JOINT PROXY STATEMENT AND PROSPECTUS
SENSAR CORPORATION NET2WIRELESS CORPORATION
50 West Broadway, Suite 501 10 Ha'amal Street
Salt Lake City, Utah 84101 Afek Park, Rosh Ha'ayin 48092
Telephone: (801) 350-0587 Israel
Telecopy: (801) 350-0825 Telephone: 011-972-3-915-8888
Telecopy: 011-972-3-915-8889
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 December 5, 2000.
Outstanding options and warrants to purchase Net2Wireless common stock
will also be exchanged for options and warrants of like tenor to purchase up to
17,073,071 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, an additional 1,000,000 shares of Net2Wireless stock would
be outstanding and Sensar would issue an additional 1,000,000 shares in the
merger.
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 Jigami 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 17 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
October 19, 2000, the closing price for the Sensar common stock as reported by
Nasdaq was $14.00.
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 November 2, 2000.
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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.
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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.
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The date of this Joint Proxy Statement/Prospectus is October 24, 2000.
<PAGE>
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 December 5, 2000, at 10:00 a.m., local time, at the
offices of Brobeck Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York,
New York 10019, 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" and a
change in the corporate name of Sensar Corporation to Jigami
Corporation;
2. to approve a change in the corporate domicile of Sensar
Corporation from Nevada to Delaware;
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 October 16,
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
/s/ HOWARD S. LANDA
Howard S. Landa, Chairman of the Board
Salt Lake City, Utah
October 24, 2000
<PAGE>
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 December 5, 2000, at 10:30 a.m., local time, at the offices of Brobeck
Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019, 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 October 16,
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
/s/ YARON SOBOL
Yaron Sobol, Secretary
Rosh Ha'ayin, Israel
October 24, 2000
<PAGE>
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER.........................................4
SUMMARY........................................................................6
Proposed Business of Net2Wireless to be Conducted Under the Name
Jigami Corporation.............................................................6
The Merger.....................................................................6
Directors of the Combined Company..............................................7
Change in Corporate Domicile and Name..........................................8
Stock Option Plan..............................................................8
Ratification of Options........................................................8
Sensar Stockholders' Meeting...................................................8
Net2Wireless Stockholders' Meeting.............................................9
Ownership of the Combined Company.............................................10
Interests of Certain Persons in the Merger....................................11
Market Price for Sensar Stock.................................................12
Per Share Data................................................................12
Principal Conditions..........................................................13
Dissenters' Rights of Appraisal...............................................14
New Certificates for Common Stock.............................................14
Accounting Treatment..........................................................14
Tax Consequences..............................................................15
Comparison of Securities......................................................15
Restrictions on Resale of Common Stock of the Combined Company................16
RISK FACTORS..................................................................17
Risks Related to Net2Wireless' Proposed Business..............................17
Risks Related to Operations in Israel.........................................21
Risks Related to the Merger...................................................22
FORWARD LOOKING STATEMENTS....................................................24
NET2WIRELESS..................................................................25
BUSINESS OF NET2WIRELESS......................................................25
General.......................................................................25
History.......................................................................25
Development of the Industry...................................................26
Advantages Offered by Net2Wireless Technology.................................27
Products......................................................................29
Source of Anticipated Revenues................................................29
Agreements With Cellular Carriers.............................................30
Competition...................................................................31
Proposed Merger...............................................................33
MANAGEMENT OF NET2WIRELESS....................................................34
EXECUTIVE COMPENSATION........................................................36
Summary Compensation..........................................................36
Option/SAR Grants in Fiscal 1999..............................................36
Option/SAR Exercises in Fiscal 1999...........................................37
Compensation Agreements With Executive Officers...............................37
Compensation Committee Interlocks and Insider Participation...................38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................38
Transactions With I.T.E.S. - Imaging Technologies Enterprises
Systems Ltd...................................................................38
Transactions With Significant Shareholders....................................39
Transactions With Directors and Executive Officers............................39
Transactions With Immediate Family Members of Directors and Executive
Officers......................................................................40
PRINCIPAL STOCKHOLDERS OF NET2WIRELESS........................................41
BUSINESS OF SENSAR............................................................42
SELECTED FINANCIAL INFORMATION................................................43
NET2WIRELESS..................................................................43
Selected Historical financial Information of Net2Wireless.....................43
Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................43
Overview......................................................................44
Expenses and Results of Operations............................................44
i
<PAGE>
Liquidity and Capital Resources...............................................45
Disclosure About Market Risks.................................................46
SENSAR........................................................................46
Selected Financial Information................................................47
Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................49
COMBINED PRO FORMA FINANCIAL STATEMENTS.......................................49
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2000......50
MANAGEMENT....................................................................53
THE MERGER....................................................................54
General.......................................................................54
Background of the Merger......................................................54
Reasons for the Merger--Advantages and Disadvantages..........................59
Terms of the Merger...........................................................62
Interests of Certain Individuals..............................................65
Voting and Revocation of Proxies..............................................67
Solicitation of Proxies.......................................................68
Vote Required.................................................................69
Attendance of Representative of Accountants...................................69
Dissenters' Rights of Appraisal...............................................69
Accounting for the Merger.....................................................72
Delivery of Certificates for Common Stock of the Combined Company.............73
Payment in Lieu of Issuing Fractional Shares..................................73
Expenses of the Merger........................................................73
Restrictions on Transfer of Common Stock of the Combined Company..............73
DESCRIPTION OF SECURITIES.....................................................74
Preferred Stock...............................................................74
Common Stock..................................................................74
Transfer Agent................................................................74
COMPARISON OF SECURITIES......................................................75
Comparison of Nevada Law and Delaware Law--Certificates of
Incorporation and Bylaws......................................................75
Governing Instruments.........................................................75
Governing Corporate Law.......................................................77
PRINCIPAL STOCKHOLDERS........................................................80
Pro Forma After the Merger....................................................80
Sensar Prior to the Merger....................................................82
TAX CONSEQUENCES..............................................................83
General.......................................................................83
United States Federal Tax Consequences of the Merger..........................83
United States Federal Tax Consequences of the Change of Domicile..............84
OTHER SENSAR STOCKHOLDER MATTERS..............................................85
Change in Corporate Domicile..................................................85
Adoption of the Stock Option Plan.............................................85
Ratification of Previously Granted Options....................................88
EXPERTS.......................................................................89
VALIDITY OF NEW COMMON STOCK..................................................90
WHERE YOU CAN FIND MORE INFORMATION...........................................90
INCORPORATION OF DOCUMENTS BY REFERENCE.......................................91
INDEX TO FINANCIAL STATEMENTS................................................F-1
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
ii
<PAGE>
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 will I receive in the merger?
A. Sensar stockholders will continue to own the shares they
currently hold. Net2Wireless stockholders will receive one
share of common stock of Sensar for each share of Net2Wireless
they currently hold.
Q. What risks should I consider?
A. You should review the information under the caption "RISK
FACTORS" beginning on page 17 for a discussion of various
risks associated with the merger and the operations of Sensar
and Net2Wireless.
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?
<PAGE>
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.
<PAGE>
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) 350-0587.
If you are a Net2Wireless stockholder with questions about the
merger, please call Yaron Sobol at 011-972-3-915-8888.
<PAGE>
SUMMARY
The following is a brief summary and is intended merely to highlight
some of the 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 Net2Wireless, which will conduct business under the
of Net2Wireless name Jigami Corporation on completion of the merger, is
to be Conducted organized under the laws of the state of Delaware.
Under the Name References to Net2Wireless include its three
Jigami Corporation 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:
o browsing standard Internet sites using standard
browsers;
o transmission of live video using existing wireless
communication networks;
o providing instant messaging with full graphics
support;
o providing messaging services (e-mail, voice mail,
fax, etc.); and
o 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>
o the shares of Net2Wireless outstanding immediately
prior to the merger will be converted on a
one-for-one basis 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. The stock issued
to finders will not be registered and can only be
resold if subsequently registered under the
Securities Act or an exemption from the registration
requirements is available. If the transactions
contemplated by the stock purchase agreement between
Net2Wireless and Nextel Finance Company is completed
prior to the closing of the merger, an additional
1,000,000 shares would be outstanding in Net2Wireless
and Sensar would 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 specified financial conditions, but this is
not anticipated.
o Options and warrants to acquire Net2Wireless common
stock will be converted into options and warrants to
acquire up to 17,073,071 shares of Sensar common
stock. Net2Wireless has granted 16,531,473 of these
options through September 4, 2000, with a weighted
average exercise price of $4.72 per share. Of the
options granted through this date, 13,996,354 were
currently exercisable.
o 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, Joav Avtalion, and Ben-Zion Weiner 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 Nechemia Davidson is the founder and principal
Combined Company 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 a director
of the combined company. Ben-Zion Weiner, corporate
vice-president research and development division of
Teva Pharmaceuticals, Ltd., an Israeli-based
pharmaceutical company, will serve as a director of the
combined company.
See "MANAGEMENT."
<PAGE>
Change in Corporate As part of the merger, immediately prior to closing,
Domicile and Name Sensar will change its corporate domicile from Nevada
to Delaware and, in an effort to distinguish itself
from other companies in the wireless industry, will
change its corporate name to Jigami Corporation. Jigami
is a Japanese word for the spirit of the person who
founds a village or first cultivates the land. 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 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 At the time the current directors of Sensar were
Options appointed, Sensar granted 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 granted the following
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 October 16, 2000, are entitled to vote at
the Sensar stockholders' meeting. The meeting will be
held at 10:00 a.m., local time, on December 5, 2000, at
the offices of Brobeck Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York 10019.
<PAGE>
Purpose of Meeting At the meeting, the Sensar stockholders will be asked
to consider and take action on the following:
1. the proposed merger and the change in the
corporate name to "Jigami Corporation";
2. 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
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 On the record date, there were 6,548,546 shares of
Entitled to Vote 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 It is anticipated that a representative of Grant
Accountants 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 October 16, 2000, are entitled to notice
of, and to vote at, the meeting of the Net2Wireless
stockholders to be held at 10:30 a.m., local time, on
<PAGE>
December 5, 2000, at the offices of Brobeck Phleger &
Harrison LLP, 1633 Broadway, 47th Floor, New York, New
York 10019.
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 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 It is anticipated that a representative of Kost, Forer
Accountants & 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 Company The percentage ownership by the current
Combined stockholders of Sensar and the current stockholders of
Net2Wireless before and after the merger is set forth
below:
Record Subsequent
Date Percentage to Merger(1) Percentage
---- ---------- ------------ ----------
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) 3.9%
--------- ------ ---------- ------
Total 6,548,546 100.0% 25,843,606 100.0%
-------------------------
(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 17,073,071 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 September 4, 2000, Net2Wireless had granted
16,531,473 of these options with a weighted average exercise price of $4.72
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 45,425,933, of which the Sensar stockholders would hold
20% and the Net2Wireless stockholders would hold 78%. The remaining 2%
would be held by others.
<PAGE>
(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 1,000,000 shares of Net2Wireless issued to
Nextel Finance Company.
(3) These shares will be issued to finders at the closing of the merger. These
shares are not registered under the registration statement of which this
Joint Proxy Statement/Prospectus is a part and may not be sold by the
finders absent subsequent registration under the Securities Act or
compliance with an available exemption from the registration requirements.
Interests of Certain In considering the recommendations of the Sensar board
Persons in the of directors and the Net2Wireless board of directors
Merger with respect to the merger, the stockholders of Sensar
and Net2Wireless should be aware that 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:
o 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;
o 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;
o 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
o 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."
The boards of directors were aware of these interests
at the time of their consideration of the merger. Each
board concluded that the merger was in the best
interests of its stockholders, but did not establish an
independent committee or obtain a fairness opinion from
a third-party advisor.
<PAGE>
Market Price Sensar's common stock is traded on the Nasdaq
for Sensar Stock 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 $30.438 $16.063
</TABLE>
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; (b) as of December
13, 1999, the day preceding the public announcement of
the execution of the definitive agreement between
Sensar and Net2Wireless; and (c) as of October 19,
2000, a recent practicable date prior to the date of
this Joint Proxy Statement/Prospectus.
Sensar Stock
Date Closing Sales Price
---- -------------------
October 6, 1999 $ 3.00
December 13, 1999 $ 11.69
October 19, 2000 $ 14.00
Per Share Data The following table presents comparative per share data
of Sensar and Net2Wireless on an 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."
<PAGE>
<TABLE>
<CAPTION>
Six months
Year ended ended
December 31, 1999 June 30, 2000
----------------- -------------
<S> <C> <C>
Sensar
Income (loss) per share from continuing
operations(1) $ (2.11) $ 0.22
Book Value per share(2) $ (0.02) $ 0.22
Cash dividends per share - -
Period from
commencement of
operations (April 1, Six Months
1999) through ended
December 31, 1999 June 30, 2000
----------------- -------------
Net2Wireless
Loss per share from continuing operations(1) $ (0.06) $ (8.66)
Book value per share(2) $ (0.14) $ 1.45
Cash dividends per share - -
Pro Forma
Loss per share from continuing operations(1) $ (3.07)(3) $ (9.49)(3)
Book value per share(2) $ 0.25 $ 1.20
Cash dividends per share - -
</TABLE>
-------------------------
(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
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 up to 17,073,071 options
granted by Net2Wireless and 2,509,256 options to be outstanding in Sensar
on stockholder ratification of options granted to management and others.
Principal Conditions The merger is conditioned on the following:
o 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;
o the elimination by Sensar of all liabilities, except
current liabilities not yet due and not in excess of
$50,000;
<PAGE>
o 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;
o the absence of any material adverse change in the
condition of either party not consented to by the
other party;
o 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
o 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.
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 Net2Wireless stockholders will receive one share of
Common Stock 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
<PAGE>
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 will 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.
The receipt of new certificates in the name of the
combined company, "Jigami 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 If stockholder approval is received, immediately prior
Securities 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 and
there are differences between the governing instruments
of Sensar and those of the combined company. See
"Comparison of Securities" for a more complete analysis
of each of these differences. Below is a summary of
some of the differences:
Classified Board. Sensar currently has a classified
board of directors in which approximately one-third of
<PAGE>
the directors are elected at each annual meeting of
stockholders for a three-year term. The combined
company will not have a classified board and each
director will be elected for a one-year term at each
annual meeting of stockholders.
Removal of Directors. The removal of a director by
Sensar stockholders currently requires the vote of a
majority of the outstanding stock at a stockholders'
meeting called for that purpose. Directors of the
combined company can be removed by the vote of a
majority of the stock in attendance at a stockholders'
meeting called for that purpose.
Liability and Indemnification of Officers and
Directors. 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. 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. The
governing instruments of both Sensar and the combined
company limit the liability of these individuals to the
full extent permitted by law.
Restrictions on Resale Except for shares issued to "affiliates" of
of Common Stock of the Net2Wireless, as that term is defined in Rule 144
Combined Company promulgated by the Commission, the shares issued to
finders, 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 the finders must be made pursuant to a
subsequent registration under the Securities Act or an
available exemption from the registration requirements.
Sales by affiliates must be made in accordance with the
requirements of Rules 144 and 145 promulgated under the
Securities Act.
The management, directors, and the principal consultant
of Sensar will be contractually precluded from selling
50% of the common stock held by them, including those
shares issuable on exercise of their options, for 180
days following the effectiveness of a registration
statement filed by Sensar to permit the sale. In
addition, Net2Wireless stockholders who will receive
shares of Sensar stock or rights to acquire Sensar
stock aggregating a total of 19,030,758 shares have
signed an agreement not to sell more than 15% of such
shares during the 180 days subsequent to the date set
by Nasdaq for trading the shares to be issued to the
Net2Wireless stockholders. See "THE MERGER:
Restrictions on Transfer of Common Stock of the
Combined Company."
<PAGE>
--------------------------------------------------------------------------------
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 an 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 is still subject to pilot tests
with cellular carriers. 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:
o develop products that successfully address a market need;
o successfully resolve problems that arise in designing and
implementing the manufacturing process for its proposed
products or in marketing these products;
o implement a business model that will permit it to operate
profitably;
o hire and retain employees with the technical skills necessary
to continue to develop and support products; and
o 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
<PAGE>
the combined company will be able to obtain the needed financing. 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:
o the lack of market acceptance of the products and services to
be offered by Net2Wireless;
o the lack of acceptance by consumers of the services to be made
available as a result of the application of Net2Wireless'
products;
o competitive pressures, including the announcement of competing
products and services or a decrease in the prices of such
competing products and services; and
o 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, and 147 employees at August 29,
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, marketing, sales, consulting, and
<PAGE>
distribution. Net2Wireless cannot assure you that it will be able to locate and
hire, or retain, the necessary personnel, or 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.
Initially, Net2Wireless' product was 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 of this product is successful, Net2Wireless will need
to complete the development of this platform, as well as to initiate and
continue the development of 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 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 this 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 forum, they will utilize proprietary
software and technology not included in the existing wireless application
protocol standards. Telecommunications companies and others may be reluctant to
adopt new technology that is not wholly based on the existing wireless
application protocol 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>
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
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
has an employment agreement with Mr. Davidson, who will be the president and
chief executive officer of the combined company, for an initial term of three
years, renewable for additional two-year terms. Under Mr. Davidson's agreement,
Net2Wireless will pay him $500,000 annually and grant him options. The agreement
also provides for the payment of additional benefits and potential cash and
equity bonuses. Additionally, Net2Wireless receives management assistance from
two of its directors under consulting agreements. Under Mr. Rubner's consulting
agreement, Net2Wireless will pay him $100,000 annually for his services and
under Mr. Avtalion's consulting agreement, Net2Wireless will pay him $2,000 for
each day that he performs consulting services for Net2Wireless. 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
<PAGE>
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.
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 decisions 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 six months ended June 30, 2000, Net2Wireless had a non-cash
expense of approximately $125 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>
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 October 19, 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: o announcements of developments by competitors;
o acquisitions or strategic alliances by the combined company or others in the
industry; o changes in the estimates as to the potential market and
Net2Wireless' share of that market; o changes in the recommendations of security
analysts; and o 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, of which
approximately 5,000,000 are exercisable at $1.86 per share, to increase their
stock ownership to approximately 40%. 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.
<PAGE>
The combined company will have 10,000,000 shares of blank check
preferred stock authorized.
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.
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. The ownership
percentages were not fixed based on traditional indicators of value such as
earnings, market share, return on assets, revenues, or market capitalization.
The percentage ownership of the Sensar and Net2Wireless stockholders does not,
and is not intended to, represent the value of Sensar or Net2Wireless and should
not be taken as an indication of the price at which the common stock of the
combined company may be sold subsequent to the merger or the value of the
combined company. Subsequent to the date that the number of shares to be issued
to Net2Wireless stockholders was fixed, Net2Wireless acquired the wireless
technology from I.T.E.S. Ltd. for $1.2 million, a price determined by the board
of directors of both I.T.E.S. Ltd. and Net2Wireless to be the fair market value
of the technology at that time and substantially less than the value of the
Sensar common stock to be issued to the Net2Wireless stockholders, based on the
market price of the common stock, both at the date the terms of the merger were
negotiated and the date of the sale by I.T.E.S. Ltd. 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 foregoing amounts and 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 17,073,071 shares of Net2Wireless. As of
September 4, 2000, Net2Wireless had granted 16,531,473 of these options with a
weighted average exercise price of $4.72 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.
<PAGE>
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 and stock held by stockholders who have signed agreements limiting
their rights, 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 19,582,327 shares of our common stock. As of
September 4, 2000, options to acquire 19,040,729 shares of stock with a weighted
average exercise price of $4.40 per share, significantly below the current
trading price of the common stock, had been granted. Of these options,
16,505,610 were exercisable as of September 4, 2000. 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 under certain
circumstances. Sensar has filed a registration statement permitting the resale
of 2,467,056 shares of restricted common stock issued on the conversion of
options held by current directors, officers, and consultants of Sensar. 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.
Officers and Directors 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
to vote in favor of approving the transaction. See "THE MERGER: Interests of
Certain Individuals."
--------------------------------------------------------------------------------
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," "intend," "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." 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>
--------------------------------------------------------------------------------
NET2WIRELESS
--------------------------------------------------------------------------------
BUSINESS OF NET2WIRELESS
General
Net2Wireless is a privately-held Delaware corporation with a research
and development subsidiary located in Israel, a British Virgin Islands
subsidiary that holds its intellectual property, and a Delaware subsidiary
formed to pursue applications of its technology to traditional physical
communications lines. 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
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).
<PAGE>
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.
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.
<PAGE>
Advantages Offered by Net2Wireless Technology
Current Limitations of Wireless Internet Access
Wireless Internet access has not yet become widespread. Existing
wireless application protocol 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 the existing wireless
application protocol. As a result, wireless users cannot directly access the
seemingly unlimited content currently available on the Internet.
In addition, in order to use the existing wireless application protocol
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 format. Furthermore, the existing wireless
application protocol requires new, dedicated phones that are compatible with the
protocol that the carrier will have to subsidize in order to induce the clients
to move to the use of the existing wireless application protocol.
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 existing wireless
application protocol 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.
The differences between Net2Wireless' proposed products and products
designed for use with the existing wireless application protocol are summarized
on the following table.
<TABLE>
<CAPTION>
Net2Wireless Wireless Application Protocol
---------------------------------- -------------------------------------
<S> <C> <C>
Supported Protocol HTML, the standard Internet WML, XML
protocol
Device Type Personal Digital Assistant or Phone compatible with wireless
Notebook, in conjunction with application protocol
a cellular phone
Access to web pages Any standard HTML web site Only web pages specifically
adapted for wireless application
protocol
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>
<PAGE>
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 Net2Wireless' Wireless Application Server. 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 Wireless Application 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 systems compatible with the existing wireless
application protocol.
Net2Wireless' systems will be installed on its Wireless Application
Servers 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 operations
requiring significant processing power 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
users who have devices compatible with the existing wireless application
protocol to benefit from Net2Wireless services as well.
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
existing wireless application protocol 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
<PAGE>
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:
o Wireless Application Server
Wireless Application Servers 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 Wireless
Application Server 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.
o 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.
o 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.
o 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
<PAGE>
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
On March 13, 2000, Net2Wireless 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. Partner Communications holds an option,
granted at the time of the execution of the pilot agreement, to purchase
3,026,998 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.
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. This agreement has not been finalized because Net2Wireless and
Partner Communications have been unable to reach agreement on certain business
and technical matters, including benchmarks for the performance of Partner
Communications' system, the technical description of the system, and the
specifications once Net2Wireless' video platform is fully integrated into
Partner Communications' system.
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
<PAGE>
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 commenced during August, 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 October 15, 2000, date initially set for closing, has been
extended to November 9, 2000, to permit Nextel Finance Company to complete its
due diligence review. We cannot assure you that the conditions to closing will
be satisfied.
Lucent Technologies, Inc.
Net2Wireless signed a distribution agreement, dated September 20, 2000,
with Lucent Technologies, Inc. Under this agreement, Net2Wireless will pay a
commission to Lucent for each customer it refers that Net2Wireless accepts and
to whom Net2Wireless agrees to provide services. Prior to initiating any
referral activity between Lucent and Net2Wireless, the parties must complete a
test plan to determine that Lucent's wireless infrastructure is compatible with
Net2Wireless' hardware and services. Net2Wireless is currently preparing the
test plan and, upon Lucent's approval, will commence the compatibility testing.
Competition
Current and Potential Competitors
The widespread adoption of open industry standards, such as the
existing wireless application protocol 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
o 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.
o Single platform solution for multiple applications.
<PAGE>
o Efficient utilization of the carriers' frequencies.
o Telecommunications standard for wire and wireless carriers, or Telco
grade, solution, high availability, scalable and redundant system.
o Data services that the cellular operators can provide their customers
and collect additional revenue.
Disadvantages
o 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.
o The large investment being made by various equipment vendors in
technology based on the existing wireless application protocol will
make them reluctant to adopt this new standard.
The competitors include the following:
Wireless Equipment Manufacturers
o 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.
o 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.
o 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
o Cisco Systems Inc., which announced that it will develop products using
its proposed standard for broadband wireless Internet services. o
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. o
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.
o IBM and Nokia, which have announced a global partnership to develop
solutions using the existing wireless application protocol standards.
o 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.
o 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.
<PAGE>
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.
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:
o providing new, enhanced and integrated services through cellular
networks.
o still images processing.
o video and audio streaming through extremely narrow channels.
o 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 approximately 150 people. 7 employees
are senior management and the rest make up Net2Wireless' research and
development, technical and marketing teams. Net2Wireless plans to continue to
add additional professional and administrative personnel.
Facilities
Net2Wireless' principal administrative, engineering, and marketing
facilities are located at 10 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 December 31, 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 was 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, and could have
been exercised in the event that Sensar had not earlier exercised its option.
The pilot program of Partner Communications has not been completed to date.
<PAGE>
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 17,073,071 shares of common stock of the
combined company. As of September 4, 2000, Net2Wireless had granted 16,531,473
of these options, with a weighted average purchase price of $4.72 per share.
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 June 30,
2000, Sensar had approximately $5.9 million of net cash under the definition
used in the merger agreement, assuming the full collection of short-term
receivables from third parties. All of these third-party receivables were
collected subsequent to June 30, 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
Ben-Zion Weiner 56 Director October 2000 Next annual
shareholders'
meeting
Yaron Sobol 41 General Counsel and Corporate March 2000 N/A
Secretary
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
</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.
<PAGE>
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.
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. Weiner was appointed as a director of Net2Wireless in October 2000.
Mr. Weiner currently serves as the corporate vice-president research and
development division of Teva Pharmaceuticals, Ltd., an Israeli-based
pharmaceutical company. Mr. Weiner received his bachelor of science in organic
chemistry from Hebrew University of Jerusalem. He also received a masters of
science in organic chemistry and a doctorate degree in polymers and biological
chemistry from Hebrew University of Jerusalem. Mr. Weiner was the recipient of
the Rothschild Prize for Industrial Innovation in 1989 and 1999.
Mr. Sobol is a founder, minor shareholder, and the general counsel of
Net2Wireless. Mr. Sobol was appointed as the general counsel and corporate
secretary 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.
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.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the annual and long term compensation
earned by, awarded to, or paid to Nechemia Davidson during the last fiscal year.
Mr. Davidson is the chief executive officer of Net2Wireless, and will become the
chief executive officer of the combined company. No information is provided for
earlier periods since the operations of Net2Wireless commenced in 1999. No
information is provided with respect to other executive officers of the combined
company since their compensation did not exceed $100,000 during 1999.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------------------ ------------------------ ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Period
from
Commencement
of
Operations
(April 1, Other Securities
1999) Annual Restricted Underlying All Other
Through Compen- Stock Options/ LTIP Compen-
Name and Principal December Salary Bonus sation Award(s) SARs Payouts sation
Position 31, 1999 ($) ($) ($) ($) (#) ($) ($)
------------------------- ------------- ---------- -------- ---------- ----------- ------------ --------- ----------
<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 $0
Chief Executive
Officer
------------------------ --------------- ------------------- -------------- -------------- ----------- ------------
</TABLE>
-------------------------
(1) These options are held by Cedar Investment Services, Ltd., an entity
controlled by Mr. Davidson.
<PAGE>
Option/SAR Exercises in Fiscal 1999
The following table sets forth the information concerning the options
exercised by the named executive officer during the year ended December 31,
1999, and the value of unexercised options as of December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY End (#) FY End ($)
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
-------------------------
</TABLE>
(1) These options are held by Cedar Investment Services, Ltd., an entity
controlled by Mr. Davidson.
Compensation Agreements With Executive Officers
Net2Wireless has entered into an employment agreement with Mr. Davidson
who will be the president and chief executive officer of the combined company.
The agreement has an initial term of three years, renewable for additional terms
of two years. The agreement provides for an annual salary of $500,000 to be
increased by 10% each year. Additionally, Mr. Davidson is entitled to an annual
bonus equal to 2.5% of Net2Wireless' post-tax profits at the end of each fiscal
year during the term of the agreement. Net2Wireless shall contribute (i) an
aggregate monthly amount equal to 13.33% of his monthly salary towards Mr.
Davidson's severance pay and other compensatory payments; (ii) an aggregate
monthly amount equal to 2.5% of his monthly salary towards a disability
insurance policy; and (iii) an aggregate monthly amount equal to 7.5% of his
monthly salary towards an advanced study fund. In addition to his salary and
other compensation, Mr. Davidson received options to purchase 1,200,000 shares
of common stock at an exercise price of $32 per share, subject to a vesting
schedule, which options will be assumed by the combined company. Mr. Davidson
shall also receive options to purchase 180,000 shares of common stock for each
billion dollar increase in the value of the combined company. These options will
be granted at exercise prices equal to the then existing fair market value of
the stock of the combined company. Each party may terminate this agreement by
providing twelve months written notice to the other party; provided, however,
that if Net2Wireless terminates the agreement prior to December 31, 2003, other
than for cause, Net2Wireless will pay Mr. Davidson an amount equal to his
monthly salary multiplied by the number of months from the effective date of
termination until December 31, 2003.
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.
<PAGE>
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.
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, including,
without limitation, all resolutions voted on regarding his compensation
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, these
transactions are with affiliated parties, and 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 holds an option to
purchase 3,026,998 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."
<PAGE>
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.
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.
To date, Net2Wireless has paid Mr. Avtalion $104,224 for his consulting
services. 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.
<PAGE>
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. To date,
Net2Wireless has paid Mr. Rubner $50,000 for his consulting services. 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.
1
<PAGE>
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 additional 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.
On October 15, 2000, Net2Wireless granted an option to purchase 150,000
shares of its common stock, with an exercise price of $11.44 per share, to
Ben-Zion Weiner in conjunction with his appointment as a director of
Net2Wireless.
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>
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 October 19, 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 4,422,222 19.5%
---------
Total 9,850,349 43.4%
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/
S. M. 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 0.0%
Options 3,026,998 14.2%
---------
Total 3,026,998 14.2%
Nextel Finance Company Common Stock 0 0.0%
Right to Buy 1,000,000 5.2%
---------
Total 1,000,000 5.2%
Directors and Executive Officers
Nechemia Davidson - - - - - -- -- - - - - - - See Above - - - - - -- -
David Rubner - - - - - -- -- - - - - - - See Above - - - - - -- -
<PAGE>
Joav Avtalion(4) Common Stock 0 0.0%
Options 322,222 1.7%
-------
Total 322,222 1.7%
Ben-Zion Weiner Common Stock 6,429 0.0%
Options 150,000 0.8%
-------
Total 156,429 0.8%
Yaron Sobol Common Stock 78,010 0.4%
Options 150,370 0.8%
-------
Total 228,380 1.2%
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%
All Executive Officers and Common Stock 6,598,218 36.1%
Directors as a Group Options 6,355,184 25.8%
-----------
(7 persons) Total 12,953,402 52.5%
-------------------------
</TABLE>
(1) The percentages shown for common stock are based on the total issued
and outstanding stock of Net2Wireless as of October 19, 2000, 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.
--------------------------------------------------------------------------------
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, and its quarterly
reports on Form 10-Q for the quarters ended March 31, and June 30, 2000, which
are incorporated herein by this reference.
<PAGE>
--------------------------------------------------------------------------------
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 June 30,
2000 (unaudited), and December 31, 1999, and for the period of six months ended
on June 30, 2000 (unaudited), and for the period from the commencement of
business on April 1, 1999 through June 30, 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
Six months of operations (April 1, 1999)
ended through
June 30, 2000 December 31, 1999
-------------------- ------------------------------
(unaudited) (audited)
<S> <C> <C>
Operating expenses:
Research and development $ 2,756,183 $ 337,189
Marketing 757,859 -
General and administrative 1,141,232 144,509
Amortization of stock-based compensation 124,664,094 -
Operating loss (129,319,368) (481,698)
Interest income, net 313,379 (11,480)
Net loss $(129,005,989) $ (493,178)
Basic and diluted net loss per share $ (8.66) $ (0.06)
Balance Sheet Data June 30, 2000 December 31, 1999
-------------------- ------------------------------
Total assets $ 27,698,762 $ 286,684
Total liabilities $ 2,702,792 $ 1,452,933
Working capital $ 23,614,818 $ (1,361,793)
Stockholders' equity (deficiency) $ 24,995,970 $ (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>
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 147 employees at August 29, 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
Six months ended June 30, 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 six months ended June 30, 2000, and for
the period from commencement of operations (April 1, 1999) through December 31,
1999, were approximately $2,756,000 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 approximately $758,000 for the six months ended June 30,
2000. Net2Wireless did not have any marketing costs for the period from
commencement of operations (April 1, 1999) through December 31, 1999.
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>
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
approximately $1,141,000 for the six months ended June 30, 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 $124,664,094 for the six months ended June 30,
2000, consisting of options granted to advisors and strategic partners
($87,440,264), options granted to directors ($36,399,901), and options granted
to employees ($823,929). 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 for the period of six months ended June
30, 2000, was allocated to research and development ($79,709,516), marketing
($2,700,443), and general and administrative ($42,254,136). The stock-based
employee deferred compensation increased from $0 for the period from
commencement of operations (April 1, 1999) through December 31, 1999, to
$8,611,208 for the six months ended June 30, 2000.
Interest Income (Expense), Net. Interest income (expense), net, for the
period from commencement of operations (April 1, 1999) through December 31,
1999, consisted primarily of interest payments on short-term borrowings and
convertible note financing. These expenses were approximately $11,000. Interest
income (expense), net, for the six months ended June 30, 2000, consists mainly
of interest on short-term deposits. Interest income increased mainly due to
increased cash and cash equivalents generated from the $29 million private
placement completed on March 21, 2000, partially offset by interest on
convertible note payables.
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 six months ended
June 30, 2000, and the period from commencement of operations (April 1, 1999)
through December 31, 1999, Net2Wireless had net losses of approximately
$129,006,000 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 June 30,
2000, includes approximately $124,664,000 of non-cash expenses relating to stock
based compensation. As of June 30, 2000, Net2Wireless had approximately
$4,944,000 of cash and cash equivalents on hand and $20,764,000 of short-term
deposits.
Net cash provided by financing activities was approximately $29.8
million for the six months ended June 30, 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
$2.74 million for the six months ended June 30, 2000. The net loss for the six
months ended June 30, 2000, was substantially offset by depreciation and
amortization of stock-based compensation, increases in accounts payable,
employee and payroll accruals, and accrued expenses. Net cash used in investing
activities was approximately $22.1 million for the six months ended June 30,
2000. These investing activities consisted primarily of purchases of short-term
deposits.
Net2Wireless believes that its cash, cash equivalents, and short-term
deposits, combined with the cash and cash equivalents of Sensar, will be
sufficient to meet Net2Wireless' anticipated needs for working capital and
capital
<PAGE>
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 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.
SENSAR
The financial data set forth in the following table, except for the six
months ended June 30, 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 reports
on Form 10-Q for the quarters ended March 31, and June 30, 2000.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Information
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------
2000 1999 1998 1997
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data(1):
Revenues: $ 183,654 $ 147,944 $ 137,814 $ 140,870
Income (loss) from
continuing operations 1,413,135 (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 208,875 3,268,250 - -
Net income (loss) $1,622,010 $ (8,704,380) $(6,923,444) $(14,817,811)
---------- ------------- ------------ -------------
Basic earnings
(loss) per common share
from continuing operations $ 0.22 $ (2.11) $ (0.51) $ (0.51)
Basic earnings (loss)
per common share from
discontinued operations 0.03 0.58 (1.12) (2.71)
Basic earnings
(loss) per common share $ 0.25 $ (1.53) $ (1.63) $ (3.22)
---------- ------------- ------------ -------------
Basic weighted average
common shares outstanding 6,523,331 5,693,514 5,073,463 4,603,080
Diluted earnings
(loss) per common share
from continuing operations $ 0.21 $ (2.11) $ (0.51) $ (0.51)
Diluted earnings (loss)
per common share from
discontinued operations 0.03 0.58 (1.12) (2.71)
Diluted earnings
(loss) per common share $ 0.24 $ (1.53) $ (1.63) $ (3.22)
---------- ------------- ------------ -------------
Diluted weighted average
common shares outstanding 6,804,888 5,693,514 5,073,463 4,603,080
Balance Sheet Data:
Working capital $5,895,990 $ 5,034,089 $ 4,038,840 $ 6,784,305
Total assets 5,950,247 5,568,839 4,317,769 7,104,476
Long-term liabilities
and deferred gain 4,457,236 5,542,040 - -
Stockholders' equity (deficit) 1,444,986 (154,959) 4,049,572 6,853,003
Cash dividends declared
per common share - - - -
</TABLE>
(table continued on following page)
<PAGE>
<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 share
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)
------------ ------------ -----------
Basic weighted average
common shares outstanding 4,164,328 3,255,489 2,440,397
Diluted earnings
(loss) per common share
from continuing operations $ (0.08) $ (0.16) $ (0.21)
Diluted earnings (loss)
per common share from
discontinued operations (0.32) (0.38) 0.08
Diluted earnings
(loss) per common share $ (0.40) $ (0.54) $ (0.13)
------------ ------------ -----------
Diluted 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 - - -
</TABLE>
(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.
<PAGE>
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 reports on Form 10-Q for the quarters ended
March 31 and June 30, 2000, which are incorporated herein by this reference.
--------------------------------------------------------------------------------
COMBINED PRO FORMA FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following unaudited pro forma condensed combined balance sheet is
based on the June 30, 2000, historical consolidated balance sheet of Sensar and
its subsidiaries and the June 30, 2000, historical consolidated balance sheet of
Net2Wireless and its subsidiaries. The unaudited pro forma condensed combined
balance sheet assumes that the merger was completed June 30, 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
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 Net2Wireless 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 individuals
involved in introducing Sensar and Net2Wireless. In addition, Sensar will grant
options and warrants to acquire up to 17,073,071 shares of common stock to the
holders of similar options and warrants to acquire shares of Net2Wireless stock.
As of September 4, 2000. Net2Wireless had granted options to acquire 16,531,473
shares, with a weighted average exercise price of $4.72 per share. As a result
of this transaction, 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 78% of the combined company
and the Sensar stockholders approximately 20% 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 $1.86. At June 30,
2000, Sensar had approximately $5.9 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>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
Pro Forma
Pre merger Sensar Pro Forma Combined
Sensar adjustments (adjusted) Net2Wireless Adjustments Balance
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 4,350,316 $ - $ 4,350,316 $ 4,943,677 $ - $ 9,293,993
Short term deposits - - - 20,764,386 - 20,764,386
Notes receivable 1,537,995 - 1,537,995 - (500,000)(5) 1,037,995
Government authorities - - - 215,598 - 215,598
Loan to I.T.E.S. - - - 62,001 - 62,001
Accounts receivable,
prepaid expenses and
other current assets 55,704 (35,704)(1) 20,000 165,734 (20,000)(5) 165,734
Total current assets 5,944,015 (35,704) 5,908,311 26,151,396 (520,000) 31,539,707
Long term investments:
Lease deposit - - - 227,260 - 227,260
Severance pay fund - - - 48,236 - 48,236
Total long term investments - - - 275,496 - 275,496
------------- -------------
Property and equipment,
net 6,232 (6,232)(1) - 1,271,870 - 1,271,870
Total assets $ 5,950,247 $ (41,936) $ 5,908,311 $ 27,698,762 $ (520,000) $ 33,087,073
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 41,036 $ - (2) $ 41,036 $ 902,138 $ - $ 943,174
Employee and payroll
accruals - - - 680,352 - 680,352
Accrued liabilities 6,989 - (2) 6,989 434,088 - 441,077
Loan from Sensar - - - 520,000 (520,000)(5) -
Total current liabilities 48,025 - 48,025 2,536,578 (520,000) 2,064,603
<PAGE>
Long-Term Liabilities:
Deferred compensation 4,257,236 (4,257,236)(3) - - - -
Deferred gain 200,000 (200,000)(4) - - - -
Accrued severance pay - - - 166,214 - 166,214
Total liabilities 4,505,261 (4,457,236) 48,025 2,702,792 (520,000) 2,230,817
STOCKHOLDERS' EQUITY
Common shares of $0.01 par
value-Authorized:
90,000,000 shares:
Issued and outstanding pro
forma 25,843,606 shares 34,835,078 4,257,236 (3) 83,303,370 163,861,193 (77,443,084)(6a, 6b) 187,610,193
44,211,056 (3) (5,861,286)(6b, 7)
23,749,000 (6b)
1,000
Deferred compensation - - - (8,611,208) - (8,611,208)
Accumulated deficit (33,390,092) 200,000 (4) - (130,254,015) 77,443,084 (6a, 6b) (148,142,729)
(35,704)(6) (77,443,084) 5,861,286 (6b, 7a)
(6,232)(8) (23,749,000)(6b)
(44,211,056)(3) (1,000)
Total stockholders' equity 1,444,986 4,415,300 5,860,286 24,995,970 - 30,856,256
------------- ------------- -------------- ------------- -------------
Total liabilities
and stockholders' equity $ 5,950,247 $ (41,936) $ 5,908,311 $ 27,698,762 $ (520,000) $ 33,087,073
============ ============ ============ ============= ============ ============
See accompanying notes to unaudited pro forma condensed combined financial statements.
</TABLE>
<PAGE>
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 must 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). Since the accounts receivable, prepaid expenses, and
other current assets and fixed assets do not belong to the continuing business,
they have been written off against accumulated deficit.
(2) Liabilities. According to the merger agreement, Sensar must have no
liabilities other than current liabilities not yet due, not to exceed $50,000 in
the aggregate. All long-term liabilities are eliminated against accumulated
deficit.
(3) Deferred Compensation and Stock Based Compensation. From April to
November 1999, Sensar granted options to acquire 2,200,000 shares exercisable at
$1.50-$2.50 per share that are subject to shareholder approval, which approval
will be sought at this meeting of shareholders. If these options are approved by
the shareholders, the participants in the deferred compensation plan have agreed
to abandon their interests in the deferred compensation pool and the board of
directors has agreed to terminate the deferred compensation plan. If approved by
the shareholders, the Company will record compensation expense as measured under
generally accepted accounting principles on the date of shareholder approval,
less the amount of the deferred compensation liability terminated at that date.
At June 30, 2000, the closing price of the common stock was $23.75 per share and
Sensar would have recorded a net non-cash compensation charge of approximately
$44 million against operations. The effect on the consolidated balance sheet at
June 30, 2000, would have been to decrease liabilities and increase
stockholders' equity by $4,257,236, respectively.
(4) Deferred Gain. The deferred gain derives from the business
operations of Sensar. The continuing entity is the business of Net2Wireless.
Thus, the deferred gain is not part of the surviving entity.
(5) Intercompany Balances. The notes receivable of Sensar at June 30,
2000, include the $500,000 note receivable from Net2Wireless that is eliminated
on consolidation. The accounts receivable, prepaid expenses, and other current
assets of Sensar at June 30, 2000, include $20,000 of accrued interest on the
Net2Wireless note receivable that is also eliminated in consolidation.
(6) Stockholders' Equity.
a. 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 and other equity accounts 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.
b. Issuance of 1,000,000 shares to finders are charged to stockholders'
equity, valued at $23.75 per share, the last sale price of the common stock of
Sensar on June 30, 2000, as reported by Nasdaq.
c. Immediately prior to closing of the merger, the Series A Preferred
Stock of Net2Wireless will be converted into common stock of Net2Wireless. As
part of the change of domicile merger, the par value of Sensar stock will be
changed from $0.001 to $0.01 per share.
d. The combined company will have an authorized capital of 90,000,000
shares of common stock, par value $0.01 per share and 10,000,000 shares of
preferred stock, par value $0.01 per share. Sensar currently has an authorized
capital of 290,000,000 shares of common stock, par value $0.001 per share and
10,000,000 shares of preferred stock, par value $0.001 per share.
<PAGE>
(7) 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.
--------------------------------------------------------------------------------
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:
Expiration of
Name Age Position Term
----------------- --- ------------------------------ -------------
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
<PAGE>
Biographical information with respect to the officers and directors is
set forth under "NET2WIRELESS: Management of Net2Wireless."
--------------------------------------------------------------------------------
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. In connection with the
merger, Sensar will change its name to "Jigami Corporation." Jigami is a
Japanese word for the spirit of the person who founds a village or first
cultivates the land.
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 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>
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 of 33% for existing Sensar
stockholders and 67% for Net2Wireless stockholders (subject to adjustments as a
result of the exercise of options and warrants).
The letter of intent provided for the acquisition of Net2Wireless by
Sensar in exchange for the issuance of 16,000,000 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
<PAGE>
a minimum exercise price of $2.125 for 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. Net2Wireless then acquired the wireless
technology from I.T.E.S. Ltd. for a purchase price of $1.2 million, determined
by the board of directors of I.T.E.S. Ltd. and Net2Wireless to be the fair
market value of the technology at that time.
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:
o 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;
<PAGE>
o It eliminated an employment agreement for Andrew C. Bebbington
as chief financial officer of the combined company;
o 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;
o 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;
o It substituted Net2Wireless as the acquiror of all of I.T.E.S.
wireless technology;
o 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.
o 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;
o It extended the date for completion of the transaction;
o It included a provision for the granting of options by
Net2Wireless prior to closing;
o 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, 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. As described below, the amount of stock to be issued to Net2Wireless
stockholders was subsequently increased based on increases in the outstanding
shares of Net2Wireless resulting from the Net2Wireless forward split of
1.074074:1, the 1,041,140 shares issued in a subsequent private placement by
Net2Wireless, and the exercise of outstanding options to acquire 68,741 shares,
resulting in a total of 18,295,060 shares currently issuable to Net2Wireless
stockholders.
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. 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. After the stock split, Sensar loaned $500,000 to Net2Wireless on February
2, 2000, and later that month Mr. Landa, the chief executive officer of Sensar,
met with Net2Wireless in Israel and reviewed its technology and operations.
<PAGE>
The December 8, 1999, merger agreement was structured as an option so
there was not a binding commitment to proceed until there was a third-party
validation, in the form of acceptance of the product for beta-testing by Partner
Communications, of the technology. In connection with the transfer of the
wireless assets from I.T.E.S. to Net2Wireless in December 1999, I.T.E.S.
assigned to Net2Wireless the pre-existing agreement between Partner
Communications and I.T.E.S. Partner Communications' consent was required to
complete this assignment and it sought to improve its contractual position
vis-a-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, which occurred in mid-March 2000, Sensar had the right to
acquire Net2Wireless in the transaction described in this Joint Proxy
Statement/Prospectus.
During this same period, and 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, 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
to increase the number of shares to be issued to stockholders of Net2Wireless
who held shares prior to the private placement by a 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,
including the holders of Net2Wireless convertible debt described below, from
16,000,000 shares to 17,185,179 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. Based on the commencement of the testing program with Partner
Communications and the completion of the private placement, Sensar elected to
exercise its option under the merger agreement to acquire all of Net2Wireless on
March 24, 2000.
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 by Nextel Financial
Company 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 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.
On September 2, 2000, Sensar and Net2Wireless entered into a fifth
amendment that permitted the grant of options to acquire 1,200,000 shares of
Net2Wireless stock at $32 per share to Nechemia Davidson, the president and
chief executive officer of Net2Wireless in connection with the execution of his
employment agreement, permitted the increase in the number of shares subject to
the option held by Partner Communications as a result of the anti-dilution
provisions of the option, and increased the number of options Net2Wireless could
grant to employees that would be assumed by Sensar in the merger by an
additional 150,000 shares. The result of the foregoing was to
<PAGE>
increase the maximum number of options to be assumed by Sensar to 16,623,071.
Subsequently, on October 18, 2000, Sensar and Net2Wireless entered into a sixth
amendment to permit the issuance of up to an additional 450,000 options to the
extent necessary, in the judgment of Net2Wireless, to attract additional
qualified individuals to serve as directors of Net2Wireless and, subsequent to
the merger, the combined company. This increased the total number of
Net2Wireless options to be assumed by the combined company to 17,073,071. Of
this increased amount, options to acquire 150,000 shares were issued to the
newly appointed director of Net2Wireless, Ben-Zion Weiner.
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 based their conclusion that the transaction was
advantageous to Sensar and its shareholders on their belief that the emerging
market for wireless communications with the Internet would ultimately be
significant, the interest of, initially, Partner Communications and,
subsequently, other cellular carriers in evaluating the technology of
Net2Wireless, 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
phones and PDAs and the Internet has 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.
The relative ownership percentages of the Sensar and Net2Wireless
stockholders and the net liquid assets required to be held by Sensar at closing
were fixed at a time at which Sensar did not have continuing operations, the
wireless technology of Net2Wireless had not been reduced to a product, and
Net2Wireless required additional funding to proceed with the development of its
technology. Consequently, both entities were difficult to value and the boards
focused on the perceived benefits of merging the companies, the contributions to
be made by Sensar and Net2Wireless to the combined company, and the percentage
of the combined company to be held by the Sensar and Net2Wireless stockholders.
In this analysis, Sensar did not use the market capitalization of Sensar at the
time of the negotiations in September 1999, which management believed could not
be sustained in the long-term without Sensar acquiring additional operations,
but focused on the book value of its assets. Sensar stockholders would receive
33% of the combined company and effectively contribute a minimum of $4.5 million
in liquid assets for use in the continued development of the Net2Wireless
technology. Net2Wireless stockholders would receive 67% of the combined company
and Net2Wireless would contribute its technology and provide an experienced
management team. As a result of the non-operating status of Sensar and the stage
of development of the Net2Wireless technology, the boards did not consider as
significant the indicators of value typically used in merger transactions
between companies with established operations, such as earnings, market share,
return on assets, revenues, market capitalization, and similar measures of
profitability and value. The relative ownership of the Sensar and Net2Wireless
stockholders was negotiated at arms' length by the management of the parties.
<PAGE>
In December 1999, when the definitive merger agreement was signed, the
board of directors reviewed the terms that had been negotiated by management. At
that juncture, the transaction had been restructured so that the wireless
business was transferred to Net2Wireless, a Delaware corporation, and there was
no binding obligation for Sensar to merge at the time the agreement was signed.
The transfer of the wireless business from I.T.E.S. to Net2Wireless occurred at
this time for a cash price of $1.2 million. The board of directors did not
consider this transfer price relevant to its approval of the definitive
agreement for the following reasons: this transfer was between commonly
controlled entities; the transfer did not affect the number of shares Sensar was
obligated to issue or change the assets it was acquiring; and it was a transfer
of the technology as it then existed when, as a result of the structure of the
agreement between Sensar and Net2Wireless, Sensar would not be obligated to
exercise its option to acquire Net2Wireless until after the technology was much
further developed. Based on the considerations outlined in the preceding
paragraph, the board of directors of Sensar concluded that, in its business
judgment, the agreed to ownership structure was fair to Sensar and its
stockholders and authorized the execution of the merger agreement.
In March 2000, when the board of directors determined to exercise its
option under the merger agreement to proceed with the acquisition of
Net2Wireless, the development of the technology had proceeded to the point that
the completed beta product had been accepted for testing by Partner
Communications. In addition, Net2Wireless had completed a private placement for
gross proceeds of $29 million. Net2Wireless had also been successful in
assembling a technical and management team to continue the development of its
proposed business. All of these developments had substantially increased the
value of Net2Wireless since the December 8, 1999, date of the agreement and
greatly simplified the decision of the board of directors to proceed.
In approving the definitive agreement in December 1999, the board of
directors of Sensar also reviewed the overall dilution attributable to the
existing Sensar stockholders arising from 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. In both instances, the exercise
price of the options was fixed at an amount greater than 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 was viewed as consistent with
the award of options for existing employees at the time of an initial public
offering. For Sensar management, the grant of options with an exercise price
greater than the market price prior to the negotiation of the transaction,
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 the combined company, allowing it to conserve cash
flow going forward.
Overall, taking into account the relative ownership percentages between
the Sensar and Net2Wireless stockholders, the terms of the options granted to
management of Sensar and Net2Wireless, and the elimination of the cash liability
of the deferred compensation plan, 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 for
approximately a 5.7% of its equity has 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:
o 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;
o the concentration of control in the current Net2Wireless
management, directors, and principal stockholders;
<PAGE>
o 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;
o the business, operating, and regulatory risks associated with
Net2Wireless' business;
o the absence of a fairness opinion from an investment bank with
respect to the fairness of the transaction to the Sensar
stockholders; and
o 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. The board of directors was aware of
these interests at the time it considered and approved the transaction as in the
best interest of the stockholders. An independent committee was not appointed by
the board of directors and Sensar did not seek an outside opinion as to the
fairness of the transaction to the Sensar stockholders. 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 initial determination in December 1999, 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:
o the terms and conditions of the merger agreement, including
the total consideration to be paid by Sensar to the security
holders of Net2Wireless;
o the difficulties that Net2Wireless had faced in obtaining
financing from other sources;
o 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;
o 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;
o the financial condition of Sensar at the time of such
determination, including its ability to eliminate its existing
liabilities;
o the willingness and ability of Sensar to provide Net2Wireless
with interim financing;
o the short-term and long-term interests of Net2Wireless and its
stockholders, as well as the interests of its employees,
customers, creditors, and suppliers;
o the expectation that the merger will be treated as a tax-free
merger for U.S. federal income tax purposes;
<PAGE>
o the regulatory approvals required to consummate the merger;
o the fact that the merger was at Sensar's option until the
successful completion of the beta-site testing by Partner
Communications;
o 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;
o the dilution of the ownership percentage of Net2Wireless'
stockholders as a result of the merger;
o the risk that Sensar may not successfully eliminate its
liabilities prior to closing;
o the increased financial and regulatory burdens associated with
becoming a publicly-held company;
o the absence of a fairness opinion by an investment bank with
respect to the consideration to be received by the
stockholders of Net2Wireless; and
o 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, in its
business judgment, that the proposed merger, including the proposed ownership
structure, was fair to Net2Wireless and in the best interests of Net2Wireless
and its stockholders.
Once the foregoing determination was made, Net2Wireless entered into a
binding agreement with Sensar on December 8, 1999, that, subsequent to the
exercise of Sensar's option in March 2000, contractually bound it to proceed
with the merger. While Net2Wireless was able to complete a private placement in
March 2000, at a per share price of $27.93, significantly higher than the recent
trading prices of Sensar common stock, it is the belief of Net2Wireless
management that obtaining this funding was made possible in part because of the
pending transaction with Sensar. The merger provides Net2Wireless with a public
market for the common stock of the combined entity that Net2Wireless considers
essential to its continuing ability to obtain equity funding and attract
qualified personnel. As a result of the benefits offered by the merger with
Sensar and the binding nature of the contractual commitment, the board of
directors of Net2Wireless believes the merger is in the best interests of
Net2Wireless and its stockholders, and recommends that the stockholders approve
the transaction.
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 December 31, 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 17,073,071
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
<PAGE>
addition, if the transactions contemplated by the stock purchase agreement
between Net2Wireless and Nextel Finance Company are completed prior to the
merger, Net2Wireless will have an additional 1,000,000 shares outstanding and
Sensar will issue an additional 1,000,000 shares of common stock in the merger.
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 June 30, 2000, Sensar had approximately $5.9 million of net cash
under this definition, assuming the full collection of all short-term
receivables due from third parties of approximately $1.0 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
$4,457,236 at June 30, 2000, consisting of $200,000 in deferred gain, which will
be eliminated in the merger, and $4,257,236 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;
<PAGE>
(c) Sensar shall have received an update of Net2Wireless
disclosure schedules and approved any material changes in such
schedules;
(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 are not included in
the registration statement of which this Joint Proxy Statement/Prospectus forms
a part and cannot be sold by the finders absent a subsequent registration under
the Securities Act or compliance with the requirements of an available exemption
from the registration requirements. 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:
<PAGE>
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.
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:
o eliminate Sensar's liability for the unexpired portion of the
lease for its Salt Lake City offices
o provide satisfactory indemnification to Sensar for any
liabilities incurred by it under a pending lawsuit by former
employees
o terminate Sensar's deferred compensation plan and the accrued
interests of the participants in that plan
o 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.
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
<PAGE>
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
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
<PAGE>
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 September 8, 2000, the amount of the compensation pool would have
been $8,484,095, based on Sensar's market capitalization on that date, and the
payments to the plan participants would have been: Howard S. Landa $2,545,229;
each of the outside directors, $254,523; and Andrew C. Bebbington, $84,841.
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 17,073,071 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. In addition, Mr.
Davidson received an option to acquire 1,200,000 shares with an exercise price
of $32 per share in connection with the execution of his employment agreement in
September 2000. 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
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.
<PAGE>
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, 10 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.
Record 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. If your shares are held of record by a
brokerage firm, you should follow the instructions provided by the brokerage
firm to assure your shares are voted in accordance with your directions.
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.
<PAGE>
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
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>
Vote Required
Sensar
Pursuant to Nevada corporate law, the merger, including the change in
the corporate name, 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.
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;
<PAGE>
(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
(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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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 "Jigami 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 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.
Net2Wireless stockholders who will receive shares of Sensar stock or
rights to acquire shares of Sensar stock in the merger aggregating a total of
19,030,758 shares have signed an agreement not to sell more than 15% of this
stock during the 180 day period following the date set by Nasdaq for trading the
shares issued to the Net2Wireless stockholders. In addition, the common stock
subject to 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.
<PAGE>
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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, 19,582,327 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.
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.
<PAGE>
--------------------------------------------------------------------------------
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 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."
Since the current certificate of incorporation and bylaws of
Net2Wireless will become the certificate of incorporation and bylaws of the
combined company, and the rights of the Net2Wireless stockholders are currently
governed by Delaware law, the merger will not result in a change in the rights
associated with the common stock held by Net2Wireless stockholders.
For Sensar stockholders, there are differences between the articles of
incorporation and bylaws of Sensar and the certificate of incorporation and
bylaws of the combined company. The material differences are briefly summarize
below.
Governing Instruments
Classification of Board
The articles of incorporation of Sensar divide the board of directors
into three classes, as nearly equal as possible. Only one class stands for
election at each annual meeting of stockholders and is elected to a three-year
term. This increases the time required to replace a majority of the board of
directors since only approximately one-third stand for election each year.
Neither the certificate of incorporation nor bylaws of the combined company
provide for classification of the board of directors of the combined company,
and all board members will stand for election to one-year terms at each annual
meeting of the stockholders.
Removal of Directors
The bylaws of Sensar require the vote of a majority of the outstanding
stock at a special meeting of stockholders called for that propose to remove a
director. The bylaws of the combined company provide that a director can be
removed at a special stockholders' meeting called for that purpose by a vote of
a majority of the stock in attendance at the meeting. Consequently, a director
of the combined company can be more easily removed.
Liability and Indemnification of Directors and Officers
The articles of incorporation of Sensar limit the liability of
directors and officers to the corporation to those circumstances in which the
director or officer engaged in intentional fraud, misconduct, or a knowing
violation of law or the payment of dividends in violation of the requirements of
Nevada corporate law. Sensar's articles of incorporation require the corporation
to indemnify directors and officers in all actions brought as a result of their
position with the corporation unless the individual is found by a court to be
personally liable for his or her own misconduct or negligence. The certificate
of incorporation of the combined company provides that directors shall not be
liable to the corporation, except for a breach of loyalty to the corporation,
acts or omissions not in good faith, involving intentional misconduct, or in
knowing violation of the law, dividends paid in violation of Delaware corporate
law, or for a transaction from which the director derived an improper personal
benefit. The bylaws of the combined company provide for mandatory
indemnification of directors and officers involved in a threatened or pending
<PAGE>
proceeding as a result of their position with the corporation so long as the
individual acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation. The governing
instruments of both Sensar and the combined company provide for the payment of
expenses in advance by the corporation on receipt of an undertaking from the
indemnified individual to repay the advances in the event he or she is
ultimately determined not to be entitled to indemnification.
Authorized Capital
The combined company will have an authorized capital of 90,000,000
shares of common stock, par value $0.01 per share and 10,000,000 shares of
preferred stock, par value $0.01 per share. Sensar currently has an authorized
capital of 290,000,000 shares of common stock, par value $0.001 per share and
10,000,000 shares of preferred stock $0.001 per share. The decrease in the
number of shares of common stock authorized will limit the ability of the board
of directors to issue common or preferred stock beyond that authorized, without
obtaining stockholder approval. Stock cannot be issued for less than par value,
although it is anticipated that the principal effect of the increase in par
value will be to increase stated capital and decrease additional paid-in capital
by a like amount on the financial statements of the combined company.
Both Sensar and Net2Wireless currently have designated series of
preferred stock, although no preferred stock will be outstanding on completion
of the merger. Shares of preferred stock to be issued in the future, if any,
will be issued under a new designation of the rights, privileges, and
limitations, fixed at the time of issuance. The certificate of incorporation of
the combined company, like the articles of incorporation of Sensar, permit these
rights and limitations to be fixed by the board of directors at the time of
issuance of a series of preferred stock, without a stockholder vote.
Special Meetings of the Stockholders
The bylaws of the combined company provide that special meetings of
stockholders can be called by the chairman of the board, president, or board of
directors and require a special meeting to be called at the request of
stockholders owning a majority of the outstanding stock. Neither the bylaws nor
the articles of incorporation of Sensar provide for a special meeting to be
called at the request of stockholders.
Required Stockholder Vote
The bylaws of the combined company provide that the vote of a majority
of the stock present at a stockholders' meeting at which a quorum is present is
required to approve any matter submitted to the stockholders. Consequently,
abstentions and broker non-votes would have the same effect as a vote against
the proposal. The current bylaws of Sensar provide for a matter to be approved
by a majority of the votes cast at a stockholders' meeting at which a quorum is
present so that abstentions and broker non-votes would be disregarded. In
addition, Sensar's bylaws provide that directors shall be elected by a plurality
of the votes cast at a stockholders' meeting called for that purpose. Both
bylaws require that a majority of the outstanding stock be present in order to
constitute a quorum. These changes may increase the difficulty in obtaining
stockholder approval for the election of directors or the passage of other
matters submitted to the shareholders.
Waiver of Notice
Sensar's bylaws provide that a stockholder may waive notice of a
meeting by a written waiver, consent, or approval of the meeting, or by
attending the meeting, unless such attendance is for the sole purpose of
objecting to the meeting being held. The combined company's certificate of
incorporation and bylaws are silent on this issue, which means that waivers will
be governed by general Delaware corporate law. Delaware law provides that notice
can be waived by a written waiver or by attending the meeting, except for the
express purpose of objecting to the meeting.
<PAGE>
Compromise With Creditors
The certificate of incorporation of the combined company contains a
provision that permits the corporation to submit a proposed compromise with its
creditors and/or stockholders to a meeting ordered by a court of competent
jurisdiction. If the compromise is sanctioned by the court, all creditors and/or
stockholders will be bound by such compromise, if the compromise is approved by
creditors holding three-fourths the claims against the corporation or by
three-fourths the stock entitled to vote, as the case may be. The governing
instruments of Sensar do not have a similar provision.
Governing Corporate Law
Although the corporate statutes of Nevada and Delaware are
substantially similar, some differences exist. The material differences, in the
judgment of the management of Sensar, are summarized below. This following
summary discusses 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.
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 stockholder; (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 stockholder satisfies the 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.
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
<PAGE>
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 limitations 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.
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.
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.
Dissenters' Rights
In both jurisdictions, dissenting stockholders of a corporation engaged
in listed major corporate transactions such as mergers and consolidations 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
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 or plan of exchange in which the corporation is a party
<PAGE>
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 only for 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.
<PAGE>
--------------------------------------------------------------------------------
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 4,422,222 14.6%
--------------
Total 9,850,349 32.5%
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/
S. M. 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 0.0%
Options 3,026,998 10.5%
--------------
Total 3,026,998 10.5%
Directors and Executive Officers
Nechemia Davidson - - - - - -- -- - - - - - - See Above - - - - - -- - -
David Rubner - - - - - -- -- - - - - - - See Above - - - - - -- - -
<PAGE>
Joav Avtalion(4) Common Stock 0 0.0%
Options 322,222 1.2%
-------------
Total 322,222 1.2%
Ben-Zion Weiner Common Stock 6,429 0.0%
Options 150,000 0.6%
--------------
Total 156,429 0.6%
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 6,598,218 25.5%
Directors as a Group Options 6,355,184 19.7%
(7 persons) ---------------
Total 12,953,402 40.2%
-------------------------
</TABLE>
(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.
<PAGE>
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 October 19, 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)
----------------------------------------- -------------------- ------------------ -----------
Directors
<S> <C> <C> <C>
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%
-------------------------
</TABLE>
(1) The percentages shown are based on 6,548,546 shares of common stock of
Sensar issued and outstanding as of October 19, 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.
<PAGE>
--------------------------------------------------------------------------------
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 will 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 and the
change of domicile 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.
(b) The tax basis of all of the common stock 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.
(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.
<PAGE>
(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.
Under the terms of the merger agreement, Sensar is required to issue
additional shares to the Net2Wireless stockholders in the event that the cash
and cash equivalents held by Sensar at closing are less than $4.5 million (see
the discussion under "THE MERGER: Terms of the Merger"). The parties do not
anticipate that any of these shares will be issued. If the contingent shares are
issued, the tax basis of each Net2Wireless stockholder in the Net2Wireless stock
previously held by that stockholder would be allocated among all the shares of
Sensar stock received, including the contingent shares.
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.
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.
<PAGE>
--------------------------------------------------------------------------------
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. 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 requires
the approval of a majority of the outstanding stock of Sensar. The change in
corporate domicile will result in changes to stockholder rights as described in
"COMPARISON OF SECURITIES." We do not believe that any of these changes will
result in a material disadvantage to the Sensar stockholders.
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 17,073,071 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.
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.
<PAGE>
Adoption of the plan may have the following disadvantages to
stockholders:
1. The board of directors or compensation committee will be
able to authorize the grant of options or other awards to directors and
executive officers, without further stockholder approval.
2. The plan authorizes the grant of incentive stock options,
which have tax advantages to the recipients. However, the combined
company will not be entitled to recognize an expense for tax purposes
for any compensation inherent in the grant or exercise of incentive
stock options.
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>
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>
Ratification of Previously Granted Options
The stockholders are being asked to vote on the proposal to ratify and
approve stock options to acquire an aggregate of 2,200,000 shares that were
previously granted to the officers and directors of Sensar and a consultant to
Sensar as described below.
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 fixed at a price higher than the
$1.78 average closing price of the Sensar common stock for the 30 trading days
immediately prior to the announcement of the execution of the letter of intent.
In addition, the $2.00 exercise price was acceptable to the holders of interests
in the deferred compensation plan and to Net2Wireless. 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 September
8, 2000, the closing price for Sensar common stock, as reported by Nasdaq, was
$20.00, resulting in aggregate potential benefits to the participants as of such
date of: Howard S. Landa, $14,400,000; Andrew C. Bebbington, $11,700,000; and
each of the outside directors, $900,000. 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.
<PAGE>
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 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.
<PAGE>
--------------------------------------------------------------------------------
VALIDITY OF NEW COMMON STOCK
--------------------------------------------------------------------------------
The validity of the common stock offered hereby under Nevada and
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.
--------------------------------------------------------------------------------
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:
o Judiciary Plaza, 450 Fifth Street, N.W., Room 2104 or the
public reference room, Washington, D.C. 20549;
o Seven World Trade Center, 13th Floor, 26 Federal Plaza, New
York, New York 10048; or
o 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.
<PAGE>
--------------------------------------------------------------------------------
INCORPORATION OF 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 Howard S.
Landa, 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 November 28, 2000. The following
documents are filed with the SEC and are incorporated by reference into this
Joint Proxy Statement/Prospectus:
o annual report of Sensar on Form 10-K for the fiscal year ended
December 31, 1999;
o quarterly reports of Sensar on Form 10-Q for the quarters
ended March 31, and June 30, 2000;
o 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, June 27, July 27, October 5, and October 16, 2000; and
o 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>
--------------------------------------------------------------------------------
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 reports on Form 10-Q for the quarters
ended March 31, and June 30, 2000.
Title of Document Page #
--------------------------------------------------------------------- ----------
Net2Wireless and Subsidiaries
Report of Kost Forer & Gabbay, a Member of Ernst & Young
International, independent public accountants...................... F-2
Consolidated Balance Sheets as of June 30, 2000, and
December 31, 1999.................................................. F-3 - F-4
Consolidated Statements of Operations for the Six Months Ended
June 30, 2000, the Three Months Ended June 30, 2000 and 1999, the
Period from Commencement of Operations (April 1, 1999) through
December 31, 1999.................................................. F-5
Statement of Changes in Shareholders' Equity (Deficiency)............ F-6
Consolidated Statements of Cash Flows................................ F-7 - F-8
Notes to Consolidated Financial Statements........................... F-9 - F-23
F-1
<PAGE>
ERNST & YOUNG
Kost Forer & Gabbay
3 Aminadav St.
Tel-Aviv 61575, 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 auditing standards generally accepted
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 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)
F-2
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
In U.S. dollars
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
Unaudited
------------ ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,943,677 $ -
Short-term deposits 20,764,386 -
Government authorities 215,598 69,530
Prepaid expenses 43,923 -
Loan to ITES 62,001 -
Accounts receivable 121,811 -
----------- --------
26,151,396 69,530
----------- --------
LEASE DEPOSIT 227,260 48,514
----------- --------
SEVERANCE PAY FUNDS 48,236 -
----------- --------
PROPERTY AND EQUIPMENT, NET 1,271,870 168,640
----------- --------
Total assets $27,698,762 $286,684
=========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
In U.S. dollars (except share and per share data)
<TABLE>
<CAPTION>
Pro forma
shareholders'
equity at
June 30, June 30, December 31,
2000 2000 1999
------------ ------------- -------------
Unaudited Unaudited
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Loan from Sensar $ 520,000 $ -
Accounts payable 902,138 97,414
Payable to ITES - 1,000,000
Note payable to ITES - 200,000
Employees and payroll accruals 680,352 53,549
Accrued expenses 434,088 80,360
------------- ------------
Total current liabilities 2,536,578 1,431,323
------------- ------------
ACCRUED SEVERANCE PAY 166,214 21,610
------------- ------------
SHAREHOLDERS' EQUITY (DEFICIENCY):
Share capital -
Preferred shares of $0.01 par value each -
Authorized: 10,000,000 shares as of June 30,
2000; Issued and outstanding: 1,041,140 shares
as of June 30, 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 June 30, 2000
(unaudited) and December 31, 1999 Issued and
outstanding: 17,253,920 and 8,177,743 shares as
of June 30, 2000 (unaudited) and December 31, 1999
respectively 60,000,000 shares authorized and
18,295,060 shares issued and outstanding pro forma
as of June 30, 2000 (unaudited); no shares
authorized, issued or outstanding pro forma as
of December 31, 1999 182,950 172,539 81,777
Deferred compensation (8,611,208) (8,611,208) -
Additional paid-in capital 163,678,243 163,678,243 -
Deficit accumulated during the development stage (130,254,015) (130,254,015) (1,248,026)
------------- ------------- ------------
Total shareholders' equity (deficiency) $ 24,995,970 24,995,970 (1,166,249)
============= ------------- ------------
Total liabilities and shareholders' equity (deficiency) $ 27,698,762 $ 286,684
============= ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-4
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
In U.S. dollars (except share and per share data)
<TABLE>
<CAPTION>
Period from
commencement
of operations
Six months Three months ended (April 1, 1999)
ended June 30, through
June 30. ------------------------- December 31,
2000 2000 *1999 1999
------------- ----------- ------------ --------------
Unaudited
<S> <C> <C> <C> <C>
Operating expenses:
Research and development (excluding amortization of
stock-based compensation in the amount of $79,709,516 and
$670,283 for the period of six months and three months
ended June 30, 2000, respectively) $ 2,756,183 $ 1,951,273 $ 62,894 $ 337,189
Marketing expenses (excluding amortization of stock-based
compensation in the amount of $2,700,443 and $2,691,924
for the period of six and three months ended June 30, 2000,
respectively) 757,859 428,038 - -
General and administrative (excluding amortization of stock
based compensation in the amount of $42,254,136 and
$153,870 for the period of six and three months ended
June 30, 2000, respectively) 1,141,232 692,471 26,955 144,509
Amortization of stock-based compensation 124,664,094 3,516,076 - -
------------- ----------- -------- ----------
Operating loss (129,319,368) (6,587,858) (89,849) (481,698)
Interest income (expenses), net 313,379 349,079 (118) (11,480)
------------- ----------- -------- ----------
Net loss $(129,005,989) $(6,238,779) $(89,967) $ (493,178)
============= =========== ======== ==========
Basic and diluted net loss per Common share $ (8.66) $ (0.36) $ (0.01) $ (0.06)
============= =========== ======== ===========
Weighted average number of Common shares used in
calculating basic and diluted net loss per Common share 14,901,925 17,253,920 8,177,743
============= =========== ========= ===========
Pro forma basic and diluted net loss per Common share $ (8.33) $ (0.34) $ (0.06)
============= =========== =========
Weighted average number of Common shares used in calculating pro
forma basic and diluted net loss per Common share 15,482,893 18,295,060 8,177,743
============= =========== =========
Period from
commencement
of operations
(April 1, 1999)
through
June 30,
2000
---------------
<S> <C>
Operating expenses:
Research and development (excluding amortization of
stock-based compensation in the amount of $79,709,516 and
$670,283 for the period of six months and three months
ended June 30, 2000, respectively) $ 3,093,372
Marketing expenses (excluding amortization of stock-based
compensation in the amount of $2,700,443 and
$2,691,924 for the period of six and three months ended June
30, 2000, respectively) 757,859
General and administrative (excluding amortization of stock
based compensation in the amount of $42,254,136 and
$153,870 for the period of six and three months ended
June 30, 2000, respectively) 1,285,741
Amortization of stock-based compensation 124,664,094
-------------
Operating loss (129,801,066)
Interest income (expenses), net 301,899
-------------
Net loss $(129,499,167)
=============
Basic and diluted net loss per Common share $ (9.19)
=============
Weighted average number of Common shares used in
calculating basic and diluted net loss per Common share 14,085,884
Pro forma basic and diluted net loss per Common share $ (8.87)
=============
Weighted average number of Common shares used in calculating pro
forma basic and diluted net loss per Common share 14,596,346
=============
*See Note 1
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-5
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
In U.S. dollars (except share and 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
at $0.1 per share (unaudited) - - 5,227,213 52,272 447,728 -
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 -
Exercise of convertible note - - 3,780,223 37,802 963,172 -
Deferred compensation related to options
issued to employees (unaudited) - - - - 9,435,137 (9,435,137)
Stock-based compensation related to options
issued to service providers (unaudited) - - - - 123,840,165 -
Amortization of deferred compensation
(unaudited) - - - - - 823,929
Net loss for the period of six months ended
(unaudited) - - - - - -
--------- ------- ---------- -------------- ------------ ------------
Balance as of June 30, 2000 (unaudited) 1,041,140 $10,411 17,253,920 $ 172,539 $163,678,243 $ (8,611,208)
========= ======= ========== ============== ============ ============
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
at $0.1 per share (unaudited) - 500,000
Issuance of Preferred A shares in
March 2000 at $27.931 per share, net
(unaudited) - 28,843,155
Exercise of options - 159,985
Exercise of convertible note - 1,000,974
Deferred compensation related to options
issued to employees (unaudited) - -
Stock-based compensation related to options
issued to service providers (unaudited) - 123,840,165
Amortization of deferred compensation
(unaudited) - 823,929
Net loss for the period of six months ended
(unaudited) (129,005,989) (129,005,989)
------------- -------------
Balance as of June 30, 2000 (unaudited) $(130,254,015) $ 24,995,970
============= =============
*) Represents an amount lower than $ 1.
**) See Notes 9a(1) and 9a(2).
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-6
<PAGE>
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
Six months Three months ended (April 1, 1999) (April 1, 1999)
ended -------------------------- through through
June 30, June 30, December 31, June 30,
2000 2000 *1999 1999 2000
------------- ------------ ----------- ---------- -------------
Unaudited
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(129,005,989) $ (6,238,779) $(89,967) $(493,178) $(129,499,167)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 80,014 51,277 2,896 14,608 94,622
Amortization of deferred stock compensation 124,664,094 3,516,076 - - 124,664,094
Accrued severance pay 96,368 47,713 5,061 21,610 117,978
Increase in accounts receivable (373,803) (137,124) (1,224) (69,530) (443,333)
Increase in accounts payable 804,724 372,561 12,902 97,414 902,138
Increase in employees and payroll accruals 626,803 364,237 3,784 53,549 680,352
Increase in accrued expenses 353,728 48,262 102,310 80,360 434,088
Interest on loan from Sensar 9,980 9,980 - - 9,980
------------- ------------ -------- --------- ------------
Net cash provided by (used in) operating activities (2,744,081) (1,965,797) 35,762 (295,167) (3,039,248)
------------- ------------ -------- --------- ------------
Cash flows from investing activities:
Purchase of property and equipment (1,183,244) (721,323) (16,654) (183,248) (1,366,492)
Lease deposit (178,746) (178,746) - (48,514) (227,260)
Purchased short-term deposits (20,764,386) (20,764,386) - - (20,764,386)
------------- ------------ -------- --------- ------------
Net cash used in investing activities (22,126,376) (21,664,455) (16,654) (231,762) (22,358,138)
------------- ------------ -------- --------- ------------
*See Note 1
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-7
<PAGE>
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
Six months Three months ended (April 1, 1999) (April 1, 1999)
ended -------------------------- through through
June 30, June 30, December 31, June 30,
2000 2000 *1999 1999 2000
------------- ------------ ----------- ---------- -------------
Unaudited
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Payable to ITES (1,200,000) - (19,108) 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 (used in) financing activities 29,814,134 - (19,108) 526,929 30,341,063
------------- ------------ ----------- ---------- -------------
Increase in cash and cash equivalents 4,943,677 (23,630,252) - - 4,943,677
Cash and cash equivalents at the beginning
of the period - 28,573,929 - - -
Cash and cash equivalents at the end of the period $ 4,943,677 $ 4,943,677 $ - $ - $ 4,943,677
=========== ============ =========== ========== =============
Non-cash transactions:
Capital distribution $ - $ - $ - $ 673,071 $ -
=========== ============ =========== ========== =============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-8
<PAGE>
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.
On June 26, 2000, the Company formed a Delaware subsidiary, Fastnet Inc., to
pursue fixed line applications of its technology.
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 ITES 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 6b) 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").
F-9
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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 Securities
and Exchange Commission with regard to the proposed merger of Sensar Corporation
and N2W. The Merger is pending the approval of the shareholders 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 for as a capital stock transaction in which N2W will be
deemed to have issued the shares of Common stock held by the Sensar shareholders
for the net assets of Sensar. The costs of the transaction will be charged to
shareholders' 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 June 30, 2000 and for the six months and 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.
F-10
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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 six months ended June 30, 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. Short-term deposits:
The Company classifies deposits with maturities of more than three months and
less than one year as short-term deposits. The short-term deposits are presented
at their cost, including accrued interest.
g. 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.
F-11
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
h. 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.
The Israeli subsidiary's liability for its employees is partially provided by
monthly deposits with insurance policies.
i. 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.
j. 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.
k. 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.
F-12
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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-dilutive 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 12,893,903, 13,359,990
and 0 for the period of six months and three months ended June 30, 2000
(unaudited) and for the year ended December 31, 1999, respectively.
The following table presents a calculation of pro forma basic and diluted net
loss per Common share (in U.S. dollars, except per share data):
<TABLE>
<CAPTION>
Period from Period from
commencement commencement
of operations of operations
Six months Three months (April 1, 1999) (April 1,
ended ended through through
June 30, June 30, December 31, June 30,
2000 2000 1999 2000
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net loss $(129,005,989) $(6,238,779) $ (493,178) $(129,499,167)
============= =========== ========== =============
Weighted average number of Common
shares used in computing basic and
diluted net loss per Common share 14,901,925 17,253,920 8,177,743 14,085,884
Pro forma adjustments to reflect weighted
effect of assumed conversion of
convertible Preferred A stock 580,968 1,041,140 - 510,462
------------- ----------- ---------- -------------
Weighted average number of Common
shares used in computing pro forma basic
and diluted net loss per Common share 15,482,893 18,295,060 8,177,743 14,596,346
============= =========== ========== =============
Pro forma basic and diluted net loss per
share $ (8.33) $ (0.34) $ (0.06) $ (8.87)
============= =========== ========== =============
</TABLE>
The pro forma basic and diluted net loss per share reflects the Preferred shares
automatic conversion upon the merger.
l. 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.
F-13
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
m. 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.
n. 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.
o. 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 June 30, 2001. The loan is linked to the Israeli CPI and
bears interest at a rate of 7% per annum.
F-14
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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
Less - 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 subsidiaries leased office space under operating lease agreements.
The minimum rental payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Six months ended December 31, 2000 $ 257,291
Year ended December 31, 2001 1,358,318
Year ended December 31, 2002 1,563,502
Year ended December 31, 2003 1,553,566
----------
$4,732,677
==========
</TABLE>
In connection with several of the lease agreements, the Israeli subsidiary
provided bank guarantees of approximately $ 1,273,000.
In connection with another lease agreement, the Company deposited an amount
equal to six monthly rental payments, to secure its last payments under the
agreement.
Rent expenses for the nine-month period ended December 31, 1999, and the
six-month period ended June 30, 2000 (unaudited) were approximately $ 13,656 and
$ 85,000, respectively.
F-15
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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 to certain conditions. In addition, the
parties agreed on certain commercial terms to be contained in a definitive
agreement, if and when signed.
As part of the asset acquisition agreement, ITES assigned all rights and
obligations under the MOU to N2W. Pending the consent of Partner, N2W, ITES and
Partner negotiated the terms of a definitive agreement, to settle all the
disputes between them. Such agreement ("the Definitive Agreement") was signed on
March 13, 2000. Pursuant to the definitive 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 Definitive 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 the
aggregate to 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 aggregate amount 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 one
year. The fair value of each option is $26.14 (see Note 7c.3.d)).
On June 26, 2000 Net2Wierless signed the third amendment to the agreement with
Sensar, that eliminated the obligation on behalf of the current management of
Sensar to exercise their options prior to closing. As a result of the
anti-dilution provisions in the agreements with Partner Communication,
Net2Wireless granted additional 6,422 options to Partner Communications with no
additional consideration. Thus, as of June 30,2000 Partners Communication has
3,026,998 option at an exercise price of $1.84 per share.
F-16
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
The fair value of the 6,422 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 one
year. The fair value of each option is $27.93.
c. On June 26, 2000 N2W signed an agreement with Euros Ltd., a company
controlled by a director of N2W, under which Euros Ltd is to receive consulting
fees of $1,500 per day for the period from November 1999 through March 2000, and
$2,000 per day as of April 2000 in connection with the related party's executive
management, services and business development. The term of this agreement is for
one year, retroactive to November 1, 1999.
NOTE 7:- SHARE CAPITAL
a. Share capital:
Composed as follows:
1. The Common shares confer upon their holders the right to vote, to participate
in shareholders' meetings, to receive profits and to share in excess assets upon
liquidation of the Company.
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 shares shall be entitled to receive non-cumulative dividends, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend on the Common shares of the Company, in
an amount equal to 8% of the Preferred stock price per annum.
F-17
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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 $ 27.931. 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 in the aggregate 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.
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. Options 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.
F-18
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
A summary of the Company's stock option activity, and related information is as
follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 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 3,067,250 3.61
--------- -----
Options outstanding at the end of the period 3,067,250 $3.61
========= =====
Options exercisable at the end of the period 1,440,333 $1.86
========= =====
Deemed fair value of options granted at an
exercise price of:
Less than fair market value at date granted $ 16.97
==========
Equal to fair market value at date granted $ 14.09
==========
Exceeds fair market value at date granted $ 13.61
==========
</TABLE>
The options outstanding as of June 30, 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
June 30, contractual exercise June 30, exercisable
Exercise price 2000 life price 2000 options
----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.86 2,823,084 $6.95 $ 1.87 1,440,333 $1.86
$15 - 20 95,500 9.92 16.85 - -
$23.27 - 28 112,666 9.80 26.16 - -
$30 - 35 36,000 9.83 34.51 - -
--------- ---------
3,067,250 $7.18 $ 3.61 1,440,333 $1.86
========= =========
</TABLE>
F-19
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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>
Six months
ended
June 30,
2000
Unaudited
-------------
<S> <C>
Net loss $(129,005,989)
=============
Pro forma net loss $(130,647,158)
=============
Pro forma basic and diluted net loss per Common share $ (8.77)
=============
</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 negotiating and structuring the
agreement with Sensar. The options vest immediately, and are exercisable for a
period of five years.
The exercise price per option was deemed to be above the fair market value
of the per common share. 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 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 warrant is immaterial.
F-20
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
3. Warrants and options (unaudited):
a) On January 18, 2000, the Company granted an advisor a fully vested warrant to
acquire up to 107,407 Common Shares of the Company at $1.86 per share. The
warrant is exercisable at any time in whole or in part for a period of five
years.
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's Common shares of 0.5, and an expected life of five
years. The fair value of the warrant is immaterial.
b) 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.
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.
On March 23, 2000, the warrant was exercised into 68,741 Common shares.
c) On March 20, 2000, the Company granted to a related party a 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.
d) On April 1, 2000, the Company granted an advisor a fully vested warrant to
acquire up to 100,000 Common shares of the Company at $ 2 per share. The warrant
is exercisable at any time in whole or in part for a period of five years.
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 stock of 0.5, and an expected life of one year. The fair
value of each warrant is $ 26.04.
F-21
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
d. Stock-based compensation expenses (unaudited):
Following are the stock based compensation expenses:
<TABLE>
<CAPTION>
Six months Three months
ended ended
June 30, June 30,
2000 2000
------------ -----------
Unaudited
-------------------------
<S> <C> <C>
Compensation expenses from the grant
of options and warrants to:
Employees $ 823,929 $ 732,711
Directors 36,399,901 -
Advisors 8,303,041 2,603,999
Partner (see Note 6b) 79,137,223 179,366
------------ ----------
$124,664,094 $3,516,076
============ ==========
</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 the Wireless Business conducted within ITES. Thus N2W,
as an independent entity, had no net carryforward tax losses 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.
F-22
<PAGE>
NET2WIRELESS CORPORATION
(A company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars
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 $ 27.931 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.
NOTE 10:- SUBSEQUENT EVENTS (UNAUDITED)
a. The Company signed a memorandum of understanding, dated 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's 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.
b. On September 2,2000, the Company signed a employment agreement with Mr.
Davidson ("the Mr. Davidson's agreement"), who will be the president and chief
executive officer of the company, for an initial term of three years, renewable
for additional two-year terms. Under Mr. Davidson's agreement, the company will
pay him approximately $500,000 annually to be increased by 10% each year. The
agreement also provides for the payment of additional benefits and potential
cash and equity bonuses. In addition to his salary Mr. Davidson received options
to purchase 1,200,000 shares of common stock at an exercise price of $32 per
share, subject to a following vesting: 400,000 options is vested immediately,
400,000 options after one year and additional 400,000 options after tow years.
The option shell be exercisable for a period of ten years. Mr. Davidson shall
also receive options to purchase 180,000 shares of common stock for each billion
dollar increase in the value of the combined company.
- - - - - - - - - -
F-23
