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Web-technology holding company Sensar Corp. tried several complicated maneuvers to persuade Nasdaq officials not to delist it in the event of its planned reverse merger with wireless start-up Net2Wireless Corp., new Securities and Exchange Commission filings show. Nasdaq’s concerns about questionable dealings by at least two of Net2Wireless’ shareholders, as well the companies’ inability to gather enough shareholders to approve the merger proxy, eventually led to the two companies calling off the deal last week. “We have no further deal with [Net2Wireless,]” Sensar Chairman and CEO Howard Landa said during a conference call Friday. “ We have no further agreement to try again.” Salt Lake City-based Sensar last December had agreed to lend Net2Wireless $2 million in exchange for the right to buy the privately held company for 8.5 million shares. The deal was devised as a way to list Net2Wireless on Nasdaq without having to do an initial public offering. Israel-based Net2Wireless specializes in data compression software that enables wireless carriers to provide Internet service. Once a maker of analytical instruments and monitoring equipment, it is now a holding company with no products and, except for a handful of directors, no employees. Nasdaq had warned it would delist Sensar if the deal went though and that it would deny listing to a new company formed by the marriage. According to a material-events report Sensar filed with the SEC Friday, Nasdaq staff had concerns about two shareholders, whom financial weekly Barron’s named as David Bodner and Murray Huber, New York investors with previous regulatory violations. The officials also believed Net2Wireless stock and warrant holders might be able to manipulate the market due to their collective influence on the stock. Sensar countered by pointing out to Nasdaq officials that the company has been listed on the exchange for more than 10 years without any regulatory problems; that none of the board members at Sensar had any history of regulatory violations; that Sensar had more than 14,000 stockholders at the time of the merger, none of which held 5% or more of the outstanding stock, and that the deal would be approved by all stockholders, not just one select group. In addition, the companies argued, stock and warrant holders lacked representation on Sensar’s board, and Net2Wireless management and directors held a significant block of stock. Effectively, then, limitations were already in place to prevent stock and warrant holders from exercising any undue influence over the combined company. The two companies also presented Nasdaq with an agreement struck with Net2Wireless’ two largest shareholders that would place their shares in a voting trust so that a trustee would vote on any matter submitted to the stockholders. Despite those conditions, Nasdaq ruled that both of the stockholders with whom it had concerns would have to sell their positions in the company to ensure continued listing of the stock. But that would have been prohibitively difficult and expensive, according to Sensar officials. “We just didn’t have the resources,” Landa said. Sensar and Net2Wireless subsequently volunteered to place all the stock issued for the merger into a blind trust over which the owners of the stock and warrants would have no control. The trust would hire an investment bank to sell the positions in privately negotiated transactions. According to the proposal, if the sale were not competed within six months, the trust would begin to sell the stock on the open market. But those proposals failed to placate Nasdaq officials. “I’ve never seen them this harsh,” Landa said. “I was shocked at their attitude.” At the same time, Sensar found it could not track down enough shareholders to approve the deal. More than 90% of the stock was held in “street name,” according to Sensar’s 8-K report, and that meant the company didn’t know who those owners were or how to locate them. With imminent failure of the proxy vote and the concerns of Nasdaq, the two sides were forced to abandon the merger and instead announce an alternative arrangement. Sensar will take 3 million shares of common stock of Net2Wireless and a warrant to acquire an additional 1 million shares at an exercise price of $10 per share. Net2Wireless also will be forgiven from repaying a $500,000 loan advanced by Sensar in February. The 3 million shares to be issued will boost the number of Net2Wireless shares outstanding to roughly 21.3 million shares. Sensar’s legal counsel was Parr Waddoups Brown Gee & Loveless in Salt Lake City. Net2Wireless retained Brobeck, Phleger & Harrison LLP in New York. Copyright (c)2000 TDD, LLC. All rights reserved.

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