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