10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 2002, OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 0-27898

IDT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	22-3415036
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

520 Broad Street

Newark, New Jersey 07102

(Address of principal executive offices, including area code)

(973) 438-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share  Class B Common Stock, par value $.01 per share  

(Title of class)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    x    No    ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price on October 25, 2002 of the Common Stock of $17.66 and of the Class B Common Stock of $16.30, as reported on the New York Stock Exchange, was approximately $821 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock (assuming conversion of the Registrant’s Class A Common Stock) or Class B Common Stock have been excluded from this computation, in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

As of October 25, 2002, the Registrant had outstanding 25,020,972 shares of Common Stock, $.01 par value, 9,816,988 shares of Class A Common Stock, $.01 par value, and 54,091,855 shares of Class B Common Stock, $.01 par value. Included in these numbers are 5,419,963 shares of Common Stock and 4,019,163 shares of Class B Common Stock, held by IDT Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the Registrant’s definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after July 31, 2002, is incorporated by reference in Part II (Item 5) and Part III (Items 10, 11, 12 and 13) of this Form 10-K.

INDEX

IDT CORPORATION

ANNUAL REPORT ON FORM 10-K

		Page No.
PART I
	Item 1.	Business	1
	Item 2.	Properties	45
	Item 3.	Legal Proceedings	46
	Item 4.	Submission of Matters to a Vote of Security Holders	49
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	50
	Item 6.	Selected Financial Data	52
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risks	78
	Item 8.	Financial Statements and Supplementary Data	79
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79
PART III
	Item 10.	Directors and Executive Officers of the Registrant	80
	Item 11.	Executive Compensation	80
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	80
	Item 13.	Certain Relationships and Related Transactions	80
	Item 14.	Controls and Procedures	80
PART IV
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	81
SIGNATURES			85
CERTIFICATIONS			87
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

PART I

As used in this Annual Report, unless the context otherwise requires, the terms “the Company,” “IDT,” “we,” “us,” and “our” refer to IDT Corporation, a Delaware corporation, its predecessor, International Discount Telecommunications, Corp., a New York corporation, and their subsidiaries, collectively. All information in this Annual Report gives effect to the 1995 reincorporation of IDT in Delaware. Our fiscal year ends on July 31 of each calendar year. Each reference to a Fiscal Year in this Annual Report refers to the Fiscal Year ending in the calendar year indicated (e.g., Fiscal 2002 refers to the Fiscal Year ended July 31, 2002).

Item 1.    BUSINESS.

INTRODUCTION

IDT Corporation is a facilities-based, multinational communications company that provides services and products to retail and wholesale customers worldwide, including prepaid debit and rechargeable calling cards, wholesale carrier services and consumer long distance services. We also operate several media and entertainment-related businesses, most of which are currently in the early stages of development.

We have grown throughout our history, and our growth continued in Fiscal 2002. Minutes of use from our telecommunications operations grew to 11.3 billion minutes in Fiscal 2002, an increase from 4.2 billion minutes in Fiscal 2000 and 7.0 billion minutes in Fiscal 2001.

Our growth, however, has not deteriorated the strength of our balance sheet. As of October 1, 2002, we had more than $1 billion in cash, cash equivalents and marketable securities and virtually no long-term debt. Management believes that our strong balance sheet creates numerous business opportunities for us, including (i) selling our services to significant customers who take comfort in our solid financial position, (ii) enabling us to make strategic investments and acquisitions at attractive prices and (iii) expanding our network and the range of services and products that we provide at attractive prices.

In December 2001, we acquired substantially all of the core domestic telecommunications assets of Winstar Communications, Inc., which we refer to as Old Winstar, a broadband and telephony service provider to commercial and governmental customers, in a transaction pursuant to Section 363 of the United States Bankruptcy Code. Additionally, in September 2002, we more than doubled the size of our domestic telecommunications backbone by acquiring indefeasible rights of use, commonly known as IRUs (rights to transmission lines, which are more akin to ownership than leases of capacity), and equipment from the bankrupt estate of Star Telecommunications, Inc.

We deliver our telecommunications services over a network consisting of more than 180 switches in the United States, Europe and South America, including seven international “gateway” switches. We also own and lease capacity on 14 undersea fiber-optic cables that connect our U.S. facilities with our international facilities and with third-party facilities in Europe, Latin America and Asia.

HISTORY

We were founded in August 1990 and were originally incorporated in New York as “International Discount Telecommunications Corp.” We were renamed IDT Corporation and reincorporated in Delaware in December 1995. Our main offices are located at 520 Broad Street, Newark, New Jersey 07102. Our headquarters’ telephone number is (973) 438-1000 and our Internet address is www.idt.net.

We entered the telecommunications business in 1990 by introducing our international call reorigination service to capitalize on the opportunity created by the large spread between U.S.-originated and foreign-originated international long distance telephone rates. At the time, long distance calling costs for calls originated in certain highly regulated international markets were often prohibitive. Our call reorigination service enables customers to access a U.S. dial tone from overseas and place international calls that are reoriginated in the United

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States. The customer benefits from more favorable U.S. outbound long distance rates and superior transmission quality. We used the calling volume and expertise derived from our call reorigination business to enter the consumer long distance business in late 1993 by reselling long distance services of other carriers to our customers. As a value-added service for our long distance customers, we began offering Internet access in early 1994, eventually offering dial-up and dedicated Internet access to individuals and businesses as stand-alone services. In 1995, we began reselling access to the favorable telephone rates and special tariffs we receive as a result of the calling volume generated by our call reorigination and other customers to other long distance carriers. We entered the Internet telephony market in August 1996 with our introduction of PC2Phone, the first commercial telephone service to connect calls between personal computers and telephones over the Internet. We began marketing and selling prepaid calling cards in January 1997.

The initial public offering of our Common Stock occurred on March 15, 1996. Our Common Stock was quoted on the Nasdaq National Market until February 26, 2001, when it was listed on the New York Stock Exchange under the symbol IDT. On May 31, 2001, we distributed a stock dividend of one share of our Class B Common Stock for each outstanding share of our Common Stock, Class A Common Stock and Class B Common Stock. On June 1, 2001, our Class B Common Stock was listed on the New York Stock Exchange under the symbol IDT.B.

On August 3, 1999, Net2Phone, Inc., then our subsidiary, completed an initial public offering of 6.2 million shares of its common stock, yielding $85.3 million in net proceeds. In December 1999, Net2Phone completed another offering of 3.4 million shares of its common stock. In connection with that offering, we also sold 2.2 million shares of Net2Phone common stock, generating $115.0 million in cash proceeds. In August 2000, we completed the sale of 14.9 million shares of Net2Phone common stock to AT&T, receiving approximately $1.1 billion in cash proceeds.

On October 23, 2001, we entered into an agreement to create a consortium which now holds approximately 46% of Net2Phone’s outstanding capital stock. The consortium consists of us, Liberty Media Corporation and AT&T. As part of the agreement, we and AT&T contributed shares of Net2Phone Class A common stock (approximately 10.0 million and 18.9 million shares, respectively) to a newly formed limited liability company, NTOP Holdings, LLC. Liberty Media then acquired a substantial portion of NTOP Holdings’ units from AT&T. NTOP Holdings holds an aggregate of 28.9 million shares of Net2Phone’s Class A common stock. We are the managing member of NTOP Holdings and we hold a controlling membership interest. Because it holds Class A common stock with two votes per share, NTOP Holdings has approximately 63% of the voting power in Net2Phone.

On December 19, 2001, we, through our subsidiary, Winstar Holdings, LLC, acquired substantially all of the core domestic telecommunications assets of Old Winstar in exchange for (i) $30 million in cash, (ii) $12.5 million of our Class B Common Stock and (iii) 5% of Winstar Holdings in a transaction pursuant to Section 363 of the United States Bankruptcy Code. On April 16, 2002, we purchased from the estate of Old Winstar the 5% of Winstar Holdings that we did not already own for $13.3 million of our Class B Common Stock.

CORPORATE ORGANIZATION

We operate our business primarily through the following three subsidiaries:

• IDT Telecom, Inc.    IDT Telecom operates our principal telecommunications operations. We own 95.2% of IDT Telecom’s common stock, with Liberty Media holding the remaining 4.8% for which it paid $30 million in cash in March 2002. IDT Telecom provides both retail and wholesale telecommunications services. Retail services include prepaid debit and rechargeable calling cards, private label calling cards and consumer long distance services. Wholesale services consist of our carrier services for other telecommunications companies, or “carrier’s carrier” services. In Fiscal 2002, IDT Telecom generated $1.4 billion of revenue, which equaled 93.4% of our consolidated revenue, and recorded operating income of $30.8 million.

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• Winstar Holdings, LLC.    Winstar Holdings, our wholly owned subsidiary, which was created to hold the assets of Old Winstar that we acquired, is a broadband and telephony service provider to commercial and governmental customers that offers a cost-effective “last mile” (the connection between a telecommunications switch and the end user) telecommunications solution through its fixed-wireless and fiber infrastructure, including local and long distance phone services, high speed Internet and data communications, wide-area-network, or WAN, solutions, co-location, mobile network infrastructure and web hosting. From our December 19, 2001 acquisition of Old Winstar’s assets through the end of Fiscal 2002, Winstar generated $79.6 million of revenues, which equaled 5.2% of our consolidated revenues, and recorded an operating loss of $96.6 million.

• IDT Media, Inc.    IDT Media, our wholly owned subsidiary, is a holding company for our media-related holdings, including the Talk America Radio Network, our WMET radio station, Digital Production Solutions and CTM Brochure Display. In Fiscal 2002, IDT Media generated $21.3 million of revenues, which equaled 1.4% of our consolidated revenues, and recorded an operating loss of $20.9 million, excluding the impairment charge of $111.1 million resulting from the writedown of assets received from TyCom Ltd. described below.

In each of our business units, we seek to leverage our strong balance sheet (more than $1 billion in cash, cash equivalents and marketable securities and virtually no long-term debt as of October 1, 2002), our established telecommunications network and our dynamic, entrepreneurial corporate culture to capitalize on new market opportunities.

IDT TELECOM

Our subsidiary, IDT Telecom, provides its customers with competitively priced retail and wholesale telecommunications services and products, including prepaid debit and rechargeable calling cards, private label calling cards, consumer long distance services and wholesale carrier services. Our telecom division leverages our financial strength, network and expertise to capitalize on opportunities presented by an evolving worldwide telecommunications industry to profitably grow our business.

Our telecom division generated revenues of $1.4 billion during Fiscal 2002, an 18.8% increase over the $1.2 billion of revenues generated during Fiscal 2001. Our telecom division’s revenues represented 93.4% of our total consolidated revenues in Fiscal 2002, as compared to 97.9% in Fiscal 2001. During Fiscal 2002, our retail telecommunications services and products (prepaid debit and rechargeable calling cards, private label calling cards and consumer long distance services) comprised 78.4% of our telecom division’s revenues, with the remaining 21.6% attributable to wholesale carrier services.

We are one of the largest providers of prepaid calling cards in the United States. In Fiscal 2002, we recorded revenues of $1.01 billion from sales of calling cards worldwide, which were primarily distributed through Union Telecard Alliance, LLC, a joint venture of which we own 51% of the outstanding membership interests, and provided 9.2 billion minutes of phone service to our calling card customers. We also provide consumer long distance services to more than 550,000 individual and business customers in the United States. In addition, as of October 1, 2002, we had approximately 173 wholesale carrier customers (i.e., other telecommunications companies that purchase our telecommunications services to terminate their traffic) located in the United States and Europe.

We deliver our telecommunications services over a network consisting of more than 180 switches in the United States, Europe and South America, including seven international “gateway” switches. Four of these switches are located in the United States (in Piscataway and Newark, New Jersey), two are located in London, England and the remaining switch is in Lima, Peru. During Fiscal 2003, we plan to install at least two additional gateway switches, one in New Jersey and one in Argentina. We also own and lease capacity on 14 undersea fiber-optic cables that connect our U.S. facilities with our international facilities and with third-party facilities in Europe, Latin America and Asia.

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The International Long Distance Market

In the United States, an international long distance telephone call typically originates on the caller’s local exchange carrier’s (most often a Regional Bell Operating Company, commonly referred to as a RBOC) network and is switched to the caller’s long distance provider (such as AT&T, MCI or Sprint). The long distance provider then carries the call to its own or to another carrier’s (a “carrier’s carrier” such as IDT Telecom) international gateway switch. From there, it is carried directly or indirectly to a corresponding gateway switch operated in the destination country by the dominant carrier of that country (typically a state-owned or state-sanctioned foreign post, telephone or telegraph company, commonly referred to as a PTT), and then that country’s domestic telephone network routes the call to the party being called. All of this routing and switching of calls is automatically performed in milliseconds based upon a predetermined set of routing criteria.

International long distance providers can generally be categorized by the extent of their ownership and use of switches and transmission facilities. The largest U.S. carriers, AT&T, MCI and Sprint, own the U.S. transmission facilities that they primarily use and tend to utilize other international long distance providers only to reach niche markets where they do not own a network, to take advantage of lower prices or to carry their overflow traffic. A significant group of alternative long distance providers emerged that own and operate their own switches but either rely solely on resale agreements with carrier’s carriers to terminate traffic or use a combination of resale agreements and leased or owned facilities in order to terminate their traffic.

The international telecommunications industry is undergoing a period of rapid technological and regulatory change that, we believe, continues to offer market opportunities for telecommunications services providers such as us. Recent years have witnessed rapid growth in the usage of international telecommunications services (international long distance telephone minutes increased from approximately 93 billion in 1998 to approximately 146 billion in 2001) and a shift towards deregulation in many of the world’s major telecommunications markets (including Eastern Europe, Latin America and Asia).

We believe that growth in international long distance telecommunications traffic will continue to be driven by:

• the globalization of the world’s economies and the worldwide trend toward deregulation of telecommunications;

• declining prices arising from increased competition generated by privatization and deregulation;

• increased worldwide telephone density in both traditional landline and wireless telephones;

• a wider selection of products and services; and

• the growth in the transmission of data traffic.

We believe that growth of voice and data traffic originated outside of the United States will exceed the growth in voice and data traffic originated within the United States due to recent deregulation in many foreign markets and increasing access to telecommunications facilities in emerging foreign markets.

However, many participants in the worldwide telecommunications industry have not been able to benefit from the growth in worldwide telecommunications traffic. Rather, the telecommunications industry currently finds itself in a worldwide downturn, which has resulted in a number of companies recently filing for protection under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code (including WorldCom, Global Crossing and Williams Communications), and a 61.3% decline in the industry’s aggregate public market value in the last two years, according to Deutsche Bank. This has resulted in a dramatic change to the competitive landscape in the international long distance market during the past two to three years.

Commencing in the mid-1990s, spurred primarily by the deregulation of telecommunications services in the United States and abroad, new entrants in the international long distance market cut prices to try to gain market share. With relatively easy access to the public debt and equity markets in the late 1990s, many of these

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emerging companies were able to survive without generating profits. This access to funding enabled many emerging companies to begin constructing large telecommunications networks in an attempt to compete directly with the industry’s largest facilities-based carriers. At the time, these investments were justified by projections of growth in both voice and data traffic which would, in turn, increase demand for bandwidth. According to this belief, the strong price elasticity of demand for voice and data services would ensure that industry revenues would climb, even as prices rapidly fell, due to surging volumes of telecommunications traffic. It was believed that data demand would be the key driver of demand growth, as the increase in Internet use experienced during the mid and late-1990s was expected to continue unabated. Many believed that a fortuitous cycle for bandwidth demand had been set in motion, where increased demand for bandwidth would lead to an increased supply, which would enable bandwidth-hungry applications such as video-on-demand to become mainstream, which in turn would lead to even more need for bandwidth.

By mid-2000, however, it was becoming apparent that the estimates for future demand for bandwidth were overly optimistic. Demand for data transmission, in particular, was not nearly as robust as had been anticipated by many. The bandwidth-hungry applications that were supposed to drive much of the growth in data demand had not yet materialized. In addition, the oversupply of bandwidth was further exacerbated with the introduction of enhanced compression technologies. With supply significantly outpacing demand, prices for bandwidth plummeted, while pricing for termination of international calls also fell significantly. As a result of these falling prices and lower-than-expected demand, many telecommunications companies fell short of their revenue projections. In addition, many emerging telecommunications companies were subject to large principal and interest payments on their substantial indebtedness. At the same time, raising funding in the public debt and equity markets became more difficult. As a result, many of these new entrants either filed for bankruptcy or otherwise exited the international long distance marketplace.

Beginning in 2001, a second wave of financial difficulties swept the international telecommunications market. Significantly larger and “established” telecommunications companies encountered cash flow and fundraising difficulties. Companies that had built or purchased large fiber networks with massive capacities, such as WorldCom, Global Crossing and Williams Communications, suffered when both prices and demand for bandwidth decreased.

The industry’s malaise has not been limited to emerging international long distance providers and bandwidth companies. In the local calling markets in the United States, which have traditionally been dominated by the RBOCs, competitors known as competitive local exchange carriers, or CLECs, have entered the market since the Telecommunications Act of 1996 effectively opened local markets for competition. To this point, however, the CLECs’ experience has not generally been successful. Whether due to the RBOCs’ inherent advantages in their local markets, or because of the overbuilding of networks and large debt burdens of some of the CLECs, most competitors in the local markets have failed, with a significant number of the CLECs (including XO Communications, ICG Communications, CTC Communications Group and McLeod USA) filing for bankruptcy protection.

In addition, since 1996, the FCC has allowed the RBOCs to provide long distance telephone service as well as local telephone service if a RBOC can successfully establish that it has opened its local footprint to local telephone competition. For example, Verizon now offers long distance telephone service in all Northeastern U.S. states from Maine to Delaware. The FCC has approved applications for RBOCs to provide long distance service in 22 states, having determined that the RBOCs have properly opened their local markets for competition in those states. The FCC is considering applications in other states. Although we will compete with the RBOCs for long distance customers, we believe that we can benefit from the RBOCs’ entrance into the long distance market because the RBOCs, which lack the international network possessed by most existing long distance providers, rely more heavily on carrier’s carriers, such as us, to arrange for termination of their international telephone traffic. During Fiscal 2003, we intend to include the RBOCs as a major focus of our wholesale carrier strategy.

Despite the recent downturn in the telecommunications industry, we continue to believe in the international long distance industry’s solid underlying fundamentals. Volumes of both voice and data traffic continue to grow,

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presenting opportunities for companies like us. We do not believe that the current weakness in the global telecommunications industry represents a refutation of the positive long-term factors which have driven the industry’s growth. Even during the recent “downturn” in the telecommunications industry, the volume of worldwide voice and data traffic continued to increase, and we expect that such traffic will continue to increase for the foreseeable future. In fact, while we were also affected by the industry downturn, it has also provided us with opportunities to buy potentially valuable assets and businesses at a fraction of their original cost. At this time, management believes that we stand out from the field of the remaining multinational carriers as one of the lowest-cost providers, with a strong record of proven stability and a strong balance sheet, as evidenced by our more than $1 billion in cash, cash equivalents and marketable securities and virtually no long-term debt.

The IDT Approach

Our approach to the constantly changing, deregulating worldwide telecommunications industry has allowed us to survive—and grow—even as many companies in the telecommunications industry such as Global Crossing, WorldCom and Williams Communications have endured financial difficulties. Our approach can be encapsulated into two overarching concepts:

• our niche strategy; and

• our smart-build approach.

Throughout our history, we have sought to exploit profitable niches within the telecommunications industry. This included establishing ourselves as a low cost provider of services by setting our price points below those offered by the larger, “brand-name” companies (e.g., our rechargeable calling cards and consumer long distance), by providing services to under-served segments of the retail markets (e.g., our prepaid calling cards) and by providing wholesale telecommunications services to other telecommunications companies (e.g., our wholesale carrier services).

Our smart-build approach refers to the incremental approach we take to expand our network—we add new facilities only when we determine that such investments are justified by existing or imminent traffic volumes. Under this approach, we usually enter a new market by leasing fiber capacity. As traffic grows, we may install a switch to increase our overall capacity. As traffic increases further, we analyze whether purchasing bandwidth, instead of leasing, would reduce our costs by routing calls over an owned network. If our volume continues to grow, we may deploy additional switching and/or fiber capacity. This approach enables us to focus on our network costs on a per minute basis; only when we believe that we have the traffic volumes to justify the fixed cost involved with a switch or owned bandwidth will we consider such an investment.

Although our smart-build approach is often difficult to implement, as it depends on reasonably accurate projections of our future traffic volumes and the ability to execute capital projects quickly, we believe that it serves to effectively insulate us from the overbuilding that has plagued the telecommunications industry in recent years. Our generally cautious approach to purchasing capacity is balanced with the need to obtain sufficient capacity to a destination. Insufficient capacity to a termination point could result in higher costs to carry traffic to that destination, resulting in lower margins.

The following represent key elements of our strategy for Fiscal 2003:

• Leverage Existing Infrastructure.    We intend to utilize our established network, expertise and market presence to target new markets for our prepaid and private label calling cards and our consumer long distance services, and to expand our marketing efforts in existing markets for these products. As we have done in the past, we will seek to identify niche markets and products in which we can utilize our existing network to generate incremental revenues and increase our margins. For example, our private label calling cards utilize our existing calling card platform to produce calling card products for corporate and promotional users. These cards tend to have higher rates and margins than our other calling cards, and are marketed to users outside of our traditional customer base, allowing us to expand our market for these products.

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• Focus on International Opportunities.    We believe that the international long distance market provides attractive growth opportunities. We will seek to continue to identify international markets with high volumes of traffic, relatively high per-minute rates and favorable prospects for deregulation, and seek to (i) expand our product offerings to retail customers calling into these markets, (ii) offer to arrange for termination for the RBOCs and other carriers that do not currently possess access to these markets and (iii) where appropriate, introduce our services and products to customers in the target markets.

• Pursue International Agreements.    We intend to capitalize on our existing relationships with U.S. and foreign companies in order to expand our customer base. We have traditionally been able to capitalize on our volume of traffic and technological expertise to negotiate favorable termination agreements with international carriers. We will continue to seek new termination relationships with established and emerging carriers to reduce our termination costs for traditional international voice telephony, and we will continue to use our relationship with Net2Phone for additional low cost termination. To date, we have entered into over 60 agreements with carriers that provide for the favorably priced termination of our calls worldwide.

• Make Strategic Investments and Acquisitions.    Consistent with our Winstar acquisition and other acquisitions consummated in Fiscal 2002, we will continue to seek out opportunities in the distressed marketplace to acquire complementary assets, technologies and lines of business at attractive prices.

• Expand Switching and Transmission Facilities.    We will continue to expand and enhance our network facilities by investing in switching and transmission facilities where traffic volumes justify such investments. During Fiscal 2003, in order to reduce the cost of our services and enable us to continue to grow rapidly while maintaining our high service quality, we intend to continue to invest in:

• the expansion of our debit card platform;

• long haul and local loop fiber capacity within the United States and Europe;

• gateway switches and facilities in the United States, the United Kingdom and other European countries;

• switches, bandwidth and facilities in Latin America; and

• additional network compression equipment.

IDT Telecom’s Telecommunications Services

Our telecom division currently provides our customers with a variety of services, including:

• prepaid debit and rechargeable calling cards;

• private label calling cards;

• consumer long distance services; and

• wholesale carrier services.

Retail Telecommunications Services

Prepaid Debit and Rechargeable Calling Cards

We sell prepaid debit and rechargeable calling cards providing telephone access to more than 230 countries and territories. Our strategy is to offer rates on our calling cards that we believe are generally well below the rates for international calls that are offered by most of the major “brand-name,” facilities-based carriers such as AT&T, MCI and Sprint. We sell more than 150 different prepaid calling cards in the United States, and more than 40 different cards abroad, with specific cards featuring favorable rates to specific areas of the world. The cards are sold in several different dollar denominations, most commonly $5, $10 and $20. When a calling card is

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used to complete a telephone call, its balance is reduced by the then applicable per minute rate to the destination called multiplied by the number of minutes of the call, plus any fees we charge. The calling rates to each location, which we periodically adjust to reflect changes in costs and other market conditions, and other fees on the card (e.g., payphone fees, toll-free access surcharges and monthly fees) vary on a card-to-card basis. We offer calling cards that provide access to our network by dialing a toll-free number or, in certain metropolitan markets, local area calling cards that only require a local call, thereby avoiding the payphone fee and toll-free access surcharges.

Our prepaid calling cards are marketed primarily to the ethnic, immigrant communities in the United States, Europe and Latin America who tend to generate high levels of international traffic. We believe that recent immigrants and members of the ethnic communities tend to be heavy users of international long distance telephone service because of their desire to keep in touch with family members and friends located in their country of origin. Specifically, a large portion of our calling card customers are in the Hispanic community. Therefore, a significant proportion (55% in Fiscal 2002) of our international debit card minutes are terminated in Latin America as U.S.-resident Latinos call their native countries. We believe that many customers typically use our calling cards as their primary means of making long distance telephone calls due to attractive rates, reliable service, the ease of monitoring and budgeting their long distance spending and the appealing variety of calling cards that we offer to different market segments.

Our prepaid calling card business is particularly strong in the Northeastern United States because of our extensive distribution network and attractive rates to countries that immigrants in the Northeastern United States prefer to call, such as Colombia, Mexico and the Dominican Republic. Approximately 65% of our U.S. debit card sales in Fiscal 2002 were in the Northeastern United States. We have also been expanding our operations in Arizona, California, Florida, Georgia, Texas and other parts of the United States.

The following table lists some of the major prepaid calling cards that we sell in the United States:

Union Phone Card	Union Georgia	Florida 800	Texas Exclusive	California 800
New York Alliance	PT Phone	Megatel Debit	Florida Payless	USA Card
Union New York	Megatel Africa	New York PT-1 Card	California Exclusive	Ta Buena New York
New York Exclusive	New Jersey Easytalk	Texas 800	Washington Alliance	Union Florida
UTA Card	LA Easytalk	LA Aggressive	New York Payless	New Jersey Alliance
Union California	New Jersey Exclusive	Boston LAC	Megatel USA	Centro America Card

Outside of the United States, we market our calling cards in the United Kingdom, the Netherlands, Spain, Germany, Belgium and parts of Scandinavia, seeking to capitalize on the opportunity presented by the recent surge in immigration from underdeveloped countries around the globe to Europe’s developed nations. We plan to begin selling calling cards in France and Italy during Fiscal 2003. We sell approximately 40 different calling cards in Europe, with some of the major cards listed below:

UK Unity	UK Supercard	Nice One (U.K.)	Belgium Unity
Platicard (Spain)	Germany Unity	Asia (Netherlands)	Favourite (U.K.)
Africall (U.K.)	Spain Unity	Afrika (Netherlands)	Dragon (U.K.)
UK Easy	Number One (U.K.)	Cheers Africa (U.K.)	Hot Shot (U.K.)
UK Eastern Europe	Afrika (Germany)	Asiacall (U.K.)	Asia Connect (Spain)

We believe that there is a significant untapped market for prepaid calling cards in Latin America, where certain countries serve as regional nexuses, attracting immigrants due to stronger job markets and opportunities, just as the United States does. Immigrants from satellite countries share the needs of their U.S. counterparts for

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low-cost, prepaid calling solutions to maintain contact with their countries of origin. In Fiscal 2002, we began distributing prepaid calling cards in Latin America by selling calling cards in Argentina. We anticipate revenues in this region to continue to increase in Fiscal 2003.

We sold more than 198 million prepaid calling cards during Fiscal 2002, a 57% increase from the 127 million calling cards sold in Fiscal 2001. The sale of these calling cards in Fiscal 2002 generated $982.4 million in revenue, as compared with $719.3 million in Fiscal 2001, and resulted in the completion of 8.1 billion minutes of phone calls, as compared with 4.7 billion in Fiscal 2001. During Fiscal 2002, sales of prepaid calling cards accounted for 70.5% of our telecom division’s total consolidated revenues. During Fiscal 2002, we sold 85.5% of our calling cards in the United States, with the remaining 14.5% sold abroad.

Our rechargeable cards, with a marketing focus on business travelers, are distributed primarily through in-flight magazines and permit users to place calls from over 25 countries through international toll-free services. Accounts are automatically recharged with a credit card that the customer provides at the time of initial card activation. In Fiscal 2002, revenues attributable to rechargeable calling cards were $25.3 million, or 2.5% of our telecom division’s calling card revenues.

We believe that we possess the following competitive advantages in the prepaid calling card industry:

• our status as a carrier’s carrier, which allows us to offer calling time over more routes at attractive prices to the countries that are in demand in the prepaid calling card marketplace without relying on a single operator for termination or other services while using our significant network and least-cost-routing system to procure the most cost-effective termination to the required destinations at the quality levels that we require;

• our network of switches and transmission facilities, which allows us to keep our costs low as compared to our competitors whose operations consist solely of selling calling cards;

• our debit platform, which enables us to process a large number of cards simultaneously and to provide multilingual and multi-currency cards;

• our extensive distribution channel, which covers a wide variety of over 350,000 retail outlets worldwide;

• the quality and dependability of the telephone service provided by our cards;

• our understanding of, and commitment to, the ethnic prepaid calling card market; and

• our superior customer service.

Private Label Calling Cards

We also market private label calling cards, which are usually a prepaid calling card printed with a customer’s logo and design. Private label calling cards are often used as promotional items or utilized by corporate customers to help generate brand name awareness. In Fiscal 2003, we plan on increasing our efforts to market private label cards, with a focus on retail chain stores.

We currently market the following types of private label calling cards:

• Retail Calling Cards.    These prepaid calling cards, often printed with a customer’s logo and design, are targeted at the mass-market opportunity presented by being located in high-traffic stores. In October of 2002, we became the exclusive prepaid calling card provider to Walgreens, the nation’s largest retail pharmacy chain. We will supply Walgreens branded prepaid calling cards to the retail pharmacy chain’s nearly 4,000 stores.

• Promotional Cards.    These prepaid calling cards are usually given away by customers as promotional items. Current customers include Goya, Jet Blue, Coca-Cola and Colgate.

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• Corporate Cards.    Many companies are using the benefits of prepaid/postpaid and rechargeable calling cards to control and track their employees’ long distance telephone charges by giving each employee a card and mandating its use for long distance telephone service whenever possible.

Private label calling cards generated $9.1 million in revenues, or 0.6% of our telecom division’s revenues, during Fiscal 2002.

Other incremental revenues opportunities that we are currently developing for our prepaid calling cards include virtual cards (e-mailing a PIN number for an account, thereby removing the need for a physical calling card) and placing third-party advertising on calling card packaging.

Consumer Long Distance Services

We market long distance services directly to consumers and businesses in the United States. We feature a flat rate calling plan of five cents per minute for state-to-state telephone calls within the continental United States (available in most areas), 24 hours a day, seven days a week, with a monthly service fee of $3.95. We bill in six second increments, instead of one minute rounding, which is the practice of some industry participants. As part of our calling plan, customers are offered our calling cards, with no monthly fees or per-call surcharges, featuring a domestic rate of ten cents per minute. Our rates for international calls are also competitive with those charged by the major facilities-based carriers. During Fiscal 2002, we continued to aggressively market our long distance services by expanding our existing advertising campaign to additional markets and by leveraging our scale to reduce our customer acquisition costs. We utilized many marketing channels to broaden our reach, including national cable television, print, direct mail, on-line advertising and co-marketing agreements. The Wall Street Journal’s survey of cellular and long distance telephone companies (October 3, 2002), which included AT&T, MCI and Sprint, gave our calling plan “Thumbs-Up”, the highest ranking given. The Wall Street Journal reported, “In an age of impossible-to-decipher bills, IDT stands out as an exception.”

As of October 1, 2002, we had approximately 550,000 active consumer long distance customers. Consumer long distance services accounted for 7.7% of our telecom division’s total consolidated revenues in Fiscal 2002. We grew long distance revenues by 97% in Fiscal 2002 through aggressive customer acquisition campaigns and by adding new services such as IntraLATA (or local toll) service. As we continue to make significant expenditures to market this service, resulting in customer growth, we anticipate that consumer long distance services will account for an increasing proportion of our total revenues in future periods.

In Fiscal 2002, we began to migrate our customers from Global Crossing, which was the primary provider of long distance service to our customers, and entered into an agreement with AT&T to resell AT&T’s services. Our resale agreement with AT&T provides that AT&T will originate calls from our long distance customers and that the types of calls specified (international, specific states, etc.) will be routed to their destination on our network. The agreement with AT&T gives us the flexibility to select those calls which will best leverage our lower cost basis to terminate calls on our own network. Management believes that this flexibility can increase our gross margins and provide the opportunity to market new, even more aggressive plans, particularly international plans, which will generate additional revenues.

Wholesale Carrier Services

Long distance telephone calls are generally originated by the local carrier of the customer placing the call. The local carrier switches the call to the customer’s long distance carrier. The call is then routed over the lines of the long distance carrier and/or one or more other carriers until it reaches its destination, where it is switched to the local carrier for termination at the telephone number called. Carriers, such as us, that transmit all or a portion of another carrier’s traffic are said to be acting as a “carrier’s carrier.”

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By utilizing our flexible and least-cost traffic routing system, we are able to provide major carriers and niche carriers alike with rates that we believe are often lower than those traditionally available through the more established carriers. We are able to offer competitive rates to our carrier customers as a result of our ability to generate a high volume of long distance telephone traffic (aided by the volumes generated by our calling card business) and our attractive rates negotiated with foreign PTTs and other carriers. As of October 1, 2002, we had approximately 173 wholesale customers located in the United States and Europe, with wholesale carrier sales accounting for $309 million of our telecom division’s revenues in Fiscal 2002, which represented 20.2% of our total consolidated revenues. In Fiscal 2002, we carried 2.04 billion minutes, an increase of 9.7% over Fiscal 2001 when we carried 1.86 billion minutes.

In Fiscal 2002, we increased the number of our direct relationships with foreign PTTs from approximately 40 to more than 60. We believe that a direct connection from one of our switches to a foreign PTT both increases the quality of a call and lowers cost, which enables us to generate more traffic with higher margins to that foreign locale. During Fiscal 2003, we intend to continue to vigorously expand our existing direct relationships with foreign PTTs.

The declining price of bandwidth combined with the overall reduction of available investment capital in the market have combined to drive many wholesale carriers such as Viatel and Carrier One out of the market. We anticipate that we and other financially sound carriers will gain market share as weaker companies continue to leave the wholesale carrier market. Additionally, as the RBOCs increase their market share in the long distance market, we expect to gain revenues as a result of the RBOCs’ current dependence on the global infrastructure of carrier’s carriers for the termination of their international voice traffic. This increase in our wholesale carrier revenues from the RBOCs may be offset, in part or in whole, by lost revenues due to increased competition with the RBOCs for our consumer long distance customers. We believe that the trend toward deregulation of the foreign telecommunications sector creates opportunities as lower pricing often brings significant increases in usage. While profit margins may be negatively impacted for some carriers, there are often increases in gross profit for efficient providers, that can continue to operate profitably at lower prices.

Our most significant wholesale carrier customers consist of long distance carriers. While they may vary from quarter to quarter, our five largest wholesale carrier customers accounted for 15.2% of our total consolidated revenues in Fiscal 2002. This concentration of revenues increases our risk associated with nonpayment by customers. This risk has, in general, become more acute for us in recent quarters as several of our customers have declared bankruptcy or are facing financial difficulties, and now pose increased credit risks. We perform ongoing credit evaluations of all of our wholesale carrier customers, but historically we have not required collateral to support accounts receivable from our customers. In light of the deteriorating credit quality of some of our wholesale carrier customers, we have begun to impose stricter credit restrictions on some of our wholesale carrier customers. In some cases, this has resulted in our sharply curtailing or ceasing completely sales to certain of our wholesale carrier customers.

Capitalizing on Our Strengths in the Wholesale Carrier Market

In Fiscal 2003, we intend to capitalize on some of our strengths in order to tailor an increasingly strong, global company including:

• our strong commercial relationships with foreign carriers which will, we believe, continue to allow us to negotiate advantageous rates which we can pass on to our prepaid calling card customers and wholesale carrier customers;

• our calling card business, which generates a high volume of original long distance call traffic which, we believe will continue to prove attractive to PTTs as we form direct connections with PTTs and “create” new streams of traffic and direct it to the PTT, as opposed to simply transferring minutes from another carrier with which the PTT is already allied;

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• our superior switching, routing and customer service technology supporting our telecommunications backbone which will continue to provide us with superior cost analysis, customer service and strict quality controls;

• our ability to distinguish ourselves from purely wholesale carrier competitors by offering “value-added carrier services,” such as giving carriers remote access to our debit card platform; and

• our highly specialized analysis team composed of well-trained telecommunications professionals continually monitoring traffic data which will allow us to maintain maximum network efficiency.

These factors will advance our long-term goal of becoming a multi-faceted provider offering a portfolio of services and products to the most financially stable market participants through long-term contractual relationships. In order to reach this goal, we intend in Fiscal 2003 to:

• broaden our portfolio of services and products offered to our wholesale carrier customers;

• cultivate our relationships with additional PTTs and top-tier global carriers;

• continue our evaluation of the financial stability of weaker wholesale carrier customers and cautiously manage our financial exposure to such customers in order to safeguard against nonpayment of outstanding receivables;

• continue to utilize our strong balance sheet to seek out opportunities in the distressed marketplace to acquire complimentary assets, technologies and lines of business at attractive prices; and

• generate significant incentives, such as volume commitments and price incentives, for global carriers to enter into long-term contracts with mutual commitments.

Sales, Marketing and Distribution

We primarily market our wholesale carrier services through our direct services sales staff. Management believes that the sales staff benefits from (i) our extensive relationships with RBOCs and our international name recognition throughout the long distance industry for marketing carrier services, (ii) substantial traffic volumes, which enables us to negotiate lower rates and (iii) our favorable termination rates negotiated with PTTs and other foreign carriers.

We primarily market our prepaid debit cards to retail outlets in the United States through an exclusive distribution agreement with Union Telecard Alliance, LLC, a joint venture which is owned 51% by us and 49% by the Carlos Gomez Family Trust. Union Telecard utilizes a network of more than 1,000 sub-distributors (ranging from large companies to sole proprietors) that sell through over 250,000 retail outlets throughout the United States.

We benefit from Union Telecard’s extensive distribution network, which provides us with an accurate assessment of the fast-changing requirements of our prepaid calling card customers. We work closely with Union Telecard’s management team, which is appointed by us and our co-venturer, in developing marketing and distribution strategies for our prepaid calling card products, including card design, pricing and expansion opportunities. Sales of our calling cards represented 96% of Union Telecard’s total revenues in Fiscal 2002.

During Fiscal 2002, we implemented an enterprise software platform for our calling card business. We believe that this system provides us with a significant competitive advantage as it dramatically enhances inventory and credit control, reduces costs, strengthens information flows across our organization, and enables customer support and tracking down to the consumer level. The system ties directly into our central database and seamlessly folds into enterprise level reporting. Furthermore, the system enables a dramatic increase in customer base, and therefore growth potential, with no noticeable change to existing personnel and procedures.

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Union Telecard has entered into arrangements with certain major sub-distributors, located in Arizona, California, Illinois, Florida, New York, Ohio and Texas in which the sub-distributors have agreed to market our prepaid calling cards in exchange for preferential pricing, exclusive cards, extensions of credit, incentive bonuses and technical support from us. These incentives are intended to assist each respective sub-distributor in the growth and development of its business. Union Telecard holds equity interests in six of its ten largest sub-distributors.

We operate a customer support call center in Puerto Rico that processes almost one-half of the requests generated by our U.S. and Latin American customers. The center has approximately 315 employees who can process over 11,000 calls a day.

We market our rechargeable calling cards, primarily through in-flight magazines, and our private label prepaid calling cards, directly to customers. In October of 2002, we became the exclusive prepaid calling card provider to Walgreens, the nation’s largest retail pharmacy chain.

We increased our marketing expenditures for our consumer long distance services. The advertising campaign for these services is mostly driven by direct television advertising in targeted markets.

IDT Europe

We formed IDT Europe in 1998 as a wholly owned subsidiary. In Europe we focus on prepaid calling cards (from our headquarters in Dublin, Ireland) and on wholesale carrier services (from our headquarters in London, England). We have operations in the Netherlands, Belgium, Germany, Spain, France, Italy and Scandinavia. We target our prepaid calling cards, principally under the IDT brand, primarily to immigrant and ethnic markets with a wide range of cards featuring competitive rates to almost anywhere in the world. We also provide competitively priced wholesale carrier services to a variety of customers including established European and other carriers, new and emerging telephone companies, and value-added service providers. With approximately 135 employees, our European operations generated $229 million of revenues in Fiscal 2002, a 6.0% increase over the $216 million of revenues generated during Fiscal 2001. Our European operations’ revenues represented 16.0% of our telecom division’s revenues in Fiscal 2002, as compared to 17.9% in Fiscal 2001. During Fiscal 2002, prepaid calling cards comprised 62.5% of our European operations’ revenues, with the remaining 37.5% attributable to wholesale carrier business.

Through Corbina Telecom, our wholly owned subsidiary, we are active in the rapidly growing Russian telecommunications market. Corbina offers a broad range of services to its customers, including wireless resale, wholesale carrier, Internet access (dial-up and broadband), wireless access and E1 (a measure of bandwidth) circuit connectivity. Revenues generated by Corbina in Fiscal 2002 were $15.7 million.

Billing and Customer Support

We believe that reliable, sophisticated and flexible billing, information and customer service systems are essential to our ability to remain competitive in the global telecommunications market. Accordingly, we have invested substantial resources to develop and implement our proprietary management information systems.

Our billing system enables us to:

• accurately analyze our network traffic, revenues and margins by customer and by location on an intra-day basis;

• validate wholesale carrier settlements; and

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• monitor least-cost-routing of customer traffic.

Our entire billing process is fully automated and increases efficiencies by reducing the need for monitoring by our employees.

We believe that our ability to provide adequate customer support services is a crucial component of our ability to retain customers. We have successfully focused on improving customer service through a number of measures, including the addition of support personnel and the monitoring of customer waiting time. Our customer support staff, which communicates with subscribers via phone, fax and e-mail is trained to provide both technical and general service assistance. We answer more than 90,000 customer support calls per day, of which roughly 60% are handled by our automated Integrated Voice Response System. The other approximately 36,000 answered calls are handled by our customer support staff, whose approximately 150 members are required to field a minimum number of calls and e-mails each day. We utilize “real time” monitoring by a quality control department, which monitors thousands of calls per day. Online account management and billing systems have been implemented during Fiscal 2002 that have greatly improved efficiency by reducing the average call duration from between 6 and 8 minutes to between 4 and 7 minutes, thereby improving customer satisfaction and reducing costs. We also employ liaisons between our customer support and technical staffs to enhance responsiveness to changing customer demands.

Telecommunications Network Infrastructure

We maintain an international telecommunications switching infrastructure and U.S. domestic network, consisting of owned and leased lines that enables us to provide an array of telecommunications, Internet access and Internet telephony services to our customers worldwide. Our network is monitored 24 hours a day, seven days a week, 365 days a year by our Network Operations Center.

Private Line Network

We operate a growing telephone network consisting of domestic dedicated leased fiber-optic and copper lines, and owned switch equipment in the United States which are interconnected to major foreign PTTs, emerging carriers and domestic interexchange carriers, local exchange carriers and competitive local exchange carriers or CLECs. Our major switching facilities are located in Piscataway and Newark, New Jersey and London, England. These locations provide our network with redundancy and diversity. All of these locations are linked with the dominant local exchange carrier as well as with at least one CLEC, allowing us to interconnect with all major interexchange carriers to switch traffic via our leased private-line DS-3 network. Furthermore, all of our locations are interconnected via leased lines to enhance network reliability and redundancy as each location interconnects with the various carriers.

In September 1998, we obtained from Frontier Communications (now a unit of Global Crossing Ltd.) dedicated DS-1, DS-3, OC-3 and OC-12, which are measures of a transmission line’s bandwidth, circuit capacity in the United States over Frontier’s network, connecting more than 120 metropolitan areas around the nation. These network facilities have enabled us to (i) expand the range and reliability of our data and voice transmission service, while reducing network costs, (ii) offer nationwide dial-up long distance, (iii) reduce 800-origination costs and (iv) provide for origination and termination of wholesale carrier traffic in all major U.S. cities.

In October 1999, we entered into an agreement with Frontier whereby we enhanced our ability to provide presubscribed long distance (1+) and dedicated and toll-free services throughout the United States as well as casual calling long distance (10xxx) in selected areas of the country. In October 2000, in settlement of a suit filed by us against Tyco Group S.A.R.L. and Tyco Submarine Systems, Ltd., we received certain IRUs relating to capacity in Tycom Ltd.’s trans-Atlantic and trans-Pacific undersea fiber-optic networks. Under the terms of the settlement, we received IRUs for two 10 Gb/s wavelengths on both the trans-Atlantic and the trans-Pacific network for 15 years, free of charge.

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In addition, we own and lease switched services to connect our U.S. and U.K. facilities. These services are used to originate traffic from our customer base in the United Kingdom and to terminate existing carrier and call reorigination traffic to the United Kingdom. We have more than 60 operating and terminating agreements that provide for the termination of traffic worldwide, and we plan to obtain additional leased lines to certain destinations, which should result in reduced termination costs.

Switching Platforms

We utilize three major telecommunications switching platforms. Our telecom division uses Lucent switches for all application-based products such as prepaid calling cards, and value added services such as voice prompts, speed dialing, voice mail and conferencing. Our Lucent switches are flexible and programmable, and are designed to implement network-based intelligence quickly and efficiently. As of October 1, 2002, we had deployed 168 Lucent switches. Our telecom division also uses a platform manufactured by Nortel, which serves as an international gateway and domestic carrier switch. As of October 1, 2002, we owned six Nortel switches and plan to increase the number of Nortel switching platforms in New Jersey and London during Fiscal 2003. Our telecom division has also deployed three Sonus switches. Our Sonus switches are flexible and serve as international gateways and local interconnect switches and support voice over Internet protocol, or VoIP, technology. Two of our deployed Sonus switches are in Piscataway, New Jersey and the other is in Lima, Peru. We are in the process of deploying a fourth Sonus switch in Buenos Aires, Argentina. All of our switches are modular, scaleable and equipped to signal in such protocols as ISDN and C7/SS7 so as to be compatible with multiple domestic and foreign networks.

Software

Our switches work in conjunction with our software platforms, many of which are proprietary, to run all of the applications that we require to provide value added services, as well as billing and traffic analysis. The software enables the switches to route all calls via our least-cost-routing matrix. Least-cost-routing is a process by which we seek to optimize the routing of calls over the least-cost-route on our switches for over 230 countries. In the event that traffic cannot be handled over the least-cost-route due to capacity or network limitations, the least-cost-routing system is designed to transmit the traffic over the next least-cost-route. Our least-cost-routing system analyzes several variables that may affect the cost of a long distance call, including different suppliers, different time zones and multiple choices for terminating the call in each destination. Our least-cost-routing system is continuously updated to include the most favorable rates available from different suppliers to different destinations. By utilizing a least-cost-routing system, we are able to lower our costs and offer lower rates to our customers. This is of significant importance when serving a market that has become increasingly price-sensitive.

Research and Development

Our telecom division employs a technical staff that is devoted to the improvement and enhancement of its existing telecommunications and Internet products and services, including switching technologies and the development of new technologies, applications and products. We believe that the ability to adjust and improve existing technology and to develop new technologies in response to, and in anticipation of, customers’ changing demands is necessary to compete in the rapidly changing telecommunications and Internet industries. There can be no assurance that we will be able to successfully develop new technologies or effectively respond to technological changes or new industry standards or developments on a timely basis, if at all.

Competition

We believe the principal competitive factors affecting our business will be the price, quality and reliability of our services, customer service and innovation. Many of our current and potential competitors have greater financial, marketing, personnel and other resources than we do, as well as other competitive advantages. We anticipate competition to remain intense in all of our telecom division’s market segments, thus limiting our ability to achieve significantly greater margins or market share for any of its services.

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Calling Card Services

We offer numerous calling card services, including prepaid debit, rechargeable and private label calling cards. We believe our success in providing these services is based on our ability to provide low rates and reliable service and to efficiently distribute our calling cards. The calling card industry is notable for its relative lack of regulation compared to the rest of the telecommunications industry and ease of market entry. As calling rates continue to decrease and competition increases, we will be forced to rely on our service, quality and distribution efficiencies to remain competitive.

In the calling card market, we compete with other providers of calling cards, including established carriers and hundreds of small regional companies, and with providers of telecommunications services in general. Many of the largest telecommunications providers, including AT&T, MCI and Sprint, currently market prepaid calling cards, which in certain cases compete with our prepaid calling cards. These companies are substantially larger and have greater financial, technical, engineering, personnel and marketing resources, longer operating histories, greater name recognition and larger customer bases than we do. In marketing prepaid calling cards to customers outside the United States, we compete with large foreign PTTs, such as British Telecommunications in the United Kingdom.

Wholesale Carrier Services

We provide wholesale carrier services, carrying both our own telecommunications traffic and the traffic of other carriers over our network. The carrier business has numerous entities competing for the same customers with carriers competing primarily on price and service quality. Numerous carriers with which we compete have experienced financial difficulties, including bankruptcy, during the last two years. This may present an opportunity for us to expand our carrier service business through decreased competition and/or low cost acquisition of the facilities or equipment of bankrupt or financially unstable carriers. However, financial difficulties within the industry may lead to greater competition as bankrupt carriers reorganize by shedding unprofitable lines of business and outstanding debt, thus eliminating many of the financial burdens these carriers faced in their financially unstable condition. Regardless of the effects of bankruptcy and financial instability within the telecommunications industry, we expect this area to remain highly competitive due to the vast number of carriers and the amount of telecommunications network infrastructure that is available.

In the wholesale carrier service business, we compete with:

• interexchange carriers and other long distance resellers and providers, including large carriers such as AT&T, MCI and Sprint;

• foreign PTTs;

• on-line, spot-market trading exchanges for voice minutes, such as Arbinet-thexchange;

• other providers of international long distance services; and

• alliances between large multinational carriers that provide wholesale carrier services.

Consumer Long Distance Service

We offer consumer long distance service to residential and business subscribers in the United States. The U.S. consumer long distance industry is characterized by numerous entities competing for a relatively static number of customers, leading to a high churn rate because customers frequently change long distance providers in response to offers of lower rates or promotional incentives. Our primary competitors in the long distance market include major long distance carriers such as AT&T, MCI and Sprint. In addition, the Telecommunications Act of 1996 also allows the RBOCs, once certain thresholds are satisfied, to enter the long distance market within their own local service regions, and several (including Verizon and SBC Communications) have already received Federal Communications Commission, or FCC authorization to provide in-region long distance service in certain

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states. Additional RBOC applications will likely be approved in the future. We believe that low rates, simple pricing plans, straight-forward bills and quality customer service are critical competitive factors in providing long distance telephone service. However, many service providers, most notably the RBOCs such as Verizon and SBC, offer packages of local service and information services together with their long distance services. For the foreseeable future, we expect the RBOCs and other incumbent local exchange carriers or ILECs to increase their share of the consumer long distance service market. We also expect the ILECs to use their existing dominant position in the local exchange market to maintain an advantage over competitors that offer similar bundled packages of local, long distance and information services to subscribers.

Other Market Entrants

In all aspects of the telecommunications industry, we may face competition from an increasing number of market entrants such as electric utilities, cable television companies, fixed and mobile wireless system operators, and operators of private networks built for large end users. Electric utilities have existing assets and access to low cost capital that could allow them to enter a telecommunications market rapidly and accelerate network development. Cable television companies are also entering the telecommunications market by upgrading their networks with fiber optics and installing facilities to provide fully interactive transmission of broadband voice, video and data communications. Wireless companies have developed, and are deploying in the United States, wireless technology as a substitute for traditional wireline local telephones. Additionally, the World Trade Organization agreement on basic telecommunications services could increase the level of competition we face. Under this agreement, the United States and 68 other member states of the World Trade Organization are committed to open their respective telecommunications markets, including permitting foreign companies to enter into basic telecommunications services markets. This development may increase the number of established foreign-based telecommunications carriers entering U.S. markets.

WINSTAR

On December 19, 2001, we, through our wholly owned subsidiary, IDT Winstar Acquisition, LLC (later renamed Winstar Holdings, LLC), acquired substantially all of the core domestic telecommunications assets of Old Winstar for (i) $30 million in cash, (ii) $12.5 million of our Class B Common Stock and (iii) 5% of Winstar Holdings. On April 16, 2002, we purchased from the bankrupt estate of Old Winstar the remaining 5% of Winstar Holdings that we did not already own for $13.3 million of our Class B Common Stock.

Our Winstar division is a broadband and telephony service provider to commercial and governmental customers that offers a “last mile” telecommunications solution through its fixed-wireless and fiber infrastructure, including local and long distance phone services, high speed Internet and data communications, WAN solutions, co-location, mobile network infrastructure and web hosting. We believe that we own the largest footprint of fixed wireless spectrum, covering the entire United States. Since acquiring Winstar, we have implemented various restructuring initiatives, including cost rationalization and revenue growth initiatives focusing in certain geographic areas of operation, in an effort to move our Winstar division towards profitability.

During the approximately 7½ month period from December 19, 2001 through the end of Fiscal 2002, our Winstar division generated revenues of $79.6 million, which represented 5.2% of our total revenues for Fiscal 2002, and operating losses of $96.6 million. In Fiscal 2003, we intend to focus on increasing our Winstar division’s revenues (and reducing its operating losses) by attracting additional business and governmental customers. Management believes that our Winstar division’s telecommunications services can be successfully marketed by featuring (i) the quality of service that our customers receive when they call us for support, or when we make a service call to provide new or additional services, (ii) the lower prices that we generally charge for our services and (iii) the relatively low cost redundancy solution that we provide.

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The Local Telephony Market

The Telecommunications Act of 1996 encouraged competition against ILECs, which include the RBOCs, by permitting CLECs to offer voice and data services via both landline and wireless delivery. The incentives for the CLECs to compete against the ILECs included the ability (i) to compete against the ILECs’ rates (which were set without meaningful competition), (ii) to interconnect with the public service telephone network at will and (iii) to charge public service network interconnection fees when a public network customer makes a voice or data call to a CLEC.

The United States Telecom Association has reported that, nationally, local service revenues in 2001 totaled $126.4 billion. This included local exchange, local private line, other local services and services for ILECs and CLECs. The USTA’s report also stated that in 2001 the CLECs generated $16.8 billion in revenues (13.3% of total local voice and data service market), and projected that the CLECs’ revenues would increase to $31.6 billion in 2007, while the ILECs’ revenues would increase from $109.6 billion in 2001 to $111.4 billion in 2007. Additional services such as digital subscriber lines, or DSL, and video conferencing have been driving growth in the local business telephony market.

Historically, the ILECs provided local communications service and the connection to customers over copper wire for the “last mile.” Without enhancement, copper wire is generally not well suited to support high bandwidth services. Therefore, the growth of bandwidth intensive communications services has created increased demand for additional transmission capacity across the “last mile.”

Management believes that fewer than 10,000 of the more than 750,000 office buildings located in the United States have broadband fiber connections. Furthermore, it is believed that construction of “last mile” fiber connections has slowed recently. Of the domestic commercial office buildings with direct fiber connections, an even smaller number possess network infrastructure to provide broadband connectivity to all of the buildings’ tenants.

The Competitive Landscape

The competition for the local telephony market is intense. Our Winstar division’s main competitors fall within two categories: RBOCs and CLECs.

Regional Bell Operating Companies

Competing against the RBOCs is extremely challenging. Each of the RBOCs continues to enjoy a virtual monopoly as the ILEC in its respective territory and most of the RBOCs are well funded. After a wave of consolidation, the four remaining RBOCs are (i) BellSouth, (ii) SBC Communications (includes former Ameritech, Pacific Bell, Southwestern Bell and Southern New England Telephone), (iii) Qwest (includes former US West) and (iv) Verizon (includes former NYNEX, Bell Atlantic and GTE).

Historically, federal regulations prohibited the RBOCs from providing long distance voice or data transport services. However, the regulators have recently been granting, on a state-by-state basis the RBOCs the right to provide such services in major markets after they satisfy certain criteria to prove that they have opened their local markets to competition. The FCC has approved applications for RBOCs to provide long distance service in 22 states, and is considering applications in other states. Management expects this trend to continue over the next several years.

Even though the RBOCs are required to open their networks to their competitors prior to federal regulators granting them the right to enter the long distance market, management believes that the RBOCs are either not willing or not able to provide high-quality service to the competitive communications providers that rely upon them to service their end user customers. In other words, the RBOCs often provide slow service—both for initial installation of new service and for repairs, compared to competitive carriers that rely upon their own

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networks to serve customers. In addition, the fees that the RBOCs charge to competitors using their network make it difficult for those competitors to generate sufficient gross margins to generate a profit. To avoid the issues presented by over-reliance on the RBOCs to service their customers in the “last-mile,” Old Winstar developed its own fixed-wireless facilities-based network. Our Winstar division predominately uses its own network to deliver services from its switching sites, nodes and hubs directly to its customer locations.

Management believes that our Winstar division has a number of competitive advantages compared to the RBOCs, including:

• our prices are approximately 20% lower than the prices charged by the RBOCs for similar services;

• we are able to cost-effectively provide broadband access to certain buildings to which the RBOCs cannot cost-effectively provide broadband service because our fixed-wireless technology is easier and less expensive to deploy than fiber;

• we provide high speed Internet services to all of our provisioning-ready buildings, whereas RBOCs often can only provide DSL services to a limited number of buildings that they serve;

• we believe that we can provide our services more quickly than the RBOCs to new customers in provisioning-ready buildings (i.e., buildings in which our technology is currently deployed);

• we offer a non-fiber redundancy solution to corporations and governmental agencies via our fixed-wireless local loop network; and

• we can offer our discounted long distance and integrated voice services to our Winstar division customer base.

Competitive Communications Providers

The opportunity to compete with the RBOCs and the other CLECs for the business (i.e., non-residential) segment of the local telecommunications market has spawned hundreds of competitors that try to differentiate their services from the RBOCs in order to attract their customers. The RBOCs’ competitors try to differentiate their services from those offered by the RBOCs with (i) their quality of service, (ii) the suite of services that they can provide (bundling), (iii) the level of individual attention that they provide to their customers and (iv) their prices.

The current market environment has precipitated a consolidation in the local telephony industry. Lack of capital resources has resulted in few competitors possessing the financial strength to effectively compete with the RBOCs in the local marketplace. The competitive carriers are often categorized by their access approach, which can be divided into three basic categories:

• Resellers.    Resellers do not own the telecommunications equipment used to provide services to their customers, but instead provide local telecommunications services by purchasing the RBOCs’ switched access services at discounted retail rates. One advantage of this business model is that a reseller can begin to provide services with relatively little outlay of capital. However, because resellers must pay the RBOCs to use their switched access services, the margins of resellers are extremely thin. The resale business model is further complicated by the fact that resellers must coordinate with the RBOCs to resolve many customer-related issues. Although the RBOCs are obligated to provide telecommunications services to resellers’ customers, the RBOCs have little incentive to provide high quality and timely service. Although initially utilized by a number of major carriers such as AT&T, Sprint, and WorldCom, pure resale has virtually been abandoned as a viable standalone strategy for local telecommunications providers in favor of resale relying on unbundled network elements leased from the RBOCs, known as UNE-P resale. UNE-P, unlike pure resale, is a combination of unbundled switch elements and unbundled loop elements and, although functionally equivalent to pure resale, it, unlike pure resale, allows the provider to obtain reciprocal compensation fees or applicable termination and origination access fees. UNE-P resellers include Z-Tel Communications and Broadview Networks.

• Smart Builders.    Smart builders own their switching facilities, and may also own some local fiber to reach the co-location cages of the ILEC, but as with resellers, they rely on the RBOCs for the “last mile” connection to their customers. Smart builders can generate better margins than resellers, but they still must pay the RBOCs for “last mile” access to each customer and rely on the assistance of the

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RBOCs to resolve customer problems. As with resellers, the limited incentive of the RBOCs to provide prompt service for the benefit of third parties may detract from smart builders’ ability to provide high quality customer service. Smart builders include Allegiance Telecom, MacLeodUSA, Mpower Communications, Covad Communications, ChoiceOne Communications and PaeTec Communications.

• Facilities-Based Carriers.    Facilities-based carriers, which include Winstar, own substantially all of the network elements (typically bundling switching facilities, “last mile” network facilities and building access rights) required to provide local telecommunications services. Although facilities-based carriers must make significant investments in both switching and access infrastructure to own a comprehensive network, they incur substantially smaller RBOC interconnect charges, as compared to other types of carriers because facilities-based carriers use substantially smaller amounts of the RBOCs’ networks. The benefits of this strategy include control of the customer due to use of its own facilities, (thus reducing RBOC interference), end-to-end visibility (the ability to track the call from the caller to the switch) and better gross margins than resellers and smart builders. Like all carriers, facilities-based carriers, typically order high capacity trunk lines and other network infrastructure from RBOCs and ILECs. Facilities-based carriers can also provide data and enhanced services if they deploy broadband networks. Facilities-based carriers include Adelphia Business Solutions, Focal Communications, Cox Cable, Cablevision Lightpath, KMC Telecom, Time Warner Telecom and XO Communications.

Management believes that we possess a number of competitive advantages over resellers, smart builders and other facilities-based carriers, including:

• we are the only carrier that owns fixed wireless spectrum covering the entire United States, providing us with the potential to provide “last mile” switched access to customers that reside within line-of-sight of our network facilities;

• we are one of only a few carriers, along with Adelphia, Time Warner and XO Communications, that deliver a bundled suite of local, long distance and Internet access services;

• we maintain the capability to provide non-switched broadband connectivity between customer premises that enjoy line-of-sight to each other (such as in campus environments), meaning that if two buildings have line-of-sight to each other, users of our technology can communicate (voice and data) without having to go through a switch;

• as a predominantly facilities-based provider, we are not as dependent upon other carriers, such as the RBOCs, to deliver “last mile” service to our customers;

• many of our non-RBOC and non-facilities-based competitors, such as Z-Tel Communications, Broadview Networks, Allegiance Telecom and others, rely on the ILECs to deliver services to their customers, which (i) presents a potentially contentious relationship between competing providers and (ii) often hinders their ability to provision services quickly for add-on capabilities and network additions;

• fixed broadband wireless technology enables us to distinguish ourselves from a vast majority of our competitors because it is generally less expensive and easier to deploy than “last mile” fiber; and

• our network appeals particularly to enterprise companies and governmental agencies as a way to achieve true network diversity and redundancy to protect against outages such as fiber cuts and floods that occur in the local loop (because our “last mile” travels via airwaves and not by land).

Advantages of Fixed Wireless

Management believes that because of the growth of content-intensive applications, the demand for broadband services and bandwidth will continue to expand. A September 18, 2002 Yankee Group study predicts that the U.S. broadband market revenues will grow by 361% by the end of 2007.

Management believes that many small and medium-sized businesses are located in buildings that are not reached by optical fiber lines, and the existing copper wire infrastructure does not provide the necessary

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bandwidth to provide broadband services. Of the three principal technologies available to provide broadband connectivity (DSL, fiber and fixed-wireless), management believes that fixed wireless technology enables the delivery of broadband services in the most cost effective manner for the largest portion of the market.

Management also believes that in a post-September 11 environment, there will be large demand for non-fiber telecommunications redundancy from the large enterprise market. Our Winstar division offers the only true non-fiber redundancy solution to companies and government agencies via our fixed-wireless local loop network.

Although fiber generally provides the customer with the greatest amount of bandwidth, laying fiber is extremely expensive and, as a result, is only economically feasible for buildings with many customers that have substantial bandwidth needs. A fiber connection can cost between $100,000 and $400,000 or more per building, while a fixed-wireless connection to a building generally costs between $25,000 and $75,000.

DSL technology can be a cost-efficient alternative to fiber because DSL providers utilize existing copper wires to provide service, making the deployment of DSL service less capital intensive. DSL signals, however, fade over long distances and are not possible under certain conditions that restrict customer usage. In addition, the main distribution frame of many commercial office buildings causes a break in the copper wire from the RBOC wire center, which could lower the bandwidth that DSL can provide to the customer. Furthermore, the upper limit of bandwidth provided by DSL generally is not sufficient for bandwidth-intensive applications.

Broadband fixed-wireless technology provides a middle ground to fiber’s high cost and DSL’s bandwidth constraints by providing bandwidth speeds that are substantial while keeping costs manageable.

Among the fixed-wireless telecom providers, management believes that we are the only company with complete national spectrum coverage. In the 39 GHz band alone, we hold an average of 615 MHz of bandwidth in each of the top 200 U.S. markets, and approximately 740 MHz of bandwidth in our Winstar division’s top 60 U.S. markets.

Winstar’s Business

Our Winstar division is a broadband and telephony service provider to commercial and governmental customers. We offer, through our fixed-wireless and fiber infrastructure, “last mile” telecommunications services, including local and long distance phone services, high speed Internet and data communications, WAN solutions, co-location, mobile network infrastructure and web hosting. We own substantially all of the local network elements (bundling switching facilities, “last mile” network facilities and building access rights) required to provide our Winstar division’s services, which can enhance operating margins. Management believes that the economic and technological benefits of our fixed-wireless and fiber infrastructure enable us to deliver broadband services and applications on a cost-effective basis to a larger market than would be the case if only fiber were deployed.

Our Winstar division’s network is capable of delivering end-to-end broadband connectivity, including the crucial “last mile” to office buildings and through the office building to the end user’s workstation. We are currently focusing our facilities-based switched broadband and local service offerings on 22 domestic markets. Our footprint of approximately 3,000 provisioning ready buildings (i.e. buildings in which our technology is currently deployed) covers almost 100,000 prospective business tenants. In addition, we have access rights and options to connect approximately 2,000 additional buildings to our network that are not currently outfitted for operation but that have lines-of-site to existing Winstar hub buildings.

Our Winstar division also provides Frame Relay Services, which are data transmission services using technology that is flexible and works with a wide variety of systems, to customers in our provisioning ready buildings and in domestic locations outside our Winstar division’s network.

The IDT Approach to Winstar

When we acquired Winstar in December 2001, it had a “burn rate” (the amount by which expenses exceed revenues) of approximately $19 million per month. Management determined that, in order to decrease Winstar’s burn rate and move towards profitability, significant expense reduction strategies had to be implemented. In

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March of 2002, we implemented a plan that reduced the burn rate to approximately $6 million per month as of October 1, 2002, by accomplishing the following cost savings:

• we streamlined our focus of operations from 37 cities to the 22 largest metropolitan markets in the United States and began to focus on on-net customers (i.e., customers in buildings which are part of our network infrastructure). Although this sharpened focus had the effect of disconnecting approximately 3,200 predominantly off-network customers, which caused a correlating reduction in revenue, management believes that we realized cost savings and derived benefits that far exceeded the lost revenues from this refocused strategy;

• we reduced non-sales personnel by approximately 65%, resulting in payroll savings of approximately $2.8 million per month;

• we used procedures prescribed by the U.S. Bankruptcy Court for the District of Delaware, which had authorized our purchase of the Old Winstar assets, to review and then reject or re-negotiate thousands of contracts with software vendors, consultants, landlords, carriers and a variety of other service providers. Using these procedures, real estate rental costs were lowered by approximately $1.5 million per month and consultancy and other service costs were reduced by approximately $1 million per month; and

• we improved our network’s efficiency and also outsourced several of the network’s key components. During this process, we disconnected more than 12,000 circuits from the network, resulting in savings of approximately $6 million per month.

We are using IDT’s existing resources where possible to gain efficiencies and cost savings in our Winstar division’s operating environment. Some of the areas where immediate gains have already been generated include:

• Management Information Services.    Our Winstar division’s MIS department is working closely with IDT’s MIS department to utilize our internally developed billing technology. When we acquired Winstar, it was using no less than four billing systems to bill its customers and was outsourcing its main billing system from Perot Systems. We terminated this contract using procedures prescribed by the bankruptcy court and replaced the billing system with IDT’s in-house billing system. This migration took only 90 days and a majority of our Winstar division’s customers are now being billed by our system. We are currently migrating the three other billing systems to our system. We enjoy significant cost savings by no longer having to maintain four billing systems.

• Purchasing.    All of our Winstar division’s purchasing is centralized and executed through our procurement group. We believe that our purchasing power and expertise in negotiation will result in substantial cost savings.

• Legal.    The size of our Winstar division’s legal department has been significantly reduced and now relies heavily on IDT’s legal department. Among other tasks, our legal department manages our Winstar division’s trademarks, copyrights and all other intellectual property needs.

Management believes that the cost savings initiatives implemented at our Winstar division during 2002 have lowered the costs associated with operating the business significantly. We are focusing our efforts in Fiscal 2003 on increasing revenues by attracting additional customers. We recently took the following steps to increase sales:

• We introduced a building-centric commission plan for Winstar’s sales force that assigns a salesperson to each building and provides the sales force incentive to not only generate new revenues but also to retain existing revenues;

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• We created a customer management team that supports the sales group by working on generating sales leads and scheduling sales visits, as well as providing post-sale follow-up and a high level of customer support; and

• Our Winstar division’s sales force began marketing our domestic and international long distance services as part of its product line. Management believes that our competitive pricing for these services permits us to bring added value to our Winstar division’s customer base.

Governmental Contracts

Our Winstar division provides facilities-based broadband services to federal, state and local governmental agencies, including the CIA, the Government Services Administration, or GSA, and the Defense Department. These clients, for whom we provide approximately 50,000 federal telephone numbers as well as high speed data services, utilize our fixed-wireless technology either as a primary service or a redundancy solution across the United States; however, approximately 38% of the “last mile” service to these customers, unlike the services provided by our Winstar division to its commercial/non-governmental customers, is provided through the resale of certain RBOC or ILEC network components.

Old Winstar received its Metropolitan Area Acquisition (MAA) contract awards during 2000 and 2001. We successfully completed the novation process (the process by which the Federal government recognizes a successor in interest to a Federal contract) of all of these MAA contracts in October 2002.

Winstar’s Network

Winstar’s Fixed-Wireless Connection

Our Winstar division uses fixed-wireless technology to provide telecommunications services to its customers. Our typical fixed-wireless customer is serviced by placing a 10 to 12 inch diameter digital microwave antenna on the roof of the customer’s building. One antenna can service multiple customers in the same building. A customer’s voice, data and video communications traffic travels from the customer’s premises over the building’s internal wiring to a small radio unit in the building, which is connected to the rooftop antenna. The traffic is then routed via wireless transmission from the antenna on the customer’s rooftop to another antenna (the two antennas must have line-of-sight with each other) located on a nearby hub building.

Local Network Infrastructure

Our Winstar division deploys point-to-point connections in its local network infrastructure. Point-to-point connections use a single dedicated link between two antennas having line-of-sight to each other, one usually located on the roof of a customer’s building and one at a hub site.

Hub sites usually have multiple antennae and serve as aggregation points for the reception and distribution of traffic of customers located in multiple buildings. Hub sites are typically located on intra-city fiber rings and are located to maximize the number of potential buildings from which such sites can receive and distribute communications traffic. The hub sites are attached to fiber rings that contain up to OC-48 (2.5 gigabits per second) capacity, and using our owned dense-wave fiber optic equipment, we can add additional OC-48s on an incremental cost basis, allowing traffic to continue at broadband speeds to switching centers where it is routed to its final destination.

We can provide customers with up to an OC-3 of transmission capacity over a single wireless link utilizing one 100 MHz channel, which is sufficient capacity to provide 2,016 simultaneous telephone conversations, or 84 T-1 lines of capacity.

The capacity of these wireless links has risen dramatically in recent years, and management expects to continue to expand as wireless technology advances. Management expects radio manufacturers to produce OC-12 radios, which would carry four times the capacity of OC-3, or 336 T-1 lines of capacity, on one 100 MHz channel. Winstar already has beta-tested OC-6 (two times the capacity of OC-3) radios and possesses the capability of deploying the system on a commercial basis. This increasing capacity allows fixed wireless to address greater portions of the carrier and OC-level enterprise markets. Currently, we have access rights to deploy four to six OC-3 radios on each building site.

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Switching and Data Centers

Our Winstar division delivers voice services utilizing Lucent local and long distance voice switches. The voice and data switches generally serve the markets in which they reside and, in some cases, secondary markets that these switches can economically serve. Our Winstar division’s data and web hosting centers are located in Herndon, Virginia (near Washington, D.C.), outside of Seattle, Washington and in Hackensack, New Jersey.

Licenses

We believe that we hold the largest amount of commercial spectrum in the United States, covering all 50 states. The area-wide licenses we hold provide an average of 740 MHz of capacity in our Winstar division’s 60 top U.S. markets (listed below). In addition, we have an average of 615 MHz of capacity in the top 200 U.S. census markets. Our spectrum portfolio includes ample spectrum in all major and minor markets and also offers mobile telephone network providers the ability to obtain backhaul services between their antenna tower sites nationwide where line-of-sight is not an obstacle. For example, we possess over 1,750 MHz of area-wide spectrum in the New York City metropolitan area.

Our Winstar division uses area-wide spectrum in the 38.6-40.0 GHz (39 GHz) or 28 GHz LMDS bands to provide wireless connectivity. We also hold point-to-point spectrum licenses in other bands, including 2 GHz, 10 GHz, 18 GHz and 23 GHz, which are not reflected in the table below, or in the averages listed above. Old Winstar purchased its spectrum portfolio for approximately $500 million.

The following table lists spectrum holdings in our Winstar division’s top 60 markets:

Metropolitan Area	Total Capacity (MHz)	Metropolitan Area	Total Capacity (MHz)
Los Angeles	700	Cincinnati	1,000
New York City	1,750	Fort Worth	900
Chicago	900	Sacramento	400
Boston	800	San Jose	400
Philadelphia	700	Stamford	700
Washington, D.C.	800	San Antonio	700
Detroit	800	Indianapolis	700
Houston	900	Orlando	600
Atlanta	900	Columbus	600
Riverside/San Bernardino	600	Milwaukee	800
Dallas	800	Ft. Lauderdale	1,000
Minneapolis	900	Charlotte	600
San Diego	500	New Orleans	400
Long Island, NY	900	Bergen-Passaic	800
Phoenix	900	Salt Lake City	500
Orange County, CA	600	Las Vegas	500
St. Louis	900	Buffalo	800
Baltimore	800	Greensboro	700
Pittsburgh	700	Nashville	600
Seattle	800	Memphis	700
Oakland	600	Austin	600
Cleveland	700	Jacksonville	500
Tampa-St. Petersburg	1,000	West Palm Beach	800
Miami	1,000	Louisville	600
Denver	900	Fresno	200
Newark	800	White Plains	1,550
Portland, OR	700	St. Paul	900
Kansas City	800	Oakbrook, IL	900
San Francisco/Silicon Valley	600	Jersey City	800
Norfolk	600	Modesto	350

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Building Access Rights

We obtain access rights to connect to buildings from building owners or managers to allow us to install antennas linking the building to our hub sites, and to permit us to access interior building collocation and riser space and existing internal building wiring. We generally pay monthly rent to the building owner or manager for these rights. As of July 31, 2002, we had approximately 3,000 provisioning-ready buildings that provide us with access to almost 100,000 businesses. We and Old Winstar have acquired access rights on a building-by-building basis and through agreements with owners of portfolios of buildings. In 2001, Old Winstar signed an agreement with the GSA allowing increased access to government buildings using a master lease standards arrangement.

Network Support

Our Winstar division’s network is monitored continuously through its network operations centers, or NOCs, located in Herndon, Virginia and Seattle, Washington. These NOCs provide us with points of contact for network monitoring, troubleshooting and dispatching repair personnel in each market. They have a wide range of network surveillance functions, including the ability to remotely receive data regarding the diagnostics, status and performance of the network. Continuous monitoring of system components by personnel at the NOCs allows us to identify network irregularities before they affect customers and to quickly react to network problems that affect customers. Each of the NOCs serves as backup for the other. This allows us to ensure full, continuous network visibility should one of the NOCs go off-line. Our Winstar division customers have the ability to report service problems to Winstar 24 hours a day, 7 days a week. In addition, we maintain a national customer service center in Newark, New Jersey.

Competition

Local Telephony Services

As a relatively recent entrant in the local telecommunications services industry, we have not achieved, and do not expect to achieve in the foreseeable future, a significant market share for any of our Winstar division’s services because the ILECs have (i) long standing relationships with their customers; (ii) financial, technical and marketing resources substantially greater than we do; and (iii) the benefit of certain existing regulations that favor the ILECs over us in certain respects.

We also expect to face competition from other current and potential market entrants, including interexchange (long distance) carriers such as AT&T, MCI and Sprint, seeking to enter, re-enter or expand entry into the local exchange market. A continuing trend toward consolidation of telecommunications companies and the formation of strategic alliances within the telecommunications industry, as well as the development of new technologies, could also give rise to significant new competitors.

Enhanced Services

We compete with a variety of enhanced service companies. Enhanced services markets are highly competitive, and we expect that competition will continue to intensify. Our competitors in these markets include Internet service providers, web-based communications service providers and other telecommunications companies, including the major interexchange carriers, ILECs, CLECs and wireless carriers.

IDT MEDIA

In March 2002, our wholly owned subsidiary, IDT Ventures, Inc., was renamed IDT Media, Inc., reflecting its focus on opportunities within the media industry. This renaming followed our October 2001 purchase of Sports Final Radio Network, a radio programming and syndication network that operates under the Talk America Radio Network name, and set the stage for our July 2002 acquisition of WMET 1150 AM, a talk radio station

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serving the Washington, D.C. metropolitan area. In March 2002, Mitch Burg, who has over 25 years of media and marketing experience, was named CEO of IDT Media, heading up a management team which oversees the operations of each of the entities held by IDT Media.

During Fiscal 2002, the companies in our Media division generated an aggregate of $21.3 million in revenues, resulting in an operating loss of $20.9 million, excluding the impairment charge of $111.1 million resulting from the writedown of TyCom’s assets as described below.

In pursuing media opportunities, we seek to diversify into areas of the communications market where we believe we can acquire assets at attractive prices, while attempting to leverage our existing telecommunication expertise to develop niche products and services.

In Fiscal 2003, we intend to continue the expansion of our radio syndication business and capitalize on new opportunities in the media industry as they arise.

Our Media division comprises four primary business lines: radio, 3-D animation, brochure distribution and call center services.

Radio

In October 2001, we purchased Sports Final Radio Network, Inc., a radio programming and syndication network operating under the Talk America Radio Network name. Many radio stations do not create their own programming, but seek programming from program syndicators, that develop programming which is provided by the syndicator to the station on a barter basis. This means that the syndicator allows the station to play a program in return for the right to sell a certain amount of the inventory of the advertising minutes during the duration of the program.

Talk America produces radio programs and makes them available to radio stations across the nation. Talk America earns revenues by agreeing with radio stations to broadcast its programming, and then by selling a portion of the time on those programs to advertisers. Currently, Talk America has over 1,000 affiliates and employs an affiliate-relations staff to market its programming to radio stations and salespeople to sell advertising. Additionally, Talk America contracts with Dial-Global Communications, a national advertising firm, which sells its advertising to national advertisers. Talk America also contracts with radio hosts to provide programming.

Since our acquisition of Talk America, we have hired a lineup of radio personalities including Bruce Williams and Barry Farber, recently selected number six and number nine all-time radio hosts, respectively, by Talker’s Magazine. Talk America also hired veteran broadcaster Mort Crim and added original programming with national “Helpful Hints” personality Heloise and lecturer and author Shmuley Boteach.

In July 2002, we acquired WMET 1150 AM, a talk radio station serving the Washington, D.C. metropolitan area, the nation’s eighth-largest media market. We expect WMET to serve as a platform for showcasing Talk America’s original programming. When acquired, WMET had a 1,000-watt signal, giving it a moderate power level and geographic reach. WMET possesses a construction permit from the FCC allowing it to increase its daytime signal to 50,000 watts, a signal strength that would offer coverage to the entire metropolitan Washington, D.C. area and beyond. We intend to move ahead with the increase of WMET’s daytime signal to 50,000 watts, subject to modifying or replacing the existing construction permit, which expires on December 14, 2002. WMET’s weekday programming derives largely from Talk America’s syndicated programs.

The recent economic downturn has forced many radio and other media companies to make strategic divestments of select assets in order to reduce debt, and a soft advertising market has reduced advertising

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revenues and has forced radio networks, particularly mid-sized station groups, to begin to sell stations, often at what we believe are attractive prices. There are signs that advertising revenues are beginning to rebound. Earlier this year, the Radio Advertising Bureau reported that January radio revenues increased from those of the prior year, the first such improvement since late 2000. In addition, the FCC’s recent endorsement of digital radio technology will, we believe, enhance radio quality, increasing listenership and profitability. Accordingly, we believe that our entry into radio has been well timed, enabling us to take advantage of a dip in prices while positioning ourselves to benefit from a strengthening advertising market and new technologies.

In Fiscal 2003, we intend to continue to build Talk America into a top-tier programming and syndication network featuring well-known hosts and personalities.

Digital Production Solutions

Our 55%-owned subsidiary Digital Production Solutions, or DPS, is a November 2001 start-up that has developed a proprietary process that allows it to produce 3-D animation at 2-D prices. DPS’ proprietary Global Animation Studio enables several pre-qualified 3-D animators around the world, networked together through a series of patent-pending protocols, to act, in effect, as a single studio under the control of a producer. We believe that using the Global Animation Studio network can enable users to realize achieve significant production cost savings.

DPS offers producers turnkey solutions for production planning, production management and postproduction. DPS produced the “Subway Race to the Stadium” big screen attraction for the New York Yankees and is currently producing a 26-episode run of the European and Canadian children’s animated series “Monster By Mistake” under an agreement with CCI Entertainment, Ltd. DPS also recently began production under an agreement with Cartoon Pizza, a U.S.-based provider of children’s entertainment, to produce an animated children’s series named “Monster Monster Trucks.”

CTM Brochure Display

With over 2,000 clients and more than 8,000 display racks in over 25 states and provinces, CTM Brochure Display is a major distributor of travel and entertainment brochures in the Eastern United States and Canada. CTM intends to increase revenues and profits in Fiscal 2003 by entering new sectors such as airport lounges, by growing its profit margin through reduction of operational expenses, and by pursuing acquisitions of additional companies in this market.

Call Center Services

Our customers generate approximately five million calls per day to our automated Integrated Voice Response system. Most of these calls are generated by buyers of our more than 180 individually branded calling cards, each targeting a different geographic destination, and each with a recurring volume of daily calls. Our Call Center Services operation can place targeted promotional offers or advertising messages on the automated voice response system. By combining the knowledge of our customer demographic with the steady daily call volume of our individual card brands, we can effectively tailor a program to deliver the number of inquiries that an advertiser seeks to achieve. Currently we have agreements with financial services providers, publishers and purveyors of Spanish-language materials.

TyCom IRUs

Under the terms of a settlement with TyCom Ltd., TyCom granted to us, free of charge, certain exclusive rights to use capacity on the transAtlantic and transPacific segments of TyCom’s global undersea fiber optic network, referred to as the TyCom Global Network, which TyCom is deploying. We have the rights to exclusive indefeasible rights to use two 10 Gb/s wavelengths on the transAtlantic segment of the TyCom Global

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Network (which we have been informed has been deployed) and two 10 Gb/s wavelengths on the transPacific segment of the network (which we believe is still under development) for 15 years from the applicable handover dates.

Operation, administration and maintenance for the wavelengths used by us will be provided by TyCom free of charge for a 15-year period after the relevant handover date. TyCom has also granted us certain rights to resell any unused capacity on the wavelengths through TyCom as its sole and exclusive agent. In addition, we will also have the option, exercisable at least annually, to convert the available capacity on our wavelengths to available equivalent capacity on another portion of the TyCom Global Network.

At this time we do not anticipate making use of the TyCom IRUs in the near term. We make our decisions on the purchase or lease of capacity based upon market conditions. We weigh the cost of putting so-called “dark” fiber into service and maintaining the fiber against the costs of leasing capacity as needed. We will continue to evaluate the relative costs in determining whether to make use of the TyCom IRUs.

NET2PHONE

Net2Phone is a separate public company whose common stock is quoted on the NASDAQ National Market under the symbol NTOP. Net2Phone is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. On or about October 29, 2002, we expect that Net2Phone will file an Annual Report on Form 10-K with respect to its fiscal year ended July 31, 2002. Set forth below is a brief description of the business of Net2Phone. For further information with respect to Net2Phone, reference may be made to its Annual Report on Form 10-K and to prior and subsequent reports and other information filed by Net2Phone from time to time with the Securities and Exchange Commission. None of such reports or information is incorporated into this report and such reports and information do not form a part of this report.

NTOP Holdings LLC (of which we are the managing member) owns 28,896,750 shares of Class A common stock of Net2Phone. As of July 31, 2002, this holding represented approximately 46% of Net2Phone’s outstanding equity and approximately 63% of the total voting power of Net2Phone’s outstanding equity. The effective percentage held by each of the members of NTOP Holdings, including us, varies based on the market price for Net2Phone’s common stock and other factors. As of July 31, 2002, based on the market value of Net2Phone’s common stock in the fourth quarter of Fiscal 2002, we held a theoretical effective economic interest in Net2Phone of approximately 19.2%.

We serve as the managing member of NTOP Holdings and have the right to appoint a majority of its board of managers. The board of managers directs the voting of all Net2Phone shares held by NTOP Holdings, thereby giving us effective control over the voting of the Net2Phone shares (but not their disposition, which requires consent of the members ) held by NTOP Holdings.

Net2Phone is a provider of Voice over Internet Protocol, or VoIP, telephony products and services. Net2Phone began operations in 1995 as our division, and was incorporated in Delaware as a separate subsidiary in October 1997. Net2Phone introduced its flagship product, the personal computer to telephone, or PC2phone, service, in 1996, which allows its end users to transmit voice communications over data networks, such as the Internet, in conjunction with public switched telephone networks. Net2Phone utilizes its VoIP technology to transmit digital voice communications over the Internet and other data networks. Since the introduction of its PC2phone service, Net2Phone has leveraged its VoIP technology and its ability to bridge VoIP networks with switched networks to allow end users to send voice communications via telephone, computer or other calling device virtually anywhere in the world.

The majority of Net2Phone’s revenues comes from the sale of voice minutes over its data networks. Currently, Net2Phone has divided its business into three units, each focused on a different market for those minutes: (1) International Communications Services; (2) Domestic Retail Services; and (3) Broadband Telephony Solutions. The International Communications Services group, or ICS, is responsible for the sale of

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international long distance solutions utilizing VoIP technology. ICS, in turn, is comprised of three divisions: (a) Channel Sales and Distribution; (b) Carrier Services; and (c) Direct to Consumer services. Net2Phone’s Domestic Retail Services group sells VoIP minutes via both disposable and rechargeable calling cards to U.S. consumers. Net2Phone’s Broadband Telephony Solutions group is able to provide cable operators with a fully outsourced end-to-end telecommunications solution utilizing existing high speed cable data networks and the “last mile” access into consumers’ homes provided by cable operators via cable modems.

In Fiscal 2002, Net2Phone generated $137.9 million of revenues and $258.5 million in losses from operations. The financial information of Net2Phone is not consolidated with our financial information for Fiscal 2001 and Fiscal 2002, but will be consolidated with our financial information in Fiscal 2003.

REGULATION

Regulation in the United States

Our Winstar subsidiaries are certificated to provide facilities-based and/or resold competitive local and long distance service in 49 states and the District of Columbia. Certain of our other subsidiaries are certificated to provide facilities-based and/or resold long distance service in all 50 states and are currently seeking authorization to provide local exchange service in select markets. The local and long distance telecommunications services we provide are regulated by federal, state, and, to some extent, local government authorities. The FCC has jurisdiction over all telecommunications common carriers to the extent they provide interstate or international communications services. Each state regulatory commission has jurisdiction over the same carriers with respect to their provision of intrastate local and long distance communications services. Local governments often indirectly regulate aspects of our communications business by imposing zoning requirements, permit or right-of-way procedures or franchise fees. The FCC and the International Telecommunications Union, or ITU, set certain parameters on our domestic spectrum use. Significant changes to the regulations imposed by any of these regulators could have a material adverse effect on our business, operating results and financial condition.

In recent years, the regulation of the telecommunications industry has been in a state of flux as the U.S. Congress and various state legislatures have passed laws seeking to foster greater competition in telecommunications markets. Most significantly, the Telecommunications Act of 1996 eliminated many of the pre-existing barriers to competition in the U.S. telecommunications business, including preemption of many of the non-federal barriers to local service competition that previously existed in state and local laws and regulations, and set basic standards for relationships between telecommunications providers. The Telecommunications Act required ILECs to provide nondiscriminatory access and interconnection to potential competitors. In addition, the Telecommunications Act allows the RBOCs, once certain thresholds are met, to enter the long distance market within their own local service regions.

The FCC and state utility commissions have adopted many new rules to implement the Telecommunications Act and state legislation to encourage competition. These changes, many of which are still being implemented, have created new opportunities and challenges for our competitors and us. The following summary of regulatory developments and legislation is intended to describe the most important, but not all, present and proposed international, federal, state and local regulations and legislation affecting the U.S. telecommunications industry. Some of these and other existing federal and state regulations are the subject of judicial proceedings and legislative and administrative proposals that could change, in varying degrees, the manner in which this industry operates. We cannot predict the outcome of any of these proceedings or their impact on the telecommunications industry at this time. Some of these future legislative, regulatory or judicial changes may have a material adverse impact on our business.

Regulation by the Federal Communications Commission – Domestic Telecommunications Services

The FCC has jurisdiction over all U.S. telecommunications common carriers to the extent they provide interstate or international communications services, including the use of our local networks to originate or

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terminate such services. The FCC also has jurisdiction over certain issues relating to interconnection between providers of local exchange service. Our acquisition of Winstar and the contemplated entry of certain of our subsidiaries into the local exchange market ensures that, in the future, the FCC’s policies on the local exchange market will have a greater impact on us than they have had in previous years. The FCC’s current and future policies could have a material adverse effect on our business, operating results and financial condition.

Detariffing

In accordance with an FCC order, referred to as the Detariffing Order, that eliminated the requirement that non-dominant interstate carriers such as us maintain tariffs on file with the FCC for domestic interstate services, effective July 31, 2001, we withdrew our FCC interstate interexchange service tariff and placed its rates, terms and conditions for domestic interstate services on its website. We concurrently notified our subscribers of our compliance with the Detariffing Order. In compliance with a subsequent FCC order, our Telecom division detariffed its international services effective July 31, 2001 and our Winstar division detariffed its international services effective January 28, 2002. Although our rates, terms and conditions for interstate and international services are no longer regulated, we remain subject to the FCC’s general requirements that rates must be just and reasonable, and not unreasonably discriminatory, and are also subject to the FCC’s jurisdiction over complaints regarding our services. Moreover, the detariffing of domestic interstate and international services may pose additional risks for us because it will no longer have the benefit of the “filed rate doctrine.” This doctrine enabled us to bind our customers to the terms and conditions of the tariff without having each customer sign a written contract and enabled us to change rates and services on one day’s notice. Since the rates and terms of service are no longer tariffed, we may be subjected to increased risk of claims from customers involving terms of service and rates that could impact our financial operations.

Universal Service

In 1997, the FCC issued an order, referred to as the Universal Service Order, to implement the provisions of the Telecommunications Act relating to the preservation and advancement of universal telephone service. The Universal Service Order requires all telecommunications carriers providing interstate telecommunications services to periodically contribute to universal support programs administered by the FCC, including subsidies for (i) telecommunications and information services for schools and libraries, (ii) telecommunications and information services for rural health care providers, (iii) the provision of basic telephone service in regions characterized by high telecommunications costs and low income levels, and (iv) interstate common line support (the “Universal Service Funds”). The periodic contribution requirements to the Universal Service Funds under the Universal Service Order are measured and assessed based on the total subsidy funding needs and each contributor’s percentage of the total of certain interstate and international end user telecommunications revenues reported to the FCC by all telecommunications carriers, which we measure and report in accordance with the legislative rules adopted by the FCC. The contribution rate factors are redetermined quarterly and carriers, including us, are billed for their contribution requirements each month. In addition to the FCC universal service support mechanisms, state regulatory agencies also operate parallel universal service support systems. Many state regulatory agencies have instituted proceedings to revise their universal support mechanisms to make them consistent with the requirements of the Telecommunications Act. As a result, we are subject to state, as well as federal, universal service support contribution requirements, which vary from state to state. If a federal or state regulatory body determines that we have incorrectly calculated and/or remitted any universal service fund contribution, we could be subject to the assessment and collection of past due remittances as well as interest and penalties thereon.

Over the past year, the FCC has increased the Universal Service Fund contribution percentage from 6.9187% in the fourth quarter of 2001 to 7.2805% for the fourth quarter of 2002. In addition, over the past year, the FCC has made four rule changes that affect our contribution to the Universal Service Fund. First, the FCC has created a new universal service mechanism to help local exchange carriers recover shortfalls between the allowed common line revenues of rate-of-return carriers and their subscriber line charge revenues. The new mechanism,

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called interstate common line support, will replace the implicit support mechanism inherent in the carrier common line charges currently borne by us and recovered through long distance charges to retail customers. Second, the FCC has acted to conform its rules to the decision of the U.S. Court of Appeals for the Fifth Circuit in COMSAT Corp. v. FCC, which prohibited local exchange carriers from recovering their universal service support mechanism contributions from access charges to interexchange carriers, such as us. Third, the FCC modified the universal service contribution base to exclude universal service contribution revenues obtained from end users from the contribution base. Fourth, the FCC increased the domestic contribution threshold for providers of international telecommunications from 8% to 12%, thereby excluding the domestic revenues of certain international carriers from the aggregate contribution base, which effectively increases the contribution obligations of carriers whose revenues are not so excluded. As a result of these changes, the increases to the contribution percentage and an increase in the our revenue, the basis upon which our Universal Service Fund payments are made has changed and the total amount of contributions made has increased.

There are three proposals currently being reviewed by the FCC that have the potential to significantly alter our contribution obligations under the Universal Service Order. The first FCC proposal relates to the universal service support mechanism established in 1999 for non-rural carriers based on forward-looking economic costs, which was challenged before the U.S. Court of Appeals for the Tenth Circuit. In July 2001 the Tenth Circuit remanded the matter to the FCC for reconsideration and additional review, and in February 2002, the FCC issued a notice of proposed rulemaking and order seeking additional comments. The second FCC proposal would fundamentally alter the basis upon which our Universal Service Fund contributions are determined and the means by which such contributions may be recovered from our customers, changing from a revenue percentage measurement to a line or customer number measurement. The FCC originally made this proposal in May 2001 and in February 2002, the FCC solicited more focused comments on this proposal, which could adversely affect our costs, our ability to separately list Universal Service Order contributions on end-user bills, and our ability to collect these fees from our customers, which would have a material adverse effect upon us. The third FCC proposal, which was made in February 2002, solicited comment on the FCC’s formal review of the universal service contribution requirements imposed on wireline and other broadband Internet access services and the impact that changes to those requirements would have on the contribution obligations of other telecommunications service providers, such as us.

Based on the foregoing, the application and effect of the Universal Service Fund requirements (and comparable state contribution requirements) on the telecommunications industry generally and on certain of our business activities cannot be definitively ascertained at this time.

The RBOCs’ Entry into the Long Distance Market

The Telecommunications Act permitted the RBOCs (Verizon, SBC, Qwest, and BellSouth) to provide long distance services outside their local service regions immediately, and permits them to provide in-region long distance service upon demonstrating to the FCC that they have adhered to Telecommunication Act’s Section 271 14-point competitive checklist. The FCC must also find that granting the application would be in the “public interest.”

The RBOCs typically seek approval from state public utility commissions prior to filing an application for Section 271 relief before the FCC. The RBOCs can file an application with the FCC for Section 271 relief regardless of the outcome of the state’s review. Based on its review as well as recommendations from the U.S. Department of Justice and the involved state public utility commission, the FCC then either approves or denies the application.

The FCC granted the first application for Section 271 relief in December 1999, and since that time, the FCC has not rejected any Section 271 application submitted by any RBOC, although several applications have been withdrawn after being submitted. To date, the FCC has approved Section 271 applications for each RBOC as follows: (1) for Verizon—New York, Massachusetts, Pennsylvania, Connecticut, Rhode Island, Vermont, Maine,

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New Jersey, New Hampshire and Delaware; (2) for SBC—Texas, Kansas, Oklahoma, Missouri, and Arkansas; and (3) for BellSouth—Georgia, Louisiana, Alabama, Kentucky, Mississippi, North Carolina and South Carolina. Currently (as of October 1, 2002) pending before the FCC are Section 271 applications by Verizon for Virginia, by BellSouth for Tennessee and Florida, by SBC for California, and by Qwest for Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington and Wyoming.

Several state public utility commissions (including, among others, Arizona, Florida, Illinois, Maryland, Michigan and Minnesota) have proceedings underway in association with anticipated Section 271 applications. While we cannot predict the outcome of any Section 271 or corresponding statute applications before the FCC or any individual state, we expect the RBOCs to file applications for long distance authority in most of the remaining states in 2002 and 2003 and that the FCC will grant many, if not most or all, of those applications.

It is generally expected that competition for long-distance services will increase as the RBOCs continue to enter the market. Section 271 entry permits the RBOCs to offer a bundle of local, long-distance and enhanced services comparable to our planned services and therefore could increase competition and harm our business. In addition, upon receiving approval to provide long distance services, we believe that a RBOC may lose the incentive it had previously to rapidly implement the interconnection provisions of the Telecommunications Act in order to obtain in-region long distance authority. Although the RBOCs will remain subject to a legal obligation to comply with those provisions, our ability to obtain adequate access to unbundled network elements and other facilities on a timely basis could be negatively affected, and therefore our business could be harmed.

Interconnection and Unbundled Network Elements

The Telecommunications Act requires ILECs to allow competitors to interconnect with their networks in a nondiscriminatory manner at any technically feasible point on their networks at cost-based prices, which are more favorable than past pricing based on the historic regulated costs of the ILEC. In May 2002, the U.S. Supreme Court upheld the FCC’s 1996 “Local Competition Order,” in which it adopted an incremental cost-based pricing model to be used by state public utility commissions in setting rates at which the ILECs must lease unbundled network elements, or UNEs, to us and other competitive carriers. The Court also upheld FCC rules that require ILECs to lease combined network elements which new entrants are unable to combine themselves. However, the U.S. Court of Appeals for the D.C. Circuit subsequently remanded the FCC’s nationwide list of UNEs subject to mandatory unbundling, inviting a market-by-market determination by the FCC whether unbundled access to each of these network elements was necessary so as not to impair entry by competitive telephone companies consistent with the Telecommunications Act. The FCC is expected to announce its response to the Court of Appeals’ remand order in late 2002 or early 2003. This decision relates primarily to ILEC-provided network facilities, which comprise approximately 38% of Winstar’s government contract business. If the FCC eliminates or restricts the obligation of ILECs to unbundle particular network elements, such as local switching, we and Winstar may have to reconfigure existing services and revise business plans for new markets; such changes in regulation may have a material adverse effect on our ability to compete profitably in some segments of the local exchange market.

Pursuant to the Local Competition Order, we negotiate each interconnection arrangement with the relevant ILEC. As is currently common with competitive carriers, a substantial number of our interconnection agreements with ILECs will expire in the near future and must be re-negotiated. Each of these agreements provides for a holdover that continues the agreement on its current terms pending renegotiation. If the negotiation process does not result in interconnection terms that are acceptable to us, we can petition to arbitrate disputed issues or choose to “opt in” to another carrier’s agreement, thereby having our interconnection relationship governed under the same terms as those agreed to by the ILEC and another carrier. With regard to ILEC unbundled network elements, we expect that a majority of Winstar’s future customers will be served over our network, with only limited reliance on ILEC facilities (as compared to non-facilities-based CLECs). Certain of our subsidiaries, if they enter the local telephone market, will likely rely more on access to ILEC facilities. In cases where the use of ILEC facilities may be necessary, FCC orders limiting the costs that ILECs may impose on collocation and restrictions concerning equipment type and location represent improvements. Also, a recent judicial decision

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reinstating and clarifying FCC rules mandating the availability of both new as well as converted transmission line combinations for specific types of dedicated circuits are expected to reduce the costs of providing such services over time.

Access Charges

As a long distance provider, we remit access fees directly to local exchange carriers or indirectly to our underlying long distance carriers for the origination and termination of our long distance telecommunications traffic. Generally, intrastate access charges are higher than interstate access charges. Therefore, to the degree access charges increase or a greater percentage of our long distance traffic is intrastate, our costs of providing long distance services will increase. As a local exchange provider, we bill long distance providers access charges for the origination and termination of those providers’ long distance calls. Accordingly, as opposed to our long distance business, our local exchange business benefits from the receipt of intrastate and interstate long distance traffic. As an entity that collects and remits access charges, we have implemented certain systems designed to ensure that we properly track and record the jurisdiction of its telecommunications traffic and remits or collects access charges accordingly. The result of any changes to the existing regulatory scheme for access charges or a determination that our systems inadequately or improperly record the jurisdiction of its telecommunications traffic could have a substantial and material adverse effect on our business.

The FCC has made major changes in the interstate access charge structure. On May 31, 2000, the FCC issued an order adopting access charge reform measures based on a proposal from an industry coalition referred to as CALLS that included some major long distance carriers, most RBOCs, and GTE. This proposal lowers collective interstate access charges by local exchange carriers subject to price cap regulation by $3.2 billion and ends certain charges paid by interexchange carriers. As part of the proposal, AT&T and Sprint agreed to pass through access charge savings to customers. The order, which was largely upheld by the U.S. Court of Appeals for the Fifth Circuit, has reduced access charges for interexchange carriers and we may face increased competition to lower our prices for long distance services.

Our costs of providing long distance services are also affected by changes in access charge rates imposed by CLECs. On April 27, 2001, the FCC released an order lowering the rates CLECs can charge long distance carriers for origination and termination of calls over the local facilities. Under the order, these rates will be further reduced in the future. As a result of the order, access charges will decrease for interexchange carriers and we may face increased competition to lower its prices for long distance services. AT&T and Sprint have appealed the FCC’s April 2001 CLEC Access Charge Order before the U.S. Circuit Court for the District of Columbia, arguing that the FCC’s benchmark rates are too high and that competitive local exchange carriers should be required to provide interstate switched access services at the competing ILEC immediately. Three CLECs have also appealed the FCC decision, and several CLECs have sought reconsideration or clarification of the FCC’s decision. These appeals and reconsiderations are all pending. The outcome of any of these determinations could have a significant and material impact on our competitive local exchange services. In particular, if AT&T and Sprint are successful in requiring CLECs, including us, to charge the competing ILEC rate for interstate switched access services immediately, it would have a substantial and material adverse effect on our competitive local exchange business.

In April 2001, the FCC released a Notice of Proposed Rulemaking in which it proposed a “fundamental re-examination of all currently regulated forms of intercarrier compensation.” The FCC proposed that carriers transport and terminate local traffic on a bill-and-keep basis, rather than per minute reciprocal compensation charges. The FCC regards the CALLS Order and the CLEC Access Charge Order as well as its reciprocal compensation rules to be “transitional intercarrier compensation regimes.” After completion of that transition approximately three years from now, a new interstate intercarrier compensation regime based upon bill-and-keep or another alternative may be in place. Because we both make payments to and receive payments from other carriers for exchange of local and long distance calls, at this time we cannot predict the effect that the FCC’s determination may have upon our business.

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Reciprocal Compensation

Reciprocal compensation is the arrangement under which local telecommunications carriers compensate each other for terminating local calls made by their customers. The Telecommunications Act requires ILECs and CLECs to complete calls originated by competing carriers under reciprocal arrangements at prices based on a reasonable approximation of cost, or through the mutual exchange of traffic without explicit payments (called “bill and keep”). An issue has arisen regarding the treatment of local dial-up calls to Internet service providers, or ISPs, with regard to reciprocal compensation. Because the average length of these dial-up calls is much longer than that of voice calls, the amount of traffic terminated by the ISP’s carrier, which is often a CLEC, can greatly exceed that of the Internet user’s carrier, which is typically the ILEC. This can represent significant revenues to the terminating CLEC. The FCC’s 2001 Intercarrier Compensation Order reclassified ILEC-terminated local traffic exceeding a 3 to 1 ratio relative to CLEC-terminated traffic as ISP-bound traffic ineligible for reciprocal compensation. Beyond reciprocal compensation due for local traffic, the FCC established a transitional framework continuing the CLECs’ right to receive intercarrier compensation for ISP-bound traffic at diminishing rates sunsetting in 2003, allowing for some growth. The D.C. Circuit Court of Appeals recently remanded (without vacating) the FCC’s classification of ISP-bound traffic as non-local, rejecting the FCC’s statutory basis for this classification but inviting an alternative rationale. Currently, carriers remain obliged to pay reciprocal compensation for local traffic and intercarrier compensation for ISP-bound traffic according to the Intercarrier Compensation Order.

Pending the FCC’s response to the Court’s order requiring a legally valid rationale for the classification of ISP-bound traffic, decisions by many state public utility commissions which had previously determined that dial-up ISP traffic is eligible for intercarrier compensation remain legally valid, although subject to reversal as a consequence of either FCC or state public utility commissions determinations. Several ILECs have requested that state regulators reverse their prior rulings in this area. It is unclear how the FCC and state proceedings will conclude. In light of the limited revenues we receive from reciprocal compensation for ISP traffic, we do not expect the resolution of this issue to have a material impact on our operations.

Slamming

A customer’s choice of local or long distance telecommunications company is encoded in a customer record, which is used to route the customer’s calls so that the customer is served and billed by the desired company. A user may change service providers at any time, but the FCC and some states regulate this process and require that specific procedures be followed. When these procedures are not followed, particularly if the change is unauthorized or fraudulent, the process is known as “slamming.” Slamming has been addressed in detail by Congress in the Telecommunications Act, by some state legislatures, and by the FCC in recent orders. The FCC has levied substantial fines for slamming. The risk of financial damage, in the form of fines, penalties and legal fees and costs, and to business reputation from slamming is significant. Even one slamming complaint could cause extensive litigation expenses for us. We are also subject to state rules and regulations regarding slamming, cramming, and other consumer protection regulation. We have implemented internal procedures designed to ensure that our new subscribers are switched to us in accordance with state and Federal regulations. Because of the large volume of service orders processed by us, however, it is possible that some unauthorized carrier changes may be processed inadvertently, and we cannot assure you that we will not be subject to slamming complaints.

Network Information

FCC rules protect the privacy of certain information about telecommunications customers that a telecommunications carrier such as IDT acquires by providing telecommunications services to such customers. Such protected information, known as Customer Proprietary Network Information, or CPNI, includes information related to the quantity, technological configuration, type, destination and the amount of use of a telecommunications service. The FCC’s original rules prevented a carrier from using CPNI acquired through one of its offerings of a telecommunications service to market certain other services without the express approval of the affected customer (a so-called “opt-in” approach). The U.S. Court of Appeals for the Tenth Circuit overturned a portion of the FCC’s rules regarding the use and protection of CPNI.

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In July 2002, the FCC reinstated most of its original rules in response to the Tenth Circuit decision, and revised its “opt-in” rules in a manner that limits the ability of us to use the CPNI of our subscribers without first engaging in extensive customer service processes and record keeping. These burdens could result in significant administrative expense to us in modifying internal customer systems to meet these requirements.

Improper Marketing Activities

Providers of communications services are subject to intensified regulatory scrutiny for marketing activities that result in alleged unauthorized switching of customers from one service provider to another. The FCC and a number of state authorities have adopted stringent regulations to curtail the intentional or erroneous switching of customers without proper authorization and verification, which include, among other things, the imposition of fines, penalties and possible operating restrictions on entities which engage or have engaged in unauthorized switching activities. The FCC is presently reviewing its rules on telemarketing, and is considering, among other consumer protection measures, the introduction of a national Do-Not-Call List. We have implemented internal procedures designed to ensure that our marketing activities are in accordance with state and Federal regulations. Any new or increased consumer protection guidelines could result in significant administrative expense to us in modifying internal customer systems to meet these requirements.

Regulation of Internet Service Providers

To date the FCC has treated ISPs as “enhanced service providers” exempt from federal and state regulations governing common carriers, including the obligation to pay access charges and contributions to the Universal Service Fund. Nevertheless, regulations governing disclosure of confidential communications, copyright, excise tax and other requirements may apply to our Internet access services and future regulations may be imposed by state, federal or foreign governments. Also, Congress has passed a number of laws that concern the Internet, principally directed toward Internet users. Generally, these laws provide liability limitations for Internet service providers and hosting companies that do not knowingly engage in unlawful activity. We have guidelines in place to comply with this legislation and do not anticipate that compliance will have an adverse impact on us. Congress is actively considering a variety of Internet regulation bills, some of which, if signed into law, could impose obligations on us to police the Internet activities of our customers.

Telephone Numbering

The FCC oversees the administration and the assignment of local telephone numbers, an important asset to voice carriers, by Neustar, Inc., in its capacity as North American Numbering Plan Administrator. Extensive FCC regulations govern telephone numbering, area code designation and dialing procedures, among other things. Since 1996, the FCC has permitted businesses and residential customers to retain their telephone numbers when changing local phone companies (referred to as Local Number Portability). The availability of number portability is important to competitive carriers like Winstar, since customers, especially businesses, may be less likely to switch to a competitive carrier if they cannot retain their existing telephone numbers. The FCC and state regulators have been working with industry groups and companies, including Winstar, to address potential problems stemming from the depletion in certain markets of the pool of telephone numbers which the communications companies can make available to their customers. If a sufficient amount of telephone numbers is not available to us in the market, our operations in that market may be adversely affected or we may be unable to enter that market until sufficient numbers become available. However, the recent failure of a number of CLECs seems to have reduced the demand for new blocks of telephone numbers and the resulting risk of depletion, at least in the short term.

Dial Around Compensation

The Telecommunications Act requires long-distance companies to pay compensation to the owners of payphones for toll-free calls and certain other “dial-around” calls originating from payphones. The FCC has set the compensation rate at 24 cents per call, but currently is seeking comments on a petition to increase the rate to

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approximately 48 cents. We pay dial-around compensation for our calling card calls. If the FCC grants the petition in whole or in part, our dial-around compensation costs will increase and our calling cards will be less viable in the marketplace. Therefore, the outcome of the FCC’s proceeding could have a material adverse effect on our calling card business.

Taxes and Regulatory Fees

We are subject to numerous local, state and federal taxes and regulatory fees, including, but not limited to, the Federal excise tax, FCC regulatory fee and numerous public utility commission regulatory fees. We have procedures in place to ensure that we properly collect taxes and fees from our customers and remit such taxes and fees to the appropriate entity pursuant to applicable law and/or regulation. If our collection procedures prove to be insufficient or if a taxing or regulatory authority determines that our remittances were inadequate, we could be required to make additional payments, which could have a material adverse effect on our business.

Regulation of Spectrum

The FCC regulates the grant, renewal and administration of spectrum licenses in the United States. The FCC and the ITU also regulate a variety of spectrum interference, coordination, and power emission standards and authorizations. Winstar holds certain spectrum licenses and provide service over that spectrum. Some significant areas of regulation include:

Assignment of Spectrum Licenses to Winstar

On April 17, 2002, the FCC granted approval for the assignment of more than 1,200 spectrum licenses from Old Winstar to Winstar. On June 14, 2002, Winstar notified the FCC that it had consummated the assignment of all but 15 of the licenses. Those 15 licenses, located in the LMDS (28 GHz and 31 GHz) bands were originally acquired by Old Winstar through an FCC auction, and Old Winstar availed itself of a 25% bidding credit offered by the FCC. As a condition to granting approval for the assignment of these 15 LMDS licenses to Winstar, the FCC required a partial repayment of that bidding credit granted to Old Winstar which, according to the FCC, is $8.9 million. Old Winstar is currently contesting the payment and the deadline for consummating the assignment grant was October 14, 2002. On October 11, 2002, Winstar filed a request with the FCC seeking an extension of the consummation deadline until April 2003, because the failure of a bankrupt entity (Old Winstar) to make its unjust enrichment payment presents an unusual problem to the license purchaser (Winstar). Additionally, Winstar continues to explore other options with Old Winstar and the FCC. The extension request to the FCC remains pending as of October 28, 2002.

Renewal of 38 GHz and LMDS Licenses

Most of Winstar’s area-wide 39 GHz licenses possess a 10-year term expiring on October 18, 2010. Our remaining 39 GHz licenses expire at various times between November 2006 and March 2010. Winstar’s New York City LMDS license expires in August 2008. In other radio services, the FCC has historically renewed licenses as a matter of course, and 50 Winstar 39 GHz licenses were renewed last year. Another 26 renewal applications for mostly smaller area 39 GHz licenses remain pending. The FCC’s stated policy for renewal of licenses in these bands is that licensees will have a renewal expectancy if they demonstrate substantial service during the initial license periods. We believe that our significant and continuing investment in the development of our national telecommunications business and infrastructure along with our ongoing operations will be sufficient to demonstrate substantial service for our licenses and that the FCC will renew such licenses. However, the FCC’s application of substantial service criteria cannot be predicted and we cannot assure you that the FCC will renew all of our licenses. A failure by the FCC to renew our licenses in major markets could have a material adverse effect on us.

Proposals from Satellite Operators

We operate primarily in the 38.6 to 40.0 GHz (39 GHz) spectrum band. Several major U.S. satellite companies have made repeated proposals to the FCC to allow commercial satellite systems to operate within that

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band in the United States. In addition, in September 1999, the National Telecommunications and Information Administration, or NTIA, notified the FCC that the Department of Defense, or DoD, may wish to use the 39.5 to 40.0 GHz portion of the band for a future satellite system.

The FCC has designated the 39 GHz band for exclusive primary non-governmental use to terrestrial fixed services and has to date declined to propose rules that would accommodate the satellite companies’ desire to develop future systems utilizing this spectrum on a shared basis. Proceedings on this matter are still pending at the FCC. Satellite companies’ applications for licenses remain pending. If satellite transmissions were allowed in the 39 GHz band, as proposed by many of the satellite companies or the DoD, their transmissions could adversely affect our operations by creating interference or causing the FCC to limit our transmissions in some way.

Pursuant to an international agreement to which the United States is a signatory, the 39 GHz band is allocated on a co-primary basis to terrestrial fixed wireless and fixed satellite services. We are party to various international proceedings related to the use of 39 GHz and other spectrum inside and outside of the United States, including the World Radio Conference (WRC-2000), which was held in Istanbul, Turkey during the summer of 2000. At WRC-2000, members of the ITU adopted a resolution that encourages favorable operating conditions for fixed wireless services relative to satellite operations in the 37.5 to 40.0 GHz bands. The resolution, however, requested additional study of these operating conditions. Some of these studies recommend that power limits in an existing table of the International Radio Regulations, which provide somewhat more favorable operating conditions to proposed satellite providers, be retained at the 2003 World Radio Conference in Geneva, Switzerland. The FCC and the Canadian regulatory body, Industry Canada, have signed an agreement to protect the fixed service in the band 37.5–40.0 GHz by further limiting the power that can be produced by satellite systems in that band on their territories. It is expected that the FCC will pursue consummation of a similar agreement with Mexico in the near future. An open FCC rulemaking covering the V-band, which includes operations in the 36 to 51.4 GHz region, and thus encompassing the 37 GHz band, presents the possibility that protections to fixed service operations in the 37 GHz band could be weakened. In October 2002, Winstar obtained additional resources, including interference simulator software and scientific personnel, to study satellite interference matters and present the benefit of those studies to the FCC, the Department of Commerce, the State Department and the ITU.

Regulation of RF Emissions and RF Environments

The FCC regulates the health and safety effects of radio frequency, or RF, emissions by us and other wireless communications providers. Any FCC licensee whose emissions in an area exceed 5% of the total permissible emissions limit are responsible for ensuring that the site meets applicable health and safety requirements and must notify the FCC and obtain a waiver to operate. The wireless equipment we use is designed to operate at RF emission levels well below the FCC’s standard. However, if we operate in an area where other higher RF emitters are operating, we could be required to cooperate with, and contribute financially to, efforts intended to bring the site within applicable health and safety limits. Certain foreign jurisdictions also regulate RF emissions to various degrees. The Occupational Health and Safety Act, or OSHA, requires certain RF monitoring and other measures in RF workplace environments. We believe our RF workplace policies comply with OSHA requirements.

Regulation by the Federal Communications Commission—International Telecommunications Services

Section 214

In the United States, to the extent that we offer services as a carrier, we are required to obtain authority under Section 214 of the Telecommunications Act in order to provide telecommunications service that originates within the United States and terminates outside the United States. We have obtained the required Section 214 authorization from the FCC to provide U.S. international service. In addition, as a condition of our Section 214 authorization, we are subject to various reporting and filing requirements. Failure to comply with the FCC’s rules could result in fines, penalties, forfeitures or revocation of our FCC authorization, each of which could have a material adverse effect on our business, financial condition, and results of operation.

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International Settlements

We must conduct our U.S.-originated international business in compliance with the FCC’s International Settlements Policy, the rules that establish the parameters by which U.S.-based carriers and their foreign correspondents settle the cost of terminating each other’s traffic over their respective networks. Under the FCC’s International Settlements Policy, absent approval from the FCC, international telecommunications service agreements with dominant foreign carriers must be non-discriminatory, provide for settlement rates usually equal to one-half of the accounting rate, and require proportionate share of return traffic.

In recent rule reforms, the FCC expressly exempted from the International Settlements Policy rules U.S. carrier arrangements with non-dominant foreign carriers as well as arrangements with any foreign carrier (dominant or non-dominant) on certain competitive routes where at least 50% of U.S.-billed traffic is terminated at settlement rates at least 25% below the FCC’s applicable benchmark settlement rates. There are currently 75 countries that are exempt from the International Settlements Policy. For arrangements that will continue to be subject to the International Settlements Policy, the FCC imposes mandatory settlement rate benchmarks. These benchmarks are intended to reduce the rates that U.S. carriers pay foreign carriers to terminate traffic in their home countries. The FCC also prohibits a U.S. carrier that is affiliated with a foreign carrier from providing facilities-based switched or private line services to the foreign carrier’s home market unless and until the foreign carrier has implemented a settlement rate at or below the relevant benchmark. Certain confidential filing requirements still apply to dominant carrier arrangements.

The FCC’s new rules declined to expand the scope of the International Simple Resale, or ISR, policy, which permits U.S. carriers to provide international switched services over private lines interconnected to the public switched telecommunications network on the current FCC authorized routes. The FCC will continue to maintain the distinction between routes it approves for ISR and routes on which it removes the International Settlements Policy. Even though the FCC dramatically scaled back the application of the International Settlements Policy, the FCC’s ISR policy still requires FCC approval to provide ISR services in an arrangement with a foreign dominant carrier on non-competitive routes.

The FCC has stated that it has removed the International Settlements Policy for telecommunications traffic sent to 75 countries, representing 46% of all U.S.-originated international traffic. To the extent that the International Settlements Policy still applies, however, the FCC could find that we do not meet certain International Settlements Policy requirements with respect to certain of our foreign carrier agreements. Although the FCC generally has not issued penalties in this area, it has issued a Notice of Apparent Liability to a U.S. company for violations of the International Settlements Policy and it could, among other things, issue a cease and desist order, impose fines or allow the collection of damages if it finds that we are not in compliance with the International Settlements Policy. Any of these events could have a material adverse effect on our business, financial condition, or results of operation.

In October 2002, the FCC initiated a proceeding to review its International Settlements Policy and its ISR and benchmark policies. At this time, we cannot determine the outcome of this proceeding. However, any changes to the FCC’s International Settlements Policy, ISR and/or benchmark policies could have a material adverse affect on our business, financial condition, or results of operation.

Callback

We offer our callback services pursuant to our Section 214 Authorization. The FCC has determined that callback services that use uncompleted call signaling do not violate U.S. or international law, but that U.S. companies providing such services must comply with the laws of the countries in which they operate as a condition of such companies’ Section 214 Authorizations. The FCC reserves the right to condition, modify or revoke any Section 214 Authorizations and impose fines for violations of the Telecommunications Act or the FCC’s regulations, rules or policies promulgated thereunder, or for violations of the clear and explicit telecommunications laws of other countries that are unable to enforce their laws against callback services using

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uncompleted call signaling. FCC policy provides that foreign governments that satisfy certain conditions may request FCC assistance in enforcing their laws against callback providers based in the United States that are violating the laws of these jurisdictions. The FCC has stated that 36 countries have formally notified the commission that callback services violate their respective laws. The FCC has held that it would consider enforcement action against companies based in the United States that are engaged in callback services by means of uncompleted call signaling in countries where this activity is expressly prohibited. In fact, in 1997 the FCC granted a complaint by the Philippines Long Distance Telephone Company and required U.S. carriers to stop providing callback services to customers in the Philippines. A petition filed by the Telecommunications Resellers Association in 1998 requesting that the FCC cease enforcing foreign laws against callback services is still pending. There can be no assurance that the FCC will not take further action in the future. Enforcement action could include an order to cease providing callback services in such country, the imposition of one or more restrictions on us, monetary fines or, in extreme circumstances, the revocation of our Section 214 Authorization, and could have a material adverse effect on our business, financial condition and results of operations.

To date, the FCC has made no pronouncement as to whether refiling arrangements are inconsistent with the regulations of the United States or the ITU, and a 1995 petition to the FCC for declaratory ruling regarding Sprint’s Fonaccess service was withdrawn. Although it is possible that the FCC will determine that refiling violates U.S. and/or international law and that such a finding could have a material adverse effect on our business, operating results and financial condition, the FCC is not currently considering such issues in any active proceeding.

Regulatory requirements pertinent to our operations will continue to evolve as a result of the WTO Agreement, federal legislation, court decisions, and new and revised policies of the FCC. In particular, the FCC continues to refine its international service rules to promote competition, reflect and encourage liberalization in foreign countries and reduce international accounting rates toward cost.

Regulation by State Public Utility Commissions

To the extent that we provide telecommunications services that originate and terminate within the same state including both local service and in-state long distance toll calls, we are subject to the jurisdiction of that state’s public service commission. As our local service business expands, we will offer more intrastate services and may become increasingly subject to state regulation. The Telecommunications Act maintains the authority of individual state utility commissions to preside over rate and other proceedings, and to impose their own regulation on intrastate services, so long as such regulation is not inconsistent with the requirements of federal law. For instance, states may require us to obtain a Certificate of Public Convenience and Necessity before commencing service in the state. Winstar is certificated to provide facilities-based and/or resold competitive local and interexchange service in 49 states and the District of Columbia and our telecom division is certificated to provide facilities-based and/or resold interexchange service in all 50 states and is currently applying for local exchange authority in several states. No assurance can be made that the individual state regulatory authorities will approve these or additional certification requests in a timely manner. In addition to requiring certification, state regulatory authorities may impose tariff and filing requirements, consumer protection measures, and obligations to contribute to universal service and other funds. State commissions also have jurisdiction to approve negotiated rates, or establish rates through arbitration, for interconnection, including rates for unbundled network elements. Changes in those rates for unbundled network elements could have a substantial and material impact on our business.

We are subject to requirements in some states to obtain prior approval for, or notify the state commission of, any transfers of control, sales of assets, corporate reorganizations, issuances of stock or debt instruments and related transactions. Although we believe such authorizations could be obtained in due course, there can be no assurance that state commissions would grant us authority to complete any of these transactions, or that such authority will be granted on a timely basis.

We are also subject to state laws and regulations regarding slamming, cramming, and other consumer protection and disclosure regulations. These rules could substantially increase the cost of doing business in any

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particular state. State commissions have issued or proposed several substantial fines against competitive local exchange companies for slamming or cramming. The risk of financial damage, in the form of fines, penalties and legal fees and costs, and to business reputation from slamming is significant. Even one slamming complaint before a state commission could lead to extensive litigation expense. In addition, state law enforcement authorities may utilize their powers under state consumer protection laws against us in the event legal requirements in that state are not met.

Rates for intrastate switched access services, which Winstar provides to long-distance companies to originate and terminate in-state toll calls, are subject to the jurisdiction of the state commissions in which the call originated and terminated. Such regulation by other states could materially and adversely affect our revenues and business opportunities within that state.

The Telecommunications Act generally preempts state statutes and regulations that restrict the provision of competitive services. As a result of this preemption, we will be generally free to provide the full range of local, long distance, and data services in any state. While this action greatly increases our potential for growth, it also increases the amount of competition to which we may be subject. In addition, the cost of enforcing federal preemption against certain state policies and programs may be large and may cause considerable delay. In each jurisdiction where we operate, we anticipate that the ILEC will provide unbundled network elements in a manner similar to that provided in states where we currently operate. However, pricing and terms and conditions adopted by the ILEC in each of these states may preclude our ability to offer a competitively viable and profitable product within these and other states on a going forward basis.

As we enter new markets, we will be required to enter into interconnection agreements with ILECs on an individual state basis. To continue to provide service, we also need to renegotiate interconnection agreements with ILECs. Under the Telecommunications Act, we have the option of either negotiating the terms of such an agreement, or adopting the terms of an agreement negotiated by another carrier; but we cannot be certain that other agreements with suitable terms will be available for adoption in all cases. While current FCC rules and regulations require the incumbent provider to provide the network elements on an individual and combined basis necessary for us to provision end-user services, no assurance can be made that the ILECs will provide these components in a manner and at a price that will support competitive operations. If the incumbent providers do not readily provide network functionality in the manner required, we have regulatory and legal alternatives, including arbitration before state public service commissions, to force provision of services in a manner required to support our service offerings. However, if we are forced to litigate in order to obtain the combinations of network elements required to support our service, we are likely to incur significant incremental costs and delays in entering such markets. In addition, as discussed above, there is considerable legal uncertainty as to how interconnection agreements are to be enforced before state commissions and where appeals of state commission interconnection agreement determinations may be heard.

Regulation by Local Governments

FCC rules generally prohibit any state or local zoning law or regulation pertaining to the erection of fixed wireless antennae of the sizes currently used by Winstar by end users on their own property, except for reasonable safety or historic preservation laws. However, local governments retain residual authority to regulate aspects of our communications business by, among other things, imposing franchise fees for the use of certain public property or rights of way. The scope of local authority under the Telecommunications Act has been the subject of a number of disputes between carriers and local authorities and we anticipate the administrative proceedings and litigation relating to these disputes will continue.

Regulation by the Federal Communications Commission—Radio Broadcasting

One of our wholly owned subsidiaries recently acquired certain assets, including an operating license and construction permit from the FCC, relating to AM band radio broadcasting station WMET, 1150 kHz, Gaithersburg, Maryland.

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The radio broadcasting industry is subject to extensive and changing regulation of, among other things, program content, advertising content, technical operations and business and employment practices. The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC. Among other things, the FCC:

• assigns frequency bands for broadcasting;

• determines the particular frequencies, locations, operating powers and other technical parameters of stations;

• issues, renews, revokes, conditions and modifies station licenses;

• determines whether to approve changes in ownership or control of station licenses;

• regulates equipment used by stations; and

• adopts and implements regulations and policies that directly affect the ownership, operation and employment practices of stations.

The FCC has the power to impose penalties for violations of its rules or the Communications Act of 1934, including the imposition of monetary forfeitures, the issuance of short-term licenses, the imposition of a condition on the renewal of a license, non-renewal of licenses and the revocation of operating authority. The following is a brief summary of some provisions of the Communications Act and of specific FCC regulations and policies. The summary is not a comprehensive listing of all of the regulations and policies affecting radio stations. For further information concerning the nature and extent of federal regulation of radio stations, you should refer to the Communications Act, FCC rules and FCC public notices and rulings.

FCC AM Radio Licenses

Radio stations operate pursuant to renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. During the periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. The FCC is required to hold hearings on a station’s renewal application if a substantial or material question of fact exists as to whether the station has served the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet certain requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, FCC licenses have generally been renewed. We have no reason to believe that our licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of our licenses could have a material adverse effect on our business.

The FCC classifies each AM station as a clear channel, regional channel or local channel. A clear channel is one on which AM stations are assigned to serve wide areas. Clear channel AM stations are classified as (i) Class A stations, which operate on an unlimited time basis and are designated to render primary and secondary service over an extended area; (ii) Class B stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; or (iii) Class D AM stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM stations operate on an unlimited time basis and serve primarily a community and the immediately contiguous suburban and rural areas. Class C AM stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference.

Pursuant to FCC rules and regulations, many AM radio stations are licensed to operate at a reduced power during the nighttime broadcasting hours, which results in reducing the radio station’s coverage during the nighttime hours of operation. Both power ratings are shown, where applicable. For FM stations, the maximum effective radiated power in the main lobe is given.

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WMET is licensed to serve Gaithersburg, Maryland as a Class B AM station at 1150 kHz. WMET’s FCC license expires on October 1, 2003. WMET is licensed for 1 kilowatt of effective radiated power during the daytime hours and for 0.5 kilowatt during the nighttime hours. The FCC has issued a construction permit to WMET to modify its parameters to operate as a Class B AM station at 1150 kHz with 50 kilowatts of effective radiated power during the daytime hours and for 1.5 kilowatts during the nighttime hours. However, this construction permit for higher power will expire on December 14, 2002 unless we have finished construction of the new facility and made certain filings with the FCC. We do not believe that we will be able to satisfy these requirements prior to the expiration date of the construction permit, but we intend to seek modifications to the permit, or a replacement permit, which would enable us to construct the modified, higher-power facility. We cannot guarantee that we will receive such additional time, and, therefore, the construction permit may expire.

Transfers or Assignment of AM Radio License

The Telecommunications Act prohibits the assignment of broadcast licenses or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee and proposed licensee, including:

• compliance with the various rules limiting common ownership of media properties in a given market;

• the character of the licensee and those persons holding attributable interests in the licensee; and

• compliance with the Communications Act’s limitations on foreign ownership as well as compliance with other FCC regulations and policies.

If we determine that it is in our best interest to sell the WMET license to a third party, we will need to obtain the prior consent of the FCC before consummating the sale of the WMET FCC license.

INTERNATIONAL REGULATION OF TELECOMMUNICATIONS SERVICES

International Licensing for Telecommunications Services

In connection with the growth of our international operations, we have obtained a number of licenses to provide telecommunications services in various foreign countries. Through direct or indirect subsidiaries, we have obtained licenses in Austria, Belgium, Germany, Ireland, Italy, the Netherlands, Spain, Sweden, the United Kingdom, Russia, Mexico and Peru.

European Regulation of Telecommunications Services

In Europe, the regulation of the telecommunications industry is governed by the European Union and to a large extent by the national law of the individual European Union Member States. The European Union’s institutions, such as the European Commission, are responsible for creating pan-European policies. Through legislation, the European Union has developed a regulatory framework aimed at creating an open, competitive telecommunications market. The European Union was established by the Treaty of Rome and subsequent conventions and the European Commission and the Council of Ministers of the European Union are authorized by such treaties to issue European Union “directives.” Member States are required to implement these directives through national legislation. If a Member State fails to adopt such directives, the European Commission may take action, including referral to the European Court of Justice, to enforce the directives. In practice, Member States have significant discretion regarding how to implement Directives into their national law system. For example, while the Licensing Directive provides Member States the required overall framework, the licensing regimes adopted by Member States vary accordingly. Only in specific cases, the European Commission, in concert with the European Parliament and other relevant European Union institutions will render regulations or individual decisions on specific issues that become effective immediately without requiring Member States to adopt them on a country-by-country basis.

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In March 1996, the European Union adopted the Full Competition Directive containing two provisions which required Member States to allow the creation of alternative telecommunications infrastructures by July 1, 1996, and which reaffirmed the obligation of Member States to abolish the incumbent telecommunications operator’s (“ITOs”) monopolies in voice telephony by 1998. Certain Member States, such as Greece, were allowed to delay the abolition of monopolies in public voice telephony based on exemptions established in the Full Competition Directive. Under current European Union law, Member States may require individual licenses for reserved public telephony services and the creation of alternative infrastructure, but not for data, value-added or closed user group services. The European Union presently is in the process of reviewing its telecommunications regulatory regime and has introduced legislative proposals that would direct Member States to reform their laws regarding licensing, interconnection, universal service, unbundling of local loops, data protection, and harmonization. The European Commission presently is considering these legislative proposals that, if adopted, could impact our operations.

In addition to the foregoing regulations, the European Union has adopted the Interconnection Directive and the Licensing Directive that attempt to harmonize telecommunications regulations among the Member States. The Interconnection Directive provides that ITOs are obliged to interconnect with requesting operators, and to enter into interconnection arrangements on transparent, objective and non-discriminatory terms. Disputes over interconnection rates, terms and conditions have arisen in several Member States, and there can be no guarantee that they will be resolved in a manner that will not have a material adverse effect on our operations in Europe. In addition, the Licensing Directive provides for the establishment of a national regulatory authority independent of the ITO in each Member State, and provides that Member States may reject applications for licenses only upon certain narrowly defined grounds. The Interconnection Directive and the Licensing Directive are currently under review. Under the pending legislative proposals, these Directives might no longer differentiate between Voice and Data services. Consequently, we could be required to apply for additional individual licenses or general authorizations in the individual Member States. It may also become necessary for us to provide certain interconnection services to other carriers, to provide for interception by state authorities, and to pay into universal service funds pursuant to national law.

Data Protection

European regulators and authorities have developed detailed provisions on data protection and privacy in the individual Member States. In particular, these provisions govern the collection, storage, transfer and access to personal data that are only harmonized to some extent by European Union directives. Compliance with national legal requirements may involve, for instance, the appointment of data protection officers by us and our subsidiaries, compliance with reporting requirements to national authorities, and notification requirements vis-à- vis individuals (e.g., obtaining an individual authorization before personal data are collected, stored or transferred). Recently, the United States and European Union agreed upon so-called “Safe Harbor Principles” to reconcile the differences between U.S. and European Union approaches to privacy and data protection regulation. Compliance with these principles on a voluntary basis will likely ensure that traffic data flowing from the European Union to the United States will not be interrupted and help minimize the risk of sanctions under national law. However, the “Safe Harbor Principles” will neither cover the collection and storage of data by facilities in Member States, nor regulate the data flow to and from third countries, which remains under the jurisdiction of each member state’s national law. In addition, in such European countries where we are licensed as a voice telephony provider, specific data protection rules on issues relating to telecommunications services (e.g., billing, directory entrances, etc.) may apply.

In addition, the European Union has adopted Directive 97/7/EC, a separate, complementary directive pertaining to privacy and the processing of personal data in the telecommunications sector. This directive establishes certain requirements with respect to, among other things, the processing and retention of subscriber traffic and billing data, subscriber rights to non-itemized bills, and the presentation and restriction of calling and connected line identification. In addition, a number of European countries outside the European Union have adopted, or are in the process of adopting, data protection rules similar to those set forth in the European Union directives. The European Union also has enacted Directive 97/7/EC to protect consumers entering distance

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contracts. Distance contracts are generally contracts for goods and services where the contact between the supplier and the consumer takes place at a distance by means of communications technologies. This directive requires that the consumer be provided with certain information, such as the identity of the supplier, the arrangements for payment, delivery or performance, the existence of a right of withdrawal, and the cost of using the means of distance communication prior to entering the contract. Such information must be provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard to the principles of good faith in commercial transactions. While this directive has been effective since June 1997, all Member States were required to implement Directive 97/7/EC by June 4, 2000. To the extent that we enter into distance contracts, this directive may have a material adverse effect on our business, financial condition, operating results and future prospects.

The European Union has adopted the final version of Directive 2000/31/EC governing electronic commerce. The directive covers “Information Society services” or “any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services,” between the Member States. Information Society services generally includes both business-to-business services and business-to-consumer service. The directive establishes a general e-commerce legal framework covering service provider authorizations, commercial communications, electronic contracts, the liability of intermediary service providers, codes of conduct, out-of-court dispute settlements, court actions and cooperation between Member States. Increased regulation of the Internet or of transaction facilitation via the Internet by the European Union could have a material adverse effect on our business, financial condition, operating results and future prospects.

Other Overseas Markets

In numerous countries where we operate or plan to operate, local laws and regulations restrict or limit the ability of telecommunications companies to provide telecommunications services in competition with state-owned or state-sanctioned dominant carriers. In several countries where we do not have sufficient or established contractual relationships with the dominant carrier, we contract with licensed carriers who provide alternative telecommunications services in such countries. There can be no assurance that current or future regulatory, judicial, legislative, or political considerations will permit us to offer all or any of its products and services in such countries, that regulators or third parties will not raise material issues regarding our compliance with applicable laws or regulations, or that such regulatory, judicial, legislative, or political decisions will not have a material adverse effect on us. If we are unable to provide the services that we presently provide or intend to provide or to use our existing or contemplated transmission methods, or because we are subjected to adverse regulatory inquiry, investigation or action, or for any other reason related to regulatory compliance or lack thereof, such developments could have a material adverse effect on our business, financial condition, and results of operation.

The foregoing is not an exhaustive list of proceedings or issues that could materially affect our business. We cannot predict the outcome of these or any other proceedings before the courts, the FCC, legislative bodies, or state or local governments.

INTELLECTUAL PROPERTY

Although we believe that our success ultimately is more dependent on our technical expertise than on our proprietary rights, we regard our trademarks, service marks, copyrights, patents, trade secrets, proprietary technology and similar intellectual property as important strategic assets. Given the rapid pace of technological advancement, accelerating product life cycles, and an increasingly litigious environment, we have aligned our intellectual property strategy with our overall business strategy so as to maximize revenue, manage risk, minimize costs and use intellectual property for competitive advantage.

We own numerous trademark and service mark registrations in the United States and abroad. We also have applications pending for the registration of service marks relating to our various operations. In addition, we have filed patents in the United States and internationally and plan to file other patent applications in the future.

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Our intellectual property may not provide significant competitive advantages. Given the rapid pace of technological change in the information technology industry, many of our products rely on key technologies developed by third parties; but we may not be able to obtain licenses from these third parties. The protection of our intellectual property also may require the expenditure of significant financial and managerial resources. Effective trademark, service mark, copyright, patent and trade secret protection may not be available in every country in which our products and services are made available. Moreover, any of our intellectual proprietary rights could be challenged, invalidated or circumvented. Third parties that license our proprietary rights may take actions that diminish the value of our proprietary rights or reputation. Ultimately, the steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate our trademarks, service marks, trade dress, copyrights, patents and similar proprietary rights.

From time to time we may be subject to claims and legal proceedings from third parties in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights. Ronald A. Katz Technology Licensing, L.P. (“RAKTL”), for example, has offered us a license to a portfolio of patents, claiming that the patents may be infringed by certain products and services offered by us. The patents purportedly relate to various aspects of telephone call processing. As of the date of this report, no legal proceedings have been instituted against us, but, if the RAKTL patents are valid, enforceable and apply to our business, we could be required to seek a license from RAKTL. Such license may not be available on commercially reasonable terms and the potential for litigation exists. Even if our products and processes are ultimately held not to infringe a third parties’ intellectual property rights, the claims can be time-consuming and costly to defend, and may divert management’s attention and resources away from our business. Such claims might also result in a preliminary injunction against us, and, if held to be meritorious, may result in a permanent injunction and the imposition of damages. Claims of intellectual property infringement might also require us to enter into costly license agreements. If we cannot or do not license the allegedly infringed rights or substitute concededly non-infringing rights from another source, our business could suffer. Thus, there can be no assurances that any such claims, legal proceedings and/or license agreements would not have a material adverse effect on our business, operating results and financial condition.

INTERNATIONAL SALES

In Fiscal 2000, 2001 and 2002, revenue from customers located outside of the United States accounted for approximately 17%, 16% and 18% of our total revenues, respectively. See Note 10 of the Notes to our Consolidated Financial Statements. We anticipate that revenues from international customers will continue to account for a significant percentage of our total revenues.

EMPLOYEES

As of October 11, 2002, we had a total of 2,533 employees excluding employees of Net2Phone. Of these, 346 were employed in our European operations.

Item 2.    PROPERTIES.

Our headquarters are located in Newark, New Jersey pursuant to a 20 year lease entered into in November 1999 for facilities totaling approximately 484,000 square feet. Our headquarters house our executive offices, administrative, finance and marketing functions, carrier and customer service departments and its various developing operations and serve as the headquarters for each of our operating subsidiaries.

We also occupy approximately 12,000 additional square feet in Newark, New Jersey and approximately 6,000 square feet of space in Los Angeles, California, both primarily to house telecommunications equipment. In addition, we lease space (typically less than 500 square feet) in various other geographic locations to house the telecommunications equipment for each of our “POPs.”

225 Old NB Road, Inc., our wholly owned subsidiary, purchased the building located at 225 Old New Brunswick Road in Piscataway, New Jersey, and we presently occupy approximately 44,000 square feet of the 65,295 square feet in the building. The balance of the building is sublet to third parties.

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Union Telecard occupies approximately 4,000 square feet in Queens, New York, pursuant to a 10 year sublease agreement and approximately 19,986 square feet in West Hempstead, New York.

In support of our international expansion efforts, we maintain our European headquarters in London, England. We also maintain various international office locations and telecommunications facilities, including in Buenos Aires, Argentina; London, England; Paris, France; Frankfurt, Germany; Rotterdam, Holland; Dublin, Ireland; Milan, Italy; Moscow, Russia; Madrid, Spain; Lerum, Sweden; San Juan, Puerto Rico; and Santa Fe Colony, Mexico.

Our Winstar division leases approximately 485,000 square feet of office, switch and warehouse space throughout the United States. The leases are comprised of two corporate offices located in Herndon, Virginia and Newark, New Jersey, two NOCs located outside of Seattle, Washington and in Herndon, Virginia and two warehouses located in New York City, New York and Newark, Delaware.

Item 3.    LEGAL PROCEEDINGS.

On January 29, 2001, we filed a complaint with the U.S. District Court for the District of New Jersey, against Telefonica S.A., Terra Networks, S.A., Terra Networks, U.S.A., Inc. and Lycos, Inc. The complaint asserts claims against the defendants for, among other things, breaches of various contracts, breach of fiduciary duty, securities violations, fraudulent misrepresentation, negligent misrepresentation, fraudulent concealment and tortious interference with prospective economic advantage. The defendants have been served with the complaint. We have filed an amended complaint and the defendants have filed an answer to the amended complaint. Terra Networks, S.A. has filed a counterclaim for breach of contract alleging that we were required to pay to Terra Networks, S.A. $3.0 million, and we failed to do so. The defendants have filed a motion to dismiss the complaint. On September 14, 2001, the Court issued an order (a) permitting us to take discovery relevant to the subject of whether Telefonica S.A. is subject to personal jurisdiction, (b) denying Telefonica S.A.’s motion to dismiss for lack of personal jurisdiction without prejudice to Telefonica S.A.’s right to renew the motion upon the completion of jurisdictional discovery, and (c) carrying on the calendar defendants’ motion to dismiss on non-jurisdictional grounds pending the completion of jurisdictional discovery, which is ongoing. Each party served the other party with certain requests for discovery relevant to the subject of whether Telefonica S.A. is subject to personal jurisdiction. The motions were denied almost in their entirety. The case continues in the early stages of discovery. No trial date has yet been set in this matter.

On May 25, 2001, we filed a statement of claim with the American Arbitration Association naming Telefonica Internacional, S.A. (“Telefonica”) as the Respondent. The statement of claim asserts that the Company and Telefonica entered into a Memorandum of Understanding (“MOU”) that involved, among other things, the construction and operation of a submarine cable network around South America (“SAm-I”). We claim, among other things, that Telefonica breached the MOU by: (a) failing to negotiate SAm-I agreements; (b) refusing to comply with the equity provisions of the MOU; (c) refusing to sell capacity and back-haul capacity pursuant to the MOU; and (d) failing to follow through on the joint venture. Telefonica has responded to our statement of claim and has filed a statement of counterclaim which alleges, among other things: (1) fraud in the inducement; (2) tortious interference with prospective business relations; (3) breach of the obligations of good faith and fair dealing; and (4) declaratory and injunctive relief. Telefonica did not specify damages in its counterclaim. Discovery is in its final stages and both parties have submitted expert reports. The arbitration is ongoing and is expected to continue into 2003.

In September 2001, Alfred West filed a complaint against us and IDT Telecom in the U.S. District Court in Newark, New Jersey, seeking monetary damages of $25 million for alleged breach of contract, breach of implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, promissory estoppel, quantum meruit, tortious interference and unfair competition. We filed counterclaims for fraud, negligent misrepresentation, breach of fiduciary duty, tortious interference and breach of contract. We have completed several depositions, and fact discovery is scheduled for completion by November 15, 2002. Expert discovery and briefing on the parties’ respective summary judgment motions will follow.

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Winstar acquired certain domestic telecommunications assets formerly owned by Old Winstar, which was approved by the U.S. Bankruptcy Court for the District of Delaware on December 19, 2001 (the “Sale Order”). Although many of the acquired assets were transferred to Winstar at the time of the sale, the transfer of certain of Old Winstar’s regulated telecommunications assets, including its customer base, was subject to a number of federal and state regulatory approvals and on Winstar’s obtaining the necessary telecommunications facilities and services necessary to serve the customers it agreed to purchase from Old Winstar. Subsequently, Winstar has entered into interconnection agreements with the relevant RBOCs and has sought to use services and facilities obtained pursuant to those agreements and pursuant to RBOC tariffs to complete its network and therefore to be able to transition the customers from service by Old Winstar to Winstar.

Although all of the regulatory approvals necessary for this transition have now been issued, the RBOCs have asserted that Winstar is nevertheless not entitled to obtain uninterrupted services under their interconnection agreements and tariffs unless the RBOCs receive payment of approximately $40 million, in the aggregate, allegedly owed by Old Winstar for access to RBOC facilities and circuits. Based on the claim that Winstar must pay this “cure” amount as a condition of receiving uninterrupted service, the RBOCs have refused in certain instances to provide facilities and service to Winstar that it needs in order to serve its customers directly. As a result, Winstar is operating the business of Old Winstar pursuant to a management agreement approved by the Bankruptcy Court, and is providing services to the customers on behalf of Old Winstar.

Winstar contends that, even were it to assume the Old Winstar contracts with the RBOCs, the amounts set forth in the RBOC’s proofs of claim greatly exceed any reasonable “cure” for facilities and services that Winstar seeks to obtain from the RBOCs, since the claims include significant amounts that Old Winstar owed for services and facilities that Winstar has not requested, and does not need to be able to provide services to the customers following the transition. Winstar also disputes the RBOC’s claims that they are not obligated to provide services and facilities to Winstar without an assumption or assignment of the Old Winstar contracts and a payment of “cure” amounts. In response to the RBOC’s refusal to provide service, on April 17, 2002 Winstar filed an Emergency Petition for a Declaratory Ruling at the FCC (WC Docket No. 02-80) asking that the FCC declare that the refusal of the RBOCs to provide the requested services and facilities pursuant to their interconnection agreements and tariffs, and their refusal to transition such services in a manner that does not interrupt services to the customers is unreasonable and therefore unlawful under federal law. In response, one RBOC (Verizon) filed a counter-petition asking that the FCC declare that the federal telecommunications laws do not require it to provide facilities and services to Winstar without “cure” of Old Winstar’s debts. A number of parties filed comments in the FCC proceeding on both sides of the issue and the proceeding is still pending at the FCC. Winstar believes that the RBOCs have acted unreasonably and unlawfully in denying its requests for services and facilities and will continue absent a settlement with the RBOCs to advocate its position vigorously.

In addition, faced with likely termination of service to Old Winstar customers, we sought injunctive relief (in addition to other remedies) in the U.S. District Court for the District of New Jersey against Verizon, Qwest Corp. and Qwest Communications Corp. (“QCC”) to prevent them from discontinuing underlying services which would prevent us form providing service to our customers. Certain interim relief was secured, and Verizon, Qwest and QCC subsequently agreed not to terminate service without appropriate notice to us. The District of New Jersey action is ongoing.

The RBOCs further contend that the provision in the Sale Order requiring them to continue serving Old Winstar and its subsidiaries expired on or about April 18, 2002. Winstar promptly moved to enforce that provision of the Sale Order, but the Bankruptcy Court denied its motion. Winstar has appealed the denial of that motion to the U.S. District Court for the District of Delaware. In addition, Winstar asked the District Court for interim relief during the pendency of its appeal to stay the RBOCs and other service providers from cutting off service until the appeal is decided. The District Court has not yet ruled on that request, but has temporarily ordered that service providers, including the RBOCs, may not terminate service or otherwise affect Winstar’s business without permission of the Court.

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During preliminary status hearings before the District Court on May 24 and June 4, 2002, the RBOCs and Winstar advised the Court of their willingness to enter into settlement discussions and/or non-binding mediation in an attempt to resolve their disputes. Those settlement discussions and mediations are ongoing, and the District Court appeal is therefore still pending. It is too soon to predict whether settlements will be reached with any or all of the RBOCs or, if so, to quantify the monetary effect of such settlements, if any, on Winstar. To the extent that a settlement agreement is not reached with any or all of the RBOCs, we expect that the appellate proceedings will resume. One possible outcome of an adverse ruling by the District Court on either the interim relief requested by Winstar or on the merits of the case could be to permit the RBOCs to terminate services that are being provided to our customers and therefore to prevent the uninterrupted transition of those customers to Winstar service. A status conference is scheduled for November 8, 2002, for the parties to report on the progress of their efforts to mediate the disputes.

Winstar believes that the RBOCs have acted unreasonably and unlawfully in denying its request for services and facilities and will continue absent a settlement to advocate its positions vigorously. However, adverse results in one or more of the above-described RBOC litigations could have a material adverse effect on us, including payment of the “cure” amount described above, or the inability of Winstar to access the RBOC’s services and facilities, on which its business is substantially dependent.

On or about July 25, 2002, PT-1 Communications, Inc. filed a summons and complaint against us, IDT Netherlands, B.V., IDT Telecom, Inc. and IDT Domestic Telecom, Inc. in the U.S. Bankruptcy Court for the Eastern District of New York. PT-1 seeks (a) to recover damages for certain fraudulent transfers of property of the PT-1’s bankruptcy estate, (b) to recover damages for unjust enrichment, and (c) to recover damages from breaches under the agreement between the parties for the sale of the PT-1 debit card business to us, including their alleged failure to remit payment for use of certain telecommunication and platform services on or through PT-1 switches. We served our answer on September 18, 2002. Initial discovery will commence shortly. In total, PT-1 is seeking $24 million in damages as well as certain unstated amounts.

On or about September 16, 2002, a complaint was filed by Mark B. Aronson in the Court of Common Pleas of Allegheny County, Pennsylvania seeking certification of a class consisting of consumers who were charged a fee when we switched underlying carriers from Global Crossing to AT&T. At this point no specific damages have been specified in the complaint. Thus, we cannot yet quantify our exposure.

On or about September 19, 2002, a complaint was filed by Ramon Ruiz against us and Union Telecard in the Supreme Court of the State of New York seeking certification of a class consisting of consumers who allegedly purchased and used our prepaid calling cards and were charged any fee that was not specifically disclosed on the card packaging prior to purchase. The complaint seeks damages in excess of $100 million.

On or about October 11, 2002, a complaint was filed by Paul Zedeck against us and Union Telecard in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, seeking certification of a class consisting of consumers who allegedly purchased and used our prepaid calling cards and were charged any fee that was not specifically disclosed on the card packaging prior to purchase. The damages sought have not yet been quantified. Because we only recently received the complaint, we are still evaluating the potential impact and our approach to contesting the claims or attempts to certify the classes.

On or about October 18, 2002, a complaint was filed by Morris Amsel against us and IDT Telecom in the Supreme Court of the State of New York seeking certification of a class consisting of consumers who allegedly purchased our calling cards. Plaintiff’s complaint relates to payphone charges and international rates. The complaint seeks damages of not less that $100 million. Because we only recently received the complaint, we are still evaluating the potential impact and our approach to contesting the claims or attempts to certify the classes.

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On or about October 24, 2002, Winstar filed suit against Superior Logistics Management Services, Inc. (“Superior”) in the U.S. District Court for the Eastern District of Virginia. The complaint alleges counts for breach of contract (Superior breached a settlement agreement with Winstar), conversion (for retaining Winstar’s property), and detinue (for return of the property). Winstar is seeking approximately $50 million in damages, plus punitive damages, costs, and attorney’s fees.

We are subject to other legal proceedings and claims, which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurances in this regard, in the opinion of our management, such proceedings, as well as the aforementioned actions, will not have a material adverse effect on our results of operations, cash flows or the financial condition.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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PART II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our Common Stock was quoted on the Nasdaq National Market under the symbol “IDTC” from March 15, 1996, the date of our initial public offering, through February 25, 2001. On February 26, 2001, we listed our Common Stock for trading on the New York Stock Exchange under the symbol “IDT”. In May 2001, our Board of Directors declared a stock dividend of one share of our Class B Common Stock for every one share of our Common Stock, Class A Common Stock and Class B Common Stock. On June 1, 2001, we listed our Class B Common Stock for trading on the New York Stock Exchange under the symbol “IDT.B“.

The table below sets forth the high and low sales prices for our Common Stock as reported by the Nasdaq National Market or the New York Stock Exchange, as applicable, for the fiscal periods indicated, adjusted to reflect the Class B Dividend for periods prior to June 1, 2001 (assuming, for this purpose only, that the sales price of our Class B Common Stock would have equaled the sales price of our Common Stock during the relevant periods).

	High		Low
Fiscal Year ended July 31, 2001
First Quarter	$	20.88	$	14.31
Second Quarter		17.63		9.35
Third Quarter		11.98		8.74
Fourth Quarter		15.46		10.98
Fiscal Year ended July 31, 2002
First Quarter	$	12.40	$	9.85
Second Quarter		20.85		11.30
Third Quarter		23.32		15.30
Fourth Quarter		20.30		15.67

The table below sets forth the high and low sales prices for our Class B Common Stock as reported by the New York Stock Exchange for the fiscal periods indicated.

	High		Low
Fiscal Year ended July 31, 2001
First Quarter		N/A		N/A
Second Quarter		N/A		N/A
Third Quarter		N/A		N/A
Fourth Quarter (commencing June 1, 2001)	$	13.62	$	10.00
Fiscal Year ended July 31, 2002
First Quarter	$	12.19	$	8.05
Second Quarter		17.40		9.98
Third Quarter		20.35		13.09
Fourth Quarter		18.10		14.57

On October 25, 2002, the last sale price reported on the New York Stock Exchange for our Common Stock was $17.66 per share and for our Class B Common Stock was $16.30 per share. On the same date, there were

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approximately 348 holders of record of our Common Stock and approximately 362 holders of record of our Class B Common Stock. The aggregate market value of our voting stock held by non-affiliates of us, based on the closing prices of our Common Stock and our Class B Common Stock on October 25, 2002, was approximately $821 million. Shares of our Common Stock and Class B Common Stock held by each officer and director and by each person who owns 5% or more of our outstanding Common Stock and Class B Common Stock (assuming conversion of the Company’s outstanding Class A Common Stock into Common Stock) have been excluded from this computation in that such persons may be deemed to be our affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

We have never declared or paid any cash dividends on our Common Stock or Class B Common Stock and do not expect to pay cash dividends for the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. Any future declaration of dividends will be subject to the discretion of our Board of Directors.

The information required by Item 201(d) of Regulation S-K will be contained in our Proxy Statement for our Annual Stockholders Meeting, which we will file with the Securities and Exchange Commission within 120 days after July 31, 2002, and which is incorporated by reference herein.

Recent Sales of Unregistered Securities

Pursuant to an Agreement and Plan of Merger, dated March 4, 2002, among us, IDT Beltway Acquisition Corp., Beltway Communications Corp. and Sondra Linden, we issued 262,992 shares of our Class B Common Stock as part of the merger consideration paid to Sondra Linden for her interest in Beltway Communications Corp., the operator of WMET.

This issuance was made under the exemption from registration provided by Section 4(2) of the Securities Act of 1933, being a transaction not involving any public offering. No underwriters were involved in the issuance of the above-described securities.

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Item 6.    SELECTED FINANCIAL DATA.

The selected consolidated financial data presented below for each of the five fiscal years in the period ended July 31, 2002 has been derived from our consolidated financial statements, which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and other financial information appearing elsewhere in this Annual Report.

	Year Ended July 31
	1998			1999			2000			2001			2002
	(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Retail Telecommunications Services	$	137,159		$	395,542		$	502,512		$	816,384		$	1,121,674
Wholesale Telecommunications Services		166,705			289,030			520,519			388,120			308,987
Winstar		—			—			—			—			79,603
Internet Telephony (*)		11,508			30,678			56,075			—			—
Media		20,001			16,934			14,806			26,446			21,350
Total revenues		335,373			732,184			1,093,912			1,230,950			1,531,614
Costs and expenses:
Direct cost of revenues (exclusive of items shown below)		240,860			575,050			918,257			1,066,845			1,205,003
Selling, general and administrative		61,975			128,500			343,702			337,107			370,577
Acquired research and development		17,900			—			—			—			—
Depreciation and amortization		13,810			36,360			48,564			60,351			66,016
Impairment charges		—			—			—			199,357			114,310
Total costs and expenses		334,545			739,910			1,310,523			1,663,660			1,775,906
Income (loss) from operations		828			(7,726	)		(216,611	)		(432,710	)		(224,292	)
Interest income (expense), net		—			(1,228	)		7,231			52,768			21,757
Other income (expense):
Equity in loss of affiliates (*)		—			—			(6,289	)		(75,066	)		(43,989	)
Gain on sales of subsidiary stock		—			—			350,344			1,037,726			—
Investment and other income (expense), net		(293	)		(2,036	)		258,218			164,762			(12,117	)
Minority interests		3,896			(3,309	)		(59,336	)		5,726			22,070
Provision for (benefit from) income taxes		(2,524	)		7,253			218,403			209,395			(124,345	)
Extraordinary loss on retirement of debt, net of income taxes		(132	)		(3,270	)		(2,976	)		—			—
Cumulative effect of accounting change, net of income taxes		—			—			—			—			(146,983	)
Net income (loss)		(969	)		(18,204	)		230,850			532,359			(303,349	)
Subsidiary redeemable preferred stock dividends		—			26,297			—			—			—
Net income (loss) available to common stockholders	$	(969	)	$	(44,501	)	$	230,850		$	532,359		$	(303,349	)
Net income (loss) per share-basic	$	(0.02	)	$	(0.66	)	$	3.30		$	7.79		$	(4.04	)
Weighted average number of shares used in calculation of earnings per share-basic		57,142			67,060			69,933			68,301			75,108
Net income (loss) per share-diluted	$	(0.02	)	$	(0.66	)	$	3.07		$	7.12		$	(4.04	)
Weighted average number of shares used in calculation of earnings per share-diluted		57,142			67,060			75,239			74,786			75,108
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	175,592		$	130,773		$	393,039		$	1,094,560		$	1,009,979
Working capital		166,381			179,415			347,930			915,393			808,448
Total assets		461,240			559,871			1,219,055			1,881,589			1,607,920
Long-term debt		101,834			112,973			12,174			—			—
Total stockholders’ equity		282,792			276,329			468,188			1,076,236			869,530

* As a result of the sale of our majority stake in Net2Phone, our “Internet Telephony” segment, to AT&T on August 11, 2000, we did not consolidate Net2Phone results in Fiscal 2001 and Fiscal 2002. Therefore, we did not have any Internet Telephony revenues and operating activities during those years. Rather, we accounted for our investment in Net2Phone for those years under the equity method of accounting, with our pro-rata share of Net2Phone losses being recorded in “Equity in Loss of Affiliates” .

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Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends” and similar words and phrases. Such forward-looking statements include, among other things, our plans to implement our growth strategy, improve our financial performance, expand our infrastructure, develop new products and services, expand our sales force, expand our customer base and enter international markets. Such forward-looking statements also include our expectations concerning factors affecting the markets for our products, such as changes in the U.S. and the international regulatory environment and the demand for long-distance telecommunications. Actual results could differ from those projected in any forward-looking statements.

Forward-looking statements are based on management’s current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied in those statements. These risks include, but are not limited to, the following risks:

• each of our business lines, particularly those of IDT Telecom, is highly sensitive to declining prices, which could adversely affect our revenues and margins;

• because our retail telecommunications services, particularly our prepaid calling cards, generate the bulk of our revenues, our growth is substantially dependent upon continued growth in that area;

• we may not be able to obtain sufficient termination capacity to particular destinations to keep pace with our growth of minutes of use to that destination or may have to pay significant amounts to obtain such capacity, which could result in not being able to sustain growth or in higher costs per minute to that location, which could adversely affect our revenues and margins;

• our customers, particularly our wholesale carrier customers, could experience financial difficulties which could adversely affect our revenues and profitability if we experience difficulties in collecting our receivables;

• termination of our carrier agreements with foreign carriers or our inability to enter into carrier agreements in the future could materially and adversely affect our ability to compete in foreign countries;

• our revenues and our growth will suffer if our sales representatives or distributors, particularly Union Telecard Alliance, LLC (“UTA”), fail to effectively market and distribute our products and services;

• increased competition in the long distance market, particularly from the regional bell operating companies (“RBOCs”), could limit or reverse our growth in that area;

• our expenses could increase faster than our revenues if we expand our network at a rate that is faster than the growth of our telecommunications traffic;

• Winstar relies on technology that has not gained widespread market acceptance and it has not been established that Winstar can effectively compete against the RBOCs or other competitive local exchange carriers (“CLECs”);

• federal, state and international government regulations may reduce our ability to provide services, or make our business less profitable and we may become subject to increased costs of operations due to the applicability of certain taxes, fees and surcharges to our business;

• our operations will be impaired if we are unable to obtain the products and services of the telecommunications companies that we are dependent upon, or if such products or services are impaired or disrupted by terrorist attack or natural disaster;

• continuing impact on the New York area or overall U.S. economy stemming from the September 11 terror attacks could have an adverse effect upon our business;

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• we may become subject to increased price competition from other carriers due to federal regulatory changes in determining international settlement rates;

• European regulation of telecommunications services may not continue to evolve towards streamlined regulation;

• telecommunications regulations of other countries may restrict our operations;

• the infringement or duplication of our proprietary technology could increase our competition and we could incur substantial costs in defending or pursuing any claims relating to proprietary rights;

• network construction or upgrade delays and system disruptions or failures could prevent us from providing our services, cause us to lose customers and adversely affect our business;

• we may be subject to liability arising from current or future litigation against us;

• we may infringe on third party intellectual property rights and could become involved in costly intellectual property litigation;

• we are controlled by our principal stockholder, which limits the ability of other stockholders to affect our management.

The forward-looking statements are made as of the date of this Annual Report on Form 10-K, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our Reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.

Overview

General

IDT Corporation is a facilities-based multinational communications company that provides services and products to retail and wholesale customers worldwide. We also operate several media and entertainment-related businesses, most of which are currently in the early stages of their development. Since completing our organizational restructuring during Fiscal 2001, which elevated IDT Corporation to a holding company, we have conducted our operations through two principal subsidiaries: (i) IDT Telecom, consisting of our Retail Telecommunications Services business segment and our Wholesale Telecommunications business segment; and (ii) IDT Media (previously known as IDT Ventures), consisting of our Media business segment.

In December 2001, we acquired substantially all of the core domestic telecommunications assets of Winstar Communications, Inc., and certain of its subsidiaries (“Old Winstar”), which are debtors and debtors in possession in bankruptcy proceedings pending before the U.S. Bankruptcy Court for the District of Delaware. Old Winstar operated as a CLEC in many jurisdictions using fixed-wireless technology. Old Winstar’s core business was to provide telephone and data transmission services to enterprise and government customers. Winstar’s operations are now conducted through our third primary subsidiary, Winstar Holdings, LLC (“Winstar”), consisting of our Winstar business segment.

We have grown our revenues rapidly throughout our history, and our revenue growth continued in Fiscal 2002. We generated total revenues of $1.1 billion, $1.2 billion and $1.5 billion in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively. Our losses from operations were $216.6 million, $432.7 million and $224.3 million in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively. Excluding impairment charges, our losses from operations were $216.6 million, $233.4 million and $110.0 million in Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively. Minutes of use from IDT Telecom’s businesses (excluding consumer long distance services) have grown from 4.3 billion minutes in Fiscal 2000 to 7.0 billion minutes in Fiscal 2001, and 11.3 billion minutes in Fiscal 2002.

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History

We entered the telecommunications business in 1990, offering call reorigination services, and since then have offered a variety of telecommunications services as market opportunities presented themselves.

We entered the consumer long distance business in late 1993 by reselling long distance services of other carriers to our existing customers. As a value-added service for our domestic long distance customers, we began offering Internet access in early 1994, eventually offering dial-up and dedicated Internet access to individuals and businesses as stand-alone services. In 1995, we began reselling to other long distance carriers access to the favorable telephone rates and special tariffs we receive as a result of the calling volume generated by our call reorigination customers. Through Net2Phone, Inc. (“Net2Phone”), then our wholly-owned subsidiary, we entered the Internet telephony market in August 1996 with our introduction of PC2Phone, the first commercial telephone service to connect calls between personal computers and telephones over the Internet.

We began marketing and selling prepaid calling cards in January 1997. In May 1998, we acquired a 51% interest in UTA, which distributes our prepaid calling cards in key markets nationwide. In April 1998, we also acquired InterExchange, an operator of a large international prepaid calling card platform in the United States, and a provider of other telecommunications services. In February 2001, we acquired the prepaid calling card business of PT-1 Communications (“PT-1”), further expanding our share of the prepaid calling card market.

The initial public offering of our Common Stock occurred on March 15, 1996. Our Common Stock was quoted on Nasdaq National Market until February 26, 2001, when it was listed on the New York Stock Exchange. On May 31, 2001, we distributed a stock dividend of one share of Class B Common Stock for each outstanding share of our Common Stock, Class A Common Stock and Class B Common Stock. On June 1, 2001, our Class B Common Stock was listed on the New York Stock Exchange.

On August 3, 1999, Net2Phone, then our subsidiary, completed an initial public offering of 6.2 million shares of its common stock, yielding $85.3 million in net proceeds. In December 1999, Net2Phone completed a secondary offering of 3.4 million shares of its common stock yielding $177.8 million in net proceeds. In connection with that offering, we also sold 2.2 million Net2Phone shares, generating $115.0 million in net cash proceeds to us. In August 2000, we completed the sale of 14.9 million shares of Net2Phone common stock to AT&T, receiving approximately $1.0 billion in cash proceeds.

On October 23, 2001, we entered into an agreement to lead a consortium that now holds approximately 46% of Net2Phone’s outstanding capital stock. The consortium consists of us, Liberty Media Corporation (“Liberty Media”) and AT&T. As part of the agreement, we and AT&T contributed shares of Net2Phone Class A common stock (approximately 10.0 million and 18.9 million shares, respectively) to a newly formed limited liability company (the “LLC”). Liberty Media then acquired a substantial portion of the LLC’s units from AT&T. The LLC now holds an aggregate of 28.9 million shares of Net2Phone’s Class A common stock. We are the managing partner of the LLC. Because the LLC holds Class A common stock with two votes per share, the LLC has approximately 63% of the voting power in Net2Phone. We hold the controlling membership interest in the LLC.

On December 19, 2001, we, through our wholly owned subsidiary IDT Winstar Acquisition, LLC, which was later renamed Winstar Holdings, LLC (“Winstar”), acquired the core domestic telecommunications assets of Old Winstar in exchange for (i) $30 million in cash, (ii) $12.5 million of our Class B Common Stock, and (iii) 5% of Winstar, in a transaction pursuant to Section 363 of the United States Bankruptcy Code. On April 16, 2002, we acquired the 5% of Winstar that we did not own from WCI Capital Corp., one of the debtors in Winstar’s bankruptcy case (and the entity designated by the estate to hold the equity interest) for $13.3 million of our Class B Common Stock.

Outlook

In recent years, we have derived the majority of our revenues from IDT Telecom’s businesses, consisting primarily of our Retail Telecommunications Services segment, which markets prepaid, and rechargeable calling cards and consumer long distance services, and our Wholesale Telecommunications Services segment,

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which markets wholesale carrier services. These businesses have accounted for the bulk of our operating expenses as well (excluding impairment charges). In Fiscal 2002, IDT Telecom’s revenues accounted for 93.4% of our total revenues, compared to 97.9% in Fiscal 2001 and 93.5% in Fiscal 2000.

Within IDT Telecom’s business, we have experienced a significant shift in mix between our Retail Telecommunications Services and our Wholesale Telecommunications Services revenues. In Fiscal 2002, IDT Telecom’s Retail Telecommunications Services revenues (calling cards and consumer long distance) accounted for 78.4% of its total revenues, compared to 67.8% in Fiscal 2001 and 49.1% in Fiscal 2000. This shift in revenue mix is primarily attributable to three factors:

• the growth in our calling card sales, due to increased marketing efforts, and to a lesser extent, the acquisition of the calling card operations of PT-1 in Fiscal 2001;

• the increase in consumer long distance revenues, reflecting the introduction, and growth of, our flat-rate $0.05 per minute calling plan; and

• the decline in wholesale carrier revenues, due to the deteriorating credit quality of a portion of our customer base, which led to our decision to curtail or cease completely our sales to certain of these customers.

In Fiscal 2003, we anticipate an increase in our wholesale carrier revenues, as the sequential revenue gains made during the final three quarters of Fiscal 2002 continue. We anticipate growth in IDT Telecom’s Retail Telecommunications Services revenues as well, and we expect that Retail Telecommunications Services revenues will continue to account for approximately 75% to 80% of IDT Telecom’s total revenues over the next fiscal year.

The worldwide telecommunications industry has been characterized in recent years by intense price competition, which has resulted in a significant decline in both our average per-minute price realizations and our average per-minute termination costs. During Fiscal 2002, our average price realization was $0.120 per minute, down 17% from $0.145 in Fiscal 2001, while our average termination cost per-minute dropped 26%, to $0.072 in Fiscal 2002, from $0.097 in Fiscal 2001.

The lower price environment has led some of our competitors to de-emphasize their retail services and/or wholesale carrier operations in order to focus on higher margin telecommunications businesses. In addition, many of our competitors in both of these market segments have ceased operations altogether. This has helped us gain some market share, particularly in the retail calling card business. However, in both the retail services and wholesale carrier businesses, our remaining competitors, although fewer in number, have continued to aggressively price their services. This has led to continued erosion in pricing power, both in our retail and wholesale markets, and we have generally had to pass along our per-minute cost savings to our customers, in the form of lower prices. Therefore, although IDT Telecom’s minutes of use have been increasing strongly, IDT Telecom’s revenues have increased at a much slower rate. Although we do not anticipate that our per-minute price realizations will continue to drop at the same rate as in Fiscal 2002, we do expect to see some further price declines in Fiscal 2003, as the markets in which we compete have generally remained competitive.

We have also developed various new businesses within our IDT Media segment (formerly known as IDT Ventures), which generated revenues of $21.3 million in Fiscal 2002. During Fiscal 2002, IDT Media incurred $20.9 million in operating losses for these business ventures, exclusive of impairment charges. We anticipate that IDT Media will continue to incur significant costs related to its existing and other new businesses. The timing and magnitude of further revenues and/or operating profits from these new businesses remains uncertain.

Within our Winstar subsidiary, we took significant steps to reduce the operating losses that Winstar has experienced since our acquisition of the assets of Old Winstar in December 2001. During the fourth quarter of Fiscal 2002, Winstar’s operating loss was $33.6 million, compared with an operating loss of $43.9 million in the third quarter of Fiscal 2002, which was the first full quarter of operations for the Winstar segment after the acquisition. We expect Winstar to continue to reduce its operating losses during Fiscal 2003, aided by a combination of increased revenues and improved cost controls.

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Revenues

During Fiscal 2002, we continued to grow our telecommunications businesses, with revenues from IDT Telecom operations increasing from $1,204.5 million during Fiscal 2001 to $1,430.7 million during Fiscal 2002. IDT Telecom revenues as a percentage of total revenues were 93.4% in Fiscal 2002, down from 97.9% in Fiscal 2001, reflecting the inclusion in total consolidated revenues in Fiscal 2002 of revenues from the Winstar segment, which was acquired in December 2001. IDT Telecom derives its revenues primarily from the following activities:

• retail telecommunications services, including:

• domestic and international prepaid and rechargeable calling cards; and

• consumer long distance services to individuals and businesses; and

• wholesale telecommunications services provided to other long distance carriers.

We generate revenues from the sale of our prepaid calling cards to distributors, selling them to distributors at a discount to their face values of different denominations, and recording the sales as deferred revenues until the card user utilizes the calling time. Calling cards also generate revenues through administrative fees (when applicable). In addition, our calling cards feature expiration dates. When a card expires with calling time left on the card, the dollar amount left on the card is then recorded as revenue.

Our Winstar segment generated revenues of $79.6 million in Fiscal 2002, representing 5.2% of our total consolidated revenue. Winstar generates revenues through the provision of telephony and broadband services to commercial and governmental customers. Using its fixed-wireless and fiber network, Winstar offers a variety of services including:

• local and long distance phone services;

• high speed Internet and data communications;

• mobile network infrastructure; and

• web hosting.

Concentration of Customers

Our most significant customers consist of either distributors of IDT Telecom’s calling cards or long distance carriers to whom IDT Telecom provides wholesale telecommunications services. While they may vary from quarter to quarter, our five largest customers accounted for 15.2% of total consolidated revenues in Fiscal 2002. This concentration of revenues increases our risk associated with nonpayment by customers. This risk has, in general, become more acute in recent quarters for us as several customers have declared bankruptcy or are facing financial difficulties, and now pose increased credit risks. We perform ongoing credit evaluations of our significant retail and wholesale carrier customers, but historically we have not required collateral to support accounts receivable from our customers. In light of the deteriorating credit quality of some of our customers, however, IDT Telecom has been imposing stricter credit restrictions on some customers. In some cases, this has resulted in IDT Telecom sharply curtailing or ceasing completely the sales to certain customers. IDT Telecom also attempts to mitigate its financial exposure with certain wholesale carriers by offsetting receivables from these wholesale customers with payables due to them for purchases of telecommunications services (including both minutes termination and connectivity). In this way, IDT Telecom can continue to sell services to these wholesale customers, while maintaining a net unrisked position, in terms of receivables and payables.

Costs and Expenses

Direct cost of revenues for IDT Telecom’s services consist primarily of three major categories:

• termination costs;

• network costs; and

• toll-free costs.

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Termination costs represent costs associated with the transmission and termination of international and domestic long distance services, and consist mainly of amounts paid to other long distance carriers to carry our traffic. Historically, this expense has primarily been variable, with a price paid on a per-minute basis. Even on a per-minute basis, this cost tends to fluctuate frequently. These costs dropped significantly during Fiscal 2002, reflecting the decline in prices in the long distance sector.

Network costs are fixed for a range of minutes of use, and include customer/carrier interconnect charges and leased fiber circuit charges. Local circuits are generally leased for a 12 to 24 month term, while long haul circuits generally are leased for longer terms. Although these are not purely variable costs, where the cost increases for each additional minute carried on our suppliers’ networks, a general growth in minutes will result in incrementally higher network costs as more circuits are added to interconnect with customers or carriers, and more circuits are leased to expand the size of our network. IDT Telecom’s costs on a per-circuit basis have been dropping due to the current abundance of supply of both local and long-haul fiber in the United States and Europe, as well as transatlantic fiber. In Fiscal 2003, we anticipate that IDT Telecom’s network costs will increase in absolute dollar terms, as IDT Telecom adds more circuits to accommodate its anticipated growth of telecommunications traffic. On a per-minute basis, however, we anticipate that IDT Telecom will be able to lower these costs further, as it replaces circuits with expiring contracts with lower-priced circuits.

Toll-free costs are variable costs paid to providers of toll-free services used primarily by our calling card customers to access our debit card platform. On a per-minute basis, these costs dropped 32% to $0.013 in Fiscal 2002, from $0.019 in Fiscal 2001, reflecting lower rates from IDT Telecom’s suppliers and more efficient routing by IDT Telecom of these minutes as it uses its least-cost-routing (LCR) platform. In Fiscal 2003, we anticipate higher toll-free costs in absolute dollar terms, reflecting an anticipated increase in toll-free minutes arising from an increase in our calling card operations. On a per-minute basis, we expect our toll-free costs to remain relatively unchanged in Fiscal 2003.

As IDT Telecom expands its telecommunications network and traffic volumes, the cost of revenues will increasingly consist of fixed costs associated with leased lines. The fixed nature of these costs may lead to larger fluctuations in gross margins, depending on the minutes of traffic and associated revenues we generate. We also expect that these factors will cause the direct cost of revenues to decline as a percentage of revenues over time. In the short term, we believe that IDT Telecom’s gross margins will be dictated in large part by the relative changes in termination costs and per-minute prices paid by its customers. During Fiscal 2002, IDT Telecom’s per-minute costs for terminating traffic fell at a faster rate than did our per-minute price realizations. This led to margin expansion during Fiscal 2002, to 22.6%, from 12.3% in Fiscal 2001. However, it is possible that during Fiscal 2003 our price realizations might drop at a faster rate than will our per-minute termination costs, resulting in gross margin contraction.

Selling expenses consist primarily of sales commissions paid to internal salespersons and advertising costs, which are the primary costs associated with the acquisition of customers. General and administrative expenses include salaries, benefits, professional fees, rent and other corporate overhead costs. These costs have increased in recent fiscal years due to the development and expansion of our operations and corporate infrastructure. As we continue to expand both the scale and geographic scope of our telecommunications activities, and continue to incur expenditures related to new business ventures that are beyond the scope of our existing core businesses, we anticipate that selling, general and administrative expenses will continue to increase.

IDT Media’s revenues are generally associated with higher selling, general and administrative expenses than are our telecommunications revenues. Within IDT Telecom’s operations, retail revenues (calling card and consumer long distance) generally have higher selling, general and administrative expenses than our wholesale sales of telecommunications services. Within IDT Telecom’s retail telecommunications businesses, revenues from the consumer long distance business are generally associated with much higher selling, general and administrative expenses than are revenues from calling card sales. With consumer long distance expected to

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account for a larger proportion of IDT Telecom’s revenues, and with IDT Media’s businesses expected to exhibit faster revenue growth than will IDT Telecom’s businesses, we anticipate that our selling, general and administrative expenses will increase as a percentage of total revenues.

Winstar’s direct costs are predominantly fixed in nature, and consist primarily of two components: (i) connectivity for the network backbone, including both local and long haul circuits, and (ii) lease payments for the network of buildings, including customer sites, hub sites and switch sites.

Capital Markets Activities

On May 4, 2001, we declared a stock dividend of one share of our Class B Common Stock for every one share of our Common Stock, Class A Common Stock and Class B Common Stock. The holders of our Class B Common Stock are entitled to one-tenth of a vote per share. We distributed the dividend shares on May 31, 2001 to shareholders of record on May 14, 2001. Our Class B Common Stock was listed on the New York Stock Exchange on June 1, 2001 under the ticker symbol “IDT.B”.

Our Board of Directors has authorized the repurchase of up to 45 million shares (adjusted for the May 2001 stock dividend) of our Common Stock and Class B Common Stock. During Fiscal 2002, we repurchased approximately 1.4 million shares of our Common Stock, for an aggregate purchase price of $15.6 million. Combined with the 6.8 million (adjusted) shares and 7.4 million (adjusted) shares repurchased during Fiscal 2001 and Fiscal 2000, respectively, we have repurchased a total of 15.6 million shares of Common Stock under the share repurchase program through the end of Fiscal 2002, of which 6.2 million shares were retired as of July 31, 2002.

Critical Accounting Policies

The SEC recently issued disclosure guidance for “critical accounting policies.” The SEC defines critical accounting policies as those accounting policies that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The following is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting an available alternative would not produce a materially different result. We have identified the following as accounting policies critical to us:

• revenue recognition;

• allowance for doubtful accounts;

• goodwill; and

• valuation of long-lived and intangible assets.

Revenue Recognition

Our communications services are recognized as revenue when services are provided. Revenue on sales of prepaid calling cards is deferred upon activation of the cards and recognized as the card balances are decremented based on minute usage and service charges. Unused balances are recognized as revenue upon expiration of the calling cards, which is generally the later of six months from the date of first use and twelve months from activation.

Revenues at our Winstar segment related to high-speed Internet and data services and local and long-distance voice services are recognized when services are provided.

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Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses which result from the inability of our customers to make required payments. We base our allowances on our determination of the likelihood of recoverability of accounts receivable based on past experience and current collection trends that are expected to continue. If economic or specific industry trends worsen beyond our estimates, we would increase our allowances for doubtful accounts by recording additional expense.

Goodwill

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001, with early adoption permitted for companies with fiscal years beginning after March 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but are subject to impairment tests, performed at least annually, in accordance with the Statement. Other intangible assets will continue to be amortized over their useful lives.

We chose to early adopt the new rules on accounting for goodwill and other intangible assets and began to apply them beginning in the first quarter of Fiscal 2002. As such, we performed the required impairment tests of goodwill as of August 1, 2001, and as a result, we recorded an impairment charge of $147.0 million, net of income taxes of $3.5 million. The impairment charge was recorded in the first quarter of Fiscal 2002 as a cumulative effect adjustment of a change in accounting principle. In Fiscal 2002, we also recorded goodwill of $4.9 million as a result of acquisitions, primarily in our IDT Media business segment.

The annual goodwill impairment assessment involves estimating the fair value of the reporting unit and comparing it with its carrying amount. If the carrying value of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential impairment loss. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. Should our estimates and assumptions regarding the fair value of our reporting units prove to be incorrect, we may be required to record an impairment loss to our goodwill in future periods and such impairment loss could be material. We estimate the fair value of our reporting units by applying discounted cash flows methodologies, as well as third party market value indicators.

Valuation of Long-Lived and Intangible Assets

We assess the recoverability of our long-lived assets and identifiable intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Factors we consider important which could trigger an impairment review include:

• significant underperformance relative to expected historical performance or projected future operating results;

• significant changes in the manner or use of the acquired assets or the strategy of our overall business;

• significant adverse changes in the business climate in which we operate; and

• loss of a significant contract.

If we determined that the carrying value of certain long-lived assets or identifiable intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we would

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measure any impairment based on the projected undiscounted cash flows, less the carrying amount of the asset. If the expected undiscounted future cash flows were less than the carrying value of the asset, we would record an impairment loss based on the difference between the estimated fair value and the carrying value.

Results of Operations

The following table sets forth the percentage of revenues represented by certain items in our statements of operations (revenues and costs and expenses are presented net of intercompany transactions):

	Year Ended July 31,
	2000		2001		2002
Revenues:
Retail Telecommunications Services:
Domestic and international prepaid,     rechargeable and private label calling cards	43.6	%	61.3	%	65.9	%
Consumer long distance services	2.3		5.0		7.3
Wholesale Telecommunications Services	47.6		31.6		20.2
Winstar	0.0		0.0		5.2
Internet Telephony	5.1		0.0		0.0
Media	1.4		2.1		1.4
	100.0		100.0		100.0
Costs and expenses:
Direct cost of revenues (exclusive of items shown below)	83.9		86.7		78.7
Selling, general and administrative	31.5		27.4		24.2
Depreciation and amortization	4.4		4.9		4.3
Impairment charges	0.0		16.2		7.5
Total costs and expenses	119.8		135.2		114.7
Loss from operations	(19.8	)	(35.2	)	(14.7	)
Interest income, net	0.7		4.3		1.4
Other income (expense):
Equity in loss of affiliates	(0.6	)	(6.1	)	(2.8	)
Gain on sales of subsidiary stock (1)	32.0		84.3		0.0
Investment and other income (expense), net	23.6		13.4		(0.8	)
Income (loss) before minority interests, income taxes, extraordinary item and cumulative effect of accounting change	35.9	%	60.7	%	(16.9	)%

(1) Consists of gains from sales of Net2Phone Class A common stock.

Accounting Treatment of Net2Phone

On August 11, 2000, we sold 14.9 million of our shares of Net2Phone Class A common stock to AT&T for $75 per share. Upon completing this transaction, our ownership interest in Net2Phone was reduced to approximately 10.0 million shares of Class A common stock, representing approximately a 16% ownership interest and a 21% voting interest. Consequently, beginning with the first quarter of Fiscal 2001, and through the end of Fiscal 2002, we did not consolidate Net2Phone’s results. Instead, we used the equity method to account for our ownership interest in Net2Phone. This change in the accounting treatment for our ownership stake in Net2Phone impacted the discussion of results for Fiscal 2001 compared to Fiscal 2000.

On October 23, 2001, we, Liberty Media and AT&T formed the LLC, which through a series of transactions among us, Liberty Media and AT&T now holds an aggregate of 28.9 million shares of Net2Phone’s Class A common stock. As of July 31, 2002, this holding represented approximately 46% of Net2Phone’s outstanding equity and approximately 63% of the total voting power of Net2Phone’s outstanding equity. The effective percentage held by each of the members of the LLC, including us, varies based on the market price for Net2Phone’s common stock

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and other factors. As of July 31, 2002, based on the market value of Net2Phone’s common stock in the fourth quarter of Fiscal 2002, we held a theoretical effective economic interest in Net2Phone of approximately 19.2% Liberty Media held approximately 22.7% and AT&T held approximately 3.6%.

We serve as the managing member of the LLC and have the right to appoint a majority of its board of managers. The board of managers directs the voting of all Net2Phone shares held by the LLC, thereby giving us effective control over the voting of the Net2Phone shares (but not their disposition, which requires consent of the members ) held by the LLC.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. SFAS 144 also amends Accounting Research Bulletins (“ARB”) 51, Consolidated Financial Statements, as amended by SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. We adopted SFAS 144 as of August 1, 2002. As a result, we no longer account for our investment in Net2Phone under the equity method of accounting, but instead account for it under the consolidation method of accounting. The change in accounting method will not alter the net income or loss that we would have reported had we continued to account for our investment in Net2Phone under the equity method of accounting. Summarized financial information of Net2Phone for the Fiscal years ended July 31, 2001 and 2002 is as follows:

	2001			2002
	(in thousands)
Total current assets	$	287,572		$	114,138
Total assets		411,403			171,696
Working capital		218,100			60,321
Revenues		150,198			137,855
Loss from operations		(240,210	)		(257,794	)

In conjunction with the formation of the LLC, we guaranteed to AT&T the value of approximately 1.4 million shares of IDT Class B Common Stock held by AT&T. Pursuant to the guarantee the value of the IDT Class B Common Stock held by AT&T covered by the guarantee is less than $27.5 million on October 19, 2002, and AT&T or its affiliates retains all of the shares as of that date, then we will be obligated to pay AT&T the difference, in cash, additional shares of IDT Class B Common Stock, or a combination of the two, at our option. In connection with this obligation, we recorded in “investment and other income (expense)” a net charge of $5.3 million in Fiscal 2002. We were subject to additional charges of $1 million through October 19, 2002, based on changes in the market value of IDT Class B Common Stock. As a result, our total liability is $6.3 million as of October 19, 2002.

Fiscal 2002 Compared to Fiscal 2001

Results of Operations

We evaluate the performance of our operating business segments based primarily on income (loss) from operations, which includes the impact from depreciation, amortization and impairment charges, but prior to interest income (expense), other income (expense), income taxes, extraordinary items and cumulative effect of accounting changes. Accordingly, certain adjustments are properly not reflected in the operating business segments discussions, but are only reflected in our Consolidated company discussion.

Consolidated

Revenues.    Our revenues increased 24.4%, from $1,230.9 million in Fiscal 2001 to $1,531.6 million in Fiscal 2002. Excluding our Winstar segment, which was acquired in Fiscal 2002, our revenues increased 18.0%,

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to $1,452.0 million in Fiscal 2002. The increase in our consolidated revenues is mainly attributable to an 18.8% increase in IDT Telecom’s revenues. The growth in IDT Telecom’s revenues primarily resulted from a 55% growth in minutes of use (excluding minutes related to our consumer long distance business) from 7.0 billion in Fiscal 2001 to 11.3 billion in Fiscal 2002.

Direct Cost of Revenues.    Direct cost of revenues increased by 13.0%, from $1,066.8 million in Fiscal 2001 to $1,205.0 million in Fiscal 2002. Excluding our Winstar segment, direct cost of revenues increased 4.0% to $1,109.3 million in Fiscal 2002. As a percentage of total revenues, direct costs decreased from 86.7% in Fiscal 2001 to 78.7% in Fiscal 2002 (76.4% excluding our Winstar segment). The increase in absolute dollar terms is due primarily to the significant growth in our telecommunications minutes of use. The decline in direct costs as a percentage of revenues is due to decreases in termination and other direct costs, as measured on a per-minute basis, which outweighed the decline in average revenue-per-minute, as detailed below.

Selling, General and Administrative.    Selling, general and administrative expenses increased 9.9%, from $337.1 million in Fiscal 2001 to $370.6 million in Fiscal 2002. Excluding our Winstar segment, selling, general and administrative expenses decreased 11.9% to $296.8 million in Fiscal 2002. As a percentage of total revenues, selling, general and administrative expenses decreased from 27.4% in Fiscal 2001 to 24.2% in Fiscal 2002 (20.4% excluding the Winstar segment). The decline in selling, general and administrative expenses, in both absolute dollar terms (excluding our Winstar segment) and as a percentage of revenues, was due to the absence in Fiscal 2002 of several items recorded during Fiscal 2001, including (i) $6.0 million in costs relating to the discontinuation of IDT Wireless, (ii) expenses of $12.5 million related to management incentive compensation arising from the completion of the sale of our shares of Net2Phone Class A common stock to AT&T, (iii) $26.4 million in non-cash expenses incurred in relation to the establishment of a corporate charitable foundation, which was funded with our Class B Common Stock, and (iv) $6.5 million in executive severance, amendments of option agreements and other expenses incurred in connection with our organizational restructuring.

We anticipate that selling, general and administrative expenses will increase in dollar terms in the future, and will continue to be a significant percentage to total revenues, as we expand both IDT Telecom’s businesses and our new Winstar and Media businesses.

Depreciation and Amortization.    Depreciation and amortization expenses increased 9.3%, from $60.4 million in Fiscal 2001 to $66.0 million in Fiscal 2002. Excluding our Winstar segment, depreciation and amortization expenses decreased 1.8%, to $59.3 million in Fiscal 2002. As a percentage of revenues, depreciation and amortization expenses decreased from 4.9% in Fiscal 2001 to 4.3% in Fiscal 2002 (4.1% excluding our Winstar segment). Excluding the Winstar segment, depreciation and amortization expenses decreased, in absolute dollar terms, primarily because we no longer amortize goodwill as a result of our adoption, as of August 1, 2001, of SFAS No. 142. Partially offsetting the decrease in amortization expenses is the increase in depreciation expenses as a result of our higher fixed asset base during Fiscal 2002, reflecting the expansion of our telecommunications network infrastructure and facilities. Depreciation and amortization expenses declined as a percentage of revenues, due to the adoption of SFAS No. 142, as well as the increase in revenues in Fiscal 2002. We anticipate that depreciation expenses will continue to increase in absolute dollars, as we continue to add to our asset base, particularly in IDT Telecom’s businesses as we implement our growth strategy.

Impairment Charges.    We recorded impairment charges of $114.3 million during Fiscal 2002, compared to impairment charges of $199.4 million recorded in Fiscal 2001. Impairment charges included charges of $110.4 million and $193.4 million during Fiscal 2002 and 2001, respectively, relating to the write down of the value of our Tycom Ltd. (“TyCom”) undersea fiber asset, reflecting the significant erosion of the market value of undersea fiber. During Fiscal 2002, we recorded additional impairment charges of $3.9 million, reflecting the write-down of certain decommissioned European telecommunications switch equipment and certain discontinued wireless-related equipment. During Fiscal 2001, additional impairment charges of $6.0 million were recorded to write down certain equipment previously used to provide dial-up Internet access services.

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Loss from Operations.    Our loss from operations was $224.3 million in Fiscal 2002 compared to our loss from operations of $432.7 million in Fiscal 2001. Excluding our Winstar segment, our loss from operations was $127.7 million in Fiscal 2002. The reduction in our loss from operations was due to IDT Telecom’s increased revenues and gross margins, the decrease in overall selling, general and administrative expenses (excluding our Winstar segment), as well as lower impairment charges in Fiscal 2002 compared to Fiscal 2001.

Interest and Other Income (Expense).    Net interest income amounted to $21.8 million in Fiscal 2002, compared to net interest income of $52.8 million in Fiscal 2001. The reduction in net interest income was due to lower rates of return earned by our invested cash, cash equivalents and marketable securities, reflecting the significant drop in market interest rates during Fiscal 2002.

Other income (expense) amounted to an expense of $56.1 million in Fiscal 2002, compared to income of $1,127.4 million in Fiscal 2001. Included in other income (expense) in Fiscal 2002 were losses of $41.4 million and $2.6 million associated with recording our pro-rata share of Net2Phone and other affiliates’ losses, respectively, through the equity method, a charge of $5.3 million related to an obligation to guarantee to AT&T the value of 1.4 million shares of IDT Class B common stock owned by AT&T, and net losses from a variety of other investments totaling $6.8 million.

Included in other income (expense) in Fiscal 2001 is a realized gain of $1,037.7 million on our sale of 14.9 million shares of Net2Phone Class A common stock to AT&T and $313.5 million in gains related to the settlement of our lawsuit with TyCom. Partially offsetting this income was a recognized loss of $129.2 million related primarily to the sale of some of our Terra Networks, S.A. (“Terra”) shares, as well as other losses, including losses of approximately $58.8 million, $14.6 million and $1.7 million associated with recording our pro-rata share of Net2Phone, Teligent, Inc. (“Teligent”) and other affiliates losses, respectively, through the equity method and net losses from a variety of other investments totaling $19.5 million.

Income Taxes.    We recorded an income tax benefit of $124.3 million in Fiscal 2002, compared to an income tax expense of $209.4 million in Fiscal 2001.

Cumulative Effect of Accounting Change.    In accordance with our adoption of SFAS No. 142, we performed the required impairment tests of goodwill as of August 1, 2001, and we recorded an impairment charge of $147.0 million, net of income taxes of $3.5 million. The impairment charge was recorded as a cumulative effect adjustment of a change in accounting principle.

Net Income (Loss).    Our consolidated net loss, after the cumulative effect adjustment of a change in accounting principle detailed above, was $303.3 million in Fiscal 2002 compared to consolidated net income of $532.4 million in Fiscal 2001. The recording of a net loss, versus net income in Fiscal 2001, was a result of the combined factors for each of the segments discussed below, as well as those items detailed above.

IDT Telecom—Retail Telecommunications Services and Wholesale Telecommunications Services Segments

Revenues. IDT Telecom’s revenues increased 18.8%, from $1,204.5 million in Fiscal 2001 to $1,430.7 million in Fiscal 2002.

IDT Telecom’s revenues increased primarily as a result of a 55% growth in minutes of use (excluding minutes related to our consumer long distance business) from 7.0 billion in Fiscal 2001 to 11.3 billion in Fiscal 2002. IDT Telecom increased its minutes in both its retail telecommunications services (calling cards and consumer long distance) and wholesale telecommunications services segments, in both the U.S. and international operations. IDT Telecom’s minutes of use grew at a faster rate than did its revenues, reflecting a decline in its average revenues per minute from $0.145 in Fiscal 2001 to $0.120 in Fiscal 2002. IDT Telecom’s decrease in its average revenues per minute is due to a number of factors, including (i) continued pricing pressure in both retail

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and wholesale markets, (ii) lower costs for terminating traffic, which allowed IDT Telecom, in turn, to lower its prices to maintain/capture market share, and (iii) a continued shift in mix towards retail calling card revenues. IDT Telecom’s average revenue-per-minute on retail calling cards is generally lower than its average revenue-per-minute in its wholesale carrier business, as lower revenue-per-minute destinations, such as the United States and Mexico, account for a larger proportion of overall minutes in its retail calling card business.

Revenues from IDT Telecom’s retail telecommunications services increased 37.4%, from $816.4 million in Fiscal 2001 to $1,121.7 million in Fiscal 2002, as a result of increased sales of IDT-branded calling cards and higher consumer long distance revenues. As a percentage of IDT Telecom’s overall revenue, retail telecommunications services’ revenues increased from 67.8% in Fiscal 2001 to 78.4% in Fiscal 2002. IDT Telecom’s calling card sales increased 33.6%, from $754.9 million in Fiscal 2001 to $1,008.9 million in Fiscal 2002, fueled by the introduction of several new calling cards in the United States, which allowed us to continue to expand our distribution beyond our traditional Northeastern U.S. territory, as well as the continued strong growth of European operations, both in our U.K. market, as well as in other markets such as Spain and the Netherlands. In both the United States and Europe, IDT Telecom continued to take market share from competitors that have scaled back their calling card operations or have left the market entirely. During Fiscal 2002, IDT Telecom launched calling card operations in Argentina. Although sales of calling cards in this region during Fiscal 2002 were not material, we expect sales in Latin America to be a significant driver of IDT Telecom’s overall calling card sales growth during Fiscal 2003.

Calling card sales as a percentage of IDT Telecom’s retail telecommunications services revenues decreased from 92.5% in Fiscal 2001 to 89.9% in Fiscal 2002, as revenues from consumer long distance services grew at a faster rate than did calling card revenues. Revenues from consumer long distance services, in which we act as a switchless reseller of another company’s network, experienced significant growth in minutes of use in Fiscal 2002, with revenues increasing 97.1%, from $56.1 million in Fiscal 2001 to $110.5 million in Fiscal 2002. The consumer long distance revenues gains are attributable to the continued aggressive growth of our flat-rate, $0.05 a minute long distance calling plan, which has been driven by increased marketing expenditures, resulting in a significant increase in the number of consumer long distance customers. At the end of Fiscal 2002, we had approximately 515,000 active customers for our consumer long distance services, compared to approximately 240,000 customers at the end of Fiscal 2001.

Revenues from IDT Telecom’s other retail telecommunications services businesses, consisting primarily of call reorigination services, amounted to $2.4 million in Fiscal 2002, versus $5.4 million in Fiscal 2001.

IDT Telecom’s wholesale telecommunications services revenues declined 20.4%, from $388.1 million in Fiscal 2001 to $309.0 million in Fiscal 2002. As a percentage of IDT Telecom’s total revenues, wholesale telecommunications services revenues decreased from 32.2% in Fiscal 2001 to 21.6% in Fiscal 2002. The decline in revenues occurred despite an increase in wholesale carrier minutes, reflecting a significant decline in the average revenue-per-minute. In recent years, IDT Telecom’s wholesale carrier business has curtailed or ceased completely our sales to financially unstable carriers. During Fiscal 2002, IDT Telecom continued to rebuild its customer base through the addition of new customers and by increasing sales to our larger, more financially stable customers. On a quarterly basis, IDT Telecom’s wholesale carrier revenues have sequentially increased during each of the last three quarters of Fiscal 2002, as the increase in minutes outweighed the decline in per-minute revenues. Looking to Fiscal 2003, we anticipate an increase in carrier revenues when compared to Fiscal 2002.

Direct Cost of Revenues.    Direct cost of revenues for IDT Telecom increased 4.8%, from $1,055.9 million in Fiscal 2001 to $1,106.9 million in Fiscal 2002, due to the higher revenues base. As a percentage of total revenues, direct costs declined to 77.4% in Fiscal 2002, from 87.7% in Fiscal 2001. The decrease in direct costs as a percentage of total revenues is attributable to several factors. Firstly, IDT Telecom’s per-minute termination costs decreased at a faster pace than did its per-minute price realizations, resulting in wider margins. In addition, toll-free costs and network-related costs were well-controlled because of continued operating efficiency gains

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and lower prices from suppliers. Finally, IDT Telecom benefited from a continued shift in revenues mix towards higher-margin retail telecommunications services business lines.

Included in direct cost of revenues for Fiscal 2002 is a $4.5 million charge related to the early termination of a long-term bandwidth contract, as we sought to take advantage of the lower bandwidth prices currently available to replace existing, above-market price bandwidth.

Selling, General and Administrative.    IDT Telecom’s selling, general and administrative expenses from IDT Telecom’s operations increased 16.4%, from $201.9 million in Fiscal 2001 to $235.1 million in Fiscal 2002. The increase in selling, general and administrative expenses for IDT Telecom’s operations is due to several factors, including increased sales and marketing efforts for our retail telecommunications services, such as calling cards and consumer long distance, as well as increased salaries, facilities costs and professional fees related to the expansion of our infrastructure and bases of operation to facilitate our current and anticipated future sales growth. During Fiscal 2002, our headcount increased 11.6%, from 1,098 at the end of Fiscal 2001, to 1,225 at the end of Fiscal 2002, resulting in additional payroll and other employee-related costs.

As a percentage of IDT Telecom’s total revenues, selling, general and administrative expenses amounted to 16.4% in Fiscal 2002, compared to 16.8% in Fiscal 2001, as the increases in these expenses generally corresponded with the revenue growth we experienced during the year.

Depreciation and Amortization.    IDT Telecom’s depreciation and amortization expense rose 9.0%, from $50.2 million in Fiscal 2001, to $54.7 million in Fiscal 2002, reflecting the continued expansion of our fixed asset base, as we invest to accommodate our current and anticipated future growth, offset by lower amortization expense as a result of our adoption of SFAS No. 142. As a percentage of IDT Telecom’s total revenues, depreciation and amortization expenses amounted to 3.8% in Fiscal 2002, versus 4.2% in Fiscal 2001.

Impairment Charges.    During Fiscal 2002, IDT Telecom recorded impairment charges of $3.2 million, reflecting the write-down of certain decommissioned European telecommunications switch equipment. No impairment charges were recorded by IDT Telecom during Fiscal 2001.

Income (Loss) from Operations.    Our telecommunications businesses recorded income from operations of $30.8 million in Fiscal 2002, compared to a loss of $103.6 million in Fiscal 2001. The reversal of the operating loss recorded in Fiscal 2001 resulted primarily from the revenue growth, gross margin expansion and well-controlled selling, general and administrative expenses described above.

IDT Media Segment (Formerly IDT Ventures Segment)

Revenues.    Revenues from IDT Media’s businesses decreased 19.3%, from $26.4 million in Fiscal 2001 to $21.3 million in Fiscal 2002. The decrease in IDT Media’s revenues reflects the gradual exit by IDT Media from its unprofitable dial-up Internet and Digital Subscriber Line (“DSL”) businesses. Currently, IDT Media’s revenues are primarily comprised of revenues from its CTM Brochure Display, Inc. (“CTM”) business, a brochure distribution company.

Direct Cost of Revenues.    IDT Media’s direct cost of revenues declined 78.2%, from $10.9 million in Fiscal 2001 to $2.4 million in Fiscal 2002. As a percentage of IDT Media’s revenues, these costs declined from 41.2% in Fiscal 2001 to 11.1% in Fiscal 2002. The decline in IDT Media’s direct costs, in both absolute dollar terms and as a percentage of revenue, reflects its exit from the dial-up Internet and DSL businesses, and a general refocusing of IDT Media’s portfolio of businesses. Although this refocusing of IDT Media’s business portfolio entailed a shift from more speculative ventures to more stable, entrepreneurial initiatives in the radio, technology and print media businesses, most of IDT Media’s businesses remain in the early stages of their development. As such, we anticipate that direct costs will continue to account for a relatively small percentage of IDT Media’s revenue, with most of the expenses associated with these businesses to be incurred in the form of selling, general, administrative and development costs.

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Selling, General and Administrative.    IDT Media recorded $37.6 million in selling, general and administrative expenses in Fiscal 2002, compared to $74.3 million in Fiscal 2001. The decrease in selling, general, and administrative expenses in IDT Media’s businesses reflects its exit from the dial-up and DSL Internet access businesses, as well as the general refocusing of its portfolio of businesses. In addition, during Fiscal 2002, IDT Media implemented stricter management controls over operating expenses. IDT Media’s Fiscal 2001 selling, general and administrative expenses also included $6.0 million in expenses relating to the discontinuation of IDT Wireless, and expenses of $12.5 million related to management incentive compensation arising from the completion of the sale of our Net2Phone Class A common stock to AT&T.

Over the next few quarters, as our Media segment moves its different businesses through their respective development stages, we anticipate that IDT Media’s selling, general and administrative expenses will likely exceed, in absolute dollar terms, its revenues.

Depreciation and Amortization.    IDT Media’s depreciation and amortization expenses amounted to $2.3 million in Fiscal 2002, versus $7.5 million in Fiscal 2001. This decrease is due to the reduced fixed asset base resulting from our sale or impairment of assets associated with our former dial-up Internet and DSL businesses, as well as due to lower amortization expenses as a result of our adoption of SFAS No. 142. As a percentage of revenues, depreciation and amortization expenses fell to 10.6% in Fiscal 2002, from 28.4% in Fiscal 2001.

Impairment Charges.    We recorded impairment charges of $111.1 million during Fiscal 2002, compared to impairment charges of $199.4 million recorded in Fiscal 2001. Impairment charges included charges of $110.4 million and $193.4 million during Fiscal 2002 and 2001, respectively, relating to the write down of the value of our Tycom undersea fiber asset, reflecting the significant erosion of the market value of undersea fiber. During Fiscal 2002, we also recorded impairment charges of $0.7 million, reflecting the write-down of certain discontinued wireless-related equipment. During Fiscal 2001, impairment charges of $6.0 million were also recorded to write down certain equipment previously used to provide dial-up Internet access services.

Loss from Operations.    IDT Media’s loss from operations in Fiscal 2002 was $132.0 million, compared to an operating loss of $265.6 million in Fiscal 2001, reflecting the implementation of stricter management controls over operating expenses, as well as the refocusing of its business portfolio. IDT Media’s higher loss in Fiscal 2001 also reflects (i) the larger undersea fiber asset impairment, as detailed above, (ii) the impairment charge of $6.0 million to write down certain equipment previously used to provide dial-up Internet access services, and (iii) the $6.0 million in costs associated with the discontinuation of the IDT Wireless business.

Winstar Segment

We acquired Winstar in December 2001. Accordingly, the results of operations for our Winstar segment, which will be detailed below, will contain only references to the part of Fiscal 2002 during which we owned and operated Winstar. We will not make reference to Fiscal 2001 results we had not yet acquired Winstar during that period.

Revenues.    Revenues from our Winstar segment were $79.6 million in Fiscal 2002, representing 5.2% of our total revenues. Revenues declined quarter-to-quarter during the last two quarters of Fiscal 2002 as our Winstar segment exited selective geographical markets as well as its wireline resale business.

In Fiscal 2003, our Winstar segment will focus on its facilities-based switched broadband and local service offerings in 22 geographic markets. Within these 22 core markets, our Winstar segment has a network of over 3,000 provision-ready buildings (i.e., buildings in which its technology is currently deployed). Furthermore, our Winstar segment has access rights and options to connect to its network more than 1,800 additional buildings that are not currently outfitted for operation but that have lines-of-site to existing hub buildings.

Direct Cost of Revenues.    Direct cost of revenues for our Winstar segment were $95.7 million in Fiscal 2002. Direct cost of revenues consist primarily of two components, connectivity for the network backbone and

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lease payments for the network of provision-ready buildings. Network backbone costs totaled $77.3 million, accounting for 81% of total direct cost of revenues. Direct cost of revenues associated with lease payments for the building network accounted for $18.4 million. Direct cost of revenues trended down significantly from $42.1 million in the third quarter of Fiscal 2002 to $33.2 million in the fourth quarter of Fiscal 2002 as a result of various cost cutting initiatives undertaken by Winstar, including the grooming of its network backbone as well as re-negotiation of leases on its network of buildings.

Selling, General and Administrative.    Selling, general and administrative expenses associated with our Winstar segment were $73.8 million in Fiscal 2002. The main component of selling, general and administrative expenses was employee compensation and benefits, accounting for $40.8 million, or about 55% of total selling, general and administrative expenses. Although as a percentage of total selling, general and administrative expenses we expect this ratio to remain consistent, we believe that on a nominal basis employee compensation and benefits will be trending down, as exemplified by the decline to $13.9 million in the fourth quarter, as compared with $17.1 million recorded in the third quarter. Since the acquisition of Winstar in December 2001, overall headcount has been reduced from approximately 750 to approximately 470 currently. Overall, selling, general and administrative expenses fell from $31.9 million in the third quarter of Fiscal 2002 to $24.3 million in the fourth quarter of Fiscal 2002. The overall decrease, in addition to the aforementioned decline in employee compensation cost, can be attributed to a reduction of non-network rents, the rejection of various service contracts per the bankruptcy order, and synergies being realized by the Winstar/IDT relationship.

Depreciation and Amortization.    Depreciation and amortization expenses amounted to $6.7 million, representing 8.4% of our Winstar segment’s revenues in Fiscal 2002.

Loss from Operations.    Our Winstar segment’s loss from operations in Fiscal 2002 was $96.6 million. Losses from operations also trended down significantly quarter-over-quarter declining from a loss of $43.8 million in the third quarter of Fiscal 2002 to a loss of $33.6 million in the fourth quarter of Fiscal 2002. The improvement, as mentioned above, is due in large part to cost reductions in direct costs of revenues and selling, general and administrative expenses.

Corporate

Our Corporate division consists of corporate overhead, such as investment-related costs, corporate governance costs, public relations, treasury management and other general corporate expenses, as well as depreciation expenses. Such corporate services are shared generally by our other operating segments, and are not allocable to any specific segment. Our Corporate division does not generate any revenues, nor does it incur any direct cost of revenues.

Selling, General and Administrative.    We recorded $24.1 million in corporate overhead (including expenses associated with our treasury and investment activities) in Fiscal 2002, compared to $60.9 million recorded in Fiscal 2001. As a percentage of our total consolidated revenue, corporate selling, general and administrative expenses amounted to 1.6% in Fiscal 2002, compared to 5.0% in Fiscal 2001.

Corporate overhead in Fiscal 2001 included (i) $26.4 million in non-cash expenses incurred in connection with the establishment of a corporate charitable foundation, which was funded with our Class B Common Stock, and (ii) $6.5 million in executive severance, amendments of option agreements and other expenses incurred in connection with our organizational restructuring.

Depreciation and Amortization.    Our Corporate division’s depreciation expenses declined from $2.6 million in Fiscal 2001 to $2.4 million in Fiscal 2002.

Loss from Operations.    Our Corporate division’s loss from operations was $26.5 million in Fiscal 2002, compared to $63.5 million recorded in Fiscal 2001. Fiscal 2001 corporate overhead included (i) $26.4 million in non-cash expenses incurred in connection with the establishment of a corporate charitable foundation, and (ii) $6.5 million in executive severance, amendments of option agreements and other expenses incurred in connection with our organizational restructuring.

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Fiscal 2001 Compared to Fiscal 2000

Results of Operations

Consolidated

Revenues.    Our revenues increased 12.5%, from $1,093.9 million in Fiscal 2000 to $1,230.9 million in Fiscal 2001. The increase in our total consolidated revenues in Fiscal 2001 was due to a 17.7% increase in IDT Telecom’s revenues, which resulted primarily from a 65.9% increase in telecommunications minutes-of-use.

As a result of the change in accounting for our ownership interest in Net2Phone from the consolidation method to the equity method, we did not record Internet Telephony segment revenues in Fiscal 2001. Internet Telephony segment revenues amounted to $56.1 million in Fiscal 2000. Internet Telephony segment revenues as a percentage of total consolidated revenues amounted to 5.1% in Fiscal 2000. Excluding the effect of our Internet Telephony segment’s revenues in Fiscal 2000, total consolidated revenues in Fiscal 2001 increased 18.6%. In 2001, we recorded a loss of $58.8 million, to recognize our pro-rata share of Net2Phone’s losses under the equity method.

Direct Cost of Revenues.    Direct cost of revenues increased by 16.2%, from $918.3 million in Fiscal 2000 to $1,066.8 million in Fiscal 2001. As a percentage of our total revenues, these costs increased from 83.9% in Fiscal 2000 to 86.7% in Fiscal 2001. The increase in direct cost of revenues in both absolute dollar terms and as a percentage of revenues, was the result of the pricing pressure experienced by both IDT Telecom’s retail telecommunications services and wholesale telecommunications services business segments, as detailed below. These increases were partially offset by the exclusion of direct cost of revenues related to our Internet Telephony segment, reflecting the deconsolidation of Net2Phone in Fiscal 2001. These direct costs amounted to $27.9 million in Fiscal 2000. Excluding Net2Phone’s direct cost of revenues in Fiscal 2000, total consolidated direct cost of revenues in Fiscal 2001 increased 19.8%.

Selling, General and Administrative.    Our selling, general and administrative expenses decreased 1.9%, from $343.7 million in Fiscal 2000 to $337.1 million in Fiscal 2001. As a percentage of total revenues, these costs decreased from 31.4% in Fiscal 2000 to 27.4% in Fiscal 2001. The decline in selling, general and administrative expenses, in dollar terms, is primarily due to the exclusion in Fiscal 2001 of selling, general and administrative expenses related to our Internet Telephony segment. In Fiscal 2000, we recorded $147.3 million in Net2Phone-related expenses, including approximately $41.0 million in non-cash compensation as a result of option grants made by Net2Phone. Mostly offsetting the exclusion of our Internet Telephony segment’s expenses were increased selling, general and administrative expenses associated with both our core retail and wholesale telecommunications services businesses, and our Media segment, as well as several one-time expenses recorded during Fiscal 2001. These one-time expenses included (i) $6.0 million in costs relating to the discontinuation of IDT Wireless, (ii) $12.5 million related to management incentive compensation arising from the completion of the sale of our Net2Phone shares to AT&T, (iii) $26.4 million in non-cash expenses incurred in relation to the establishment of a corporate charitable foundation, which was funded with our Class B Common stock, and (iv) $6.5 million in executive severance, amendments of option agreements and other expenses incurred in connection with our organizational restructuring.

Depreciation and Amortization.    Our depreciation and amortization expenses increased 24.3%, from $48.6 million in Fiscal 2000 to $60.4 million in Fiscal 2001. As a percentage of our revenues, these expenses increased from 4.4% in Fiscal 2000 to 4.9% in Fiscal 2001. This increase is due primarily to our higher fixed asset base during Fiscal 2001 as compared with Fiscal 2000, reflecting our efforts to expand our telecommunications network infrastructure and our facilities. The increase in depreciation and amortization expenses was partially offset by the change in accounting treatment of our investment in Net2Phone, whereby we no longer consolidate Net2Phone.

Impairment Charges.    During Fiscal 2001, we recorded impairment charges of $199.4 million, consisting of a $193.4 million writedown of the value of our TyCom undersea fiber asset, reflecting the erosion in market

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prices for bandwidth, and a $6.0 million writedown of certain equipment previously used to provide dial-up Internet access services. We did not record any impairment charges in Fiscal 2000.

Loss from Operations.    Our loss from operations was $432.7 million in Fiscal 2001, compared to a loss from operations of $216.6 million in Fiscal 2000.

Loss from operations for our Internet Telephony segment amounted to approximately $125.9 million for Fiscal 2000, with no corresponding loss from operations recorded during Fiscal 2001, reflecting the change to the equity method of accounting for Net2Phone’s results.

The increase in loss from operations was due to the increase in overall selling, general and administrative expenses discussed above, the increase in depreciation and amortization expense, as well as the $199.4 million in impairment charges discussed above.

Interest and Other Income (Expense).    Net interest income amounted to $52.8 million in Fiscal 2001, compared to net interest income of $7.2 million in Fiscal 2000. The increase in net interest income was due primarily to the higher returns on our significantly larger balances in invested cash, cash equivalents and marketable securities, as a result of the over $1.0 billion in proceeds we received from the sale of Net2Phone shares to AT&T in the first quarter of Fiscal 2001.

Other income (expense) amounted to income of $1,127.4 million in Fiscal 2001, compared to income of $602.3 million in Fiscal 2000.

Included in other income (expense) for Fiscal 2001 was a realized gain of $1,037.7 million on our sale of 14.9 million shares of Net2Phone Class A common stock to AT&T and approximately $313.5 million in gains related to the settlement of our lawsuit with TyCom. Partially offsetting this income was a recognized loss of approximately $129.2 million related primarily to the sale of some of our Terra shares, as well as other losses, including losses of approximately $58.8 million, $14.6 million and $1.7 million associated with recording our pro-rata share of Net2Phone, Teligent and other affiliates losses, respectively, through the equity method and net losses from a variety of other investments totaling $19.5 million.

Included in other income (expense) for Fiscal 2000 is $65.5 million in gains recognized by us in conjunction with Net2Phone’s sale of shares in its initial public offering and concurrent conversion of Net2Phone’s series A preferred stock to Class A common stock in August 1999, a realized gain of $182.6 million on the total sale of 5.6 million Net2Phone shares as part of Net2Phone’s secondary offering in December 1999, and approximately $102.2 million on Net2Phone’s sale of approximately 2.8 million shares for approximately 806,000 shares of Yahoo, Inc. (NASDAQ: YHOO) and other equity transactions. Also included in other income (expense) was a gain of approximately $231.0 million related to the sale of our interests in two Internet joint ventures with Terra in exchange for Terra stock, a gain of approximately $24.9 million on the sale of some of our Terra shares in the fourth quarter of Fiscal 2000, and other investment gains totaling $2.4 million. The above were partially offset by approximately $6.3 million in losses we recognized as part of recording our pro-rata share of losses in affiliates, through the equity method. The exchange was part of a larger strategic relationship between Net2Phone and Yahoo!, in which Net2Phone agreed to provide certain Internet telephony services through Yahoo!’s Web portal.

Income Taxes.    We recorded income tax expense of approximately $209.4 million attributable to continuing operations in Fiscal 2001, compared to income tax expense of approximately $218.4 million in Fiscal 2000.

Extraordinary Item.    In Fiscal 2000, we recorded an extraordinary loss on the extinguishment of debt in the amount of $3.0 million, net of income taxes of $1.9 million. No such items were recorded in Fiscal 2001.

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Net Income (Loss).    Our consolidated net income was $532.4 million in Fiscal 2001 compared to consolidated net income of $230.9 million in Fiscal 2000. The increase in consolidated net income was a result of the combined factors for each of the segments discussed below, as well as the factors detailed above.

IDT Telecom—Retail Telecommunications Services and Wholesale Telecommunications Services Segments

Revenues.    IDT Telecom’s revenues increased 17.7%, from $1,023.0 million in Fiscal 2000 to $1,204.5 million in Fiscal 2001.

IDT Telecom’s revenues increased primarily as a result of 65.9% growth in minutes of use (excluding minutes related to its consumer long distance business) from 4.25 billion in Fiscal 2000 to 7.05 billion in Fiscal 2001. The increase in minutes was due to increased marketing of IDT Telecom’s calling cards, which outweighed the effects of lower wholesale carrier minutes. Minutes of use grew at a faster rate than did telecommunications revenues, reflecting a decline in the average revenue per minute. The average revenue per minute decreased during Fiscal 2001 compared to Fiscal 2000, despite the exit of several competitors from IDT Telecom’s core retail telecommunications services and wholesale telecommunications services markets, due to the intensified price competition initiated by our remaining competitors, as they attempt to defend their remaining share of the market. The decline in wholesale carrier minutes resulted from a reduction in the number of wholesale carrier services clients, reflecting an ongoing transition of IDT Telecom’s wholesale customer base towards a smaller group of larger, more financially stable customers. The decline in wholesale carrier minutes resulted in a decrease in wholesale telecommunications revenues of 25.4%, from $520.5 million in Fiscal 2000 to approximately $388.1 million in Fiscal 2001. As a percentage of IDT Telecom’s revenues, wholesale telecommunications services revenues decreased from 50.9% in Fiscal 2000 to 32.2% in Fiscal 2001.

Revenues from IDT Telecom’s retail telecommunications services increased 62.5%, from $502.5 million in Fiscal 2000 to $816.4 million in Fiscal 2001, as a result of increased sales of IDT-branded calling cards and higher consumer long distance revenues. As a percentage of overall telecommunications revenue, retail telecommunications services revenue increased from 49.1% in Fiscal 2000 to 67.8% in Fiscal 2001. Calling card sales increased 58.3%, from $477.0 million in Fiscal 2000 to $754.9 million in Fiscal 2001, fueled by the introduction of several new calling cards and a continued expansion of market share. We continued to take market share from competitors who have scaled back their calling card operations or have left the market entirely. In addition, calling card revenues increased as a result of the February 2001 acquisition of the phone card operations of PT-1. Calling card sales as a percentage of retail telecommunication services revenues decreased from 94.9% in Fiscal 2000 to 92.4% in Fiscal 2001, as revenues from consumer long distance services grew at a faster rate than did calling card revenues.

IDT Telecom’s revenues from consumer long distance services increased 295.1%, from $14.2 million in Fiscal 2000, to $56.1 million in Fiscal 2001. The consumer long distance revenue gains are attributable to the full introduction of our flat-rate, $0.05 a minute long distance calling plan, which was accompanied by an aggressive marketing campaign, resulting in a significant increase in the number of consumer long distance customers. Revenues from other retail businesses, consisting primarily of call reorigination services, amounted to $5.4 million in Fiscal 2001, versus $11.3 million in Fiscal 2000.

Direct Cost of Revenues.    The direct cost of IDT Telecom’s revenues increased 20.4%, from $877.2 million in Fiscal 2000 to $1,055.9 million in Fiscal 2001. As a percentage of revenues, these costs increased from 85.7% in Fiscal 2000 to 87.7% in Fiscal 2001. The dollar increase is due primarily to increases in underlying carrier and connectivity costs, as our telecommunications minutes of use grew significantly. As a percentage of total revenues, the increase in direct cost of revenues reflects the gross margin pressures experienced by both the retail telecommunications services and wholesale telecommunications services segments, reflecting intensified price competition in these markets. Gross margins were also adversely affected by network constraints, as demand for usage outpaced the rate of deployment of additional network capacity. This factor, which was

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particularly acute in our calling card business, where our minutes of use increased approximately 79.5% in Fiscal 2001, caused us to carry incremental minutes using transmission capacity obtained on a per-minute basis from other carriers. These minutes are generally associated with lower gross margins than are minutes carried over our own network. Partially offsetting these factors was the shift in telecommunications revenues mix towards higher gross margin retail telecommunications services revenues.

Selling, General and Administrative.    IDT Telecom’s selling, general and administrative expenses from telecommunications operations increased 53.2%, from $131.8 million in Fiscal 2000, to $201.9 million in Fiscal 2001. In recent fiscal years, selling, general and administrative expenses for IDT Telecom’s operations have increased significantly, due to several factors, including increased sales and marketing efforts for our retail telecommunications services, such as calling cards and consumer long distance, as well as increased salaries, facilities costs and professional fees related to the expansion of our infrastructure to facilitate our current and anticipated future sales growth.

Depreciation and Amortization.    IDT Telecom’s depreciation and amortization expenses increased 48.0%, from $33.9 million in Fiscal 2000 to $50.2 million in Fiscal 2001. As a percentage of revenues, depreciation and amortization expenses amounted to 4.2%, up from 3.3% in Fiscal 2000. This increase is due primarily to IDT Telecom’s higher fixed asset base during Fiscal 2001 as compared with Fiscal 2000, reflecting its efforts to expand its telecommunications network infrastructure and its facilities.

Loss from Operations.    IDT Telecom recorded a loss from operations of $103.6 million in Fiscal 2001, compared to a loss from operations of approximately $19.9 million in Fiscal 2000, reflecting the substantially higher selling, general and administrative expenses, as well as the higher depreciation and amortization expenses, recorded in Fiscal 2001.

IDT Media Segment (Formerly IDT Ventures Segment)

Revenues.    Revenues from our Media segment increased 78.6%, from $14.8 million in Fiscal 2000 to $26.4 million in Fiscal 2001. As a percentage of total consolidated revenues, Media businesses revenues increased to 2.2% in Fiscal 2001, from 1.5% in Fiscal 2000. The increase in Media businesses revenues reflects primarily our acquisition of CTM in June 2000.

Direct Cost of Revenues.    Direct cost of revenues decreased 17.5%, from $13.2 million in Fiscal 2000 to $10.9 million in Fiscal 2001. As a percentage of revenues, these costs declined from 89.2% in Fiscal 2000 to 41.2% in Fiscal 2001. The decline in direct cost of revenues, both in dollar terms and as a percentage of revenues, is primarily due to our gradual exit from the dial-up Internet access service business.

Selling, General and Administrative.    During Fiscal 2001, our Media segment recorded approximately $74.3 million in selling, general and administrative expenses associated, compared to $35.5 million in Fiscal 2000. The increase in selling, general and administrative expenses was due to additional development costs associated with some of our new Media businesses, as well as the acquisition of CTM. Included in selling, general and administrative expenses were also expenses of approximately $6.0 million recorded during the third quarter of Fiscal 2001, related to the discontinuation of IDT Wireless, and expenses of $12.5 million recorded during the first quarter of Fiscal 2001, related to management incentive compensation arising from the completion of the sale of our Net2Phone shares to AT&T.

Depreciation and Amortization.    IDT Media recorded depreciation and amortization expenses of $7.5 million in Fiscal 2001, compared to $5.2 million in Fiscal 2000, mostly as a result of the higher goodwill and fixed asset base resulting from our acquisition of CTM.

Impairment Charges.    In the fourth quarter of Fiscal 2001, IDT Media impaired and wrote down the value of its TyCom undersea fiber asset by $193.4 million, reflecting the significant erosion of market prices for

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undersea fiber. In addition, as a result of the sale of the majority of our dial-up Internet access customers and our gradual exit from the dial-up Internet access service business, IDT Media recorded a total charge of $6.0 million during the third and fourth quarter of Fiscal 2001, to write down certain equipment previously used to provide such services. No impairment charges were recorded during Fiscal 2000.

Loss from Operations.    IDT Media’s loss from operations increased in Fiscal 2001 to approximately $265.6 million, from approximately $39.1 million in Fiscal 2000. The increased loss in Fiscal 2001 reflects (i) the TyCom fiber asset impairment and the dial-up Internet access asset impairment detailed above, (ii) increased development costs for various IDT Media businesses, (iii) an increase in selling, general and administrative expenses as a result of the CTM acquisition, (iv) expenses related to management incentive compensation described above, and (v) costs associated with the discontinuation of the IDT Wireless business described above.

Corporate

Our Corporate division consists of corporate overhead, such as investment-related costs, corporate governance costs, public relations, treasury management and other general corporate as well as depreciation expenses. Such corporate services are shared generally by our other operating segments, and are not allocable to any specific segment. Our Corporate division does not generate any revenues, nor does it incur any direct cost of revenues.

Selling, General and Administrative.    During Fiscal 2001, our Corporate division recorded $60.9 million corporate overhead expenses, compared to $29.1 million in Fiscal 2000. This increase was due primarily to $26.4 million in non-cash expenses incurred in relation to the establishment of a corporate charitable foundation, which was funded with our Class B Common Stock. In addition, we incurred $6.5 million in executive severance, amendments of option agreements and other expenses in connection with our organizational restructuring.

Depreciation and Amortization.    Our Corporate division’s depreciation expenses for each of Fiscal 2001 and Fiscal 2000 amounted to $2.6 million.

Loss from Operations.    The loss from operations attributable to our Corporate division was $63.5 million in Fiscal 2001, compared to $31.7 million in Fiscal 2000. As described above, Fiscal 2001 loss from operations expenses included $26.4 million in non-cash expenses incurred in relation to the establishment of a corporate charitable foundation, and $6.5 million in executive severance, amendments of option agreements and other expenses incurred in connection with our organizational restructuring.

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Quarterly Results of Operations

The following table sets forth certain quarterly financial data for the eight fiscal quarters ended July 31, 2002. This quarterly information is unaudited, has been prepared on the same basis as the annual financial statements and, in the opinion of our management, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. Operating results for any quarter are not necessarily indicative of results for any future period.

IDT CORPORATION

CONSOLIDATED QUARTERLY INCOME STATEMENTS

(in thousands, except per share data)

	Oct. 31, 2000			Jan. 31, 2001			April 30, 2001			July 31, 2001			Oct. 31, 2001			Jan. 31, 2002			April 30, 2002			July 31, 2002
Revenues:
Retail Telecommunications Services	$	157,042		$	177,574		$	237,588		$	244,180		$	265,337		$	274,730		$	285,436		$	296,171
Wholesale Telecommunications Services		110,768			103,295			93,802			80,255			68,158			74,388			78,963			87,478
Winstar		—			—			—			—			—			19,175			33,095			27,334
Media		8,787			6,728			4,332			6,599			5,714			5,732			4,159			5,744
Total revenues		276,597			287,597			335,722			331,034			339,209			374,025			401,653			416,727
Costs and expenses:
Direct cost of revenues (exclusive of items shown below)		238,619			252,153			298,286			277,787			266,607			293,998			319,002			325,396
Selling, general and administrative		83,382			69,288			74,238			110,199			67,141			92,951			108,735			101,750
Depreciation and amortization		14,666			14,611			13,613			17,461			15,245			14,850			16,745			19,176
Impairment charges		—			—			5,156			194,201			2,781			—			—			111,529
Total costs and expenses		336,667			336,052			391,293			599,648			351,774			401,799			444,482			557,851
Loss from operations		(60,070	)		(48,455	)		(55,571	)		(268,614	)		(12,565	)		(27,774	)		(42,829	)		(141,124	)
Interest income, net		13,415			16,176			12,901			10,276			8,813			2,736			3,947			6,261
Other income (expense):
Equity in loss of affiliates		(869	)		(31,000	)		(20,000	)		(23,197	)		(5,250	)		(11,419	)		(25,125	)		(5,781	)
Gain on sale of subsidiary stock		1,037,726			—			—			—			—			—			—			—
Investment and other income (expense), net		276,747			(91,577	)		(22,899	)		2,491			(14,500	)		8,688			(2,503	)		(216	)
Income (loss) before minority interests, income taxes and cumulative effect of accounting change		1,266,949			(154,856	)		(85,569	)		(279,044	)		(23,502	)		(27,769	)		(66,510	)		(140,860	)
Minority interests		923			2,659			2,661			(517	)		6,052			5,161			4,316			6,541
Provision for (benefit from) income taxes		396,458			(40,411	)		(39,953	)		(106,699	)		(18,222	)		(15,718	)		(21,233	)		(69,172	)
Income (loss) before cumulative effect of accounting change		869,568			(117,104	)		(48,277	)		(171,828	)		(11,332	)		(17,212	)		(49,593	)		(78,229	)
Cumulative effect of accounting change, net of income taxes of $3,525		—			—			—			—			(146,983	)		—			—			—
Net income (loss)	$	869,568		$	(117,104	)	$	(48,277	)	$	(171,828	)	$	(158,315	)	$	(17,212	)	$	(49,593	)	$	(78,229	)
Earnings per share:
Income (loss) before cumulative effect of accounting change:
Basic	$	12.43		$	(1.77	)	$	(0.73	)	$	(2.44	)	$	(0.16	)	$	(0.23	)	$	(0.64	)	$	(0.99	)
Diluted	$	11.27		$	(1.77	)	$	(0.73	)	$	(2.44	)	$	(0.16	)	$	(0.23	)	$	(0.64	)	$	(0.99	)
Cumulative effect of accounting change, net of income taxes:
Basic	$	—		$	—		$	—		$	—		$	(2.06	)	$	—		$	—		$	—
Diluted	$	—		$	—		$	—		$	—		$	(2.06	)	$	—		$	—		$	—
Net income (loss):
Basic	$	12.43		$	(1.77	)	$	(0.73	)	$	(2.44	)	$	(2.22	)	$	(0.23	)	$	(0.64	)	$	(0.99	)
Diluted	$	11.27		$	(1.77	)	$	(0.73	)	$	(2.44	)	$	(2.22	)	$	(0.23	)	$	(0.64	)	$	(0.99	)
Weighted-average number of shares used in calculation of earnings per share—basic		69,931			66,190			66,471			70,448			71,409			73,382			76,938			78,704
Weighted-average number of shares used in calculation of earnings per share—diluted		77,185			66,190			66,471			70,448			71,409			73,382			76,938			78,704

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Liquidity and Capital Resources

Historically, we have satisfied our cash requirements through a combination of cash flow from operating activities, sales of equity and debt securities and borrowings from third parties. Additionally, we received approximately $1.0 billion from the sale of Net2Phone Class A common stock to AT&T in August 2000. Since that time, our cash requirements have been satisfied for the most part through our existing cash, cash equivalents and marketable securities balances.

As of July 31, 2002, we had cash, cash equivalents and marketable securities of approximately $1.0 billion and working capital of approximately $808.4 million. We generated cash flow from operating activities of approximately $21.7 million during Fiscal 2002, compared with cash flow from operating activities of approximately $26.2 million during Fiscal 2001. Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on the timing of operating cash receipts and payments, especially trade accounts receivable and trade accounts payable. Trade accounts receivable, trade accounts payable and accrued expenses have generally increased from period to period as our businesses have grown.

We used approximately $785.5 million in cash to fund investing activities in Fiscal 2002. This compares to net cash inflows from investing activities of $1,013.8 million in Fiscal 2001. The primary use of cash used in investing activities during Fiscal 2002 was the net purchases of $656.3 million of marketable securities (primarily U.S. government agency obligations). Our capital expenditure investments were approximately $39.2 million in Fiscal 2002, compared to approximately $106.5 million in Fiscal 2001, as we have continued to expand IDT Telecom’s international and domestic telecommunications network infrastructure. We have experienced a significant reduction in the dollar cost of the purchase of property, plant and equipment, as a result of significant decreases in the prices of telecom equipment and related assets.

The future minimum payments of principal and interest on our capital lease obligations are $27.1 million, $23.5 million and $13.7 million for Fiscal 2003, Fiscal 2004 and Fiscal 2005, respectively. In addition, in Fiscal 2003, we anticipate purchases of property, plant and equipment in the $50 million to $75 million range, with the predominant majority of such expenditures associated with the continued expansion of IDT Telecom’s telecommunications network. This estimate is highly contingent upon several factors, including, but not limited to, market prices for telecommunications equipment, the availability of such equipment in the distressed asset market and the specific timing of our network expansion projects. We have generally adopted a strategy of investing in network expansion only as the need arises, as dictated by our telecommunications traffic volumes. Therefore, the timing of our network expansion, and the coincident purchases of property, plant and equipment, are highly dependent upon the timing and magnitude of the growth in our telecommunications minutes-of-use. We expect to fund our purchases of property, plant and equipment from our operating cash flows and our cash, cash equivalents and marketable securities balances. From time to time, we will also finance a portion of our capital expenditures through capital leases, with the cost of such financing the primary consideration in determining our financing activity.

On January 30, 2002, IDT Telecom, Inc., a subsidiary of IDT, sold 7,500 newly issued shares of its common stock to Liberty Media at a price of $4,000 per share, for total aggregate proceeds of $30.0 million. As a result of this investment, Liberty Media became the owner of approximately 4.8% of the common equity of IDT Telecom, Inc. (5.0% of the voting power). We own the remaining common equity of IDT Telecom, Inc.

Our Board of Directors has authorized the repurchase of up to 45 million shares (adjusted for the May 2001 stock dividend) of our Common Stock and Class B Common Stock. During Fiscal 2002, we repurchased approximately 1.4 million shares of our Common Stock, for an aggregate purchase price of $15.6 million. Combined with the 6.8 million (adjusted) shares and 7.4 million (adjusted) shares repurchased during Fiscal 2001 and Fiscal 2000, respectively, we have repurchased a total of 15.6 million shares under the share repurchase program through the end of Fiscal 2002, of which 6.2 million shares were retired as of July 31, 2002.

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We generated $23.9 million in cash flow from our financing activities in Fiscal 2002, compared to a cash outflow of $111.9 million from financing activities in Fiscal 2001. We received approximately $53.9 million in proceeds from the exercise of stock options in Fiscal 2002.

We experience intense price competition in our telecommunications businesses. The long distance telecommunications industry has been characterized by significant declines in both per-minute revenues and per-minute costs, as evidenced by IDT Telecom’s experience during Fiscal 2002. During Fiscal 2002, IDT Telecom’s average price realization amounted to $0.120 per minute, down 17% from $0.145 in Fiscal 2001. However, IDT Telecom’s average termination cost per-minute dropped approximately 26%, to $0.072 in 2002, from $0.097 in 2001.

In the past, and over time, we believe that these factors tend to offset each other, with prices and costs moving in the same general direction. However, over a shorter-term, such as one quarter or one year, the drop in pricing could outpace the drop in costs, or vice versa. In addition, due to continued pricing pressure in most of the retail and wholesale markets in which we compete, we might be compelled to pass along most or all of our per-minute cost savings to our customers in the form of lower rates. We might also be unable, in the event that some of our per-minute costs rise, to immediately pass along the additional cost to our customers in the form of higher rates. Consequently, over any given period, gross margins could expand or narrow, based solely on the timing of changes in revenue-per-minute and cost-per-minute Our long-term strategy involves terminating a larger proportion of minutes on our own network, thereby lowering costs and preserving margins even in a weaker price environment, as we are less subject to the prices charged by third-parties for terminating our minutes over their networks. In addition, as our minutes-of-use have steadily grown, we have attempted to leverage our buying power and our balance sheet to negotiate more favorable rates with our suppliers. However, in the short term, the incremental demand for usage might outpace the rate of deployment of additional network capacity, particularly in light of our expectation for continued growth in our minutes volume. As such, there can be no assurance that we will be able to maintain our gross margins at the current level, in the face of lower per-minute revenues.

We continued to fund our IDT Media segment throughout Fiscal 2002, incurring significant start-up, development, marketing and promotional costs. In some cases, we incurred cash expenses related to the discontinuation of certain of IDT Media’s businesses. As we move IDT Media’s businesses through their respective development stages, we anticipate that selling, general and administrative expenses for our Media segment will exceed, by a significant amount, the revenues generated by this segment for the foreseeable future. Due to the start-up nature of many of our IDT Media businesses, the exact timing and magnitude of future revenues remains difficult to predict. As such, we anticipate that IDT Media will continue to rely on us to fund its cash needs, including operating losses, capital expenditures and potential acquisitions.

Since our acquisition of Winstar in December 2001, the Winstar segment has experienced working capital deficits. We have undertaken significant cost saving measures and restructured Winstar’s operations, which included the downsizing of the Winstar network and a significant reduction in headcount, aimed at reducing the working capital deficit. However, at this time, IDT foresees that it will be required to continue funding Winstar’s operating losses and capital expenditure needs for the foreseeable future.

Changes in Other Current Assets, Trade Accounts Receivable, Allowance for Doubtful Accounts and Deferred Revenues

Our other current assets increased from $32.4 million at July 31, 2001 to $65.3 million at July 31, 2002, due to increases in accrued interest receivable, inventories and prepaid expenses, as well as our acquisition of Winstar. Gross trade accounts receivable increased from $139.3 million to $165.0 million, reflecting primarily the increase in revenues and our acquisition of Winstar. However, the average age of our accounts receivable, as measured by number of days sales outstanding, declined during Fiscal 2002, reflecting our efforts to reduce our exposure to financially unstable customers by demanding shorter payment terms. Therefore, our overall revenue growth outpaced the increase in trade accounts receivable, serving to reduce the number of days sales outstanding.

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Due to the wide range of collection terms, future trends with respect to days sales outstanding generally depends on the proportion of total sales made to carriers, who are often offered terms of 30 days or more, and prepaid calling card distributors, who generally receive terms of less than 30 days. As such, the trends in days sales outstanding will depend, in large part, on the mix of wholesale (carrier) versus retail (prepaid calling card distributor) customers. Therefore, the reduction in days sales outstanding we experienced during Fiscal 2002, was due, in large part, to the significant shift in revenue mix from wholesale to retail revenues, as well as our demand for shorter payment terms from many of our customers. As we anticipate that in the near term we will attempt to continue to secure shorter payment terms from some of our customers, we could experience further declines in the average age of our trade accounts receivable in Fiscal 2003. Conversely, as we are willing to extend longer payment terms to more credit-worthy customers, an increase in customers belonging to the highest credit classes, as a percentage of total customers, could lead to an increase in days sales outstanding. In addition, if we restricted sales to financially unstable customers, regardless of the credit terms, the proportion of higher-credit class customers will increase further, potentially leading to an increase in the average days sales outstanding. Therefore, due to the conflicting nature of the above factors, future trends in days sales outstanding remain difficult to predict, and it is not possible at this time to determine whether recent trends in days sales outstanding will continue.

The allowance for doubtful accounts as a percentage of trade accounts receivable increased from 16.2% at July 31, 2001, to 23.6% at July 31, 2002. The increase reflects the deteriorating credit quality of a portion of our existing wholesale customer base, our acquisition of Winstar, which operation requires a slightly greater allowance for doubtful accounts as a percentage of trade accounts receivable, as well as the increase in the number of consumer long distance customers, who have traditionally required a larger reserve than do wholesale customers and retail calling card distributors. Although we anticipate that our customer base—across all business lines—will continue its transition towards a more credit-worthy group, some of our existing accounts trade receivable are still related to sales made to less credit-worthy customers.

Deferred revenue as a percentage of total revenues vary from period to period, depending on the mix and the timing of revenues. During Fiscal 2002, we experienced a steady increase in sales of our calling cards due to increased marketing efforts for existing IDT calling cards and the continued strong growth of our European calling card operations. This resulted in a continued increase in deferred revenue. We expect to experience increases in our deferred revenue in Fiscal 2003, owing to a continued increase in calling card sales.

Other Sources and Uses of Resources

We intend to, where appropriate, make strategic acquisitions to expand our telecommunications businesses. These acquisitions could include, but are not limited to, acquisitions of telecommunications equipment, telecommunications network capacity, customer bases or other assets. From time to time, we evaluate potential acquisitions of companies, technologies, products and customer accounts that complement our businesses, particularly in light of the financial distress currently being encountered by many telecommunications firms. These conditions have resulted in the availability for sale of numerous strategic assets and businesses. We will also consider making appropriate acquisitions which would complement our Media segment’s portfolio of businesses. Consequently, we used approximately $73.7 million and $81.4 million of our cash in 2001 and 2002, respectively, to acquire various investments in other companies. We plan to continue to evaluate acquisition opportunities as they are made available to us. In considering acquisitions, we will search for opportunities to profitably grow our existing businesses, to add qualitatively to the range of businesses in the IDT portfolio, and to supplement our existing network expansion plans through the timely purchase from third parties of necessary equipment. At this time, we cannot guarantee that we will be presented with acquisition opportunities which meet our return on investment (ROI) criteria, or that our efforts to acquire such companies that meet our criteria will be successful.

We believe that, based upon our present business plan, and due to the large balance of cash, cash equivalents and marketable securities we held as of the end of Fiscal 2002, our existing cash resources will be sufficient to

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meet our currently anticipated working capital and capital expenditure requirements and to fund any potential operating cash flow deficits within any of our divisions for at least the next twelve months. If our growth exceeds current expectations or if we acquire the business or assets of another company, we might need to raise additional capital from equity or debt sources. There can be no assurance that we will be able to raise such capital on favorable terms or at all. If we are unable to obtain such additional capital, we may be required to reduce the scope of our anticipated expansion, which could have a material adverse effect on our business, financial condition or results of operations.

The following tables quantify our future contractual obligations and commercial commitments, which consist primarily of capital and operating lease obligations (in millions):

Contractual Obligations

Payments Due by Period

	Total		Less than 1 year		1–3 years		4–5 years		After 5 years
Capital lease obligations	$	76.4	$	27.1	$	37.2	$	12.1	$	—
Operating leases		392.8		69.4		96.1		76.3		151.0
Total contractual cash obligations	$	469.2	$	96.5	$	133.3	$	88.4	$	151.0

Other Commercial Commitments

Payments Due by Period

	Total		Less than 1 year		1–3 years		4–5 years		After 5 years
Standby letters of credit	$	8.6	$	0.5	$	6.2	$	0.4	$	1.5
Guarantees		3.4		—		—		—		3.4
Total commercial commitments	$	12.0	$	0.5	$	6.2	$	0.4	$	4.9

Foreign Currency Risk

Revenues from our international operations accounted for 17%, 16%, and 18% during Fiscal 2000, 2001 and 2002, respectively. A significant portion of these revenues are in denominations other than the U.S. Dollar. Any foreign currency exchange risk that we are subject to is mitigated by our ability to offset the majority of these non dollar-denominated revenues with operating expenses that are paid in the same currencies. As such, the net amount of our exposure to foreign currency exchange rate changes is not material.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

The Securities and Exchange Commission’s rule related to market risk disclosure requires that we describe and quantify our potential losses from market risk sensitive instruments attributable to reasonably possible market changes. Market risk sensitive instruments include all financial or commodity instruments and other financial instruments (such as investments and debt) that are sensitive to future changes in interest rates, currency exchange rates, commodity prices or other market factors. We are not exposed to market risks from changes in commodity prices. We are exposed to changes in interest rates primarily from our investments in cash equivalents and marketable securities. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes. We do not consider our market risk exposure relating to foreign currency exchange to be material, as we generally have sufficient cash outflows based in these currencies to largely offset the

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cash inflows based in these currencies, thereby creating a natural hedge. In order to mitigate the risk associated with the small amounts of remaining net foreign exchange exposure, which we experience from time to time, we have, on occasion, entered into foreign exchange hedges. In addition to but separate from our primary business, at times we hold a small portion of our total asset portfolio in hedge funds for speculative and strategic purposes. As of July 31, 2002 our investments in such hedge funds was approximately $29 million. Investments in hedge funds carry significant degree of risk which will depend to a great extent on correct assessments of the future course of price movements of securities and other instruments. There can be no assurance that hedge fund money managers will be able to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility and unpredictability. Accordingly, the value of our interests in these funds may go down as well as up and we may not receive, upon redemption, the amount originally invested.

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements and supplementary data of the Company and the report of independent auditors thereon set forth on pages F-1 through F-36 herein are incorporated herein by reference.

Quarterly financial information set forth herein at page 74 is incorporated herein by reference.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

79

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by this Item will be contained in the Company’s Proxy Statement for its Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2002, and which is incorporated by reference herein.

Item 11.    EXECUTIVE COMPENSATION.

The information required by this Item will be contained in the Company’s Proxy Statement for its Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2002, and which, with the exception of the sections entitled “Report of the Compensation Committee of the Board of Directors,” “Report of the Audit Committee of the Board of Directors” and “Performance Graph of Common Stock,” is incorporated by reference herein.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item will be contained in the Company’s Proxy Statement for its Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2002, and which is incorporated by reference herein.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item will be contained in the Company’s Proxy Statement for its Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2002, and which is incorporated by reference herein.

Item 14.    CONTROLS AND PROCEDURES.

Not applicable.

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PART IV

Item 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)    The following documents are filed as part of this Report:

1. Financial Statements.

2. Financial Statement Schedules.

Schedule No.	Description
I.	Valuation and Qualifying Accounts

3. Exhibits

Exhibit Number		Description of Exhibit
3.01	(1)	Restated Certificate of Incorporation of the Registrant.
3.02	(1)	By-laws of the Registrant.
3.03	(16)	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant.
10.01	(2)	Employment Agreement between the Registrant and Howard S. Jonas.
10.02	(18)	1996 Stock Option and Incentive Plan, as amended and restated, of the Registrant.
10.03	(3)	Form of Stock Option Agreement under the 1996 Stock Option and Incentive Plan.
10.04	(4)	Form of Registration Rights Agreement between certain stockholders and the Registrant.
10.05	(1)	Lease of 294 State Street.
10.06	(5)	Lease of 190 Main Street.
10.7(6)		Form of Registration Rights Agreement between Howard S. Jonas and the Registrant.
10.8(10)		Employment Agreement between the Registrant and James Courter.
10.9(7)		Agreement between Cliff Sobel and the Registrant.
10.10	(10)	Employment Agreement between the Registrant and Hal Brecher.
10.11	(10)	Employment Agreement between the Registrant and Howard S. Jonas.
10.12	(8)	Agreement and Plan of Merger, dated April 7, 1998, by and among the Registrant, ADM Corp., InterExchange, Inc., David Turock, Eric Hecht, Richard Robbins, Bradley Turock, Wai Nam Tam, Mary Jo Altom and Lisa Mikulynec.
10.13	(9)	Securities Purchase Agreement between the Registrant, Carlos Gomez and Union Telecard Alliance, LLC.
10.14	(10)	Credit Agreement, dated as of May 10, 1999, by and among the Registrant, various lenders party thereto, Lehman Commercial Paper Inc., CIBC World Markets Corp. and Bankers Trust Company.
10.15	(10)	Pledge Agreement, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent.
10.16	(10)	Security Agreement, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent.
10.17	(10)	Subsidiaries Guaranty, dated as of May 10, 1999, by and among the Registrant, certain subsidiaries of the Registrant and Bankers Trust Company, as Collateral Agent.
10.18	(10)	Loan Agreement between the Registrant and Stephen Brown.

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Exhibit Number		Description of Exhibit
10.19	(11)	Internet/Telecommunications Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.20	(11)	Joint Marketing Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.21	(11)	IDT Services Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.22	(11)	Net2Phone Services Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.23	(11)	Assignment Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.24	(11)	Tax Sharing and Indemnification Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.25	(11)	Separation Agreement, dated as of May 7, 1999, by and between Registrant and Net2Phone, Inc.
10.26	(11)	Co-location and Facilities Management Services Agreement, dated as of May 20, 1999, by and between Registrant and Net2Phone, Inc.
10.27	(12)	Lease of 520 Broad Street, Newark, New Jersey.
10.28	(12)	Amendment to Lease of 520 Broad Street, Newark, New Jersey.
10.29	(13)	Option Agreement, dated as of March 3, 2000, between IDT Corporation and AT&T Corp.
10.30	(14)	Amendment to Option Agreement, dated as of April 5, 2000 between IDT Corporation and AT&T Corp.
10.31	(13)	Subscription Agreement, dated as of March 24, 2000, between IDT Corporation and Liberty Media Corporation.
10.32	(14)	Amendment to Subscription Agreement, dated as of May 26, 2000, between IDT Corporation and Liberty Media Corporation.
10.33	(13)	Letter Agreement, dated as of March 28, 2000, between IDT Corporation, AT&T Corp. and Net2Phone, Inc.
10.34	(13)	Letter Agreement, dated as of March 30, 2000, between IDT Corporation, AT&T Corp. and Net2Phone, Inc.
10.35	(15)	Conversion, Termination and Release Agreement, dated as of April 30, 2000, between IDT Corporation, Terra Networks, S.A., Terra Networks USA, Inc., Terra Networks Access Services USA LLC and Terra Networks Interactive Services USA LLC.
10.36	(19)	Stock Exchange Agreement, dated as of April 18, 2001, by and among IDT Investments Inc., IDT Corporation, IDT America, Corp., 225 Old NB Road, Inc., 226 Old NB Road, Inc., 60 Park Place Holding Company, Inc., Liberty Media Corporation, Microwave Holdings, L.L.C. and Liberty TP Management, Inc.
10.37	(19)	Stockholders Agreement, dated as of November 26, 1997, by and among Teligent, Inc., Microwave Services, Inc., Telcom-DTS Investors, L.L.C. and NTTA&T Investment Inc. (Incorporated by reference to Exhibit 2 to Schedule 13D, filed by The Associated Group, Inc. and Microwave Services, Inc. on December 8, 1997 with respect to securities of Teligent, Inc.)
10.38	(19)	Registration Rights Agreement, dated as of March 6, 1998, by and between Teligent, Inc. and Microwave Services, Inc. (Incorporated by reference to Exhibit 6 to Amendment No. 1 to Schedule 13D, filed by The Associated Group, Inc. and Microwave Services, Inc. on March 9, 1998 with respect to securities of Teligent, Inc.)

82

Exhibit Number		Description of Exhibit
10.39	(19)	Stockholders Agreement, dated as of January 13, 2000, by and among Alex J. Mandl, Liberty Media Corporation, Telcom-DTS Investors, L.L.C. and Microwave Services, Inc. (Incorporated by reference to Exhibit 7(i) to Schedule 13D, filed by Liberty AGI, Inc. on January 24, 2000 with respect to securities of Teligent, Inc.)
10.40	(20)	Amendment to the Employment Agreement between the Registrant and James A. Courter
10.41	(20)	Amendment No. 2 to the Employment Agreement between the Registrant and James A. Courter
10.42	(21)	Asset Purchase Agreement, dated December 18, 2001, between IDT Winstar Acquisition, Inc., Winstar Communications, Inc. and the subsidiaries of Winstar listed on Appendix 1 thereto.
10.43	(22)	Employment Agreement between the Registrant and Howard S. Jonas.
10.44	(23)	Subscription Agreement, dated as of August 11, 2000, by and between Net2Phone and AT&T.
10.45	(23)	Stock Purchase Agreement, dated as of August 11, 2000, by and between AT&T, IDT and IDT Investments.
10.46	(23)	Voting Agreement, dated as of August 11, 2000, by and between ITelTech and IDT Investments.
10.47	(24)	Limited Liability Company Agreement, dated as of October 19, 2001, of Net2Phone Holdings, by IDT D-U
10.48	(24)	Amended and Restated Limited Liability Company Agreement, dated as of October 19, 2001, of Net2Phone Holdings, by and among AT&T, ITelTech, IDT and IDT D-U
10.49	(24)	Second Amended and Restated Limited Liability Company Agreement, dated as of October 19, 2001, of Net2Phone Holdings, by and among AT&T, ITelTech, IDT, IDT D-U, IDT Investments, Liberty Media and LMC
10.50	(25)	Stockholders Agreement, dated as of May 13, 1999, by and among IDT, Clifford M. Sobel, Net2Phone and the additional investors listed on Schedule A thereto.
10.51	(26)	Amended and Restated Limited Liability Company Agreement, dated as of November 8, 2001, of IT Stock, by Net2Phone Holdings.
10.52	(26)	Amendment No. 1 to the Second Amended and Restated Limited Liability Company Agreement, dated as of October 31, 2001, of Net2Phone Holdings, by and among AT&T, ITelTech, IDT, IDT D-U, IDT Investments, Liberty Media and LMC.
10.53	*	Amendment No. 1 to Securities Purchase Agreement, dated April 24, 2002, by and among the Registrant, UTCG Holdings LLC and Union Telecard Alliance, LLC.
10.54	*	Amended and Restated Operating Agreement of Union Telecom Alliance, LLC, dated April 24, 2002, by and among UTCG Holdings LLC, IDT Domestic-Union, LLC, the Registrant and Union Telecard Alliance, LLC.
10.55	*	Amended and Restated Distribution Agreement, dated April 24, 2002, by and between IDT Netherlands, B.V. and Union Telecard Alliance, LLC.
10.56	*	Unit Purchase Agreement, dated April 10, 2002, by and among WCI Capital Corp., Dipchip Corp., the Registrant and Winstar Holdings, LLC.
10.57	*	Lock-up, Registration Rights and Exchange Agreement, dated June 6, 2000, by and between the Registrant and Liberty Media Corporation.
10.58	*	Letter Agreement, dated April 22, 2002, by and between Charles Garner and the Registrant.
10.59	*	Employment Agreement, dated February 4, 2002, by and between the Registrant and E. Brian Finkelstein.

83

Exhibit Number		Description of Exhibit
10.60	*	Amendment to the Employment Agreement, dated October 24, 2002, between the Registrant and E. Brian Finkelstein.
21.01	*	Subsidiaries of the Registrant.
23.01	*	Consent of Ernst & Young LLP.
99.1(a)*		Certification of Chief Executive Officer
99.1(b)*		Certification of Chief Financial Officer

* filed herewith

(1) Incorporated by reference to Form S-1 filed February 21, 1996 file no. 333-00204.

(2) Incorporated by reference to Form S-1 filed January 9, 1996 file no. 333-00204.

(3) Incorporated by reference to Form S-8 filed January 14, 1996 file no. 333-19727.

(4) Incorporated by reference to Form S-1 filed March 8, 1996 file no. 333-00204.

(5) Incorporated by reference to Form 10-K for the fiscal year ended July 31, 1997, filed October 29, 1997.

(6) Incorporated by reference to Form S-1 filed March 14, 1996 file no. 333-00204.

(7) Incorporated by reference to Form 10-K/A for the fiscal year ended July 31, 1997, filed February 2, 1998.

(8) Incorporated by reference to Form 8-K filed April 22, 1998.

(9) Incorporated by reference to Form 10-K/A for the fiscal year ended July 31, 1998, filed December 4, 1998.

(10) Incorporated by reference to Form 10-Q for the fiscal quarter ended January 31, 1999, filed March 17, 1999.

(11) Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 1999, filed June 14, 1999.

(12) Incorporated by reference to Form 10-K for the fiscal year ended July 31, 1999, filed November 4, 1999.

(13) Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 2001, filed March 12, 2000.

(14) Incorporated by reference to Form 8-K filed March 31, 2000.

(15) Incorporated by reference to Schedule 14C filed June 12, 2000.

(16) Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 2000, filed June 14, 2000.

(17) Incorporated by reference to Form 10-Q for the fiscal quarter ended October 31, 2000, filed December 15, 2000.

(18) Incorporated by reference to Form 10-Q for the fiscal quarter ended January 31, 2001, filed March 19, 2001.

(19) Incorporated by reference to Schedule 13D filed on April 30, 2001.

(20) Incorporated by reference to Form 10-Q for the fiscal quarter ended October 31, 2001, filed December 17, 2001.

(21) Incorporated by reference to Form 8-K filed January 3, 2002.

(22) Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 2002, filed June 14, 2002.

(23) Incorporated by reference to Schedule 13D filed on August 21, 2000, with respect to Net2Phone, by IDT Investments, IDT and Howard S. Jonas.

(24) Incorporated by reference to Schedule 13D, filed on October 25, 2001, with respect to Net2Phone, by Net2Phone Holdings, L.L.C., IDT Domestic-Union, LLC, IDT Investments Inc., IDT Nevada Holdings, Inc., IDT Domestic Telecom, Inc., IDT Telecom, Inc., IDT Corporation, Howard S. Jonas, ITelTech, LLC and AT&T Corp.

(25) Incorporated by reference to Form S-1/A of Net2Phone filed June 20, 1999.

(26) Incorporated by reference to Schedule 13D, filed on November 15, 2001, with respect to Net2Phone, by IT Stock, Net2Phone Holdings, IDT D-U, IDT Investments, IDT Nevada, IDT D-T, IDT Telecom, IDT, Howard S. Jonas, ITelTech and AT&T.

(b)    Reports on Form 8-K.

On August 28, 2002, the Registrant filed Amendment No.1 to its Current Report on Form 8-K originally filed on January 3, 2002.

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

IDT CORPORATION
By:	/s/     JAMES A. COURTER
	James A. Courter Vice Chairman and Chief Executive Officer

Date: October 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Titles	Date
/s/    HOWARD S. JONAS         Howard S. Jonas	Chairman	October 29, 2002
/s/    JAMES A. COURTER         James A. Courter	Vice Chairman and Chief Executive Officer (Principal Executive Officer)	October 29, 2002
/s/    STEPHEN R. BROWN         Stephen R. Brown	Chief Financial Officer and Director (Principal Financial Officer)	October 29, 2002
/s/    MARCELO FISCHER         Marcelo Fischer	Chief Accounting Officer and Controller (Principal Accounting Officer)	October 29, 2002
/s/    MICHAEL FISCHBERGER         Michael Fischberger	Chief Operating Officer and Director	October 29, 2002
/s/    JOYCE J. MASON         Joyce J. Mason	Director	October 29, 2002
/s/    MARC E. KNOLLER         Marc E. Knoller	Director	October 29, 2002
/s/    MOSHE KAGANOFF       Moshe Kaganoff	Director	October 29, 2002
/s/    GEOFFREY ROCHWARGER         Geoffrey Rochwarger	Director	October 29, 2002
/s/    MEYER A. BERMAN         Meyer A. Berman	Director	October 29, 2002
/s/    J. WARREN BLAKER         J. Warren Blaker	Director	October 29, 2002

85

/s/    SAUL K. FENSTER         Saul K. Fenster Director October 29, 2002

/s/    MICHAEL J. LEVITT         Michael J. Levitt	Director	October 29, 2002
/s/    WILLIAM ARTHUR OWENS         William Arthur Owens	Director	October 29, 2002
/s/    PAUL REICHMANN         Paul Reichmann	Director	October 29, 2002
/s/    WILLIAM F. WELD         William F. Weld	Director	October 29, 2002

86

CERTIFICATIONS

I, James A. Courter, Chief Executive Officer of IDT Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of IDT Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date:  October 29, 2002

/s/    JAMES A. COURTER  

James A. Courter  

87

CERTIFICATIONS

I, Stephen R. Brown, Chief Financial Officer of IDT Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of IDT Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: October 29, 2002

/s/    STEPHEN R. BROWN

Stephen R. Brown

88

IDT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors	F-2
Consolidated Balance Sheets as of July 31, 2001 and 2002	F-3
Consolidated Statements of Operations for the Years Ended July 31, 2000, 2001 and 2002	F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended July 31, 2000, 2001 and 2002	F-5
Consolidated Statements of Cash Flows for the Years Ended July 31, 2000, 2001 and 2002	F-6
Notes to Consolidated Financial Statements	F-7
Financial Statement Schedule—Valuation and Qualifying Accounts	F-36

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

IDT Corporation

We have audited the accompanying consolidated balance sheets of IDT Corporation (the “Company”) as of July 31, 2001 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended July 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at July 31, 2001 and 2002 and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

New York, New York

October 24, 2002

/S/    ERNST & YOUNG LLP

F-2

IDT CORPORATION

CONSOLIDATED BALANCE SHEETS

	July 31
	2001			2002
	(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	1,091,071		$	351,248
Marketable securities		3,489			658,731
Trade accounts receivable, net of allowance for doubtful accounts of $22,508 at July 31, 2001 and $38,893 at July 31, 2002		116,759			126,153
Other current assets		32,413			65,291
Total current assets		1,243,732			1,201,423
Property, plant and equipment, net		224,042			250,631
Goodwill		178,293			32,702
Licenses and other intangibles, net		19,511			25,503
Investments		60,732			58,903
Other assets		155,279			38,758
Total assets	$	1,881,589		$	1,607,920
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	163,313		$	121,529
Accrued expenses		54,893			124,437
Deferred revenue		71,387			112,183
Capital lease obligations—current portion		20,927			22,960
Other current liabilities		17,819			11,866
Total current liabilities		328,339			392,975
Deferred tax liabilities, net		390,914			241,973
Capital lease obligations—long-term portion		50,179			45,398
Other liabilities		14,502			3,088
Total liabilities		783,934			683,434
Minority interests		21,419			54,956
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; authorized shares—10,000,000; no shares issued		—			—
Common stock, $.01 par value; authorized shares—100,000,000; 22,791,789 and 19,568,634 shares issued and outstanding in 2001 and 2002, respectively		228			196
Class A common stock, $.01 par value; authorized shares—35,000,000; 9,816,988 shares issued and outstanding in 2001 and 2002		98			98
Class B common stock, $.01 par value; authorized shares—100,000,000; 39,291,411 and 49,990,681 shares issued and outstanding in 2001 and 2002, respectively		393			500
Additional paid-in capital		494,093			606,387
Treasury stock, at cost		(138,087	)		(153,713	)
Accumulated other comprehensive loss		(2,575	)		(2,675	)
Retained earnings		722,086			418,737
Total stockholders’ equity		1,076,236			869,530
Total liabilities and stockholders’ equity	$	1,881,589		$	1,607,920

See accompanying notes to consolidated financial statements.

F-3

IDT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended July 31
	2000			2001			2002
	(in thousands, except per share data)
Revenues	$	1,093,912		$	1,230,950		$	1,531,614
Costs and expenses:
Direct cost of revenues (exclusive of items shown below)		918,257			1,066,845			1,205,003
Selling, general and administrative		343,702			337,107			370,577
Depreciation and amortization		48,564			60,351			66,016
Impairment charges		—			199,357			114,310
Total costs and expenses		1,310,523			1,663,660			1,755,906
Loss from operations		(216,611	)		(432,710	)		(224,292	)
Interest income, net		7,231			52,768			21,757
Other income (expense):
Equity in loss of affiliates		(6,289	)		(75,066	)		(43,989	)
Gain on sales of subsidiary stock		350,344			1,037,726			—
Investment and other income (expense), net		258,218			164,762			(12,117	)
Income (loss) before income taxes, minority interests, extraordinary item and cumulative effect of accounting change		392,893			747,480			(258,641	)
Minority interests		(59,336	)		5,726			22,070
Provision for (benefit from) income taxes		218,403			209,395			(124,345	)
Income (loss) before extraordinary item and cumulative effect of accounting change		233,826			532,359			(156,366	)
Extraordinary loss on retirement of debt, net of income taxes of $1,894		(2,976	)		—			—
Cumulative effect of accounting change, net of income taxes of $3,525		—			—			(146,983	)
Net income (loss)	$	230,850		$	532,359		$	(303,349	)
Earnings per share:
Income (loss) before extraordinary item and cumulative effect of accounting change:
Basic	$	3.34		$	7.79		$	(2.08	)
Diluted	$	3.11		$	7.12		$	(2.08	)
Extraordinary loss on retirement of debt, net of income taxes:
Basic	$	(0.04	)	$	—		$	—
Diluted	$	(0.04	)	$	—		$	—
Cumulative effect of accounting change, net of income taxes:
Basic	$	—		$	—		$	(1.96	)
Diluted	$	—		$	—		$	(1.96	)
Net income (loss):
Basic	$	3.30		$	7.79		$	(4.04	)
Diluted	$	3.07		$	7.12		$	(4.04	)
Weighted-average number of shares used in calculation of earnings per share:
Basic		69,933			68,301			75,108
Diluted		75,239			74,786			75,108

See accompanying notes to consolidated financial statements.

F-4

IDT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

	Common Stock					Class A Common Stock					Class B Common Stock					Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Stockholders’ Equity
	Shares		Amount			Shares		Amount			Shares		Amount
Balance at July 31, 1999	23,982,854		$	240		10,029,758		$	100		34,012,612		$	340		$	317,022		$	—		$	—		$	(41,123	)	$	276,579
Exercise of stock options	1,310,700			13		—			—		1,310,700			13			14,508			—			—			—			14,534
Income tax benefit from stock options exercised	—			—		—			—		—			—			11,262			—			—			—			11,262
Conversion of Class A common stock to common stock	59,525			—		(59,525	)		—		—			—			—			—			—			—			—
Exercise of warrants	19,963			—		—			—		19,963			—			117			—			—			—			117
Modification of stock options	—			—		—			—		—			—			985			—			—			—			985
Issuance of common stock and Class B common stock	3,728,949			37		—			—		3,728,949			37			128,574			—			—			—			128,648
Change in unrealized gain (loss) in available-for-sale securities	—			—		—			—		—			—			—			—			(94,044	)		—			(94,044	)
Foreign currency translation adjustment	—			—		—			—		—			—			—			—			1,391			—			1,391
Repurchase of common stock and Class B common stock	(3,142,735	)		(30	)	—			—		(3,142,735	)		(31	)		(101,822	)		—			—			—			(101,883	)
Net income for the year ended July 31, 2000	—			—		—			—		—			—			—			—			230,850			230,850			230,850
Comprehensive income																							138,197
Balance at July 31, 2000	25,959,256			260		9,970,233			100		35,929,489			359			370,646			—			(92,653	)		189,727			468,439
Exercise of stock options	698,451			7		—			—		343,000			4			6,872			—			—			—			6,883
Income tax benefit from stock options exercised	—			—		—			—		—			—			2,676			—			—			—			2,676
Conversion of Class A common stock to common stock	153,245			2		(153,245	)		(2	)	—			—			—			—			—			—			—
Issuance of stock options	—			—		—			—		—			—			2,000			—			—			—			2,000
Modification of stock options	—			—		—			—		—			—			3,082			—			—			—			3,082
Issuance of Class B common stock	—			—		—			—		7,038,085			71			106,497			—			—			—			106,568
Change in unrealized gain (loss) in available-for-sale securities	—			—		—			—		—			—			—			—			89,148			—			89,148
Foreign currency translation adjustment	—			—		—			—		—			—			—			—			930			—			930
Repurchase of common stock and Class B common stock	(4,019,163	)		(41	)	—			—		(4,019,163	)		(41	)		2,320			(138,087	)		—			—			(135,849	)
Net income for the year ended July 31, 2001	—			—		—			—		—			—			—			—			532,359			532,359			532,359
Comprehensive income																							622,437
Balance at July 31, 2001	22,791,789			228		9,816,988			98		39,291,411			393			494,093			(138,087	)		(2,575	)		722,086			1,076,236
Exercise of stock options	1,906,594			19		—			—		4,497,114			45			53,860			—			—			—			53,924
Income tax benefit from stock options exercised	—			—		—			—		—			—			21,601			—			—			—			21,601
Conversion of common stock to Class B common stock	(3,728,949	)		(37	)	—			—		3,810,265			38			(1	)		—			—			—			—
Modification of stock options	—			—		—			—		—			—			1,894			—			—			—			1,894
Issuance of common stock for acquisitions	—			—		—			—		2,391,891			24			34,940			—			—			—			34,964
Change in unrealized gain (loss) in available-for-sale securities	—			—		—			—		—			—			—			—			(1,064	)		—			(1,064	)
Foreign currency translation adjustment	—			—		—			—		—			—			—			—			964			—			964
Repurchase of common stock	(1,400,800	)		(14	)	—			—		—			—			—			(15,626	)		—			—			(15,640	)
Net loss for the year ended July 31, 2002	—			—		—			—		—			—			—			—			(303,349	)		(303,349	)		(303,349	)
Comprehensive loss																							(303,449	)
Balance at July 31, 2002	19,568,634		$	196		9,816,988		$	98		49,990,681		$	500		$	606,387		$	(153,713	)	$	(2,675	)	$	418,737		$	869,530

See accompanying notes to consolidated financial statements.

F-5

IDT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended July 31
	2000			2001			2002
	(in thousands)
Operating activities
Net income (loss)	$	230,850		$	532,359		$	(303,349	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		48,564			60,351			66,016
Impairment charges		—			199,357			114,310
Extraordinary loss on retirement of debt before income taxes		4,870			—			—
Cumulative effect of accounting change before income taxes		—			—			150,508
Minority interests		(59,336	)		5,726			22,070
Price guarantee of Class B common stock		—			—			5,310
Deferred tax liabilities		216,903			204,188			(127,342	)
Issuance of common stock to charitable foundation		—			26,378			—
Net realized (gains)/losses from sales of marketable securities and investments		(261,025	)		148,724			6,807
Equity in loss of affiliates		6,289			75,066			43,989
Non-cash compensation		42,917			3,082			1,894
Gain on Tycom settlement		—			(313,486	)		—
Gain on sales of subsidiary stock		(350,344	)		(1,037,726	)		—
Changes in assets and liabilities:
Trade accounts receivable		(52,643	)		36,029			29,151
Other assets		(28,194	)		14,234			(4,364	)
Trade accounts payable, accrued expenses and other liabilities		90,053			64,675			(23,238	)
Deferred revenue		34,026			7,271			39,981
Net cash provided by (used in) operating activities		(77,070	)		26,228			21,743
Investing activities
Purchases of property, plant and equipment		(101,192	)		(106,513	)		(39,245	)
Issuance of notes receivable		—			(12,089	)		(8,543	)
Investments and acquisitions, net of cash acquired		(38,803	)		(73,722	)		(81,398	)
Collection of notes receivable		9,524			—			—
Sales of marketable securities		—			164,052			742,866
Purchases of marketable securities		(7,059	)		—			(1,399,171	)
Net proceeds from sale of equity interests in subsidiary		115,434			1,042,113			—
Net cash (used in) provided by investing activities		(22,096	)		1,013,841			(785,491	)
Financing activities
Proceeds from exercise of stock options for Net2Phone		8,172			—			—
Distributions to minority shareholder of a subsidiary		(3,177	)		(18,908	)		(19,018	)
Proceeds from borrowings		13,898			—			—
Proceeds from exercise of warrants		117			—			—
Proceeds from exercise of stock options		14,534			6,883			53,924
Repayment of capital lease obligations		(9,833	)		(14,736	)		(19,033	)
Repayment of borrowings		(108,146	)		(26,054	)		(6,308	)
Proceeds from issuance of common stock and Class B common stock		128,648			74,787			—
Proceeds from offerings of common stock by Net2Phone		261,189			—			—
Collection of loans to stockholders by Net2Phone		623			—			—
Proceeds from sale of subsidiary stock		5,000			—			30,000
Proceeds from issuance of stock options		—			2,000			—
Repurchases of common stock and Class B common stock		(101,883	)		(135,849	)		(15,640	)
Net cash provided by (used in) financing activities		209,142			(111,877	)		23,925
Net (decrease) increase in cash		109,976			928,192			(739,823	)
Cash and cash equivalents at beginning of year		52,903			162,879			1,091,071
Cash and cash equivalents at end of year	$	162,879		$	1,091,071		$	351,248
Supplemental disclosure of cash flow information
Cash payments made for interest	$	10,074		$	7,997		$	5,739
Cash payments made for income taxes	$	1,050		$	5,963		$	12,176
Supplemental schedule of non-cash investing and financing activities
Purchases of property, plant and equipment through capital lease obligations	$	45,541		$	27,010		$	19,311
Exchange of Net2Phone common stock for shares of Yahoo! Inc.	$	—		$	150,000		$	—
Issuance of Class B common stock for acquisitions	$	—		$	—		$	34,964

See accompanying notes to consolidated financial statements.

F-6

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2002

1.    Summary of Significant Accounting Policies

Description of Business

IDT Corporation (“IDT” or the “Company”) is a facilities-based multinational communications company that provides services and products to retail and wholesale customers worldwide, including prepaid debit and rechargeable calling cards, consumer long distance services, and wholesale carrier services. The Company also operates several media and entertainment-related businesses, most of which are currently in the early stages of development.

Winstar Holdings (“Winstar”), a wholly owned subsidiary of IDT, is a broadband and telephony service provider to commercial and governmental customers. Through its fixed-wireless and fiber infrastructure, Winstar offers local and long distance phone services, and high speed Internet and data communications solutions.

On May 4, 2001, the Company declared a stock dividend of one share of Class B common stock for every one share of common stock, Class A common stock and Class B common stock. IDT distributed the dividend shares on May 31, 2001 to shareholders of record on May 14, 2001. The stock dividend has been accounted for as a stock split and all references to the number of common shares, per common share amounts and stock options have been restated to give retroactive effect to the stock dividend for all periods presented. The Class B common stock commenced trading on the New York Stock Exchange on June 1, 2001 under the ticker symbol “IDT B”.

Investment in Net2Phone

Until August 2000, the Company also provided Internet telephony services through its majority owned subsidiary Net2Phone, Inc. (“Net2Phone”). On August 11, 2000, the Company completed the sale of 14.9 million shares of its holdings of Net2Phone’s Class A common stock, at a price of $75 per share, to ITelTech, LLC (“ITelTech”), a Delaware limited liability company controlled by AT&T Corporation (“AT&T”). In addition, ITelTech purchased four million newly-issued shares of Class A common stock from Net2Phone at a price of $75 per share. These transactions reduced the voting stake of IDT in Net2Phone from approximately 56% to 21% and its economic stake in Net2Phone from approximately 45% to 16%. In recognition of these transactions, the Company recorded a gain on sales of subsidiary stock of $1.038 billion during the year ended July 31, 2001, and deconsolidated Net2Phone effective August 11, 2000. Accordingly, the Company accounted for its investment in Net2Phone subsequent to the deconsolidation using the equity method of accounting.

On October 23, 2001, IDT, Liberty Media Corporation (“Liberty Media”) and AT&T formed a limited liability company (“LLC”), which through a series of transactions among IDT, Liberty Media and AT&T now holds an aggregate of 28.9 million shares of Net2Phone’s Class A common stock, representing approximately 46% of Net2Phone’s outstanding capital stock. Because the LLC holds Class A common stock with two votes per share, the LLC has approximately 63% of the shareholder voting power in Net2Phone. IDT holds the controlling membership interest in the LLC and is the managing member of the LLC. Through July 31, 2002, the Company accounted for its investment in the LLC using the equity method since its control of the LLC was deemed to be temporary due to unilateral liquidation rights held by each of the LLC members. As of July 31, 2002, IDT’s equity investment in Net2Phone was 19.2%.

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. SFAS No. 144 also amends Accounting Research Bulletins (“ARB” 51), Consolidated Financial Statements, as amended by SFAS No. 94, Consolidation of ALL Majority-Owned Subsidiaries, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. IDT will adopt SFAS No. 144 as of August 1, 2002, and will thus no longer

F-7

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

account for its investment in Net2Phone under the equity method of accounting. Therefore, effective August 1, 2002, Net2Phone will be reconsolidated. The consolidation will result in the inclusion of IDT’s and Net2Phone’s results of operations and financial position beginning August 1, 2002. This change in accounting will not change the net income or loss that would have been reported had the Company continued to account for its investment in Net2Phone under the equity method of accounting. Summarized financial information for Net2Phone as of and for the year ended July 31 is as follows:

	2001			2002
	(in thousands)
Total current assets	$	287,572		$	114,138
Total assets		411,403			171,696
Working capital		218,100			60,321
Revenues		150,198			137,855
Loss from operations		(240,210	)		(257,794	)

Basis of Consolidation and Accounting for Investments

The consolidated financial statements include the accounts of IDT and all companies in which IDT has a controlling voting interest that is not temporary (“subsidiaries”), as if IDT and its subsidiaries were a single company. Significant intercompany accounts and transactions between the consolidated companies have been eliminated.

Investments in companies in which IDT has significant influence, but less than and other than temporary controlling voting interest, are accounted for using the equity method of accounting. Investments in companies in which IDT does not have an other than temporary controlling interest or an ownership and voting interest so large as to exert significant influence are accounted for at market value if the investments are publicly traded and there are no resale restrictions, or at cost, if the sale of a publicly-traded investment is restricted or if the investment is not publicly traded. Due to the adoption of SFAS No. 144, effective August 1, 2002, IDT will consolidate all companies in which it has a controlling voting interest, regardless of whether that control is temporary.

The effect of any changes in IDT’s ownership interests resulting from the issuance of equity capital by consolidated subsidiaries or equity investees to unaffiliated parties is included in gain on sales of subsidiary stock.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

F-8

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

Communications services are recognized as revenue when services are provided. Revenue on sales of prepaid calling cards is deferred upon activation of the cards and recognized as the card balances are decremented based on minute usage and service charges. Unused balances are recognized as revenue upon expiration of the calling cards, which is generally the later of six months from the date of first use and twelve months from activation.

Revenues at our Winstar segment related to high-speed Internet and data services and local and long-distance voice services are recognized when services are provided.

Purchase of Network Capacity

Purchases of network capacity pursuant to Indefeasible Right of Use (“IRU”) agreements are capitalized at cost and amortized over the term of the capacity agreement, which is generally 15 years. Historically, we have not been a provider of network capacity.

Direct Cost of Revenues

Direct cost of revenues consists primarily of termination costs, toll-free costs, and network costs—including customer/carrier interconnect charges and leased fiber circuit charges. Direct cost of revenues also includes connectivity costs for the Winstar’s fixed-wireless network backbone and lease payments for Winstar’s network of buildings. Direct cost of revenues excludes depreciation and amortization expense.

Property, Plant and Equipment

Equipment, buildings, and furniture and fixtures are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, which range as follows: equipment—5 to 7 years; buildings—40 years; and furniture and fixtures—5 to 7 years. Leasehold improvements are depreciated using the straight line method over the term of their lease or their estimated useful lives, whichever is shorter.

Advertising Expense

The majority of IDT’s advertising expense relates to its consumer long distance business. Most of the advertisements are in print or television media, with expenses recorded as they are incurred. Some of the advertising for the consumer long distance business is also done on a cost-per-acquisition basis, where the Company pays the provider of advertising based on a fixed amount per each customer who becomes a subscriber of its services. In such cases, the expenses are recorded based on the number of customers who were added during the period in question.

For the years ended July 31, 2000, 2001 and 2002, advertising expense totaled approximately $46.7 million, $17.1 million and $16.0 million, respectively.

During the year ended July 31, 2000, the Company incurred approximately $28.0 million of costs to terminate advertising arrangements. These advertising termination costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. No advertising termination costs were incurred for the years ended July 31, 2001 and 2002.

F-9

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Software Development Costs

Costs for the internal development of new software products and substantial enhancements to existing software products to be sold are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized. For the years ended July 31, 2000, 2001 and 2002, research and development costs totaled approximately $4.7 million, $2.5 million and $1.0 million, respectively.

Capitalized Internal Use Software Costs

The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. These costs consist of payments made to third parties and the salaries of employees working on such software development. For the years ended July 31, 2000, 2001 and 2002, the Company has capitalized $8.6 million, $2.5 million and $1.4 million, respectively, of internal use software costs as computer software.

Repairs and Maintenance

We charge the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative expenses as these costs are incurred.

Long-Lived Assets

In accordance with SFAS No. 121, the Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The analysis of the recoverability utilizes undiscounted cash flows. The measurement of the loss, if any, will be calculated as the amount by which the carrying amount of the asset exceeds the fair value.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates market value. At July 31, 2001 and 2002, the Company had 89% and 60%, respectively, of its cash and cash equivalents in three and two financial institutions, respectively.

Goodwill

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but are subject to impairment tests, performed at least annually, in accordance with the Statement. Other intangible assets will continue to be amortized over their useful lives.

Other Intangibles

Licenses are amortized over 5 years using the straight-line method. Costs associated with obtaining the right to use trademarks and patents owned by third parties are capitalized and amortized on a straight-line basis over the term of the trademark licenses and patents. Acquired core technology is amortized over 3 to 5 years. The Company systematically reviews the recoverability of its acquired licenses and other intangible assets to determine whether an impairment has occurred. Upon determination that the carrying value of acquired licenses

F-10

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and other intangible assets will not be recovered based on the undiscounted future cash flows of the acquired business, the carrying value of such acquired licenses and other intangible assets would be deemed impaired and would be reduced by a charge to operations in the amount that the carrying value exceeds the fair value.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries denominated in foreign currencies at July 31 are translated at year-end rates of exchange and monthly results of operations are translated at the average rates of exchange for that month. Gains or losses resulting from translating foreign currency financial statements are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependant upon the generation of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Earnings Per Share

Basic earnings per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts basic earnings per share for the effects of convertible securities, stock options, warrants, contingently issuable shares and other potentially dilutive financial instruments, only in the periods in which such effect is dilutive.

Vulnerability Due to Certain Concentrations

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, marketable securities and trade accounts receivable. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers in various geographic regions comprising the Company’s customer base. No single customer accounted for more than 10% of consolidated revenues in Fiscal 2002. However, our 5 largest customers accounted for 15.2% of consolidated revenues in Fiscal 2002. This concentration of revenues increases our risk associated with nonpayment by these customers.

The Company is subject to risks associated with its international operations, including changes in exchange rates, difficulty in trade accounts receivable collection and longer payment cycles.

Management regularly monitors the creditworthiness of its domestic and international customers and believes that it has adequately provided for any exposure to potential credit losses.

F-11

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. At July 31, 2002, the carrying value of the Company’s trade accounts receivable, other current assets, trade accounts payable, accrued expenses, deferred revenue, capital lease obligations and other current liabilities approximate fair value.

Stock Based Compensation

As permitted under SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), the Company applies APB No. 25 in accounting for its stock option plans and, accordingly, compensation cost is recognized for its stock options only if it relates to non-qualified stock options for which the exercise price was less than the fair market value of the Company’s common stock or Class B common stock as of the date of grant. The compensation cost of these grants is amortized on a straight-line basis over their vesting periods. The Company follows the disclosure only provisions of SFAS 123 and provides pro forma disclosures of net income (loss) and net income (loss) per share as if the fair value-based method of accounting for stock options, as defined in SFAS 123, had been applied.

Recently Issued Accounting Standards

In June 2001, the FASB issued SFAS No. 143, Accounting for Retirement Obligations (“SFAS 143”). SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. The Company is required to adopt SFAS 143 on August 1, 2002 and expects that the provisions will not have a material impact on its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS 145”). SFAS 145 updates, clarifies and simplifies existing accounting pronouncements. SFAS 145 rescinds Statement No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB Opinion No. 30, Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, will now be used to classify those gains and losses because Statement No. 4 has been rescinded. Statement No. 44 was issued to establish accounting requirements for the effects of transition to provisions of the Motor Carrier Act of 1980. Because the transition has been completed, Statement No. 44 is no longer necessary.

SFAS 145 amends Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB’s goal of requiring similar accounting treatment for transactions that have similar economic effects. SFAS 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. IDT is required to adopt SFAS 145, effective for Fiscal 2003. Upon adoption, any gain or loss on extinguishment of debt previously classified as an extraordinary item in prior periods presented that does not meet the criteria of APB Opinion No. 30, will be reclassified to conform with the provisions of SFAS 145. The Company does not expect the adoption of SFAS 145 will have a material impact on its consolidated financial statements.

F-12

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 requires Companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by Emerging Issues Task Force (“EITF”) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS 146 replaces EITF 94-3. The Statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of SFAS 146 will have a material impact on its consolidated financial statements.

2.    Marketable Securities

The Company classifies all of its marketable securities as “available-for-sale securities.” Such marketable securities consist primarily U.S. Government Agency Obligations, which are stated at market value, with unrealized gains and losses in such securities reflected, net of tax, as “other comprehensive income (loss)” in stockholders’ equity. The Company intends to maintain a liquid portfolio to take advantage of investment opportunities; therefore, all marketable securities are classified as “short-term.” The following is a summary of marketable securities as of July 31, 2002:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Short-term
Available-for-sale securities:
U.S. Government Agency Obligations	$	628,635	$	3,490	$	—		$	632,125
Other marketable securities		32,269		—		(5,663	)		26,606
	$	660,904	$	3,490	$	(5,663	)	$	658,731

The following is a summary of marketable securities as of July 31, 2001:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Short-term
Available-for-sale securities:
U.S. Government Agency Obligations	$	1,150	$	—	$	(33	)	$	1,117
Other marketable securities		6,318		—		(3,946	)		2,372
	$	7,468	$	—	$	(3,979	)	$	3,489

Sales and realized (gains) losses from the sale of available-for-sale securities for the years ended July 31, 2000, 2001 and 2002 amounted to approximately $104.2 million and $(28.3) million, $162.0 million and $126.0 million, and $742.9 million and $(1.5) million, respectively. The Company uses the specific identification method in computing the gross realized gains and gross realized losses on the sales of marketable securities.

During Fiscal 2000, IDT sold approximately $55.0 million of held-to-maturity securities prior to their maturity dates and recorded a loss of approximately $1.2 million. The securities were sold to fund certain transactions. In connection with these sales, marketable securities with a cost basis of approximately $22.0 million were reclassified as available-for-sale and through July 31, 2000, unrealized losses of approximately $0.8 million were included in accumulated other comprehensive loss.

F-13

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Terra Networks Transaction

In October 1999, IDT entered into a joint venture agreement with Terra Networks, S.A. (“Terra”) pursuant to which the two parties formed two limited liability companies to provide Internet services and products to customers in the United States. One company was formed to provide Internet access to customers and the other company was formed to develop and manage an Internet portal that would provide content-based Internet services. IDT’s 49% interest in the Internet access company was accounted for using the equity method of accounting. The equity method was used since IDT had significant influence, but less than a controlling voting interest. IDT’s 10% interest in the Internet portal company was accounted for at cost. The cost method was used since IDT did not have a controlling voting interest, or an ownership or voting interest so large as to exert significant influence, and the venture was not publicly traded. On April 30, 2000, the Company sold its interests in the two joint ventures for the right to receive 3.75 million shares of Terra common stock. In connection with these sales, the Company recognized a pre-tax gain of $231.0 million for the year ended July 31, 2000. During the years ended July 31, 2000 and 2001, the Company sold a total of 3.745 million of its Terra shares and recognized therewith a gain of $24.9 million and a loss of $129.2 million, respectively, which have been included as a component of “investment and other income (expense).”

3.    Property, Plant and Equipment

Property, plant and equipment consists of the following:

	July 31
	2001			2002
	(in thousands)
Equipment	$	264,422		$	343,874
Computer software		10,192			11,468
Leasehold improvements		21,603			27,453
Furniture and fixtures		11,120			12,242
Land and building		8,937			8,934
		316,274			403,971
Less accumulated depreciation and amortization		(92,232	)		(153,340	)
Property, plant and equipment, net	$	224,042		$	250,631

Fixed assets under capital leases aggregated $104.2 million and $118.3 million at July 31, 2001 and 2002, respectively. The accumulated amortization related to these assets under capital leases was $35.4 million and $50.2 million at July 31, 2001 and 2002, respectively. Amortization of fixed assets under capital leases is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

During the year ended July 31, 2002, the Company recorded an impairment charge associated with its property, plant and equipment of $3.9 million, primarily resulting from the write-down of certain decommissioned European telecommunications switch equipment and certain discontinued wireless-related equipment.

As a result of the Company’s gradual exit from the dial-up Internet access service business, including the sale of a majority of its dial-up Internet access customers, the Company recorded an impairment charge associated with its property, plant and equipment of $ 6.0 million during the year ended July 31, 2001, primarily relating to equipment previously used to provide dial-up Internet access services.

F-14

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.    Goodwill, Licenses and Other Intangibles

In June 2001, the FASB issued SFAS No. 142. Under the new rules, goodwill and intangible assets deemed to have indefinite lives would no longer be amortized but rather be subject to impairment tests performed at least annually, in accordance with the Statement. Other intangible assets would continue to be amortized over their useful lives.

The Company chose to early adopt the new rules on accounting for goodwill and other intangible assets and began to apply them beginning in the first quarter of Fiscal 2002. As such, the Company performed the required impairment tests of goodwill as of August 1, 2001, and, as a result, the Company recorded an impairment charge of $147.0 million, net of income taxes of $3.5 million. The impairment charge was recorded in the first quarter of Fiscal 2002 as a cumulative effect of a change in accounting principle. In determining the impairment charge, the Company obtained an independent valuation of the underlying assets in which discounted cash flows analyses were utilized. As a result, it was determined that the fair value of certain reporting units were less than their carrying values. The implied fair value of goodwill was then determined to be below its carrying value. As a result, the Company recorded an impairment charge to reduce the fair value of goodwill attributable to these reporting units to its carrying value.

During the year ended July 31, 2002, the Company recorded goodwill of $4.9 million as a result of acquisitions, primarily in the Company’s Media business segment. The table below reconciles the change in the carrying amount of goodwill by operating segment for the period from July 31, 2001 to July 31, 2002:

	Wholesale Telecommunications Services			Retail Telecommunications Services			Winstar		Internet Telephony		Media			Corporate		Total
	(in thousands)
Balance as of July 31, 2001	$	44,148		$	104,211		$	—	$	—	$	29,934		$	—	$	178,293
Effect of adoption of   SFAS No. 142		(44,148	)		(103,635	)		—		—		(2,725	)		—		(150,508	)
Acquisitions during 2002		—			446			—		—		4,471			—		4,917
Balance as of July 31, 2002	$	—		$	1,022		$	—	$	—	$	31,680		$	—	$	32,702

F-15

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the impact of SFAS No. 142 on income (loss) before extraordinary item and cumulative effect of accounting change, net income (loss) and earnings per share had the standard been in effect for the years ended July 31, 2000 and 2001:

	Year Ended July 31,
	2000		2001		2002
	(in thousands, except per share data)
Income (loss) before extraordinary item and     cumulative effect of accounting change	$	233,826	$	532,359	$	(156,366	)
Add back: goodwill amortization		14,926		16,313		—
Adjusted income (loss) before extraordinary item     and cumulative effect of accounting change	$	248,752	$	548,672	$	(156,366	)
Earnings per share—basic	$	3.34	$	7.79	$	(2.08	)
Add back: goodwill amortization		0.21		0.24		—
Adjusted earnings per share—basic	$	3.55	$	8.03	$	(2.08	)
Earnings per share—diluted	$	3.11	$	7.12	$	(2.08	)
Add back: goodwill amortization		0.20		0.22		—
Adjusted earnings per share—diluted	$	3.31	$	7.34	$	(2.08	)
Net income (loss)	$	230,850	$	532,359	$	(303,349	)
Add back: goodwill amortization		14,926		16,313		—
Adjusted net income (loss)	$	245,776	$	548,672	$	(303,349	)
Earnings per share—basic	$	3.30	$	7.79	$	(4.04	)
Add back: goodwill amortization		0.21		0.24		—
Adjusted earnings per share—basic	$	3.51	$	8.03	$	(4.04	)
Earnings per share—diluted	$	3.07	$	7.12	$	(4.04	)
Add back: goodwill amortization		0.20		0.22		—
Adjusted earnings per share—diluted	$	3.27	$	7.34	$	(4.04	)

The following disclosure presents certain information on the Company’s licenses and other intangible assets. All licenses and intangible assets are being amortized over their estimated useful lives, with no estimated residual values.

	Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization			Net Balance
		(in thousands)
As of July 31, 2002
Amortized intangible assets:
Licenses	5 years		$	23,994	$	(3,175	)	$	20,819
Core technology, trademark and patents	5 years			5,295		(611	)		4,684
Total			$	29,289	$	(3,786	)	$	25,503
As of July 31, 2001
Amortized intangible assets:
Licenses	5 years		$	42,523	$	(23,038	)	$	19,485
Core technology, trademark and patents	5 years			2,817		(2,791	)		26
Total			$	45,340	$	(25,829	)	$	19,511

F-16

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Licenses and other intangible assets amortization expense was $0.9 million, $4.9 million and $3.8 million for the years ended July 31, 2000, 2001 and 2002, respectively. The Company estimates that amortization expense of licenses and other intangible assets for each of the next five fiscal years ending July 31 will be approximately $5.1 million.

5.    Related Party Transactions

The Company has entered into a number of agreements with Net2Phone. Pursuant to these agreements, during the years ended July 31, 2001 and 2002, the Company billed Net2Phone approximately $56.8 million and $31.6 million, respectively, and Net2Phone billed the Company approximately $19.2 million and $16.1 million, respectively. In the year ended July 31, 2000, Net2Phone was included in the Company’s consolidated financial statements and any amounts billed were eliminated in consolidation. The net balance owed to the Company by Net2Phone was approximately $19.3 million and $0.8 million as of July 31, 2001 and 2002, respectively.

The Company currently leases one of its facilities in Hackensack, New Jersey from a corporation which is wholly owned by the Company’s Chairman. Aggregate lease payments under such lease was approximately $24,000 for the years ended July 31, 2000, 2001 and 2002. The Company made payments for food related expenses to a cafeteria owned and operated by the son of the Company’s chairman. Such payments were $0.1 million and $0.6 million in fiscal years 2001 and 2002, respectively. No payments were made to the cafeteria in fiscal 2000.

The Company has obtained various insurance policies that have been arranged through a company affiliated with individuals related to both the Chairman and the General Counsel of the Company. The aggregate premiums paid by the Company with respect to such policies was approximately $0.1 million, $2.2 million and $3.6 million for the years ended July 31, 2000, 2001 and 2002, respectively. IDT retained the services of a private insurance consulting firm to ensure that these insurance policies were both necessary and reasonable. The commissions that were earned on such premiums are shared with several insurance wholesalers that access excess and surplus lines of insurance held by the Company.

On December 13, 2001, IDT granted to its Chairman options to purchase 1 million shares of IDT Class B common stock, at an exercise price of $12.06 per share. The options were to vest over a period of 5 years, at a rate of 50,000 options per quarter, commencing on January 1, 2002. On May 14, 2002, IDT’s Chairman waived and agreed to the cancellation of any rights under the options, and, as a result, all the options were cancelled retroactive to their December 13, 2001 date of grant.

The Chief Executive Officer and Vice-Chairman of the Company is a partner in a law firm that has served as counsel to the Company since July 1996. Fees paid to this law firm by the Company amounted to $0.3 million, $0.0 million and $0.5 million for fiscal years ended July 31, 2000, 2001 and 2002 respectively. In addition, a Director of the Company is of counsel to a law firm that has served as counsel to the Company since November 1999. Fees paid to this law firm by the Company amounted to $1.0 million, $3.1 million and $6.3 million for fiscal years ended July 31, 2000, 2001 and 2002, respectively.

In addition, the Company had loans outstanding to officers and employees aggregating approximately $7.7 million and $10.3 million as of July 31, 2001 and 2002, respectively, which are included within “other assets” in the accompanying consolidated balance sheets.

F-17

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

All of the Company’s related party transactions are reviewed by the Audit Committee of the Company’s Board of Directors.

6.    Income Taxes

Significant components of the Company’s deferred tax assets and deferred tax liabilities consist of the following:

	July 31
	2001			2002
	(in thousands)
Deferred tax assets:
Unrealized losses on securities	$	857		$	—
Bad debt reserve		3,980			10,179
Exercise of stock options		9,857			9,857
Reserves		4,500			4,500
Charitable contributions		10,765			10,795
Net operating loss		—			170,404
Other		8,992			9,899
Deferred tax assets		38,951			215,634
Deferred tax liabilities:
Deferred revenue		(196,000	)		—
Partnership		—			(278,000	)
Unrecognized gain on securities		(100,313	)		(28,709	)
Gain on sales of subsidiary stock		(105,466	)		(120,574	)
Depreciation		(16,074	)		(14,801	)
Identifiable intangibles		(3,583	)		(7,083	)
Other		(8,429	)		(8,440	)
Deferred tax liabilities		(429,865	)		(457,607	)
Net deferred tax liabilities	$	(390,914	)	$	(241,973	)

The provision for (benefit from) income taxes consists of the following for the years ended July 31:

	2000			2001		2002
	(in thousands)
Current:
Federal	$	—		$	6,600	$	—
State and local and foreign		(394	)		14,249		(30,683	)
		(394	)		20,849		(30,683	)
Deferred:
Federal		175,191			150,997		(72,788	)
State and local and foreign		41,712			37,549		(17,349	)
		216,903			188,546		(90,137	)
	$	216,509		$	209,395	$	(120,820	)

F-18

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The income statement classification of the provision for (benefit from) income taxes consists of the following at July 31:

	2000			2001		2002
	(in thousands)
Provision for (benefit from) income taxes attributable to continuing operations	$	218,403		$	209,395	$	(124,345	)
Income tax benefit attributable to extraordinary loss		(1,894	)		—		—
Income tax benefit attributable to cumulative effect of accounting change		—			—		3,525
	$	216,509		$	209,395	$	(120,820	)

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

	2000		2001			2002
	(in thousands)
Federal income tax at statutory rate	$	137,513	$	261,618		$	(149,693	)
Foreign tax rate differential		—		(99,563	)		(53,806	)
Losses for which no benefit provided		32,703		19,141			87,602
Nondeductible expenses		17,625		2,162			52,921
State and local and foreign income tax, net of federal benefit		28,612		26,037			(57,844	)
Other		56		—			—
	$	216,509	$	209,395		$	(120,820	)

7.    Stockholders’ Equity

Common Stock, Class A Common Stock, and Class B Common Stock

The rights of holders of common stock, Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. The holders of Class A common stock are entitled to three votes per share. The holders of Class B common stock are entitled to one-tenth of a vote per share, and the holders of common stock are entitled to one vote per share. Class A common stock is subject to certain limitations on transferability that do not apply to the common stock and Class B common stock. Each share of Class A common stock may be converted into one share of common stock, at any time, at the option of the holder.

Stock Options

Prior to March 15, 1996, the Company had an informal stock option program whereby employees were granted options to purchase shares of common stock. Under this informal program, options to purchase 4,317,540 shares of common stock were granted.

The Company adopted a stock option plan as amended (the “Option Plan”) for officers, employees and non-employee directors to purchase up to 6,300,000 shares of the Company’s common stock. In May 2000, the Board of Directors of the Company approved an amendment to the Option Plan to reserve for issuance 300,000 shares of Class B common stock. In September 2000, the Board of Directors of the Company approved an amendment to the Option Plan to reserve for issuance of an additional 3,000,000 shares of Class B common stock. On May 31, 2002, the Company distributed a stock dividend of one share of Class B common stock for each share of the Company’s common stock, Class A common stock and Class B common stock. Accordingly, pursuant to the terms of the Option Plan, up to an additional 9,600,000 shares of Class B common stock were reserved for issuance under the Option Plan. In October 2001, the Board of Directors of the Company approved an amendment to the Option Plan to reserve for issuance an additional 3,000,000 shares of Class B common stock. In September 2002, the Board of Directors of the Company approved an amendment to the Option Plan to reserve for issuance of an additional 3,000,000 shares of Class B common stock. Generally, options become exercisable over vesting periods up to six years and expire ten years from the date of grant.

F-19

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of stock option activity under the Company’s stock option plan and stock option program is as follows:

	Shares		Weighted-Average Exercise Price
Outstanding at July 31, 1999	7,175,932		$	5.25
Granted	8,851,086			9.98
Exercised	(2,621,400	)		5.54
Canceled	(95,000	)		8.86
Forfeited	(31,500	)		10.93
Outstanding at July 31, 2000	13,279,118			8.31
Granted	5,112,004			9.15
Exercised	(1,041,451	)		6.61
Canceled	(299,247	)		5.71
Forfeited	(55,200	)		12.63
Outstanding at July 31, 2001	16,995,224			8.70
Granted	4,599,982			12.11
Exercised	(6,403,708	)		8.42
Canceled	(1,012,376	)		11.96
Forfeited	(19,900	)		11.99
Outstanding at July 31, 2002	14,159,222		$	9.69

The following table summarizes the status of stock options outstanding and exercisable at July 31, 2002:

	Stock Options Outstanding
Range of Exercise Prices	Number of Options	Weighted- Average Remaining Contractual Life (in years)	Number of Stock Options Exercisable
$0.10 – $0.10	290,296	2.0	290,296
$0.21 – $0.21	17,632	2.7	17,632
$0.41 – $0.41	36,000	2.0	36,000
$0.83 – $0.83	30,000	2.7	30,000
$2.19 – $2.63	639,500	4.7	639,500
$3.44 – $4.13	489,550	4.7	489,550
$5.63 – $8.00	5,649,968	8.0	2,016,499
$8.72 – $12.13	5,144,618	7.7	2,657,050
$13.13 – $18.51	1,861,658	8.4	1,070,358
	14,159,222	7.5	7,246,885

The weighted-average fair value of options granted was $7.42, $7.05 and $9.34 for the years ended July 31, 2000, 2001 and 2002, respectively.

Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS 123, and has been determined as if the Company had accounted for employees’ stock options under the fair value method provided by that statement. The fair value of the stock options was estimated at the date of

F-20

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

grant using the Black-Scholes option pricing model with the following assumptions for vested and non-vested options:

	2000		2001		2002
Assumptions
Average risk-free interest rate	6.49	%	4.77	%	4.22	%
Dividend yield	—		—		—
Volatility factor of the expected market price of the Company’s common stock	81	%	90	%	73	%
Average life	5 years		5 years		5 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employees’ stock options.

For purposes of pro forma disclosures, the estimated fair value of the options under SFAS No. 123 is amortized to expense over the options’ vesting period. For the years ended July 31, 2000, 2001 and 2002, pro forma net income (loss) and pro forma net income (loss) per share under SFAS No. 123 amounted to the following:

	2000		2001		2002
	(in thousands, except per share data)
Net income (loss), as reported	$	230,850	$	532,359	$	(303,349	)
Pro forma net income (loss)	$	214,286	$	514,716	$	(328,611	)
Net income (loss) per share, as reported:
Basic	$	3.30	$	7.79	$	(4.04	)
Diluted	$	3.07	$	7.12	$	(4.04	)
Pro forma net income (loss) per share:
Basic	$	3.06	$	7.54	$	(4.38	)
Diluted	$	2.84	$	6.88	$	(4.38	)

The Company has modified stock options granted for certain employees of the Company to accelerate or extend their terms. Accordingly, the Company recorded additional compensation expense of approximately $1.0 million, $3.1 million and $1.9 million for the years ended July 31, 2000, 2001 and 2002, respectively. During Fiscal 2002, the Company granted options to certain employees to purchase 14,546 shares of common stock in its subsidiary, IDT Telecom, at an average exercise price of $366.67 per share. No such options were exercised during the year.

Net2Phone Stock Options

During the quarter ended July 31, 2000, stock options issued to certain officers and employees of Net2Phone were accelerated in accordance with the original stock option awards and as a result Net2Phone recorded $12.5 million in compensation charges as a result of the acceleration. During the quarter ended July 31, 2000, stock options issued to certain officers and employees of IDT were modified and as a result, Net2Phone recorded $18.3 million in compensation charges.

F-21

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Buyback Program

Our Board of Directors has authorized the repurchase of up to 45 million shares (adjusted for the May 2001 stock dividend) of our common stock and Class B common stock. During Fiscal 2002, we repurchased approximately 1.4 million shares of our common stock, for an aggregate purchase price of $15.6 million. Combined with the 6.8 million (adjusted) shares and 7.4 million (adjusted) shares repurchased during Fiscal 2001 and Fiscal 2000, respectively, we have repurchased a total of 15.6 million shares under the share repurchase program through the end of Fiscal 2002, of which 6.2 million shares were retired as of July 31, 2002.

Liberty Media Transaction

On March 27, 2000, Liberty Media agreed to purchase approximately 9.9% of the equity of IDT, equal to approximately 3.775 million shares of IDT’s common stock and exchangeable for shares of Class B common stock (before adjusting for the May 2001 stock dividend). On June 6, 2000, Liberty Media completed the purchase of 3.729 million shares of IDT’s common stock (before adjusting for the May 2001 stock dividend) at $34.50 per share (before adjusting for the May 2001 stock dividend), resulting in aggregate cash consideration of $128.6 million. Liberty Media also has the right to nominate a director for election to the IDT Board of Directors.

On October 11, 2001 IDT issued to Liberty Media 3.810 million shares of IDT Class B common stock in exchange for the 3.729 million shares of IDT common stock held by Liberty Media. The exchange rate was based upon the relative average market prices for the IDT Class B common stock and the IDT common stock during a specified 30 trading day period.

Liberty Media Investment in IDT Telecom, Inc.

On January 30, 2002, IDT Telecom sold 7,500 newly issued shares of its common stock to Liberty Media at a price of $4,000 per share, for total aggregate proceeds of $30.0 million. As a result of this investment, Liberty Media became the owner of approximately 4.8% of the common equity of IDT Telecom (0.5% of the voting power). The Company owns the remaining common equity of IDT Telecom.

AT&T Transaction

In March 2000, the Company was granted the option to sell to AT&T 4.1 million shares of its Class B common stock for approximately $74.8 million. In March 2001, the Company exercised this option.

Hicks, Muse, Tate & Furst Transaction

In June 2001, the Company issued stock options to Hicks, Muse, Tate & Furst Incorporated (“HMTF”) to purchase up to 2.2 million shares of the Company’s Class B common stock at exercise prices ranging from $11.25 to $15.00 per share, as defined. The stock options are exercisable on the first anniversary of the agreement, and expire on the fifth anniversary date. In consideration for the stock options issued to HMTF, the Company received $2.0 million in cash.

IDT Charitable Foundation

In May 2001, the Company established the IDT Charitable Foundation (the “Foundation”) with the purpose of obtaining money or property to be contributed from time to time to eligible charitable organizations. The Foundation also administers a matching gifts program available to IDT’s directors, officers, employees and retirees.

In July 2001, the Company funded the Foundation with 2.2 million shares of Class B common stock worth approximately $26.4 million at that time.

F-22

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8.    Commitments and Contingencies

Legal Proceedings

On January 29, 2001, the Company filed a Complaint with the United States District Court for the District of New Jersey, against Telefonica S.A., Terra Networks, S.A., Terra Networks, U.S.A., Inc. and Lycos, Inc. The complaint asserts claims against the defendants for, among other things, breaches of various contracts, breach of fiduciary duty, securities violations, fraudulent misrepresentation, negligent misrepresentation, fraudulent concealment and tortious interference with prospective economic advantage. The defendants have been served with the Complaint. The Company has filed an Amended complaint and the defendants have filed an answer to the amended complaint. Terra Networks, S.A. has filed a counterclaim for breach of contract alleging that the Company was required to pay to Terra Networks, S.A. $3.0 million, and failed to do so. The defendants have filed a motion to dismiss the complaint. On September 14, 2001, the Court issued an Order: (a) permitting the Company to take discovery relevant to the subject of whether Telefonica S.A. is subject to personal jurisdiction, (b) denying Telefonica S.A.’s motion to dismiss for lack of personal jurisdiction without prejudice to Telefonica S.A.’s right to renew the motion upon the completion of jurisdictional discovery, and (c) carrying on the calendar defendants’ motion to dismiss on non-jurisdictional grounds pending the completion of jurisdictional discovery, which is ongoing. Each party served the other party with certain requests for discovery relevant to the subject of whether Telefonica S.A. is subject to personal jurisdiction. The motions were denied almost in their entirety. The case continues in the early stages of discovery. No trial date has yet been set in this matter.

On May 25, 2001, we filed a statement of claim with the American Arbitration Association naming Telefonica Internacional, S.A. (“Telefonica”) as the Respondent. The statement of claim asserts that the Company and Telefonica entered into a Memorandum of Understanding (“MOU”) that involved, among other things, the construction and operation of a submarine cable network around South America (“SAm-I”). The Company is claiming, among other things, that Telefonica breached the MOU by: (1) failing to negotiate SAm-I agreements; (2) refusing to comply with the equity provisions of the MOU; (3) refusing to sell capacity and back-haul capacity pursuant to the MOU; and (4) failing to follow through on the joint venture. Telefonica has responded to IDT’s Statement of Claim and has filed a Statement of Counterclaim which alleges, among other things: (1) Fraud in the Inducement; (2) Tortious Interference with Prospective Business Relations; (3) Breach of the Obligations of Good Faith and Fair Dealing; and (4) Declaratory and Injunctive Relief. Discovery is in its final stages and both parties have submitted expert reports. The arbitration is ongoing and is expected to continue into 2003.

In September 2001, Alfred West filed a complaint against the Company and its wholly-owned subsidiary, IDT Telecom, Inc. in the Federal District Court in Newark, New Jersey seeking monetary damages of $25 million for alleged breach of contract, breach of implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, promissory estoppel, quantum meruit, tortious interference and unfair competition. The Company filed counterclaims for fraud, negligent misrepresentation, breach of fiduciary duty, tortious interference and breach of contract. Several depositions have been completed, and discovery should be completed by the end of October 2002.

Winstar acquired certain domestic telecommunications assets formerly owned by Old Winstar, which was approved by the Bankruptcy Court on December 19, 2001 (the “Sale Order”). Although many of the purchased assets were transferred to Winstar at the time of the sale, the transfer of certain of Old Winstar’s regulated telecommunications assets, including its customer base, was subject to a number of federal and state regulatory approvals and on Winstar’s obtaining the necessary telecommunications facilities and services necessary to serve the customers it agreed to purchase from Old Winstar. Subsequently, Winstar has entered into interconnection agreements with the relevant RBOCs and has sought to use services and facilities obtained pursuant to those

F-23

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

agreements and pursuant to RBOC tariffs to complete its network and therefore to be able to transition the customers from service by Old Winstar to Winstar.

Although all of the regulatory approvals necessary for this transition have now been issued, the RBOCs have asserted that Winstar is nevertheless not entitled to obtain uninterrupted services under their interconnection agreements and tariffs unless the RBOCs receive payment of approximately $40 million, in the aggregate, allegedly owed by Old Winstar for access to RBOC facilities and circuits. Based on the claim that Winstar must pay this “cure” amount as a condition of receiving uninterrupted service, the RBOCs have refused in certain instances to provide facilities and service to Winstar that it needs in order to serve its customers directly. As a result, Winstar is operating the business of Old Winstar pursuant to a management agreement approved by the bankruptcy court, and is providing services to the customers on behalf of Old Winstar.

Winstar contends that, even were it to assume the Old Winstar contracts with the RBOCs, the amounts set forth in the RBOC’s proofs of claim greatly exceed any reasonable “cure” for facilities and services that Winstar seeks to obtain from the RBOCs, since the claims include significant amounts that Old Winstar owed for services and facilities that IDT Winstar has not requested, and does not need to be able to provide services to the customers following the transition. Winstar also disputes the RBOC’s claims that they are not obligated to provide services and facilities to Winstar without an assumption or assignment of the Old Winstar contracts and a payment of “cure” amounts. In response to the RBOC’s refusal to provide service, on April 17, 2000 Winstar filed an Emergency Petition for a Declaratory Ruling at the FCC (Inc. Docket No. 02-80) asking that the FCC declare that the refusal of the RBOCs to provide the requested services and facilities pursuant to their interconnection agreements and tariffs, and their refusal to transition such services in a manner that does not interrupt services to the customers is unreasonable and therefore unlawful under federal law. In response, one RBOC (Verizon) filed a counter-petition asking that the FCC declare that the federal telecommunications laws do not require it to provide facilities and services to Winstar without “cure” of Old Winstar’s debts. A number of parties filed comments in the FCC proceeding on both sides of the issue and the proceeding is still pending at the FCC. Winstar believes that the RBOCs have acted unreasonably and unlawfully in denying its requests for services and facilities and will continue absent a settlement with the RBOCs to advocate its position vigorously.

In addition, faced with likely termination of service to Old Winstar customers in violation of the Telecommunications Act and number our FCC regulations, we sought injunctive relief (in addition to other remedies) in the U.S. District Court for the District of New Jersey against Verizon, Qwest Corp. and Qwest Communications Corp. (“QCC”) to prevent them from discontinuing underlying services which would prevent us from providing service to our customers. Certain interim relief was secured, and Verizon, Qwest and QCC subsequently agreed not to terminate service without appropriate notice to us. The District of New Jersey action is ongoing.

The RBOCs further contend that the provision in the Sale Order requiring them to continue serving Old Winstar and its subsidiaries expired on or about April 18, 2002. Winstar promptly moved to enforce that provision of the Sale Order, but the bankruptcy court denied its motion. Winstar has appealed the denial of that motion to the U.S. District Court for the District of Delaware. In addition, Winstar asked the District Court for interim relief during the pendency of its appeal to stay the RBOCs and other service providers from cutting off service until the appeal is decided. The District Court has not yet ruled on that request, but has temporarily ordered that service providers, including the RBOCs, may not terminate service or otherwise affect Winstar’s business without permission of the Court.

During preliminary status hearings before the District Court on May 24 and June 4, 2002, the RBOCs and Winstar advised the Court of their willingness to enter into settlement discussions and/or non-binding mediation

F-24

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in an attempt to resolve their disputes. Those settlement discussions and mediations are ongoing, and the District Court appeal is therefore still pending. It is too soon to predict whether settlements will be reached with any or all of the RBOCs or, if so, to quantify the monetary effect of such settlements, if any, on Winstar. To the extent that a settlement agreement is not reached with any or all of the RBOCs, we expect that the appellate proceedings will resume. One possible outcome of an adverse ruling by the District Court on either the interim relief requested by Winstar or on the merits of the case could be to permit the RBOCs to terminate services that are being provided to our customers and therefore to prevent the uninterrupted transition of those customers to Winstar service. A status conference is scheduled for November 8, 2002, for the parties to report on the progress of their efforts to mediate the disputes.

Winstar believes that the RBOCs have acted unreasonably and unlawfully in denying its request for services and facilities and will continue absent a settlement to advocate its positions vigorously. However, adverse results in one or more of the above-described RBOC litigations could have a material adverse effect on us, including payment of the “core” amount described above, or the inability of Winstar to access the RBOCs services and facilities, in which its business is substantially dependent.

On or about July 25, 2002, PT-1 Communications, Inc. (“PT-1”) filed a summons and complaint against the Company and its subsidiaries, IDT Netherlands, B.V., IDT Telecom, Inc. and IDT Domestic Telecom, Inc. (collectively “the Company”) in the United States Bankruptcy Court for the Eastern District of New York. PT-1 seeks (a) to recover damages for certain fraudulent transfers of property of the Debtor’s bankruptcy estate, (b) to recover damages for unjust enrichment, and (c) to recover damages from breaches under the agreement between the parties for the sale of the Debtor’s debit card business to the Company, including the Company’s alleged failure to remit payment for use of certain telecommunication and platform services on or through PT-1 switches. In total, PT-1 is seeking $24 million in damages as well as certain unstated amounts. The Company served its answer on September 18, 2002. Initial discovery will commence shortly.

On or about September 16, 2002, a complaint was filed by Mark B. Aronson in the Court of Common Pleas of Allegheny County, Pennsylvania seeking certification of a class consisting of consumers who were charged a fee when the Company switched underlying carriers from Global Crossing to AT&T. At this point no specific damages have been specified in the complaint. Thus, the Company cannot yet quantify its exposure.

On or about September 19, 2002, a complaint was filed by Ramon Ruiz against the Company and Union Telecard Alliance, LLC in the Supreme Court of the State of New York seeking certification of a class consisting of consumers who allegedly purchased and used the Company’s pre-paid calling cards and were charged any fee that was not specifically disclosed on the card packaging prior to purchase. The complaint seeks damages in excess of one hundred million dollars.

On or about October 11, 2002, a complaint was filed by Paul Zedeck against us and Union Telecard in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, seeking certification of a class consisting of consumers who allegedly purchased and used our prepaid calling cards and were charged any fee that was not specifically disclosed on the card packaging prior to purchase. The damages sought have not yet been quantified. Because we only recently received the complaint, we are still evaluating the potential impact and our approach to contesting the claims or attempts to certify the classes.

On or about October 18, 2002, a complaint was filed by Morris Amsel against us and IDT Telecom in the Supreme Court of the State of New York seeking certification of a class consisting of consumers who allegedly purchased our calling cards. Plaintiff’s complaint relates to payphone charges and international rates. The complaint seeks damages of not less that $100 million. Because we only recently received the complaint, we are still evaluating the potential impact and our approach to contesting the claims or attempts to certify the classes.

F-25

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On or about October 24, 2002, Winstar filed suit against Superior Logistics Management Services, Inc. (“Superior”) in the United States District Court for the Eastern District of Virginia. The complaint alleges counts for breach of contract (Superior breached a settlement agreement with Winstar), conversion (for retaining Winstar’s property), and detinue (for return of the property). Winstar is seeking approximately $50 million in damages, plus punitive damages, costs, and attorney’s fees.

The Company is subject to other legal proceedings and claims, which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurances in this regard, in the opinion of the Company’s management, such proceedings, as well as the aforementioned actions, will not have a material adverse effect on results of operations, cash flows or the financial condition of the Company.

Lease Obligations

The future minimum payments for capital and operating leases as of July 31, 2002 are approximately as follows:

	Operating Leases		Capital Leases
	(in thousands)
Year ending July 31:
2003	$	69,420	$	27,110
2004		52,174		23,482
2005		43,961		13,747
2006		39,340		10,808
2007		37,003		1,317
Thereafter		150,991		—
Total payments	$	392,889		76,464
Less amount representing interest				(8,106	)
Less current portion				(22,960	)
Capital lease obligations—long-term portion			$	45,398

Rental expense under operating leases was approximately $6.9 million, $4.9 million and $27.3 million for the years ended July 31, 2000, 2001 and 2002, respectively. The significant increase in rental expense in Fiscal 2002 is due primarily to the significantly higher number of operating leases associated with our Winstar segment, which was acquired in December 2001.

Commitments

The Company has entered into purchase commitments of approximately $25 million as of July 31, 2002, primarily related to connectivity agreements. In addition, in April 2002, the Company entered into a four-year agreement to grant a telecommunications provider an exclusive right to service the Company’s consumer long distance business traffic, in which the Company agreed to purchase a minimum usage over the term of the agreement. In the event that the Company terminates the agreement before the expiration date, the Company is subject to an early termination penalty of $15 million if cancelled in the first year, $10 million if canceled in the second year, $5 million if cancelled in the third year and $2 million if cancelled in the fourth year.

The Company guarantees payments of certain of its vendors through August 2009. Such guarantees amounted to $3.4 million as of July 31, 2002. In addition, the Company also provides certain such guarantees to its vendors in the form of letters of credit, through June 2008. Such guarantees amounted to $8.6 million as of July 31, 2002.

F-26

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9.    Defined Contribution Plan

The Company maintains a 401(k) Plan (the “Plan”) available to all employees meeting certain eligibility criteria. The Plan permits participants to contribute up to 20% of their salary, not to exceed the limits established by the Internal Revenue Code. The Plan provides for a matching contribution up to a maximum of 6% of covered compensation, which vests over five years. All contributions made by participants vest immediately into the participant’s account. For the years ended July 31, 2000, 2001 and 2002, Company contributions to the Plan amounted to approximately $0.3 million, $0.8 million and $0.9 million, respectively. The Company’s common stock and Class B common stock are not investment options for Plan participants.

10.    Business Segment Information

The Company has identified five reportable business segments: Wholesale Telecommunications Services, Retail Telecommunications Services, Winstar, Internet Telephony and Media. The operating results of these business segments are distinguishable and are regularly reviewed by the chief operating decision maker.

The Wholesale Telecommunications Services business segment is comprised of wholesale carrier services provided to other long distance carriers. The Retail Telecommunications Services business segment includes domestic and international prepaid and rechargeable calling cards and consumer long distance services to individuals and businesses. The Winstar business segment operates as a competitive local exchange carrier (“CLEC”) using fixed wireless technology to provide local and long distance phone services, and high speed Internet and data communications solutions. The Internet Telephony business segment reflects the results of the Company’s formerly majority-owned subsidiary, Net2Phone. The Media business segment operates several media and entertainment-related businesses, most of which are currently in the early stages of development.

The Company evaluates the performance of its business segments based primarily on operating income (loss) after depreciation, amortization and impairment charges, but prior to interest income (expense), other income (expense), income taxes, extraordinary items and cumulative effect of accounting changes. All corporate overhead is allocated to the business segments based on time and usage studies, except for certain specific corporate costs, such as treasury management and investment-related costs, which are not allocated to the business segments. Operating results and other financial data presented for the principal business segments of the Company for the years ended July 31, 2000, 2001 and 2002 are as follows (in thousands):

	Wholesale Telecommunications Services			Retail Telecommunications Services			Winstar(1)			Internet Telephony(2)			Media(3)			Corporate			Total
Year ended July 31, 2000
Revenues	$	520,518		$	502,512		$	—		$	56,075		$	14,807		$	—		$	1,093,912
Segment loss		(8,409	)		(11,477	)		—			(125,865	)		(39,134	)		(31,726	)		(216,611	)
Depreciation and amortization		17,252			16,656			—			6,804			5,228			2,624			48,564
Total assets		416,045			345,682			—			401,286			11,945			44,097			1,219,055
Year ended July 31, 2001
Revenues		388,120			816,384			—			—			26,446			—			1,230,950
Segment loss		(69,454	)		(34,118	)		—			—			(265,600	)		(63,538	)		(432,710	)
Depreciation and amortization		23,472			26,719			—			—			7,519			2,641			60,351
Total assets		516,395			1,028,069			—			—			269,062			68,063			1,881,589
Year ended July 31, 2002
Revenues		308,987			1,121,674			79,604			—			21,349			—			1,531,614
Segment income (loss)		(30,572	)		61,396			(96,644	)		—			(132,006	)		(26,466	)		(224,292	)
Depreciation and amortization		20,696			33,988			6,691			—			2,253			2,388			66,016
Total assets	$	220,060		$	1,078,195		$	159,726		$	—		$	91,776		$	58,163		$	1,607,920

F-27

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue from customers located outside of the United States represented approximately 17%, 16% and 18% of total revenues for the years ended July 31, 2000, 2001 and 2002, respectively, with no single foreign geographic area representing more than 10% of total revenues for the year ended July 31, 2000, and Western Europe representing 15% and 17% of total revenues for the years ended July 31, 2001 and 2002, respectively. Revenues are attributed to foreign geographic areas based on the location where the customer is invoiced. Gross and net long-lived assets mainly held in Western Europe totaled approximately $28.3 million and $18.7 million, and $31.9 million and $28.2 million as of July 31, 2001 and 2002, respectively.

(1) Since acquisition of Winstar in December 2001.

(2) Included in loss from operations for the Internet Telephony business segment for the year ended July 31, 2000 was approximately $41.0 million of non-cash compensation as a result of stock option grants, modifications and accelerations made by Net2Phone. In addition, contributing to the loss from operations was the significant level of sales and marketing expenses, as well as general and administrative expenses, as Net2Phone expanded its distribution relationships, corporate infrastructure and human resources.

(3) Included in loss from operations for our Media business segment for the years ended July 31, 2001 and 2002 were $193.4 million and $110.4 million, respectively, of impairment charges related to the write-down of the undersea fiber asset obtained as part of the TyCom Ltd. (“TyCom”) settlement.

Reconciliation To Consolidated Financial Information

A reconciliation of the results for the operating segments to the applicable line items in the consolidated financial statements is as follows (in thousands):

	2000			2001			2002
Segment loss—reportable segments	$	(216,611	)	$	(432,710	)	$	(224,292	)
Interest income, net		7,231			52,768			21,757
Other income (expense):
Equity in loss of affiliates		(6,289	)		(75,066	)		(43,989	)
Gain on sales of subsidiary stock		350,344			1,037,726			—
Investment and other income (expense), net		258,218			164,762			(12,117	)
Income (loss) before minority interests, income taxes, extraordinary item and cumulative effect of accounting change		392,893			747,480			(258,641	)
Minority interests		(59,336	)		5,726			22,070
Provision for (benefit from) income taxes		218,403			209,395			(124,345	)
Income (loss) before extraordinary item and cumulative effect of accounting change		233,826			532,359			(156,366	)
Extraordinary loss on retirement of debt, net of income taxes of $1,894		(2,976	)		—			—
Cumulative effect of accounting change, net of income taxes of $3,525		—			—			(146,983	)
Consolidated net income (loss)—reported	$	230,850		$	532,359		$	(303,349	)

11.    Additional Financial Information

Trade accounts payable includes approximately $112.9 million and $84.1 million due to telecommunication carriers at July 31, 2001 and 2002, respectively.

F-28

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12.    Acquisitions

CTM Brochure Display, Inc.

On June 30, 2000, the Company acquired a 100% interest in CTM Brochure Display, Inc. (“CTM”), a brochure distribution company, for an aggregate purchase price of approximately $23.8 million. The purchase price consisted primarily of $5.1 million in cash, $16.9 million in notes payable to the former owners and the liquidation of $1.4 million of CTM’s bank debt. In connection with this transaction, the Company recorded goodwill of $23.0 million and tax liabilities of $3.0 million. The acquisition was accounted for as a purchase, and accordingly, the net assets and results of operations of the acquired business have been included in the consolidated financial statements from the date of acquisition. During the year ended July 31, 2001, the Company repaid the entire principal balance on the notes payable, together with accrued interest.

Aplio S.A.

On July 7, 2000, Net2Phone acquired all of the outstanding capital stock of Aplio, S.A (“Aplio”), a company located in France with technology that enables VoIP devices. Consideration consisted of $2.9 million in cash at closing, 0.6 million shares of Net2Phone’s common stock which were valued at $35.50 per share, issuance of promissory notes aggregating $6.5 million, $1.1 million in acquisition related costs and $4.8 million in cash that was paid within eighteen months of the closing of the transaction.

The aggregate purchase price of $36.0 million plus the fair value of net liabilities assumed of $2.7 million was allocated as follows: approximately $17.5 million to goodwill, $20.7 million to core technology and patents and $0.5 million to assembled workforce. The acquisition was accounted for under the purchase method of accounting by Net2Phone, and accordingly, the net assets and results of operations of the acquired business was included in the consolidated financial statements through July 2000.

PT-1 Communications

In February 2001, the Company purchased certain prepaid calling card business assets of PT-1 Communications, Inc. (“PT-1”), a wholly-owned subsidiary of STAR Telecommunications, Inc., with a payment of cash and assumption of certain liabilities, including the obligation to honor the outstanding phone cards of PT-1. The cash payment and assumption of net liabilities incurred were approximately $26.3 million with substantially all of the purchase price recorded as goodwill.

Equity Interests in Teligent, Inc. and ICG Communications, Inc.

In April 2001, through its IDT Investments, Inc. subsidiary (“IDT Investments”), the Company acquired from Liberty Media (i) a company whose sole asset was 21.4 million shares of Teligent, Inc. (“Teligent”) Class A common stock, as well as (ii) an interest in ICG Communications, Inc. (“ICG”), represented by 50,000 shares of ICG’s 8% Series A-1 convertible preferred stock and warrants to purchase approximately 6.7 million shares of ICG’s common stock. In exchange, IDT Investments issued Liberty Media a total of 10,000 shares of its Class B common stock and 40,000 shares of its Series A convertible preferred stock. Upon completing the transaction, IDT effectively owned approximately 32% of the equity of Teligent, and approximately 29% of the equity of ICG. The total consideration for Teligent and ICG’s April 2001 transaction was approximately $10.3 and $3.4 million, respectively.

In May 2001, through its IDT Investments subsidiary, the Company entered into an agreement with various affiliates of HMTF to increase IDT’s strategic investments in Teligent and ICG. Under the terms of the

F-29

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

agreement, the HMTF affiliates received 18,195 shares of IDT Investments’ Series B convertible preferred stock in exchange for the HMTF affiliates’ stakes in Teligent and ICG. The HMTF affiliates owned 219,998 shares of Teligent’s Series A 7 ³/4% convertible preferred stock, 23,000 shares of ICG ‘s 8% Series A-2 convertible preferred stock and warrants to purchase approximately 3.1 million shares of ICG’s common stock. Upon completing the transaction, IDT effectively owned approximately 37% of the equity of Teligent, and approximately 42% of the equity of ICG. The total consideration for Teligent and ICG’s May 2001 transaction was approximately $2.0 and $1.6 million, respectively.

The pro-rata share of the losses of Teligent and ICG recorded by IDT subsequent to these acquisitions have fully eliminated the carrying value of the Company’s investment in these companies.

In May 2001, Teligent filed a voluntary bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code. ICG had previously filed for bankruptcy protection in November 2000.

Winstar

On December 19, 2001, the Company, through a subsidiary, acquired the core domestic telecommunications assets of Winstar Communications, Inc. and certain of its subsidiaries that are debtors and debtors in possession in bankruptcy proceedings pending before the United States Bankruptcy Court for the District of Delaware. The acquiring subsidiary was subsequently renamed Winstar Holdings, LLC. Winstar operates as a CLEC using fixed wireless technology to provide local and long distance phone services, and high speed Internet and data communications solutions.

The purchase price for the Winstar assets was comprised of a $30.0 million cash payment, $12.5 million in newly issued shares of IDT Class B common stock and 5% of the common equity interests in the acquiring subsidiary (the remaining 95% of the common equity interests as well as all of the preferred equity interests in the acquiring subsidiary were owned by IDT). The Company also agreed to invest $60.0 million into Winstar to be used as working capital. The acquisition has been accounted for under the purchase method of accounting. The results of operations of Winstar have been included in the Company’s consolidated statements of operations since the date of acquisition. The preliminary allocation of the purchase price, pending final determination of certain acquired balances, is as follows (in thousands):

Trade accounts receivable and other current assets	$	51,301
Property, plant, equipment and intangible assets		37,923
Trade accounts payable, accrued expenses and other current liabilities		(44,487	)
Minority interest		(2,237	)
Value of assets acquired	$	42,500

The fair value of the Winstar assets acquired and liabilities assumed would have exceeded IDT’s acquisition cost. Therefore, in accordance with SFAS No. 141, Business Combinations, the excess value over the acquisition cost has been allocated as a pro rata reduction of the amounts that otherwise would have been assigned to the acquired assets, except with respect to the following:

• Trade accounts receivable—present values of amounts to be received, less allowances for uncollectibility and collection costs.

• Other current assets (principally assets to be sold)—fair value less cost to sell.

• Trade accounts payable, accrued expenses and other current liabilities (principally relating to contractual agreements assumed)—present values of amounts to be paid.

F-30

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On April 16, 2002, IDT, through a subsidiary, purchased the 5% of common equity interests in Winstar that it did not own. Consideration consisted of 0.8 million shares of IDT Class B common stock, which were valued at $13.3 million.

The following pro forma financial information presents the combined results of operations of IDT and Winstar, as if the Winstar acquisition had occurred as of the beginning of the periods presented, after giving effect to certain adjustments, including depreciation expense, income taxes and the issuance of IDT Class B common stock as part of the purchase price. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had IDT and Winstar been a single entity during such periods.

	Year Ended July 31,
	2000		2001			2002
	(in thousands, except per share data)
Revenues	$	1,325,821	$	1,451,912		$	1,604,314
Income (loss) before cumulative effect of accounting change	$	108,472	$	(1,421,850	)	$	(205,083	)
Net income (loss)	$	108,472	$	(1,421,850	)	$	(352,066	)
Earnings per share:
Income (loss) before cumulative effect of accounting change
Basic	$	1.51	$	(20.29	)	$	(2.70	)
Diluted	$	1.41	$	(18.57	)	$	(2.70	)
Net income (loss)
Basic	$	1.51	$	(20.29	)	$	(4.63	)
Diluted	$	1.41	$	(18.57	)	$	(4.63	)

13.    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Year ended July 31
	2000		2001		2002
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	230,850	$	532,359	$	(303,349	)
Denominator:
Weighted-average number of shares used in calculation of earnings per share—Basic		69,933		68,301		75,108
Effect of stock options		5,306		6,485		—
Weighted-average number of shares used in calculation of earnings per share—Diluted		75,239		74,786		75,108
Earnings per share—Basic	$	3.30	$	7.79	$	(4.04	)
Earnings per share—Diluted	$	3.07	$	7.12	$	(4.04	)

F-31

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following securities have been excluded from the dilutive per share computation as they are antidilutive:

	Year ended July 31
	2000	2001	2002
	(in thousands)
Stock options	449	1,163	5,291
Contingently issuable shares	—	—	369
Total	449	1,163	5,660

14.    Net2Phone Subsidiary Stock Sales

During the years ended July 31, 2000 and 2001, the Company recognized approximately $350.3 and $1,037.7 million, respectively, in gains on sales of subsidiary stock related to Net2Phone stock sales, as follows:

On August 3, 1999, Net2Phone completed an initial public offering of 6.2 million shares of its common stock at an initial public offering price of $15.00 per share, resulting in net proceeds of $85.3 million. Upon completion of the initial public offering, 3.1 million shares of Net2Phone Series A preferred stock were converted into 9.4 million shares of Net2Phone Class A common stock. As a result of the initial public offering and concurrent conversion of Series A preferred stock to Class A common stock, the Company’s ownership percentage in Net2Phone decreased from 90.0% to 56.2%. In connection with such offering, the Company recorded a gain of $65.5 million.

In December 1999, Net2Phone completed a secondary offering of 3.4 million shares of common stock at a price of $55.00 per share. In connection with this offering, IDT also sold 2.2 million shares of Net2Phone common stock at $55.00 per share. Total proceeds to the Company, after deducting underwriting discounts, commissions and offering expenses were $292.8 million. The Company’s ownership interest in Net2Phone before and after these transactions decreased from 56.2% to 45.0%. The Company recorded gains on sales of stock of $182.6 million in connection with these offerings.

In March 2000, the Company acquired 0.8 million shares of Yahoo! Inc. in exchange for 2.8 million shares of Net2Phone common stock at a then equivalent market value of approximately $150.0 million. In connection with this transaction, the Company recorded a gain on sale of subsidiary stock of $102.2 million.

In August 2001, IDT sold 14.9 million shares of Net2Phone common stock at $75.00 per share. Net proceeds to the Company as a result of this sale were $1,042.1 million. The Company’s ownership interest in Net2Phone before and after this transaction decreased from 45.0% to 16%. The Company recorded a total gain of $1,037.7 million in conjunction with this transaction.

15.    TyCom Ltd. Settlement

On October 10, 2000, IDT reached a full and final settlement with TyCom of all pending claims brought against one another and their respective affiliates. The settlement agreement is subject to a confidentiality agreement among the parties and only the following disclosure by IDT is permitted under the terms of that agreement.

Under the terms of the settlement, TyCom granted to IDT Europe B.V.B.A. (“IDT Europe”), free of charge, certain exclusive rights to use capacity on the transatlantic and transpacific segments of TyCom’s global

F-32

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

undersea fiber optic network (the “TyCom Global Network”), which TyCom is deploying. The settlement agreement provides for IDT Europe to obtain exclusive indefeasible rights to use (IRU) two 10 Gb/s wavelengths on the transatlantic segment (which we have been informed has been deployed) and two 10 Gb/s wavelengths on the transpacific segment (which be believe is still under development) for fifteen years from the applicable Handover Dates.

Operation, administration and maintenance for the wavelengths used by the Company will be provided by TyCom for a fifteen year period after the relevant Handover Date, free of charge. TyCom has also granted the Company certain rights to resell any unused capacity on the wavelengths through TyCom as its sole and exclusive agent. In addition, the Company will also have the option, exercisable at least annually, to convert the available capacity on its wavelengths to available equivalent capacity on another portion of the TyCom Global Network. In recognition of the settlement, a gain of $313.5 million was included as a component of “investment and other income.” The Company subsequently re-evaluated the recoverability of the carrying value of its IRU in accordance with SFAS No. 121 and, as a result, the Company has recorded an impairment loss of $193.4 million and $110.4 million for the years ended July 31, 2001 and 2002, respectively, to write down the asset to its fair value.

16.    Comprehensive Income (Loss)

The accumulated balances for each classification of comprehensive income (loss) consists of the following (in thousands):

	Unrealized gain (loss) in available-for-sale securities			Foreign currency translation		Accumulated other comprehensive loss
Beginning balance at July 31, 1999	$	—		$	—	$	—
Change during period		(94,044	)		1,391		(92,653	)
Balance at July 31, 2000		(94,044	)		1,391		(92,653	)
Change during the period		89,148			930		90,078
Balance at July 31, 2001		(4,896	)		2,321		(2,575	)
Change during the period		(1,064	)		964		(100	)
Balance at July 31, 2002	$	(5,960	)	$	3,285	$	(2,675	)

17.    Price Guarantee of Class B Common Stock

In March 2001, the Company exercised an option to sell to AT&T approximately 2.0 million shares of its Class B common stock for approximately $74.8 million. In conjunction with the formation of the consortium, IDT guaranteed to AT&T the value of approximately 1.4 million shares of IDT Class B common stock still being retained by AT&T. If the value of IDT Class B common stock is less than $27.5 million on October 19, 2002, and AT&T or an affiliate retains all the shares through such date, then IDT will be obligated to pay AT&T the difference with cash, additional shares of IDT Class B common stock or a combination of both, at the option of IDT. In connection with this obligation, the Company recorded in “investment and other income (expense)” a

F-33

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

charge of $5.3 million during the year ended July 31, 2002. The Company was subject to additional charges of $1.0 million through October 19, 2002 based on changes in the market value of IDT Class B common stock. As a result, the Company’s total liability is $6.3 million as of October 19, 2002.

18.    Extraordinary Loss

On May 10, 1999, the Company obtained a Senior Secured Credit Facility from a consortium of financial institutions. During the second quarter ended January 31, 2000, the Company repaid all of the outstanding principal balance together with accrued interest. The Company recorded a pre-tax extraordinary loss of $4.9 million in connection with the repayment during the year ended July 31, 2000.

19.    Selected Quarterly Financial Data (unaudited)

The table below presents selected quarterly financial data (unaudited) of the Company for the calendar quarters in the fiscal years ended July 31, 2002 and 2001:

						Income (loss) before cumulative effect of accounting change
Quarter Ended	Revenues		Loss from Operations			Amount			Per Share —Basic			Per Share —Diluted			Net Income (Loss)
	(in thousands, except for per share data)
2002:
October 31 /a/	$	339,209	$	(12,565	)	$	(11,332	)	$	(0.16	)	$	(0.16	)	$	(158,315	)
January 31		374,025		(27,774	)		(17,212	)		(0.23	)		(0.23	)		(17,212	)
April 30		401,653		(42,829	)		(49,593	)		(0.64	)		(0.64	)		(49,593	)
July 31 /b/		416,727		(141,124	)		(78,229	)		(0.99	)		(0.99	)		(78,229	)
Total	$	1,531,614	$	(224,292	)	$	(156,366	)							$	(303,349	)
2001:
October 31 /c/	$	276,597	$	(60,070	)	$	869,568		$	12.43		$	11.27		$	869,568
January 31		287,597		(48,455	)		(117,104	)		(1.77	)		(1.77	)		(117,104	)
April 30 /d/		335,722		(55,571	)		(48,277	)		(0.73	)		(0.73	)		(48,277	)
July 31 /e/		331,034		(268,614	)		(171,828	)		(2.44	)		(2.44	)		(171,828	)
Total	$	1,230,950	$	(432,710	)	$	532,359								$	532,359

/a/ Included in net loss is a $147.0 million cumulative effect of accounting change, net of $3.5 million of income taxes, due to the adoption of SFAS No. 142.

/b/ Included in loss from operations was $110.4 million of impairment charges related to the IRU received as part of the Tycom settlement.

/c/ Included in net income is $1,037.7 million in gains on sales of subsidiary stock related to Net2Phone stock sales.

F-34

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

/d/ Included in loss from operations was $193.4 million of impairment charges related to the IRU received as part of the Tycom settlement.

20.    Subsequent Events

In August 2002, Net2Phone and its Adir subsidiary consummated the settlement of their lawsuit filed on March 19, 2002 in the United States District Court for the District of New Jersey against Cisco Systems (“Cisco”) and a Cisco executive who had been a member of the Adir board of directors. The suit arose out of the relationships that had been created in connection with Cisco’s and Net2Phone’s original investments in Adir and out of Adir’s subsequent purchase of NetSpeak, Inc. in August 2001. The parties settled the suit and all related claims against Cisco and the Cisco executive in exchange for (i) the transfer, during the first quarter of fiscal 2003, to Net2Phone of Cisco’s and Softbank Asia Infrastructure Fund’s respective 11.5% and 7.0% interests in Adir and, (ii) the payment by Cisco, during such quarter, of $19.5 million to Net2Phone and Adir. As a result of this settlement, Net2Phone will recognize, for the quarter ended October 31, 2002, a gain of approximately $58.4 million. Net2Phone will be consolidated by IDT in Fiscal year 2003, which began on August 1, 2002.

F-35

IDT CORPORATION

FINANCIAL STATEMENT SCHEDULE—VALUATION AND QUALIFYING ACCOUNTS

	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Deductions (1)			Balance at End of Period
	(Dollars, in thousands)
2000
Reserves deducted from accounts receivable:
Allowance for doubtful accounts	$	7,643	$	20,154	$	(1,026	)	$	26,771
2001
Reserves deducted from accounts receivable:
Allowance for doubtful accounts	$	26,771	$	32,873	$	(37,136	)	$	22,508
2002
Reserves deducted from accounts receivable:
Allowance for doubtful accounts	$	22,508	$	19,203	$	(2,818	)	$	38,893

(1) Uncollectible accounts written off, net of recoveries.

F-36

EX-10.53

Exhibit 10.53

AMENDMENT NO. 1

TO THE

SECURITIES PURCHASE AGREEMENT

This Amendment No. 1 to the Securities Purchase Agreement, dated as of May 1, 1998 (as amended by this Amendment No. 1, the “Securities Purchase Agreement”), is made and entered into as of April 24, 2002 (this “Amendment”), by and among UTCG Holdings LLC, a Delaware limited liability company (“Newco”), IDT Corporation, a Delaware corporation (“IDT”), and Union Telecard Alliance, LLC, a Delaware limited liability company (the “Company”). Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Securities Purchase Agreement.

WHEREAS, Carlos Gomez has heretofore assigned, transferred and conveyed to Newco (all of the interests in which are owned by the Carlos Gomez Family Trust) his 49% membership interest in the Company (the “Gomez Interests”), representing all of Carlos Gomez’s interest in the Company; and

WHEREAS, Newco, IDT and the Company desire to amend and modify certain provisions of the Securities Purchase Agreement.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Certain Representations by Newco. Newco represents, warrants, agrees and acknowledges that, as of the date hereof, (i) it has been duly authorized to execute and deliver this Amendment and to perform its obligations hereunder, (ii) the execution and delivery of this Amendment and the performance of its obligations under the Securities Purchase Agreement will not result in a breach or violation of, a default under, or conflict with (A) its certificate of formation or its limited liability company agreement or (B) any existing agreement to which it or any of its properties or assets is subject, (iii) this Amendment has been duly authorized, executed and delivered by, and is a binding agreement on the part of, Newco enforceable against it in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles, and (iv) all authorizations, consents, approvals, orders, notices, filings, registrations, qualifications and exemptions of, with or from any court, administrative agency or commission or other federal, state or local governmental authority and agencies, departments or subdivisions thereof or any self-regulatory authority required to be obtained or made by or on behalf of Newco in connection with the execution of this Amendment or the performance of its obligations under the Securities Purchase Agreement, have been duly obtained or made and are in full force and effect.

2. Amendment. Effective immediately upon the execution and delivery of this Amendment, the Securities Purchase Agreement shall be amended as follows:

a. Unless otherwise provided herein, the term “Seller” as it appears in the Securities Purchase Agreement shall mean Carlos Gomez with respect to all periods

before the execution and delivery of this Amendment and shall mean Newco with respect to all periods from and after the execution and delivery of this Amendment

b. Section 3(a) of the Securities Purchase Agreement shall be deleted in its entirety and replaced with the following:

“(a) Reserved.”

c. Sections 6(a), (b) and (c) of the Securities Purchase Agreement shall be deleted in their entirety and replaced with the following:

“(a) Reserved.”

“(b) Reserved.”

“(c) Reserved.”

d. Section 6(d) of the Securities Purchase Agreement shall be deleted in its entirety and replaced with the following:

“Each of Buyer and Seller acknowledges and agrees that all right, title and interest in and to the customer lists and customer information complied by Carlos Gomez or on his behalf, including customer lists and customer information complied by Carlos Gomez or on his behalf prior to May 1, 1998, shall constitute the property and assets of the Company.”

e. Section 6(e) of the Securities Purchase Agreement shall be deleted in its entirety.

f. Sections 8(a)(1)(i) and (ii) shall be deleted in their entirety and replaced with the following:

“(i) Reserved.”

“(ii) Reserved.”

g. Section 8(a)(1)(ix) shall be added to the Securities Purchase Agreement, as follows:

“In the event that there is any transfer of membership interests by UTCG Holdings LLC, a Delaware limited liability company (“Newco”), in contravention of this Agreement; provided, however, that Newco shall be permitted to pledge its membership interests in the Company to secure its obligations pursuant to a promissory note to be issued by Newco in connection with the assignment, transfer and conveyance of membership interests of the Company to Newco.”

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h. The proviso in the first sentence of Section 8(c) of the Securities Purchase Agreement beginning with the words “provided, however” shall be deleted in its entirety.

i. Section 8(e) shall be added to the Securities Purchase Agreement, as follows:

“In the event Seller is charged with a felony, Buyer shall have, in addition to any other remedies it may be entitled to, the option to cause Seller to transfer its Interests in the Company to another person or entity that has not previously been charged with a felony and otherwise reasonably acceptable to Buyer. In the event Seller does not transfer its Interests within 30 days after being notified by Buyer that Buyer elects to exercise such option, Buyer shall have the option to cause Seller to sell its Interests in the Company to Buyer for an amount equal to the fair market value of such Interests, as determined in accordance with Section 8(c) above.”

j. Section 10.3 of the Securities Purchase Agreement shall be amended to replace the notice information of Seller with the following notice information of Newco, as substitute Seller:

UTCG Holdings LLC

c/o Kent, Beatty & Gordon, LLP

425 Park Avenue

New York, NY 10022

Tel: (212) 421-4300

Fax: (212) 421-4303

Attn: Harry C. Beatty, Esq.

k. The following sentences shall be added at the end of Section 10.5 of the Securities Purchase Agreement:

“Except as permitted pursuant to Sections 7 and 10.5, any attempted or purported assignment without the prior written consent of the other parties to this Agreement shall be null and void. For the avoidance of doubt, it is expressly agreed that no party to this Agreement may assign, transfer or convey to any other entity or person (including a Permitted Transferee) its Interests in the Company unless such a person or entity agrees in writing, in a form reasonably satisfactory to the other parties to this Agreement, to accept and assume all of the rights and obligations of the transferor and to be substituted for such party as a party to this Agreement.”

l. Section 10.9 of the Securities Purchase Agreement shall be deleted in its entirety and replaced with the following:

“Arbitration. All disputes, controversies or differences which may in any way arise between the parties from or connected with this Agreement,

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including the interpretation, performance or nonperformance hereof, shall be submitted to and finally determined in New York City, New York, by arbitration by three arbitrators (the “Arbitrators”) from the American Arbitration Association (“AAA”), such Arbitrators to be chosen from an AAA-approved list of arbitrators who are residents of the United States. Buyer and Seller shall each select one Arbitrator and shall mutually agree upon the selection of the third Arbitrator. If the parties are not able to agree upon the third Arbitrator, then the Arbitrators selected by the parties shall select the third Arbitrator. The fees and expenses of said Arbitrators shall be shared equally by the parties.

The parties intend and hereby manifest that the decision of the Arbitrators shall be according to the provisions of this Agreement, or according to the laws of the State of New York in matters, if any, not covered by this Agreement. Such decision shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction.

Each of the parties acknowledges that, in view of the uniqueness of arrangements contemplated by this Agreement, the parties would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms. Accordingly, each of the parties agrees that the other party hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which such party may be entitled at law or in equity.

For the purposes of any proceedings arising out of this Agreement, including proceedings incidental to or in aid of this Agreement to arbitrate, each party hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court in New York City for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby and for purposes of any proceedings to seek to enforce an arbitration award. Seller hereby designates, appoints and empowers Kent, Beatty & Gordon, LLP, 425 Park Avenue, New York, New York, 10022, USA, telephone (212) 421-4300, facsimile (212) 421-4303, Attention: Harry C. Beatty, Esq., and the Company and IDT hereby designate, appoint, and empower McDermott, Will & Emery, 50 Rockefeller Plaza, New York, New York 10020, telephone (212) 547 5400, facsimile (212) 547-5444, Attention: Mark Selinger, Esq., as their authorized agent to receive for and on their behalf service of summons or other legal process in any such action, suit or proceeding in the State of New York. Each of the parties irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

If any of the parties, notwithstanding the foregoing, should attempt either to resolve any dispute arising in connection with this Agreement in a court of law or equity or to forestall, preempt, or prevent arbitration of any such dispute by resort to the process of a court of law or equity, and such dispute is

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ultimately determined to be arbitrable by such court of law or equity, the Arbitrator shall include in his award an amount for the other party equal to all of the other party’s costs including attorney’s fees, incurred in connection with such arbitrability determination.”

3. Securities Purchase Agreement. In all other respects, the Securities Purchase Agreement remains in full force and effect.

4. Cooperation. Each of the parties hereto agrees to cooperate at all times from and after the date hereof with respect to all of the matters described herein, and to execute such further assignments, releases, assumptions, notifications and other documents as may be reasonably requested for the purpose of giving effect to, or evidencing or giving notice of, the transactions contemplated by this Amendment.

5. Counterparts. This Amendment may be executed in separate counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute a single agreement.

6. Governing Law. This Amendment shall be governed by and be construed in accordance with the internal laws of the State of New York, without regard to conflicts of law principles thereof.

7. Publicity. Newco agrees that, without IDT’s prior written consent, it will not, and will not cause or permit any person or entity on its behalf or at its direction to, issue any press release or make any other public statements, filings or disclosure with respect to matters contemplated in this Amendment and in the Securities Purchase Agreement, except as and to the extent may be required by any applicable law or court process.

[Signatures on the next page.]

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first written above.

UNION TELECARD ALLIANCE, LLC
By:	IDT Corporation, as Member
	Name:
	Title:
IDT CORPORATION
By:
	Name:
	Title:
UTCG HOLDINGS LLC
By:	The Carlos Gomez Family Trust, as Member
	By: Antonio Jose Gomez        Trustee

Acknowledged by:

Carlos Gomez

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EX-10.54

Exhibit 10.54

AMENDED AND RESTATED OPERATING AGREEMENT

of

UNION TELECARD ALLIANCE, LLC

This AMENDED AND RESTATED OPERATING AGREEMENT OF UNION TELECARD ALLIANCE, LLC, a Delaware limited liability company (the “Company”), is made, entered into and effective as of April 24, 2002 (this “Agreement”), by and among UTCG Holdings LLC, a Delaware limited liability company (“Newco”), IDT Domestic-Union, LLC, a Delaware limited liability company (“IDT Domestic-Union”), IDT Corporation, a Delaware corporation (“IDT”), and the Company, and each other Person who, in accordance with the terms hereof, shall become a party to or be bound by the terms of this Agreement after the date hereof.

WHEREAS, the Company was formed under the Act pursuant to the Certificate of Formation filed with the Secretary of State of the State of Delaware;

WHEREAS, the original Operating Agreement in respect of the Company was adopted and dated April 27, 1998 (the “Original Agreement”);

WHEREAS, the Original Agreement was amended by Amendment No. 1 to the Operating Agreement, dated as of May 1, 1998, Amendment No. 2 to the Operating Agreement, dated as of May 1, 2001, and Amendment No. 3 to the Operating Agreement, dated as of June 5, 2001 (the Original Agreement, as amended, is herein referred to as the “Operating Agreement”);

WHEREAS, Carlos Gomez has heretofore assigned, transferred and conveyed his 49% membership interest in the Company to Newco (the “Transfer”) and has withdrawn from the Company as a Member, and Newco has heretofore acquired from Carlos Gomez his 49% membership interest in the Company and has been admitted to the Company as a Member;

WHEREAS, as a result of the Transfer Newco owns 49% of the membership interests in the Company, IDT Domestic-Union owns 49% of the membership interests in the Company and IDT owns 2% of the membership interests in the Company; and

WHEREAS, the undersigned, being all of the members of the Company, desire to amend and restate the Operating Agreement.

NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is mutually agreed by and among the parties hereto as follows:

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ARTICLE 1

DEFINITIONS

As used herein:

1.1. “Act” shall mean the Limited Liability Company Act of the State of Delaware, as the same may be amended from time to time.

1.2. “Additional Capital Contribution” shall mean any Capital Contribution made in accordance with Section 3.2.

1.3. “Affiliate” shall mean, with respect to any Person, any other Person who controls, is controlled by or is under common control with such Person. “Control” (and its derivations) shall mean the ability to direct or influence the policy or management of any Person, whether by means of contract, organizational document or otherwise.

1.4. “Agreement” shall have the meaning specified in the first paragraph hereof, as it may be further amended, restated, supplemented or otherwise modified from time to time as herein provided.

1.5. “Assignee” shall mean an assignee or a transferee of a Member’s Interest who has not been admitted as a new Member.

1.6. “Book Value” shall have the meaning specified in Section 7.1.

1.7. “Capital Account” shall have the meaning specified in Section 3.3.

1.8. “Capital Contribution” shall mean the total amount of cash and other property contributed by a Member to the capital of the Company pursuant to this Agreement.

1.9. “Cause” shall have the meaning set forth in Section 4.2(a).

1.10. “Certificate” shall mean the Certificate of Formation of the Company as originally filed with the Office of the Secretary of State of Delaware, as such certificate may be amended and restated from time to time.

1.11. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any subsequent federal law of similar import, and, to the extent applicable, any Treasury Regulations promulgated thereunder.

1.12. “Company” shall mean the limited liability company hereby established in accordance with this Agreement by the parties hereto, as such limited liability company may from time to time be constituted.

1.13. “Dismissal” shall have the meaning set forth in Section 4.2(a).

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1.14. “Distribution Agreement” shall have the meaning set forth in the preamble.

1.15. “Dissolution Event” shall have the meaning specified in Section 10.1.

1.16. “Fiscal Year” shall mean the fiscal year of the Company and shall be the same as its taxable year, which shall commence on August 1 and end on July 31 of each year unless otherwise required by the Code. Each Fiscal Year shall commence on the day immediately following the last day of the immediately preceding Fiscal Year.

1.17. “IDT” shall mean IDT Corporation, a Delaware corporation.

1.18. “IDT Domestic-Union” shall mean IDT Domestic-Union, LLC, a Delaware limited liability company.

1.19. “IDT Netherlands” shall mean IDT Netherlands, B.V., a corporation organized and existing under the laws of The Netherlands.

1.20. “Indemnified Persons” shall have the meaning specified in Section 5.5.

1.21. “Initial Capital Contribution” reserved.

1.22. “LLC Interest Certificate” shall have the meaning specified in Section 6.5(a).

1.23. “Majority-in-Interest of the Members” shall mean any one or more Members having more than fifty percent (50%) in the aggregate of the Membership Interests of all Members.

1.24. “Members” shall mean (i) each Person who holds a Membership Interest in the Company for so long as such Person holds any Membership Interest, (ii) any transferee of any Membership Interest who has been admitted to the Company as a Member in accordance with the terms of this Agreement or (iii) any other Person who has been admitted to the Company as a Member in accordance with the terms of this Agreement.

1.25. “Membership Interest” shall mean the proportionate interest of a Member in the Company set forth on Exhibit A hereto, as the same may be amended from time to time.

1.26. “Membership Percentage” shall mean, with respect to each Member, the percentage set forth opposite the name of such Member on Exhibit A hereto.

1.27. “Net Profits” and “Net Losses” shall mean the income and loss of the Company as determined in accordance with the accounting methods followed by the Company for federal income tax purposes including income exempt from tax and

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described in Code § 705(a)(1)(B), treating as deductions items of expenditure described in, or under Treasury Regulations deemed described in, Code § 705(a)(2)(B) and treating as an item of gain (or loss) the excess (deficit), if any, of the fair market value of distributed property over (under) its Book Value. Depreciation, depletion, amortization, income and gain (or loss) with respect to Company assets shall be computed with reference to their Book Value rather than to their adjusted bases.

1.28. “Newco” shall have the meaning ascribed to such term in the first paragraph of this Agreement.

1.29. “Notices” shall have the meaning specified in Section 13.1.

1.30. “Operating Agreement” shall have the meaning set forth in the preamble.

1.31. “Original Agreement” shall have the meaning set forth in the preamble.

1.32. “Person” shall mean an individual, corporation, association, limited liability company, limited liability partnership, partnership, estate, trust, unincorporated organization or a government or any agency or political subdivision thereof.

1.33. “Sales and Distribution” shall have the meaning set forth in Section 4.3(a).

1.34. “Securities Purchase Agreement” shall have the meaning set forth in the preamble.

1.35. “Trademarks” shall mean trademarks, service marks, trade dress, logos, trade names, corporate names, URL addresses, domain names and symbols, slogans and other indicia of source or origin, including the goodwill of the business symbolized thereby or associated therewith, common law rights thereto, registrations and applications for registration thereof throughout the world, all rights therein provided by international treaties and conventions and all other rights associated therewith.

1.36. “Transfer” shall mean any direct or indirect sale, assignment, gift, hypothecation, pledge or other disposition, whether voluntary, involuntary, by operation of law or otherwise, by sale of stock or partnership interests, or otherwise, of a Membership Interest or of any entity which directly or indirectly through one or more intermediaries holds an Membership Interest.

1.37. “Treasury Regulations” shall mean the federal income tax regulations, including any temporary or proposed regulations, promulgated under the Code, as such Treasury Regulations may be amended from time to time (it being understood that all references herein to specific sections of the Treasury Regulations shall be deemed also to refer to any corresponding provisions of any successor Treasury Regulations).

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ARTICLE 2

FORMATION OF LIMITED LIABILITY COMPANY

2.1. Formation. Prior to the date hereof, the Certificate of Formation (the “Certificate”) was filed with the Secretary of State of the State of Delaware. Each party hereto represents and warrants that it is duly authorized to enter into this Agreement and to perform his or its obligations hereunder, and that the Person executing and delivering this Agreement on his or its behalf is duly authorized to do so.

2.2. Name. The name of the Company shall be Union Telecard Alliance, LLC, and all business of the Company shall be conducted under that name or under any other name as the Members may determine from time to time; provided, however, that the words “Limited Liability Company” or the initials “LLC” shall be included in the name where necessary.

2.3. Purpose. The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Act and engaging in any and all activities necessary or incidental to the foregoing.

2.4. Registered Office. The address of the registered office of the Company in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801.

2.5. Registered Agent. The name and address of the registered agent for service of process on the Company in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. In the event the registered agent ceases to act as such for any reason or the registered office shall change, the Company shall promptly designate a replacement registered agent or file a notice of change of address, as the case may be.

2.6. Principal Office. The Principal Office of the Company shall be located at 44 Cherry Valley Avenue, West Hempstead, New York 11552.

2.7. Duration. The Company was formed upon the filing of the Certificate with the Office of the Secretary of State of Delaware pursuant to the Act and shall continue until dissolved pursuant to Section 10.1.

ARTICLE 3

CAPITAL CONTRIBUTIONS

3.1. Membership Percentages. The Membership Percentages of the Members are reflected in Exhibit A and shall be adjusted from time to time to properly reflect the

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admission of new Members or any other event having an effect on a Member’s Membership Percentage.

3.2. Additional Capital Contributions. If additional funds are required by the Company, each Member may advance Additional Capital Contributions. If the Company determines that additional funds are required by the Company for any Company purpose, the Company may obtain such funds as a loan from any third party upon such terms and conditions as the Company deems appropriate.

3.3. Capital Accounts. A separate Capital Account (a “Capital Account”) shall be established and maintained for each Member, including any substituted or additional Member who shall hereafter acquire a Membership Interest in the Company, in accordance with the following provisions:

(a) Each Member’s Capital Account shall be increased by:

(i) the amount of any money contributed by the Member to the Company;

(ii) the fair market value of any property contributed by the Member to the Company;

(iii) the amount of Net Profits allocated to the Member; and

(iv) the amount of any Company liabilities assumed by such Member (or taken subject to, if property is distributed to the Member by the Company);

(b) Each Member’s Capital Account shall be decreased by:

(i) the amount of any money distributed to the Member by the Company;

(ii) the fair market value of any property distributed to the Member by the Company;

(iii) the amount of Net Losses allocated to the Member; and

(iv) the amount of any Member liabilities assumed by the Company (or taken subject to if property is contributed to the Company by the Member).

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations under § 704(b) of the Code and, to the extent not inconsistent with the provisions of this

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Agreement, shall be interpreted and applied in a manner consistent with such Regulations.

(c) A Member shall not be entitled to withdraw any part of its Capital Account or to receive any distributions from the Company except as provided in Article 9; nor shall a Member be entitled to make any loan or Capital Contribution to the Company other than as expressly provided herein. No loan made to the Company by any Member shall constitute a Capital Contribution to the Company for any purpose.

(d) Except as required by the Act, no Member shall have any liability for the return of the Capital Contribution of any other Member. A Member who has more than one Membership Interest in the Company shall have a single Capital Account that reflects all such Membership Interests, regardless of the class of Membership Interest owned and regardless of the time or manner in which the Membership Interests were acquired.

3.4. Transfer of Capital Accounts. The original Capital Account established for each substituted Member shall be in the same amount as the Capital Account of the Member which such substituted Member succeeds, at the time such substituted Member is admitted to the Company. The Capital Account of any Member whose interest in the Company shall be increased by means of the transfer to it of all or part of the interest in the Company of another Member shall be appropriately adjusted to reflect such transfer. Any reference in this Agreement to a Capital Contribution of or distribution to a then Member shall include a Capital Contribution or distribution previously made by or to any prior Member on account of the Membership Interest of such then Member.

ARTICLE 4

OFFICERS

4.1. Officers.

(a) The officers of the Company shall consist of a Chief Executive Officer, a President, a Chief Operating Officer, a Chief Financial Officer, a Secretary and a Treasurer. Subject to the rights set forth in this Article 4, the Members, in their discretion, may also choose one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate. The officers of the Company need not be Members of the Company or an Affiliate of a Member of the Company.

(b) The officers shall exercise such powers and perform such duties as may be determined from time to time pursuant to the terms of this Agreement. All officers of the Company shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any vacancy occurring in any office of the Company shall be filled by the Member or officer who is authorized to appoint such officer in accordance with this Article 4.

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(c) The salaries of the Chief Executive Officer and President shall be set jointly by IDT and Newco and the salaries of the other employees of Company shall be set jointly by the Chief Executive Officer and President.

(d) The signatures of the Chief Executive Officer and President shall be required for all checks, money orders or money wires of, and any payment or other transfer of funds by, the Company of an amount greater than $50,000.

(e) Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Company shall be executed in the name of and on behalf of the Company by the Chief Executive Officer and President and such officers may, in the name of and on behalf of the Company, take jointly all such action as such officers may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Company may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Company might have exercised and possessed if present. The Chief Executive Officer and President may from time to time confer like powers upon any other person or persons.

4.2. Appointment of Chief Executive Officer and President.

(a) Newco shall have the sole right to appoint and remove the Chief Executive Officer, subject to IDT’s consent, which shall not be unreasonably withheld; provided, that IDT shall have the right to remove the Chief Executive Officer in the event the Chief Executive Officer (i) is charged with a felony, or (ii) fails to perform his or her duties to or with the Company promptly after a written demand for substantial performance is delivered to the Chief Executive Officer by the Company which identifies the manner in which the Company believes that he or she has not substantially performed his or her duties (each, a “Cause”).

(b) IDT shall have the sole right to appoint and remove the President, subject to Newco’s consent, which shall not be unreasonably withheld; provided, however, that Newco shall have the right to remove the President for Cause.

4.3. Chief Executive Officer.

(a) The Chief Executive Officer shall have general supervision of, and be responsible for, the following (collectively, “Sales and Distribution”):

(i) managing the Company’s relationships with its partners, customers, distributors and vendors;

(ii) selecting customers, accepting orders and, subject to the President’s right to reduce credit limits, setting and monitoring credit limits of the Company’s partners, customers, distributors and vendors;

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(iii) establishing the prices of products and discounts offered to the Company’s partners, customers, distributors and vendors, subject to the President’s consent, which shall not be unreasonably withheld;

(iv) developing and designing new calling cards and other telecommunications-related products that are suitable for sale in the United States through the Company’s distribution chain, subject to the President’s consent, which shall not be unreasonably withheld; and

(v) shipping and receiving calling cards to and from the Company’s partners, customers, distributors and vendors.

(b) The Chief Executive Officer will involve the President in all matters relating to Sales and Distribution, including sales strategy meetings and meetings with the Company’s partners, customers, distributors and vendors.

(c) The Chief Executive Officer shall have the sole right to appoint and the sole right to remove employees of the Company responsible for matters within the responsibilities of the Chief Executive Officer, as set forth in this Section 4.3; provided, however, that the President shall also have the right, subject to the Chief Executive Officer’s consent, which shall not be unreasonably withheld, to remove such employees for cause.

(d) Antonio Jose Gomez is hereby appointed Chief Executive Officer of the Company.

4.4. President.

(a) The President shall have general supervision of, and be responsible for, the following:

(i) the Chief Financial Officer’s responsibilities, as set forth in Section 4.7;

(ii) the Chief Operating Officer’s responsibilities, as set forth in Section 4.6; and

(iii) any other matter not explicitly assigned to any other officer of the Company.

(b) The President shall perform the duties of the Chief Executive Officer at the request of the Chief Executive Officer, in the absence of the Chief Executive Officer or in the event of the inability of the Chief Executive Officer to act, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.

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(c) The President shall execute all bonds, mortgages, contracts and other instruments of the Company requiring a seal, under the seal of the Company, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Company may sign and execute documents when so authorized by this Agreement, the Members or the President.

(d) The President shall be responsible for the growth of the business and shall participate with the Chief Executive Officer in sales strategy meetings and meetings with the Company’s partners, customers, distributors and vendors.

(e) The President shall have the sole right to appoint and the sole right to remove employees of the Company, including, without limitation, the Chief Operating Officer, the Chief Financial Officer, the Treasurer and the Secretary, responsible for matters within the responsibilities of the President, as set forth in this Section 4.4; provided, however, that the Chief Executive Officer shall also have the right, subject to the President’s consent, which shall not be unreasonably withheld, to remove such employees for cause.

(f) Gaby Glass is hereby appointed the President of the Company.

4.5. Co-responsibilities of the Chief Executive Officer and President.

(a) Each of the Chief Executive Officer and President, as the two senior executive officers, shall have general supervision of, and be responsible for, selecting new demographic, geographic and other new markets for sales and distribution of calling cards and other telecommunications-related products:

(i) in the United States, subject to the other senior executive officer’s consent, which shall not be unreasonably withheld; and

(ii) outside the United States, subject to the other senior executive officer’s consent, which may be withheld for any reason or for no reason.

(b) The Chief Executive Officer and President shall jointly preside at all meetings of the Members.

4.6. Chief Operating Officer.

(a) The Chief Operating Officer shall report to the President and have general supervision of, and be responsible for, the following:

(i) setting rates for the calling cards, subject to providing the Chief Executive Officer with prior notice of all changing rates;

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(ii) printing calling cards; provided, however, that the Chief Executive Officer shall have the right to veto the selection of any printing facility;

(iii) purchasing supplies; and

(iv) any other matter assigned to the Chief Operating Officer by the President or the Chief Executive Officer.

(b) Alan Forman is hereby appointed the Chief Operating Officer of the Company.

4.7. Chief Financial Officer.

(a) The Chief Financial Officer shall report to the President and have general supervision of, and be responsible for, the following:

(i) finance;

(ii) payroll;

(iii) accounts payable and accounts receivable;

(iv) general ledger;

(v) preparation of financial statements;

(vi) inventory control;

(vii) the maintenance of the Company’s books and records;

(viii) financial systems;

(ix) the operations of the Treasurer;

(x) hedging currency and interest rate risks; and

(xi) any other matter assigned to the Chief Financial Officer by the President or the Chief Executive Officer.

(b) Joseph Farber is hereby appointed the Chief Financial Officer of the Company.

4.8. Vice Presidents. At the request of the President or in his absence or in the event of his or her inability or refusal to act, the Vice President or the Vice Presidents if there is more than one (in the order designated by the President) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and

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have such other powers as the Members from time to time may prescribe. If there be no Vice President, the President shall designate the officer of the Company who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

4.9. Secretary.

(a) The Secretary shall attend all meetings of the Members and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees, if any, when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members, and shall perform such other duties as may be prescribed by the Members or the President, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the Members, and if there be no Assistant Secretary, then either the Members or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Company, if any, and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Members may give general authority to any other officer to affix the seal of the Company and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Joyce J. Mason is hereby appointed the Secretary of the Company.

(b) Any Person dealing with the Company may rely upon a certificate signed by the Secretary:

(i) as to the identity of the Members or officers of the Company;

(ii) as to the existence or nonexistence of any fact or facts which constitute conditions precedent to acts by the Members or are in any other manner germane to the affairs of the Company;

(iii) as to who is authorized to execute and deliver any instrument or document an behalf of the Company;

(iv) as to the authenticity of any copy of this Agreement and any amendments hereto; or

(v) as to any act or failure to act by the Company or as to any other matter whatsoever involving the Company, any officer or any Member.

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4.10. Treasurer. The Treasurer shall have the custody of the Company’s funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the President. The Treasurer shall disburse the funds of the Company as may be ordered by the Members, taking proper vouchers for such disbursements, and shall render to the President and the Members, at its meetings, or when the President or the Members so require, an account of all of his or her transactions as Treasurer and of the financial condition of the Company. If required by the President, the Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the President for the faithful performance of the duties of his or her office and for the restoration to the Company, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Company. Norman Rosenberg is hereby appointed the Treasurer of the Company.

4.11. Assistant Secretaries. Except as may be otherwise provided in this Agreement, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Members, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

4.12. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Members, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the President, an Assistant Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the President for the faithful performance of the duties of his or her office and for the restoration to the Company, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Company.

4.13. Other Officers. Such other officers as the Members may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Members. The Members may delegate to any other officer of the Company the power to choose such other officers and to prescribe their respective duties and powers.

4.14. Distribution Agreement. The parties acknowledge and agree that notwithstanding any other provision of this Agreement, all actions and determinations with respect to the amendment or termination of the Distribution Agreement require the

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prior consent of IDT Domestic-Union and IDT, except with respect to (i) the termination of the Distribution Agreement by the Company, (ii) the enforcement of any rights of the Company under the Distribution Agreement (in either such case to the extent such actions or determinations pertain directly to a breach of the Distribution Agreement by IDT Netherlands or to the failure by IDT Netherlands to fulfill its obligations under the Distribution Agreement), (iii) the assertion of any claims, counterclaims, defenses or objections on behalf of the Company concerning the Distribution Agreement, or (iv) the submission to arbitration of a dispute, controversy or difference on behalf of the Company pursuant to Section 20 of the Distribution Agreement, none of which require the prior consent of IDT Domestic-Union or IDT but do require that all Members be notified at least seven days prior to taking any actions or determinations with respect to the termination of the Distribution Agreement or the enforcement of any rights of the Company under the Distribution Agreement.

ARTICLE 5

RIGHTS AND OBLIGATIONS OF MEMBERS

5.1. Limited Liability. Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be personally obligated for any such debt, obligation or liability of the Company solely by reason of being a member of the Company. The Members shall not be required to lend any funds to the Company. Each Member shall only be liable to make payment of its respective contributions as and when due hereunder and other payments as expressly provided in this Agreement. If and to the extent a Member’s contribution shall be fully paid, such Member shall not, except as required by the express provisions of the Act regarding repayment of sums wrongfully distributed to Members, be required to make any further contributions.

5.2. Other Business. Subject to the terms of any agreement between any Members and/or the Company, the Members and any Person affiliated with any of the Members may engage in or possess an interest in other business ventures (unconnected with the Company) of every kind and description, independently or with others. None of the Company or the other Members shall have any rights in or to such independent ventures or the income or profits therefrom by virtue of this Agreement. To the extent that, at law or in equity, a Member or any Affiliate of a Member has duties (including fiduciary duties) and liabilities to the Company or to the Members, no such Person shall be liable to the Company or to any Member for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities of any such Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Person. Notwithstanding the foregoing, one or more Members may enter into an agreement with the Company and/or one or more other Members with respect to the management of the Company, the transfer of any Membership Interest in the Company, or any other matter

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relating to the Company permitted by applicable laws, and such agreement shall be enforceable as permitted under such laws. A copy of any such agreement shall be provided to the Company, and the Secretary shall maintain such a copy with the Company’s books and records.

5.3. Conflicts of Interest.

(a) Subject to the terms of any agreement that may be entered into between any of the Members, or any of the Members and the Company, a Member shall be entitled to enter into transactions that may be beneficial to the Company, it being expressly understood that the Members may enter into transactions that are similar to the transactions into which the Company may enter. Notwithstanding the foregoing, subject to the terms of any agreement that may be entered into between any of the Members, or any of the Members and the Company, each Member shall account to the Company and hold as trustee for it any property, profit or benefit derived by such Member, without the consent of the other Members, in the conduct and winding up of the Company business or from a use or appropriation by the Member of Company property, including information developed exclusively for the Company and opportunities expressly offered to the Company.

(b) A Member does not violate a duty or obligation to the Company merely because the Member’s conduct furthers the Member’s own interest. A Member may lend money to and transact other business with the Company. The rights and obligations of a Member who lends money to or transacts business with the Company are the same as those of a person who is not a Member, subject to other applicable law. No transaction with the Company shall be voidable solely because a Member has a direct or indirect interest in the transaction if either (i) the transaction is fair to the Company or (ii) disinterested Members knowing the material facts of the transaction and the Member’s interest, authorize, approve or ratify the transaction.

5.4. Payment of Costs and Expenses.

(a) The Company will be responsible for all day-to-day management and administrative expenses of the Company and all general overhead expenses of the Company. Each officer will be reimbursed by the Company for all out-of-pocket expenses including, without limitation, travel and travel-related expenses incurred by it on behalf of the Company that are directly related to the business and affairs of the Company.

(1) In the event of (i) any claims, threatened claims or reasonably foreseeable claims against IDT or the Company alleging that the business of IDT or the Company conducted under the Trademarks licensed by IDT to the Company or later developed by the Company violates, misappropriates or infringes on the intellectual property rights of any third party, or (ii) that any third party violates, misappropriates or infringes on the Trademarks licensed by IDT to the Company, IDT and the Company agree that IDT will control the defense or prosecution, as the case may be, of such claims,

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including without limitation any preparation, negotiations with any such third parties and litigation. The Company shall bear the costs and expenses of any such activity, including, without limitation, legal and other fees, judgments and settlements, including, without limitation, the ongoing costs of any licenses entered into with any such third party in which the Company is either one of the licensors or one of the licensees.

5.5. Indemnification. Any Person made, or threatened to be made, a party to any action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such Person is or was (i) a Member or (ii) an employee, officer, manager, shareholder or partner of the Company or any Member (collectively, the “Indemnified Persons”), shall be indemnified by the Company for any losses or damage sustained with respect to such action or proceeding, and the Company shall advance such Indemnified Person’s reasonably related expenses to the fullest extent permitted by law. The Company shall have the power to purchase and maintain insurance on behalf of the Indemnified Persons against any liability asserted against or incurred by them. The duty of the Company to indemnify the Indemnified Persons under this Section shall not extend to actions or omission of any Indemnified Person which are grossly negligent or which involve fraud, misrepresentation, bad faith, or other willful misconduct by such Indemnified Person or which are in material breach or violation by such Indemnified Person of this Agreement or which are in derogation of the fiduciary duties owed by such Indemnified Person to the Company and the Members, in each case as determined by a court of competent jurisdiction. No Indemnified Person shall be liable to the Company or any other Member for actions taken in good faith. The Company may indemnify other Persons for their actions on behalf of the Company. The duty of the Company to indemnify the Indemnified Persons under this Section shall be limited to the assets of the Company, and no recourse shall be available against any Member for satisfaction of such indemnification obligations of the Company.

ARTICLE 6

BOOKS; ACCOUNTING REPORTS; TAX MATTERS; CERTIFICATES

6.1. Books and Records. The Company shall keep, or cause to be kept, complete and accurate books and records of account (including Capital Accounts) of the Company. The books of the Company (other than books required to maintain Capital Accounts) shall be kept on such basis of accounting as shall be deemed appropriate by the Treasurer of the Company (or specified by the Members), and otherwise in accordance with generally accepted accounting principles consistently applied, and shall at all times be maintained or made available to each Member of the Company having a Membership Percentage of at least 20% at the principal business office of the Company, including, without limitation, for tax preparation and accounting and for any other proper purpose. A current list of the full name and last known business address of each Member, set forth in alphabetical order, a copy of the Certificate, including all certificates of amendment thereto and executed copies of all powers of attorney pursuant to which the Certificate or any certificate of amendment has been executed, copies of the Company’s

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federal, state and local income tax returns and reports, if any, for the three most recent years, copies of the Agreement and of any financial statements of the Company for the three most recent years and all other records required to be maintained pursuant to the Act shall also be maintained at the principal business office of the Company.

6.2. Reports. (2) Forthwith upon request, the Company shall, at the cost and expense of the Company, furnish, or cause to be furnished, to each Member having a Membership Percentage of at least 20%, such information bearing on the financial condition and operations of the Company as any such Member may from time to time reasonably request.

(a) Each Member having a Membership Percentage of at least 20% shall have the right, at all reasonable times and upon reasonable notice during usual business hours, to audit, examine and make copies of or extracts from the books of account of the Company for any purpose reasonably related to such Member’s Interest as a member of the Company. Such right may be exercised through any Affiliate, agent or employee of such Member designated by it or by a certified public accountant designated by such Member. A Member shall bear all expenses incurred in any examination made for such Member’s account.

6.3. Filing of Returns and Other Writings; Tax Matters Partner.

(a) The Treasurer of the Company shall determine the method of depreciation to be utilized by the Company for tax purposes and all elections to be made by the Company for tax purposes.

(b) The Company shall cause the preparation and timely filing of all Company tax returns and shall timely file all other writings required by any governmental authority having jurisdiction to require such filing.

(c) IDT shall serve as the “tax matters partner” (as such term is defined in Section 6231(a)(7) of the Code, the “Tax Matters Partner”) for purposes of Section 6231 of the Code.

(d) Promptly following the written request of the Tax Matters Partner, the Company shall, to the fullest extent permitted by law, reimburse and indemnify the Tax Matters Partner for all reasonable expenses, including reasonable legal and accounting fees, claims, liabilities, losses and damages incurred by the Tax Matters Partner in connection with any administrative or judicial proceeding with respect to the tax liability of the Members.

(e) The provisions of this Section 6.3 shall survive the termination of the Company or the termination of any Member’s Interest in the Company and shall remain binding on the Members for as long a period of time as is necessary to resolve with the Internal Revenue Service any and all matters regarding the federal income taxation of the Company or the Members.

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6.4. Reserves. The Company may from time to time establish reasonable cash reserves.

6.5. LLC Interest Certificate.

(a) Each Member shall be entitled to have a certificate issued by the Company to evidence such Member’s Interest (“LLC Interest Certificate”).

(b) The LLC Interest Certificates shall be created and issued by the Company in the form of the LLC Interest Certificate attached hereto as Exhibit B or in such form or forms as the Chief Executive Officer and the President may approve, such approval to be conclusively evidenced by the signature of the Chief Executive Officer and the President thereon.

(c) A Member may not sell, exchange, transfer, assign, pledge, hypothecate or otherwise dispose of all or any part of such Member’s LLC Interest Certificate or any interest therein; provided that this subsection (c) shall not be applicable to any disposition of a Membership Interest or any part thereof or any interest therein in accordance with Article XII of this Agreement; and provided, further, that Newco shall have the right to pledge its LLC Interest Certificate and its interest therein pursuant to that certain LLC Interest Pledge and Security Agreement, dated April 24, 2002, by and between Newco and Carlos Gomez and this hereby constitutes IDT’s, IDT Domestic-Union’s and the Company’s consent to such a pledge for all purposes.

(d) Each Member agrees that, upon ceasing to be a Member, such Member shall promptly surrender its LLC Interest Certificate to the Company at its principal place of business.

(e) The Company may issue a new LLC Interest Certificate in the place of any LLC Interest Certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed LLC Interest Certificate, or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new LLC Interest Certificate.

ARTICLE 7

DETERMINATION OF BOOK VALUE OF COMPANY ASSETS

7.1. Book Value. Except as set forth below, the Book Value of any Company asset is its adjusted basis for federal income tax purposes.

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7.2. Initial Book Value. The initial Book Value of any assets contributed by a Member to the Company shall be the gross fair market value of such assets at the time of such contribution.

7.3. Adjustments. The Book Values of all of the Company’s assets may be adjusted by the Company to equal their respective gross fair market values, as determined by the Company, as of the following times: (a) the admission of a new Member to the Company or acquisition by an existing Member of an additional Membership Interest in the Company; (b) the distribution by the Company of money or property to a retiring or continuing Member in consideration for the retirement of all or a portion of such Member’s Interest in the Company; (c) the termination of the Company for Federal income tax purposes pursuant to Section 708(b)(1)(B) of the Code; and (d) such other times as determined by the Members.

7.4. Depreciation and Amortization. The Book Value of a Company asset shall be adjusted for the depreciation and amortization of such asset taken into account in computing Net Profits and Net Losses and for Company expenditures and transactions that increase or decrease the asset’s Federal income tax basis.

ARTICLE 8

ALLOCATION OF NET PROFITS AND NET LOSSES

8.1. Allocation of Net Profits. Net Profits shall, first, be allocated in proportion to, and to the extent of, the excess of prior allocations of Net Losses under Section 8.2 below over prior allocations of Net Profits under this Section 8.1 and, second, among the Members in proportion to their respective Membership Percentages.

8.2. Allocation of Net Losses. Net Losses shall, first, be allocated among the Members in proportion to their Membership Percentages until the Capital Account of any Member is reduced to zero, second, among the Members in proportion to, and to the extent of, their positive Capital Account balances and, finally, to the Members in proportion to their Membership Percentages.

8.3. Allocation of Tax Credits and Tax Losses. Tax credits and tax losses shall be allocated among the Members in proportion to their Membership Percentages.

8.4. Treasury Regulation Allocations. When the Book Value of a Company asset differs from its basis for federal or other income tax purposes, solely for purposes of the relevant tax and not for purposes of computing Capital Account balances, income, gain, loss, deduction and credit shall be allocated among the Members under the traditional method with curative allocations under Treasury Regulation § 1.704-3(c).

8.5. Restrictions on Transfer. No Member may Transfer any Membership Interest without the prior written consent of the Company (excluding the proposed

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Transferor and Transferee), and subject to the terms of any agreement between any of the Members. Upon any approved transfer, Exhibit A hereto shall be amended accordingly.

8.6. Regulatory Allocations. Notwithstanding, and prior to the application of, any other provisions in this Article 8:

(a) Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury Regulations, if there is a net decrease in “partner nonrecourse debt minimum gain” (as defined and determined in accordance with Treasury Regulations Sections 1.704-2(i)(2) and (3)) attributable to a “partner nonrecourse debt” (as defined in Section 1.704-2(b)(4) of the Treasury Regulations) during any Fiscal Year, each Member who has a share of the partner nonrecourse debt minimum gain attributable to such partner nonrecourse debt, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of the Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member’s share of the net decrease in partner nonrecourse debt minimum gain attributable to such partner nonrecourse debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section 8.6(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted consistently therewith.

(b) Any “partner nonrecourse deductions” (as defined in Sections 1.704-2(i)(l) and 1.704-2(i)(2) of the Treasury Regulations) for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the “partner nonrecourse debt” (as defined in Section l.704-2(b)(4) of the Treasury Regulations) to which such partner nonrecourse deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).

ARTICLE 9

DISTRIBUTIONS

9.1. Distributions. Distributions shall be made on a monthly basis, in such amounts as determined by the Members, subject to considerations with respect to additional capital or maintaining reasonable reserves, and shall be made among the Members in cash or other property first, in proportion to, and to the extent of, the excess of each Member’s Capital Contributions over prior distributions to that Member under this Section 9.1 and, second, in proportion to their Membership Percentages. Unless otherwise agreed to by all Members having a Membership Percentage of at least 20%, or unless prohibited by applicable law, the Company shall effect such distributions as shall be necessary to ensure that the Company distributes at least 60% of its Net Profits derived in each of its Fiscal Years.

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9.2. Withdrawals of Capital Contributions and Membership Interest Thereon. No Member shall be entitled to withdraw any part of its Capital Contributions to, or to receive any distributions from the Company except as provided in Section 9.1 and Section 10.2. No Member shall be entitled to demand or receive (i) interest on its Capital Contributions or (ii) any property from the Company other than cash except as provided in Section 10.2(a).

9.3. Restoration of Funds. Except as otherwise provided by law, no Member shall be required to restore to the Company any funds properly distributed to it pursuant to Section 9.1.

ARTICLE 10

DISSOLUTION AND LIQUIDATION

10.1. Dissolution. The Company shall be dissolved upon the occurrence of any of the following (each, a “Dissolution Event”):

(a) The sale, transfer or other disposition of all or substantially all the assets of the Company;

(b) Reserved;

(c) The happening of any of the events set forth in §§ 18-801(4) and 18-801(5) of the Act which affects the Member and thereby results in the dissolution of the Company by operation of law unless within 90 days thereafter all remaining Members unanimously elect to continue the business of the Company; or

(d) The unanimous written decision of the Members to dissolve the Company.

10.2. Winding up Affairs and Distribution of Assets.

(a) Upon dissolution of the Company (except dissolution pursuant to Section 10.1(c), and in the absence of an election to continue the business of the Company pursuant to Section 10.1(c) or (d), each Member holding a Membership Percentage of at least 20% shall be the liquidating Member(s) (the “Liquidating Members”) and, shall proceed to wind up the affairs of the Company, liquidate the remaining property and assets of the Company and wind-up and terminate the business of the Company. The Liquidating Member or Members shall cause a full accounting of the assets and liabilities of the Company to be taken and shall cause the assets to be liquidated and the business to be wound up as promptly as possible by either or both of the following methods: (1) selling the Company’s assets and distributing the net proceeds therefrom (after the payment of the Company’s liabilities) to each Member in satisfaction of its Capital Account; or (2) if all Members shall agree, distributing the Company assets to the Members in kind and debiting the Capital Account of each Member with the fair

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market value of such assets, each Member accepting an undivided interest in the Company assets (subject to their liabilities) in proportion to and to the extent of each Member’s positive Capital Account balance after allocating and crediting to the Capital Accounts the unrealized gain or loss to the Members as if such gain or loss had been recognized and allocated pursuant to Section 8.1.

(b) If the Company shall employ method (1) as set forth in Section 10.2(a) in whole or part as a means of liquidation, then the proceeds of such liquidation shall be applied in the following order of priority: (i) first, to the expenses of such liquidation; (ii) second, to the debts and liabilities of the Company to third parties, if any, in the order of priority provided by law; (iii) third, a reasonable reserve shall be set up to provide for any contingent or unforeseen liabilities or obligations of the Company to third parties (to be held and disbursed, at the discretion of the Liquidating Member or Members, by an escrow agent selected by the Liquidating Member or Members) and at the expiration of such period as the Liquidating Member or Members may deem advisable, the balance remaining in such reserve shall be distributed as provided herein; (iv) fourth, to debts of the Company to the Members or their Affiliates and any fees and reimbursements payable under this Agreement; and (v) fifth, to the Members in accordance with Section 9.1.

(c) In connection with the liquidation of the Company, the Members severally, jointly, or in any combination upon which they may agree, shall have the first opportunity to make bids or tenders for all or any portion of the assets of the Company, and such assets shall not be sold to an outsider except only for a price higher than the highest and best bid of a single Member, the Members jointly, or a combination of Members. Any bid made by a Member or Members for all or any portion of the assets shall be made, if at all, within thirty (30) days after the Liquidating Member or Members or any other Member shall have requested such bids. A copy of each bid shall be delivered by the Liquidating Member or Members to each Member. Unless otherwise agreed by all Members, no Member shall be entitled to raise its bid after submission thereof, whether in response to a bid received by the Company from any other Member or third party, or otherwise.

ARTICLE 11

RIGHTS AND DUTIES OF THE MEMBERS

11.1. Management Rights.

(a) General Provisions. All Members (other than Assignees) shall be entitled to vote on any matter submitted to a vote of the Members,

(b) Majority. Whenever any matter is required or allowed to be approved by the Members under the Act or pursuant to this Agreement, such matter shall be considered approved or consented to upon the receipt of the affirmative approval or consent, either in writing or at a meeting of the Members, of Members having

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Membership Percentages in excess of 50% of the Membership Percentages of all the Members entitled to vote on a particular matter, unless a greater percentage shall be required by applicable law. Assignees and, in the case of approvals for withdrawal where consent of the remaining Members is required, withdrawing Members shall not be considered Members entitled to vote for the purpose or determining a Majority-In-Interest. In the case of a Member who has disposed of his or her Membership Interest to an assignee, but has not been removed as provided below, the Membership Percentage of such Assignee shall be considered in determining a Majority-In-Interest and such Member’s vote or consent shall be determined by such Membership Percentage. Notwithstanding the foregoing, the following actions shall require the consent of Members holding an aggregate Membership Percentage of at least 66 ²/3%:

(i)      any amendment to this Agreement;

(ii)     the addition of any new Member;

(iii)     any merger of the Company with and into another Person;

(iv)     the sale of all or substantially all of the Company’s assets to another Person;

(v)      any sale of the Company’s assets outside of the ordinary course of business;

(vi)     the entry by the Company into any contract or transaction (or any series of related contracts or transactions) having an aggregate value of at least $25,000 with any Member having a Membership Percentage of at least 20% or with any Affiliate of such a Member;

(vii)     the dissolution or winding up of the Company;

(viii)    the continuation of the Company after a Dissolution Event; and

(ix)      the making of calls upon Members for Additional Capital Contributions.

(c)     Binding Effect of Member Action. Any action taken by the Members on behalf of the Company in accordance with the provisions of Section 11.2(a) and Section 11.2(b) shall constitute the act of and shall serve to bind the Company.

11.2.     Admission of New Members. In the event of the admission of additional Members, Exhibit A hereto shall be amended accordingly.

ARTICLE 12

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TRANSFERS OF MEMBERSHIP INTERESTS, NON-COMPETE, RELATED OPPORTUNITIES, ETC.

12.1. Consent Required. No Member shall transfer its Membership Interest in the Company except in accordance with Section 7 of the Securities Purchase Agreement, and subject to the terms of any other agreement between the Company and/or any of the Members; provided, however, that IDT and IDT Domestic-Union may transfer their interests in the Company and rights under this Agreement to any direct or indirect controlled Affiliate of IDT upon the delivery of written notice to the other parties to this Agreement and the Company.

12.2. Obligations and Rights of Transferees and Assignees. Any Person who acquires in any manner whatsoever the interest (or any part thereof) of any Member in the Company, irrespective of whether such Person has accepted and assumed in writing the terms and provisions of this Agreement, shall be deemed, by acceptance of the benefit of the acquisition thereof, to have requested and agreed to be subject to and bound by all of the obligations of this Agreement, with the same force and effect as any predecessor in interest in the Company, shall have only such rights as are provided in this Agreement, and, without limiting the generality of the foregoing, such Person shall not have the value of his interest ascertained or receive the value of such interest, or, in lieu thereof, profits attributable to any right in the Company, except as set forth in this Agreement.

12.3. Nonrecognition of Certain Transfers. Notwithstanding any other provision of this Agreement, any transfer, sale, alienation, assignment, encumbrance or other disposition in contravention of any of the provisions of this Article shall be void and ineffective, and shall not bind, or be recognized by, the Company.

12.4. Required Amendments; Continuation. If and to the extent any transfer of a Membership Interest in the Company is permitted hereunder, this Agreement shall be amended to reflect such transfer and (if and to the extent then required by the Act) a certificate of amendment to the Certificate shall be filed in accordance with the Act. The admission of any substitute Member pursuant to this Article shall be deemed effective immediately prior to the transfer of an interest in the Company to such substitute Member. If the transferor Member has transferred all of its interest in the Company pursuant to this Article 12, then, immediately following such transfer, the transferor Member shall cease to be a Member of the Company. All taxes and fees imposed in connection with, or resulting from, the transfer of Membership Interests shall be borne by the transferor Member.

12.5. Resignation. No Member shall have the right to resign from the Company without the prior written consent of the Company.

12.6. Non-Compete, etc. Newco hereby covenants and agrees that from the date hereof until the later of (i) April 24, 2007 (unless the Distribution Agreement is terminated pursuant to Section 15(b) thereof, in which case this clause (i) shall be inoperative), (ii) the date upon which the Distribution Agreement is terminated and (iii)

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the date upon which Newco ceases to be a Member of the Company, it shall not, without the express written consent of IDT, directly or indirectly:

(a) either as an employee, employer, consultant, independent contractor, agent, principal, partner, stockholder, officer, director or in any other individual or representative capacity, engage or participate, invest in (provided that investments shall be permitted in any class of securities listed on any national or regional stock exchange or traded on the National Association of Securities Dealer Automated Quotation System, or registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, if (i) such securities do not exceed 2% of the issued and outstanding shares of such class of securities and (ii) the value of such securities (based on the closing per share price of such securities, as reported in the New York City edition of the Wall Street Journal or, if not reported thereby, another authoritative source) does not at any time exceed $5,000,000) or become employed by or otherwise in any way assist or encourage any entity or person, which engages in any activity in competition directly or indirectly with the business of the Company, including without limitation by engaging in or otherwise involving:

(i) the sale or distribution of any telecommunications products, equipment or services, including, without limitation, transmission of voice, data, video or image signals through wireline, wireless, satellite and so-called Voice-over-Internet Protocol or any other form of telephony, prepaid or post-paid debit phone cards, data transfer, paging, messaging, video conferencing and Internet access (“Telecommunications Products”);

(ii) money, funds or credits wiring or transfer; and

(iii) the sale or distribution of any products, equipment or services targeted to one or more of the Company’s primary customer bases to any customers or partners of the Company or any retailers who sell the Company’s products and services, subject to Section 12.7(b),

in the case of (i) and (ii), in the United States (including incorporated and unincorporated territories thereof), the Dominican Republic, Puerto Rico, the U.S. Virgin Islands, the British Virgin Islands, Argentina, Peru, Brazil, Chile, Mexico, Colombia, Venezuela, Guatemala, Costa Rica, the United Kingdom, Germany, Spain, France, the Netherlands, Belgium, Sweden, Italy, Russia and Israel, and in the case of (iii), anywhere in the United States;

(b) influence or attempt to, or assist or advise any Person attempting to, influence customers, distributors, partners or suppliers of the Company or any of its Affiliates (i) to divert any part of their business away from the Company, (ii) to cause damage to the business of the Company or any of its Affiliates, or (iii) to do any business with any competitor of the Company or any of its Affiliates; or

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(c) solicit or recruit any employee, officer, partner or consultant of the Company or any of its Affiliates to leave the employment of the Company or any of its Affiliates and that he will not advise or otherwise assist or advise any other Person to solicit or recruit any employee, officer, partner or consultant of the Company or any of its Affiliates.

The parties agree that the provisions of this Section 12.6 shall be interpreted as broadly as possible to enforce such provisions; provided, however, that in the event that any provision of this Section 12.6 is held invalid or unenforceable or the provisions of this Section 12.6 are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, permitted by applicable laws, and such other changes shall be made to give effect to the original intent of the parties.

12.7. Related Opportunities.

(a) Each of the Members of the Company agrees to bring to the attention of the Company all opportunities in the United States relating to:

(i) the sale or distribution of money, funds or credits wiring or transfer products, equipment or services, including, without limitation, IGE;

(ii) the generation of advertising revenue from calling cards distributed by the Company; and

(iii) the offering of products not currently sold by the Company that are suitable for sale in the United States through the Company’s distribution chain.

(b) If IDT, on the one hand, or Newco, on the other hand, determines not to jointly pursue one of the opportunities presented by the other that is listed in Section 12.7(a) above that is not a Telecommunications Product as described in Section 12.6(a)(i) above, a product or service described in Section 12.6(a)(ii) above, or a product or service of a kind then currently being distributed by the Company, either through the Company or another vehicle, the party who brought such opportunity to the Company’s attention shall be free to pursue such opportunity on its own notwithstanding Section 12.6(a)(iii) above; provided, however, that if such party does not pursue, or commence the pursuit of, such opportunity within 90 days, such party shall be obligated to bring such opportunity again to the attention of the Company pursuant to Section 12.7(a).

(c) For the avoidance of any doubt, IDT shall be free to pursue, directly or indirectly, any other business opportunity not listed above, including, without limitation, the offering and distribution, of:

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(i) rechargeable calling cards other than through a distribution chain which competes directly or materially with the Company’s distribution chain in the United States;

(ii) private label promotional calling cards;

(iii) private label retail calling cards; and

(iv) corporate or small or medium enterprise prepaid or post-paid debit phone cards marketed to corporations and/or other small or medium enterprises for use solely (without any right to resell) by employees, agents or representatives of such corporations and/or other small or medium enterprises.

Such offering and distribution may, without limitation, include distribution of ATM and Point of Sale activated calling cards but shall not include offering or distribution of calling cards through the “Seven Eleven” chain of stores.

(d) For the further avoidance of doubt, the Company shall be free to pursue, directly or indirectly, the offering and distribution of Point of Sale activated calling cards in the Territories (as defined in the Distribution Agreement).

(e) Nothing in this Agreement prohibits Marlene Gomez, Carlos Gomez’s wife, from operating two retail stores in White Plains, New York; provided, that sales therefrom of products or services of the type described in Section 12.6(a)(i) or Section 12.6(a)(ii) above do not at any time in the aggregate exceed $1,000,000 per year.

12.8. Customers. The Members of the Company specifically agree and confirm that none of them nor any of their Affiliates shall utilize directly or indirectly, any customer list or customer information of the Company to market, distribute or sell Telecommunications Products, or otherwise directly or indirectly seek or attempt to market, distribute or sell Telecommunications Products to the customers of the Company, otherwise than through and for the benefit of the Company.

12.9 Other Agreements. Each of the Members hereby acknowledges that, except as explicitly provided otherwise, any and all of the Members’ rights, liabilities, obligations and commitments under any other agreement or understanding relating to the Company, IDT or any of their Affiliates by which any of the parties is bound shall continue in full force and effect, and shall be valid and binding agreements of the Members enforceable against each party in accordance with their terms and unaffected by the terms of this Agreement.

12.10 Cooperation. Each of the Members agrees to cooperate at all times from and after the date hereof with respect to all of the matters described herein, and to execute such further assignments, releases, assumptions, notifications and other documents as may be reasonably requested for the purpose of giving effect to, or evidencing or giving notice of, the transactions contemplated by this Agreement.

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ARTICLE 13

MISCELLANEOUS

13.1. Notices.

(a) All Notices, consents, approvals, reports, designations, requests, waivers, elections and other communications (collectively, “Notices”) authorized or required to be given pursuant to this Agreement shall be given in writing and either personally delivered to the Member or other party to this Agreement to whom it is given or delivered by an established delivery service by which receipts are given or mailed by registered or certified mail, postage prepaid, or sent by telex or telegram or electronic telecopier, addressed to the Member or other Party to this Agreement at its address listed on Exhibit A hereto, as such Exhibit may be amended from time to time.

(b) All Notices shall be deemed given when delivered or, if mailed as provided in Section 13.1(a) on the third (3rd) day after the day of mailing, and if sent by telex or telegram or telecopier or overnight delivery service, twenty-four (24) hours after the time of dispatch. Any Member or other party to this Agreement may change its address for the receipt of Notices at any time by giving Notice thereof to the Company, in which event Exhibit A hereto shall be amended accordingly. Notwithstanding the requirement in Section 13.1(a) as to the use of registered or certified mail, any routine reports required by this Agreement to be submitted to Members or other parties to this Agreement at specified times may be sent by first-class mail.

13.2. Certificate Requirements. From time to time the Members shall sign and acknowledge all such writings as may be required to amend the Certificate or for the carrying out of the terms of this Agreement or, upon dissolution of the Company, to cancel such Certificate.

13.3. Entire Agreement. This Agreement supersedes all prior agreements and understandings among the parties to this Agreement with respect to the subject matters hereof, except for any rights, liabilities, obligations and commitments any of the parties to this Agreement may have under the Securities Purchase Agreement and the Distribution Agreement, in each case as amended from time to time, which shall continue in full force and effect, and shall be valid and binding agreements of the parties enforceable against each party in accordance with their terms and unaffected by the terms of this Agreement.

13.4. Modification. No change or modification of this Agreement shall be of any force unless such change or modification is in writing and has been signed by all parties to this Agreement.

13.5. Waivers. No waiver of any breach of any of the terms of this Agreement shall be effective unless such waiver is in writing and signed by the Person against whom

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such waiver is claimed. No waiver of any breach shall be deemed to be a waiver of any other or subsequent breach.

13.6. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

13.7. Further Assurances. Each party to this Agreement shall execute such deeds, assignments, endorsements, evidences of Transfer and other instruments and documents and shall give such further assurances as shall be necessary to perform its obligations hereunder.

13.8. Arbitration. All disputes, controversies or differences which may in any way arise between the parties from or connected with this Agreement, including the interpretation, performance or nonperformance hereof, shall be submitted to and finally determined in New York, by arbitration by three arbitrators (the “Arbitrators”) from the American Arbitration Association (“AAA”), such Arbitrators to be chosen from an AAA-approved list of arbitrators who are residents of the United States. IDT and Newco shall each select one Arbitrator and shall mutually agree upon the selection of the third Arbitrator. If the parties are not able to agree upon the third Arbitrator, then the Arbitrators selected by the parties shall select the third Arbitrator. The fees and expenses of said Arbitrators shall be shared equally be the parties.

The parties intend and hereby manifest that the decision of the Arbitrators shall be according to the provisions of this Agreement, or according to the laws of the State of New York in matters, if any, not covered by this Agreement. Such decision shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction.

Each of the parties acknowledges that, in view of the uniqueness of arrangements contemplated by this Agreement, the parties would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms. Accordingly, each of the parties agrees that the other party hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which such party may be entitled at law or in equity.

For the purposes of any proceedings arising out of this Agreement, including proceedings incidental to or in aid of this Agreement to arbitrate, each party hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby and for purposes of any proceedings to seek to enforce an arbitration award. Newco hereby designates, appoints and empowers Kent, Beatty & Gordon, LLP, 425 Park Avenue, New York, New York, 10022, USA, telephone (212) 421-4300, facsimile (212) 421-4303, Attention: Harry C. Beatty, Esq., and the Company, IDT and IDT Domestic-Union hereby designate, appoint, and empower McDermott, Will

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& Emery, 50 Rockefeller Plaza, New York, New York 10020, telephone (212) 547 5400, facsimile (212) 547-5444, Attention: Mark Selinger, Esq., as their authorized agent to receive for and on their behalf service of summons or other legal process in any such action, suit or proceeding in the State of New York. Each of the parties irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

If any of the parties, notwithstanding the foregoing, should attempt either to resolve any dispute arising in connection with this Agreement in a court of law or equity or to forestall, preempt, or prevent arbitration of any such dispute by resort to the process of a court of law or equity, and such dispute is ultimately determined to be arbitrable by such court of law or equity, the Arbitrator shall include in his award an amount for the other party equal to all of the other party’s costs including attorney’s fees, incurred in connection with such arbitrability determination.

13.9. Governing Law. This Agreement shall be governed by and be construed in accordance with the internal laws of the State of New York, without regard to conflicts of law principles that would result in the application of the law of another jurisdiction. In the event of a conflict between any provision of this Agreement and any nonmandatory provision of the Act, the provision of this Agreement shall control and take precedence.

13.10. Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

13.11. Number and Gender. As used in this Agreement, all pronouns and any variation thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require.

13.12. Fiduciaries. Whenever any trust or estate is acting as a Member under this Agreement, any obligation or liability created hereunder shall bind only the assets of such trust or estate. No such obligation or liability shall be personally binding upon, nor shall resort be had to, nor recourse or satisfaction sought from, any individual or entity, or the property of any individual or entity, at any time acting as a fiduciary of any such trust or estate, whether the claim giving rise to such obligation or liability is based on contract, tort or otherwise.

13.13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Members and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person, other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

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13.14. Securities Laws. All offerings and Transfers of Membership Interests shall be made in compliance with applicable federal and state securities laws. Each Member indemnifies the other Members and the Company for any loss, cost, liability or damage arising from its breach of the foregoing sentence.

13.15. Waiver of Partition. Each Member hereby waives its right to bring an action for partition of any of the property owned by the Company.

13.16. Publicity. Newco agrees that it will not, without IDT’s prior written consent, issue any press release or make any other public statements, filings or disclosure with respect to the matters contemplated in this Agreement, except as required by any applicable law or court process.

[Signatures on the following page.]

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first written above.

UNION TELECARD ALLIANCE, LLC

By:    IDT Corporation, as Member

          By:                                                                                      

                  Title:

                  Name:

IDT DOMESTIC-UNION, LLC

By:    IDT Domestic-Telecom, Inc., its managing member

          By:                                                                                      

                  Name:

                  Title:

IDT CORPORATION

By:                                                                                                  

        Name:

        Title:

UTCG HOLDINGS LLC

By:    The Carlos Gomez Family Trust, its member

          By:_______________________________

                Antonio Jose Gomez

                Trustee

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EXHIBIT A

Contribution

Member and Address	Percentage	Capital Contribution
IDT Corporation 520 Broad Street Newark, New Jersey 07102 Attn: James Courter Fax: (973) 438-1503	2.0%	N/A
IDT Domestic-Union, LLC 520 Broad Street Newark, New Jersey 07102 Attn: Motti Lichtenstein Fax: (973) 438-1094	49.0%	N/A
UTCG Holdings LLC c/o Kent, Beatty & Gordon, LLP 425 Park Avenue New York, NY 10022 Tel: (212) 421-4300 Fax: (212) 421-4303 Attn: Harry C. Beatty, Esq.	49.0%	N/A

Non-Members and Addresses

Union Telecard Alliance, LLC

44 Cherry Valley

West Hempstead, New York 11552

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EXHIBIT B

FORM OF LLC INTEREST CERTIFICATE

THIS MEMBERSHIP INTERESTS EVIDENCED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE HOLDER OF THIS CERTIFICATE BY ITS ACCEPTANCE HEREOF, REPRESENTS THAT IT IS ACQUIRING THIS SECURITY FOR INVESTMENT AND NOT WITH A VIEW TO ANY SALE OR DISTRIBUTION HEREOF.

NEITHER THIS CERTIFICATE, NOR ANY PART HEREOF, NOR ANY INTEREST HEREIN MAY BE SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF.

NEITHER THE MEMBERSHIP INTEREST EVIDENCED BY THIS CERTIFICATE, NOR ANY PART THEREOF NOR ANY INTEREST THEREIN MAY BE SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE AMENDED AND RESTATED OPERATING AGREEMENT OF UNION TELECARD ALLIANCE, LLC, DATED APRIL 24, 2002.

UNION TELECARD ALLIANCE, LLC

FORMED UNDER THE LAWS OF THE STATE OF DELAWARE

LLC INTEREST CERTIFICATE

This is to certify that                              (the “Member”) is the registered owner of a membership interest in UNION TELECARD ALLIANCE, LLC (the “Company”) on the terms set forth in the Amended and Restated Operating Agreement of the Company, dated as of April 24, 2002, as amended and restated from time to time (the “Agreement”), among the Members of the Company (such membership interest, the “Membership Interest”). The Membership Interest is fully paid and is a nonassessable limited liability company interest in the Company.

The powers, preferences and special rights and limitations of the Membership Interest (including limitations on transferability) are set forth in, and are subject to the terms and provisions of, the Agreement.

THE MEMBERSHIP INTEREST IN THE COMPANY EVIDENCED BY THIS CERTIFICATE IS A SECURITY GOVERNED BY ARTICLE 8 OF THE UNIFORM COMMERCIAL CODE OF THE STATE OF DELAWARE (6 DEL. C. 8-103(C)).

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IN WITNESS WHEREOF, the Company has caused this certificate to be executed by its Chief Executive Officer and President.

Chief Executive Officer

President

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EX-10.55

Exhibit 10.55

AMENDED AND RESTATED DISTRIBUTION AGREEMENT

This AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of May 1, 2000, as amended on July 10, 2001 and further amended on July 27, 2001, and as amended and restated on April 24, 2002 (this “Agreement”), by and between IDT Netherlands, B.V. (“IDT”), a corporation organized and existing under the laws of The Netherlands having an office at Ganges Plaza, 108 Ganges Street, El Paraiso Industrial Park, Rio Piedras, PR 00926, and Union Telecard Alliance, LLC (“Distributor”), a limited liability company organized and existing under the laws of the State of Delaware having an office at 44 Cherry Valley Avenue, West Hempstead, NY 11552.

WITNESSETH:

WHEREAS, IDT is engaged in, among other activities, the sale of pre-paid phone cards (the “Products”);

WHEREAS, Distributor is desirous of being appointed exclusive distributor of the Products in the fifty states of the United States of America and the District of Columbia (the “Exclusive Territory”); and

WHEREAS, IDT is willing to grant such appointment to the Distributor upon the terms and conditions herein set forth;

NOW, Therefore, it is mutually agreed by IDT and Distributor as follows:

1. Definitions.

“Copyrights” shall mean mask works, rights of publicity and privacy, copyrights in works of authorship of any type, including software, registrations and applications for registration thereof throughout the world, all rights therein provided by international treaties and conventions, all moral and common law rights thereto, and all other rights associated therewith.

“Patents” shall mean United States, foreign and international patents, patent applications and statutory invention registrations, including reissues, divisions, continuations, continuations in part, extensions and reexaminations thereof, and all rights therein provided by international treaties and conventions.

“Trade Secrets” shall mean trade secrets, know-how and other confidential or proprietary technical, business and other information, including manufacturing and production processes and techniques, research and development information, technology, drawings, specifications, designs, plans, proposals, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans, customer and supplier lists and information, and all rights in any jurisdiction to limit the use or disclosure thereof.

“Trademarks” shall mean trademarks, service marks, trade dress, logos, trade names, corporate names, URL addresses, domain names and symbols, slogans and other indicia of source or origin, including the goodwill of the business symbolized thereby or associated therewith, common law rights thereto, registrations and applications for registration thereof

throughout the world, all rights therein provided by international treaties and conventions and all other rights associated therewith.

2. Appointment and Territories.

(a) Subject to the terms and conditions contained in this Agreement, for the term of this Agreement and any renewals hereof, IDT (i) appoints Distributor as exclusive distributor of the Products in the Exclusive Territory and (ii) grants Distributor the non-exclusive right to solicit orders for and sell the Products in Puerto Rico, the Dominican Republic and United States Virgin Islands (the “Non-exclusive Territories”, and together with the Exclusive Territory, the “Territories”). IDT reserves the right to sell the Products directly and through other distributors/sales representatives outside the Exclusive Territory. Subject to Section 12 of this Agreement, Distributor shall not be entitled to any compensation from IDT with respect to sales of the Products made by IDT outside the Exclusive Territory. Distributor acknowledges and agrees that any omission or failure by IDT to appoint other distributors/sales representatives in any of the Non-exclusive Territories or to sell Products directly therein, shall not amount to a waiver of its right to do so and shall not be construed as conferring any exclusivity to Distributor in any such Non-exclusive Territories.

(b) Distributor shall not solicit sales or knowingly sell the Products directly or indirectly outside of the Territories without the prior written consent of IDT, which may be withheld in the sole discretion of IDT. To the extent Distributor is legally able to do so, Distributor shall cease selling to any customer or account that IDT reasonably demonstrates is selling Products, or is a source of Products being sold, outside the Territories without authorization from IDT and all profits (as reasonably determined by the Chief Financial Officer of Distributor) from Distributor’s sales to such customers shall be received by Distributor solely for the account of IDT and shall be promptly paid by Distributor to IDT.

3. Prior Goodwill.

Distributor acknowledges that IDT has heretofore, directly or through agents and representatives, promoted, marketed and sold the Products in the Territories, having thus developed the Products’ goodwill, good name, reputation and consumer acceptance in the Territories. Distributor agrees to exercise its best efforts not to jeopardize the Products’ goodwill, good name, reputation and consumer acceptance in the Territories.

4. Independent Contractor.

DISTRIBUTOR IS AN INDEPENDENT CONTRACTOR WITH COMPLETE CONTROL OF THE DETAILS OF THE PERFORMANCE OF ITS OBLIGATIONS AS SET FORTH IN THIS AGREEMENT AND IS NOT TO BE DEEMED TO BE AN EMPLOYEE, AGENT OR SERVANT OF IDT. DISTRIBUTOR HAS NO AUTHORITY TO CONTRACT FOR, OR ON BEHALF OF, IDT OR OTHERWISE TO BIND OR OBLIGATE IDT IN ANY MANNER WHATSOEVER.

IDT IS AN INDEPENDENT CONTRACTOR WITH COMPLETE CONTROL OF THE DETAILS OF THE PERFORMANCE OF ITS OBLIGATIONS AS SET FORTH IN THIS AGREEMENT AND IS NOT TO BE DEEMED TO BE AN EMPLOYEE, AGENT OR

SERVANT OF DISTRIBUTOR. IDT HAS NO AUTHORITY TO CONTRACT FOR, OR ON BEHALF OF, DISTRIBUTOR OR OTHERWISE TO BIND OR OBLIGATE DISTRIBUTOR IN ANY MANNER WHATSOEVER.

5. Distributor’s Representations, Warranties and Covenants.

(a) Distributor represents and warrants that it has all requisite power and authority to enter into and perform its obligations under this Agreement, that it has the right, power and authority to perform its obligations hereunder, that the execution, delivery and performance of this Agreement will not violate or constitute a default under the terms of any agreement or instrument to which Distributor or any of its affiliates is a party or by which any of its or their material assets or rights or privileges are subject or bound.

(b) Distributor represents and warrants that the Products shall be printed, packaged, labeled, packed and shipped in compliance with the requirements of all applicable Federal, state and local laws, regulations, ordinances and administrative rules and orders (“Applicable Laws”).

(c) Distributor agrees to:

(i) Exercise its best efforts to sell and solicit orders for the sale of the Products;

(ii) Maintain adequate facilities and manpower to fulfill its obligations to IDT under this Agreement;

(iii) Co-operate with IDT in developing and maintaining programs to familiarize its salesmen and merchandisers with the Products;

(iv) Keep on hand and available for reference by its salesmen such literature as IDT may supply regarding the Products;

(v) Prominently display the Products and any promotional materials supplied by IDT;

(vi) Cooperate in any sales, marketing or promotion efforts sponsored by IDT, including, but not limited to, customer seminars, trade shows, direct customer mailings, etc.;

(vii) Keep IDT advised of the potential demand for the Products as well as any event known to Distributor that may affect the sales or position of the Products in any market within any of the Territories;

(viii) Keep data on sales volume and any other information reasonably necessary to operate effectively and have such data available for IDT on a current basis;

(ix) Maintain and keep an adequate supply of inventory of the

Products to meet anticipated demand and to avoid out-of-stock situations;

(x) Coordinate with IDT’s employee responsible for the Territories, who will act as IDT’s liaison, marketing arm and coordinator to provide Distributor with technical assistance and marketing development for the Territories;

(xi) Make regular calls on all Distributor’s customers of Products in the Territories;

(xii) Transmit to IDT sales information on a timely basis as required to support marketing programs; and

(xiii) Maintain active customer files available to IDT.

6. Representations, Warranties and Covenants of IDT.

(a) IDT represents and warrants that it has all requisite corporate power and authority to enter into and perform its obligations under this Agreement, that it has the right, power and authority to perform its obligations hereunder and that the execution, delivery and performance of this Agreement will not violate or constitute a default under the terms of any agreement or instrument to which IDT is a party or by which any of its material assets or rights or privileges are subject or bound.

(b) Subject to Section 25, IDT hereby represents, warrants and covenants that it will not grant to any other entity, throughout the term of this Agreement, as such term may be extended from time to time pursuant to Section 15, the right to sell Products in the Exclusive Territory.

(c) IDT represents and warrants that any Products sold to Distributor pursuant to this Agreement shall be of good quality, merchantable and fit for the purpose intended, and IDT further represents that the Products are not articles that may not be introduced into interstate commerce in the United States or that are misbranded in violation of any Applicable Laws.

7. Marketing, Advertising and Promotion.

All advertising and promotional campaigns (including, but not limited to, customer seminars, trade shows, direct customer mailings, etc.) conducted by Distributor in the Territories relating to the Products shall be for the account of Distributor and any advertising allowance given off invoice by IDT shall be used only for advertising the Products. Distributor will prepare, distribute and use all proposed advertising, sales promotion and display materials relating to the Products that utilize the Intellectual Property (as defined in Section 12), in each case in accordance with practices existing on the date hereof to maintain the goodwill of the Products and the validity and goodwill of the Intellectual Property, and otherwise in accordance with such other practices as IDT may reasonably request. Except as otherwise agreed to in writing by IDT, IDT shall not be held liable for any expenses, disbursement, price concession, advertising allowance or any other concessions. IDT shall be entitled to direct Distributor to

discontinue preparing, distributing and/or using any material which it reasonably determines either (a) contains improper or insupportable claims, (b) is incompatible with IDT’s marketing strategy or (c) conflicts with any Applicable Law or agreement to which IDT or any of its affiliates is subject, and upon notification to Distributor of any such direction, Distributor shall forthwith or (other than with respect to clause (c)) otherwise as promptly as practicable under the circumstances discontinue the practice complained of. Distributor shall take such other measures as IDT may reasonably request from time to time to protect the quality of the Products, the validity of the Intellectual Property and the goodwill related to each.

In this regard, IDT agrees to furnish Distributor, to the extent commercially reasonable, with marketing and sales support, as follows:

(a)    Trade advertising;

(b)    Production of sample materials;

(c)    Production of literature and promotional materials;

(d)    Sales leads when generated; and

(e)    Training.

8.     Inspection.

IDT and its authorized representatives may at any reasonable time inspect Distributor’s records to verify the compliance of Distributor with the provisions of this Agreement. Representatives of IDT shall have access to Distributor’s place of business at all reasonable times for the purpose of taking inventory of the stock on hand.

9.     Primary Area of Focus.

It is the intention of the parties that Distributor devote its resources to building up the Products of IDT and, therefore, subject to Sections 11 and 25 hereof, Distributor and its subsidiaries agree not to purchase or distribute products similar to the Products from any source other than IDT unless otherwise agreed to by IDT in writing; provided, however, that Distributor may continue distributing products from non-IDT sources, which are similar to the Products, representing monthly gross revenues not to exceed $3,000,000, if such products from non-IDT sources (a) were distributed by Distributor or Distributor’s predecessor on or prior to May 1, 2000, or (b) were distributed by Distributor with IDT’s approval during the period May 1, 2000 to, and including, April 24, 2002 and which are also currently distributed by the Distributor.

10.     Terms of Sale.

(a) Subject to the terms of the Operating Agreement of Distributor, dated as of April 27, 1998, as amended on May 1, 1998, May 1, 2001 and June 1, 2001, and as amended and restated on the date hereof (the “Operating Agreement”), IDT shall establish from time to time the sales price and the terms and conditions at which the Products are to be sold to Distributor. Credit terms will be 30 days. Credit limits will be established from time to time by

IDT. In connection with IDT’s establishment of credit limits, Distributor agrees to provide IDT from time to time with such financial and credit information as may be necessary for IDT to establish credit limits. Subject to the terms of the Operating Agreement, said prices, terms and conditions are subject to change by IDT.

(b) IDT WILL BILL DISTRIBUTOR IN EUROS OR U.S. DOLLARS AND DISTRIBUTOR AGREES TO PAY IN THE BILLED CURRENCY. IT IS AGREED AMONG THE PARTIES THAT TITLE TO THE PRODUCTS AND RISK OF LOSS PASSES TO DISTRIBUTOR IN PUERTO RICO UPON ACTIVATION OF THE PRODUCTS. DISTRIBUTOR shall make payments to bank accounts designated by IDT and/or provide IDT with satisfactory collateral securing amounts due to IDT from time to time on account of inventory advances.

(c) Subject to the terms of the Operating Agreement, IDT reserves the right to reject an order or cancel the same or any part thereof after acceptance, for credit or any other reason. While it is acknowledged that all delivery dates requested by Distributor are approximate, IDT will use commercially reasonable efforts to timely fill Distributor’s orders.

11. Product Specifications and Supply.

Distributor understands and agrees that IDT reserves the right, at any time and from time to time without advance notice and without thereby incurring any liability or obligation to Distributor, to: (i) change the specifications for the Products; (ii) change its sourcing, sales and distribution policies; and (iii) discontinue the sale to Distributor of any Products no longer marketed by IDT, provided that IDT shall use commercially reasonable efforts to notify Distributor at least forty-five (45) days prior to discontinuing the sale to Distributor of Products no longer marketed by IDT and provided, further, that if IDT (A) does not continue the sale to Distributor of Products from which Distributor generates net profits (calculated at such time based on a three month period ending on the last day of the calendar month immediately preceding the date IDT discontinues the sale of such Products) and (B) does not offer Distributor reasonably suitable replacement Products, then Distributor may seek to obtain replacement products from third parties for the specific market segments to which such discontinued Products were targeted, provided, however, that Distributor shall discontinue its marketing and distribution of any such replacement products from third parties within 30 days following IDT’s commitment to provide Distributor with (and the subsequent provision of) (i) the discontinued Products with respect to which such replacement products have been obtained or (ii) reasonably suitable replacement Products.

12. Intellectual Property.

Except as specifically provided herein, this Agreement shall not be construed to give Distributor any right, title or interest in the Intellectual Property or the Products.

Subject to the foregoing, Distributor and IDT acknowledge that all Trademarks (whether registered or unregistered) and related goodwill, and all Copyrights, Patents, Trade Secrets and all other intellectual property developed or used by Distributor, whether existing or used now or in the future and any causes of action that may arise therefrom (collectively, the

“Intellectual Property”) are owned by IDT except for Distributor’s customer lists and customer information, all of which are owned by Distributor. To the extent that Distributor may be found to have any proprietary interest or the appearance of a proprietary interest in the Intellectual Property (except for Distributor’s customer lists and customer information), Distributor hereby assigns such interest and further agrees to take whatever additional action is necessary to assign such Intellectual Property to IDT and to register such Intellectual Property in IDT’s name, including, without limitation, the execution of any assignment, registration, application or other documentation. In addition, Distributor hereby grants to IDT an irrevocable power of attorney to execute in its name any documents necessary to effect the intent of the preceding sentence.

In consideration, and subject to the terms and conditions, of this Agreement, IDT hereby grants to Distributor a royalty-free, non-exclusive, non-transferrable license to use the Intellectual Property (except for Distributor’s customer lists and customer information) in the Territories solely for the purpose of fulfilling Distributor’s obligations hereunder (the “License”). The License shall terminate upon the termination of this Agreement; provided, however, that in connection with any Intellectual Property which is patented, if still effective, the License with respect to the relevant patent will expire upon the termination of the patent, including any extension or renewal thereof, if prior to the termination of this Agreement. To the extent that Distributor has or acquires any control over the quality of the Product, Distributor agrees to maintain the quality of the Product consistent with the historical quality of goods sold using any relevant Trademark licensed under the License to date. Distributor acknowledges that any and all goodwill arising from Distributor’s use of the Intellectual Property consisting of Trademarks inures solely to the benefit of IDT.

Distributor hereby acknowledges that the Intellectual Property is licensed AS IS. IDT MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE INTELLECTUAL PROPERTY, INCLUDING WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO NON-INFRINGEMENT, VALIDITY OR OWNERSHIP. IDT reserves the right to require Distributor to discontinue use of (and terminate the License with respect to) any Intellectual Property licensed by IDT to Distributor in the event that any third party asserts or threatens to assert that any such Intellectual Property infringes or violates such third party’s intellectual property rights.

Distributor further acknowledges the validity of the Intellectual Property used in connection with the sale of Products, and agrees not to knowingly take any action (or knowingly omit to take any action) that would prejudice or interfere with such validity or IDT’s ownership rights. Distributor further agrees not to use Trademarks licensed by IDT to Distributor or any other Trademark confusingly similar to the Trademarks licensed by IDT to Distributor in connection with any goods other than the Products.

Distributor agrees that it will notify IDT promptly of any infringement, misappropriation or violation of the Intellectual Property by third parties of which it becomes aware.

IDT agrees that any net profit (as reasonably determined by the Chief Financial Officer of IDT) directly or indirectly derived from the commercial exploitation by IDT of the

Intellectual Property set forth in Exhibit A to this Agreement prior to the termination of this Agreement, shall inure to the benefit of Distributor, shall be received by IDT solely for the account of Distributor and shall be paid promptly by IDT to Distributor. The obligation of this paragraph is independent of and shall survive termination of the License. For the avoidance of any doubt, any revenue or other payments received by IDT or any of its affiliates as members of Distributor or to which IDT or any of its affiliates may be entitled as members of Distributor, shall not be considered, for purposes of the preceding sentence, to be net profit directly or indirectly derived from the commercial exploitation by IDT of the Intellectual Property set forth in Exhibit A.

13. Confidential Information.

Each of IDT and Distributor agrees that it shall not, at any time during the term of this Agreement or thereafter without the written consent of the other, use or disclose to any third party any confidential and/or technical information relating to the other party or any of the other party’s affiliates, made available to it by the other party or by any third party at the request or direction of the other party. The parties shall, upon termination of this Agreement, deliver to the other party all written material relating to such confidential or technical information. Notwithstanding the foregoing, IDT and Distributor acknowledge that disclosure of any information or materials which are required to be disclosed pursuant to an Applicable Law, government requirement or court order, or the rules of any stock exchange or automated quotation system, or national, federal, state, local or other governmental reporting requirements, shall be deemed not to be a breach of the covenants contained in this Section 13. IDT and Distributor acknowledge and agree that each of its respective covenants pursuant to this Section 13 is an essential condition of this Agreement. Accordingly, without affecting any other rights or remedies that the other may have, IDT and Distributor agree that the other will be entitled to the remedies of injunction, specific performance or any other equitable relief for breach or threatened breach of this Section 13. Notwithstanding anything to the contrary, the right of the parties to equitable relief pursuant to this Section 13 shall survive the termination of this Agreement and continue in full force and effect.

14. Transfer of the Agreement.

(a) In entering into this Agreement, IDT carefully considered Distributor’s financial condition, and its know-how in the promotion, sale and distribution of the Products. Therefore, the grant of rights to Distributor hereunder is unique, and such right shall not be transferred, assigned or otherwise disposed of to any other person, firm or corporation without IDT’s consent. Any such purported transfer, assignment or disposition made without IDT’s written consent shall be null and void. The terms “assignment” and “transfer” shall include any change in the ownership or control of Distributor. Any assignment by UTCG Holdings LLC, a Delaware limited liability company (“Newco”), of its interest in Distributor or any change in the direct or indirect record or beneficial ownership of Newco shall, (i) if not otherwise permitted pursuant to (x) that certain Securities Purchase Agreement, by and among Carlos Gomez (“Gomez”), Newco and Distributor, dated May 1, 1998, as amended by Amendment No. 1 to the Securities Purchase Agreement by and among Newco, IDT and Distributor, dated April 24, 2002, (y) the Operating Agreement, or (z) that certain Transfer Restriction Agreement, dated April 24, 2002, by and among IDT Corporation, IDT Domestic-

Union, Gomez and Distributor, or (ii) if not previously approved in writing by IDT, constitute just cause for termination of this Agreement by IDT, unless, in the case of any such change in the record or beneficial ownership of Newco, such change in the record or beneficial ownership is reversed back to the record or beneficial ownership of Newco in effect prior to such change, within 30 days of written notice from IDT requesting same.

(b) Notwithstanding Section 14(a) above, (i) Newco shall be permitted to pledge its membership interests in Distributor in favor of Gomez pursuant to that certain LLC Interest Pledge and Security Agreement, dated April 24, 2002, by and between Newco and Carlos Gomez, and (ii) the Carlos Gomez Family Trust shall be permitted to pledge its membership interests in Newco in favor of Carlos Gomez pursuant to that certain LLC Interest Pledge and Security Agreement, dated April 24, 2002, by and between the Carlos Gomez Family Trust and Carlos Gomez.

(c) Neither this Agreement nor any of IDT’s rights hereunder may be transferred, assigned or otherwise disposed of, directly or indirectly, by operation of law or otherwise, to any other person, firm, corporation or other entity without Distributor’s consent, provided, however, that notwithstanding the foregoing or any other provision of this Agreement, IDT may transfer, assign or otherwise dispose of, directly or indirectly, by operation of law or otherwise, to any of its controlled affiliates, upon written notice to Distributor, this Agreement or any of its rights under this Agreement. In the event IDT transfers, assigns or otherwise disposes of, directly or indirectly, by operation of law or otherwise, to any other person, firm, corporation or other entity (a “Transferee”) all or substantially all of its business of selling pre-paid phone cards, whether operated by IDT or any of its affiliates prior to the earlier of (A) the termination of the License and (B) the termination of this Agreement, IDT agrees to cause such Transferee to grant Distributor (x) a license to use the Intellectual Property (except for Distributor’s customer lists and customer information) on terms and conditions no less favorable than the License and (y) an exclusive right to sell the Products in the Exclusive Territory throughout the term of this Agreement on terms and conditions no less favorable than the Agreement. For the purposes hereof, “affiliate” shall mean, with respect to any person, any other person who controls, is controlled by or is under common control with such person. “Control” (and its derivations) shall mean the ability to direct or influence the policy or management of any person, whether by means of contract, organizational document or otherwise.

15. Termination of Agreement.

Unless terminated by either party in accordance with the provisions of this paragraph, this Agreement shall be in effect for a period of time commencing on April 24, 2002 and terminating on April 24, 2007; provided, however, that in the event the Net Profits of Distributor (as such term is defined in the Operating Agreement) from sale of the Products for the twelve months ended December 31, 2006 are equal to or greater than $16,000,000, either of IDT or Distributor may notify the other party, prior to January 30, 2007, that it exercises its right to extend the Agreement for a period of two years; provided, further, that if Net Profits of Distributor from sale of the Products for the twelve months ended December 31, 2008 are equal to or greater than $21,000,000, either of IDT or Distributor may notify the other party, prior to January 30, 2009, that it exercises its right to extend the Agreement for a further period of two

years. Unless otherwise agreed in writing by the parties, this Agreement will not be extended beyond the ninth-year anniversary of this Agreement.

The parties expressly agree that, without limitation of the generality of the foregoing:

(a) IDT shall have just cause for termination upon the happening of any of the following occurrences, acts or omissions, provided such acts or omissions were not caused by IDT or any of its affiliates (other than Distributor or any of its subsidiaries) or by any of their respective employees or representatives or by any of the officers of Distributor designated by IDT or any of its affiliates (other than Distributor or any of its subsidiaries) pursuant to the Operating Agreement:

(i) The cessation of the usual business of Distributor;

(ii) In the event of a calling of a meeting of the creditors of Distributor, and assignment by Distributor for the benefit of creditors, the insolvency of any kind of Distributor, or in the event of any filing of a voluntary or involuntary petition under the provisions of the United States Bankruptcy Act or amendments thereto, or any application for the appointment of a receiver for the property of Distributor, which in the case of any such involuntary filing remains unsatisfied and undischarged at the end of thirty (30) days after the initial filing thereof;

(iii) In the event that Distributor fails to exercise commercially reasonable efforts not to jeopardize the Products’ goodwill, good name, reputation and consumer acceptance in the Territories within 30 days of receipt of written notice from IDT;

(iv) In the event Distributor fails to discontinue a practice complained of under Section 7 hereof within 30 days of receipt of written notice from IDT, or in the case of a practice referred to under Section 7(c) hereof immediately following receipt of written notice from IDT;

(v) In the event of any material failure or omission by Distributor to comply with any of its essential obligations under this Agreement, which is not substantially cured within thirty (30) days after receipt of written notice from IDT specifying such failure or omission with reasonable detail; or

(vi) In the event of a purported transfer or assignment of Newco’s interest in Distributor in contravention of Section 14(a) hereof.

(b) Distributor shall have just cause for termination upon the happening of any of the following occurrences, acts or omissions:

(i) The cessation of the usual business of IDT;

(ii) In the event of a calling of a meeting of the creditors of IDT, and assignment by IDT for the benefit of creditors, the insolvency of any kind of IDT, or in the event of any filing of a voluntary or involuntary petition under the provisions of the United States Bankruptcy Act or amendments thereto, or any application for the appointment of a receiver for the property of IDT, which in the case of any such involuntary filing remains unsatisfied and undischarged at the end of thirty (30) days after the initial filing thereof; or

(iii) In the event of any material failure or omission by IDT to comply with any of its essential obligations under this Agreement, which is not substantially cured within thirty (30) days after receipt of written notice from Distributor specifying such failure or omission with reasonable detail; or

Under the circumstances described in subparagraphs (a) and (b) of this Section 15, this Agreement shall be considered terminated immediately upon receipt of written notice of termination in certified mail from the terminating party to the other party, at the address herein designated or at such other address as may from time to time be designated in writing by the parties.

16. Post Termination.

Upon the termination of this Agreement, (i) all rights and privileges granted to Distributor hereunder shall immediately cease and terminate and Distributor shall thereupon discontinue forever the use of any Intellectual Property and any advertising material relating to the Products, (ii) any indebtedness of one party to another pursuant to the terms of this Agreement, shall immediately become due and payable without notice and (iii) Distributor shall promptly return to IDT, at Distributor’s expense, all samples, price lists, sales manuals, promotional materials and other selling aids relating to the Products furnished by IDT and remaining at the time in the possession of Distributor. For the avoidance of any doubt, the termination of this Agreement shall not in any way release any party from any liability for any indebtedness to the other party or any of its affiliates, and any agreements or arrangements with respect to such indebtedness shall continue in full force and effect, and shall be valid and binding agreements of the parties enforceable against each party in accordance with their terms and unaffected by the termination of this Agreement.

In the event this Agreement is properly terminated, neither party shall be liable to the other party, by reason of termination, whether on account of loss by IDT, on the one hand, or Distributor, on the other, of present or prospective profits or discounts or commissions on sales or anticipated sales, or expenditures, investments or commitments made in connection therewith, or in connection with the establishment, development or maintenance of IDT’s business, on the one hand, or Distributor’s business, on the other, or on account of any other causes or thing whatsoever.

Notwithstanding anything to the contrary, the irrevocable power of attorney of Distributor granted to IDT pursuant to Section 12 of this Agreement shall survive the termination of this Agreement and continue in full force and effect.

The failure of a party, in any one or more instances, to insist upon performance of any of the terms, covenants or conditions of this Agreement, or to exercise any right to terminate this Agreement, shall not be construed as a waiver or relinquishment of the same or of any future right to performance of such term, covenant or condition, or as a waiver or an estoppel to exercise any present or future right to terminate this Agreement, or of a party’s obligation with respect to future performance of the same. All other terms, covenants and conditions hereof shall continue in full force and effect.

17. Entire Agreement.

This Agreement supersedes all prior and concurrent discussions and agreements between the parties hereto and between Distributor and IDT’s affiliated companies with respect to all matters contained herein, and it constitutes the sole and entire Agreement between IDT and Distributor respecting the same. Each of the parties represents and warrants that, in entering into this Agreement it is not relying on any promise, representation, warranty or agreement, oral or written, respecting any of the matters which are subject of this Agreement, except those expressly set forth herein.

No modification of waiver of any of the terms hereof or amendment or supplement hereto shall be valid or binding unless made in writing and executed by the parties hereto. All representations, promises, and warranties made by the parties in this Agreement are cumulative and in addition to those imposed by law, statute, equity or otherwise, and they are to survive the execution and delivery hereof. The parties’ obligations of confidentiality and non-disclosure as set forth herein are to survive the termination of this Agreement.

18. Severability of Provisions.

If any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision which can be given effect without the invalid provision, and to this end, the provisions of this Agreement are intended to be and shall be deemed severable.

19. Governing Law; Successors and Assigns.

This Agreement shall be governed by and be construed in accordance with the internal laws of the State of New York, without regard to conflicts of law principles that would result in the application of the law of another jurisdiction. This Agreement shall be binding upon and inure to the benefit of the parties hereto and, subject to the provisions of Section 14, their respective permitted successors and assigns.

20. Arbitration.

(a) All disputes, controversies or differences which may in any way arise between the parties from or connected with this Agreement, including the interpretation, performance or nonperformance hereof, shall be submitted to and finally determined in New

York City, New York, by arbitration by three arbitrators (the “Arbitrators”) from the American Arbitration Association (“AAA”), such Arbitrators to be chosen from an AAA-approved list of arbitrators who are residents of the United States. IDT and Distributor shall each select one Arbitrator and shall mutually agree upon the selection of the third Arbitrator. If the parties are not able to agree upon the third Arbitrator, then the Arbitrators selected by the parties shall select the third Arbitrator. The fees and expenses of said Arbitrators shall be shared equally by the parties.

(b)     The parties intend and hereby manifest that the decision of the Arbitrators shall be according to the provisions of this Agreement, or according to the laws of the State of New York in matters, if any, not covered by this Agreement. Such decision shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction.

(c)     Each of the parties acknowledges that, in view of the uniqueness of arrangements contemplated by this Agreement, the parties would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms. Accordingly, each of the parties agrees that the other party hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which such party may be entitled at law or in equity.

(d)     For the purposes of any proceedings arising out of this Agreement, including proceedings incidental to or in aid of this Agreement to arbitrate or proceedings pursuant to Section 21 of this Agreement, each party hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York County for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby and for purposes of any proceedings to seek to enforce an arbitration award. Each of the parties irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

(e)     If any of the parties, notwithstanding the foregoing, should attempt either to resolve any dispute arising in connection with this Agreement in a court of law or equity or to forestall, preempt, or prevent arbitration of any such dispute by resort to the process of a court of law or equity, and such dispute is ultimately determined to be arbitrable by such court of law or equity, the Arbitrator shall include in his award an amount for the other party equal to all of the other party’s costs including attorney’s fees, incurred in connection with such arbitrability determination.

21.     Reservation.

Each of the parties reserves its right to commence judicial proceedings against the other party for the purpose of securing or obtaining remedies of attachment, garnishment, seizure or any others to secure the effectiveness of an award or judgement on a claim for the payment of monies against the other party, a claim for specific enforcement of the terms of the Agreement or

in aid or for proceedings ancillary to arbitration, or to enforce an arbitration award or to seek injunctive or other relief against the other party for violation of Section 12 hereof.

22. Interpretation.

Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under Applicable Law. The paragraph headings of this Agreement are for convenience only and shall not be used in interpreting or construing this Agreement.

23. Waiver.

The failure at any time or times, by any party hereto to require strict performance by the other party of any provisions of this Agreement or to exercise any of its rights hereunder shall not waive, affect or diminish any right of such party thereafter to demand strict compliance and performance therewith.

24. Notices.

Whenever notice is required to be given under the terms of this Agreement to either party, it shall be by certified mail, return receipt requested:

If to IDT, addressed as follows:

IDT Netherlands, B.V.

Ganges Plaza, 108 Ganges Street

El Paraiso Industrial Park,

Rio Piedras, Puerto Rico 00926

Attention: Douglas Mauro

Fax: (973) 438-1427

If to Distributor, addressed as follows:

Union Telecard Alliance, LLC

44 Cherry Valley Avenue

West Hempstead, NY 11552

Attention: CEO

with copies to:

Union Telecard Alliance, LLC

44 Cherry Valley Avenue

West Hempstead, NY 11552

Attention: President

and

Harry C. Beatty, Esq.

Kent, Beatty & Gordon, LLP

425 Park Avenue

New York, NY 10022-3598

or to such other or future address as either party may specify to the other, all by notice in accordance to the provisions hereof.

25. Force Majeure.

(a) Any delays in or failure of performance by any party under this Agreement shall be excused and not considered a breach hereof if such delay or failure is caused by revolutions, insurrections, riots, sabotage, wars, acts of enemies or terrorists, national emergency, strikes or labor disputes, floods, fires, acts of God, acts of Government (including laws, governmental regulations, orders, judicial decrees, treaties, embargoes enacted or promulgated by any country or sovereignty or any agency thereof), or by any similar cause not within the reasonable control of the party whose performance is affected thereby (each a “force majeure event”); provided that such party shall have exercised reasonable diligence, including the commercially reasonable expenditure of funds and the making of commercially reasonable capital expenditures for the purpose of preventing such delay or failure of performance.

(b) If circumstances of the type described in Section 25(a) above prevail and a party is not discharging its obligations in full in all material respects hereunder, then the other parties shall be entitled by written notice to the party whose performance is prevented by such force majeure event to suspend the operation of all or any provisions of this Agreement and make any alternative commercial arrangements necessary to protect its commercial interests, notwithstanding and despite any provision or restriction of this Agreement to the contrary. If any such other party makes any such alternative arrangements, the suspension of the provisions of this Agreement shall continue until the force majeure event which has prevented the initial party’s substantial performance hereunder has ceased to exist.

26. Insurance.

Distributor shall maintain reasonable commercial liability and property insurance policies with carriers and in amounts generally accepted in the industry. The aforesaid insurance policies must insure Distributor against any loss, claim, liability or suit of bodily injury, death, personal injury or property damage arising from or in connection with the distribution of Products. The insurance policies will name IDT as an additional insured as respects its interests under the term and conditions of this Agreement. Distributor shall provide IDT a certificate in evidence of this insurance upon execution of the Agreement and each insurance renewal thereafter for the duration of this Agreement. The certificate shall provide that the insurance issued under this Section 26 shall not be altered or cancelled until after thirty (30) days written notice to IDT. Such insurance shall not be cancelled by Distributor without IDT’s prior written approval.

27. Counterparts.

This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute on one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.

[Signatures on the following page.]

IN WITNESS WHEREOF, the appearing parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.

IDT NETHERLANDS, B.V.		UNION TELECARD ALLIANCE, LLC
		By: IDT Corporation, as Member
By:		By:
	Name:		Name:
	Title:		Title:

EX-10.56

Exhibit 10.56

UNIT PURCHASE AGREEMENT

This Unit Purchase Agreement is entered into as of the 10th day of April, 2002, by and between WCI Capital Corp., a Delaware corporation (the “Seller”), Dipchip Inc., a Delaware corporation (the “Buyer”), IDT Corporation, a Delaware corporation (“IDT”), and Winstar Holdings, LLC (formerly known as IDT Winstar Acquisition, LLC), a Delaware limited liability company (the “Company”) and consented and agreed to by IDT Advanced Communication Services, LLC, a Delaware limited liability company (“IACS”); and

WHEREAS, IDT Winstar Acquisition, Inc., Winstar Communications, Inc. (“Winstar”) and certain of Winstar’s subsidiaries entered into that certain Asset Purchase Agreement, dated as of December 18, 2001, pursuant to which, among other things, Seller, a subsidiary of Winstar, acquired 990,267 shares of Class B common stock, par value $.01 per share, of IDT (the “Previously Issued IDT Shares”) and 50 Common Units (the “Units”) of the Company; and

WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, the Units, on the terms and subject to the conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties (as defined below), intending to be legally bound, agree as follows:

ARTICLE I

Definitions

1.1 Definitions. Capitalized terms used in this Agreement are defined in Section 1.2 or in the following locations within the Agreement:

Defined Term	Paragraph
Buyer	Preamble
Buyer Related Agreements	4.2
Closing Date	2.6
Company	Preamble
Court	2.7
Holder Related Agreements	3.2
IACS	Preamble
IDT	Preamble
IDT Related Agreements	5.2
IDT SEC Documents	5.8
IDT SEC Financial Statements	5.8
IDT Shares	2.3

Defined Term	Paragraph
Previously Issued IDT Shares	Recitals
Registration Period	2.4(c)
SEC	2.4(a)
Securities Act	2.4(b)
Seller	Preamble
Units	Recitals
Winstar	Recitals

1.2 General Defined Terms. As used herein, the following terms shall each have the meaning indicated:

“Agreement”, “hereto”, “hereunder” and similar expressions refer to this Agreement, as amended from time to time.

“Business Day” means any day other than a Saturday, Sunday or statutory holiday in the State of New York.

“Closing” means the consummation of the transactions contemplated by this Agreement.

“Contracts” means and includes all contracts, licenses, leases, indentures, deeds, instruments, joint venture and other agreements, commitments and all other legally binding arrangements, whether oral or written, and all rights thereunder.

“Encumbrances” means mortgages, charges, pledges, security interests, liens, encumbrances, actions, claims, demands, and equities of any nature whatsoever and howsoever arising and any rights or privileges capable of becoming any of the foregoing.

“Governmental Authority” means any agency, department, court or any other administrative, legislative or regulatory authority of any foreign, federal, state or local governmental body.

“Holders” means the Seller and Persons to whom the Seller transfers Registrable Securities in accordance with Section 2.4(l) hereof, for so long as the Seller or such Persons hold Registrable Securities.

“LLC Agreement” means the limited liability company agreement of the Company, dated as of December 19, 200l.

“Party” means any of the Buyer, any Holder or IDT, and “Parties” means collectively the Buyer, the Holders and IDT.

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“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Authority.

“Registrable Securities” means the Previously Issued IDT Shares and the IDT Shares.

ARTICLE II

Purchase and Sale

2.1 Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, at the Closing the Buyer shall purchase from the Seller, and the Seller shall sell, transfer, convey, and deliver to the Buyer, free and clear of all Encumbrances, the Units for the consideration specified in Section 2.3 below.

2.2 Membership in the Company. On and subject to the terms and conditions of this Agreement, as of the Closing, the Buyer shall become the holder of the Units and a Member of the Company in accordance with the terms of, entitled to the benefits of, and subject to the obligations arising under, the LLC Agreement with respect to the Units, and the Company hereby agrees to and consents to the sale and transfer of the Units and the admission of the Buyer as a Member of the Company. With the exception of the obligations as a Member under the LLC Agreement, the Buyer is not assuming any liabilities or obligations of the Seller whatsoever.

2.3 Purchase Price. The purchase price for the Units shall be 792,079 shares of Class B common stock of IDT (the “IDT Shares”), which shall be delivered by IDT to the Seller at the Closing, free and clear of all Encumbrances, as provided in Section 2.6 hereof.

2.4 Registration.

(a) IDT shall prepare and file with the Securities and Exchange Commission (“SEC”) a registration statement covering the resale of the Registrable Securities and shall cause such registration statement to become effective on or before March 3 1,2003, and remain effective as provided in this Section 2.4.

(b) Any registration under Section 2.4(a) shall be on such appropriate registration form of the SEC as shall permit the disposition of the Registrable Securities covered by such registration in accordance with the intended method or methods of disposition specified by Holders holding at least two-thirds (2/3) of the Registrable Securities; provided, however, that IDT may, if permitted by law, effect the registration required under Section 2.4(a) by the filing of a registration statement on Form S-3 under the Securities Act of 1933, as amended (the “Securities Act”); and provided, further, that no Holder shall be entitled to have the Registrable Securities held by it covered by such registration statement unless such Holder has provided IDT with the information required

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under Section 2.4(j) hereof at least ten (10) business days before such Holder’s intended disposition of Registrable Securities and has agreed in writing to be bound by all of the provisions of this Agreement applicable to such Holder in accordance with Section 2.4(l) hereof. If Holders holding at least two-thirds (2/3) of the Registrable Securities notify IDT in writing that, in their reasonable judgment, the use of the more detailed form specified in such notice is of material importance to the success of such offering, IDT shall in good faith consider such request to effect such registration on the form so specified by such Holders, but shall be under no obligation to effect such registration on such form, and all expenses incurred in connection with effecting such registration on the form so specified by the Holders requesting the use of such form shall be borne by such Holders, jointly and severally.

(c) Subject to Section 2.4(e) below, a registration required pursuant to Section 2.4 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has been declared effective by the SEC and remains effective in compliance with the provisions of the Securities Act until such time as all of the Registrable Securities covered thereby have been disposed of in accordance with such registration statement (the “Registration Period”) or (ii) if, after the registration statement with respect thereto has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental or regulatory agency or court for any reason other than a violation of applicable law by the Seller and has not thereafter become effective. IDT shall furnish to each Holder, promptly after such registration statement is filed with the SEC, such numbers of copies of the registration statement and any amendment or post-effective amendment thereto (in each case including all exhibits and the prospectus) and any other prospectus filed under Rule 424 under the Securities Act as such Holder may reasonably request.

(d) Subject to Section 2.4(e) below, IDT shall prepare and file such amendments (including post-effective amendments) and supplements to any registration statement filed under this Section 2.4 and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement, or to name a Holder as a selling stockholder, until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of the Registration Period.

(e) Notwithstanding anything to the contrary herein, any registration effected pursuant to this Section 2.4 shall not be required to be effective on and after the first date on which the Holders can publicly sell all of the Registrable Securities pursuant to Rule 144(k) under the Securities Act. In such event, IDT covenants that it will, so long as any Holder holds Registrable Securities, file in a timely manner and make and keep available all reports and other documents required by the Securities Exchange Act of 1934, as amended.

(f) IDT shall promptly notify each Holder in the manner prescribed in Section 9.7 of the happening of any event, of which IDT has knowledge, as a result of

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which the prospectus included in a registration statement effected pursuant to this Section 2.4, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Holder as such Holder may reasonably require.

(g) IDT shall use commercially reasonable efforts to register or qualify the Registrable Securities under such state securities or “blue sky” laws of such jurisdictions as the Holders reasonably request and do any and all acts and things that may be reasonably necessary or advisable to enable the Holders to consummate the disposition of the Registrable Securities in such jurisdiction; provided, however, that IDT shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any consent to general service of process in any jurisdiction. IDT shall cause the listing and continuation of listing of the Registrable Securities on the New York Stock Exchange or, if the IDT Class B common stock is not listed on the New York State Exchange, such other principal exchange or automated quotation system on which the IDT Class B common stock trades.

(h) IDT shall enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to facilitate the disposition of such Registrable Securities.

(i) IDT shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to each Holder, as soon as reasonably practicable, but not later than 18 months after the effective date of the registration statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 1l(a) of the Securities Act.

(j) Each Holder shall furnish IDT, from time to time, such information regarding itself, the Registrable Securities held by it, the intended method of disposition of the Registrable Securities held by it and all other information as is reasonably required by IDT to effect the registration of the resale of the Registrable Securities held by such Holder, all of which information shall be true, accurate, complete and not materially misleading.

(k) Subject to Section 2.4(b), all expenses incurred in connection with registrations, filings, qualifications and other obligations of IDT pursuant to this Section 2.4 shall be borne by IDT.

(l) The Seller shall have the right to transfer, subject to compliance with state and federal securities laws, all or a portion of the Registrable Securities to any Person receiving a distribution in connection with the bankruptcy case of the Seller and

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its affiliates, provided that such transferee agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder and provides the other Parties with its contact information for notices pursuant to Section 9.7 hereof and the information required to be set forth on Schedule 3.1.

2.5 Indemnification and Contribution.

(a) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, IDT shall indemnify and hold harmless each Holder, such Holder’s respective directors and officers, and each other person (including each underwriter) who participated in the offering of such Registrable Securities and each other person, if any, who controls such Holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such Holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such Holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that IDT shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to IDT by a Holder specifically for use therein or so furnished for such purposes by any underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holders or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by the Holders.

(b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless IDT and each other Holder, their respective directors and officers and each other person, if any, who controls IDT or such other Holder within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which IDT or such other Holder or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to IDT by such Holder specifically for use in, and contained in, on the effective date thereof, any registration statement under which securities were registered under the Securities Act pursuant to this Agreement, any

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preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto. Notwithstanding the provisions of this paragraph (b) or paragraph (c) below, no Holder shall be required to indemnify any person pursuant to this Section 2.5 or to contribute pursuant to paragraph (c) below in an amount in excess of the amount of the aggregate net proceeds received by such Holder in connection with any such registration under the Securities Act.

(c) If the indemnification provided for in this Section 2.5 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

The Parties agree that it would not be just and equitable if contribution pursuant to this Section 2.5(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

2.6 The Closing. The Closing shall take place at a location mutually acceptable to the Buyer and the Seller on the first Business Day following the date the conditions to Closing set forth in Article VII hereof are satisfied, or such other date as shall be mutually acceptable to the Buyer and the Seller (the “Closing Date”).

2.7 Deliveries at the Closing. At the Closing:

(a) the Seller will execute, acknowledge and deliver (if appropriate), or cause to be executed, acknowledged and delivered (if appropriate), as the case may be, to the Buyer:

(i) any and all certificates for the Units duly endorsed by the Seller in blank;

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(ii) such other instruments of sale, transfer, conveyance, and assignment as the Buyer and its counsel reasonably may request; and

(iii) a certified copy of an order of the United States Bankruptcy Court for the District of Delaware (the “Court”) approving the transactions contemplated hereby.

(b) the Buyer will execute, acknowledge and deliver (if appropriate), or cause to be executed, acknowledged and delivered (if appropriate), as the case may be, to the Seller:

(i) a joinder agreement in the form of Exhibit A annexed hereto; and

(ii) such other documents as may be reasonably required by the Seller and its counsel in connection with the transactions contemplated hereby.

(c) IDT will execute, acknowledge and deliver (if appropriate), or cause to be executed, acknowledged and delivered (if appropriate), as the case may be, to the Seller:

(i) stock certificates representing the IDT Shares containing a restrictive legend; and

(ii) such other documents as may be reasonably required by the Seller and its counsel in connection with the transactions contemplated hereby.

ARTICLE III

Representations and Warranties of the Seller and Other Holders

The Seller hereby represents and warrants to the Buyer, IDT and each other Holder that the statements contained in this ARTICLE III are true, correct and complete as of the date hereof, and each Holder other than the Seller represents and warrants to the Buyer, IDT and each other Holder that the statements contained in this ARTICLE III, except for Sections 3.6 and 3.7, are true, correct and complete as of the date such Holder becomes a Party hereto.

3.1 Organization. Such Holder is a corporation or other entity duly organized, validly existing and in good standing under the laws of the state of its organization, as specified on Schedule 3.1 attached hereto (as the same may be amended upon a Holder becoming a Party hereto) has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

3.2 Authorization of Transaction. Subject to the approval of the Court, such Holder has full power and authority to execute and deliver this Agreement and each other agreement or instrument to be delivered by it hereunder (the “Holder Related

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Agreements”), and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Holder Related Agreements and the consummation of the transactions thereby have been duly authorized by all requisite corporate action. This Agreement and each Holder Related Agreement has been duly executed and delivered by a duly authorized officer on behalf of such Holder and, assuming due and valid authorization, execution and delivery of this Agreement and each Holder Related Agreement by the other parties thereto, constitute the valid and legally binding obligations of such Holder, enforceable against such Holder in accordance with their respective terms and conditions, except as such except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

3.3 Noncontravention. Neither the execution and the delivery of this Agreement or the Holder Related Agreements, nor the consummation of the transactions contemplated hereby and thereby, will:

(a) violate any (i) statute, law, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which such Holder is subject or (ii) provision of the certificate of incorporation or bylaws of such Holder; or

(b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under, any Contract to which such Holder is a party or by which it is bound or to which the Units are or may be bound or affected (or result in the imposition of any Encumbrance upon any of its assets, including the Units).

3.4 Governmental Consents. Other than the approval of the Court, such Holder is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order for the Parties to execute, deliver or consummate the transactions contemplated by this Agreement or the Holder Related Agreements.

3.5 Brokers’ Fees. Such Holder has no liability or obligation to pay any fees or commissions whatsoever to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated.

3.6 Title to Units. The Seller has, and at the Closing will have, good, valid and marketable title to the Units, free and clear of all Encumbrances.

3.7 IDT Shares. The Seller is acquiring the IDT Shares for investment purposes for the Seller’s account only and not for the account of any other person or entity. The Seller is not acquiring the IDT Shares with a view to resell, distribute, subdivide or otherwise transfer the IDT Shares to any other person or entity, other than in

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accordance with (a) the Securities Act and applicable state securities laws and (b) any order of the Court.

ARTICLE IV

Representations and Warranties of the Buyer

The Buyer hereby represents and warrants to each Holder that the statements contained in this ARTICLE IV are correct and complete as of the date hereof.

4.1 Organization of the Buyer. The Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

4.2 Authorization of Transaction. The Buyer has full power and authority to execute and deliver this Agreement and each other agreement or instrument to be delivered by it hereunder (the “Buyer Related Agreements”), and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Buyer Related Agreements and the consummation of the transactions thereby have been duly authorized by all requisite corporate action. This Agreement and each Buyer Related Agreement has been duly executed and delivered by a duly authorized officer on behalf of the Buyer and, assuming due and valid authorization, execution and delivery of this Agreement and each Buyer Related Agreement by the other parties thereto, constitute the valid and legally binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms and conditions, except as such except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.3 Noncontravention. Neither the execution and the delivery of this Agreement or the Buyer Related Agreements nor the consummation of the transactions contemplated hereby will:

(a) violate any (i) law, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which the Buyer is subject or (ii) provision of the certificate of incorporation or bylaws of the Buyer; or

(b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under any Contract to which the Buyer is a party or by which it is bound or to which any of its assets is subject.

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4.4 Governmental Consents. The Buyer is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order for the Parties to execute, deliver or consummate the transactions contemplated by this Agreement or the Buyer Related Agreements.

4.5 Brokers’ Fees. The Buyer has no liability or obligation to pay any fees or commissions whatsoever to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which any Holder could become liable or obligated.

4.6 Units. The Buyer is acquiring the Units for investment purposes only for its own account and not for the account of any other person or entity. The Buyer is not acquiring the Units with a view to resell, distribute, subdivide or otherwise transfer the Units to any other person or entity other than in accordance with the Securities Act and applicable state securities laws.

ARTICLE V

Representations and Warranties of IDT

IDT hereby represents and warrants to each Holder that the statements contained in this ARTICLE V are correct and complete as of the date hereof.

5.1 Organization of IDT. IDT is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and as proposed to be conducted.

5.2 Authorization of Transaction. IDT has full power and authority to execute and deliver this Agreement and each other agreement or instrument to be delivered by it hereunder (the “IDT Related Agreements”), and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the IDT Related Agreements and the consummation of the transactions thereby have been duly authorized by all requisite corporate action. This Agreement and each IDT Related Agreement has been duly executed and delivered by a duly authorized officer on behalf of IDT and, assuming due and valid authorization, execution and delivery of this Agreement and each IDT Related Agreement by the other parties thereto, constitute the valid and legally binding obligations of IDT, enforceable against IDT in accordance with their respective terms and conditions, except as such except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights and remedies generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3 Noncontravention. IDT will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this

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Agreement. Neither the execution and the delivery of this Agreement or the IDT Related Agreements nor the consummation of the transactions contemplated hereby will:

(a) violate any (i) law, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Authority to which IDT is subject or (ii) provision of the certificate of incorporation or bylaws of IDT; or

(b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under any Contract to which IDT is a party or by which it is bound or to which any of its assets is subject.

5.4 Governmental Consents. IDT is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority in order for the Parties to execute, deliver or consummate the transactions contemplated by this Agreement or the IDT Related Agreements.

5.5 Brokers’ Fees. IDT has no liability or obligation to pay any fees or commissions whatsoever to any broker, finder or agent with respect to the transactions contemplated by this Agreement or the IDT Related Agreements for which any Holder could become liable or obligated.

5.6 IDT Capitalization. As of March 15, 2002, the authorized share capital of IDT consisted of: (a) 10,000,000 shares of preferred stock, $.01 par value, of which no shares were issued and outstanding, (b) 100,000,000 shares of common stock, $.01 par value, of which 24,508,079 shares were issued and outstanding, (c) 35,000,000 shares of Class A common stock, $.01 par value, of which 9,816,988 shares were issued and outstanding and (d) 100,000,000 shares of Class B common stock, $.01 par value, of which 51,030,050 shares were issued and outstanding.

5.7 Valid Issuance of IDT Shares. The IDT Shares being issued to the Seller hereunder are duly authorized and, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be validly issued, free and clear of all Encumbrances, fully paid and non-assessable, and, based in part upon the representations of the Seller in this Agreement, will be issued in compliance with all applicable preemptive rights and U.S. federal and state securities laws.

5.8 SEC Documents: Financial Statements.

(a) Other than the financial statements required to be filed in connection with the current report on Form 8-K filed by IDT on January 3, 2002, IDT has filed with the SEC all reports, forms, registration statements, definitive proxy statements and documents required to be filed with the SEC since July 31, 1999, and has furnished to the Seller or filed with the SEC via EDGAR true and complete copies, in the form filed with the SEC, of (i) its Annual Report on Form 10-K for the fiscal year ended July 31, 1999, its Annual Report on Form 10-K for the fiscal year ended July 31, 2000 and its

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Annual Report on Form 10-K for the fiscal year ended July 31, 2001, (ii) the proxy statement relating to its 2000 annual meeting of shareholders and the proxy statement relating to its 2001 annual meeting of stockholders, (iii) its annual report to shareholders for the fiscal year ended July 31, 1999, its annual report to shareholders for the fiscal year ended July 31, 2000 and its annual report to shareholders for the fiscal year ended July 31, 2001 and (iv) all Quarterly Reports on Form 10-Q filed since July 31, 1999, and IDT will make available to each Holder (including, without limitation, by filing with the SEC via EDGAR) true, correct and complete copies of any additional documents filed with the SEC by IDT after the date of this Agreement, including, without limitation, any amendment to any such documents (collectively, the “IDT SEC Documents”). As of their respective filing dates, the IDT SEC Documents (including all financial statements, exhibits and schedules to and documents incorporated by reference in the IDT SEC Documents) (i) complied or, with respect to those not yet filed, will comply in all material respects with the requirements of the Exchange Act and (ii) did not, or, with respect to those not yet filed, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated or necessary to make the statements made in the IDT SEC Documents, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed IDT SEC Document.

(b) The financial statements of IDT, including the notes to the financial statements, included or incorporated by reference in the IDT SEC Documents (the “IDT Financial Statements”) were complete and correct in all material respects as of their respective filing dates, complied as to form in all material respects with applicable accounting requirements and with the applicable published rules and regulations of the SEC as of their respective dates, and have been prepared in accordance with generally accepted accounting procedures applied on a basis consistent throughout the periods indicated (except as may be indicated in the related notes or, in the case of unaudited statements, included in Quarterly Reports on Forms 10-Q). The IDT Financial Statements fairly present the consolidated financial condition and operating results of IDT and its subsidiaries at the dates and during the periods indicated in the IDT Financial Statements (subject, in the case of unaudited statements, to normal, recurring year-end adjustments). There has been no change in IDT accounting policies other than as required by the FASB guidelines.

5.9 Absence of Undisclosed Liabilities. IDT has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (a) those recorded or otherwise disclosed in the IDT Financial Statements, (b) those incurred in the ordinary course of business and not required to be set forth in the IDT Financial Statements in material compliance with generally accepted accounting procedures, (c) those incurred in the ordinary course of business since the date of the most recent IDT Financial Statements filed as part of the IDT SEC Documents and consistent with past practice and (d) those incurred in connection with the execution of this Agreement or incurred in connection with the transactions contemplated by this Agreement.

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5.10 Absence of Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before or, to the knowledge of the executive officers of IDT, threatened by, any Governmental Authority against IDT or any of its subsidiaries or any of their respective properties or any of their respective officers or directors (in their capacities as such) that, if determined in a manner adverse to IDT or its subsidiaries would, individually or in the aggregate, have a material adverse effect on IDT. There is no judgment, decree or order against IDT or any of its subsidiaries or, to the knowledge of the executive officers of IDT, any of their respective directors or officers (in their capacities as such) that seeks to prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or has, individually or in the aggregate, a material adverse effect on IDT.

ARTICLE VI

Covenants of the Parties

6.1 Closing. Each Party will take all reasonable action necessary or advisable to cause the Closing to occur as promptly as practicable, including without limitation, making any required filing with the Court to obtain its approval of the transaction contemplated hereby.

6.2 Actions Pending Closing. Prior to the Closing or the termination of this Agreement, no Party shall take any action that would be reasonably likely to delay the Closing or make the Closing less likely to occur, including, without limitation, any transfer of the Units or placing, or permitting to exist, any Encumbrance on the Units or IDT Shares. The Company will not consent to or record on its records any such transfer of the Units in contravention of this Section 6.2.

6.3 Restricted Stock. The Seller acknowledges and agrees that, until their registration, the IDT Shares will constitute restricted securities and will not transfer such shares without registration, or exemption therefrom, under the Securities Act and any applicable state or foreign securities laws.

6.4 Further Assurances. Subject to the terms and conditions of this Agreement, each Party will use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws to consummate or implement expeditiously the intent of the Parties hereto, namely, without limiting the generality of the foregoing, to transfer the Units to the Buyer and to transfer the IDT Shares to the Seller, in each case, free and clear of any Encumbrances.

ARTICLE VII

Conditions to Closing

7.1 Conditions to the Obligation of the Buyer. The obligations of the Buyer hereunder at the Closing shall be subject to and conditioned on the following:

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(a) The representations and warranties of the Seller contained herein shall be true and accurate in all material respects.

(b) The Seller shall have performed and complied, in all material respects, with each and every covenant, agreement and condition required by this Agreement to performed or complied with by it prior to or on the Closing Date (including the execution and delivery of the items set forth in Section 2.7(a) hereof).

(c) No order of any court or administrative agency shall be in effect which restrains or prohibits the transactions contemplated hereby, and no suit, action, investigation, inquiry or proceeding by any Governmental Authority, or legal or administrative proceeding by any person or entity, shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby.

(d) The Court shall have issued a final and nonappealable order approving the transaction contemplated hereunder.

7.2 Conditions to the Obligation of the Seller. The obligations of the Seller hereunder at the Closing shall be subject to and conditioned on the following:

(a) The representations and warranties of the Buyer and IDT, respectively, contained herein shall be true and accurate in all material respects.

(b) Each of the Buyer and IDT, respectively, shall have performed and complied, in all material respects, with each and every covenant, agreement and condition required by this Agreement to performed or complied with by it prior to or on the Closing Date (including the execution and delivery of the items set forth in Section 2.7(b) and (c) hereof).

(c) No order of any court or administrative agency shall be in effect which restrains or prohibits the transactions contemplated hereby, and no suit, action, investigation, inquiry or proceeding by any Governmental Authority, or legal or administrative proceeding by any person or entity, shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby.

(d) The Court shall have issued a final and nonappealable order approving the transaction contemplated hereunder .

ARTICLE VIII

Termination

8.1 Right of Termination. This Agreement may be terminated at any time prior to the Closing as follows

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(a) by mutual written consent of the Seller and the Buyer;

(b) by either the Seller or the Buyer by notice of termination given to the other if the Closing shall not have occurred on or before April 30, 2002 and if the failure to consummate the Closing on or before such date did not result from the failure by the Party seeking to terminate this Agreement to fulfill any undertaking or commitment provided for herein that is required to be fulfilled prior to or at the Closing; or

(c) by the Seller or the Buyer if there shall be in effect a final nonappealable order of a Governmental Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; it being agreed that the Parties shall promptly appeal any adverse determination which is not nonappealable (and pursue such appeal with reasonable diligence).

8.2 Effect of Termination. In the event of termination of this Agreement as permitted by Section 8.1, all obligations and liabilities of the Parties shall terminate as of the date on which notice of termination is given pursuant to Section 8.1; provided, however, that the obligations of the Parties set forth in Sections 2.4(k) and 9.11 hereof shall survive any such termination and shall be enforceable hereunder; provided, further, however, that nothing in this Section 8.2 shall relieve the Buyer, IDT or the Seller of any liability for a breach of this Agreement.

ARTICLE IX

Miscellaneous

9.1 No Third-Party Beneficiaries. Except as otherwise set forth in Section 9.4 hereof, this Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

9.2 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they are related in any way to the subject matter hereof.

9.3 Survival. The representations and warranties of the Seller, the Buyer and IDT contained in Article III, Article IV and Article V, respectively, shall survive until such date that is one year from the date of the Closing; provided, that the representations as to title and valid issuance contained in Sections 3.6 and Section 5.7, respectively, and the representations as to broker’s fees contained in each of Section 3.5, Section 4.5 and Section 5.5 shall survive indefinitely.

9.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns, including any Holder. No Party may assign either this Agreement or

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any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, that the Buyer may assign its rights and obligations hereunder to an affiliate without the consent of the Holders; and provided, further, that the Seller may transfer all or a portion of the Registrable Securities to a Holder that is the permitted transferee of Registrable Securities and has agreed in writing to be bound by this Agreement in accordance with Section 2.4(l), and such Holder shall be entitled to all of the rights and be bound by all of the obligations of Holders hereunder.

9.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

9.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

9.7 Notices. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if it is sent by hand delivery, registered or certified mail, return receipt requested postage prepaid, by overnight express service, or by facsimile, and addressed to the intended recipient as set forth below:

If to the Seller:	To the address set forth on the signature page hereof
With a copy to:	Weil, Gotshal & Manges LLP
	767 Fifth Avenue
	New York, NY 10153
	Attn: Stephen Karotkin, Esq.
	Fax: (212) 310-8007
If to the Buyer:	Dipchip Inc.
	c/o IDT Corporation
	520 Broad Street
	Newark, New Jersey
	Attn: Motti Lichtenstein
	Fax: (973) 438-1503
With a copy to:	McDermott, Will & Emery
	50 Rockefeller Plaza
	New York, New York 10020-1605
	Attn:    Mark S. Selinger, Esq.
	David C. Albalah, Esq.
	Fax: (212) 547-5444

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If to IDT:	IDT Corporation
	520 Broad Street
	Newark, New Jersey
	Attn: Motti Lichtenstein
	Fax: (973) 438-1503
With a copy to:	McDermott, Will & Emery
	50 Rockefeller Plaza
	New York, New York 10020-1605
	Attn:    Mark S. Selinger, Esq.
	David C. Albalah, Esq.
	Fax: (212) 547-5444

or to such other address or addresses as any Party may designate to the other by like notice as hereinabove set forth. Any notice given hereunder shall be deemed given and received on the date of hand delivery or transmission by facsimile, or three days after deposit with the United States Postal Service, or one day after delivery to an overnight express service for next day delivery, as the case may be.

9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

9.9 Amendments and Waivers. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer, IDT and Holders holding at least two-thirds (2/3) of the Registrable Securities. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

9.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

9.11 Expenses. Except as otherwise provided herein, each of the Parties will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

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9.12 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation.

9.13 Jurisdiction. Each of the Parties agrees that jurisdiction and venue in any action brought by any Party pursuant to this Agreement shall properly lie in the Court. By execution and delivery of this Agreement, each of the Parties irrevocably submits to the jurisdiction of the Court for itself or himself and in respect of its or his property with respect to such action. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN THE COURT, AND HEREBY WAIVE ANY OBJECTION THAT THE COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. The Parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by the Court shall constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court.

9.14 Court Approval. This Agreement is subject to the approval of the Court.

[signature page follows]

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IN WITNESS WHEREOF, the Parties hereto have causal their respective authorized officers to execute this Agreement on the date first above written.

/s/ Christine C. Schubert
Christine C. Schubert, chapter 7 Trustee, on behalf of WCI CAPITAL CORP.
Address:
	Attn:  Fax:

DIPCHIP, INC.
By:
	Name: Title:
IDT CORPORATION
By:
	Name: Title:
WINSTAR HOLDINGS, LLC.
By:
	Name: Title:

By execution below, the undersigned consents and

agrees to the entry into and consummation of this

Unit Purchase Agreement and the transfer of the

Units contemplated hereunder.

IDT ADVANCED COMMUNICATION

SERVICES, LLC

By:
	Name: Title:

IN WITNESS WHEREOF, the Parties hereto have caused their respective authorized officers to execute this Agreement on the date first above written.

WCI CAPITAL CORP.
By:
Name: Title:
DIPCHIP, INC.
By:	/s/ Howard Jones
Name: Howard Jones Title:
IDT CORPORATION
By:
Name: Title:
WINSTAR HOLDINGS, LLC
By:
Name: Title:

By execution below. the undersigned consents and

agrees to the entry into and consummation of this

Unit Purchase Agreement and the transfer of the

Units contemplated hereunder.

IDT ADVANCED COMMUNICATION
SERVICES, LLC

By:

Name:

Title:

IN WITNESS WHEREOF, the Parties hereto have caused their respective authorized officers to execute this Agreement on the date first above written.

WC1 CAPITAL CORP.

By:

Name:

Title:

DIPCHIP, INC.

By:

Name:

Title:

IDT CORPORATION
By:	/s/    Ira Greenstein
Name: Ira Greenstein Title: President

WINSTAR HOLDINGS, LLC

By:

Name:

Title:

By execution below, the undersigned consents and
agrees to the entry into and consummation of this
Unit Purchase Agreement and the transfer of the
Units contemplated hereunder.

IDT ADVANCED COMMUNlCATION
SERVICES, LLC

By:

Name:

Title:

22

IN WITNESS WHEREOF, the Parties hereto have caused their respective authorized officers to execute this Agreement on the date first above written.

WC1 CAPITAL CORP.

By:

Name:

Title:

DIPCHIP, INC.

By:

Name:

Title:

IDT CORPORATION

By:

Name:

Title:

WINSTAR HOLDINGS, LLC
By:	/s/    Brian Finkelstein
Name: Brian Finkelstein Title: CEO

By execution below, the undersigned consents and

agrees to the entry into and consummation of this

Unit Purchase Agreement and the transfer of the

Units contemplated hereunder.

IDT ADVANCED COMMUNICATION

SERVICES, LLC

By:	/s/    Brian Finkelstein
Name: Brian Finkelstein   Title: CEO

23

Exhibit A

JOINDER AGREEMENT

This Joinder Agreement (this “Agreement”) is made this        day of                     , 2002, by Dipchip Inc., a Delaware corporation (the “Buyer”) in favor of Winstar Holdings, LLC, a Delaware limited liability company (the “Company”). Capitalized terms used but not defined herein have the meanings given to them in the limited liability company of the Company, dated December 19, 2001 (the “LLC Agreement”).

WHEREAS, concurrently with the execution and delivery of this Agreement to the Company, the Buyer is purchasing 50 Common Units of the Company (the “Common Units”) from WC1 Capital Corp. (the “Seller”) pursuant to a Unit Purchase Agreement; and

WHEREAS, pursuant to such Unit Purchase Agreement, the Buyer is required to execute and deliver this Agreement.

NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Buyer, intending to be legally bound, agrees as follows:

1. The Buyer hereby agrees to become a party to the LLC Agreement and be bound by all of the provisions thereof applicable to the Seller at the time of the sale of the Common Units.

2. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to its principles of conflicts of law.

IN WITNESS WHEREOF, the Buyer has signed this Agreement as of the date written above.

DIPCHIP INC.
By:
	Name: Title:

Consented to and Agreed:

WINSTAR HOLDINGS, LLC
By:
	Name: Title:

Schedule 3.1

Name of Holder	Type of Entity	Jurisdiction of Organization
WC1 Capital Corp.	corporation	Delaware

EX-10.57

Exhibit 10.57

Lock-up, Registration Rights and Exchange Agreement

LOCK-UP, REGISTRATION RIGHTS AND EXCHANGE AGREEMENT (this “Agreement”), dated as of June 6, 2000, by and between IDT Corporation, a Delaware corporation (the “Company”), and Liberty Media Corporation, a Delaware corporation (the “Investor”).

WHEREAS, the Company and the Investor have entered into a Subscription Agreement, dated as of March 24, 2000 and amended as of May 26, 2000 (the “Subscription Agreement”), pursuant to which the Investor has agreed to purchase, or cause its designee to purchase, and the Company has agreed to sell to Investor or its designee, shares (the “Investor Securities”) of the Common Stock, par value $0.01 per share, of the Company (the “Common Stock”); and

WHEREAS, it is a condition to the consummation of the Subscription Agreement that the Company and Investor enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

Section 1. Definitions. (a) For the purposes of this Agreement:

“Act” means the Securities Act of 1933, as amended.

“Affiliate” means, with respect to any person, any other person directly or indirectly controlling, controlled by or under common control with the first such person.

“Class B Common Stock” means the Class B Common Stock, par value $0.01 per share, of the Company to be authorized pursuant to the Charter Amendment referred to in Section 2.13.

“Closing” and “Closing Date” mean the date of the Closing, as such term is defined in the Subscription Agreement.

“Holder” means a holder of Registrable Securities or, unless the context otherwise requires, securities convertible into or exercisable for Registrable Securities.

“Initially Issued Number” means the total number of Investor Securities issued to the Investor at the Closing or, if applicable, the total number of shares of Class B Common Stock issuable in exchange for all of the Investor Securities if all of the initially issued Investor Securities continued to be outstanding immediately prior to the Exchange Date, in each case, as appropriately adjusted for stock splits, stock dividends, reverse stock splits and other similar events affecting the Common Stock or the Class B Common Stock.

“person” means any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity.

“register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement.

“Registrable Securities” means the Investor Securities, or the shares of Class B Common Stock for which the Investor Securities are exchanged in accordance with Section 2.13 (collectively, the “Securities”); provided, however, that such Securities shall cease to be Registrable Securities when and to the extent that (i) such Securities have been sold pursuant to an effective registration statement under the Act, (ii) such Securities have become eligible for resale pursuant to Rule 144(k) of the Act (or any similar provision then in force) or (iii) such Securities have ceased to be outstanding.

(b) Capitalized terms used and not otherwise defined in this Agreement have the meaning ascribed to them in the Subscription Agreement.

Section 2. Registration Rights.

2.1. (a) Registration Upon Demand. At any time on or after the first anniversary of the Closing Date, one or more Holders that in the aggregate beneficially own at least 20% of the Registrable Securities may make a demand that the Company effect the registration of all or part of such Holders’ Registrable Securities (a “Demand Registration”). Upon receipt of a valid request for a Demand Registration, the Company shall promptly, and in any event no later than 15 days after such receipt, notify all other Holders of the making of such demand and shall use its reasonable efforts to register under the Act as expeditiously as may be practicable the Registrable Securities which Holders have requested the Company to register in accordance with this Section 2.1. Notwithstanding the foregoing, the Company shall only be required to effect a registration if the number of Registrable Securities that the Company shall have been requested to register shall, in the aggregate, (i) represent at least 20% of the Initially Issued Number or (ii) represent all of the Registrable Securities then held by all Holders. The Holders shall together have the right to two Demand Registrations pursuant to this Section 2.1(a), provided, however, that no more than one such Demand Registration may be requested in any 12 month period.

(b) Effective Registration Statement. A registration requested pursuant to Section 2.1 (a) hereof shall not be deemed to have been effected (i) if a registration statement with respect thereto has not been declared effective by the Securities and Exchange Commission (“SEC”), (ii) if after it has become effective and prior to the date ninety (90) days after the effective date, such registration is materially interfered with by any stop order, injunction or similar order or requirement of the SEC or other governmental agency or court for any reason not attributable to the fault of any of the Holders, or (iii) the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of a Holder to perform its obligations under such underwriting agreement.

(c) Piggyback Registration. If the Company proposes to file a registration statement under the Act with respect to an offering of its equity securities for its own account or for the account of another person or entity (other than a registration statement on Form S-4 or S-

2

8 (or any substitute forms that may be adopted by the Commission)), the Company shall give written notice of such proposed filing to the Holders at the address set forth in the share register of the Company as soon as reasonably practicable (but in no event less than 7 business days before the anticipated filing date), undertaking to provide each Holder the opportunity to register on the same terms and conditions such amount of Registrable Securities as such Holder may request (a “Piggyback Registration”). Each Holder will have 5 business days after receipt of any such notice to notify the Company as to whether it wishes to participate in a Piggyback Registration (which notice shall not be deemed to be a request for a Demand Registration). If the registration statement is filed on behalf of a person or entity other than the Company, the Company will use its reasonable best efforts to have the Registrable Securities that the Holders wish to sell included in the registration statement. If the Company or the person or entity for whose account such offering is being made shall determine in its sole discretion not to register or to delay the proposed offering, the Company may, at its election, provide written notice of such determination to the Holders and (i) in the case of a determination not to effect the proposed offering, shall thereupon be relieved of the obligation to register such Registrable Securities in connection therewith and (ii) in the case of a determination to delay a proposed offering, shall thereupon be permitted to delay registering such Registrable Securities for the same period as the delay in respect of the proposed offering.

If the Registrable Securities requested to be included in the Piggyback Registration by any Holder differ from the type of securities proposed to be registered by the Company and the managing underwriter for such offering advises the Company that due to such differences the inclusion of such Registrable Securities would cause a material adverse effect on the price of the offering (a “Material Adverse Effect”), then (x) the number of such Holders’ Registrable Securities to be included in the Piggyback Registration shall be reduced to an amount which, in the opinion of the managing underwriter, would eliminate such Material Adverse Effect or (y) if no such reduction would, in the opinion of the managing underwriter, eliminate such Material Adverse Effect, then the Company shall have the right to exclude all such Registrable Securities from such Piggyback Registration, provided, that no other securities of such type are included and offered for the account of any other Person in such Piggyback Registration. Any partial reduction in number of Registrable Securities of any Holder to be included in the Piggyback Registration pursuant to clause (x) of the immediately preceding sentence shall be effected pro rata based on the ratio which such Holder’s requested securities bears to the total number of securities requested to be included in such Piggyback Registration by all persons or entities other than the Company who have the contractual right to request that their securities be included in such registration statement and who have requested that their securities be included. If the Registrable Securities requested to be included in the registration statement are of the same type as the securities being registered by the Company and the managing underwriter advises the Company that the inclusion of such Registrable Securities would cause a Material Adverse Effect, the Company will be obligated to include in such registration statement, as to each Holder, only a portion of the Registrable Securities such Holder has requested be registered equal to the ratio which such Holder’s requested securities bears to the total number of securities requested to be included in such registration statement by all persons or entities (other than any persons or entities initiating such registration request) who have the contractual right to request that their securities be included in such registration statement and who have requested their securities be included. If the Company initiated the registration, then the Company may include all of its securities in such registration statement before any such Holder’s requested securities

3

are included. If another securityholder initiated the registration, then the Company may not include any of its securities in such registration statement unless all Registrable Securities requested to be included in the registration statement by all Holders are included in such registration statement. If as a result of the provisions of this Section 2.1(c) any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested to be so included, such Holder may withdraw such Holder’s request to include Registrable Securities in such registration statement prior to its effectiveness.

2.2. Blackout Periods for Holders. If the board of directors of the Company determines in good faith that the registration of Registrable Securities pursuant to Section 2.1 (a) hereof (or the use of a registration statement or related prospectus) would be materially detrimental to the Company or its shareholders because such filing would require disclosure of material non-public information or would materially interfere with the Company’s financing plans, and therefore the board of directors determines that it is in the Company’s best interest to defer the filing of the registration statement, and promptly gives the Holders written notice of such determination in the form of a certificate signed by an executive officer of the Company following their request to register any Registrable Securities pursuant to Section 2.1(a), the Company shall be entitled to postpone the filing of the registration statement otherwise required to be prepared and filed by the Company pursuant to Section 2.1 (a) hereof for a reasonable period of time, but not to exceed 60 days (a “Demand Blackout Period”) after the date of such request, provided that the Company’s exercise of its rights under this Section 2.2 (i) shall not result in Demand Blackout Periods for more than 180 days in any 365 day period, (ii) shall not result in Demand Blackout Periods that are separated by less than 45 days and (iii) shall only be effective when and for so long as the officers and directors of the Company and other holders, if any, of registration rights with respect to the Company’s securities are similarly restricted from buying or selling securities of the Company and/or exercising their registration rights, as applicable. The Company shall promptly notify each Holder of the expiration or earlier termination of any Demand Blackout Period.

2.3. Obligations of the Company. Whenever the Company is required to effect the registration of any Registrable Securities under this Section 2, the Company shall, at its expense and as expeditiously as may be practicable:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, use reasonable efforts to keep such registration statement effective for not less than 120 days, unless all Registrable Securities included therein are earlier sold.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of applicable law with respect to the disposition of all of the Registrable Securities covered by such registration statement.

(c) Use its best efforts to qualify such Registrable Securities (i) for listing on the Nasdaq National Market or listing on the New York Stock Exchange, Inc. or (ii) if neither such quotation system or exchange is available for quotation or listing, for listing on a national

4

securities exchange selected by a majority in interest of the Holders of the Registrable Securities being registered.

(d) Furnish to the Holders of Registrable Securities registering such securities such numbers of copies of a prospectus, including a preliminary prospectus (in the event of an underwritten offering), in conformity with the requirements of applicable law, and such other documents as each such Holder may reasonably request in order to facilitate the disposition of Registrable Securities owned by it.

(e) Use reasonable efforts to register and qualify the securities covered by such registration statement under state blue sky laws in any U.S. jurisdictions in which such registration and qualification is reasonably requested by any Holder; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdictions.

(f) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form and substance as agreed to by the Company and the managing underwriter of such offering.

(g) Promptly notify the Holders in writing: (i) when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; (ii) of any request by the SEC for amendments or supplements to the registration statement or related prospectus or any written request by the SEC for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or prospectus or any amendment or supplement thereto or the initiation of any proceedings by any person for that purpose, and promptly use its reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; and (iv) of the receipt by the Company of any written notification with respect to the suspension of the qualification of any Registrable Securities for sale in any jurisdiction or the initiation or overt threat of any proceeding for such purpose.

(h) Notify the Holders in writing on a timely basis, at any time when a prospectus relating to such Registrable Securities is required to be delivered under applicable law, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and at the request of any such Holder promptly prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Upon receipt of any notice of the occurrence of any event of the kind described in the preceding sentence, each Holder will cease using such prospectus until receipt by the Holders of the copies of such supplemented or amended prospectus. If so requested by the Company, each Holder will

5

deliver to the Company any copies of such prospectus then in its possession (other than one permanent file copy). If the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective as provided in Section 2.3(a) hereof by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to the Holders such supplemented or amended prospectus.

(i) Furnish, at the request of any Holder participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as if customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in the registration, addressed to the underwriters, if any, and to the Holders participating in the registration of Registrable Securities and (ii) a “Cold Comfort” letter dated as of such date, from the independent certified public accountants to the underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders participating in the registration, addressed to the board of directors of the Company, to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders participating in the registration of Registrable Securities.

(j) Use reasonable efforts to cause the transfer agent to remove restrictive legends on certificates representing the securities covered by such registration statement, as the Company determines to be appropriate, upon advice of counsel.

(k) Prepare and file with the SEC, promptly upon the request of any such Holders, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for such Holders, is required under the Act or the rules and regulations thereunder in connection with the distribution of the Registrable Securities by such Holders.

(l) Make available for inspection by any Holder of such Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the “Inspectors”), all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information (together with the Records, the “Information”) reasonably requested by any such Inspector in connection with such registration statement. Any of the Information that the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (i) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (ii) such Information has been made generally available to the public, (iii) as necessary to enforce a Holder’s rights under this Agreement or (iv) such Holder of Registrable Securities requiring such information agrees to enter into a confidentiality agreement in customary form and subject to customary exceptions. Each Holder of Registrable Securities shall be responsible for any breach of the foregoing covenant by any Inspector retained by or on

6

behalf of such Holder. The Holder of Registrable Securities, agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential and the Inspectors shall not disclose such Information until such action is determined.

(m) Provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement.

(n) Cooperate with each selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.

(o) During the period when the prospectus is required to be delivered under the Act, promptly file all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”).

(p) Make generally available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and the rules and regulations of the SEC thereunder.

(q) Provide a transfer agent and registrar (which may be the same entity and which may be the Company) for such Registrable Securities.

(r) Use its reasonable efforts to take all other steps necessary to effect the registration of such Registrable Securities pursuant to the terms contemplated hereby.

2.4. Furnish Information.

(a) It shall be a condition precedent to the obligation of the Company to include any Registrable Securities of any Holder in a registration statement pursuant to this Section 2 that the Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, any other securities of the Company held by it, and the intended method of disposition of such Registrable Securities as shall be required to effect the registration of the Registrable Securities held by such Holder. Any such information shall be provided to the Company within any reasonable time period requested by the Company.

(b) Each Holder shall notify the Company, at any time when a prospectus is required to be delivered under applicable law, of the happening of any event as a result of which the prospectus included in the applicable registration statement, as then in effect, in each case only with respect to information provided by such Holder, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Such Holder shall immediately upon the happening of any such event cease using such prospectus. Any other Holders shall cease using such prospectus immediately upon receipt of notice from the Company to that effect. If so requested by the Company, each Holder shall promptly return to the

7

Company any copies of such prospectus in its possession (other than one permanent file copy). The Company shall promptly prepare and furnish to each such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the offerees of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

2.5. Expenses of Registration. The Company shall bear and pay all reasonable expenses incurred in connection with any registration, filing or qualification of Registrable Securities pursuant to this Section 2, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, but excluding underwriting discounts and commissions relating to the Registrable Securities. The Company also shall be required to pay and bear the reasonable legal fees of not more than one counsel for the Holders in an amount not to exceed $50,000 in connection with any registration.

2.6. Underwriting Requirements. In connection with any underwritten offering of a Holder’s Registrable Securities, the Company shall not be required under Section 2.3 to register any of such Registrable Securities in connection with such underwritten offering unless the Company consents to the underwriters selected by the Holders participating in the registration (which consent shall not be unreasonably withheld) and the Company shall be required to register Registrable Securities only in such quantity as the lead managing underwriter determines, in its good faith discretion, will not jeopardize the success of the offering by the Company. To the extent that the lead managing underwriter will not permit the registration of all of the Registrable Securities sought to be registered, in the case of a registration pursuant to Section 2.1(a), the Registrable Securities to be included shall be apportioned among the Holders on a pro rata basis (based on the number of Securities proposed to be registered by each); provided, however, that the right of the underwriters to exclude Registrable Securities from the registration and underwriting as described above shall be restricted such that all securities that are not Registrable Securities and all securities that are held by persons who are employees or directors of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded. Those Registrable Securities and other securities that are excluded from the underwriting by reason of the managing underwriter’s marketing limitation and all other Registrable Securities not originally requested to be so included shall not be included in such registration and shall be withheld from the market by the Holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines necessary to effect the underwritten public offering. No Holder of Registrable Securities shall be entitled to participate in an underwritten offering unless such Holder enters into, and performs its obligations under, one or more underwriting agreements and any related agreements and documents (which may include an escrow agreement and/or a power of attorney with respect to the disposition of the Registrable Securities), in the form that such Holder shall agree to with the lead managing underwriter of the transaction. If any Holder disapproves of the terms of any underwriting, it may elect, prior to the execution of any underwriting agreement, to withdraw therefrom by written notice to the Company and the lead managing underwriter.

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2.7. Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

2.8. Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 2:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder and each person, if any, who controls such Holder within the meaning of the Act and the 1934 Act and their respective directors, officers, partners, stockholders, members, employees, agents and representatives and each person, if any, who controls such Holder within the meaning of the Act and the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, or liabilities joint or several) to which they may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, are based upon or relate to (collectively, a “Violation”) (x) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary or final prospectus contained therein or any amendments or supplements thereto or (y) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; or (z) any violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law in connection with the offering covered by any registration statement; and the Company will pay to each Indemnified Person any reasonable legal or other expenses incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in strict conformity with written information furnished by a Holder expressly for use in connection with such registration or is caused by any failure by the Holder to deliver a prospectus or preliminary prospectus (or amendment or supplement thereto) as and when required under the Act after such prospectus has been timely furnished by the Company.

(b) To the extent permitted by law, each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, and each person, if any, who controls the Company within the meaning of the Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation is caused by (x) any untrue statement or alleged untrue statement contained in, or by any omission or alleged omission from, information furnished in writing to the Company by the Holder specifically and expressly for use in any such registration statement or prospectus but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by such Holder specifically for use in the preparation thereof or (y) any failure by the Holder to deliver a

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prospectus or preliminary prospectus (or amendment or supplement thereto) as and when required under the Securities Act after such prospectus has been timely filed by the Company. Such Holder will pay any reasonable legal or other expenses incurred by any Indemnified Person pursuant to this Section 2.8(b) in connection with investigating or defending any such loss, claim, damage, liability or action; provided that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, further, that in no event shall any indemnity under this Section 2.8(b) exceed the net proceeds from the offering received by such Holder upon its sale of Registrable Securities included in the registration statement.

(c) Promptly after receipt by an Indemnified Person under this Section 2.8 of notice of the commencement of any action (including any governmental action), such Indemnified Person will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the indemnifying parties; provided that an Indemnified Person shall have the right to retain separate counsel, and the reasonable fees and expenses of such counsel shall be paid by the indemnifying party if representation of such Indemnified Person by the counsel retained by the indemnifying party would be inappropriate (in the opinion of the Indemnified Person) due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding, provided that the indemnifying party in such event shall not be responsible for the fees of more than one separate firm of attorneys (in addition to any local counsel) for all Indemnified Persons that may be represented without conflict by one counsel. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the Indemnified Person under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any Indemnified Person otherwise than under this Section 2.8.

(d) If the indemnification provided for in this Section 2.8 is held by a court of competent jurisdiction to be unavailable to an Indemnified Person with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such Indemnified Person hereunder, agrees to contribute to the amount paid or payable by such Indemnified Person as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the Indemnified Person on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the Indemnified Person shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the Indemnified Person and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of the

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Act) shall be entitled to contribution hereunder from any person who was not guilty of such fraudulent misrepresentation. In no event shall a Holder’s obligation to contribute pursuant to this Section 2.8(d) exceed the net proceeds from the offering received by such Holder upon its sale of Registrable Securities included in the registration statement.

(e) The obligations of the Company and the Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities under a registration statement pursuant to this Section 2.

2.9. Lock-up and Permitted Transfers. At any time prior to the first anniversary of the Closing Date, Investor shall not offer, sell, contract to sell or otherwise dispose of any of the Investor Securities or any interest therein without the written consent of the Company; provided, however, that the Investor without the Company’s consent shall be permitted (a) to transfer all or part of the Investor Securities (i) to the Company, as contemplated by Section 2.12 or otherwise; (ii) to any other member of the Liberty Group (a “Permitted Transferee”) provided that such member agrees with the Company to be bound hereby with the same effect as if it were named herein in lieu of the Investor; and (iii) in any transaction in which holders of Common Stock generally participate or have the opportunity to participate pro rata, including, without limitation, a merger, consolidation or binding share exchange involving the Company or a tender or exchange offer for shares of the Company’s capital stock; and (b) to pledge the Investor Securities to secure bona fide indebtedness, provided that the transferee in the event of foreclosure agrees with the Company to be bound hereby with the same effect as if it were named herein in lieu of the Investor. Without limiting any other remedy that may be available to the Company, failure of the Investor or any Permitted Transferee to comply with the provisions of this Section 2.9 shall result in termination of the Company’s obligations under Section 2.1 of this Agreement with respect to the affected Investor Securities.

2.10. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee of Registrable Securities (other than a competitor of the Company or any of its subsidiaries, except that neither AT&T Corp. nor any of its Affiliates shall be deemed a competitor for this purpose), provided that, in the case of a transfer prior to the first anniversary of the Closing Date, such transferee is a Permitted Transferee; and provided, further, that (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree with the Company in writing to be subject to the terms and conditions of this Agreement to the extent then applicable. No other assignment of the Investor’s or any Holder’s rights hereunder shall be permitted, and the attempted or purported assignment in violation of this provision shall be void.

2.11. Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC that permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:

(a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Act, at all times;

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(b) File with the SEC, in a timely manner, all reports and other documents required to be filed by the Company under the Act and the 1934 Act; and

(c) So long as a Holder owns any Registrable Securities, furnish such Holder upon request a written statement by the Company as to its compliance with the reporting requirements of SEC Rule 144 or any similar or analogous rule promulgated under the Act, and of the 1934 Act, a copy of the most recent annual or quarterly report of the Company and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

2.12 Exchange. (a) The Company shall use its best efforts to ensure that no later than the first anniversary of the Closing Date it shall have complied with its covenant set forth in Section 2.13 and issued, registered, qualified under applicable state securities laws, and caused to be listed or quoted on the applicable of the Nasdaq National Market or The New York Stock Exchange or such other national securities exchange or national securities association as is the then principal market on which the Common Stock is listed or quoted, an aggregate number of shares of Class B Common Stock at least equal to the number of shares of Common Stock then listed or quoted on such market (“Equivalent Float”). The date as of which the Equivalent Float is first achieved is referred to as the “Trigger Date”. The Company shall notify the Investor of the Trigger Date promptly and in any event within 2 business days after its occurrence.

(b) The Investor Securities shall be exchanged for shares of Class B Common Stock at the Exchange Rate (as defined below) effective immediately prior to the close of business on the trading day (the “Automatic Exchange Date”) immediately following the expiration of the period of 60 consecutive trading days commencing with the Trigger Date, provided that such exchange shall not be effected unless the Trigger Date occurs on or prior to the first anniversary of the Closing. At any time following the first anniversary of the Closing, but subject to the Trigger Date having occurred and not earlier than the 30th trading day following the Trigger Date, the Investor may deliver a written notice to the Company requesting it to exchange its Investor Securities for shares of Class B Common Stock at the Exchange Rate, in which event such exchange shall be effected immediately prior to the close of business on the trading day (the “Elective Exchange Date”, and together with the Automatic Exchange Date if the Trigger Date occurs prior to the first anniversary of the Closing, the “Exchange Date”) immediately following the expiration of the period of 30 consecutive trading days commencing with the trading day on which such notice from the Investor is given to the Company.

(c) On the Exchange Date or as soon as possible thereafter, the Investor shall surrender the certificate or certificates for the Investor Securities, duly endorsed or assigned to the Company or in blank, at the Company’s address for notices as specified in Section 3.5. The Investor Securities shall be deemed to have been exchanged immediately prior to the close of business on the Exchange Date in accordance with the foregoing provisions, and the person or persons entitled to receive the Class B Common Stock issuable upon such exchange shall be treated for all purposes as the recordholder or holders of such Class B Common Stock at such time.

(d) As promptly as practicable on or after the Exchange Date, the Company shall issue and deliver at such office a certificate or certificates for the number of full shares of

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Class B Common Stock issuable upon such exchange based on the Exchange Rate, as defined below, together with a cash payment in lieu of any fraction of a share of Class B Common Stock (based on the same fraction of the price determined pursuant to clause (y) of the definition of Exchange Rate below), to the person or persons entitled to receive the same.

The “Exchange Rate” shall be the number of shares of Class B Common Stock to be delivered in exchange for each share of Common Stock surrendered by the Investor. The Exchange Rate shall be equal to the number obtained by dividing (x) the Average Market Price per share of Common Stock for the 30 consecutive trading days ending on the trading day immediately preceding the Exchange Date by (y) the Average Market Price per share of Class B Common Stock for the 30 consecutive trading days ending on the trading day immediately preceding the Exchange Date. “Average Market Price” of a share of Common Stock or Class B Common Stock, as applicable, means the average (rounded to the nearest 1/10,000) of the volume weighted averages (rounded to the nearest 1/10,000) of the trading prices of the applicable security on the principal market on which shares of the applicable security are then listed or quoted (whether the Nasdaq National Market, The New York Stock Exchange or another national securities exchange or association) as reported by Bloomberg Financial Markets (or such other source as the Investor and the Company shall agree) for the relevant 30 trading day period.

(e) The Company shall not declare a dividend or make a distribution on, or reclassify, subdivide or combine, the Class B Common Stock or the Common Stock or take any other action with respect to the Class B Common Stock or the Common Stock of the kind that would typically require an adjustment to the conversion price or conversion rate of a convertible security, if the “ex” date, record date, payment date or effective date for such event would occur during the period during which the Exchange Rate is established, and will not effect repurchases of Class B Common Stock or Common Stock in the market, or announce its intention to effect repurchases of any such securities, during such period. The Investor will not effect market purchases of the Common Stock or Class B Common Stock during the period the Exchange Rate is established, provided, in the case of the period related to the Automatic Exchange Date, that it has been notified of the occurrence of the Trigger Date.

2.13 Amendment to Restated Certificate of Incorporation. As soon as practicable after the execution of this Agreement, the Company and its Board of Directors shall:

(a) Take all action necessary in accordance with applicable law, the Company’s Restated Certificate of Incorporation and the Company’s By-laws to obtain the requisite approval of the Company’s stockholders for the adoption of the Certificate of Amendment to the Company’s Restated Certificate of Incorporation (the “Charter Amendment”), in the form annexed hereto as Exhibit A, which shall be authorized by the Board of Directors to, among other things, establish the terms of the Class B Common Stock; and

(b) File the Charter Amendment with the Secretary of State of the State of Delaware.

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Section 3. Miscellaneous.

3.1 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Nothing contained herein shall be construed as permitting any transfer of any securities of the Company in violation of any applicable law or agreement.

3.2 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. The Investor and the Company hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby. The Investor and the Company irrevocably waive, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

3.3 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

3.4 Captions and Headings. The captions and headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

3.5 Notices. Unless otherwise provided, any notice or other communication required or permitted to be given or effected under this Agreement shall be in writing and shall be deemed effective upon (i) personal or facsimile delivery to the party to be notified, (ii) one business day after deposit with an internationally recognized courier service, delivery fees prepaid, or (iii) three business days after deposit with the U.S. mail, return-receipt requested, postage prepaid, and in each case, addressed to the party to be notified at the following respective addresses, or at such other addresses as may be designated by written notice; provided that any notice of change of address shall be deemed effective only upon receipt.

If to the Company:

IDT Corporation

520 Broad Street

Newark, New Jersey 07102

Attn: Hal Brecher

Fax: (201) 928-2885

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with a copy to:

Sullivan & Cromwell

125 Broad Street

New York, New York 10004

Attn: Robert S. Risoleo

Fax: (212) 558-1600

If to the Investor:

Liberty Media Corporation

9197 South Peoria Street

Englewood, Colorado 80112

Attn: Legal Department

Telephone: (720) 875-5400

Fax: (720) 875-5382

with a copy to:

Baker Botts L.L.P.

599 Lexington Avenue

New York, New York 10022

Attn: Elizabeth M. Markowski

Telephone: (212) 705-5000

Fax: (212) 705-5125

3.6 Amendments and Waivers. The provisions of Sections 2.9, 2.12 and 2.13 of this Agreement and the provisions of this sentence may be amended, and the observance of any such provision may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of the Company and the Investor. The remaining provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained written consent of Holders owning in the aggregate at least S 1 of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure.

3.7 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

3.8 Entire Agreement. This Agreement (together with the agreements referenced herein) contains the entire understanding of the parties hereto with respect to the subject matter contained herein, and supersedes and cancels all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. There are no restrictions, promises, representations, warranties, agreements or undertakings of

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any party hereto with respect to the matters contemplated hereby, other than those set forth herein or made hereunder.

3.9 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR THE SUBJECT MATTER HEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION 3.9 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.

[Signatures on the following page.]

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IN WITNESS WHEREOF, the parties have executed this Lock-up, Registration Rights and Exchange Agreement as of the date first above written.

IDT CORPORATION
By:
	Name:   Title:

LIBERTY MEDIA CORPORATION
By:	/s/ Charles Y. Tanabe
	Name:  Charles Y. Tanabe Title:    Senior Vice President

17

IN WITNESS WHEREOF, the parties have executed this Lock-up, Registration Rights and Exchange Agreement as of the date first above written.

IDT CORPORATION
By:	/s/    Howard Jonas
	Name:  Howard S. Janas Title:    Chief Executive Officer

LIBERTY MEDIA CORPORATION
By:
	Name:   Title:

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EXHIBIT A

FORM OF CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE

OF INCORPORATION OF IDT CORPORATION

19

CERTIFICATE OF AMENDMENT

TO THE

RESTATED CERTIFICATE OF INCORPORATION

OF IDT CORPORATION

(pursuant to Section 242 of the Delaware General Corporation Law)

IDT Corporation, a Delaware corporation, hereby certifies as follows:

1. The name of the corporation is IDT Corporation (hereinafter the “Corporation”).

2. The Corporation’s Certificate of Incorporation was initially filed with the Secretary of State of the State of Delaware on December 22, 1995 and a Restated Certificate of Incorporation was filed on February 7, 1996.

3. The Restated Certificate of Incorporation of the Corporation is hereby amended by deleting the preamble of Article Fourth thereof and replacing it with the following:

“FOURTH: The aggregate number of shares of all classes of capital stock which the Corporation shall have the authority to issue is two hundred and forty five million (245,000,000) shares, consisting of (a) 100,000,000 shares of common stock, par value $0.01 per share (“Common Stock”), (b) 35,000,000 shares of Class A Common Stock, par value $0.01 per share (the “Class A Stock”), (c) 100,000,000 shares of Class B Common Stock, par value $0.01 per share (the “Class B Stock”, and collectively, such Common Stock, Class A Stock and Class B Stock are referred to herein as the “Common Shares”), and (d) 10,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”).”

4. The Restated Certificate of Incorporation of the Corporation is hereby further amended by deleting Sections 1(h), 2(a), 2(b), 2(c), 2(d), 2(e)(6) and 2(f) of Article Fourth and replacing them with the following:

“1. Preferred Stock

(h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payments of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, the Common Stock, the Class A Stock, the Class B Stock or shares of stock of any other class or any other series of this class;”

“2. Common Stock, Class A Stock and Class B Stock

(a) General. Except as hereinafter expressly set forth in Section 2, and subject to the rights and preferences of the holders of Preferred Stock at any time outstanding, the Class A Stock, Class B Stock and the Common Stock, all of which are classes of common stock, shall have the same rights and privileges and shall rank equally, share ratably and be identical in respects as to all matters, including rights in liquidation.

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(b) Voting Rights. Except as otherwise provided in this Restated Certificate of Incorporation or as expressly provided by law, and subject to any voting rights provided to holders of Preferred Stock at any time outstanding, the Common Shares have exclusive voting rights on all matters requiring a vote of the Corporation.

The holders of Common Stock shall be entitled to one vote per share on all matters to be voted on by the stockholders of the Corporation. The holders of Class A Stock shall be entitled to three votes per share on all matters to be voted on by the stockholders of the Corporation. The holders of Class B Stock shall entitled to one-tenth (1/10) of a vote per share on all matters to be voted on by the stockholders of the Corporation.

Except as otherwise provided in this Restated Certificate of Incorporation or as required by law, and subject to any voting rights provided to holders of Preferred Stock at any time outstanding, the holders of shares of Class A Stock, the holders of shares of Class B Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(c) (1) Dividends and Distributions. Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Restated Certificate of Incorporation, as it may be amended from time to time, holders of Class A Stock, holders of Class B Stock and holders of Common Stock shall be entitled to receive such dividends and other distributions in cash, in property or in shares of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor; provided. however, that no cash, property or share dividend or distribution may be declared or paid on the outstanding shares of any of the Class A Stock, the Class B Stock or the Common Stock unless an identical per share dividend or distribution is simultaneously declared and paid on the outstanding shares of the other classes of common stock; provided, further. however, that a dividend of shares may be declared and paid in Class A Stock to holders of Class A Stock, in Class B Stock to holders of Class B Stock and in Common Stock to holders of Common Stock if the number of shares paid per share to holders of Class A Stock, to holders of Class B Stock and to holders of Common Stock shall be the same. If the Corporation shall in any manner subdivide, combine or reclassify the outstanding shares of Class A Stock, Class B Stock or Common Stock, the outstanding shares of the other classes of common stock shall be subdivided, combined or reclassified proportionately in the same manner and on the same basis as the outstanding shares of Class A Stock, Class B Stock or Common Stock, as the case may be, have been subdivided, combined or reclassified.

(2) Consideration in Merger and Similar Transactions. The Corporation shall not be a party to a merger, consolidation, binding share exchange, recapitalization, reclassification or similar transaction (whether or not the Corporation is the surviving or resulting entity) (an “Extraordinary Transaction”),

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unless the per share consideration, if any, that the holders of Common Stock and Class B Stock receive in connection with such Extraordinary Transaction or are entitled to elect to receive in such Extraordinary Transaction is the same as the per share consideration that the holders of the other of such classes of common stock are entitled to receive or elect to receive in connection with the Extraordinary Transaction.

(d) Optional Conversion.

(1) The shares of Common Stock and Class B Stock are not convertible into or exchangeable for shares of Class A Stock.

(2) Each share of Class A Stock may be converted, at any time and at the option of the holder thereof, into one fully paid and nonassessable share of Common Stock.

(3) Each share of Class B Stock may be converted, at any time and at the option of the Corporation, into one fully paid nonassessable share of Common Stock provided that all shares of Class B Stock are so converted.”

“(e) Mandatory Conversion.

(6) This Section 2(e) may not be amended without the affirmative vote of holders of the majority of the shares of the Class A Stock, the affirmative vote of holders of the majority of the shares of the Class B Stock and the affirmative vote of holders of the majority of the shares of the Common Stock, each voting separately as a class.”

“(f) Conversion Procedures.

(1) Each conversion of shares pursuant to Section 2(d) hereof will be effected by the surrender of the certificate or certificates, duly endorsed, representing the shares to be converted at the principal office of the transfer agent of the Class A Stock, in the case of conversion pursuant to Section 2(d)(2), or of the Class B Stock, in the case of conversion pursuant to Section 2(d)(3), at any time during normal business hours, together with a written notice by the holder stating the number of shares that such holder desires to convert and the names or name in which he wishes the certificate or certificates for the Common Stock to be issued. Such conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered, and at such time, the rights of any such holder with respect to the converted shares of such holder will cease and the person or persons in whose name or names the certificate or certificates for shares are to be issued upon such conversion will be deemed to have become the holder or holders of record of such shares represented thereby.

Promptly after such surrender, the Corporation will issue and deliver in accordance with the surrendering holder’s instructions the certificate or certificates for the Common Stock issuable upon such conversion and a certificate representing any Class A Stock, in the case of conversion pursuant to Section 2(d)(2) which was represented by the certificate or

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certificates delivered to the Corporation in connection with such conversion, but which was not converted.

(2) The issuance of certificates upon conversion of shares pursuant to Section 2(d) hereto will be made without charge to the holder or holders of such shares for any issuance tax (except stock transfer tax) in respect thereof or other costs incurred by the Corporation in connection therewith.

(3) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or its treasury shares, solely for the purpose of issuance upon the conversion of the Class A Stock and the Class B Stock, such number of shares of Common Stock as may be issued upon conversion of all outstanding Class A Stock and the Class B Stock.

(4) Shares of the Class A Stock and Class B Stock surrendered for conversion as above provided or otherwise acquired by the Corporation shall be cancelled according to law and shall not be reissued.

(5) All shares of Common Stock which may be issued upon conversion of shares of Class A Stock and Class B Stock will, upon issue, be fully paid and nonassessable.”

5. The Restated Certificate of Incorporation of the Corporation is hereby further amended by deleting the first sentence to Article Fifth and replacing it with the following:

“FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than three (3) and not. more than seventeen (17) directors, the .exact number of which shall be fixed from time to time by the Board of Directors.”

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed on its behalf this              day of             , 2000.

IDT CORPORATION
By:
	Name:   Title:

24

EX-10.58

Exhibit 10.58

Mr. Charles H.F. Garner 125 East 72nd Street New York, NY 10021 April 22, 2002

Dear Charles:

This letter outlines the agreement that we have reached concerning your separation of employment from IDT Corporation (“IDT” or the “Corporation”), and its subsidiaries and affiliates of March 18, 2002.

1. As of the close of business on March 4, 2002 (the “Separation Date”), you no longer have any work responsibilities at IDT and do not have (and will not represent that you have) any authority to act on behalf of IDT or to bind the Corporation or any of its subsidiaries or affiliates in any fashion: Concurrent with your execution of this Agreement, you shall execute and deliver your formal resignation as an executive officer and/or director of IDT, IDT Ventures, Inc. and Winstar Holdings, LLC and its subsidiaries.

2. All options to purchase shares of common or Class B common stock of IDT presently held by you shall vest immediately. The following table confirms the outstanding options presently held by you:

Grant Number	Class of Stock	Number of Options Granted	Exercise Price
96-534	Common	50,000	$10.34375
96-534	Class B Common	50,000	$10.34375
96B326	Class B Common	160,000	$8.8515
12/01	Class B Common	50,000	$12.06

Such options may be sold by you for a period of five (5) years at any time to time in accordance with applicable law. Such options shall terminate on March 17, 2007.

3. The options to purchase 100,000 shares of the low vote common stock of IDT Telecom. Inc. (“IDTT”) which were granted to you on August 1, 2001 shall vest immediately. Such options will become exercisable on the occurrence of an Initial Public Offering of IDT stock and shall remain exercisable for a period of three years from such date after which time the options will terminate. In the event, however, that such options shall be redeemed or otherwise modified by

IDTT, your options shall be treated in the same manner as the options held by senior executives of IDTT.

4. IDT shall make a loan to you of $1,000,000, which shall accrue simple interest at the rate equal to the lowest rate permissible under applicable law without incurring additional tax obligations. Where principal of such loan is repaid (but not until then), such interest shall be payable (to the extent then accrued) on the amount so repaid. Such loan shall be secured by the IDTT options held by you and shall (other than the security interest in such options) be non-recourse to you personally or any of your assets. Such loan shall be repaid with any cash proceeds received by you from time to time from the exercise of your IDTT options and sale of the underlying shares.

In the event you do not exercise any of your IDTT options by the dates specified below, the unpaid portion equal to one-third (1/3) of the principal of the loan (together with any accrued interest thereon) shall be forgiven and a corresponding one-third (1/3) of your IDTT options shall be released as security for the loan and cancelled.

Date	Loan Amount to be Forgiven	Percentage of Loan
4/1/03	$333,000	33 1/3%
4/1/04	$333,000	33 1/3%
4/1/05	$334,000	33 1/3%

Notwithstanding anything to the contrary herein, the forgiveness of the loan shall not occur until IDT receives funds representing the full amount necessary to pay all applicable federal, state and local taxes and any other withholding required by law upon such forgiveness. Immediately upon the loan obligations being Forgiven by IDT, any security for the loan obligations shall become unencumbered and shall be released from security for the loan obligations.

5. Notwithstanding any prior agreements or promises, we shall have no obligation to provide to you any equity interests or options in Net2Phone, Inc. or Winstar Holdings, LLC or any of their subsidiaries or affiliates.

6. The loan previously made to you in the aggregate principal amount of $300,000 shall be forgiven on and as of the date hereof.

7. IDT shall provide you with the following additional benefits:

Bonuses: Any unpaid portion of bonuses previously awarded to you will be paid when and if such bonuses are paid to other senior executives of IDTT. As of the date hereof, no such

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	bonuses remain payable to you.
Health Insurance:	If you are not enrolled in another group health plan on the Separation Date, you will be entitled, as of that date to elect COBRA continuation coverage for a period of 18 months or until you become covered by another group health plaza, whichever occurs sooner, IDT will pay all premiums through 12/31/02 (or such earlier date upon which you notify us that you have obtained alternate insurance through an employer). Thereafter, you shall be solely responsible for payment of all medical insurance premiums.
Charitable Contributions	We shall make available to you the right to designate up to $50,000 in charitable contributions from the IDT Charitable Foundation through 12/31/03 for charitable purposes only.
Life Insurance:	IDT shall pay all premiums from time to time due on the $1,000,000 split premium life insurance policy recently provided to you by IDT.
Office:	You shall have use of a private office, secretarial staff (which shall not be dedicated exclusively to you) and your existing IDT e-mail address through 12/31/02.
Litigation:	In the event that you are at any time and from time to time required to provide testimony or participate in depositions, litigation, investigations, etc. relating to your work for DDT and its subsidiaries; IDT shall compensate you for your time preparing for and participating therein at the rate of $250 per hour, plus any actual and documented out-of-pocket costs relating thereto.

8. You hereby agree that, for a period of two (2) years from the Effective Date of this Agreement, you shall not become an employee, consultant, corporate officer

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or director of, or hold more than a 10% equity interest in, any business that derives significant revenues from competing with a core business of IDT. For purposes hereof,(a) the term “significant revenues” shall mean the greater of $50 million in revenues for the 12 fiscal months then most recently ended and 20% of its revenues for such period, (b) the term “core business of IDT” shall mean each of (i) the sale on a wholesale basis within the United States of international carrier minutes and (ii) the sale within the United States of international prepaid calling cards and (c) any equity interest held in any such business by your spouse or children shall be deemed to be held by you for purposes of determining compliance with the 10% limitation described above. You further agree that for a period of two (2) years from the Effective Date of this Agreement, you will not,, directly or indirectly, use material non-public information obtained by you during the course of your employment with IDT to (a) influence or attempt to influence customers or suppliers of the Corporation, or any of its subsidiaries or affiliates, to divert their business to any competitor of the Corporation or in any way to cannel or change their affiliation, relationship or contracts with the Corporation, or (b) solicit or recruit an individual who is, or during the two (2) year period referenced above, an employee, consultant or independent contractor of the Corporation for the purpose of being employed by you or by a competitor of the Corporation and that you will not convey any confidential information about the Corporation or other employees of the Corporation to any other person or competitor of the Corporation.

9. You acknowledge that during the course of your employment with IDT you acquired confidential information regarding the Corporation and its affiliates, including but not limited to, information regarding each of its product or service plans, business partners or affiliates, product designs, product costs, product prices, finances, business models, competitive strategy, existing or prospective clients, marketing plans, business opportunities, personnel, research and development activities, know-how, pre-release products or service plans, computer programs, object code, source code, specifications, flow charts, process charts and other data and trade secrets (“Confidential Information”). Any information obtained by you from IDT shall be considered Confidential information irrespective of the mode of the communication (oral, written or otherwise). The Confidential Information was established at great expense, is protected as confidential information and trade secrets and provides IDT with a substantial competitive advantage of selling its products and services. You acknowledge that IDT would suffer great loss and injury if you would disclose this information or use it to compete with the Corporation. You agree to hold such Confidential Information. in strict confidence and not reveal the same, except for an information which is: a generally available to or known to the public; (b) known to you prior to your employment with IDT; (c) independently developed or obtained by you outside the scope of your employment with IDT; (d) lawfully received from a third party without any obligation of confidentiality in favor of IDT; (e) approved in writing for disclosure by IDT; or (f) required to be disclosed by you pursuant to any legal, judicial or governmental request,

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provided that you have previously provided IDT with notice of such request and cooperated with IDT in any efforts that it might make to oppose such request. The obligations regarding the Confidential Information shall survive for a period of two (2) years from the effective Date of This Agreement. All of the restricted Confidential Information described above shall remain the sole and exclusive property of IDT.

10. In consideration of the arrangements described in the preceding paragraphs, you hereby release and forever discharge IDT and its subsidiaries, affiliates, or related business entities and their x successors and assigns and any individual now or previously employed by IDT or its or their subsidiaries, affiliates, related business entities and its or their present and former officers, directors, agents, employees, predecessors, successors, assigns and representatives (whether any of the aforementioned individuals were acting as agents for IDT, or one of the other entities, or in their individual capacities except as set forth above), from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown, including, but not limited to, claims related to your employment or separation from employment; any claims for salary, bonuses (including, without limitation, severance pay, vacation pay or any benefits under the Employee Retirement Income Security Act (except for vested ERISA benefits which are not affected by this Agreement); any claim under New Jersey’s Wage and Hour Laws; any claim alleging sexual or other harassment, or discrimination based on race, color, national origin, ancestry, religion, marital status, sex, sexual orientation, citizenship status, pregnancy, medical condition, handicap or disability (as defined by the Americans with Disabilities Act or any state or local law), age, or any other unlawful discrimination (under the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Equal Pay Act, the Violence Against Women Act, the New Jersey Law Against Discrimination, or any other federal, state, or local laws): discharge in violation of New Jersey’s Conscientious Employee Protection Act or other state or federal “whistle blower” laws; discharge in violation of the federal Family and Medical Leave Act, the New Jersey Family Leave Act or other state or federal family leave laws; breach of implied or express contract, breach of promises, misrepresentation, negligence, fraud, estoppel, defamation, infliction of emotional distress, violation of public policy, retaliatory discharge, wrongful or constructive discharge, retaliation, intentional tort or for attorneys’ fees, which you, your heirs, executors, administrators, successors, and assigns now have, ever had or may hereafter have, whether known or unknown, suspected or unsuspected, from the beginning of the world through and including the Effective Date of this Agreement. It is understood and agreed that the release herein (a) is not to be construed as an admission of liability by IDT and (b) shall not impair any rights otherwise available to you with respect to the breach of this Agreement or restrict your ability to enforce the terms of this Agreement.

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11. IDT hereby irrevocably and unconditionally releases, waives and fully and forever discharges you from and against any and all causes of action, claims, actions, rights, judgments, liabilities, accountings, obligations, demands and damages of whatever kind or character, which the Corporation have against you, by reason of or arising out of IDT’s employment of you and the separation of your employment, or any statutory claims, or any and all other matters of whatever kind, nature or description, whether known or unknown, from the beginning of the world through and including the, Effective Date of this Agreement, excluding any intentional acts or omissions by you prior to the Effective Date of this Agreement which were outside the scope of your authority and which were intended by you to cause harm to IDT. Nothing in this Section 11 shall restrict IDT’s ability to enforce the terms of this Agreement.

12. IDT agrees to indemnify and bold you harmless from any action, claim, court cost, damage demand and, expense, liability, loss, penalty, proceeding or suit, together with any related attorneys fees, including costs and disbursements, by reason of or arising out of (a) IDT’s employment of you, as an officer, director, or in any other capacity, excluding any liability incurred due to (i) intentional acts or omissions by you which were outside the scope of your authority and which you intended to cause harm to IDT or (ii) the breach by you of any fiduciary duty owed by you to the Corporation or (b) the breach by IDT of its obligations hereunder

13. If you violate the confidentiality provisions of this Agreement, IDT shall suffer irreparable harm for which monetary damages may be inadequate. IDT shall have the right to seek equitable relief, including injunctive relief, without the requirement of posting a bond.

14. Any dispute, except as provided elsewhere herein, arising out of or in connection with this Agreement or the breach or alleged breach thereof shall be resolved in Newark, New Jersey, by binding arbitration in accordance with the rules of the American Arbitration Association. Each party shall choose one arbitrator and tile two arbitrators shall then choose a neutral third arbitrator who shall act as chairman. The prevailing party shall be entitled to receive reimbursement for the costs of the Arbitration and reasonable attorney’s fees and judgment on an award may be entered in any court having jurisdiction thereof. The decision of the arbitrator shall be final and binding upon both parties. Nothing in this paragraph shall be deemed as preventing either party from seeking relief from the courts as necessary to protect either party’s name, proprietary information, trade secrets, know how or any other appropriate provisional remedy.

15. This Agreement shall he governed by the laws of the State of New Jersey.

16. By signing this Agreement, you acknowledge that the monies paid to you and consideration provided to you under this Agreement exceed any payment or benefit that you otherwise would receive under any IDT policy, agreement or plan

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and that this represents the full extent of IDT’s obligations to you; provided that nothing contained herein shall be deemed to impair any right of you to obtain coverage or payment under any insurance policy held by IDT which covers its officers or employees. Any payments made to you pursuant to this Agreement shall be subject to standard withholding and deductions.

17. Furthermore, we both agree that the terms and conditions of this Agreement shall remain confidential, except as needed to be shared (a) by you, with your legal and financial advisors, who have been advised by you of the confidential nature of this Agreement, and (b) by IDT, to a limited number of key individuals in the normal course, or for business or legal purposes.

18. In addition, we both agree that neither you, nor anyone at IDT, to the best of our respective abilities, will in any way disparage the other, or act in any way that is detrimental to the other’s good name and reputation. We both agree not to engage m any conduct that would reasonably be expected to materially injure or harm the other’s reputation or interest, provided that nothing contained herein shall be deemed to require either party to violate any applicable law or legal process or to fail to cooperate with any legal investigation or proceeding.

19. If, at any time after the Effective Date of this Agreement, any provision of this Agreement shall be held to be illegal, void or unenforceable, such provision shall be of no force and effect. However, the illegality or unenforceability of such provision shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement, provided that, upon a finding by a court or agency of competent jurisdiction that the release of claims contained in paragraph 10 or 11 above, are illegal void or unenforceable, the obligor under such unenforceable paragraph shall, at the request of the other party hereto, will execute a release covering all the same claims as are released under paragraph 10 or 1l (as the case may be) above, that is legal and enforceable.

20. Pursuant to the Older Workers Benefit Protection Act, you are advised to consult with an attorney before signing this Agreement and that you shall have twenty-one (21) days to consider this Agreement before signing it, but may sign the Agreement at any earlier time if you so desires. If you sign this Agreement, you shall have seven (7) calendar days (the “Revocation Period”) to revoke this Agreement by indicating your desire to do so, in writing, addressed to IDT Corporation, 520 Broad Street, 16^th Floor, Newark, New Jersey 07102 (Attention: James Courter, Chief Executive Officer of IDT). In order for such revocation to be Effective, it must be received before 5:00 p.m. on the seventh day following the date this Agreement was executed by you. The effective date of this Agreement shall be the eighth (8^th) day following the execution of this Agreement (the “Effective Date”). In the event you do not accept this Agreement, or revoke this Agreement during the Revocation Period, this Agreement in its entirety, shall automatically be deemed null and void.

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Charles, on behalf of IDT Corporation, we wish you the best of luck in your future career endeavors.

Sincerely,

James A. Courter

Chief Executive Officer

Acknowledged and Agreed to:
	Date:
Charles H.F. Garner

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EX-10.59

Exhibit 10.59

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”), dated as of February 4, 2002, is by and between IDT Corporation, a Delaware corporation, with an address at 520 Broad Street, Newark, NJ 07102 (the “Company”), and Ephraim Brian Finkelstein, 5 Ash Street, Monsey, NY 0952 (the “Employee”).

WHEREAS, the Employee and the Company entered into a consulting agreement (the “IDTC Consulting Agreement”) dated as of October 19, 2001;

WHEREAS, the Employee and IDT Telecom Inc. (“IDT Telecom”), a subsidiary of the Company, entered into a consulting agreement (the “IDTT Consulting Agreement”) dated as of October 19, 2001;

WHEREAS, in recognition of the Employee’s experience and abilities, the Company desires to assure itself of the employment of the Employee in accordance with the terms and conditions provided herein; and

WHEREAS, the Employee agrees to be employed by the Company and to perform services for the Company in accordance with the terms and conditions provided herein.

NOW, THEREFORE, in consideration of the promises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Employment. The Company hereby agrees to employ the Employee, and the Employee hereby agrees to be employed by and perform services for the Company, on the terms and conditions set forth herein.

2. Term. This Agreement is for a three (3) year period (the “Term”) commencing as soon as practicable but during the month of January 2002 (the “Start Date”) and terminating on the third anniversary of the Start Date, or upon the Company’s or the Employee’s termination of employment pursuant to Section 8 hereof. The parties may mutually agree, in writing, to extend the Term of this Agreement. Upon the commencement of the Term of this Agreement, the IDTC Consulting Agreement and the IDTT Consulting Agreement shall terminate with no further force or effect and the Employee shall have no liability or obligation thereunder.

3. Position. During the Term, the Employee shall serve as the President of Business Development of the Company.

4. Duties and Reporting Relationship. During the Term, the Employee shall devote 100% of his normal business time and, on a full time basis, use his skills and render services to the best of his abilities on behalf of the Company. The Employee shall report directly to Howard Jonas, Chairman of the Board of Directors of the Company and James Courter, CEO of the Company, or an individual designated by Howard Jonas or James Courter, at any time in their sole discretion.

Employee has initially been assigned to report to Charles Garner, CEO of Winstar Holdings LLC, a subsidiary of the Company. The Employee shall be responsible for all duties as required by the position.

5. Place of Performance. The Employee shall perform his duties and conduct his business at the offices of the Company, located in Newark, New Jersey, or at such other location as designated by the Company, except for required travel on the Company’s business.

6. Compensation and Related Matters.

(a) Annual Base Salary. The Company shall pay to the Employee an annual base salary (the “Base Salary”) at a rate not less than Two Hundred Fifty Thousand Dollars ($250,000.00) less applicable taxes, such salary to be paid in conformity with the Company’s payroll policies relating to its employees, but in any event not less than monthly.

(b) Employee Benefits. During the Term, the Employee shall have the opportunity to participate in any of the Company’s benefits programs. The Employee will have the opportunity to participate in medical and dental insurance for the Employee and his family with an employee contribution at the same rate charged other executives of the Company. All policies will be consistent with the information given in the Company’s employee handbook and benefit summary plan description.

(c) Stock Options. The Employee was granted certain stock options of both the Company and IDT Telecom, pursuant to the IDTC Consulting Agreement and the IDTT Consulting Agreement (the “Stock Options”). The Stock Options shall be governed by the stock option agreements entered into by the parties and by the respective stock option plans.

(d) Bonus. Employee may be entitled to receive a bonus, which shall consist of a certain percentage of the profits of the entities and/or divisions for whom Employee directly works during the Term. Employee’s bonus shall be commensurate with and directly related to the work performed by him under this Agreement, and in an amount as determined by the Employee’s supervisor(s), in their sole discretion.

(e) Business expenses. The Company shall reimburse Employee for all reasonable ordinary and necessary business expenses incurred by Employee in connection with his employment (including without limitation, expenses for coach travel and entertainment incurred in conducting or promoting business for the Company) upon submission by the Employee of receipts and other documentation in accordance with the Company’s normal reimbursement procedures. Any business expenses in excess of $1000.00 must be pre-approved by the Company.

7. Non-Disclosure Non-Competition. The Employee agrees that upon execution of this Agreement, he will simultaneously execute the Company’s standard Non-Disclosure Non-Competition Agreement. Notwithstanding anything to the contrary contained herein, the remedies provided for in the Non-Disclosure Non-Competition Agreement are separate and distinct from those provided for in this Agreement and no in event shall such remedies be superceded by any provision contained herein.

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8. Termination. The Employee’s employment hereunder may be terminated without breach of this Agreement only under the following circumstances:

(a) Death. The Employee’s employment hereunder shall terminate upon his death, and his estate shall receive any accrued salary, bonus and/or expenses.

(b) Cause. The Company may terminate the Employee’s employment hereunder for “Cause”. For purposes of this Agreement, the Company shall have “Cause” to terminate the Employee’s employment hereunder (i) upon the Employee’s indictment or conviction for the commission of an act or acts constituting a felony under the laws of the United States or any State thereof, (ii) upon the Employee’s commission of fraud, embezzlement, gross negligence or malfeasance, or (iii) upon the Employee’s repeated failure to substantially perform his material duties hereunder, after having been provided written notice of such failure and not curing any such failure within thirty (30) days of such notice. If the Company terminates Employee’s employment for Cause, the Employee shall not be entitled to any severance payments, any unvested Stock Options shall terminate and the Employee shall relinquish any and all rights to any amounts payable and to any benefits otherwise provided for herein, other than any accrued salary, bonus and/or expenses.

(c) Termination by the Employee. The Employee may terminate his employment hereunder upon thirty (30) days prior written notice to the Company. If he does so, the Employee waives any severance payments, any unvested Stock Options shall terminate and the Employee relinquishes any and all rights to any amounts payable and to any benefits otherwise provided for herein, other than any accrued salary, bonus and/or expenses. The Company reserves the right, in its sole discretion, to terminate the Employee prior to the Employee’s designated date of termination.

(d) Notice of Termination. Any termination of the Employee’s employment by the Company or by the Employee (other than termination upon the death of Employee) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 8 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated.

(e) Date of Termination. “Date Of Termination” shall mean (i) if the Employee’s employment is terminated by his death, the date of his death, or (ii) if the Employee’s employment is terminated pursuant to the terms set forth above, the date specified in the Notice of Termination, or in the case of termination pursuant to Section 8(d) herein, the actual date of termination.

9. Notices. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

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If to the Company:

IDT Corporation

Attn: James Courter

520 Broad Street, 16th Floor

Newark, NJ 07102

With a copy to:

IDT Corporation

Attn: Legal Department

520 Broad Street, 7th Floor

Newark, New Jersey 07102

If to the Employee:

Ephraim Brian Finkelstein

5 Ash Street

Monsey, NY 10952

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to its conflicts of law principles. By executing this Agreement, the Employee consents to the personal jurisdiction of all state and federal courts and arbitration forms located in the State of New Jersey.

12. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

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14. Entire Agreement. Other than the Company’s Non-Disclosure Non-Competition Agreement, and the stock option agreements issued by the Company and by IDT Telecom to the Employee, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes any and all other prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled.

15. Remedies of the Company. Upon any termination for Cause that may cause irreparable harm to the Company, the Company shall be entitled, if it so elects, to institute and prosecute proceedings to obtain injunctive relief and damages, costs and expenses, including without limitation, reasonably attorneys’ fees and expenses, with respect to such termination.

16. Arbitration. Except as set forth above in Paragraphs 7 and 15, the Employee and the Company agree that any claim, controversy or dispute between the Employee and the Company (including without limitation its affiliates, officers, employees, representative or agents) arising out of or relating to this Agreement, the employment of the Employee, the cessation of employment of the Employee, or any matter relating to the foregoing shall be submitted to and settled by commercial arbitration in a forum of the American Arbitration Association (“AAA”) located in the State of New Jersey and conducted in accordance with the National Rules for the Resolution of Employment Disputes. In such arbitration: (i) the arbitrator shall agree to treat as confidential evidence and other information presented by the parties to the same extent as Confidential Information under this Agreement must be held confidential by the Employee, (ii) the arbitrator shall have no authority to amend or modify any of the terms of this Agreement, and (iii) the arbitrator shall have ten business days from the closing statements or submission of post-hearing briefs by the parties to render his or her decision. Any arbitration award shall be final and binding upon the parties, and any court, state or federal, having jurisdiction may enter a judgment on the award. The foregoing requirement to arbitrate claims, controversies, and disputes applies to all claims or demands by the Employee, including without limitation any rights or claims the Employee may have under the Age Discrimination in Employment Act of 1967 (which prohibits age discrimination in employment), Title VII of the Civil Rights Act of 1964 (which prohibits discrimination in employment based on race, color, national origin, religion, sex, or pregnancy), the Americans with Disabilities Act of 1991 (which prohibits discrimination in employment against qualified persons with a disability), the Equal Pay Act (which prohibits paying men and women unequal pay for equal work), ERISA, or any other federal, state, or local laws or regulations pertaining to the Employee’s employment or the termination of the Employee’s employment.

17. Representations. Employee has been advised to obtain independent counsel to evaluate the terms, conditions and covenants herein set forth and he has been afforded ample opportunity to obtain such independent advice and evaluation. Employee warrants to the Company that he has relied upon such independent counsel and not upon any representation (legal or otherwise), statement or advice said or offered by the Company or the Company’s counsel in

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connection herewith.

18. Employee’s Status Under Agreement. The parties agree and acknowledge that the Employee shall at all times act in the capacity of an Employee under this Agreement, and nothing in this Agreement shall be construed to create the relationship of an independent contractor, partner, joint venturer, or any other relationship or status other than that of an Employee.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

IDT Corporation
By:	Dated:	2/6/02
Ephraim Brian Finkelstein
/s/ Ephraim Brian Finkelstein	Dated:	2/4/02

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CONSULTING AGREEMENT

This Consulting Agreement (this “Agreement”) is hereby made between IDT Telecom Inc., 520 Broad Street, Newark, New Jersey 07102 (hereinafter the “Company”) and Ephraim Brian Finkelstein, 5 Ash Street, Monsey, NY 10952 (hereinafter the “Consultant”).

1. Services and Payment. Consultant shall, on an as-needed basis, use his skills and render services to the best of his abilities to perform any duties as requested by the Company. The Company agrees to pay to Consultant the sum of Ten Dollars ($10.00) per year for the term of this Agreement. In addition, Consultant shall receive a grant of options (the “IDTT Stock Options”) to purchase low vote shares of the Company’s common stock (the “Company’s Stock”), which shall be exercisable only if the Company has an initial public offering of its stock. The number of IDTT Stock Options to be granted shall be based on the Company’s total stock outstanding at the time of the Company’s initial public offering. Consultant shall be granted 35,000 options to purchase shares of the Company’s Stock, assuming that at the time of the initial public offering there are 72,000,000 shares of stock outstanding. The IDTT Stock Options shall vest in three installments on each of January 1, 2003, January 1, 2004 and January 1, 2005. All terms and conditions of the IDTT Stock Options shall be set forth in a stock option agreement to be executed by the Company and Consultant (the “IDTT Stock Option Agreement”) which, unless otherwise noted, will be governed by the IDT Telecom 2001 Stock Option and Incentive Plan.

2. Term and Termination. This Agreement shall commence as of the date of this Agreement and shall terminate on January 1, 2005 unless upon earlier termination as set forth herein. The Company may terminate this Agreement for “Cause”. For purposes of this Agreement, the Company shall have “Cause” to immediately terminate this Agreement (i) upon the Consultant’s indictment or conviction for the commission of an act or acts constituting a felony under the laws of the United States or any State thereof, (ii) upon the Consultant’s commission of fraud, embezzlement, gross negligence or malfeasance, or (iii) upon the Consultant’s repeated failure to substantially perform his material duties hereunder, after having been provided written notice of such failure and not curing any such failure within thirty (30) days of such notice. Upon termination of this Agreement for Cause, the IDT Stock Options shall terminate immediately.

3. Proprietary Information. The customers, businesses, products, technology, customer lists, procedures, operations, techniques and other aspects of the business of the Company are established at great expenses and protected as confidential information and trade secrets and provide the Company with a substantial competitive advantage of selling its products. Consultant may have, or have had in the past, access to, and be entrusted with, trade secrets, confidential information and proprietary information, and the Company would suffer great loss and injury if he would disclose this information or use it to compete with the Company. Consequently, Consultant agrees that during his relationship with the Company, and thereafter, he will not, directly or indirectly, either

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individually or as an employee, agent, partner, shareholder, or in any other capacity, use or disclose, or cause to be used or disclosed, any trade secret, confidential information or proprietary information acquired by Consultant during Consultant’s relationship with the Company, during the Term of this Agreement and for a two year period following the termination of this Agreement.

4. Obligations of Consultant upon Termination of this Agreement. In the event of termination of this Agreement, Consultant shall immediately upon the effective date of termination:

a) Discontinue the use of any and all of the Company’s proprietary and confidential information including methods, designs, marketing techniques, customer lists, contracts, etc., in connection with the operation of the Company, and

b) Discontinue the use of all of the Company’s trademarks, servicemarks, slogans or logos and materials that contain such or any colorable imitations or variations thereof. This shall include the immediate cessation and use of all telephone numbers, advertising products, signs, etc., which contain such trademarks, servicemarks, slogans or logos.

5. Indemnification. Consultant agrees to defend, indemnify, and hold the Company harmless from any and all liabilities, losses, costs, damages, penalties and any other expenses including attorney’s fees arising directly or indirectly, from Consultant’s acts or omissions or his breach of any obligation imposed or sought to be imposed by or according to this Agreement. The Company shall not be liable to Consultant for any acts or omissions by Consultant in the performance of this Agreement. Consultant shall indemnify and hold the Company free and harmless from any obligation, cost, claim, judgment, attorney’s fees, and attachments arising from, growing out of, or in any way connected with the services rendered to the Company under the terms of this Agreement.

6. Reimbursement of Expenses. The Company will reimburse Consultant for all proper, normal and reasonable travel and related expenses incurred by Consultant in performing his obligations under this Agreement upon Consultant furnishing the Company with satisfactory evidence of such expenditures. Consultant will not incur any unusual or major expenditures without the Company’s prior written approval.

7. Equipment. Consultant shall supply at its sole expense, all equipment, materials, and/or supplies to accomplish the work agreed to be performed.

8. Independent Contractor. The parties acknowledge that this Agreement does not create an employment relationship nor partnership nor joint venture but only that of independent contractors. As a consequence, (i) Consultant shall have no authority to enter into contracts or agreements on behalf of the Company, and (ii) all taxes that might be due and payable as a result of this Agreement by Consultant in whatever jurisdiction

9

shall be the sole responsibility of Consultant, and (iii) Consultant will not be eligible to participate in the Company’s pension, health or other fringe benefit program, nor will he be covered by the Company’s workers compensation insurance.

9. Notices. Any notice given in connection with this Agreement shall be given in writing and shall be delivered by either overnight mail, or regular mail, return receipt requested, to the parties as follows:

If to the Company:

IDT Telecom, Inc.

520 Broad Street, 7th Floor

Newark, New Jersey 07102

Attn.: Legal Department

If to Consultant:

Ephraim Brian Finkelstein

5 Ash Street

Monsey, NY 10952

10. Assignment. This Agreement may only be assigned, in whole or in part, by either party, with express written consent.

11. Choice of Law. Any dispute under this Agreement or related to this Agreement shall be decided in accordance with the laws of the State of New Jersey and Consultant agrees to consent to the jurisdiction of New Jersey.

12. Entire Agreement. The parties acknowledge that this document represents the entire Agreement between the parties and supersedes any and all pre-existing agreement, written or oral, between the parties.

13. Severability. If any provision of this Agreement shall be held to be invalid, it shall not affect the validity or enforceability of any other provision of this Agreement but shall remain in full force and effect.

14. Amendment. This Agreement may be supplemented, amended or revised only in writing by Agreement of the parties.

15. Arbitration. The Consultant and the Company agree that any claim, controversy or dispute between the Consultant and the Company (including without limitation its affiliates, officers, employees, representative or agents) arising out of or relating to this Agreement shall be submitted to and settled by commercial arbitration in a forum of the American Arbitration Association (“AAA”) located in the State of New Jersey. In such

10

arbitration: (i) the arbitrator shall agree to treat as confidential evidence and other information presented by the parties to the same extent as Proprietary Information under this Agreement must be held confidential by the Consultant, (ii) the arbitrator shall have no authority to amend or modify any of the terms of this Agreement, and (iii) the arbitrator shall have ten business days from the closing statements or submission of post-hearing briefs by the parties to render his or her decision. Any arbitration award shall be final and binding upon the parties, and any court, state or federal, having jurisdiction may enter a judgment on the award. The foregoing requirement to arbitrate claims, controversies, and disputes applies to all claims or demands by the Consultant.

Entered into as of 19th day of October, 2001.

Signature To Come	/s/ Ephraim Brian Finkelstein
WITNESS	Ephraim Brian Finkelstein

	IDT Telecom
/s/ Diane Clark	By:	Signature to Come
WITNESS

11

EX-10.60

Exhibit 10.60

AMENDMENT TO EMPLOYMENT AGREEMENT

Amendment dated as of October 24, 2002 (this “Amendment”) to the Employment Agreement dated February 4, 2002, by and between IDT Corporation (the “Company”) and E. Brian Finkelstein (the “Executive”) (the “Agreement”).

WITNESSETH

WHEREAS, the Company and the Executive desire to modify the terms and conditions of the Agreement on the terms set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Section 3 of the Agreement is replaced in its entirety, with the following:

“3. Position. During the Term, the Executive shall serve as an Executive Vice President of Business Development of the Company."

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

IDT CORPORATION
By:
	Name:    James A. Courter Title:    Chief Executive Officer

By:
	Name:    E. Brian Finkelstein

EX-21.1

Exhibit 21.01

Subsidiaries of the Registrant

1-800-Tow Truck, Inc. (NJ)	Yovelle Renaissance Corporation (DE)
225 Old NB Road Inc. (NJ)	Zero Dinero, Inc. (DE)
226 Old NB Road, Corp. (NJ)	60 Park Place Associates, LLC (DE)
60 Park Place Holding Company Inc. (NJ)	Alternative Telecom LLC (DE)
Altom Associates, Inc. (NJ)	Blue Stripe Shirt, LLC (DE)
Amerimax Corporation (PA)	Digital Production Solutions LLC (DE)
AVWAY.COM, INC. (NJ)	Executive Union Telecard, L.L.C. (NJ)
Beltway Acquisition Corporation (DE)	Flics, LLC (DE)
Blue Sky Software, Inc. (NJ)	Free4All, L.L.C. (DE)
Brix Communications Corp. (DE)	Halifax Investments, LLC (DE)
BRX, Inc. (DE)	IDT 225 Old NB Road, LLC (DE)
Chattle, Inc. (DE)	IDT 226 Old NB Road, LLC (DE)
ClicAqui, Inc. (NJ)	IDT Advanced Communication Services, LLC (NJ)
Continect, Inc. (NJ)	IDT America of Virginia, LLC (DE)
CTM Brochure Display, Inc. (NY)	IDT Broadband, LLC (DE)
CTM Brochure Display Minnesota, Inc. (MN)	IDT Callback, LLC (DE)
CTM Brochure Display Missouri, Inc. (MO)	IDT Domestic-Union LLC (DE)
CTM Southeast, L.C. (FL)	IDT Telecom, LLC (DE)
DOTCOM Productions, Inc. (DE)	IT Network Distribution LLC (DE)
Dipchip Corp. (NY)	IT Stock, LLC (DE)
Doublestone Computing Enterprises, Inc. (NJ)	King Telecom, LLC (DE)
ENGRY, Inc. (DE)	Latin American Alliance for Education and Health, LLC (DE)
Entrix Telecom, Inc. (DE)	Nevada-Oscar, LLC (NV)
Webony.com, Inc. (DE)

Subsidiaries of the Registrant

FreeAtLast, Inc. (DE)	Union Communications LLC (NY)
FuturePix.com, Inc. (DE)	Union CT Telecom, L.L.C. (NJ)
Genie Interactive, Inc. (NJ)	Union Telecard Alliance, LLC (DE)
HJJ Corp. (DE)	Union Telecard Alliance Puerto Rico Corp. (Puerto Rico)
IDT Affiliate Finance Corporation (NV)	Union Telecard Arizona, LLC (Nevada)
IDT America, Corp. (NJ)	Union Telecom Texas LLC (TX)
IDT Broadcast & Media Holdings, Inc. (DE)	Winstar Communications, LLC (DE)
IDT Broadcast & Media Acquisition Corp. (DE)	Winstar Equipment, LLC (DE)
IDT Domestic Telecom, Inc. (DE)	Winstar Government Solutions, LLC (DE)
IDT Horizon GT, Inc. (DE)	Winstar Communications of Arizona, LLC (DE)
IDT International, Corp. (NJ)	Winstar of Delaware, LLC (DE)
IDT International Telecom, Inc. (DE)	Winstar of Georgia, LLC (DE)
IDT Internet Services, Inc. (DE)	Winstar of Hawaii, LLC (DE)
IDT Investments Inc. (NV)	Winstar Holdings, LLC (DE)
IDT J.V. Corp. (DE)	Winstar Holdings Management Company, LLC (DE)
IDT Leasing Inc. (DE)	Winstar of Indiana, LLC (DE)
IDT Media, Inc. (DE)	Winstar of Louisiana, LLC (DE)
IDT Nevada Corp. (NV)	Winstar of New Jersey, LLC (DE)
IDT Nevada Holdings, Inc. (NV)	Winstar of New York, LLC (DE)
IDT Services, Inc. (DE)	Winstar of Pennsylvania, LLC (DE)
IDT Telecom, Inc. (DE)	Winstar of Virginia, LLC (DE)
IDT Telecom Nevada Holdings, Inc. (NV)	Winstar of West Virginia, LLC (DE)
IDT Telecommunications, Inc. (DE)	Winstar Spectrum, LLC (DE)
IDT United, Inc. (DE)	Winstar Wireless, LLC (DE)
Telecard Network, L.L.C. (NJ)

Subsidiaries of the Registrant

IDT Venture Capital Corporation (DE)	Worldwide Intercom, LLC (DE)
IDT Venture Capital, Inc. (NV)	CTM Brochure Display Ltd. (Canada)
IDT Wireless, Inc. (DE)	Digital Production Solutions (Israel)
Impro-Structure, Inc. (NJ)	Direct Tel Dutch Holdings B.V. (Holland)
InterExchange, Inc. (DE)	Elmion Netherlands B.V. d/b/a International Discount Bandwidth (Holland)
International Coalition of Providers, Inc. (NJ)	HSJ Dutch Holdings B.V. (Holland)
International Digital Networks, Inc. (NJ)	IDT Austria GmbH (formerly IDT Telecommunications GmbH) (Austria)
Internet Online Services, Inc. (NJ)	IDT Corporation Representative Office (Philippines)
Least Cost Routing Exchange, Inc. (NJ)	IDT Corporation de Argentina Spa (Argentina)
Lou Moustafina, Inc. (NJ)	IDT Dutch Holdings B.V. (Holland)
Media Response, Inc. (NJ)	IDT Europe B.V.B.A. (Belgium)
Microwave Services, Inc. (DE)	IDT Europe B.V.B.A. Foreign Qualification: Puerto Rico Branch
Mikulynec Associates, Inc. (NJ)	IDT France SARL (France)
New World Telecommunications, Corp. (NJ)	IDT Germany GmbH (Germany)
Nubill.com, Inc. (DE)	IDT Global Limited (UK)
Nuestra Voz Direct Inc. (DE)	IDT Inter Direct Tel Sweden A.B. (Sweden)
Phone Depot, Inc. (NJ)	IDT Italia S.r.L. (Italy)
Phonemax, Inc. (DE)	IDT Netherlands B.V. (Holland)
Phonetics, Inc. (NJ)	IDT Peru Srl (Peru)
Rock Enterprises, Inc. (NJ)	IDT Phone Cards Ireland Limited (formerly Elverum Ltd.) (Ireland)
SDTR, Inc. (DE)	IDT Spain S.R.L. (Spain)
	IDT Switzerland GmbH

Subsidiaries of the Registrant

Serafin, Inc. (NV)	NewPhone Dutch Holdings B.V. (Holland)
Shmuelco Equipment, Corp. (NJ)	Pre-Paid Cards B.V.B.A. (Belgium)
Sports Final Radio Network, Inc. (MA)	SPD Dutch Holdings B.V. (Holland) (formerly Nicodama Beheer I B.V.) (Netherlands)
TalkAmerica Radio Network, Inc. (DE)	SPD Dutch Holdings B.V. Foreign Qualification: Puerto Rico Branch
TNLY, Inc. (DE)	SPD Puerto Rico Corp.
Try, Inc. (DE)	SPP International Corp.
TV.TV, Inc. (DE)	STA Dutch Holdings B.V. (Holland)
IDT Telecom Corporation Israel Ltd. (Israel)	Strategic Dutch Holdings B.V. (Holland)
IDT Telecommunications Limitada (Chile)	TimeTel Dutch Holdings B.V. (Holland)
International Discount Telecommunications de Mexico, S. de R.L. de C.V. (Mexico)	TLL Dutch Holdings, B.V. (Holland)
MST Dutch Holdings, B.V. (Holland)	Upbrook – Consultores E Servicios Limitada (Madeira)
	Worldtalk Dutch Holdings B.V. (Holland)

EX-23.1

Exhibit 23.01

Consent of Independent Auditors

We consent to the incorporation by reference of our report dated October 24, 2002 with respect to the consolidated financial statements and schedule of IDT Corporation included in this Annual Report (Form 10-K) for the year ended July 31, 2002, in each of the following:

Registration Statement No. 333-53719 on Form S-3;

Registration Statement No. 333-61565 on Form S-3;

Registration Statement No. 333-71991 on Form S-3;

Registration Statement No. 333-73167 on Form S-8;

Registration Statement No. 333-77395 on Form S-3;

Registration Statement No. 333-80133 on Form S-3;

Registration Statement No. 333-86261 on Form S-3; and

Registration Statement No. 333-100424 on Form S-8.

/s/    ERNST & YOUNG LLP                    

ERNST & YOUNG LLP

New York, New York

October 24, 2002

EX-99.1(A)

EXHIBIT 99.1(A)—CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Certification Pursuant to

18 U.S.C. Section 1350

(as Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act Of 2002)

I, James A. Courter, Chief Executive Officer of IDT Corporation (the “Company”), do hereby certify to the best of my knowledge and belief that:

1. The Company’s Annual Report on Form 10-K for the year ended July 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 29, 2002

/s/    JAMES A. COURTER      

James A. Courter

EX-99.1(B)

EXHIBIT 99.1(B)—CERTIFICATION OF CHIEF FINANCIAL OFFICER

Certification Pursuant to

18 U.S.C. Section 1350

(as Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act Of 2002)

I, Stephen R. Brown, Chief Financial Officer of IDT Corporation (the “Company”), do hereby certify to the best of my knowledge and belief that:

1. The Company’s Annual Report on Form 10-K for the year ended July 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 29, 2002

/s/    STEPHEN R. BROWN

Stephen R. Brown