As Filed: SEC File No. 333-
========== ====================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Form S-4
Registration Statement Under
the Securities Act of 1933
__________
SENSAR CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 3826 87-0429944
(State or other jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification No.)
Classification
Code Number)
50 West Broadway, Suite 501 Salt Lake City, Utah 84101 (801) 350-0587
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Howard S. Landa, 50 West Broadway, Suite 501 Salt Lake City, Utah 84101
(801) 350-0587
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Keith L. Pope
Keith L. Pope, LLC
1000 Boston Building
Nine Exchange Place
Salt Lake City, Utah 84111
Telephone (801) 531-6686
Telecopy (801) 531-6690
Approximate date of commencement of proposed sale to the public: The
common stock being registered hereby will be delivered as soon as practicable
after the effective date of this registration statement and the completion of
the merger of Sensar and Net2Wireless Corporation.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
<TABLE>
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CALCULATION OF REGISTRATION FEE
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Unit(2) Offering Price Fee
- ------------------------------------------------------------- ------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Common stock, par value $0.001(3) 19,295,060 $1.42 $27,473,744 $ 7,253
Common stock issuable on the exercise of options and warrants
14,766,649 $2.03 $29,976,297 $ 7,914
----------- -------
Totals $57,450,041 $15,167
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</TABLE>
(1) There are also registered pursuant to rule 416 such additional number of
securities as may be issuable under the antidilution provisions of the
securities registered above.
(2) Solely to estimate the aggregate offering price for the purpose of
calculating the registration fee, the offering price of the common stock issued
in the merger is equivalent to the book value of the securities of Net2Wireless
to be cancelled in the transaction as of March 31, 2000 (rule 457(f)(2)), and
the exercise price of the options and warrants (rule 457(g)).
(3) All share amounts give effect to the two-for-one split of the common
stock of Sensar that took effect January 17, 2000.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
Preliminary Copy, Subject to Completion, Dated April ___, 2000
SENSAR
CORPORATION
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
(801) 350-0587
(801) 350-0825
[current date]
Dear Stockholder:
We are pleased to send you the enclosed Joint Proxy Statement/Prospectus
relating to the proposed merger of Sensar Corporation and Net2Wireless
Corporation, a Delaware corporation and developer of wireless communication
technology.
The proposal essentially contemplates that the business of Net2Wireless
will become the business of the public company. On March 21, 2000, Net2Wireless
raised $29 million by way of a private placement. In addition, Sensar had, as
of March 31, 2000, approximately $6 million of cash and notes receivable.
Subsequent to the merger, the company will have cash of approximately $35
million (less the cash used to fund expenses since December 31, 1999), the
wireless technology, the technical and management expertise of Net2Wireless,
and the ongoing Net2Wireless contracts. There will be 28,186,060 shares
outstanding, with options to acquire an additional 14,875,649 shares at a
weighted average exercise price of $2.03 per share
Sensar will issue 18,295,060 shares of common stock to the holders of
equity interests in Net2Wireless and 1,000,000 shares of common stock to certain
individuals involved in introducing Sensar and Net2Wireless. In addition,
Sensar will grant options and warrants to acquire up to 14,766,649 shares of
common stock to the holders of similar options and warrants to acquire shares of
Net2Wireless stock. As a result of these actions, the current stockholders of
Net2Wireless will own approximately 65% of the combined company, and hold the
right to acquire an additional 12% on the exercise of options, while the current
stockholders of Sensar will own approximately 32%, subject to reduction if the
options held by the Net2Wireless stockholders are exercised. Immediately prior
to the merger, the domicile of Sensar will be moved from Nevada to Delaware and
the name of Sensar will be changed to "Net2Wireless Corporation."
In connection with the merger, you will also be asked to approve a Stock
Option Plan and to ratify options previously granted to current management and
directors. Subsequent to the merger, the current directors of Sensar will
resign, nominees of Net2Wireless will be elected to the board of directors of
the combined company, and the current officers of Net2Wireless will become
officers of Sensar.
The proposed merger with Net2Wireless completes the program that Sensar
started during 1999 to liquidate some of its assets and operations as a basis
for entering into business opportunities other than those in which it had been
historically engaged that would provide the potential for greater value to its
stockholders. Under this plan, during the last year Sensar has disposed of its
noise and vibration instrument business, its Jaguar and CrossCheck product
lines, its real property, and other assets, leaving Sensar primarily cash and
notes receivable.
Completion of the proposed merger and other proposals submitted to the
stockholders depends on approval by the requisite holders of the issued and
outstanding common stock of Sensar and the satisfaction of customary closing
conditions, all as set forth in detail in the attached Joint Proxy
Statement/Prospectus. In addition, the merger requires the elimination of the
obligations of Sensar under its deferred compensation plan which requires
stockholder ratification of options previously granted to directors, officers,
and consultants of Sensar. Directors, executive officers, and stockholders of
Sensar holding an aggregate of 94,276 shares, or approximately 1.4% of the
shares issued and outstanding, have indicated their intention to vote in favor
of the merger and the other proposals.
The board of directors of Sensar has unanimously approved the merger and
the other matters to be submitted to the stockholders, and recommends that the
Sensar stockholders vote to approve each matter set forth in the attached Notice
of Special Meeting of Stockholders. As discussed in the enclosed Joint Proxy
Statement/Prospectus, the board of directors had potential conflicts of interest
in considering the merger. These issues should be considered by stockholders in
connection with their vote.
The enclosed Joint Proxy Statement/Prospectus sets forth details regarding
the proposed merger and other matters to be submitted to the stockholders for
consideration. We urge you to read and study it carefully. So that your shares
of stock can be represented at the stockholders' meeting, please complete, sign,
date, and return the enclosed form of proxy promptly. By doing so, you are
assured of representation whether or not you attend the meeting.
Subsequent to the merger, the transfer agent will mail a letter of
transmittal to each stockholder of record with specific instructions as to the
procedure for exchanging Sensar certificates for certificates issued in the new
corporate name, Net2Wireless Corporation. Please do not submit your
certificates prior to receiving these instructions. Your old certificates will
continue to represent your ownership interest in the combined company, whether
or not you submit them for exchange. The name, address, and telephone number of
the transfer agent is Progressive Transfer Company, 1981 East 4800 South, Suite
100, P.O. Box 17561, Salt Lake City, Utah 84117, telephone number (801)
277-1400.
Please complete, sign, date, and return the enclosed form of proxy in the
postage prepaid envelope provided for your convenience. No postage is required
if mailed in the United States.
Sincerely,
Sensar Corporation
Howard S. Landa, Chairman of the Board
Preliminary Copy, Subject to Completion, Dated April ___, 2000
SENSAR
CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Sensar Corporation:
Notice is hereby given that a special meeting in lieu of an annual meeting
of the stockholders of Sensar Corporation, a Nevada corporation ("Sensar"), will
be held on [June 16, 2000], at ________ a.m., local time, at <meeting place>,
New York, New York, to consider and take action upon the following matters:
1. to approve the merger of Net2Wireless Corporation with and into
Sensar Corporation in accordance with the Agreement attached to the Joint Proxy
Statement/Prospectus as Appendix A;
2. to approve a change in the corporate domicile of Sensar Corporation
from Nevada to Delaware and a change in the corporate name of Sensar Corporation
to Net2Wireless Corporation;
3. to approve the adoption of a Stock Option Plan covering up to
6,000,000 shares of common stock;
4. to ratify options granted to current management, directors, and
consultants to acquire up to 2,200,000 shares of common stock; and
5. to transact such other business as may properly come before the
meeting.
Your board of directors unanimously recommends a vote "for" each of the
above proposals. Members of the board were subject to potential conflicts of
interest in connection with the proposals, which are described in more detail in
the accompanying Joint Proxy Statement/Prospectus.
Only stockholders of record as of the close of business on [May 1, 2000],
the record date, are entitled to notice of and to vote at the meeting. The
attendance at and/or vote of each stockholder at the meeting is important, and
each stockholder is encouraged to attend.
By Order of the Board of Directors
Howard S. Landa, Chairman of the Board
Salt Lake City, Utah
_______________, 2000
Preliminary Copy, Subject to Completion, Dated April ___, 2000
Net2Wireless Corporation
Dear Stockholders:
On behalf of the board of directors of Net2Wireless Corporation
("Net2Wireless"), I cordially invite you to attend our Special Meeting of
Stockholders.
At the Special Meeting, stockholders will vote whether to approve a
proposed merger of Net2Wireless with and into Sensar Corporation ("Sensar").
The Board asks you to vote in favor of the merger.
Our board of directors has unanimously approved the merger, but the
approval of our stockholders is required in order to proceed with the completion
of the merger. As part of the merger, the outstanding Series A Preferred Stock
of Net2Wireless will be converted to common stock of Net2Wireless and then each
share of Net2Wireless common stock will be exchanged for one share of Sensar
common stock.
Your board of directors has determined that the merger is fair to you and
is in your best interests. The board of directors therefore unanimously
recommends that you vote to approve and adopt the merger. Please be aware that
a vote of the Sensar stockholders is also required to approve and adopt the
merger.
The affirmative vote of Net2Wireless stockholders holding at least a
majority of the outstanding shares of Net2Wireless common stock and Series A
Preferred Stock voting together as a class is required to approve and adopt the
merger agreement. Please be advised that Net2Wireless has irrevocable proxies
from holders of 67% of the Net2Wireless common stock and that all of the holders
of the Series A Preferred Stock have agreed to vote in favor of the merger.
Accordingly, the vote of no additional stockholders will be required to approve
the merger.
We estimate that the shares of Sensar common stock to be issued to the
holders of Net2Wireless common stock will represent approximately 65% of the
outstanding Sensar common stock after the merger.
Attached to this letter you will find a formal Notice of Special Meeting
and a related Joint Proxy Statement/Prospectus. The Joint Proxy
Statement/Prospectus provides detailed information about the Special Meeting and
the matters to be considered at the Special Meeting. Please read this entire
Joint Proxy Statement/Prospectus carefully.
The attached notice and Joint Proxy Statement/Prospectus are dated
_______________, and were first mailed to stockholders on or about
________________. Those of you who were holders of record of our common stock
or Series A Preferred Stock at the close of business on [May 1, 2000], are
entitled to receive notice of and to vote at the stockholders' meeting. On that
day, 17,253,920 shares of Net2Wireless common stock and 1,041,140 shares of
Series A Preferred Stock were outstanding. Each share entitles the holder to
one vote.
As explained in the attached Joint Proxy Statement/Prospectus, stockholders
who have not delivered an irrevocable proxy may withdraw their proxy at any time
before it is actually voted at the meeting. If you plan to attend the meeting
in person, please remember to bring a form of personal identification with you
and, if you are acting as a proxy for another stockholder, please bring written
confirmation from the record owner that you are acting as a proxy.
Even if you do not plan to attend the Special Meeting of Net2Wireless
stockholders, if you are a holder of Net2Wireless common stock, please take the
time to vote by completing and mailing the enclosed proxy card to us.
On behalf of the board of Net2Wireless, we urge you to vote "FOR" approval
and adoption of the merger agreement and the other matters to be considered at
the Special Meeting.
Sincerely,
David Rubner, Chairman of the Board
Nechemia Davidson, CEO
Preliminary Copy, Subject to Completion, Dated April ___, 2000
Net2Wireless Corporation
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Net2Wireless Corporation:
Notice is hereby given that a special meeting of the stockholders of
Net2Wireless Corporation, a Delaware corporation ("Net2Wireless"), will be held
on [June 16, 2000], at ___________ a.m., local time, at <meeting location>, New
York, New York, to consider and take action upon the following matters:
1. to approve the merger of Net2Wireless Corporation with and into
Sensar Corporation in accordance with the terms of the 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 [May 1, 2000],
the record date, are entitled to notice of and to vote at the meeting. The
attendance at and/or vote of each stockholder at the meeting is important, and
each stockholder is encouraged to attend.
By Order of the Board of Directors
Yaron Sobol, Secretary
Rosh Ha'ayin, Israel
April _____, 2000
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. SENSAR CORPORATION MAY NOT ISSUE THE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Preliminary Joint Proxy Statement/Prospectus
Subject to Completion, Dated April _____, 2000
Joint Proxy Statement for
Special Meeting of Stockholders of
SENSAR CORPORATION
and
Special Meeting of Stockholders of
NET2WIRELESS CORPORATION
___________________________
Prospectus for
SENSAR CORPORATION
19,295,060 Shares of Common Stock and 14,766,649 Shares of Common Stock Issuable
on Exercise of Options and Warrants
The stockholders of Sensar and Net2Wireless should consider the matters set
forth under "RISK FACTORS" beginning on page ___ in determining whether or not
to approve the matters submitted to them at the stockholder meetings.
_______________
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 prospectus or endorsed the
merits of this offering. Any representation to the contrary is a criminal
offense.
IMPORTANT
Regardless of whether you plan to attend the stockholders' meeting in person,
please fill in, sign, date, and return the enclosed proxy promptly in the
self-addressed, stamped envelope provided. No postage is required if mailed in
the United States.
SPECIAL REQUEST
If your shares are held in the name of a brokerage firm, nominee, or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
The date of this Joint Proxy Statement/Prospectus is _______________, 2000.
WHERE YOU CAN FIND MORE INFORMATION
Sensar has filed a registration statement (File No. 333-_____) on Form S-4
with the Securities and Exchange Commission (the "SEC"). This joint proxy
statement/prospectus, which is a part of that registration statement, does not
contain all of the information included in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. With respect to references made in this document to any contract,
agreement, or other document, such references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement, or other document. You may review a
copy of the registration statement, including exhibits, at the principal offices
of the SEC at:
- - Judiciary Plaza, 450 Fifth Street, N.W., Room 2104 or the public reference
room, Washington, D.C. 20549;
- - Seven World Trade Center, 13th Floor, 26 Federal Plaza, New York, New York
10048; or
- - 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms.
Sensar is subject to the informational requirements of the Securities
Exchange Act and, consequently, files annual, quarterly, and current reports,
proxy statements, and other information with the SEC. You may read and copy any
reports, statements, or other information on file at the public reference rooms.
You can also request copies of these documents, for a copying fee, by writing to
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Sensar's SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. The information
incorporated by reference is an important part of this Joint Proxy
Statement/Prospectus. These documents are available on request from Carol
Ashworth, Sensar Corporation, 50 West Broadway, Suite 501, Salt Lake City, Utah
84101, telephone number (801) 350-0587. In order to ensure timely delivery of
the documents, any request should be made by June 9, 2000. The following
documents are filed with the SEC and are incorporated by reference into this
Joint Proxy Statement/Prospectus:
- - annual report of Sensar on Form 10-K for the fiscal year ended December
31, 1999;
- - interim reports of Sensar on Form 8-K dated January 4, January 5, March
16, March 24, and March 30, 2000; and
- - the description of Sensar's common stock contained in its registration
statement on Form 8-A dated March 4, 1997, and any amendments or report filed
for the purpose of updating that description.
All documents and reports subsequently filed by Sensar pursuant to Section
13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and prior to the merger are also incorporated by
reference in this Joint Proxy Statement/Prospectus and will be deemed a part of
this Joint Proxy Statement/Prospectus from the date of filing of such documents
or reports.
Information in reports that are filed later with the SEC will update and
supersede statements contained in previously filed documents or this Joint Proxy
Statement/Prospectus to the extent that the new information differs from the old
information.
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TABLE OF CONTENTS
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . 2
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
QUESTIONS AND ANSWERS ABOUT THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . 6
FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Change in Corporate Domicile and Name . . . . . . . . . . . . . . . . . . . . . . . . 10
New Certificates for Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management of the Combined Company. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sensar Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Net2Wireless Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 12
PROPOSAL 1: THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reasons for, Advantages, and Disadvantages of the Merger. . . . . . . . . . . . . . . 12
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . . . . 14
Market Value of Sensar Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Market Price and Dividend Policy for Sensar Stock . . . . . . . . . . . . . . . . . . 15
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Principal Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Description of Common Stock Offered . . . . . . . . . . . . . . . . . . . . . . . . . 17
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Restrictions on Resale of Sensar Common Stock . . . . . . . . . . . . . . . . . . . . 19
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risks Related to Net2Wireless' Proposed Business. . . . . . . . . . . . . . . . . . . 20
Risks Related to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
BUSINESS OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Agreements With Cellular Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Development of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Advantages Offered by Net2Wireless Technology . . . . . . . . . . . . . . . . . . . . 28
Source of Anticipated Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Proposed Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MANAGEMENT OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Summary Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Option/SAR Grants in Fiscal 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . 34
Transactions With I.T.E.S. - Imaging Technologies Enterprises Systems Ltd.. . . . . . 34
Transactions With Significant Shareholders. . . . . . . . . . . . . . . . . . . . . . 34
Transactions With Directors and Executive Officers. . . . . . . . . . . . . . . . . . 34
Transactions With Immediate Family Members of Directors and Executive Officers. . . . 35
PRINCIPAL STOCKHOLDERS OF NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . 36
BUSINESS OF SENSAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SELECTED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
NET2WIRELESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Selected Historical financial Information of Net2Wireless . . . . . . . . . . . . . . 37
Management's Discussion and Analysis of Financial Condition and Results of Operations 37
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Expenses and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 38
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Disclosure About Market Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Year 2000 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SENSAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Selected Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management's Discussion and Analysis of Financial Condition and Results of Operations 41
COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Balance Sheet Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Statement of Operations Information . . . . . . . . . . . . . . . . . . . . . . . . . 42
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Reasons for the Merger--Advantages and Disadvantages. . . . . . . . . . . . . . . . . 45
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Interests of Certain Individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Attendance of Representative of Accountants . . . . . . . . . . . . . . . . . . . . . 51
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Accounting for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Delivery of Certificates for Common Stock of the Combined Company . . . . . . . . . . 54
Payment in Lieu of Issuing Fractional Shares. . . . . . . . . . . . . . . . . . . . . 54
Expenses of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Restrictions on Transfer of Common Stock of the Combined Company. . . . . . . . . . . 55
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
COMPARISON OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Comparison of Nevada Law and Delaware Law--Certificates of Incorporation and Bylaws . 56
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Pro Forma After the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Federal Tax Consequences of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 62
Federal Tax Consequences of the Change of Domicile. . . . . . . . . . . . . . . . . . 63
OTHER SENSAR STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Change in Corporate Domicile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Adoption of the Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Ratification of Previously Granted Options. . . . . . . . . . . . . . . . . . . . . . 66
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
VALIDITY OF NEW COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
INDEX TO APPENDICES
A. Agreement dated December 8, 1999, as amended
B. Stock Option Plan
C. Form of Certificate of Incorporation of the Combined Company
D. Copy of Delaware Law relating to Net2Wireless stockholders'
dissenters' rights of appraisal
E. Copy of Nevada Law relating to Sensar stockholders' dissenters'
rights
F. Form of Sale Restriction Agreement
JOINT PROXY STATEMENT/PROSPECTUS
SENSAR CORPORATION NET2WIRELESS CORPORATION
50 West Broadway, Suite 501 c/o Net2Wireless Israel, Ltd.
Salt Lake City, Utah 84101 11 Ha'amal Street
Telephone: (801) 350-0587 Afek Park, Rosh Ha'ayin 48092
Telecopy: (801) 350-0825 Israel
Telephone: 011-972-3-902-8600
Telecopy: 011-972-3-902-8601
INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the board of directors of Sensar and the board of
directors of Net2Wireless for use at the special meeting of the stockholders of
Sensar and the special meeting of the stockholders of Net2Wireless, or any
adjournments or postponements of the meetings. The Sensar stockholder meeting
is scheduled for [June 16, 2000], and the Net2Wireless stockholder meeting is
scheduled for [June 16, 2000]. The stockholders of Sensar and Net2Wireless will
consider the approval of the Agreement dated December 8, 1999, as amended (the
"Agreement"), between Sensar and Net2Wireless, pursuant to which Sensar and
Net2Wireless will merge and Sensar will issue 18,295,060 shares of Sensar common
stock to the former stockholders of Net2Wireless.
Outstanding options and warrants to purchase Net2Wireless common stock will
also be exchanged for options and warrants of like tenor to purchase 14,766,649
shares of Sensar common stock. In addition, Sensar will issue 1,000,000 shares
of common stock to certain individuals involved in introducing the two parties.
In addition to the merger, Sensar stockholders will be asked to approve a
change in the corporate domicile of Sensar to Delaware and a change in its
corporate name to Net2Wireless Corporation, to adopt a Stock Option Plan
covering up to 6,000,000 shares, and to ratify options previously granted to the
current management, directors, and consultants of Sensar.
The completion of the merger involves risks. Please read the discussion
under the caption "RISK FACTORS" beginning on page ___.
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 April 3,
2000, the closing price for the Sensar common stock as reported by Nasdaq was
$37.00.
This Joint Proxy Statement/Prospectus also serves as a prospectus for the
issuance by Sensar of its shares of common stock and options and warrants to
acquire its shares of common stock in the merger.
The Sensar stock was recently split on a two-for-one basis, effective for
stockholders of record as of January 17, 2000. All share amounts contained in
this Joint Proxy Statement/Prospectus give effect to this split.
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.
This Joint Proxy Statement/Prospectus is first being provided to
stockholders of Sensar and Net2Wireless on <mailing date>, 2000.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Who are Sensar and Net2Wireless?
A. Sensar is a publicly-held company with its common stock currently
traded on the Nasdaq SmallCapSM Market under the symbol "SCII." Sensar's assets
consist primarily of cash and short-term receivables.
Net2Wireless is a privately-held company which is developing a
wireless communication technology to permit the wireless linking to the Internet
by portable devices such as personal digital assistants and cell phones and to
permit cellular carriers to offer new services to their customers based on the
capabilities of the proposed Net2Wireless products.
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 Net2Wireless stockholders receive in the merger?
A. If the merger is completed, stockholders of Net2Wireless will
receive 18,295,060 shares of Sensar common stock, or one share of Sensar common
stock for each share of Net2Wireless common stock. This number includes the
1,041,140 shares of Series A Preferred Stock, which will automatically convert
into the same number of shares of Net2Wireless common stock immediately prior to
the merger. The shares received by Net2Wireless shareholders will reflect the
change in domicile of the combined company to Delaware and the change in the
corporate name to Net2Wireless Corporation. In addition, holders of options and
warrants to acquire Net2Wireless stock will receive similar options and warrants
to acquire up to 14,766,649 shares of Sensar common stock.
Q. What will Sensar stockholders receive in the merger?
A. Sensar stockholders will continue to hold the same number of shares
that they currently hold, although the domicile of the combined company will be
changed to Delaware and its name will be changed to Net2Wireless Corporation.
Q. What risks should I consider?
A. You should review "RISK FACTORS" beginning on page ___ for a
discussion of various risks associated with the merger and the operations of
Sensar and Net2Wireless.
Q. What are the tax consequences of the merger?
A. For purposes of the payment of U.S. federal income tax the merger
will be tax-free, except to the extent that stockholders receive cash pursuant
to the exercise of dissenters' rights. To review the tax consequences in
greater detail, see page ___.
Q. What other matters will be voted on?
A. In addition to the merger, stockholders of Sensar will be asked to
approve:
(1) a change in the corporate domicile and name of Sensar;
(2) the adoption of a Stock Option Plan which will cover up to 6,000,000
shares of common stock; and
(3) the ratification of options previously granted to current directors,
management, and consultants to acquire up to 2,200,000 shares of common stock.
Q. When do you expect to complete the merger?
A. The Agreement provides for the merger to be completed within 10 days
of obtaining stockholder approval.
Q. Should stockholders send in their stock certificates now?
A. No. After we complete the merger, Progressive Transfer, the
transfer agent, 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117,
will send instructions to Sensar stockholders and Net2Wireless stockholders
explaining how to exchange their certificates for certificates representing
stock of the combined company.
Q. How do I vote?
A. Mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares may be represented at the stockholders meeting.
You may attend the meeting in person whether or not you submit a proxy. If your
shares are held in "street name" by your broker, you cannot vote your shares
directly. Your broker will vote your shares only if you provide instructions to
the broker on how you would like your shares to be voted. You should follow the
directions provided by your broker regarding how to transmit those instructions.
Q. Can I change my vote after mailing my proxy?
A. Yes. Unless you have delivered an irrevocable proxy, you may change
your vote by delivering a signed notice of revocation, or a signed proxy card
that bears a later date, to Sensar or Net2Wireless, as appropriate, before the
stockholder meeting, or by attending the stockholder meeting and voting in
person. Net2Wireless stockholders who have delivered an irrevocable proxy may
not change or withdraw their vote.
Q. Who can I call with questions?
A. If you are a Sensar shareholder with questions about the merger,
please call Howard S. Landa at (801) 530-0587.
If you are a Net2Wireless stockholder with questions about the merger,
please call Yaron Sobol at 011-972-3-902-8600.
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains certain forward looking
statements within the meaning of the Private Securities Litigation Act of 1995.
These forward looking statements are not based on historical facts but they
reflect Sensar's and Net2Wireless' current expectations concerning future
results and events. These forward looking statements generally can be
identified by the use of phrases such as "believe," "expect," "anticipate,"
"intent," "plan," "foresee," "likely," "will," "potential," "proposed," or other
similar words. Generally, the statements describe the objectives, plans, or
goals of the companies. These forward looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results or the performance or achievement of such goals to differ from those
anticipated by these statements. Many of the important factors that could cause
actual results to differ materially from expectations are discussed under the
caption "Rick Factors" beginning on page ___. In addition to those risk factors
specifically addressed, there may be other factors that have not been considered
by Sensar and/or Net2Wireless or that are not currently considered to be
significant, that may in fact turn out to be material and cause actual results
to differ substantially from the forward looking statements. Stockholders
should be aware that such forward looking statements are not intended to be
accurate predictions 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.
SUMMARY
The following is a brief summary and is intended merely to highlight
certain information included in this Joint Proxy Statement/Prospectus. The
summary is qualified in its entirety by the more detailed information contained
elsewhere in this Joint Proxy Statement/Prospectus.
The Parties
Sensar 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,
and short-term notes receivable.
See "BUSINESS OF SENSAR."
Net2Wireless Net2Wireless is a privately-held Delaware corporation.
It has two subsidiaries, Net2Wireless Limited, which
is an Israeli corporation engaged in research and
development, and Vintage Global, Inc., which is a
British Virgin Islands corporation that holds the
intellectual property of Net2Wireless. When used
in this Joint Proxy Statement/Prospectus,
"Net2Wireless" refers to the parent corporation and
both subsidiaries. Net2Wireless acquired wireless
communication technologies and rights from
I.T.E.S. - Imaging Technologies Enterprises Systems,
Ltd, an Israeli corporation. Products based on the
technology held by Net2Wireless are in the
preliminary testing stage and are intended to permit
wireless communication devices to gain access to the
Internet. The goal is to permit the following
services to be available to portable devices such
as palm computers, personal digital assistants, and
cellular phones:
- browsing standard Internet sites using standard
browsers;
- transmission of live video using existing wireless
communication networks;
- providing instant messaging with full graphics
support;
- providing messaging services (e-mail, voice mail,
fax, etc.); and
- providing full graphics applications with network
based storage.
The basic technology uses proprietary software based on
data compression algorithms, caching algorithms, advanced
object recognition, and a system architecture design that
greatly speeds up content transmission over the existing
wireless communication infrastructure. 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.
See "NET2WIRELESS: BUSINESS OF NET2WIRELESS"
The Merger The Agreement between Sensar and Net2Wireless provides
for the merger of Net2Wireless with and into Sensar.
As part of the merger:
- the shares of Net2Wireless outstanding immediately
prior to the merger will be converted into
18,295,060 shares of common stock of Sensar and
1,000,000 shares of common stock of Sensar will be
issued to finders. The number of shares to be
issued to Net2Wireless stockholders will be reduced
in the event that any Net2Wireless stockholders
exercise their right to dissent. The number
of shares may also be increased if Sensar does
not meet certain financial conditions, but this is
not anticipated.
- Options and warrants to acquire Net2Wireless common
stock will be converted into options and warrants
to acquire up to 14,766,649 shares of Sensar
common stock with a weighted average exercise price
of $2.03 per share.
- At the initial meeting of the directors
approximately two weeks subsequent to the merger,
the current directors of Sensar will resign and
the nominees of Net2Wireless, Nechemia Davidson,
David Rubner, and Joav Avtalion will be appointed.
The complete terms and conditions of the merger are set
forth in the 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."
Change in Corporate
Domicile and Name If approved by the Sensar shareholders, Sensar shall
change its corporate domicile from Nevada to Delaware
and its corporate name to Net2Wireless Corporation
immediately prior to the merger. As a result, the
combined public company will be incorporated in
Delaware, which has a more fully defined body of
corporate law and is more familiar to bankers,
financial institutions, and others who may be
dealing with the combined company. In addition,
the name change will permit the combined company to
carry on its business under a name that is more
indicative of its proposed business.
New Certificates for
Common Stock Net2Wireless stockholders will receive one share of
common stock of the combined company for each share
of common stock or Series A Preferred Stock they hold
in Net2Wireless. Record holders of Net2Wireless stock
will receive a letter from the transfer agent of Sensar
with instructions for submitting certificates of
Net2Wireless stock to 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.
Management of the
Combined Company Nechemia Davidson, the founder and principal shareholder
of Net2Wireless, will serve as the chief executive
officer and a director of the combined company. David
Rubner, who recently resigned as president of ECI
Telecom, Ltd., 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., a telecommunication company, co-founder and
chairman of Mindsense Biosystems, Ltd., a technology
company, and director and chairman of Basense, Ltd.,
a knowledge management company, will serve as the
third director of the combined company.
See "MANAGEMENT."
Sensar Stockholders'
Meeting
Record Date and
Time Sensar stockholders of record as of the close of
business on [May 1, 2000], are entitled to vote at
the Sensar stockholders' meeting. The meeting will
be held at _______ a.m., local time, on [June 16,
2000], at ___________________, New York, New York.
Purpose of
Meeting At the meeting, the Sensar stockholders will be
asked to consider and take action on the following:
1. the proposed merger;
2. the change in the corporate name to "Net2Wireless
Corporation" and the change of the corporate
domicile to Delaware;
3. the adoption of the Stock Option Plan;
4. the ratification of options previously granted
to officers and directors of Sensar; and
5. the transaction of such other business as may
properly come before the meeting,
all as more particularly set forth in the official Notice
of Meeting accompanying this Joint Proxy
Statement/Prospectus.
Shares Outstanding
and Entitled
to Vote On the record date, there were 6,545,746 shares of
Sensar common stock outstanding, with each share
entitled to one vote on each matter submitted at the
stockholders' meeting.
Vote Required The merger and the change in corporate domicile must be
approved by the holders of a majority of the outstanding
Sensar common stock. The members of the board of
directors, who collectively hold 94,276 shares of
Sensar stock, or approximately 1.4%, 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 3,178,598
shares will be required. The vote of the holders of a
majority of a quorum of the shares entitled to vote
and represented in person or by proxy at the Sensar
stockholders' meeting is required to approve the Stock
Option Plan, and to ratify the options previously
granted to officers and directors of Sensar. The
directors have indicated their intention to also vote
in favor of these proposals. The bylaws of Sensar
require that at least 33-1/3% of the issued and
outstanding Sensar common stock be represented in
person or by proxy at the stockholders' meeting in
order to constitute a quorum for conducting business.
Representative of
Accountants It is anticipated that a representative of Grant Thornton
LLP and a representative of Kost, Forer & Gabbay, a
member of Ernst & Young International, will be in
attendance at the meeting 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 [May 1, 2000], are entitled to
notice of, and to vote at, the meeting of the
Net2Wireless stockholders to be held at _____________
a.m., local time, on [June 16, 2000], at
______________________, New York, New York.
Purpose of
Meeting At the meeting, the Net2Wireless stockholders will
be asked to consider and take action on the following:
1. the proposed merger; and
2. the transaction of such other business as may
properly come before the meeting,
Vote Required The merger must be approved by the holders of a majority
of the issued and outstanding shares of Net2Wireless
common stock and Series A Preferred Stock, voting
together as a class. The holders of 12,316,866 shares
of the Net2Wireless common stock, or approximately 67%
of the voting power of the stock entitled to vote on
the merger, have delivered their irrevocable proxies to
vote their shares in favor of the merger, therefore,
the vote of no additional shares will be required. The
bylaws of Net2Wireless require that at least a majority
of the issued and outstanding Net2Wireless common stock
and Series A Preferred Stock, taken together as a single
class, be represented in person or by proxy at the
Net2Wireless stockholders' meeting in order to
constitute a quorum for conducting business.
Representatives of
Accountants It is anticipated that a representative of Kost, Forer &
Gabbay, a member of Ernst & Young International, will be
in attendance at the meeting to respond to appropriate
questions from the Net2Wireless stockholders and, if so
desired, to make a statement.
PROPOSAL 1: THE MERGER
Reasons for, Advantages,
and Disadvantages
of the Merger
Sensar The principal reason for Sensar to enter into the merger
is to use its cash and other assets to enter into a
business activity with the potential for growth and the
possibility of establishing a favorable market share in
a rapidly-expanding market area to enhance stockholder
value.
The potential disadvantages to stockholders of Sensar
are the potential adverse consequences of the risks set
forth under the caption "RISK FACTORS," including a
reduction of their percentage ownership and control of
Sensar. The percentage ownership by the current
stockholders of Sensar and the current stockholders of
Net2Wireless before and after the merger is set forth
below:
<TABLE>
<CAPTION>
Record Subsequent
Date Percentage to Merger Percentage
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sensar Stockholders 6,545,746 100.0% 8,891,000(1) 31.5%
Net2Wireless Stockholders - 0.0% 18,295,060(2) 64.9%
Others - 0.0% 1,000,000 3.6%
--------- ----- ---------- ------
Total 6,545,746 100.0% 28,186,060 100.0%
</TABLE>
_________________________
(1) The increase in the number of shares held by Sensar stockholders is the
result of the issuance of additional shares on the mandatory conversion of
options held by officers, directors, and consultants of Sensar immediately prior
to the merger. These options are required to be converted in connection with
the closing of the merger by the terms of the Agreement.
(2) In addition, Net2Wireless stockholders and Partner Communications
Company, Ltd., will hold options to acquire an aggregate of 14,766,649
additional shares at a weighted average exercise price of $2.03 per share. If
these options were exercised, it would increase the issued and outstanding
shares of the combined company to 43,061,709 and the percentage ownership of the
combined company held by Net2Wireless stockholders and Partner Communications
Company, Ltd., to 77% and would correspondingly reduce the percentage held by
the Sensar stockholders.
Net2Wireless The principal benefits to Net2Wireless in entering into
the merger are:
- to obtain additional working capital to fund an
accelerated expansion effort;
- enhance Net2Wireless' ability to complete
acquisitions (should one be identified in the
future) with stock, thus conserving cash;
- to gain access to public capital markets for
future capital needs; and
- to provide liquidity to Net2Wireless' stockholders
through owning stock in a publicly traded company.
The potential disadvantages to Net2Wireless stockholders
are the potential adverse consequences of the risks set
forth under the caption "RISK FACTORS" and the fact that
their percentage of ownership of the wireless
communication technology held by Net2Wireless will be
reduced by approximately 35% if the options held by
Net2Wireless stockholders are not exercised.
See "THE MERGER: Reasons for the Merger-Advantages and
Disadvantages."
Interests of Certain
Persons in the
Merger In considering the recommendations of the Sensar board of
directors and the Net2Wireless board of directors with
respect to the merger, the stockholders of Sensar and
Net2Wireless should be aware that certain directors and
officers of Sensar and Net2Wireless may have interests in
the merger that are different from, or in addition to,
the interests of stockholders generally, including:
- the grant to Howard S. Landa, Chairman and Chief
Executive Officer of Sensar, of stock options to
acquire 800,000 shares of Sensar common stock at
an exercise price of $2.00 per share in
consideration for the termination of 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;
- 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;
- the distribution to Mr. Landa, effective March 1,
2000, of certain non-operating assets of Sensar
with a book value of $352,992 as of December 31,
1999, in consideration for Mr. Landa's agreement
to indemnify the combined company for all costs
and liabilities arising from a pending lawsuit
against Sensar, the termination of his executive
employment agreement, his assumption of the
unexpired lease obligations of Sensar for its
Salt Lake City, Utah, offices, and his agreement
to provide up to 100 hours of transitional
services to the combined company; and
- the grant of fully vested stock options to
entities controlled by Nechemia Davidson, founder,
director, and officer of Net2Wireless;
Yaron Sobol, founder; David Rubner, chairman of
the board; and Joav Avtalion, director, to acquire
an aggregate of 4,618,518 shares of the combined
company's common stock at a price of $1.86 per
share. See "THE MERGER: Interests of Certain
Individuals."
Market Value of Sensar
Securities Sensar's common stock is currently traded on the
Nasdaq SmallCapSM Market under the symbol "SCII."
The following table sets forth the closing sales
price for Sensar's common stock, as reported by
Nasdaq (a) as of the date preceding the public
announcement of the proposed transaction to
acquire the wireless communications technology;
(b) as of the date the execution of the
Agreement with Net2Wireless was announced; and
(c) as of April 3, 2000, the date immediately
preceding the date of this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Sensar Stock
Date Closing Sales Price
- --------------- -------------------
<S> <C>
October 6, 1999 $ 3.00
December 14, 1998 $11.50
April 3, 2000 $37.00
</TABLE>
Market Price and Dividend
Policy for Sensar
Stock Sensar's common stock is traded on the Nasdaq
SmallCapSM Market under the trading symbol
"SCII." The following table sets forth high
and low closing sale prices for Sensar's
common stock as reported on Nasdaq for the
periods indicated. All amounts have been
adjusted to give effect to the 1:5 consolidation
of the outstanding common stock of Sensar
effective May 3, 1999 and the 2:1 forward
split of the outstanding common stock effective
January 17, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Ended December 31, 1998 High Low
- ----------------------------------- ------- ------
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
</TABLE>
On April 3, 2000, the last reported sales price for
Sensar's common stock as reported by Nasdaq was $37.00.
On April 3, 2000, Sensar had approximately 285
stockholders of record.
Sensar has not paid dividends with respect to its
common stock. There are no restrictions on the
declaration or payment of dividends in the articles
of incorporation or bylaws of Sensar or in any of its
contractual agreements, other than under the Agreement
for the period the merger is pending. However, it is
anticipated that any potential earnings of Sensar and,
subsequent to the merger, the combined company, will be
retained for working capital and investment in the growth
and expansion of business operations. Consequently, it
is not anticipated that Sensar or the combined company
will pay dividends in the foreseeable future.
Risk Factors Completion of the merger and the exchange of Net2Wireless'
common stock, options and warrants for shares of Sensar
common stock, options and warrants is subject to certain
risks (see "RISK FACTORS"), including the following:
- the risks associated with a development stage
company;
- the expected need for additional capital;
- the rapid technological changes in the market and the
inability to predict the life cycle of products;
- the inability to predict customer acceptance of the
products and services made available in this
developing market;
- competition in the area of Net2Wireless' proposed
business and the size and success of some of its
principal competitors;
- the potential market concentration of Net2Wireless'
sales and anticipated reliance on strategic partners
and major customers;
- risks associated with the planned expansion of
Net2Wireless' proposed business;
- the risk that the combined company may not be able to
effectively protect its intellectual property;
- the risk that the combined company's technology may
infringe on the intellectual property rights of
others;
- the dependence on certain key members of
Net2Wireless' management, especially Nechemia
Davidson, the chief executive and technology
officer;
- the potential market volatility for stock of the
combined company and the volatility of the stock
market in general;
- the lack of an independent assessment and opinion
regarding the fairness of the terms of the merger;
and
- the potential dilutive effect of the significant
number of shares of common stock of the combined
company that could be issued upon the exercise
of outstanding options and warrants.
Principal Conditions The merger is conditioned on the following:
- approval of the Agreement by the holders of a
majority of the issued and outstanding Sensar
common stock and of a majority of the issued
and outstanding Net2Wireless common stock and
Series A Preferred Stock voting together as
a single class;
- the elimination by Sensar of all liabilities,
except current liabilities not yet due and
not in excess of $50,000;
- the compliance by each of the parties with
their respective representations, warranties,
and covenants as set forth in the Agreement,
unless waived by the other party;
- the absence of any material adverse change in
the condition of either party not consented
to by the other party;
- the absence of material regulatory limitations
or prohibitions on the consummation of the
transaction or the continuation of the
business of the combined enterprise
thereafter; and
- other customary closing conditions. See
"THE MERGER: Principal Conditions."
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
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."
Description of Common Stock
Offered
Common Stock The shares of common stock to be issued in the
merger are entitled to one vote per share
without cumulative voting rights. Holders will
not have preemptive rights to acquire additional
shares of common stock, and all holders of common
stock are entitled to share equally in dividends
and any liquidation distributions. Net2Wireless
stockholders will have substantially similar
rights to those they now have as stockholders of
Net2Wireless, except for changes based on the
differences between the certificates of
incorporation of the two companies and as
provided by the Nasdaq corporate governance rules,
which are applicable to the combined company but
not to Net2Wireless. Sensar stockholders will
have different rights as stockholders of the
combined company as a result of differences
between the articles of incorporation of Sensar
and the certificate of incorporation of the
combined entity, and differences between
the corporate laws of Nevada and Delaware.
See "OTHER SENSAR STOCKHOLDER MATTERS: Change
in Corporate Domicile" and "COMPARISON OF
SECURITIES."
Accounting Treatment 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. See "THE MERGER: Accounting for the
Merger."
Tax Consequences Sensar and Net2Wireless will not obtain a private
revenue ruling from the Internal Revenue Service or
an opinion of tax counsel regarding the federal
income tax consequences of the merger. See "TAX
CONSEQUENCES."
Sensar The merger is intended, subject to certain
restrictions and qualifications, to qualify as a
tax-free reorganization under section 368(a) of
the Internal Revenue Code for U.S. federal income
tax purposes, and Sensar will be party to the
reorganization within the meaning of section 368(b)
of the Code. 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, "Net2Wireless Corporation" will
not result in any taxable consequence to the
Sensar stockholders.
Sensar stockholders who exercise and perfect their
dissenters' rights will generally recognize gain or
loss on the transaction as if it constituted a
sale of their Sensar stock.
Net2Wireless The merger is intended, subject to certain
restrictions and qualifications, to qualify as a
"tax-free" reorganization for U.S. income tax
purposes under section 368(a) of the Code, and
Net2Wireless will be a party to the reorganization
within the meaning of section 368(b) of the Code.
As such, 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.
Restrictions on Resale
of Sensar Common
Stock Except for shares issued to "affiliates" of
Net2Wireless, as that term is defined in Rule 144
promulgated by the Commission and shares held by
affiliates of the combined company, all shares of
Sensar common stock to be issued in connection with
the merger will be transferable without further
registration under the Securities Act. Sales by
affiliates must be made in accordance with the
requirements of Rules 144 and 145 promulgated
under the Securities Act.
Certain Sensar stockholders will be contractually
precluded from selling up to 50% of the common
stock received on the conversion of their options
at the closing until 180 days following the
effectiveness of a registration statement filed by
Sensar to permit the sale. See "THE MERGER:
Restrictions on Transfer of Common Stock of the
Combined Company."
RISK FACTORS
The merger involves certain risks to Sensar and Net2Wireless stockholders,
some of which are described below. 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, the business and prospects of the combined company would 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 and does not have an operating history.
Net2Wireless was formed in December 1999. Shortly after its formation,
Net2Wireless acquired technology from ITES, a development company in Israel.
The initial product based on this technology was installed for pilot site
testing in February 2000. The technology has not generated any operating
revenues or binding contractual commitments to purchase products or services to
date. Any potential purchase agreement with Partner Communications is
contingent on the following: (i) the successful completion of the pilot
testing; (ii) the negotiation of a further agreement with Partner
Communications; and (iii) the subsequent successful implementation of the
product. Consequently, Net2Wireless may not achieve the market penetration or
profitability that it has targeted.
Net2Wireless expects to operate at a substantial loss for the foreseeable
future, 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 for the foreseeable future. Expenses are expected to grow
significantly and more rapidly than revenues during the implementation stage.
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.
Net2Wireless recently completed a private placement of its Series A Preferred
Stock for gross proceeds of approximately $29 million. However, the combined
company may need to seek additional funding from outside sources, including
equity financing. We cannot be sure that the combined company will be able to
obtain the needed financing. If another equity financing is completed, it would
result in dilution of the percentage of ownership of existing stockholders and
could result in dilution of the per share book value.
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 business.
Net2Wireless will need to generate significant revenues and maintain a
price for its products above its costs in order to become profitable.
Net2Wireless may not be able to achieve or sustain its revenue or profit goals
as a result of factors outside of its control, including:
- the lack of market acceptance of the products and services to be
offered by Net2Wireless;
- the lack of acceptance by consumers of the services to be made
available as a result of the application of Net2Wireless' products;
- competitive pressures, including the announcement of competing
products and services or a decrease in the prices of such products and services;
and
- the lack of dedication by the telecommunications carriers and
telephone and PDA manufacturers of the resources necessary to market the
services potentially made available as a result of Net2Wireless' products.
Net2Wireless needs to identify and ally itself with strategic partners in
order to succeed.
Part of the business strategy of Net2Wireless is to establish strategic
relationships with telecommunications carriers worldwide to validate the
application of its products and the demand for the services made available by
such products. We may not succeed in finding these strategic partners. 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 success of this strategy is dependent upon the long-term
demand and growth for the products and services of Net2Wireless and the ability
of Net2Wireless to successfully satisfy that demand and growth and obtain a
significant percentage of market share.
The combined company may not be able to successfully manage any potential
growth.
If the combined company is successful in the introduction of its products,
it will be required to rapidly expand all areas of operations, including
administration, development, support, marketing, sales, consulting, and
distribution. Net2Wireless currently has a staff of 60 of which 31 are focused
on research and development efforts. Expansion of its products and the
integration with wireless communication protocols other than GSM will require a
substantial expansion of the existing staff. Net2Wireless cannot assure you
that it will be able to locate and hire the necessary personnel.
Net2Wireless must complete the development of its current platform and
develop additional products for other wireless technologies.
There are a number of wireless technologies currently in use. Currently,
Net2Wireless' only product is in beta testing and is designed to work with the
GSM wireless protocol, which is widely accepted in Israel and Europe. If the
beta test is successful, Net2Wireless will need to develop products for other
wireless protocols, including CDMA and TDMA, which are widely used in North
America. Net2Wireless has recently entered into an agreement that calls for it
to develop products compatible with the CDMA protocol.
The technology of Net2Wireless is not entirely based on the current
industry standard and, as a result, may not be accepted.
In 1998, the Wireless Application Protocol Forum (or WAP Forum) adopted an
open worldwide standard for wireless data transmission, designed to establish a
standard for wireless data transmission. Major telecommunications companies,
equipment manufacturers, and software and service companies are members of the
WAP Forum. While Net2Wireless' products are expected to be compatible with the
WAP standards, they may not be dependent on the WAP standards. For example, WAP
standards include limited website access for Internet users while Net2Wireless
expects its products to have to have full web access. Telecommunications
companies and others may be reluctant to adopt new technology that is not wholly
based on the WAP standard.
The development of new products and services by Net2Wireless' competitors
may perform better than those to be 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 a
number of companies that introduce or develop products designed to deliver
Internet content to wireless communication devices. As a result of the very
recent development of this market, Net2Wireless cannot estimate the potential
product lifecycle. Net2Wireless may not be able to continue to develop and
enhance its potential 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.
<PAGE>
Net2Wireless' potential competitors have access to significantly greater
resources, limiting Net2Wireless' ability to compete.
The telecommunications industry is highly competitive, and Net2Wireless'
proposed products may not be competitive when commercially available. 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
changing market conditions.
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 recently announced 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 PDA 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 is dependent on recruiting and retaining key management and
technical personnel.
The success of Net2Wireless is dependent, in part, on its ability to
attract and retain key management and technical personnel. In particular,
Net2Wireless is currently dependent on retaining the services of Nechemia
Davidson, its founder and chief executive officer. Net2Wireless' full
management team has not yet been assembled. It 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.
If Net2Wireless is unable to attract individuals with the necessary experience
and expertise, or is unable to retain its executive and 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.
Net2Wireless is in the process of preparing and filing patent applications
for certain aspects of its intellectual property. 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. Net2Wireless
presently relies on copyright and trademark laws, trade secret laws, and
confidentiality and noncompetition contractual provisions to protect its
intellectual property. However, the effectiveness of all of the above
protections varies from country to country and may not adequately protect
Net2Wireless' rights. If Net2Wireless cannot protect its technology, other
competitors could potentially use the intellectual property developed by
Net2Wireless to their own competitive advantage.
The combined company could be sued for violations of the intellectual
property rights of others.
There are a large number of patents and products constantly being developed
in the areas of telecommunications and Internet applications. The highly
technologically-dependent aspect of these industries and the rapid development
of products and services enhance the possibility of claims based on violations
of intellectual property rights. Any such claim brought against the combined
company, even if ultimately determined to be without merit, could be expensive
and time consuming and detract from the implementation of the products and
services of the combined company. In addition, the combined company may be
required to obtain licenses to patents or other proprietary rights of third
parties. There can be no assurance that any licenses would be available on
terms acceptable to the combined company, or at all.
The proposed business of the combined company may be adversely affected by
existing or newly adopted regulations.
The combined company's business will be subject to the authority of
regulatory bodies of the countries in which it operates. Regulations
established by such regulatory bodies may impose limits on the combined
company's operations, and there can be no assurance that such restrictions will
not place burdens on the combined company. In addition, the combined company's
business may be adversely affected by regulatory changes resulting from judicial
decision or the adoption treaties, legislation, or regulation by the national
authorities where the combined company operates.
There is an exposure to the risks associated with Y2K compliance.
Even though it appears that there will not be immediate widespread failure
of hardware and software systems based on lack of Y2K compliance, problems or
failures may develop or occur from time to time. Failures could occur in the
hardware or software manufactured by third parties and utilized by Net2Wireless
in its products, in the software developed by Net2Wireless, or in the systems
relied on by telephone communications companies and/or Internet companies. Any
interruption in the development or implementation cycle or in providing services
as a result of a failure based on lack of Y2K compliance would divert resources
and delay the implementation of Net2Wireless' planned business operations and
would adversely affect Net2Wireless.
Risks Related to the Merger
The exchange ratio is fixed and will not vary with the price of the Sensar
stock.
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 may be higher or 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 extremely
volatile.
Since October 6, 1999, the stock of Sensar has increased from $3.00 to
$37.00 as of April 3, 2000, and trading prices have fluctuated widely during any
single trading session. The trading price can be affected by a number of
factors unrelated to the business prospects and results of the combined company.
These factors include:
- - announcements of developments by competitors;
- - acquisitions or strategic alliances by the combined company or others in
the industry;
- - changes in the estimates as to the potential market and Net2Wireless'
share of that market;
- - changes in the recommendations of security analysts; and
- - changes in the trading prices of telecommunications companies or others in
related industries generally.
There can be no prediction as to the price or trading volume of the stock
of the combined company subsequent to the merger. Any volatility of the trading
price may be exaggerated if trading volume is low.
Control of the combined company.
The executive officers and directors of Net2Wireless will own approximately
23.1% of the outstanding common stock of the combined company subsequent to the
merger. In addition, they will hold options, at $1.86 per share, to increase
their stock ownership to approximately 33.9%. Consequently, these stockholders
may, as a practical matter, be able to exert significant influence over those
matters requiring approval by the stockholders. This concentration of ownership
could also discourage, delay, or prevent others from a takeover attempt thereby
adversely affecting the other stockholders of the combined company.
The authorization of 10,000,000 shares of preferred stock in, 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. Such
calculations do not, and are not intended to, represent any price at which the
common stock of Sensar could be sold or the value of Net2Wireless or the
combined company, either before or after giving effect to the merger. The
amounts that may be realized following the merger upon the sale by the former
Net2Wireless stockholders of the common stock received by them in the merger may
vary widely from the historical trading prices of the Sensar common stock.
Lack of an independent assessment or opinion regarding fairness of the
merger 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. The lack of a fairness opinion means that the stockholders will
be relying on the financial statements of Net2Wireless and Sensar and their own
analysis of the condition of both companies and the terms of the merger in
deciding whether or not to approve the transaction.
Loss of voting control by Sensar stockholders.
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 32% 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 Agreement. The percentage of ownership of the
Sensar stockholders may be reduced further as a consequence of the exercise of
options to acquire 14,766,649 shares of Net2Wireless, with a weighted average
exercise price of $2.03 per share, that will be assumed by Sensar in connection
with the merger. Consequently, the Sensar stockholders will suffer a
substantial dilution to their voting power and, subsequent to the merger, will
not be able to elect any representatives to the board of directors of the
combined company or to control the vote with respect to any other matter
submitted to the stockholders.
Additional shares that become available for sale may have an adverse affect
on the trading price.
All of the shares to be issued to the Net2Wireless stockholders in
connection with the merger have been registered under this Joint Proxy
Statement/Prospectus and, except for the stock held by affiliates of
Net2Wireless, will be freely available for sale. Following the merger, the
combined company will have outstanding options and warrants to purchase an
aggregate of 14,875,649 shares of our common stock, of which options to purchase
13,374,649 shares are immediately exercisable. The holders of these warrants
and options have registration rights requiring Net2Wireless to register the sale
of the common stock issuable upon exercise. Sensar will also file a
registration statement permitting the resale of 2,453,056 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 issuable on the
exercise of outstanding options and warrants, and included in 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.
Certain individuals may have interests in the merger different from other
stockholders.
The terms of the transaction were determined through negotiations between
executive management of Sensar and Net2Wireless and approved by the board of
directors of each company. Certain of these individuals have interests in the
merger different than, or in addition to, those of the stockholders generally.
Consideration of these interests may have influenced these individuals in
negotiating and approving the transaction. See "THE MERGER: Interests of
Certain Individuals."
NET2WIRELESS
BUSINESS OF NET2WIRELESS
General
Net2Wireless is a privately-held Delaware corporation with a research and
development subsidiary located in Israel and a British Virgin Islands subsidiary
that holds its intellectual property. Net2Wireless is developing technology
which is intended to enable and enhance a wide variety of wireless communication
services. The goal of Net2Wireless is to permit the following services to be
provided to cellular subscribers carrying wireless devices such as palm
computers, personal digital assistants, and cellular phones:
(a) browsing the Internet through standard websites and using standard
browsers;
(b) transmission of live video over the 9600 bps wireless link to the
wireless device;
(c) providing instant messaging with full graphics support;
(d) providing messaging services (e-mail, voice mail, fax, etc.); and
(e) providing full graphics applications with network-based storage.
The basic technology uses proprietary data compression algorithms, caching
algorithms, and a system architecture that greatly speeds up content
transmission over the wireless cellular infrastructure. 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.
Products
Net2Wireless is developing several proprietary products:
- - Wireless Application Server
Wireless Application Servers (WAS) provide access to real-time Internet
multimedia and inventory-fed multimedia for cellular phones and other handheld
devices. They enable cellular carriers to offer content services consisting of
news, stock quotes, sports, business communications, message services,
mailboxes, datebooks, directories, airline schedules, reference materials,
business enterprise data, and similar items, or access to all Internet content
and commerce. The WAS serves as the system on which software programs and data
reside because of the limited processing and storage power of most hand-held
wireless devices.
- - Wireless Instant Messaging Suite
The Wireless Instant Messaging Suite is a software and storage system for
instant messaging technology to allow wireless subscribers to receive and send
messages regardless of the user's on- or off-line position on the wireless
network or the Internet. The IM Suite Server offers wireless carriers a
complete solution to enable their subscribers to access and connect with
Internet-based instant messaging systems.
- - Wireless Browser Technology
The Wireless Browser Technology is a text, audio and video browser that allows
web browsing from existing cellular phones and other portable devices. Unlike
existing text-mode-only Internet browsers, the wireless browser technology
allows extensive web browsing, including full duplex graphics, using very little
computing or battery power on the handheld device.
Prototype versions of each of the above products have been developed and
tested internally by Net2Wireless. Net2wireless has completed the installation
of Wireless Application Servers at the facilities of Partner Communications
Company, Ltd., a cellular carrier 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 overhead than browser-based mobile communication systems
based exclusively on Wireless Application Protocol ("WAP") standards. With the
wireless browser technology, there is no loss of bandwidth with multiple users
accessing the carrier from a single wireless device.
Agreements With Cellular Carriers
Partner Communications
Net2Wireless has entered into a pilot agreement with Partner Communications
Company Ltd., the Israeli affiliate of Orange Plc, and a cellular telephone
operator in Israel. Partner Communications' cellular network is based upon GSM
technology, which has been widely adopted in Europe and adopted less broadly in
the United States.
Under the pilot agreement, Net2Wireless is testing, at its cost, its
multimedia streaming media platform on Partner Communications' system. The
agreement calls for initial tests of Net2Wireless products by Partner
Communications and Net2Wireless acting jointly and, within 30 days of the March
13, 2000, date of the agreement, the commencement of a pilot program on Partner
Communication's system. The pilot program shall continue for not more than six
months. The parties have agreed to negotiate and execute an agreement for the
purchase of a video platform system by Partner Communications within 90 days of
the date of the agreement, although Net2Wireless has agreed to supply the
software necessary for the initial 50,000 users free of charge. Partner
Communications received an option to purchase 3,020,576 shares of Net2Wireless
common stock, subject to adjustment, or, subsequent to the merger, the common
stock of the combined company, at a price of $1.84 per share. If the merger is
not completed, the number of shares subject to the option will be reduced. 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 certain rights to register its shares under the
Securities Act. The number of shares subject to the option will be adjusted for
any capital restructuring and the exercise price will be adjusted in the event
that the combined company has a market capitalization of less than $50 million
immediately following the merger.
If the purchase agreement is executed within 90 days of the agreement with
Partner Communications, Partner Communications has a right of first offer with
regard to new Net2Wireless products in Israel for a three year period ending on
March 13, 2003. If the right of first offer is exercised, Net2Wireless may not
sell the new product to other cellular operators for a period of five months
following completion of the beta test of the new product by Partner. For two
years after the launch by Partner Communications of service based on
Net2Wireless' wireless video platform, Net2Wireless may not enter into purchase
agreements with other cellular operators in Israel in respect of that particular
platform. If Partner Communications assists in the sales of Net2Wireless
products to Orange affiliates or, 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 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 purchase agreement must be mutually agreed between 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. PelePhone has agreed to test Net2Wireless
products on its system. Net2Wireless is developing some software and services
specifically designed to work with the CDMA technology and Samsung cellular
phones. The parties anticipate that the test installation at PelePhone
Communications, Ltd.'s facilities will begin approximately six months from the
date of the agreement.
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.
Advantages Offered by Net2Wireless Technology
Current Limitations of Wireless Internet Access
Wireless Internet access has not yet become widespread. Existing WAP-based
technology has limitations compared to computer based access as a result of a
lack of existing applications, reduced communication speed, and less-than-ideal
thin-client 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 existing HTML,
XML or Java protocols, or that the network carrier offer its own content
specifically designed for WML. As a result, wireless users cannot directly
access the seemingly unlimited content currently available on the Internet.
The Net2Wireless Approach
The server and wireless browser technology system being developed by
Net2Wireless is intended to make all that information accessible to wireless
mobile devices using existing affordable device access to information services.
The goal is to permit cellular carriers to provide new information services and
to serve as an Internet portal for their customers. By offering access to new
content and expanded communication services, it is anticipated that airtime
consumption and revenues for carriers will increase.
Net2Wireless seeks to address the limitations of the current WAP based
technology in a number of ways. Net2Wireless is developing a more efficient way
of utilizing the narrow bandwidth of wireless communications devices to transfer
graphic and multimedia information. Net2Wireless uses state-of-the-art digital
data compression with its proprietary advanced pattern recognition and streaming
technology. This permits the transmittal of streaming video and other
multimedia content in real time over the very limited bandwidth of wireless
communications devices.
The technology has been designed to utilize the power, speed, and storage
capacity of the WAS. Existing wireless communication devices which have limited
processing power are treated as application devices. As such, the devices
themselves do not need to be very sophisticated in terms of computing power, and
are used simply to provide access to the WAS servers, where the necessary
software is loaded, and to store and retrieve information from the server.
Net2Wireless' technology is designed to work as a transparent overlay to
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 including PCS, CDMA, TDMA, iDen,
PHS, GSM, CDPD, FLEX, ReFLEX, TETRA, DECT, DataTAC, Mobiten and PDC. In
addition, it is intended to be compatible with existing and emerging operating
systems for wireless devices including PalmOS, EPOC32, K-VM, Windows CE, FLEXOS,
OS/9 and JavaOS. The Net2Wireless system would provide the opportunity for a
common communications platform and standard between different device families to
make mobile Internet communications widespread. Further, Net2Wireless' software
and communications systems are designed to be fully compatible with WML and
other WAP-based systems.
Net2Wireless' systems will be installed on its WAS at the cellular
carrier's facilities as an overlay to the carrier's existing systems. They are
designed to be compatible with the carrier's existing technology so that no
modifications or changes to the underlying cellular communication network are
necessary. Therefore, network carriers should not be required to change or
reconfigure their systems to accommodate the installation of Net2Wireless'
technology.
Because wireless networks have limited bandwidth and wireless communication
devices have limited processing power and memory, software programs that reside
on the server are used to provide processing power and other computing resources
to the wireless devices. These allow certain operations to be offloaded from
the devices to Net2Wireless servers, including translating existing Internet
protocols such as HTML to wireless Internet protocols such as wireless mark-up
language ("WML").
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. 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.
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.
Source of Anticipated Revenues
Net2Wireless intends to sell services and 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.
Proposed Merger
Under the terms of the Agreement with Net2Wireless, Sensar agreed to
provide Net2Wireless with interim funding of $2 million. $500,000 of this
amount was advanced February 2, 2000. This loan is due September 30, 2000, and
bears interest at 8% per annum.
The Company was also granted an option to acquire Net2Wireless through the
merger of the two companies. This option was exercisable at any time after the
commencement of the pilot program at Partner Communications, and was exercised
by Sensar on March 24, 2000. Net2Wireless was also granted an option to require
the completion of the merger. The option held by Net2Wireless is exercisable at
any time 30 days subsequent to the completion of the pilot program of Partner
Communications and, in any event, prior to December 31, 2000.
The 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 interest in Net2Wireless, other than the options and
warrants to acquire Net2Wireless stock. Upon completion of the merger, such
options and warrants will be converted into options and warrants to acquire up
to 14,766,649 shares of common stock of the combined company with a weighted
average purchase price of $2.03 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 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 will
be delivered to former Net2Wireless stockholders within 10 business days of the
final determination of the number of shares. At December 31, 1999, Sensar had
$5.0 million of net cash under the definition used in the Agreement, assuming
the full collection of all short-term receivables. Sensar has not received any
notice that such receivables are subject to any claim or offset, and currently
expects these amounts to be collected in due course.
Completion of the merger is subject to the approval of the transaction by
the shareholders of both Sensar and Net2Wireless and the satisfaction of
standard contractual conditions.
Competition
Current and Potential Competitors
The widespread adoption of open industry standards, such as the WAP
specifications, may make it easier for new market entrants and existing
competitors to introduce products that compete with the proposed products of
Net2Wireless. Net2Wireless will compete primarily on the basis of technology,
ease-of-use, functionality and quality, and breadth of product and service
offerings.
The competitors include the following:
Wireless Equipment Manufacturers
- - Ericsson, Motorola, Qualcomm, AT&T, and Nokia, which are developing server
and application software products. These companies already sell wireless
telephones and other telecommunications products to network carriers who are our
potential customers and may use their existing relationships to influence the
adoption of competing technologies.
- - Microsoft and Wireless Knowledge, a joint venture of Microsoft and
Qualcomm, which has announced its intention to further develop Microsoft's
Windows CE operating system for application on wireless handheld devices.
- - Systems integrators, such as CMG and APiON, and software companies, such
as Oracle and Sendit, which are developing and marketing server software that is
compliant with WAP specifications.
Providers of Internet Services, Applications and Content
- - Cisco Systems Inc., which announced that it will develop products using
its proposed standard for broadband wireless Internet services.
- - Oracle Corp. and Phone.com, which announced they are working together to
enhance an end-to-end solution for enabling Internet and intranet information
access and services from wireless handsets.
- - Hewlett-Packard, which announced an integrated hardware/software platform
solution for delivering wireless Internet services on a pay-per-use basis from
infrastructure equipment owned and operated by Hewlett-Packard. Motorola and
Nokia have also committed to working with Hewlett-Packard to advance wireless
connectivity to the Internet.
- - IBM and Nokia, which have announced a global partnership to develop
solutions using the WAP approved standards.
- - CMG, a European information technology service group, and diAx, a Swiss
mobile operator, which offer Telekurs Financial real-time financial information
to mobile wireless users who can access financial indices, currency exchange
rates, world stock exchanges, and financial headlines and obtain stock quotes
and, eventually, conduct wireless banking in the mobile environment.
- - Net2Phone, which is a provider of voice-enhanced Internet communications
services to individuals and businesses worldwide. It is possible that Net2Phone
will seek to integrate mobile communication capabilities into their Web access.
Several of the world's major providers of telecommunications equipment,
such as Alcatel and Lucent have developed network equipment that may be used in
connection with the provision of similar Web services, including routers,
servers and related hardware and software. By developing this equipment, these
manufacturers may exert substantial influence over the technology that is used
in connection with transmission of voice over the Web, and may develop products
that facilitate the quality and timely roll-out of these networks.
These competitors are established manufacturers, software and hardware
developers, and service providers which have access to significantly greater
financial, technical, and managerial resources than Net2Wireless. Net2Wireless
may not be able to successfully compete in this industry.
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 filing for patent
protection for certain aspects of its technology. 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. Net2Wireless also relies on a
variety of technologies that it licenses from third parties, that are intended
to enhance the difficulty of decoding proprietary software.
Employees
Net2Wireless currently employs 60 people. 7 employees are senior
management, 35 employees are part of Net2Wireless' research and development and
technical teams, and 18 employees provide administrative functions.
Net2Wireless plans to continue to add additional professional and administrative
personnel.
Facilities
Net2Wireless' principal administrative, engineering, and marketing
facilities are located at 11 Amal Street in Afek Park, a technology center, in
Rosh Ha'ayin, Israel.
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 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
</TABLE>
There is no family relationship among the current directors and executive
officers. Mr. Rubner's son, Joseph Rubner, is vice-president of research and
development of Net2Wireless.
Mr. Davidson is the founder, principal shareholder, and a director of
Net2Wireless. Mr. Davidson also was a founder of ITES, 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 $1.2 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.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the annual and long term compensation earned
by, awarded to, or paid to Nechemia Davidson, the chief executive officer of
Net2Wireless during the last fiscal year. No information is provided for
earlier periods since Net2Wireless was organized in 1999.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Ended Salary Bonus sation Award(s) SARs Payouts sation
Position Dec. 31 ($) ($) ($) ($) (#) ($) ($)
- -------------------- ------- ------- ------ ------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nechemia Davidson 1999 $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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 ITES. 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. ITES is an Israeli company controlled by
Nechemia Davidson, a director of Net2Wireless Corporation. Under the agreement,
Partner Communications received an option to purchase 3,020,576 shares of
Net2Wireless common stock, subject to adjustment, or, subsequent to the merger,
the common stock of the combined company, at a price of $1.84 per share. This
agreement supersedes a previous agreement made and entered into by Partner and
ITES on October 6, 1999, which was part of the assets of ITES that Net2Wireless
purchased under the December 15, 1999, agreement. See "NET2WIRELESS:
Agreements With Cellular Carriers."
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 convertible into 1,040,387
shares of common stock for an aggregate consideration of $356,246, 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
bears interest at the rate of 6-1/2% per annum and is convertible through
the due date.
In January, 2000, Meridian Trading Investment Ltd. purchased 545,118
shares of common stock of Net2Wireless Corporation and notes convertible into
304,313 shares of common stock for an aggregate consideration of $104,235,
pursuant to a stock and note purchase agreement, dated as of December 15, 1999,
between Net2Wireless Corporation and a group of investors listed therein.
Net2Wireless Corporation is currently finalizing an agreement with Meridian by
which Net2Wireless Corporation will be granting options to purchase 214,815
shares of common stock at a price of $1.8621 per share. The loan
bears interest at the rate of 6-1/2% per annum and is convertible through
the due date.
In January, 2000, NBDB LLC purchased 1,862,249 shares of common stock
of Net2Wireless Corporation and notes convertible into 1,040,387 shares of
common stock for an aggregate consideration of $356,246, 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
bears interest at the rate of 6-1/2% per annum and is convertible through
the due date.
Transactions With Directors and Executive Officers
On December 7, 1999, Net2Wireless Corporation granted to Cedar Investment
Services Ltd., a British Virgin Islands corporation controlled by Nechemia
Davidson, who is a director of Net2Wireless Corporation, an option to purchase
3,222,222 shares of common stock at an exercise price of $1.8621 per share.
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 $1.8621 per share. Net2Wireless Corporation is
currently finalizing an agreement with Beneficial Investment Services Ltd., a
British Virgin Islands corporation controlled by Mr. Avtalion, under which,
among other benefits, Beneficial Investment Services Ltd. is to receive
consulting fees of $2,000 per day in connection with Mr. Avtalion's services as
a director.
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 $1.8621 per share.
Net2Wireless Corporation is currently finalizing an agreement with Mr. Rubner
(or an entity controlled by him), under which, among other benefits, 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.
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 has been granted options
to purchase 170,000 shares of Net2Wireless Corporation common stock at a price
of $2.00 per share, 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.
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 April 3, 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.(4) Common Stock 5,428,127 29.7%
Options 3,222,222 15.0%
-----------
Total 8,650,349 40.2%
Alexander/Rachel LLC Common Stock 2,902,636 15.9%
Options 176,819 1.0%
-----------
Total 3,079,455 16.7%
NBDB, LLC Common Stock 2,902,636 15.9%
Options 176,819 1.0%
-----------
Total 3,079,455 16.7%
Yitzchak Bachar(2) Common Stock 1,085,652 5.9%
Options 1,074,074 5.5%
-----------
Total 2,159,726 11.2%
Meridian Trading Investment, Ltd. Common Stock 1,083,467 5.9%
Options 214,815 1.2%
-----------
Total 1,298,282 7.0%
ML Partners, LLC Common Stock 0 0.0%
Options 5,000,341 21.5%
-----------
Total 5,000,341 21.5%
Partner Communications Company, Ltd. Common Stock 0 0%
Options 3,020,576 14.2%
-----------
Total 3,020,576 14.2%
Directors and Executive Officers
Nechemia Davidson - - - - - -- -- - - - - - - See Above - - - - - -- - - - - - - -
David Rubner(2) - - - - - -- -- - - - - - - See Above - - - - - -- - - - - - - -
Joav Avtalion(3) Common Stock 0 0.0%
Options 322,222(3) 1.7%
-----------
Total 322,222 1.7%
All Executive Officers and Common Stock 6,513,779 35.6%
Directors as a Group Options 4,618,518 20.2%
-----------
(3 persons) Total 11,132,297 48.6%
</TABLE>
_________________________
(1) The percentages shown for common stock are based on the total issued and
outstanding stock of Net2Wireless as of the closing of 18,295,060. The amounts
shown for options reflect the percentage ownership if all options held by that
stockholder were exercised and the outstanding stock increased by that amount.
The total reflects aggregate common stock held after exercise of the option,
with the issued and outstanding increased by the individual exercise.
(2) Presently being held by Mr. Bachar in trust on behalf of a company in
formation for the ultimate benefit of Mr. David Rubner.
(3) Held of record by Beneficial Investment Services, Ltd., an entity
controlled by Mr. Avtalion.
(4) An entity controlled by Mr. Nechemia Davidson.
BUSINESS OF SENSAR
Information regarding the business of Sensar can be found in its annual
report on Form 10-K for the year ended December 31, 1999, which is incorporated
herein by this reference.
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" beginning on page ___ in this Joint Proxy
Statement/Prospectus. 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 December 31, 1999
and for the period from the commencement of business in April 1999 through
December 31, 1999, together with the report of Kost, Forer & Gabbay, a member of
Ernst & Young International, can be found beginning on page ___ in this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Period from commencement
of operations (April 1999)
through
December 31, 1999
Statement of Operations Data --------------------------
<S> <C>
Statement of Operations Data
Operating expenses:
Research and development $ 337,189
Marketing, general, and administrative 144,509
Operating loss 481,698
Interest and other expenses 11,480
Net loss $ 493,178
Balance Sheet Data December 31, 1999
-------------------------
Total assets $ 286,684
Total liabilities $ 1,452,933
Working capital $ (1,361,793)
Stockholders' deficiency $ 1,166,249
Cash dividends declared $ 0
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the "Selected
Financial Information" and the consolidated financial statements of Net2Wireless
and related notes thereto beginning on page ___ 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.
Overview
Net2Wireless, a Delaware corporation, was formed on December 7, 1999, by
the principal stockholders of ITES. Net2Wireless 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 content via wireless.
From April 1999 through December 31, 1999, operations were conducted
as a semi-autonomous business unit within ITES - Imaging Technologies
Enterprises Systems, Ltd., an Israeli based company under common control with
Net2Wireless. ITES was engaged in the development of wireless multimedia
applications and Internet communications applications. Effective as of December
15, 1999, Net2Wireless, through a wholly-owned subsidiary, acquired all of ITES'
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 ITES.
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, liabilities, and operation of ITES transferred
to Net2Wireless. The total obligation to ITES in excess of the amounts
funded by ITES at the date of transfer to Net2Wireless, $673,071, has been
recorded in the financial statements of Net2Wireless as a capital distribution.
Expenses and Results of Operations
Period from commencement of operations (April 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 were approximately $337,000 for the period from
commencement of operations (April 1999) through December 31, 1999. Net2Wireless
expects that research and development costs will increase mainly due to
increases in supply costs and personnel costs related directly to new employees
being hired to further develop Net2Wireless' technology.
Marketing, General, and Administrative. Marketing, general, and
administrative costs consist primarily of personnel and related costs,
professional services, facility costs, public relations and travel expenses.
Marketing, general, and administrative costs were $144,509 for the period from
commencement of operations (April 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. 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.
Interest Expense and Other, Net. Interest expense and other, net, consists
primarily of interest payments on short-term borrowings and convertible notes
financings. Interest expense and other expense, net, were approximately $11,000
for the period from commencement of operations (April 1999) through December 31,
1999. Net2Wireless expects interest expense and other, net, to increase mainly
due to convertible notes payable issued in early 2000, and due to the working
capital and capital expenditures required to support and develop Net2Wireless
technology.
Liquidity and Capital Resources
Since commencement of operations of the wireless business in April 1999,
ITES has financed its operations primarily through convertible notes financings.
Net2Wireless is a development stage company with no revenues to date. At
December 31, 1999, Net2Wireless had an accumulated operating loss of
approximately $493,000, all of which were incurred by ITES, the predecessor to
Net2Wireless, while performing research and development activity for the
wireless business. Net2Wireless (through ITES) 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. As of December 31, 1999, Net2Wireless had no cash on
hand.
Subsequent to December 31, 1999, Net2Wireless raised funds through the
completion of a Series A financing of approximately $29 million, a loan from
Sensar in the amount of $500,000, and the issuance of convertible notes to
certain shareholders in the amount of $1,500,000 that were subsequently
converted into equity. Net2Wireless believes that such funds, combined with the
cash and cash equivalents of Sensar, will be sufficient to meet Net2Wireless'
anticipated needs for working capital and capital expenditures for at least the
next 12 months. Thereafter, however, Net2Wireless may need to raise additional
funds to fund expansion, including significant increases in personnel and office
facilities to develop its technology, bring it to the market, respond to
competitive pressures or to acquire or invest in complementary businesses,
technologies, services, or products. In addition, to meet Net2Wireless'
long-term liquidity needs, Net2Wireless may need to raise additional funds,
establish credit facilities, or seek other financing arrangements. Additional
funding may not be available on favorable terms on a timely basis or at 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.
Year 2000 Issues
Net2Wireless has not experienced any adverse Year 2000-related incidents or
disruptions. As of the date of this Joint Proxy Statement/Prospectus,
Net2Wireless is not aware of any Year 2000 compliance problems related to its
proposed products that would materially adversely affect its proposed business.
The Net2Wireless products will operate in complete network environments and
directly or indirectly interact with a number of other hardware and software
systems that Net2Wireless currently cannot adequately evaluate for Year 2000
compliance.
SENSAR
The financial data set forth in the following table have been selected by
Sensar and have 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.
Selected Financial Information
<TABLE>
<CAPTION>
Six Months
Ended
December Year Ended
Year Ended December 31, 31, June 30,
----------------------- --------
1999 1998 1997 1996 1996(2) 1995(3)
---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data(1):
Revenues: $ 147,944 $ 137,814 $ 140,870 $ 59,638 $ 12,320 $ 7,302
============ =========== ============ =========== =========== ==========
Income (loss) from
continuing operations $(11,995,158) $(1,221,025) $ (2,324,262) $ (326,242) $ (463,637) $ (510,863)
Income (loss) from
discontinued operations 22,528 (5,702,419) (12,493,549) (1,317,678) (1,242,611) 199,246
Gain on sale of
discontinued operations 3,268,250 ________- ________- - - -
------------ ----------- ------------ ----------- ----------- ----------
Net loss $ (8,704,380) $(6,923,444) $(14,817,811) $(1,643,920) $(1,706,248) $ (311,617)
============ =========== ============ =========== =========== ==========
Basic earnings
(loss) per common
shares from
continuing operations $ (2.11) $ (0.51) $ (0.51) $ (0.08) $ (0.16) $ (0.21)
Basic earnings (loss)
per common share from
discontinued operations 0.58 (1.12) (2.71) (0.32) (0.38) 0.08
------------ ----------- ------------ ----------- ----------- ----------
Basic earnings
(loss) per common
share $ (1.53) $ (1.63) $ (3.22) $ (0.40) $ (0.54) $ (0.13)
============ =========== ============ =========== =========== ==========
Weighted average
common shares
outstanding 5,693,514 5,073,463 $ 4,603,080 4,164,328 3,255,489 2,440,397
Balance Sheet Data:
Working capital $ 5,034,089 $ 4,038,840 $ 6,784,305 $15,584,953 $15,737,295 $6,549,131
Total assets $ 5,568,839 $ 4,317,769 $ 7,104,476 $15,716,524 $16,032,158 $6,827,550
Long-term liabilities
and deferred gain $ 5,542,040 $ - $ - $ - $ 45,792 $ 134,354
Stockholders' equity
(deficit) $ (154,959) $ 4,049,572 $ 6,853,003 $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.
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, which is incorporated herein by this reference.
COMBINED FINANCIAL STATEMENTS
On December 8, 1999, Sensar and Net2Wireless executed an Agreement that
provides for the merger of Net2Wireless with and into Sensar. See "THE MERGER."
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 Net2Wireless and 1,000,000 shares of common stock to certain
individuals involved in introducing Sensar and Net2Wireless. In addition,
Sensar will grant options and warrants to acquire up to 14,766,649 shares of
common stock to the holders of similar options and warrants to acquire shares of
Net2Wireless stock, with a weighted average exercise price of $2.03 per share.
As a result of these actions, the current stockholders of Net2Wireless will own
approximately 65% of the combined company, with the right to acquire an
additional approximately 12%, while the current stockholders of Sensar will own
approximately 32%, without giving effect to the potential exercise of options.
If the net cash held by Sensar at the closing is less than $4.45 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 March 31, 2000, Sensar had
$6 million in net cash as defined in the agreement.
The merger will be accounted for as a reverse acquisition of Sensar by
Net2Wireless. Although Sensar will be the surviving 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.
Combined Balance Sheet Information
The combined financial statements will be based on the financial statements
of Net2Wireless and its subsidiaries and include the cash and net monetary
assets received from Sensar.
Assets. According to the Agreement, Sensar should have a minimum of an
aggregate of $4.5 million in cash and notes receivables due no later than
October 1, 2000 (with the maximum principal amount of such notes not to exceed
$3.5 million inclusive of up to $2 million advanced by Sensar to Net2Wireless).
The cash and cash equivalents and notes receivable of Sensar at December 31,
1999, totaled $5,190,249 and, on a pro forma basis, this amount would be added
to the current assets of Net2Wireless. The assets of the combined company will
also be increased by the net proceeds of approximately $29 million from the
recent private placement of the Series A Preferred Stock of Net2Wireless.
Liabilities. According to the Agreement, Sensar should have no liabilities
other than current liabilities not yet due, not to exceed $50,000 in the
aggregate. Consequently, the current liabilities of Sensar at December 31,
1999, will be reduced, on a pro forma basis, to $50,000 and all long-term
liabilities eliminated.
Stockholders' Equity. Stockholders' equity will be determined as if the
consolidated financial statements are a continuation of Net2Wireless. Thus, the
accumulated deficit and capital surplus accounts in the consolidated financial
statements immediately after the merger will be the accounts of Net2Wireless at
that date. The accumulated deficit of Sensar at the date of the merger will be
eliminated. The amount shown as issued capital in the consolidated balance
sheet will be calculated by adding to the issued capital of Net2Wireless the
amount deemed paid through the issuance of the Sensar stock and the proceeds of
the private placement.
Statement of Operations Information
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, will be the historical
statement of operations for the combined company, without any pro forma
adjustments. See the statement of operations for Net2Wireless included in its
audited historical financial statements under the caption "FINANCIAL
STATEMENTS."
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 at the annual meeting
of directors 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 which will be elected
shortly after the completion of the merger:
<TABLE>
<CAPTION>
Expiration of
Name Age Position Term
- ----------------- --- ------------------------------ -------------
<S> <C> <C> <C>
David Rubner 60 Chairman of the Board Next annual
shareholders'
meeting
Nechemia Davidson 37 Chief Executive Officer, Chief Next annual
Technology Officer, and shareholders'
Director meeting
Joav Avtalion 48 Director Next annual
shareholders'
meeting
</TABLE>
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 Agreement is subject to, and qualified in its
entirety by, the 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 Agreement. The Agreement provides for
the merger of Net2Wireless with and into Sensar, with Sensar surviving the
merger. The common stock of Net2Wireless will be converted into common stock of
Sensar on the basis of one share of common stock of Sensar for each share of
common stock of Net2Wireless previously outstanding. Similarly, options and
warrants to acquire Net2Wireless stock will be converted into options and
warrants to acquire Sensar common stock.
The Agreement contemplates that the merger will be completed within 10 days
of the approval of the transaction by the stockholders of Sensar and
Net2Wireless. Immediately prior to the merger, Sensar will reincorporate in the
state of Delaware, change its name to "Net2Wireless Corporation" and adopt a new
certificate of incorporation. The current board of directors of Sensar will
resign and a new board will be appointed consisting of the individuals elected
at the Sensar stockholders' meeting. Completion of the foregoing is subject to
the satisfaction of a number of conditions which must be satisfied or waived by
the parties. In the event of the failure to meet any of these conditions, the
transactions may not take place even if approved by the stockholders.
For a discussion of the principal federal income tax consequences of the
merger to Sensar, Net2Wireless, and their respective stockholders, see "TAX
CONSEQUENCES."
Background of the Merger
During the last 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. Based on the
direction established by the board, Sensar focused its search on start-up high
tech companies involved in Internet-based businesses, and was presented with a
number of business opportunities. Sensar initiated preliminary exploratory
discussions with several potential candidates and made small minority equity
investments in two companies, but none of these early investigations resulted in
an agreement to acquire a business.
In early September 1999, Sensar received and reviewed the ITES business
plan. At that time, ITES 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 ITES, on September 15, 1999, in New York for a
more formal presentation and question-and-answer session. Based on this initial
meeting, 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 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-Israeli Technology Institute, observed prototype demonstrations, and
met with management of Partner Communications, the affiliate of Orange Plc in
Israel. 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 ITES, Ltd., and their professional advisors, and
signed on October 6, 1999.
Mr. Landa, Mr. Davidson, and their respective professional advisors met on
November 15 and 16, 1999, in New York to further the transaction. As part of
these discussions, it was determined that the structure of the transaction could
be improved by clearly delineating the technology to be acquired, establishing
certain milestones to be met before the parties were obligated to proceed with
the merger, providing for interim funding for the continued development of the
wireless technology, 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 certain of its 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
ITES relating to the wireless technology. Net2Wireless would enter into the
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. At
the end of these meetings, the Agreement attached as Appendix A to this Joint
Proxy Statement/Prospectus was executed by the parties to replace the original
agreement between Sensar and ITES Ltd.
After the announcement of the 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, as reported by
Nasdaq, often exceeded the number of shares of stock outstanding on a weekly
basis. The stock price, while showing overall gains, was extremely volatile.
The board of directors of Sensar decided to adopt a stock split with which one
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 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.
Sensar loaned $500,000 toNet2Wireless on February 2, 2000, and on March 24,
2000, exercised its option under the Agreement to acquire all of Net2Wireless.
In order to obtain additional financing for the further development of its
technology, 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 Agreement on March 21, 2000, to permit this private placement
and to increase the number of shares of Sensar common stock to be issued to
Net2Wireless stockholders by 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 from 16,000,000 shares to 17,185,185
shares and increased the options and warrants to be assumed by Sensar from
13,777,778 to 14,766,649.
Reasons for the Merger-Advantages and Disadvantages
Sensar
Sensar is entering into the merger to participate in what its management
and board of directors believe to be the potential of the applications of
Net2Wireless technology in an emerging market. Management and the board of
directors of Sensar have based this conclusion on an analysis of the emerging
market for wireless communications with the Internet, the interest of Partner
Communications in evaluating the technology of Net2Wireless and conducting the
pilot site test on its existing cellular communications network, the management
team and investors that Net2Wireless has been able to attract, and other
factors. In addition, management and the board of directors of Sensar believe
that the wireless communication between cellular phones and PDAs and the
Internet have the potential for substantial growth based in part on the
announced interest and development plans of several significant industry
participants.
The board of directors of Sensar has determined that the merger is in the
best interests of Sensar and its stockholders. The board of directors has
unanimously approved the adoption of the Agreement and the transactions
contemplated thereby and recommends that the transaction be approved by the
stockholders of Sensar.
The disadvantages to the Sensar stockholders of the merger include:
- - dilution of their percentage ownership in the combined company and the
reduced influence of the current stockholders of Sensar on the continuing
policies, practices, and management of the combined company;
- - the concentration of control in the current Net2Wireless management,
directors, and principal stockholders;
- - the potential for further dilution resulting from the possible issuance of
shares on the exercise of the options and warrants assumed by the combined
company; and
- - the business, operating, and regulatory risks associated with
Net2Wireless' business.
See "BUSINESS OF NET2WIRELESS" and "RISK FACTORS." Management and the board of
directors of Sensar were subject to certain potential conflicts of interest
during the negotiation of the terms of the merger. See "THE MERGER: Interests
of Certain Individuals."
Net2Wireless
The board of directors of Net2Wireless has determined that the merger is in
the best interests of Net2Wireless and its stockholders. The board of directors
of Net2Wireless has unanimously ratified the approval and adoption of the
Agreement and the transactions contemplated thereby and recommends that the
transaction be approved by the stockholders of Net2Wireless.
In considering entering into the Agreement, the board of directors of
Net2Wireless noted that the interim loan to Net2Wireless would assist it in
meeting its short-term capital needs. In addition, the board of directors of
Net2Wireless felt that Sensar's status as a company whose securities are
publicly traded would increase the general visibility of its business, which
indirectly could be helpful in the implementation of its planned operations.
This would also afford the combined company the opportunity to obtain equity
financing and to utilize authorized but unissued securities to attempt to
acquire other compatible businesses, rather than expend its cash resources for
such purposes. Net2Wireless has not identified any business for possible
acquisition as of the date of this Joint Proxy Statement/Prospectus, and there
can be no assurance that any acquisition target will be identified or that any
such acquisition will be attempted or completed.
The potential disadvantages to Net2Wireless stockholders include the
dilution of their ownership percentage in the combined company and the added
financial and regulatory burdens associated with becoming a publicly-traded
company. See "RISK FACTORS." The management of Net2Wireless were subject to
certain potential conflicts of interest during the negotiation of the terms of
the merger. See "THE MERGER: Interests of Certain Individuals."
Terms of the Merger
Under the terms of the Agreement, Sensar agreed to provide Net2Wireless
with interim funding of $2 million. $500,000 of this amount was advanced
February 2, 2000. This loan is due September 30, 2000, and bears interest at 8%
per annum.
The 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,
such options and warrants shall be converted into options and warrants to
acquire up to 14,766,649 shares of common stock of the combined company with a
weighted average purchase price of $2.03 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 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 $4.45 million. The number of additional shares to be issued will be
determined by dividing any shortfall by $2.00. These contingent shares will be
delivered to former Net2Wireless stockholders within 10 business days of the
final determination of the number of shares. At December 31, 1999, Sensar had
approximately $5.0 million of current assets under this definition, assuming the
full collection of all short-term receivables. At March 27, 2000, Sensar had
cash of approximately $4.3 million and the note receivable from Net2Wireless of
$500,000, with current liabilities of approximately $50,000. In addition,
Sensar had notes receivable from other parties of approximately $1.3 million.
Sensar has not received any notice that such receivables are subject to any
claim or offset, and currently expects these amounts to be collected in due
course.
In addition to current liabilities, Sensar had long-term liabilities of
$5,542,040 at December 31, 1999, consisting of $200,000 in deferred gain, which
will be automatically eliminated in the merger, and $5,342,040 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.
Completion of the merger is subject, pursuant to the Agreement, to the
satisfaction of certain 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 Agreement;
(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 Agreement.
Any of the above conditions may be waived by Sensar.
Net2Wireless
The obligations of Net2Wireless to effect the merger are subject to certain
further 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 $2 million plus
accrued interest loaned 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 Agreement;
(b) Sensar shall have received the indemnification of Howard S. Landa
regarding certain pending litigation and the assumption by Mr. Landa of the
lease obligations of Sensar;
(c) the options held by management, directors, and certain consultants
of Sensar shall have been exercised;
(d) Sensar shall have complied with the representations, warranties,
covenants, and conditions set forth in the Agreement;
(e) 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
(f) the compliance by Sensar with miscellaneous other terms, covenants,
and conditions.
Any of the above conditions may be waived by Net2Wireless.
Interests of Certain Individuals
The transaction between Sensar and Net2Wireless was negotiated by the
management of each company and approved unanimously by the board of directors of
each company. As part of the merger negotiations, Sensar agreed to re-negotiate
the termination of the outstanding rights under employment and consulting
agreements and rights that had accrued under a deferred compensation plan. In
addition, Sensar agreed to have the lease agreement for office space in Salt
Lake City, Utah assumed, since it was not anticipated that the combined company
would need such space for the unexpired term. Finally, Sensar agreed to
negotiate the indemnification of the company with respect to a pending lawsuit,
to relieve Sensar of this contingent liability.
Pursuant to the foregoing commitments, Sensar has negotiated an
indemnification agreement with Howard S. Landa. Under that agreement, Mr. Landa
has agreed to indemnify Sensar for any costs arising out of the litigation,
Edgar Lee, et al. v. Sensar Corporation, subsequent to March 1, 2000, including
costs of defense and the payment of any settlement or judgment. Under the terms
of the indemnification agreement, Sensar transferred to Mr. Landa the assets
held by Sensar's subsidiary, Eagle Lake Ventures, Inc., including the right to
use that name. These assets included two minority investments in unrelated
companies, with a total combined cost to Sensar of $325,000. In addition, Mr.
Landa agreed to assume the lease for the office space located at 50 West
Broadway, Suite 501, Salt Lake City, Utah. Mr. Landa will receive miscellaneous
office furniture and other fixed assets located at that office. Finally, Mr.
Landa has agreed to make any space that Sensar or, subsequent to the merger, the
combined company, would like to have at the Salt Lake City office available for
free prior to the merger and for $1.00 per month for one year subsequent to the
closing of the merger. These agreements were approved by the board of directors
of Sensar but were not negotiated at arms-length. Because of the contingent
nature of the litigation and the inability of the parties to currently predict
the outcome, it is uncertain what the cost would have been to Sensar to obtain
similar benefits from an unrelated third party.
In addition to the indemnification agreement, Mr. Landa has agreed to
terminate the unexpired term of his three-year employment agreement with Sensar,
to provide 100 hours of transitional services without charge to the combined
company and to forego his thirty percent interest in the compensation pool under
the terms of a deferred compensation plan approved by the board of directors of
Sensar in June, 1999. This compensation plan requires a cash payment to the
participants on a change of control of Sensar, such as the merger. Based on the
trading price of Sensar common stock at April 3, 2000, and giving effect to the
completion of the merger, the compensation pool had reached its cap of $50
million. On November 16, 1999, Mr. Landa was granted an option to acquire
800,000 shares of stock at $2.00 per share in substitution of his
interest in the deferred compensation plan, subject only to the approval by
the stockholders of this option.
Each of the directors, other than Mr. Landa, received an option to acquire
50,000 shares of common stock at an exercise price of $2.00 per share on
November 16, 1999, in substitution for their interest in the deferred
compensation plan, subject only to the approval by the stockholders
of these options and the options for 200,000 shares that were granted at the
time that each of these individuals became a member of the board of directors in
April and May, 1999.
As a result of the foregoing, Mr. Landa and the board of directors of
Sensar had interests in the transaction that differed from, and were in addition
to, those of Sensar stockholders generally.
The 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 14,766,649. Of this amount, options to acquire
4,618,518 shares at $1.86 per share were granted to Nechemia Davidson, David
Rubner, and Joav Avtalion, who are currently directors of Net2Wireless and who
will become directors of the combined company subsequent to 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 such 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.
Inasmuch as the merger and the change in corporate domicile and name
requires 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 other matters. 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.
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, 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.
Inasmuch as the merger requires the affirmative vote of a majority of all
outstanding shares of Net2Wireless stock entitled to vote, failure to return a
properly executed proxy card or to vote in person at the Net2Wireless
stockholders' meeting will have the practical effect of a vote against the
merger. Similarly, an abstention will have the same legal effect as a vote
against the merger.
Any Net2Wireless stockholder delivering a proxy, other than those
Net2Wireless stockholders who have delivered irrevocable proxies, may revoke
their proxy at any time prior to the call for the vote at the Net2Wireless
meeting by delivering to Net2Wireless, to the attention of the corporate
secretary, Yaron Sobol, 11 Ha'amal Street, Afek Park, Rosh Ha'ayin 48092,
Israel, a written notice of revocation bearing a later date than the proxy or a
later dated proxy relating to the same shares, or by attending the Net2Wireless
stockholders' meeting and voting in person. Attendance at the Net2Wireless
meeting will not in itself constitute the revocation of the proxy.
Solicitation of Proxies
Sensar
Sensar will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but executive officers, directors, and
consultants of Sensar may also solicit proxies in person or by telephone or
facsimile. Such persons who solicit proxies will not be specially compensated
for such services. Nominees, fiduciaries, and other custodians will be
requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners.
Holders of Sensar stock are requested to complete, date, and sign the
accompanying Sensar proxy card and return it promptly in the enclosed envelope
to Sensar at 50 West Broadway, Suite 501, Salt Lake City, Utah 84101. No
postage is required if mailed within the United States.
Net2Wireless
Net2Wireless will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but executive officers, directors, and selected
other employees of Net2Wireless may also solicit proxies in person or by
telephone or facsimile. Such persons who solicit proxies will not be specially
compensated for such services. Nominees, fiduciaries, and other custodians will
be requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners.
Holders of Net2Wireless stock are requested to complete, date, and sign the
accompanying proxy card and return it promptly in the enclosed envelope to
Net2Wireless at 11 Ha'amal Street, Afek Park, Rosh Ha'ayin 48092, Israel.
Stockholders should ensure that there is proper postage for delivery to Israel.
Vote Required
Sensar
Pursuant to Nevada corporate law, the merger and reincorporation in
Delaware must be approved by the holders of a majority of the shares of Sensar
stock outstanding on the Sensar record date. The adoption of the Stock Option
Plan and the ratification of the options previously granted by the board must be
approved by a majority of a quorum in attendance at the Sensar stockholders'
meeting, either in person or by proxy. The election of the nominees for
director requires a plurality of the vote so that the three nominees receiving
the most votes at a meeting at which a quorum is present will be elected as
directors. 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 94,276
shares of Sensar stock, or approximately 1.4% 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.
Directors, executive officers, and certain 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 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 summary is qualified in its entirety by the more detailed provisions
of the Nevada corporate laws that are attached; in the event of any
inconsistency, such provisions of the Nevada law shall prevail.
Under the Nevada corporate code, a stockholder wishing to assert
dissenters' rights:
(a) must deliver to Sensar, before the vote of the Sensar stockholders
on the proposed merger and/or change of domicile is taken, a written notice of
the intent to demand payment for shares if the merger is approved;
(b) may not vote any of the shares of Sensar stock held by such
stockholder in favor of the merger or the change of domicile, as applicable; 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 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 stockholders 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 within 30 days of the receipt of the demand
for payment. The payment shall be accompanied by Sensar's balance sheet as of
the end of the most recent fiscal year; an income statement for that year;
statements of changes in stockholders' equity and cash flows for that year; and
the latest available interim financial statements, if any. Payment shall also
be accompanied by a statement of Sensar's estimate of the fair value of the
dissenting shares and the amount of interest payable with respect to such
shares, a statement of a dissatisfied dissenters' right to demand payment under
Nevada Revised Statute 92A.480, as discussed below, and a copy of the Nevada
Revised Statutes 92A.300 to 92A.500.
If the merger is not completed within 60 days after the date set by Sensar
as the date by which Sensar must receive payment demands, notwithstanding
approval of the merger by the Sensar stockholders, Sensar shall return to all
dissenting stockholders the deposited stock certificates, and the dissenting
stockholders shall thereafter have all rights as a stockholder of Sensar as if
no demand for payment had been made. If, thereafter, it is anticipated the
merger will proceed, Sensar shall send a new dissenters' notice and the
provisions set forth above shall again be applicable.
A dissenting stockholder may notify Sensar of such stockholder's own
estimate of the value of his shares of Sensar stock and demand that Sensar pay
such amount if the dissenter believes that the amount paid by Sensar is less
than the fair value of the shares and the interest due. Such notification must
be made within 30 days after Sensar has made the payment.
If a demand for payment by the dissenter remains unresolved, Sensar shall
commence a court proceeding in Nevada, within 60 days after receiving the
payment demand from the dissenter, and petition the court to determine the fair
value of the shares. Each dissenting stockholder made party to the proceeding
is entitled to judgment for the amount, if any, by which the court finds that
the fair value of the shares, plus interest, exceeds the amount paid by Sensar
and the amount Sensar elected to withhold as payment under the special
provisions applicable to shares acquired after the date of the notice of the
Sensar stockholders meeting. The court is required to assess court costs, and
costs of any appraisers appointed by the court, against Sensar, unless the court
determines that the dissenting stockholders acted arbitrarily, vexatiously, or
not in good faith. The court may assess the fees and expenses of counsel and
experts retained by the parties, as the court deems equitable.
Net2Wireless
Dissenting Net2Wireless stockholders who oppose the proposed merger will
have the right to receive payment for the value of their shares as set forth in
section 262 of the Delaware corporate law, a copy of which is attached as
Appendix "D." Any obligations that Net2Wireless may have to dissenting
Net2Wireless stockholders as set forth below, will be assumed by the combined
company as a result of the merger. The following summary is qualified in its
entirety by the more detailed provisions of the Delaware law that are attached;
in the event of any inconsistency, the provisions of Delaware law shall prevail.
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.
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.
See "THE MERGER: Accounting for the Merger."
Delivery of Certificates for Common Stock of the Combined Company
It is anticipated that certificates for common stock of the combined
company will be available to exchange for the Net2Wireless common stock within
two business days following the completion of the merger. Certificates in the
new corporate name of "Net2Wireless Corporation" will also be available for
issuance to Sensar stockholders wishing to exchange their certificates at that
time. Certificates representing shares of Net2Wireless or Sensar common stock
to be exchanged must be delivered to the transfer agent prior to the issuance of
certificates representing the shares of common stock of the combined company.
Stockholders of record will receive a letter of transmittal from the transfer
agent subsequent to the merger with specific instructions regarding the delivery
of existing certificates in exchange for the issuance of new certificates. The
transfer agent can be contacted at Progressive Transfer Company, 1981 East 4800
South, Suite 100, Salt Lake City, Utah 84117, telephone (801) 277-1400.
Certificates for Net2Wireless and Sensar common stock that are not
exchanged shall continue to represent shares of the combined company after
giving effect to the merger.
Payment in Lieu of Issuing Fractional Shares
No fractional shares of common stock will be issued in connection with the
merger. In lieu thereof, a stockholder otherwise entitled to receive a
fractional share shall be paid the value of such fractional share in cash, based
on the closing sales price, rounded to the nearest cent, for Sensar stock as
reported by Nasdaq for the last trading day immediately preceding the closing
date.
Expenses of the Merger
Sensar and Net2Wireless will each bear its own expenses incurred in
connection with effecting the merger and the preparation of the Joint Proxy
Statement/Prospectus.
Restrictions on Transfer of Common Stock of the Combined Company
The common stock to be issued in the merger will be issued pursuant to the
registration statement, of which this Joint Proxy Statement/Prospectus forms a
part, filed under the Securities Act. Notwithstanding such registration,
certain 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.
In addition, the common stock to be issued immediately prior to the merger
on options held by management, directors, and consultants of Sensar will be
registered for resale under a registration statement filed on Form S-3. These
individuals have agreed not to sell more than 50% of such shares during the
180-day period subsequent to the effective date of the registration statement.
DESCRIPTION OF SECURITIES
The following description of the securities of the combined company
following the merger gives effect to the change of domicile of Sensar from
Nevada to Delaware immediately prior to the effectiveness of the merger.
Preferred Stock
The combined company's certificate of incorporation authorizes the board of
directors, without further stockholder approval, to issue up to 10,000,000
shares of preferred stock, par value $0.01 per share, for any proper corporate
purpose. In approving any issuance of preferred stock, the board of directors
has broad authority to determine the rights, privileges, and preferences of the
preferred stock, which may be issued in one or more classes or series. The
rights, privileges, and preferences may include voting, dividend, conversion,
and liquidation rights that may be senior to the common stock. At the time of
the merger, no shares of preferred stock of any class or series will be issued
and outstanding or reserved for issuance.
Common Stock
Following the merger, the combined company will have an authorized capital
of 90,000,000 shares of common stock, par value $0.01 per share, of which
28,186,060 shares will be outstanding, 14,875,649 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.
COMPARISON OF SECURITIES
Comparison of Nevada Law and Delaware Law-Certificates of Incorporation and
Bylaws
Sensar is currently incorporated under the laws of the state of Nevada. If
stockholder approval is received immediately prior to the merger, Sensar will
change its domicile to Delaware. On consummation of the merger, the
stockholders of Sensar, whose rights currently are governed by Nevada law and
Sensar's articles of incorporation and bylaws, and the stockholders of
Net2Wireless, will become stockholders of a Delaware company, Net2Wireless
Corporation, and their rights as stockholders will then be governed by Delaware
law and the new certificate of incorporation and bylaws.
Although the corporate statutes of Nevada and Delaware are substantially
similar, certain differences exist. The most significant differences, in the
judgment of the management of Sensar, are summarized below. This summary is not
intended to be complete, and stockholders should refer to the Delaware General
Corporation Law and the Nevada Revised Business Corporation Act to understand
how these laws will apply to the combined company.
Non-Classified Board of Directors
Delaware and Nevada corporate law permit any corporation to classify its
board of directors into as many as three classes, as equal in size as possible,
with staggered terms of office. After initial implementation of a classified
board, one class (consisting of approximately one-third of the entire board) is
elected at each annual meeting of the stockholders to serve for a term of three
years or until their successors are elected and take office. Sensar currently
has a classified board, but the combined company's board will not be classified.
This will make it easier to effect a change in control of the board of directors
of the combined company. For example, since only one-third of the board stands
for election in any given year when there is a classified board, a change in
control of the board would require the controlling vote at two successive
meetings or removal of a majority of directors at a special stockholders'
meeting called for that purpose. Since the combined company will not have a
classified board, the entire board will be standing for election each year and
control of the board could change at any annual meeting.
Restrictions on Business Combinations
Both Delaware and Nevada have provisions restricting the ability of a
corporation to engage in business combinations with an interested stockholder.
Under the Delaware law, a corporation is not permitted to engage in a business
combination with any interested stockholder for a three-year period following
the date such stockholder became an interested stockholder, unless (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholders; (ii) the interested
stockholder acquires 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 67% of the corporation's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested stockholder.
The Delaware law defines "interested stockholder" generally as a person who owns
15% or more of the outstanding shares of a corporation's voting stock. Delaware
corporations may opt-out of these provisions, but the combined company has
elected not to do so. These provisions could have the effect of delaying,
deferring, or preventing a change of control.
Nevada law regulates business combinations more stringently. First, an
interested stockholder is defined as a beneficial owner of 10% or more of the
voting power. Second, the three-year moratorium can be lifted only by advance
approval by a corporation's board of directors, as opposed to Delaware's
provision that allows interested stockholder combinations at the time of the
transaction with stockholder approval. Finally, after the three-year period,
combinations remain prohibited unless (i) they are approved by the board of
directors, the disinterested stockholders or a majority of the outstanding
voting power not beneficially owned by the interested party, or (ii) the
interested stockholders satisfy certain fair value requirements. As in
Delaware, a Nevada corporation may opt-out of the statute with appropriate
provisions in its articles of incorporation. The articles of incorporation of
Sensar contain such an opt-out provision.
Cumulative Voting
Cumulative voting for directors entitles stockholders to cast a number of
votes that is equal to the number of voting shares held multiplied by the number
of directors to be elected. Stockholders may cast all such votes either for one
nominee or distribute such votes among up to as many candidates as there are
positions to be filled. Cumulative voting may enable a minority stockholder or
group of minority stockholders to elect at least one representative to the board
of directors where such stockholders would not otherwise be able to elect any
directors.
Nevada corporate law permits cumulative voting in the election of directors
as long as certain procedures are followed. A certificate of incorporation in
Delaware may provide for cumulative voting. Neither Sensar nor the combined
company has to provide for cumulative voting.
Vacancies
Under Delaware law, subject to the rights, if any, of any series of
preferred stock to elect directors and to fill vacancies on the board of
directors, vacancies on the board of directors are filled by the affirmative
vote of a majority of the remaining directors then in office, even if less than
a quorum exists. Any director so appointed will hold office for the remainder
of the full-term of the director replaced. Similarly, Nevada law provides that
vacancies may be filled by a majority of the remaining directors, though less
than a quorum exists, unless the articles of incorporation provide otherwise.
In addition, the bylaws of Sensar and the combined company address the issue of
director vacancies in the same manner. Therefore, the change from Nevada to
Delaware will not alter stockholders' rights with respect to this issue.
Indemnification of Officers and Directors and Advancement of Expenses
Delaware and Nevada have substantially identical provisions regarding
indemnification by a corporation of its officers, directors, employees, and
agents, except Nevada provides broader indemnification in connection with
stockholder derivative lawsuits. Delaware and Nevada law differ in their
provisions for advancement of expenses incurred by an officer or director in
defending a civil or criminal action, suit, or proceeding. Delaware law
provides that expenses incurred by an officer or director in defending any
civil, criminal, administrative, or investigative action, suit, or proceeding
may be paid by the corporation in advance of the final disposition of the
action, suit, or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined that
he is not entitled to be indemnified by the corporation. Thus, a Delaware
corporation has the discretion to decide whether or not to advance expenses.
Under Nevada law, the articles of incorporation, bylaws, or an agreement made by
the corporation may provide that the corporation must pay advancements of
expenses in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined that he or she is not entitled
to be indemnified by the corporation. Thus, a corporation may have no
discretion to decide whether or not to advance expenses.
Sensar's articles of incorporation provide for Sensar to indemnify
directors, officers, employees, and some agents. The new certificate of
incorporation does not have similar provisions.
Limitation on Personal Liability of Directors
A Delaware corporation is permitted to adopt provisions in its certificate
of incorporation limiting or eliminating the liability of a director to a
company and its stockholders for monetary damages for breach of fiduciary duty
as a director, provided that such liability does not arise from certain
proscribed conduct, including breach of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or liability to the corporation based on unlawful dividends or
distributions or improper personal benefit. The new certificate of
incorporation will limit the liability of directors to the corporation to the
fullest extent permitted by law.
While Nevada has a similar provision permitting the adoption of provisions
in the articles of incorporation limiting personal liability, the Nevada
provision differs in two respects. First, the Nevada provisions applies to both
directors and officers. Second, while the Delaware provisions excepts from
limitation on liability of breach of the duty of loyalty, the Nevada counterpart
does not contain this exception. Thus, the Nevada provision expressly permits a
corporation to limit the liability of officers, as well as directors, and
permits limitation of liability arising from a breach of the duty of loyalty.
The Sensar articles of incorporation limited the liability to Sensar of
directors, officers, employees, and agent to the fullest extent permitted.
Therefore, the combined company will have a narrower limitation on liability,
and more parties will remain potentially liable to the combined company. The
combined company, however, may determine to indemnify such persons in the
discretion of the board, subject to the limitation of Delaware law.
Dividends
Delaware is more restrictive than Nevada with respect to when dividends may
be paid. Under the Delaware corporate law, unless otherwise provided in the
certificate of incorporation, a corporation may declare dividends, out of
surplus, or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year (provided that
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets). In addition, Delaware law provides that a corporation
may redeem its shares only out of surplus.
Nevada law provides that no distribution (including dividends on, or
redemption or repurchases of, shares of capital stock) may be made if, after
giving effect to such distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business, or the corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed at the time of a liquidation to satisfy the preferential
rights of preferred stockholders.
Amendment to Certificate/Articles of Incorporation and Bylaws
Both Delaware and Nevada require the approval of the holders of a majority
of all outstanding shares entitled to vote, with each stockholder being entitled
to one vote for each share so held, to approve proposed amendments to a
corporation's certificate/articles of incorporation. Neither state requires
stockholder approval for the board of directors of a corporation to fix the
voting powers, designation, preferences, limitations, restrictions, and rights
of a class of stock; provided that, the corporation's organizational documents
grant such power to its board of directors. Both the articles of incorporation
of Sensar and the certificate of incorporation of the combined company grant the
power to the board of directors to designate classes of preferred stock, to fix
the relative rights and privileges of such class, and issue the stock. The
holders of the outstanding shares of a particular class are entitled to vote as
a class on a proposed amendment if the amendment would alter or change the
power, preferences, or special rights of one or more series of any class so as
to affect them adversely. The number of authorized shares of any such class of
stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the stock
entitled to vote thereon (without a class vote) if so provided in any amendment
to the articles of incorporation or resolutions creating such class of stock.
Actions by Written Consent of Stockholders
Both Nevada and Delaware law provide that, unless the charter provides
otherwise, any action required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all voting stock was present and voted
consents to the action in writing. Delaware requires the corporation to give
prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent to those stockholders who did not consent in writing.
Neither the Sensar articles of incorporation nor the certificate of
incorporation of the combined company limit stockholder action by written
consent.
Stockholder Vote for Mergers and Other Corporate Reorganizations
In general, both jurisdictions require authorization by an absolute
majority of the outstanding shares entitled to vote, as well as approval by the
board of directors with respect to the terms of a merger or a sale of
substantially all of the assets of the corporation. Neither Nevada nor Delaware
requires stockholder approval by the stockholders of a surviving corporation in
a merger or consolidation as long as the surviving corporation issues no more
than 20% of its voting stock in the transaction.
Dissenters' Rights
In both jurisdictions, dissenting stockholders of a corporation engaged in
certain major corporate transactions are entitled to appraisal rights.
Appraisal rights permit a stockholder to receive cash equal to the fair market
value of the stockholder's shares (as determined by agreement of the parties or
by a court), in lieu of the consideration such stockholder would otherwise
receive in any such transaction.
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a Delaware corporation in a merger or
consolidation; provided that, no appraisal rights are available for the shares
of any class or series of stock, which, at the record date for the meeting held
to approve such transaction, were either: (i) listed on a national security
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. (the
"NASD"); or (ii) held of record by more than 2,000 stockholders. Even if the
shares of any class or series of stock meet the requirements of clause (i) or
(ii) above, appraisal rights are available for such class or series if the
holders thereof receive in the merger or consolidation anything except: (i)
shares of stock of the corporation surviving or resulting from such merger or
consolidation; (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation is either listed on a national
securities exchange, or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares; or (iv) any combination
of the foregoing. No appraisal rights are available to stockholders of the
surviving corporation if the merger did not require their approval.
Under Nevada law, a stockholder is entitled to dissent from, and obtain
payment for the fair value of his or her shares in the event of consummation of
a plan of merger of plan of exchange in which the corporation is a party and, to
the extent that the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares any corporate action taken
pursuant to a vote of the stockholders. As with Delaware law, Nevada law
provides an exception to dissenters' rights. Holders of securities (i) listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD; or (ii) held by more
than 2,000 stockholders of record are generally not entitled to dissenters'
rights.
Stockholder Inspection Rights
Delaware law grants any stockholder the right to inspect and to copy for
any proper purpose the corporation's stock ledger, a list of its stockholders,
and its other records. A proper purpose is one reasonably related to such
person's interest as a stockholder. Directors also have the right to examine
the corporation's stock ledger, a list of its stockholders and its other records
for a purpose reasonably related to their positions as directors.
Nevada law provides the right to inspect the corporation's financial
records for only a stockholder who (i) owns at least 15% of the corporation's
issued and outstanding shares; or (ii) has been authorized in writing by the
holders of at least 15% of the issued and outstanding shares. To inspect the
corporation's stock ledger, the stockholder must have been a stockholder of
record for six months prior to demanding inspection.
Derivative Suits
Under both Delaware and Nevada law, a stockholder may bring a derivative
action on behalf of the corporation only if the stockholder was a stockholder of
the corporation at the time of the transaction in question or the stockholder
acquired the stock thereafter by operation of law.
Special Meeting of Stockholders
Both Delaware and Nevada permit special meetings of stockholders to be
called by the board of directors or by any other person authorized in the
certificate/articles of incorporation or bylaws to call a special stockholder
meeting. Nevada law does not address the manner in which special meetings of
stockholders may be called. Sensar's bylaws provide that special meetings of
the stockholders may be called by the president or a director, and that the
president must call such a meeting if requested by beneficial holders of at
least 10% of the outstanding shares of stock of the corporation. The new bylaws
provide that a special shareholders' meeting will be called at the request of
the holders of a majority of the issued and outstanding stock.
PRINCIPAL STOCKHOLDERS
Pro Forma After the Merger
After completion of the merger, there will be approximately 28,186,060
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 Stockholder
Cedar Investments Services, Ltd.(2) Common Stock 5,428,127 19.3%
Options 3,222,222 10.3%
-----------
Total 8,650,349 27.5%
Alexander/Rachel LLC Common Stock 2,902,636 10.3%
Options 176,819 0.6%
-----------
Total 3,079,455 10.9%
NBDB, LLC Common Stock 2,902,636 10.3%
Options 176,819 0.6%
-----------
Total 3,079,455 10.9%
Yitzchak Bachar(3) Common Stock 1,085,652 3.9%
Options 1,074,074 3.7%
-----------
Total 2,159,726 7.4%
ML Partners, LLC Common Stock 0 0.0%
Options 5,000,341 15.1%
-----------
Total 5,000,341 15.1%
Partner Communications Company, Ltd. Common Stock 0 0%
Options 3,020,576 9.7%
-----------
Total 3,020,576 9.7%
Directors and Executive Officers
Nechemia Davidson - - - - - -- - - - - - See Above - - - - - - - - - - -
David Rubner(3) - - - - - -- - - - - - See Above - - - - - - - - - - -
Joav Avtalion(4) Common Stock 0 0.0%
Options 322,222(3) 1.1%
-----------
Total 322,222 1.1%
All Executive Officers and Common Stock 6,513,779 23.1%
Directors as a Group Options 4,618,518 14.1%
-----------
(3 persons) Total 11,132,297 33.9%
</TABLE>
_________________________
(1) The percentages shown for common stock are based on the total issued and
outstanding stock of Net2Wireless as of the closing of 28,186,060. 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 increased by the individual exercise.
(2) An entity controlled by Mr. Nechemia Davidson.
(3) 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.
TAX CONSEQUENCES
General
The following discussion summarizes the principal 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. It is not feasible to comment on all of the federal income
tax consequences of the merger and the change of domicile. 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. 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 with respect
to the application and effect of any state, local or foreign income 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 have been structured to qualify as
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.
The following discussion is 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. In addition, there can be no assurance that the Internal
Revenue Service will agree with the interpretations of the code and the
regulations set forth below.
Federal Tax Consequences of the Merger
(a) The merger will be treated for federal income tax purposes as a
reorganization meeting the requirements of section 368(a) of the Code.
(b) Net2Wireless and Sensar will each be a "party to the
reorganization," within the meaning of section 368(b) of the Code, with respect
to the merger.
(c) No gain or loss will be recognized by Net2Wireless or Sensar as a
result of the merger.
(d) Sensar's basis in Net2Wireless assets received in the merger
generally will be the same as Net2Wireless' basis in the assets immediately
prior to the merger.
(e) Sensar's holding period for tax purposes of each Net2Wireless asset
received in the merger generally will include the holding period during which
the asset was held by Net2Wireless.
(f) No gain or loss will be recognized for federal income tax purposes
by the holders of the Net2Wireless common stock on receipt by them of common
stock of the combined company in exchange for their Net2Wireless stock.
(g) The basis of the common stock (including contingent shares) of the
combined company received by the holders of the Net2Wireless common stock in the
merger will, in the aggregate, be the same as the aggregate basis for the
Net2Wireless common stock surrendered. Until the final distribution of the
contingent shares has been made, the interim basis of each share of will be
determined as though the maximum number of contingent shares had been issued to
the holders of Net2Wireless common stock.
(h) The holding period for federal income tax purposes of the common
stock of the combined company received by the holders of the Net2Wireless common
stock will include the period during which the Net2Wireless common stock
exchanged therefore was held, assuming that the Net2Wireless stock was held as a
capital asset.
(i) A holder of Net2Wireless 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 combined company. The holder of Net2Wireless common stock, will
generally recognize a capital gain or loss equal to the difference between (1)
the basis he had in the shares sold or would have had for the fractional share
of common stock; and (2) the cash received by the stockholder.
Federal Tax Consequences of the Change of Domicile
Generally, no gain or loss is recognized by stockholders of a corporation
upon a change of domicile, except to the extent the stockholders receive
property other than stock or securities of the combined company.
(a) The change of domicile will be treated for federal income tax
purposes as a reorganization meeting the requirements of section 368(a) of the
Code.
(b) Sensar will be a "party to the reorganization," within the meaning
of section 368(b) of the Code, with respect to the change of domicile.
(c) No gain or loss will be recognized by Sensar as a result of the
change of domicile.
(d) The Delaware company's basis in the Sensar assets received in the
change of domicile generally will be the same as Sensar's basis in the assets
immediately prior to the change of domicile.
(e) The Delaware company's holding period for tax purposes of each
Sensar asset received in the change of domicile generally will include the
holding period during which the asset was held by Sensar.
(f) No gain or loss will be recognized for federal income tax purposes
by the holders of the Sensar common stock on receipt by them of common stock of
the Delaware company in exchange for their Sensar stock.
(g) The basis of the common stock (including contingent shares) of the
Delaware company received by the holders of the Sensar common stock in the
change of domicile will, in the aggregate, be the same as the aggregate basis
for the Sensar common stock surrendered.
(h) The holding period for federal income tax purposes of the common
stock of the Delaware company received by the holders of the Sensar common stock
will include the period during which the Sensar common stock exchanged therefore
was held, assuming that the Sensar stock was held as a capital asset.
(i) 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 company. The holder of Sensar common stock, will generally
recognize capital gain or loss equal to the difference between (1) the basis he
had in the shares sold or would have had for the fractional share of common
stock; and (2) the cash received by the stockholder.
The foregoing summary of the tax consequences is not based on a private
letter ruling from the IRS nor does it have a binding effect on the IRS or the
courts. 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. Any change in the
regulations and/or interpretation of the Code may be given retroactive effect.
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 certain income
tax consequences relating to the merger and the change of domicile.
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO ISSUES NOT
COVERED BY THE FOREGOING DISCUSSION OR REGARDING THEIR OWN PARTICULAR
CIRCUMSTANCES.
OTHER SENSAR STOCKHOLDER MATTERS
Change in Corporate Domicile
If approved by the stockholders, immediately prior to the merger Sensar
shall change its corporate domicile by merging with and into a newly-formed
wholly-owned Delaware subsidiary, specifically created for that purpose
("NewCo"). Stockholders of Sensar will receive one share of common stock of
NewCo for each share of common stock of Sensar that they now hold. Options to
acquire Sensar common stock will be converted into options to acquire the same
number of shares of NewCo common stock at the same exercise price. At the same
time, the corporate name will be changed to Net2Wireless Corporation. The
change will take place immediately prior to the completion of the merger and
will not happen if for any reason the merger does not occur.
The change of domicile requires the approval of a majority of the
outstanding stock of Sensar. 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 14,766,649 shares of Net2Wireless common
stock that will be assumed by the combined company in connection with the
merger.
Plan Description
On _________________, 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 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 an incentive devices including incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs"), each of which is described below and in
the plan. The board of directors believes that this will enable the committee
to tailor the type of compensation that it will grant to key personnel to meet
both the combined company's and such employee's requirements in the most
efficient manner possible.
The plan is to be administered by the board of directors of the combined
company or by a committee of at least two directors. The plan authorizes the
grant of ISOs and NQSOs to officers, directors, employees, consultants, and
other persons who may perform services for the combined company or its
subsidiaries. The terms of individual options will be fixed by the board of
directors or committee at the time of grant. 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 certain individuals, 110% of the fair market values. 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, merger, consolidation, or reorganization. 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.
Federal Income Tax Effects
The following is a general summary of the principal 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 and 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
422A 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
recipient, 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 upon sale over
the option exercise price, and the combined company would be entitled to
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 taxable income 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
The plan is being submitted to the Sensar stockholders for approval in
accordance with the requirements of Section 422A of the Code, which require that
it be approved by a majority of the shares entitled to vote at the meeting.
Abstentions and broker non-votes will have the effect of votes against approval
of the plan.
Ratification of Previously Granted Options
In connection with the appointment of a new board of directors in April and
May 1999, Sensar granted options to acquire 200,000 shares at an average
exercise price of $2.00 per share to each of the newly appointed board members,
except Mr. Landa. Mr. Landa was granted a similar option as part of his
employment agreement as chief executive officer. The closing price of the
common stock on April 20, 1999, the day before Messrs. Landa, Strasser, and
Lewis were appointed directors, was $1.172. The closing price of the common
stock as reported by Nasdaq on April 26, 1999, the day preceding the grant, was
$2.50. The closing price for the common stock as reported by Nasdaq on May 4,
1999, the day preceding the appointment of Ms. Hale as a director, was $1.688.
The board of directors considered these grants necessary in order to attract
qualified individuals to serve as directors and executive officers of Sensar.
Under the terms of the agreement, Sensar was required to eliminate all of
its long-term liabilities, the most significant of which was its potential
liability under the terms of the deferred compensation plan which was reflected
at $5,342,040 on the December 31, 1999, balance sheet of Sensar. Each of the
directors and a principal consultant to Sensar agreed to waive their rights in
the deferred compensation pool in exchange for the grant of options. The
exercise price of these options fixed at $2.00 per share based on the trading
prices of Sensar common stock immediately prior to the negotiation of the
transaction involving the wireless communication technology held by
Net2Wireless. The board of directors of Sensar subsequently approved the grant
of these additional options, 800,000 options to Mr. Landa, 650,000 shares to
Andrew Bebbington, the principal consultant to Sensar, and 50,000 shares to each
of Mickey Hale, Brian C. Lewis, and Steven Strasser, members of the board of
directors. The closing price for the common stock as reported by Nasdaq for
November 15, 1999, the day before the approval of the grant by the board , was
$3.688.
Under the requirements of the corporate governance rules of Nasdaq, the
foregoing options, other than those granted to Mr. Landa in connection with his
being retained as chief executive officer, require 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.
The holders of the foregoing options have agreed to relinquish their rights
under the provisions of the deferred compensation plan of Sensar upon
stockholder ratification of the options. The deferred compensation plan was
adopted by the board of directors on June 24, 1999, effective May 1, 1999, when
the strategy to identify potential acquisitions was being implemented. Under
the terms of the plan, Mr. Landa has a 30% interest in the compensation pool,
the outside directors were each granted a 3% interest in the pool, and Mr.
Bebbington holds a 1% interest in the pool.
The compensation pool consists of two components: (a) an increasing
percentage of 3% to 7 % of the net income of Sensar subsequent to March 31,
1999, in excess of $2 million, excluding gains on the sale of the technologies
then held by Sensar and excluding compensation charges related to the granting
of options, but including 75% of any net unrealized gain on investments made by
Sensar in marketable securities subsequent to March 31, 1999; and (b) an amount
equal to 7 % of any increase in the market capitalization of Sensar above $13.4
million that is in excess of 150% of the increase in the Russell 2000 Index over
the same period. The maximum amount permitted to be included in the
compensation pool under these two components are $25 million and $50 million,
respectively. The deferred compensation pool is fixed and payable at December
31, 2002, or, if sooner, on any change of control, like the merger. In the
event of a change of control, the deferred compensation pool may not be less
than $5 million. While Sensar has not realized income to date sufficient to
affect the compensation pool, the increase in market capitalization as of
April 3, 2000, giving effect to the merger, would have resulted in a
compensation pool in excess of the $50 million limitation provided by the
terms of the deferred compensation plan. The pool is required to be paid in
cash unless payment in stock of Sensar has been approved by the stockholders
of Sensar, which has not occurred. Rather than seek stockholder approval of
the stock payment, Sensar is seeking ratification of the options previously
granted to directors, officers, and consultants and will terminate the
deferred compensation plan prior to the merger on such approval.
Based on the foregoing considerations, the board of directors of Sensar
unanimously recommends the ratification of the options.
Vote Required for Ratification
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 they be ratified by a majority of the shares represented in person
or by proxy and voted at the meeting. Abstentions and broker non-votes will not
be counted as votes against ratification.
EXPERTS
The audited balance sheets of Sensar as of December 31, 1999 and 1998, and
the related 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 in giving said
report.
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 1999) through December 1999,
included in this Joint Proxy Statement/Prospectus and elsewhere in the
registration statement, have been audited by Kost, Forer & Gabbay, a member of
Ernst & Young International, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
VALIDITY OF NEW COMMON STOCK
The validity of the common stock offered hereby under Delaware corporate
law and certain other legal matters will be passed upon for Sensar by Keith L.
Pope, LLC, Salt Lake City, Utah.
INDEX TO FINANCIAL STATEMENTS
Sensar and Subsidiaries
The audited consolidated financial statements of Sensar are incorporated by
reference to Sensar's report on Form 10-K for the period ended December 31,
1999.
<TABLE>
<CAPTION>
Title of Document Page #
- ------------------------------------------------------------------------ ------
<S> <C>
Net2Wireless and Subsidiaries
Report of Kost Forer & Gabbay, a Member of Ernst & Young International,
independent public accountants
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statement of Operations for the Period from Commencement of
Operations (April 1999)through December 31, 1999
Statement of Changes in Shareholders' Deficiency
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
</TABLE>
SENSAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Report of Grant Thornton LLP, Independent Certified Public Accountants
on the December 31, 1999, 1998 and 1997 financial statements F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
Financial Statement Schedules:
All financial statement schedules are omitted because they are not applicable or
because the required information is contained in the Consolidated Financial
Statements or the Notes thereto.
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Sensar Corporation and Subsidiaries
We have audited the accompanying 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 three years in the period ended
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sensar Corporation
and Subsidiaries as of December 31, 1999 and 1998, and the consolidated results
of their operations and their consolidated cash flows each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
Grant Thornton LLP
Salt Lake City, Utah
January 21, 2000 (except for Notes K and N,
as to which the date is March 23, 2000)
<TABLE>
<CAPTION>
Sensar Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-------------------------
1999 1998
------------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,735,115 $ 694,959
Notes receivable (Note B) 1,455,134 120,000
Other current assets 25,598 609
Net assets of discontinued operations (Note B) - 3,491,469
------------- ----------
Total current assets 5,215,847 4,307,037
OFFICE EQUIPMENT AND FURNISHINGS,
net of accumulated depreciation 27,992 10,732
INVESTMENTS (Note D) 325,000 -
------------- ----------
$ 5,568,839 $4,317,769
============= ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
-------------------------
1999 1998
------------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 31,438 $ 125,742
Accrued liabilities 150,320 142,455
------------ ------------
Total current liabilities 181,758 268,197
LONG-TERM LIABILITIES AND DEFERRED GAIN
Deferred compensation (Note E) 5,342,040 -
Deferred gain 200,000 -
------------ ------------
Total liabilities and deferred gain 5,723,798 268,197
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes C, E and K) - -
STOCKHOLDERS' EQUITY (DEFICIT)
(Notes C, G, H, J and N)
Preferred stock, $.001 par value; authorized
10,000,000 shares; issued and outstanding
zero shares at December 31, 1999 and
3,039.95 shares at December 31, 1998 - 3
Common stock, $.001 par value; authorized
290,000,000 shares; issued and outstanding
6,326,038 shares at December 31, 1999 and
5,228,366 shares at December 31, 1998 6,326 5,228
Additional paid-in capital 34,850,817 30,701,333
Accumulated deficit (35,012,102) (26,282,308)
Notes receivable from exercise of options - (374,684)
------------ ------------
Total stockholders' equity (deficit) (154,959) 4,049,572
------------- ------------
$ 5,568,839 $ 4,317,769
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Sensar Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Year ended December 31,
------------------------------------------
1999 1998 1997
------------ ----------- -------------
<S> <C> <C> <C>
Revenues
Interest income $ 147,944 $ 137,814 $ 140,870
------------ ----------- ------------
Costs and expenses
General and administrative 893,416 708,890 1,081,168
Compensation expense for stock options (Note J) 5,885,833 - -
Deferred compensation expense (Note E) 5,342,040 - -
Unusual charges (credits), net (Note M) (31,663) 649,949 1,383,964
Interest expense 31,811 - -
Other 21,665 - -
------------ ----------- ------------
12,143,102 1,358,839 2,465,132
------------ ----------- ------------
Loss from continuing operations
before income taxes (11,995,158) (1,221,025) (2,324,262)
Income taxes (Note F) - - -
------------ ----------- ------------
Loss from continuing operations (11,995,158) (1,221,025) (2,324,262)
Gain on sale of discontinued operations (Note B) 3,268,250 - -
Income (loss) from discontinued operations (Note B) 22,528 (5,702,419) (12,493,549)
------------ ----------- ------------
Net loss (8,704,380) (6,923,444) (14,817,811)
Other comprehensive income - foreign
currency translation adjustments - (64,512) (15,848)
------------ ----------- ------------
Comprehensive loss $ (8,704,380) $(6,987,956) $(14,833,659)
============ =========== ============
Loss per common share (Note I)
Continuing operations
Basic and diluted $ (2.11) $ (0.51) $ (0.51)
Discontinued operations
Basic and diluted $ 0.58 $ (1.12) $ (2.71)
Net loss
Basic and diluted $ (1.53) $ (1.63) $ (3.22)
Loss from continuing operations applicable
to common stock $(12,020,572) $(2,567,588) $ (2,339,262)
Weighted average common and
common equivalent shares outstanding
Basic and diluted 5,693,514 5,073,463 4,603,080
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Sensar Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999, 1998 and 1997
Preferred stock Common stock Additional
------------------------ ------------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit
---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1997 200,000 $ 200 4,287,116 $ 4,287 $20,005,806 $ (4,418,780)
Shares issued for services
rendered (Note H) - - 21,940 22 262,137 -
Shares issued upon exercise
of options (Note J) - - 87,052 87 115,538 -
Shares surrendered in payment
of advance (Note H) - - (696) (1) (9,999) -
Shares purchased under
employee stock purchase
plan (Note J) - - 6,163 6 83,995 -
Shares issued upon exercise
of warrants (Note J) - - 345,045 345 4,497,034 -
Shares issued to former
executives (Note J) - - 80,000 80 1,149,920 -
Conversion of preferred
stock (Note G) (200,000) (200) 23,537 24 176 -
Adjustment for translation
of foreign currency - - - - - -
Preferred dividends - - - - - (15,000)
Net loss for the year - - - - - (14,817,811)
---------- ------ ---------- ---------- ---------- -----------
Balances at
December 31, 1997 - - 4,850,157 4,850 26,104,607 (19,251,591)
Shares issued for services
rendered (Note H) - - 19,499 19 148,294 -
Shares issued upon exercise
of options (Note J) - - 110,546 111 726,079 -
Shares purchased under
employee stock purchase
plan (Note J) - - 29,273 29 81,143 -
Shares issued upon exercise
of warrants (Note J) - - 29,634 30 359,794 -
Shares issued in private
placement (Note G) 3,500.00 3 - - 3,281,605 -
Conversion of preferred
stock (Note G) (460.05) - 189,257 189 (189) -
Collection of and allowance
on notes receivable from
exercise of options
(Note J) - - - - - -
Adjustment for translation
of foreign currency - - - - - -
Preferred dividends - - - - - (107,273)
Net loss for the year - - - - - (6,923,444)
---------- ------ ---------- ---------- ---------- -----------
Balances at
December 31, 1998 3,039.95 3 5,228,366 5,228 30,701,333 (26,282,308)
Shares issued upon exercise
of options (Note J) - - 105,880 106 (106) -
Shares issued upon exercise
of warrants (Note J) - - 411,764 412 231,967 -
Conversion of preferred
stock (Note G) (101.20) - 128,032 128 (128) -
Collection of and allowance
on notes receivable from
exercise of options
(Note J) - - - - - -
Shares issued in private
placement (Note H) - - 500,000 500 986,105 -
Redemption of preferred
stock (Note G) (2,938.75) (3) - - (2,938,747) -
Conversion of debenture
(Note H) - - 17,778 18 39,982 -
Settlement of litigation
(Note J) - - (65,782) (66) (86,312) -
Capital contribution for
compensation from
stock option grants
(Note J) - - - - 5,885,833 -
Capital contribution for
beneficial conversion
feature - - - - 30,890 -
Preferred dividends - - - - - (25,414)
Net loss for the year - - - - - (8,704,380)
---------- ------ ---------- ---------- ---------- -----------
Balances at
December 31, 1999 - $ - 6,326,038 $ 6,326 $34,850,817 $(35,012,102)
========== ======= ========== ========== =========== ============
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999, 1998 and 1997
(Continued)
Notes Accumulated
receivable other
from comprehensive
exercise income
of options (loss) Total
------------- ------------- -------------
<S> <C> <C> <C>
Balances at
January 1, 1997 $ - $ 80,360 $ 15,671,873
Shares issued for services
rendered (Note H) - - 262,159
Shares issued upon exercise
of options (Note J) (69,375) - 46,250
Shares surrendered in
payment of advance (Note H) - - (10,000)
Shares purchased under
employee stock purchase
plan (Note J) - - 84,001
Shares issued upon exercise
of warrants (Note J) - - 4,497,379
Shares issued to former
executives (Note J) - - 1,150,000
Conversion of preferred
stock (Note G) - - -
Adjustment for translation
of foreign currency - (15,848) (15,848)
Preferred dividends - - (15,000)
Net loss for the year - - (14,817,811)
--------- --------- ------------
Balances at
December 31, 1997 (69,375) 64,512 6,853,003
Shares issued for services
rendered (Note H) - - 148,313
Shares issued upon exercise
of options (Note J) (726,190) - -
Shares purchased under
employee stock purchase
plan (Note J) - - 81,172
Shares issued upon exercise
of warrants (Note J) - - 359,824
Shares issued in private
placement (Note G) - - 3,281,608
Conversion of preferred
stock (Note G) - - -
Collection of and allowance
on notes receivable from
exercise of options
(Note J) 420,881 - 420,881
Adjustment for translation
of foreign currency - (64,512) (64,512)
Preferred dividends - - (107,273)
Net loss for the year - - (6,923,444)
--------- --------- ------------
Balances at
December 31, 1998 (374,684) - 4,049,572
Shares issued upon exercise
of options (Note J) - - -
Shares issued upon exercise
of warrants (Note J) - - 232,379
Conversion of preferred
stock (Note G) - - -
Collection of and allowance
on notes receivable from
exercise of options
(Note J) 265,371 - 265,371
Shares issued in private
placement (Note H) - - 986,605
Redemption of preferred
stock (Note G) - - (2,938,750)
Conversion of debenture
(Note H) - - 40,000
Settlement of litigation (Note J) 109,313 - 22,935
Capital contribution for
compensation from
stock option grants
(Note J) - - 5,885,833
Capital contribution for
beneficial conversion
feature - - 30,890
Preferred dividends - - (25,414)
Net loss for the year - - (8,704,380)
--------- --------- ------------
Balances at
December 31, 1999 $ - $ - $ (154,959)
========= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Sensar Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from investing activities
Loss from continuing operations $(11,995,158) $(1,221,025) $(2,324,262)
Adjustments to reconcile loss from continuing
operations to net cash used in continuing operations
Depreciation 6,385 2,475 4,294
Compensation expense for stock options (Note J) 5,885,833 - -
Deferred compensation expense (Note E) 5,342,040 - -
Stock issued in payment of compensation - 46,338 1,188,041
Interest expense from beneficial conversion feature 30,890 - -
Provision for (recovery of) impairment losses (157,239) 621,549 -
Changes in assets and liabilities
Other current assets (24,989) 26,886 (84,218)
Accounts payable (94,304) (35,614) 97,871
Accrued liabilities 112,138 57,201 69,520
------------ ---------- -----------
Net cash used in
continuing operations (894,404) (502,190) (1,048,754)
Net cash used in
discontinued operations (195,411) (2,207,682) (4,073,303)
------------ ---------- -----------
Net cash used in
operating activities (1,089,815) (2,709,872) (5,122,057)
------------ ---------- -----------
Cash flows from investing activities
Purchase of office equipment and furnishings (23,645) (9,022) (200)
Collection of notes receivable 365,411 - -
Issuance of note receivable (35,000) - -
Increase in investments (325,000) - -
------------ ---------- -----------
Net cash used in investing activities of
continuing operations (18,234) (9,022) (200)
Net cash provided by (used in) sale of
discontinued operations and other investing activities of discontinued operations 5,566,491 37,495 (854,011)
------------ ---------- -----------
Net cash provided by (used in)
investing activities 5,548,257 28,473 (854,211)
------------ ---------- -----------
Cash flows from financing activities
Net proceeds from issuance of common
stock and exercise of options and warrants 1,628,984 3,743,485 4,627,630
Redemption of preferred stock (3,071,437) - -
Preferred dividends paid - - (15,000)
Proceeds from issuance of convertible debenture 40,000 - -
------------ ---------- -----------
Net cash provided by (used in) financing
activities of continuing operations (1,402,453) 3,743,485 4,612,630
Net cash used in financing activities of
discontinued operations (15,833) (1,515,088) (104,583)
------------ ---------- -----------
Net cash provided by (used in)
financing activities (1,418,286) 2,228,397 4,508,047
------------ ---------- -----------
Effect of exchange rates on cash - (64,512) (15,848)
Net increase (decrease) in cash and cash equivalents 3,040,156 (517,514) (1,484,069)
------------- ------------ ------------
Cash and cash equivalents at beginning of year 694,959 1,212,473 2,696,542
------------ ---------- -----------
Cash and cash equivalents at end of year $ 3,735,115 $ 694,959 $ 1,212,473
============ ========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 29,839 $ 146,510 $ 299,438
Income taxes - - -
Significant noncash investing and financing activities
Acquisition of equipment through long-term obligations $ - $ - $ 326,960
Notes receivable issued in exercise of stock options 726,190 69,375 -
Conversion of debenture into common stock 40,000 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Business activity and principles of consolidation
Sensar Corporation (formerly Larson-Davis Incorporated) (the Company) was
primarily engaged in the design, development, manufacture, and marketing of
analytical instruments. The Company has sold or otherwise disposed of all
product lines of this business (Note B) and has no current operations. The
accompanying consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiaries; SECO, Inc. (formerly
Larson-Davis Laboratories Corporation), Sensar Instruments, Inc. (formerly
Sensar Corporation), Eagle Lake Ventures, Inc., and Larson Davis Ltd. (a UK
Corporation). All subsidiaries except Eagle Lake Ventures, Inc. are inactive at
December 31, 1999. All significant intercompany transactions and accounts have
been eliminated in consolidation.
2. Depreciation
Office equipment and furnishings are stated at cost. Depreciation is provided
in amounts sufficient to relate the cost of depreciable assets to operations
over estimated service lives of three to five years. The straight-line method
of depreciation is followed for financial reporting purposes and accelerated
methods are used for income tax purposes.
3. Income taxes
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred tax assets and liabilities are determined based
on 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. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
4. Cash and cash equivalents
For purposes of the financial statements, the Company considers all highly
liquid debt instruments with an original maturity of three months or less when
purchased to be cash equivalents.
5. Net loss per common share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires
the presentation of basic and diluted EPS. Basic EPS are calculated by dividing
earnings (loss) available to common shareholders by the weighted average number
of common shares outstanding during each period. Diluted EPS are similarly
calculated, except that the weighted average number of common shares outstanding
includes common shares that may be issued subject to existing rights with
dilutive potential.
6. Concentrations of credit risk
The Company's financial instruments that are exposed to concentration of credit
risk consist primarily of cash equivalents and notes receivable. The Company
maintains its cash and cash equivalents principally at one major financial
institution. Cash equivalents are invested through a daily repurchase agreement
with the financial institution. The agreement provides for the balance of
available funds to be invested in an undivided interest in one or more direct
obligations of, or obligations that are fully guaranteed as to principal and
interest by, the United States Government, or an agency thereof. These
securities are not a deposit and are not insured by the Federal Deposit
Insurance Corporation.
At December 31, 1999, approximately $1 million of the total notes receivable is
owed by one debtor and arose out of the sale of the Jaguar product line.
Although the note is unsecured, the Company reviewed the credit worthiness of
the note holder and believes that the balance is fully collectible.
7. Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets, liabilities, revenues and expenses during the
reporting period. Estimates also affect the disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could
differ from these estimates.
8. Fair value of financial instruments
The estimated fair value of financial instruments is not presented because, in
management's opinion, the carrying amounts and estimated fair values of
financial instruments in the accompanying consolidated balance sheets are not
materially different.
9. Stock options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options rather than adopting the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123).
NOTE B - DISCONTINUED OPERATIONS
Historically, the Company developed and marketed various products in one
industry segment, analytical instrumentation. These historical product lines
were sold or otherwise disposed of as follows:
1. During 1998, the Company sold its supercritical fluid chromatography
(SFC) product and abandoned its TOF2000 mass spectrometer product.
2. At March 31, 1999, the Company sold the assets and operations associated
with its acoustics division to PCB Group, Inc. (PCB), except for certain real
estate, which was sold to PCB in July 1999. The Company received gross cash
proceeds of approximately $5.3 million, a note for $500,000, and the assumption
or payoff of approximately $1.7 million of liabilities. The note bears interest
at 7.28 percent and is payable at $22,450 per month with the balance due April
2000.
3. The Jaguar mass spectrometer assets and operations were sold to LECO
Corporation (LECO) in August 1999. The Company received proceeds of
approximately $1.8 million, consisting of cash of approximately $800,000 (net of
certain expenses, payments, and third quarter losses, but without deductions for
losses incurred prior to June 30 or the delivery of two Jaguar units to Brigham
Young University at no charge), and a non-interest bearing note with a carrying
value of $1,000,000 (interest imputed at 6.92 percent). The note is due August
2000 and is not collateralized.
4. The CrossCheck technology was returned to Brigham Young University and
the associated license agreement was terminated during the quarter ended
September 30, 1999.
5. In August 1999, the right to receive royalty payments on the ANOMS
intellectual property was assigned to Lochard Pty Ltd for installment payments
totaling $200,000, plus contingent payments based upon future performance.
The analytical instrumentation operations of the Company have been accounted for
as discontinued operations, and accordingly, these assets and liabilities have
been segregated as "net assets of discontinued operations" in the accompanying
consolidated balance sheets. The results of operations and cash flows
associated with these assets and liabilities are segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows. All periods presented have been restated to reflect
the discontinued operations. Information related to the discontinued operations
of the analytical instrumentation business is set forth below:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net sales $ 1,763,711 $ 8,729,192 $ 8,313,328
Costs and operating expenses:
Cost of sales (970,730) (5,241,186) (6,074,883)
Research and development (653,605) (2,919,945) (4,860,993)
Selling, general and administrative (833,608) (3,346,298) (4,938,114)
Unusual credits, net 537,258 (2,786,784) (4,553,391)
------------ ------------ ------------
Operating loss (156,974) (5,565,021) (12,114,053)
Other expense, net (70,470) (137,398) (379,496)
Less loss subsequent to measurement
date of June 30, 1999 charged against gain on disposition
249,972 - -
------------ ------------ ------------
Income (loss) from discontinued operations
$ 22,528 $ (5,702,419) $(12,493,549)
============ ============ ============
</TABLE>
Net assets of discontinued operations consist of the following elements at
December 31, 1998 (none at December 31, 1999):
<TABLE>
<CAPTION>
<S> <C>
Trade accounts receivable, net $1,681,755
Inventories 2,046,871
Other current assets 93,160
Property and equipment, net 1,316,516
Assets under capital lease obligations, net 202,026
Intangible assets, net 322,779
Accounts payable (412,379)
Accrued liabilities (779,228)
Long-term debt (682,982)
Capital lease obligations (297,049)
----------
Total $3,491,469
==========
</TABLE>
NOTE C - CHANGE IN EXECUTIVE MANAGEMENT
Effective April 21, 1999, the then current members of the board of directors of
the Company resigned and a new board and chief executive officer were appointed.
The Company entered into an employment agreement with a new chief executive
officer which provides for annual compensation of $96,000. The term of the
employment agreement is through December 31, 2002, but renews automatically such
that there is always one year remaining under the agreement. In the event this
agreement is terminated, other than for cause, the Company is required to pay
the chief executive officer the greater of the amount of salary remaining under
the term of the contract or the salary for a one-year period.
In connection with the appointment of the new chief executive officer, he was
granted an option to acquire 200,000 shares of common stock, half of which is
exercisable at $1.50 per share and the other half at $2.50 per share. The
option is immediately exercisable, expires three years after grant, and has a
cashless exercise provision.
Under the employment agreements of the former chief executive officer and former
chief operating officer, each had the right to terminate his employment
agreement for cause with the sale of the assets of the acoustics division (Note
B) and to receive compensation equal to his base salary remaining under his
employment agreement, which would have been approximately $560,000 in the
aggregate for the two officers. In lieu of this payment the new board of
directors negotiated a termination benefit of $195,000 in the aggregate
(recorded as unusual charges) and consulting/employment arrangements whereby the
former chief executive officer would provide transitional consulting services to
the Company and the former chief operating officer would continue as the chief
operating officer of the Company to supervise the ongoing operations of the
Company in exchange for monthly compensation of $10,000 each and aggregate
options to acquire 140,000 shares of common stock, half of which were
exercisable at $1.50 per share and the other half at $2.50 per share.
NOTE D - INVESTMENTS
The Company invested $150,000 in PayStation.com, Inc. (PayStation) in the form
of $75,000 for a convertible promissory note and $75,000 for 15,000 shares of
convertible preferred stock, representing 2.5 percent of the offering.
PayStation has repaid the promissory note, leaving a balance of $75,000 as the
Company's investment. PayStation is an internet-based company that has the
capability to deliver internet-based financial services to consumers who prefer
to pay bills through the internet. The Company's investment in PayStation is
accounted for under the cost method of accounting.
The Company also participated in the second round funding of Durect Corporation
(Durect), a pioneer in drug therapy treatments, employing subcutaneous delivery
technology and paid $250,000 for preferred stock convertible into approximately
1 percent of Durect. The Company's investment in Durect is accounted for under
the cost method of accounting.
NOTE E - DEFERRED COMPENSATION PLAN
On June 24, 1999, the board adopted a deferred compensation plan to provide
long-term incentive compensation to the members of the board and certain other
consultants or members of management. The plan establishes an unfunded deferred
compensation pool, based on specified percentages of the Company's net income
and increases in its market capitalization. No earnings compensation will be
paid into the pool until the cumulative net income from the operations under the
new board has exceeded $2,000,000 and no amounts will be paid for increases in
market capitalization unless the increase in market capitalization exceeds 150
percent of any increase in the Russell 2000 Index (with appropriate adjustments
for additional capital infusions or acquisitions). The chief executive officer,
received an initial 30 percent ownership in the pool and may grant the other 70
percent to persons other than himself and his family. To date, he has granted a
total of 11 percent to others. On December 31, 2002, amounts due, if any, will
be paid out to the participants. However, in the event of a change of control
of the Company, as defined in the agreement, or in the event the deferred
compensation plan is terminated by the board of directors, a distribution of the
deferred compensation pool will be required. In either of these two events, the
amount of the distribution would be equal to the amount in the deferred
compensation pool or $5 million, whichever is greater. Additionally, in the
event the employment agreement of the chief executive officer is terminated,
other than for cause, he is entitled to his share of the deferred compensation
pool, but not less than $1.5 million. In connection with the planned
acquisition of Net2Wireless discussed in Note N to the financial statements, the
deferred compensation plan would be terminated and the participants in the plan
would abandon their interest in the plan subject only to shareholder approval of
options previously granted to the participants.
Deferred compensation expense is measured based on the changes in factors which
determine the amount of the deferred compensation pool, which to date has solely
been the change in market capitalization of the Company's common stock. For the
year ended December 31, 1999, the Company recognized deferred compensation
expense of $5,342,040 representing the current amount of the deferred
compensation pool multiplied by 41 percent for the interests granted through
December 31, 1999.
NOTE F - INCOME TAXES
The income tax expense (benefit) reconciled to the tax computed at the statutory
federal rate of 34 percent is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes (benefit) at statutory rate $(2,959,489) $(2,353,971) $(5,038,056)
State income taxes (benefit)
net of federal tax effect (287,245) (228,474) (488,988)
Amortization of acquired technology - 900,420 60,797
Settlement with former directors 33,723 70,427 165,750
Operating losses with no current tax benefit 3,199,056 1,605,535 5,292,150
Other, net 13,955 6,063 8,347
----------- ----------- -----------
Income tax expense $ - $ - $ -
=========== =========== ===========
</TABLE>
Deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets
Benefit of net operating loss carryforwards $ 8,340,728 $ 7,831,621
Compensation expense for stock options 2,141,656 -
Deferred compensation expense 1,992,581 -
Capitalized software development costs and
amortization of intangible assets 257,383 796,526
Inventory allowances - 376,365
Accrued liabilities 34,664 113,199
Allowance for doubtful accounts 27,043 256,287
Other, net 4,364 4,345
------------- -------------
12,798,419 9,378,343
Less valuation allowance (12,798,310) (9,373,873)
------------- -------------
109 4,470
Deferred tax liabilities
Depreciation of property and equipment (109) (4,470)
------------- -------------
Net deferred tax asset $ - $ -
============= =============
</TABLE>
The Company has sustained net operating losses in each of the periods presented.
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary differences or net operating
loss carryforwards because the likelihood of realization of the related tax
benefits cannot be established. Accordingly, a valuation allowance has been
recorded to reduce the net deferred tax asset to zero and consequently, there is
no income tax provision or benefit for any of the periods presented. The
increase in the valuation allowance was $3,424,437, $1,614,711, and $5,268,566
for the years ended December 31, 1999, 1998, and 1997, respectively.
As of December 31, 1999, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $22,000,000 expiring in various years
through 2014. Utilization of approximately $3,100,000 of the total net
operating loss is dependent on the future profitable operation of Sensar
Instruments, Inc. under the separate return limitation rules and limitations on
the carryforward of net operating losses after a change in ownership. If the
planned acquisition of Net2Wireless discussed in Note N to the financial
statements is consummated, it is expected that the availability of all of the
net operating losses will be substantially restricted because of the change of
control and lack of continuity of business interests.
NOTE G - PREFERRED STOCK
1998 Series A Preferred Stock
In February 1998, the Company completed the private placement of shares of 1998
Series A Preferred Stock (the "Preferred Stock") and warrants to purchase common
stock for gross proceeds of $3,500,000. Of this amount, approximately $549,000
was assigned as the value of the warrants and the balance was assigned as the
value of the Preferred Stock. The Preferred Stock bore an annual dividend of
four percent per annum and had a liquidation preference equal to $1,000 per
share plus all accrued, but unpaid dividends. The Preferred holders voted as a
class with the common stockholders.
The Preferred Stock was convertible at the election of the holders into that
number of shares of common stock calculated by dividing $1,000 plus any accrued
but unpaid dividends, by the lower of (1) $9.00 or (2) 85 percent of the average
closing price of the common stock for the ten trading days preceding the
conversion. During the years ended December 31, 1999 and 1998, holders of
101.20 shares and 460.05 shares of Preferred Stock converted their shares into
128,032 and 189,257 shares of common stock, respectively.
In an attempt to eliminate the potential market disruption of a significant
conversion of the Preferred Stock into common stock, the Company used part of
the proceeds from the sale of the assets of the acoustic division (Note B), to
reacquire and cancel 100 percent of the outstanding shares of Preferred Stock
for approximately $3.07 million, including accrued but unpaid dividends. The
Company agreed to reprice one-half of the associated warrants at $1.25 per share
and to cancel the other half of the warrants.
1995 Series Preferred Stock
During the year ended June 30, 1995, the Company issued 200,000 shares of 1995
Series Preferred Stock in payment of $500,000 of short-term debt. The Preferred
Stock had a liquidation preference equal to $2.50 per share, plus unpaid
dividends. This Preferred Stock paid cumulative dividends at a rate of $0.225
per share per annum, payable monthly. The Preferred Stock was convertible into
common stock at the option of the holder or the option of the Company at the
rate of $7.50 per share divided by an amount equal to the average of the closing
bid prices for the common stock for the twenty consecutive trading days
immediately prior to the date that the holder provided notice of such
conversion. The Preferred Stock was converted, in accordance with the governing
provisions of the designation, into 23,537 shares of common stock effective
April 30, 1997.
NOTE H - COMMON STOCK
At a special meeting of stockholders held on March 18, 1999, a one-for-five
consolidation of the issued and outstanding common stock of the Company was
approved. The board of directors implemented the consolidation of the common
stock effective at the close of business on
April 30, 1999. At the close of business on January 17, 2000, a forward
two-for-one stock split became effective for the issued and outstanding common
stock of the Company. All common share and per common share information
included in the accompanying financial statements has been retroactively
restated to reflect the one-for-five consolidation and the two-for-one forward
stock split.
In May 1999, the Company completed a private placement of 500,000 shares of
common stock at $2.00 per share. The net proceeds to the Company, after
associated expenses, were approximately $987,000. The stock issued was
subsequently registered for resale with the Securities and Exchange Commission.
During 1999, the Company also issued a convertible debenture in the amount of
$40,000, which was converted into 17,778 shares of common stock in December
1999.
During the years ended December 31, 1998 and 1997, the Company issued 19,499
shares and 21,940 shares, respectively, of common stock valued at prices ranging
from $5.75 to $11.58 per share and $8.45 to $33.13 per share, respectively, for
services rendered. During the year ended December 31, 1997, an officer
surrendered 696 shares of common stock in payment of a noninterest-bearing
advance.
NOTE I - EARNINGS (LOSS) PER COMMON SHARE
The following data show the amounts used in computing net loss per common share
from continuing operations, including the effect on net loss for preferred stock
dividends and a beneficial conversion feature associated with preferred stock
and warrants. The following data also show the weighted average number of
shares and rights to acquire shares with dilutive potential. For 1998, loss
from continuing operations applicable to common stock includes a noncash imputed
dividend to the preferred shareholders related to the beneficial conversion
feature on the 1998 Series A Preferred Stock and related warrants (Note G). The
beneficial conversion feature is computed as the difference between the market
value of the common stock into which the Series A Preferred Stock can be
converted and the value assigned to the Series A Preferred Stock in the private
placement. The imputed dividend is a one-time, noncash charge increasing the
net loss per common share.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Loss from continuing operations $(11,995,158) $ (1,221,025) $ (2,324,262)
Dividends on preferred stock (25,414) (107,273) (15,000)
Imputed dividend from beneficial conversion feature - (1,239,290) -
------------ ------------ ------------
Loss from continuing operations applicable to common stock
$(12,020,572) $ (2,567,588) $ (2,339,262)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Common shares outstanding during the entire year 5,228,366 4,850,157 4,287,116
Weighted average common shares issued during the year 465,148 223,306 315,964
--------- --------- ---------
Weighted average number of common shares used in basic EPS 5,693,514 5,073,463 4,603,080
Dilutive effect of stock options and warrants - - -
--------- --------- ---------
Weighted average number of common shares and dilutive potential common stock used in diluted EPS 5,693,514 5,073,463 4,603,080
========= ========= =========
</TABLE>
For the years ended December 31, 1999, 1998 and 1997, none of the options and
warrants that were outstanding, as described in Note J, were included in the
computation of diluted EPS because to do so would have been anti-dilutive.
NOTE J - STOCK OPTIONS AND WARRANTS
1. Stock-based compensation plans
During the periods presented in the accompanying financial statements, the
Company had stock options that were granted under four stock option plans: the
1991 Director Stock Option Plan (the 1991 Director Plan); the 1996 Director
Stock Option Plan (the 1996 Director Plan); the 1997 Stock Option and Award Plan
(the 1997 Employee Plan); and the 1987 Stock Option Plan (the 1987 Employee
Plan). The Company has also granted options under executive employment
agreements.
A summary of the status of the options granted under the Company's stock option
plans and employment agreements at December 31, 1999, 1998, and 1997 and changes
during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------
1999 1998 1997
--------------------- ---------------------- -----------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 924,990 $ 10.53 1,014,736 $ 13.55 1,219,936 $ 12.18
--------- ---------- ----------
Granted 560,000 2.05 704,000 9.95 480,800 15.35
Exercised (105,880) 1.61 (110,546) 6.58 (116,000) 6.70
Forfeited (830,178) 9.44 (130,400) 12.88 - -
Canceled (24,000) 7.34 (552,800) 15.55 (570,000) 13.53
-------- -------- ---------
Outstanding at end
of year 524,932 $ 5.17 924,990 $ 10.53 1,014,736 $ 13.55
======== ======== =========
Exercisable at
end of year 515,144 $ 5.03 482,994 $ 10.20 469,742 $ 11.23
======== ======== =========
</TABLE>
The weighted-average fair value of each option grant is $0.89, $2.88 and $7.60
for the years ended December 31, 1999, 1998 and 1997, respectively, and is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants during the years
ended December 31, 1999, 1998 and 1997, respectively: risk-free interest rates
of 5.1 percent, 5.5 percent, and 6.0 percent; expected dividend yields of zero
for all periods; expected lives of 2.5, 5.4, and 5.8 years; and expected
volatility of 114 percent, 46 percent, and 42 percent.
A summary of the status of the options outstanding under the Company's stock
option plans and employment agreements at December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
remaining average average
Number contractual exercise Number exercise
Range of exercise prices outstanding life (years) price exercisable price
- ------------------------ ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.50 - $2.00 120,000 2.40 $ 1.58 120,000 $ 1.58
$2.01 - $3.00 270,000 1.96 2.50 270,000 2.50
$3.01 - $17.50 134,932 2.56 13.71 125,144 13.78
------- -------
$1.50 - $17.50 524,932 2.28 $ 5.17 515,144 $ 5.03
======= =======
</TABLE>
In January 1996, the Company granted options to three executives under newly
executed employment agreements. The agreements granted options to acquire an
aggregate of 330,000 shares of common stock at an exercise price of $10.625 per
share. The options under the employment agreements vested 20 percent on the
grant date and 20 percent for each year of service thereafter, and would have
expired in January 2006. All of the options granted in 1996 were canceled in
1997.
In 1998 and 1997, two former executives exercised options to acquire 110,546
shares and 12,000 shares, respectively, of common stock in exchange for notes
receivable in the aggregate amount of $726,190 and $69,375, respectively. In
1998, the Company established a reserve of $400,000 against these notes due to
the uncertainty of their collection in light of the decline in the price of the
Company's common stock. During 1999, the Company agreed to accept substantially
all of the proceeds from the sale of the common stock held by one of the former
officers of approximately $438,000 in satisfaction of his notes totaling
$726,190. The note for $69,375 was extinguished as part of a settlement of
litigation against the other former officer.
In conjunction with the 1997 employment of a new chief executive officer, the
Company granted options to acquire 400,000 shares of common stock. The options
were granted at $14.375 per share, but were exercisable at the lower of the
grant price or 80 percent of the trading price on the date of exercise (but not
less than $9.00 per share). During 1998, this option was canceled in favor of
an option to purchase 400,000 shares of common stock at prices ranging from
$9.00 to $16.25 per share. During 1998, the Company granted options to acquire
120,000 shares of common stock to a new chief operating officer at prices
ranging from $7.475 to $13.75 per share. All of the foregoing options were
forfeited in April 1999 with the resignation of both officers from the board of
directors (Note C).
A new chief executive officer was appointed in April 1999 (Note C). In
conjunction with his appointment, the chief executive officer was granted an
option to acquire 200,000 shares of common stock, half of which are exercisable
at $1.50 per share and half at $2.50 per share. During April and May, three new
non-executive directors were appointed to the board. On appointment, each
received an option to acquire 200,000 shares of common stock, half of which are
exercisable at $1.50 per share and half at $2.50 per share. Under Nasdaq
corporate governance rules, these options are subject to shareholder approval.
Additionally, options to acquire an aggregate of 360,000 shares of common stock
have been granted principally to nonemployees, at prices ranging from $1.50 to
$2.50 per share. All of these options are immediately exercisable, generally
expire three years after grant, and have a cashless exercise provision.
Generally accepted accounting principles require that compensation be recorded
each period for stock options with cashless exercise provisions granted to
management, equal to the change in the stock price above the exercise price. If
the price of the stock declines during the period, a credit is recorded against
previously recorded compensation expense, but not in excess of the cumulative
compensation recorded since the grant date. During the year ended December 31,
1999, the Company recognized $5,618,740 as a non-cash compensation charge as a
consequence of the cashless exercise provisions of the options granted to
management to acquire an aggregate of 240,000 shares. Additionally, the Company
has recorded non-cash compensation expense during the year ended December 31,
1999, of $267,093 for stock options granted to nonemployees to acquire an
aggregate of 270,000 shares of common stock. The compensation expense was based
on the fair value of options granted using the assumptions discussed earlier in
this Note.
In November 1999, the board of directors approved options to acquire an
aggregate of 1,600,000 shares of common stock for $2.00 per share to the chief
executive officer, to the non-executive members of the board of directors, and
to the Company's chief consultant. These grants are subject to shareholder
approval, which approval will be sought at the next 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 would
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.
Under the 1991 Director Plan, the Company granted options to acquire 12,000
shares of common stock annually to each director. Under this plan, the Company
may grant up to an aggregate of 300,000 options. Options granted under this
plan vested immediately and expired five years after the grant. The 1991
Director Plan terminated July 1, 1996.
Under the 1996 Director Plan, the Company reserved 560,000 shares of common
stock to be granted to directors of the Company. In 1996, the Company granted
options to each director to acquire 80,000 shares of common stock (for a total
of 400,000 options) at $17.50 per share. Options under the 1996 Director Plan
vested 25 percent on the grant date and 25 percent for each year of service
thereafter and expire five years after their vesting date. Of the options
granted in 1996, options with respect to 240,000 shares were canceled in 1997.
During 1998, options with respect to an additional 120,000 shares were canceled
or forfeited, leaving options for 40,000 shares outstanding at December 31,
1999. The 1996 Director Plan terminated May 9, 1999.
Under the 1987 Employee Plan, as amended in 1994, the Company could grant
options to acquire up to 300,000 shares of common stock, of which options to
acquire 152,923 shares were exercised and no options are outstanding as of
December 31, 1999. The 1987 Employee Plan terminated November 9, 1997.
The 1997 Employee Plan reserves 300,000 shares of common stock for issuance
pursuant to stock options or stock awards granted, of which options to acquire
151,880 shares have been exercised or are outstanding and 105,554 shares have
been awarded to employees and others as of December 31, 1999. Concurrently with
the granting of certain options in 1998, the Company canceled existing options
previously granted to certain employees to purchase 72,800 shares of common
stock at prices ranging from $11.725 to $26.25 per share. Shares awarded
primarily consist of stock issued to former management in November 1977 in
connection with their termination and were recorded at fair value of $1,150,000
on the date of their termination.
The Company adopted the 1997 Employee Stock Purchase Plan (the Stock Purchase
Plan) effective as of February 1, 1997. The maximum number of shares of common
stock which are available under this plan is 40,000 shares. The Stock Purchase
Plan provided an opportunity to the employees of the Company to purchase shares
of common stock in the Company at 85 percent of fair market value on each
offering date. During the years ended December 31, 1998 and 1997, the employees
of the Company purchased 29,273 and 6,163 shares of common stock for gross
proceeds of $81,172 and $84,001, respectively. The Stock Purchase Plan expired
December 31, 1998.
The Company accounts for options granted to management and to the members of the
board of directors under APB 25 and its related interpretations and the opinions
of the Emerging Issues Task Force. Had compensation cost for these plans been
determined based on the fair value of the options at the grant dates for awards
under these plans consistent with the method prescribed by SFAS 123, the
Company's net loss and loss per common share would have been changed to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997
------------ ----------- -------------
<S> <C> <C> <C> <C>
Net loss As reported $(8,704,380) $(6,923,444) $(14,817,811)
Pro forma (3,492,019) (7,337,855) (16,118,507)
Net loss per common share As reported $ (1.53) $ (1.63) $ (3.22)
Pro forma (0.62) (1.79) (3.50)
</TABLE>
2. Stock warrants
In 1998, in connection with a private placement of the Preferred Stock, the
Company granted warrants to purchase 280,000 shares of common stock at $11.25
per share. In connection with the redemption of the remaining Preferred Stock
in 1999, the Company canceled one half of the remaining warrants and reduced the
exercise price of the other half to $1.25 per share.
In conjunction with a private placement of common stock in May 1995, the Company
issued warrants to a group of investors to acquire common stock of the Company.
After that time, the Company issued additional warrants to this group as the
previously outstanding warrants were exercised.
In January 1997, the board of directors approved a reduction in the exercise
price, from $15.625 to $13.25 per share, of certain of these warrants related to
686,333 shares of common stock. In consideration of this reduction, the holders
of the warrants agreed to the early exercise of the warrants which were
otherwise permitted to be exercised until November 1, 1998. The holders agreed
to exercise 307,124 shares on or before January 31, 1997, which exercise
occurred and resulted in gross proceeds to the Company of $4,069,393. This
initial issuance was priced at $15.625 per share and resulted in the issuance of
260,441 shares, with 46,683 shares held in reserve, because the reduced pricing
was contingent upon the timely exercise of the warrants related to all 686,333
shares.
The agreement relating to the exercise of the remaining 379,209 warrants was
amended on November 14, 1997. The exercise price remained at $13.25 per share
or an aggregate of $5,024,517 to be paid in ten equal installments commencing
November 15, 1997, and continuing on the day that was five weeks subsequent to
the preceding payment until the full amount was paid. On receipt of each
payment, the Company agreed to issue a certificate representing the stock then
being acquired, calculated at an exercise price of $13.25 per share, and issue a
replacement warrant covering the same number of shares. Additionally, on
receipt of the first payment, the Company agreed to deliver certificates
representing the 46,683 shares held in reserve and to issue replacement warrants
for the 307,124 shares, exercised in January 1997, referred to in the previous
paragraph. Replacement warrants had an exercise price of $21.875 per share and
were exercisable at any time through April 16, 2003. In the event that a
warrant holder failed to make one or more payments when due, that portion of the
outstanding warrants that was then due would thereafter have an exercise price
of $15.625 per share and the holder would not be entitled to a replacement
warrant, if and when the outstanding warrant was exercised. Due to the
declining market price of the Company's common stock, this group only exercised
67,555 warrants after the amendment, and the remaining warrants expired in
November 1998.
In November 1999, the exercise price of 374,680 warrants and 44,900 warrants
with exercise prices of $21.875 and $11.25, respectively, were reduced to $2.00
per share.
A summary of the status of common stock underlying the warrants issued and
changes during the years is presented in the table below:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 654,680 $17.33 840,067 $17.23 840,067 $15.63
Granted 537,130 1.84 309,634 12.28 345,045 21.88
Exercised (534,330) 1.84 (29,633) 13.25 (345,045) 13.25
Expired - - (465,388) 14.03 - -
Canceled (654,680) 17.33 - - - -
-------- -------- --------
Outstanding at
end of year 2,800 $ 1.25 654,680 $17.33 840,067 $17.23
======== ======== ========
</TABLE>
NOTE K - COMMITMENTS AND CONTINGENCIES
1. Litigation
In September 1999, certain former employees of the Company filed a lawsuit
against the Company seeking damages for non-payment of a bonus arrangement, plus
penalties and attorneys fees. The Company denies that the conditions of the
bonus were met, has filed a motion to dismiss certain claims, and intends to
vigorously defend its position. Management of the Company believes that it has
substantial defenses to the claims and does not believe that the ultimate
outcome of this litigation will have a material impact on the financial position
of the Company. In March 2000, the chief executive officer agreed to indemnify
the Company for all costs and expenses, including any judgments, arising out of
this litigation subsequent to March 1, 2000.
2. Operating lease
The Company leases certain office space under an operating lease for $2,256 per
month. At December 31, 1999 the chief executive officer of the Company is a
guarantor on the lease and in March 2000, he assumed responsibility for payment
of the lease through its expiration in September 2002. Minimum future payments
under this non-cancelable operating lease at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
- ------------------------
2000 $27,343
2001 28,436
2002 21,961
Thereafter -
$77,740
</TABLE>
NOTE L - RELATED PARTY TRANSACTION
The Company entered into a consulting arrangement during 1997, with a
corporation owned and controlled by a former director of the Company who
resigned in April 1998. Under the terms of the arrangement, the corporation
agreed to provide the Company with advisory and consulting services concerning
the commercialization of the technology held by Sensar Instruments, Inc., the
identification of markets for such products, the establishment of marketing
contacts, and the development of an operational plan for the development and
marketing of products based on this technology. Under the arrangements the
Company incurred compensation expense of $95,540 in 1997 (none in 1999 or 1998),
plus the reimbursement of third-party expenses incurred on behalf of the
Company.
NOTE M - UNUSUAL CHARGES
The Company has incurred the following unusual charges (credits) during the
years covered by the financial statements:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Termination benefits paid to former executive
management
$ 125,000 $ - $1,383,964
Write down (recovery) of receivable from former
executive officer and related litigation costs
(12,035) 187,492 -
Write down (recovery) of notes receivable and
accrued interest from former executive
management for exercise of stock options
(144,628) 456,723 -
Other charges - 5,734 -
--------- -------- ----------
$ (31,663) $649,949 $1,383,964
========= ======== ==========
</TABLE>
NOTE N - AGEEMENT WITH NET2WIRELESS
The Company has entered into an agreement with Net2Wireless Corporation, that
gives the Company the right to acquire Net2Wireless in exchange for the issuance
of 18,295,060 shares of the Company's common stock. Net2Wireless acquired the
wireless division of I.T.E.S Ltd., and is a startup company that is focused on
developing wireless internet communications, including multimedia applications.
In the event of a merger, options and other rights to acquire Net2Wireless stock
then outstanding would be converted into rights to acquire 14,766,649 shares of
the Company's common stock. The number of shares to be issued to the
Net2Wireless stockholders will be increased in the event that the cash held by
the Company at closing, plus all amounts collected on the notes receivable held
by the Company, less all cash liabilities is not at least $4.45 million. The
number of additional shares to be issued will be determined by dividing the
short fall, if any, by $1.86. The Company will also issue 1,000,000 shares to
certain individuals involved in identifying Net2Wireless.
As part of this agreement, the Company has agreed to provide Net2Wireless with
short-term financing of up to $2 million, of which $500,000 was advanced in
February 2000. The advance bears interest at 8 percent per annum and is due in
full on or before September 30, 2000. The financing will be used to allow
further recruitment of technical staff for ongoing development work by
Net2Wireless.
As part of the transaction, the Company has agreed to the following:
1. Maintain a minimum of $4.5 million in cash and notes receivable
(including the advance to Net2Wireless discussed above) with only nominal
current liabilities, not to exceed $50,000;
2. Cause to be exercised all options, to acquire stock of the Company held
by current management and directors; and
3. Have no more than 9,000,000 shares outstanding, including shares subject
to options at the time of closing.
In order to eliminate the Company's liabilities other than nominal current
liabilities, the Company will terminate all employment and consulting
agreements, will terminate its deferred compensation plan, and has entered into
an agreement effective March 1, 2000 with the chairman of the board whereby the
chairman has agreed to indemnify the Company with respect to pending litigation
and assume the real property lease to which the Company is a party. Termination
of the deferred compensation plan and the chief executive officer's employment
agreement are contingent on stockholder approval of options previously granted
by the board of directors to management, non-executive directors, and the chief
consultant.
In exchange for the indemnification and the assumption of the lease in March
2000, the Company distributed to the chairman of the board the minority
investment interests held by the Company with a book value of $325,000 at
December 31, 1999,and the office furniture and equipment located at the
Company's Salt Lake City office with a book value of $27,992 at December 31,
1999. The chairman has also agreed to provide 100 hours of transitional
services to the Company to assist new management.
The agreement is subject to the satisfaction of several conditions, including
the approval of the shareholders of the Company and Net2Wireless. The agreement
may be terminated by the mutual consent of the parties, by either party if the
closing has not taken place by December 31, 2000, by either party if there is a
breach by the other party, or by the failure of the Company or Net2Wireless to
receive shareholder approval of the transaction.
It is contemplated that, at closing, the current officers and directors of the
Company will resign and Net2Wireless will appoint new directors and executive
officers of the Company. After the acquisition, the shareholders of
Net2Wireless will own a majority of the common stock of the Company then
outstanding. Accordingly, for financial reporting purposes, the merger will be
treated as a reverse acquisition accounted for as a recapitalization of
Net2Wireless.
NET2WIRELESS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Statement of Changes in Shareholders' Deficiency F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-12
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
NET2WIRELESS CORPORATION
(A development stage company)
We have audited the accompanying consolidated balance sheet of Net2Wireless
Corporation (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
1999) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements, referred to above,
present fairly, in all material respects, the consolidated financial position of
Net2Wireless Corporation as of December 31, 1999, and the related consolidated
results of its operations and cash flows from commencement of operations (April
1999) through December 31, 1999, in conformity with generally accepted
accounting principles, in the United States.
/s/ Kost Forer & Gabbey
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)
<TABLE>
<CAPTION>
NET2WIRELESS CORPORATION
(A development stage company)
CONSOLIDATED BALANCE SHEET
December 31,
1999
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 69,530
-----------
LEASE DEPOSIT 48,514
-----------
PROPERTY AND EQUIPMENT, NET 168,640
-----------
Total assets $ 286,684
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 97,414
Payable to ITES 1,000,000
Employees and payroll accruals 53,549
Accrued expenses 80,360
Note payable to ITES 200,000
-----------
Total current liabilities 1,431,323
-----------
LONG-TERM LIABILITIES:
Accrued severance pay 21,610
-----------
SHAREHOLDERS' DEFICIENCY:
Common shares -
Nominal value of $0.01 per share; 50,000,000 shares authorized;
8,177,748 shares issued and outstanding 81,777
Deficit accumulated during the development stage (1,248,026)
-----------
Total shareholders' deficiency (1,166,249)
-----------
Total liabilities and shareholders deficiency $ 286,684
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NET2WIRELESS CORPORATION
(A development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
Period from
commencement
of operations
(April 1999)
through
December 31,
1999
------------
<S> <C>
Operating expenses:
Research and development $337,189
Marketing, general and administrative 144,509
--------
Operating loss 481,698
Interest and other expenses, net 11,480
--------
Net loss $493,178
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NET2WIRELESS CORPORATION
(A development stage company)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
For the period from commencement of operations (April 1999)
through December 31, 1999
Deficit
accumulated
Common during the
------ development
shares stage Total
------ ----------- -----------
Shares Amount
----------- -----------
<S> <C> <C> <C> <C>
Balance as of April 1999 - $ - $ - $ -
Issuance of shares,
on December 7, 1999 at par value 3.8 (* - - -
Capital distribution - - (673,071) (673,071)
Stock split ** 8,177,744 81,777 (81,777) -
Net loss - - (493,178) (493,178)
--------- ---------- ----------- -----------
Balance as of December 31, 1999 8,177,748 $ 81,777 $(1,248,026) $(1,166,249)
========= ========== =========== ===========
</TABLE>
*) Represent an amount lower than $1.
**) See Notes 9a and 9b.
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NET2WIRELESS CORPORATION
(A development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from
commencement
of operations
(April 1999)
through
December 31,
1999
------------
<S> <C>
Cash flows from operating activities:
Net loss $(493,178)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 14,608
Accrued severance pay, net 21,610
Increase in accounts receivable (69,530)
Increase in accounts payable 97,414
Increase in employees and payroll accruals 53,549
Increase in accrued expenses 80,360
---------
Net cash used in operating activities (295,167)
Cash flows from investing activities:
Purchase of property and equipment (183,248)
Lease deposit (48,514)
---------
Net cash used in investing activities (231,762)
---------
Cash flows from financing activities:
Payable to ITES 526,929
---------
Net cash provided by financing activities 526,929
---------
Change in cash and cash equivalents -
Cash and cash equivalents at the beginning of the period -
Cash and cash equivalents at the end of the period $ -
=========
Non-cash transactions:
Capital distribution payable $ 673,071
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTE 1:- GENERAL
Net2Wireless Corporation (the "Company" or "N2W"), a Delaware company, was
formed on December 7, 1999 by the controlling shareholders of - Imaging
Technologies Enterprise System Ltd. ("ITES"). The Company and its subsidiaries,
located in Israel and in the British Virgin Islands, are engaged in the research
and development of wireless multimedia applications, including real time
broadcasting of content via wireless.
From April 1999 through December 31, 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. 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 is 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 bears interest of 8% per annum, and is
convertible at any time into the Company's common shares at then market value at
the time of the underlying shares. Subsequent to December 31, 1999, N2W paid the
$1,200,000.
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 the Company for the period
prior to December 31, 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 to N2W, $ 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 (as a result of these
actions, the shareholders of N2W will own approximately 65% of the total issued
and outstanding shares of Sensar post closing) and shall assume up to 14,766,649
outstanding stock options and warrants of N2W (the "Merger")..Within 30
days following the Completion Date and prior to December 31, 2000, N2W may
call for such a Merger.
Adjustment 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 to the Merger Sensar will issue 1,000,000 common shares to certain
individuals involved in introducing Sensar and Net2Wireless
NOTE 3:- SIGNIFICANT ACCOUNTING POLICES
a. Principles of consolidation:
The consolidated financial statement include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany transactions and balances have been
eliminated.
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.
c. Financial statements in U.S. dollars:
The functional currency of the Company and its subsidiaries is the U.S dollar,
as the US dollar is the currency of the primary economic in which the Company
and its subsidiaries have operated and expect to continue to operate in the
foreseeable future,
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 ("FASB"). 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.
d. Property and equipment:
Property and equipment are stated at cost and depreciated using the using the
straight-line method over the estimated useful lives years of the assets,
generally three the seven years. Leasehold improvements are amortized on a
straight-line basis over the remaining lease term.
e. Research and development costs:
Research and development costs are charged to the statement of operations as
incurred. Statement of Financial Accounting Standards Board 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 has been charged to operating expenses.
f. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees", in accounting for its
employee stock option plans. Under APB 25, when the exercise price of the
Company's stock options equals or is above the market value of the underlying
stock on the date of grant, no compensation expense is recognized.
In accounting for warrants granted to parties other than employees, the
provisions of Statement of Financial Accounting Standard Board No. 123,
"Accounting for Stock-Based Compensation" 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.
NOTE 4:- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Cost:
Computers and peripheral equipment $113,984
Office furniture and equipment 27,518
Motor vehicles 16,903
Leasehold improvements 24,843
183,248
--------
Accumulated depreciation 14,608
--------
Depreciated cost $168,640
========
</TABLE>
Depreciation expenses amounted to $14,608 for the nine month period ended
December 31, 1999.
NOTE 5:- ACCRUED SEVERANCE PAY
The Israeli subsidiary's liability for severance pay, pursuant to Israeli law,
is accrued on the balance sheet. The liability for severance pay is calculated
pursuant to 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 employee, is fully provided by an accrual. Severance
pay expenses for the nine-month period ended December 31, 1999, were
approximately $21,610.
NOTE 6:- COMMITMENTS AND CONTINGENT LIABILITIES
a. The Israeli subsidiary leased office space under various operating lease
agreements. The minimum rental payments under non-cancelable operating leases
are as follows:
<TABLE>
<CAPTION>
<S> <C>
year 2000 $ 263,493
year 2001 1,329,528
year 2002 1,462,766
year 2003 1,531,883
----------
Total $4,587,670
</TABLE>
Rent expense for the nine-month period ended December 31,1999, were
approximately $13,656. In connection with one of the Company's lease agreements,
the Company deposited $48,514, to secure its payments under the agreement.
b. On October 6, 1999, ITES entered into a Memorandum of Understanding
("MOU") with Partner Communications Company Ltd. ("Partner"), an Israeli
cellular 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 received 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. In addition, the parties agreed on certain commercial terms to be
contained in definite agreement, if and when signed.
As part of the asset acquisition agreement, ITES assigned all rights and
obligation under the MOU to N2W. Pending the consent of Partner, N2W, ITES and
Partner negotiated the terms of a definite agreement, to settle all the disputes
between them. Such agreement ("the Definite Agreement") was signed on March 13,
2000. Pursuant to the Definite Agreement, Partner received a right of first
refusal in respect to any other activity of N2W's new technologies, services,
products or applications relating to the Wireless Business. Partner further
agreed to assist in the introduction of N2W to other GSM cellular providers
worldwide. Partner shall be entitled to 15% of the revenues of N2W from any such
sale.
In order to induce Partner to conduct the Pilot Program, Partner was granted
under the Definite Agreement, an option ("the Partner Option") to purchase up to
an aggregate of 3,020,576 common shares of N2W, or the surviving company in the
event of a full merger between N2W and Sensar ("the Merger") - at an exercise
price of $ 1.84 per common share. 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).
NOTE 7:- INCOME TAXES
The Company commenced operations as an independent entity subsequent to December
31, 1999, thus had no net losses carryforwards for tax purposes as of December
31, 1999.
NOTE 8:- SHARE CAPITAL
a. Stock and convertible loans:
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 5,227,213 common shares for an aggregate amount of
$ 500,000. In addition, the Investors together with other new investors agreed
to lend the Company $ 1,000,000, due on December 31, 2000. The loan bears
interest at the rate of 6.5% per annum, and is convertible, at any time through
the due date, into 3,780,223 common shares.
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.
b. Warrants and Stock Options:
1. 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 consideration for services they provided the Company in connection with the
execution of the Loan and option agreement with Sensar. The options vest
immediately, and are exercisable for a period of five years. As the exercise
price per option was above the fair market value of the Company at the date of
grant the Company has not recorded any compensation expense in connection with
these grants.
2. 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 for 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 0.0%, volatility factors of the
expected market price of the Company's common shares of 0.5, and an expected
life of three years. The fair value of the Warrant is immaterial.
NOTE 9:- SUBSEQUENT EVENTS
a. On February 2 and 3, 2000, the Board of Directors authorized, and the
Company's shareholders approved, an increase to 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 the effected
as a stock dividend (such that each holder of one Common share is 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 is
entitled to receive 0.074074 additional common shares). All warrants, options
shares have been retroactively adjusted to reflect the stock split.
c. In January 1999, 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 an 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.
APPENDIX A
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into this 8th day of December,
1999, by and among SENSAR CORPORATION, a Nevada corporation ("Sensar") and
Net2Wireless, Inc., a Delaware corporation ("Net"), based on the following:
Premises
A. Sensar is a publicly-held corporation with its common stock listed
on the NASDAQ Small Cap Market.
B. Net is an emerging growth company that has the right to acquire
development technology with potential applications in the wireless
communications field.
C. Sensar and Net have discussed the possibility of a business
transaction to the mutual benefit of both parties and have agreed to enter into
the transactions set forth in this Agreement.
Agreement
NOW, THEREFORE, based on the stated premises, which are incorporated herein
by this reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefits to the parties to be
derived therefrom, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the meanings indicated:
Section 1.01 Code. The Internal Revenue Code of 1986, as amended.
Section 1.02 Exchange Act. The Securities Exchange Act of 1934, as
amended.
Section 1.03 GAAP. United States generally accepted accounting
principles, as in effect on the date of determination, applied on a consistent
basis.
Section 1.04 Net. Net2Wireless, Inc., a corporation organized under
the laws of the state of Delaware and its wholly owned subsidiaries.
Section 1.05 Net Stock. All of the shares of Net issued and
outstanding as of the Closing Date, which are to be exchanged for shares of
Sensar Common Stock pursuant to the terms of this Agreement.
Section 1.06 SEC. The United States Securities and Exchange
Commission.
Section 1.07 Securities Act. The Securities Act of 1933, as amended.
Section 1.08 Sensar. Sensar Corporation, a Nevada corporation.
Section 1.09 Sensar Common Stock. The authorized common stock, par
value $0.001 per share, of Sensar.
ARTICLE II
TRANSACTION
Section 2.01 Loan. On the terms and conditions hereinafter set forth,
Sensar agrees to loan to Net Two Million Dollars ($2,000,000) (the "Funding").
The Funding will be made to Net subsequent to the successful completion of the
following:
(a) The acquisition (the "Asset Acquisition"), directly or
indirectly through wholly-owned subsidiaries of Net, of the following from
I.T.E.S. Ltd., an Israeli corporation ("ITES"):
(i) All intellectual property owned by ITES related to wireless
multi-media streaming;
(ii) Any intellectual property owned by ITES necessary to permit the
development by Net of related wireless applications such as e-mail, messaging,
etc.; and
(iii) The tangible property owned by ITES associated with the
intellectual property transferred to Net.
(b) The delivery of, and acceptance by Sensar, of the Net Schedules
required by Section 5.22, including the audited financial statements of Net, as
required by Section 5.05;
(c) The written agreement by the holders of at least 67% of the Net
Stock outstanding subsequent to the Asset Acquisition to approve the execution
and delivery of this Agreement by Net and to vote in favor of the acquisition of
Net as a wholly-owned subsidiary of Sensar if a Reorganization Notice (as
defined in Section 2.04) is given; and
(d) Net shall enter into an agreement with Partner Communications Ltd.
("Partner"), in form and substance acceptable to Sensar, that provides for the
installation and testing of Net's wireless multi-media streaming platform with
Partner's existing wireless network; and
(e) The execution and delivery of a security agreement in form and
substance acceptable to Sensar granting the security interest set forth in
Section 2.03.
Section 2.02 Note. The obligation of Net with respect to the Funding
and any subsequent amounts advanced to Net by Sensar shall be evidenced by a
promissory note, in a form satisfactory to Sensar. All such amounts shall bear
interest at eight percent (8%) per annum, from the date advanced until paid.
The principal and all accrued but unpaid interest shall be due in full on or
before September 30, 2000.
Section 2.03 Security. The obligations of Net to Sensar shall be
secured by a perfected security interest in all of the assets of Net, including
the shares of its operating subsidiaries.
Section 2.04 Reorganization.
(a) At any time after the commencement by Net of the pilot program
under the agreement with Partner until 30 days following the receipt of written
notice from Net that Net has completed its pilot program under the terms of the
agreement with Partner (the "Completion Date"), but in no event later than
December 31, 2000, Sensar may, by prior written notice (the "Reorganization
Notice") to Net, elect to acquire 100% of the equity interest of Net under the
terms set forth in Section 2.05.
(b) Within 30 days following the Completion Date and prior to
December 31, 2000, Net may deliver a Reorganization Notice to Sensar.
(c) On delivery of such Reorganization Notice, whether by Sensar
or Net, the parties shall be bound to proceed with the reorganization as set
forth below.
Section 2.05 Terms of the Reorganization. If a Reorganization Notice
is delivered, the acquisition of Net shall be accomplished either as an
acquisition of Net as a wholly-owned subsidiary of Sensar or through a merger of
Net with and into Sensar, in accordance with the representations, covenants, and
conditions set forth in this Agreement. All of the issued and outstanding
shares, and rights to acquire shares, of Net shall be cancelled as of the
effective time of the merger and Sensar shall issue an aggregate of 8,000,000
shares of Sensar common stock to the former holders of Net Stock, including the
holders, other than Sensar, of any rights to acquire Net Stock, pro rata, as
each holder's rights may be determined by the board of directors of Net;
provided that in addition to such 8,000,000 shares, options or a plan to issue
options existing as of the Closing to acquire Net Stock will be assumed as
options to acquire a maximum of 5,500,000 shares of Sensar Common Stock. If the
amount received by Sensar with respect to the short term notes receivable
reflected on the financial statements of Sensar as of September 30, 1999 on or
before the date that is 60 days subsequent to the due date of such receivables,
when added to the net cash held by Sensar at the Closing is less than $4.5
million, the number of shares of Sensar stock to be delivered to the former
holders of Net stock shall be increased, in the aggregate, by the number of
shares calculated in accordance with the following formula: [$4.45 million -
(net cash + amount received with respect to the short-term receivables on or
before sixty days subsequent to the due date)] by 4 = number of shares. For
purposes of this calculation "net cash" shall mean the cash held by Sensar as of
the Closing plus the amount due from Net for amounts advanced by Sensar under
the Funding (including accrued interest) less the liabilities of Sensar as of
the Closing, excluding any liability for which Sensar is indemnified by Howard
S. Landa under the provisions of Section 4.08 and to the extent then included,
any deferred gain reflected as a liability on the balance sheet of Sensar.
Section 2.06 Closing of Acquisition. The closing ("Closing") of the
acquisition contemplated by this Agreement shall be on a date and at such time
as the parties may agree ("Closing Date") within the 10-day period subsequent to
the approval of the acquisition by the stockholders of Sensar and Net.
Section 2.07 Closing Events. At the Closing:
(a) The shareholders of Net shall deliver the original
certificates representing all of the issued and outstanding stock and rights to
acquire stock of Net, duly executed, with appropriate signature guarantees, for
cancellation by Net. Sensar shall deliver the original of the certificates
representing 8,000,000 shares of Sensar Common Stock (subject to the adjustments
provided for in this Agreement), registered in the names and denominations set
forth on Schedule 2.10.
(b) The current directors of Sensar shall resign and Andrew
Bebbington and four nominees of Net shall be appointed to the board of directors
of Sensar. All current officers of Sensar shall resign and the new board of
directors shall appoint the officers of Sensar and Net.
(c) Each of the respective parties hereto shall execute,
acknowledge, and deliver (or shall cause to be executed, acknowledged, and
delivered) any and all certificates, financial statements, schedules,
agreements, resolutions, r other instruments required by this Agreement to be
so delivered at or prior to the Closing together with such other items as may be
reasonably requested by the parties hereto and their respective legal counsel in
order to effectuate or evidence the transactions contemplated hereby; and
(d) In addition to the foregoing, each of the parties shall
execute and deliver such additional documents as may reasonably be required in
order to effectuate the acquisition herein contemplated in accordance with the
requirements of the Code and shall treat such acquisition for all tax purposes
consistently with the other parties' treatment thereof and in accordance with
the requirements as a reorganization under Code section 368(a).
ARTICLE III
PRE-CLOSING COVENANTS
Section 3.01 Affirmative and Negative Covenants of Net.
(a) Net hereby covenants and agrees that, during the term of this
Agreement and prior to the Closing, unless otherwise expressly contemplated by
this Agreement (including, without limitation, the Asset Acquisition) or
consented to in writing by Sensar, Net will:
(ii) operate its business in all material respects in the usual
and ordinary course, consistent with past practice;
(iii) use all reasonable efforts to preserve substantially intact
its business organization, maintain its material rights and franchises, retain
the services of its officers and employees and maintain its relationships with
its material customers and suppliers;
(iv) maintain and keep its material properties and assets in as
good repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its customary
business practice; and
(v) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained.
(b) Except as expressly contemplated by this Agreement (including,
without limitation, the Asset Acquisition) or otherwise consented to in writing
by Sensar, during the term of this Agreement and prior to the Closing Date, Net
will not do any of the foregoing:
(i) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock;
(ii) (A) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations (except in connection with the exercise of outstanding stock
options in accordance with their terms); (B) effect any reorganization or
recapitalization; or (C) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock;
(iii) (A) issue, deliver, award, grant or sell, or authorize or propose
the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire any such shares; (B) amend or otherwise modify the terms of
any such rights, warrants or options the effect of which shall be to make such
terms more favorable to the holders thereof; or (C) take any action to
accelerate the exercisability of stock options or other rights to acquire Net
Stock provided, however, that Net shall be permitted to issue stock options
which will be assumed as options to acquire 5,500,000 shares of Sensar Common
Stock following the Closing;
(iv) acquire or agree to acquire, by merging or consolidating with, by
purchasing any equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than pursuant to this Agreement or
for the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice);
(v) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any assets material to Net or its business;
(vi) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably be
expected to lead to, any transaction that would be inconsistent with the
transactions contemplated by this Agreement, or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain such a competing transaction, or agree to or endorse any competing
transaction, or authorize or permit any of the officers, directors or employees
of Net or any investment banker, financial advisor, attorney, accountant or
other representative retained by Net to take any such action, and Net shall
promptly notify Sensar of all relevant terms of any such inquiries and proposals
received by Net or by any officer, director, investment banker, financial
advisor, attorney, accountant or other representative relating to any of such
matters and if such inquiry or proposal is in writing, Net shall promptly
deliver or cause to be delivered to Sensar a copy of such inquiry or proposal
provided that, notwithstanding any provision of this Agreement to the contrary,
if Net shall breach the provisions of this Section 3.01(b)(vi), Sensar shall
have the right to convert the $2 million note evidencing the Funding into Net
Stock representing 33% of the equity ownership of Net on a fully diluted basis;
(vii) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a competing
transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement;
(viii) adopt or propose to adopt any amendments to its certificate of
incorporation or bylaws, which would alter the terms of its capital stock or
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(ix) (A) change any of its methods of accounting employed in the
preparation of the financial statements described in Section 5.05 below , or (B)
make or rescind any express or deemed election relating to taxes, settle or
compromise any claim, action, suit, litigation, audit or controversy relating to
taxes (except where the amount of such settlement or controversy, individually
or in the aggregate, does not exceed $10,000);
(x) incur any obligations for borrowed money, incur any purchase money
indebtedness, or provide a guarantee, whether or not evidenced by a note, bond,
debenture or similar instrument, except in the ordinary course of business
consistent with past practice and in no event in excess of $100,000 in the
aggregate;
(xi) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Net;
(xii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities or
obligations, (x) reflected on, or reserved against in, or contemplated by, the
financial statements (or the notes thereto) of Net, (y) incurred in the ordinary
course of business consistent with past practice or (z) which are legally
required to be paid, discharged or satisfied;
(xiii) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of Net contained herein inaccurate in
any respect at, or as of any time prior to, the Closing;
(xiv) Net will not engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any of
Net affiliates, including, without limitation, any transactions, agreements,
arrangements or understanding with any affiliate or other person covered under
Item 404 of Regulation S-K promulgated under the Securities Act, other than
pursuant to such agreement, arrangements or understandings existing on the date
of this Agreement or as disclosed in writing to Sensar on the date hereof or
which are contemplated under this Agreement; provided that, Net provides Sensar
with all information concerning any such agreement, arrangement or understanding
that Sensar may reasonably request;
(xv) engage in any futures or options trading or be a party to any
price or currency swaps, hedges, futures or derivative instruments; or
(xvi) agree in writing or otherwise to do any of the foregoing.
Section 3.02 Affirmative Covenants of Sensar. Sensar hereby covenants
and agrees that, during the term of this Agreement and prior to the Closing,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Net, Sensar will:
(a) timely file all SEC reports that may become due subsequent to the
date of this Agreement. Sensar will provide a draft of any such SEC report to
Net prior to its release in order to solicit Net's comments;
(b) take such steps as are necessary so that at the Closing Sensar has
no liabilities other than current liabilities not yet due, not to exceed $50,000
in the aggregate, and a minimum of an aggregate of $4.5 million in cash and note
receivables due no later than October 1, 2000 (with the maximum principal amount
of such notes not to exceed $3.5 million inclusive of the $2 million note (and
accrued and unpaid interest) evidencing the Funding);
(c) terminate all of its employment and consulting agreements, except
for such agreements as may be terminable at will on thirty (30) days or less
notice, without payment of penalty or any other amount other than the current
amount due for services;
(d) cause to be exercised all options, warrants, or other rights to
acquire stock or securities of Sensar identified in Schedule 3.02(d). When such
options are exercised on a cashless basis in connection with the Closing, the
average of the closing prices for Sensar Common Stock for the 20 trading days
with reported trading volume of at least 50,000 shares preceding the Closing
shall be used to calculate the number of shares to be issued;
(e) use its best efforts to maintain the listing of its common stock on
the NASDAQ Small Cap Market;
(f) maintain and keep its material properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its customary
business practice; and
(g) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that currently
maintained.
In the course of accomplishing the foregoing, Sensar may make cash
payments, distribute assets, enter into transactions, and issue Sensar Common
Stock so long as it has a minimum of $4.5 million in cash and notes payable no
later than October 1, 2000 (with the maximum principal amount of such notes not
to exceed $3.5 million inclusive of the $2 million note (and accrued and unpaid
interest therein) evidencing the Funding) as of the Closing Date and does not
have in excess of 3,150,000 (plus any additional shares issued subsequent to the
date of this Agreement pursuant to the exercise of the options or warrants
identified in schedule 7.03) shares of Sensar Common Stock issued and
outstanding as of the Closing Date.
Section 3.03 Negative Covenants of Sensar. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Net (and
in addition to the covenant set forth in the preceding paragraph), during the
term of this Agreement and prior to the Closing Date, Sensar will not do any of
the following:
(a) declare or pay any dividend on, or make any other distribution
in respect of, outstanding shares of capital stock;
(b) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants or conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations (except in connection with the exercise of outstanding stock
options in accordance with their terms); (2) effect any reorganization or
recapitalization; or (3) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock;
(c) except for the rights identified in schedule 7.03, (1) issue,
deliver, award, grant or sell, or authorize or propose the issuance, delivery,
award, grant or sale (including the grant of any security interests, liens,
claims, pledges, limitations in voting rights, charges or other encumbrances)
of, any shares of any class of its capital stock (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire any such shares;
(2) amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the holders
thereof; or (3) take any action to accelerate the exercisability of stock
options or other rights to acquire Sensar Common Stock;
(d) acquire or agree to acquire, by merging or consolidating with,
by purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than pursuant to this Agreement or
for the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with past practice);
(e) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any assets material to Sensar or its business;
(f) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal relating to, or that may reasonably be
expected to lead to, any transaction that would be inconsistent with the
transactions contemplated by this Agreement, or enter into discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain such a competing transaction, or agree to or endorse any competing
transaction, or authorize or permit any of the officers, directors or employees
of Sensar or any investment banker, financial advisor, attorney, accountant or
other representative retained by Sensar to take any such action, and Sensar
shall promptly notify Net of all relevant terms of any such inquiries and
proposals received by Sensar or by any officer, director, investment banker,
financial advisor, attorney, accountant or other representative relating to any
of such matters and if such inquiry or proposal is in writing, Sensar shall
promptly deliver or cause to be delivered to Net a copy of such inquiry or
proposal;
(g) release any third party from its obligations, or grant any
consent, under any existing standstill provision relating to a competing
transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement;
(h) adopt or propose to adopt any amendments to its certificate of
incorporation or bylaws, which would alter the terms of its capital stock or
would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(i) change any of its methods of accounting in effect at December
31, 1998, or (2) make or rescind any express or deemed election relating to
taxes, settle or compromise any claim, action, suit, litigation, audit or
controversy relating to taxes (except where the amount of such settlement or
controversy, individually or in the aggregate, does not exceed $10,000), or
change any of its methods of reporting income or deductions for income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1998, except in each case, as
may be required by law or GAAP;
(j) incur any obligations for borrowed money, incur any purchase
money indebtedness, or provide a guarantee, whether or not evidenced by a note,
bond, debenture or similar instrument;
(k) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization of Sensar;
(l) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligations, (x) reflected on, or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of Sensar, (y)
incurred in the ordinary course of business consistent with past practice or (z)
which are legally required to be paid, discharged or satisfied;
(m) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of Sensar contained herein inaccurate
in any respect at, or as of any time prior to, the Closing;
(n) Sensar will not engage in any transaction with, or enter into
any agreement, arrangement, or understanding with, directly or indirectly, any
of Sensar affiliates, including, without limitation, any transactions,
agreements, arrangements or understanding with any affiliate or other person
covered under Item 404 of Regulation S-K promulgated under the Securities Act,
other than pursuant to such agreement, arrangements or understandings existing
on the date of this Agreement or as disclosed in writing to Net on the date
hereof or which are contemplated under this Agreement; provided that, Sensar
provides Net with all information concerning any such agreement, arrangement or
understanding that Net may reasonably request;
(o) engage in any futures or options trading or be a party to any
price or currency swaps, hedges, futures or derivative instruments; or
(p) agree in writing or otherwise to do any of the foregoing.
Section 3.04 Interim Reports. During the term of this Agreement, each
party shall provide the other with monthly reports. Such reports shall be
delivered by the 15th of the month following the month reported commencing the
month following the Funding and shall contain a copy of the internal financial
statements of such party, certified by the chief financial officer of such party
as true and correct and a fair representation of the financial condition and
results of operation for such party as of and for the periods presented; with
respect to Net, a summary of the development of the technology and future steps
required or intended to be taken by Net with respect to the technology; a
summary and, if requested by the other party, a copy of any material agreement
entered into or proposed to be entered into by the other party; and with respect
to Net, a summary of the current status, and prospective business plan, of Net.
Section 3.05 Access and Information.
(a) Sensar shall, and shall cause its subsidiaries to, afford Net
and its officers, directors, employees, accountants, consultants, legal counsel,
agents and other representatives (collectively, the "Net Representatives")
reasonable access at reasonable times, upon reasonable prior notice, to the
officers, employees, agents, properties, offices and other facilities of Sensar
and its subsidiaries and to the books and records thereof and furnish promptly
to Net and the Net Representatives such information concerning the business,
properties, contracts, records and personnel of Sensar and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by Net or such
Representatives.
(b) Net shall (i) afford to Sensar and its officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Sensar Representatives") reasonable access
at reasonable times, upon reasonable prior notice, to the officers, employees,
accountants, agents, properties, offices and other facilities of Net and its
subsidiaries and to their respective books and records and (ii) furnish promptly
to Sensar and Sensar Representatives such information concerning the business,
properties, contracts, records and personnel of Net (including, without
limitation, financial, operating and other data and information) as may be
reasonably requested, from time to time, by Sensar or such Representatives.
(c) The information received pursuant to section 3.05(a) and (b)
shall be deemed to be "confidential information" and shall not be disclosed to
any other person or entity, except to the parties' representatives, and shall
not be used for any purpose other than the transactions contemplated by this
Agreement.
Section 3.06 Termination.
(a) This Agreement may be terminated at any time prior to the
Closing Date by the mutual consent of both Sensar and Net through action of
their respective boards of directors. This Agreement may be terminated by
either Sensar or Net in the event that (x) neither Sensar nor Net has delivered
to the other the Reorganization Notice on or before September 30, 2000 or (y)
the Closing shall not have occurred by December 31, 2000 as a result of the
failure of the other party to satisfy the conditions required to be met by such
other party prior to Closing. In the event of termination pursuant to this
subparagraph (a) of section 3.06, no obligation, right, remedy, or liability
shall arise hereunder, other than the obligations of Net to Sensar with respect
to any amounts advanced upon the Funding, and the parties shall bear their own
costs incurred in connection with the preparation and execution of this
Agreement, the preparation and review of financial statements required to be
delivered pursuant hereto, and the negotiation of the transactions contemplated
hereby.
(b) This Agreement may be terminated at any time prior to the
Closing Date by action of Sensar's board of directors if Net shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, if any of the representations or warranties of Net contained
herein shall be inaccurate in any material respect at or subsequent to the
Funding, or if the stockholders of Net fail to approve the transactions
contemplated by this Agreement including the acquisition of Net. In the event
of termination pursuant to this subparagraph (b) of section 3.06, no obligation,
right, remedy, or liability shall arise hereunder, other than the obligations of
Net to Sensar with respect to amounts advanced upon the Funding, and the parties
shall bear their own costs incurred in connection with the preparation and
execution of this Agreement, the preparation and review of financial statements
required to be delivered pursuant hereto, and the negotiation of the
transactions contemplated hereby.
(c) This Agreement may be terminated at any time prior to the
Closing Date by action of Net's board of directors if Sensar shall fail to
comply in any material respect with any of its covenants or agreements contained
in this Agreement, if any of the representations or warranties of Sensar
contained herein shall be inaccurate in any material respect, or if the
stockholders of Sensar fail to approve this Agreement. In the event of
termination pursuant to this subparagraph (c) of section 3.06, no obligation,
right, remedy, or liability shall arise hereunder, other than the obligations of
Net to Sensar with respect to any amounts advanced upon the Funding, and the
parties shall bear their own costs incurred in connection with the preparation
and execution of this Agreement, the preparation and review of financial
statements required to be delivered pursuant hereto, and the negotiation of the
transactions contemplated hereby.
Section 3.07 Post-Closing Covenants of Sensar and Net. Subsequent to
the Closing of the transactions contemplated by this Agreement, neither Sensar
nor Net shall undertake (or fail to undertake) any action that would result in
the merger failing to qualify as a reorganization within the meaning of section
368(a) of the Code. Sensar and Net shall execute and deliver any and all
documents, instruments, and agreements necessary to effectuate the purposes of
this Agreement. All of the provisions of this section 3.07 shall survive the
Closing and the consummation of the transactions contemplated herein.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.01 Meeting of Sensar Shareholders. Sensar shall, promptly
after the effectiveness of the Proxy Statement/Prospectus provided for in
section 4.03, take all actions necessary in accordance with Nevada Law and its
articles of incorporation and bylaws to convene a meeting of Sensar's
stockholders (the "Sensar Stockholders Meeting") to approve
(a) the acquisition of Net; and
(b) to the extent subject to shareholder approval, the options
granted to current officers, directors, consultants, and advisors of Sensar, all
as disclosed in Schedule 7.03;
and Sensar shall consult with Net in connection therewith. The Board of
Directors of Sensar shall recommend that its stockholders vote in favor of the
foregoing proposals and shall cause such recommendation to be included in the
Proxy Statement/Prospectus (as defined in Section 4.03 below).
Section 4.02 Meeting of Net Shareholders. Net shall, promptly after
the effectiveness of the Proxy Statement/Prospectus provided for in section
4.03, take all actions necessary in accordance with Delaware law and its
articles of incorporation and bylaws to convene a special meeting of Net's
shareholders to approve the acquisition of Net (the "Net Shareholders Meeting"),
and Net shall consult with Sensar in connection therewith. The Net Shareholders
agree to vote all of the shares of Net Stock held by them at the time of the
record date for the Net Shareholders Meeting in favor of the acquisition of Net.
Net shall recommend approval of the acquisition to its shareholders and use its
best efforts to solicit from the other shareholders of Net proxies to approve
and adopt the acquisition.
Section 4.03 S-4 Registration Statement.
(a) As promptly as practicable after delivery of the Acquisition
Notice, Net and Sensar shall prepare and file with the SEC a Form S-4, including
a proxy statement for use in connection with obtaining the approval of the
transactions contemplated by this Agreement by the stockholders of Sensar and
Net and a prospectus for the issuance by Sensar of the Common Stock to the Net
Shareholders (the "Proxy Statement/Prospectus"). Each of Net, Sensar and the
Net Shareholders shall use their best efforts to cause the Form S-4 to be
declared effective by the SEC as promptly as practicable, and shall take any
action required to be taken under any applicable federal or state securities
laws in connection with the issuance of shares of the Sensar Common Stock. Each
of Sensar, Net, and the Net Shareholders shall furnish all information
concerning them as may reasonably be necessary or advisable in connection with
such actions. In addition, Net shall provide disclosure concerning tax
consequences to the stockholders of Net under the tax laws of the State of
Israel, if any. As promptly as practicable after the Form S-4 shall have been
declared effective by the SEC, Sensar shall mail the Proxy Statement/Prospectus
to its stockholders entitled to notice of and to vote at the Sensar Stockholders
Meeting and Net shall mail the Proxy Statement/Prospectus to its shareholders
entitled to vote at the Net Stockholders Meeting. The Proxy
Statement/Prospectus shall include the recommendation of Sensar's and Net's
Board of Directors in favor of the adoption of this Agreement.
(b) The information supplied by Sensar for inclusion in the Form
S-4 shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Sensar, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. If at any time prior to the
Closing Date any event or circumstance relating to Sensar or any of its
affiliates, or its or their respective officers or directors, is discovered by
Sensar that should be set forth in a supplement to the Proxy
Statement/Prospectus, Sensar shall promptly inform Net thereof in writing.
Sensar will indemnify and hold harmless Net, each of its officers, directors,
shareholders and each person who controls Net within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages,
expenses, liabilities, or actions to which it may become subject under
applicable law (including the Securities Act and the Exchange Act) and will
reimburse it for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any claims or actions, whether or not
resulting in liability, insofar as such losses, claims, damages, expenses,
liabilities, or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact or the omission of a material fact
required to be stated therein, or necessary in order to make the statements
therein not misleading except insofar as any statement or omission was made in
reliance upon and in conformity with information furnished in writing by Net
expressly for use therein.
(c) The information supplied by Net for inclusion in the Form S-4
shall not, at the time the Proxy Statement/Prospectus is mailed to the
stockholders of Sensar and the Net Shareholders, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Closing Date any event or circumstance relating to Net or any
of its affiliates, or to their respective officers or directors, is discovered
by Net that should be set forth in a supplement to the Proxy
Statement/Prospectus, Net shall promptly inform Sensar thereof in writing. Net
will indemnify and hold harmless Sensar, each of its officers, directors and
each person who controls Sensar within Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which it may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse it for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
or the omission of a material fact required to be stated therein, or necessary
in order to make the statements therein not misleading, but only insofar as any
statement or omission was made in reliance upon and in conformity with
information furnished in writing by Net expressly for use therein.
Section 4.04 S-3 Registration Statement.
(a) Either prior to or concurrently with the filing of the Proxy
Statement/Prospectus Sensar shall file a registration statement on Form S-3
registering the resale of the stock of the individuals and entities set forth on
Schedule 4.04 not currently covered by a registration statement (the "Resale
Registration"); provided that such individuals and entities shall each execute
an agreement satisfactory to Sensar pursuant to which they shall agree not to
publicly sell or dispose of 50% of the registered shares until the expiration of
180 days following the effective date of the registration statement. Such
Resale Registration shall be kept effective by Sensar until all of the shares of
Sensar Common Stock covered thereby have been sold or can otherwise be sold free
of any restriction or limitation. The obligations of this section 4.04 shall be
for the benefit of the selling shareholders identified on schedule 4.04 and
shall survive the consummation of the transactions contemplated by this
Agreement.
(b) The information supplied by Sensar for inclusion in the Form
S-3 shall not, at the time the Resale Registration is filed, becomes effective,
or thereafter, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. If at any time while the Resale
Registration is effective, any event or circumstance relating to Sensar or any
of its affiliates is discovered by Sensar that should be set forth in an
amendment to the Resale Registration, Sensar shall promptly prepare and file
such amendment. Sensar will indemnify and hold harmless each person or entity
selling shares pursuant to the Resale Registration, and each of their respective
officers, directors, shareholders and each person who controls such selling
shareholders within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which it may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse it for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
or the omission of a material fact required to be stated therein, or necessary
in order to make the statements therein not misleading, except insofar as any
statement or omission was made in reliance upon and in conformity with
information furnished in writing by such selling shareholder expressly for use
therein.
(c) The information supplied by Net for inclusion in the Form S-3
shall not, at the time the Resale Registration is filed, becomes effective, or
thereafter, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time while the Resale Registration
is effective, any event or circumstance relating to Net or any of its affiliates
is discovered by Net that should be set forth in a supplement to the Resale
Registration, Net shall promptly inform Sensar thereof in writing. Net will
indemnify and hold harmless Sensar and each of its officers, directors and each
person who controls Sensar within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages, expenses, liabilities,
or actions to which it may become subject under applicable law (including the
Securities Act and the Exchange Act) and will reimburse it for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any claims or actions, whether or not resulting in liability, insofar
as such losses, claims, damages, expenses, liabilities, or actions arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact or the omission of a material fact required to be stated therein, or
necessary in order to make the statements therein not misleading, but only
insofar as any statement or omission was made in reliance upon and in conformity
with information furnished in writing by Net expressly for use therein.
Section 4.05 Appropriate Action; Consents; Filings.
(a) Sensar and Net shall each use all reasonable efforts to (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable law or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
(ii) obtain from any governmental entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Net or Sensar or any of its subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, (iii) make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement
required under (A) the Securities Act and the Exchange Act and the rules and
regulations thereunder, and any other applicable federal or state securities
laws, and (B) any other applicable Law.
(b) Net and Sensar agree to cooperate with respect to, and agree
to use all reasonable efforts vigorously to contest and resist, any action,
including legislative, administrative or judicial action, and to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order
(whether temporary, preliminary or permanent) (an "Order") of any Governmental
Entity that is in effect and that restricts, prevents or prohibits the
consummation of the transactions contemplated by this Agreement, including,
without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative action. Each
of Net and Sensar also agree to take any and all actions, including, without
limitation, the disposition of assets or the withdrawal from doing business in
particular jurisdictions, required by regulatory authorities as a condition to
the granting of any approvals required in order to permit the consummation of
the Acquisition or as may be required to avoid, lift, vacate or reverse any
legislative or judicial action which would otherwise cause any condition to
Closing not to be satisfied.
(c) (i) Each of Sensar and Net shall give any notices to third
parties, and use all reasonable efforts to obtain any third party consents (A)
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement, or (B) otherwise required under any contracts, licenses, leases
or other agreements in connection with the consummation of the transactions
contemplated hereby.
(iii) In the event that any party shall fail to obtain any third
party consent described in subsection (c)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by the
other party, to limit the adverse effect upon Net and Sensar and their
respective businesses resulting, or which could reasonably be expected to result
after the Closing Date, from the failure to obtain such consent.
(d) Each of Net and Sensar shall promptly notify the other of (A)
any material change in its current or future business, assets, liabilities,
financial condition or results of operations, (B) any complaints, investigations
or hearings (or communications indicating that the same may be contemplated) of
any Governmental Entities with respect to its business or the transactions
contemplated hereby, (C) the institution or the threat of material litigation or
(D) any event or condition that might reasonably be expected to cause any of its
representations, warranties, covenants or agreements set forth herein not to be
true and correct at the Closing Date. As used in the preceding sentence,
"material litigation" means any case, arbitration or adversary proceeding or
other matter which would have been required to be disclosed on the Sensar
disclosure schedules, if in existence on the date hereof, or in respect of which
the legal fees and other costs might reasonably be expected to exceed $10,000
over the life of the matter.
Section 4.06 Public Announcements. The press release announcing the
execution and delivery of this Agreement shall be a joint press release of Net
and Sensar. In addition, Sensar shall be entitled to make such press releases
and file such information as it deems advisable to comply with its requirements
under United State securities laws. Sensar will provide a draft of any such
press release to Net prior to its release in order to solicit Net's comments.
Section 4.07 NASDAQ. Each party hereto shall use all reasonable
efforts to cause the shares of Sensar Common Stock to be issued to the
shareholders of Net to be approved for listing (subject to official notice of
issuance) on the NASDAQ Small Cap Market or another over-the-counter national
securities exchange prior to the Closing Date.
Section 4.08 Indemnification by Howard S. Landa. Howard S. Landa shall
agree to assume all obligations, including costs of defense, associated with the
litigation brought by former employees on the terms acceptable to Net.
ARTICLE V
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF NET
As an inducement to and to obtain the reliance of Sensar, Net represents
and warrants after giving effect to the Asset Acquisition and thereafter, and
except as set forth on the Net Schedules, as set forth below in this Article V.
As used in this Article V, the term "Net" shall include Net and the Subsidiaries
(as defined in Section 5.04) unless the context otherwise requires.
Section 5.01 Organization. Net is a corporation duly organized,
validly existing, and in good standing under the corporate laws of the state of
Delaware and each subsidiary of Net is duly organized, validly existing, and in
good standing under the laws of its jurisdiction of organization and each has
the corporate power to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not so qualified in which the character and location
of the assets owned by it or the nature of the business transacted by it
requires qualification, except where failure to do so would not have a material
adverse effect on the business or properties of Net. Included in the Net
Schedules (as hereinafter defined) are complete and correct copies of the
certificate of incorporation and bylaws of Net and its subsidiaries as in effect
on the date hereof. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of Net's or its
subsidiaries certificate of incorporation or bylaws.
Section 5.02 Approval of Agreement. The board of directors of Net has
authorized the execution and delivery of this Agreement by Net and has approved
the consummation of the transactions contemplated hereby. Included in the Net
Schedules is a signed copy of a consent duly adopted by the board of directors
of Net evidencing such approval. Net has full power, authority, and legal
right, and has taken all action required by law, its certificate of
incorporation, its bylaws, or otherwise, to consummate the transactions
contemplated hereby.
Section 5.03 Capitalization. Net has authorized capital of 3,000
shares of common stock, par value $0.01 per share. All issued and outstanding
Net Stock is held by the individuals and entities set forth on Schedule 5.03 in
the amount set forth opposite their respective names. There are no options,
rights, convertible securities, calls, or commitments to which Net is a party or
to which it is subject requiring the issuance of any additional shares of Net
Stock. All issued and outstanding shares of Net are validly authorized, legally
issued, fully paid, and nonassessable and not issued in violation of the
preemptive or other right of any person.
Section 5.04 No Subsidiary or Predecessor. Net does not own,
beneficially or of record, any equity securities in any other entity other than
the subsidiaries listed on Schedule 5.04 (the "Subsidiaries"). Net owns all of
the outstanding capital stock of each of the Subsidiaries.
Section 5.05 Financial Information.
(a) Included in the Net Schedules are the audited consolidated
financial statements of Net and the Subsidiaries as of the closing of the Asset
Acquisition.
(b) Such financial information has been prepared in accordance
with GAAP, except as disclosed in the Net Schedules. Such financial statements
contain all of the periods and notes that would be required to be included in a
registration statement filed by Net by the provisions of Regulations S-X
promulgated under the Securities Act of 1933, as amended. Net did not have, as
of the date of the most recent balance sheet, except as and to the extent
reflected or reserved against therein, any liabilities or obligations (absolute
or contingent) which should be reflected in a balance sheet prepared in
accordance with GAAP. All assets reflected on the most recent balance sheet
present fairly the assets of Net, as of the date of such balance sheet.
(c) Net has filed all tax returns and reports as required by law.
All such returns and reports are accurate and correct in all material respects.
There are no income taxes currently due to any governmental agency that have not
been paid. Net does not have any liabilities with respect to the payment of any
tax (including any deficiencies, interest, or penalties) accrued for or
applicable to the period ended on the date of the most recent balance sheet
included in the Net Schedules and all such dates and years and periods prior
thereto and for which Net may be liable in its own right or as transferee of the
assets of, or as successor to, any other corporation or other entity, except for
taxes accrued but not yet due and payable. None of the tax returns of Net has
been audited or is currently being audited by any governmental agency. Net has
not made any tax election which would have a material adverse effect on Net, its
financial condition, its business as presently conducted or as proposed to be
conducted, or any of its properties or material assets. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of Net.
(d) The books and records, financial and otherwise, of Net are in
all material respects complete and correct and have been made and maintained in
accordance with sound business and bookkeeping practices and, in reasonable
detail, accurately and fairly reflect the transactions involving the assets of
Net. Net has maintained a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions have been and are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit the preparation of financial
statements in conformity with GAAP and any other criteria applicable to such
statements and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(e) Except as set forth in the Net Schedules, the balance sheet
included in the Net Schedules, or in the notes thereto, Net (i) has good and
marketable title to its accounts receivable, and other debts due or recorded in
the records and books of account of Net, free of any security interests or liens
and free of any material defenses, counterclaims, and set-offs, and all of such
accounts receivable, invoices, and debts are actual and bona fide amounts due
Net for the total dollar amount thereof shown on the books of Net and resulted
from the regular course of its business; and (ii) the accounts receivable,
invoices, and debts set forth on the Net balance sheets arose in the ordinary
course of business and are, net of any reserves shown on the balance sheet,
collectible in full in all material respects on the continuation of reasonable
collection efforts by Net or successor personnel and without resorting to
litigation and in any event not later than ninety (90) days after the date
billed.
Section 5.06 Information. The information concerning Net set forth in
this Agreement and in the Net Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 5.07 Options or Warrants. Except as set forth on Schedule 5.07,
there are no existing options, warrants, calls, commitments, or other rights of
any character relating to authorized and unissued Net Stock or other securities
of Net or the Subsidiaries. Other than the convertible obligations incurred in
connection with the Asset Acquisition, all such rights shall be cancelled as of
the effective time of the acquisition in accordance with Section 2.06 above.
Section 5.08 Absence of Certain Changes or Events. Except as set forth
in this Agreement or in the Net Schedules, since the date of the balance sheet
included in the Net Schedules:
(a) There has not been (i) any material adverse change in the
business, operations, assets, or condition of Net, except for changes occurring
as a result of transactions in the normal course of business of Net, or (ii) any
damage, destruction, or loss to Net (whether or not covered by insurance)
materially and adversely affecting the business, operations, assets, or
condition of Net;
(b) Net has not (i) amended its certificate of incorporation and
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Net; (iv) made any material change in
its method of management, operation, or accounting; (v) entered into any other
material transactions, (vi) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer, employee, or shareholder; (vii) increased the
rate of compensation payable or to become payable by it to any of its officers
or directors or any of its employees whose monthly compensation exceeds $5,000;
or (viii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) Net has not (i) granted or agreed to grant any options,
warrants, or other rights to acquire its stocks, bonds, or other corporate
securities; (ii) borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current liabilities
reflected in or shown on the most recent balance sheet included in the Net
Schedules and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or transfer, any
of its assets, properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a value of less than
$10,000 or assets, properties, or rights disposed of in the ordinary course of
business); (v) made or permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or termination is
material, considering the business of Net; or (vi) issued, delivered, or agreed
to issue or deliver any stock, bonds, or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock); and
(d) Net has not become subject to any law or regulation which
materially and adversely affects, or may in the future materially and adversely
affect, the business, operations, properties, assets, or condition of Net.
Section 5.09 Title to Personal and Real Property.
(a) Except as disclosed in the balance sheet included in the Net
Schedules, Net has good and marketable title to all its properties, inventory,
know-how, interests in properties, and assets, which are reflected in the most
recent balance sheet included in the Net Schedules, or are used in Net's
business, or acquired after that date (except those sold or otherwise disposed
of since such date in the ordinary course of business), free and clear of all
material mortgages, security interests, royalties, liens, pledges, charges, or
encumbrances, except (i) statutory liens or claims for amounts not yet
delinquent; and (ii) such imperfections of title and easements as do not and
will not materially detract from or interfere with the present or proposed use
of the properties subject thereto or affected thereby or otherwise materially
impair present business operations on such properties. All personal property
held by Net is in a state of good maintenance and repair, excepting only
reasonable wear and tear, and is adequate and suitable for the purposes for
which it is presently being used.
(b) Net does not own any real property in fee simple.
(c) Included in the Net Schedules is an accurate and complete list
of all personal property owned by Net or used in its business and having a
purchase price of over $10,000, together with a description of any mortgages,
financing instruments, or other encumbrances to the title to such properties.
Also included in the Net Schedules are copies of all leases for real and
personal property to which Net is a party. Except as disclosed in the Net
Schedules, each such lease is in full force and effect; all rents and additional
fees due to date on each such lease have been paid; in each case, the lessee has
been in peaceable possession since the commencement of the original term of such
lease and is not in default thereunder and no waiver, indulgence, or
postponement of the lessee's obligation thereunder has been granted by the
lessor; and there exists no event of default or event, occurrence, condition, or
act, which, with the giving of notice, the lapse of time, or the happening of
any further event or condition, would become a default under such lease, the
occurrence of which would have a material adverse affect on Net. Net has not
violated any of the terms or conditions under any such lease in any material
respect, and all of the material covenants to be performed by any other party
under any such lease have been fully performed. The property leased by Net is
in a state of good maintenance and repair, except reasonable wear and tear, and
is adequate and suitable for the purposes for which it is presently being used.
Section 5.10 Intellectual Property. Net owns the entire right, title,
and interest to all trade secrets, technology, know-how, tradenames, trademarks,
servicemarks, and other proprietary information owned by, used, or licensed in
connection with the business of, Net, including all copyrights, patents, patent
applications, registrations, and applications with respect thereto, all of which
is described in Section 2.01(a) (collectively the "Intellectual Property").
Such Intellectual Property is not subject to the payment of royalties or any
other obligation to any other person or entity. No employee or former employee
of Net owns, directly or indirectly, any right, title, or interest in or to the
Intellectual Property. Hemi Davidson hereby waives, assigns, and transfers to
Net any and all rights or claims he may have to the Intellectual Property. None
of the Intellectual Property is subject to any material order, decree, judgment,
stipulation, settlement, encumbrance, or attachment. Except as set forth in the
Net Schedules, there are no pending or threatened proceedings, litigation, or
other adverse claims to the Intellectual Property of which Net is aware. To
Net's knowledge, the Intellectual Property does not infringe on the copyright,
patent, trade secret, know-how, or other proprietary right of any other person
or entity and comprises all such rights necessary to permit the operation of the
business of Net as now being conducted and as proposed to be conducted.
Section 5.11 Litigation and Proceedings. Except as set forth in the
Net Schedules, there are no actions, suits, or proceedings pending or, to the
knowledge of Net or its officers and directors, threatened in writing by or
against Net or affecting Net or its properties, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind. Net is not in material default with respect
to any judgment, order, writ, injunction, decree, award, rule, or regulation of
any court, arbitrator, or governmental agency or instrumentality.
Section 5.12 Contracts.
(a) Included in the Net Schedules is a description of every
contract, agreement, distributorship, franchise, license, or other agreement,
arrangement, or commitment to which Net is a party or by which its assets or
properties are bound, which calls for the payment by Net of more than $2,000 a
month, or $24,000 in the aggregate;
(b) Except as described in this Agreement or in the Net Schedules,
Net is not a party to or bound by, and the properties of Net are not subject to,
any contract, agreement, other commitment or instrument or any charter or other
corporate restriction or any judgment, order, writ, injunction, decree, or award
which materially and adversely affects, or in the future may (as far as Net can
now reasonably foresee) materially and adversely affect, the business
operations, properties, assets, or financial condition of Net; and
(c) Except as included or described in the Net Schedules or
reflected in the accompanying Net balance sheet, Net is not a party to any oral
or written (i) contract for the employment of any officer, director, or
employee, whose compensation is greater than $5,000 per month, which is not
terminable on thirty (30) days (or less) notice; (ii) profit sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or
retirement plan; (iii) agreement, contract, or indenture relating to the
borrowing of money in amounts greater than $10,000 in the aggregate; (iv)
guarantee of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which, in
the aggregate do not exceed $10,000; (v) consulting or other similar contract
with an unexpired term of more than one year or providing for payments in excess
of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director of Net whose
compensation was or is greater than $5,000 per month; or (viii) other contract,
agreement, or other commitment, except normal ongoing monthly operating
expenses, involving payments by it in the future of more than $10,000 in the
aggregate per contract.
Section 5.13 Material Contract Defaults. Net is not in default in any
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets, or
financial condition of Net, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other commitment
in respect of which Net has not taken adequate steps to prevent such a default
from occurring. Net's agreements with Partner remain in full force and effect,
Net is current and in full compliance with its obligations thereunder, and Net
has not received any notice from Partner that it intends to terminate such
agreements or requesting any material change or modification to such agreements.
Section 5.14 Insurance Claims. Except as set forth in the Net
Schedules, during the last three years Net has not received, or informed its
insurance carriers of, any claims for damages, whether or not covered by
insurance, for amounts greater than $10,000. Net is not currently aware of any
pending or unasserted claims.
Section 5.15 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Net is a
party or to which any of its properties or operations are subject, which would
have a material adverse affect on Net.
Section 5.16 Governmental Authorizations. Net has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date hereof or as presently contemplated. Net required
approvals, if any, for the export of its technology, necessary to permit it to
conduct its business and provide its proposed services outside of the State of
Israel. No authorization, approval, consent, or order of, or registration,
declaration, or filing with, any court or other governmental body is required in
connection with the execution and delivery by Net of this Agreement and the
consummation by Net of the transactions contemplated hereby.
Section 5.17 Compliance With Laws and Regulations. Net has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or financial condition of Net or except to the extent that noncompliance
would not result in the incurrence of any material liability for Net. Included
in the Net Schedules is a copy of each letter of inquiry, review, or
investigation or other writing from or to any governmental authority subsequent
to December 31, 1997, evidencing a violation or possible or alleged violation of
any of the foregoing.
Section 5.18 Insurance. Included in the Net Schedules is a complete
list of all business liability, casualty, automobile, extended coverage, and
other insurance policies which Net maintains respecting its products, services,
business, properties, and employees, showing for each type of coverage the
policy limits, principal exclusions, deductibles, insurer, and other relevant
information. Such policies are in full force and effect and are free from any
right of termination by the insurance carriers. All of the insurable properties
of Net are insured for its benefit in the amount of their full replacement value
(subject to reasonable deductibles) against losses due to fire and other
casualty, with extended coverage, and other risks customarily insured against by
persons operating similar properties in the localities where such properties are
located and under valid and enforceable policies issued by insurers of
recognized responsibility.
Section 5.19 Transactions With Affiliates. Set forth in the Net
Schedules is a list of every contract, agreement, or arrangement between Net and
any person who is or has ever been during the previous three years an officer or
director of Net or person owning of record, or known by Net to own beneficially,
5% or more of the issued and outstanding common stock of Net and which is to be
performed in whole or in part after the date hereof. In all of such
circumstances, the contract, agreement, or arrangement was for a bona fide
business purpose of Net. Except as disclosed in the Net Schedules or otherwise
disclosed herein, no officer or director of Net or 5% shareholder of Net has, or
has had during the preceding three years, any interest, directly or indirectly,
in any material transaction with Net. The Net Schedules also include a
description of any commitment by Net, whether written or oral, to lend any funds
to, borrow any money from, or enter into any other material transaction with,
any such affiliated person.
Section 5.20 Labor Agreements and Actions. Net is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment, or arrangement with
any labor union, and no labor union has requested or sought to represent any of
the employees, representatives, or agents of Net. There is no strike or other
labor dispute involving Net pending or threatened, which could have a material
adverse effect on the assets, properties, financial condition, operating
results, or business of Net or (as such business is presently conducted and as
it is proposed to be conducted), and Net is not aware of any labor organization
activity involving its employees. Net is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with Net, nor does Net have a present intention to terminate the
employment of any of the foregoing. Except as set forth in the Net Schedules,
the employment of each officer and employee of Net is terminable at the will of
Net.
Section 5.21 Pension Obligations. Net does not have any unfunded
pension liability to any person or entity in connection with any retirement,
pension plan, or similar arrangement.
Section 5.22 Net Schedules. Prior to the Funding, Net shall deliver to
Sensar the following schedules, which are collectively referred to as the "Net
Schedules." On delivery, Sensar shall have five days to review the Net
Schedules. If Sensar does not object to the Net Schedules within such period,
they shall be deemed accepted by Sensar. The Net Schedules shall be updated as
of Closing and shall be certified by the chief executive officer of Net as
complete, true, and accurate:
(a) A schedule including copies of the certificate of
incorporation and bylaws of Net in effect as of the date of this Agreement as
referred to in section 5.01;
(b) A schedule containing copies of resolutions adopted by the
board of directors of Net approving this Agreement and the transactions herein
contemplated as referred to in section 5.02;
(c) A schedule listing the shares of Net Stock held by each of the
Net Shareholders;
(d) A schedule including the financial information required by
section 5.05;
(e) A schedule including copies of all income tax returns filed
for Net, as identified in section 5.05;
(f) A schedule listing the accounts receivable and notes and other
obligations receivable of Net as of the date of the balance sheet included in
the Net Schedules or that arose thereafter other than in their ordinary course
of business, indicating the debtor and amount, classifying the accounts to show
in reasonable detail the length of time, if any, overdue, and stating the nature
and amount of any refunds, setoffs, reimbursements, discounts, or other
adjustments, which in the aggregate are greater than $1,000, due to or claimed
by such debtors;
(g) A schedule listing the accounts payable and notes and other
obligations payable of Net as of the date of the balance sheet included in the
Net Schedules or that arose thereafter other than in the ordinary course of the
business of Net, indicating the creditor and amount, classifying the accounts to
show in reasonable detail the length of time, if any, overdue, and stating the
nature and amount of any refunds, setoffs, reimbursements, discounts, or other
adjustments, which in the aggregate are greater than $1,000, payable to Net from
any one such creditor;
(h) A schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or financial
condition of Net since the balance sheet included in the Net Schedules, required
to be provided pursuant to section 5.08 hereof;
(i) Copies of all agreements or arrangements and all written
statements of practice followed with regard to the payment of compensation,
bonuses, deferred compensation, profit sharing, pension, vacation, retirement,
or other compensation benefits to officers, directors, or employees whose
monthly compensation exceeds $5,000 (and descriptions of any such agreements,
arrangements, or practices which are not in writing), together with a schedule
setting forth the name or identification of each officer, director, or employee
whose monthly compensation exceeds $5,000 and of each former officer or former
employee of Net who is currently being paid or who is entitled to, or may become
entitled to, compensation in amounts greater than $5,000 per month of any of
such compensation benefits and the rate or amounts thereof and showing the
nature of any family relationship of such person to each stockholder owning 5%
or more of the stock of Net;
(j) A schedule containing a description of all personal property
owned by Net or used in its business and having a purchase price of over
$10,000, including a description of every material mortgage, financing
instrument, or encumbrance to which such personal property of Net is subject
(except statutory liens or claims not yet delinquent and except liens, claims,
encumbrances, or equities which do not or in the future will not materially
detract from or interfere with the present or proposed use of the property
subject thereto or affected thereby);
(k) A schedule containing a description of each lease, rental
agreement, or similar instrument, including a description of each oral
arrangement;
(l) A schedule setting forth the litigation and proceedings
referred to in section 5.11;
(m) A schedule listing all material contracts, agreements,
franchises, license agreements, or other commitments to which Net is a party or
by which their properties are bound, as referred to in section 5.12, but
excluding those with affiliates which are described in section 5.19;
(n) A schedule of any insurance claims as referenced in section
5.14;
(o) Copies of all licenses, permits, and other governmental
authorizations (or requests or applications therefor) pursuant to which Net
carries on or proposes to carry on its business (except those which are
immaterial to the present or proposed business of Net), as referred to in
section 5.16;
(p) A schedule describing the matters regarding compliance with
laws and regulations as referred to in section 5.17;
(q) A schedule showing details of all insurance coverage as
referred to in section 5.18;
(r) A schedule containing a description of all material contracts,
leases, agreements, and other instruments between Net and any affiliates, as
referred to in section 5.19;
(s) A schedule showing the name and location of each bank or other
institution in which Net has an account or safe deposit box, and the names of
all persons authorized to draw thereon or to have access thereto;
(t) Copies of all powers of attorney given by Net now in effect or
to be in effect; and
(u) A schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in the Net Schedules
by sections 5.01 through 5.21.
ARTICLE VI
Intentionally deleted
ARTICLE VII
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SENSAR
As an inducement to, and to obtain the reliance of Net, Sensar represents
and warrants, except as set forth on the Sensar Schedules, as follows:
7.01 Organization. Sensar is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Nevada, and has
the corporate power to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not so qualified in which either the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except where failure to do so would not have a
material adverse effect on the business or properties of Sensar. Included in
the Sensar Schedules (as hereinafter defined) are complete and correct copies of
the articles of incorporation and bylaws of Sensar in effect on the date hereof.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement in accordance with the terms
hereof will not, violate any provision of the articles of incorporation or
bylaws of Sensar. Sensar has full power, authority, and legal right and has
taken all action required by law, its articles of incorporation, bylaws, and
otherwise to consummate the transactions herein contemplated. Effective as of
the Closing, Sensar shall have no subsidiaries.
Section 7.02 Approval of Agreements. The board of directors of Sensar
has authorized the execution and delivery of this Agreement by Sensar and has
approved the consummation of the transactions contemplated hereby. Included in
the Sensar Schedules are copies of resolutions duly adopted by the board of
directors of Sensar evidencing such approval. Prior to Closing, Sensar shall
obtain the approval of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by its stockholders.
Subject to such approval, Sensar has full power, authority, and legal right, and
has taken all action required by law, its articles of incorporation, its bylaws,
or otherwise, to execute this Agreement and consummate the transactions
contemplated hereby.
Section 7.03 Capitalization. The authorized capitalization of Sensar
consists of 10,000,000 shares of preferred stock, par value $0.001 per share, of
which no shares are issued and outstanding, and 290,000,000 shares of Sensar
Common Stock, par value $0.001 per share, of which 3,150,000 shares are issued
and outstanding. In addition, Sensar has shares of Sensar Common Stock reserved
for issuance on the exercise of outstanding and committed options and warrants
as set forth in Schedule 7.03. All issued and outstanding shares of Sensar
Common Stock are validly authorized, legally issued, fully paid, and
nonassessable and not issued in violation of the preemptive or other right of
any person. All shares of Sensar Common Stock to be issued pursuant to this
Agreement are validly authorized and will be, when issued, legally issued, fully
paid, and nonassessable and not issued in violation of the preemptive or other
right of any person.
Section 7.04 SEC Reports. Sensar has filed all reports required by the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act of 1933, as amended (the Securities Act"). In
addition, Sensar shall file a registration statement (the "Registration
Statement"), registering the issuance of the common stock of Sensar in exchange
for the Net Stock held by the Net Shareholders as contemplated by this
Agreement. None of the filings of Sensar contained, when filed, and the
Registration Statement will not contain, when it becomes effective, any untrue
statement of a material fact or omission of a material fact necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
Section 7.05 Financial Statements.
(a) Included in the reports referred to in section 7.04 are the
audited consolidated balance sheets of Sensar as of December 31, 1998 and 1997,
and the related audited consolidated statements of operations and stockholders'
equity and changes in financial position for the periods then ended, together
with the notes to such statements and the opinion of Grant Thornton LLP,
certified public accountants, with respect to such financial statements. Also
included are the unaudited financial statements for the interim period ended
September 30, 1999. All such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and present fairly the financial position of
Sensar as of the dates and for the periods stated herein.
(b) Sensar has filed all tax returns and reports as required by
law. All such returns and reports are accurate and correct in all material
respects. There are no income taxes currently due to any governmental agency
that have not been paid. Sensar does not have any liabilities with respect to
the payment of any tax (including any deficiencies, interest, or penalties)
accrued for or applicable to the period ended on the date of the most recent
balance sheet included in the Sensar Schedules and all such dates and years and
periods prior thereto and for which Sensar may be liable in its own right or as
transferee of the assets of, or as successor to, any other corporation or other
entity, except for taxes accrued but not yet due and payable. None of the tax
returns of Sensar has been audited or is currently being audited by any
governmental agency. Sensar has not made any tax election which would have a
material adverse effect on Sensar, its financial condition, its business as
presently conducted or as proposed to be conducted, or any of its properties or
material assets. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of Sensar.
(c) The books and records, financial and otherwise, of Sensar are
in all material respects complete and correct and have been made and maintained
in accordance with sound business and bookkeeping practices and, in reasonable
detail, accurately and fairly reflect the transactions involving the assets of
Sensar. Sensar has maintained a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions have been and
are executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit the preparation of
financial statements in conformity with GAAP and any other criteria applicable
to such statements and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(d) Except as set forth in the Sensar Schedules, the balance sheet
included in the Sensar Schedules, or in the notes thereto, Sensar (i) has good
and marketable title to its accounts receivable, and other debts due or recorded
in the records and books of account of Sensar, free of any security interests or
liens and free of any material defenses, counterclaims, and set-offs, and all of
such accounts receivable, invoices, and debts are actual and bona fide amounts
due Sensar for the total dollar amount thereof shown on the books of Sensar and
resulted from the regular course of its business; and (ii) the accounts
receivable, invoices, and debts set forth on the Sensar balance sheets arose in
the ordinary course of business and are, net of any reserves shown on the
balance sheet, collectible in full in all material respects on the continuation
of reasonable collection efforts by Sensar or successor personnel and without
resorting to litigation and in any event not later than ninety (90) days after
the date billed.
Section 7.06 Information. The information concerning Sensar set forth
in this Agreement and in the Sensar Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they were made, not misleading.
Section 7.07 Options or Warrants. At the Closing Date there will be no
existing options, warrants, convertible securities, calls, commitments, or other
rights of any character relating to authorized and unissued Sensar Common Stock
or other securities of Sensar other than as set forth on schedule 7.03 (a
portion of which shall be exercised pursuant to Section 3.02(d)).
Section 7.08 Absence of Certain Changes or Events. Except as set forth
in this Agreement or in the Sensar Schedules, since the date of the most recent
balance sheet included in the Sensar Schedules:
(a) There has not been (i) any material adverse change in the
business, operations, assets, or condition of Sensar, (ii) any damage,
destruction, or loss to Sensar (whether or not covered by insurance) materially
and adversely affecting the business, operations, assets, or condition of
Sensar; or (iii) any claim or litigation brought against Sensar;
(b) Sensar has not (i) amended its certificate of incorporation
and bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Sensar; (iv) made any material change in
its method of management, operation, or accounting; (v) entered into any other
material transactions; (vi) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer, employee, or shareholder; (vii) increased the
rate of compensation payable or to become payable by it to any of its officers
or directors or any of its employees whose monthly compensation exceeds $5,000;
or (viii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) Sensar has not (i) granted or agreed to grant any options,
warrants, or other rights to acquire its stocks, bonds, or other corporate
securities; (ii) borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current liabilities
reflected in or shown on the most recent balance sheet included in the Sensar
Schedules and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or transfer, any
of its assets, properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a value of less than
$10,000 or assets, properties, or rights disposed of in the ordinary course of
business); (v) made or permitted any amendment or termination of any contract,
agreement, or license to which it is a party if such amendment or termination is
material, considering the business of Sensar; or (vi) issued, delivered, or
agreed to issue or deliver any stock, bonds, or other corporate securities
including debentures (whether authorized and unissued or held as treasury
stock); and
(d) Sensar has not become subject to any law or regulation which
materially and adversely affects, or may in the future materially and adversely
affect, the business, operations, properties, assets, or condition of Sensar.
Section 7.09 Title to Personal and Real Property. Sensar does not own
any real property. The only lease to which Sensar is a party will be assumed by
a third party in connection with the Closing.
Section 7.10 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Sensar is a
party or to which any of its properties or operations are subject which would
have a material adverse affect on Sensar.
Section 7.11 Litigation and Proceedings. Except as set forth in the
Sensar Schedules, there are no actions, suits, or proceedings pending or, to the
knowledge of Sensar or its officers and directors, threatened in writing by or
against Sensar or affecting Sensar or its properties, at law or in equity,
before any court or other governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind. Sensar is not in material
default with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
Section 7.12 Contracts.
(a) Included in the Sensar Schedules is a description of every
contract, agreement, distributorship, franchise, license, or other agreement,
arrangement, or commitment to which Sensar is a party or by which its assets or
properties are bound, which calls for the payment by Sensar of more than $2,000
a month, or $24,000 in the aggregate;
(b) Except as described in this Agreement or in the Sensar
Schedules, Sensar is not a party to or bound by, and the properties of Sensar
are not subject to, any contract, agreement, other commitment or instrument or
any charter or other corporate restriction or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, or in the
future may (as far as Sensar can now reasonably foresee) materially and
adversely affect, the business operations, properties, assets, or financial
condition of Sensar; and
(c) Except as included or described in the Sensar Schedules or
reflected in the accompanying Sensar balance sheet, Sensar is not a party to any
oral or written (i) contract for the employment of any officer, director, or
employee, whose compensation is greater than $5,000 per month, which is not
terminable on thirty (30) days (or less) notice; (ii) profit sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or
retirement plan; (iii) agreement, contract, or indenture relating to the
borrowing of money in amounts greater than $10,000 in the aggregate; (iv)
guarantee of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which, in
the aggregate do not exceed $10,000; (v) consulting or other similar contract
with an unexpired term of more than one year or providing for payments in excess
of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director of Sensar whose
compensation was or is greater than $5,000 per month; or (viii) other contract,
agreement, or other commitment, except normal ongoing monthly operating
expenses, involving payments by it in the future of more than $10,000 in the
aggregate per contract.
Section 7.13 Material Contract Defaults. Sensar is not in default in
any respect under the terms of any outstanding contract, agreement, lease, or
other commitment which is material to the business, operations, properties,
assets, or financial condition of Sensar, and there is no event of default or
other event which, with notice or lapse of time or both, would constitute a
default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which Sensar has not taken adequate steps to
prevent such a default from occurring.
Section 7.14 Intentionally deleted.
Section 7.15 Governmental Authorizations. Sensar has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date hereof. Other than as required by state and Federal
securities laws, no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by Sensar of this
Agreement and the consummation by Sensar of the transactions contemplated
hereby.
Section 7.16 Compliance With Laws and Regulations. Sensar has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or financial condition of Sensar or except to the extent that
noncompliance would not result in the incurrence of any material liability for
Sensar. Included in the Sensar Schedules is a copy of each letter of inquiry,
review, or investigation or other writing from or to any governmental authority
subsequent to December 31, 1997, evidencing a violation or possible or alleged
violation of any of the foregoing.
Section 7.17 Transactions With Affiliates. Set forth in the Sensar
Schedules is a description of every contract, agreement, or arrangement between
Sensar and any person who is or has ever been during the previous three years an
officer or director of Sensar or person owning of record, or known by Sensar to
own beneficially, 5% or more of the issued and outstanding common stock of
Sensar and which is to be performed in whole or in part after the date hereof.
In all of such circumstances, the contract, agreement, or arrangement was for a
bona fide business purpose of Sensar. Except as disclosed in Sensar's periodic
reports filed with the SEC, the Sensar Schedules, or otherwise disclosed herein,
no officer or director of Sensar or 5% shareholder of Sensar has, or has had
during the preceding three years, any interest, directly or indirectly, in any
material transaction with Sensar. The Sensar Schedules also include a
description of any commitment by Sensar, whether written or oral, to lend any
funds to, borrow any money from, or enter into any other material transaction
with, any such affiliated person.
Section 7.18 Labor Agreements and Actions. Sensar has two employees,
Jeffery S. Cohen, whose employment terminates December 31, 1999, and Howard S.
Landa, whose employment will terminate at Closing.
Section 7.19 Pension Obligations. Sensar does not have any unfunded
pension liability to any person or entity in connection with any retirement,
pension plan, or similar arrangement.
Section 7.20 Sensar Schedules. Prior to the Funding, Sensar shall
deliver to Net the following schedules, which are collectively referred to as
the "Sensar Schedules." On delivery Net shall have five days to review the
Sensar Schedules. If Net does not object to the Sensar Schedules within such
period, they shall be deemed accepted by Net. The Sensar Schedules shall be
updated as of Closing, and shall be certified by the chief executive officer of
Sensar as complete, true, and accurate.
(a) A schedule including copies of the articles of incorporation
and bylaws of Sensar in effect as of the date of this Agreement, as referred to
in section 7.01;
(b) A schedule containing copies of resolutions adopted by the
board of directors of Sensar approving this Agreement and the transactions
herein contemplated as referred to in section 7.02;
(c) A schedule setting forth all warrants, options and other
rights to acquire Sensar Common Stock to which Sensar is a party or by which it
is bound as referred to in section 7.03;
(d) A schedule containing the annual report of Sensar on form 10-K
for the year ended December 31, 1998;
(e) A schedule containing the quarterly report of Sensar on form
10-Q for the quarter ended March 31, 1999;
(f) A schedule containing the report of Sensar on form 8-K dated
April 21, 1999;
(g) A schedule containing the quarterly report of Sensar on form
10-Q for the quarter ended June 30, 1999;
(h) A schedule containing the report of Sensar on form 8-K dated
August 4, 1999;
(i) A schedule containing the report of Sensar on form 8-K dated
August 19, 1999;
(j) A schedule containing the report of Sensar on form 10-Q for
the period ended September 30, 1999;
(k) A schedule containing the report of Sensar on form 8-K dated
October 7, 1999;
(l) A schedule containing the report of Sensar on form 8-K dated
October 12, 1999;
(m) A schedule setting forth a description of any material change
in the business, operations, assets, or condition of Sensar since September 30,
1999, required to be provided pursuant to section 7.08 hereof;
(n) A schedule setting forth a description of pending litigation
as required by section 7.12;
(o) A schedule of contracts as required by section 7.13;
(p) A schedule of transactions with affiliates; and
(q) A schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in the Sensar
Schedules by sections 7.01 through 7.20.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SENSAR
The obligations of Sensar under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 8.01 Accuracy of Representations and Satisfaction of Covenants.
The representations and warranties made by Net in this Agreement shall be true
as of the Closing, and Net shall have performed or complied with all material
covenants and conditions required by this Agreement to be performed or complied
with by Net prior to or at the Closing. Sensar shall be furnished with
certificates, signed by the chief executive officer of Net and dated the Closing
Date, to the foregoing effect.
Section 8.02 Net Disclosure Schedules. Sensar shall have received an
update all of the Net Disclosure Schedules and any material change to such
Schedules from the Schedules delivered in connection with the execution of this
Agreement shall be reasonably acceptable, in form and content, to Sensar.
Section 8.03 Stockholder Approval. The proposals submitted to the
stockholders at the Sensar Stockholders' Meeting shall have been approved.
Section 8.04 Net Shareholder Election. Holders of not more than 5% of
the Net Stock shall have exercised their dissenter's rights under Delaware
corporate law.
Section 8.05 Good Standing. Sensar shall have received a certification
that Net is in good standing, dated as of a date within ten (10) days prior to
the Closing Date.
Section 8.06 UCC Certificate. Sensar shall have received a Commercial
Code certificate as of a date within five (5) days of the Closing Date to the
effect that there are no encumbrances of record on the assets of Net, other than
those disclosed in the Net Schedules.
Section 8.07 Regulatory Action. Net shall have not received any notice
of a regulatory action pending or contemplated by any governmental agency
against Net or with respect to its intellectual property.
Section 8.08 Other Items. Sensar shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as Sensar may reasonably request.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF NET
The obligations of Net under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 9.01 Accuracy of Representations and Satisfaction of Covenants.
The representations and warranties made by Sensar in this Agreement shall be
true as of the Closing, and Sensar shall have performed and complied with all
material covenants and conditions required by this Agreement to be performed or
complied with by Sensar prior to or at the Closing. Sensar shall have been
furnished with a certificate, signed by the duly authorized chief executive
officer of Sensar, and dated the Closing Date, to the foregoing effect.
Section 9.02 Sensar Commitments. Sensar shall have a minimum of an
aggregate of $4.5 million in cash and notes receivable due no later than October
1, 2000, with no liabilities except as permitted by this Agreement, and shall
have not more than 3,150,000 (plus any shares issued on the exercise of the
options and warrants identified on schedule 7.03 subsequent to the date of this
Agreement) shares of common stock outstanding prior to the Closing.
Section 9.03 Indemnification. Howard S. Landa shall have indemnified
Sensar as set forth in section 4.08.
Section 9.04 Intentionally omitted.
Section 9.05 Good Standing. Net shall have received a certificate of
good standing from the Secretary of State of Nevada with respect to Sensar,
dated as of a date within ten (10) days prior to the date of this Agreement,
certifying that Sensar is in good standing as a corporation in the state of
Nevada.
Section 9.06 Options and Warrants. The options, warrants and other
rights to acquire stock or securities of Sensar identified in Schedule 3.02(d)
shall have been exercised.
Section 9.07 Financial Statements. Net shall have received the audited
consolidated financial statements of Sensar at, and for the year ended, December
31, 1999 prepared in accordance with GAAP and Regulation S-X. If the Closing
shall occur after March 31, 2000, Net shall have also received the consolidated
financial statements of Sensar at, and for the quarter ended, March 31, 2000,
which financial statements shall be unaudited but reviewed pursuant to SAS 71.
Section 9.08 Other Items. Net shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as Net may reasonably request.
ARTICLE X
MISCELLANEOUS
Section 10.01 Survival of Representations and Warranties. Except as
otherwise provided, the representations, warranties, covenants, and agreements
of the parties shall not survive the Closing.
Section 10.02 Brokers. Sensar agrees that there were no finders or
brokers involved in bringing the parties together or who were instrumental in
the negotiation, execution, or consummation of this Agreement other than those
entitled to receive the 500,000 shares of common stock, all of whom are set
forth on Schedule 10.02 to be delivered by Sensar prior to the Closing. Sensar
and Net agree to indemnify the other against any claim by any third person for
any commission, brokerage, or finder's fee or other payment with respect to this
Agreement or the transactions contemplated hereby based on any alleged agreement
or understanding between such party and such third person, whether express or
implied, resulting from the actions of such party. The covenants set forth in
this section 10.02 shall survive the Closing and the consummation of the
transactions herein contemplated.
Section 10.03 Tax Treatment. No representation or warranty is being
made or legal opinion given by any party to any other regarding the treatment of
this transaction for federal or state income taxation. All parties intend for
the transaction to be treated as a "tax-free" reorganization under the
provisions of the Code and agree to take all corporate action necessary, to file
all tax returns and reports, and prepare financial statements consistent with
the treatment of the transaction as a reorganization under section 368(a) for
those shareholders resident in the United States. Shareholders not resident in
the United States or otherwise unable to qualify for "tax-free" treatment under
section 368(a) shall be solely responsible for any tax consequences to them
resulting from the consummation of the transactions contemplated hereby.
Although this transaction has been structured in an effort to qualify for
treatment under section 368(a) of the Code, there is no assurance that any part
of this transaction in fact meets the requirements for such qualification. Each
party has relied exclusively on its own legal, accounting, and other tax
advisers regarding the treatment of this transaction for federal and state
income taxes.
Section 10.04 Governing Law. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
the state of Utah.
Section 10.05 Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed sufficiently given
if personally delivered, if sent by facsimile or telecopy transmission or other
electronic communication confirmed by registered or certified mail, postage
prepaid, or if sent by prepaid overnight courier addressed as follows:
If to Sensar, to: Sensar Corporation
Howard S. Landa
50 West Broadway, Suite 500
Salt Lake City, Utah 84101
Fax: (801) 350-0825
Confirmation: (801) 350-0587
With copies to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801)359-3954
Confirmation: (801) 531-7090
If to Net: Hemi Davidson
Net2Wireless, Inc.
17 Ben-Gurion Street
Bnei Brak
Tel Aviv 52537
Israel
Fax: 011-9867-579-0127
Confirmation: 011-9867-570-6193
With copies to: Richard H. Gilden, Esq.
Fulbright & Jaworski L.L.P
666 Fifth Avenue
New York, New York 10103
Fax: (212) 752-5958
Confirmation: (212) 318-3021
and
Yaron Sobol
Attorney at Law
66 Rothschild Blvd.
Tel Aviv 65785
ISRAEL
Fax: 011-972-3-566-0480
Confirmation: 011-972-3-566-0595
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered or sent by facsimile or
telecopy transmission or other electronic communication, or one day after the
date so sent by overnight courier.
Section 10.06 Attorneys' Fees. In the event that any party institutes
any action or suit to enforce this Agreement or to secure relief from any
default hereunder or breach hereof, the breaching party or parties shall
reimburse the nonbreaching party or parties for all costs, including reasonable
attorneys' fees, incurred in connection therewith and in enforcing or collecting
any judgment rendered therein.
Section 10.07 Costs. Each of the parties shall bear its respective
costs associated with this Agreement and the transactions contemplated hereby,
including legal fees, accounting fees, and other costs and expenses.
Section 10.08 Schedules; Knowledge. Whenever in any section of this
Agreement reference is made to information set forth in the Sensar Schedules or
Net Schedules such reference is to information specifically set forth in such
schedules and clearly referenced to identify the section of this Agreement to
which the information relates. Whenever any representation is made to the
"knowledge" of any party, it shall be deemed to be a representation as to actual
knowledge only.
Section 10.09 Third-Party Beneficiaries. This Agreement is solely
between Sensar and Net and the Net Shareholders, and no director, officer,
stockholder, employee, agent, independent contractor, or any other person or
entity shall be deemed to be a third party beneficiary of this Agreement.
Section 10.10 Entire Agreement. This Agreement, together with the
other agreements entered into between the parties contemporaneously with this
Agreement (this Agreement and such other documents collectively referred to as
the "Transaction Documents"), represent the entire agreement between the parties
relating to the subject matter hereof. All previous agreements between the
parties, whether written or oral, have been merged into the Transaction
Documents. The Transaction Documents fully and completely express the agreement
of the parties relating to the subject matter hereof. There are no other
courses of dealing, understandings, agreements, representations, or warranties,
written or oral, except as set forth in the Transaction Documents.
Section 10.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 10.12 Amendment or Waiver. Every right and remedy provided
herein shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. This Agreement shall only be amended by a
writing signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by the party or
parties for whose benefit the Provision is intended.
Section 10.13 Severability. If and to the extent that any court of
competent jurisdiction holds any provision, or any part thereof, of this
Agreement to be invalid or unenforceable, such holding shall in no way affect
the validity of the remainder of this Agreement which shall continue in full
force and effect.
Section 10.14 Successors and Assigns. This Agreement may not be
assigned without the prior written consent of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, and the
individuals have caused this Agreement to be executed as of the date first above
written.
Sensar:
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, CEO
Net:
Net2Wireless, Inc.
By /s/ Hemi Davidson
Hemi Davidson, CEO
FIRST AMENDMENT TO
AGREEMENT
THIS FIRST AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
January 4, 2000, to amend the Agreement dated December 8, 1999, by and between
Sensar Corporation, a Nevada corporation ("Sensar"), and Net2Wireless, Inc., a
Delaware corporation ("Net2Wireless"), based on the following:
Premises
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, pursuant to which Sensar has
agreed to provide funding to Net2Wireless and holds the right to acquire
Net2Wireless. The parties wish to amend the Acquisition Agreement as set forth
herein.
B. This Amendment is entered into in conformance with Section 10.2 of
the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
Agreement
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Meanings. Capitalized terms used in this Amendment and not
defined shall have the meanings given to them in the Acquisition Agreement.
2. Negative Covenants of Sensar. Under the provisions of section
3.03(b) of the Acquisition Agreement, Sensar is prohibited, inter alia, from
adopting any recapitalization or split of its capital stock. Sensar and
Net2Wireless have considered the potential effects of a forward split of
Sensar's stock and consider it in the best interests of both the current
shareholders of Sensar and the Net2Wireless shareholders who will receive Sensar
common stock if either Sensar or Net2Wireless elects to exercise their
respective option under the provisions of section 2.04 of the Acquisition
Agreement to trigger a reorganization between the parties. Consequently, the
parties agree that the following transaction shall not be a violation of
Sensar's obligations under section 3.03 of the Acquisition Agreement:
The implementation by Sensar of a forward split of its issued and
outstanding common stock on the basis of two for one (2:1), so that the holder
of shares of common stock would receive one (1) additional share for each share
of common stock held as of the Record Date (as defined below). The forward
split would be effective for all holders of common stock as of January 12, 2000
(the "Record Date") and would be completed as quickly as reasonably practical
following the filing of the necessary notices. All options, warrants and other
rights to acquire Sensar common stock outstanding on the Record Date would be
adjusted to give effect to the forward split.
3. Terms of the Reorganization. Section 2.05 of the Acquisition
Agreement is hereby amended to give effect to the forward split of the issued
and outstanding Sensar common stock by doubling the share amounts of the Sensar
common stock so that "8,000,000" is replaced with "16,000,000" and "5,500,000"
is replaced with "11,000,000." In addition, the number "4" contained in the
formula calculating the number of additional shares to be issued under certain
circumstances is replaced by the number "2."
4. Affirmative Covenants of Sensar. Section 3.02 of the Acquisition
Agreement is hereby amended to give effect to the forward split by replacing the
share amount of "3,150,000" with the share amount of "6,300,000" where it
appears in that paragraph.
5. Conforming Changes. All other references in the Acquisition
Agreement to the issued and outstanding shares of common stock of Sensar, or the
rights to acquire common stock of Sensar, are hereby amended to give effect to
the forward split by doubling the number of shares referred to and, in the case
of rights to acquire shares, by decreasing the per share exercise or strike
price to one-half of that stated.
6. Ratification of Acquisition Agreement. Except as specifically
provided in Sections 1 through 5 hereof, the parties specifically ratify,
confirm and adopt as binding and enforceable, all of the terms and conditions of
the Acquisition Agreement.
EXECUTED effective the date first above written.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, CEO
NET2WIRELESS, INC.
By /s/ Hemi Davidson
Hemi Davidson, CEO
SECOND AMENDMENT TO
AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
March 21, 2000, to amend the Agreement dated December 8, 1999, as previously
amended January 4, 2000, by and between Sensar Corporation, a Nevada corporation
("Sensar"), and Net2Wireless Corporation (formerly "Net2Wireless, Inc."), a
Delaware corporation ("Net2Wireless"), based on the following:
PREMISES
A. Sensar and Net2Wireless are parties to the Agreement (the
"Acquisition Agreement") dated December 8, 1999, as amended January 4, 2000,
pursuant to which Sensar has agreed to provide funding to Net2Wireless and holds
the right to acquire Net2Wireless.
B. Subsequent to the execution of the Acquisition Agreement, certain
opportunities have been available to Net2Wireless. The parties have agreed to
amend the Acquisition Agreement to permit Net2Wireless to take advantage of such
opportunities and wish to set forth such amendments in writing.
C. This Amendment is entered into in conformance with Section 10.2 of
the Acquisition Agreement which requires that any modification of the
Acquisition Agreement be set forth in writing and signed by all parties.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises and in consideration of the
agreements, representations, warranties, and covenants contained herein, and the
benefits to the parties to be derived therefrom, the parties agree as follows:
1. Defined Meanings. Capitalized terms used in this Amendment and not
defined shall have the meanings given to them in the Acquisition Agreement.
2. Agreement With Partner Communications Company, Ltd. Under the
provisions of Section 2.01(d) of the Acquisition Agreement, Net2Wireless was
required to enter into an agreement with Partner Communications Company, Ltd.,
in form and substance acceptable to Sensar. Net2Wireless has met this
obligation by the execution of the Agreement dated March 13, 2000 (the "Partner
Agreement"). The parties agree that the maximum number of 3,020,576 shares
subject to the option granted to Partner for an aggregate exercise price of US
$5,555,556, as such amounts may subsequently be adjusted under the anti-dilution
provisions set forth in the Partner Agreement, is acceptable and that the
obligations under such option shall be assumed by Sensar in the reorganization
under the provisions of Section 2.05 of the Acquisition Agreement.
3. Affirmative and Negative Covenants of Net2Wireless. Under the
provisions of section 3.01 of the Acquisition Agreement, Net2Wireless is
required, inter alia, to operate its business in all material respects in the
usual and ordinary course and to not issue shares of its stock other than as
specifically contemplated by the Acquisition Agreement. The parties agree that
the following transaction shall not be a violation of any of Net2Wireless'
obligations under section 3.01 of the Acquisition Agreement:
The issuance by Net2Wireless of shares of Series A Preferred Stock at a
minimum of $27.93 per share, for an aggregate of up to $50 million in gross
proceeds to Net2Wireless (the "Series A Placement"). The holders of the Series
A Preferred Stock would have the rights and obligations set forth on the Summary
of Principal Terms attached hereto as Exhibit "A." Net2Wireless represents and
warrants that the offer and sale in the placement of these securities is and
will be in full compliance with: (a) an available exemption from the
registration requirements of the Securities Act of 1933, as amended; (b) all
other governing provisions of United States federal securities laws; (c)
applicable state securities laws; and (d) the applicable provisions of the laws
of any other jurisdiction in which offers and sales are made for those
transactions occurring outside of the United States.
4. Terms of the Reorganization. The parties have also agreed to a
stock distribution to all shareholders and option holders of Net2Wireless of
.074074 shares for each share previously outstanding. In order to accommodate
this distribution, Section 2.05 of the Acquisition Agreement, as previously
amended by the terms of the First Amendment dated January 4, 2000, is hereby
amended to increase the aggregate shares of Sensar common stock to be issued to
the holders of Net Stock and rights to acquire Net Stock (other than as set
forth below) from 16,000,000 to 17,185,185. In addition, Sensar shall assume
the obligations under the option held by Partner Communications Company, Ltd.,
and options issued by Net2Wireless to employees, officers, directors, and
consultants, which shall be increased from a maximum of 11,000,000 shares to a
maximum of 11,814,815 shares. Finally, Sensar shall issue shares of Sensar
common stock in addition to those set forth above, equal to the number of shares
sold in the Series A Placement, as such shares may subsequently be adjusted
under the governing terms of that placement.
5. Issued and Outstanding Stock of Sensar. Section 3.02 of the
Acquisition Agreement is hereby amended to require Sensar to have, after the
mandatory conversion of options held by officers, directors, and consultants as
provided in Section 3.02(d) of the Acquisition Agreement, no more than 9,000,000
shares of common stock and/or rights to acquire common stock outstanding at the
time of closing. For each share of Sensar common stock, or right to acquire a
share, outstanding in excess of 9,000,000, Sensar shall increase the number of
shares of Sensar common stock to be issued to the Net2Wireless stockholders in
the reorganization by two shares.
6. Ratification of Acquisition Agreement. Net2Wireless agrees that it
will fully and timely comply with all of the other terms and conditions of the
Acquisition Agreement and will cooperate in good faith with Sensar in the
completion of all transactions contemplated by the Acquisition Agreement.
Except as specifically provided in this Amendment, the parties specifically
ratify, confirm, and adopt as binding and enforceable, all of the terms and
conditions of the Acquisition Agreement.
EXECUTED effective the date first above written.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, Chairman of the Board
and CEO
NET2WIRELESS CORPORATION
By /s/ Nechemia Davidson
Nechemia Davidson
CEO
APPENDIX B
NET2WIRELESS CORPORATION
2000 U.S. STOCK OPTION PLAN
---------------------------
1. Purpose. The purpose of the Net2Wireless Corporation 2000 U.S.
Stock Option Plan (the "Plan") is to establish a flexible vehicle through which
Net2wireless Corporation, a Delaware corporation (the "Company"), may grant
options to purchase shares of the Company's common stock, $0.01 par value
("Common Stock"), including options intended to qualify as "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and options which do not qualify as ISOs
("NQSOs"), to eligible personnel in order to attract, retain and motivate such
personnel and to further align the interests of such personnel with those of the
Company's stockholders.
2. Administration. The Plan shall be administered by the Board or
Directors of the Company (the "Board") or a committee of at least two directors
(the "Committee") whose members shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the Board or Committee, acting in its
sole and absolute discretion, shall have full power and authority to: (a) select
the persons to whom options shall be granted under the Plan, (b) grant options
to such persons and prescribe the terms and conditions of such options, (c)
interpret and apply the provisions of the Plan and of any option agreement or
other document evidencing an option granted under the Plan, and (d) take such
other action as may be necessary or desirable in order to carry out the
provisions, intent and purpose of the Plan. The Company shall indemnify and
hold harmless each member of the Board and any employee of the Company or its
affiliates who provides assistance with respect to the administration or
interpretation of the Plan from and against any loss, cost, liability (including
any sum paid in settlement of a claim with the approval of the Board), damage
and expense (including legal and other expenses incident thereto) arising out of
or incurred in connection with the Plan, unless and except to the extent
attributable to such person's fraud or willful misconduct.
3. Eligibility. Options under the Plan may be made to such officers,
directors, employees (including prospective employees), consultants and other
persons who may perform services for the Company or its subsidiaries, if any, as
the Board or the Committee may select. The date of grant of an Option under the
Plan shall be the date as of which the Board or Committee approves the grant.
In granting options under the Plan, the Board or Committee shall give
consideration to the functions and responsibilities of a potential recipient,
the potential recipient's previous and/or expected future contributions to the
business of the Company and its subsidiaries, if any, and such other factors as
it deems relevant under the circumstances.
4. Share Limitations. The maximum number of shares of Common Stock
that may be issued under the Plan is 6,000,000 shares (subject to increase or
decrease as provided in Section 9 below). For this purpose, the following
shares shall be deemed not to have been issued under the Plan and shall remain
available for issuance: (a) shares covered by the unexercised portion of an
option that terminates, expires or is canceled, (b) shares subject to an
outstanding option which is settled for cash in lieu of such shares, and (c)
shares that are withheld in order to pay the exercise price of any option or to
satisfy the tax withholding obligations associated with any option. Shares of
Common Stock available for issuance under the Plan may be either authorized and
unissued or held by the Company in its treasury. The maximum number of shares
of Common Stock with respect to which options may be granted to any employee
during any calendar year shall not exceed 500,000 shares. No fractional shares
of Common Stock will be issued under the Plan.
5. Stock Options. Subject to the provisions of the Plan, the Board or
Committee may grant options upon such terms and conditions as it deems
appropriate. The terms and conditions of each option will be evidenced by a
written option agreement or other instrument approved for this purpose.
(a) Exercise Price. The exercise price per share of Common Stock
covered by an option may not be less than the par value of the Common Stock on
the date the option is granted, provided that the exercise price per share of
Common Stock covered by an ISO may not be less than the fair market value of the
Common Stock on the date the ISO is granted (or 110% of the fair market value in
the case of an optionee who, at the time the option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or a "subsidiary" of the Company within the meaning of
Section 424 of the Code).
(b) Option Price Adjustment. Subsequent to the date of grant of any
option, the Board or the Committee may, at its discretion and with the consent
of the optionee, establish a new exercise price for such option so as to
increase or decrease the exercise price of such option.
(c) Option Term. No option granted under the Plan may be exercisable
more than ten (10) years after the date the option is granted (or, in the case
of an ISO granted to a 10% stockholder, five (5) years).
(d) Vesting and Exercise Conditions. The Board or Committee may
establish such vesting and other conditions and restrictions on the exercise of
an option and/or upon the issuance of Common Stock in connection with the
exercise of an option as it deems appropriate, including, without limitation,
conditioning the exercise of an option on the attainment of specified
performance criteria and restricting the transfer or sale of shares acquired
pursuant to the exercise of an option prior to an initial public offering of the
Common Stock.
(e) Exercise of Options. An option may be exercised by transmitting to
the Company: (i) a notice specifying the number of shares to be purchased and
(ii) payment of the exercise price, together with the amount, if any, deemed
necessary by the Company to enable it to satisfy its tax withholding obligations
associated with such exercise (unless other arrangements acceptable to the
Company are made with respect to the satisfaction of such withholding
obligations). The exercise price under an option may be paid in cash, certified
check and/or such other forms of payment as may be permitted by the Board or
Committee from time to time, including, without limitation, shares of Common
Stock which have been owned (free and clear of any liens or encumbrances) for at
least six (6) months [or pursuant to a "cashless exercise" procedure approved by
the Board or the Committee].
(f) Rights as a Stockholder. No shares of Common Stock shall be issued
in respect of the exercise of an option until full payment of the exercise price
and the applicable tax withholding obligation has been made or provided for.
The holder of an option shall have no rights as a stockholder with respect to
any shares covered by an option until the date such shares are issued. Except
as otherwise provided herein, no adjustments shall be made for dividend
distributions or other rights for which the record date is prior to the date
such shares are issued.
(g) Other Conditions. The Board or Committee may impose such other
terms and conditions with respect to the exercise of an option or the issuance
of shares of Common Stock acquired pursuant to any such exercise, including,
without limitation, conditions relating to the application of federal or state
securities laws or exchange requirements as it deems appropriate from time to
time.
6. Fair Market Value. For all purposes of the Plan, the fair market
value of a share of the Common Stock on any date shall be determined by the
Board or Committee.
7. Non-Transferability and Other Limitations.
(a) No Transfer of Options. All options shall be exercisable during
the recipient's lifetime only by the recipient. Except as otherwise
specifically provided by law or the provisions hereof, no option received under
the Plan shall be assignable or otherwise transferable by the optionee except by
will or by the laws of descent and distribution.
(b) Compliance With Securities Laws Notwithstanding anything here to
the contrary, at any time during which the shares of Common Stock are not
publicly traded, no options shall be granted under the Plan and no shares of
Common Stock shall be issued and delivered upon the exercise of options granted
under the Plan, unless and until the Company and/or the optionee shall have
complied with all applicable Federal or state registration, listing and/or
qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction.
The Board or Committee in its discretion may, as a condition to the
exercise of any option granted under the Plan, require an optionee (i) to
represent in writing that the shares of Common Stock received upon exercise of
an option are being acquired for investment and not with a view to distribution
and (ii) to make such other representations and warranties as are deemed
appropriate by the Company. Stock certificates representing shares of Common
Stock acquired upon the exercise of options that have not been registered under
the Securities Act shall, if required by the Board, shall bear the following
legend and such additional legends as may be required by the option Agreement
evidencing a particular option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT" ) . THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
8. Termination of Employment or Service. Nothing contained in the Plan
or in any Option Agreement shall confer upon any optionee any right with respect
to the continuation of his or her employment by or service with the Company or
its subsidiaries, if any, or interfere in any way with the right of the Company
or its subsidiaries, if any, at any time to terminate such employment or service
or to increase or decrease the compensation of the optionee from the rate in
existence at the time of the grant of an option. Unless otherwise determined by
the Board or Committee at grant or, if no rights of the recipient are thereby
reduced, thereafter, and subject to earlier termination in accordance with the
provisions hereof, the following rules apply with regard to awards held by a
recipient at the time of his or her termination of employment or other service
with the Company and its subsidiaries, if any.
(a) Termination by Reason of Death/Disability. If an optionee's
employment or service terminates by reason of death or Disability (as defined
below), then: (i) any option held by the optionee that is not then exercisable
will thereupon terminate; and (ii) any option held by the optionee which is
exercisable at the time of such termination will remain exercisable by the
optionee (or the deceased optionee's beneficiary) for a period of one year
following such termination or, if sooner, until the expiration of the stated
term of the option, and, to the extent it is not exercised within such period,
will thereupon terminate. For purposes of the Plan, Disability shall mean the
inability of an individual to perform the customary duties of his or her
employment or other service for the Company or a subsidiary by reason of a
physical or mental incapacity which is expected to result in death or to be of
indefinite duration.
(b) Termination for Cause. If an optionee's employment or service is
terminated by the Company or a subsidiary for Cause (as defined below) or if, at
the time of such termination, grounds for a termination for Cause exist, then
any option held by the optionee (whether or not vested) shall immediately
terminate and cease to be exercisable. For purposes of the Plan, a termination
for Cause shall mean: (i) in a case where there is no employment or consulting
agreement between the recipient and the Company or its subsidiaries, if any, or
where such an agreement exists but does not define "cause" (or words of like
import), a termination classified by the Company as a termination due to an
individual's dishonesty, fraud, insubordination, willful misconduct, negligence,
refusal to perform services or materially unsatisfactory performance of his or
her duties, or (ii) in a case where there is an employment or consulting
agreement between the recipient and the Company or its subsidiaries, if any,
that defines "cause", a termination that is or would be deemed for "cause" (or
words of like import) under such agreement.
(c) Other Termination. If an optionee's employment or service
terminates for any reason (other than death, Disability or Cause or at a time
when Cause exists) or no reason, then: (i) any option held by the optionee that
is not then exercisable will thereupon terminate and (ii) any option held by the
optionee which is exercisable at the time of such termination will remain
exercisable during the 90 day period following such termination or, if sooner,
until the expiration of the stated term of the option and, to the extent not
exercised within such period, will thereupon terminate.
9. Capital Changes; Change in Control; Merger.
(a) Adjustments Upon Changes in Capitalization. Subject to Section
9(c) below, the aggregate number and class of shares of Common Stock which may
be issued under the Plan, the number and class of shares covered by each
outstanding option and the exercise price per share shall all be equitably
adjusted to reflect any change in the Common Stock by reason of a stock split,
reverse stock split, stock dividend or like capital adjustment or to reflect a
conversion or exchange of the Common Stock for other securities as a result of a
merger, consolidation or reorganization.
(b) Change in Control. The Board or Committee may provide in any
option agreement for the effect on the option of a "change in control" of the
Company or its subsidiaries, if any (as such term is defined by the Board or the
Committee in any such agreement), including, to the extent applicable, the
acceleration of the exercisability of, or the lapse of restrictions or deemed
satisfaction of goals with respect to, any outstanding option.
(c) Merger; Consolidation. In the event of a merger, consolidation,
mandatory share exchange or other similar business combination of the Company
with or into any other entity ("Successor Entity") or any transaction in which
another person or entity acquires all or substantially all the issued and
outstanding Common Stock or all or substantially all the assets of the Company,
outstanding options may be assumed or equivalent options may be substituted by
the Successor Entity or a parent or subsidiary of the Successor Entity provided
that, if outstanding options are not assumed or replaced with substantially
equivalent options, then all optionees shall be permitted to exercise their
outstanding options (whether or not otherwise vested or exercisable) prior to
such transaction and any outstanding options which are not exercised before such
transaction shall thereupon terminate.
(d) Fractional Shares. In the event of any adjustment in the number of
shares covered by any option pursuant to the provisions hereof, any fractional
shares resulting from such adjustment shall be disregarded, and each such option
shall cover only the number of full shares resulting from the adjustment.
(e) Determinations Final. All adjustments sunder this Section 9 shall
be made by the Board, and its determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive.
10. Amendment and Termination. The Board may amend or terminate the
Plan, provided that no such action may adversely affect the rights of the holder
of any outstanding award without the consent of the holder. Except as otherwise
provided in Section 9, any amendment which would increase the aggregate number
of shares of Common Stock which may be issued under the Plan, modify the class
of employees eligible to receive options under the Plan or otherwise require
stockholder approval shall be subject to the approval of the Company's
stockholders. The Board may amend the terms of any option agreement or
instrument made or issued hereunder at any time and from time to time; provided,
however, that any amendment which would adversely affect the rights of the
holder of any outstanding options may not be made without his consent.
11. No Rights Conferred. Nothing contained herein will be deemed to
give any individual any right to receive any options under the Plan or to be
retained in the employ or service of the Company or its subsidiaries, if any.
12. Decisions and Determinations to be Final. All decisions and
determinations made by the Board pursuant to the provisions hereof and, except
to the extent rights or powers under the Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee shall
be final, binding and conclusive on all parties.
13. Governing Law. The Plan shall be governed by the laws of the State
of Delaware, without regard to its principles of conflicts of law.
14. Term of the Plan. The Plan shall be effective as of the date of
its adoption by the Board, subject to the approval of the stockholders of the
Company within one year from the date of such adoption by the Board. The Plan
will terminate on the tenth anniversary of the date of its adoption by the
Board, unless sooner terminated by the Board. The rights of any person with
respect to an option granted under the Plan that is outstanding at the time of
the termination of the Plan shall not be affected solely by reason of the
termination of the Plan and shall continue in accordance with the terms of the
option (as then in effect or thereafter amended) and the Plan.
15. Captions. The use of captions in the Plan is for convenience. The
captions are not intended to provide substantive rights.
16. Number and Gender. With respect to words used in the Plan, the
singular form shall include the plural form, the masculine gender shall include
the feminine gender, and vice-versa, as the context requires.
APPENDIX C
CERTIFICATE OF INCORPORATION
OF
Net2Wireless Corporation
__________________________
Under Section 102 of the
General Corporation Law
__________________________
The undersigned, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is Net2Wireless Corporation.
SECOND: The address of the registered office of the corporation in the State
of Delaware shall be at 15 East North Street, City of Dover, County of Kent; and
the name of its registered agent at such address shall be United Corporate
Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware as set forth in Title 8 of the Delaware Code 1953, as amended
(the "GCL").
FOURTH: The amount of the total authorized capital stock of this Corporation
shall be 100,000,000 shares, divided as follows: (i) 90,000,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), and (ii) 10,000,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
subject to the provisions of Paragraphs 4(a) and 4(b) below.
(a) Common Stock. Each share of Common Stock shall be entitled to one vote.
(b) Preferred Stock. The Preferred Stock authorized by this Certificate of
Incorporation may be divided and issued from time to time in series. Except as
otherwise provided in this Certificate of Incorporation, and subject to
limitations and requirements prescribed by law, the board of directors of the
corporation is expressly authorized, by a vote or written consent of at least a
majority of the board of directors then in office, to provide for the issuance
of the Preferred Stock in one or more series, each with such designations,
preferences, voting powers (or no voting powers), relative, participating,
option or other special rights and privileges and such qualifications,
limitations or restrictions thereof as shall be stated in the resolution or
resolutions adopted by the board of directors of the corporation to create such
series, and a Certificate of Designations of said resolution or resolutions
shall be filed in accordance with the General Corporation Law of the State of
Delaware. The authority of the board of directors of the corporation with
respect to each such series shall include, without limitation of the foregoing,
the right to provide that the shares of each such series may be:
(i) subject to redemption at such time or times and at such price or prices;
(ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series;
(iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the corporation;
(iv) convertible into, or exchangeable for, shares of any other class or
classes of capital stock, or of any other series of the same or any other class
or classes of stock of the corporation at such price or prices or at such rates
of exchange and with such adjustments, if any;
(v) entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such series or shares of any other series of Preferred
Stock; or
(vi) entitled to such other preferences, powers, qualifications, rights and
privileges,
all as the board of directors of the corporation may deem advisable and as are
not inconsistent with law and the provisions of this Certificate of
Incorporation.
The board of directors is also authorized to decrease the number of shares of
any series subsequent to the issuance of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
FIFTH: The name and mailing address of the incorporator is David W.
Hsia, Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York
10103-3198.
SIXTH: The corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
EIGHTH: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision of the General Corporation Law) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. The election of
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of the General Corporation Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of the General Corporation Law, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
TENTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on the stockholders
herein are granted subject to this reservation.
ELEVENTH: A director of this corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for the breach of any
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law, as the same
exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the General Corporation Law
is amended after the date of incorporation of the corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
I, THE UNDERSIGNED, being the sole incorporator as named above, for the purpose
of forming a corporation pursuant to the General Corporation Law, make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
_____ day of __________, 2000.
David W. Hsia
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103-3198
APPENDIX D
GENERAL CORPORATION LAW
STATE OF DELAWARE
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263, or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263, and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipt and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b., and c. of this paragraph.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy
or vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger of
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger of reconsolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates or stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that such stockholder is not entitled to appraisal
rights under this section.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
APPENDIX E
NEVADA REVISED STATUTES
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the
action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record"
means the person in whose name shares are registered in the records of a
domestic corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means
the domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
(Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability
company. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate actions
and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests will
be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only
to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer
than all of the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf he
asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his other
shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, the notice of the meeting must
state that stockholders are or may be entitled to assert dissenters' rights
under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those
sections.
2. If the corporate action creating dissenters' rights is taken by
written consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who wishes to
assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1
and NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to
assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates,
if any, before the proposed corporate action is taken retains all other rights
of a stockholder until those rights are canceled or modified by the taking of
the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located;
or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to
a judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of
costs and fees.
1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the subject corporation,
the court may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
APPENDIX F
Form of Sale Restriction Agreement
_____________, 2000
The Board of Directors
Sensar Corporation
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
Re: Howard S. Landa/Lock-Up Agreement
Ladies and Gentlemen:
I am the holder of stock options (the "Options") entitling me to purchase
an aggregate of _______ shares of common stock of Sensar Corporation ("Sensar").
I have agreed to exercise the Options immediately prior to the effective time of
the merger of Net2Wireless Corporation with and into Sensar. The Options will
be exercised pursuant to the cashless exercise provisions of the Options and the
net number of shares of Sensar to be received by me will be determined based on
the market price for Sensar at the time the Options are exercised. For purposes
of this letter agreement, the net number of shares of Sensar common stock
received by me upon exercise of the Options is referred to as the "New Sensar
Stock." Sensar has agreed to register the sale of the New Sensar Stock by me
pursuant to a registration statement on Form S-3 to be filed immediately prior
or at the time of the effectiveness of the registration statement on Form S-4
filed by Sensar in connection with the merger with Net2Wireless Corporation.
I represent, warrant and covenant to Sensar that I will not sell more than
50% of the New Sensar Stock received by me into the public trading market during
the period commencing with the earlier of the effective date of the registration
statement on Form S-3 or the date the Options are exercised and ending 180 days
thereafter. Notwithstanding the foregoing, I will be able to enter into hedging
transactions with brokerage houses so long as the restricted part of the New
Sensar Stock is not sold into the public trading market during the 180 days
period.
Certificates representing 50% of the shares of New Sensar Stock shall
initially be held by Terrell W. Smith, Esq., with directions to deliver the
certificates to me on expiration of the 180 day period during which I have
agreed not to sell such shares.
Sincerely,
Howard S. Landa
Accepted and agreed to this _____ day of __________, 2000.
SENSAR CORPORATION
By
Name
Title
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.037 of the Nevada corporation law, Article VII of Sensar's
articles of incorporation, and Article VIII of Sensar's bylaws, "Insurance and
Officer and Director Contracts" provide for indemnification of Sensar's
directors and officers in a variety of circumstances, which may include
liabilities under the Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers, and controlling persons
pursuant to the foregoing provisions, Sensar has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
contrary to public policy as expressed in the Securities Act and, therefore, is
unenforceable. (See "ITEM 28. UNDERTAKINGS.")
ITEM 21. EXHIBITS
(a) Copies of the following documents are included as exhibits to this
Registration Statement, pursuant to item 601 of regulation S-K.
Exhibits
<TABLE>
<CAPTION>
SEC
Ex. Reference
No. No. Title of Document Location
- --- --- --------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
1 (2) Agreement dated December 8, 1999, as amended Appendix A to Joint Proxy Statement/Prospectus*
January 4, 2000, and March 21, 2000
2 (3) Articles of Incorporation, as amended Exhibit to report on
November 3, 1987 Form 10-K for the year
ended June 30, 1988*
3 (3) Certificate of Amendment to the Exhibit to report on
Articles of Incorporation Form 10-K for the year
filed July 3, 1989 ended June 30, 1989*
4 (3) Designation of Rights, Privileges, and Registration Statement
Preferences of 1995 Series Preferred Stock filed on Form SB-2,
Exhibit 3, SEC File
No. 33-59963*
5 (3) Designation of Rights, Privileges, and Exhibit to report on
Preferences of 1998 Series A Preferred Stock Form 8-K dated
February 13, 1998*
6 (3) Bylaws Registration Statement
filed on Form S-18,
Exhibit 5, SEC File
No. 33-3365-D*
7 (4) Form of Sale Restriction Agreement Appendix F to Joint Proxy
Statement/Prospectus*
8 (5) Opinion of Keith L. Pope, LLC, regarding legality This Filing
of common stock
9 (10) Executive Employment Agreement of Exhibit to report on
Howard S. Landa effective Form 10-Q for the
April 22, 1999 quarter ended
June 30, 1999*
10 (10) Deferred Compensation Plan Exhibit to report on
Adopted by the Board of Directors Form 10-K for the
Effective May 1, 1999 year ended
December 31, 1999*
11 (10) 1997 Stock Option and Award Plan Exhibit to report on
Form 10-Q for the
quarter ended
March 31, 1997*
12 (10) Asset Purchase Agreement by and among Exhibit "A" to Proxy
PCB Group, Inc., Beehive Acquisition Corp., Statement dated
Larson-Davis Incorporated, and Larson-Davis February 16, 1999*
Laboratories, dated November 30, 1998, and Exhibit to report
as amended February 16, 1999, and on Form 10-K for the
March 31, 1999 year ended
December 31, 1998*
13 (10) Asset Purchase Agreement between Exhibit to report on
Sensar Instruments, Inc., Sensar Form 8-K dated
Corporation, and LECO Corporation, August 19, 1999*
dated August 19, 1999
14 (10) Form of Market Stand Off and Exhibit to report on
Redemption Agreement by and between Form 10-K for the
Larson-Davis Incorporated and Investors year ended
of 1998 Series A Preferred Stock, December 31, 1998*
dated January, 1999
15 (21) Subsidiaries of Larson-Davis Incorporated Form 10-KSB for the
year ended
June 30, 1996*
16 (23) Consent of Grant Thornton, LLP This Filing
17 (23) Consent of Kost, Forer & Gabbay, a member of This Filing
Ernst & Young International
18 (23) Consent of Keith L. Pope, LLC See Exhibit No. 8
19 (27) Financial Data Schedule Exhibit to report on
Form 10-K for the
year ended
December 31, 1999*
</TABLE>
*Incorporated by reference
(b) All financial statement schedules are omitted because they are not
applicable or because the required information is contained in the Consolidated
Financial Statements or the Notes thereto.
ITEM 22. UNDERTAKINGS
Post-Effective Amendments. [Regulation S-K, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(a) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and
(c) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Filings Incorporating Subsequent Exchange Act Documents by Reference.
[Regulation S-K, Item 512(b)]
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports. [Regulation S-K, Item 512(e)]
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Registration on Form S-4 or F-4 of Securities Offered for Resale. [Regulation
S-K, Item 512(g)]
(1) The undersigned registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reoffering by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (h)(1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415 (Section 230.415 of this
chapter), will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Request for Acceleration of Effective Date or Filing of Registration Statement
on Form S-8. [Regulation S-K, Item 512(h)]
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Undertakings. [Form S-4, Item 22(b)]
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Undertakings. [Form S-4, Item 22(c)]
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Salt Lake,
state of Utah, on the 6th day of April, 2000.
SENSAR CORPORATION
(Registrant)
By /s/ Howard S. Landa
Howard S. Landa, CEO and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Howard S. Landa and Steve Strasser, and each of
them, with power of substitution, as his or her attorney-in-fact for him or her,
in all capacities, to sign any amendments to this Registration Statement and to
file the same with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the 6th day of April, 2000.
/s/ Howard S. Landa
Howard S. Landa, CEO and Chairman of the Board
(Principal Executive Officer and Principal Financial and
Accounting Officer)
/s/ Brian B. Lewis
Brian B. Lewis, Director
/s/ Steve Strasser
Steve Strasser, Director
/s/ Mickey Hale
Mickey Hale, Director
KEITH L. POPE, LLC
1000 BOSTON BUILDING
NINE EXCHANGE PLACE
SALT LAKE CITY, UTAH 84111
E-mail: [email protected]
ATTORNEY AT LAW TELEPHONE (801) 531-6686
TELECOPY (801) 531-6690
VOICE MAIL Extension 111
April 6, 2000
Board of Directors
Sensar Corporation
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
Re: Sensar Corporation
Registration Statement on Form S-4
Gentlemen:
We have been engaged by Sensar Corporation (the "Company") to render our
opinion respecting the legality of certain securities to be offered and issued
pursuant to the registration statement on Form S-4 being filed by the Company
with the Securities and Exchange Commission (the "Registration Statement").
Capitalized terms used but not defined herein have the same meanings as set
forth in the Registration Statement.
In connection with this engagement, we have examined the following:
1. articles of incorporation and bylaws of the Company;
2. the Registration Statement; and
3. minutes of meetings and unanimous consents of the Company's board of
directors.
We have reviewed such other corporate records and documents and have made
such other examination as we deemed relevant.
Based upon the above examination, we are of the opinion that the Common
Stock to be issued pursuant to the Registration Statement and the Common Stock
issuable on the exercise of options and warrants will be, when issued in
accordance with the terms set forth in the Registration Statement, legally
issued, fully paid, and nonassessable under the Delaware General Corporation
Law, as amended.
This firm consents to being named in the Prospectus included in the
Registration Statement as having rendered the foregoing opinion and as having
represented the Company in connection with the Registration Statement.
Sincerely yours,
/s/ Keith L. Pope, LLC
KEITH L. POPE, LLC
KLP:pjc
CONSENT
We have issued our report dated January 21, 2000, except for Notes K and N for
which the date is March 23, 2000, accompanying the consolidated financial
statements of Sensar Corporation and Subsidiaries, which are incorporated
by reference in the Form S-4 Registration Statement and Joint Proxy
Statement/Prospectus. We consent to the incorporation by reference of the
aforementioned report in the Registration Statement and Joint Proxy
Statement/Prospectus and to the use of our name as it appears under the
caption "Experts".
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Salt Lake City, Utah
April 6, 2000
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 15, 2000, except for Note 9 as to which the date
is April 2, 2000, with respect to the financial statements of Net2Wireless
Corporation for the period from commencement of operations (April 1999) through
December 31, 1999, included in the Proxy Statement of Sensar Corporation that
is made a part of the Registration Statement (Form S-4) and Prospectus of
Sensar Corporation for the registration of 19,259,060 shares of common stock.
Tel-Aviv, Israel
April 6, 2000
/s/ Kost Forer & Gabbay
KOST, FORER & GABBAY
A member of Ernst & Young International
