0000950131-01-502473.txt : 20011018
0000950131-01-502473.hdr.sgml : 20011018
ACCESSION NUMBER: 0000950131-01-502473
CONFORMED SUBMISSION TYPE: S-3/A
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 20010730
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NET2PHONE INC
CENTRAL INDEX KEY: 0001086472
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813]
IRS NUMBER: 223559037
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0731
FILING VALUES:
FORM TYPE: S-3/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-78713
FILM NUMBER: 1692183
BUSINESS ADDRESS:
STREET 1: 520 BROAD STREET
CITY: NEWARK
STATE: NJ
ZIP: 07102
BUSINESS PHONE: 9734122800
MAIL ADDRESS:
STREET 1: 17 MAIN STREET
CITY: HACKENSACK
STATE: NJ
ZIP: 07601
S-3/A
1
ds3a.txt
AMENDMENT #1 TO FORM S-3
As filed with the Securities and Exchange Commission on July 30, 2001
File No. 333-78713
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_____________________
Net2Phone, Inc.
(Exact name of registrant as specified in its charter)
Delaware 520 Broad Street 22-359037
(State or other jurisdiction of incorporation Newark, New Jersey 07102 (I.R.S. Employer Identification No.)
or organization) (973) 412-2800
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Howard S. Balter Joshua N. Korff, Esq.
Chief Executive Officer Kirkland & Ellis
Net2Phone, Inc. Citigroup Center
520 Broad Street 153 East 53rd Street
Newark, New Jersey 07102 New York, New York 10022
(973) 412-2800 (212) 446-4800
_______________ ______________
(Name, address, including zip code, and (Copies of all communications, including
telephone number, including area code, of agent for service) communications sent to agent for service, stated above)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
_______________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of Registration Fee
Securities to be Registered Registered Price Per Unit(1) Offering Price
Common stock, $0.01 par value 701,874 $4.21 $2,954,889.54 738.72/(2)/
(1) The price was calculated in accordance with Rule 457(c) under the
Securities Act solely for purposes of calculating the registration fee and
is $4.21 , the average of the high and low prices per share of the common
stock of Net2Phone on July 24, 2001 as reported on the Nasdaq National
Market System.
(2) In connection with the initial filing of this Registration Statement,
$1,063.83 was previously paid. Therefore, no additional filing fee is
required for this Amendment.
_____________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
Net2Phone, Inc.
Shares of Common Stock
------------------------
Our common stock trades on the Nasdaq National Market under the ticker
symbol "NTOP." On July 24, 2001, the closing sale price of one share of our
stock was $4.21.
------------------------
Our stockholders listed in this prospectus are offering and selling an
aggregate of 701,874 shares of our common stock. These selling stockholders
obtained their shares in connection with our acquisition of a company owned by
these selling stockholders. Some or all of the selling stockholders expect to
sell their shares. We will not receive any part of the proceeds from the sale by
the selling stockholders.
------------------------
The selling stockholders may offer their shares of our stock through public
or private transactions, on or off the United States exchanges, at prevailing
market prices, or at privately negotiated prices.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING SOLD WITH THIS
PROSPECTUS.
------------------------
OUR STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS HAS NOT BEEN APPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is July 30, 2001.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information.................................. 3
The Company.......................................................... 5
Risk Factors......................................................... 8
Use Of Proceeds...................................................... 17
Dividend Policy...................................................... 17
Price Range Of Common Stock.......................................... 17
Selling Stockholders................................................. 18
Plan Of Distribution................................................. 20
Legal Opinion........................................................ 20
Experts.............................................................. 20
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our website at www.Net2Phone.com or at the SEC's website at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until the selling stockholders sell all their shares of our stock or
until this registration is terminated This prospectus is part of a registration
statement we filed with the SEC (Registration No. 333-75031).
(a) The description of our Common Stock contained in Item 1 of our
Registration Statement on Form 8-A, dated July 20, 1999.
(b) Our Current Report on Form 8-K, dated July 23, 2000, relating to the
announcement of the Aplio, S.A. acquisition.
(c) Amendment No. 1 to our Current Report on Form 8-K, as filed on
September 22, 2000.
(d) Amendment No. 2 to our Current Report on Form 8-K, as filed on October
16, 2000.
(e) Our Current Report on Form 8-K, dated August 11, 2000, relating to the
purchase of 4,000,000 newly issued shares of our Class A Common Stock
by AT&T Corp., for an aggregate purchase price of $300 million.
(e) Our Annual Report on Form 10-K for the fiscal year ended July 31,
2000.
(f) Amendment No. 1 to our Annual Report on Form 10-K, as filed on
December 11, 2000.
(g) Our Quarterly Report on Form 10-Q for the quarter ended October 31,
2000.
(h) Our Quarterly Report on Form 10-Q for the quarter ended January 31,
2001.
(i) Our Quarterly Report on Form 10-Q for the quarter ended April 30,
2001.
(j) Our Current Report on Form 8-K, dated June 21, 2001, relating to the
announcement of the merger of Adir Technologies, Inc. with NetSpeak
Corporation.
(k) Amendment No. 3 to our Current Report on Form 8-K, as filed on July
16, 2001.
3
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Net2Phone, Inc.
520 Broad St., 8th Fl.
Newark, NJ 07102
Attention: Investor Relations
Tel. No. (973) 412-2800
You should rely only 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 selling stockholders will not make
an offer of these shares 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 these documents.
4
THE COMPANY
We are a leader in delivering voice and enhanced services to Internet Protocol
networks. We began operations in November 1995, launched our first product in
July 1996 and were incorporated in Delaware as a separate subsidiary of IDT
Corporation in October 1997. Net2Phone enables people to place low-cost, high-
quality calls from their computer, telephone, or fax machine to computers,
telephones, or fax machines worldwide via the public Internet, private IP
networks, and broadband. We develop and market technology and services for IP
voice and e-commerce solutions for IP networks.
Through our consumer, enterprise, and carrier businesses, we have strengthened
our position as a leading platform for the migration of all voice traffic onto
the Internet and over all Internet Protocol networks -- the IP telephony company
of the future. At the same time, we have established strategic partnerships with
leading Internet companies to further extend our reach into the marketplace.
We have developed a sophisticated software application that enables use of our
Web-based Internet telephony services. We promote our services through direct
sales and marketing and through strategic partners and international resellers,
who buy minutes of use from us in bulk and resell them to customers in their
respective countries. Our software is currently available in eight languages
(English, Spanish, French, Dutch, Portuguese, Italian, German, and Swedish).
Our company is divided into five core business units: (1) PC-based consumer
services (2) phone-based consumer services (3) enterprise solutions (4) carrier
services and (5) broadband. All units support our marketing, operations, and
networks divisions. By delivering voice and enhanced services to IP networks
through each of these business units as well as our strategic partners, we hope
to achieve ubiquity throughout the marketplace.
Our consumer services enable low-cost high quality calls using the Internet
from PCs or telephones and service more than two million active users around the
world. Our enterprise unit now enables businesses nationwide to plug into our IP
network to make clear phone calls at reduced costs as well as layer enhanced
services on the network. We provide carriers and ISPs around the world with
access to our IP network to route calls worldwide. Our broadband division is
capitalizing on the opportunities in gaining high-speed "last mile" access into
consumers' homes and businesses, layering voice and enhanced services to provide
phone service over broadband lines using our network.
Through our distribution efforts, we have voice enabled over 90% of the
instant messaging market. In July 2000, we teamed up with Microsoft to integrate
our PC-based client software into the latest version of MSN Messenger Service
3.0. The MSN Messenger Service 3.0, released in July 2000, includes a new "Call"
button which allows users to place PC-to-PC or PC-to-phone calls to any person
online using our software and technology. PC-to-PC calls are free to anywhere in
the world.
Additionally, we provide our voice-optimized IP network for voice transit
throughout the Yahoo!(R) network of properties. Under the terms of the
agreement, Yahoo! uses our voice-over-IP ("VOIP") network for its suite of voice
services, including its voice-enabled instant messenger and voice portal.
Launched in October 2000, Yahoo! by Phone provides telephone and voice access to
popular Yahoo! content, voice mail and e-mail.
ICQ, a subsidiary of America Online, offers our services exclusively to their
instant messaging users. Our software has been fully integrated into ICQ's 2000b
Instant Messenger since September 2000, and we have been marketing a co-branded
pre-paid calling card with ICQ since September 1999, allowing users to place
calls from any telephone within the United States and 19 other countries to
anywhere in the world. Additionally, our PC-to-phone service is integrated into
AOL's Instant Messenger (AIM) client under the name AIM Phone and we have been
marketing a co-branded pre-paid calling card with AOL Instant Messenger (AIM)
since January 2000. We are also leveraging the strengths of our voice-over-IP
5
technology through high-margin agreements with major players in the Internet and
communications arena. We are forging lucrative wholesale software licensing
agreements with large traditional telephone companies seeking to migrate voice
traffic on the Internet and IP networks.
On August 11, 2000, we completed a sale of 4,000,000 shares of Class A common
stock to a subsidiary of AT&T at a price of $75.00 per share.
In September 2000, we created ADIR Technologies Inc. ("ADIR"), a separate
company to which we contributed certain assets and which has been funded by
investments by Cisco Systems, Softbank and IDT Corporation to develop and market
network management software for VOIP and other packet-based multimedia networks.
As of July, 2001, the Company owns approximately 57.40 percent of ADIR's
outstanding capital stock and 80.38 percent of ADIR's aggregate voting power.
Through the creation of ADIR, we intend to commercialize our proprietary network
management software that we have exclusively been using since 1995. We believe
that ADIR should provide a new high-margin line of business with minimal capital
expenditure without adversely affecting our existing core services business.
ADIR currently intends to market its products to service providers and
telecommunications, Internet, wireless, next generation and broadband service
providers, and enterprises worldwide.
On June 11, 2001, ADIR entered into an Agreement and Plan of Merger ("Merger
Agreement") with NetSpeak Corporation, a Florida Corporation ("Netspeak")
pursuant to which ADIR will acquire all of the issued and outstanding capital
stock of NetSpeak through the merger of A Tech Merger Sub, Inc., a Florida
corporation and wholly-owned subsidiary of ADIR with and into NetSpeak. Under
the terms of the Merger Agreement, ADIR will pay between $3.00 and $3.10 in cash
for all outstanding shares of NetSpeak common stock, valuing the acquisition at
between approximately $46.5 and $48.2 million. The transaction is expected to
close late in the third calendar quarter of 2001, subject to approval of
NetSpeak shareholders and customary closing conditions, all as more specifically
stated in the Merger Agreement attached Exhibit 2.1 to our Current Report on
Form 8-K filed on June 21, 2001.
ADIR completed two rounds of financing this fiscal year with Softbank, Cisco
Systems, IDT Corporation and Net2Phone, raising an aggregate of $69 million,
which includes $21 million raised to pay for the NetSpeak acquisition.
In June 2001, we announced a multi-year licensing agreement with Liberty
Media. Under the binding Memorandum of Understanding, Liberty will make
Net2Phone's VOIP services available to their international cable affiliates
serving over 25 million households.
In addition, we have forged ahead in making Internet telephony more readily
available to consumers by entering into arrangements with leading computer
equipment and software companies, such as Motorola and Linksys, to integrate our
software with their products.
Throughout our development, we have proven our ability to scale to demand, as
an increasing number of individuals and businesses have recognized the real
benefits of VOIP technology. In fiscal 2000, we served 1,179,000 customers and
routed an average of 5,000,000 minutes per day.
Our total assets increased from $916,000 at July 31, 1997, to $7.0 million at
July 31, 1998, $50.8 million at July 31, 1999, and $411.7 million at July 31,
2000. Our revenue has grown substantially, increasing from approximately $2.7
million in fiscal 1997, approximately $12.0 million in fiscal 1998,
approximately $33.3 million in fiscal 1999, and approximately $72.4 million in
fiscal 2000. Our net loss increased from approximately $1.7 million in fiscal
1997, to $3.5 million in fiscal 1998, to $53.9 million in fiscal 1999, and
$118.3 million in fiscal 2000.
6
Aplio, S.A.
-----------
In connection with the acquisition of Aplio, S.A in July 2000, disputes arose
with certain selling shareholders with respect to the Company's obligations
under the original Stock Purchase Agreement dated as of June 16, 2000. The
Company has now settled all disputes by entering into agreements with various
selling shareholders providing for certain cash payments to be made on or before
January 8, 2002 in the aggregate amount of approximately $11 million and the
deferral of payment obligations totaling approximately $19,250,000 until April
30, 2003. As part of the arrangement, the selling shareholders waived their
rights to receive $3 million in monies held back by the Company at closing to
secure certain indemnification obligations.
7
RISK FACTORS
In addition to the other information in this report, the following factors
should be carefully considered in evaluating our business and prospects.
Risks Related to Our Financial Condition and Our Business
Our limited operating history makes evaluating our business difficult.
IDT formed us as a subsidiary in October 1997. Prior to that, we conducted
business as a division of IDT. Therefore, we have only a limited operating
history with which you may evaluate our business. You must consider the numerous
risks and uncertainties an early stage company like ours faces in the new and
rapidly evolving market for Internet-related services. These risks include our
ability to:
. increase awareness of our brand and continue to build user loyalty;
. maintain our current, and develop new, strategic relationships;
. respond effectively to competitive pressures; and
. continue to develop and upgrade our network and technology.
If we are unsuccessful in addressing these risks, sales of our products and
services, as well as our ability to maintain or increase our customer base, will
be substantially diminished.
We have never been profitable.
We have never been profitable on an annual basis. We had an accumulated
deficit of approximately $450 million as of April 30, 2001. We anticipate that
we will continue to show losses from operations for our fiscal year ending July
31, 2001. Our operating and marketing expenses have continuously increased since
inception and we expect them to continue to increase significantly during the
next several years. Accordingly, we will need to generate significant revenue to
achieve profitability. We may not be able to do so. Even if we do achieve
profitability, we cannot assure you that we will be able to sustain or increase
profitability on a quarterly or annual basis in the future.
In addition, we recognized significant charges relating to non-cash executive
compensation expense in fiscal 2000 and will recognize additional significant
charges on an ongoing basis, in connection with the grants of options to
purchase shares of our common stock. With respect to these options, we
recognized a charge of approximately $17.9 million in the fourth quarter of
fiscal 1999 and $48.1 million during fiscal 2000, and will recognize charges of
approximately $15.9 million during fiscal 2001, approximately $12.8 million
during fiscal 2002, $1.7 million during fiscal 2003, and $529,000 in fiscal
2004.
We intend to pursue new streams of revenue, which we have not attempted to
generate before and which may not be profitable.
In addition to our minutes-based revenue, we are beginning to generate new
Web-based revenue opportunities from banner and audio advertising. Furthermore,
with ADIR, we will be commercializing our existing network management software.
ADIR will market its products to service providers, telecommunications
companies, and equipment manufacturers. We also intend to explore the
availability of revenue-sharing opportunities with online retailers. We intend
to devote significant capital and resources to create these new revenue streams
and we cannot ensure that these investments will be profitable.
8
We may have difficulties managing our expanding operations, which may reduce
out chances of achieving profitability.
Our future performance will depend, in part, on our ability to manage our
growth effectively. To that end, we will have to undertake the following tasks,
among others:
. develop our operating, administrative, financial and accounting systems and
controls;
. improve coordination among our engineering, accounting, finance, marketing
and operations personnel;
. enhance our management information systems capabilities; and
. hire and train additional qualified personnel.
If we cannot accomplish these tasks, our chances of achieving profitability
may be diminished.
If we fail to establish and maintain strategic relationships our ability to
meet analyst expectations and our sales would suffer.
We currently have strategic relationships with AT&T, MSN, AOL, ICQ, Yahoo!,
Cisco and others. We depend on these relationships to:
. expand our customer base;
. distribute our products to potential customers;
. increase usage of our services;
. build brand awareness; and
. cooperatively market our products and services.
We believe that our success depends, in part, on our ability to develop and
maintain strategic relationships with leading Internet companies and computer
hardware and software companies, as well as key marketing distribution partners.
In cases where our products and services are integrated into our strategic
partners' product and service offerings, our ability to meet analyst
expectations and our sales depend upon a timely release of these offerings. If
any of our strategic relationships are discontinued or if the release of these
partners' offerings that integrate our products and services are delayed, sales
of our products and services and our ability to maintain or increase our
customer base may be substantially diminished.
Competition could reduce our market share and decrease our revenue.
The market for our services has been extremely competitive. Many companies
offer products and services like ours, and many of these companies have a
substantial presence in this market. In addition, many of these companies are
larger than we are and have substantially greater financial, distribution and
marketing resources than we do. We therefore may not be able to compete
successfully in this market. If we do not succeed in competing with these
companies, we will lose customers and our revenue will be substantially reduced.
Our competitors include the following:
9
. Internet Telephony Service Providers. Internet telephony service providers
such as AT&T Jens (a Japanese affiliate of AT&T), deltathree.com, iBasis
(formerly known as VIP Calling), IPVoice.com, and ITXC route voice traffic
over the Internet.
. Software/Hardware Providers. Companies such as VocalTec produce software
and other computer equipment that may be installed on a user's computer to
permit voice communications over the Internet.
. Telecommunications Companies. A number of telecommunications companies,
including AT&T, Deutsche Telekom, MCI WorldCom and Qwest, currently
maintain, or plan to maintain, packet-switched networks to route the voice
traffic of other telecommunications companies.
. Network Hardware Manufacturers. A number of large telecommunications
providers and equipment manufacturers, including Alcatel, Cisco, Lucent,
Northern Telecom and Dialogic (which was acquired by Intel), have announced
that they intend to offer products similar to ours. We expect these
products to allow live voice communications over the Internet between
parties using a personal computer and a telephone and between two parties
using telephones. Cisco Systems has also taken additional steps by recently
acquiring companies that produce devices that help Internet service
providers carry voice over the Internet while maintaining traditional phone
usage and infrastructure.
. Voice-Enabled Online Commerce Providers. ITXC has begun to apply Internet
telephony technologies in connection with online commerce transactions.
ITXC competes with services of ours such as Click2Talk by integrating voice
communications into commercial Web sites.
Pricing pressures may lessen our competitive pricing advantage.
Our success is based partly on our ability to provide discounted domestic and
international long distance services by taking advantage of cost savings
achieved by carrying voice traffic over the Internet, as compared to carrying
calls over long distance networks, such as those owned by AT&T, Sprint and MCI
WorldCom. In recent years, the price of long distance calls has fallen. In
response, we have lowered the price of our service offerings. For example, AT&T,
Sprint and MCI WorldCom have adopted pricing plans in which the rates that they
charge for U.S. domestic long distance calls are not always substantially higher
than the rates that we charge for our U.S. domestic service. The price of long
distance calls may decline to a point where we no longer have a price advantage
over these traditional long distance services. Alternatively, other providers of
long distance services may begin to offer unlimited or nearly unlimited use of
some of their services for an attractive monthly rate. We would then have to
rely on factors other than price to differentiate our product and service
offerings, which we may not be able to do.
We may not be able to compete with providers that can bundle long distance
services with other offering.
Our competitors may be able to bundle services and products that we do not
offer together with long distance or Internet telephony services. These services
could include wireless communications, voice and data services, Internet access
and cable television. This form of bundling would put us at a competitive
disadvantage if these providers can combine a variety of service offerings at a
single attractive price. In addition, some of the telecommunications and other
companies that compete with us may be able to provide customers with lower
communications costs or other incentives with their services, reducing the
overall cost of their communications packages, and significantly increasing
pricing pressures on our services. This form of competition could significantly
reduce our revenues.
10
If our customers do not perceive our service to be effective or of high
quality, our brand and name recognition would suffer.
We believe that establishing and maintaining a brand and name recognition is
critical for attracting and expanding our targeted client base. We also believe
that the importance of reputation and name recognition will increase as
competition in our market increases. Promotion and enhancement of our name will
depend on the effectiveness of our marketing and advertising efforts and on our
success in continuing to provide high-quality products and services, neither of
which can be assured.
We depend on our international operations, which subject us to unpredictable
regulatory and political situations.
As of July 31, 2000, approximately 38 percent of our customers were based
outside of the United States, generating approximately 34 percent of our revenue
during fiscal 2000. A significant component of our strategy is to continue to
expand internationally. We cannot assure you that we will be successful in
expanding into additional international markets. In addition to the uncertainty
regarding our ability to generate revenue from foreign operations and expand our
international presence, there are certain risks inherent in doing business on an
international basis, including:
. changing regulatory requirements, which vary widely from country to
country;
. action by foreign governments or foreign telecommunications companies to
limit access to our services;
. increased bad debt and subscription fraud;
. legal uncertainty regarding liability, tariffs and other trade barriers;
. political instability; and
. potentially adverse tax consequences.
We cannot assure you that one or more of these factors will not materially
adversely affect the growth of our business or our customer base.
All of the telephone calls made by our customers are connected through local
telephone companies and, at least in part, through leased networks that may
become unavailable.
We are not a local telephone company or a registered local exchange carrier.
Our network covers only portions of the United States. Accordingly, we must
route parts of some domestic and all international calls made by our customers
over leased transmission facilities. In addition, because our network does not
extend to homes or businesses, we must route calls through a local telephone
company to reach our network and, ultimately, to reach their final destinations.
In many of the foreign jurisdictions in which we conduct or plan to conduct
business, the primary provider of significant intra-national transmission
facilities is the national telephone company. Accordingly, we may have to lease
transmission capacity at artificially high rates from a monopolistic provider
and, consequently, we may not be able to generate a profit on those calls. In
addition, national telephone companies may not be required by law to lease
necessary transmission lines to us or, if applicable law requires national
telephone companies to lease transmission facilities to us, we may encounter
delays in negotiating leases and interconnection agreements and commencing
operations. Additionally, disputes may result with respect to pricing terms and
billing.
11
In the United States, the providers of local telephone service are generally
the incumbent local telephone companies, including the regional Bell operating
companies. The permitted pricing of local transmission facilities that we lease
in the United States is subject to uncertainties. The Federal
Communications Commission has issued an order requiring incumbent local
telephone companies to price those facilities at total element long-run
incremental cost, and the United States Supreme Court upheld the FCC's
jurisdiction to set a pricing standard for local transmission facilities
provided to competitors. However, the incumbent local telephone companies can be
expected to bring additional legal challenges to the FCC's total element long-
run incremental cost standard and, if they succeed, the result may be to
increase the cost of incumbent local transmission facilities obtained by us. In
addition, the Federal Communications Commission is in the process of re-
examining the existing intercarrier compensation system, a regime governing the
flow of payments among interconnected telecommunications carriers and networks.
The Commission could adopt an intercarrier compensation mechanism that could
result in an increase in the cost of the local transmission facilities necessary
to complete our calls.
Our success depends on our ability to handle a large number of simultaneous
calls, which our systems may not be able to accommodate.
We expect the volume of simultaneous calls to increase significantly as we
expand our operations. Our network hardware and software may not be able to
accommodate this additional volume. If we fail to maintain an appropriate level
of operating performance, or if our service is disrupted, our reputation could
be hurt and we could lose customers.
Because we are unable to definitely predict the volume of usage and our
capacity needs, we may be forced to enter into disadvantageous contracts that
would reduce our operating margins.
In order to ensure that we are able to handle additional usage, we have agreed
to pay IDT a one-time fee of approximately $7.6 million for a 20-year right to
use part of a new high capacity network that is under construction. We may have
to enter into additional long-term agreements for leased capacity. To the extent
that we overestimate our call volume, we may be obligated to pay for more
transmission capacity than we actually use, resulting in costs without
corresponding revenue. Conversely, if we underestimate our capacity needs, we
may be required to obtain additional transmission capacity through more
expensive means that may not be available.
We may not be able to obtain sufficient funds to grow our business.
We intend to continue to grow our business. Due to our limited operating
history and the nature of our industry, our future capital needs are difficult
to predict. Therefore, we may require additional capital to fund any of the
following:
. unanticipated opportunities;
. strategic alliances;
. potential acquisitions;
. changing business conditions; and
. unanticipated competitive pressures.
Obtaining additional financing will be subject to a number of factors,
including market conditions, our operating performance and investor sentiment.
These factors may make the timing, amount, terms and conditions of additional
financings unattractive to us. If we are unable to raise additional capital, our
growth could be impeded.
12
Any damage to or failure of our systems or operations could result in
reductions in, or terminations of, our services.
Our success depends on our ability to provide efficient and uninterrupted,
high-quality services. Our systems and operations are vulnerable to damage or
interruption from natural disasters, power loss, telecommunication failures,
physical or electronic break-ins, sabotage, intentional acts of vandalism and
similar events that may be or may not be beyond our control. The occurrence of
any or all of these events could hurt our reputation and cause us to lose
customers.
Unauthorized use of our intellectual property by third parties may damage our
brand.
We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. We rely on trademark and
copyright law, trade secret protection and confidentiality agreements with our
employees, customers, partners and others to protect our intellectual property
rights. Despite our precautions, it may be possible for third parties to obtain
and use our intellectual property without authorization. Furthermore, the laws
of some foreign countries may not protect intellectual property rights to the
same extent as do the laws of the United States. It may be difficult for us to
enforce certain of our intellectual property rights against third parties who
may have acquired intellectual property rights by filing unauthorized
applications in foreign countries to register the marks that we use because of
their familiarity with our worldwide operations. Since Internet related
industries such as ours are exposed to the intellectual property laws of
numerous foreign countries and trademark rights are territorial, there is
uncertainty in the enforceability and scope of protection of our intellectual
property. The unauthorized use of our intellectual property by third parties may
damage our brand.
Defending against intellectual property infringement claims could be expensive
and could disrupt our business.
We cannot be certain that our products and services do not or will not
infringe upon valid patents, trademarks, copyrights or other intellectual
property rights held or claimed by third parties. Multi-Tech, Inc. has filed a
lawsuit against us alleging that we infringe upon its patents. We are incurring
substantial expenses defending this claim. If Multi-Tech is successful, we may
be subject to significant monetary liability and our business may be materially
disrupted.
We may also be subject to other legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary course of our
business. We may incur substantial expenses in defending against those third-
party infringement claims, regardless of their merit. Successful infringement
claims against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
Risks Related to Our Relationship with AT&T
A subsidiary of AT&T has acquired approximately 32 percent of our outstanding
capital stock and 39 percent of our aggregate voting power. This relationship
contains certain risks associated with it including the following:
There is uncertainty regarding AT&T licenses.
There is no commitment from AT&T to use our technology, and therefore there is
no assurance that AT&T will pay us any royalties, notwithstanding the fact that
its significant interest in us should give it an incentive to do so.
13
Our relationship may discourage others from seeking nonexclusive licenses.
Our obligation to grant non-exclusive "most favored nation" licenses to AT&T
will preclude us from granting exclusive licenses to others and may discourage
others from seeking nonexclusive licenses, particularly if AT&T fails to use our
technology and AT&T's failure to use it is deemed to be a negative reflection on
the technology.
It may be a disadvantage to have a subsidiary of AT&T as our largest
shareholder.
As a financially strong company, AT&T may be less likely than others might be
to agree to an acquisition of Net2Phone as a whole by another company in a
transaction in which our public stockholders could realize a premium for their
shares.
We may experience conflicts of interest resulting from AT&T's designation of
members of our board of directors.
AT&T has the right to designate three members of our board of directors. This
presence on our board of directors may give rise to significant influence and/or
conflicts of interest with respect to certain decisions involving business
opportunities and similar matters that may arise in the ordinary course of our
business or the business of AT&T.
Risks Related to Our Relationship with IDT
We have contracted with IDT for various services and for the use of its
telecommunications network, which contracts we may not be able to renew when
they expire.
In May 1999, we entered into agreements with IDT under which IDT provided
administrative and telecommunication services to us. Since these agreements have
expired, we will need to extend them, engage other entities to perform these
services or perform these services ourselves. We cannot assure you that IDT will
continue to provide these services. As a result, we may have to purchase these
services from third parties or devote resources to handle these functions
internally, which may cost us more than we paid IDT for the same services.
We may experience conflicts of interest with IDT, which may not be resolved in
our favor.
Two members of our board of directors are officers and/or directors of IDT.
Additionally, one of our directors, James R. Mellor, was a director of IDT until
June 1999. In addition, certain of our executive officers, directors and
employees hold shares of IDT common stock and options to acquire shares of IDT
common stock. These individuals may have conflicts of interest with respect to
certain decisions involving business opportunities and similar matters that may
arise in the ordinary course of our business or the business of IDT. If
conflicts arise with IDT, we expect to resolve those conflicts on a case-by-case
basis, and in the manner required by applicable law and customary business
practices, subject to our agreement with IDT to resolve disputes involving $5.0
million or less through mandatory, binding arbitration. Conflicts, if any, could
be resolved in a manner adverse to us and our stockholders, which could harm our
business.
IDT currently owns approximately 17.2 percent of our outstanding capital stock
and controls 21.2 percent of our voting power.
Therefore, IDT will have input in the election of our directors, the
appointment of new management and the approval of any other action requiring the
approval of our stockholders, including any amendments to our certificate of
incorporation and mergers or sales of our company or of all of our assets. In
addition, we could be prevented from entering into certain transactions that
could be beneficial to us. Third parties may be discouraged from making a tender
offer or bid to acquire us because of IDT's stockholdings and voting rights.
14
Risks Related to Our Industry
If the Internet does not continue to grow as a medium for voice
communications, our business will suffer.
The technology that allows voice communications over the Internet is still in
its early stages of development. Historically, the sound quality of Internet
calls was poor. As the industry has grown, sound quality has improved, but the
technology requires additional refinement. Additionally, the Internet's capacity
constraints may impede the acceptance of Internet telephony. Callers could
experience delays, errors in transmissions or other interruptions in service.
Making telephone calls over the Internet must also be accepted as an alternative
to traditional telephone service. Because the Internet telephony market is new
and evolving, predicting the size of this market and its growth rate is
difficult. If our market fails to develop, then we will be unable to grow our
customer base and our opportunity for profitability will be harmed.
Our business will not grow without increased use of the Internet.
The use of the Internet as a commercial marketplace is at an early stage of
development. Demand and market acceptance for recently introduced products and
services over the Internet are still uncertain. We cannot predict whether
customers will be willing to shift their traditional activities online. The
Internet may not prove to be a viable commercial marketplace for a number of
reasons, including:
. concerns about security;
. Internet congestion;
. inconsistent service; and
. lack of cost-effective, high-speed access.
If the use of the Internet as a commercial marketplace does not continue to
grow, we may not be able to grow our customer base, which may prevent us from
achieving profitability.
15
Governmental regulations regarding the Internet may be passed, which could
impede our business.
The legal and regulatory environment that pertains to the Internet is
uncertain and is changing rapidly as use of the Internet increases. For example,
in the United States, the Federal Communications Commission is considering
whether to impose surcharges or additional regulations upon certain providers of
Internet telephony.
In addition, regulatory treatment of Internet telephony outside the United
States varies from country to country. For example, access to certain services
may be negatively impacted by government regulation. There can be no assurance
that there will not be future interruptions in foreign countries or that we will
be able to return to the level of service we had in any such countries prior to
any interruptions. These actions and other similar actions in foreign countries
may adversely affect our continuing ability to offer services in these and other
countries, causing us to lose customers and revenue.
New regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet, which could adversely
affect our customer base and our revenue. The growth of the Internet may also be
significantly slowed. This could delay growth in demand for our products and
services and limit the growth of our revenue. In addition to new regulations
being adopted, existing laws may be applied to the Internet. New and existing
laws may cover issues that include:
. sales and other taxes;
. access charges;
. user privacy;
. pricing controls;
. characteristics and quality of products and services;
. consumer protection;
. contributions to the universal service fund, an FCC-administered fund for
the support of local telephone service in rural and high cost areas;
. cross-border commerce;
. copyright, trademark and patent infringement; and
. other claims based on the nature and content of Internet materials.
Our risk management practices may not be sufficient to protect us from
unauthorized transactions or thefts of services.
We may be the victim of fraud or theft of service. From time to time, callers
have obtained our services without rendering payment by unlawfully using our
access numbers and personal identification numbers. We attempt to manage these
theft and fraud risks through our internal controls and our monitoring and
blocking systems. If these efforts are not successful, the theft of our services
may cause our revenue to decline significantly.
16
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our stock by the
selling stockholders.
DIVIDEND POLICY
We have not paid any dividends in the past and do not intend to pay cash
dividends on our capital stock for the foreseeable future. Instead, we intend
to retain all earnings for use in the operation and expansion of our business.
PRICE RANGE OF COMMON STOCK
Our stock is quoted on the Nasdaq National Market under the ticker symbol
"NTOP." The stock was initially offered to the public on July 29, 1999 at $15.00
per share. The following table sets forth for the periods indicated the high and
low reported closing sale prices per share for our stock as reported by Nasdaq.
Year Ending July 31, 2001 High Low
-------------------------- -------------------------
First Quarter.................................. $33.812 $16.688
Second Quarter................................. $20.250 $ 6.844
Third Quarter.................................. $13,438 $ 7.375
Fourth Quarter (through July 24, 2001)......... $ 9.46 $ 4.210
Year Ended July 31, 2000 High Low
------------------------- -------------------------
First Quarter.................................. $92.625 $15.000
Second Quarter................................. $76.500 $40.063
Third Quarter.................................. $68.375 $34.375
Forth Quarter.................................. $47.875 $22.500
Year Ended July 31, 1999 High Low
------------------------- -------------------------
Fourth Quarter (July 29 and 30 only)........... $27.380 $26.560
As of July 24, 2001, there were approximately 474 stockholders of record of
our Common Stock and 20 stockholders of record of our Class A Stock, $.01 par
value. On July 24, 2001, the last reported sale price of our stock as reported
by Nasdaq was $4.21.
17
SELLING STOCKHOLDERS
The following table sets forth information as of July 24, 2001, except as
otherwise noted, with respect to the number of shares of Common Stock
beneficially owned by each of the selling stockholders. The shares offered
hereby were acquired by the selling stockholders from us pursuant to the
acquisition of the company owned by such selling stockholders.
Number of shares Number of shares
of Common Stock Number of shares of Common Stock
Selling Stockholder beneficially owned of Common Stock beneficially owned
------------------ prior to offering registered herein after offering /(1)/
------------------ ----------------- --------------------
Henri Tebeka........................................
13 Avenue Baratier, 95160 Montmorency 115,190 115,190 0
Eric Constantini....................................
65 Avenue Niel, 75017 Paris, France 115,190 115,190 0
Patrice Uzan........................................
P.O. Box 561; 50, Haela Street; 42815 60,899 60,899 0
Pardessya, Israel
Philippe Barouk.....................................
c/o Eric Constantini, Apolio, S.A.
65 Avenue Niel, 75017 Paris, France 14,795 14,795 0
Philippe Lumbroso...................................
8 Rue Galvani, 75017 Paris, France 124,317 124,317 0
Codexi, S.A.........................................
12 Rue Chauchat, 75009 Paris, France 109,546 109,546 0
Societe Bernaise de Participations, S.A.............
12 Rue Chauchat, 75009 Paris, France 4,564 4,564 0
Asia Technology 1 Limited...........................
Asiatech 1, Crique Building, Main Street,
P.O. Box 116, Road Town, Tortola,
British Virgin Islands 26,556 26,556 0
Asia Technology 2 Limited...........................
Asiatech 2, Crique Building, Main Street,
P.O. Box 116, Road Town, Tortola,
British Virgin Islands 16,685 16,685 0
Century Force Limited Asiatech Ventures.............
Sea Meadow House, Blackburne
Highway, P.O. Box 116, Road Town,
Tortola, British Virgin Islands 33,950 33,950 0
Luzon Investments Limited...........................
Charles Street, St. Helier, JE4 Jersey,
Channel Islands 1,510 1,510 0
Samuel Fang.........................................
5th Floor, General Electric Building,
3 Ka. Fu., Sheung Shin New Territories, 13,278 13,278 0
______________________________________
/1/ Assumes that all shares offered by each selling stockholder are sold in this
offering.
18
Number of shares Number of shares
of Common Stock Number of shares of Common Stock
Selling Stockholder beneficially owned of Common Stock beneficially owned
------------------ prior to offering registered herein after offering /(1)/
------------------ ----------------- --------------------
Hong Kong
Galileo, S.A........................................
89 Rue Taitbout, 75009 Paris, France 65,394 65,394
19
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares at various times in one or
more transactions on the Nasdaq National Market, in special offerings, exchange
distributions, secondary distributions, negotiated transactions, or a
combination of such. They may sell at market prices at the time of sale, at
prices related to the market price or at negotiated prices. The selling
stockholders may use broker-dealers to sell their shares. If this happens,
broker-dealers will either receive discounts or commissions from the selling
stockholders, or they will receive commissions from purchasers of shares for
whom they acted as agents.
LEGAL OPINION
For the purpose of this offering, our outside counsel, Kirkland & Ellis, New
York, New York, is giving its opinion on the validity of the shares.
EXPERTS
The consolidated financial statements of Net2Phone, Inc. included in
Net2Phone's Annual Report (Form 10-K) for the year ended July 31, 2000, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Aplio, S.A. and its subsidiaries
included in Amendment No. 3 to Net2Phone's Current Report on Form 8-K filed on
July 16, 2001, have been audited by Ernst & Young, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is a statement of estimated expenses, to be paid solely by
Net2Phone, of the issuance and distribution of the securities being registered
hereby:
Securities and Exchange Commission registration fee $ 1,063.83
Accounting fees and expenses $30,000.00
Legal fees and expenses $30,000.00
Miscellaneous expenses $ 936.17
-----------
Total $62,000.00
-----------
Item 15. Indemnification of Directors and Officers.
General Corporation Law
We are incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
21
Certificate of Incorporation and By-Laws
Our Certificate of Incorporation and By-laws provide for the indemnification
of officers and directors to the fullest extent permitted by the Delaware
General Corporation Law.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Reference is made to the attached Exhibit Index.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus 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.
22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Net2Phone, Inc.
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newark, New
Jersey, on July 30, 2001.
NET2PHONE, INC.
By: /s/ Howard S. Balter
--------------------
Howard S. Balter
Chief Executive Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 and Power of Attorney have been signed by the following
persons in the capacities and on the dates indicated:
Signatures Capacity Dates
---------- -------- -----
* (Principal Executive Officer) July 30, 2001
---------------------------
Howard S. Balter
* (Principal Financial and Accounting Officer) July 30, 2001
---------------------------
Ilan M. Slasky
* Chairman of the Board July 30, 2001
---------------------------
Clifford W. Sobel
* Director July 30, 2001
---------------------------
James R. Mellor
* Director July 30, 2001
---------------------------
James A. Courter
* Director July 30, 2001
---------------------------
John C. Petrillo
* Director July 30, 2001
---------------------------
Michael Fischberger
23
* Director July 30, 2001
---------------------------
Gary E. Rieschel
* Director July 30, 2001
---------------------------
Daniel H. Schulman
* Director July 30, 2001
---------------------------
Stephen M. Greenberg
* Director July 30, 2001
---------------------------
Anthony G. Werner
* Director July 30, 2001
---------------------------
Harry C. McPherson
* By: /s/ Howard S. Balter
--------------------
Howard S. Balter as attorney-in-fact.
24
EXHIBIT INDEX
-------------
Exhibit
No.
---
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
dated November 4, 1999 (Registration No. 333-78713)).
5.1 Opinion of Kirkland & Ellis.
11.1 Statement Regarding Computation of Earnings Per Share (incorporated
by reference to Exhibit 11.1 to the Company's Annual Report on Form
10-K for the year ended July 31, 2000).
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young, Independent Auditors.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in Part II to the Registration
Statement).
25
EX-5.1
3
dex51.txt
OPINION OF KIRKLAND & ELLIS
EXHIBIT 5.1
-----------
KIRKLAND & ELLIS
PARTNERSHIPS INCLUDING PROFESSIONAL CORPORATIONS
153 East 53rd Street
New York, New York 10022
(212) 446-4800 Facsimile:
(212) 446-4900
July 26, 2001
Net2Phone, Inc.
520 Broad Street
Newark, New Jersey 07102
Ladies and Gentlemen:
We are acting as special counsel to Net2Phone, Inc., a Delaware corporation
(the "Company"), in connection with the proposed registration by the Company of
701,874 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), pursuant to a Registration Statement (File No. 333-78713) on Form S-3,
originally filed with the Securities and Exchange Commission (the "Commission")
on March 6, 2001 under the Securities Act of 1933, as amended (the "Act") (such
Registration Statement, as further amended or supplemented, is hereinafter
referred to as the "Registration Statement"). All of the shares of Common Stock
to be registered pursuant to the Registration Statement are being offered by a
selling stockholder (the "Secondary Shares").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the Company
and (ii) minutes and records of the corporate proceedings of the Company with
respect to the original issuance of the Secondary Shares.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the legal capacity of
all natural persons, the genuineness of the signatures of persons signing all
documents in connection with which this opinion is rendered, the authority of
such persons signing on behalf of the parties thereto other than the Company and
the due authorization, execution and delivery of all documents by the parties
thereto other than the Company. We have not independently established or
verified any facts relevant to the opinions expressed herein, but have relied
upon statements and representations of officers and other representatives of the
Company and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that the Secondary Shares have been duly authorized, validly issued and fully
paid and are nonassessable.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of any
laws except the General Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Opinion" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission. This opinion and consent may be incorporated by
reference in a subsequent registration statement on Form S-3 filed pursuant to
Rule 462(b) under the Act with respect to the registration of additional
securities for sale in the offerings contemplated by the Registration Statement.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the sale of the Secondary Shares.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the General
Corporation Law of the State of Delaware be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Sincerely,
/s/ Kirkland & Ellis
Kirkland & Ellis
EX-23.1
4
dex231.txt
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus
of Net2Phone, Inc. for the registration of 701,874 shares of its common stock
and to the incorporation by reference therein of our report dated September 29,
2000, with respect to the consolidated financial statements of Net2Phone, Inc.
included in its Annual Report (Form 10-K) for the year ended July 31, 2000,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
July 26, 2001
EX-23.2
5
dex232.txt
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to the Registration Statement (Form S-3) and related Prospectus
of Net2Phone, Inc. for the registration of 701,874 shares of its common stock
and to the incorporation by reference therein of our report dated May 18, 2001,
with respect to the consolidated financial statements of Aplio S.A. and
subsidiaries included in Amendment No. 3 to Net2Phone Inc.'s Current Report on
Form 8K filed on July 16, 2001 with the Securities and Exchange Commission.
ERNST & YOUNG
/s/ Olivier Breillot
Paris, France
July 26, 2001