Note 13—Commitments and Contingencies

Legal Proceedings

On May 5, 2004, the Company filed a complaint in the Supreme Court of the State of New York, County of New York, seeking injunctive relief and damages against Tyco Group, S.A.R.L., Tyco Telecommunications (US) Inc. (f/k/a TyCom (US) Inc.), Tyco International, Ltd., Tyco International (US) Inc., and TyCom Ltd. (collectively “Tyco”). The Company alleged that Tyco breached a settlement agreement that it had entered into with the Company to resolve certain disputes and civil actions among the parties. The Company alleged that Tyco did not provide the Company, as required under the settlement agreement, free of charge and for the Company’s exclusive use, a 15-year indefeasible right to use four Wavelengths in Ring Configuration (as defined in the settlement agreement) on a global undersea fiber optic network that Tyco was deploying at that time. After extensive proceedings, including several decisions and appeals, the New York Court of Appeals affirmed a lower court decision to dismiss the Company’s claim and denied the Company’s motion for re-argument of that decision. On June 23, 2015, the Company filed a new summons and complaint against Tyco in the Supreme Court of the State of New York, County of New York alleging that Tyco breached the settlement agreement. In September 2015, Tyco filed a motion to dismiss the complaint, which the Company opposed. Oral argument was held on March 9, 2016. On October 17, 2016, the judge granted Tyco’s motion and dismissed the complaint. On November 17, 2016, the Company filed a Notice of Appeal.

In addition to the foregoing, the Company is subject to other legal proceedings that have arisen in the ordinary course of business and have not been finally adjudicated. Although there can be no assurance in this regard, the Company believes that none of the other legal proceedings to which the Company is a party will have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Purchase Commitments

The Company had purchase commitments of $3.1 million at April 30, 2017.

Letters of Credit

At April 30, 2017, the Company had letters of credit outstanding totaling $0.1 million for IDT Telecom’s business. The letters of credit outstanding at April 30, 2017 expire in the twelve-month period ending April 30, 2018.

Performance Bonds

IDT Payment Services and IDT Telecom have performance bonds issued through third parties for the benefit of various states in order to comply with the states’ financial requirements for money remittance licenses and telecommunications resellers, respectively. In addition, the Company has performance bonds related to legal matters. At April 30, 2017, the Company had aggregate performance bonds of $14.0 million outstanding.

Customer Deposits

At April 30, 2017 and July 31, 2016, “Customer deposits” in the Company’s consolidated balance sheets included refundable customer deposits of $91.7 million and $95.8 million, respectively, related to IDT Financial Services Ltd., the Company’s Gibraltar-based bank.

Substantially Restricted Cash and Cash Equivalents

The Company treats unrestricted cash and cash equivalents held by IDT Payment Services and IDT Financial Services Ltd. as substantially restricted and unavailable for other purposes. At April 30, 2017 and July 31, 2016, “Cash and cash equivalents” in the Company’s consolidated balance sheets included an aggregate of $13.4 million and $16.0 million, respectively, held by IDT Payment Services and IDT Financial Services Ltd. that was unavailable for other purposes.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents consist of the following:

	April 30, 2017		July 31, 2016
	(in thousands)
IDT Financial Services customer deposits	$	92,955	$	98,500
Related to letters of credit		99		122
Other		196		200
Total restricted cash and cash equivalents	$	93,250	$	98,822

Settlement and Mutual Release with Straight Path Communications Inc.

On July 31, 2013, the Company completed a pro rata distribution of the common stock of the Company’s subsidiary Straight Path Communications Inc. (“Straight Path”) to the Company’s stockholders. On September 20, 2016, the Company received a letter of inquiry from the Enforcement Bureau of the Federal Communications Commission (“FCC”) requesting certain information and materials related to an investigation of potential violations by Straight Path Spectrum LLC (formerly a subsidiary of the Company and currently a subsidiary of Straight Path) in connection with licenses to operate on the 28 GHz and 39 GHz bands of the Fixed Microwave Services. The Company has been cooperating with the FCC in this matter and has responded to the letter of inquiry. If the FCC were to pursue separate action against the Company, the FCC could seek to fine or impose regulatory penalties or civil liability on the Company related to activities during the period of ownership by the Company.

The Separation Agreement related to the spin-off of Straight Path provides for the Company and Straight Path to indemnify each other for certain liabilities. The Company and Straight Path each communicated that it was entitled to indemnification from the other in connection with the inquiry described above and related matters. On April 9, 2017, the Company and Straight Path entered into a binding term sheet providing for the settlement and mutual release of the potential indemnification and other claims asserted by each of the Company and Straight Path in connection with liabilities that may exist or arise. Pursuant to this term sheet, in exchange for the mutual release, the Company will pay Straight Path $16 million, Straight Path will transfer to the Company its ownership interest in Straight Path IP Group, Inc. (“SPIP”), a subsidiary of Straight Path that holds intellectual property primarily related to communications over computer networks, and Straight Path stockholders will receive 22% of the net proceeds, if any, received by SPIP from licenses, settlements, awards or judgments involving any of the patent rights and certain transfers of the patents or related rights.

On April 10, 2017, the Company’s Board of Directors and its Corporate Governance Committee approved the transfer by the Company of the ownership interest in SPIP to an entity to be organized by Howard S. Jonas in exchange for $6.0 million, which is the price to be paid by the Company to Straight Path for the ownership interest in SPIP under the settlement arrangement with Straight Path. The new entity will assume the Company’s obligations to Straight Path and its stockholders with respect to the net proceeds, if any, related to the patents as described above.

In April 2017, the Company recorded a liability of $10.0 million related to the settlement and mutual release with Straight Path. In addition, in the three and nine months ended April 30, 2017, the Company incurred legal fees of $0.1 million and $1.2 million, respectively, related to the FCC inquiry and the settlement and mutual release, which is included in “Other operating expense” in the accompanying consolidated statements of operations.