, prepaid
expenses and other current assets 45,527 94,452 (10,020) (1) 129,959
Total current assets 6,198,866 28,880,138 (542,460) 34,536,544
Lease Deposit - 48,514 - 48,514
Property and Equipment, Net 5,421 601,824 (5,421) (1) 601,824
Total assets $ 6,204,287 $ 29,530,476 $ (547,881) $ 35,186,882
============ ============= ============ =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 72,081 $ 529,577 $ (22,081) (2) $ 579,577
Employee and payroll accruals - 316,115 - 316,115
Accrued liabilities 10,359 385,826 (10,359) (2) 385,826
Loan from Sensar - 510,020 (510,020) (1) -
Total current liabilities 82,440 1,741,538 (542,460) 1,281,518
Long-Term Liabilities:
Deferred compensation 8,835,585 - (8,835,585) (2) -
Deferred gain 200,000 - (200,000) (2) -
Accrued severance pay - 70,265 - 70,265
Total liabilities 9,118,025 1,811,803 (9,578,045) 1,351,783
============ ============= ============ =============
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Common shares of $0.01 par value -
Authorized: 90,000,000 shares:
Issued and outstanding pro forma
25,843,606 shares 39,410,078 157,137,079 (33,293,652) (3)(4) 203,774,166
40,520,661 (3)(4)
Deferred compensation - (5,403,170) - (5,403,170)
Accumulated deficit (42,323,816) (124,015,236) 42,323,818 (3)(4) (164,535,897)
(40,520,661) (3)(4)
Total stockholders' equity
(deficiency) (2,913,738) 27,718,673 9,030,164 33,835,099
============ ============= ============ =============
Total liabilities and
stockholders' equity $ 6,204,287 $ 29,530,476 $ (547,881) $ 35,186,882
============ ============= ============ =============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE 55>
The pro forma information shown above does not include advisors fees.
These costs will be deducted from the paid-in capital or charged to expense to
the extent that the costs of the transaction exceed the net assets of Sensar
acquired by Net2Wireless.
(1) Assets. According to the merger agreement, Sensar should have a
minimum of an aggregate of $4.5 million in cash, cash equivalents, and notes
receivables due no later than October 1, 2000 (with the maximum principal amount
of such notes not to exceed $3.5 million inclusive of up to $2 million advanced
by Sensar to Net2Wireless). The notes receivable of Sensar at March 31, 2000,
include the $510,020 note receivable from Net2Wireless that is eliminated on
consolidation.
(2) Liabilities. According to the merger agreement, Sensar should have
no liabilities other than current liabilities not yet due, not to exceed $50,000
in the aggregate. Consequently, the current liabilities of Sensar at March 31,
2000, are reduced, on a pro forma basis, to $50,000 and all long-term
liabilities eliminated on consolidation.
(3) Stockholders' Equity. Stockholders' equity was determined as if
the consolidated financial statements are a continuation of Net2Wireless. Thus,
the accumulated deficit and capital surplus accounts in the consolidated
financial statements immediately after the merger will be the accounts of
Net2Wireless at that date. The accumulated deficit of Sensar at the date of the
merger will be eliminated. The amount shown as issued capital in the
consolidated balance sheet is calculated by adding to the additional paid-in
capital of Net2Wireless the amount deemed paid through the issuance of the
Sensar stock for the net assets of Sensar. Immediately prior to closing of the
merger, the Series A Preferred Stock of Net2Wireless will be converted into
common stock of Net2Wireless. Issuance of 1,000,000 shares to finders are
charged to stockholders' equity, valued at $46.625 per share, the last sale
price of the common stock of Sensar on March 31, 2000, as reported by Nasdaq.
(4) Statement of Operations. Since the stockholders of Net2Wireless
will hold in excess of a majority of the stock of the combined company
subsequent to the merger, Net2Wireless is treated for accounting purposes as the
acquiring entity. Sensar has no current operations that will continue
subsequent to the merger. Consequently, the historical statement of operations
of Net2Wireless is the historical statement of operations for the combined
company, without any pro forma adjustments. The costs of the transaction will
be charged directly to stockholders' equity. Transaction costs in excess of the
net assets acquired from Sensar will be charged to operations in the period in
which the merger is completed. The transaction costs, which include the
issuance of 1,000,000 shares of common stock to finders would not be pro forma
adjustments to an unaudited pro forma condensed combined statement of operations
because they are non-recurring costs directly attributable to the merger. The
estimated costs of the issuance of the 1,000,000 shares are included as a pro
forma adjustment in the accompanying unaudited pro forma condensed combined
balance sheet.
<PAGE 56>
MANAGEMENT
Set forth below is information regarding the proposed management of the
combined company. Information regarding the management of Sensar, all of whom
will resign in connection with the merger, can be found in Sensar's report on
Form 10-K for the year ended December 31, 1999, and is incorporated into this
Joint Proxy Statement/Prospectus by this reference.
Members of the board of directors are elected annually to serve until the
next annual meeting of stockholders and thereafter until such director's
successor is elected and qualified. Officers are elected and serve at the
pleasure of the board of directors.
The following table sets forth the name, age, and position of each proposed
executive officer and director of the combined company who will be appointed
following completion of the merger:
<TABLE>
<CAPTION>
Expiration of
Name Age Position Term
----------------- --- ------------------------------ -------------
<S> <C> <C> <C>
David Rubner 60 Chairman of the Board Next annual
shareholders'
meeting
Nechemia Davidson 37 Chief Executive Officer, Chief Next annual
Technology Officer, and shareholders'
Director meeting
Joav Avtalion 48 Director Next annual
shareholders'
meeting
Yitzhak Feldman 38 Executive Vice-President N/A
Marketing and Sales
Robert Rokni 49 Vice-President Management N/A
Information Systems
Yaron Sobol 41 General Counsel N/A
</TABLE>
Biographical information with respect to the officers and directors is set
forth under "NET2WIRELESS: Management of Net2Wireless."
<PAGE 57>
THE MERGER
The discussion in this Joint Proxy Statement/Prospectus of the merger and
the principal terms of the merger agreement is subject to, and qualified in its
entirety by, the merger agreement attached to this Joint Proxy
Statement/Prospectus as Appendix "A," which is incorporated herein by this
reference.
General
Sensar and Net2Wireless are furnishing this Joint Proxy
Statement/Prospectus to holders of their common stock in connection with the
solicitation of proxies by the respective boards for approval, among other
things, of the merger contemplated by the merger agreement. The merger
agreement provides for the merger of Net2Wireless with and into Sensar, with
Sensar surviving the merger. The common stock of Net2Wireless will be converted
into common stock of Sensar on the basis of one share of common stock of Sensar
for each share of common stock of Net2Wireless previously outstanding.
Similarly, options and warrants to acquire Net2Wireless stock will be converted
into options and warrants to acquire Sensar common stock.
The merger agreement contemplates that the merger will be completed within
10 days of the approval of the transaction by the stockholders of Sensar and
Net2Wireless. Immediately prior to the merger, Sensar will reincorporate in the
state of Delaware, change its name to "Net2Wireless Corporation" and adopt a new
certificate of incorporation. The current board of directors of Sensar will
resign and a new board will be appointed consisting of the individuals elected
at the Sensar stockholders' meeting. Completion of the foregoing is subject to
the satisfaction of a number of conditions which must be satisfied or waived by
the parties. In the event of the failure to meet any of these conditions, the
transactions may not take place even if approved by the stockholders.
For a discussion of the principal United States federal income tax
consequences of the merger to Sensar, Net2Wireless, and their respective
stockholders, see "TAX CONSEQUENCES."
Background of the Merger
During the second half of 1998 and continuing through 1999, the board of
directors of Sensar made the determination that it would be in the best
interests of Sensar and its stockholders to sell the various technologies held
by Sensar. At the end of the first quarter of 1999, Sensar completed the sale
of its core business, the line of acoustical analytical instrumentation
products. In August 1999, Sensar completed the sale of its other major
technology associated with its time of flight mass spectrometer products. With
the appointment of new management in April 1999, Sensar intensified its search
for products, technologies, or businesses that could be acquired.
The initial strategy focused on emerging Internet companies and, as a
result, Sensar signed letters of intent with Blue Train and Toolbid, Inc. Both
these companies were early stage start-up operations. Upon completion of
Sensar's due diligence investigation, it became apparent that both these
companies faced significant operational and market challenges, leading the board
of directors of Sensar to conclude that the reward of proceeding with these
companies was outweighed by the substantial risks associated with these
companies ultimately being able to successfully commercialize their technologies
and ideas.
In May 1999, Sensar was introduced to an auction company that was already
generating throughput revenues of in excess of $120 million annually and
commission revenue of nearly $20 million. This company's growth strategy
combined ongoing organic growth coupled with the introduction of an Internet
based expansion. The board of directors moved quickly to present a letter of
intent and offer to the company. Unfortunately, the board of directors of the
auction company elected to proceed with an alternative offer.
<PAGE 58>
Over the summer months, many Internet companies saw their stock price come
under significant pressure as investor focus moved from business-to-consumer
opportunities to business-to-business Internet strategies. Market wisdom at
that time seemed to be that business-to-consumer opportunities would have
significant challenges to achieve profitability due to the high cost of
marketing to individual customers. Around the same time, Microsoft announced
that it intended to offer its MSN hosting capability free of charge. This again
dented market confidence in Internet service providers, web hosting operations,
and consultancies, adding significant risks to investing in this area of the
market. As a result of this changing sentiment, the board of directors of
Sensar became increasingly concerned about investing in Internet operations that
did not exhibit clear market leadership or market presence. As a result, Sensar
revised its acquisition strategy to look for more established Internet
operations as opposed to start-up ventures and to seek out other investment
opportunities in the high-tech arena.
In August 1999, Sensar commenced due diligence on an early stage online
travel agency. This company was ultimately rejected due to its financial
condition and concerns about its managerial strength. At about this same time,
Sensar was also introduced to a company which offered wireless transmission
capability to remote areas for high-speed links to the Internet. As part of the
due diligence in investigating this company, the board of directors became aware
of the opportunities presented by wireless communications and the associated
valuations being placed on the market leaders by the stock markets. After
preliminary discussions with this wireless company, it was clear that the target
valuation placed on the company would be in excess of Sensar's acceptable range
for the transaction and Sensar determined not to pursue this opportunity.
As a result of this experience however, the board of directors expanded its
search criteria to focus on wireless opportunities and, in particular, wireless
applications involving the Internet. In September 1999, Sensar was introduced
to I.T.E.S. This company combined the two strategic areas which Sensar was now
addressing, namely, Internet and wireless. Based on the experience of Sensar
during the preceding six months, it was felt that to invest in technology which
successfully straddled two very attractive sectors of the stock market with
innovative technology would be a significant opportunity for the shareholders of
Sensar.
Sensar was sent a copy of the I.T.E.S. business plan by Connie Lerner who
was aware that Sensar was looking for an acquisition. At that time, I.T.E.S.
held the wireless communication technology now held by Net2Wireless. Sensar
conducted an internal review of the material and Howard S. Landa, the chief
executive officer of Sensar, met with Nechemia Davidson, the founder and
principal owner of I.T.E.S., on September 15, 1999, in New York for a more
formal presentation of the technology and a question-and-answer session. Mr.
Landa was interested in further exploring a possible transaction with
Net2Wireless when he learned that David Rubner, who had expertise in the
wireless communication industry, was an investor. Based on the initial meeting
with Mr. Davidson, Mr. Landa extended his New York trip and, over the course of
two days, Mr. Landa and Mr. Davidson negotiated the terms of a possible
acquisition resulting in the execution of a letter of intent on September 16,
1999. The negotiations focused on the amount of the combined company that would
be held by the stockholders of Sensar and Net2Wireless on completion of the
transaction, the amount of stock outstanding in Sensar on a fully diluted basis,
and the net amount of cash that Sensar would have available at closing, after
meeting its obligations. Mr. Landa made representations concerning Sensar, its
capitalization, and financial position and, based on those representations, Mr.
Davidson concurred with the relative ownership of the Sensar stockholders and
the Net2Wireless stockholders proposed by Mr. Landa.
The letter of intent provided for the acquisition of Net2Wireless by Sensar
in exchange for the issuance, as adjusted for subsequent stock splits, of
17,185,184 shares of Sensar stock to the Net2Wireless stockholders. It required
that Sensar only have 8,000,000 shares outstanding, which included the shares
subject to options granted to officers and directors of Sensar. In addition,
the letter of intent acknowledged the existence of options or warrants held by
others to acquire 117,550 shares at $1.25 per share and other options and rights
to acquire shares with an exercise price of in excess of $4.00 per share. The
letter of intent required Sensar to have cash and short-term receivables of $4.5
million at closing with no material liabilities and provided that Andrew C.
Bebbington and four or more nominees of I.T.E.S. would serve on the board of
directors of the combined company. It also provided for Mr. Bebbington to serve
as the chief operating officer of the combined company with an annual salary of
$240,000 per year and a fully vested option to acquire 500,000 shares at $2.00
per share. The letter of intent provided for the adoption of a stock option
plan covering 3,000,000 shares with a minimum exercise price of $2.125 for
<PAGE 59>
options issued prior to closing. Finally, it provided for the company to file a
registration statement promptly after closing to cover the resale of 2,200,000
restricted shares held by, or issuable to, officers and directors of Sensar and
others. The parties agreed not to enter into any competing transaction for a
period of 45 days. The letter of intent was subject to the further due
diligence of both parties.
The parties began due diligence investigations and the drafting of a
definitive agreement. Andrew C. Bebbington, the chief consultant to Sensar,
flew to Israel in early October 1999 and while there, interviewed technical
employees who were working on the technology, met with consultants from the
Technion-Israel Institute of Technology, observed prototype demonstrations, and
met with management of Partner Communications, the Israeli affiliate of Orange
Plc, a cellular carrier based in the United Kingdom. As a result of this
further due diligence and continued negotiations, a draft of a definitive
Exchange Agreement and Plan of Reorganization was circulated among Sensar and
I.T.E.S., Ltd., and their attorneys, and signed on October 6, 1999. This
agreement was based on the terms outlined in the letter of intent except that it
was anticipated that Mr. Bebbington would fill the office of chief financial
officer, Sensar was required to terminate all employment and consulting
agreements that were not terminable on 30 days or less notice, and Sensar was
required to cause all outstanding options, except for those with an exercise
price in excess of $4.00 per share, to be exercised or otherwise eliminated
prior to closing. This agreement also specified Sensar's obligations to file a
registration statement on Form S-4 with respect to the transaction, but provided
that the I.T.E.S. stockholders would contractually agree not to sell any stock
they received in the transaction for 90 days subsequent to the closing and
thereafter not to sell stock in excess of the volume limitations set forth in
Rule 144 during the year subsequent to the closing. At the time of the
execution of the agreement with I.T.E.S., the wireless technology of I.T.E.S.
was at an early research stage after completion of an initial feasibility study.
Thereafter, through December 1999, I.T.E.S. completed the initial design of the
first product based on the wireless technology.
Mr. Landa and Mr. Davidson, the attorneys representing the parties, and a
member of the accounting firm representing Mr. Davidson met on November 15 and
16, 1999, in New York to further the transaction. During these meetings, it was
determined that the structure of the transaction could be improved by clearly
delineating the technology to be acquired, providing for funding for the
continued development of the wireless technology in the form of a loan from
Sensar, eliminating the parties obligation to proceed with the proposed
transaction unless the proposed products of I.T.E.S. had been accepted for beta
testing by Partner Communications, granting Sensar an option, at its sole
discretion, to trigger the merger, granting I.T.E.S. an option to trigger the
merger 30 days subsequent to the completion of beta testing, but not later than
December 31, 2000, improving the tax efficiency of the transaction, and
establishing formulas for adjustments to the number of shares to be issued to
Net2Wireless stockholders if Sensar failed to meet its financial obligations.
Subsequent to the meetings in New York, the parties discussed via telephone a
number of proposals to alter the structure of the transaction to achieve the
potential advantages described above. It was agreed that a new Delaware
corporation, Net2Wireless Corporation, would be formed to acquire the assets of
I.T.E.S. relating to the wireless technology. Net2Wireless would enter into the
merger agreement with Sensar and the merger would be subject to the conditions
described under the section "Terms of the Merger" below. The parties exchanged
drafts of the proposed revised agreement. Following further discussion, the
parties met for a third time, again in New York, on December 7 and 8, 1999. On
December 8, 1999, the merger agreement attached as Appendix "A" to this Joint
Proxy Statement/Prospectus was approved by the board of directors of both Sensar
and Net2Wireless and executed by the parties to replace the original agreement
between Sensar and I.T.E.S. Ltd.
The merger agreement incorporated a number of changes to the earlier
Exchange Agreement and Plan of Reorganization signed with I.T.E.S., including
the following:
- It eliminated the stockholders of I.T.E.S. as parties and eliminated any
contractual limitation on the sale of the Sensar stock issued to them;
- It eliminated an employment agreement for Andrew C. Bebbington as chief
financial officer of the combined company;
<PAGE 60>
- It created an option to be held by Sensar so it was not obligated to
proceed with the transaction unless and until the proposed products of
Net2Wireless had been accepted for beta-testing by Partner Communications;
- It granted Net2Wireless an option to request the merger, exercisable 30
days from the completion of beta testing by Partner Communications, but not
after December 31, 2000;
- It substituted Net2Wireless as the acquiror of all of I.T.E.S. wireless
technology;
- Net2Wireless was committed to acquire the tangible and intangible assets,
including intellectual property, of I.T.E.S. associated with the wireless
business and enter into an agreement with Partner Communications in form and
substance acceptable to Sensar.
- It added a provision for the issuance of contingent shares to Net2Wireless
stockholders if Sensar failed to meet its obligation to have $4.5 million in
"net cash" at closing;
- It extended the date for completion of the transaction;
- It included a provision for the granting of options by Net2Wireless prior
to closing;
- It added funding in the form of a loan from Sensar to Net2Wireless of up
to $2.0 million that was to be made prior to the closing, on the satisfaction of
various conditions.
Notwithstanding these changes, the basic terms of the transaction remained the
same. In both documents, Sensar agreed to issue 16,000,000 shares to the
stockholders of Net2Wireless (giving effect to a subsequent stock split by
Net2Wireless, 17,185,185), Sensar was required to have $4.5 million in cash,
cash equivalents, and short-term notes receivable at the time of closing, and
Sensar was required to eliminate all Sensar's obligations, except for nominal
current liabilities. Sensar also continued to be obligated to issue 1,000,000
shares to individuals involved in introducing the two parties, the transaction
remained subject to the approval of the stockholders of both parties, Sensar was
required to file a registration statement on Form S-4, and Sensar continued to
agree to register the resale of shares of restricted stock held primarily by
management.
After the announcement of the merger agreement on December 14, 1999, the
trading price for the common stock of Sensar continued its general upward trend
from short-term historical levels. In addition, the volume of shares being
traded increased substantially so that the number of shares traded on a weekly
basis, as reported by Nasdaq, often exceeded the number of shares of stock
outstanding on a weekly basis. The stock price, while showing overall gains,
was extremely volatile. The board of directors of Sensar decided to adopt a
stock split in which one new share of common stock would be issued for each
share previously outstanding, thereby doubling the number of outstanding shares
of Sensar. This stock split was made effective for stockholders of record as of
the close of business January 17, 2000 and it took effect in the market January
21, 2000. Sensar and Net2Wireless entered into the First Amendment to the
merger agreement on January 4, 2000, to permit the stock split and to adjust the
number of shares to be issued to Net2Wireless stockholders. All of the share
amounts in this Joint Proxy Statement/Prospectus have been adjusted to give
effect to the stock split.
The merger agreement was structured so that Net2Wireless had to, among
other things, enter into an agreement with Partner Communications that was
acceptable to Sensar before Sensar had an obligation to provide funding in the
form of a loan to Net2Wireless. In connection with the transfer of the wireless
assets from I.T.E.S. to Net2Wireless, I.T.E.S. had to assign the pre-existing
agreement with Partner Communications. Partner Communications consent was
required to complete this assignment and it sought to improve its contractual
position vis- -vis Net2Wireless in exchange for the consent. Ultimately, the
parties reached the understanding reflected in the March 2000 agreement between
Net2Wireless and Partner Communications. On installation of Net2Wireless
products at the facilities of Partner Communications and the commencement of the
beta-site testing, Sensar had the right to acquire Net2Wireless in the
transaction described in this Joint Proxy Statement/Prospectus. Sensar loaned
<PAGE 61>
$500,000 to Net2Wireless on February 2, 2000. During February, Mr. Landa, the
chief executive officer of Sensar, met with Net2Wireless in Israel and reviewed
its technology and operations. Sensar exercised its option under the merger
agreement to acquire all of Net2Wireless and on March 24, 2000, immediately
after Net2Wireless had completed a private placement of its equity securities.
In order to obtain additional financing for the further development of its
technology and provide financial stability to the company, Net2Wireless
completed a private placement of 1,041,140 shares of its Series A Preferred
Stock for gross proceeds of approximately $29 million, or $27.93 per share, on
March 21, 2000. The parties entered into the second amendment to the merger
agreement on March 21, 2000, to permit this private placement and to increase
the number of shares of Sensar common stock to be issued to Net2Wireless
stockholders by the shares issued in the private placement and an additional
factor of 1.074074. This increased the number of shares of common stock to be
issued to those Net2Wireless stockholders who held their stock prior to the
private placement from 16,000,000 shares to 17,185,185 shares and increased the
options and warrants to be assumed by Sensar from 13,748,260 to 14,766,649. In
connection with the completion of the private placement, the outstanding
convertible debt of Net2Wireless of approximately $1 million was converted to
3,780,223 shares of common stock. This conversion into equity and the belief in
the Net2Wireless technology exhibited by the investors in the private placement
provided added confirmation of Sensar's earlier judgment concerning the
potential of the technology.
Net2Wireless continued to seek employees and, as is typical with high-tech
companies, a significant portion of its attraction as an employer was the
options it was able to offer. As a result of the time involved in completing
the transaction and the pace of its recruitment efforts, Net2Wireless concluded
that the number of options permitted under the merger agreement was
insufficient.
The parties also analyzed the tax consequences of the conversion of all of
the options held by current management of Sensar at the time of the closing of
the transaction as required by the merger agreement. The holders of the options
would incur a tax liability at the time of exercise that would create
significant pressure on them to sell stock of the combined company in order to
generate the funds to meet the tax liability. Such sales could have an adverse
effect on the trading market for the common stock of the combined company.
In order to address these issues, Sensar and Net2Wireless entered into a
third amendment dated June 26, 2000, that increased the number of options to be
assumed in the transaction by 500,000, to 15,266,649, and that eliminated the
obligation on behalf of the current management of Sensar to exercise their
options prior to closing. In connection with this amendment, each of these
holders have agreed to waive the cashless exercise feature of such options in
order to avoid the ongoing "mark to market" compensation charge for accounting
purposes required by such a feature.
On July 26, 2000, Nextel Finance Company and Net2Wireless agreed to the
terms and conditions that would apply to an investment in 1,000,000 shares of
Net2Wireless capital stock at a per share price of $32. Consummation of this
investment transaction is subject to several conditions, including the
satisfactory completion of due diligence by Nextel Finance Company.
Net2Wireless and Sensar have entered into a fourth amendment to the merger
agreement, dated July 26, 2000, that provides for the issuance of an additional
1,000,000 shares if the transaction with Nextel Finance Company is completed
prior to the merger.
Reasons for the Merger-Advantages and Disadvantages
Sensar
Sensar is entering into the merger to participate in what its management
and board of directors believe to be the potential of the applications of
Net2Wireless technology in an emerging market. Management and the board of
directors of Sensar have based this conclusion on their belief that the emerging
market for wireless communications with the Internet would ultimately be
significant, the interest of Partner Communications in evaluating the technology
of Net2Wireless and conducting the pilot site test on its existing cellular
communications network, the management team and investors that Net2Wireless has
been able to attract, and other factors. In addition, management and the board
of directors of Sensar believe that the wireless communication between cellular
<PAGE 62>
phones and PDAs and the Internet have the potential for substantial growth based
in part on the announced interest and development plans of several significant
industry participants.
As part of its review of the wireless industry, the board of directors of
Sensar spent some considerable time understanding the strategic market position
and performance of Phone.com. This company provides voiceover-IP and had been
instrumental in establishing the wireless application protocol. Phone.com had
attracted an aggressive market following and considerable market analysis and
support. This culminated in a market capitalization of the company of in excess
of $10 billion based on only limited revenues. Given that the technology being
offered by Net2Wireless appeared to offer consumers greater flexibility and
performance than that of Phone.com, the board of directors concluded that the
technology of Net2Wireless had the potential to attract a market and investor
following subsequent to the merger.
The board also reviewed numerous announcements made around the time of the
merger agreement by key industry players such as Microsoft, Ericsson, DoCoMo of
Japan, and Intel concerning their intent to develop increased capability and
functionality for wireless communication devices and cellular carriers. The
size and market position of these companies strongly reinforced the market
potential for wireless Internet capability.
In determining whether to enter into the merger agreement with
Net2Wireless, the board of directors considered the amount of stock to be issued
to Net2Wireless stockholders in comparison to the perceived potential for future
increases in the market capitalization of the combined company. The resulting
potential increase in stockholder value for the Sensar stockholders was deemed
to be attractive given the perceived market potential for the wireless industry
going forward.
As well as the initial valuation to be given to Net2Wireless, the board of
directors of Sensar was also careful to review the overall dilution attributable
to the existing Sensar stockholders. Furthermore, the impact of the award of
options in lieu of management's rights to participate in the deferred
compensation plan and the grant of options to management of Net2Wireless were
considered. In both instances, the award of options were priced at
approximately the recent trading prices for Sensar common stock which had an
average closing price of $1.78 for the 30 trading days immediately prior to the
negotiation of the transaction. In the case of Net2Wireless options, this
practice is consistent with the award of options for existing employees at the
time of an initial public offering. For Sensar management, the grant of options
at market price rather than the continued accrual of cash based compensation
required by Sensar's deferred compensation plan was deemed to be a considerable
advantage for the future business of Net2Wireless, allowing it to conserve cash
flow going forward.
Overall, taking into account the value attributed to Net2Wireless, the
dilution arising as a result of the transaction, the fact that the options
granted to new management were priced at market and that the cash liability of
the deferred compensation plan had been eliminated, the board of directors of
Sensar considered the merger with Net2Wireless to be in the best interests of
Sensar's stockholders. The subsequent market reaction to the transaction and
the ability of Net2Wireless to raise additional funds of approximately $29
million based on a significantly higher valuation further validated the board of
directors' decision.
The board of directors has unanimously approved the adoption of the merger
agreement and the transactions contemplated thereby and recommends that the
transaction be approved by the stockholders of Sensar.
The disadvantages to the Sensar stockholders of the merger include:
- dilution of their percentage ownership in the combined company and the
reduced influence of the current stockholders of Sensar on the continuing
policies, practices, and management of the combined company;
<PAGE 63>
- the concentration of control in the current Net2Wireless management,
directors, and principal stockholders;
- the potential for further dilution resulting from the possible issuance of
shares on the exercise of the options and warrants assumed by the combined
company;
- the business, operating, and regulatory risks associated with
Net2Wireless' business;
- the absence of a fairness opinion from an investment bank with respect to
the fairness of the transaction to the Sensar stockholders; and
- the existence of conflicts of interest with respect to Sensar's board of
directors.
The foregoing summarizes the material factors considered by the board of
directors of Sensar in deciding to approve the transaction. In view of the
variety of factors considered, the board of directors did not find it
practicable and did not attempt to rank or assign relative weights to the
foregoing factors.
See "BUSINESS OF NET2WIRELESS" and "RISK FACTORS." Management and the board of
directors of Sensar were subject to potential conflicts of interest during the
negotiation of the terms of the merger. See "THE MERGER: Interests of Certain
Individuals."
Net2Wireless
The board of directors of Net2Wireless has determined that the merger is in
the best interests of Net2Wireless and its stockholders. The board of directors
of Net2Wireless has unanimously ratified the approval and adoption of the merger
agreement and the transactions contemplated thereby and recommends that the
transaction be approved by the stockholders of Net2Wireless.
In reaching its determination, the board of directors of Net2Wireless, of
which Mr. Davidson was the sole member at the time, consulted with Net2Wireless'
management and its investors, as well as its legal counsel, and considered the
following material factors:
- the terms and conditions of the merger agreement, including the total
consideration to be paid by Sensar to the security holders of Net2Wireless;
- the difficulties that Net2Wireless had faced in obtaining financing from
other sources;
- the opportunity and benefits to continue the business of Net2Wireless as a
publicly-held company, including, without limitation, an increase in the profile
and general visibility of Net2Wireless and its business and the enhanced value
and appeal to future investors and acquisition targets, if any, in receiving
publicly-traded securities in a financing or acquisition transaction, as the
case may be;
- the enhanced ability of Net2Wireless to attract and recruit new employees
as a result of its ability to offer options to acquire publicly-traded stock;
- the financial condition of Sensar at the time of such determination,
including its ability to eliminate its existing liabilities;
- the willingness and ability of Sensar to provide Net2Wireless with interim
financing;
- the short-term and long-term interests of Net2Wireless and its
stockholders, as well as the interests of its employees, customers, creditors,
and suppliers;
<PAGE 64>
- the expectation that the merger will be treated as a tax-free merger for
U.S. federal income tax purposes;
- the regulatory approvals required to consummate the merger;
- the fact that the merger was at Sensar's option until the successful
completion of the beta-site testing by Partner Communications;
- the fixed amount of total consideration to be paid by Sensar to the
Net2Wireless stockholders, subject only to the amount of Sensar's net cash at
closing;
- the dilution of the ownership percentage of Net2Wireless' stockholders as
a result of the merger;
- the risk that Sensar may not successfully eliminate its liabilities prior
to closing;
- the increased financial and regulatory burdens associated with becoming a
publicly-held company;
- the absence of a fairness opinion by an investment bank with respect to
the consideration to be received by the stockholders of Net2Wireless; and
- the existence of conflicts of interest with respect to members of
Net2Wireless' management.
The board of directors of Net2Wireless determined that these and other
negative factors were outweighed by the potential benefits to be gained by
Net2Wireless and its stockholders as a result of the proposed merger. In
particular, as the major stockholders of Net2Wireless were kept apprised of and
afforded the opportunity to comment on the negotiations with Sensar and related
matters, including the absence of a fairness opinion and the existence of
conflicts of interest, the board of directors of Net2Wireless concluded that the
proposed merger was in the best interests of Net2Wireless and its stockholders.
The foregoing discussion of the factors considered by the board of
directors of Net2Wireless is not intended to be complete, although it does
include all material factors considered. In view of the variety of factors
considered in connection with its evaluation of the proposed merger, the board
of directors of Net2Wireless did not find it practicable to and did not attempt
to rank or assign relative weights to the foregoing factors.
Terms of the Merger
Under the terms of the merger agreement, Sensar agreed to provide
Net2Wireless with interim funding of $2 million. $500,000 of this amount was
advanced February 2, 2000. This loan is due September 30, 2000, and bears
interest at 8% per annum.
The merger agreement, as amended, provides for the merger to be
accomplished by the issuance of 18,295,060 shares of common stock of the
combined company to the holders of all equity interests in Net2Wireless, other
than the options and warrants to acquire Net2Wireless stock that will be assumed
by the combined company. Under the terms of the Net2Wireless Series A Preferred
Stock, immediately prior to the merger each share of preferred stock will
automatically convert to a share of Net2Wireless common stock. Upon completion
of the merger, Net2Wireless options and warrants to acquire up to 15,266,649
shares of common stock will be converted into the same number of similar options
and warrants to acquire common stock of the combined company. In addition, if
the transactions contemplated by the stock purchase agreement between
Net2Wireless and Nextel Finance Company are completed prior to the merger,
Sensar will issue an additional, 1,000,000 shares of common stock to Nextel
Finance Company.
<PAGE 65>
Additional shares of common stock will be issued, pro rata, to Net2Wireless
stockholders in the event that the cash and cash equivalents held by Sensar at
the closing of the merger, as defined in the merger agreement, plus all amounts
collected on the notes receivable held by Sensar within 60 days of the due date
of such receivables, is less than $4.5 million. The number of additional shares
to be issued will be determined by dividing any shortfall by $1.86. These
contingent shares will be delivered to former Net2Wireless stockholders within
10 business days of the final determination of the number of shares. At March
31, 2000, Sensar had approximately $6 million of net cash under this definition,
assuming the full collection of all short-term receivables due from third
parties of approximately $1.3 million. All of these third-party receivables had
been collected by July 31, 2000, and the parties do not anticipate that any of
the contingent shares will be issued.
In addition to current liabilities, Sensar had long-term liabilities of
$9,035,585 at March 31, 2000, consisting of $200,000 in deferred gain, which
will be eliminated in the merger, and $8,835,585 of deferred compensation.
Directors, officers, and consultants holding interests in the deferred
compensation pool of Sensar have agreed to relinquish any rights they have on
approval by the Sensar stockholders of options previously granted to them to
acquire 1,600,000 shares of stock with an exercise price of $2.00 per share and
200,000 shares of stock granted to each of the three outside directors at the
time they became directors with an exercise price of $1.50 for 100,000 shares of
stock and $2.50 for 100,000 shares of stock.
Mr. Landa also agreed to indemnify Sensar with respect to pending
litigation, terminate his employment agreement, and assume the lease obligation
of Sensar in exchange for the distribution of some of the assets of Sensar. See
the discussion under "Interests of Certain Individuals" below and "Ratification
of Previously Granted Options" under the caption of "Other Sensar Stockholder
Matters."
Completion of the merger is subject, pursuant to the merger agreement, to
the satisfaction of specified conditions, including the following:
(a) that the registration statement of which this Joint Proxy
Statement/Prospectus forms a part shall have been declared effective by the
Securities and Exchange Commission and Sensar shall have received all permits
and other authorizations required under state securities laws to consummate the
merger;
(b) that the merger shall have been approved and adopted by the
requisite vote of the stockholders of both Sensar and Net2Wireless; and
(c) that no governmental agency or authority shall have taken any
action that has the effect of making the merger illegal or otherwise prohibited.
The foregoing conditions cannot be waived.
Sensar
In addition to the foregoing, the obligations of Sensar to effect the
merger are subject to further conditions, including the following:
(a) the perfection of dissenters' rights by Net2Wireless stockholders
holding no more than 5% of the outstanding Net2Wireless common stock;
(b) the satisfaction by Net2Wireless of the representations,
warranties, covenants, and conditions set forth in the merger agreement;
(c) Sensar shall have received an update of Net2Wireless disclosure
schedules and approved any material changes in such schedules;
<PAGE 66>
(d) Sensar shall have received the necessary certifications from state
and local entities regarding the good standing of Net2Wireless and the security
interests filed against its assets; and
(e) the compliance by Net2Wireless with miscellaneous other terms,
covenants, and conditions of the merger agreement.
Any of the above conditions may be waived by Sensar.
Net2Wireless
The obligations of Net2Wireless to effect the merger are subject to
additional conditions, including the following:
(a) Sensar shall have a minimum of $4.5 million in cash and notes
receivable due no later than October 1, 2000, including the balance of the loan,
with accrued interest, made to Net2Wireless by Sensar; only nominal current
liabilities, not to exceed $50,000; there shall be no long-term liabilities; and
there shall not be outstanding more than the shares of stock disclosed to
Net2Wireless in the merger agreement;
(b) Sensar shall have received the indemnification of Howard S. Landa
regarding pending litigation and the assumption by Mr. Landa of the lease
obligations of Sensar;
(c) Sensar shall have complied with the representations, warranties,
covenants, and conditions set forth in the merger agreement;
(d) Net2Wireless shall have received the audited consolidated financial
statements of Sensar for the year ended December 31, 1999 and any available
interim financial statements; and
(e) the compliance by Sensar with miscellaneous other terms, covenants,
and conditions.
Any of the above conditions may be waived by Net2Wireless.
As part of the closing of the merger, 1,000,000 shares of common stock of
Sensar will be issued to individuals involved in introducing Net2Wireless and
Sensar and facilitating the merger agreement. These shares will be accounted
for as a cost of the transaction. 125,000 of these shares will be issued at the
direction of Oded Graucher, who controls Meridian Trading Investment, Ltd., a
principal stockholder of Net2Wireless.
During the spring of 1999, Connie Lerner and an associate of hers, Moshe
Wageh, introduced several companies to the board and management of Sensar for
possible acquisition by Sensar. In the summer of 1999, Ms. Lerner was
introduced to an Israeli company, I.T.E.S. by a former shareholder of Sensar,
Forster Trading (of which Joseph Reitzer is a principal) who had been introduced
to I.T.E.S. by Oded Graucher. This group set up introductory meetings between
the management of I.T.E.S. and the management of Sensar. Of the 1,000,000
shares, Ms. Lerner will receive 240,000 shares; Forster Trading will receive
220,000 shares and has directed that Kamil International Holding LDC and Gross
Investment Company LP receive 60,000 shares and 200,000 shares, respectively;
Avon Road Associates LP, an entity controlled by Moshe Wageh, will receive
106,000 shares; and Meridian Trading Investment Ltd. will receive 31,719 shares
and has directed that RIK/IV LP and Ezer M'Zion receive 63,281 shares and 30,000
shares, respectively. In addition, the following individuals who provided
assistance in connection with the transaction will receive the shares indicated:
Traci Hammes, 20,000 shares; Josh Berkowitz, 22,000 shares; Judah Perlstein
3,000 shares; Chaim Friedman, 2,000 shares; and Elan Adika, 2,000 shares.
<PAGE 67>
Interests of Certain Individuals
As described below, officers, directors, and consultants of Sensar and
Net2Wireless have interests in the merger that differ from the interests of the
stockholders of Sensar and Net2Wireless generally.
As part of the merger negotiations, Sensar agreed to:
- eliminate Sensar's liability for the unexpired portion of the lease for
its Salt Lake City offices
- provide satisfactory indemnification to Sensar for any liabilities
incurred by it under a pending lawsuit by former employees
- terminate Sensar's deferred compensation plan and the accrued interests of
the participants in that plan
- terminate Sensar's employment agreement with Howard S. Landa.
In order to satisfy these obligations, Sensar took the following actions, which
were approved by Sensar's board of directors, but were not negotiated at arm's
length.
Sensar
Indemnification Agreement With Howard S. Landa.
Effective March 1, 2000, Sensar entered into an indemnification agreement
with Howard S. Landa, its chief executive officer. Under the terms of the
agreement, Mr. Landa agreed to indemnify Sensar and the combined company for all
costs arising out of the litigation, Edgar Lee, et al. v. Sensar Corporation,
including costs of defense and the payment of any settlement or judgment. In
addition, Mr. Landa assumed Sensar's lease for the office space at 50 West
Broadway, Suite 501, Salt Lake City, Utah, which continues through September 30,
2002, and provides for monthly rental payments ranging from $2,256 to $2,440.
Mr. Landa also agreed to permit Sensar and the combined company to use the Salt
Lake City office until one year following the closing date of the merger at no
charge for the period prior to the merger and at a charge of $1.00 per month for
the one year period subsequent to the closing of the merger. Under the terms of
the agreement, Sensar transferred its minority investments in two privately-held
companies which had been acquired by a subsidiary of Sensar at a combined cost
of $325,000 to Mr. Landa and granted him the right to use the name of Sensar's
subsidiary, Eagle Lake Ventures, Inc. Mr. Landa also received miscellaneous
office furniture, equipment, and supplies located in Sensar's Salt Lake City
office with a book value of $31,150 as of March 31, 2000.
The litigation, Edgar Lee, et al v. Sensar Corporation, arose out of a
claim by former employees for payment of a bonus based on the sale of a business
by Sensar. Sensar had agreed to pay a bonus if the sales price of the business
exceeded $2 million. In the litigation, the employees claim they are entitled
to the bonus based on the sales price of the assets, without including the
obligation to pay the liabilities associated with the business that was sold.
Sensar does not believe they are entitled to the bonus and was vigorously
defending the litigation prior to its assumption by Mr. Landa. In an attempt to
resolve the litigation, the parties participated in an unsuccessful mediation.
In connection with the mediation, the plaintiffs prepared an itemization of
their claims that totaled in excess of $300,000 at that time.
<PAGE 68>
Termination of Deferred Compensation Plan and Employment Agreement.
On November 16, 1999, Sensar granted stock options with an exercise price
of $2.00 per share to the participants in its deferred compensation plan, which
is described below, in exchange for their agreement to terminate their rights
under the plan, subject only to approval by the Sensar stockholders of these new
stock options and, in the case of the outside directors, the options granted to
them in April and May 1999, at the time they joined Sensar. The number of
options granted to Howard S. Landa also took into consideration his agreement to
terminate his employment agreement with Sensar, which has a term continuing
through December 31, 2002, and provides for a monthly base salary of $8,000, and
his agreement to provide up to 100 hours of transitional service to the combined
company without compensation. The number of options granted to Andrew C.
Bebbington also took into consideration the services provided and to be provided
by him in connection with the negotiation and implementation of the merger and
his agreement to act as chief financial officer of the combined company
following the merger. Net2Wireless and Mr. Bebbington subsequently agreed that
Mr. Bebbington would not serve as chief financial officer of the combined
company, but Mr. Bebbington was not required to divest any of the options
previously granted. Mr. Landa received options to acquire 800,000 shares; Mr.
Bebbington 650,000 shares; and each of the three outside directors 50,000
shares. The closing price for Sensar common stock on November 16, 1999, the
date the options were granted, was $3.375 per share. As a result, each of the
participants received stock options with an exercise price that was $1.375 below
the market price on the date of grant resulting in aggregate potential benefits
to the participants on the date of grant in the following amounts: Howard S.
Landa, $1,100,000; Andrew C. Bebbington, $893,750; and each of the outside
directors, $68,750. As described below, assuming the merger is completed, the
minimum and maximum values of the participants' interests in the deferred
compensation plan, giving effect only to the factor based on an increase in the
market capitalization of Sensar, are as follows: Howard S. Landa, $1,500,000
minimum, $15,000,000 maximum; Andrew C. Bebbington, $50,000 minimum, $500,000
maximum; and each of the outside directors, $150,000 minimum, $1,500,000
maximum. By agreeing to terminate their interests in the deferred compensation
plan in exchange for stock options, the plan participants relinquished the right
to receive a minimum fixed payment with a cap on the maximum potential return,
in exchange for an equity option which provided unlimited upside potential but
with no guarantee of any minimum return. From the standpoint of Sensar, the
agreements permit it to substitute the compensation expense resulting from the
grant of stock options for a significant cash liability that would cause
Sensar's liabilities to exceed the maximum permitted under the merger agreement
and permit Net2Wireless to terminate its obligations. If the stock options are
not approved by the stockholders, the deferred compensation plan and the
interests of the participants will remain in effect. See the discussion under
the caption "Other Sensar Stockholder Matters: Ratification of Previously
Granted Options."
Sensar's board of directors formally adopted the deferred compensation plan
on June 24, 1999, effective as of May 1, 1999, when the strategy to identify
potential acquisitions was being implemented. The current board of directors
assumed their positions at a time at which Sensar was completing the disposition
of its operating assets with the intent to identify and negotiate one or more
acquisitions or investments that had the potential for increasing stockholder
value. Sensar created the deferred compensation plan in order to provide an
incentive to the participants to increase shareholder value and to provide them
with compensation in the event they were successful in doing so.
The following summary of the plan is qualified by reference to the plan
document, which is included as an exhibit to Sensar's report on Form 10-K filed
for the year ended December 31, 1999. The plan generally provides for the
establishment of a compensation pool consisting of two components: (a) an
increasing percentage of 3% to 7-1/2% of the net income of Sensar subsequent to
March 31, 1999, in excess of $2 million, excluding gains on the sale of the
technologies held by Sensar on March 31, 1999, and compensation charges related
to the granting of options, but including 75% of any net unrealized gain on
investments made by Sensar subsequent to March 31, 1999; and (b) an amount equal
to 7-1/2% of any increase in the market capitalization of Sensar above $13.4
million that exceeds 150% of the increase in the Russell 2000 Index over the
same period. The maximum amounts permitted under these two components were $25
million and $50 million, respectively. The plan provides that the compensation
pool will be fixed at December 31, 2002, and was required to be paid within 105
days after December 31, 2002. Notwithstanding the foregoing, however, in the
event of a change of control of Sensar, such as the merger, the compensation
<PAGE 69>
pool will be fixed with a minimum value of at least $5,000,000, and paid within
45 days after the closing date. Payments under the plan are to be made in cash
unless payment in Sensar stock has been approved by the stockholders and there
is an effective registration statement covering resales of the stock, in which
case up to 30% of the payments may be made in Sensar stock (subject to increase
if required for Sensar to maintain a reasonable cash reserve for its working
capital needs). Under interests granted to date, Howard S. Landa is to receive
30% of the compensation pool, each of the other directors is to receive 3%, and
Andrew C. Bebbington, the chief consultant to Sensar, is to receive 1%. If the
market price of Sensar is approximately $27 per share or higher on the merger
closing date and the Russell 2000 Index has not increased significantly, the
maximum value of the compensation pool attributable to the increase in market
capitalization of Sensar of $50,000,000 will be realized and the payments due to
the plan participants would be: Howard S. Landa, $15,000,000; each of the
outside directors, $1,500,000; and Andrew C. Bebbington, $500,000. If the
merger had closed on March 31, 2000, the amount of the compensation pool would
have been $21,550,208, based on Sensar's market capitalization on that date, and
the payments to the plan participants would have been: Howard S. Landa
$6,465,062; each of the outside directors, $646,506; and Andrew C. Bebbington,
$215,502.
Compensation Committee Interlocks and Insider Participation.
Sensar does not have a compensation committee. During the past fiscal
year, each of the directors, Howard S. Landa, Brian B. Lewis, Steven P.
Strasser, and Mickey Hale, participated in deliberations concerning executive
officers' and their own compensation. Among the directors, only Mr. Landa is,
or has been, an officer or employee of Sensar or its subsidiaries. Mr. Landa
does not serve as a director or sit on the compensation committee of any other
entity that has an executive officer other than Mr. Landa serving on the board
of directors of Sensar.
Net2Wireless
The merger agreement provides for the assumption by the combined company of
options granted to employees, directors, officers, and consultants of
Net2Wireless up to a maximum of 15,266,649 shares. Of this amount, options to
acquire 5,005,184 shares at an exercise price of $1.86 per share were granted to
the following: Nechemia Davidson, 3,222,222 shares; David Rubner, 1,074,074
shares; Joav Avtalion, 322,222 shares; Yaron Sobol, 150,370 shares; Yizhak
Feldman, 128,889 shares; and Robert Rokni, 107,407 shares. These individuals
are currently directors and executive officers of Net2Wireless and will become
directors and executive officers of the combined company following completion of
the merger. As a result of the grant of these options, the foregoing
individuals had interests in the transaction that differed from, and were in
addition to, the interests of the stockholders of Net2Wireless generally.
Voting and Revocation of Proxies
Sensar
Shares of Sensar stock that are represented at the Sensar stockholders'
meeting by a proxy properly executed and received prior to the vote will be
voted at the meeting in the manner directed on the proxy card, unless such proxy
is revoked in advance of the vote. If the proxy is returned to Sensar without
specific voting directions, the proxy will be voted in favor of all proposals of
management. In addition to approving the proposals, this would result in a
waiver of any dissenter's rights the stockholder may otherwise have. Proxies
that are voted against the merger with Net2Wireless or the change of domicile
and name change will not be voted in favor of any adjournment proposed at the
meeting.
Inasmuch as the merger and the change in corporate domicile and name
require the affirmative vote of a majority of all outstanding shares of Sensar
stock entitled to vote, failure to return a properly executed proxy card or to
otherwise vote at the meeting will have the practical effect of a vote against
the merger and the change in corporate domicile. Similarly, an abstention will
have the same legal effect as a vote against these proposals.
Under the rules of the New York Stock Exchange, which are generally
observed by brokers that are not members of such Exchange as well as those that
are, brokers that hold shares in street or nominee name for a customer do not
have the authority to vote on items such as the merger or the change in domicile
unless they have received instructions from the beneficial owners of such
shares. Therefore, brokers that do not receive instructions from their customer
are not entitled to vote on the merger and change of domicile. All stockholders
<PAGE 70>
are urged to provide instructions to their broker to ensure that their shares
are voted at the meeting. Under Nevada corporation law, a broker non-vote,
while effective to establish a quorum, will have the same effect as a vote
against the merger.
Any Sensar stockholder delivering a proxy may revoke it at any time prior
to the call for the vote at the Sensar stockholders' meeting by delivering to
Sensar, to the attention of Howard S. Landa, 50 West Broadway, Suite 501, Salt
Lake City, Utah 84101, a written notice of revocation bearing a later date than
the proxy or a later dated proxy relating to the same shares, or by attending
the Sensar stockholders' meeting and voting in person. Attendance at the Sensar
stockholders' meeting will not, by itself, constitute the revocation of a proxy.
Net2Wireless
Shares of Net2Wireless stock that are represented at the Net2Wireless
stockholders' meeting by a proxy properly executed and received prior to the
vote will be voted at the meeting in the manner directed on the proxy card,
unless such proxy is revoked in advance of such vote. If the proxy is returned
to Net2Wireless without specific voting directions, the proxy will be voted in
favor of all proposals submitted to the Net2Wireless stockholders, including the
merger, thereby waiving any dissenters' rights the stockholder may otherwise
have. Proxies voted against the merger with Sensar will not be voted in favor
of any adjournment proposed at the meeting.
Inasmuch as the merger requires the affirmative vote of a majority of all
outstanding shares of Net2Wireless stock entitled to vote, failure to return a
properly executed proxy card or to vote in person at the Net2Wireless
stockholders' meeting will have the practical effect of a vote against the
merger. Similarly, an abstention will have the same legal effect as a vote
against the merger.
Any Net2Wireless stockholder delivering a proxy, other than those
Net2Wireless stockholders who have delivered irrevocable proxies, may revoke
their proxy at any time prior to the call for the vote at the Net2Wireless
meeting by delivering to Net2Wireless, to the attention of the corporate
secretary, Yaron Sobol, 11 Ha'amal Street, Afek Park, Rosh Ha'ayin 48092,
Israel, a written notice of revocation bearing a later date than the proxy or a
later dated proxy relating to the same shares, or by attending the Net2Wireless
stockholders' meeting and voting in person. Attendance at the Net2Wireless
meeting will not, by itself, constitute the revocation of the proxy.
Solicitation of Proxies
Sensar
Sensar will bear the costs of soliciting proxies from the Sensar
stockholders and in preparing and distributing materials to the Net2Wireless
stockholders. Sensar has retained Morrow & Co., Inc., to assist it in the
mailing and distribution of the Joint Proxy Statement/Prospectus and the
solicitation of the proxies from the Sensar stockholders. Sensar has agreed to
compensate Morrow & Co., Inc., $10,000 for its services in connection with the
proxy solicitation, plus reimburse it for additional disbursements made by
Morrow & Co., Inc., on Sensar's behalf. Proxies will initially be solicited by
mail, but it is also anticipated that executive officers, directors, and Andrew
C. Bebbington, the principal consultant of Sensar, may also solicit proxies in
person or by telephone or facsimile. Such persons who solicit proxies will not
be specially compensated for such services. Nominees, fiduciaries, and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy materials to beneficial owners.
Holders of Sensar stock are requested to complete, date, and sign the
accompanying Sensar proxy card and return it promptly in the enclosed envelope
to Sensar's transfer agent, Progressive Transfer Company, 1981 East 4800 South,
Suite 100, Salt Lake City, Utah 84117. No postage is required if mailed within
the United States.
<PAGE 71>
Net2Wireless
Net2Wireless will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but executive officers, directors, and selected
other employees of Net2Wireless may also solicit proxies in person or by
telephone or facsimile. Such persons who solicit proxies will not be specially
compensated for such services. Nominees, fiduciaries, and other custodians will
be requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners.
Holders of Net2Wireless stock are requested to complete, date, and sign the
accompanying proxy card and return it promptly in the enclosed envelope to
Net2Wireless at 11 Ha'amal Street, Afek Park, Rosh Ha'ayin 48092, Israel.
Stockholders should ensure that there is proper postage for delivery to Israel.
Vote Required
Sensar
Pursuant to Nevada corporate law, the merger and reincorporation in
Delaware must be approved by the holders of a majority of the shares of Sensar
stock outstanding on the Sensar record date. The adoption of the Stock Option
Plan and the ratification of the options previously granted by the board must be
approved by a majority of a quorum in attendance at the Sensar stockholders'
meeting, either in person or by proxy. The bylaws of Sensar require that at
least one-third of the Sensar stock issued and outstanding as of the Sensar
record date be represented, in person or by proxy, at the Sensar stockholders'
meeting in order to constitute a quorum for the conducting of business.
Directors and executive officers of Sensar holding an aggregate of 81,076
shares of Sensar stock, or approximately 1.2% of the shares of Sensar stock
issued and outstanding, have indicated their intent to vote in favor of all
management proposals.
Net2Wireless
Pursuant to Delaware corporate law, the merger must be approved by the
holders of a majority of the Net2Wireless common stock and Series A Preferred
Stock outstanding on the Net2Wireless record date, voting together as a single
class.
A director and executive officer, and other stockholders of Net2Wireless
holding an aggregate of 12,316,866 shares, or approximately 67% of the voting
power of the Net2Wireless stock issued and outstanding, have delivered their
irrevocable proxies to vote in favor of the merger, so that the vote of no
additional shares of Net2Wireless stock will be required to approve the merger.
In addition, the holders of all of the 1,041,140 shares of Series A Preferred
Stock have agreed to vote for the merger.
Attendance of Representative of Accountants
It is anticipated that a representative of Kost, Forer & Gabbay, a member
of Ernst & Young International, will be in attendance at the Net2Wireless and
Sensar stockholders' meetings and a representative of Grant Thornton LLP will
attend the Sensar stockholders' meeting in order to answer appropriate questions
from the stockholders and, if they so desire, to make a statement to the
stockholders.
<PAGE 72>
Dissenters' Rights of Appraisal
Sensar
Dissenting Sensar stockholders who oppose either the proposed change in
domicile or the merger will have the right to receive payment for the value of
their shares of Sensar stock as set forth in sections 92A.300 to 92A.500 of the
Nevada corporate laws, a copy of which is attached as Appendix "E." Any
obligations that Sensar may have to dissenting Sensar stockholders as set forth
below will continue as obligations of the combined company subsequent to the
merger. The following is a summary of provisions of Nevada corporate law
governing dissenters' rights. A copy of the complete corporate statutes is
attached as Appendix "E."
Under the Nevada corporate code, a stockholder wishing to assert
dissenters' rights:
(a) must deliver to Sensar, before the vote of the Sensar stockholders
on the proposed merger and/or change of domicile is taken, a written notice of
the intent to demand payment for shares if the merger is approved;
(b) may not vote any of the shares of Sensar stock held by such
stockholder in favor of the merger, if the stockholder is seeking to assert
dissenters' rights with respect to the merger or, if the stockholder is seeking
to assert dissenters' rights with respect to the change of domicile, in favor of
the change of domicile; and
(c) must exercise dissenter's rights with respect to all shares held
beneficially by such stockholder.
If the shares are held in street name or otherwise rather than directly by
the stockholder, the consent of the record holder must be included. The
stockholder must be the beneficial owner of the stock as of the record date and
thereafter. If the stockholder acquired the shares after December 14, 1999, the
date the merger agreement with Net2Wireless was publicly announced, Sensar may
elect to withhold payment of any dissenter's rights for such shares.
If the merger is approved, Sensar shall provide written notice to all
stockholders dissenting from the merger as set forth above. Such written notice
from Sensar shall be sent no later than ten days after the effective date and
shall:
(a) state the address to which payment demands must be sent and the
address and time at which, and by which, the certificates for the shares of
Sensar stock must be deposited;
(b) supply a form for demanding payment, which includes the date of the
first announcement to the news media of the terms of the proposed merger, and
requires a certification that the dissenter acquired beneficial ownership of the
stock before that date;
(c) set a date by which Sensar must receive the payment demand, which
may not be less than 30 nor more than 60 days after the date the dissenters'
notice is delivered; and
(d) be accompanied by a copy of Nevada Revised Statutes 92A.300 to
92A.500.
A stockholder to whom the foregoing dissenter's notice is sent must:
(a) demand payment;
(b) certify whether such stockholder acquired beneficial ownership
before the date specified in the dissenter's notice sent by Sensar; and
<PAGE 73>
(c) deposit the certificates representing the shares in accordance
with the terms of the dissenter's notice.
A Sensar stockholder who demands payment in accordance with this paragraph
retains all rights as a stockholder of Sensar except the right to transfer the
shares until the merger and change of domicile takes effect and thereafter has
only the right to receive payment for such shares. A stockholder who does not
meet the requirements of the Nevada statutes is not entitled to payment for the
shares pursuant to the dissenters' rights and would thereafter have all rights
as a stockholder.
Upon compliance by the dissenting stockholder with all the requirements
described above, Sensar shall pay the amount Sensar estimates to be the fair
value of the shares of Sensar stock immediately prior to the completion of the
transaction. The payment shall be made within 30 days of the receipt of the
demand for payment. The payment shall be accompanied by Sensar's balance sheet
as of the end of the most recent fiscal year; an income statement for that year;
statements of changes in stockholders' equity and cash flows for that year; and
the latest available interim financial statements, if any. Payment shall also
be accompanied by a statement of Sensar's estimate of the fair value of the
dissenting shares and the amount of interest payable with respect to such
shares, a statement of a dissatisfied dissenters' right to demand payment under
Nevada Revised Statute 92A.480, as discussed below, and a copy of the Nevada
Revised Statutes 92A.300 to 92A.500.
If the merger is not completed within 60 days after the date set by Sensar
as the date by which Sensar must receive payment demands, notwithstanding
approval of the merger by the Sensar stockholders, Sensar shall return to all
dissenting stockholders the deposited stock certificates, and the dissenting
stockholders shall thereafter have all rights as a stockholder of Sensar as if
no demand for payment had been made. If, thereafter, it is anticipated the
merger will proceed, Sensar shall send a new dissenters' notice and the
provisions set forth above shall again be applicable.
A dissenting stockholder may notify Sensar of such stockholder's own
estimate of the value of his shares of Sensar stock and demand that Sensar pay
such amount if the dissenter believes that the amount paid by Sensar is less
than the fair value of the shares and the interest due. Such notification must
be made within 30 days after Sensar has made the payment.
If a demand for payment by the dissenter remains unresolved, Sensar shall
commence a court proceeding in Nevada, within 60 days after receiving the
payment demand from the dissenter, and petition the court to determine the fair
value of the shares. Each dissenting stockholder made party to the proceeding
is entitled to judgment for the amount, if any, by which the court finds that
the fair value of the shares, plus interest, exceeds the amount paid by Sensar
and the amount Sensar elected to withhold as payment under the special
provisions applicable to shares acquired after the date of the notice of the
Sensar stockholders meeting. The court is required to assess court costs, and
costs of any appraisers appointed by the court, against Sensar, unless the court
determines that the dissenting stockholders acted arbitrarily, vexatiously, or
not in good faith. The court may assess the fees and expenses of counsel and
experts retained by the parties, as the court deems equitable.
Net2Wireless
Dissenting Net2Wireless stockholders who oppose the proposed merger will
have the right to receive payment for the value of their shares as set forth in
section 262 of the Delaware corporate law, a copy of which is attached as
Appendix "D." Any obligations that Net2Wireless may have to dissenting
Net2Wireless stockholders as set forth below, will be assumed by the combined
company as a result of the merger. The following is a summary of the provisions
of Delaware corporate law governing stockholders appraisal rights. A complete
copy of the applicable Delaware statutes is attached as Appendix "D."
Dissenting Net2Wireless stockholders wishing to assert appraisal rights may
require Net2Wireless to purchase for cash, at fair market value, the shares of
Net2Wireless common stock held by such dissenting stockholder. The fair market
value of such shares shall be determined as of the day before the first
announcement of the merger, excluding any appreciation or depreciation in the
<PAGE 74>
value of the stock as a consequence of the merger, but adjusted for any stock
split, reverse stock split, or share dividend which became effective after such
announcement. Holders of 12,316,866 shares of the issued and outstanding
Net2Wireless stock have delivered their irrevocable proxies to vote the shares
in favor of the merger and, therefore, will be deemed to have elected not to
exercise their dissenters' rights.
In order for a dissenting Net2Wireless stockholder to be entitled to
payment for shares of Net2Wireless common stock held by such stockholder must:
(1) deliver to Net2Wireless, before the vote on the merger, a written
demand for appraisal;
(2) have held the stock on the date of making such demand and
continuously hold such shares through the effective date of the merger;
(3) not vote in favor of the merger or give a proxy to be voted in
favor of the merger; and
(4) be the stockholder of record.
If the merger is approved by the Net2Wireless stockholders, the combined
company shall, within 10 days of the effective date of the merger, provide to
any dissenting stockholders a written notice stating that the merger has been
approved and that appraisal rights are available for all dissenting stockholders
who have met the requirements. This notice shall be sent by certified or
registered mail, return receipt requested, and shall include a copy of section
262 of the Delaware corporate law.
In order to make proper demand for payment, any Net2Wireless stockholder
that receives the dissenters' notice as provided above and who wishes to assert
dissenters' rights must provide the combined company with a written demand
within 20 days after the mailing of the dissenters' notice. The demand must
reasonably inform the combined company of the identity of the stockholder and
that the stockholder intends to seek appraisal rights.
Within 120 days after the effective date of the merger, the combined
company or any dissenting stockholder who has complied with the above provisions
may file a petition in the Court of Chancery demanding a determination of the
value of the stock for all dissenting stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger,
any dissenting stockholder shall have the right to withdraw the demand for
appraisal and accept the terms offered in the merger. During the 120-day period
after the effective date of the merger, any dissenting stockholder shall, upon
written request to the combined company, be entitled to receive a statement
setting forth the aggregate number of dissenting stockholders and the number of
shares held by each. Such written statement shall be mailed to the stockholder
within 10 days after the written request is received by the combined company or
10 days after the expiration for the period of delivery of appraisal demands,
whichever is later.
Upon the filing of any petition in the Court of Chancery, service shall be
made on the combined company and all dissenting stockholders. Notice of a
hearing to determine the fair value of the stock shall be given in the manner
approved by the court and permitted by section 262 of the Delaware law. At the
hearing, the court shall determine which stockholders have complied with the
provisions of section 262 and have become entitled to assert appraisal rights
and may require dissenting stockholders to submit their certificates for
notation of the pending appraisal proceedings.
After the determination of the stockholders entitled to appraisal rights,
the court shall determine the fair value of the shares, exclusive of any element
of value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the fair value. The court
may permit discovery or other pretrial proceedings. The fair value and
appropriate interest, all as determined by the court, shall be paid to those
stockholders determined by the court to have satisfied the requirements for
appraisal rights. Costs of the proceeding may be determined by the court and
assessed against the parties as the court deems equitable.
<PAGE 75>
After the effective date of the merger, no stockholder who has demanded
appraisal rights shall be entitled to vote the stock or to receive payment of
dividends or other distributions on this stock unless an action for appraisal is
not filed within 120 days after the effective date, or such dissenting
stockholder delivers a written withdrawal of his demand for an appraisal within
60 days after the effective date.
Accounting for the Merger
The merger will be accounted for as a reverse acquisition of Sensar by
Net2Wireless. Although Sensar will be the surviving entity, for financial
reporting purposes, the entity whose shareholders hold in excess of 50% of the
combined company, Net2Wireless, will be treated as the continuing entity. The
reverse acquisition will be treated as a capital stock transaction in which
Net2Wireless will be deemed to have issued the shares of common stock held by
the Sensar stockholders for the net assets of Sensar. The costs of the
transaction will be charged to stockholders' equity. To the extent that the
costs of the transaction exceed the net assets acquired from Sensar, the excess
will be charged to the statement of operations. No goodwill will be recorded.
Delivery of Certificates for Common Stock of the Combined Company
It is anticipated that certificates for common stock of the combined
company will be available to exchange for the Net2Wireless common stock within
two business days following the completion of the merger. Certificates in the
new corporate name of "Net2Wireless Corporation" will also be available for
issuance to Sensar stockholders wishing to exchange their certificates at that
time. Certificates representing shares of Net2Wireless or Sensar common stock
to be exchanged must be delivered to the transfer agent prior to the issuance of
certificates representing the shares of common stock of the combined company.
Stockholders of record will receive a letter of transmittal from the transfer
agent subsequent to the merger with specific instructions regarding the delivery
of existing certificates in exchange for the issuance of new certificates. The
transfer agent can be contacted at Progressive Transfer Company, 1981 East 4800
South, Suite 100, Salt Lake City, Utah 84117, telephone (801) 277-1400.
Certificates for Net2Wireless and Sensar common stock that are not
exchanged shall continue to represent shares of the combined company after
giving effect to the merger.
Payment in Lieu of Issuing Fractional Shares
No fractional shares of common stock will be issued in connection with the
merger. In lieu thereof, a stockholder otherwise entitled to receive a
fractional share shall be paid the value of such fractional share in cash, based
on the closing sales price, rounded to the nearest cent, for Sensar stock as
reported by Nasdaq for the last trading day immediately preceding the closing
date.
Expenses of the Merger
Sensar and Net2Wireless will each bear its own expenses incurred in
connection with effecting the merger and the preparation of the Joint Proxy
Statement/Prospectus.
Restrictions on Transfer of Common Stock of the Combined Company
The common stock to be issued in the merger will be issued pursuant to the
registration statement, of which this Joint Proxy Statement/Prospectus forms a
part, filed under the Securities Act. Notwithstanding such registration,
several persons receiving shares of common stock will be subject to restrictions
on the resale of such securities.
The sale of shares issued to affiliates of Net2Wireless will be subject to
restrictions on transfer under Rule 145 promulgated pursuant to the Securities
Act. In general, under Rule 145, sales of securities are permitted only (a)
after the combined company has been subject to the reporting requirements of the
Exchange Act and has filed all required reports thereunder for a period of at
<PAGE 76>
least 90 days preceding the sale, and (b) if the sales are made in compliance
with the limitations on volume and manner of sale contained in rule 144. Sensar
is, and has been for in excess of 90 days, subject to the reporting
requirements, so that Rule 145 would be available immediately upon consummation
of the merger, subject to the limitations on volume and manner of sale.
Alternatively, common stock may be sold by Net2Wireless stockholders subject to
the rule without compliance with such limitations on volume and manner of sale
if the holder, at the time of sale, (a) is not, and has not been for at least
three months, an affiliate of either Sensar, Net2Wireless, or the combined
company, and has held the securities for at least 2 years; or (b) is not an
affiliate of the combined company and has held the securities for at least 1
year, and for the preceding 12 months the combined company has filed all
required reports under the Exchange Act.
In addition, the common stock to be issued immediately prior to the merger
on options held by management, directors, and consultants of Sensar will be
registered for resale under a registration statement filed on Form S-3. These
individuals have agreed not to sell more than 50% of such shares during the
180-day period subsequent to the effective date of the registration statement.
DESCRIPTION OF SECURITIES
The following description of the securities of the combined company
following the merger gives effect to the change of domicile of Sensar from
Nevada to Delaware immediately prior to the effectiveness of the merger.
Preferred Stock
The combined company's certificate of incorporation authorizes the board of
directors, without further stockholder approval, to issue up to 10,000,000
shares of preferred stock, par value $0.01 per share, for any proper corporate
purpose. In approving any issuance of preferred stock, the board of directors
has broad authority to determine the rights, privileges, and preferences of the
preferred stock, which may be issued in one or more classes or series. The
rights, privileges, and preferences may include voting, dividend, conversion,
and liquidation rights that may be senior to the common stock. At the time of
the merger, no shares of preferred stock of any class or series will be issued
and outstanding or reserved for issuance.
Common Stock
Following the merger, the combined company will have an authorized capital
of 90,000,000 shares of common stock, par value $0.01 per share, of which
25,843,606 shares will be outstanding, 17,775,905 shares of common stock will be
reserved for the exercise of existing options and warrants, and 6,000,000 shares
of common stock will be reserved for rights granted under the Stock Option Plan.
Holders of common stock will be entitled to one vote per share on each matter
submitted to a vote at any meeting of stockholders. Shares of common stock will
not carry cumulative voting rights, and therefore, a majority of the shares of
outstanding stock will have the capability to elect the entire board of
directors of the combined company, and if they do so, minority stockholders
would not be able to elect any person to the board of directors. The bylaws
provide that 50% of the issued and outstanding shares of common stock will
constitute a quorum for a stockholders' meeting.
Stockholders of the combined company will have no preemptive right to
acquire additional shares of common stock or other securities. The common stock
will not be subject to redemption and carries no subscription or conversion
rights. In the event of a liquidation of the combined company, the shares of
common stock will be entitled to share equally in corporate assets after
satisfaction of all liabilities and any preference for outstanding preferred
stock. The shares of common stock, when issued, will be fully paid and
non-assessable.
Holders of common stock will be entitled to receive such dividends as the
board of directors may, from time to time, declare out of funds legally
available for the payment of dividends. The combined company will seek growth
and expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends in the foreseeable future.
<PAGE 77>
Subject to the corporate governance requirements of Nasdaq, the board of
directors has the authority to issue the authorized but unissued common stock
without the approval of the stockholders. The issuance of such shares would
reduce the percentage of ownership held by persons receiving shares of common
stock in the merger and may dilute the book value of the existing stockholders.
Transfer Agent
Progressive Transfer Company, is the Transfer Agent for Sensar.
Progressive Transfer Company can be reached at 1981 East 4800 South, Suite 100,
Salt Lake City, Utah 84117, telephone (801) 277-1400.
COMPARISON OF SECURITIES
Comparison of Nevada Law and Delaware Law-Certificates of Incorporation and
Bylaws
Sensar is currently incorporated under the laws of the state of Nevada. If
stockholder approval is received, immediately prior to the merger Sensar will
change its domicile to Delaware. On consummation of the merger, the
stockholders of Sensar, whose rights currently are governed by Nevada law and
Sensar's articles of incorporation and bylaws, and the stockholders of
Net2Wireless, whose rights are currently governed by Delaware law and
Net2Wireless' certificate of incorporation and bylaws, will become stockholders
of a Delaware company, Net2Wireless Corporation, and their rights as
stockholders will be governed by Delaware law and the certificate of
incorporation and bylaws of the combined company. A copy of the certificate of
incorporation of the combined company is included with this Joint Proxy
Statement/Prospectus as Appendix "C."
The combined company will have an authorized capital of 90,000,000 shares
of common stock and 10,000,000 shares of preferred stock, par value $0.01 per
share. Attendance in person or by proxy of the holders of 80% of the
outstanding stock is required for a quorum. Sensar has an authorized capital of
290,000,000 shares of common stock and 10,000,000 shares of preferred stock, par
value $0.001 per share. It only requires the holders of 33-1/3% of the
outstanding stock to be in attendance, by person or proxy, at the shareholders'
meetings in order to establish a quorum.
Although the corporate statutes of Nevada and Delaware are substantially
similar, certain differences exist. The most significant differences, in the
judgment of the management of Sensar, are summarized below. This following
summary discusses the material differences most likely to affect stockholders
and is not a complete discussion of the Delaware General Corporation Law or the
Nevada Revised Business Corporation Act.
Non-Classified Board of Directors
Delaware and Nevada corporate law permit any corporation to classify its
board of directors into as many as three classes, as equal in size as possible,
with staggered terms of office. After initial implementation of a classified
board, one class (consisting of approximately one-third of the entire board) is
elected at each annual meeting of the stockholders to serve for a term of three
years or until their successors are elected and take office. Sensar currently
has a classified board, but the combined company's board will not be classified.
This will make it easier to effect a change in control of the board of directors
of the combined company. For example, since only one-third of the board stands
for election in any given year when there is a classified board, a change in
control of the board would require the controlling vote at two successive annual
meetings or removal of a majority of directors at a special stockholders'
meeting called for that purpose. Since the combined company will not have a
classified board, the entire board will be standing for election each year and
control of the board could change at any annual meeting.
<PAGE 78>
Restrictions on Business Combinations
Both Delaware and Nevada have provisions restricting the ability of a
corporation to engage in business combinations with an interested stockholder.
Under the Delaware law, a corporation is not permitted to engage in a business
combination with any interested stockholder for a three-year period following
the date such stockholder became an interested stockholder, unless (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholders; (ii) the interested
stockholder acquires 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by employee stock ownership plans); or (iii) on or
after the date the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by the
holders of at least 67% of the corporation's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested stockholder.
The Delaware law defines "interested stockholder" generally as a person who owns
15% or more of the outstanding shares of a corporation's voting stock. Delaware
corporations may opt-out of these provisions, but the combined company has
elected not to do so. These provisions could have the effect of delaying,
deferring, or preventing a change of control.
Nevada law regulates business combinations more stringently. First, an
interested stockholder is defined as a beneficial owner of 10% or more of the
voting power. Second, the three-year moratorium can be lifted only by advance
approval by a corporation's board of directors, as opposed to Delaware's
provision that allows interested stockholder combinations at the time of the
transaction with stockholder approval. Finally, after the three-year period,
combinations remain prohibited unless (i) they are approved by the board of
directors, the disinterested stockholders or a majority of the outstanding
voting power not beneficially owned by the interested party, or (ii) the
interested stockholders satisfy certain fair value requirements. As in
Delaware, a Nevada corporation may opt-out of the statute with appropriate
provisions in its articles of incorporation. The articles of incorporation of
Sensar contain such an opt-out provision.
Cumulative Voting
Cumulative voting for directors entitles stockholders to cast a number of
votes that is equal to the number of voting shares held multiplied by the number
of directors to be elected. Stockholders may cast all such votes either for one
nominee or distribute such votes among up to as many candidates as there are
positions to be filled. Cumulative voting may enable a minority stockholder or
group of minority stockholders to elect at least one representative to the board
of directors where such stockholders would not otherwise be able to elect any
directors.
Nevada corporate law permits cumulative voting in the election of directors
as long as certain procedures are followed. A certificate of incorporation in
Delaware may provide for cumulative voting. Neither Sensar nor the combined
company has provided for cumulative voting in its organizational documents.
Vacancies
Under Delaware law, subject to the rights, if any, of any series of
preferred stock to elect directors and to fill vacancies on the board of
directors, vacancies on the board of directors are filled by the affirmative
vote of a majority of the remaining directors then in office, even if less than
a quorum exists. Any director so appointed will hold office for the remainder
of the full-term of the director replaced. Similarly, Nevada law provides that
vacancies may be filled by a majority of the remaining directors, though less
than a quorum exists, unless the articles of incorporation provide otherwise.
In addition, the bylaws of Sensar and the combined company address the issue of
director vacancies in the same manner. Therefore, the change from Nevada to
Delaware will not alter stockholders' rights with respect to this issue.
<PAGE 79>
Indemnification of Officers and Directors and Advancement of Expenses
Delaware and Nevada have substantially identical provisions regarding
indemnification by a corporation of its officers, directors, employees, and
agents, except Nevada provides broader indemnification in connection with
stockholder derivative lawsuits. Delaware and Nevada law differ in their
provisions for advancement of expenses incurred by an officer or director in
defending a civil or criminal action, suit, or proceeding. Delaware law
provides that expenses incurred by an officer or director in defending any
civil, criminal, administrative, or investigative action, suit, or proceeding
may be paid by the corporation in advance of the final disposition of the
action, suit, or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined that
he is not entitled to be indemnified by the corporation. Thus, a Delaware
corporation has the discretion to decide whether or not to advance expenses.
Under Nevada law, the articles of incorporation, bylaws, or an agreement made by
the corporation may provide that the corporation must pay advancements of
expenses in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined that he or she is not entitled
to be indemnified by the corporation. Thus, a corporation may have no
discretion to decide whether or not to advance expenses.
Sensar's articles of incorporation provide for Sensar to indemnify
directors, officers, employees, and some agents. The new certificate of
incorporation does not have similar provisions.
Limitation on Personal Liability of Directors
A Delaware corporation is permitted to adopt provisions in its certificate
of incorporation limiting or eliminating the liability of a director to a
company and its stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such liability does not arise from proscribed
conduct, including breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law or
liability to the corporation based on unlawful dividends or distributions or
improper personal benefit. The new certificate of incorporation will limit the
liability of directors to the corporation to the fullest extent permitted by
law.
While Nevada has a similar provision permitting the adoption of provisions
in the articles of incorporation limiting personal liability, the Nevada
provision differs in two respects. First, the Nevada provisions applies to both
directors and officers. Second, while the Delaware provisions excepts from
limitation on liability of breach of the duty of loyalty, the Nevada counterpart
does not contain this exception. Thus, the Nevada provision expressly permits a
corporation to limit the liability of officers, as well as directors, and
permits limitation of liability arising from a breach of the duty of loyalty.
The Sensar articles of incorporation limited the liability to Sensar of
directors, officers, employees, and agents to the fullest extent permitted.
Therefore, the combined company will have a narrower limitation on liability,
and more parties will remain potentially liable to the combined company. The
combined company, however, may determine to indemnify such persons in the
discretion of the board, subject to the limitation of Delaware law.
Dividends
Delaware is more restrictive than Nevada with respect to when dividends may
be paid. Under the Delaware corporate law, unless otherwise provided in the
certificate of incorporation, a corporation may declare dividends, out of
surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year (provided that
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets). In addition, Delaware law provides that a corporation
may redeem its shares only out of surplus.
<PAGE 80>
Nevada law provides that no distribution (including dividends on, or
redemption or repurchases of, shares of capital stock) may be made if, after
giving effect to such distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business, or the corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed at the time of a liquidation to satisfy the preferential
rights of preferred stockholders.
Amendment to Certificate/Articles of Incorporation and Bylaws
Both Delaware and Nevada require the approval of the holders of a majority
of all outstanding shares entitled to vote, with each stockholder being entitled
to one vote for each share so held, to approve proposed amendments to a
corporation's certificate/articles of incorporation. Neither state requires
stockholder approval for the board of directors of a corporation to fix the
voting powers, designation, preferences, limitations, restrictions, and rights
of a class of stock; provided that, the corporation's organizational documents
grant such power to its board of directors. Both the articles of incorporation
of Sensar and the certificate of incorporation of the combined company grant the
power to the board of directors to designate classes of preferred stock, to fix
the relative rights and privileges of such class, and issue the stock. The
holders of the outstanding shares of a particular class are entitled to vote as
a class on a proposed amendment if the amendment would alter or change the
power, preferences, or special rights of one or more series of any class so as
to affect them adversely. The number of authorized shares of any such class of
stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the stock
entitled to vote thereon (without a class vote) if so provided in any amendment
to the articles of incorporation or resolutions creating such class of stock.
Actions by Written Consent of Stockholders
Both Nevada and Delaware law provide that, unless the charter provides
otherwise, any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all voting stock was present and voted
consents to the action in writing. Delaware requires the corporation to give
prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent to those stockholders who did not consent in writing.
Neither the Sensar articles of incorporation nor the certificate of
incorporation of the combined company limit stockholder action by written
consent.
Stockholder Vote for Mergers and Other Corporate Reorganizations
In general, both jurisdictions require authorization by an absolute
majority of the outstanding shares entitled to vote, as well as approval by the
board of directors with respect to the terms of a merger or a sale of
substantially all of the assets of the corporation. Neither Nevada nor Delaware
requires stockholder approval by the stockholders of a surviving corporation in
a merger or consolidation as long as the surviving corporation issues no more
than 20% of its voting stock in the transaction.
Dissenters' Rights
In both jurisdictions, dissenting stockholders of a corporation engaged in
certain major corporate transactions are entitled to appraisal rights.
Appraisal rights permit a stockholder to receive cash equal to the fair market
value of the stockholder's shares (as determined by agreement of the parties or
by a court), in lieu of the consideration such stockholder would otherwise
receive in any such transaction.
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a Delaware corporation in a merger or
consolidation; provided that, no appraisal rights are available for the shares
of any class or series of stock, which, at the record date for the meeting held
to approve such transaction, were either: (i) listed on a national security
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. (the
"NASD"); or (ii) held of record by more than 2,000 stockholders. Even if the
shares of any class or series of stock meet the requirements of clause (i) or
(ii) above, appraisal rights are available for such class or series if the
holders thereof receive in the merger or consolidation anything except: (i)
shares of stock of the corporation surviving or resulting from such merger or
<PAGE 81>
consolidation; (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation is either listed on a national
securities exchange, or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares; or (iv) any combination
of the foregoing. No appraisal rights are available to stockholders of the
surviving corporation if the merger did not require their approval.
Under Nevada law, a stockholder is entitled to dissent from, and obtain
payment for the fair value of his or her shares in the event of consummation of
a plan of merger of plan of exchange in which the corporation is a party and, to
the extent that the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares any corporate action taken
pursuant to a vote of the stockholders. As with Delaware law, Nevada law
provides an exception to dissenters' rights. Holders of securities (i) listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD; or (ii) held by more
than 2,000 stockholders of record are generally not entitled to dissenters'
rights.
Stockholder Inspection Rights
Delaware law grants any stockholder the right to inspect and to copy for
any proper purpose the corporation's stock ledger, a list of its stockholders,
and its other records. A proper purpose is one reasonably related to such
person's interest as a stockholder. Directors also have the right to examine
the corporation's stock ledger, a list of its stockholders and its other records
for a purpose reasonably related to their positions as directors.
Nevada law provides the right to inspect the corporation's financial
records for only a stockholder who (i) owns at least 15% of the corporation's
issued and outstanding shares; or (ii) has been authorized in writing by the
holders of at least 15% of the issued and outstanding shares. To inspect the
corporation's stock ledger, the stockholder must have been a stockholder of
record for six months prior to demanding inspection.
Derivative Suits
Under both Delaware and Nevada law, a stockholder may bring a derivative
action on behalf of the corporation only if the stockholder was a stockholder of
the corporation at the time of the transaction in question or the stockholder
acquired the stock thereafter by operation of law.
Special Meeting of Stockholders
Both Delaware and Nevada permit special meetings of stockholders to be
called by the board of directors or by any other person authorized in the
certificate/articles of incorporation or bylaws to call a special stockholder
meeting. Nevada law does not address the manner in which special meetings of
stockholders may be called. Sensar's bylaws provide that special meetings of
the stockholders may be called by the president or a director, and that the
president must call such a meeting if requested by beneficial holders of at
least 10% of the outstanding shares of stock of the corporation. The new bylaws
provide that a special shareholders' meeting will be called at the request of
the holders of a majority of the issued and outstanding stock.
<PAGE 82>
PRINCIPAL STOCKHOLDERS
Pro Forma After the Merger
After completion of the merger, there will be approximately 25,843,606
shares of common stock issued and outstanding, without giving effect to the
exercise of any dissenters' rights or the exercise of any options. The table
below sets forth information as to the number of securities in the combined
company that will be held by each person known by either Sensar or Net2Wireless
to be the record or beneficial owner of more than 5% of the combined company's
common stock, by each director and executive officer, and by the directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name and Address Nature of Number of
of Beneficial Owners Ownership Shares Owned Percent(1)
------------------------------------ --------- ------------ ----------
<S> <C> <C> <C>
Principal Stockholders
Cedar Investments Services, Ltd./(2)
Nechemia Davidson Common Stock 5,428,127 21.0%
Options 3,222,222 11.1%
----------
Total 8,650,349 29.8%
Alexander/Rachel LLC/
Laura Huberfeld Common Stock 2,902,636 11.2%
Warrants(5) 176,819 0.7%
----------
Total 3,079,455 11.8%
NBDB, LLC/
Naomi Bodner Common Stock 2,902,636 11.2%
Warrants(5) 176,819 0.7%
----------
Total 3,079,455 11.8%
Yitzchak Bachar(3)
David Rubner Common Stock 1,085,652 4.2%
Options 1,074,074 4.0%
----------
Total 2,159,726 8.0%
ML Partners, LLC/
Susan Meyers Common Stock 0 0.0%
Warrants 5,000,341 16.2%
----------
Total 5,000,341 16.2%
Partner Communications Company, Ltd. Common Stock 0 0%
Options 3,020,576 10.5%
-----------
Total 3,020,576 10.5%
Directors and Executive Officers
Nechemia Davidson - - - - - - - - - See Above - - - -- - - - - -
David Rubner - - - - - - - - - See Above - - - - - - - - -
Joav Avtalion(4) Common Stock 0 0.0%
Options 322,222 1.2%
----------
Total 322,222 1.2%
Yaron Sobol Common Stock 78,010 0.3%
Options 150,370 0.6%
----------
Total 228,380 0.9%
Yitzhak Feldman Common Stock 0 0.0%
Options 128,889 0.5%
----------
Total 128,889 0.5%
Robert Rokni Common Stock 0 0.0%
Options 107,407 0.4%
----------
Total 107,407 0.4%
All Executive Officers and Common Stock 6,591,789 25.5%
Directors as a Group Options 5,005,184 16.2%
----------
(6 persons) Total 11,596,973 37.6%
(footnotes contained on following page)
<PAGE 83>
<FN>
(1) The percentages shown for common stock are based on the total issued and outstanding stock of the combined company
as of the closing of 25,843,606. The amounts shown for options reflect the percentage ownership if all options held by that
stockholder were exercised and the outstanding stock increased by that amount. The total reflects aggregate common stock
held after exercise of the option, with the issued and outstanding increased by the individual exercise.
(2) Cedar Investments Services, Ltd., is an entity controlled by Mr. Nechemia Davidson.
(3) The common stock is presently being held by Mr. Bachar in trust on behalf of a company in formation
for the ultimate benefit of Mr. David Rubner.
(4) Held of record by Beneficial Investment Services, Ltd., an entity controlled by Mr. Avtalion.
(5) These warrants were acquired from ML Partners, LLC.
</TABLE>
Sensar Prior to the Merger
The table below sets forth information as to each person owning of record
or who was known by Sensar to own beneficially more than 5% of the common stock
of issued and outstanding stock as of August 1, 2000, and information as to
the ownership of Sensar's common stock by each of its directors and by the
directors and executive officers as a group. Except as otherwise indicated,
all shares are owned directly, and the persons named in the table have sole
voting and investment power with respect to shares shown as beneficially
owned by them.
<TABLE>
<CAPTION>
Name and Address Nature of Number of
of Beneficial Owners Ownership Shares Owned Percent(1)
-------------------- --------------- ------------ ----------
<S> <C> <C> <C>
Directors
Howard S. Landa Common Stock(2) 56,076 0.9%
Options(3) 1,000,000 13.2%
---------
Total 1,056,076 14.0%
Brian B. Lewis Common Stock 0 0.0%
Options(4) 250,000 3.7%
---------
Total 250,000 3.7%
Steven P. Strasser Common Stock 12,500 0.2%
Options(4)(5) 250,000 3.7%
---------
Total 262,500 3.9%
Mickey Hale Common Stock 12,500 0.2%
Options(4) 250,000 3.7%
---------
Total 262,500 3.9%
All Executive Officers and Common Stock 81,076 1.2%
Directors as a Group (four persons) Options 1,750,000 21.1%
---------
Total 1,831,076 22.1%
<FN>
(1) The percentages shown are based on 6,548,546 shares of common stock of
Sensar issued and outstanding as of August 1, 2000. The percentages shown
for options assume the exercise of all options held solely by that individual
and a corresponding increase in the issued and outstanding common stock.
The percentage shown for total holdings assumes the exercise of all options held
by the individual and a corresponding increase in the issued and outstanding
common stock.
(2) These shares are held by the spouse and children of Mr. Landa and a
limited liability company in which Mr. Landa is a minority owner. Mr. Landa
denies direct beneficial ownership and control of these shares.
(3) Options to acquire 800,000 shares have been approved by the board of
directors, but are subject to the further approval of the stockholders of
Sensar.
(4) These options are subject to the further approval of the stockholders of
Sensar.
(5) These options are held of record by an entity controlled by Mr.
Strasser.
</TABLE>
<PAGE 84>
TAX CONSEQUENCES
General
The following discussion summarizes the material United States federal
income tax consequences of the proposed merger of Sensar and Net2Wireless and
the related change in domicile of Sensar under the Internal Revenue Code of
1986, as amended. The discussion does not address all aspects of federal tax
law that may be applicable to particular stockholders. The following summary
does not include any discussion concerning the consequences of the merger or the
change of domicile under foreign, state or local taxation laws and regulations.
The discussion assumes that the Net2Wireless stockholders hold their
Net2Wireless stock as a capital asset as defined in Section 1221 of the Code.
Each holder of Sensar stock or Net2Wireless stock should consult his own tax
advisor regarding the tax consequences of the proposed merger and the change of
domicile in light of such stockholder's own situation and with respect to the
application and effect of any state, local or foreign income tax and other laws.
Special tax consequences not described below may be applicable to
particular classes of taxpayers, including financial institutions,
broker-dealers, persons who are not citizens of the United States or which are
foreign corporations, foreign partnerships or foreign estates or trusts, and
persons who acquired their Sensar stock or Net2Wireless stock through the
exercise of an employee stock option or otherwise as compensation.
The merger and the change of domicile are intended to be tax-free
reorganizations under the provisions of section 368(a) of the Internal Revenue
Code. NO RULINGS FROM THE IRS AS TO THE TAX CONSEQUENCES OF THE MERGER, THE
CHANGE OF DOMICILE, OR ANY OTHER MATTER DISCUSSED HEREIN HAS BEEN OR WILL BE
REQUESTED.
This discussion states the opinion of Keith L. Pope, LLC, as to the
material United States federal income tax consequences of the merger based on
the pertinent provisions of the Internal Revenue Code, the applicable
regulations promulgated by the Treasury Department, and judicial and
administrative interpretations of the code and regulations. Each stockholder
should be aware that the code, the regulations, and interpretations are subject
to change and that such changes may be given retroactive effect. Neither the
Internal Revenue Service nor any court is bound by the opinion of Keith L. Pope,
LLC or the interpretations of the code and the regulations set forth below.
United States Federal Tax Consequences of the Merger
As a tax-free reorganization, the merger will have the following United
States federal income tax consequences:
(a) No gain or loss will be recognized by the holders of the
Net2Wireless common stock on receipt by them of common stock of the combined
company in exchange for their Net2Wireless common stock, except that gain or
loss will be recognized on the receipt of cash, if any, received in lieu of a
fractional share or on the receipt of cash by a stockholder who exercises his or
her dissenter or appraisal rights.
<PAGE 85>
(b) The tax basis of the common stock (including contingent shares) of
the combined company received by a holder of Net2Wireless common stock in the
merger will be the same as the tax basis of that holder in the Net2Wireless
common stock surrendered. Until the obligation to issue contingent shares, if
any, is fixed under the terms of the merger, the interim basis for each share of
stock will be determined as though the maximum number of contingent shares had
been issued to the stockholders of Net2Wireless common stock.
(c) The holding period for federal income tax purposes of the common
stock of the combined company received by Net2Wireless stockholders will include
the period during which they held their Net2Wireless common stock.
(d) A holder of Net2Wireless common stock who exercises dissenter's
rights and receives payment of the fair value of the shares, or who receives
cash in lieu of a fractional share, will be treated as having sold such stock to
the combined company. The dissenting holder who sells Net2Wireless common stock
to the combined company will recognize a capital gain or loss equal to the
difference between (1) the basis the stockholder had in the shares or fractional
shares sold; and (2) the cash received by the stockholder.
(e) No gain or loss will be recognized by Net2Wireless or Sensar as a
result of the merger.
United States Federal Tax Consequences of the Change of Domicile
As a tax-free reorganization, the merger with a newly-formed Delaware
corporation in order to effect the change of domicile will have the following
United States federal income tax consequences:
(a) No gain or loss will be recognized for federal income tax purposes
by the Sensar stockholders on receipt by them of common stock of the Delaware
corporation in exchange for their Sensar stock.
(b) The tax basis of the common stock of the Delaware corporation
received by a holder of Sensar common stock will be the same as the tax basis of
that holder in the Sensar common stock surrendered.
(c) The holding period for federal income tax purposes of the common
stock of the Delaware corporation received by Sensar stockholders will include
the period during which they held their Sensar common stock.
(d) A holder of Sensar common stock who exercises dissenter's rights
and receives payment of the fair market value of the shares, or who receives
cash in lieu of a fractional share, will be treated as having sold such stock to
the Delaware corporation. The dissenting holder of Sensar common stock who
sells Sensar common stock to the Delaware corporation will recognize capital
gain or loss equal to the difference between (1) the basis the stockholder had
in the shares or fractional shares sold; and (2) the cash received by the
stockholder.
(e) No gain or loss will be recognized by Sensar or the newly-formed
Delaware corporation as a result of the change of domicile.
The code and the regulations and the interpretations thereof by the IRS and
the courts are subject to change, which may adversely affect the tax treatment
of the merger and the change of domicile. The IRS may take a position contrary
to the description of the tax effects set forth above and, if the matter is
litigated, a court may reach a decision contrary to conclusions contained in the
summary.
<PAGE 86>
The preceding material is intended to be only a summary of material income
tax consequences relating to the merger and the change of domicile.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO ISSUES NOT
COVERED BY THE FOREGOING DISCUSSION OR REGARDING THEIR OWN PARTICULAR
CIRCUMSTANCES.
OTHER SENSAR STOCKHOLDER MATTERS
Change in Corporate Domicile
If approved by the stockholders, immediately prior to the merger Sensar
shall change its corporate domicile by merging with and into a newly-formed
Delaware corporation, specifically created for that purpose ("NewCo").
Stockholders of Sensar will receive one share of common stock of NewCo for each
share of common stock of Sensar that they now hold. Options to acquire Sensar
common stock will be converted into options to acquire the same number of shares
of NewCo common stock at the same exercise price. At the same time, the
corporate name will be changed to Net2Wireless Corporation. The change in
domicile will take place immediately prior to the completion of the merger and
will not happen if for any reason the merger is not approved. The change of
domicile and accompanying name change requires the approval of a majority of the
outstanding stock of Sensar.
Delaware has a more fully defined body of corporate law than Nevada that is
more familiar to bankers, venture capitalists, financial institutions, and
others that may be dealing with the combined company. The change in the
corporate name will permit the combined company to operate under a name that is
more indicative of its business. Based on the foregoing, the board of directors
unanimously recommends that stockholders vote in favor of this proposal.
Adoption of the Stock Option Plan
The Sensar stockholders will also be asked to approve the adoption of the
Net2Wireless Corporation 2000 Stock Option Plan. This Stock Option Plan
authorizes the future grant of options and other rights with respect to up to
6,000,000 shares of common stock of the combined company. These rights are in
addition to the options to purchase 15,266,649 shares of Net2Wireless common
stock that will be assumed by the combined company in connection with the
merger.
Plan Description
On May 6, 2000, the board of directors of Sensar unanimously adopted,
subject to stockholder approval, the Stock Option Plan, a copy of which is
attached hereto as Appendix "B." The board of directors has determined that the
adoption of the plan is in the best interests of Sensar and its stockholders for
the following reasons:
1. The plan will assist the combined company in employing and retaining
qualified and competent personnel and will encourage valuable contributions by
such personnel by providing an additional incentive to those employees and
others who contribute significantly to the successful and profitable operations
of the combined company and its affiliates. The board of directors believes
that this purpose will be furthered through the grant of options, as authorized
under the plan, so that such individuals will be encouraged to acquire a
personal interest in the success of the combined company.
<PAGE 87>
2. The plan makes available to the compensation committee of the board of
directors incentive devices including incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs"), each of which is described below and in
the plan. The board of directors believes that this will enable the committee
to tailor the type of compensation that it will grant to key personnel to meet
both the combined company's and such employee's requirements in the most
efficient manner possible.
The plan is to be administered by the board of directors of the combined
company or by a committee of at least two directors. The plan authorizes the
grant of ISOs and NQSOs to officers, directors, employees, consultants, and
other persons who may perform services for the combined company or its
subsidiaries. The terms of individual options will be fixed by the board of
directors or committee at the time of grant, although the maximum number of
options that can be granted to any individual in a single year is 500,000.
Options granted under the plan may not be transferred, except by will or the
laws of dissent and distribution and are only exercisable during the life of the
recipient by the recipient. The plan expires on the tenth anniversary of its
adoption by the board of directors, unless sooner terminated.
Under the plan, the board of directors or the committee shall determine the
exercise price of all awards; provided, however, that the exercise price shall
not be less than the par value of the stock or, in the case of ISOs, the fair
market value of the common stock on the date of grant or, in the case of grants
to individuals owning more than 10% of the voting power of the combined company,
110% of the fair market value. Such "fair market value" shall be determined by
the board of directors or committee. Options granted under the plan shall have
a term of no more than ten years. Holders of options shall have no rights as a
stockholder of the shares subject to the option until the option is exercised,
the exercise price, including any amount necessary to meet the tax withholding
obligations of the combined company, is paid, and the stock issued.
In the event that the employment of a recipient of an option is terminated
by death or disability, any option that is not then exercisable will terminate.
Any option that is exercisable will be exercisable for one year or, if shorter,
the stated term of the option. If the recipient's employment is terminated for
cause, all options terminate. Cause is defined as a termination for dishonesty,
fraud, insubordination, willful misconduct, negligence, refusal to perform
services, materially unsatisfactory performance or, if there is a written
employment contract, as defined in that contract.
If the recipient's employment is otherwise terminated for any reason,
options that are not then exercisable expire and options that are exercisable
expire 90 days subsequent to termination or, if shorter, on the expiration of
the stated term of the option. The foregoing provisions may be modified by the
board of directors or the committee at the time of the grant of individual
options.
The number of shares subject to options granted under the Stock Option Plan
and the exercise prices will be equitably adjusted for any subsequent capital
restructuring. In the event of a merger, consolidation, or similar transaction,
outstanding options may be assumed by the surviving entity or substantially
equivalent options may be substituted. If outstanding options are not assumed
or replaced with substantially equivalent options, option holders shall have the
right to exercise all of their options, whether or not otherwise vested or
exercisable, prior to the transaction. Options which are not exercised
terminate on completion of the transaction. The board of directors or committee
may include provisions in an option providing for accelerated vesting or
exercise rights on a change of control of the combined company.
Neither the existence of the plan nor the grant of options gives any
individual the right to continue as an employee of the combined company. Once
exercisable, options can be exercised by providing notice and paying the
exercise price plus any amount deemed necessary by the combined company to
satisfy its tax withholding obligations. Payment may be in cash, by certified
check, or other consideration acceptable to the combined company, including
shares of common stock which have been owned for at least six months.
<PAGE 88>
Federal Income Tax Effects
The following is a general summary of the principal United States federal
income tax effects under current law concerning options which may be granted
under the Stock Option Plan.
An NQSO is a right to purchase a specified number of shares of stock, at a
specified option price, over a specified period of time. An optionee will
realize no income for federal income tax purposes on the grant of an NQSO under
the plan, but will recognize income upon the exercise of the NQSO in an amount
equal to the excess of the fair market value of the shares received on exercise
over the exercise price of such shares. Notwithstanding the foregoing if, at
the time of grant, options similar to the option granted are publicly-traded,
the recipient will recognize income at the time of the grant equal to the
difference between the public trading price for such options and the price paid
by the recipient for the option. The combined company will be entitled to a
deduction for federal income tax purposes in the same year as, and in an amount
equal to, the income recognized by the optionee. The optionee's adjusted basis
for the shares of stock received on exercise of the option will be the amount of
income recognized plus the exercise price, typically the fair market value of
the stock on the date of exercise.
An ISO is a right to purchase a specified number of shares, at a specified
option price, over a period not to exceed ten years, that complies with section
422 of the Code. ISOs may only be granted to employees of the combined company
or its subsidiaries and must be exercised within 90 days of any termination of
employment, except in the event of a qualifying disability or death of the
optionee, in which case the option must be exercised within a one-year period.
An optionee who receives an ISO under the plan will recognize no income for
federal income tax purposes upon either the grant or the exercise of the ISO.
In order to qualify for this treatment, the exercise price of the option must be
equal to or exceed the fair market price of the stock as of the date of grant.
If the recipient holds stock possessing more than 10% of the total combined
voting power of all classes of stock of the combined company or a subsidiary,
the exercise price must be at least 110% of the fair market value of the stock
at the date of grant. The optionee is taxable on the sale of the shares
acquired, based on the difference between the sales price and the adjusted basis
of the recipient in the shares. In general, the adjusted basis for the shares
of common stock received upon exercise will be the exercise price paid for such
shares. The combined company will not be entitled to a deduction upon the grant
or exercise of an ISO or on the subsequent sale of the shares. Notwithstanding
the foregoing, if the shares are sold within a period which is before the later
of two years from the date of the grant of the ISO or one year from the date of
exercise, the optionee will recognize compensation income in an amount equal to
the lesser of the excess of the fair market value on the date of exercise over
the option exercise price, or the excess of the price received on sale over the
option exercise price, and the combined company would be entitled to a
corresponding deduction. The amount by which the fair market value of the
shares of common stock received upon the exercise of an ISO exceeds the exercise
price is an item of tax adjustment under the Code and is therefore included in
the alternative minimum tax calculations.
The foregoing summary of the proposed plan is qualified in its entirety by
reference to the specific provisions of the Stock Option Plan, the full text of
which is set forth in Appendix "B" hereto.
Vote Required for Approval and Recommendation of the Board of Directors
The plan is being submitted to the Sensar stockholders for approval in
accordance with the requirements of Section 422 of the Code, which require that
it be approved by a majority of the votes cast at the meeting. Abstentions and
broker non-votes will not be counted for this purpose.
The adoption of the Stock Option Plan will provide the combined company
with the flexibility to grant tax-advantaged options to new or existing
employees, officers, and directors in order to attract, retain, and motivate
these individuals and further align their interests with the interests of
stockholders. Based on the foregoing, the board of directors unanimously
recommends that stockholders vote in favor of the proposal.
<PAGE 89>
Ratification of Previously Granted Options
The stockholders are being asked to vote on the proposal to ratify and
approve the following stock options that were previously granted to the officers
and directors of Sensar and a consultant to Sensar.
Options Granted at Time Officers and Directors Joined Sensar
In April and May 1999, Sensar granted options to acquire 200,000 shares of
Sensar common stock to each of the newly appointed board members. The options
are exercisable for a term of three years with an exercise price of $1.50 per
share with respect to one-half of the options and an exercise price of $2.50 per
share with respect to the other half of the options. On April 21, 1999, the
date Messrs. Strasser and Lewis were appointed as directors of Sensar, the
closing price of Sensar's common stock was $1.094 per share. On April 26, 1999,
the date the board of directors formally approved the grant of the options to
Messrs. Strasser and Lewis, the closing price of Sensar's common stock was $2.50
per share. On May 5, 2000, the date Ms. Hale was appointed as a director and on
which the board of directors formally approved the grant of options to her, the
closing price of Sensar's common stock was $1.938 per share. The board of
directors considered these grants necessary in order to attract qualified
individuals to serve as directors and executive officers of Sensar. All of the
foregoing options were granted subject to approval by the Sensar stockholders.
In April 1999, Sensar also granted identical options to acquire 200,000 shares
to Mr. Landa as part of his employment agreement as chief executive officer,
however, those options were not granted subject to shareholder approval and are
not the subject of this proposal.
Options Granted in November 1999
On November 16, 1999, Sensar granted stock options with a term of three
years and an exercise price of $2.00 per share to the participants in its
deferred compensation plan, which is described in "The Merger: Interests of
Certain Individuals," in exchange for their agreement to terminate their rights
under the plan, subject only to approval by the Sensar stockholders of the stock
options and, in the case of the outside directors, the options granted to them
in April and May 1999, which are described above. The number of options granted
to Howard S. Landa also took into consideration his agreement to terminate this
employment agreement with Sensar, which has a term continuing through December
31, 2002, and provides for a monthly base salary of $8,000, and his agreement to
provide up to 100 hours of transitional service to the combined company without
compensation. The number of options granted to Andrew C. Bebbington also took
into consideration the services provided and to be provided by him in connection
with the negotiation and implementation of the merger and his agreement to act
as chief financial officer of the combined company following the merger.
Net2Wireless and Mr. Bebbington subsequently agreed that Mr. Bebbington would
not serve as chief financial officer of the combined company, but Mr. Bebbington
was not required to divest any of the options previously granted. The number of
options granted to each of the participants was as follows: Howard S. Landa,
800,000; Andrew C. Bebbington, 650,000; and each of the outside directors,
50,000.
The exercise price of the options was based on the closing trading prices
of the Sensar common stock for the period immediately prior to the agreement
with Net2Wireless and the agreement between Sensar and I.T.E.S. in connection
with the execution of the letter of intent The average closing price for the
stock was $1.78 during the 30 trading days preceding the announcement of the
merger. The closing price for Sensar common stock on November 16, 1999, the
date the options were granted, was $3.375 per share. As a result, each of the
participants received stock options with an exercise price that was $1.375 below
the market price on the date of grant resulting in aggregate potential benefits
to the participants on the date of grant in the following amounts: Howard S.
Landa, $1,100,000; Andrew C. Bebbington, $893,750; and each of the outside
directors, $68,750. On August 1, 2000, the closing price for Sensar common
stock, as reported by Nasdaq, was $21.50, resulting in aggregate potential
benefits to the participants as of such date of: Howard S. Landa, $17,350,000;
Andrew C. Bebbington, $14,096,875; and each of the outside directors,
$1,084,475. As described in "The Merger: Interests of Certain Individuals,"
assuming the merger is completed, the minimum and maximum values of the
participants' interests in the deferred compensation plan are as follows:
Howard S. Landa, $1,500,000 minimum, $15,000,000 maximum; Andrew C. Bebbington,
$50,000 minimum, $500,000 maximum; and each of the outside directors, $150,000
minimum, $1,500,000 maximum. By agreeing to terminate their interests in the
<PAGE 90>
deferred compensation plan in exchange for stock options, the plan participants
relinquished the right to receive a minimum fixed payment with a cap on the
maximum potential return, in exchange for an equity option which provided
unlimited upside potential but with no guarantee of any minimum return. From
the standpoint of Sensar, the agreements permit it to substitute the
compensation expense resulting from the grant of stock options for a significant
cash liability under the deferred compensation plan that could cause Sensar's
liabilities to exceed the maximum permitted under the merger agreement and
permit Net2Wireless to terminate the merger agreement.
The foregoing options were granted by the board subject to stockholder
approval. The ratification of these grants is being submitted to the
stockholders, with the unanimous recommendation by the board of directors that
they be approved.
Approval of the options is not a condition to the merger. However, if the
options are not approved by the stockholders, Sensar will have a significant
cash obligation to the holders of interests in its deferred compensation plan
that will arise at closing. This cash obligation would violate the condition
that Sensar have no material liabilities at closing and Net2Wireless would not
be obligated to proceed with the transaction.
Vote Required for Ratification and Recommendation of the Board of Directors
Ratification of the options is being submitted to the Sensar stockholders
for approval in accordance with the corporate governance rules of Nasdaq, which
require that options granted to officers and directors be approved by the
stockholders. The approval requires the affirmative vote of the majority of the
votes cast at the meeting. Abstentions and broker non-votes will not be counted
as votes against ratification.
The approval of the options granted to officers and directors will reward
them for services rendered to Sensar and their role in the substantial increase
in stockholder value that has occurred since they have assumed their positions
with Sensar. In addition, approval of the options will terminate Sensar's
obligations under the deferred compensation plan, the payment of which would
otherwise require the use of Sensar's cash reserves. Based on the foregoing,
the board of directors unanimously recommends that stockholders vote in favor of
this proposal.
EXPERTS
The audited consolidated balance sheets of Sensar Corporation and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1999, included in Sensar's report on Form 10-K for the year ended December 31,
1999, which is incorporated herein by reference, have been audited by Grant
Thornton LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The audited consolidated balance sheet of Net2Wireless (a development stage
company) and its subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, changes in shareholders' deficiency and
cash flows from commencement of operations (April 1, 1999) through December 31,
1999, included in this Joint Proxy Statement/Prospectus and elsewhere in the
registration statement, have been audited by Kost, Forer & Gabbay, a member of
Ernst & Young International, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
VALIDITY OF NEW COMMON STOCK
The validity of the common stock offered hereby under Delaware corporate
law will be passed upon for Sensar by Keith L. Pope, LLC, Salt Lake City, Utah,
which has also delivered an opinion concerning the material United States
federal income tax consequences of the change of domicile and merger.
<PAGE 91>
WHERE YOU CAN FIND MORE INFORMATION
Sensar has filed a registration statement (File No. 333-34298) on Form S-4
with the Securities and Exchange Commission (the "SEC"). This Joint Proxy
Statement/Prospectus, which is a part of that registration statement, does not
contain all of the information included in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. With respect to references made in this document to any contract,
agreement, or other document, such references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement, or other document. You may review a
copy of the registration statement, including exhibits, at the principal offices
of the SEC at:
- Judiciary Plaza, 450 Fifth Street, N.W., Room 2104 or the public reference
room, Washington, D.C. 20549;
- Seven World Trade Center, 13th Floor, 26 Federal Plaza, New York, New York
10048; or
- 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms.
Sensar is subject to the informational requirements of the Securities
Exchange Act and, consequently, files annual, quarterly, and current reports,
proxy statements, and other information with the SEC. You may read and copy any
reports, statements, or other information on file at the public reference rooms.
You can also request copies of these documents, for a copying fee, by writing to
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Sensar's SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. The information
incorporated by reference is an important part of this Joint Proxy
Statement/Prospectus. These documents are available on request from Carol
Ashworth, Sensar Corporation, 50 West Broadway, Suite 501, Salt Lake City, Utah
84101, telephone number (801) 350-0587. In order to ensure timely delivery of
the documents, any request should be made by July ___, 2000. The following
documents are filed with the SEC and are incorporated by reference into this
Joint Proxy Statement/Prospectus:
- annual report of Sensar on Form 10-K for the fiscal year ended December
31, 1999;
- quarterly report of Sensar on Form 10-Q for the quarter ended March 31,
2000;
- interim reports of Sensar on Form 8-K dated January 4, January 5, March
16, March 24, March 30, April 7, May 31, June 6, June 22, and June 27, 2000; and
- the description of Sensar's common stock contained in its registration
statement on Form 8-A dated March 4, 1997, and any amendments or report filed
for the purpose of updating that description.
All documents and reports subsequently filed by Sensar pursuant to Section
13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and prior to the merger are also incorporated by
reference in this Joint Proxy Statement/Prospectus and will be deemed a part of
this Joint Proxy Statement/Prospectus from the date of filing of such documents
or reports.
Information in reports that are filed later with the SEC will update and
supersede statements contained in previously filed documents or this Joint Proxy
Statement/Prospectus to the extent that the new information differs from the old
information.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement/Prospectus and, if
given or made, such information or representation should not be relied on as
having been authorized by Sensar, Net2Wireless, or any other person. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy from any person, in any
jurisdiction in which it is unlawful to make such offer, solicitation of an
offer, or proxy solicitation. Neither the delivery of this Joint Proxy
Statement/Prospectus nor any distribution of the securities made under this
Joint Proxy Statement/Prospectus shall, under any circumstances, create an
implication that there has been no change in the affairs of Sensar or
Net2Wireless since the date of this Joint Proxy Statement/Prospectus.
<PAGE 92>
INDEX TO FINANCIAL STATEMENTS
Sensar and Subsidiaries
The consolidated financial statements of Sensar Corporation and
Subsidiaries are incorporated by reference to Sensar's report on Form 10-K for
the year ended December 31, 1999, and report on Form 10-Q for the quarter ended
March 31, 2000.
<TABLE>
<CAPTION>
Title of Document Page #
----------------------------------------------------------------------- ------
<S> <C>
Net2Wireless and Subsidiaries
Report of Kost Forer & Gabbay, a Member of Ernst & Young International,
independent public accountants
Consolidated Balance Sheets as of March 31, 2000, and December 31, 1999
Consolidated Statement of Operations for the Three Months Ended
March 31, 2000, and the Period from Commencement of Operations
(April 1, 1999) through December 31, 1999
Statement of Changes in Shareholders' Equity (Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
</TABLE>
NET2WIRELESS CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,1999
AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000
IN U.S. DOLLARS
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity (Deficiency) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-21
</TABLE>
<PAGE>
[GRAPHIC OMITED]
ERNST & YOUNG
Kost Forer & Gabbay
3 Aminadav St.
Tel-Aviv 1575, Israel
Phone: 972-3-6232525
Fax: 972-3-5622555
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
NET2WIRELESS CORPORATION
(A company in the development stage)
We have audited the accompanying consolidated balance sheet of Net2Wireless
Corporation (a company in the development stage) and its subsidiaries as of
December 31, 1999, and the related consolidated statements of operations,
changes in shareholders' deficiency and cash flows from commencement of
operations (April 1, 1999) through December 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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
Net2Wireless Corporation as of December 31, 1999, and the related consolidated
results of its operations and cash flows from commencement of operations (April
1, 1999) through December 31, 1999, in conformity with generally accepted
accounting principles, in the United States.
/s/ Kost Forer & Gabbay
KOST FORER & GABBAY
A Member of Ernst & Young International
Tel-Aviv, Israel
March 15, 2000
(Except for Note 9, as to which the date is April 2, 2000)
<PAGE F-2>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
In U.S. dollars
<TABLE>
<CAPTION>
Pro forma
shareholders'
equity at
March 31, March 31, December 31,
2000 2000 1999
Unaudited Unaudited
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $28,573,929 $ -
Government authorities 150,829 69,530
Loan to ITES 60,928 -
Accounts receivable and prepaid expenses 94,452 -
----------- --------
28,880,138 69,530
----------- --------
LEASE DEPOSIT 48,514 48,514
----------- --------
PROPERTY AND EQUIPMENT, NET 601,824 168,640
----------- --------
Total assets $29,530,476 $286,684
=========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE F-3>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
In U.S. dollars
<TABLE>
<CAPTION>
Pro forma
shareholders'
equity at
March 31, March 31, December 31,
2000 2000 1999
Unaudited Unaudited
------------- ----------- -------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Loan from Sensar $ 510,020 $ -
Accounts payable 529,577 97,414
Payable to ITES - 1,000,000
Note payable to ITES - 200,000
Employees and payroll accruals 316,115 53,549
Accrued expenses 385,826 80,360
------------- -----------
Total current liabilities 1,741,538 1,431,323
------------- -----------
ACCRUED SEVERANCE PAY 70,265 21,610
------------- -----------
SHAREHOLDER EQUITY (DEFICIENCY):
Share capital -
Preferred shares of $0.01 par value each -
Authorized: 10,000,000 shares as of March 31,
2000; Issued and outstanding: 1,041,140 shares
as of March 31, 2000 (unaudited); no shares
authorized, issued or outstanding pro forma
(unaudited) $ - 10,411 -
Common shares of $0.01 par value each -
Authorized: 50,000,000 shares as of March 31,
2000 (unaudited) and December 31, 1999
Issued and outstanding: 17,253,920 and
8,177,743 shares as of March 31, 2000 and
December 31, 1999 respectively 60,000,000
shares authorized and 18,295,060 shares issued
and outstanding pro forma as of March 31,
2000 (unaudited) ; no shares authorized, issued
or outstanding pro forma as of December 31,
1999 182,950 172,539 81,777
Deferred compensation (5,403,170) (5,403,170) -
Additional paid-in capital 156,954,129 156,954,129 -
Deficit accumulated during the development stage (124,015,236) (124,015,236) (1,248,026)
------------- ------------- -----------
Total shareholders' equity (deficiency) $ 27,718,673 27,718,673 (1,166,249)
============= ------------- -----------
Total liabilities and shareholders equity (deficiency) $ 29,530,476 $ 286,684
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE F-4>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
In U.S. dollars (except per share data)
<TABLE>
<CAPTION>
Period from Period from
commencement commencement
of operations of operations
Three months (April 1, 1999) (April 1, 1999)
ended through through
March 31, December 31, March 31,
2000 1999 2000
Unaudited Unaudited
------------ -------------- ---------------
<S> <C> <C> <C>
Operating expenses:
Research and development (excluding
amortization of stock-based compensation
in the amount of $79,039,233) $ 804,910 $ 337,189 $ 1,142,099
Marketing expenses (excluding amortization
of stock-based compensation in the amount
of $8,519) 329,821 - 329,821
General and administrative (excluding
amortization of stock based compensation
in the amount of $42,100,266) 448,761 144,509 593,270
Amortization of stock-based compensation 121,148,018 - 121,148,018
------------- ---------- -------------
Operating loss (122,731,510) (481,698) (123,213,208)
Interest expenses, net 35,700 11,480 47,180
------------- ---------- -------------
Net loss $(122,767,210) $ (493,178) $(123,260,388)
============= ========== =============
Basic and diluted net loss per Common share $ (9.80) $ (0.06) $ (10.65)
============= ========== =============
Weighted average number of Common shares used
in calculating basic and diluted net loss per
Common share 12,523,791 8,177,743 11,578,999
============= ========== =============
Pro-forma basic and diluted net loss per Common
share $ (9.71) $ (0.06) $ (10.56)
============= ========== =============
Weighted average number of Common shares used
in calculating pro forma basic and diluted net
loss per Common share 12,639,474 8,177,743 11,669,533
============= ========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE F-5>
NET2WIRELESS CORPORATION
(A company in the development stage)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
In U.S. dollars (except per share data)
<TABLE>
<CAPTION>
Preferred A shares Common shares Additional
-------------------- ------------------- paid-in Deferred
Shares Amount Shares Amount capital compensation
------ ------ ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of April 1, 1999
(commencement of operations) - $ - - $ - $ - $ -
Issuance of shares on December 7, 1999
at par value - - 3.8 (* - - -
Capital distribution - - - - - -
Stock split ** - - 8,177,739 81,777 - -
Net loss - - - - - -
--------- ------- ---------- -------------- ------------ -----------
Balance as of December 31, 1999 - - 8,177,743 81,777 - -
Issuance of Common shares in
January 2000 - - 5,227,213 52,272 447,728 -
at $0.1 per share (unaudited)
Issuance of Preferred A shares in
March 2000 at $27.931 per share,
net (unaudited) 1,041,140 10,411 - - 28,832,744 -
Exercise of options - - 68,741 688 159,297 -
Conversion of convertible note - - 3,780,223 37,802 963,172 -
Deferred compensation related to options
issued to employees (unaudited) - - - - 5,494,388 (5,494,388)
Stock based compensation related
to options and warrants issued to - - - - 121,056,800 -
service providers
Amortization of deferred compensation
(unaudited) - - - - - 91,218
Net loss (unaudited) - - - - - -
--------- ------- ---------- -------------- ------------ -----------
Balance as of March 31, 2000 (unaudited) 1,041,140 $10,411 17,253,920 $ 172,539 $156,954,129 $(5,403,170)
========= ======= ========== ============== ============ ===========
</TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
In U.S. dollars (except per share data)
(Continued)
<TABLE>
<CAPTION>
Deficit
accumulated
during the
development
stage Total
------------- -------------
<S> <C> <C>
Balance as of April 1, 1999 $ - $ -
(commencement of operations)
Issuance of shares on December 7, 1999
at par value - -
Capital distribution (673,071) (673,071)
Stock split ** (81,777) -
Net loss (493,178) (493,178)
------------- -------------
Balance as of December 31, 1999 (1,248,026) (1,166,249)
Issuance of Common shares in
January 2000 - 500,000
at $0.1 per share (unaudited)
Issuance of Preferred A shares in
March 2000 at $27.931 per share,
net (unaudited) - 28,843,155
Exercise of options - 159,985
Conversion of convertible note - 1,000,974
Deferred compensation related to options
issued to employees (unaudited) - -
Stock based compensation related
to options and warrants issued to - 121,056,800
service providers
Amortization of deferred compensation
(unaudited) - 91,218
Net loss (unaudited) (122,767,210) (122,767,210)
------------- -------------
Balance as of March 31, 2000 (unaudited) $(124,015,236) $ 27,718,673
============= =============
<FN>
*) Represents an amount lower than $ 1.
**) See Notes 9a(1) and 9a(2).
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE F-6>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
In U.S. dollars
<TABLE>
<CAPTION>
Period from Period from
commencement commencement
of operations of operations
Three months (April 1 1999) (April 1 1999)
ended through through
March 31, December 31, March 31,
2000 1999 2000
Unaudited Unaudited
------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(122,767,210) $(493,178) $(123,260,388)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 28,737 14,608 43,345
Amortization of deferred stock compensation 121,148,018 - 121,148,018
Accrued severance pay 48,655 21,610 70,265
Increase in accounts receivable (236,679) (69,530) (306,209)
Increase in accounts payable 432,163 97,414 529,577
Increase in employees and payroll accruals 262,566 53,549 316,115
Increase in accrued expenses 305,466 80,360 385,826
------------- --------- -------------
Net cash used in operating activities (778,284) (295,167) (1,073,451)
------------- --------- -------------
Cash flows from investing activities:
Purchase of property and equipment (461,921) (183,248) (645,169)
Lease deposit - (48,514) (48,514)
------------- --------- -------------
Net cash used in investing activities (461,921) (231,762) (693,683)
------------- --------- -------------
Cash flows from financing activities:
Payable to ITES (1,200,000) 526,929 (673,071)
Proceeds from issuance of share capital, net 29,343,155 - 29,343,155
Proceeds from exercise of convertible note 1,000,974 - 1,000,974
Proceeds from exercise of options 159,985 - 159,985
Proceeds from short-term loans 510,020 - 510,020
------------- --------- -------------
Net cash provided by financing activities 29,814,134 526,929 30,341,063
------------- --------- -------------
Increase in cash and cash equivalents 28,573,929 - 28,573,929
Cash and cash equivalents at the beginning
of the period - - -
------------- --------- -------------
Cash and cash equivalents at the end of the period $ 28,573,929 $ - $ 28,573,929
============= ========= =============
Non-cash transactions:
Capital distribution $ - $ 673,071 $ -
============= ========= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE F-7>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
NOTE 1:- GENERAL
Net2Wireless Corporation ("the Company" or "N2W"), a Delaware company, was
formed on December 7, 1999 by the controlling shareholders of Imaging
Technologies Enterprise System Ltd. ("ITES"). The Company and its subsidiaries,
located in Israel and in the British Virgin Islands, are engaged in the research
and development of wireless multimedia applications, including real time
broadcasting of content via wireless.
From April 1, 1999 through December 15, 1999, operations were conducted as a
semi-autonomous business unit within ITES - an Israeli based company under
common control with N2W. ITES was engaged in the development of wireless
multimedia applications ("the Wireless Business") and of internet communications
applications. All of I.T.E.S. operating and other expenses since April 1, 1999,
were related to the wireless business - and are all reflected in Net2Wireless
statement of operations. On December 15, 1999, N2W acquired all of ITES's assets
(including intellectual property) and assumed all liabilities related to the
Wireless Business (the "Asset Acquisition Agreement") for an aggregate
consideration of $ 1,200,000, of which $ 1,000,000 was to be paid in cash and $
200,000 in a promissory note, due the earlier of December 31, 2002 or upon the
closing of a public offering of the Company's Common stock with gross proceeds
to the Company of at least $30,000,000. The note bore interest of 8% per annum,
and was convertible at any time into the Company's Common shares at the then
market value of the underlying shares. Subsequent to December 31, 1999, N2W paid
the $1,200,000 (including the promissory note).
These transactions, which effected a combination of entities under common
control, have been accounted for in a manner similar to a pooling of interests.
Accordingly, the financial statements of the Company for the period prior to
December 15, 1999 have been prepared using the combined historical carrying
amounts of the assets, liabilities and operations of ITES transferred to the
Company. The total obligation to ITES in excess of the amounts funded by ITES at
the date of transfer amounting to N2W of $ 673,071 has been recorded in the
financial statements of the Company as a capital distribution.
NOTE 2:- AGREEMENT WITH SENSAR CORPORATION
On December 8, 1999, the Company signed an agreement ("Loan and Option
Agreement") with Sensar Corporation ("Sensar"), a public U.S company traded on
the NASDAQ Small Cap Market. According to the Loan and Option Agreements, Sensar
agreed to lend the Company $ 2,000,000. with an annual interest rate of 8%, due
on September 30, 2000 (see Note 9c).
In addition, at any time after the commencement by N2W of a pilot program for a
beta testing of certain modules of its software system with Partner
Communications Company Ltd. ("Pilot Program"), (See Note 8c) and until 30 days
following the receipt of written notice from N2W that N2W has completed its
Pilot Program ("the Completion Date"), but no later than December 31, 2000,
Sensar may elect to acquire 100% of the equity interest of N2W, in consideration
for 18,295,060 newly issued Common shares of Sensar and shall assume up to
14,766,649 outstanding stock options and warrants of N2W (the "Merger").
<PAGE F-8>
Within 30 days following the Completion Date and prior to December 31, 2000, N2W
may call for such a Merger.
Adjustments to the number of shares to be issued to N2W shareholders under such
Merger may be required if certain conditions on Sensar's part are not met.
In connection with the Merger, Sensar will issue 1,000,000 Common shares to
certain individuals, including a related party, involved in introducing Sensar
and Net2Wireless. The fair value ascribed to such issuance will be accounted for
as a cost of the transaction.
On April 7, 2000 Sensar filed a prospectus with the United States Security and
Exchange Commission with regard to the proposed merger of Sensar Corporation and
N2W. The merger is pending the approval of the stockholders of both companies.
The merger will be accounted for as the acquisition of the net assets of Sensar
by N2W. Although Sensar will be the surviving legal entity, for financial
reporting purposes, N2W, the entity whose shareholders will hold in excess of
50% of the combined company, will be deemed the continuing entity. The merger
will be accounted as a capital stock transaction in which N2W will be deemed to
have issued the shares of Common stock held by the Sensar stockholders for the
net assets of Sensar. The costs of the transaction will be charged to
stockholders' equity. To the extent that the costs of the transaction exceed
the net assets acquired from Sensar, the excess will be charged to the statement
of operations
NOTE 3: - SIGNIFICANT ACCOUNTING POLICES
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States.
a. Interim financial information:
The financial information as of March 31, 2000 and for the three months then
ended, is unaudited. However, in the opinion of management, said financial
information has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal recurring
adjustments), which N2W considers necessary for a fair presentation of the
financial position at such date, and the operating results and cash flows for
the period. Results for the interim period are not necessarily indicative of the
results to be expected for the entire year.
b. Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
<PAGE F-9>
c. Principles of consolidation:
The consolidated financial statement include the accounts of the Company and its
wholly-owned subsidiaries. Inter-company transactions and balances have been
eliminated in consolidation.
d. Financial statements in U.S. dollars:
The functional currency of the Company and its subsidiaries is the U.S dollar,
as the U.S. dollar is the primary currency of the economic environment in which
the Company and its subsidiaries have operated and expect to continue to operate
in the foreseeable future. The majority of N2W operations are currently
conducted in Israel and most of the Israeli expenses are currently paid in new
Israeli shekels ("NIS"); however, most of the expenses are denominated and
determined in U.S dollars. Financing activities including loans, equity
transactions and cash investments, are made in U.S. dollars.
The Company's transactions and balances denominated in U.S. dollars are
presented at their original amounts. Non-dollar transactions and balances have
been remeasured to U.S. dollars in accordance with Statement No. 52 of the
Financial Accounting Standards Board ("SFAS"). All transaction gains and losses
from remeasurement of monetary balance sheet items denominated in non-dollar
currencies are reflected in the statements of operations as financial income or
expenses, as appropriate. For the period of three months ended March 31, 2000
and for the period from commencement of operations (April 1, 1999) through
December 31, 1999, these expenses were immaterial.
e. Cash and cash equivalents:
Cash equivalents are considered to be highly liquid investments which include
short-term bank deposits with original maturities of three months or less.
f. Property and equipment:
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
three to seven years. Leasehold improvements are amortized on a straight-line
basis over the lease term.
g. Accrued severance pay:
The Israeli subsidiary's liability for severance pay, pursuant to Israeli law,
is accrued in the balance sheet. The liability for severance pay is calculated
pursuant to the Israeli severance pay law based on the most recent salary of the
Israeli employees multiplied by the number of years of employment as of the
balance sheet date. Employees are entitled to a severance payment of one month's
salary for each year of employment or a portion thereof. The subsidiary's
liability for all of its employees, is fully provided by an accrual.
<PAGE F-10>
h. Research and development costs:
Research and development costs are charged to the statement of operations as
incurred. SFAS No. 86 "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed", requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Research and development costs
incurred by the Company to date have been charged to operating expenses.
i. Accounting for stock-based compensation:
The Company has elected to account for stock-based compensation in accordance
with the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", in accounting for its employees
options. Under APB 25, when the exercise price of the Company's stock options is
less than the market price of the underlying stock on the date of grant,
compensation expense is recognized for the difference which is amortized over
the vesting period. The pro forma information with respect to the fair value of
the options, is provided in accordance with the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" (see Note 7c).
In accounting for warrants granted to parties other than employees, the
provisions of SFAS 123, and EITF 96-18, "Accounting for Equity Instruments that
Are Issued to Other than Employees for Acquiring or in Conjunction with Selling,
Goods or Services", were applied. The fair value of warrants is estimated at the
date at which the optionee's service is provided, or upon firm commitment for
the provision of services.
j. Basic and diluted loss per Common share:
Basic and diluted net loss per Common share is presented in accordance with SFAS
128, "Earnings Per Share", for all periods presented.
Basic and diluted net loss per Common share has been computed using the weighted
average number of Common shares outstanding during each period. Diluted net loss
per Common share is computed based on the weighted average number of Common
shares outstanding during each period, plus the weighted average number of
dilutive potential Common shares considered outstanding during the period.
All Preferred stock, outstanding stock options and warrants have been excluded
from the calculation of the diluted loss per Common share, because all such
securities are anti-dilitive for all periods presented. The total number of
shares related to the Preferred stock, outstanding options and warrants
excluded from the calculations of diluted net loss per share, were 12,559,131
and 0 for the period of three months ended March 31, 2000 and for the year
ended December 31, 1999, respectively.
<PAGE F-11>
The following table presents a calculation of pro forma basic and diluted net
loss per Common share (in U.S dollars except per share date):
<TABLE>
<CAPTION>
Period from Period from
commencement commencement
of operations of operations
Three months (April 1, 1999) (April 1, 1999)
ended through through
March 31, 2000 December 31, March 31,
1999 2000
(Unaudited) (Unaudited)
-------------- --------------- --------------
<S> <C> <C> <C>
Net loss $(122,767,210) $ (493,178) $(123,260,388)
============= ========== =============
Weighted average number of Common
shares used in computing basic and
diluted net loss per Common share 12,523,791 8,177,743 11,578,999
Pro forma adjustments to reflect
weighted effect of assumed conversion
of convertible Preferred A stock 115,683 - 90,534
------------- ---------- -------------
Weighted average number of Common
shares used in computing pro forma
basic and diluted net loss per Common
share 12,639,474 8,177,748 11,669,533
============= ========== =============
Pro forma basic and diluted net loss
per share $ (9.71) $ (0.06) $ (10.56)
============= ========== =============
</TABLE>
The pro forma basic and diluted net loss per share reflects the preferred shares
automatic conversion upon the Merger.
k. Fair value of financial instruments:
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments:
Cash and cash equivalents and accounts payables - the carrying amount reported
in the balance sheet approximates its fair value due to the short-term
maturities of these instruments.
<PAGE F-12>
l. Income taxes:
The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes". This statement prescribes the use of the liability method
whereby deferred tax asset and liability account balances are determined based
on the differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company provides a
valuation allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.
m. Concentrations of credit risks:
Financial instruments that potentially subject the Company to concentrations of
credit risks consist principally of cash and cash equivalents.
The Company's cash and cash equivalents are deposited in major banks in Israel
and in the U.S. Such deposits in the United States may be in excess of insured
limits and are not insured in other jurisdictions. Management believes that the
financial institutions that hold the Company's investments are financially sound
and, accordingly minimal risk exists with respect to these investments.
n. Impact of recently issued accounting standards
In June 1998, the SFAS issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The FASB has issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133". The Statement defers for one
year the effective date of SFAS No. 133. The rule will apply to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
expect the impact of this new Statement on the Company's consolidated balance
sheets or results of operations to be material.
NOTE 4:- LOAN TO ITES (UNAUDITED)
On March 28, 2000, the Company granted ITES a loan in the amount of $ 60,928, to
be repaid no later than March 31, 2001. The loan is linked to the Israeli CPI
and bears interest at a rate of 7% per annum.
<PAGE F-13>
NOTE 5:- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Cost:
Computers and peripheral equipment $113,984
Office furniture and equipment 27,518
Motor vehicles 16,903
Leasehold improvements 24,843
--------
183,248
Accumulated depreciation 14,608
--------
Depreciated cost $168,640
========
</TABLE>
Depreciation expenses amounted to $ 14,608 for the nine month period ended
December 31, 1999.
NOTE 6:- COMMITMENTS AND CONTINGENT LIABILITIES
a. The Israeli subsidiary leased office space under operating lease
agreements. The minimum rental payments under non-cancelable operating leases
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Nine months ended December 31, 2000 $ 252,903
Year ended December 31, 2001 1,359,695
Year ended December 31, 2002 1,565,104
Year ended December 31, 2003 1,555,168
----------
$4,732,870
==========
</TABLE>
In connection with one lease agreement the Israeli subsidiary has committed
to provide a bank guarantee of approximately $ 1,248,310.
In connection with another lease agreement, the Israeli subsidiary provided
a bank guarantee of approximately $ 5,133.
In connection with a third lease agreement, the Company deposited an
amount equal to six monthly rental payments, to secure its last payments
under the agreement.
Rent expense for the nine-month period ended December 31, 1999, was
approximately
$ 13,656.
<PAGE F-14>
b. On October 6, 1999, ITES entered into a Memorandum of Understanding
("MOU") with Partner Communications Company Ltd. ("Partner"), an Israeli
cellular communications provider, relating to a proposed evaluation by Partner
of a certain module of ITES' software and hardware platform ("the Pilot
Program"). Under the terms of the MOU, Partner was to receive options
exercisable through October 6, 2000, to purchase a 10% interest in ITES, at a
pre-money market value of no more than $ 5,555,555 subject for certain
conditions. In addition, the parties agreed on certain commercial terms to be
contained in a definite agreement, if and when signed.
As part of the asset acquisition agreement, ITES assigned all rights and
obligation under the MOU to N2W. Pending the consent of Partner, N2W, ITES and
Partner negotiated the terms of a definite agreement, to settle all the disputes
between them. Such agreement ("the Definite Agreement") was signed on March 13,
2000. Pursuant to the Definite Agreement, Partner received a right of first
refusal in respect to any other activity of N2W's new technologies, services,
products or applications relating to the Wireless Business in Israel. Partner
further agreed to assist in introducing N2W to other GSM cellular providers
worldwide. Partner shall be entitled to 15% of the revenues of N2W from any
resulting sale.
According to the Definite Agreement and the MOU Partner was granted a fully
vested and non-forfeitable option ("the Partner Option") in order to induce it
to enter into the Agreement. The Partner Option allows the purchase of up to
an aggregate of 3,020,576 Common shares of N2W, or the surviving company in the
event of a merger between N2W and Sensar ("the Merger") - at an exercise price
of $ 1.84 per Common share (an aggregated exercise price of $ 5,555,555). The
Partner Option shall be exercisable through the later of October 6, 2000 or two
months after completion of the Merger. In the event that the Merger shall not be
consummated, the terms of the options will be changed such that the number
of underlying Common shares will be equal to 1,909,465 Common shares - at an
exercise price of $ 2.909 per Common share. In the event that the market price
per share of the surviving company immediately following a Merger shall reflect
a company valuation of less than $ 50,000,000 (before giving effect to the
exercise of options), the purchase price to be paid by Partner shall be adjusted
by the ratio between $ 50,000,000 and the actual valuation (before Partner's
investment).
The fair value of this option was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 0%, volatility factors of the expected
market price of the Company Common shares of 0.5, and an expected life of 1
year.
NOTE 7:- SHARE CAPITAL
a. Share capital:
(1) The Common shares confer upon their holders voting rights and the rights
to participate in shareholders' meetings, to receive profits and to a share in
excess assets upon liquidation of the Company.
<PAGE F-15>
(2) The Series A Preferred shares confer upon their holders all the rights
conferred by Common shares and, in addition, they confer the following rights:
(a) Conversion and anti-dilution:
The convertible Preferred shares are convertible at the option of the holder, at
any time, into one Common share, subject to certain anti-dilution adjustments,
including for issuances of additional Common shares for a consideration per
share less than the conversion price of any convertible Preferred shares.
Outstanding shares of convertible Preferred shares automatically convert into
Common shares on the closing of an underwritten public offering of Common shares
in which the Company received at least $ 30 million of net proceeds and the
offering price per share is at least $ 10 (subject to adjustment for share
splits, share dividends, and like events), or upon the completion of the Merger
(see Note 2).
(b) Dividend:
If and when the Company declares a dividend, the holders of convertible
Preferred shall be entitled to receive non-cumulative dividends, out of any
assets legally available therefore, prior and in preference to any declaration
or payment of any dividend on the Common shares of the Company, in the amount
equal to 8% of the Preferred stock price per annum.
(c) Liquidation:
The holders of Series A convertible Preferred shares are entitled to receive,
upon liquidation and in certain circumstances as upon a merger, acquisition or
similar event (excluding the Merger with Sensar corporation), an amount per
share equal to the equivalent in Israel currency (subject to stock splits, stock
dividends, reclassifications and the like) of $ 27.93. Any remaining assets
shall be distributed on a pro rata basis among the holders of all Preferred and
Common shares.
(d) Voting:
Convertible Preferred shares confer voting rights based on the number of Common
shares into which the Preferred share is convertible.
b. Convertible loans from related parties:
On December 15, 1999, the Company signed a stock and note purchase
agreement with a group of investors ("the Investors"). According to the terms
of the agreement the Company issued 5,227,293 Common shares for an aggregate
amount of $ 500,000. In addition, the Investors together with other new
investors agreed to lend the Company $ 1,000,000, due on December 31, 2000. The
loan bears interest at the rate of 6.5% per annum, and is convertible, at any
time through the due date, into 3,780,223 Common shares.
<PAGE F-16>
In January 2000, the Company received the equity investment and the loan,
aggregating to $ 1,500,000 and issued 5,227,213 Common shares in accordance with
the agreement.
On March 30, 2000, the note was converted into 3,780,223 Common shares.
c. Warrants and stock options (unaudited):
1. Options to employees and directors:
Since January 1, 2000, the Company has granted options to employees and
directors, pursuant to employment agreements. Each option granted can be
exercised to one Common share of the Company. Option granted to employees
generally vest over a period of four to five years, and options granted to
directors are generally fully vested at the date of grant. The options expire 10
years from the date of grant.
A summary of the Company's stock option activity, and related information is as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31, 2000
-----------------------
Weighted
Number average
of exercise
options price
Unaudited
-----------------------
<S> <C> <C>
Change during the period:
Options outstanding at the beginning of
the period - $ -
Granted 2,787,753 2.32
---------- -----
Options outstanding at the end of the period 2,787,753 $2.32
========= =====
Options exercisable at the end of the period 1,417,777 $1.86
========= =====
Deemed fair value of options granted at an
exercise price of:
Less than fair market value at date granted $ 26.30
==========
Equal to fair market value at date granted $ 14.09
==========
Exceeds fair market value at date granted $ -
==========
</TABLE>
<PAGE F-17>
The options outstanding as of March 31, 2000, have been separated into ranges of
exercise price as follows:
<TABLE>
<CAPTION>
Weighted
Options Weighted Options average
outstanding average Weighted exercisable exercise
as of remaining average as of price of
March 31, contractual exercise March 31, exercisable
Exercise price 2000 life price 2000 options
-------------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1.86 2,734,587 7.25 $ 1.86 1,417,777 $1.86
23.27-27.93 53,166 9.94 25.82 - -
--------- ---- ------ --------- -----
2,787,753 7.30 $ 2.32 1,417,777 $1.86
========= ==== ====== ========= =====
</TABLE>
Pro forma information regarding net loss and net loss per Common share is
required (for grants issued after December 1994) by SFAS 123, and has been
determined assuming the Company had accounted for its employee stock options
under the fair value method prescribed by that Statement. The fair value of the
options was estimated at the grant date using the minimum value option pricing
model, with the following weighted-average assumptions: a dividend yield of 0%
for all years; a risk-free interest rate of 5.75% for all years and an expected
life of five years for all options.
Pro forma information under SFAS 123 is as follows:
<TABLE>
<CAPTION>
Three months
ended
March 31,
2000
Unaudited
--------------
<S> <C>
Net loss $(122,767,210)
=============
Pro forma net loss $(123,425,590)
=============
Pro forma basic and diluted net loss per Common share $ (9.86)
=============
</TABLE>
2. Warrants:
a) On December 7, 1999, the Company granted two of its founders a total of
3,265,185 options to purchase the Company's Common shares at $ 1.86 per share,
in recognition of the role they filled in the negotiation and structuring of the
agreement with Sensar. The options vest immediately, and are exercisable for a
period of five years. As the exercise price per option was above the fair market
value of the Company at the date of grant the Company has not recorded any
compensation expense in connection with these grants.
<PAGE F-18>
The fair value of this option was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 0%, volatility factors of the expected
market price of the Company Common shares of 0.5, and an expected life of three
years. The fair value of the option is immaterial.
b) On December 9, 1999, in connection with the Loan and Option Agreement
with Sensar, the Company granted an advisor a fully vested warrant to acquire up
to 5,370,370 Common shares of the Company at $ 2.33 per share. The warrant is
exercisable at any time, in whole or in part through December 8, 2004.
The fair value of this warrant was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 10%, volatility factors of the
expected market price of the Company Common shares of 0.5, and an expected life
of three years. The fair value of the warrant is immaterial.
3. Warrants and options (unaudited):
a) On February 2, 2000, the Company granted an advisor a fully vested
warrant to acquire up to 68,741 Common shares of the Company at $2.33 per share.
The warrant is exercisable at any time in whole or in part through February 1,
2005. On March 23, 2000 the warrant was exercised into 68,741 Common shares.
The fair value of this warrant was estimated at the grant date using
a Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 0%, volatility factors of the expected
market price of the Company Common shares of 0.5, and an expected life of five
years. The fair value of the warrant is immaterial.
b) On March 20, 2000, the Company granted to a related party total of
214,815 options to purchase the Company's Common shares at $1.86 per share, in
consideration for services provided in connection with the stock purchase
agreement (see note 9d). The options vest immediately, and are exercisable for a
period of five years.
The fair value of these options was estimated at the grant date using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.75%, dividend yield of 0%, volatility factors of the expected
market price of the Company Common shares of 0.5, and an expected life of five
years. The fair value of each option is $ 26.53.
<PAGE F-19>
d. Stock based compensation expenses (unaudited):
Following are the components of the stock based compensation expenses:
<TABLE>
<CAPTION>
Three months
ended
March 31,
2000
Unaudited
-----------
<S> <C>
Compensation expenses from the grant of options and warrants to:
Employees $ 91,218
Directors 36,399,901
Advisors 5,699,042
Partner (see Note 6(b)) 78,957,857
$121,148,018
============
</TABLE>
NOTE 8:- TAXES ON INCOME
The Company commenced operations as an independent entity for income tax
purposes subsequent to December 31, 1999. As described in Note 1, for accounting
purposes, the financial statements for the period ended December 31, 1999,
reflect the operations of Wireless Business conducted within ITES. Thus N2W, as
an independent entity, had no net losses carryforwards for tax purposes as of
December 31, 1999.
NOTE 9:- SUBSEQUENT EVENTS
a. On February 2 and 3, 2000, the Board of Directors authorized, and the
Company's shareholders ratified, an increase in the Company's authorized capital
stock from 3,000 Common shares of $ 0.01 par value each to (i) 50,000,000 Common
shares, $ 0.01 par value each, and (ii) 10,000,000 Preferred shares, $ 0.01 par
value each. The Board further approved a 2,000,000:1 stock split to be effected
as a stock dividend (such that each holder of one Common share was entitled to
receive 1,999,999 additional Common shares), effective February 17, 2000. All
warrants, options, shares and per share, warrant and option amounts have been
retroactively adjusted to reflect the stock split.
b. On March 20, 2000, the Board of Directors approved a 1.074074:1 stock
split effected as a stock dividend (such that each holder of one Common share
was entitled to receive 0.074074 additional Common shares). All warrants,
options shares and per share, warrant and option amounts have been retroactively
adjusted to reflect the stock split.
c. In January 2000, Sensar transferred $ 500,000 as a loan to N2W, in
respect of the Loan and Option Agreement.
d. On March 21, 2000, N2W signed a stock purchase agreement with a group of
investors. Pursuant to the terms of the agreement, N2W issued 1,041,140 shares
of Series A Preferred stock par value $ 0.01 per share, at $ 27.93 per share,
resulting in aggregate gross proceeds of $ 29,080,100. The Preferred A shares
have the same rights as the Common shares, are convertible into Common shares,
and have a preference in the net assets of the Company in certain liquidation
events and in dividends.
<PAGE F-20>
NOTE 10:- SUBSEQUENT EVENTS (UNAUDITED)
The Company signed a memorandum of understanding, dated as of July 26, 2000,
with Nextel Finance Company, a wholly-owned subsidiary of Nextel Communication,
Inc., for the field testing and potential future purchase of Net2Wireless'
proposed products.
In a separate agreement, dated July 26, 2000, Nextel Finance Company and the
Company also agreed to the terms and conditions that would apply to an
investment in 1,000,000 shares of the Company capital stock at a per share price
of $ 32. Consummation of this investment transaction is subject to several
conditions, including the satisfactory completion of due diligence by Nextel
Finance Company.
<PAGE F-21>
APPENDIX A
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into this 8th day of December,
1999, by and among SENSAR CORPORATION, a Nevada corporation ("Sensar") and
Net2Wireless, Inc., a Delaware corporation ("Net"), based on the following:
Premises
A. Sensar is a publicly-held corporation with its common stock listed
on the NASDAQ Small Cap Market.
B. Net is an emerging growth company that has the right to acquire
development technology with potential applications in the wireless
communications field.
C. Sensar and Net have discussed the possibility of a business
transaction to the mutual benefit of both parties and have agreed to enter into
the transactions set forth in this Agreement.
Agreement
NOW, THEREFORE, based on the stated premises, which are incorporated herein
by this reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefits to the parties to be
derived therefrom, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the meanings indicated:
Section 1.01 Code. The Internal Revenue Code of 1986, as amended.
Section 1.02 Exchange Act. The Securities Exchange Act of 1934, as
amended.
Section 1.03 GAAP. United States generally accepted accounting
principles, as in effect on the date of determination, applied on a consistent
basis.
Section 1.04 Net. Net2Wireless, Inc., a corporation organized under
the laws of the state of Delaware and its wholly owned subsidiaries.
Section 1.05 Net Stock. All of the shares of Net issued and
outstanding as of the Closing Date, which are to be exchanged for shares of
Sensar Common Stock pursuant to the terms of this Agreement.
<PAGE 1>
Section 1.06 SEC. The United States Securities and Exchange
Commission.
Section 1.07 Securities Act. The Securities Act of 1933, as amended.
Section 1.08 Sensar. Sensar Corporation, a Nevada corporation.
Section 1.09 Sensar Common Stock. The authorized common stock, par
value $0.001 per share, of Sensar.
ARTICLE II
TRANSACTION
Section 2.01 Loan. On the terms and conditions hereinafter set forth,
Sensar agrees to loan to Net Two Million Dollars ($2,000,000) (the "Funding").
The Funding will be made to Net subsequent to the successful completion of the
following:
(a) The acquisition (the "Asset Acquisition"), directly or
indirectly through wholly-owned subsidiaries of Net, of the following from
I.T.E.S. Ltd., an Israeli corporation ("ITES"):
(i) All intellectual property owned by ITES related to wireless
multi-media streaming;
(ii) Any intellectual property owned by ITES necessary to permit the
development by Net of related wireless applications such as e-mail, messaging,
etc.; and
(iii) The tangible property owned by ITES associated with the
intellectual property transferred to Net.
(b) The delivery of, and acceptance by Sensar, of the Net Schedules
required by Section 5.22, including the audited financial statements of Net, as
required by Section 5.05;
(c) The written agreement by the holders of at least 67% of the Net
Stock outstanding subsequent to the Asset Acquisition to approve the execution
and delivery of this Agreement by Net and to vote in favor of the acquisition of
Net as a wholly-owned subsidiary of Sensar if a Reorganization Notice (as
defined in Section 2.04) is given; and
(d) Net shall enter into an agreement with Partner Communications Ltd.
("Partner"), in form and substance acceptable to Sensar, that provides for the
installation and testing of Net's wireless multi-media streaming platform with
Partner's existing wireless network; and
(e) The execution and delivery of a security agreement in form and
substance acceptable to Sensar granting the security interest set forth in
Section 2.03.
<PAGE 2>
Section 2.02 Note. The obligation of Net with respect to the Funding
and any subsequent amounts advanced to Net by Sensar shall be evidenced by a
promissory note, in a form satisfactory to Sensar. All such amounts shall bear
interest at eight percent (8%) per annum, from the date advanced until paid.
The principal and all accrued but unpaid interest shall be due in full on or
before September 30, 2000.
Section 2.03 Security. The obligations of Net to Sensar shall be
secured by a perfected security interest in all of the assets of Net, including
the shares of its operating subsidiaries.
Section 2.04 Reorganization.
(a) At any time after the commencement by Net of the pilot program
under the agreement with Partner until 30 days following the receipt of written
notice from Net that Net has completed its pilot program under the terms of the
agreement with Partner (the "Completion Date"), but in no event later than
December 31, 2000, Sensar may, by prior written notice (the "Reorganization
Notice") to Net, elect to acquire 100% of the equity interest of Net under the
terms set forth in Section 2.05.
(b) Within 30 days following the Completion Date and prior to
December 31, 2000, Net may deliver a Reorganization Notice to Sensar.
(c) On delivery of such Reorganization Notice, whether by Sensar
or Net, the parties shall be bound to proceed with the reorganization as set
forth below.
Section 2.05 Terms of the Reorganization. If a Reorganization Notice
is delivered, the acquisition of Net shall be accomplished either as an
acquisition of Net as a wholly-owned subsidiary of Sensar or through a merger of
Net with and into Sensar, in accordance with the representations, covenants, and
conditions set forth in this Agreement. All of the issued and outstanding
shares, and rights to acquire shares, of Net shall be cancelled as of the
effective time of the merger and Sensar shall issue an aggregate of 8,000,000
shares of Sensar common stock to the former holders of Net Stock, including the
holders, other than Sensar, of any rights to acquire Net Stock, pro rata, as
each holder's rights may be determined by the board of directors of Net;
provided that in addition to such 8,000,000 shares, options or a plan to issue
options existing as of the Closing to acquire Net Stock will be assumed as
options to acquire a maximum of 5,500,000 shares of Sensar Common Stock. If the
amount received by Sensar with respect to the short term notes receivable
reflected on the financial statements of Sensar as of September 30, 1999 on or
before the date that is 60 days subsequent to the due date of such receivables,
when added to the net cash held by Sensar at the Closing is less than $4.5
million, the number of shares of Sensar stock to be delivered to the former
holders of Net stock shall be increased, in the aggregate, by the number of
shares calculated in accordance with the following formula: [$4.45 million -
(net cash + amount received with respect to the short-term receivables on or
before sixty days subsequent to the due date)] by 4 = number of shares. For
purposes of this calculation "net cash" shall mean the cash held by Sensar as of
the Closing plus the amount due from Net for amounts advanced by Sensar under
the Funding (including accrued interest) less the liabilities of Sensar as of
the Closing, excluding any liability for which Sensar is indemnified by Howard
S. Landa under the provisions of Section 4.08 and to the extent then included,
any deferred gain reflected as a liability on the balance sheet of Sensar.
<PAGE 3>
Section 2.06 Closing of Acquisition. The closing ("Closing") of the
acquisition contemplated by this Agreement shall be on a date and at such time
as the parties may agree ("Closing Date") within the 10-day period subsequent to
the approval of the acquisition by the stockholders of Sensar and Net.
Section 2.07 Closing Events. At the Closing:
(a) The shareholders of Net shall deliver the original
certificates representing all of the issued and outstanding stock and rights to
acquire stock of Net, duly executed, with appropriate signature guarantees, for
cancellation by Net. Sensar shall deliver the original of the certificates
representing 8,000,000 shares of Sensar Common Stock (subject to the adjustments
provided for in this Agreement), registered in the names and denominations set
forth on Schedule 2.10.
(b) The current directors of Sensar shall resign and Andrew
Bebbington and four nominees of Net shall be appointed to the board of directors
of Sensar. All current officers of Sensar shall resign and the new board of
directors shall appoint the officers of Sensar and Net.
(c) Each of the respective parties hereto shall execute,
acknowledge, and deliver (or shall cause to be executed, acknowledged, and
delivered) any and all certificates, financial statements, schedules,
agreements, resolutions, r other instruments required by this Agreement to be
so delivered at or prior to the Closing together with such other items as may be
reasonably requested by the parties hereto and their respective legal counsel in
order to effectuate or evidence the transactions contemplated hereby; and
(d) In addition to the foregoing, each of the parties shall
execute and deliver such additional documents as may reasonably be required in
order to effectuate the acquisition herein contemplated in accordance with the
requirements of the Code and shall treat such acquisition for all tax purposes
consistently with the other parties' treatment thereof and in accordance with
the requirements as a reorganization under Code section 368(a).
<PAGE 4>
ARTICLE III
PRE-CLOSING COVENANTS
Section 3.01 Affirmative and Negative Covenants of Net.
(a) Net hereby covenants and agrees that, during the term of this
Agreement and prior to the Closing, unless otherwise expressly contemplated by
this Agreement (including, without limitation, the Asset Acquisition) or
consented to in writing by Sensar, Net will:
(ii) operate its business in all material respects in the usual
and ordinary course, consistent with past practice;
(iii) use all reasonable efforts to preserve substantially intact
its business organization, maintain its material rights and franchises, retain
the services of its officers and employees and maintain its relationships with
its material customers and suppliers;
(iv) maintain and keep its material properties and assets in as
good repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its customary
business practice; and
(v) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained.
(b) Except as expressly contemplated by this Agreement (including,
without limitation, the Asset Acquisition) or otherwise consented to in writing
by Sensar, during the term of this Agreement and prior to the Closing Date, Net
will not do any of the foregoing:
(i) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock;
(ii) (A) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations (except in connection with the exercise of outstanding stock
options in accordance with their terms); (B) effect any reorganization or
recapitalization; or (C) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock;
<PAGE 5>
(iii) (A) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire any such shares; (B) amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof; or (C) take any action to
accelerate the exercisability of stock options or other rights to acquire Net
Stock provided, however, that Net shall be permitted to issue stock options
which will be assumed as options to acquire 5,500,000 shares of Sensar Common
Stock following the Closing;
(iv) acquire or agree to acquire, by merging or consolidating with, by
purchasing any equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than pursuant to this Agreement or
for the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice);
(v) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any assets material to Net or its business;
(vi) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably be
expected to lead to, any transaction that would be inconsistent with the
transactions contemplated by this Agreement, or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain such a competing transaction, or agree to or endorse any competing
transaction, or authorize or permit any of the officers, directors or employees
of Net or any investment banker, financial advisor, attorney, accountant or
other representative retained by Net to take any such action, and Net shall
promptly notify Sensar of all relevant terms of any such inquiries and proposals
received by Net or by any officer, director, investment banker, financial
advisor, attorney, accountant or other representative relating to any of such
matters and if such inquiry or proposal is in writing, Net shall promptly
deliver or cause to be delivered to Sensar a copy of such inquiry or proposal
provided that, notwithstanding any provision of this Agreement to the contrary,
if Net shall breach the provisions of this Section 3.01(b)(vi), Sensar shall
have the right to convert the $2 million note evidencing the Funding into Net
Stock representing 33% of the equity ownership of Net on a fully diluted basis;
<PAGE 6>
(vii) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a competing
transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement;
(viii) adopt or propose to adopt any amendments to its certificate of
incorporation or bylaws, which would alter the terms of its capital stock or
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(ix) (A) change any of its methods of accounting employed in the
preparation of the financial statements described in Section 5.05 below , or (B)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, audit or controversy relating to
taxes (except where the amount of such settlement or controversy, individually
or in the aggregate, does not exceed $10,000);
(x) incur any obligations for borrowed money, incur any purchase money
indebtedness, or provide a guarantee, whether or not evidenced by a note, bond,
debenture or similar instrument, except in the ordinary course of business
consistent with past practice and in no event in excess of $100,000 in the
aggregate;
(xi) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Net;
(xii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities or
obligations, (x) reflected on, or reserved against in, or contemplated by, the
financial statements (or the notes thereto) of Net, (y) incurred in the ordinary
course of business consistent with past practice or (z) which are legally
required to be paid, discharged or satisfied;
(xiii) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of Net contained herein inaccurate in
any respect at, or as of any time prior to, the Closing;
(xiv) Net will not engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any of
Net affiliates, including, without limitation, any transactions, agreements,
arrangements or understanding with any affiliate or other person covered under
Item 404 of Regulation S-K promulgated under the Securities Act, other than
pursuant to such agreement, arrangements or understandings existing on the date
of this Agreement or as disclosed in writing to Sensar on the date hereof or
which are contemplated under this Agreement; provided that, Net provides Sensar
with all information concerning any such agreement, arrangement or understanding
that Sensar may reasonably request;
<PAGE 7>
(xv) engage in any futures or options trading or be a party to any
price or currency swaps, hedges, futures or derivative instruments; or
(xvi) agree in writing or otherwise to do any of the foregoing.
Section 3.02 Affirmative Covenants of Sensar. Sensar hereby covenants
and agrees that, during the term of this Agreement and prior to the Closing,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Net, Sensar will:
(a) timely file all SEC reports that may become due subsequent to the
date of this Agreement. Sensar will provide a draft of any such SEC report to
Net prior to its release in order to solicit Net's comments;
(b) take such steps as are necessary so that at the Closing Sensar has
no liabilities other than current liabilities not yet due, not to exceed $50,000
in the aggregate, and a minimum of an aggregate of $4.5 million in cash and note
receivables due no later than October 1, 2000 (with the maximum principal amount
of such notes not to exceed $3.5 million inclusive of the $2 million note (and
accrued and unpaid interest) evidencing the Funding);
(c) terminate all of its employment and consulting agreements, except
for such agreements as may be terminable at will on thirty (30) days or less
notice, without payment of penalty or any other amount other than the current
amount due for services;
(d) cause to be exercised all options, warrants, or other rights to
acquire stock or securities of Sensar identified in Schedule 3.02(d). When such
options are exercised on a cashless basis in connection with the Closing, the
average of the closing prices for Sensar Common Stock for the 20 trading days
with reported trading volume of at least 50,000 shares preceding the Closing
shall be used to calculate the number of shares to be issued;
(e) use its best efforts to maintain the listing of its common stock on
the NASDAQ Small Cap Market;
(f) maintain and keep its material properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its customary
business practice; and
(g) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained.
<PAGE 8>
In the course of accomplishing the foregoing, Sensar may make cash
payments, distribute assets, enter into transactions, and issue Sensar Common
Stock so long as it has a minimum of $4.5 million in cash and notes payable no
later than October 1, 2000 (with the maximum principal amount of such notes not
to exceed $3.5 million inclusive of the $2 million note (and accrued and unpaid
interest therein) evidencing the Funding) as of the Closing Date and does not
have in excess of 3,150,000 (plus any additional shares issued subsequent to the
date of this Agreement pursuant to the exercise of the options or warrants
identified in schedule 7.03) shares of Sensar Common Stock issued and
outstanding as of the Closing Date.
Section 3.03 Negative Covenants of Sensar. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Net (and
in addition to the covenant set forth in the preceding paragraph), during the
term of this Agreement and prior to the Closing Date, Sensar will not do any of
the following:
(a) declare or pay any dividend on, or make any other distribution
in respect of, outstanding shares of capital stock;
(b) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations (except in connection with the exercise of outstanding stock
options in accordance with their terms); (2) effect any reorganization or
recapitalization; or (3) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock;
(c) except for the rights identified in schedule 7.03, (1) issue,
deliver, award, grant or sell, or authorize or propose the issuance, delivery,
award, grant or sale (including the grant of any security interests, liens,
claims, pledges, limitations in voting rights, charges or other encumbrances)
of, any shares of any class of its capital stock (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire any such shares;
(2) amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the holders
thereof; or (3) take any action to accelerate the exercisability of stock
options or other rights to acquire Sensar Common Stock;
(d) acquire or agree to acquire, by merging or consolidating with,
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than pursuant to this Agreement or
for the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice);
<PAGE 9>
(e) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any assets material to Sensar or its business;
(f) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably be
expected to lead to, any transaction that would be inconsistent with the
transactions contemplated by this Agreement, or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain such a competing transaction, or agree to or endorse any competing
transaction, or authorize or permit any of the officers, directors or employees
of Sensar or any investment banker, financial advisor, attorney, accountant or
other representative retained by Sensar to take any such action, and Sensar
shall promptly notify Net of all relevant terms of any such inquiries and
proposals received by Sensar or by any officer, director, investment banker,
financial advisor, attorney, accountant or other representative relating to any
of such matters and if such inquiry or proposal is in writing, Sensar shall
promptly deliver or cause to be delivered to Net a copy of such inquiry or
proposal;
(g) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a competing
transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement;
(h) adopt or propose to adopt any amendments to its certificate of
incorporation or bylaws, which would alter the terms of its capital stock or
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(i) change any of its methods of accounting in effect at December
31, 1998, or (2) make or rescind any express or deemed election relating to
taxes, settle or compromise any claim, action, suit, litigation, audit or
controversy relating to taxes (except where the amount of such settlement or
controversy, individually or in the aggregate, does not exceed $10,000), or
change any of its methods of reporting income or deductions for income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1998, except in each case, as
may be required by law or GAAP;
(j) incur any obligations for borrowed money, incur any purchase
money indebtedness, or provide a guarantee, whether or not evidenced by a note,
bond, debenture or similar instrument;
(k) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Sensar;
(l) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligations, (x) reflected on, or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of Sensar, (y)
incurred in the ordinary course of business consistent with past practice or (z)
which are legally required to be paid, discharged or satisfied;
<PAGE 10>
(m) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of Sensar contained herein inaccurate
in any respect at, or as of any time prior to, the Closing;
(n) Sensar will not engage in any transaction with, or enter into
any agreement, arrangement, or understanding with, directly or indirectly, any
of Sensar affiliates, including, without limitation, any transactions,
agreements, arrangements or understanding with any affiliate or other person
covered under Item 404 of Regulation S-K promulgated under the Securities Act,
other than pursuant to such agreement, arrangements or understandings existing
on the date of this Agreement or as disclosed in writing to Net on the date
hereof or which are contemplated under this Agreement; provided that, Sensar
provides Net with all information concerning any such agreement, arrangement or
understanding that Net may reasonably request;
(o) engage in any futures or options trading or be a party to any
price or currency swaps, hedges, futures or derivative instruments; or
(p) agree in writing or otherwise to do any of the foregoing.
Section 3.04 Interim Reports. During the term of this Agreement, each
party shall provide the other with monthly reports. Such reports shall be
delivered by the 15th of the month following the month reported commencing the
month following the Funding and shall contain a copy of the internal financial
statements of such party, certified by the chief financial officer of such party
as true and correct and a fair representation of the financial condition and
results of operation for such party as of and for the periods presented; with
respect to Net, a summary of the development of the technology and future steps
required or intended to be taken by Net with respect to the technology; a
summary and, if requested by the other party, a copy of any material agreement
entered into or proposed to be entered into by the other party; and with respect
to Net, a summary of the current status, and prospective business plan, of Net.
Section 3.05 Access and Information.
(a) Sensar shall, and shall cause its subsidiaries to, afford Net
and its officers, directors, employees, accountants, consultants, legal counsel,
agents and other representatives (collectively, the "Net Representatives")
reasonable access at reasonable times, upon reasonable prior notice, to the
officers, employees, agents, properties, offices and other facilities of Sensar
and its subsidiaries and to the books and records thereof and furnish promptly
to Net and the Net Representatives such information concerning the business,
properties, contracts, records and personnel of Sensar and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by Net or such
Representatives.
<PAGE 11>
(b) Net shall (i) afford to Sensar and its officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Sensar Representatives") reasonable access
at reasonable times, upon reasonable prior notice, to the officers, employees,
accountants, agents, properties, offices and other facilities of Net and its
subsidiaries and to their respective books and records and (ii) furnish promptly
to Sensar and Sensar Representatives such information concerning the business,
properties, contracts, records and personnel of Net (including, without
limitation, financial, operating and other data and information) as may be
reasonably requested, from time to time, by Sensar or such Representatives.
(c) The information received pursuant to section 3.05(a) and (b)
shall be deemed to be "confidential information" and shall not be disclosed to
any other person or entity, except to the parties' representatives, and shall
not be used for any purpose other than the transactions contemplated by this
Agreement.
Section 3.06 Termination.
(a) This Agreement may be terminated at any time prior to the
Closing Date by the mutual consent of both Sensar and Net through action of
their respective boards of directors. This Agreement may be terminated by
either Sensar or Net in the event that (x) neither Sensar nor Net has delivered
to the other the Reorganization Notice on or before September 30, 2000 or (y)
the Closing shall not have occurred by December 31, 2000 as a result of the
failure of the other party to satisfy the conditions required to be met by such
other party prior to Closing. In the event of termination pursuant to this
subparagraph (a) of section 3.06, no obligation, right, remedy, or liability
shall arise hereunder, other than the obligations of Net to Sensar with respect
to any amounts advanced upon the Funding, and the parties shall bear their own
costs incurred in connection with the preparation and execution of this
Agreement, the preparation and review of financial statements required to be
delivered pursuant hereto, and the negotiation of the transactions contemplated
hereby.
(b) This Agreement may be terminated at any time prior to the
Closing Date by action of Sensar's board of directors if Net shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, if any of the representations or warranties of Net contained
herein shall be inaccurate in any material respect at or subsequent to the
Funding, or if the stockholders of Net fail to approve the transactions
contemplated by this Agreement including the acquisition of Net. In the event
of termination pursuant to this subparagraph (b) of section 3.06, no obligation,
right, remedy, or liability shall arise hereunder, other than the obligations of
Net to Sensar with respect to amounts advanced upon the Funding, and the parties
shall bear their own costs incurred in connection with the preparation and
execution of this Agreement, the preparation and review of financial statements
required to be delivered pursuant hereto, and the negotiation of the
transactions contemplated hereby.
<PAGE 12>
(c) This Agreement may be terminated at any time prior to the
Closing Date by action of Net's board of directors if Sensar shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, if any of the representations or warranties of Sensar
contained herein shall be inaccurate in any material respect, or if the
stockholders of Sensar fail to approve this Agreement. In the event of
termination pursuant to this subparagraph (c) of section 3.06, no obligation,
right, remedy, or liability shall arise hereunder, other than the obligations of
Net to Sensar with respect to any amounts advanced upon the Funding, and the
parties shall bear their own costs incurred in connection with the preparation
and execution of this Agreement, the preparation and review of financial
statements required to be delivered pursuant hereto, and the negotiation of the
transactions contemplated hereby.
Section 3.07 Post-Closing Covenants of Sensar and Net. Subsequent to
the Closing of the transactions contemplated by this Agreement, neither Sensar
nor Net shall undertake (or fail to undertake) any action that would result in
the merger failing to qualify as a reorganization within the meaning of section
368(a) of the Code. Sensar and Net shall execute and deliver any and all
documents, instruments, and agreements necessary to effectuate the purposes of
this Agreement. All of the provisions of this section 3.07 shall survive the
Closing and the consummation of the transactions contemplated herein.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.01 Meeting of Sensar Shareholders. Sensar shall, promptly
after the effectiveness of the Proxy Statement/Prospectus provided for in
section 4.03, take all actions necessary in accordance with Nevada Law and its
articles of incorporation and bylaws to convene a meeting of Sensar's
stockholders (the "Sensar Stockholders Meeting") to approve
(a) the acquisition of Net; and
(b) to the extent subject to shareholder approval, the options
granted to current officers, directors, consultants, and advisors of Sensar, all
as disclosed in Schedule 7.03;
and Sensar shall consult with Net in connection therewith. The Board of
Directors of Sensar shall recommend that its stockholders vote in favor of the
foregoing proposals and shall cause such recommendation to be included in the
Proxy Statement/Prospectus (as defined in Section 4.03 below).
Section 4.02 Meeting of Net Shareholders. Net shall, promptly after
the effectiveness of the Proxy Statement/Prospectus provided for in section
4.03, take all actions necessary in accordance with Delaware law and its
articles of incorporation and bylaws to convene a special meeting of Net's
shareholders to approve the acquisition of Net (the "Net Shareholders Meeting"),
and Net shall consult with Sensar in connection therewith. The Net Shareholders
agree to vote all of the shares of Net Stock held by them at the time of the
record date for the Net Shareholders Meeting in favor of the acquisition of Net.
Net shall recommend approval of the acquisition to its shareholders and use its
best efforts to solicit from the other shareholders of Net proxies to approve
and adopt the acquisition.
<PAGE 13>
Section 4.03 S-4 Registration Statement.
(a) As promptly as practicable after delivery of the Acquisition
Notice, Net and Sensar shall prepare and file with the SEC a Form S-4, including
a proxy statement for use in connection with obtaining the approval of the
transactions contemplated by this Agreement by the stockholders of Sensar and
Net and a prospectus for the issuance by Sensar of the Common Stock to the Net
Shareholders (the "Proxy Statement/Prospectus"). Each of Net, Sensar and the
Net Shareholders shall use their best efforts to cause the Form S-4 to be
declared effective by the SEC as promptly as practicable, and shall take any
action required to be taken under any applicable federal or state securities
laws in connection with the issuance of shares of the Sensar Common Stock. Each
of Sensar, Net, and the Net Shareholders shall furnish all information
concerning them as may reasonably be necessary or advisable in connection with
such actions. In addition, Net shall provide disclosure concerning tax
consequences to the stockholders of Net under the tax laws of the State of
Israel, if any. As promptly as practicable after the Form S-4 shall have been
declared effective by the SEC, Sensar shall mail the Proxy Statement/Prospectus
to its stockholders entitled to notice of and to vote at the Sensar Stockholders
Meeting and Net shall mail the Proxy Statement/Prospectus to its shareholders
entitled to vote at the Net Stockholders Meeting. The Proxy
Statement/Prospectus shall include the recommendation of Sensar's and Net's
Board of Directors in favor of the adoption of this Agreement.
(b) The information supplied by Sensar for inclusion in the Form
S-4 shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Sensar, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. If at any time prior to the
Closing Date any event or circumstance relating to Sensar or any of its
affiliates, or its or their respective officers or directors, is discovered by
Sensar that should be set forth in a supplement to the Proxy
Statement/Prospectus, Sensar shall promptly inform Net thereof in writing.
Sensar will indemnify and hold harmless Net, each of its officers, directors,
shareholders and each person who controls Net within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages,
expenses, liabilities, or actions to which it may become subject under
applicable law (including the Securities Act and the Exchange Act) and will
reimburse it for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any claims or actions, whether or not
resulting in liability, insofar as such losses, claims, damages, expenses,
liabilities, or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact or the omission of a material fact
required to be stated therein, or necessary in order to make the statements
therein not misleading except insofar as any statement or omission was made in
reliance upon and in conformity with information furnished in writing by Net
expressly for use therein.
<PAGE 14>
(c) The information supplied by Net for inclusion in the Form S-4
shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Sensar and the Net Shareholders, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Closing Date any event or circumstance relating to Net or any
of its affiliates, or to their respective officers or directors, is discovered
by Net that should be set forth in a supplement to the Proxy
Statement/Prospectus, Net shall promptly inform Sensar thereof in writing. Net
will indemnify and hold harmless Sensar, each of its officers, directors and
each person who controls Sensar within Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which it may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse it for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
or the omission of a material fact required to be stated therein, or necessary
in order to make the statements therein not misleading, but only insofar as any
statement or omission was made in reliance upon and in conformity with
information furnished in writing by Net expressly for use therein.
Section 4.04 S-3 Registration Statement.
(a) Either prior to or concurrently with the filing of the Proxy
Statement/Prospectus Sensar shall file a registration statement on Form S-3
registering the resale of the stock of the individuals and entities set forth on
Schedule 4.04 not currently covered by a registration statement (the "Resale
Registration"); provided that such individuals and entities shall each execute
an agreement satisfactory to Sensar pursuant to which they shall agree not to
publicly sell or dispose of 50% of the registered shares until the expiration of
180 days following the effective date of the registration statement. Such
Resale Registration shall be kept effective by Sensar until all of the shares of
Sensar Common Stock covered thereby have been sold or can otherwise be sold free
of any restriction or limitation. The obligations of this section 4.04 shall be
for the benefit of the selling shareholders identified on schedule 4.04 and
shall survive the consummation of the transactions contemplated by this
Agreement.
(b) The information supplied by Sensar for inclusion in the Form
S-3 shall not, at the time the Resale Registration is filed, becomes effective,
or thereafter, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. If at any time while the Resale
Registration is effective, any event or circumstance relating to Sensar or any
of its affiliates is discovered by Sensar that should be set forth in an
amendment to the Resale Registration, Sensar shall promptly prepare and file
such amendment. Sensar will indemnify and hold harmless each person or entity
selling shares pursuant to the Resale Registration, and each of their respective
officers, directors, shareholders and each person who controls such selling
shareholders within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which it may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse it for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
or the omission of a material fact required to be stated therein, or necessary
in order to make the statements therein not misleading, except insofar as any
statement or omission was made in reliance upon and in conformity with
information furnished in writing by such selling shareholder expressly for use
therein.
<PAGE 15>
(c) The information supplied by Net for inclusion in the Form S-3
shall not, at the time the Resale Registration is filed, becomes effective, or
thereafter, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time while the Resale Registration
is effective, any event or circumstance relating to Net or any of its affiliates
is discovered by Net that should be set forth in a supplement to the Resale
Registration, Net shall promptly inform Sensar thereof in writing. Net will
indemnify and hold harmless Sensar and each of its officers, directors and each
person who controls Sensar within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages, expenses, liabilities,
or actions to which it may become subject under applicable law (including the
Securities Act and the Exchange Act) and will reimburse it for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any claims or actions, whether or not resulting in liability, insofar
as such losses, claims, damages, expenses, liabilities, or actions arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact or the omission of a material fact required to be stated therein, or
necessary in order to make the statements therein not misleading, but only
insofar as any statement or omission was made in reliance upon and in conformity
with information furnished in writing by Net expressly for use therein.
Section 4.05 Appropriate Action; Consents; Filings.
(a) Sensar and Net shall each use all reasonable efforts to (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
(ii) obtain from any governmental entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Net or Sensar or any of its subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, (iii) make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement
required under (A) the Securities Act and the Exchange Act and the rules and
regulations thereunder, and any other applicable federal or state securities
laws, and (B) any other applicable Law.
<PAGE 16>
(b) Net and Sensar agree to cooperate with respect to, and agree
to use all reasonable efforts vigorously to contest and resist, any action,
including legislative, administrative or judicial action, and to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) (an "Order") of any Governmental
Entity that is in effect and that restricts, prevents or prohibits the
consummation of the transactions contemplated by this Agreement, including,
without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative action. Each
of Net and Sensar also agree to take any and all actions, including, without
limitation, the disposition of assets or the withdrawal from doing business in
particular jurisdictions, required by regulatory authorities as a condition to
the granting of any approvals required in order to permit the consummation of
the Acquisition or as may be required to avoid, lift, vacate or reverse any
legislative or judicial action which would otherwise cause any condition to
Closing not to be satisfied.
(c) (i) Each of Sensar and Net shall give any notices to third
parties, and use all reasonable efforts to obtain any third party consents (A)
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, or (B) otherwise required under any contracts, licenses, leases
or other agreements in connection with the consummation of the transactions
contemplated hereby.
(iii) In the event that any party shall fail to obtain any third
party consent described in subsection (c)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by the
other party, to limit the adverse effect upon Net and Sensar and their
respective businesses resulting, or which could reasonably be expected to result
after the Closing Date, from the failure to obtain such consent.
(d) Each of Net and Sensar shall promptly notify the other of (A)
any material change in its current or future business, assets, liabilities,
financial condition or results of operations, (B) any complaints, investigations
or hearings (or communications indicating that the same may be contemplated) of
any Governmental Entities with respect to its business or the transactions
contemplated hereby, (C) the institution or the threat of material litigation or
(D) any event or condition that might reasonably be expected to cause any of its
representations, warranties, covenants or agreements set forth herein not to be
true and correct at the Closing Date. As used in the preceding sentence,
"material litigation" means any case, arbitration or adversary proceeding or
other matter which would have been required to be disclosed on the Sensar
disclosure schedules, if in existence on the date hereof, or in respect of which
the legal fees and other costs might reasonably be expected to exceed $10,000
over the life of the matter.
<PAGE 17>
Section 4.06 Public Announcements. The press release announcing the
execution and delivery of this Agreement shall be a joint press release of Net
and Sensar. In addition, Sensar shall be entitled to make such press releases
and file such information as it deems advisable to comply with its requirements
under United State securities laws. Sensar will provide a draft of any such
press release to Net prior to its release in order to solicit Net's comments.
Section 4.07 NASDAQ. Each party hereto shall use all reasonable
efforts to cause the shares of Sensar Common Stock to be issued to the
shareholders of Net to be approved for listing (subject to official notice of
issuance) on the NASDAQ Small Cap Market or another over-the-counter national
securities exchange prior to the Closing Date.
Section 4.08 Indemnification by Howard S. Landa. Howard S. Landa shall
agree to assume all obligations, including costs of defense, associated with the
litigation brought by former employees on the terms acceptable to Net.
ARTICLE V
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF NET
As an inducement to and to obtain the reliance of Sensar, Net represents
and warrants after giving effect to the Asset Acquisition and thereafter, and
except as set forth on the Net Schedules, as set forth below in this Article V.
As used in this Article V, the term "Net" shall include Net and the Subsidiaries
(as defined in Section 5.04) unless the context otherwise requires.
Section 5.01 Organization. Net is a corporation duly organized,
validly existing, and in good standing under the corporate laws of the state of
Delaware and each subsidiary of Net is duly organized, validly existing, and in
good standing under the laws of its jurisdiction of organization and each has
the corporate power to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not so qualified in which the character and location
of the assets owned by it or the nature of the business transacted by it
requires qualification, except where failure to do so would not have a material
adverse effect on the business or properties of Net. Included in the Net
Schedules (as hereinafter defined) are complete and correct copies of the
certificate of incorporation and bylaws of Net and its subsidiaries as in effect
on the date hereof. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of Net's or its
subsidiaries certificate of incorporation or bylaws.
Section 5.02 Approval of Agreement. The board of directors of Net has
authorized the execution and delivery of this Agreement by Net and has approved
the consummation of the transactions contemplated hereby. Included in the Net
Schedules is a signed copy of a consent duly adopted by the board of directors
of Net evidencing such approval. Net has full power, authority, and legal
right, and has taken all action required by law, its certificate of
incorporation, its bylaws, or otherwise, to consummate the transactions
contemplated hereby.
<PAGE 18>
Section 5.03 Capitalization. Net has authorized capital of 3,000
shares of common stock, par value $0.01 per share. All issued and outstanding
Net Stock is held by the individuals and entities set forth on Schedule 5.03 in
the amount set forth opposite their respective names. There are no options,
rights, convertible securities, calls, or commitments to which Net is a party or
to which it is subject requiring the issuance of any additional shares of Net
Stock. All issued and outstanding shares of Net are validly authorized, legally
issued, fully paid, and nonassessable and not issued in violation of the
preemptive or other right of any person.
Section 5.04 No Subsidiary or Predecessor. Net does not own,
beneficially or of record, any equity securities in any other entity other than
the subsidiaries listed on Schedule 5.04 (the "Subsidiaries"). Net owns all of
the outstanding capital stock of each of the Subsidiaries.
Section 5.05 Financial Information.
(a) Included in the Net Schedules are the audited consolidated
financial statements of Net and the Subsidiaries as of the closing of the Asset
Acquisition.
(b) Such financial information has been prepared in accordance
with GAAP, except as disclosed in the Net Schedules. Such financial statements
contain all of the periods and notes that would be required to be included in a
registration statement filed by Net by the provisions of Regulations S-X
promulgated under the Securities Act of 1933, as amended. Net did not have, as
of the date of the most recent balance sheet, except as and to the extent
reflected or reserved against therein, any liabilities or obligations (absolute
or contingent) which should be reflected in a balance sheet prepared in
accordance with GAAP. All assets reflected on the most recent balance sheet
present fairly the assets of Net, as of the date of such balance sheet.
(c) Net has filed all tax returns and reports as required by law.
All such returns and reports are accurate and correct in all material respects.
There are no income taxes currently due to any governmental agency that have not
been paid. Net does not have any liabilities with respect to the payment of any
tax (including any deficiencies, interest, or penalties) accrued for or
applicable to the period ended on the date of the most recent balance sheet
included in the Net Schedules and all such dates and years and periods prior
thereto and for which Net may be liable in its own right or as transferee of the
assets of, or as successor to, any other corporation or other entity, except for
taxes accrued but not yet due and payable. None of the tax returns of Net has
been audited or is currently being audited by any governmental agency. Net has
not made any tax election which would have a material adverse effect on Net, its
financial condition, its business as presently conducted or as proposed to be
conducted, or any of its properties or material assets. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of Net.
<PAGE 19>
(d) The books and records, financial and otherwise, of Net are in
all material respects complete and correct and have been made and maintained in
accordance with sound business and bookkeeping practices and, in reasonable
detail, accurately and fairly reflect the transactions involving the assets of
Net. Net has maintained a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions have been and are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit the preparation of financial
statements in conformity with GAAP and any other criteria applicable to such
statements and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(e) Except as set forth in the Net Schedules, the balance sheet
included in the Net Schedules, or in the notes thereto, Net (i) has good and
marketable title to its accounts receivable, and other debts due or recorded in
the records and books of account of Net, free of any security interests or liens
and free of any material defenses, counterclaims, and set-offs, and all of such
accounts receivable, invoices, and debts are actual and bona fide amounts due
Net for the total dollar amount thereof shown on the books of Net and resulted
from the regular course of its business; and (ii) the accounts receivable,
invoices, and debts set forth on the Net balance sheets arose in the ordinary
course of business and are, net of any reserves shown on the balance sheet,
collectible in full in all material respects on the continuation of reasonable
collection efforts by Net or successor personnel and without resorting to
litigation and in any event not later than ninety (90) days after the date
billed.
Section 5.06 Information. The information concerning Net set forth in
this Agreement and in the Net Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 5.07 Options or Warrants. Except as set forth on Schedule 5.07,
there are no existing options, warrants, calls, commitments, or other rights of
any character relating to authorized and unissued Net Stock or other securities
of Net or the Subsidiaries. Other than the convertible obligations incurred in
connection with the Asset Acquisition, all such rights shall be cancelled as of
the effective time of the acquisition in accordance with Section 2.06 above.
Section 5.08 Absence of Certain Changes or Events. Except as set forth
in this Agreement or in the Net Schedules, since the date of the balance sheet
included in the Net Schedules:
(a) There has not been (i) any material adverse change in the
business, operations, assets, or condition of Net, except for changes occurring
as a result of transactions in the normal course of business of Net, or (ii) any
damage, destruction, or loss to Net (whether or not covered by insurance)
materially and adversely affecting the business, operations, assets, or
condition of Net;
<PAGE 20>
(b) Net has not (i) amended its certificate of incorporation and
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Net; (iv) made any material change in
its method of management, operation, or accounting; (v) entered into any other
material transactions, (vi) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer, employee, or shareholder; (vii) increased the
rate of compensation payable or to become payable by it to any of its officers
or directors or any of its employees whose monthly compensation exceeds $5,000;
or (viii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) Net has not (i) granted or agreed to grant any options,
warrants, or other rights to acquire its stocks, bonds, or other corporate
securities; (ii) borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current liabilities
reflected in or shown on the most recent balance sheet included in the Net
Schedules and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or transfer, any
of its assets, properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a value of less than
$10,000 or assets, properties, or rights disposed of in the ordinary course of
business); (v) made or permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or termination is
material, considering the business of Net; or (vi) issued, delivered, or agreed
to issue or deliver any stock, bonds, or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock); and
(d) Net has not become subject to any law or regulation which
materially and adversely affects, or may in the future materially and adversely
affect, the business, operations, properties, assets, or condition of Net.
Section 5.09 Title to Personal and Real Property.
(a) Except as disclosed in the balance sheet included in the Net
Schedules, Net has good and marketable title to all its properties, inventory,
know-how, interests in properties, and assets, which are reflected in the most
recent balance sheet included in the Net Schedules, or are used in Net's
business, or acquired after that date (except those sold or otherwise disposed
of since such date in the ordinary course of business), free and clear of all
material mortgages, security interests, royalties, liens, pledges, charges, or
encumbrances, except (i) statutory liens or claims for amounts not yet
delinquent; and (ii) such imperfections of title and easements as do not and
will not materially detract from or interfere with the present or proposed use
of the properties subject thereto or affected thereby or otherwise materially
impair present business operations on such properties. All personal property
held by Net is in a state of good maintenance and repair, excepting only
reasonable wear and tear, and is adequate and suitable for the purposes for
which it is presently being used.
<PAGE 21>
(b) Net does not own any real property in fee simple.
(c) Included in the Net Schedules is an accurate and complete list
of all personal property owned by Net or used in its business and having a
purchase price of over $10,000, together with a description of any mortgages,
financing instruments, or other encumbrances to the title to such properties.
Also included in the Net Schedules are copies of all leases for real and
personal property to which Net is a party. Except as disclosed in the Net
Schedules, each such lease is in full force and effect; all rents and additional
fees due to date on each such lease have been paid; in each case, the lessee has
been in peaceable possession since the commencement of the original term of such
lease and is not in default thereunder and no waiver, indulgence, or
postponement of the lessee's obligation thereunder has been granted by the
lessor; and there exists no event of default or event, occurrence, condition, or
act, which, with the giving of notice, the lapse of time, or the happening of
any further event or condition, would become a default under such lease, the
occurrence of which would have a material adverse affect on Net. Net has not
violated any of the terms or conditions under any such lease in any material
respect, and all of the material covenants to be performed by any other party
under any such lease have been fully performed. The property leased by Net is
in a state of good maintenance and repair, except reasonable wear and tear, and
is adequate and suitable for the purposes for which it is presently being used.
Section 5.10 Intellectual Property. Net owns the entire right, title,
and interest to all trade secrets, technology, know-how, tradenames, trademarks,
servicemarks, and other proprietary information owned by, used, or licensed in
connection with the business of, Net, including all copyrights, patents, patent
applications, registrations, and applications with respect thereto, all of which
is described in Section 2.01(a) (collectively the "Intellectual Property").
Such Intellectual Property is not subject to the payment of royalties or any
other obligation to any other person or entity. No employee or former employee
of Net owns, directly or indirectly, any right, title, or interest in or to the
Intellectual Property. Hemi Davidson hereby waives, assigns, and transfers to
Net any and all rights or claims he may have to the Intellectual Property. None
of the Intellectual Property is subject to any material order, decree, judgment,
stipulation, settlement, encumbrance, or attachment. Except as set forth in the
Net Schedules, there are no pending or threatened proceedings, litigation, or
other adverse claims to the Intellectual Property of which Net is aware. To
Net's knowledge, the Intellectual Property does not infringe on the copyright,
patent, trade secret, know-how, or other proprietary right of any other person
or entity and comprises all such rights necessary to permit the operation of the
business of Net as now being conducted and as proposed to be conducted.
<PAGE 22>
Section 5.11 Litigation and Proceedings. Except as set forth in the
Net Schedules, there are no actions, suits, or proceedings pending or, to the
knowledge of Net or its officers and directors, threatened in writing by or
against Net or affecting Net or its properties, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind. Net is not in material default with respect
to any judgment, order, writ, injunction, decree, award, rule, or regulation of
any court, arbitrator, or governmental agency or instrumentality.
Section 5.12 Contracts.
(a) Included in the Net Schedules is a description of every
contract, agreement, distributorship, franchise, license, or other agreement,
arrangement, or commitment to which Net is a party or by which its assets or
properties are bound, which calls for the payment by Net of more than $2,000 a
month, or $24,000 in the aggregate;
(b) Except as described in this Agreement or in the Net Schedules,
Net is not a party to or bound by, and the properties of Net are not subject to,
any contract, agreement, other commitment or instrument or any charter or other
corporate restriction or any judgment, order, writ, injunction, decree, or award
which materially and adversely affects, or in the future may (as far as Net can
now reasonably foresee) materially and adversely affect, the business
operations, properties, assets, or financial condition of Net; and
(c) Except as included or described in the Net Schedules or
reflected in the accompanying Net balance sheet, Net is not a party to any oral
or written (i) contract for the employment of any officer, director, or
employee, whose compensation is greater than $5,000 per month, which is not
terminable on thirty (30) days (or less) notice; (ii) profit sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or
retirement plan; (iii) agreement, contract, or indenture relating to the
borrowing of money in amounts greater than $10,000 in the aggregate; (iv)
guarantee of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which, in
the aggregate do not exceed $10,000; (v) consulting or other similar contract
with an unexpired term of more than one year or providing for payments in excess
of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director of Net whose
compensation was or is greater than $5,000 per month; or (viii) other contract,
agreement, or other commitment, except normal ongoing monthly operating
expenses, involving payments by it in the future of more than $10,000 in the
aggregate per contract.
Section 5.13 Material Contract Defaults. Net is not in default in any
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets, or
financial condition of Net, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other commitment
in respect of which Net has not taken adequate steps to prevent such a default
from occurring. Net's agreements with Partner remain in full force and effect,
Net is current and in full compliance with its obligations thereunder, and Net
has not received any notice from Partner that it intends to terminate such
agreements or requesting any material change or modification to such agreements.
<PAGE 23>
Section 5.14 Insurance Claims. Except as set forth in the Net
Schedules, during the last three years Net has not received, or informed its
insurance carriers of, any claims for damages, whether or not covered by
insurance, for amounts greater than $10,000. Net is not currently aware of any
pending or unasserted claims.
Section 5.15 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Net is a
party or to which any of its properties or operations are subject, which would
have a material adverse affect on Net.
Section 5.16 Governmental Authorizations. Net has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date hereof or as presently contemplated. Net required
approvals, if any, for the export of its technology, necessary to permit it to
conduct its business and provide its proposed services outside of the State of
Israel. No authorization, approval, consent, or order of, or registration,
declaration, or filing with, any court or other governmental body is required in
connection with the execution and delivery by Net of this Agreement and the
consummation by Net of the transactions contemplated hereby.
Section 5.17 Compliance With Laws and Regulations. Net has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or financial condition of Net or except to the extent that noncompliance
would not result in the incurrence of any material liability for Net. Included
in the Net Schedules is a copy of each letter of inquiry, review, or
investigation or other writing from or to any governmental authority subsequent
to December 31, 1997, evidencing a violation or possible or alleged violation of
any of the foregoing.
Section 5.18 Insurance. Included in the Net Schedules is a complete
list of all business liability, casualty, automobile, extended coverage, and
other insurance policies which Net maintains respecting its products, services,
business, properties, and employees, showing for each type of coverage the
policy limits, principal exclusions, deductibles, insurer, and other relevant
information. Such policies are in full force and effect and are free from any
right of termination by the insurance carriers. All of the insurable properties
of Net are insured for its benefit in the amount of their full replacement value
(subject to reasonable deductibles) against losses due to fire and other
casualty, with extended coverage, and other risks customarily insured against by
persons operating similar properties in the localities where such properties are
located and under valid and enforceable policies issued by insurers of
recognized responsibility.
<PAGE 24>
Section 5.19 Transactions With Affiliates. Set forth in the Net
Schedules is a list of every contract, agreement, or arrangement between Net and
any person who is or has ever been during the previous three years an officer or
director of Net or person owning of record, or known by Net to own beneficially,
5% or more of the issued and outstanding common stock of Net and which is to be
performed in whole or in part after the date hereof. In all of such
circumstances, the contract, agreement, or arrangement was for a bona fide
business purpose of Net. Except as disclosed in the Net Schedules or otherwise
disclosed herein, no officer or director of Net or 5% shareholder of Net has, or
has had during the preceding three years, any interest, directly or indirectly,
in any material transaction with Net. The Net Schedules also include a
description of any commitment by Net, whether written or oral, to lend any funds
to, borrow any money from, or enter into any other material transaction with,
any such affiliated person.
Section 5.20 Labor Agreements and Actions. Net is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment, or arrangement with
any labor union, and no labor union has requested or sought to represent any of
the employees, representatives, or agents of Net. There is no strike or other
labor dispute involving Net pending or threatened, which could have a material
adverse effect on the assets, properties, financial condition, operating
results, or business of Net or (as such business is presently conducted and as
it is proposed to be conducted), and Net is not aware of any labor organization
activity involving its employees. Net is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with Net, nor does Net have a present intention to terminate the
employment of any of the foregoing. Except as set forth in the Net Schedules,
the employment of each officer and employee of Net is terminable at the will of
Net.
Section 5.21 Pension Obligations. Net does not have any unfunded
pension liability to any person or entity in connection with any retirement,
pension plan, or similar arrangement.
Section 5.22 Net Schedules. Prior to the Funding, Net shall deliver to
Sensar the following schedules, which are collectively referred to as the "Net
Schedules." On delivery, Sensar shall have five days to review the Net
Schedules. If Sensar does not object to the Net Schedules within such period,
they shall be deemed accepted by Sensar. The Net Schedules shall be updated as
of Closing and shall be certified by the chief executive officer of Net as
complete, true, and accurate:
(a) A schedule including copies of the certificate of
incorporation and bylaws of Net in effect as of the date of this Agreement as
referred to in section 5.01;
(b) A schedule containing copies of resolutions adopted by the
board of directors of Net approving this Agreement and the transactions herein
contemplated as referred to in section 5.02;
<PAGE 25>
(c) A schedule listing the shares of Net Stock held by each of the
Net Shareholders;
(d) A schedule including the financial information required by
section 5.05;
(e) A schedule including copies of all income tax returns filed
for Net, as identified in section 5.05;
(f) A schedule listing the accounts receivable and notes and other
obligations receivable of Net as of the date of the balance sheet included in
the Net Schedules or that arose thereafter other than in their ordinary course
of business, indicating the debtor and amount, classifying the accounts to show
in reasonable detail the length of time, if any, overdue, and stating the nature
and amount of any refunds, setoffs, reimbursements, discounts, or other
adjustments, which in the aggregate are greater than $1,000, due to or claimed
by such debtors;
(g) A schedule listing the accounts payable and notes and other
obligations payable of Net as of the date of the balance sheet included in the
Net Schedules or that arose thereafter other than in the ordinary course of the
business of Net, indicating the creditor and amount, classifying the accounts to
show in reasonable detail the length of time, if any, overdue, and stating the
nature and amount of any refunds, setoffs, reimbursements, discounts, or other
adjustments, which in the aggregate are greater than $1,000, payable to Net from
any one such creditor;
(h) A schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or financial
condition of Net since the balance sheet included in the Net Schedules, required
to be provided pursuant to section 5.08 hereof;
(i) Copies of all agreements or arrangements and all written
statements of practice followed with regard to the payment of compensation,
bonuses, deferred compensation, profit sharing, pension, vacation, retirement,
or other compensation benefits to officers, directors, or employees whose
monthly compensation exceeds $5,000 (and descriptions of any such agreements,
arrangements, or practices which are not in writing), together with a schedule
setting forth the name or identification of each officer, director, or employee
whose monthly compensation exceeds $5,000 and of each former officer or former
employee of Net who is currently being paid or who is entitled to, or may become
entitled to, compensation in amounts greater than $5,000 per month of any of
such compensation benefits and the rate or amounts thereof and showing the
nature of any family relationship of such person to each stockholder owning 5%
or more of the stock of Net;
(j) A schedule containing a description of all personal property
owned by Net or used in its business and having a purchase price of over
$10,000, including a description of every material mortgage, financing
instrument, or encumbrance to which such personal property of Net is subject
(except statutory liens or claims not yet delinquent and except liens, claims,
encumbrances, or equities which do not or in the future will not materially
detract from or interfere with the present or proposed use of the property
subject thereto or affected thereby);
<PAGE 26>
(k) A schedule containing a description of each lease, rental
agreement, or similar instrument, including a description of each oral
arrangement;
(l) A schedule setting forth the litigation and proceedings
referred to in section 5.11;
(m) A schedule listing all material contracts, agreements,
franchises, license agreements, or other commitments to which Net is a party or
by which their properties are bound, as referred to in section 5.12, but
excluding those with affiliates which are described in section 5.19;
(n) A schedule of any insurance claims as referenced in section
5.14;
(o) Copies of all licenses, permits, and other governmental
authorizations (or requests or applications therefore) pursuant to which Net
carries on or proposes to carry on its business (except those which are
immaterial to the present or proposed business of Net), as referred to in
section 5.16;
(p) A schedule describing the matters regarding compliance with
laws and regulations as referred to in section 5.17;
(q) A schedule showing details of all insurance coverage as
referred to in section 5.18;
(r) A schedule containing a description of all material contracts,
leases, agreements, and other instruments between Net and any affiliates, as
referred to in section 5.19;
(s) A schedule showing the name and location of each bank or other
institution in which Net has an account or safe deposit box, and the names of
all persons authorized to draw thereon or to have access thereto;
(t) Copies of all powers of attorney given by Net now in effect or
to be in effect; and
(u) A schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in the Net Schedules
by sections 5.01 through 5.21.
<PAGE 27>
ARTICLE VI
Intentionally deleted
ARTICLE VII
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SENSAR
As an inducement to, and to obtain the reliance of Net, Sensar represents
and warrants, except as set forth on the Sensar Schedules, as follows:
7.01 Organization. Sensar is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Nevada, and has
the corporate power to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not so qualified in which either the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except where failure to do so would not have a
material adverse effect on the business or properties of Sensar. Included in
the Sensar Schedules (as hereinafter defined) are complete and correct copies of
the articles of incorporation and bylaws of Sensar in effect on the date hereof.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement in accordance with the terms
hereof will not, violate any provision of the articles of incorporation or
bylaws of Sensar. Sensar has full power, authority, and legal right and has
taken all action required by law, its articles of incorporation, bylaws, and
otherwise to consummate the transactions herein contemplated. Effective as of
the Closing, Sensar shall have no subsidiaries.
Section 7.02 Approval of Agreements. The board of directors of Sensar
has authorized the execution and delivery of this Agreement by Sensar and has
approved the consummation of the transactions contemplated hereby. Included in
the Sensar Schedules are copies of resolutions duly adopted by the board of
directors of Sensar evidencing such approval. Prior to Closing, Sensar shall
obtain the approval of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by its stockholders.
Subject to such approval, Sensar has full power, authority, and legal right, and
has taken all action required by law, its articles of incorporation, its bylaws,
or otherwise, to execute this Agreement and consummate the transactions
contemplated hereby.
Section 7.03 Capitalization. The authorized capitalization of Sensar
consists of 10,000,000 shares of preferred stock, par value $0.001 per share, of
which no shares are issued and outstanding, and 290,000,000 shares of Sensar
Common Stock, par value $0.001 per share, of which 3,150,000 shares are issued
and outstanding. In addition, Sensar has shares of Sensar Common Stock reserved
for issuance on the exercise of outstanding and committed options and warrants
as set forth in Schedule 7.03. All issued and outstanding shares of Sensar
Common Stock are validly authorized, legally issued, fully paid, and
nonassessable and not issued in violation of the preemptive or other right of
any person. All shares of Sensar Common Stock to be issued pursuant to this
Agreement are validly authorized and will be, when issued, legally issued, fully
paid, and nonassessable and not issued in violation of the preemptive or other
right of any person.
<PAGE 28>
Section 7.04 SEC Reports. Sensar has filed all reports required by the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act of 1933, as amended (the Securities Act"). In
addition, Sensar shall file a registration statement (the "Registration
Statement"), registering the issuance of the common stock of Sensar in exchange
for the Net Stock held by the Net Shareholders as contemplated by this
Agreement. None of the filings of Sensar contained, when filed, and the
Registration Statement will not contain, when it becomes effective, any untrue
statement of a material fact or omission of a material fact necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
Section 7.05 Financial Statements.
(a) Included in the reports referred to in section 7.04 are the
audited consolidated balance sheets of Sensar as of December 31, 1998 and 1997,
and the related audited consolidated statements of operations and stockholders'
equity and changes in financial position for the periods then ended, together
with the notes to such statements and the opinion of Grant Thornton LLP,
certified public accountants, with respect to such financial statements. Also
included are the unaudited financial statements for the interim period ended
September 30, 1999. All such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and present fairly the financial position of
Sensar as of the dates and for the periods stated herein.
(b) Sensar has filed all tax returns and reports as required by
law. All such returns and reports are accurate and correct in all material
respects. There are no income taxes currently due to any governmental agency
that have not been paid. Sensar does not have any liabilities with respect to
the payment of any tax (including any deficiencies, interest, or penalties)
accrued for or applicable to the period ended on the date of the most recent
balance sheet included in the Sensar Schedules and all such dates and years and
periods prior thereto and for which Sensar may be liable in its own right or as
transferee of the assets of, or as successor to, any other corporation or other
entity, except for taxes accrued but not yet due and payable. None of the tax
returns of Sensar has been audited or is currently being audited by any
governmental agency. Sensar has not made any tax election which would have a
material adverse effect on Sensar, its financial condition, its business as
presently conducted or as proposed to be conducted, or any of its properties or
material assets. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Sensar.
(c) The books and records, financial and otherwise, of Sensar are
in all material respects complete and correct and have been made and maintained
in accordance with sound business and bookkeeping practices and, in reasonable
detail, accurately and fairly reflect the transactions involving the assets of
Sensar. Sensar has maintained a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions have been and
are executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit the preparation of
financial statements in conformity with GAAP and any other criteria applicable
to such statements and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
<PAGE 29>
(d) Except as set forth in the Sensar Schedules, the balance sheet
included in the Sensar Schedules, or in the notes thereto, Sensar (i) has good
and marketable title to its accounts receivable, and other debts due or recorded
in the records and books of account of Sensar, free of any security interests or
liens and free of any material defenses, counterclaims, and set-offs, and all of
such accounts receivable, invoices, and debts are actual and bona fide amounts
due Sensar for the total dollar amount thereof shown on the books of Sensar and
resulted from the regular course of its business; and (ii) the accounts
receivable, invoices, and debts set forth on the Sensar balance sheets arose in
the ordinary course of business and are, net of any reserves shown on the
balance sheet, collectible in full in all material respects on the continuation
of reasonable collection efforts by Sensar or successor personnel and without
resorting to litigation and in any event not later than ninety (90) days after
the date billed.
Section 7.06 Information. The information concerning Sensar set forth
in this Agreement and in the Sensar Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they were made, not misleading.
Section 7.07 Options or Warrants. At the Closing Date there will be no
existing options, warrants, convertible securities, calls, commitments, or other
rights of any character relating to authorized and unissued Sensar Common Stock
or other securities of Sensar other than as set forth on schedule 7.03 (a
portion of which shall be exercised pursuant to Section 3.02(d)).
Section 7.08 Absence of Certain Changes or Events. Except as set forth
in this Agreement or in the Sensar Schedules, since the date of the most recent
balance sheet included in the Sensar Schedules:
(a) There has not been (i) any material adverse change in the
business, operations, assets, or condition of Sensar, (ii) any damage,
destruction, or loss to Sensar (whether or not covered by insurance) materially
and adversely affecting the business, operations, assets, or condition of
Sensar; or (iii) any claim or litigation brought against Sensar;
<PAGE 30>
(b) Sensar has not (i) amended its certificate of incorporation
and bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Sensar; (iv) made any material change in
its method of management, operation, or accounting; (v) entered into any other
material transactions; (vi) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer, employee, or shareholder; (vii) increased the
rate of compensation payable or to become payable by it to any of its officers
or directors or any of its employees whose monthly compensation exceeds $5,000;
or (viii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) Sensar has not (i) granted or agreed to grant any options,
warrants, or other rights to acquire its stocks, bonds, or other corporate
securities; (ii) borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current liabilities
reflected in or shown on the most recent balance sheet included in the Sensar
Schedules and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or transfer, any
of its assets, properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a value of less than
$10,000 or assets, properties, or rights disposed of in the ordinary course of
business); (v) made or permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or termination is
material, considering the business of Sensar; or (vi) issued, delivered, or
agreed to issue or deliver any stock, bonds, or other corporate securities
including debentures (whether authorized and unissued or held as treasury
stock); and
(d) Sensar has not become subject to any law or regulation which
materially and adversely affects, or may in the future materially and adversely
affect, the business, operations, properties, assets, or condition of Sensar.
Section 7.09 Title to Personal and Real Property. Sensar does not own
any real property. The only lease to which Sensar is a party will be assumed by
a third party in connection with the Closing.
Section 7.10 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Sensar is a
party or to which any of its properties or operations are subject which would
have a material adverse affect on Sensar.
<PAGE 31>
Section 7.11 Litigation and Proceedings. Except as set forth in the
Sensar Schedules, there are no actions, suits, or proceedings pending or, to the
knowledge of Sensar or its officers and directors, threatened in writing by or
against Sensar or affecting Sensar or its properties, at law or in equity,
before any court or other governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind. Sensar is not in material
default with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
Section 7.12 Contracts.
(a) Included in the Sensar Schedules is a description of every
contract, agreement, distributorship, franchise, license, or other agreement,
arrangement, or commitment to which Sensar is a party or by which its assets or
properties are bound, which calls for the payment by Sensar of more than $2,000
a month, or $24,000 in the aggregate;
(b) Except as described in this Agreement or in the Sensar
Schedules, Sensar is not a party to or bound by, and the properties of Sensar
are not subject to, any contract, agreement, other commitment or instrument or
any charter or other corporate restriction or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, or in the
future may (as far as Sensar can now reasonably foresee) materially and
adversely affect, the business operations, properties, assets, or financial
condition of Sensar; and
(c) Except as included or described in the Sensar Schedules or
reflected in the accompanying Sensar balance sheet, Sensar is not a party to any
oral or written (i) contract for the employment of any officer, director, or
employee, whose compensation is greater than $5,000 per month, which is not
terminable on thirty (30) days (or less) notice; (ii) profit sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or
retirement plan; (iii) agreement, contract, or indenture relating to the
borrowing of money in amounts greater than $10,000 in the aggregate; (iv)
guarantee of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which, in
the aggregate do not exceed $10,000; (v) consulting or other similar contract
with an unexpired term of more than one year or providing for payments in excess
of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director of Sensar whose
compensation was or is greater than $5,000 per month; or (viii) other contract,
agreement, or other commitment, except normal ongoing monthly operating
expenses, involving payments by it in the future of more than $10,000 in the
aggregate per contract.
Section 7.13 Material Contract Defaults. Sensar is not in default in
any respect under the terms of any outstanding contract, agreement, lease, or
other commitment which is material to the business, operations, properties,
assets, or financial condition of Sensar, and there is no event of default or
other event which, with notice or lapse of time or both, would constitute a
default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which Sensar has not taken adequate steps to
prevent such a default from occurring.
<PAGE 32>
Section 7.14 Intentionally deleted.
Section 7.15 Governmental Authorizations. Sensar has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date hereof. Other than as required by state and Federal
securities laws, no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by Sensar of this
Agreement and the consummation by Sensar of the transactions contemplated
hereby.
Section 7.16 Compliance With Laws and Regulations. Sensar has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or financial condition of Sensar or except to the extent that
noncompliance would not result in the incurrence of any material liability for
Sensar. Included in the Sensar Schedules is a copy of each letter of inquiry,
review, or investigation or other writing from or to any governmental authority
subsequent to December 31, 1997, evidencing a violation or possible or alleged
violation of any of the foregoing.
Section 7.17 Transactions With Affiliates. Set forth in the Sensar
Schedules is a description of every contract, agreement, or arrangement between
Sensar and any person who is or has ever been during the previous three years an
officer or director of Sensar or person owning of record, or known by Sensar to
own beneficially, 5% or more of the issued and outstanding common stock of
Sensar and which is to be performed in whole or in part after the date hereof.
In all of such circumstances, the contract, agreement, or arrangement was for a
bona fide business purpose of Sensar. Except as disclosed in Sensar's periodic
reports filed with the SEC, the Sensar Schedules, or otherwise disclosed herein,
no officer or director of Sensar or 5% shareholder of Sensar has, or has had
during the preceding three years, any interest, directly or indirectly, in any
material transaction with Sensar. The Sensar Schedules also include a
description of any commitment by Sensar, whether written or oral, to lend any
funds to, borrow any money from, or enter into any other material transaction
with, any such affiliated person.
Section 7.18 Labor Agreements and Actions. Sensar has two employees,
Jeffery S. Cohen, whose employment terminates December 31, 1999, and Howard S.
Landa, whose employment will terminate at Closing.
Section 7.19 Pension Obligations. Sensar does not have any unfunded
pension liability to any person or entity in connection with any retirement,
pension plan, or similar arrangement.
<PAGE 33>
Section 7.20 Sensar Schedules. Prior to the Funding, Sensar shall
deliver to Net the following schedules, which are collectively referred to as
the "Sensar Schedules." On delivery Net shall have five days to review the
Sensar Schedules. If Net does not object to the Sensar Schedules within such
period, they shall be deemed accepted by Net. The Sensar Schedules shall be
updated as of Closing, and shall be certified by the chief executive officer of
Sensar as complete, true, and accurate.
(a) A schedule including copies of the articles of incorporation
and bylaws of Sensar in effect as of the date of this Agreement, as referred to
in section 7.01;
(b) A schedule containing copies of resolutions adopted by the
board of directors of Sensar approving this Agreement and the transactions
herein contemplated as referred to in section 7.02;
(c) A schedule setting forth all warrants, options and other
rights to acquire Sensar Common Stock to which Sensar is a party or by which it
is bound as referred to in section 7.03;
(d) A schedule containing the annual report of Sensar on form 10-K
for the year ended December 31, 1998;
(e) A schedule containing the quarterly report of Sensar on form
10-Q for the quarter ended March 31, 1999;
(f) A schedule containing the report of Sensar on form 8-K dated
April 21, 1999;
(g) A schedule containing the quarterly report of Sensar on form
10-Q for the quarter ended June 30, 1999;
(h) A schedule containing the report of Sensar on form 8-K dated
August 4, 1999;
(i) A schedule containing the report of Sensar on form 8-K dated
August 19, 1999;
(j) A schedule containing the report of Sensar on form 10-Q for
the period ended September 30, 1999;
(k) A schedule containing the report of Sensar on form 8-K dated
October 7, 1999;
(l) A schedule containing the report of Sensar on form 8-K dated
October 12, 1999;
<PAGE 34>
(m) A schedule setting forth a description of any material change
in the business, operations, assets, or condition of Sensar since September 30,
1999, required to be provided pursuant to section 7.08 hereof;
(n) A schedule setting forth a description of pending litigation
as required by section 7.12;
(o) A schedule of contracts as required by section 7.13;
(p) A schedule of transactions with affiliates; and
(q) A schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in the Sensar
Schedules by sections 7.01 through 7.20.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SENSAR
The obligations of Sensar under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 8.01 Accuracy of Representations and Satisfaction of Covenants.
The representations and warranties made by Net in this Agreement shall be true
as of the Closing, and Net shall have performed or complied with all material
covenants and conditions required by this Agreement to be performed or complied
with by Net prior to or at the Closing. Sensar shall be furnished with
certificates, signed by the chief executive officer of Net and dated the Closing
Date, to the foregoing effect.
Section 8.02 Net Disclosure Schedules. Sensar shall have received an
update all of the Net Disclosure Schedules and any material change to such
Schedules from the Schedules delivered in connection with the execution of this
Agreement shall be reasonably acceptable, in form and content, to Sensar.
Section 8.03 Stockholder Approval. The proposals submitted to the
stockholders at the Sensar Stockholders' Meeting shall have been approved.
Section 8.04 Net Shareholder Election. Holders of not more than 5% of
the Net Stock shall have exercised their dissenter's rights under Delaware
corporate law.
Section 8.05 Good Standing. Sensar shall have received a certification
that Net is in good standing, dated as of a date within ten (10) days prior to
the Closing Date.
<PAGE 35>
Section 8.06 UCC Certificate. Sensar shall have received a Commercial
Code certificate as of a date within five (5) days of the Closing Date to the
effect that there are no encumbrances of record on the assets of Net, other than
those disclosed in the Net Schedules.
Section 8.07 Regulatory Action. Net shall have not received any notice
of a regulatory action pending or contemplated by any governmental agency
against Net or with respect to its intellectual property.
Section 8.08 Other Items. Sensar shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as Sensar may reasonably request.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF NET
The obligations of Net under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 9.01 Accuracy of Representations and Satisfaction of Covenants.
The representations and warranties made by Sensar in this Agreement shall be
true as of the Closing, and Sensar shall have performed and complied with all
material covenants and conditions required by this Agreement to be performed or
complied with by Sensar prior to or at the Closing. Sensar shall have been
furnished with a certificate, signed by the duly authorized chief executive
officer of Sensar, and dated the Closing Date, to the foregoing effect.
Section 9.02 Sensar Commitments. Sensar shall have a minimum of an
aggregate of $4.5 million in cash and notes receivable due no later than October
1, 2000, with no liabilities except as permitted by this Agreement, and shall
have not more than 3,150,000 (plus any shares issued on the exercise of the
options and warrants identified on schedule 7.03 subsequent to the date of this
Agreement) shares of common stock outstanding prior to the Closing.
Section 9.03 Indemnification. Howard S. Landa shall have indemnified
Sensar as set forth in section 4.08.
Section 9.04 Intentionally omitted.
Section 9.05 Good Standing. Net shall have received a certificate of
good standing from the Secretary of State of Nevada with respect to Sensar,
dated as of a date within ten (10) days prior to the date of this Agreement,
certifying that Sensar is in good standing as a corporation in the state of
Nevada.
Section 9.06 Options and Warrants. The options, warrants and other
rights to acquire stock or securities of Sensar identified in Schedule 3.02(d)
shall have been exercised.
<PAGE 36>
Section 9.07 Financial Statements. Net shall have received the audited
consolidated financial statements of Sensar at, and for the year ended, December
31, 1999 prepared in accordance with GAAP and Regulation S-X. If the Closing
shall occur after March 31, 2000, Net shall have also received the consolidated
financial statements of Sensar at, and for the quarter ended, March 31, 2000,
which financial statements shall be unaudited but reviewed pursuant to SAS 71.
Section 9.08 Other Items. Net shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as Net may reasonably request.
ARTICLE X
MISCELLANEOUS
Section 10.01 Survival of Representations and Warranties. Except as
otherwise provided, the representations, warranties, covenants, and agreements
of the parties shall not survive the Closing.
Section 10.02 Brokers. Sensar agrees that there were no finders or
brokers involved in bringing the parties together or who were instrumental in
the negotiation, execution, or consummation of this Agreement other than those
entitled to receive the 500,000 shares of common stock, all of whom are set
forth on Schedule 10.02 to be delivered by Sensar prior to the Closing. Sensar
and Net agree to indemnify the other against any claim by any third person for
any commission, brokerage, or finder's fee or other payment with respect to this
Agreement or the transactions contemplated hereby based on any alleged agreement
or understanding between such party and such third person, whether express or
implied, resulting from the actions of such party. The covenants set forth in
this section 10.02 shall survive the Closing and the consummation of the
transactions herein contemplated.
Section 10.03 Tax Treatment. No representation or warranty is being
made or legal opinion given by any party to any other regarding the treatment of
this transaction for federal or state income taxation. All parties intend for
the transaction to be treated as a "tax-free" reorganization under the
provisions of the Code and agree to take all corporate action necessary, to file
all tax returns and reports, and prepare financial statements consistent with
the treatment of the transaction as a reorganization under section 368(a) for
those shareholders resident in the United States. Shareholders not resident in
the United States or otherwise unable to qualify for "tax-free" treatment under
section 368(a) shall be solely responsible for any tax consequences to them
resulting from the consummation of the transactions contemplated hereby.
Although this transaction has been structured in an effort to qualify for
treatment under section 368(a) of the Code, there is no assurance that any part
of this transaction in fact meets the requirements for such qualification. Each
party has relied exclusively on its own legal, accounting, and other tax
advisers regarding the treatment of this transaction for federal and state
income taxes.
<PAGE 37>
Section 10.04 Governing Law. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
the state of Utah.
Section 10.05 Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed sufficiently given
if personally delivered, if sent by facsimile or telecopy transmission or other
electronic communication confirmed by registered or certified mail, postage
prepaid, or if sent by prepaid overnight courier addressed as follows:
If to Sensar, to: Sensar Corporation
Howard S. Landa
50 West Broadway, Suite 500
Salt Lake City, Utah 84101
Fax: (801) 350-0825
Confirmation: (801) 350-0587
With copies to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801)359-3954
Confirmation: (801) 531-7090
If to Net: Hemi Davidson
Net2Wireless, Inc.
17 Ben-Gurion Street
Bnei Brak
Tel Aviv 52537
Israel
Fax: 011-9867-579-0127
Confirmation: 011-9867-570-6193
With copies to: Richard H. Gilden, Esq.
Fulbright & Jaworski L.L.P
666 Fifth Avenue
New York, New York 10103
Fax: (212) 752-5958
Confirmation: (212) 318-3021
and
<PAGE 38>
Yaron Sobol
Attorney at Law
66 Rothschild Blvd.
Tel Aviv 65785
ISRAEL
Fax: 011-972-3-566-0480
Confirmation: 011-972-3-566-0595
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered or sent by facsimile or
telecopy transmission or other electronic communication, or one day after the
date so sent by overnight courier.
Section 10.06 Attorneys' Fees. In the event that any party institutes
any action or suit to enforce this Agreement or to secure relief from any
default hereunder or breach hereof, the breaching party or parties shall
reimburse the nonbreaching party or parties for all costs, including reasonable
attorneys' fees, incurred in connection therewith and in enforcing or collecting
any judgment rendered therein.
Section 10.07 Costs. Each of the parties shall bear its respective
costs associated with this Agreement and the transactions contemplated hereby,
including legal fees, accounting fees, and other costs and expenses.
Section 10.08 Schedules; Knowledge. Whenever in any section of this
Agreement reference is made to information set forth in the Sensar Schedules or
Net Schedules such reference is to information specifically set forth in such
schedules and clearly referenced to identify the section of this Agreement to
which the information relates. Whenever any representation is made to the
"knowledge" of any party, it shall be deemed to be a representation as to actual
knowledge only.
Section 10.09 Third-Party Beneficiaries. This Agreement is solely
between Sensar and Net and the Net Shareholders, and no director, officer,
stockholder, employee, agent, independent contractor, or any other person or
entity shall be deemed to be a third party beneficiary of this Agreement.
Section 10.10 Entire Agreement. This Agreement, together with the
other agreements entered into between the parties contemporaneously with this
Agreement (this Agreement and such other documents collectively referred to as
the "Transaction Documents"), represent the entire agreement between the parties
relating to the subject matter hereof. All previous agreements between the
parties, whether written or oral, have been merged into the Transaction
Documents. The Transaction Documents fully and completely express the agreement
of the parties relating to the subject matter hereof. There are no other
courses of dealing, understandings, agreements, representations, or warranties,
written or oral, except as set forth in the Transaction Documents.
<PAGE 39>
Section 10.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 10.12 Amendment or Waiver. Every right and remedy provided
herein shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. This Agreement shall only be amended by a
writing signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by the party or
parties for whose benefit the Provision is intended.
Section 10.13 Severability. If and to the extent that any court of
competent jurisdiction holds any provision, or any part thereof, of this
Agreement to be invalid or unenforceable, such holding shall in no way affect
the validity of the remainder of this Agreement which shall continue in full
force and effect.
Section 10.14 Successors and Assigns. This Agreement may not be
assigned without the prior written consent of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, and the
individuals have caused this Agreement to be executed as of the date first above
written.
Sensar:
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, CEO
Net:
Net2Wireless, Inc.
By /s/ Hemi Davidson
Hemi Davidson, CEO
<PAGE 40>
FIRST AMENDMENT TO
AGREEMENT
THIS FIRST AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
January 4, 2000, to amend the Agreement dated December 8, 1999, by and between
Sensar Corporation, a Nevada corporation ("Sensar"), and Net2Wireless, Inc., a
Delaware corporation ("Net2Wireless"), based on the following:
Premises
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, pursuant to which Sensar has
agreed to provide funding to Net2Wireless and holds the right to acquire
Net2Wireless. The parties wish to amend the Acquisition Agreement as set forth
herein.
B. This Amendment is entered into in conformance with Section 10.2 of
the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
Agreement
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Meanings. Capitalized terms used in this Amendment and not
defined shall have the meanings given to them in the Acquisition Agreement.
2. Negative Covenants of Sensar. Under the provisions of section
3.03(b) of the Acquisition Agreement, Sensar is prohibited, inter alia, from
adopting any recapitalization or split of its capital stock. Sensar and
Net2Wireless have considered the potential effects of a forward split of
Sensar's stock and consider it in the best interests of both the current
shareholders of Sensar and the Net2Wireless shareholders who will receive Sensar
common stock if either Sensar or Net2Wireless elects to exercise their
respective option under the provisions of section 2.04 of the Acquisition
Agreement to trigger a reorganization between the parties. Consequently, the
parties agree that the following transaction shall not be a violation of
Sensar's obligations under section 3.03 of the Acquisition Agreement:
The implementation by Sensar of a forward split of its issued and
outstanding common stock on the basis of two for one (2:1), so that the holder
of shares of common stock would receive one (1) additional share for each share
of common stock held as of the Record Date (as defined below). The forward
split would be effective for all holders of common stock as of January 12, 2000
(the "Record Date") and would be completed as quickly as reasonably practical
following the filing of the necessary notices. All options, warrants and other
rights to acquire Sensar common stock outstanding on the Record Date would be
adjusted to give effect to the forward split.
<PAGE 1>
3. Terms of the Reorganization. Section 2.05 of the Acquisition
Agreement is hereby amended to give effect to the forward split of the issued
and outstanding Sensar common stock by doubling the share amounts of the Sensar
common stock so that "8,000,000" is replaced with "16,000,000" and "5,500,000"
is replaced with "11,000,000." In addition, the number "4" contained in the
formula calculating the number of additional shares to be issued under certain
circumstances is replaced by the number "2."
4. Affirmative Covenants of Sensar. Section 3.02 of the Acquisition
Agreement is hereby amended to give effect to the forward split by replacing the
share amount of "3,150,000" with the share amount of "6,300,000" where it
appears in that paragraph.
5. Conforming Changes. All other references in the Acquisition
Agreement to the issued and outstanding shares of common stock of Sensar, or the
rights to acquire common stock of Sensar, are hereby amended to give effect to
the forward split by doubling the number of shares referred to and, in the case
of rights to acquire shares, by decreasing the per share exercise or strike
price to one-half of that stated.
6. Ratification of Acquisition Agreement. Except as specifically
provided in Sections 1 through 5 hereof, the parties specifically ratify,
confirm and adopt as binding and enforceable, all of the terms and conditions of
the Acquisition Agreement.
EXECUTED effective the date first above written.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, CEO
NET2WIRELESS, INC.
By /s/ Hemi Davidson
Hemi Davidson, CEO
<PAGE 2>
SECOND AMENDMENT TO
AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
March 21, 2000, to amend the Agreement dated December 8, 1999, as previously
amended January 4, 2000, by and between Sensar Corporation, a Nevada corporation
("Sensar"), and Net2Wireless Corporation (formerly "Net2Wireless, Inc."), a
Delaware corporation ("Net2Wireless"), based on the following:
PREMISES
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, as amended January 4, 2000,
pursuant to which Sensar has agreed to provide funding to Net2Wireless and holds
the right to acquire Net2Wireless.
B. Subsequent to the execution of the Acquisition Agreement, certain
opportunities have been available to Net2Wireless. The parties have agreed to
amend the Acquisition Agreement to permit Net2Wireless to take advantage of such
opportunities and wish to set forth such amendments in writing.
C. This Amendment is entered into in conformance with Section 10.2 of
the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Meanings. Capitalized terms used in this Amendment and not
defined shall have the meanings given to them in the Acquisition Agreement.
2. Agreement With Partner Communications Company, Ltd. Under the
provisions of Section 2.01(d) of the Acquisition Agreement, Net2Wireless was
required to enter into an agreement with Partner Communications Company, Ltd.,
in form and substance acceptable to Sensar. Net2Wireless has met this
obligation by the execution of the Agreement dated March 13, 2000 (the "Partner
Agreement"). The parties agree that the maximum number of 3,020,576 shares
subject to the option granted to Partner for an aggregate exercise price of US
$5,555,556, as such amounts may subsequently be adjusted under the anti-dilution
provisions set forth in the Partner Agreement, is acceptable and that the
obligations under such option shall be assumed by Sensar in the reorganization
under the provisions of Section 2.05 of the Acquisition Agreement.
3. Affirmative and Negative Covenants of Net2Wireless. Under the
provisions of section 3.01 of the Acquisition Agreement, Net2Wireless is
required, inter alia, to operate its business in all material respects in the
usual and ordinary course and to not issue shares of its stock other than as
specifically contemplated by the Acquisition Agreement. The parties agree that
the following transaction shall not be a violation of any of Net2Wireless'
obligations under section 3.01 of the Acquisition Agreement:
<PAGE 1>
The issuance by Net2Wireless of shares of Series A Preferred Stock at a
minimum of $27.93 per share, for an aggregate of up to $50 million in gross
proceeds to Net2Wireless (the "Series A Placement"). The holders of the Series
A Preferred Stock would have the rights and obligations set forth on the Summary
of Principal Terms attached hereto as Exhibit "A." Net2Wireless represents and
warrants that the offer and sale in the placement of these securities is and
will be in full compliance with: (a) an available exemption from the
registration requirements of the Securities Act of 1933, as amended; (b) all
other governing provisions of United States federal securities laws; (c)
applicable state securities laws; and (d) the applicable provisions of the laws
of any other jurisdiction in which offers and sales are made for those
transactions occurring outside of the United States.
4. Terms of the Reorganization. The parties have also agreed to a
stock distribution to all shareholders and option holders of Net2Wireless of
.074074 shares for each share previously outstanding. In order to accommodate
this distribution, Section 2.05 of the Acquisition Agreement, as previously
amended by the terms of the First Amendment dated January 4, 2000, is hereby
amended to increase the aggregate shares of Sensar common stock to be issued to
the holders of Net Stock and rights to acquire Net Stock (other than as set
forth below) from 16,000,000 to 17,185,185. In addition, Sensar shall assume
the obligations under the option held by Partner Communications Company, Ltd.,
and options issued by Net2Wireless to employees, officers, directors, and
consultants, which shall be increased from a maximum of 11,000,000 shares to a
maximum of 11,814,815 shares. Finally, Sensar shall issue shares of Sensar
common stock in addition to those set forth above, equal to the number of shares
sold in the Series A Placement, as such shares may subsequently be adjusted
under the governing terms of that placement.
5. Issued and Outstanding Stock of Sensar. Section 3.02 of the
Acquisition Agreement is hereby amended to require Sensar to have, after the
mandatory conversion of options held by officers, directors, and consultants as
provided in Section 3.02(d) of the Acquisition Agreement, no more than 9,000,000
shares of common stock and/or rights to acquire common stock outstanding at the
time of closing. For each share of Sensar common stock, or right to acquire a
share, outstanding in excess of 9,000,000, Sensar shall increase the number of
shares of Sensar common stock to be issued to the Net2Wireless stockholders in
the reorganization by two shares.
6. Ratification of Acquisition Agreement. Net2Wireless agrees that it
will fully and timely comply with all of the other terms and conditions of the
Acquisition Agreement and will cooperate in good faith with Sensar in the
completion of all transactions contemplated by the Acquisition Agreement.
Except as specifically provided in this Amendment, the parties specifically
ratify, confirm, and adopt as binding and enforceable, all of the terms and
conditions of the Acquisition Agreement.
EXECUTED effective the date first above written.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, Chairman of the Board
and CEO
NET2WIRELESS CORPORATION
By /s/ Nechemia Davidson
Nechemia Davidson
CEO
<PAGE 2>
THIRD AMENDMENT TO
AGREEMENT
THIS THIRD AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
June 26, 2000, to amend the Agreement dated December 8, 1999, as previously
amended January 4, and March 21, 2000, by and between Sensar Corporation, a
Nevada corporation ("Sensar"), and Net2Wireless Corporation (formerly
"Net2Wireless, Inc."), a Delaware corporation ("Net2Wireless"), based on the
following:
Premises
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, as amended January 4, and March
21, 2000, pursuant to which Sensar and Net2Wireless have agreed to merge on the
terms, and subject to the conditions, set forth in the Acquisition Agreement.
B. Subsequent to the execution of the Acquisition Agreement, the
parties have agreed to amend certain provisions of the Acquisition Agreement and
wish to set forth such amendments in writing.
C. This Amendment is entered into in conformance with Section 10.2 of
the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
Agreement
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Meanings. Capitalized terms used in this Amendment and not
defined shall have the meanings given to them in the Acquisition Agreement.
2. Terms of the Reorganization. The parties have agreed to increase
the number of options issued by Net2Wireless to employees, officers, directors,
and consultants that will be assumed by Sensar in connection with the merger by
500,000 shares, to a maximum of options to acquire 12,314,815 shares. The
issuance of the options to acquire the additional 500,000 shares shall be at the
discretion of Net2Wireless, but such options shall not be issued to directors,
executive officers, or holders of five percent (5%) or more of Net2Wireless'
stock and such options shall have an exercise price based on the trading price
of the Sensar common stock at the time of issuance, as reported by the Nasdaq
SmallCapSM Market.
3. Affirmative Covenants of Sensar. Section 3.02(d) of the Acquisition
Agreement is amended to read in its entirety as follows:
(d) eliminate, by agreement with the holders, the "cashless exercise"
feature, that permits the exercise of rights to acquire common stock of Sensar
by the delivery of shares of common stock or the cancellation of shares of
<PAGE>
common stock subject to such rights, of all options, warrants, or other rights
to acquire stock or securities of Sensar identified in Schedule 3.02(d).
4. Conditions Precedent to the Obligations of Net2Wireless. Section
9.06 of the Acquisition Agreement is deleted in its entirety.
5. Ratification of Acquisition Agreement. Sensar and Net2Wireless
agree that they will fully and timely comply with all of the other terms and
conditions of the Acquisition Agreement and will cooperate in good faith in the
completion of all transactions contemplated by the Acquisition Agreement.
Except as specifically provided in this Amendment, the parties specifically
ratify, confirm, and adopt as binding and enforceable, all of the terms and
conditions of the Acquisition Agreement.
6. FastNet. Net2Wireless shall form a Delaware corporation as a
wholly-owned subsidiary ("FastNet") to be called "FastNet, Inc.," or any other
name determined by the board of directors of Net2Wireless, and an Israeli
corporation ("FastNet Israel") as a wholly-owned subsidiary of FastNet. The
capitalization of FastNet shall include 5,000,000 shares of common stock, of
which 4,500,000 shares shall be held by Net2Wireless and 500,000 shares shall be
reserved for issuance upon exercise of options to be granted to directors,
officers, consultants, and employees (the "Option Shares"). The issuance of the
options to acquire the Option Shares shall be at the discretion of the board of
directors of FastNet.
EXECUTED effective the date first above written.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, Chairman of the Board
and CEO
NET2WIRELESS CORPORATION
By /s/ Nechemia Davidson
Nechemia Davidson
CEO
<PAGE 2>
FOURTH AMENDMENT TO
AGREEMENT
THIS FOURTH AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
July 26, 2000, to amend the Agreement dated December 8, 1999, as previously
amended January 4, 2000, March 21, 2000, and June 26, 2000, by and between
Sensar Corporation, a Nevada corporation ("Sensar"), and Net2Wireless
Corporation (formerly, "Net2Wireless, Inc."), a Delaware corporation
("Net2Wireless"), based on the following:
Premises
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, as amended January 4, 2000,
March 21, 2000 and June 26, 2000, pursuant to which Sensar and Net2Wireless have
agreed to merge on the terms, and subject to the conditions, set forth in the
Acquisition Agreement.
B. Subsequent to the execution of the Acquisition Agreement,
Net2Wireless is negotiating a reasonable sale of equity with Nextel Finance
Company or an affiliate ("Nextel").
C. The parties hereto wish to amend the Acquisition Agreement to
permit an investment by Nextel.
D. This Amendment is entered into in conformance with Section 10.2
of the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
Agreement
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment and not
herein defined shall have the meanings ascribed to them in the Acquisition
Agreement, as previously amended.
2. Terms of the Reorganization. Net2Wireless and Sensar have agreed to
increase the number of shares of common stock of Sensar ("Common Stock") to be
registered under the S-4 registration statement, as may be amended from time to
time (the "S-4"), by an additional one million (1,000,000) shares of Common
Stock which may be acquired by Nextel either by direct purchase or upon
conversion of the Series B Preferred Stock of Net2Wireless.
<PAGE 1>
3. Ratification of Acquisition Agreement. Sensar and Net2Wireless agree
that they will fully and timely comply with all of the other terms and
conditions of the Acquisition Agreement, as amended, and will cooperate in good
faith in the completion of all transactions contemplated by the Acquisition
Agreement, as amended. The parties ratify, confirm, and adopt as binding and
enforceable, all of the terms and conditions of the Acquisition Agreement, as
amended.
4. Counterparts. This Amendment may be executed in two counterparts, each
of which shall be deemed an original, but both of which together shall
constitute one and the same instruments.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa
Chairman of the Board and CEO
NET2WIRELESS CORPORATION
By /s/ Nechemia Davidson
Nechemia Davidson
CEO
<PAGE 2>
APPENDIX B
NET2WIRELESS CORPORATION
2000 U.S. STOCK OPTION PLAN
1. Purpose. The purpose of the Net2Wireless Corporation 2000 U.S.
Stock Option Plan (the "Plan") is to establish a flexible vehicle through which
Net2wireless Corporation, a Delaware corporation (the "Company"), may grant
options to purchase shares of the Company's common stock, $0.01 par value
("Common Stock"), including options intended to qualify as "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and options which do not qualify as ISOs
("NQSOs"), to eligible personnel in order to attract, retain and motivate such
personnel and to further align the interests of such personnel with those of the
Company's stockholders.
2. Administration. The Plan shall be administered by the Board or
Directors of the Company (the "Board") or a committee of at least two directors
(the "Committee") whose members shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the Board or Committee, acting in its
sole and absolute discretion, shall have full power and authority to: (a) select
the persons to whom options shall be granted under the Plan, (b) grant options
to such persons and prescribe the terms and conditions of such options, (c)
interpret and apply the provisions of the Plan and of any option agreement or
other document evidencing an option granted under the Plan, and (d) take such
other action as may be necessary or desirable in order to carry out the
provisions, intent and purpose of the Plan. The Company shall indemnify and
hold harmless each member of the Board and any employee of the Company or its
affiliates who provides assistance with respect to the administration or
interpretation of the Plan from and against any loss, cost, liability (including
any sum paid in settlement of a claim with the approval of the Board), damage
and expense (including legal and other expenses incident thereto) arising out of
or incurred in connection with the Plan, unless and except to the extent
attributable to such person's fraud or willful misconduct.
3. Eligibility. Options under the Plan may be made to such officers,
directors, employees (including prospective employees), consultants and other
persons who may perform services for the Company or its subsidiaries, if any, as
the Board or the Committee may select. The date of grant of an Option under the
Plan shall be the date as of which the Board or Committee approves the grant.
In granting options under the Plan, the Board or Committee shall give
consideration to the functions and responsibilities of a potential recipient,
the potential recipient's previous and/or expected future contributions to the
business of the Company and its subsidiaries, if any, and such other factors as
it deems relevant under the circumstances.
4. Share Limitations. The maximum number of shares of Common Stock
that may be issued under the Plan is 6,000,000 shares (subject to increase or
decrease as provided in Section 9 below). For this purpose, the following
shares shall be deemed not to have been issued under the Plan and shall remain
available for issuance: (a) shares covered by the unexercised portion of an
option that terminates, expires or is canceled, (b) shares subject to an
outstanding option which is settled for cash in lieu of such shares, and (c)
shares that are withheld in order to pay the exercise price of any option or to
satisfy the tax withholding obligations associated with any option. Shares of
Common Stock available for issuance under the Plan may be either authorized and
unissued or held by the Company in its treasury. The maximum number of shares
of Common Stock with respect to which options may be granted to any employee
during any calendar year shall not exceed 500,000 shares. No fractional shares
of Common Stock will be issued under the Plan.
<PAGE 1>
5. Stock Options. Subject to the provisions of the Plan, the Board or
Committee may grant options upon such terms and conditions as it deems
appropriate. The terms and conditions of each option will be evidenced by a
written option agreement or other instrument approved for this purpose.
(a) Exercise Price. The exercise price per share of Common Stock
covered by an option may not be less than the par value of the Common Stock on
the date the option is granted, provided that the exercise price per share of
Common Stock covered by an ISO may not be less than the fair market value of the
Common Stock on the date the ISO is granted (or 110% of the fair market value in
the case of an optionee who, at the time the option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or a "subsidiary" of the Company within the meaning of
Section 424 of the Code).
(b) Option Price Adjustment. Subsequent to the date of grant of any
option, the Board or the Committee may, at its discretion and with the consent
of the optionee, establish a new exercise price for such option so as to
increase or decrease the exercise price of such option.
(c) Option Term. No option granted under the Plan may be exercisable
more than ten (10) years after the date the option is granted (or, in the case
of an ISO granted to a 10% stockholder, five (5) years).
(d) Vesting and Exercise Conditions. The Board or Committee may
establish such vesting and other conditions and restrictions on the exercise of
an option and/or upon the issuance of Common Stock in connection with the
exercise of an option as it deems appropriate, including, without limitation,
conditioning the exercise of an option on the attainment of specified
performance criteria and restricting the transfer or sale of shares acquired
pursuant to the exercise of an option prior to an initial public offering of the
Common Stock.
(e) Exercise of Options. An option may be exercised by transmitting to
the Company: (i) a notice specifying the number of shares to be purchased and
(ii) payment of the exercise price, together with the amount, if any, deemed
necessary by the Company to enable it to satisfy its tax withholding obligations
associated with such exercise (unless other arrangements acceptable to the
Company are made with respect to the satisfaction of such withholding
obligations). The exercise price under an option may be paid in cash, certified
check and/or such other forms of payment as may be permitted by the Board or
Committee from time to time, including, without limitation, shares of Common
Stock which have been owned (free and clear of any liens or encumbrances) for at
least six (6) months [or pursuant to a "cashless exercise" procedure approved by
the Board or the Committee].
<PAGE 2>
(f) Rights as a Stockholder. No shares of Common Stock shall be issued
in respect of the exercise of an option until full payment of the exercise price
and the applicable tax withholding obligation has been made or provided for.
The holder of an option shall have no rights as a stockholder with respect to
any shares covered by an option until the date such shares are issued. Except
as otherwise provided herein, no adjustments shall be made for dividend
distributions or other rights for which the record date is prior to the date
such shares are issued.
(g) Other Conditions. The Board or Committee may impose such other
terms and conditions with respect to the exercise of an option or the issuance
of shares of Common Stock acquired pursuant to any such exercise, including,
without limitation, conditions relating to the application of federal or state
securities laws or exchange requirements as it deems appropriate from time to
time.
6. Fair Market Value. For all purposes of the Plan, the fair market
value of a share of the Common Stock on any date shall be determined by the
Board or Committee.
7. Non-Transferability and Other Limitations.
(a) No Transfer of Options. All options shall be exercisable during
the recipient's lifetime only by the recipient. Except as otherwise
specifically provided by law or the provisions hereof, no option received under
the Plan shall be assignable or otherwise transferable by the optionee except by
will or by the laws of descent and distribution.
(b) Compliance With Securities Laws Notwithstanding anything here to
the contrary, at any time during which the shares of Common Stock are not
publicly traded, no options shall be granted under the Plan and no shares of
Common Stock shall be issued and delivered upon the exercise of options granted
under the Plan, unless and until the Company and/or the optionee shall have
complied with all applicable Federal or state registration, listing and/or
qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction.
The Board or Committee in its discretion may, as a condition to the
exercise of any option granted under the Plan, require an optionee (i) to
represent in writing that the shares of Common Stock received upon exercise of
an option are being acquired for investment and not with a view to distribution
and (ii) to make such other representations and warranties as are deemed
appropriate by the Company. Stock certificates representing shares of Common
Stock acquired upon the exercise of options that have not been registered under
the Securities Act shall, if required by the Board, shall bear the following
legend and such additional legends as may be required by the option Agreement
evidencing a particular option:
<PAGE 3>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT" ) . THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
8. Termination of Employment or Service. Nothing contained in the Plan
or in any Option Agreement shall confer upon any optionee any right with respect
to the continuation of his or her employment by or service with the Company or
its subsidiaries, if any, or interfere in any way with the right of the Company
or its subsidiaries, if any, at any time to terminate such employment or service
or to increase or decrease the compensation of the optionee from the rate in
existence at the time of the grant of an option. Unless otherwise determined by
the Board or Committee at grant or, if no rights of the recipient are thereby
reduced, thereafter, and subject to earlier termination in accordance with the
provisions hereof, the following rules apply with regard to awards held by a
recipient at the time of his or her termination of employment or other service
with the Company and its subsidiaries, if any.
(a) Termination by Reason of Death/Disability. If an optionee's
employment or service terminates by reason of death or Disability (as defined
below), then: (i) any option held by the optionee that is not then exercisable
will thereupon terminate; and (ii) any option held by the optionee which is
exercisable at the time of such termination will remain exercisable by the
optionee (or the deceased optionee's beneficiary) for a period of one year
following such termination or, if sooner, until the expiration of the stated
term of the option, and, to the extent it is not exercised within such period,
will thereupon terminate. For purposes of the Plan, Disability shall mean the
inability of an individual to perform the customary duties of his or her
employment or other service for the Company or a subsidiary by reason of a
physical or mental incapacity which is expected to result in death or to be of
indefinite duration.
(b) Termination for Cause. If an optionee's employment or service is
terminated by the Company or a subsidiary for Cause (as defined below) or if, at
the time of such termination, grounds for a termination for Cause exist, then
any option held by the optionee (whether or not vested) shall immediately
terminate and cease to be exercisable. For purposes of the Plan, a termination
for Cause shall mean: (i) in a case where there is no employment or consulting
agreement between the recipient and the Company or its subsidiaries, if any, or
where such an agreement exists but does not define "cause" (or words of like
import), a termination classified by the Company as a termination due to an
individual's dishonesty, fraud, insubordination, willful misconduct, negligence,
refusal to perform services or materially unsatisfactory performance of his or
her duties, or (ii) in a case where there is an employment or consulting
agreement between the recipient and the Company or its subsidiaries, if any,
that defines "cause", a termination that is or would be deemed for "cause" (or
words of like import) under such agreement.
<PAGE 4>
(c) Other Termination. If an optionee's employment or service
terminates for any reason (other than death, Disability or Cause or at a time
when Cause exists) or no reason, then: (i) any option held by the optionee that
is not then exercisable will thereupon terminate and (ii) any option held by the
optionee which is exercisable at the time of such termination will remain
exercisable during the 90 day period following such termination or, if sooner,
until the expiration of the stated term of the option and, to the extent not
exercised within such period, will thereupon terminate.
9. Capital Changes; Change in Control; Merger.
(a) Adjustments Upon Changes in Capitalization. Subject to Section
9(c) below, the aggregate number and class of shares of Common Stock which may
be issued under the Plan, the number and class of shares covered by each
outstanding option and the exercise price per share shall all be equitably
adjusted to reflect any change in the Common Stock by reason of a stock split,
reverse stock split, stock dividend or like capital adjustment or to reflect a
conversion or exchange of the Common Stock for other securities as a result of a
merger, consolidation or reorganization.
(b) Change in Control. The Board or Committee may provide in any
option agreement for the effect on the option of a "change in control" of the
Company or its subsidiaries, if any (as such term is defined by the Board or the
Committee in any such agreement), including, to the extent applicable, the
acceleration of the exercisability of, or the lapse of restrictions or deemed
satisfaction of goals with respect to, any outstanding option.
(c) Merger; Consolidation. In the event of a merger, consolidation,
mandatory share exchange or other similar business combination of the Company
with or into any other entity ("Successor Entity") or any transaction in which
another person or entity acquires all or substantially all the issued and
outstanding Common Stock or all or substantially all the assets of the Company,
outstanding options may be assumed or equivalent options may be substituted by
the Successor Entity or a parent or subsidiary of the Successor Entity provided
that, if outstanding options are not assumed or replaced with substantially
equivalent options, then all optionees shall be permitted to exercise their
outstanding options (whether or not otherwise vested or exercisable) prior to
such transaction and any outstanding options which are not exercised before such
transaction shall thereupon terminate.
(d) Fractional Shares. In the event of any adjustment in the number of
shares covered by any option pursuant to the provisions hereof, any fractional
shares resulting from such adjustment shall be disregarded, and each such option
shall cover only the number of full shares resulting from the adjustment.
<PAGE 5>
(e) Determinations Final. All adjustments sunder this Section 9 shall
be made by the Board, and its determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive.
10. Amendment and Termination. The Board may amend or terminate the
Plan, provided that no such action may adversely affect the rights of the holder
of any outstanding award without the consent of the holder. Except as otherwise
provided in Section 9, any amendment which would increase the aggregate number
of shares of Common Stock which may be issued under the Plan, modify the class
of employees eligible to receive options under the Plan or otherwise require
stockholder approval shall be subject to the approval of the Company's
stockholders. The Board may amend the terms of any option agreement or
instrument made or issued hereunder at any time and from time to time; provided,
however, that any amendment which would adversely affect the rights of the
holder of any outstanding options may not be made without his consent.
11. No Rights Conferred. Nothing contained herein will be deemed to
give any individual any right to receive any options under the Plan or to be
retained in the employ or service of the Company or its subsidiaries, if any.
12. Decisions and Determinations to be Final. All decisions and
determinations made by the Board pursuant to the provisions hereof and, except
to the extent rights or powers under the Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee shall
be final, binding and conclusive on all parties.
13. Governing Law. The Plan shall be governed by the laws of the State
of Delaware, without regard to its principles of conflicts of law.
14. Term of the Plan. The Plan shall be effective as of the date of
its adoption by the Board, subject to the approval of the stockholders of the
Company within one year from the date of such adoption by the Board. The Plan
will terminate on the tenth anniversary of the date of its adoption by the
Board, unless sooner terminated by the Board. The rights of any person with
respect to an option granted under the Plan that is outstanding at the time of
the termination of the Plan shall not be affected solely by reason of the
termination of the Plan and shall continue in accordance with the terms of the
option (as then in effect or thereafter amended) and the Plan.
15. Captions. The use of captions in the Plan is for convenience. The
captions are not intended to provide substantive rights.
16. Number and Gender. With respect to words used in the Plan, the
singular form shall include the plural form, the masculine gender shall include
the feminine gender, and vice-versa, as the context requires.
<PAGE 6>
APPENDIX C
CERTIFICATE OF INCORPORATION
OF
Net2Wireless Corporation
__________________________
Under Section 102 of the
General Corporation Law
__________________________
The undersigned, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is Net2Wireless Corporation.
SECOND: The address of the registered office of the corporation in the State
of Delaware shall be at 15 East North Street, City of Dover, County of Kent; and
the name of its registered agent at such address shall be United Corporate
Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware as set forth in Title 8 of the Delaware Code 1953, as amended
(the "GCL").
FOURTH: The amount of the total authorized capital stock of this Corporation
shall be 100,000,000 shares, divided as follows: (i) 90,000,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), and (ii) 10,000,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
subject to the provisions of Paragraphs 4(a) and 4(b) below.
(a) Common Stock. Each share of Common Stock shall be entitled to one vote.
(b) Preferred Stock. The Preferred Stock authorized by this Certificate of
Incorporation may be divided and issued from time to time in series. Except as
otherwise provided in this Certificate of Incorporation, and subject to
limitations and requirements prescribed by law, the board of directors of the
corporation is expressly authorized, by a vote or written consent of at least a
majority of the board of directors then in office, to provide for the issuance
of the Preferred Stock in one or more series, each with such designations,
preferences, voting powers (or no voting powers), relative, participating,
option or other special rights and privileges and such qualifications,
limitations or restrictions thereof as shall be stated in the resolution or
resolutions adopted by the board of directors of the corporation to create such
series, and a Certificate of Designations of said resolution or resolutions
shall be filed in accordance with the General Corporation Law of the State of
Delaware. The authority of the board of directors of the corporation with
respect to each such series shall include, without limitation of the foregoing,
the right to provide that the shares of each such series may be:
(i) subject to redemption at such time or times and at such price or prices;
<PAGE 1>
(ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series;
(iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the corporation;
(iv) convertible into, or exchangeable for, shares of any other class or
classes of capital stock, or of any other series of the same or any other class
or classes of stock of the corporation at such price or prices or at such rates
of exchange and with such adjustments, if any;
(v) entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or
(vi) entitled to such other preferences, powers, qualifications, rights and
privileges,
all as the board of directors of the corporation may deem advisable and as are
not inconsistent with law and the provisions of this Certificate of
Incorporation.
The board of directors is also authorized to decrease the number of shares of
any series subsequent to the issuance of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
FIFTH: The name and mailing address of the incorporator is David W.
Hsia, Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York
10103-3198.
SIXTH: The corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
EIGHTH: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision of the General Corporation Law) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. The election of
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
<PAGE 2>
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of the General Corporation Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of the General Corporation Law, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
TENTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on the stockholders
herein are granted subject to this reservation.
ELEVENTH: A director of this corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for the breach of any
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the General Corporation Law
is amended after the date of incorporation of the corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
<PAGE 3>
I, THE UNDERSIGNED, being the sole incorporator as named above, for the purpose
of forming a corporation pursuant to the General Corporation Law, make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
_____ day of __________, 2000.
David W. Hsia
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103-3198
<PAGE 4>
APPENDIX D
GENERAL CORPORATION LAW
STATE OF DELAWARE
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263, or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263, and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by more than 2,000
holders;
<PAGE 1>
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipt and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b., and c. of this paragraph.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy
or vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger of
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger of reconsolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
<PAGE 2>
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates or stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that such stockholder is not entitled to appraisal
rights under this section.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
<PAGE 3>
APPENDIX E
NEVADA REVISED STATUTES
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the
action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record"
means the person in whose name shares are registered in the records of a
domestic corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means
the domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
<PAGE 1>
NRS 92A.350 Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability
company. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate actions
and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests will
be acquired, if he is entitled to vote on the plan.
<PAGE 2>
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only
to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer
than all of the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf he
asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his other
shares were registered in the names of different stockholders.
<PAGE 3>
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, the notice of the meeting must
state that stockholders are or may be entitled to assert dissenters' rights
under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those
sections.
2. If the corporate action creating dissenters' rights is taken by
written consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who wishes to
assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1
and NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to
assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
<PAGE 4>
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates,
if any, before the proposed corporate action is taken retains all other rights
of a stockholder until those rights are canceled or modified by the taking of
the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located;
or
<PAGE 5>
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
<PAGE 6>
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to
a judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of
costs and fees.
1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
<PAGE 7>
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the subject corporation,
the court may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
<PAGE 8>
APPENDIX F
Form of Lock-Up Letter
August 2, 2000
Net2Wireless Corporation
11 Haamal Street
Rosh Haayin, Israel
Dear Sirs:
The undersigned is the record owner of options to acquire shares of common
stock, par value $0.01 per share, (such options and the shares of common stock
underlying the options are herein referred to as the "Securities"), of Sensar
Corporation, a Nevada corporation (the "Company"). The undersigned understands
that the Company currently intends, as soon as possible, to close the
Reorganization under the Agreement signed by the Company and Net2Wireless
Corporation on December 8, 1999, as amended (and as defined therein). Sensar
Corporation has or will file with the Securities and Exchange Commission a
Registration Statement on Form S-3 (the "Registration Statement"), for the
resale of the Securities.
The undersigned agrees that the undersigned will not, without the prior consent
of the Company, directly or indirectly for a period commencing on the date
hereof and ending 180 days after the date the Registration Statement has been
declared effective: (1) offer for sale, contract to sell, sell, pledge or
otherwise dispose of (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person at any time
in the future of) more than fifty percent (50%) of the Securities or securities
convertible into, exercisable or exchangeable for, or represent the right to
receive, Securities or sell or grant options, rights or warrants with respect to
more than fifty percent (50%) of the Securities: or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of more than fifty percent
(50%) of such Securities, whether any such transaction described in clause(1) or
(2) above is to be settled by delivery of Securities or other securities, in
cash or otherwise.
Notwithstanding the foregoing, (i) gifts or (ii) transfers to (A) the
undersigned's immediate family or (B) a trust or partnership the beneficiaries
and sole partners of which are members of the undersigned's immediate family
and/or the undersigned, shall not be prohibited by this agreement if the donee
or transferee agrees in writing to be bound by the foregoing in the same manner
as it applies to the undersigned. "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister to the transferor. This
agreement shall not prohibit the exercise of any stock options, except that the
Securities obtained upon any such exercise shall be subject to the limitations
on disposition herein.
<PAGE 1>
In addition to, and not in limitation of, the foregoing, in connection with any
future underwriter public offering of shares of the Company's capital stock (or
the capital stock of its successor following the Reorganization) for a minimum
of $100 million in gross proceeds to the Company, the undersigned will, with
respect to up to seventy-five percent (75%) of the Securities then held by the
undersigned, accept the terms of any lock-up agreement as agreed upon between
the Company and the underwriters selected by it and enter into a lock up
agreement in the underwriters' customary form provided that all of the officers
and directors of the Company (or its successor) enter into similar lock up
agreements with regard to shares of capital stock or rights held by them and
provided further that the exercise period for any option then held by the
undersigned shall be extended for the same number of days the option or the
common stock underlying the option is subject to the lock up agreement with the
underwriter.
Very truly yours,
By:
Name
Name:
Title:
<PAGE 2>
PROXY
SENSAR CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Howard S. Landa and Steve Strasser proxies, with
full power of substitution, to vote the shares of common stock of Sensar
Corporation ("Sensar"), which the undersigned is entitled to vote at the Special
Meeting of shareholders of Sensar ("Special Meeting") to be held at
_____________________, New York, New York, on [September ___, 2000], at _______
a.m., local time, or any adjournment(s) thereof, such proxies being directed to
vote as specified below. If no instructions are specified, this proxy will be
voted "FOR" all proposals in accordance with the recommendation of the board of
directors.
1. To approve the merger of Net2Wireless Corporation with and into
Sensar;
FOR / / AGAINST / / ABSTAIN / /
2. To approve a change in the corporate domicile of Sensar from Nevada
to Delaware and a change in the corporate name of Sensar to Net2Wireless
Corporation;
FOR / / AGAINST / / ABSTAIN / /
3. To approve the adoption of a Stock Option Plan covering up to
6,000,000 shares of common stock.
FOR / / AGAINST / / ABSTAIN / /
4. To ratify options granted to current management, directors, and
consultants to acquire up to 2,200,000 shares of common stock; and
FOR / / AGAINST / / ABSTAIN / /
5. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
FOR / / AGAINST / / WITHHOLD AUTHORITY / /
The proposals have been made by the Board of Directors and the Board of
Directors unanimously recommends that the shareholders vote "FOR" all proposals.
To vote in accordance with the Board of Directors' recommendations, sign below.
The "FOR" boxes may, but need not, be checked. To vote against any proposal or
to abstain from voting on any proposal, check the appropriate box above.
PLEASE PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF
SENSAR. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
Dated:
Signature
Signature (if held jointly)
PLEASE MARK, SIGN, DATE, AND RETURN
THIS PROXY TO:
PROGRESSIVE TRANSFER COMPANY
P.O. BOX 17561
SALT LAKE CITY, UTAH 84117
<PAGE>
PROXY
NET2WIRELESS CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Nechemia Davidson and Yaron Sobol proxies, with
full power of substitution, to vote the shares of common stock or Series A
Preferred Stock of Net2Wireless Corporation ("Net2Wireless"), which the
undersigned is entitled to vote at the Special Meeting of shareholders of
Net2Wireless (the "Special Meeting") to be held at ________________________, New
York, New York, on [September ___, 2000], at _______ a.m., local time, or any
adjournment(s) thereof, such proxies being directed to vote as specified below.
If no instructions are specified, this proxy will be voted "FOR" all proposals
in accordance with the recommendation of the board of directors.
1. To approve the merger of Net2Wireless with and into Sensar
Corporation; and
FOR / / AGAINST / / ABSTAIN / /
2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
FOR / / AGAINST / / WITHHOLD AUTHORITY / /
The proposals have been made by the Board of Directors and the Board of
Directors unanimously recommends that the shareholders vote "FOR" all proposals.
To vote in accordance with the Board of Directors' recommendations, sign below.
The "FOR" boxes may, but need not, be checked. To vote against any proposal or
to abstain from voting on any proposal, check the appropriate box above.
PLEASE PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF
NET2WIRELESS. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
Dated:
Signature
Signature (if held jointly)
PLEASE MARK, SIGN, DATE, AND RETURN
THIS PROXY TO:
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.037 of the Nevada corporation law, Article VII of Sensar's
articles of incorporation, and Article VIII of Sensar's bylaws, "Insurance and
Officer and Director Contracts" provide for indemnification of Sensar's
directors and officers in a variety of circumstances, which may include
liabilities under the Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers, and controlling persons
pursuant to the foregoing provisions, Sensar has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy as expressed in the Securities Act and, therefore, is
unenforceable. (See "ITEM 28. UNDERTAKINGS.")
(b) All financial statement schedules are omitted because they are not
applicable or because the required information is contained in the Consolidated
Financial Statements or the Notes thereto.
<TABLE>
<CAPTION>
SEC
Exhibit Reference
No. No. Title of Document Location
------- --------- ------------------------------------------------- -------------------------
<S> <C> <C> <C>
Item 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession
2.1 (2) Agreement dated December 8, 1999, as amended Appendix A to Joint Proxy
January 4, 2000, March 21, 2000, June 26, and Statement/Prospectus*
July 26, 2000
Item 3 Articles of Incorporation, Bylaws
3.1 (3) Articles of Incorporation, as amended Exhibit to report on
November 3, 1987 Form 10-K for the year
ended June 30, 1988*
3.2 (3) Certificate of Amendment to the Exhibit to report on
Articles of Incorporation Form 10-K for the year
filed July 3, 1989 ended June 30, 1989*
3.3 (3) Designation of Rights, Privileges, and Registration Statement
Preferences of 1995 Series Preferred Stock filed on Form SB-2,
Exhibit 3, SEC File
No. 33-59963*
3.4 (3) Designation of Rights, Privileges, and Exhibit to report on
Preferences of 1998 Series A Preferred Stock Form 8-K dated
February 13, 1998*
<PAGE>
3.5 (3) Bylaws Registration Statement
filed on Form S-18,
Exhibit 5, SEC File
No. 33-3365-D*
Item 4 Instruments Defining the Rights of Holders, Including Indentures
4.1 (4) Form of Lock-up Letter Appendix F to Joint Proxy
Statement/Prospectus*
Item 5 Opinion Re: Legality
5.1 (5) Opinion of Keith L. Pope, LLC, regarding legality This Filing
of common stock
Item 8 Opinion Re: Tax Matters
8.1 (8) Opinion of Keith L. Pope, LLC, regarding certain This Filing
United States federal income tax matters
Item 10 Material Contracts
10.1 (10) Agreement between Net2Wireless Israel Ltd. and Amendment No. 1
Euros Ltd., dated June 26, 2000
10.2 (10) Management Agreement by and between Amendment No. 1
Net2Wireless Israel Ltd. and Yarsig Ltd., dated
February 16, 2000
10.3 (10) Directorship Agreement by and between Amendment No. 1
Net2Wireless Corporation and Joav Avtalion,
dated May 21, 2000
10.4 (10) Directorship Agreement by and between Amendment No. 1
Net2Wireless Corporation and David Rubner,
dated May 21, 2000
10.5 (10) Stock Option Agreement by and between Amendment No. 1
Net2Wireless, Inc., and Cedar Investment Services
Ltd, dated December 7, 1999
10.6 (10) Stock Option Agreement by and between Amendment No. 1
Net2Wireless, Inc., and Ultimate Business
Management Ltd., dated December 7, 1999
10.7 (10) Warrant for ML Partners, LLC This Filing
10.8 (10) Stock Option Agreement by and between This Filing
Net2Wireles, Inc., and Yitzchak Bachar, dated
March 20, 2000
10.9 (10) Stock Option Agreement by and between This Filing
Net2Wireless, Inc., and Beneficial Investment
Services, Ltd., dated March 20, 2000
10.10 (10) Employment Agreement by and between This Filing
Net2Wireless, Inc., and Yitzhak Feldman,
dated December 19, 1999
<PAGE>
10.11 (10) Employment Agreement by and between This Filing
Net2Wireless, Inc., and Robert Rokni
dated October 15, 1999
10.12 (10) Stock Option Plan adopted by the board of directors Appendix B to Joint Proxy
of Sensar dated May 6, 2000 Statement/Prospectus*
10.13 (10) Agreement by and among I.T.E.S. - Imaging Amendment No. 1
Technologies Enterprise Systems Ltd.,
Net2Wireless Corporation, and Partner
Communications Company Ltd., dated
March 13, 2000
10.14 (10) Memorandum of Understanding by and between Amendment No. 1
Net2Wireless, Inc. and PelePhone Communications
Ltd, dated March 27, 2000
10.15 (10) Stock Purchase Agreement by and between This Filing
Net2Wireless and Nextel Finance Company,
dated July 26, 2000
10.16 (10) Asset Acquisition Agreement by and between Amendment No. 1
I.T.E.S. Imaging Technologies Enterprises Systems
Ltd, Net2Wireless, Inc., and Vintage Global, Inc.,
dated December 15, 1999
10.17 (10) Executive Employment Agreement of Exhibit to report on
Howard S. Landa effective Form 10-Q for the
April 22, 1999 quarter ended
June 30, 1999*
10.18 (10) Deferred Compensation Plan Exhibit to report on
Adopted by the Board of Directors Form 10-K for the
Effective May 1, 1999 year ended
December 31, 1999*
10.19 (10) 1997 Stock Option and Award Plan Exhibit to report on
Form 10-Q for the
quarter ended
March 31, 1997*
10.20 (10) Asset Purchase Agreement by and among Exhibit "A" to Proxy
PCB Group, Inc., Beehive Acquisition Corp., Statement dated
Larson-Davis Incorporated, and Larson-Davis February 16, 1999*
Laboratories, dated November 30, 1998, and Exhibit to report
as amended February 16, 1999, and on Form 10-K for the
March 31, 1999 year ended
December 31, 1998*
<PAGE>
10.21 (10) Asset Purchase Agreement between Exhibit to report on
Sensar Instruments, Inc., Sensar Form 8-K dated
Corporation, and LECO Corporation, August 19, 1999*
dated August 19, 1999
10.22 (10) Form of Market Stand Off and Exhibit to report on
Redemption Agreement by and between Form 10-K for the
Larson-Davis Incorporated and Investors year ended
of 1998 Series A Preferred Stock, December 31, 1998*
dated January, 1999
Item 21 Subsidiaries of the Registrant
21.1 (21) Subsidiaries of Larson-Davis Incorporated Form 10-KSB for the
year ended
June 30, 1996*
Item 23 Consent of Experts and Counsel
23.1 (23) Consent of Grant Thornton LLP This Filing
23.2 (23) Consent of Kost, Forer & Gabbay, a member of This Filing
Ernst & Young International
23.3 (23) Consent of Keith L. Pope, LLC See Exhibit No. 8
Item 27 Financial Data Schedule
27.1 (27) Financial Data Schedule Exhibit to report on
Form 10-K for the
year ended
December 31, 1999*
_________________________
*Incorporated by reference
</TABLE>
ITEM 22. UNDERTAKINGS
Post-Effective Amendments. [Regulation S-K, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(a) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and
<PAGE>
(c) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Filings Incorporating Subsequent Exchange Act Documents by Reference.
[Regulation S-K, Item 512(b)]
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports. [Regulation S-K, Item 512(e)]
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Registration on Form S-4 or F-4 of Securities Offered for Resale. [Regulation
S-K, Item 512(g)]
(1) The undersigned registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reoffering by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (h)(1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415 (Section 230.415 of this
chapter), will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
<PAGE>
Request for Acceleration of Effective Date or Filing of Registration Statement
on Form S-8. [Regulation S-K, Item 512(h)]
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Undertakings. [Form S-4, Item 22(b)]
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Undertakings. [Form S-4, Item 22(c)]
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Salt Lake, state of Utah, on the 7th day of August, 2000.
SENSAR CORPORATION
(Registrant)
By /s/ Howard S. Landa
Howard S. Landa,
CEO and Chairman of the Board
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
the Registration Statement has been signed below by the following persons in the
capacities indicated and on the 7th day of August, 2000.
/s/ Howard S. Landa
Howard S. Landa, CEO and Chairman of the Board
(Principal Executive Officer and Principal Financial and
Accounting Officer)
/s/ Brian B. Lewis
Brian B. Lewis, Director
/s/ Steve Strasser
Steve Strasser, Director
/s/ Mickey Hale
Mickey Hale, Director
<PAGE>
