As filed with the Securities and Exchange Commission on April 6, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
DELTATHREE.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4006766
(State of incorporation) (I.R.S. employer
identification number)
430 PARK AVENUE, SUITE 500
NEW YORK, NEW YORK 10022
(Address of principal executive offices, including zip code)
DELTATHREE.COM, INC.
1999 STOCK INCENTIVE PLAN
1999 PERFORMANCE INCENTIVE PLAN
1999 EMPLOYEE STOCK PURCHASE PLAN
1999 DIRECTORS' PLAN
(FULL TITLE OF THE PLAN)
MARK J. HIRSCHHORN
CHIEF FINANCIAL OFFICER
DELTATHREE.COM, INC.
430 PARK AVENUE, SUITE 500
NEW YORK, NEW YORK 10022
(212) 588-3670
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
DAVID J. GOLDSCHMIDT, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
(212) 735-3000
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered (1) per Share (2) Price Fee
<S> <C> <C> <C> <C>
Class A common stock,
par value $0.001 per
share 5,228,736 $ 16.6875 $ 87,254,532.00 $ 23,035.20
</TABLE>
(1) The aggregate number of shares of common stock shown in the
table above consists of the maximum number of shares of common
stock that are available for grant under the deltathree.com,
Inc. 1999 Stock Incentive Plan, 1999 Performance Incentive Plan,
1999 Employee Stock Purchase Plan and 1999 Directors' Plan
(collectively, the "Plans"). 748,288 shares and options to
purchase 372,976 shares were previously issued under the 1999
Stock Incentive Plan and registered (including the indeterminate
number of shares underlying the options) on a registration
statement, Registration No. 333-86503. The aggregate number of
shares is subject to adjustment by reason of stock splits, stock
dividends and other events pursuant to the Plan. Accordingly,
pursuant to Rule 416 under the Securities Act of 1933, as
amended (the "Securities Act"), this registration statement
covers, in addition to the number of shares of common stock
shown in the table above, an indeterminate number of shares of
common stock which may be subject to grant or otherwise issuable
after the operation of the provisions of the plan governing such
adjustments.
(2) The Proposed Maximum Offering Price per Share was calculated
pursuant to Rule 457(c) under the Securities Act whereby the per
share price was determined by reference to the average between
the high and low price reported on the Nasdaq National Market
System on April 5, 2000, which average was $16.6875.
EXPLANATORY NOTE
deltathree.com, Inc. has prepared this registration statement in
accordance with the requirements of Form S-8 under the Securities Act, to
register shares of common stock issued or issuable pursuant to
deltathree.com's 1999 Stock Incentive Plan, 1999 Performance Incentive
Plan, 1999 Employee Stock Purchase Plan and 1999 Directors' Plan
(collectively, the "Plans").
This registration statement on Form S-8 also includes a prospectus
prepared in accordance with Instruction C of Form S-8, in accordance with
the requirements of Part I of Form S-3, and may be used for reofferings
and resales on a continuous or delayed basis in the future of up to an
aggregate 5,228,736 shares that constitute either "control securities"
and/or "restricted securities" which have been issued prior to the filing
of this registration statement.
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
deltathree.com will send or give the documents containing the
information specified in Part I of Form S-8 to employees as specified by
the Securities and Exchange Commission in Rule 428(b)(1) promulgated under
the Securities Act. deltathree.com does not need to file these documents
with the Commission either as part of this registration statement or as
prospectuses or prospectus supplements pursuant to Rule 424 promulgated
under the Securities Act.
PROSPECTUS
5,228,736 SHARES OF CLASS A COMMON STOCK
OF DELTATHREE.COM, INC.
The shares of Class A common stock, $0.001 par value per share (the
"common stock"), of deltathree.com, Inc. offered hereby will be sold from
time to time by certain stockholders of deltathree.com described under the
caption "Registered Stockholders" in this prospectus. The registered
stockholders are current or former employees of our company or officers or
directors our company who acquired the shares of common stock as
compensation for services performed for deltathree.com.
The sales may occur in transactions in the over-the-counter market
(quoted on the Nasdaq National Market) at prevailing market prices or in
negotiated transactions. We will not receive proceeds from any of these
sales. We are paying the expenses incurred in registering the shares, but
all selling and other expenses incurred by each of the registered
stockholders will be borne by that registered stockholder.
The shares of common stock are "control securities" and/or "restricted
securities" under the Securities Act of 1933, as amended (the "Securities
Act"), before their sale under this prospectus. This prospectus has been
prepared for the purpose of registering the shares under the Securities Act
to allow for future sales by the registered stockholders, on a continuous
or delayed basis, to the public without restriction. Each registered
stockholder may be deemed to be an "underwriter" within the meaning of the
Securities Act. Any commissions received by a broker or dealer in
connection with resales of the shares may be deemed to be underwriting
commissions or discounts under the Securities Act.
Our common stock is traded on the Nasdaq National Market under the
symbol "DDDC." On April 5, 2000, the last reported sale price of the
common stock, as reported on the Nasdaq National Market, was $16.125 per
share.
_________________
Investing in the common stock involves a high degree risk. For more
information, please see "Risk Factors" beginning on page 8.
_________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
April 6, 2000
_________________
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATED DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . 24
REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 25
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 27
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
AVAILABLE INFORMATION
deltathree.com is subject to the informational reporting requirements
of the Securities Exchange Act of 1934 and files reports, proxy statements
and other information with the Securities and Exchange Commission. These
reports, proxy statements and other information can be inspected and copied
at the Public Reference Room of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511 and 7 World Trade
Center, 13th Floor, New York, NY 10048, at prescribed rates. The Commission
maintains a website that contains reports, proxy and information statements
and other information regarding registrants, including deltathree.com, that
file electronically with the Commission. The address of this website is
"http://www.sec.gov." In addition, you may obtain information from the
Public Reference Room by calling the Commission at 1-800-SEC-0330. In
addition, our common stock is quoted on the Nasdaq National Market System.
Reports, proxy statements, informational statements and other information
concerning deltathree.com can be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
deltathree.com intends to furnish its stockholders with annual reports
containing additional financial statements and a report thereon by
independent certified public accountants.
A copy of any document incorporated by reference in this registration
statement of which this prospectus forms a part but which is not delivered
with this prospectus will be provided by us without charge to any person to
whom this prospectus has been delivered upon the oral or written request of
that person. Requests should be directed to the attention of the Corporate
Secretary, deltathree.com, Inc., 430 Park Avenue, Suite 500, New York, New
York 10022. Our telephone number at that location is (212) 588-3670.
You should only rely on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized
anyone else to provide you with different information. The common stock is
not being offered in any state where the offer is not permitted. You should
not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of this
prospectus.
INCORPORATED DOCUMENTS
The Commission allows us to "incorporate by reference" information
into this prospectus, which means that we can disclose important
information to you by referring you to another document filed separately
with the Commission. The information incorporated by reference is deemed to
be part of this prospectus, except for any information superseded by
information in this prospectus.
deltathree.com's prospectus dated November 22, 1999, filed on November
23, 1999 pursuant to Rule 424(b) of the Securities Act, deltathree.com's
registration statement on Form 8-A filed with the Commission on November
23, 1999 under Section 12 of the Exchange Act, and deltathree.com's annual
report on Form 10-K for the fiscal year ended December 31, 1999, as filed
with the Commission on March 29, 2000 are incorporated herein by
reference. In addition, all documents subsequently filed by deltathree.com
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
THE COMPANY
We are a global provider of Internet Protocol (IP) telephony services,
which include the transmission of voice and data traffic for communications
carriers and the provision of enhanced Web-based and other communications
services to individuals and businesses. IP telephony is the real time
transmission of voice communications in the form of digitized "packets" of
information over the public Internet or a private network, similar to the
way in which e-mail and other data is transmitted. We were founded in 1996
to capitalize on the growth of the Internet as a communications tool by
commercially offering IP telephony services. We have built a privately-
managed, global network using IP technology, and we have primarily been
using this network to transmit traffic for communications carriers,
including RSL Communications, Ltd., our parent company. This service is
referred to as carrier transmission services.
We are now using our expertise in IP telephony to provide our users
with a package of enhanced IP communications services. Our on-line
interactive communications portal, www.deltathree.com, enables users to
make calls and send e-mail, as well as retrieve and forward voice mail,
e-mail and faxes using one unified mailbox from anywhere in the world at
any time. Our package of enhanced IP communications services includes the
following:
o PC-to-phone: a service allowing a user to place a call
through a personal computer and speak to a party who uses a
standard telephone
o D3 Box: a unified messaging service permitting convenient
single-source retrieval of voice mail, e-mail and faxes
through the Web or by phone
o Click IT: a Web-based e-commerce service allowing a party
to simultaneously view the Web site of a business and talk
directly with that business while continuing to view the Web
site
o Phone-to-phone: a voice and fax service allowing a user to
place a call or send a fax over our privately-managed,
global IP network from a standard telephone or fax machine
o Global roaming: a service enabling businesses and
individuals to use a single account number to place phone-
to-phone calls over our IP network from locations throughout
the world using country-specific, toll-free access numbers
o YourDay.com: an on-line calendar and scheduling system that
integrates personal assistant digital products, telephones
and the Internet to allow individuals to access their
scheduling and business data information from one centrally
located Web site
We provide our services at a cost to users that is generally lower
than that charged by traditional carriers because we minimize our network
costs by using efficient packet-switched technology and we generally avoid
local access charges and by-pass international settlement charges by
routing international long distance calls over our privately managed
network.
We intend to introduce additional enhanced IP communications services
that meet the communications needs of individuals and businesses. These
services are expected to include D3 Fax, a Web-based, PC-to-fax service
allowing users to conveniently send faxes directly from their computer to a
standard fax machine anywhere in the world, and white boarding, a service
allowing multiple users to simultaneously edit a document while speaking
with each other over their computers.
We market our enhanced IP communications services through our own Web
site. In addition, we market these services through "communications
centers" on the Web sites of other Internet companies. Communications
centers enable viewers of those Web sites to directly access our services
without leaving those Web sites. We have sought to establish marketing
relationships with Internet companies that have strong brand names and high
traffic volumes. To date, we have marketing relationships with CBS.com,
CNET, Sony.com, Xoom.com and Yahoo! and we are continuing to pursue
marketing relationships with other companies. We also have entered into
distribution and marketing arrangements with communications equipment and
software companies.
In February 2000, we acquired YourDay.com, Inc., a leading on-line
calendar and scheduling system that seamlessly integrates Personal
Digital Assistants (PDAs), telephones and the Internet. As a result of
this acquisition, users will be able to access their calendars and
schedules on the Internet, over the phone or with their PDAs by using a
synchronization tool for fast response and easy transfer of data.
YourDay.com will be integrated into our existing service offerings.
Carrier transmission services accounted for 71.7% of our total
revenues in 1998 and 59.8% of our total revenues in 1999. As we expand our
marketing and promotional efforts for our enhanced IP communications
services, we expect revenue from these services, over time, to represent a
majority of our total revenues.
Our privately-managed, IP telephony network consists of:
o 46 points of presence (POPs) in 29 countries
o interconnections with the RSL COM network
o gateways, gatekeepers and routers at each POP
o peering arrangements with Internet backbone providers
o hubs in New York, Los Angeles, Frankfurt and Hong Kong
o a network operations center
o dedicated leased bandwidth
We were founded in 1996. In July 1997, RSL COM, a global facilities-
based telecommunications company, acquired a controlling 51% interest in
us. By April 1998, RSL COM had acquired the remaining 49% interest in us
from existing shareholders, and we became a wholly-owned subsidiary of RSL
COM. RSL COM currently owns shares of our Class B common stock
representing approximately 95.5% of the combined voting power of all
classes of our capital stock and approximately 68.1% of the economic
interest in our company. We provide carrier transmission services to RSL
COM. Such services accounted for 69.1% of our total revenues in 1998 and
67.2% of our total revenues in 1999.
We registered 6,900,000 shares of our Class A common stock on a Form
S-1 registration statement, which became effective on November 22, 1999.
We received net proceeds of approximately $96,255,000 from the sale of the
6,900,000 shares at the initial public offering price of $15.00 per share
on November 29, 1999. The managing underwriters for this offering were
Lehman Brothers Inc., Merrill Lynch & Co., U.S. Bancorp Piper Jaffray,
Lazard FrEres & Co. LLC and Fidelity Capital Markets.
Our executive offices are located at 430 Park Avenue, Suite 500, New
York, New York 10022; our telephone number is (212) 588-3670 and our
facsimile number is (212) 588-3674. Our web site is www.deltathree.com.
The information contained on our web site is not incorporated by reference
into this prospectus.
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this
prospectus before deciding to invest in the shares of common stock.
RISKS RELATED TO OUR COMPANY
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE OUR LOSSES WILL CONTINUE
We have incurred significant losses since inception, and we expect to
continue to incur significant losses for the foreseeable future. We
reported a net loss of approximately $33.8 million in 1999, and a net loss
of approximately $7.1 million in 1998. As of December 31, 1999, our
accumulated deficit was approximately $43.4 million. As a percentage of
revenues, our net loss was 305.6% in 1999 and 126.3% in 1998. Our revenues
may not continue to grow or even continue at their current level. In
addition, we expect our operating expenses to increase significantly as we
develop and expand our business. For example, we intend to spend
approximately $20 million on marketing and promotional programs in 2000
compared to $7.4 million in 1999 and $2.4 million in 1998. As a result, we
will need to increase our revenues significantly to become profitable. In
order to increase our revenues, we need to attract users to increase the
fees we collect for our services. If our revenues do not increase as much
as we expect or if our expenses increase at a greater pace than revenues,
we may never be profitable or, if we become profitable, we may not be able
to sustain or increase profitability on a quarterly or annual basis.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE US
We have only a limited operating history upon which you can evaluate
our business and prospects. We commenced operations in June 1996. You
should consider our prospects in light of the risks, expenses and
difficulties we may encounter as an early stage company in the new and
rapidly evolving market for IP communications services. These risks
include our ability:
o to increase awareness of our brand, increase the number of
users of our IP telephony services and build user loyalty
o to increase revenues to cover the increased marketing
expenditures we have planned
o to compete effectively
o to develop new products and keep pace with developing
technology
In addition, because we expect an increasing percentage of our
revenues to be derived from our enhanced IP communications services, our
past operating results may not be indicative of our future results.
WE MAY NOT BE ABLE TO EXPAND OUR REVENUE AND ACHIEVE PROFITABILITY
Our business strategy is to expand our revenue sources to enhanced IP
communications services and advertising on the Internet. We can neither
assure you that we will be able to do this or that this strategy will be
profitable. Currently our revenues are primarily generated from carrier
transmission services for RSL COM and other communications carriers.
Carrier transmission services generated 59.8% of our total revenues in 1999
and 74.7% in 1998. Enhanced IP communications services generated 18.0% of
our total revenues in 1999 and 20.5% in 1998. The provision of carrier
transmission services and enhanced IP communications services have not been
profitable to date.
In the future, we intend to generate increased revenues from multiple
sources, many of which are unproven, including the commercial sale of
enhanced IP communications services and advertising on the Internet. To
date, we have recorded no revenue from advertising. We expect that our
revenues for the foreseeable future will be dependent on, among other
factors:
o sale of enhanced IP communications services
o acceptance and use of Internet communications
o continued rapid growth of the Internet consumer market
o expansion of service offerings
o user traffic levels
o the effect of competition, regulatory environment,
international long distance rates and access and
transmission costs on our prices
o sale of carrier transmission services
o continued improvement of our global network quality
o sale of Internet advertising
We may not be able to sustain our current revenues or successfully generate
additional revenues from the sale of carrier transmission services,
enhanced IP communications services and advertising on the Internet in the
future.
WE CANNOT ASSURE YOU THAT A MARKET FOR OUR SERVICES WILL DEVELOP
We are uncertain whether a market will develop for our enhanced IP
communications services. Our market is new and rapidly evolving. Our
ability to sell our services to end users may be inhibited by, among other
factors, the reluctance of some end users to switch from traditional
communications carriers to IP communications carriers and by concerns with
the quality of Internet and IP telephony and adequacy of security in the
exchange of information over the Internet. End users in markets serviced
by recently deregulated telecommunications providers are not familiar with
obtaining services from competitors of these providers and may be reluctant
to use new providers, such as our company. Our ability to increase
revenues from enhanced IP communications services depends on the migration
of traditional telephone network traffic to our IP network. We will need
to devote substantial resources to educate end users about the benefits of
IP communications solutions in general and our services in particular, and
as a result, we intend to spend approximately $20 million in 2000 for
marketing and promotional activities. If end users do not accept our
enhanced IP communications services as a means of sending and receiving
communications we will not be able to increase our number of paid users or
successfully generate revenues in the future.
OUR FUTURE SUCCESS DEPENDS ON THE GROWTH IN THE USE OF THE INTERNET AS A
MEANS OF COMMUNICATIONS
If the market for IP communications, in general, and our services in
particular, does not grow at the rate we anticipate, we will not be able to
increase our number of users or generate revenues from our enhanced IP
communications services or from advertising on the Internet at the rate we
anticipate. We currently rely on revenues generated primarily from the
sale of carrier transmission services but expect in the future to
increasingly rely on revenues generated from enhanced IP communications
services and from advertising on the Internet. To be successful, IP
communications requires validation as an effective, quality means of
communication and as a viable alternative to traditional telephone service.
As is typical in the case of a new and rapidly evolving industry, demand
and market acceptance for recently introduced services are subject to a
high level of uncertainty. The Internet may not prove to be a viable
alternative to traditional telephone service for reasons including:
o inconsistent quality or speed of service
o traffic congestion on the Internet
o potentially inadequate development of the necessary
infrastructure
o lack of acceptable security technologies
o lack of timely development and commercialization of
performance improvements
o unavailability of cost-effective, high-speed access to the
Internet
If Internet usage grows, the Internet infrastructure may not be able
to support the demands placed on it by such growth, or its performance or
reliability may decline. In addition, Web sites may from time to time
experience interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well
as usage of our communications portal and our services, could be adversely
affected.
IF WE DO NOT DEVELOP THE DELTATHREE.COM BRAND, WE MAY NOT BE ABLE TO
MAINTAIN A LEADING POSITION IN OUR INDUSTRY
We may not be able to become the leader in our industry. To become
the leader, we must strengthen the brand awareness of the deltathree.com
brand. If we fail to create and maintain brand awareness, it could
adversely affect our ability to attract sufficient Web traffic and reduce
our attractiveness to advertisers. Brand recognition may become more
important in the future with the growing number of Internet sites and IP
communications providers.
IF WE FAIL TO ESTABLISH MARKETING RELATIONSHIPS THAT PROVIDE US VISIBILITY,
WE MAY NOT BE ABLE TO SUFFICIENTLY INCREASE OUR SALES
We believe that our success depends, in part, on our ability to
develop and maintain marketing and promotional relationships with Internet
companies and communications equipment and software companies that
themselves have strong brand names or high traffic volumes. If we are
unable to establish and maintain these relationships, we may not be able to
increase sales of our services, and we may lose users.
WE WILL NEED ADDITIONAL CAPITAL TO FINANCE OUR OPERATIONS IN THE FUTURE AND
MAY HAVE TO REQUEST IT FROM RSL COM WHO HAS NO OBLIGATION TO PROVIDE IT
We intend to continue to enhance and expand our network in order to
maintain our competitive position and meet the increasing demands for
service quality, capacity and competitive pricing. Also, the introduction
of our new enhanced IP communications services will require significant
marketing and promotional expenses that we often incur before we begin to
receive the related revenue. If our cash flow from operations is not
sufficient to meet our capital expenditure and working capital
requirements, we will need to raise additional capital from other sources.
Although we are neither the debtor nor the guarantor under any of the
indentures that govern a substantial amount of RSL COM's debt, we are a
"restricted subsidiary" under these indentures and will continue to be one
after the completion of the offering. The limitations under RSL COM's
restrictive indenture covenants prohibit RSL COM and its restricted
subsidiaries, including us, from incurring any significant amount of
additional debt. We have agreed with RSL COM not to take any action which
would cause RSL COM to default under its indentures and not to incur any
debt, other than inter-company debt, without its written consent so long as
we are a restricted subsidiary of RSL COM. These limitations may require
us to resort to other sources of funding, such as the issuance of equity.
If we issue additional equity, investors could experience dilution. If we
are unable to raise additional capital through the issuance of equity, we
may need to rely upon RSL COM to provide any additional capital to meet our
working capital and capital expenditure requirements and we cannot assure
you that RSL COM or any other third party will be willing or able to
provide additional capital on favorable terms. If we are unable to obtain
additional capital, we may be required to reduce the scope of our business
or our anticipated growth, which would reduce our revenues.
WE MAY BE UNABLE TO MANAGE OUR EXPANSION AND ANTICIPATED GROWTH EFFECTIVELY
We have grown and expect to continue to grow rapidly. This growth has
placed, and is likely to continue to place, a significant strain on our
managerial, operational and financial resources. To manage our growth, we
must continue to implement and improve our operational and financial
systems, as well as our managerial controls and procedures. We cannot
assure you that we have made adequate allowances for the costs and risks
associated with this expansion, that our systems, procedures or controls
will be adequate to support our operations or that our management will be
able to successfully offer and expand our services. If we are unable to
effectively manage our expanding operations, our revenues may not increase,
our cost of operations may rise and we may not be profitable.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE IT DIFFICULT
FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
The factors generally within our control include:
o the rate at which we are able to attract users to purchase
our enhanced IP communications services
o the amount and timing of expenses to enhance marketing and
promotion efforts and to expand our infrastructure
o the timing of announcements or introductions of new or
enhanced services by us
The factors outside our control include:
o the timing of announcements or introductions of new or
enhanced services by our competitors
o technical difficulties or network interruptions in the
Internet or our privately managed network
o general economic and competitive conditions specific to our
industry
The foregoing factors also may create other risks affecting our long-
term success, as discussed in the other risk factors.
We believe that quarter-to-quarter comparisons of our historical
operating results may not be a good indication of our future performance,
nor would our operating results for any particular quarter be indicative of
our future operating results.
OUR NETWORK MAY NOT BE ABLE TO ACCOMMODATE OUR CAPACITY NEEDS
We expect the volume of traffic we carry over our network to increase
significantly as we expand our operations and service offerings. Our
network may not be able to accommodate this additional volume. In order to
ensure that we are able to handle additional traffic, we may have to enter
into long-term agreements for leased capacity. To the extent that we
overestimate our capacity needs, we may be obligated to pay for more
transmission capacity than we actually use, resulting in costs without
corresponding revenues. Conversely, if we underestimate our capacity
needs, we may be required to obtain additional transmission capacity from
more expensive sources. If we are unable to maintain sufficient capacity
to meet the needs of our users, our reputation could be damaged and we
could lose users.
WE FACE A RISK OF FAILURE OF COMPUTER AND COMMUNICATIONS SYSTEMS USED IN
OUR BUSINESS
Our business depends on the efficient and uninterrupted operation of
our computer and communications systems as well as those that connect to
our network. We maintain communications systems in five facilities in New
York, Los Angeles, London, Frankfurt and Jerusalem. Our systems and those
that connect to our network are subject to disruption from natural
disasters or other sources of power loss, communications failure, hardware
or software malfunction, network failures and other events both within and
beyond our control. In December 1998, we experienced a system disruption
while we were installing a new billing system and users were unable to
access our Web site for six hours. In July 1999, we experienced a system
disruption with respect to our unified messaging service, D3 Box, while the
product was being market tested. For a period of three days the system was
down and users were unable to send or retrieve new messages. Any system
interruptions that cause our services to be unavailable, including
significant or lengthy telephone network failures or difficulties for users
in communicating through our network or portal, could damage our reputation
and result in a loss of users.
OUR COMPUTER SYSTEMS AND OPERATIONS MAY BE VULNERABLE TO SECURITY BREACHES
Our computer infrastructure is potentially vulnerable to physical or
electronic computer viruses, break-ins and similar disruptive problems and
security breaches which could cause interruptions, delays or loss of
services to our users. We believe that the secure transmission of
confidential information over the Internet, such as credit card numbers, is
essential in maintaining user confidence in our services. We rely on
licensed encryption and authentication technology to effect secure
transmission of confidential information, including credit card numbers.
It is possible that advances in computer capabilities, new technologies or
other developments could result in a compromise or breach of the technology
we use to protect user transaction data. A party that is able to
circumvent our security systems could misappropriate proprietary
information or cause interruptions in our operations. Security breaches
also could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Although we have experienced no security
breaches to date of which we are aware, we cannot guarantee you that our
security measures will prevent security breaches.
THIRD PARTIES MIGHT INFRINGE UPON OUR PROPRIETARY TECHNOLOGY
We cannot assure you that the steps we have taken to protect our
intellectual property rights will prevent misappropriation of our
proprietary technology. To protect our rights to our intellectual
property, we rely on a combination of trademark and patent law, trade
secret protection, confidentiality agreements and other contractual
arrangements with our employees, affiliates, strategic partners and others.
Although we do not currently own any issued patents, we have pending
applications for patents in the United States and Israel. We may be unable
to detect the unauthorized use of, or take appropriate steps to enforce,
our intellectual property rights. Effective copyright and trade secret
protection may not be available in every country in which we offer or
intend to offer our services. Failure to adequately protect our
intellectual property could harm our brand, devalue our proprietary content
and affect our ability to compete effectively. Further, defending our
intellectual property rights could result in the expenditure of significant
financial and managerial resources.
OUR SERVICES MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Third parties may assert claims that we have violated a patent or
infringed a copyright, trademark or other proprietary right belonging to
them. We incorporate licensed third-party technology in some of our
services. In these license agreements, the licensors have agreed to
indemnify us with respect to any claim by a third party that the licensed
software infringes any patent or other proprietary right so long as we have
not made changes to the licensed software. We cannot assure you that these
provisions will be adequate to protect us from infringement claims. Any
infringement claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
On October 8, 1999, we were named as a defendant in a lawsuit alleging
that we are infringing on a patent by making, using, selling and offering
for sale prepaid telephone card products in the United States. The
plaintiffs are seeking an injunction to stop us from using the technology
covered by this patent, monetary damages in an unspecified amount and
reimbursement of attorneys' fees. We have answered the complaint, and the
parties are currently engaged in pre-trial discovery. As we continue to
evaluate these claims, we believe that we have meritorious defenses to the
claim and we intend to defend the lawsuit vigorously. However, the outcome
of the litigation is inherently unpredictable and an unfavorable result may
have a material adverse effect on our business, financial condition and
results of operations. Regardless of the ultimate outcome, the litigation
could result in substantial expenses to us and significant diversion of
efforts by our managerial and other personnel.
OPERATING INTERNATIONALLY EXPOSES US TO ADDITIONAL AND UNPREDICTABLE RISKS
We intend to continue to enter additional markets in Eastern Europe,
Africa and Asia and to expand our existing operations outside the United
States. International operations are subject to inherent risks, including:
o potentially weaker protection of intellectual property
rights
o political instability
o unexpected changes in regulations and tariffs
o fluctuations in exchange rates
o varying tax consequences
o uncertain market acceptance and difficulties in marketing
efforts due to language and cultural differences
WE HAVE EXPERIENCED LOSSES AS A RESULT OF FRAUD
We have experienced losses due to fraud. In 1999, we experienced
losses from fraud of approximately $25,000. Callers have obtained our
services without rendering payment by unlawfully using our access numbers
and personal identification numbers. Although we have implemented anti-
fraud measures in order to control losses relating to these practices,
these measures may not be sufficient to effectively limit all of our
exposure in the future from fraud and we continue to experience losses from
fraud. While we have established reserves for bad debts in accordance with
historical levels of uncollectible receivables resulting primarily from
these fraudulent practices, our losses may exceed our reserves and could
rise significantly above anticipated levels.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
Competition in the market for each of enhanced IP communications
services and carrier transmission services is becoming increasingly intense
and is expected to increase significantly in the future. The market for
enhanced internet and IP communications is new and rapidly evolving. We
expect that competition from companies both in the Internet and
telecommunications industries will increase in the future. Our competitors
include both start-up IP telephony service providers and established
traditional communications providers. Many of our existing competitors and
potential competitors have broader portfolios of services, greater
financial, management and operational resources, greater brand-name
recognition, larger subscriber bases and more experience than we have. In
addition, many of our IP telephony competitors use the Internet instead of
a private network to transmit traffic. Operating and capital costs of
these providers may be less than ours, potentially giving them a
competitive advantage over us in terms of pricing.
We also compete in the growing market of discount telecommunications
services including calling cards, prepaid cards, call-back services, dial-
around or 10-10 calling and collect calling services. In addition, some
Internet service providers have begun to aggressively enhance their real
time interactive communications, focusing initially on instant messaging,
although we expect them to begin to provide PC-to-phone services. For the
carrier transmission services business, we compete with telecommunications
providers, long distance carriers and other long distance resellers and
providers of carrier services. Competition for carrier traffic is
primarily based on price. Decreasing telecommunications rates have resulted
in intense price competition and we expect that competition will continue
to increase significantly as telecommunications rates decrease. Increased
competition could force us to further reduce our prices and profit margins,
and may reduce our market share.
If we are unable to provide competitive service offerings, we may lose
existing users and be unable to attract additional users. In addition,
many of our competitors, especially traditional carriers, enjoy economies
of scale that result in a lower cost structure for transmission and related
costs, which cause significant pricing pressures within the industry.
Although the minutes of use we sell are increasing, revenues are not
increasing at the same rate due primarily to a decrease in revenue per
minute for our carrier transmission services. In order to remain
competitive we intend to increase our efforts to promote our services, and
we cannot be sure that we will be successful in doing this.
In addition to these competitive factors, recent and pending
deregulation in some of our markets may encourage new entrants. We cannot
assure you that additional competitors will not enter markets that we plan
to serve or that we will be able to compete effectively.
DECREASING TELECOMMUNICATIONS RATES MAY DIMINISH OR ELIMINATE OUR
COMPETITIVE PRICING ADVANTAGE
Decreasing telecommunications rates may diminish or eliminate the
competitive pricing advantage of our enhanced IP communications services
and carrier transmission services. International and domestic
telecommunications rates have decreased significantly over the last few
years in most of the markets in which we operate, and we anticipate that
rates will continue to be reduced in all of the markets in which we do
business or expect to do business. Users who select our enhanced IP
communications services to take advantage of the current pricing
differential between traditional telecommunications rates and our rates may
switch to traditional telecommunications carriers as such pricing
differentials diminish or disappear, and we will be unable to use such
pricing differentials to attract new customers in the future. In addition,
our ability to market our carrier transmission services to
telecommunications carriers depends upon the existence of spreads between
the rates offered by us and the rates offered by traditional
telecommunications carriers, as well as a spread between the retail and
wholesale rates charged by the carriers from which we obtain wholesale
service. Continued rate decreases will require us to lower our rates to
remain competitive and will reduce or possibly eliminate our gross profit
from our carrier transmission services. If telecommunications rates
continue to decline, we may lose users for our enhanced IP communications
services and carrier transmission services.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO IP TELEPHONY
COULD HARM OUR BUSINESS
Traditionally, voice communications services have been provided by
regulated telecommunications common carriers. We offer voice
communications to the public for international and domestic calls using IP
telephony, and we do not operate as a licensed telecommunications common
carrier in any jurisdiction. Based on specific regulatory classifications
and recent regulatory decisions, we believe we qualify for certain
exemptions from telecommunications common carrier regulation in many of our
markets. However, the growth of IP telephony has led to close examination
of its regulatory treatment in many jurisdictions making the legal status
of our services uncertain and subject to change as a result of future
regulatory action, judicial decisions or legislation in any of the
jurisdictions in which we operate. Established regulated
telecommunications carriers have sought and may continue to seek regulatory
actions to restrict the ability of companies such as ours to provide
services or to increase the cost of providing such services. In addition,
our services may be subject to regulation if regulators distinguish phone-
to- phone telephony service using IP technologies over privately-managed
networks such as our services from integrated PC-to-PC and PC-originated
voice services over the Internet. Some regulators may decide to treat the
former as regulated common carrier services and the latter as unregulated
enhanced or information services.
Application of new regulatory restrictions or requirements to us could
increase our costs of doing business and prevent us from delivering our
services by our current arrangements. In such event, we would consider a
variety of alternative arrangements for providing our services, including
obtaining appropriate regulatory authorizations for our local network
partners or ourselves, changing our service arrangements with RSL COM for a
particular country or limiting our service offerings. Such regulations
could limit our service offerings, raise our costs and restrict our pricing
flexibility, and potentially limit our ability to compete effectively.
Further, regulations and laws which affect the growth of the Internet could
hinder our ability to provide our services over the Internet. For a more
detailed discussion of the regulation of IP telephony, see
"BusinessuRegulation of IP Telephony."
WE MAY NOT BE ABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN THE
COMMUNICATIONS INDUSTRY
Our industry is subject to rapid technological change. We cannot
predict the effect of technological changes on our business. In addition,
widely accepted standards have not yet developed for the technologies we
use. We expect that new services and technologies will emerge in the
market in which we compete. These new services and technologies may be
superior to the services and technologies that we use, or these new
services may render our services and technologies obsolete.
To be successful, we must adapt to our rapidly changing market by
continually improving and expanding the scope of services we offer and by
developing new services and technologies to meet customer needs. Our
success will depend, in part, on our ability to license leading
technologies and respond to technological advances and emerging industry
standards on a cost-effective and timely basis. We will need to spend
significant amounts of capital to enhance and expand our services to keep
pace with changing technologies.
RISKS RELATED TO OUR RELATIONSHIP WITH RSL COM
WE DEPEND ON SALES TO RSL COM
We currently depend on sales to RSL COM, our controlling stockholder,
for a substantial majority of our revenues. RSL COM accounted for 37.6%,
69.1% and 67.2% of our revenues for the years ended December 31, 1997,
December 31, 1998 and December 31, 1999, respectively. RSL COM is not
contractually required to purchase services from us, other than a minimum
of 50 million minutes per year pursuant to the services agreement for two
years through November 29, 2001. We cannot assure you that RSL COM will
fulfill its obligations under this agreement or that the contract will be
renewed upon its expiration. RSL COM resells a significant portion of the
carrier transmission services it purchases from us to third parties.
Although we could market our services directly to these third parties if
RSL COM ceased purchasing services from us, we cannot assure you that we
would succeed in attracting these customers or that these customers would
purchase our services in the same volume or on the same terms as from RSL
COM.
WE DEPEND ON THE SERVICES RSL COM PROVIDES TO US
We are currently dependent upon RSL COM for leased line capacity, data
communications facilities, traffic termination services and physical space
for our equipment. Through our relationship with RSL COM, which owns or
leases substantial bandwidth for its own business, we have access to
bandwidth. We are able to take advantage of RSL COM's volume discounts and
achieve cost efficiencies that we could not achieve on our own. Although we
have entered into a services agreement with RSL COM for it to provide these
services through 2004, if RSL COM becomes unwilling or unable to provide
its current level of services to us during the term of such agreement or
thereafter, we may not be able to find replacement service providers on a
timely basis. If we are required to change providers, we would likely
experience delays, operational difficulties and increased expenses, and our
ability to provide services to our users or expand our operations may be
impaired.
The inter-company agreements with RSL COM were made in the context of
a parent-subsidiary relationship and were not negotiated on an arms' length
basis. As a result, the terms of such agreement may be better or worse
than the terms that would have been negotiated by unaffiliated third
parties for similar arrangements.
RSL COM WILL CONTROL ALL MATTERS SUBMITTED TO A STOCKHOLDER VOTE
After completion of our initial public offering, RSL COM owns all of
our Class B common stock and will therefore own approximately 95.5% of the
voting power of our company.
As long as RSL COM continues to beneficially own shares of capital
stock representing more than 50% of the voting power of our outstanding
capital stock, RSL COM will be able to exercise a controlling influence
over decisions affecting our company, including:
o composition of our board of directors and, through it, the
direction and policies of our company, including the appointment
and removal of officers
o mergers or other business combinations involving our company
o acquisitions or dispositions of assets by our company
o future issuances of capital stock or other securities by our
company
o incurrence of debt by our company
o amendments, waivers and modifications to any agreements between
us and RSL COM
o payment of dividends on our capital stock
o approval of our business plans and general business development
In addition, five of our nine directors are officers and/or directors of RSL
COM, or otherwise affiliated with RSL COM. As a result, the ability of any
of our other stockholders to influence the management of our company is
limited, which could have an adverse effect on the market price of our
stock.
WE ARE SUBJECT TO THE COVENANTS OF RSL COM'S INDENTURES WHICH RESTRICT OUR
ABILITY TO CONDUCT OUR BUSINESS
Although we are neither the debtor nor the guarantor under any of the
indentures that govern a substantial amount of RSL COM's debt, we are
subject to covenants by reason of our status as a restricted subsidiary of
RSL COM under such indentures. As of March 1, 2000, RSL COM had
approximately $1.4 billion of debt outstanding under these indentures.
This debt is unsecured. These restrictions significantly limit the ability
of RSL COM and its restricted subsidiaries, including our company, to incur
additional indebtedness or create liens on their assets. The limitations on
indebtedness under the indentures generally are based on the application of
tests derived from RSL COM's consolidated financial statements.
Effectively, our ability to incur indebtedness is limited by the amount of
indebtedness that RSL COM and its restricted subsidiaries, including our
company, are permitted to incur under the indentures. The limitations
under RSL COM's restrictive indenture covenants currently prohibit us from
incurring any significant amount of additional debt. We have also agreed
with RSL COM not to take any action which would cause RSL COM to default
under its indentures and not to incur any debt, other than inter-company
debt, without its written consent so long as we are a restricted subsidiary
of RSL COM. In addition, currently the restrictions under the RSL COM
indentures effectively prohibit us from paying dividends and limit our
ability to make other distributions in respect of our capital stock, sell
assets, engage in mergers or acquisitions or make some types of
investments. Such restrictions also limit the ability of a third party to
acquire a controlling interest in our company. These restrictions may
prohibit transactions that would otherwise be beneficial to our company.
THE INTERESTS OF RSL COM MAY CONFLICT WITH OUR INTERESTS
The interests of RSL COM, our controlling stockholder and principal
customer, may conflict with our interests.
Services. We have entered into a services agreement with RSL COM for
the provision of traffic termination services, colocation rights and other
network support services. We provide carrier transmission services to RSL
COM. Because of these transactions and RSL COM's controlling position in
our company, conflicts of interest could arise relating to the nature,
quality and pricing of services or products provided by us to RSL COM or by
RSL COM to us.
Financial Support. Historically, RSL COM has funded our working
capital and operating losses. As a result, we owe RSL COM $14.8 million,
as of December 31, 1999. Also, to the extent that we require additional
working capital we may need to turn to RSL COM. Because of RSL COM's
control over us, conflicts of interest could arise relating to the
prepayment of borrowings, the provision of additional funding and the terms
of such funding and general issues relating to the uses and sources of our
funds.
Board Conflicts. Five of our nine directors are officers and/or
directors of RSL COM, or otherwise affiliated with RSL COM. Our directors
who are also directors or officers of RSL COM will have fiduciary duties,
including duties of loyalty, to both companies and may have conflicts of
interest with respect to matters potentially involving or affecting us,
such as acquisitions, financings or other corporate opportunities that may
be suitable for both us and RSL COM. Some of these individuals and a
number of our executive officers own substantial amounts of RSL COM capital
stock and/or options for shares of RSL COM capital stock. Although we
believe that these directors and officers will be able to fulfill their
fiduciary duties to our stockholders despite their positions with RSL COM
and their ownership of RSL COM capital stock and options, there could be
potential conflicts of interest when these directors and officers are faced
with decisions that could have different implications for our company and
RSL COM. There are no specific policies in place with respect to any
conflicts that may arise. We expect conflicts to be resolved on a case-by-
case basis, and in a manner consistent with applicable law. For example,
if a business opportunity were presented to both us and RSL COM for
consideration, directors affiliated with RSL COM would not participate in
our consideration of that opportunity. However, conflicts could be
resolved in a manner adverse to us which could harm our business.
RSL COM MAY COMPETE WITH OUR COMPANY
RSL COM is in the communications business and may compete with us
under some circumstances. Under the services agreement between us and RSL
COM, RSL COM is prohibited from competing with us in providing Internet
telephony services as described in the services agreement, provided that we
provide RSL COM with any requested Internet telephony services promptly and
with quality assurance. However, this non-competition provision terminates
on September 3, 2001 and the scope of such provision is subject to the
following limitations:
o RSL COM and its subsidiaries may acquire up to 20% in an entity
providing Internet telephony services
o RSL COM and its subsidiaries may be stockholders in entities
providing Internet telephony services,
o the non-competition provision does not apply to RSL COM's
subsidiaries that become publicly traded companies
o Internet telephony services under the non-competition provision
are limited to (1) phone to phone services marketed as IP to the
general public, including both individuals and businesses and (2)
the following Web-based enhanced communication services: PC-to-
phone, D3 box, Click IT, Global Roaming, IP-initiated conference
calls, Phone-to-PC, D3 Fax, information services and white
boarding
RSL COM'S CLASS B COMMON STOCK MAY BE TRANSFERRED TO A THIRD PARTY THAT
WOULD EFFECTIVELY CONTROL US
Although our Class B common stock generally converts to common stock
automatically upon transfer, RSL COM may transfer our Class B common stock
to permitted transferees, including entities controlled by RSL COM or its
principal stockholder, Ronald S. Lauder, and successors in interest of RSL
COM. As a result, a third party could acquire our Class B common stock and
may become party to our intercompany agreements. We cannot assume that a
third party would maintain good relations with us or maintain or renew our
agreements with RSL COM.
RISKS RELATED TO OUR STOCK
A THIRD PARTY MAY BE DETERRED FROM ACQUIRING OUR COMPANY
The disproportionate voting rights of our Class B common stock
relative to our common stock could delay, deter or prevent a third party
from attempting to acquire control of us. This provision may have the
effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of our company, even though such a
change in ownership would be economically beneficial to our company and our
stockholders.
VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR STOCKHOLDERS
Since trading commenced in November 1999, the market price of our
common stock has been highly volatile and may continue to be volatile and
could be subject to wide fluctuations in response to factors such as:
o variations in our actual or anticipated quarterly operating
results or those of our competitors
o announcements by us or our competitors of technological
innovations
o introduction of new products or services by us or our competitors
o changes in financial estimates by securities analysts
o conditions or trends in the Internet industry
o changes in the market valuations of other Internet companies
o announcements by us or our competitors of significant
acquisitions
o our entry into strategic partnerships or joint ventures
o sales of our capital stock by RSL COM
All of these factors are, in whole or part, beyond our control and may
materially adversely affect the market price of our common stock regardless
of our performance.
Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to
such volatility. In addition, the stock market in general, and the market
for Internet-related and technology companies in particular, has been
highly volatile. The trading prices of many Internet-related and
technology companies' stocks have reached historical highs within the last
52 weeks and have reflected relative valuations substantially above
historical levels. During the same period, such companies' stocks have
also been highly volatile and have recorded lows well below such historical
highs. We cannot assure you that our stock will trade at the same levels
of other Internet stocks or that Internet stocks in general will sustain
their current market prices.
WE DO NOT INTEND TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our common stock.
We intend to retain any future earnings to finance our operations and to
expand our business and, therefore, do not expect to pay any cash dividends
in the foreseeable future. In addition, indentures governing outstanding
indebtedness of RSL COM restrict our ability to declare or pay cash
dividends, and, for the foreseeable future, effectively prohibit such
payments or declarations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements include, but are not limited to, statements
about our plans, objectives, expectations, intentions and assumptions and
other statements that are not historical facts. When used in this
prospectus, the words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by these forward-looking
statements. We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
REGISTERED STOCKHOLDERS
Of the 5,228,736 shares of common stock being registered, 1,662,845
shares are being registered for reoffers and resales by our officers and
directors, who acquired the shares of common stock pursuant to our
"employee benefit plans" as that term is defined in Rule 405 of Regulation
C under the Securities Act. The registered stockholders may resell all, a
portion or none of such shares of common stock from time to time, subject
to limitations in certain circumstances. The following table sets forth
those persons eligible to resell and the amounts of securities availabe to
be resold, whether or not these persons have a present intention to do so.
<TABLE>
<CAPTION>
No. of Shares No. of Shares
No. of Shares Available Owned After
Name Title Owned(1) for Resale(1) Sale
---- ----- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Elie C. Wurtman Co-founder, Co-chairman -- 165,656 --*
of the company and
chairman of the board
of directors
Amos Sela Former chief executive 5,000 273,332 --*
officer, president and
director
Jacob A. Davidson Co-founder and co-chairman -- 115,959 --*
of the company
Noam Bardin Co-founder, interim chief 253,483 422,421 --*
executive officer, presi-
dent,vice president
of technology and chief
technology officer
Mark J. Hirschhorn Vice president and chief 10,000 173,938 --*
financial officer
Shimmy Zimels Vice president of operations 89,469 260,907 --*
Marc M. Tobin General counsel 9,782 51,848 --*
Avery S. Fischer Director 7,000 24,848 --*
Itzhak Fisher Director 1,000 24,848 --*
Robert R. Grusky Director 2,000 24,848 --*
Yadin Kaufmann Director -- 24,848 --*
Jacob Z. Schuster Director 10,000 24,848 --*
Donald R. Shassian Director 5,000 24,848 --*
Nir Tarlovsky Director 10,000 24,848 --*
Oakleigh Thorne Director 450 24,298 --*
* Represents ownership of less than one percent.
(1) Includes shares of our common stock issued or issuable to the
Registered Stockholders under the deltathree.com, Inc. 1999 Stock Incentive
Plan, 1999 Performance Incentive Plan, 1999 Employee Stock Purchase Plan or
1999 Directors' Plan, whether or not exercisable as of, or within sixty
days of, the date of this Prospectus.
PLAN OF DISTRIBUTION
Each registered stockholder may sell his or her shares of common stock
for value from time to time under this prospectus in one or more
transactions on Nasdaq, in negotiated transactions or in a combination of
such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at prices otherwise
negotiated. The registered stockholders may effect such transactions by
selling the shares of common stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the registered stockholders
and/or the purchasers of the shares of common stock for whom such broker-
dealers may act as agent (which compensation may be less than or in excess
of customary commissions).
Each registered stockholder and any broker-dealer that participates in
the distribution of the shares of common stock may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit on the resale of the
shares sold by them may be deemed to be underwriting discounts and
commissions under the Securities Act. All selling and other expenses
incurred by the registered stockholders will be borne by the registered
stockholders. We will pay all other expenses in connection with this
offering and will not receive any proceeds from sales of any shares of
common stock by the registered stockholders.
In addition to any shares of common stock sold hereunder, the
registered stockholders may sell shares of common stock in compliance with
all of the requirements of Rule 144. Notwithstanding the foregoing, the
amount of securities to be reoffered or resold by means of this prospectus,
by each person, may not exceed, during any three-month period, the amount
specified in Rule 144(e). There is no assurance that the registered
stockholders will sell all or any portion of the shares of common stock
offered hereby.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for deltathree.com by Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of deltathree.com, Inc. as
of and for the years ended December 31, 1997, 1998 and 1999 and for the
period from June 1996 (inception) through December 31, 1996 incorporated by
reference into this prospectus have been audited by Brightman Almagor &
Co., a member firm of Deloitte Touche Tohmatsu, independent certified
public accountants, as indicated in their report with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving such reports.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
The following documents filed with the Securities and Exchange
Commission (the "Commission") by the registrant, deltathree.com, Inc., a
Delaware corporation ("deltathree.com"), are incorporated by reference in
this registration statement:
(1) deltathree.com's registration statement (Registration No. 333-
86503) on Form S-1 filed with the Commission on September 3, 1999, as
amended, and deltathree.com's prospectus filed with the Commission under
Rule 424(b) under the Securities Act, filed with the Commission on November
23, 1999.
(2) The description of deltathree.com's outstanding common stock
contained in deltathree.com's registration statement on Form 8-A filed with
the Commission on November 23, 1999 under Section 12 of the Exchange Act.
(3) deltathree.com's annual report on Form 10-K for the year ended
December 31, 1999, as filed with the Commission on March 29, 2000.
All documents subsequently filed by deltathree.com pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
registration statement to the extent that a statement contained herein or
in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
registration statement.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as
amended, allows a corporation to eliminate the personal liability of
directors of a corporation to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director, except
where the director breached his duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law,
authorized the payment of a dividend or approved a stock repurchase in
violation of Delaware corporate law or obtained an improper personal
benefit.
Section 145 of the DGCL provides, among other things, that
deltathree.com may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than an action by or in the right of
deltathree.com) by reason of the fact that the person is or was a
director, officer, agent or employee of deltathree.com or is or was
serving at deltathree.com's request as a director, officer, agent or
employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgment,
fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding. The power
to indemnify applies (a) if such person is successful on the merits or
otherwise in defense of any action, suit or proceeding, or (b) if such
person acted in good faith and in a manner he reasonably believed to be in
the best interest, or not opposed to the best interest, of deltathree.com,
and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The power to indemnify applies
to actions brought by or in the right of deltathree.com as well but only
to the extent of defense expenses (including attorneys' fees but excluding
amounts paid in settlement) actually and reasonably incurred and not to
any satisfaction of judgement or settlement of the claim itself, and with
the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his duties to deltathree.com, unless the court believes
that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a
director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held liable
for such actions. A director who was either absent when the unlawful
actions were approved or dissented at the time, may avoid liability by
causing his or her dissent to such actions be entered in the books
containing the minutes of the meetings of the board of directors at the
time such action occurred or immediately after such absent director
receives notice of the unlawful acts.
deltathree.com's Amended and Restated Certificate of Incorporation
includes a provision that eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a director,
except for liability:
o for any breach of the director's duty of loyalty to
deltathree.com, Inc. or its stockholders;
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o under section 174 of the DGCL regarding unlawful dividends and
stock purchases; or
for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
deltathree.com's Amended and Restated By-laws provide that:
o it must indemnify its directors and officers to the fullest
extent permitted by Delaware law;
o it may indemnify its other employees and agents to the same
extent that it indemnified its officers and directors, unless
otherwise determined by its Board of Directors; and
o it must advance expenses, as incurred, to its directors and
executive officers in connection with a legal proceeding to the
fullest extent permitted by Delaware law.
The indemnification provisions contained in deltathree.com's Amended
and Restated Certificate of Incorporation and Amended and Restated By-laws
are not exclusive of any other rights to which a person may be entitled by
law, agreement, vote of stockholders or disinterested directors or
otherwise. In addition, deltathree.com maintains insurance on behalf of its
directors and executive directors or officers insuring them against any
liability asserted against them in their capacities as directors or
officers or arising out of such status.
ITEM 8. EXHIBITS.
A list of exhibits is set forth on the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein. The undersigned registrant hereby undertakes that it will submit
the Plans and any amendments thereto to the Internal Revenue Service (the
"IRS") in a timely manner and will make all changes required by the IRS in
order to qualify such Plans.
ITEM 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(b) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(2) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(3) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1) and (a)(2) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by deltathree.com pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement.
(c) That, for the purpose of determining any liability under the
Securities Act, 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.
(d) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(e) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) 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.
(f) Insofar as indemnification for liabilities arising under the
Securities Act 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
Commission such indemnification is against public policy as expressed in
the Securities 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 Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of
1933, the registrant certifies that is has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of
New York, on this 31st day of March, 2000.
DELTATHREE.COM, INC.
(Registrant)
By: /s/ MARK J. HIRSCHHORN
------------------------------
Mark J. Hirschhorn
Chief financial officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mark J. Hirschhorn his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite or necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof. This power of attorney may be
executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 31st day of March, 2000.
NAME TITLE DATE
---- ----- -----
/s/ Noam Bardin Interim chief executive March 31, 2000
---------------------- officer and president
Noam Bardin (Principal executive officer)
/s/ MARK J. HIRSCHHORN Chief financial officer March 31, 2000
----------------------- (Principal financial officer
Mark J. Hirschhorn and accounting officer)
/s/ ELIE C. WURTMAN Co-Chairman of the Company March 31, 2000
---------------------- and Chairman of the Board of
Elie C. Wurtman Directors
/s/ JACOB A. DAVIDSON Co-chairman of the board March 31, 2000
----------------------
Jacob A. Davidson
/s/ ITZHAK FISHER Director March 31, 2000
----------------------
Itzhak Fisher
/s/ NIR TARLOVSKY Director March 31, 2000
----------------------
Nir Tarkovsky
/s/ DONALD R. SHASSIAN Director March 31, 2000
-----------------------
Donald R. Shassian
/s/ JACOB Z. SCHUSTER Director March 31, 2000
-----------------------
Jacob Z. Schuster
/s/ AVERY S. FISCHER Director March 31, 2000
-----------------------
Avery S. Fischer
/s/ ROBERT R. GRUSKY Director March 31, 2000
-----------------------
Robert R. Grusky
/s/ YADIN KAUFMANN Director March 31, 2000
-----------------------
Yadin Kaufmann
/s/ OAKLIEGH THORNE Director March 31, 2000
-----------------------
Oakliegh Thorne
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Form of certificate representing shares of common stock
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Exhibit 4.1 to Registration No.
333-86503)).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
23.1 Consent of Brightman Almagor & Co.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1 Power of Attorney (included on the signature page hereto).
99.1 deltathree.com, Inc. 1999 Stock Incentive Plan
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Exhibit 10.3 to Registration No.
333-86503)).
99.2 deltathree.com, Inc. 1999 Employee Stock Purchase Plan
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Exhibit 10.4 to Registration No.
333-86503)).
99.3 deltathree.com, Inc. 1999 Performance Incentive Plan
(incorporated by reference to the Company's Registration
Statement on Form S-1 (Exhibit 10.5 to Registration No.
333-86503)).
99.4 deltathree.com, Inc. 1999 Directors' Plan (incorporated by
reference to the Company's Registration Statement on Form
S-1 (Exhibit 10.6 to Registration No. 333-86503)).
</TABLE>
EXHIBIT 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
April 6, 2000
deltathree.com, Inc.
430 Park Avenue, Suite 500
New York, New York 10022
Re: Registration Statement on Form S-8 of
deltathree.com, Inc.
Ladies and Gentlemen:
We have acted as special counsel to deltathree.com, Inc., a
Delaware corporation (the "Company"), in connection with the proposed
issuance by the Company of up to 5,228,736 shares (the "Shares") of Class
A Common Stock, par value $0.001 per share (the "Common Stock"), pursuant
to deltathree.com, Inc.'s 1999 Stock Incentive Plan, 1999 Performance
Incentive Plan, 1999 Employee Stock Purchase Plan and 1999 Directors'
Plan (collectively, the "Plans").
This opinion is delivered in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Securities Act").
In connection with this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Company's Registration Statement on Form S-
8, relating to the Shares, filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act on April 6,, 2000
(together with all exhibits thereto, the "Registration Statement"), (ii)
the Amended and Restated Certificate of Incorporation of the Company, as
currently in effect, (iii) the Amended and Restated By-Laws of the
Company, as currently in effect, (iv) specimen certificates representing
the Common Stock, (v) resolutions of the Board of Directors of the
Company relating to the Plans and the filing of the Registration
Statement; (vi) the Plans; and (vii) the form of option agreement between
the Company and the employees, directors and officers receiving options
(the "Option Agreement"). We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such records of
the Company and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company and
others, and such other documents, certificates and records as we have
deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents.
In making our examination of documents executed or to be executed by
parties other than the Company, we have assumed that such parties had the
power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite
action, corporate or other, and execution and delivery by such parties of
such documents and the validity and binding effect thereof. We have
further assumed that each of the Option Agreements to be entered into
between the Company and the employees, directors and officers receiving
options under the Plans will conform to the form of
agreement examined by us. As to any facts material to the opinions
expressed herein which we have not independently established or verified,
we have relied upon oral or written statements and representations of
officers and other representatives of the Company and others.
Members of our firm are admitted to the Bar in the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction other than the General Corporation Law of the State of
Delaware.
Based upon and subject to the foregoing, we are of the opinion
that the Shares have been duly authorized and when the Shares have been
issued, delivered and paid for upon exercise of options duly granted
pursuant to the terms of the Plans and the Option Agreements, and
certificates representing the Shares in the form of the specimen
certificates examined by us have been manually signed by an authorized
officer of the transfer agent and registrar for the Common Stock and
registered by such transfer agent and registrar, such Shares will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as Exhibit 5.1 to the Registration Statement. In giving such
consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the use of our report dated January 26, 2000, included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999, which is incorporated by reference in this Registration Statement of
deltathree.com, Inc. on Form S-8. We also consent to the reference to us
under the heading "Experts" in the prospectus included in this Registration
Statement.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
(A member firm of Deloitte Touche Tohmatsu)
Tel Aviv, Israel
March 31, 2000
