What happened here, and how did I “stumble” upon this whole affair? That is apparently what David Rubner, with his proven high tech track record and reputation, is asking himself. Rubner, a man of conscience according to all those acquainted with him, apparently had only good intentions in the Net2Wireless affair, but these were apparently not enough.
Yes, it is the old story of easy money – the new economy gold rush, which has corrupted so many. Even commentators who told you only a few months ago of the wonders of the new economy and purported to understand it are energetically writing today about its drawbacks as if they had known of them in advance – a bunch of true prophets.
In order to bring a little order into this strange affair, we have therefore decided to categorize all those involved, with their remunerative conditions, options (exceptional, it must be said) granted in Net2Wireless, and their record.
Nechemia Davidson – founder and general manager
Davidson, the entrepreneur, is considered a man with a boundless supply of self confidence. In June 2000, with the publication of the “Barrons” investigative report on Sensar (SCII), Davidson let fly bombastic announcements of a $500 million financing round by Net2Wireless at a company value of $4-5 billion before the end of the year. The end of the year has arrived and today Davidson would be glad to get 1% of that amount.
Attention should, however, be drawn to Davidson’s holdings and employment conditions at Net2Wireless. Davidson holds a total of 43.4% of the company, fully diluted, 29.7% directly in shares and the rest in options. Most of the options (about 3.2 million out of 4.4 million) were allocated to him this year at an exercise price of $1.86 per share. Why? “Because I am one of the company’s employees,” he told “Globes” in June.
In addition to the shares and options, Davidson’s work contract was signed for a three year period, with a two year option. Under its terms, Davidson receives a $500,000 annual salary, to be raised by 10% each year. In addition, Davidson is entitled to a bonus of 2.5% of Net2Wireless’s after-tax profit at the end of each fiscal year, during the period of the agreement.
Net2Wireless will pay a cumulative monthly sum equal to 13.33% of Davidson’s monthly salary after the merger is completed, as well as other remuneration: a cumulative monthly amount equal to 2.5% of his monthly salary for a disability insurance policy and a cumulative monthly amount equal to 7.5% of his monthly salary for an advanced training fund.
In addition to his salary and other remuneration, Davidson received options to purchase 1.2 million ordinary shares at a $32 exercise price, subject to the exercise conditions. Davidson will also get options for 180,000 ordinary shares for each additional $1 billion in the value of the merged company. These options will be granted at a price equal to the fair market value of the merged company share at the time. Each of the parties can cancel the contract after giving a written announcement 12 months in advance. Nevertheless, in the event of Net2Wireless canceling the contract before December 31, 2003 without sufficient cause, the company will pay Davidson a sum equal to his monthly salary, times the number of months from the cancellation to December 31, 2003.
At the peak of the euphoria, Davidson’s package was worth $880 million. Today, it is doubtful whether it is worth anything.
David Rubner – chairman of the board
Rubner is the tragic figure of the entire story. Having joined Net2Wireless as a midseason acquisition with a big reputation, he finds himself, apparently to his disadvantage, mixed up in a complex affair. In any event, Rubner holds 11.2% of Net2Wireless, fully diluted, 5.9% in shares and the rest in options.
Net2Wireless granted Rubner options to purchase 1,074,074 ordinary shares at a $1.86 exercise price, the same granted to Davidson. The company is now formulating a written agreement with Rubner, under which he will receive $100,000 a year for his services as director and chairman of the board. As of now, the company has paid Rubner $50,000 for consultant services. Company documents describe Rubner as “having extensive managerial experience and well-informed about the communications industry. Rubner knows many communications industry players and plays a active role in preserving connections with investors and locating strategic partners for the company.” The contract is for one year, retroactive to January 1, 2000.
At the peak of the euphoria, Rubner’s package was worth $190 million.
Yitzhak Feldman - executive VP of marketing and sales
Feldman was brought to Net2Wireless by Rubner. He brought with him 12 years of sales and marketing experience in telecommunications. Feldman’s resume includes stints in senior positions at Intel, Telrad, Tadiran Telecommunications and ECI.
Under the terms of his contract, Feldman will receive an annual salary of $144,000, a company car, managers insurance at 13.33% of salary, disability insurance of 2.5% of salary and 21 days paid vacation. Canceling the contract must be with three months notice. Feldman will also receive 128,899 options at a $1.86 exercise price per share, to be exercised in equal portions over four years. The options were worth $11 million at peak.
Dr. Yosef Rubner - son and VP R&D
Rubner’s son has a Ph.D. in computer science and electrical engineering from Stanford University, specializing in computer image processing. His previous experience includes being a consultant at Xerox’s Palo Alto research center, and participating in the development of desktop publishing systems at Scitex. Dr. Rubner completed his Bsc. summa cum laude in computer science at Technion in 1991.
His one-year contract was signed on December 20, 1999, and can be automatically renewed for three years. Under its terms, in addition to benefits such as managers insurance, a savings plan, advanced training fund, and paid vacations, Yosef Rubner enjoys a monthly salary of $11,250 and use of a company car. In addition, on January 1, 2000, he received options for 182,593 ordinary Net2Wireless shares at a $1.86 exercise price per share, to be realized in equal portions over four years, at the end of each 12-month period continuous from the start of his employment contract.
Rubner’s options were worth $16 million at the height of the euphoria.
Joav Avtalion – director
NICE-Systems (Nasdaq: NICE) cofounder Avtalion is a Net2Wireless consultant and director.
On March 20, 2000, Net2Wireless granted Avtalion purchase options for 322,222 Net2Wireless ordinary shares at a $1.86 exercise price per share. The company is currently formulating an agreement with Beneficial Investment Services, registered in the Virgin Islands and controlled by Avtalion, under which Avtalion’s company will receive consultancy fees of $1,500 per day for the period between November 1999 and March 2000 and $2,000 per day afterwards. As of now, Net2Wireless has paid Avtalion $104,224 for consultancy services. Company documents describe Avtalion as a widely experienced entrepreneur and manager, who has played an active role in advising the Net2Wireless management in negotiations with potential strategic partners. The agreement is for one year, retroactive to January 1, 2000.
At the peak of the euphoria, Avtalion’s package was worth $60 million.
Attorney Yaron Sobol – economic consultant and secretary to the board of directors
Yaron Sobol received 78,010 Net2Wireless ordinary shares. On December 7, 1999, Sobol received 42,963 options to purchase Net2Wireless ordinary shares at a $1.86 exercise price per share. On January 18, 2000, the company granted Sobol options for acquiring another 107,407 shares at a $1.86 exercise price per share. Sobol holds 1.2% of Net2Wireless shares, fully diluted.
The company signed a three-year contract with Sobol, which can be renewed for an additional two years. Under its terms, Sobol will receive $301,500 in annual management fees, which will be increased by 10% each year. The contract does not entitle Sobol to additional benefits or payments. In the event that Net2Wireless cancels the contract, it will have to pay Sobol half the annual management fee, either in one lump sum or in six equal monthly payments. The agreement states that each of the parties must give six months prior notice for cancellation of the agreement.
Robert Rockni – VP management information systems
Rockni is a former manager of information systems at First International Bank. He will receive an annual salary of $150,000, a company car, managers insurance equivalent to 13.33% of his salary, disability insurance equivalent to 2.5% of his salary, employer contributions to an advanced training fund equivalent to 7.5% of his salary, and 21 days per year of paid vacation. Three months prior notification is required to cancel the contract. Under the contract, Rockni received 107,407 options at a $1.86 exercise price per share, to be exercised in equal portions over three years.
Dr. Ben-Zion Weiner – director
Dr. Ben-Zion Weiner is VP Innovative R&D at Teva, who was appointed a director of Net2Wireless. On October 15, 2000, the company granted Wiener 150,000 options for ordinary shares at a $11.44 exercise price per share.
David Bodner and Murray Huberfeld – the boys
These are two key figures in this embarrassing affair, who were actually responsible for torpedoing the planned merger between Sensar and Net2Wireless. Each holds, through his wife, 16.7% of Net2Wireless’s shares, fully diluted.
Broad Capital, Bodner and Huberfeld’s New York investment company, is apparently the major factor in deals referred to by the market jargon, “reverse mergers” or “reverse takeovers”.
The records of businessmen Huberfeld (39) and Bodner (43) do not exactly inspire confidence. Two years ago, the Securities and Exchange Commission (SEC) claimed that the two had secretly received over 513,000 restricted shares as security for loans they granted to an Incomnet company director. The two immediately sold the shares in this company, an overseas calls wholesaler that has since gone out of business, collecting a profit of $3.7 million, in violation of securities laws, according to the SEC.
Broad Capital was also accused of failure to disclose and present the fact that it holds 5% of the Incomnet shares on the market, making it an interested party in the company, as required by law. Broad Capital, Huberfeld, and Bodner settled the SEC complaint without either admitting or denying it. They were required to return their illegal profits, which together with interest amounted to $4.6 million. They were also convicted and fined on a civil claim – Broad Capital paid a $50,000 fine, while Huberfeld and Bodner paid $15,000 each.
As a result of this affair, Huberfeld, and Bodner received automatic statutory disqualification from working with brokerages affiliated with the National Association of Securities Dealers (NASD), which operates the Nasdaq stock exchange.
Huberfeld, Bodner, and Broad Capital had another brush with the law in 1996, when they were the target of an SEC administrative complaint involving a Canadian company called Wye Resources. This company energetically represented itself as having interests in gold and diamond deposits and assets. According to the SEC complaint, “Broad Capital was aware of and participated in Wye Resources’ US promotion efforts.” Huberfeld’s company was also accused of purchasing unregistered shares in Wye Resources at a discount, while falsely representing this purchase as a loan. Without admitting or denying the SEC findings, Broad Capital and Huberfeld consented to the publishing of an SEC order stating that they had violated Article 5 of the securities law and agreed to return $430,000, constituting their profits from their Wye holdings, plus interest.
In 1992, Bodner and Huberfeld admitted they had possessed forged identification documents for fraudulent purposes in Brooklyn Federal Court in New York. The two were accused of sending two imposters to pass the broker series 7 examinations in their places. Bodner and Huberfeld were each sentenced to one year suspended with a $50,000 fine.
This record, as revealed in “Barron’s”, apparently aroused the suspicion of the Nasdaq management, which was uneasy about the involvement of the two in the merger, and the result was now known to all.
Published by Israel's Business Arena on December 6, 2000