-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O2oZ8UFDRbn2W047FWpfp0eQJhzNENadOUgVdmFnKwA2deMrkfUQp/eLZHb9Awcy c/ObwsATrrKYKIslLNT9kA== 0000950130-99-001897.txt : 19990402 0000950130-99-001897.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950130-99-001897 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDT CORP CENTRAL INDEX KEY: 0001005731 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 223415036 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-71991 FILM NUMBER: 99583325 BUSINESS ADDRESS: STREET 1: 190 MAIN ST CITY: HACKENSACK STATE: NJ ZIP: 07601 BUSINESS PHONE: 2019281000 MAIL ADDRESS: STREET 1: 294 STATE STREET CITY: HACKENSACK STATE: NJ ZIP: 07601 S-3/A 1 AMENDMENT #1 TO FORM S-3 As filed with the Securities and Exchange Commission on March 31, 1999 Registration No. 333-71991 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- IDT CORPORATION (Exact Name of Registrant as Specified in its Charter)
Delaware 22-3415036 (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization)
--------------- 190 Main Street Hackensack, New Jersey 07601 (201) 928-1000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------- Howard S. Jonas Chairman, Chief Executive Officer and Treasurer IDT Corporation 190 Main Street Hackensack, New Jersey 07601 (201) 928-1000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------- Copy to: Joyce J. Mason, Esq. General Counsel IDT Corporation 190 Main Street Hackensack, New Jersey 07601 (201) 928-1000 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Title of Each Class of Amount to Offering Price Aggregate Offering Amount of Securities to be Registered be Registered Per Share(1) Price(1) Registration Fee - ------------------------------------------------------------------------------- Common Stock, $.01 par value.................. 173,944 $ 14.875(1) $2,587,417(1) $719.30(3) - ------------------------------------------------------------------------------------------------- Common Stock, $.01 par value.................. 400 $17.1875(2) $ 6,875(2) $ 1.91 - ------------------------------------------------------------------------------------------------- Total................... 174,344 -- -- $721.21
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low prices of the Common Stock on the Nasdaq National Market on February 3, 1999. (2) Estimated pursuant to Rule 457(c) under the Securities Act, as amended, based on the average of the high and low prices of the Common Stock on the Nasdaq National Market on March 26, 1999. (3) Already paid. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +The information in this preliminary prospectus is not complete and may be + +changed. These securities may not be sold until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +preliminary prospectus is not an offer to sell nor does it seek an offer to + +buy these securities in any state where the offer or sale is not permitted. + + + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated March , 1999 174,344 Shares IDT Corporation Common Stock ------------ This prospectus relates to the offer and sale of up to 174,344 shares of common stock from time to time by the stockholders of IDT Corporation that are listed on page 28. The registration of the shares does not necessarily mean that any of the shares will be offered and sold by the selling stockholders. The common stock is listed on the Nasdaq National Market under the symbol "IDTC." On March 26, 1999, the last reported sales price as reported by the Nasdaq National Market was $17.1875 per share. Investing in the common stock involves certain risks. Consider carefully the "Risk Factors" beginning on page 2. ------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------ The date of this prospectus is , 1999 TABLE OF CONTENTS
Page ---- The Company............................................................... 2 Risk Factors.............................................................. 2 We may be unable to continue to expand our telecommunications business.. 2 We will need to manage our expanding operations effectively............. 2 We may expand our network at a rate that is faster or slower than the growth of our telecommunications traffic............................... 2 We are dependent upon other telecommunications and Internet companies for the operation of our business...................................... 3 Our sales representatives and retailers may fail to effectively market and distribute our products and services............................... 4 We are subject to network failures...................................... 5 Our business could be adversely impacted by the failure to resolve Year 2000 problems.......................................................... 5 Demand for our services in new markets may be less than we expect....... 6 Rapid technological change and frequent new product introductions in our markets could render our products and services obsolete................ 6 Our international operations present many uncertainties related to our future expansion....................................................... 7 We may experience difficulties in collecting our receivables............ 8 We may become the victim of fraud or theft of services.................. 8 Our markets are and will continue to be very competitive................ 9 We face pricing pressures which may lessen our competitive pricing advantage.............................................................. 11 Privatization and deregulation of foreign markets may result in increased competition for telecommunications services.................. 12 Federal, State, and international government regulation may affect our ability to provide services............................................ 12 Our proprietary technology is difficult to protect and our products may infringe on the intellectual property rights of others................. 15 Our network may be subject to disruptions through unauthorized use...... 16 We may be subject to liability for information disseminated over our Internet network....................................................... 16 We may need to raise funds to finance our growth and our operations in the future............................................................. 17 We have suffered losses in the past and may also in the future.......... 17 Our business may be adversely affected by our substantial indebtedness.. 18 Our operations may be adversely affected by restrictive covenants contained in the indenture............................................. 18 We depend on our key personnel.......................................... 19 We are controlled by our principal stockholder.......................... 19 Our stock price may be volatile......................................... 19 Substantial sales of our common stock could adversely affect the market price of our common stock.............................................. 19 Anti-takeover provisions affecting us could prevent or delay a change of control and could adversely affect the market price of our common stock.................................................................. 20 Recent Developments....................................................... 21 Use of Proceeds........................................................... 21
Page ---- Selling Stockholders....................................................... 22 Plan of Distribution....................................................... 23 Legal Matters.............................................................. 24 Experts.................................................................... 24 Where You Can Find More Information........................................ 25 Incorporation of Certain Documents by Reference............................ 25 Information Regarding Forward-Looking Statements........................... 26
---------------- THE COMPANY IDT Corporation is a leading emerging multinational carrier that combines its position as an international telecommunications operator, its experience as an Internet service provider and its leading position in Internet telephony to provide a broad range of telecommunications services to its wholesale and retail customers worldwide. Our predecessor corporation, International Discount Telecommunications, Corp., was incorporated in New York in 1990, and we reincorporated in Delaware in December 1995. Our principal executive offices are located at 190 Main Street, Hackensack, New Jersey, 07601, and our telephone number is (201) 928- 1000. RISK FACTORS We may be unable to continue to expand our telecommunications business. We have expanded the geographic scope of our operations and substantially increased our revenues since fiscal 1996. Our purchases of property and equipment increased from $1.3 million in fiscal 1995, to $41.3 million in fiscal 1998, to $23.6 million for the first half of fiscal 1999. Similarly, in connection with our efforts to expand our customer base, our selling, general and administrative expenses increased from $6.0 million in fiscal 1995, to $62.0 million in fiscal 1998, to $40.8 million for the first half of fiscal 1999. However, we cannot be certain that we will be able to continue to expand our telecommunications network, services, customer bases or markets. Our ability to continue to expand may be affected by many factors, including regulation of the telecommunications industry both in the U.S. and in other countries, competition from other companies and technological developments. We will need to manage our expanding operations effectively. As we increase our service offerings and expand our target markets, we will need to further expand our network and infrastructure, upgrade our financial and information systems and controls and hire additional sales, marketing and technical personnel, as well as additional qualified administrative and management personnel. Furthermore, our growth may place additional demands on our management team, customer service support, sales, marketing and administrative resources. If we are unable to effectively manage our expanding operations, our business and operations could be materially adversely affected. We may expand our network at a rate that is faster or slower than the growth of our telecommunications traffic. Since fiscal 1995, part of our strategy has been to make large capital expenditures to expand our network, and we intend to do so in the future. This strategy differs from our earlier strategy of leasing transmission capacity on the networks of other carriers. This strategy may not be successful if the expansion of our network increases more rapidly than is justified by the increase in our network traffic, or, on the other hand, if this expansion does not keep up with the growth of our network traffic. In either case, our profitability will suffer because our cost of revenues will become a much larger portion of our revenues. As we expand our network, the cost of our revenues will increasingly consist of fixed costs arising from the ownership and maintenance of our switches and other equipment. We believe that in the long-term, these investments will allow us to reduce our cost of service and to enhance our service offerings; however, in the short-term, these investments will increase our costs, and may result in decreased profit margins. In addition, the fixed nature of these costs is also expected to lead to larger fluctuations in our gross margins, depending on the minutes of traffic that we generate. If our traffic volume decreases, or fails to increase to the extent that is needed to make efficient use of our network, our costs as a percentage of revenues would increase significantly, which would adversely affect our profitability. On the other hand, our network may not expand rapidly enough to transmit all of the traffic of our customers. International and long distance telecommunications equipment, such as undersea fiber optic cables, typically take several years to plan and construct. Like other carriers, we generally make investments based upon a forecast of anticipated traffic. As a result, we are subject to the risk that we will not adequately anticipate the amount of traffic that our network will be required to carry, and that we will not obtain enough network equipment to ensure the cost-effective transmission of customer traffic. We are dependent upon other telecommunications and Internet companies for the operation of our business Telecom companies We depend on other carriers for many of our services. As a result, our services may be disrupted, or may become less profitable, if any of these carriers cease to provide the services that they are currently providing to us on the terms that are currently effective. We generally do not have long-term contracts with these carriers. These carriers are not restricted from competing against us. If any of these carriers raise their rates, change their pricing structure or provide us with a reduced amount of capacity, we may be adversely affected. We are currently dependent upon MCI WorldCom Inc., which is our primary provider of leased network capacity and data communications facilities, and from whom we lease physical space for switches, modems and other equipment. If MCI WorldCom becomes unwilling to provide its current level of service to us in the future, we could be materially adversely affected. In September 1998, we entered into a long-term agreement with Frontier Communications of the West, Inc. to obtain dedicated circuit capacity over Frontier's network. Although this agreement provides us with additional facilities that will enable us to expand the range and reliability of our data and voice transmission services, our business will be adversely affected if Frontier at any time fails to satisfy its obligations under this agreement. Our ability to compete in the long distance telecommunications market depends, in part, on our ability to procure advantageous rates from PTTs and from other interexchange carriers, and on the ability of these parties to carry the calls we route to their networks. If our relationship with a PTT or an interexchange carrier is terminated, or if a PTT or an interexchange carrier becomes unable to carry traffic routed to it, and we are required to route the traffic to another interexchange carrier 2 providing service at a less advantageous rate or with lesser quality, there could be a material adverse effect on our profit margins or network service quality. A reduction of our service quality could result in a loss of customers, which could reduce our profit margins. Similarly, if the facilities- based providers whose services we resell were unable to sell such services to us, there could be a material adverse effect on our business. We are also dependent upon established local exchange carriers, new competitors to these local exchange carriers and MCI WorldCom to provide telecommunications services to our customers. Although certain leased data communications services are currently available from several alternative suppliers, including AT&T and Sprint, there can be no assurance that we would be able to obtain substitute services from other suppliers at reasonable or comparable terms and prices or on a timely basis. We route international telephone calls using the networks of third parties that operate or that may plan to operate in countries in which local laws or regulations limit their ability to provide basic international service in competition with state-owned or state-sanctioned monopoly carriers. We have no control over the manner in which these companies operate in such countries. Future regulatory, judicial, legislative or political considerations may not permit these companies to offer to residents of such countries all or any of their services. In addition, regulators of such countries or third parties may raise material issues regarding the compliance of such parties with applicable laws or regulations. These regulatory, judicial, legislative or political decisions could have an adverse effect on the ability of these companies to route calls to or from our network. If these companies become unable to provide the services which they presently provide to us or may provide in the future due to their inability to obtain or retain the required governmental approvals or for any other reason related to regulatory compliance, our business could be adversely affected. Developers of fiber optic cables We do not control the planning or construction of undersea fiber optic transmission facilities. As a result, we must seek access to such facilities through partial ownership positions. If ownership positions are not available, we must seek access to such facilities through lease arrangements on negotiated terms that may vary with industry and market conditions. We may not be able to continue to obtain sufficient transmission facilities or access to undersea fiber optic cables on favorable terms. If this occurs, our costs of delivering international traffic may increase substantially. Suppliers of telecommunications equipment We are dependent on certain third-party suppliers of equipment and hardware components, including Sun Microsystems, Inc., Cisco Systems, Inc., Nortel Networks Inc., Excel Switching Corp. and Ascend Communications, Inc. If any of these suppliers fail to deliver quality services or products on a timely basis, and if we are unable to develop alternative sources as required, delays could develop which would have a material adverse effect on our business. Suppliers of Internet access We also depend on other companies to provide Internet access to our customers in areas not served by our Internet network. In these areas we depend upon the continued viability and financial 3 stability of the other Internet service providers that we have contracted with to provide access to the Internet in areas not covered by our network. If a significant number of the networks operated by these Companies suffer operational problems or failure, or are unable to expand to satisfy our customer demand, our business could be adversely affected. We have from time to time experienced delays in the timely connection of customer accounts to the Internet by certain of the Internet service providers with whom we have relationships. If a significant number of these companies fail to serve accounts on a timely basis or are unable to serve new accounts, we could lose customers, which may have a material adverse effect on our business. Suppliers of browser software We are currently dependent on software licensed from Netscape Communications Corporation and Microsoft Corporation for the front-end software of our Internet access services. We use and reproduce certain Netscape and Microsoft products, and distribute these products to distributors and end users together with our own software. If there are any operating difficulties in connection with the licensed software, customers may be deterred from using our Internet access services, which could have a material adverse effect on our business. Our sales representatives and retailers may fail to effectively market and distribute our products and services. Independent sales representatives We are dependent upon our independent sales representatives, particularly for the sales of our international long distance telecommunications services in key foreign markets. Most of our independent sales representatives are located in foreign jurisdictions and also sell services or products of other companies. As a result, we cannot control whether these sales representatives will devote sufficient efforts to selling our services. In addition, we may not succeed in finding capable sales representatives in new markets which we may enter in the future. If any of our significant sales representatives fails to effectively market or distribute our products and services, our ability to generate revenues could be substantially impaired. Primary distributor of prepaid calling cards We are currently dependent upon Union Telecard Alliance, LLC, a joint venture company formed with Mr. Carlos Gomez, for the sale of a substantial portion of our prepaid calling cards. We own 51% of the outstanding equity interests in this company through an agreement which we entered into with Union Telecard and Mr. Gomez during the fourth quarter of fiscal 1998. The agreement permits the joint venture to terminate under certain circumstances, including the occurrence of a bona fide dispute between the parties with respect to a material matter occurring during the first two years of operation of the agreement. In the event of a bona fide dispute, our ownership interests in Union Telecard could be transferred to Mr. Gomez for all or a portion of our purchase price. We can provide no assurance that we will continue to effectively distribute these cards if the agreement is terminated by either party. We are dependent upon management information systems and switching equipment to provide services to our customers, manage our network, collect billing information and perform other vital 4 functions. Systems and equipment are subject to hardware defects and software bugs which may be beyond our control. If we experience substantial technical difficulties with our hardware or software, our business could be materially adversely affected. We are subject to network failures. Our success depends largely on our ability to deliver low-cost, uninterrupted international and domestic long distance telephone services. Any system or network failure that interrupts our operations could materially and adversely affect our business. At times, for example, our call reorigination switching equipment has experienced failures which temporarily prevented customers from using these services. Since our operations depend on our ability to successfully expand our network and to integrate new technologies and equipment into our network, there is an increased risk of system failure as well as a natural strain on the system. Our operations also depend on our ability to protect our hardware and other equipment from damage or interruption from natural disasters or other sources of power loss, telecommunications failures or similar occurrences. Significant or lengthy telephone network failures, or difficulties for customers in completing long distance telephone calls could damage our reputation and result in the loss of customers. These kinds of damage and losses could have a material adverse effect on our ability to obtain new subscribers and customers, and on our business, results of operations and financial condition. The success of our Internet-related business depends on our ability to deliver high-quality, uninterrupted access to the Internet. In the past, we experienced failures relating to individual Internet servers, and our subscribers experienced difficulties in accessing and maintaining their connection to the Internet. Significant or lengthy system failures or difficulties for subscribers in accessing and maintaining connection with the Internet could damage our reputation and result in the loss of subscribers, which could have a material adverse effect on our business. Our business could be adversely impacted by the failure to resolve Year 2000 problems. Many computer systems and software products are coded to understand only dates that have two digits for the relevant year. These systems and products need upgrading to accept four-digit entries in order to distinguish 21st century dates from 20th century dates. Without upgrading, many computer applications could fail or create erroneous results beginning in the year 2000. This could result in a major system failure or miscalculations. The lack of a timely resolution to Year 2000 problems could substantially impair our ability to: .route our customers' phone calls in a cost-effective manner; .process transactions; .deliver a material portion of our services; .properly obtain payment for such services; and .maintain accurate records of our business and operations. We may also become liable for substantial damages in the event that, as a result of the Year 2000 problems, we fail to deliver any services that we have contracted to provide. 5 We are conducting an external review of our customers and suppliers, and other third parties with whom we do business, including equipment and systems providers and other telecommunications service providers, to determine their vulnerability to Year 2000 problems and any potential impact on our business. In particular, we may experience problems with other telecommunications carriers whose services are resold by us or to which we send traffic for termination who are not Year 2000 compliant. We are limited in our ability to determine the ability of these third parties to address issues relating to Year 2000 problem. If a limited number of carriers experience disruptions in service due to Year 2000 problems, we believe that we will be able to obtain service from alternate carriers. However, our ability to provide certain services to customers in some locations may be limited. We can not guarantee that such problems will not have a material adverse effect on our business, results of operations and financial condition. Demand for our services in new markets may be less than we expect. Prepaid calling cards Although we have substantial market presence in the prepaid calling card business, especially with regard to international calls, the market for prepaid calling cards is a new and emerging business with a large number of market entrants. Because this market is new, it is impossible to accurately determine what the demand will be for our products and services in this area. Substantial markets may not continue to develop for prepaid calling cards, and we may not be able to sustain or increase our sales of these products and services. Internet telephony In August 1996, we began offering Net2Phone, the first commercial telephone service to connect calls between multimedia PCs and telephones over the Internet, and in October 1997, we introduced Net2Phone Direct, a service that allows for phone-to-phone calling over the Internet. Although these services enable users to benefit from substantially reduced long distance rates, demand for these services in the future may not increase. We cannot provide assurance that Internet telephony will gain market acceptance or prove to be a viable alternative to traditional telephone service. Notwithstanding the potential cost savings, many customers that have already invested substantial resources in integrating traditional telephone service with their operations may be particularly reluctant or slow to adopt a new technology that makes their existing equipment obsolete. If the Internet telephony market fails to develop or develops more slowly than we expect then our business, results of operations and financial condition will be materially and adversely affected. Rapid technological change and frequent new product introductions in our markets could render our products and services obsolete. The markets for our products and services experience rapid technological change, frequent new product introductions and evolving industry standards. For example, during the past several years, we have needed to substantially upgrade our telecommunications network to use more sophisticated equipment with greater band width and reliability. Rapid technological change and new product introduction could render one or more of our products or services obsolete or place us at a competitive disadvantage. Accordingly, we believe that our success depends upon our ability to 6 anticipate changes in consumer preferences, develop and market products and services that incorporate new technologies and enhance and expand our existing product lines and services to keep pace with competing products. We will need to spend significant amounts of capital to develop, market and enhance our products and services to meet and take advantage of technological changes. Fundamental changes in the technologies for telecommunications, Internet access and content, and Internet telephony services expose us to substantial risks. For example, although our Internet access services are currently accessed mainly by computers through telephone lines, several companies have recently introduced delivery of Internet access services through cable television lines. If the Internet becomes accessible by other methods or if there are advancements in the delivery of telephony services, we will need to develop new technology or modify our existing technology to accommodate these developments. Our pursuit of these advances may require substantial time and expense, and we cannot provide any assurance that we will succeed in adapting our businesses to alternate access devices or other technological developments. Our international operations present many uncertainties related to our future expansion. In Fiscal 1996, 1997, 1998, and the six months ended January 31, 1999, international customers accounted for approximately 23%, 25%, 11% and 10% of our total revenues, respectively. We expect that revenues from international customers will continue to account for a significant percentage of our total revenues. In addition, part of our growth strategy is to continue to install a switching infrastructure in foreign countries. Therefore, a significant portion of our total revenues, as well as a portion of our equipment and other property, will be subject to risks associated with international operations, including: . unexpected changes in legal and regulatory requirements; . changes in tariffs, exchange rates and other barriers; . political and economic instability; . difficulties in collecting accounts receivable; . difficulties in staffing and managing international operations; . difficulties in maintaining and repairing equipment abroad; . difficulties in protecting our intellectual property overseas; . potentially adverse tax consequences; and . the regulation of telecommunications companies and Internet service providers by foreign jurisdictions. Although our sales have generally been denominated in U.S. dollars, some of our recent contracts are denominated in foreign currencies, and the value of the U.S. dollar in relation to foreign currencies may also adversely affect our sales to international customers as well as the cost of purchasing, installing and maintaining equipment abroad. If we expand our international operations or begin to price our services in foreign currencies, we will be exposed to increased risks of currency fluctuation. 7 We are subject to the Foreign Corrupt Practices Act, which generally prohibits U.S. companies from bribing foreign officials for the purpose of obtaining or maintaining commercial opportunities. We may be exposed to liability under this statute as a result of past or future actions taken without our knowledge by agents, strategic partners and other third parties. Any liability imposed under this statute could have a material adverse effect on our business. We may experience difficulties in collecting our receivables. As a wholesale provider of international long distance services, we depend upon traffic from other long distance providers, and the collection of receivables from such customers. If we experience difficulties in the collection of our accounts receivable from our major customers, our financial condition and results of operations could be materially adversely affected. While our most significant customers vary from quarter to quarter, our five largest customers accounted for 20.8% of revenues in fiscal 1997, 26.2% of revenues in fiscal 1998 and 10.8% for the six months ended January 31, 1999. This concentration of revenues increases the risk of non-payment by customers, and other carriers have experienced significant writeoffs related to the provision of wholesale carrier services where large customers failed to pay their outstanding balances. Historically, we have experienced losses from uncollectable receivables in our Internet access and call reorigination businesses. Our Internet access business, is characterized by a large number of retail customers, each of which generates relatively small receivables. As a result, the collection costs associated with delinquent Internet access receivables are high relative to the receivable balances. In addition, we expend considerable resources to collect receivables from customers who fail to make timely payments. We continually seek to minimize bad debt, and at times require collateral to support accounts receivable from certain customers; however, our experience indicates that a certain portion of past due receivables will never be collected and that such bad debt is a necessary cost of conducting business. As of January 31, 1998, we had reserved approximately $6.4 million for receivables that were expected to be uncollectible. Our bad debt expense could rise significantly above historical or anticipated levels. Any significant increase in bad debt levels could have a material adverse effect on our financial condition. We may become the victim of fraud or theft of services. The telecommunications and Internet access industries have historically incurred losses due to fraud. Unauthorized transactions or theft of our services could reduce our profitability substantially. Although we have implemented anti-fraud measures in order to control losses relating to fraudulent practices, we may not succeed in effectively controlling fraud when operating in the international or domestic telecommunications markets. From time to time, callers have obtained services without rendering payment by unlawfully using our access numbers and PINs. We attempt to manage these theft and fraud risks through our internal controls and our monitoring and blocking systems. We believe that our risk management practices are adequate, and to date we have not experienced material losses from the use of access numbers and PINs. However, our risk management practices may not be sufficient to protect us in the future from unauthorized transactions or thefts of services. 8 Our markets are and will continue to be very competitive. Telecommunications Many of our competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience. Currently, we compete in the market for long distance and international telecommunications with: . long distance carriers, which carry network traffic between local exchanges, and other long distance resellers and providers, including large carriers, such as AT&T, Sprint, and MCI WorldCom; . foreign primary providers of significant international transmission facilities (often, the national telephone company of a country); . other providers of international long distance services such as STAR Telecommunications, Inc., Pacific Gateway Exchange, Inc., RSL Communications Ltd. and Telegroup, Inc.; . alliances that provide wholesale carrier services, such as Global One (Sprint, Deutsche Telekom AG and France Telecom S.A.) and Uniworld (AT&T, Unisource-Telecom Netherlands, Telia AB, Swiss Telecom PTT and Telefonica de Espana S.A.); . new entrants to the domestic long distance market such as the regional bell operating companies in the U.S., who have entered or have announced plans to enter the U.S. interstate long distance market; and . small long distance resellers. With respect to prepaid calling cards, we compete with many of the largest telecommunications providers, such as AT&T, MCI WorldCom and Sprint. 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. We also compete with smaller, emerging carriers in the prepaid card retail market, including PT-1 Communications, Inc., RSL Communications, SmarTalk Teleservices, Inc., Pacific Gateway Exchange, Inc., FaciliCom International, LLC and Telegroup, Inc. If we begin providing services to customers outside the U.S. market, we may compete with large operators such as British Telecommunications plc in the U.K. We believe that additional competitors will be attracted to the prepaid card market (including Internet-based service providers and other telecommunications companies). Competition from existing or new competitors or a decrease in the rates charged for telecommunications services by the major long distance carriers or other competitors would have a material adverse effect on our revenues from the sale of these cards. Deregulation in foreign countries could result in competition from other service providers that have large, established customer bases and close ties to governmental authorities in their home countries. Deregulation and increased competition in foreign markets could cause prices for direct-dial international calls to decrease so much that customers will no longer be willing to use some of our services, such as calling cards or our international call reorigination services. If any foreign telephone company with a dominant position in its home country succeeds in competing on the basis of greater size and resources, pricing flexibility or long-standing relationships with customers in its own country, there could be a material adverse effect on our results of operations. 9 Increased competition could force us to reduce our prices and profit margins, and may reduce our market share. Our competitors may be able to procure rates or enter into service agreements that are comparable to or better than ours, and may be able to offer other incentives to existing and potential customers. Internet Access Our current and prospective competitors in the Internet access market include many large companies that have substantially greater market presence, as well as greater financial, technical, operational, marketing, resources and experience. Our Internet access business competes or expects to compete with the following types of companies: . other national and regional commercial Internet service providers, such as NETCOM On-Line Communication Services, Inc., which was acquired by ICG Communications, Inc. in January 1998, Verio Inc., UUNet WorldCom, GTE Internetworking (formerly BBN Corporation) PSINet Inc., Concentric Network Corporation and DIGEX, Inc.; . established on-line services companies that offer Internet access, such as AOL, CompuServe and Prodigy; . computer software and other technology companies, such as Microsoft; . national long distance telecommunications carriers, such as AT&T, MCI WorldCom and Sprint; . regional bell operating companies; . cable television operators, such as Comcast Corporation, TCI International, Inc. and Time Warner; and . newly-licensed providers of spectrum-based wireless data services. Many of the established on-line services companies and telecommunications companies have begun to offer or have announced plans to offer expanded Internet access services. In addition, we believe that new competitors, including large computer hardware and software, cable, media, wireless and wireline telecommunications companies, may enter the Internet access market, resulting in even greater competition. These or other competitors may be able to bundle services and products that are not offered by us together with Internet access services, which could place us at a significant competitive disadvantage. In addition, certain telecommunications companies that compete with us may be able to provide customers with lower communications costs or other incentives with their Internet access services, reducing the overall cost of their Internet access services and significantly increasing price pressures on us. This price competition could result in significant reductions in the prices of our services and our revenues. In addition, increased competition for new subscribers could result in increased sales and marketing expenses and related subscriber acquisition costs, which could adversely affect our profitability. We may not be able to offset the effects of any such price reductions or incentives with an increase in the number of our customers, higher revenue from enhanced services, cost reductions or otherwise. 10 We can provide no assurance that we will have the financial resources, technical expertise or marketing and support capabilities to continue to compete successfully in the Internet access market. Internet Telephony The market for Internet telephony services is expected to be extremely competitive. An increasing number of large, well-capitalized companies are entering the market for Internet telephony products and services. As a result, we may not be able to compete effectively with our competitors in this market. Our competitors include a number of companies that have introduced services that make Internet telephony solutions available to businesses and consumers. In addition to Net2Phone, Delta Three (a subsidiary of RSL), ITXC Corp. and OzEmail Limited, which was recently acquired by MCI WorldCom, provide a range of Internet telephony services to consumers and businesses. These companies may offer both PC-to-phone services, and phone-to-phone services that are similar to the ones that we offer. Several companies, including industry leaders, such as AT&T and Qwest, have announced their intention to offer these services on a wider basis in both the U.S. and internationally. In addition, we compete in the market for Internet telephony services with companies that produce software and other computer equipment that may be installed on a user's computer to permit voice communications over the Internet. Current Internet telephony products include VocalTec Communications, Ltd.'s Internet Phone, QuarterDeck Corporation's WebPhone and Microsoft's NetMeeting. In addition, a number of large companies such as Cisco Systems, Inc., Lucent Technologies, Inc., Northern Telecom Limited and Dialogic Corp. offer or plan to offer server-based Internet telephony products. These products are expected to allow communications over the Internet between parties using a multimedia PC and a telephone and between two parties using telephones where both parties have specialized servers at each end of the call. In addition, major long distance providers such as AT&T, Bell Atlantic Corporation and Deutsche Telekom AG, as well as other major companies such as Motorola, Inc., Intel Corporation and Netscape Communications Corporation have all entered or plan to enter the Internet telephony market, in some cases by investing in companies engaged in the development of Internet telephony products. We face pricing pressures which may lessen our competitive pricing advantage. We could also face significant pricing pressure if we experience a decrease in the volume of minutes that we carry on our network, as our ability to obtain favorable rates and tariffs from suppliers depends, to a significant extent, on our total volume of international long distance traffic. We may not succeed in maintaining the volume of international and domestic long distance traffic necessary to obtain favorable rates and tariffs. In addition, our ability to market our long distance resale services depends upon the existence of spreads between the rates offered by us and the rates offered by the carriers with which we compete, as well as the carriers from which we obtain service. A decrease in these spreads could have a material adverse effect on our results of operations. 11 Privatization and deregulation of foreign markets may result in increased competition for telecommunications services. Many of the foreign markets in which we currently market long distance telephone services are undergoing dramatic changes as a result of privatization and deregulation. For example, the European Union has mandated competitive markets for the European telecommunications industry and the various European countries are at different stages of opening their telecommunications markets. As a result of privatization and deregulation, a greater number of potential competitors is likely to emerge in these markets. A new competitive environment is emerging in which major European telephone companies, media companies and utilities are entering the telecommunications market and forming new alliances which are radically changing the landscape for domestic and international telephone services. Changes in the foreign marketplace and new strategic alliances among companies with greater resources may adversely affect our ability to continue our efforts to increase our overseas telecommunications customer base and our traffic volume, and to recover the cost of building our international telecommunications infrastructure. While we expect that deregulation will give rise to new opportunities, the increase in competition expected to result from deregulation could cause our international long distance business to suffer and could have other material adverse effects on our business. Federal, State, and international government regulation may affect our ability to provide services. As a multinational enterprise, we are subject to varying degrees of regulation by state, federal and foreign regulators. These laws are subject to frequent modification and alternative interpretation, and therefore, it is difficult for us to assess the impact of these factors on our operations in the future. The implementation, modification, interpretation and enforcement of these laws and regulations vary and can affect our ability to provide certain services. Our ability to compete in the long distance telecommunications, Internet, and Internet telephony markets depends, in part, upon favorable regulatory conditions and the favorable interpretations of existing laws. The current domestic and international trend is toward deregulation of telecommunications and Internet services. This trend has enabled us to compete in new domestic and international markets. Notwithstanding this trend, several countries, including the United States, are considering proposals that may regulate or impose additional costs upon services that we offer or plan to offer. We can provide no assurance that these regulatory, judicial rulings or legislative actions will not occur or that these rulings or actions will not have a material adverse effect on our business. Changes in Federal regulations may permit regional bell operating companies to compete against us. We compete with companies, such as the regional bell operating companies, that are also subject to government regulation. Existing regulations may restrict or otherwise limit these companies from fully competing with us in the market for interstate long distance telecommunications services. If U.S. federal statutes and regulations are amended to permit these companies to fully compete with us in this market, our revenues from these services could be materially and adversely affected. 12 We may become subject to increased costs of operations due to uncertainty over amount of payphone surcharges. Federal regulation of the telecommunications industry may also impact our ability to sell prepaid calling cards. The Telecommunications Act of 1996 requires carriers such as our company to pay the owners of payphones when a payphone is used to make a telephone call using a prepaid calling card. If these charges are increased, our margins from our prepaid calling card business could be adversely affected. Alternatively, if these charges are passed on to the users of the cards, demand for these services could be substantially reduced. Since September 1996, the FCC has attempted to set the rate of compensation that must be paid, but these charges have been successfully challenged twice in federal court. The current charge imposed by the FCC, $.24 per call, is likely to be challenged in federal court by companies that operate payphones, as well as by carriers. As a result, we are unable to determine the likely size of these charges in the future, or whether they will adversely affect our calling card business. European regulation of telecommunications services may not continue to evolve towards increased competition and streamlined regulation The European Union, as well as national European governments, have been generally deregulating many of the major European markets for telecommunications services so as to permit increased competition. In addition, the European Union has attempted to harmonize the regulation of telecommunications companies across its member states. As a result of these developments, we have been able to enhance our market presence in a number of European countries. Changes to existing regulations of the European Union or its member states may decrease the opportunities that are available for us to enter into those markets, or may increase our legal, administrative or operational costs, or may otherwise constrain our activities. Any of these developments could impair our efforts to develop our European operations. Telecommunications regulations of other countries may restrict our operations We are subject to the regulatory regimes in each of the countries in which we conduct business. Local regulations range from permissive to restrictive, depending upon the country. In the past, we have experienced problems in certain countries and have, in certain instances, modified or terminated our services to comply with local regulatory requirements. In the future, changes to statutes or regulations may inhibit or restrict the types of telecommunications services we can offer. Government regulation of Internet access may increase our costs of operations Internet service providers are generally considered "enhanced service providers" within the U.S. and are exempt from U.S. federal and state regulations governing common carriers. Accordingly, our provision of Internet access services is currently exempt from tariffing, certification and rate regulation. Nevertheless, regulations governing disclosure of confidential communications, copyright, excise tax and other requirements may apply to our provision of Internet access services. We cannot predict the likelihood that state, federal or foreign governments will impose additional regulation on our Internet business, nor can we predict the impact that future regulation will have on our operations. 13 In December 1996, the FCC initiated a Notice of Inquiry regarding whether to impose regulations or surcharges upon providers of Internet access. The Notice of Inquiry, and several ongoing FCC proceedings, seek public comment as to whether to impose or to continue to forebear from regulation of Internet and other packet-switched network service providers. In addition, on April 10, 1998, the FCC issued a Report to Congress on its implementation of the universal service provisions of the Telecommunications Act. In that Report, the FCC indicated that it would reexamine its policy of not requiring an Internet service provider to contribute to the universal service mechanisms when the Internet service provider provides its own transmission facilities and engages in data transport over those facilities in order to provide an information service. Any such contribution would be related to the Internet service provider's provision of telecommunications services itself. We can not predict the outcome of any future proceedings that may impact our provision of Internet access or that may impose additional requirements, regulations or charges upon our provision of Internet access services. We may become subject to Internet access charges. Moreover, we use the networks of local exchange carriers to connect our Internet customers to our network. Under current federal and state regulations, neither we nor our Internet customers pay charges for using these networks in this manner, other than the monthly service charges that apply to basic telephone service. Local exchange carriers have asked the FCC to change its rules and require Internet service providers to pay additional charges for their use of local networks, which would significantly increase our costs of doing business. The FCC previously determined that it would not impose interstate access charges on Internet service providers. However, the FCC is currently conducting and planning various proceedings in which it is exploring the impact of the Internet on the public switched network and may decide to impose additional charges on Internet service providers. We can provide no assurance that the FCC will continue to permit Internet service providers to use basic telecommunications services without imposing any additional charges. Government regulation may impair the growth of the Internet telephony market. Currently, the FCC is considering whether or not to impose surcharges or additional regulations upon certain providers of Internet telephony. These charges could substantially reduce the pricing advantage that Internet telephony has with respect to traditional telephony, and could dramatically reduce the demand for these services. On April 10, 1998, the FCC issued its Report to Congress concerning its implementation of the universal service provisions of the Telecommunications Act. In the Report, the FCC indicated that it would examine the question of whether certain forms of "phone-to-phone" Internet Protocol telephony are information services or telecommunications services. It noted that the FCC did not have, as of the date of the Report, an adequate record on which to make any definitive pronouncements, but that the record before it suggested that certain forms of phone-to-phone Internet telephony appear to have the same functionality as non-Internet Protocol telecommunications services. If the FCC determines that certain services are subject to FCC regulations as telecommunications services, the FCC noted that it may require Internet service providers to make universal service contributions, pay access charges or to be subject to traditional common carrier regulation. In addition, a February 1999 ruling by the FCC, relating to charges paid between different types of local 14 carriers, also suggested that the FCC may being to regulate Internet telephony providers as traditional telecommunications companies. Any of these developments could be expected to substantially impair the growth of our revenues from Internet telephony. To our knowledge, there are currently no domestic and few foreign laws or regulations that prohibit voice communications over the Internet. Several efforts have been made to enact federal legislation that would either regulate or exempt from regulation services provided over the Internet. State public utility commissions may also retain jurisdiction to regulate the provision of intrastate Internet telephony services, and could initiate proceedings to do so. A number of countries that currently prohibit competition in the provision of voice telephony have also prohibited Internet telephony. Other countries permit but regulate Internet telephony. If Congress, the FCC, state regulatory agencies or foreign governments impose substantial regulations relating to Internet telephony, our business could be adversely affected. Our proprietary technology is difficult to protect and our products may infringe on the intellectual property rights of others. Our business could be adversely affected if third parties infringe upon our intellectual property rights. We rely on patent, copyright, trademark and trade secret laws and the confidentiality provisions of our contracts with third parties to establish and protect our technology. We do not currently own any issued patents or registered copyrights, although we own a number of registered service marks relating to our business and have other pending applications for certain trademarks. We have a policy that requires our employees and consultants to execute confidentiality and technology ownership agreements when they begin their relationships with us. The steps taken by us may not be adequate to protect our trade secrets, and to prevent misappropriation of our technology or other proprietary rights. Our competitors may independently develop technologies that are substantially equivalent or superior to our technology. Our trademark applications may not be allowed and the issuance of any registration does not mean that a third party may not have superior rights to the registered mark, or to a mark that is confusingly similar to the registered mark. Any licenses for any intellectual property that might be required for our services or products may not be available on reasonable terms. We have applied for a patent relating to the systems and methodology underlying our Internet telephony systems. This patent application has been rejected, but we are continuing to prosecute it, as permitted by applicable law. The existence of prior publications and other patent applications may further limit the chance of success of such prosecution. This application may not result in any patent being issued and, if issued, such patent may not provide adequate protection against competitive technology and may not be held valid and enforceable if challenged. Other parties may assert rights as inventors of the underlying technologies, which could limit our ability to fully exploit the rights conferred by any patent that we receive. Our competitors may be able to design around any such patent that we receive, and other parties may obtain patents that we would need to license or circumvent in order to exploit our patent. 15 We do not believe that our products infringe the proprietary rights of others, and no third parties have asserted any material patent infringement or other such claims against us. However, third parties may assert these types of claims against us in the future, and one or more of these claims could be successful. We are aware that patents have been granted recently to others on technologies in the communications, multimedia and Internet telephony areas, and patents may issue which relate to the basic technologies incorporated in our services and products. Since patent applications in the U.S. are not publicly disclosed until issued as patent, applications may have been filed which, if issued as patents, could relate to our services. We could incur substantial costs in defending or pursuing any claims relating to proprietary rights, which could have a material adverse effect on our business. Furthermore, parties making such claims could obtain a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block our ability to provide services in the U.S. or abroad. Our network may be subject to disruptions through unauthorized use. Computer viruses, break-ins and similar disruptive problems caused by customer or other Internet users could cause interruptions, delays or loss of services to our Internet customers. We have implemented a variety of network security measures, such as limiting physical and network access to our routers. However, our Internet access systems and Genie entertainment and information services are vulnerable to these types of problems. Furthermore, inappropriate use of the Internet by third parties could also jeopardize the security of confidential information stored in the computer systems of our customers and other parties connected to the Internet, which may deter potential subscribers. Potential security problems continue to plague public and private data networks. Break-ins reported in the press and otherwise have reached computers connected to the Internet at major corporations as well as Internet access providers. A number of these break-ins have involved the theft of information, including incidents in which hackers bypassed firewalls through fraudulent means. Alleviating problems caused by computer viruses, break-ins or third parties may require significant expenditures of capital and resources, which could have a material adverse effect on our business. Until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet service industry in general and our customer base and revenues. Moreover, if we become the victim of a breach of network security or privacy, customers may threaten claims against us based on for any damages that result. These types of claims, if upheld, could have a material adverse effect on our results of operations. We may be subject to liability for information disseminated over our Internet network. Internet service providers and Internet content providers face potential liability for the actions of subscribers and others using their systems, including liability for infringement of intellectual property rights, rights of publicity, defamation, libel and criminal activity under the laws of the U.S. and foreign jurisdictions. For example, an action against Prodigy alleging libel and negligence in connection with an electronic message posted by a Prodigy subscriber through Prodigy's Internet access system attempted to impose liability upon Internet service providers for information, messages and other materials disseminated across and through their systems. Prodigy lost a summary judgment 16 motion related to the scope of its potential liability exposure. While the parties subsequently settled their dispute, the court refused to vacate its opinion on the summary judgment motion, which still stands as precedent. Another action is currently pending against Netcom relating to Netcom's potential liability for vicarious copyright infringement arising out of electronic messages posted by a subscriber. Netcom lost a summary judgment motion related to the scope of its potential vicarious copyright liability exposure, but this case has yet to come to trial. Recently, a Hong Kong court permitted a local company to sue a California Internet service provider for copyright violation based on content included by a subscriber on a Web site. Recent legislative enactments and pending legislative proposals aimed at limiting the use of the Internet to transmit indecent or pornographic materials could, depending upon their interpretation and application, result in significant potential liability to Internet service providers, as well as additional costs and technological challenges in complying with any statutory or regulatory requirements imposed by such legislation. For example, CompuServe faced action by German authorities in response to which CompuServe temporarily restricted the scope of the Internet access it provides to all subscribers, both in the U.S. and internationally. A number of countries are considering content restrictions based on such factors as political or religious views, pornography and indecency. The operation of our Genie on-line service has increased our exposure to such legislation, and to libel and defamation suits, primarily because of the increased level of content being provided by or through our network. We may need to raise funds to finance our growth and our operations in the future. We believe that we must continue to enhance and expand our network and build out our telecommunications network infrastructure in order to maintain our competitive position and meet the increasing demands for service quality, capacity and competitive pricing. Our ability to grow depends, in part, on our ability to expand our operations through the ownership and leasing of network capacity, which requires significant capital expenditures that are often incurred before we begin to receive the related revenue. If we cannot obtain cash from operation or from debt or equity investments in our company, we may not be able to grow as rapidly as we have during the last several fiscal years. Based upon our present business plan, we believe that our existing cash resources and our expected cash flow from our operating activities will be sufficient to meet our currently anticipated working capital and capital expenditure requirements for the next 12 months. If our growth exceeds our expectations, if we obtain one or more attractive opportunities to purchase the business or assets of another company, or if our cash flow from operations during this period is not sufficient to meet our working capital and capital expenditure requirements, we will need to raise additional capital from other sources. We can provide no assurance that we will be able to raise such capital on favorable terms. If we are unable to obtain additional capital, we may be required to reduce the scope of our anticipated expansion, which could have a material adverse effect on our business. We have suffered losses in the past and may also in the future. The value of an investment in our company is likely to decrease if we incur financial losses. We incurred net losses in Fiscal 1996, 1997 and 1998 of $15.6 million, $3.8 million and $6.4 million, 17 respectively. For the six months ended January 31, 1999, we generated $6.9 million of net income. Although we have experienced significant growth in recent periods, such growth may not be sustainable and should not be considered indicative of future growth of our business, revenues or profits. Our business may be adversely affected by our substantial indebtedness. On January 31, 1999, we had long-term debt of approximately $120.8 million and stockholders' equity of approximately $247.7 million. Our long-term debt includes $100.0 million in aggregate principal amount of 8 3/4% Senior Notes due 2006, which were issued in February 1998. Moreover, we may incur additional indebtedness in the future. Our leverage could have important consequences: . increasing our vulnerability to adverse business conditions; . limiting our ability to obtain additional financing to fund future working capital, capital expenditures, future acquisitions and other general corporate purposes; . requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, which reduces the availability of such cash flow for other purposes; and . limiting our flexibility in planning for, or reacting to, changes in our business and the industry. Our ability to pay the principal of, or the interest on, or to refinance, our indebtedness (including the notes), or to fund planned capital expenditures or future acquisitions will depend on our future performance. Based upon our current level of operations and anticipated revenue growth, we believe that cash flow from operations and available cash will be adequate to meet our anticipated future requirements for working capital, budgeted capital expenditures and scheduled payments of principal and interest on our indebtedness, including the senior notes, for the next 12 months. We cannot predict the impact of future acquisitions, if any, on our cash requirements. We may need to refinance all or a portion of the principal of the Notes on or prior to maturity. We cannot provide any assurances that our business will generate enough cash or that our revenue growth will enable us to repay our indebtedness. Our operations may be adversely affected by restrictive covenants contained in the indenture. The indenture governing the senior notes contains numerous financial and operating covenants that limit the discretion of our management with respect to certain business matters. These restrictions may bar certain transactions that would otherwise be beneficial to our company. These covenants place significant restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments and investments, and to sell or otherwise dispose of assets and to merge with other entities. A failure to comply with the obligations contained in the indenture could result in an event of default under the indenture, and the acceleration of the related debt under the senior notes and the acceleration of debt under other instruments that may contain cross-acceleration or cross- default provisions. 18 We depend on our key personnel. We are highly dependent on the technical and management skills of our key employees, including our technical, sales, marketing, financial and executive personnel, and on our ability to identify, hire and retain qualified personnel. Competition for such personnel is intense and we can provide no assurance that we will be able to retain existing personnel or to identify or hire additional personnel. In particular, we are dependent on the services of Howard S. Jonas, our Chief Executive Officer, Chairman of the Board, Treasurer and founder, and on James A. Courter, our Vice Chairman and President. The loss of the services of either Mr. Jonas or Mr. Courter could have a material adverse effect on our business. We are controlled by our principal stockholder. Howard S. Jonas, our Chief Executive Officer, Chairman of the Board, Treasurer and founder, is the beneficial owner of all of our outstanding shares of Class A common stock and therefore, currently holds more than 50% of the combined voting power of our outstanding capital stock. As a result, Mr. Jonas is able to control matters requiring approval by our stockholders, including the election of all of the directors and the approval of significant corporate matters, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our stockholders to influence the management of our company is limited. Our stock price may be volatile. The market price of our common stock has fluctuated significantly since our initial public offering. Factors such as variations in our revenue, earnings and cash flow from quarter-to-quarter and announcements of new service offerings, technological innovations or price reductions by us, or our competitors or providers of alternative services could cause the market price of the common stock to fluctuate substantially. In addition, the stock markets recently have experienced significant price and volume fluctuations that particularly have affected companies in the technology sector and resulted in changes in the market price of the stocks of many companies, which have not been directly related to the operating performance of those companies. Broad market fluctuations may adversely affect the market price of our common stock in the future. Substantial sales of our common stock could adversely affect the market price of our common stock. Sales of a substantial number of shares of common stock eligible for sale into the public market could adversely affect the market price for the common stock. In connection with our acquisition of InterExchange in April 1998, we issued 3,242,323 shares of common stock as part of the purchase price. Of those shares, 58,667 and 537,032 were registered for resale in June 1998 and October 1998, respectively. In addition to the 174,344 shares covered by this prospectus, the remainder of these shares will become eligible for resale in installments between October 1999 and October 2002, although up to 421,208 of such shares will remain subject to certain claims for indemnification that we may be entitled to raise against the former stockholders of InterExchange, and may be returned to us for cancellation. In addition, through our acquisition of an interest in Union Telecard, we became obligated to issue and register up to 200,000 shares of common Stock, of which 100,000 shares are 19 covered by this prospectus. As of January 31, 1999, 2,213,867 shares of our Common Stock were issuable upon exercise of outstanding employee stock options, and as of January 31, 1999, 40,000 shares of our common stock were issuable upon the exercise of certain outstanding warrants. Anti-takeover provisions affecting us could prevent or delay a change of control and could adversely affect the market price of our common stock. Our certificate of incorporation authorizes the board of directors to issue, without stockholder approval, one or more series of preferred stock having dividend rights, voting rights and other rights as the board of directors may determine. The issuance by a purchaser of this "blank-check" preferred stock could make it more difficult or discourage an attempt to obtain control of our company by means of a tender offer, merger, proxy contest or otherwise, which may limit the ability of our stockholders to obtain the maximum value for their shares of common stock. Furthermore, the certificate of incorporation provides for a classified board of directors, which may also have the effect of inhibiting or delaying a change in control of our company, in that only approximately one-third of our directors will be subject to reelection at each of our annual stockholder meetings. The laws of Delaware, where we are incorporated, may also discourage takeover attempts that have not been approved by the board of directors. 20 RECENT DEVELOPMENTS Tender Offer and Consent Solicitation. In March 1999, we commenced a tender offer for all of our outstanding senior notes. The offer will expire on April 23, 1999, unless it is extended. The purchase price for the senior notes will be $1,020 in cash per $1,000 principal amount, plus accrued and unpaid interest through the date of payment. Together with the offer, we are soliciting consents to eliminate the primary restrictive covenants and to amend other provisions contained in the indenture relating to the senior notes. These amendments will become operative if and when we accept the tendered senior notes for purchase. The offer is conditioned on the receipt of consents from the holders of at least a majority in principal amount of the senior notes. Credit Facility. We have also entered into a commitment letter with Bankers Trust Company, CIBC Oppenheimer Corp. and Lehman Commercial Paper Inc. In this letter, these institutions have conditionally committed to provide us with a $150 million credit facility that will include term loans in a total amount of up to $125 million and revolving loans in an amount of up to $25 million. Bankers Trust Company is expected to serve as administrative agent for the facility. We expect to use the proceeds from the initial borrowings under the credit facility to purchase the tendered senior notes. Our receipt of funds under the credit facility that are sufficient to repurchase the tendered senior notes, on terms and conditions that are reasonably satisfactory to us, is a condition to our obligation to consummate the tender offer. Management Changes. A number of changes have been recently made to the management of our company. In March 1999, we announced that our President, James Courter, has been appointed Vice Chairman of the Board. He replaces Howard Balter, who resigned his positions as Chief Operating Officer, Vice Chairman and a director of our company in order to serve full-time as Chief Executive Officer and a director of Net2Phone. In addition, we appointed two new directors to our board of directors: Irving Goldstein and Moshe Kaganoff. Mr. Goldstein is the former Chief Executive Officer and Director General of Intelsat and the former Chairman and Chief Executive Officer of Comsat. Mr. Kaganoff has served as our Senior Vice President of Operations. USE OF PROCEEDS We will not receive any of the proceeds from the sale of the common stock by the selling stockholders. 21 SELLING STOCKHOLDERS The shares of common stock that may be offered pursuant to this prospectus (other than the shares that may be offered by Mr. Carlos Gomez) were originally issued pursuant to a merger agreement, dated April 7, 1998 which we agreed to acquire all of the issued and outstanding shares of InterExchange, Inc., a Delaware corporation, including four related companies. In accordance with, the merger agreement, the former stockholders of InterExchange received an aggregate of 3,242,323 newly issued shares of our common stock. A portion of the shares will remain in escrow until October 2002 in order to satisfy certain indemnification obligations that the former stockholders of InterExchange may have under the merger agreement and may be returned to us for cancellation. The remainder of these shares will become eligible for resale in installments between October 1999 and October 2002. An aggregate of 77,277 of these shares have been held in escrow for the benefit of certain employees of InterExchange and will be available for sale after April 7, 1999 in this Prospectus. During the last three years, each of these employees served InterExchange and/or IDT in various technical and managerial capacities. These shares will be eligible to be released from escrow to the employees and eligible for resale, provided, that on April 7, 1999, each of the employees is employed either by us or, any of our affiliates, or is incapacitated, has died or has had his or her employment terminated without cause. Shares that belong to someone who does not fit into one of the above categories must be returned to us. Carlos Gomez obtained his shares by virtue of a securities purchase agreement, dated May 1, 1998, which he entered into with Union Telecard and us. In exchange for a 51% interest in Union Telecard, a prepaid calling card distributor, we agreed to issue up to 200,000 shares of common stock to Mr. Gomez. 100,000 of these shares were issued upon execution of the securities purchase agreement and are included in this prospectus. Mr. Gomez has served as President and as a Manager of Union Telecard since its formation in 1998. Prior to his current position, Mr. Gomez operated a different company that served as an independent distributor of prepaid calling cards. The following table sets forth certain information about the beneficial ownership of each selling stockholder as of January 31, 1999, as to . the number of shares of common stock that are beneficially held by each selling stockholder, . the maximum number of shares that may be offered by each selling stockholder in this prospectus, . the number of shares of common stock and the percentage of outstanding shares of common stock that will be held by each selling stockholder if he or she sells all of the shares that can be sold under this prospectus. 22 The percentages in the table assumes that each share of our class A common stock has been converted into shares of common stock. We can provide no assurance as to the number of shares that will be held by each of the selling stockholders after this offering because each of the selling stockholders may offer all or some part of the shares which he or she holds pursuant to this prospectus, and because this offering is not being underwritten on a firm commitment basis.
Shares Beneficially Owned After the Shares Beneficially Number of Offering Owned Prior to the Shares Offered ----------------- Selling Stockholder Offering Hereby Number Percentage - ------------------- ------------------- -------------- ------ ---------- John Altom................. 12,000 12,000 0 0 James R. Curnal............ 933 933 0 0 Erica C. Gaffey............ 3,200 3,200 0 0 Steven J. Graham........... 3,733 3,733 0 0 Peter J. Hamilton.......... 933 933 0 0 Nancy C. Henggeler......... 3,200 3,200 0 0 Eva Janaszik............... 3,733 3,733 0 0 Ariel Mario Lukin.......... 18,880 18,880 0 0 George K. Mezinis.......... 400 400 0 0 Troy S. Model.............. 1,333 1,333 0 0 Timothy Netta.............. 933 933 0 0 Robert J. Reilly........... 933 933 0 0 Larry N. Singleton......... 8,000 8,000 0 0 Yong S. Singleton.......... 933 933 0 0 Walter Urbanski............ 12,000 12,000 0 0 Saul Zimmerman............. 3,200 3,200 0 0 Carlos Gomez(1)............ 104,000 100,000 4,000 *
- -------- * Less than one percent. (1) Excludes up to an additional 100,000 shares of common stock which may be issued to Mr. Gomez pursuant to the terms of his agreement with IDT. PLAN OF DISTRIBUTION The shares offered for sale hereby may be sold from time to time by the selling stockholders in one or more transactions on the Nasdaq National Market, in the over-the-counter market, in negotiated transactions or in a combination of these methods. These shares may be sold, at fixed prices, at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices. The selling stockholders may make sales directly to purchasers or to or through broker-dealers which may act as agents or principals. Broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the selling stockholders. This compensation, as to a particular broker-dealer, may be less than or in excess of customary commissions. In addition, any shares covered by this prospectus that qualify for sale pursuant to Rule 144 of the Securities Act of 1933 may be sold under Rule 144 rather than pursuant to this Prospectus. 23 To comply with the securities laws of certain states, if applicable, the shares will be sold only through brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in such states or an exemption from registration or qualification is available and is complied with. Any broker-dealers who participate in a sale of the shares may be deemed to be "underwriters" within the meaning of Sections 11 and 12 of the securities act and Rule 10b-5 of the exchange act, and any commissions received by them, and proceeds of any such sales as principals, may be deemed to be underwriting discounts and commissions under the securities act. If any of the selling stockholders are deemed to be acting as an underwriter, they may be subject to certain statutory liabilities of the securities act. In addition, the selling stockholders and any other person participating in the sale or distribution of the shares offered under this prospectus will be subject to the exchange act and its rules and regulations, including without limitation Rules 10b-5 and Regulation M. These provisions may limit the timing of purchases and sales of any of the shares. In addition, any person engaged in a distribution of the shares may not simultaneously engage in market-making activities during the period beginning when he or she becomes a distribution participant and ending upon his or her completion of participation in a distribution. All of the foregoing may affect the marketability of the shares and the ability of any person or entity to engage in market-making activities. IDT has agreed to pay all expenses of the offering which we estimate to amount to $56,000. LEGAL MATTERS Joyce J. Mason, our Senior Vice President, General Counsel, Secretary and a director of our company, has issued an opinion regarding the validity of the shares offered by this prospectus. EXPERTS Ernst & Young LLP, independent auditors have audited our consolidated financial statements and schedule included in our Annual Report on Form 10-K, as amended, for the fiscal year ended July 31, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements and schedule are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority, as experts in accounting and auditing. The combined financial statements of InterExchange and combined affiliates as of December 31, 1997, 1996 and 1995 and for each of the three years in the period ended December 31, 1997 incorporated by reference in this prospectus and the related registration statement have been audited by Amper, Politziner & Mattia P.A., independent auditors, as set forth in their report thereto incorporated herein by reference, and are included in reliance upon such report given upon their authority as experts in accounting and auditing. 24 WHERE YOU CAN FIND MORE INFORMATION We are subject to the reporting requirements of the Exchange Act, as amended, and file annual and quarterly reports, proxy and information statements and other information with the Securities and Exchange Commission. These documents can be inspected and copied at the public reference facilities maintained by the SEC at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can be obtained from the Public Reference section of the SEC at Judiciary Plaza 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy statements and other information that we electronically file with the SEC are contained in the Internet Web site maintained by the SEC which is http://www.sec.gov. We have filed with the SEC a registration statement on Form S-3 relating to the common stock offered in this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. The registration statement, its exhibits and the documents incorporated by reference in this prospectus and their exhibits, all contain information that is material to the offering of the common stock. Whenever a reference is made in this prospectus to any of our contracts or other documents, the reference may not be complete. You should refer to the exhibits that are a part of the registration statement in order to review a copy of the contract or document. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to incorporate by reference certain information that we file with the SEC. This permits us to disclose important information to you by referencing these filed documents. Any information referenced in this way is considered part of this prospectus. We are incorporating by reference in this Prospectus the following documents which we have filed with the SEC: (1) Annual Report on Form 10-K, as amended, for the fiscal year ended July 31, 1998; (2) Quarterly Report on Form 10-Q, as amended, for the fiscal quarter ended October 31, 1998; (3) Quarterly Report on Form 10-Q, for the fiscal quarter ended January 31, 1999; (4) Current report on Form 8-K, dated May 26, 1998, as amended; and (5) the description of our Common Stock contained in our Registration Statement on Form 8-A, dated March 5, 1996, and any amendment or report filed for the purpose of updating such description. All reports and other documents that we will file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the exchange act after the date of this prospectus and before the termination of the offering of the common stock hereunder will be incorporated by reference into this prospectus from the date of the filing of such reports and documents, and will supersede the information herein. We undertake to provide without charge to each person who receives a copy of this prospectus, upon written or oral request, a copy of all of the preceding documents that are incorporated by reference (other than exhibits, unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted in writing to the General Counsel at our corporate headquarters at 190 Main Street, Hackensack, New Jersey 07601 or by telephone at (201) 928-1000. 25 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS When used in this prospectus, the words "expects," "anticipates," "estimates" and similar expressions identify forward-looking statements. We believe that these statements are "forward-looking" statements within the meaning of section 27A of the securities act and section 21E of the exchange act. These statements, which include statements under the caption "Risk Factors" and elsewhere in this prospectus refer to 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. The forward-looking statements also include our expectations concerning factors affecting the markets for our products, such as the demand for long distance telecommunications, Internet access and online and Internet telephony services. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results that we anticipate. These risks and uncertainties include, but are not limited to, those risks discussed in this prospectus and in the documents incorporated by reference in this prospectus. In addition to the factors specifically noted in the forward-looking statements, other important factors that could result in those differences include: . general economic conditions in the telecommunications and Internet markets, including inflation, recession, interest rates and other economic factors; . casualty to or other disruption of our facilities and operations; and . other factors that generally affect the business of telecommunications, Internet and other communications companies. We assume no obligation to update these forward-looking statements or to update the reasons actual results could differ materially from the results anticipated in the forward-looking statements. 26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- You should rely only on the information in this prospectus and the additional information described under the heading "Where You Can Find More Information." We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely upon it. Neither we or any of the selling stockholders are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this prospectus was accurate on the date of the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 174,344 Shares IDT CORPORATION Common Stock ----------------- PROSPECTUS ----------------- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution We have agreed to bear the expenses of registering the shares for the selling stockholders under the federal and state securities laws. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by IDT in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee. SEC registration fee............................................. $ 721 Printing expenses................................................ 15,000 Legal fees and expenses.......................................... 25,000 Accounting fees and expenses..................................... 5,000 Miscellaneous expenses........................................... 10,000 ------- Total.......................................................... $55,721
Item 15. Indemnification of Directors and Officers Reference is made to Section 145 of the General Corporation Law of the State of Delaware (the "DGCL"), which provides for indemnification of directors, officers and other employees in certain circumstances, and to Section 102(b)(7) of the DGCL, which provides for the elimination or limitation of the personal liability for monetary damages of directors under certain circumstances. Article Sixth of the certificate of incorporation of IDT eliminates the personal liability for monetary damages of directors under certain circumstances and provides indemnification to directors and officers of IDT to the fullest extent permitted by the DGCL. Among other things, these provisions provide indemnification for officers and directors against liabilities for judgments in and settlements of lawsuits and other proceedings and for the advance and payment of fees and expenses reasonably incurred by the director or officer in defense of any such lawsuit or proceeding. Item 16. Exhibits (a) Exhibits
No. Description --- ----------- 2.01(1) Agreement and Plan of Merger, dated April 7, 1998, by and among the Company, ADM Corp., a wholly owned subsidiary of the Company, IX, David Turock, Eric Hecht, Richard Robbins, Bradley Turock, Wai Nam Tam, Mary Jo Altom and Lisa Mikulynec. 2.01(2) Securities Purchase Agreement between the Registrant, Carlos Gomez and Union Telecard Alliance, LLC. 4.01(3) Specimen Certificates for shares of the Registrant's Common Stock and Class A Stock. 4.02(4) Description of Capital Stock contained in the Certificate of Incorporation of the Registrant. 5.01* Legal Opinion of Joyce J. Mason, Esq. 23.01* Consent of Ernst & Young LLP. 23.02* Consent of Amper, Politziner & Mattia P.A. 23.03* Consent of Joyce J. Mason, Esq. (contained in Exhibit 5.01). 24.01** Power of Attorney (included in Signature pages hereto).
- -------- *filed herewith **previously filed (1) incorporated by reference to Form 8-K, as amended, filed April 22, 1998 (2) incorporated by reference to Form 10-K, as amended, filed October 29, 1998 (3) incorporated by reference to Form S-1 filed March 8, 1996 (4) incorporated by reference to Form S-1 filed February 21, 1996 II-1 Item 17. Undertakings The undersigned registrant hereby undertakes to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act of 1933, as amended (the Securities Act), the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hackensack, State of New Jersey, on this 26th day of March, 1999. IDT Corporation /s/ Howard S. Jonas By: _________________________________ Howard S. Jonas Chairman and CEO Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Howard S. Jonas Chairman and Chief Executive March 26, 1999 ____________________________________ Officer (Principal Executive Howard S. Jonas Officer) * President and Director (Principal March 26, 1999 ____________________________________ Executive Officer) James A. Courter * Chief Operating Officer and March 26, 1999 ____________________________________ Director Hal Brecher * Chief Financial Officer March 26, 1999 ____________________________________ (Principal Financial and Stephen R. Brown Accounting Officer) /s/ Moshe Kaganoff Director March 26, 1999 ____________________________________ Moshe Kaganoff * Director March 26, 1999 ____________________________________ Mark E. Knoller * Director March 26, 1999 ____________________________________ Joyce J. Mason Director ____________________________________ Meyer A. Berman * Director March 26, 1999 ____________________________________ J. Warren Blaker Director ____________________________________ Denis A. Bovin /s/ Irving Goldstein Director March 25, 1999 ____________________________________ Irving Goldstein * Director March 26, 1999 ____________________________________ James Mellor * Director March 26, 1999 ____________________________________ Elmo R. Zumwalt, Jr.
*By: /s/ Howard S. Jonas - ------------------------------- Howard S. Jonas, as Attorney-in-Fact II-3 EX-5.01 2 LEGAL OPINION OF JOYCE J. MASON, ESQ. Exhibit 5.01 March 26, 1999 IDT Corporation 190 Main Street Hackensack, New Jersey 07601 Re: IDT Corporation Amendment No. 1 to Registration Statement on Form S- 3 (File no. 333-71991) Gentlemen: I am the Secretary and General Counsel of IDT Corporation (the "Company"), and as such I have been asked to render the following opinion with respect to the 174,344 shares of the Company's Common Stock, par value $.01 per share (the "Shares"), being registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended. All of the Shares being so registered will be offered and sold from time to time by the selling stockholders identified in the Company's Amendment No. 1 to Registration Statement on Form S-3. I have examined the proceedings relating to the issuance of the Shares. It is my opinion that all of the Shares are legally issued Shares and are fully paid and non-assessable. I consent to the use of this Opinion as an exhibit to Amendment No. 1 to the Registration Statement, and I further consent to the use of my name under the caption "Legal Matters" in the Prospectus which is a part thereof. Very truly yours, /s/ Joyce J. Mason _____________________________________ Joyce J. Mason General Counsel and Secretary EX-23.01 3 CONSENT OF ERNST & YOUNG LLP Exhibit 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of IDT Corporation for the registration of 174,344 shares of its common stock and to the incorporation by reference therein of our report dated September 28, 1998 with respect to the consolidated financial statements and schedule of IDT Corporation included in its Annual Report (Form 10-K), as amended, for the year ended July 31, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP __________________________________ Ernst & Young LLP New York, New York March 26, 1999 EX-23.02 4 CONSENT OF AMPER, POLITZINER & MATTIA P.A. Exhibit 23.02 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement on Form S-3 and related Prospectus of IDT Corporation for the registration of 174,344 shares of its common stock and to the incorporation by reference therein of our report dated April 28, 1998 with respect to the financial statements and schedules of InterExchange, Inc. and Combined Affiliates as of December 31, 1997, 1996 and 1995 and for three years then ended, which is included in the Form 8-K/A filed by IDT Corporation on May 26, 1998. /s/ Amper, Politziner & Mattia P.A. _____________________________________ Amper, Politziner & Mattia P.A. Edison, New Jersey March 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----