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As filed with the Securities and Exchange Commission on February 8, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IDT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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Delaware 22-3415036
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
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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)
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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)
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Copy to:
Joyce J. Mason, Esq.
General Counsel
IDT Corporation
190 Main Street
Hackensack, New Jersey 07601
(201) 928-1000
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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. [_]
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CALCULATION OF REGISTRATION FEE
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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
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Common Stock, $.01 par
value.................. 173,944 $14.875 $2,587,417 $719.30
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(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.
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.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 February , 1999
173,944 Shares
IDT Corporation
Common Stock
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This Prospectus relates to the offer and sale of up to 173,944 shares of
common stock from time to time by certain stockholders of IDT Corporation. 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 February 5, 1999, the last reported sales price as reported by the
Nasdaq National Market was $16.125 per share.
Our principal executive offices are located at 190 Main Street, Hackensack,
New Jersey 07601 and our telephone number is (201) 928-1000.
Investing in the common stock involves certain risks. Consider carefully the
"Risk Factors" beginning on page 2.
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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 selling stockholders may offer their shares through public or private
transactions, on or off the United States exchanges, at prevailing market
prices, or at privately negotiated prices.
, 1999
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TABLE OF CONTENTS
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Page
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Risk Factors.............................................................. 2
Risks of Expansion...................................................... 2
Risks Associated with Growth of Telecommunications Networks............. 2
Dependence on Others.................................................... 3
Dependance on Sales Representatives and Retailers....................... 4
Dependence on Management Information Systems............................ 4
Risks of Network Failure................................................ 5
Year 2000 Compliance.................................................... 5
New and Uncertain Markets............................................... 6
Rapid Technological Development......................................... 7
Risks Associated with International Operations.......................... 7
Risks Associated with Collections of Receivables........................ 8
Fraud; Theft of Services; Uncollectible Accounts........................ 8
Competition............................................................. 9
Government Regulatory Policy Risks...................................... 12
Proprietary Rights...................................................... 14
Security Risks.......................................................... 14
Potential Liability for Information Disseminated through Our Network.... 15
Risks Associated with Acquisitions, Investments and Strategic
Alliances.............................................................. 15
Need for Additional Capital to Finance Growth and Capital Requirements.. 16
Historical Losses....................................................... 16
Effects of Leverage..................................................... 16
Risks Relating to a Change of Control................................... 17
Restrictive Loan Covenants.............................................. 17
Dependence on Key Personnel............................................. 17
Control by Principal Stockholder........................................ 18
Volatility of Stock Price............................................... 18
Shares Eligible for Future Sale......................................... 18
Possible Anti-Takeover Effect of Certain Charter Provisions and Delaware
Law.................................................................... 18
The Company............................................................... 19
Use of Proceeds........................................................... 19
Selling Stockholders...................................................... 19
Plan of Distribution...................................................... 21
Legal Matters............................................................. 21
Experts................................................................... 21
Where You Can Find More Information....................................... 22
Incorporation of Certain Documents by Reference........................... 22
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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 and the additional information described under
the heading "Where You Can Find More Information" was accurate on the date of
the front cover of its Prospectus only. Our business, financial condition,
results of operations and prospects may have changed since that date.
<PAGE>
RISK FACTORS
An investment in the common stock offered by this Prospectus involves a high
degree of risk. Before making an investment, you should carefully consider the
following risks and speculative factors, as well as the other information
contained in this Prospectus. Except for historical information, the
information contained in this Prospectus and in our SEC reports are "forward-
looking" statements about our expected future business and performance. Our
actual operating results and financial performance may prove to be very
different from what we might have predicted as of the date of this Prospectus.
The risks described below address some of the factors that may affect our
future operating results and financial performance.
In this "Risk Factors" section, "we," "our" and "ours" refer to the Company
and "you," "your" and "yours" refer to a purchaser of the common stock of IDT
Corporation offered by this Prospectus.
Risks of Expansion
We have increased the number of our employees and expanded the geographic
scope of our operations. However, our ability to continue to grow 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 can provide no assurance that we
will be able to continue to expand our telecommunications network, services,
customer bases or markets. While we have experienced significant revenue
growth, we cannot provide assurance that the growth that we have experienced in
recent years will continue.
As we increase our service offerings and expand our target markets, we
believe that we will need to further expand our network and infrastructure, to
upgrade our financial and information systems and controls and to hire
additional sales, marketing and technical personnel, as well as additional
qualified administrative and management personnel both in the short-term and in
the long-term. 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.
Risks Associated with Growth of Telecommunications Networks
Historically, we have relied primarily on the ability to lease transmission
capacity on the undersea fiber optic cables of other carriers in order to
deliver our telecommunications services at the lowest rates. As a result, our
telecommunications expenses have varied based upon minutes of use, and
consisted largely of payments to other long distance carriers, customer/carrier
interconnect charges, charges for leased fiber circuits and the costs of
switching facilities.
However, since Fiscal 1995, we have made capital expenditures in order to
expand our network, and intend to continue to do so in the future. Our strategy
is to increase traffic volumes prior to investing in new facilities. This is
based in part on our expectations concerning future revenue growth and market
developments. As we expand our network and the volume of our network traffic,
the cost of revenues will increasingly consist of fixed costs arising from the
ownership and maintenance of our switches. 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 and the associated
revenues that we generate. If our traffic volume decreases, or fails to
increase to the extent expected or necessary to make efficient use of our
network, our costs as a percentage of revenues would increase significantly,
which could have a material adverse effect on our profitability.
Undersea fiber optic cables typically take several years to plan and
construct, and carriers generally make investments based upon a forecast of
anticipated traffic. As a result, our operations are subject to the risk that
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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 do not control
the planning or construction of undersea fiber optic transmission facilities
and 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 currently own or lease transmission capacity on 18
undersea fiber optic cables. We can provide no assurance that we will be able
to continue to obtain sufficient transmission facilities or access to undersea
fiber optic cables on favorable terms.
Dependence on Others
We depend on other carriers for many of our services, and 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 also face the risk that there may be a disruption in
the service provided by these carriers, which would cause a disruption in the
services that we provide to our own customers. 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 unable to expand
its network or becomes unwilling to provide or expand 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 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 may plan to operate in countries in which local laws or
regulations limit the ability of telecommunications companies to provide basic
international telecommunications 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. We can provide no assurance that
future regulatory, judicial, legislative or political considerations will
permit such companies to offer to residents of such countries all or any of
their services, that regulators or third parties will not raise material issues
regarding the compliance of such parties with applicable laws or regulations,
or that these regulatory, judicial, legislative or political decisions will not
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, such developments could have a
material adverse effect on our business.
3
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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.
We also depend on other companies to provide Internet access to our
customers in areas not served by our internet backbone. In such areas we depend
upon the continued viability and financial stability of our Alliance Partners
and other suppliers, as well as on the performance of their networks. The
Alliance Partners are entities 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 our Alliance Partners or other suppliers 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 our Alliance Partners. If a significant number of our
Alliance Partners 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.
We are currently dependent on software licensed from Netscape Communications
Corporation ("Netscape") and Microsoft Corporation ("Microsoft") 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. The occurrence of any operating
difficulties in connection with the licensed software could deter customers
from using our Internet access services, which could result in a material
adverse effect on our business.
Dependence on Sales Representatives and Retailers
We are dependent on 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 and/or distribute our products and services, our ability to generate
revenues could be substantially impaired, which could have a material adverse
effect on our business.
We are currently dependent upon Union Telecard Alliance, LLC, a joint
venture company formed with Carlos Gomez. We own 51% of the outstanding equity
interests in this company through an agreement which we entered into with Union
Telecard Alliance and Carlos Gomez during the fourth quarter of Fiscal 1998.
The agreement permits the termination of the joint venture 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 equity
interests in Union Telecard Alliance, LLC 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.
Dependence on Management Information Systems
We are dependent upon management information systems and switching equipment
to provide service to our customers, manage our network, collect billing
information and perform other vital functions. We are particularly dependent
upon the maintenance of an effective billing and collection system. Our
management information systems and switching equipment are subject to hardware
defects and software bugs which may be outside of our control. We may
experience technical difficulties with our hardware or software which could
materially adversely affect our business. See "Year 2000 Compliance."
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Risks of Network Failure
Our success is largely dependent 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 have a material
adverse effect on 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 due to natural
disasters such as fires, floods, hurricanes and earthquakes, 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. Such damage or losses could have a material adverse
effect on our ability to obtain new subscribers and customers, and on our
business.
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 POPs, and our subscribers
experienced difficulties in accessing and maintaining their connection to the
Internet. We maintain a substantial portion of our Internet accounts, e-mail
services, and other essential systems at our primary operating facilities in
Hackensack, New Jersey. 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.
Year 2000 Compliance
We are conducting a review of our computer hardware and software to ensure
that its computer-related applications will not fail or create erroneous
results as a result of the use of two digits, rather than four digits, to
define the applicable year in various program date fields (the "Year 2000
issue"). Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations, causing disruptions
of operations including, among other things, a temporary inability to complete
or route our customers' phone calls, to process transactions, billing and
customer service or to engage in similar normal business activities.
Our cost of addressing the Year 2000 issue is not expected to be material to
our operations or financial position. However, the consequences of an
incomplete or untimely resolution of the Year 2000 issue could be expected to
have a material adverse effect upon our financial results; in the absence of
such a resolution, our ability to route our telecommunications traffic in a
cost effective manner, to deliver a material portion of our services, to
properly obtain payment for such services, and/or to maintain accurate records
of our business and operations, could be substantially impaired until such
issue is remediated. We will become liable for substantial damages in the event
that, as a result of the Year 2000 issue, we fail to deliver any services that
we have contracted to provide. However, we expect to satisfactorily resolve our
Year 2000 issues before the year 2000.
We are conducting an external review of our customers and suppliers, and any
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 to the extent that other
telecommunications carriers whose services are resold by us or to which we send
traffic for termination are not Year 2000 compliant. Our ability to determine
the ability of these third parties to address issues relating to the Year 2000
problem is necessarily limited. To the extent that a limited number of carriers
experience disruptions in service due to the Year 2000 issue, 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.
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In addition, we are developing contingency plans with regard to potential
Year 2000 problems. We believe that if one or more of our systems is impaired
due to unanticipated Year 2000 issues, our contingency plans will enable us to
conduct our operations on a temporarily modified basis until the impaired
system or systems is remediated. We can provide no assurance that our suppliers
and customers will achieve full Year 2000 compliance before the end of 1999 or
that we will develop or implement effective contingency plans on a timely
basis. A failure of our computer systems or the failure of our suppliers or
customers to effectively upgrade their software and systems for transition to
the Year 2000 could have a material adverse effect on our business.
New and Uncertain Markets
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. 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 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. Open markets for telecommunications services are expected to evolve
in other parts of the world as well.
While we are focused on expanding our business through the opportunities
presented by deregulation, we frequently enter new markets and cannot predict
how the regulatory environments of these markets will evolve. Changes in the
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.
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. These competitors are seeking to market, advertise and position their
products and services as the preferred method for accessing long distance
telephone services. 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.
The markets for Internet access, content and telephony services and related
software products are relatively new, and our current and future competitors
are likely to introduce competing Internet access and/or on-line services and
products. Therefore, it is difficult to predict the rate at which these markets
will grow or at which new or increased competition will develop. If demand for
Internet services fails to grow, grows more slowly than anticipated, or if the
market becomes saturated with competitors, our business could be adversely
affected.
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. We believe that these
services expand the role of the Internet as a means of communications and
enable users to benefit from substantially reduced long distance rates.
However, Internet telephony is in the early stages of development, and many
believe that this method of service is of less quality and consistency than
more traditional forms of service. We can provide no 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
international telephone callers, accustomed to the convenience and quality of
traditional phone-to-phone international calling, may not switch
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to Internet telephony services. The failure of Internet telephony to develop as
a viable industry may adversely affect our business.
Rapid Technological Development
Our target markets are characterized by rapidly changing technology,
evolving industry standards, emerging competition and the frequent introduction
of new services, software and other products. Our success depends in part upon
our ability to enhance existing products, software and services and to develop
new products, software and services that meet changing customer requirements on
a timely and cost-effective manner. We can provide no assurance that we will be
able to successfully identify new opportunities and develop and bring new
products, software and services to market in a timely and cost-effective
manner, or that products, software, services or technologies developed by
others will not render our products, software, services or technologies
noncompetitive or obsolete. In addition, we can provide no assurance that
products, software or service developments or enhancements introduced by us
will be viewed as desirable by consumers and businesses in our targeted
markets, or that they will be fully compatible with new industry standards.
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 telephone 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 can provide no assurance that we will succeed in adapting our
businesses to alternate access devices or other technological developments.
Risks Associated with International Operations
In Fiscal 1996, 1997, 1998, and the three months ended October 31, 1998,
international customers accounted for approximately 23%, 25%, 11% and 8.3% 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;
. the collection and payment of applicable value-added taxes;
. political and economic instability;
. difficulties in collecting accounts receivable;
. difficulties in establishing, maintaining and managing independent
foreign sales organizations;
. difficulties in staffing and managing international operations;
. difficulties in maintaining and repairing equipment abroad;
. difficulties in protecting our intellectual property overseas;
. possible confiscation of property and equipment;
. potentially adverse tax consequences; and
. the regulation of telecommunications companies and Internet service
providers by foreign jurisdictions.
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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 regularly denominate prices in foreign currencies, we will be exposed
to increased risks of currency fluctuation. We do not engage in hedging
activities designed to manage currency fluctuations nor do we have immediate
plans to do so.
We are subject to the Foreign Corrupt Practices Act ("FCPA"), 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 the FCPA as a result of past or future actions taken without
our knowledge by agents, strategic partners and other third parties. Any
liability imposed under the FCPA could have a material adverse effect on our
business.
Risks Associated with Collections of 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. 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 11.4% for the three months
ended October 31, 1998. 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. We perform ongoing credit
evaluations of our customers, but generally do not require collateral to
support accounts receivable from our 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.
Historically, we have experienced losses from uncollectable receivables in
our Internet access and call reorigination businesses. The call reorigination
business is particularly susceptible to bad credit risks because the customers
for these services reside in a wide range of countries. Many of these countries
do not have established credit bureaus, which makes it more difficult for us to
determine the creditworthiness of potential customers. 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 October 31, 1998, we had reserved
approximately $6.7 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.
Fraud; Theft of Services; Uncollectible Accounts
The telecommunications and Internet access industries have historically
incurred losses due to fraud. 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, we can provide no
assurance that our risk management practices will be sufficient to protect us
in the
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future from unauthorized transactions or thefts of services which could have a
material adverse effect on our business.
Competition
The markets in which we operate are extremely competitive and can be
significantly influenced by the marketing and pricing decisions of the larger
participants. The barriers to entry are not insurmountable in any of the
markets in which we compete. We expect competition in these markets to
intensify in the future.
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 than us. Currently, we compete
with:
. interexchange 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 PTTs;
. 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 pursuant to
recent legislation authorizing such entry, and utilities such as RWE
Aktiengesellschaft in Germany; and
. small long distance resellers.
We compete for customers in the telecommunications markets primarily based
on price and, to a lesser extent, on the type and quality of service offered.
Increased competition could force us to reduce our prices and profit margins if
our competitors are able to procure rates or enter into service agreements that
are comparable to or better than ours, or if they are able to offer other
incentives to existing and potential customers. Similarly, we have no control
over the prices set by our competitors in the long distance resale carrier-to-
carrier market.
We compete with other providers of prepaid calling cards, including 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 the 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). We cannot guarantee that
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 will not have a material adverse effect on our revenues from the
sale of these cards.
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
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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.
Although we have no reason to believe that our competitors will adopt
aggressive pricing policies
that could adversely affect us, we can provide no assurance that such price
competition will not occur or that we will be able to compete successfully in
the future. In addition, we are aware that our ability to market our long
distance resale services depends upon the existence of spreads between the
rates offered by us and those offered by the carriers with which we compete, as
well as those from which we obtain service. A decrease in such spreads could
have a material adverse effect on our results of operations. See "--Dependence
on Others."
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 our
international call reorigination services. If a deregulated PTT or another home
country service provider 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.
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;
. nonprofit or educational Internet service providers;
. newly-licensed providers of spectrum-based wireless data services; and
. competitive local exchange carriers such as TCG and MCI WorldCom.
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 in connection 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.
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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.
We believe that our ability to compete successfully in the Internet access
market depends upon a number of factors including:
. market presence;
. the adequacy of our customer support services;
. the capacity, reliability and security of our network infrastructure;
. the ease of access to and navigation of the Internet;
. the pricing policies of our competitors and suppliers;
. regulatory price requirements for interconnection to and use of existing
local exchange networks by Internet service providers;
. the timing of introductions of new products and services by us and our
competitors;
. our ability to support existing and emerging industry standards; and
. trends within the industry as well as the general economy.
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.
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. Such access charges could significantly increase
our costs of doing business and could, therefore, have a material adverse
effect on our competitive position and on our 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 readdress whether 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.
Internet Telephony
The market for Internet telephony services is expected to be extremely
competitive. Many of the current Internet telephony products enable voice
communications over the Internet between two parties simultaneously connected
to the Internet via multimedia PCs, where both parties are using identical
Internet telephony software products. Current Internet telephony products
include VocalTec Communications, Ltd.'s Internet Phone(TM); QuarterDeck
Corporation's WebPhone(TM); and Microsoft's NetMeeting(TM). In addition, a
number of large companies such as Cisco Systems, Inc., Lucent Technologies,
Inc., Northern Telecom Limited and Dialogic Corp. have announced their
intentions to offer server-based 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. Other companies, such as ITXC
Corp. and Delta Three (a division of RSL Communications, Ltd.) route Internet
telephony traffic to destinations on a worldwide basis. 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
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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 cannot be certain
that we will be able to compete successfully in the developing Internet
telephony market or that other large companies will not enter the market as
major suppliers of Internet telephony services or equipment.
Government Regulatory Policy Risks
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. 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 otherwise 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.
We compete with companies, such as the Regional Bell Operating Companies
("RBOCs"), that are also subject to government regulation. Existing regulations
may restrict or otherwise limit these companies from fully competing with us.
We can provide no assurance that current or future regulatory, judicial,
legislative or political proposals will not lift existing restrictions on our
competitors. Changes to these laws and regulations, or changes in their
interpretation could allow for greater competition. We cannot guarantee that
such changes in existing laws or regulations will not occur or that any such
changes will not have a material adverse effect on our business.
Our provision of telecommunications service is subject to various state,
federal, and foreign legal regulatory requirements. These requirements include
registration, certification, tariffing, payment of regulatory fees, and various
reporting obligations. Our provision of Internet telephony and Internet access
services are also subject to limited government regulation, although certain
proposals before state, federal and foreign regulators could impose additional
obligations upon us. In addition, we are subject to the oversight of various
state, federal and foreign regulatory bodies. These governmental bodies have
the authority and discretion to investigate our activities and may impose
additional reporting, fee payment, and compliance obligations. We cannot
guarantee that we will not be subject to additional regulatory oversight or
compliance obligations. Increased regulation may impose additional costs upon
our operations and could have a material adverse effect on our business.
Federal regulation of the telecommunications industry may also impact our
ability to sell prepaid calling cards. The Telecommunications Act of 1996
requires interexchange carriers to pay the owners of payphones when a payphone
is used to make a telephone call using a prepaid calling card. 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 interexchange
carriers. Any substantial increases of these charges could be passed upon to
users of prepaid calling cards, which could substantially reduce the demand for
these services, and our ability to sell prepaid calling cards.
European Regulation of Telecommunications Services. No assurances can be
given that changes to the existing European regulatory framework or its
differing implementation by each member state of the European Union will not
occur. Changes to existing regulations may decrease the opportunities that are
available for us to
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enter into those markets, or may increase our legal, administrative or
operational costs, or may otherwise constrain our activities, any of which
could have a material adverse effect on our business, financial condition, or
results of operations.
Other Overseas Markets. 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.
Internet Access
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.
In December 1996, the FCC initiated a Notice of Inquiry regarding whether to
impose regulations or surcharges upon providers of Internet access and
Information Service. 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. The Notice of Inquiry specifically identifies Internet telephony as
a subject for FCC consideration. 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.
Internet Telephony
The use of the Internet to provide telephone service is a recent market
development. Currently, the FCC is considering whether or not to impose
surcharges or additional regulations upon certain providers of Internet
telephony. 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 and lack the characteristics that would render them information
services. If the FCC were to determine 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. 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
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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 begin to regulate Internet
telephony, there can be no assurances that any such regulation will not
materially adversely affect our business.
Proprietary 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 issues. Our competitors
may be able to design around any such patent, and others may obtain patents
that we would need to license or circumvent in order to exploit our patent.
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 such claims
against us in the future, and one or more of such 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, if their patent claims are found to
be valid and that they have been infringed. Such a judgment could have a
material adverse effect on our business.
Security Risks
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
computer viruses, break-ins and similar disruptive problems caused by our
customers or other Internet users. Such problems could lead to interruption,
delays or cessation in service to our Internet customers. 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.
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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 or arising out of such breach. Any such claims, if
upheld, could have a material adverse effect on our results of operations.
Potential Liability for Information Disseminated through Our Network
Internet service providers and Internet content providers face potential
liability of uncertain scope 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 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.
While the infringement provisions of U.S. and foreign intellectual property
laws continue to be a risk for online service providers, recent U.S.
legislation dealing with other areas of law seems to have provided more
assurance in the form of immunity to liability for information that is supplied
by third parties. There have been two recent cases that have confirmed these
limits on liability, although the exact scope of protection has not yet been
determined.
We carry errors and omissions insurance. However, such insurance may not be
adequate to compensate us for liability that may be imposed. Any imposition of
liability in excess of our coverage could have a material adverse effect on our
business. In addition, 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
the 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.
Risks Associated with Acquisitions, Investments and Strategic Alliances
We expect to enter into strategic alliances with, acquire assets or
businesses from, or make investments in, companies that are complementary to
our current operations. Any future strategic alliances, investments or
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acquisitions would be accompanied by the risks that relate to these types of
transactions. These risks include, among others:
. the difficulty of absorbing the operations and personnel of the acquired
companies;
. the potential disruption of our ongoing business;
. costs associated with the development and integration of such operations;
. the inability of management to maximize our financial and strategic
position by successfully incorporating licensed or acquired technology
into our services;
. the maintenance of uniform standards, controls, procedures and policies;
. the disruption of relationships with employees and customers as a result
of changes in management; and
. higher customer attrition with respect to customers obtained through
acquisitions.
Need for Additional Capital to Finance Growth and Capital Requirements
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.
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.
Historical Losses
We incurred net losses in Fiscal 1996, 1997 and 1998 of $15.6 million, $3.8
million and $6.4 million, respectively. For the three months ended October 31,
1998, we generated $4.9 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.
A substantial portion of our revenues in Fiscal 1997 and Fiscal 1998 were
derived from telecommunications services. We have only a limited operating
history with respect to certain of our services in these areas, including from
the sale of prepaid calling cards, and we can provide no assurance regarding
our future performance. In addition, we intend to enter markets where we have
limited or no operating experience. Accordingly, we cannot provide any
assurance as to our ability to generate operating income, and our prospects
must be considered in light of the risks, expenses, problems and delays
inherent in developing a new business in a rapidly changing industry.
Effects of Leverage
On October 31, 1998, we had long-term debt of approximately $111.8 million
and stockholders' equity of approximately $245.0 million. Our long-term debt
includes $100.0 million in aggregate principal amount of 8 3/4% Senior Notes
due 2006 (the "Notes"), which were issued in February 1998. Our ratio of
earnings to
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fixed charges was 4.3 for the three months ended October 31, 1998. Moreover, we
may incur additional indebtedness in the future.
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, which, to a
certain extent, is subject to factors that are beyond our control. 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 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 leverage could have important consequences, including but not limited
to:
. 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 its
business and the industry.
Risks Relating to a Change of Control
Upon a Change of Control (as defined in the Indenture relating to the
Notes), holders of the Notes will have the right to require us to repurchase
all or any part of such holders' Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. We can provide no assurance that we will have sufficient financial
resources available to satisfy all of our obligations under the Notes in the
event of a Change of Control. Our failure to purchase the Notes would result in
a default under the Indenture, which could have adverse consequences for us.
The definition of "Change of Control" in the Indenture includes a sale, lease,
exchange or other transfer of "all or substantially all" of our assets and
those of our subsidiaries taken as a whole to a person or a group of persons.
There is no clearly established meaning for the phrase "all or substantially
all" in the context of an indenture. Accordingly the ability of a holder of the
Notes to require us to repurchase such Notes as a result of a sale, lease,
exchange or other transfer of all or substantially all of our assets to a
person or group of persons may be uncertain.
Restrictive Loan Covenants
The Indenture governing the Notes contains numerous financial and operating
covenants that limit the discretion of our management with respect to certain
business matters. 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 which could result in acceleration of the
related debt under the Notes and the acceleration of debt under other
instruments that may contain cross-acceleration or cross-default provisions.
Dependence on 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
17
<PAGE>
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 President. The loss
of the services of either Mr. Jonas or Mr. Courter could have a material
adverse effect on our business.
Control by 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.
Volatility of Stock Price
The market price of our common stock has fluctuated significantly and it
will fluctuate in the future. 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.
Shares Eligible for Future Sale
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, Inc. in April 1998,
we issued 3,242,323 shares of common stock as part of the purchase price. Of
such shares, 58,667 and 537,032 were registered for resale in June 1998 and
October 1998, respectively. In addition to the 73,944 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, pursuant to our
acquisition of an interest in Union Telecard Alliance, LLC, we became obligated
to issue and register up to 200,000 shares of common Stock, of which 100,000
shares are covered by this Prospectus. As of October 31, 1998, 1,828,901 shares
of our Common Stock were issuable upon exercise of outstanding employee stock
options, and as of October 31, 1998, 65,140 shares of our common stock were
issuable upon the exercise of certain outstanding warrants.
Possible Anti-Takeover Effect of Certain Charter Provisions and Delaware Law
Our Certificate of Incorporation authorizes the Board of Directors to issue,
without stockholder approval, one or more series of preferred stock having such
rights (including preferences over the common stock as to dividends,
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render 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 the
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. Certain provisions of the Delaware General Corporation Law may also
discourage takeover attempts that have not been approved by the Board of
Directors.
18
<PAGE>
THE COMPANY
IDT Corporation (the "Company") 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.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock
by the selling stockholders.
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 an Agreement and Plan of Merger, dated April 7,
1998 (the "IX Merger Agreement"), pursuant to which the Company agreed to
acquire all of the issued and outstanding shares of InterExchange, Inc., a
Delaware corporation, and four related companies acquired by InterExchange,
Inc. immediately prior to the transaction contemplated by the IX Merger
Agreement (collectively, "IX"). Pursuant to the Merger Agreement, the former
stockholders of IX received an aggregate of 3,242,323 newly issued shares of
the Company's 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 IX 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 IX and will be available for sale after April
7, 1999 pursuant to the Prospectus. During the last three years, each of these
employees served IX and/or the Company 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 are
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 the Company.
Carlos Gomez obtained his shares pursuant to a Securities Purchase
Agreement, dated May 1, 1998, which he entered into with Union Telecard
Alliance, LLC ("Union") and the Company. In exchange for a 51% interest in
Union, a prepaid calling card distributor, we agreed to issue up to 200,000
shares of common stock to Mr. Gomez. Of such shares, 100,000 shares were
issued upon execution of the Securities Purchase Agreement and are included in
this Prospectus. Carlos Gomez has served as President and as a Manager of
Union since its formation in 1998. Prior to his current position, Carlos Gomez
operated a different company that served as an independent distributor of our
prepaid calling cards.
The following table sets forth certain information known to us with respect
to the beneficial ownership of each selling stockholder as of January 31,
1999, as to (i) the number of shares of common stock and percentage of
outstanding shares of common stock beneficially held by each selling
stockholder, (ii) the maximum number of shares that may be offered by each
selling stockholder pursuant to this Prospectus, (iii) the number of shares of
common stock and percentage of outstanding shares of common stock that will be
held by each selling stockholder assuming the sale of all such shares and
assuming conversion of each of the shares of our
19
<PAGE>
Company's Class A common stock 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 upon termination of this offering because each of the selling
stockholders may offer all or some part of the shares which he or she holds
from time to time pursuant to the offering contemplated by this Prospectus, and
because this offering is not being underwritten on a firm commitment basis. See
"Plan of Distribution."
<TABLE>
<CAPTION>
Shares
Beneficially
Owned After the
Shares Beneficially Number of Offering
Owned Prior to the Shares Offered -----------------
Selling Stockholder Offering Hereby Number Percentage
- ------------------- ------------------- -------------- ------ ----------
<S> <C> <C> <C> <C>
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
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 *
</TABLE>
- --------
* 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 the
Company.
20
<PAGE>
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 such methods of sale, 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 effect such transactions directly to
purchasers or to or through broker-dealers which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling
stockholders (which 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, as amended (the "Securities Act") may be sold under Rule 144
rather than pursuant to this Prospectus.
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. To the extent any of the
selling stockholders may be deemed to be acting as an underwriter, such selling
stockholder 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 hereby will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-5 and Regulation M (and
Rules 100 to 105 thereof), which provisions may limit the timing of purchases
and sales of any of the shares by the selling stockholders and any other such
person. Furthermore, pursuant to such regulations, any person engaged in a
distribution of the shares may not simultaneously engage in market-making
activities with respect thereto during the period beginning when such person
becomes a distribution participant and ending upon such person's 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 with respect to the shares.
LEGAL MATTERS
Certain legal matters with respect to this offering will be passed upon for
the company by Joyce J. Mason, Senior Vice President, General Counsel,
Secretary and a director of the Company.
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, Inc. 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.
21
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and file annual and quarterly
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "SEC"). These reports, proxy statements
and other information 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. The Common Stock is quoted
on the Nasdaq National Market. Our reports, proxy statements and other
information can also be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
We have filed with the SEC a Registration Statement on Form S-3 with respect
to the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
to which reference is hereby made. Statements contained in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed to be qualified in its entirety by such
reference.
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) Current report on Form 8-K, dated May 26, 1998, as amended; and
(4) 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 subsequently filed by us pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Common Stock
hereunder shall be deemed to 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 hereby undertake to provide without charge to each
person, including any beneficial owner, to whom a copy of this Prospectus is
delivered, upon written or oral request of such person a copy of any or all of
the preceding documents incorporated herein by reference (exclusive of
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.
22
<PAGE>
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 the Company in connection with the sale of Common Stock
being registered. All amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 719.30
Printing expenses..............................................
Legal fees and expenses........................................
Accounting fees and expenses...................................
Miscellaneous expenses......................................... 10,000.00
---------
Total........................................................ $
</TABLE>
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 the Company eliminates the
personal liability for monetary damages of directors under certain
circumstances and provides indemnification to directors and officers of the
Company 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
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
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).
</TABLE>
- --------
* filed herewith
(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
<PAGE>
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
<PAGE>
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 8th day of
February, 1999.
IDT Corporation
/s/ Howard S. Jonas
By: _________________________________
Howard S. Jonas
Chairman and CEO
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Howard S. Jonas and James A. Courter,
and each of them, each with full power to act without the other, his true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any amendments to this registration statement, and to
sign any registration statement for the same offering covered by this
Registration Statement including post-effective amendments, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
that each of said such attorneys-in-fact and agents or his substitute or
substitutes, may do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Howard S. Jonas Chairman and Chief Executive February 8, 1999
____________________________________ Officer (Principal Executive
Howard S. Jonas Officer)
/s/ James A. Courter President and Director (Principal February 8, 1999
____________________________________ Executive Officer)
James A. Courter
/s/ Hal Brecher Chief Operating Officer and February 8, 1999
____________________________________ Director
Hal Brecher
/s/ Stephen R. Brown Chief Financial Officer February 8, 1999
____________________________________ (Principal Financial and
Stephen R. Brown Accounting Officer)
/s/ Howard S. Balter Director February 8, 1999
____________________________________
Howard S. Balter
/s/ Mark E. Knoller Director February 8, 1999
____________________________________
Mark E. Knoller
/s/ Joyce J. Mason Director February 8, 1999
____________________________________
Joyce J. Mason
Director
____________________________________
Meyer A. Berman
/s/ J. Warren Blaker Director February 8, 1999
____________________________________
J. Warren Blaker
Director
____________________________________
Denis A. Bovin
/s/ James Mellor Director February 8, 1999
____________________________________
James Mellor
/s/ Elmo R. Zumwalt, Jr. Director February 8, 1999
____________________________________
Elmo R. Zumwalt, Jr.
</TABLE>
II-3
<PAGE>
Exhibit 5.01
February 5, 1999
IDT Corporation
190 Main Street
Hackensack, New Jersey 07601
Re: IDT Corporation
Registration Statement on Form S-3
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 173,944 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 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 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
<PAGE>
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 173,944 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
February 5, 1999
<PAGE>
Exhibit 23.02
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 173,944 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
February 5, 1999
