AS FILED WITH THE
QuickLinks-- Click here to rapidly navigate through this documentAs filed with the Securities and Exchange Commission on March 22, 2002
Registration No. 333-82300
SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 7, 2002 REGISTRATION NO. 333-______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON,
Washington, D.C. 20549---------------------------FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933---------------------------(Amendment No. 1)
VERINT SYSTEMS INC.
(Exact
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 7373 | 11-3200514 |
| (State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
234 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORKCrossways Park Drive
Woodbury, New York 11797
(516) 677-7300
(Address,
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
---------------------------
DAN BODNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VERINT SYSTEMS INC.
Dan Bodner
President and Chief Executive Officer
Verint Systems Inc.
234 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORKCrossways Park Drive
Woodbury, New York 11797
(516) 677-7300
(Name,
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
---------------------------
Copies to:
MATTHEW D. BLOCH, ESQ. DENNIS J. FRIEDMAN, ESQ.
JEFFREY NADLER, ESQ. BARBARA L. BECKER, ESQ.
WEIL, GOTSHAL & MANGES LLP ANTHONY C. PROVIDENTI, ESQ.
767 FIFTH AVENUE GIBSON, DUNN & CRUTCHER LLP
NEW YORK, NEW YORK 10153 200 PARK AVENUE
(212) 310-8000 NEW YORK, NEW YORK 10166
(212) 351-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
| Matthew D. Bloch, Esq. Jeffrey Nadler, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000 | Dennis J. Friedman, Esq. Barbara L. Becker, Esq. Anthony C. Providenti, Esq. Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 (212) 351-4000 |
Approximate date of commencement of proposed sale to the public:As soon as practicable after the effective date of this Registration Statement.
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, check the following box. [ ]/ /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ___________/ /
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
/ /
CALCULATION OF REGISTRATION FEE
============================================================ ================== ============================ ==================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------ ------------------ ---------------------------- ------------------
Common Stock, par value $.001 per share.................. $75,000,000 $6,900
============================================================ ================== ============================ ==================
| Title of Each Class of Securities to be Registered | Amount to be Registered(1) | Proposed maximum aggregate offering amount(2) | Amount of registration fee(3) | |||
| Common Stock, par value $.001 per share | $75,000,000 | $6,900 | ||||
The Registrant hereby amends this prospectus is not complete andRegistration Statement on such date or dates as may be changed.
Wenecessary 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 Section 8(a), may not selldetermine.
Information contained herein is subject to completion or amendment. A registration statement relating to these securities until the registration statementhas been filed with the Securities and Exchange Commission isCommission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus isshall not constitute an offer to sell these securities and it is not solicitingor the solicitation of an offer to buy nor shall there be any sale of these securities in any state where theState in which such offer, solicitation or sale is not permitted.
SUBJECT TO COMPLETION, DATEDwould be unlawful prior to registration or qualification under the securities laws of any such State.
Subject to Completion, dated , 2002
PROSPECTUS
SHARES
[LOGO]
VERINT SYSTEMS INC.
COMMON STOCK
- --------------------------------------------------------------------------------
This is our initial public offering of shares of our common stock. We are offering _________shares and the selling stockholder identified in this Prospectus is offering shares of our common stock. No public market for our common stock currently exists.
We anticipate that the initial public offering price will be between $______$ and $______$ per share. We intend to applyhave applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "VRNT".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE __.
---------------------------
Per Share Total
Initial Public Offering Price........................... $ $
Underwriting Discounts and Commissions.................. $ $
Proceeds, before expenses, to Verint Systems Inc........ $
Investing in our common stock involves risks. "Risk Factors" begin on page .
| Per Share | Total | |||||
|---|---|---|---|---|---|---|
| Initial Public Offering Price | $ | $ | ||||
| Underwriting Discounts and Commissions | $ | $ | ||||
| Proceeds, before expenses, to Verint Systems Inc. | $ | $ | ||||
| Proceeds, before expenses, to the Selling Stockholder | $ | $ | ||||
We have granted the underwriters a 30 day option to purchase up to _____ additional shares of our common stock to cover over-allotments, if any.
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.
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.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about _____________,, 2002.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
SALOMON SMITH BARNEY
ROBERTSON STEPHENS
UBS WARBURG
U.S. BANCORP PIPER JAFFRAY
, 2002
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[ARTWORK TO BE INSERTED]
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| Page | ||
|---|---|---|
| Prospectus | 1 | |
| Risk Factors | 5 | |
| Forward-Looking Statements | 17 | |
| Use of Proceeds | 18 | |
| Dividend Policy | 18 | |
| Capitalization | 19 | |
| Dilution | 20 | |
| Selected Consolidated Financial Data | 21 | |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
| Business | 33 | |
| Management | 47 | |
| Certain Relationships and Related | 57 | |
Principal | 61 | |
| Description of Capital | 63 | |
| Shares Eligible for Future | 66 | |
| Certain United States Federal Tax | 67 | |
| Underwriting | 70 | |
| Legal | 73 | |
| Experts | 73 | |
| Where You Can Find More | 73 | |
| Reports to | 73 | |
| Index to Consolidated Financial | F-1 |
You should rely only on the information contained in this prospectus. We have not and the underwriters have not authorized any other person to provide you with information different from that contained in this prospectus. We and the selling stockholder are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.
Until ___________,, 2002 (25 days after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the information set forth in "Risk Factors" before making an investment decision. In this prospectus, "Verint," "we," "us," and "our" refers to Verint Systems Inc. and its subsidiaries unless the context otherwise requires.
VERINT SYSTEMS INC.
We are a leading provider of analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. Our software generates actionable intelligence through the collection, retention and analysis of voice, fax, video, email, Internet and data transmissions from multiple types of communications networks.
Since the terrorist attacks of September 11, 2001, heightened awareness surrounding homeland defense and security, both in the United States and globally, has increased the demand for solutions such as ours. Recent legislative and regulatory actions have provided greater surveillance powers to law enforcement agencies, imposed strict requirements on communications service providers to facilitate interception of communications over public networks, and increased the security measures being implemented at airports and other public facilities. Demand for solutions such as ours has also been driven by the enormous growth in recent years in both the types and volume of communications.
We provide our solutions to two principal markets: the digital security and surveillance market and the enterprise business intelligence market.
DIGITAL SECURITY AND SURVEILLANCE
Digital Security and Surveillance
The digital security and surveillance market consists primarily of communications interception by law enforcement agencies and digital video security utilized by government agencies and public and private organizations. Communications interception, historically referred to as wiretapping, is the monitoring and recording of voice and data transmissions to and from a specified target over communications networks to obtain intelligence and gather evidence. Video security is the monitoring and recording of surveillance camera transmissions to safeguard public and private facilities.
Our digital security and surveillance solutions include the STAR-GATE and RELIANT communications interception products and LORONIX digital video security products. STAR-GATE enables communications service providers to intercept communications over a variety of wireline, wireless and Internet protocol, or IP, networks for delivery to law enforcement and other government agencies, and is sold to communications service and equipment providers. RELIANT provides intelligent recording and analysis solutions for communications interception activities, and is sold to law enforcement and government agencies. LORONIX digital video security products provide intelligent recording and analysis of video for security and surveillance applications and are sold to government agencies and public and private organizations for use in airports, public buildings, correctional facilities and corporate sites.
ENTERPRISE BUSINESS INTELLIGENCE
Enterprise Business Intelligence
The enterprise business intelligence market consists primarily of solutions targeting enterprises that rely on contact centers for voice, email and Internet interactions with their customers. Additionally, an emerging segment of enterprise business intelligence utilizes digital video information to allow enterprises and institutions to enhance their operations, processes and performance. The pressure on companies to manage their businesses more effectively has fueled the demand for analytic technologies and enterprise business intelligence solutions that provide actionable intelligence to organizations in a quick, convenient and helpful manner. Actionable intelligence generated from enterprise business
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intelligence solutions helps enterprises to service and retain customers, improve business processes and optimize contact center agent performance.
Our enterprise business intelligence solutions include ULTRA contact center business intelligence products and LORONIX video business intelligence products. Our ULTRA products record and analyze customer interactions with contact centers, providing enterprises with intelligence about customers,
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OUR STRATEGY
Our Strategy
Our strategy is to further enhance our position as a leading provider of digital security and surveillance and enterprise business intelligence solutions worldwide. Key elements of our strategy include:
o
We believe that we maintain a competitive advantage over industry participants in each of our markets as a result of our comprehensive product offerings, long-term customer relationships, established reputation in the industry, and extensive experience with and expertise in analytic solutions.
We
have established relationships with a variety of global partners including ADT,
Avaya, Genesys, Nortel, PriceWaterhouseCoopers, Siebel, Siemens and Visionics
and maintain a global presence through our direct sales force and international
networkforce. In addition, we have established marketing relationships with a variety of global value added resellers and a network of systems integrators.integrators, including ADT, Avaya, Nortel and Siemens. We also have technological alliances with leading software and hardware companies including Genesys, Siebel and Visionics, which enable us to offer complementary solutions to their products.
Our products are used by over 800 organizations in over 50 countries worldwide. Customers for our digital security and surveillance products include the U.S. Capitol, the Port Authority of New York and New Jersey, the U.S. Department of Defense, the U.S. Department of Justice, Washington Dulles International Airport, the Toronto Police Service, the Dutch National Police Agency, and other domestic and foreign law enforcement and intelligence agencies, as well as communications service and equipment providers, such as Cingular, Ericsson Nortel and VoiceStream.Nortel. Customers for our enterprise business intelligence products include Con Edison, FedEx, HSBC, JC Penney, Sprint, Target and Tiffany & Co. None of our customers, including systems integrators and value added resellers, individually accounted for more than 5% of our revenues in fiscal 2001.
We are a subsidiary of Comverse Technology, Inc. We were incorporated in Delaware on February 23, 1994 as "Interactive Information Systems Corporation," and from January 1999 through January 2002 we were known as "Comverse Infosys, Inc." On February 1, 2002, we changed our name to "Verint Systems Inc." Our principal executive offices are located at 234 Crossways Park Drive, Woodbury, New York 11797. Our telephone number at that address is (516) 677-7300. Our website is www.verintsystems.com. The information contained on our website is not part of this prospectus.
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| Common stock offered by | shares | |
| Common Stock offered by selling stockholders | shares | |
| Common stock to be outstanding after this | shares | |
| Use of Proceeds | We intend to use the net proceeds to finance the growth of our business, working capital and for general corporate purposes and capital expenditures. We may use a significant portion of the proceeds to repay bank debt. We may also use a portion of the proceeds for acquisitions or other investments. | |
| Proposed Nasdaq National Market | "VRNT" |
The common stock to be outstanding after this offering is based on the number of shares outstanding as of OctoberJanuary 31, 2001, which excludes:
o 15,188,3222002, including 700,000 shares of common stock issuable upon the conversion of an outstanding convertible note upon the effectiveness of this offering and excluding:
Unless otherwise indicated, the information in this prospectus:
o
References in this prospectus to Comverse Technology refer to our controlling stockholder, Comverse Technology, Inc., and its subsidiaries excluding Verint Systems Inc. References in this prospectus to Comverse Inc.
refer to our affiliate, Comverse, Inc. andor any of its subsidiaries. Comverse, Inc. is a wholly-owned subsidiary of Comverse Technology.
In 1998, we changed our fiscal year from the calendar year to the fiscal year ending January 31. References in this prospectus to fiscal 1999 refer to our fiscal year ended January 31, 2000. References in this prospectus to fiscal 2000 refer to our fiscal year ended January 31, 2001. References in this prospectus to fiscal 2001 refer to our fiscal year ended January 31, 2002.
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LORONIX(R)
LORONIX® and cctvware(R)cctvware® are registered trademarks of ours. We have also applied for registration of our RELIANT(TM)RELIANT™, vCRM(TM)vCRM™, Building the Customer Intelligent Enterprise(TM)Enterprise™, OpenStorage Portal(TM)Portal™ and Intelligent Recording(TM)Recording™ trademarks. Other trademarks and trade names appearing in this prospectus are the property of their respective holders.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes financial data regarding our business. You should read this information together with the consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. Financial data for the year ended December 31, 1997, the one-month period ended January 31, 1998 and the year ended January 31, 1999 and the
nine-month periods ended October 31, 2000 and 2001 are unaudited. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
| | Year Ended December 31, | One Month Ended January 31, | Year Ended January 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |||||||||||||
| | (in thousands, except per share data) | ||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||
| Sales | $ | 58,865 | $ | 758 | $ | 89,282 | $ | 120,612 | $ | 141,677 | $ | 131,235 | |||||||
| Loss from operations | (10,962 | ) | (5,796 | ) | (10,626 | ) | (9,548 | ) | (7,565 | )(1) | (2,533 | )(2) | |||||||
| Net loss | (11,627 | ) | (5,866 | ) | (11,659 | ) | (10,544 | ) | (8,559 | )(1) | (4,649 | )(2) | |||||||
| Net loss per share: Basic and diluted | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | $ | (0.09 | ) | $ | (0.05 | ) | |
| Shares used in computing basic and diluted net loss per share | 95,140 | 95,140 | 95,140 | 95,144 | 95,577 | 95,899 | |||||||||||||
The following table summarizes our balance sheet as of OctoberJanuary 31, 2001:
o 2002:
| | As of January 31, 2002 | |||||
|---|---|---|---|---|---|---|
| | Actual | Pro Forma as Adjusted | ||||
| | (in thousands) | |||||
| Balance Sheet Data: | ||||||
| Cash and cash equivalents | $ | 49,860 | $ | |||
| Working capital | 41,160 | |||||
| Total assets | 116,726 | |||||
| Long-term bank loans, including current maturities | 43,623 | |||||
| Stockholders' equity | 18,735 | |||||
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Investing in our common stock involves a high degree of risk. Before purchasing our shares, you should carefully consider the risks described below in addition to the other information in this prospectus. Our business, results of operations and financial condition may be materially and adversely affected due to any of the following risks. The trading price of our shares could decline due to any of these risks, and you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE HAVE INCURRED OPERATING AND NET LOSSES EVERY YEAR SINCE
Risks Related to Our Business and Industry
We have incurred operating and net losses every year since 1997. WE MAY NOT
OPERATE PROFITABLY IN THE FUTURE.We may not operate profitably in the future.
We reported net losses of $10.5 million for fiscal 1999, $8.6 million for fiscal 2000 and $3.7$4.6 million for the nine-month period ended October 31,fiscal 2001. As of OctoberJanuary 31, 2001,2002, our accumulated deficit was $44.0$45.0 million. If our sales do not increase as anticipated or if our expenses increase at a greater pace than our revenues, we will not become profitable. Even if we become profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis.
THE RECENT GLOBAL ECONOMIC SLOWDOWN AND THE DECLINE IN INFORMATION TECHNOLOGY
SPENDING HAS ADVERSELY IMPACTED OUR MARKETS AND REVENUES. ANY FURTHER DECLINE IN
INFORMATION TECHNOLOGY SPENDING MAY RESULT IN A FURTHER DECREASE IN OUR
REVENUES.
The recent global economic slowdown and the decline in information technology spending has adversely impacted our markets and revenues. Any further decline in information technology spending may result in a further decrease in our revenues.
The information technology industry has been particularly affected by worldwide conditions of economic weakness, causing many companies to reduce or in extreme cases eliminate altogether, information technology spending. During the first nine months of fiscal 2001, we experienced reduced demand for certain of our solutions and our revenues decreased from $102.7$141.7 million in the
nine-month period ended October 31,fiscal 2000 to $97.6$131.2 million in the nine-month
period ended October 31,fiscal 2001. If our current and prospective customers do not increase their spending on information technology or if such spending declines, our revenues may decrease even further. The information technology spending of our customers in the near term remains uncertain. Accordingly, we cannot assure you that we will be able to increase or maintain our revenues.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT OUR
OPERATING RESULTS.
Our lengthy and variable sales cycle makes it difficult for us to predict our operating results.
It is difficult for us to forecast the timing of revenues from sales of our products because our customers often need a significant amount of time to evaluate our products before purchasing them. The period between initial customer contact and a purchase by a customer may vary from six months to more than one year. During the evaluation period, customers may defer or scale down proposed orders of our products for various reasons, including:
o
Because our quarterly operating results may fluctuate significantly and may be below the expectations of analysts and investors, the market price for our stock may be volatile.
Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. As a result, our stock price may be volatile. The following factors, many of which are outside our control, can cause fluctuations in our operating results and volatility in our stock price:
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o
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The deferral or loss of one or more significant sales could materially and adversely affect our operating results in any fiscal quarter, particularly if there are significant sales and marketing expenses associated with the deferred or lost sales. We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a large extent fixed. As a result, we may not be able to sufficiently reduce our costs in any quarter to compensate for an unexpected near-term shortfall in revenues.
IF THE MARKETS FOR OUR PRODUCTS DO NOT DEVELOP, WE WILL NOT BE ABLE TO MAINTAIN
OUR GROWTH.
If the markets for our products do not develop, we will not be able to maintain our growth.
The markets for our digital security and surveillance and enterprise business intelligence products are still emerging. Our growth is dependent on, among other things, the size and pace at which the markets for our products develop. If the markets for our products decrease, remain constant or grow slower than we anticipate, we will not be able to maintain our growth. Continued growth in the demand for our products is uncertain as, among other reasons, our customers and potential customers may:
o
In addition, as our enterprise business intelligence products are sold primarily to contact centers, slower than anticipated growth or a contraction in the number of contact centers will have an adverse effect on our ability to maintain our growth.
THE INDUSTRY IN WHICH WE OPERATE IS CHARACTERIZED BY RAPID TECHNOLOGICAL
CHANGES, AND OUR CONTINUED SUCCESS WILL DEPEND UPON OUR ABILITY TO REACT TO SUCH
CHANGES.
The industry in which we operate is characterized by rapid technological changes, and our continued success will depend upon our ability to react to such changes.
The markets for our products are characterized by rapidly changing technology and evolving industry standards. The introduction of products embodying new technology and the emergence of new industry standards can render our existing products obsolete and unmarketable and can exert price pressures on existing products. It is critical to our success for us to be able to anticipate changes in technology or in industry standards and to successfully develop and introduce new, enhanced and competitive products on a timely basis. We cannot assure you that we will successfully develop new products or introduce new applications for existing products, that new products and applications will achieve market acceptance or that the introduction of our new products or technological developments by others will not render our products obsolete. Our inability to develop products that are competitive in technology and price and meet customer needs could have a material adverse effect on our business, financial condition or results of operations.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY OR IF OUR CUSTOMERS OPT TO DEVELOP
INTERNAL SUBSTITUTES FOR OUR PRODUCTS, OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD SUFFER.
If we are unable to compete successfully or if our customers opt to develop internal substitutes for our products, our business, financial condition and results of operations could suffer.
The global market for analytical solutions for security and business applications is intensely competitive, both in the number and breadth of competing companies and products and the manner in which products are sold. For example, we often compete for customer contracts through a competitive bidding process that subjects us to risks associated with:
o
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Our competitors may be able to develop more quickly or adapt faster to new or emerging technologies and changes in customer requirements, or devote greater resources to the development, promotion and sale of their products. Some of our competitors have, in relation to us, longer operating histories, larger customer bases, longer standing relationships with customers, greater name recognition and significantly greater financial, technical, marketing, customer service, public relations, distribution and other resources. New competitors or alliances among competitors could emerge and rapidly take significant market share. In addition, some of our customers may in the future decide to develop internally their own solutions instead of purchasing them from us. Increased competition could force us to lower our prices or take other actions to differentiate our products.
WE ARE DEPENDENT ON CONTRACTS WITH GOVERNMENTS FOR A SIGNIFICANT PORTION OF OUR
REVENUES.
During
We are dependent on contracts with governments for a significant portion of our revenues.
Revenues derived from government contracts accounted for approximately 21%, 22% and 26% of our revenues for fiscal 1999, fiscal 2000 and the nine-month period ended
October 31,fiscal 2001, we derived a significant portion of our revenues from
government contracts.respectively. We expect that government contracts will continue to be a significant source of our revenues for the foreseeable future. Our business generated from government contracts may be adversely affected if:
o
Our proxy agreement with the U.S. DEPARTMENT OF DEFENSE LIMITS OUR CONTROL OVER
ONE OF OUR SUBSIDIARIES. IF THIS AGREEMENT IS TERMINATED, WE MAY BE SUSPENDED
FROM SELLING OUR COMMUNICATIONS INTERCEPTION PRODUCTS TO THEDepartment of Defense limits our control over one of our subsidiaries. If this agreement is terminated, we may be suspended from selling our communications interception products to the U.S. GOVERNMENT.government.
Our subsidiary, Verint Technology Inc., or Verint Technology, which markets, sells and supports our communications interception solutions to various U.S. government agencies, is required by the National Industrial Security Program to maintain facility security clearances and to be insulated from foreign ownership, control or influence. To comply with the National Industrial Security Program requirements, in January 1999 we, Verint Technology, Comverse Technology and the Department of Defense have entered into a proxy agreement with respect to the ownership and operations of Verint Technology. Under the proxy agreement, we, among other things, appointed three individuals who are U.S. citizens holding the requisite security clearances as holders of proxies to vote the Verint Technology stock. The proxy holders have the power to exercise all prerogatives of ownership of Verint Technology. These three individuals are responsible for the oversight of Verint Technology's security arrangements.
The proxy agreement may be terminated and Verint Technology's facility security clearance may be revoked in the event of a breach of the proxy agreement, or if it is determined by the Department of Defense that termination
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OUR GOVERNMENT CONTRACTS CONTAIN PROVISIONS THAT ARE UNFAVORABLE TO US.
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Our government contracts contain provisions that are unfavorable to us.
Many of our government contracts contain provisions that give the government rights and remedies not typically found in private commercial contracts, including provisions enabling the government to:
o
In addition, many jurisdictions have laws and regulations that deem government contracts in those jurisdictions to include these types of provisions, even if the contract itself does not contain them. If a government terminates a contract with us for convenience, we may not recover our incurred or committed costs, any settlement expenses or profit on work completed prior to the termination. If a government terminates a contract for default, we may not recover even those amounts, and instead we may be liable for any costs incurred by a government in procuring undelivered items and services from another source.
IF WE FAIL TO COMPLY WITH COMPLEX PROCUREMENT LAWS AND REGULATIONS, WE MAY BE
SUBJECT TO CIVIL AND CRIMINAL PENALTIES AND ADMINISTRATIVE SANCTIONS.
If we fail to comply with complex procurement laws and regulations, we may be subject to civil and criminal penalties and administrative sanctions.
We must comply with domestic and foreign laws and regulations relating to the formation, administration and performance of government contracts. These laws and regulations affect how we do business with government agencies in various countries and may impose added costs on our business. For example, in the United States, we are subject to the Federal Acquisition Regulations, which comprehensively regulate the formation, administration and performance of federal government contracts, and to the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with contract negotiations. We are subject to similar regulations in foreign countries as well.
If a government review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with government agencies, which could materially and adversely affect our business, financial condition and results of operations. In addition, a government may reform its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts.
GOVERNMENT REGULATION OF COMMUNICATIONS MONITORING COULD CAUSE A DECLINE IN THE
USE OF OUR PRODUCTS, RESULT IN INCREASED EXPENSES FOR US OR SUBJECT US AND OUR
CUSTOMERS TO LIABILITY.
Government regulation of communications monitoring could cause a decline in the use of our products, result in increased expenses for us or subject us and our customers to liability.
As the communications industry continues to evolve, governments may increasingly regulate products that monitor and record voice, video and data transmissions over public communications networks, such as our solutions. For example, products which we sell to law enforcement agencies and which interface with a variety of wireline, wireless and Internet protocol networks must comply in the United States with the technical standards established by the Federal Communications Commission pursuant to the Communications Assistance for Law Enforcement Act and in Europe by the European Telecommunications Standard Institute. The adoption of new laws governing the use of our products or changes made to existing laws could cause a decline in the use of our products and could result in increased expenses for us, particularly if we are required to modify or redesign our products to accommodate these new or changing laws.
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WE MAY NOT BE ABLE TO RECEIVE OR RETAIN THE NECESSARY LICENSES OR AUTHORIZATIONS
REQUIRED FOR US TO EXPORT SOME OF OUR PRODUCTS THAT WE DEVELOP OR MANUFACTURE IN
SPECIFIC COUNTRIES.
We may not be able to receive or retain the necessary licenses or authorizations required for us to export some of our products that we develop or manufacture in specific countries.
We are required to obtain export licenses from the Israeli and German governments to export some of our products that we develop or manufacture in these countries. For example, exporting someProducts which accounted for approximately 27%, 22% and 21% of our RELIANT products outside of
Israel requiresrevenues in fiscal 1999, fiscal 2000 and fiscal 2001, respectively, required an export license from the Israeli Ministry of Defense.license. We cannot assure you that we will be successful in obtaining the licenses and other authorizations required to export our products from applicable governmental authorities. Our failure to receive any required export license or authorization would hinder our ability to sell our products and could adversely affect our business, financial condition and results of operations.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH VALUE ADDED RESELLERS,
SYSTEMS INTEGRATORS AND OTHER THIRD PARTIES THAT MARKET AND SELL OUR PRODUCTS,
OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND ABILITY TO GROW
COULD SUFFER.
If we are unable to maintain our relationships with value added resellers, or VARs, systems integrators and other third parties that market and sell our products, our business, financial condition, results of operations and ability to grow could suffer.
Sales through VARs, systems integrators and other third parties accounted for approximately 33%, 40% and 38% of our revenues in fiscal 1999, fiscal 2000 and fiscal 2001, respectively. Our ability to achieve revenue growth depends to some extent on adding new partners to expand our sales channels, as well as leveraging our relationships with existing partners. If our relationships with these value added resellers, systems integrators and strategic and technology partners deteriorate or terminate, we may lose important sales and marketing opportunities.
OUR FAILURE TO DEVELOP STRATEGIC ALLIANCES OR EXPAND OR IMPLEMENT NEW JOINT
VENTURES COULD LIMIT OUR ABILITY TO GROW.
Our failure to develop strategic alliances or expand or implement new joint ventures could limit our ability to grow.
As part of our growth strategy, we intend to pursue new strategic alliances. We consider and engage in strategic transactions from time to time and may be evaluating alliances or joint ventures at any time. We compete with other analytic solution providers for these opportunities. We cannot assure you that we will be able to effect these transactions on commercially reasonable terms or at all. If we enter into these transactions, we also cannot be sure that we will realize the benefits we anticipate.
ACQUISITIONS OR INVESTMENTS THAT WE HAVE MADE OR MAY DECIDE TO MAKE IN THE
FUTURE COULD TURN OUT TO BE UNSUCCESSFUL.
On February 1, 2002, we acquired the digital video recording business
of Lanex, LLC. If we are unable to successfully integrate Lanex with our
business, we
Our products may be unable to realize the anticipated benefits of this
acquisition. We may experience technical difficulties thatcontain undetected defects which could delay the
integration of Lanex's products into our solutions, resulting in a disruption of
our business.
We may in the future pursue acquisitions of businesses, products and
technologies, or the establishment of joint venture arrangements. The
negotiation of potential acquisitions or joint ventures as well as the
integration of an acquired or jointly developed business, technology or product
could result in a substantial diversion of management resources. Future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, amortization of
certain identifiable intangible assets, research and development write-offs and
other acquisition-related expenses. In addition, we may also fail to
successfully integrate acquired businesses with our operations or successfully
realize the intended benefits of any acquisition.
OUR PRODUCTS MAY CONTAIN UNDETECTED DEFECTS WHICH COULD IMPAIR THEIR MARKET
ACCEPTANCE.impair their market acceptance.
We offer complex products that may contain undetected defects or errors, particularly when first introduced or as new versions are released. We may not discover such defects or errors until after a product has been released and used by the customer. We may incur significant costs to correct undetected defects or errors in our products and these defects or errors could result in future lost sales. In addition, defects or errors in our products may result in product liability claims brought against us, which could cause adverse publicity and impair their market acceptance.
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OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATE TO PROTECT OUR BUSINESS.
Our intellectual property rights may not be adequate to protect our business.
While we occasionally file patent applications, we cannot assure you that patents will be issued on the basis of such applications or that, if such patents are issued, they will be sufficiently broad to protect our technology. In addition, we cannot assure you that any patents issued to us will not be challenged, invalidated or circumvented.
In order to safeguard our unpatented proprietary know-how, trade secrets and technology, we rely primarily upon trade secret protection and non-disclosure provisions in agreements with employees and others having access to confidential information. We cannot assure you that these measures will adequately protect us from disclosure or misappropriation of our proprietary information.
LOSS OF THIRD PARTY SOFTWARE LICENSING WOULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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Loss of third party software licensing would materially and adversely affect our business, financial condition and results of operations.
We incorporate in all of our solutionsproducts software that we license from third parties. If we lose or are unable to maintain any software licenses, we could incur additional costs or experience unexpected delays until equivalent software can be developed or licensed and integrated into our products.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD LEAD TO COSTLY DISPUTES OR DISRUPTIONS.
Our products may infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions.
The information technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties have asserted that certain of our products infringe their intellectual property and they may do so in the future. Any allegation of infringement against us could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause product shipment delays, or force us to enter into royalty or license agreements rather than dispute the merits of such allegation. If patent holders or other holders of intellectual property initiate legal proceedings against us, we may be forced into protracted and costly litigation. We may not be successful in defending such litigation and we may not be able to procure any required royalty or license agreements on terms acceptable to us, or at all.
IF OUR PRODUCTS INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY
BE REQUIRED TO INDEMNIFY OUR CUSTOMERS FOR ANY DAMAGES THEY SUFFER.
If our products infringe on the intellectual property rights of others, we may be required to indemnify our customers for any damages they suffer.
We generally indemnify our customers with respect to infringement by our products of the proprietary rights of third parties. Third parties may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using, or in the case of value added resellers selling, our products.
THE RECENT CHANGE OF OUR NAME MAY CONFUSE OUR CUSTOMERS AND HARM OUR BUSINESS.
The recent change of our name may confuse our customers and harm our business.
On February 1, 2002, we changed our company name from Comverse Infosys, Inc. to Verint Systems Inc. We are also in the process of phasing out the Comverse Infosys name and trademark and introducing a new trademark. The change of our name may be costly to implement, may confuse our customers or may result in lost sales. Our new name may not achieve the market acceptance and name recognition of our former name.
WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR SPECIFIC COMPONENTS AND WE MAY NOT
BE ABLE TO OBTAIN SUBSTITUTE SUPPLIERS ON TERMS THAT ARE AS FAVORABLE IF OUR
SUPPLIES ARE INTERRUPTED.
We rely on a limited number of suppliers and manufacturers for specific components and we may not be able to obtain substitute suppliers and manufacturers on terms that are as favorable if our supplies are interrupted.
Although we generally use standard parts and components in our products, we rely on non-affiliated suppliers for the supply of certain components are presently available only from a limited numberand on manufacturers of sources. The inability to obtain sufficient quantities of components or to
locate alternative sources of supply, if and as required in the future, could
adversely affect our operations.
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OUR RELIANCE ON A LIMITED NUMBER OF INDEPENDENT MANUFACTURERS TO ASSEMBLE
PRINTED CIRCUIT BOARDS FOR OUR PRODUCTS COULD LEAD TO A DISRUPTION IN SUPPLY OF
THESE BOARDS.
We rely on independent manufacturers to produce printed circuit
boardsassemblies that are usedincorporated in all of our products. We do not have any long term supply or manufacturing agreements with any of these suppliers or manufacturers. If these suppliers or manufacturers experience financial, operational, manufacturing capacity or quality assurance difficulties, or if there is any other disruption in our relationships, we will be required to seek alternate manufacturers and our supply of boards may be
disrupted. We cannot assure you that alternate manufacturers that meet our
requirements could be found or that existing orlocate alternative sources for boards
will be available at favorable prices. of supply.
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Our inability to obtain sufficient quantities of these components, if and as required in the future entails the following risks:
Acquisitions or investments that we have made or may decide to make in the future could turn out to be unsuccessful.
On February 1, 2002, we acquired the digital video recording business of Lanex, LLC. If we are unable to successfully integrate Lanex with our business, we may be unable to realize the anticipated benefits of this acquisition. We may experience technical difficulties that could delay the integration of Lanex's products into our solutions, resulting in a disruption of our business.
We may in the future pursue acquisitions of businesses, products and technologies, or the establishment of joint venture arrangements. The negotiation of potential acquisitions or joint ventures as well as the integration of an acquired or jointly developed business, technology or product could result in delaysa substantial diversion of management resources. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization of certain identifiable intangible assets, research and development write-offs and other acquisition-related expenses. In addition, we may also fail to successfully integrate acquired businesses with our operations or reductions in
product shipments or increases in product costs.
OUR FAILURE TO HIRE AND RETAIN QUALIFIED PERSONNEL COULD LIMIT OUR ABILITY TO
GROW.successfully realize the intended benefits of any acquisition.
Our failure to hire and retain qualified personnel could limit our ability to grow.
We depend on the continued services of our executive officers and other key personnel. In addition, we may need to attract and retain a substantial number of new employees, particularly sales and marketing personnel and technical personnel, who understand and have experience with our products and services. If we are unable to attract and retain qualified employees, our ability to grow could be impaired. Competition for personnel in our industry is intense, and we have experienced difficulty in recruiting qualified personnel due to the market demand for their services. We have also experienced difficulty in locating qualified candidates within desired geographic locations and on occasion we have had to relocate personnel to fill positions in locations where we could not attract qualified experienced personnel.
RISKS RELATING TO OUR INTERNATIONAL OPERATIONS
BECAUSE WE HAVE SIGNIFICANT FOREIGN OPERATIONS, WE ARE SUBJECT TO RISKS THAT
COULD ADVERSELY AFFECT OUR BUSINESS.
We
Risks Relating to Our International Operations
Because we have significant foreign operations, we are subject to risks that could adversely affect our business.
We conduct significant sales and research and development operations in foreign countries, including in Israel, the United Kingdom and Germany, and we intend to continue to expand our operations internationally. Our business may suffer if we are unable to successfully expand and
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maintain foreign operations. Our foreign operations are, and any future foreign expansion will be, subject to a variety of risks, many of which are beyond our control, including risks associated with:
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Our international operations subject us to currency exchange fluctuations.
To date, most of our sales have been denominated in U.S. dollars, while a significant portion of our expenses, primarily labor expenses in Israel, Germany and the United Kingdom, are incurred in the local currencies of these countries. As a result, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could increase the dollar cost of our operations in Israel, Germany or the United Kingdom and would therefore have an adverse effect on our results of operations.
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In addition, since a portion of our sales are made in foreign currencies, primarily the British pound and the Euro, fluctuation in the value of these currencies relative to the U.S. dollar could decrease our revenues and adversely effect our results of operations.
CONDITIONS IN ISRAEL MAY AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO
PRODUCE AND SELL OUR PRODUCTS.
A substantial portion
Conditions in Israel may adversely affect our operations and may limit our ability to produce and sell our products.
Operations in Israel accounted for approximately 40%, 36%, and 44% of our manufacturingoperating expenses in fiscal 1999, fiscal 2000 and research and
development facilities are located in the State of Israel.fiscal 2001, respectively. Political, economic and military conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and the continued state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Since October 2000, there has been a significant increase in violence, primarily in the West Bank and Gaza Strip, and more recently Israel has experienced terrorist incidents within its borders. As a result, negotiations between Israel and representatives of the Palestinian Authority have been sporadic and have failed to result in peace. We could be adversely affected by hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners, or a significant downturn in the economic or financial condition of Israel. In addition, several countries continue to restrict business with Israel and with companies having operations in Israel. We could be negatively affected by adverse developments in the peace process, including the recent violence, or by restrictive laws or practices directed towards Israel or companies having operations in Israel.
In addition, some of our employees in Israel are subject to being called upon to perform military service in Israel, and their absence may have an adverse effect upon our operations. Generally, unless exempt, male adult citizens and permanent residents of Israel under the age of 54 are obligated to
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perform up to 36 days of military reserve duty annually. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances.
THE GRANTS WE RECEIVE FROM THE GOVERNMENT OF ISRAEL FOR RESEARCH AND DEVELOPMENT
EXPENDITURES RESTRICT OUR ABILITY TO MANUFACTURE PRODUCTS AND TRANSFER
TECHNOLOGIES OUTSIDE OF ISRAEL AND REQUIRE US TO SATISFY SPECIFIED CONDITIONS.
IF WE FAIL TO SATISFY THESE CONDITIONS, WE MAY BE REQUIRED TO REFUND GRANTS
PREVIOUSLY RECEIVED TOGETHER WITH INTEREST AND PENALTIES, AND MAY BE SUBJECT TO
CRIMINAL CHARGES.
These conditions could disrupt our operations in Israel and our business, financial condition and results of operations could be adversely affected.
The grants we receive from the Government of Israel for research and development expenditures restrict our ability to manufacture products and transfer technologies outside of Israel and require us to satisfy specified conditions. If we fail to satisfy these conditions, we may be required to refund grants previously received together with interest and penalties, and may be subject to criminal charges.
We receive grants from the Government of Israel through the Office of the Chief Scientist of the Ministry of Industry and Trade for the financing of a portion of our research and development expenditures in Israel. In fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001, we received grants totaling $4.8 million, $7.5 million and $4.5$5.8 million, respectively, representing 18.5%, 34.5% and 28.3%27.6%, respectively, of our total research and development expenditures in these periods. The terms of these grants limit our ability to manufacture products, and prohibit us from transferring technologies, outside of Israel if such products or technologies were developed using these grants. Even if we receive approval to manufacture products developed using these grants outside of Israel, we may be required to pay a significantly increased amount of royalties on an accelerated basis to the Government of Israel, depending on the manufacturing volume that is performed outside of Israel. This restriction may impair our ability to outsource manufacturing or engage in similar arrangements for those products or technologies. In addition, if we fail to comply with any of the conditions imposed by the Office of the Chief Scientist, we may be required to refund any grants previously received together with interest and penalties, and we may be subject to criminal charges. In recent years, the Government of Israel has accelerated the rate of repayment of Chief Scientist grants and may further accelerate them in the future. Further, the Government of Israel has reduced the benefits available under these programs in recent years and these programs may be discontinued or curtailed in the future. If the Government of Israel ends these programs, our business, financial condition and results of operations could be adversely affected.
TAX BENEFITS WE RECEIVE IN ISRAEL MAY BE REDUCED OR ELIMINATED IN THE FUTURE.
Tax benefits we receive in Israel may be reduced or eliminated in the future.
Our investment program in manufacturing equipment and leasehold improvements and equipment at our
manufacturing facility in Israel has been granted approved enterprise status and we are therefore eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments. From time to time, the Government of Israel has discussed reducing or eliminating the tax benefits available to approved enterprise programs such as ours. We cannot assure you that these tax benefits will be continued in the future at their current levels or at all. If these tax benefits are reduced or eliminated, the amount of taxes that we pay in Israel will increase.
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RISKS RELATED TO OUR RELATIONSHIP WITH COMVERSE TECHNOLOGY
COMVERSE TECHNOLOGY WILL CONTROL OUR BUSINESS AND AFFAIRS AND ITS INTERESTS MAY
NOT BE ALIGNED WITH OUR INTERESTS AND THOSE OF OUR STOCKHOLDERS.
Risks Related to Our Relationship with Comverse Technology
Comverse Technology will control our business and affairs and its interests may not be aligned with our interests and those of our stockholders.
Upon completion of the offering, Comverse Technology will beneficially own approximately __%% of our outstanding shares of common stock. Consequently, Comverse Technology will effectively control the outcome of all matters submitted for stockholder action, including the composition of our board of directors and the approval of significant corporate transactions. Through its representation on our board of directors, Comverse Technology will have a controlling influence on our management, direction and policies, including the ability to appoint and remove our officers. As a result, Comverse Technology may cause us to take actions which may not be aligned with our interests or those of our
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other stockholders. For example, Comverse Technology may prevent or delay any transaction involving a change in control or in which stockholders might receive a premium over the prevailing market price for their shares.
OUR DIRECTORS THAT ALSO HOLD POSITIONS WITH COMVERSE TECHNOLOGY MAY HAVE
CONFLICTS OF INTEREST WITH RESPECT TO MATTERS INVOLVING BOTH COMPANIES.
Three
We obtain certain key services from Comverse Technology and its subsidiaries. If such services are terminated, we may be required to incur additional expenses to obtain similar services from other sources.
We receive legal, insurance and other administrative services from Comverse Technology under a corporate services agreement. Our enterprise resource planning software is maintained and supported on our behalf by Comverse under an enterprise resource planning software sharing agreement. We also obtain personnel and facility services from Comverse under a satellite services agreement. If these agreements are terminated, we may be required to obtain similar services from other entities or, alternatively, we may be required to hire qualified personnel and incur other expenses to obtain these services. We may not be able to hire such personnel or to obtain comparable services at prices and on terms as favorable as we currently have under these agreements.
We may lose business opportunities to Comverse Technology that might otherwise be available to us.
We have entered into a business opportunities agreement with Comverse Technology which addresses potential conflicts of interest between Comverse Technology and us. This agreement allocates between Comverse Technology and us opportunities to pursue transactions or matters that, absent such allocation, could constitute corporate opportunities of both companies. As a result, we may lose business opportunities that could be valuable to us. In general, we are precluded from pursuing opportunities offered to officers or employees of Comverse Technology who may also be our directors, officers or employees, unless Comverse Technology fails to pursue these opportunities. See "Certain Relationships and Related Party Transactions—Business Opportunities Agreement."
Our directors that also hold positions with Comverse Technology may have conflicts of interest with respect to matters involving both companies.
Upon completion of this offering five of our fiveten directors arewill be officers and/or directors of Comverse Technology, or otherwise affiliated with Comverse Technology. These directors will have fiduciary duties to both companies and may have conflicts of interest on matters affecting both us and Comverse Technology and in some circumstances may have interests adverse to us. Our Chairman, Mr. Kobi Alexander, will continue to be the chairman of Comverse Technology following the offering. This position with Comverse Technology will continue to impose significant demands on Mr. Alexander's time and present potential conflicts of interest.
SO LONG AS WE ARE INCLUDED IN COMVERSE TECHNOLOGY'S CONSOLIDATED GROUP FOR TAX
PURPOSES, WE ARE POTENTIALLY LIABLE FOR TAXES NOT OUR OWN.
So long as we are included in Comverse Technology's consolidated group for tax purposes, we are potentially liable for taxes not our own.
After this offering is completed we expect that we will continue to be included in the Comverse Technology consolidated group for federal income tax purposes and we will not file our own federal income tax return. To the extent Comverse Technology or other members of the group fail to make any federal income tax payments required of them by law in respect of years for which Comverse Technology files a consolidated federal income tax return which includes us we would be liable for the shortfall. Similar principles apply for state income tax purposes in many states. In addition, by virtue of its controlling ownership and its tax sharing agreement with us, Comverse Technology effectively controls all of our tax decisions. For so long as we are included in the Comverse Technology consolidated group for federal income tax purposes, Comverse Technology has sole authority to respond to and conduct all federal income tax proceedings and audits relating to us, to file all federal income tax returns on our behalf and to determine the amount of our liability to, or entitlement to
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payment from, Comverse Technology under our tax sharing agreement. Despite this agreement, federal law provides that each member of a consolidated group is liable for the group's entire tax obligation and we could, under certain circumstances, be liable for taxes of other members of the Comverse Technology consolidated group.
For a discussion of our relationship with Comverse Technology, see "Related Party Transactions--RelationshipTransactions—Relationship with Comverse Technology and its Subsidiaries."
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK. OUR STOCK PRICE IS LIKELY
TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.
Risks Related To This Offering
There has been no prior market for our common stock. Our stock price is likely to be highly volatile and could drop unexpectedly.
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that an active trading market will develop or be sustained after this offering. The initial public offering price for our common stock may not be representative of the price that will prevail in the open market.
Recently, the stock market has experienced significant price and volume fluctuations. Market prices of securities of technology companies particularly following an initial public offering, have been highly volatile and frequently reach levels that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are 13
In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We could be the target of similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management's attention and resources, harm our reputation in the industry and the securities markets and reduce our profitability.
FUTURE SALES OF OUR COMMON STOCK MAY HURT OUR MARKET PRICE.
Future sales of our common stock may hurt our market price.
A substantial number of shares of our common stock will be available for resale within a short period of time after the offering. If our stockholders sell substantial amounts of our common stock in the public market following the offering, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity securities in the future at times and prices that we deem appropriate.
We, all of our officers and directors, Comverse Technology and some of our existingother stockholders have agreed not to offer, sell or otherwise dispose of any shares of capital stock or any securities which may be converted into or exchanged for any shares of our capital stock for a period of 180 days from the date of this prospectus. However, the underwriters may waive this restriction and allow us or them to sell shares at any time. Shares of common stock subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933.
We have entered into a registration rights agreement with Comverse Technology. For a discussion of the registration rights agreement, see "Certain Relationships and Related Transactions - Transactions—Relationship with Comverse Technology and its Subsidiaries."
OUR MANAGEMENT MAY SPEND OR INVEST A SUBSTANTIAL PORTION OF THE NET PROCEEDS OF
THIS OFFERING IN WAYS WITH WHICH YOU MIGHT NOT AGREE.
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Our management may spend or invest a substantial portion of the net proceeds of this offering in ways with which you might not agree.
We have broad discretion to determine the allocation of our net proceeds from this offering. You will not have an opportunity to evaluate the economic, financial or other information upon which we base our decisions on how to use these proceeds and, subject to certain exceptions, our management will be able to use and allocate the net proceeds without first obtaining stockholder approval.
TERRORIST ATTACKS AND OTHER ACTS OF WAR MAY ADVERSELY AFFECT THE MARKETS ON
WHICH OUR COMMON STOCK TRADES, THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS
AND OUR PROFITABILITY.
Terrorist attacks and other acts of war may adversely affect the markets on which our common stock trades, the markets in which we operate, our operations and our profitability.
Terrorist attacks and other acts of war, and any response to them, may lead to armed hostilities and such developments would likely cause instability in financial markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations which are located in the United States, Israel, Europe, the Far East, Australia and South America, as well as those of our clients. Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our products. These developments could have a material adverse effect on our business and the trading price of our common stock.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW MAY MAKE IT MORE
DIFFICULT FOR YOU TO RECEIVE A CHANGE IN CONTROL PREMIUM.
Provisions of our certificate of incorporation and Delaware law may make it more difficult for you to receive a change in control premium.
Our board's ability to designate and issue up to ________________
shares of preferred stock and issue up to _______________ shares of common stock could adversely affect the voting power of the holders of common stock, and could have the effect of making it more difficult for a person to acquire, or could discourage a person from seeking to acquire, control of our company. If this occurred you could lose the opportunity to receive a premium on the sale of your shares in a change of control transaction.
In addition, the Delaware General Corporation Law contains provisions that would have the effect of restricting, delaying and/or preventing altogether certain business combinations with any person who, after this offering becomes an interested stockholders.stockholder. Interested
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FORWARD-LOOKING STATEMENTS
This prospectus contains
We have made forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that include information about possible or assumed
future sales, results of operations, developments, regulatory approvals or other
circumstances and may be foundthis prospectus, including in the sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Business-The Verint Systems Solution" and "-Our Strategy," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. Statements"Business," that use the terms
"believe," "do not believe," "expect," "plan," "intend," "estimate,"
"anticipate," "project," "may," "will," "shall," "should" and similar
expressions are intended to identify forward-looking statements.
All forward-looking statements in this prospectus reflect our current
views about future events and are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities and the effects of competition and regulation. Forward-looking statements include all statements that are subject tonot historical facts. You can identify these statements by the use of forward-looking terminology, such as the words "believes," "expects," "anticipates," "intends," "plans," "estimates," "may" or "might" or other similar expressions.
Forward-looking statements involve significant risks, uncertainties and uncertainties.assumptions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Consequently, actual results may differ materially from those anticipatedexpressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements. We do not have any intention or obligation to update forward-looking statements as a result of variousafter we distribute this prospectus, even if new information becomes available or other events occur in the future. You should understand that many important factors, including all the risksin addition to those discussed in the section entitled "Risk Factors" and elsewhere in this prospectus. Except as required by applicable law,
including the securities laws of the United States, we do not intendprospectus, could cause our results to updatediffer materially from those expressed or revise anysuggested in forward-looking statements.
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We expect to receive net proceeds of $_____$ million from this offering after deducting the underwriting discount and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, our estimated net proceeds will be $_____$ million. We will not receive any of the proceeds from the sale of shares by the selling stockholder.
We intend to use the net proceeds to finance the growth of our business, andfor working capital, for general corporate purposes and capital expenditures. We may use a significant portion of the proceeds to repay bank debt, including indebtedness in the original principal amount of $42 million that is guaranteed by Comverse Technology. This bank debt bears interest at a rate of LIBOR plus 0.55%, matures in February 2003 and may be prepaid without penalty at the end of any interest period. We may also use a portion of the proceeds for acquisitions or other investments. However, we have no present understanding or agreement relating to any specific acquisition or investment.
We have not yet determined the amount of net proceeds to be used specifically for each of the foregoing purposes. Accordingly, our management will have significant flexibility in applying the net proceeds of the offering. Pending their use as described above, we may invest the net proceeds of this offering in interest-bearing investment-grade instruments or bank deposits.
We do not expect to pay any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and for the expansion of our business.
Any future determination to pay cash dividends will be at the discretion of the board of directors and will depend upon our financial condition, operating results, capital requirements and such other factors as the board of directors deems relevant.
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The following table sets forth, as of OctoberJanuary 31, 2001,2002, our capitalization:
o
Please read this table together with the sections of this prospectus entitled "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in this prospectus.
| | As of January 31, 2002 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | Actual | Pro Forma | Pro Forma as Adjusted | ||||||||
| | (in thousands) | ||||||||||
| Cash and cash equivalents | $ | 49,860 | $ | 49,860 | $ | ||||||
| Long-term bank loans, including current maturities | $ | 43,623 | $ | 43,623 | $ | 43,623 | |||||
| Stockholders' equity: | |||||||||||
| Common Stock, $0.001, 300,000,000 shares authorized; 96,530,836 shares issued and outstanding on an actual basis; and 97,230,836 shares issued and outstanding on a pro forma basis and [ ] shares on a pro forma as adjusted basis | $ | 97 | $ | 97 | $ | ||||||
| Additional paid-in capital | 63,369 | 65,569 | |||||||||
| Accumulated deficit | (45,002 | ) | (45,002 | ) | (45,002 | ) | |||||
| Cumulative translation adjustment | 271 | 271 | 271 | ||||||||
| Total stockholders' equity | 18,735 | 20,935 | |||||||||
| Total capitalization | $ | 62,358 | $ | 64,558 | $ | ||||||
The table excludes:
o 15,188,322
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Our net tangible book value as of OctoberJanuary 31, 2001,2002, was $19,406,000,$18,645,000 or approximately $0.20$0.19 per share. Net tangible book value represents the amount of tangible assets reduced by the total liabilities, divided by the number of shares of common stock outstanding as of OctoberJanuary 31, 2001.2002. After giving effect to our sale of the ______ shares in this offering and receipt of the net proceeds from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of OctoberJanuary 31, 2001,2002, would have been $_______,$ , or $_______$ per share. This represents an immediate increase in pro forma net tangible book value of $_______$ per share to existing stockholders and an immediate dilution in net tangible book value of $_______$ per share to new investors.
Dilution per share represents the difference between the price per share to be paid by new investors and the net tangible book value per share immediately after this offering. The following table illustrates this per share dilution:
| | Per Share | Per Share | |||||
|---|---|---|---|---|---|---|---|
| Assumed initial public offering price per share | $ | ||||||
| Net tangible book value per share before the offering | $ | 0.19 | |||||
| Increase per share attributable to new investors | |||||||
| Net tangible book value per share after this offering | |||||||
| Dilution per share to new investors | |||||||
The following table sets forth as of OctoberJanuary 31, 2001,2002, the difference between (1) the number of shares of common stock purchased, (2) the total consideration paid and (3) the average price paid per share by existing stockholders and by the new investors purchasing shares of common stock in this offering, before deducting underwriting discounts, commissions and other estimated offering expenses:
| | Shares Purchased | Total Consideration | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Average Price Per Share | |||||||||||
| | Number | Percent | Amount | Percent | ||||||||
| Existing stockholders | 96,530,836 | % | % | $ | ||||||||
| New investors | ||||||||||||
| Total | 100 | % | 100 | % | $ | |||||||
The foregoing table does not reflect:
o 15,188,322
20
SELECTED CONSOLIDATED FINANCIAL DATA
We derived the selected consolidated financial data presented below from our consolidated financial statements and related notes included in this prospectus. You should read the selected consolidated financial data together with our consolidated financial statements and related notes and the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Statements of operations data for the years ended January 31, 2000, 2001 and 2001,2002, and the balance sheet data at January 31, 20002001 and 20012002 have been derived from our consolidated financial statements and are included elsewhere in this prospectus. Balance sheet data at January 31, 2000 have been derived from audited financial statements not included herein. Statements of operations data for the yearsyear ended December 31, 1997, the one month period ended January 31, 1998 and the year ended January 31, 1999, and the balance sheet data at December 31, 1997 and January 31, 1998 and 1999 have been derived from our unaudited consolidated financial statements not included herein.
Statements of operations data for the nine-month period ended October
31, 2000 and 2001 and the balance sheet data as of October 31, 2001 have been
derived from our unaudited interim consolidated financial statements included
elsewhere in this prospectus. Our unaudited consolidated interim financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of our management, are necessary for a fair
presentation of the results for these periods. Operating results for the
nine-month period ended October 31, 2001 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 31, 2002.
| | Year Ended December 31, | One Month Ended January 31, | Year Ended January 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | ||||||||||||||
| | (in thousands, except per share data) | |||||||||||||||||||
| Statement of Operations Data: | ||||||||||||||||||||
| Sales | $ | 58,865 | $ | 758 | $ | 89,282 | $ | 120,612 | $ | 141,677 | $ | 131,235 | ||||||||
| Cost of sales | 31,749 | 1,456 | 50,024 | 61,898 | 76,876 | 67,056 | ||||||||||||||
| Gross profit | 27,116 | (698 | ) | 39,258 | 58,714 | 64,801 | 64,179 | |||||||||||||
| Research and development, net | 14,345 | 2,204 | 16,412 | 21,307 | 14,249 | 15,184 | ||||||||||||||
| Selling, general and administrative | 23,116 | 2,862 | 31,924 | 44,914 | 48,162 | 45,923 | ||||||||||||||
| Royalties and license fees | 617 | 32 | 1,548 | 2,041 | 2,731 | 2,851 | ||||||||||||||
| Merger expenses | — | — | — | — | 3,510 | — | ||||||||||||||
| Restructuring and impairment charges | — | — | — | — | 3,714 | 2,754 | ||||||||||||||
| Loss from operations | (10,962 | ) | (5,796 | ) | (10,626 | ) | (9,548 | ) | (7,565 | ) | (2,533 | ) | ||||||||
| Interest and other income (expense), net | (709 | ) | (111 | ) | (753 | ) | (641 | ) | (497 | ) | (564 | ) | ||||||||
| Loss before income taxes | (11,671 | ) | (5,907 | ) | (11,379 | ) | (10,189 | ) | (8,062 | ) | (3,097 | ) | ||||||||
| Income tax provision (benefit) | (44 | ) | (41 | ) | 280 | 355 | 497 | 1,552 | ||||||||||||
| Net loss | $ | (11,627 | ) | $ | (5,866 | ) | $ | (11,659 | ) | $ | (10,544 | ) | $ | (8,559 | ) | $ | (4,649 | ) | ||
| Net loss per share—basic and diluted | $ | (0.12 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | $ | (0.09 | ) | $ | (0.05 | ) | ||
| Shares used in computing basic and diluted net loss per share | 95,140 | 95,140 | 95,140 | 95,144 | 95,577 | 95,899 | ||||||||||||||
| | As of December 31, | As of January 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |||||||||||||
| | (in thousands) | ||||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 40,344 | $ | 38,924 | $ | 32,456 | $ | 35,933 | $ | 43,330 | $ | 49,860 | |||||||
| Working capital | 40,694 | 35,311 | 22,189 | 10,804 | 3,512 | 41,160 | |||||||||||||
| Total assets | 93,648 | 92,830 | 88,942 | 103,410 | 117,554 | 116,726 | |||||||||||||
| Long-term bank loans, including current maturities | 692 | 692 | 1,161 | 1,323 | 2,806 | 43,623 | |||||||||||||
| Stockholders' equity | 57,268 | 51,475 | 40,075 | 30,896 | 22,525 | 18,735 | |||||||||||||
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto which appear elsewhere in this prospectus.
OVERVIEW
Overview
Our analytic solutions for digital security and surveillance include our STAR-GATE and RELIANT communications interception products and our LORONIX digital video security products. STAR-GATE enables communications service providers to intercept communications over a variety of wireline, wireless and Internet protocol, or IP, networks for delivery to law enforcement and other government agencies, and is sold to communications service and equipment providers. RELIANT provides intelligent recording and analysis solutions for communications interception activities and is sold to law enforcement and government agencies. Our LORONIX digital video security products provide intelligent recording and analysis of video for security and surveillance applications, and are sold to government agencies and public and private organizations for use in airports, public buildings, correctional facilities and corporate sites.
Our analytic solutions for enterprise business intelligence include our ULTRA contact center business intelligence products and LORONIX video business intelligence products. Our ULTRA products are sold to contact centers within a variety of enterprises, including financial institutions, communications service providers and utilities, to record and analyze customer interactions with their contact centers. Our LORONIX video business intelligence products enable enterprises to monitor and improve their operations through the analysis of live and recorded digital video and are sold primarily to commercial enterprises including retailers, shopping malls, casinos, manufacturers and other enterprises.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We generally recognize revenue at the time of shipment for sales of systems that do not require significant customization to be performed by us and when collection of the resulting receivable is deemed probable by us. Our systems generally consist of a bundled hardware and software solution that areis shipped together. Customers may also purchase separate maintenance contracts, which generally consist of bug-fixing, assistance and telephone access to our technical personnel and replacement of hardware components, but in certain circumstances may also include the right to receive unspecified product updates, upgrades and enhancements. We recognize revenue from these services ratably over the contract period. We recognize revenue from certain developmentlong-term contracts under the percentage-of-completion method on the basis of physical completion to date or using actual costs incurred to total expected costs under the contract. Revisions in estimates of costs and profits are reflected in the accounting period in which the facts that require such revision become known. At the time a loss on a contract is known, the entire amount of the estimated loss is accrued. Amounts received from customers in excess of revenues earned are recorded as advance payments from customers. Accounts receivable are generally diversified due to the number of commercial and government entities comprising our customer base and their dispersion across many geographical regions. At the end of each accounting period, we record a reserve for estimated bad debts included in accounts receivable based upon our current and historical collection history.
Our cost of sales includes costs of materials, subcontractor costs, salary and related benefits for the operations and service departments, depreciation and amortization of equipment used in the operations
22
and service departments, amortization of capitalized software costs, travel costs and an overhead allocation. Research and development costs include salary and related benefits as well as travel, depreciation and amortization of research and development equipment, an overhead allocation, as well as other costs associated with research and development activities, and is stated net of amounts reimbursed by the Israeli government. Selling, general and administrative costs include salary and related benefits, travel, depreciation and amortization, sales commissions, marketing and promotional materials, recruiting expenses, professional fees, facility costs, as well as other costs associated with sales, marketing, finance and administrative departments.
Software development costs are capitalized upon the establishment of technological feasibility and are amortized on a straight-line basis over the estimated useful life of the software, which to date has been four years or less. Amortization begins in the period in which the related product is available for general release to customers. We review software development costs for impairment at the end of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized when the estimated net realizable value of the software is less than its carrying amount. The net realizable value is the estimated future gross revenue from the software reduced by the estimated future costs of completing and supporting the software.
In July 2000, our parent, Comverse Technology, acquired all of the outstanding stock of Loronix Information Systems, Inc., or Loronix, a company that develops software-based digital video recording and management systems and Syborg Informationsysteme bescräkt haftende OHG, or Syborg, a company that develops software-based digital voice and Internet recording systems. These business combinations were accounted for as poolings of interests. In February 2001, we issued 34,539,905 shares of our common stock to Comverse Technology in exchange for Comverse Technology's ownership interest in Loronix and Syborg. These shares are reflected in our consolidated financial statements as if they were outstanding as of the earliest period presented, which is consistent with the pooling of interests method of accounting. Our consolidated financial statements for the year ended January 31, 2000 include the operations of Loronix and Syborg for the year ended December 31, 1999.
21
For a discussion of our relationship and transactions with Comverse Technology and its subsidiaries, see "Certain Relationships and Related Transactions - Transactions—Relationship with Comverse Technology and its Subsidiaries," and note 1112 to our consolidated financial statements.
For information about our consolidated revenues according to the
geographical regions to which such revenues are attributable and the locations
Results of our long-lived assets, see note 14 to our consolidated financial statements.
RESULTS OF OPERATIONSOperations
The following table sets forth, for the periods indicated, certain financial data expressed as a percentage of sales:
| | Year Ended January 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | |
| cost of sales | 51.3 | 54.3 | 51.1 | ||||
| Gross profit | 48.7 | 45.7 | 48.9 | ||||
| Research and development, net | 17.7 | 10.1 | 11.6 | ||||
| Selling, general and administrative | 37.2 | 34.0 | 35.0 | ||||
| Royalties and license fees | 1.7 | 1.9 | 2.2 | ||||
| Merger expenses | — | 2.5 | — | ||||
| Restructuring and impairment charges | — | 2.6 | 2.1 | ||||
| Loss from operations | (7.9 | ) | (5.3 | ) | (1.9 | ) | |
| Interest and other income (expense), net | (0.5 | ) | (0.4 | ) | (0.4 | ) | |
| Loss before income taxes | (8.4 | ) | (5.7 | ) | (2.4 | ) | |
| Income tax provision | 0.3 | 0.4 | 1.2 | ||||
| Net loss | (8.7 | )% | (6.0 | )% | (3.5 | )% | |
23
Year Ended January 31, 2002 compared to loss from operations merger expenses of $10.9 millionYear Ended January 31, 2001
Sales. Sales for the year ended January 31, 2001 and workforce reduction expenses of $1.2 million for the nine-month
period ended October 31, 2001. These expenses are nonrecurring charges. Adjusted
income (loss) from operations is not a measurement of financial performance and
should not be considered as an alternative to measures of performance derived in
accordance with accounting principles generally accepted in the United States of
America.
The following table sets forth, for the periods indicated, our
calculation of adjusted income (loss) from operations.
YEAR ENDED JANUARY 31, NINE MONTHS ENDED OCTOBER 31,
---------------------- -----------------------------
2000 2001 2000 2001
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
Loss from operations......................................$ (9,548) $ (7,565) $ (9,145) $ (2,051)
Merger expenses........................................... - 10,909 10,909 -
Workforce reduction expenses.............................. - - - 1,164
- --------- --------- ---------
Adjusted income (loss) from operations....................$ (9,548) $ 3,344 $ 1,764 $ (887)
========= ========= ========= =========
NINE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO NINE MONTHS ENDED OCTOBER 31,
2000
Sales. Sales for the nine-month period ended October 31,2002, or fiscal 2001 decreased by approximately $5.1$10.4 million, or 5%7%, compared to the nine-month
periodyear ended OctoberJanuary 31, 2001, or fiscal 2000. This decrease was primarily attributable to a decrease in sales of products of approximately $7.5$14.5 million whileoffset by an increase in service revenues which increased by approximately $2.4$4.0 million. Such decrease was principally due to decreased demanda decrease in sales volume as a result of a general slowdown in information technology spending. Sales to international customers represented 59%58% of sales for the nine-month period ended October 31,fiscal 2001 as compared to 51% for the
nine-month period ended October 31,fiscal 2000.
22
Cost of Sales. Cost of sales for the nine-month period ended October
31,fiscal 2001 decreased by approximately $2.8$9.8 million, or 5%13%, as compared to the
nine-month period ended October 31,fiscal 2000. This decrease was primarily attributable to a decrease in material costs of $8.5 million due to the decrease in product salessales. This decrease was offset by an increase in subcontractor costs of $1.2 million and an increase in other expenses of $1.2 million. Additionally, during fiscal 2000, the Company incurred costs of $3.7 million relating to the write-off and abandonment of inventories that were considered obsolete and duplicative as a reduction in purchase pricesresult of raw materials.the Loronix and Syborg mergers. Gross marginsmargin increased to approximately 48.5%48.9% in the nine-month period ended October 31,fiscal 2001 from approximately 48.3%45.7% in the nine-month period ended October 31,fiscal 2000.
Research and Development Expenses, net. Research and development expenses, net, for the nine-month period ended October 31,fiscal 2001 increased by approximately $1.1$0.9 million, or 11%7%, compared to the nine-month period ended
October 31,fiscal 2000. This net increase was primarily attributable to an overall
shifta decrease in the portiongovernment reimbursements of $1.7 million offset by a decrease in research and development expenses generated in the
United States and Germany for which we were not eligible for government
reimbursement.of $0.8 million.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine-month period ended October 31,fiscal 2001 decreased by approximately $0.8$2.2 million, or 2%5%, compared to the nine-month
period ended October 31,fiscal 2000. This decrease was primarily attributable to a
decreaselower agent commissions of $1.1 million and bad debt expense of $2.7 million offset by increases in compensation and benefits for existing personnel and a reduction in
headcount to support the decreased levelother expenses of sales during the nine-month period
ended October 31, 2001.$1.6 million. Selling, general and administrative expenses as a percentage of sales wereincreased to 35% and 36% for the nine-month periods ended October
31, 2000 andfiscal 2001 respectively.from 34% for fiscal 2000.
Royalties and License Fees. Royalties and license fees for the
nine-month period ended October 31,fiscal 2001 increased by approximately $0.1 million, or 3%4%, compared to the nine-month period ended October 31,fiscal 2000.
Merger Expenses. In connection with the acquisitions of Loronix and Syborg in fiscal 2000, we charged $10.9$3.5 million of merger related charges to operations in the
nine-month period ended October 31, 2000.operations. These charges relate to the following:
o Asset write-downs and impairments. In connection with these
acquisitions, in the nine-month period ended October 31,
2000, certain assets became impaired due to the existence of
duplicative technology, property and equipment and inventory
of the merged companies. Accordingly, these assets were
written down to their net realizable value at the time of
the related merger and approximately $7.4 million was
charged to operations.
o Professional fees and other direct merger expenses. In
connection with these acquisitions, in the nine-month period
ended October 31, 2000, we recorded a charge of $3.5 million
for professional fees to lawyers, investment bankers and accountants, as well as other direct costs in connection with the mergers, such as printing costs and filing fees.
Workforce Reduction Expenses.
Restructuring and Impairment Charges. In connection with the acquisitions of Loronix and Syborg in fiscal 2000, we charged $3.7 million of restructuring and impairment related charges to operations. These impairment charges consisted of:
During the nine-month period ended
October 31,fiscal 2001, we reduced our workforce. As a result, we recorded a charge of
$1.2 million to operations of $2.8 million for severanceworkforce reduction costs and other related costs.for costs to consolidate our offices in the United Kingdom. These charges were necessary as a result of the difficult economic and capital spending environment and were designed to improve our cost structure and to increase our profitability.
Interest and Other Income (Expense), net. Net interest and other expense for the nine-month period ended October 31,fiscal 2001 decreasedincreased by approximately $0.4$0.1 million as compared to the nine-month period ended October
31,fiscal 2000. This decreaseincrease was primarily attributable to a decrease indecreased interest income of $0.6 million and increased net foreign currency gains/losses.losses of $0.2 million, offset by decreased interest expense of $0.7 million. The decrease in interest income and expense is due to the decrease in interest rates that occurred during fiscal 2001.
24
Income Tax Provision. During the nine-month period ended October 31,fiscal 2001, the income tax provision increased by approximately $1.2$1.1 million compared to the nine-month period ended October 31,fiscal 2000. This increase was primarily attributable to an increase in pre-tax income in certain foreign tax jurisdictions after giving effect to available net operating loss carryforwards.
Net Loss. Net loss decreased by approximately $6.2$3.9 million, or 63%46%, for the nine-month period ended October 31,fiscal 2001 compared to the nine-month
period ended October 31,fiscal 2000, and as a percentage of sales it decreased to approximately 4% for the nine-month period ended October 31,fiscal 2001 from approximately 10%6% for the nine-month period ended October 31,fiscal 2000. This decrease was primarily attributable to the factors described above.
23
YEAR ENDED JANUARY 31, 2001 COMPARED TO YEAR ENDED JANUARY 31, 2000
Sales. Sales for the fiscal year ended
Year Ended January 31, 2001 orCompared to Year Ended January 31, 2000
Sales. Sales for fiscal 2000, increased by approximately $21.1 million, or 17%, compared to the year ended January 31, 2000, or fiscal 1999. This increase was attributable to an increase in both sales of products of approximately $12.3 million and service revenue of approximately $8.8$8.7 million. Such increase was principally due to increased sales volume in the United States and Europe. Sales to international customers represented 51% of sales for fiscal 2000 as compared to 49% of sales for fiscal 1999.
Cost of Sales. Cost of sales for fiscal 2000 increased by approximately $11.3$15.0 million, or 18%24%, as compared to fiscal 1999. This increase in cost of sales was primarily attributable to (i) to:
Gross marginsmargin decreased to approximately 48.3%45.7% in fiscal 2000 from approximately 48.7% in fiscal 1999.
Research and Development Expenses, net. Research and development expenses, net, for fiscal 2000 decreased by approximately $7.1 million, or 33%, compared to fiscal 1999. This decrease was primarily attributable to a decrease in personnel costs of $4.4 million related to research and development activities due to redeployment to other departments, such as production, project management, service, and sales and marketing, to support the increased sales and an increase in government research and development grants as compared to the previous period.period of $2.7 million.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2000 increased by approximately $3.2 million, or 7%, compared to fiscal 1999. This increase was primarily attributable to an increase in compensation and benefits for existing personnel and an increase in headcount to support the increased level of sales during fiscal 2000.2000 amounting to $2.1 million and an increase in agent commissions of $1.1 million. Selling, general and administrative expenses as a percentage of sales decreased to 34% for fiscal 2000 from 37% for fiscal 1999.
Royalties and License Fees. Royalties and license fees for fiscal 2000 increased by approximately $0.7 million, or 34%, compared to fiscal 1999. This increase was primarily attributable to a growth in sales of royalty-bearing products.
Merger Expenses. In connection with the acquisitionacquisitions of Loronix and Syborg in fiscal 2000, we have charged $10.9$3.5 million of merger related charges to operations in
fiscal 2000. Suchoperations. These charges relate to the following:
o Asset write-downs and impairments. In connection with these
acquisitions, certain assets became impaired due to the
existence of duplicative technology, property and equipment
and inventory of the merged companies. Accordingly, these
assets were written down to their net realizable value at
the time of the merger and approximately $7.4 million was
charged to operations.
o Professional fees and other direct merger expenses. In
connection with these acquisitions, we recorded a charge of
$3.5 million for professional fees to lawyers, investment bankers and accountants, as well as other direct merger
costs in connection with the mergers, such as printing costs and filing fees.
25
Restructuring and Impairment Charges. In connection with the acquisitions of Loronix and Syborg in fiscal 2000, we charged $3.7 million of restructuring and impairment related charges to operations. These impairment charges consisted of:
Interest and Other Income (Expenses), net. Net interest and other expense for fiscal 2000 decreased by approximately $0.1 million as compared to fiscal 1999. This decrease was primarily attributable to increased interest income of approximately $1.1 million offset by an increase in interest expense of approximately $0.9 million.
Income Tax Provision. During fiscal 2000, the income tax provision increased by approximately $0.1 million compared to fiscal 1999. This increase was primarily attributable to an increasedincrease in pre-tax income in certain foreign tax jurisdictions after giving effect to available net operating loss carryforwards.
Net Loss. Net loss decreased by approximately $2.0 million, or 19%, in fiscal 2000 compared to fiscal 1999, while as a percentage of sales it decreased to approximately 6% for fiscal 2000 from approximately 9% for fiscal 1999. This decrease was primarily attributable to the factors described above.
24
SELECTED QUARTERLY RESULTS OF OPERATIONS
Adjusted Income (Loss) from Operations
Adjusted income (loss) from operations for fiscal 2000 is calculated by adding to loss from operations merger expenses of $3.5 million and restructuring and impairment charges of $3.7 million. Adjusted income for fiscal 2001 is calculated by adding restructuring and impairment charges of $2.8 million to loss from operations. Adjusted income (loss) from operations is presented because we believe it is meaningful to investors to understand what our financial results would have been if we had not incurred these non-recurring charges. Adjusted income (loss) from operations is not a measurement of financial performance and should not be considered as an alternative to measures of performance derived in accordance with accounting principles generally accepted in the United States of America.
The following table sets forth, for the periods indicated, our calculation of adjusted income (loss) from operations.
| | Year Ended January 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | |||||||
| | (in thousands) | |||||||||
| Loss from operations | $ | (9,548 | ) | $ | (7,565 | ) | $ | (2,533 | ) | |
| Merger expenses | — | 3,510 | — | |||||||
| Restructuring and impairment charges | — | 3,714 | 2,754 | |||||||
| Adjusted income (loss) from operations | $ | (9,548 | ) | $ | (341 | ) | $ | 221 | ||
In connection with the Loronix and Syborg mergers in the year ended January 31, 2001, we incurred merger related costs of $3.5 million consisting of professional fees to lawyers, investment bankers and accountants, as well as other merger costs, such as printing costs and filing fees. We also incurred $3.7 million of impairment charges in the year ended January 31, 2001. These impairment charges consisted of:
During fiscal 2001, we recorded a charge to operations of $2.8 million for workforce reduction costs and for costs to consolidate our offices in the United Kingdom. These charges were necessary as a result of the difficult economic and capital spending environment and were designed to improve our cost structure and to increase our profitability.
26
Summarized financial information for our reportable geographic segments is presented in the following table. Sales in each geographic segment represents sales originating from that segment.
| | United States | Israel | United Kingdom | Other | Reconciling Items | Consolidated Totals | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In thousands) | |||||||||||||||||||
| Year Ended January 31, 2000 | ||||||||||||||||||||
| Sales | $ | 71,152 | $ | 47,045 | $ | 9,487 | $ | 5,323 | $ | (12,395 | ) | $ | 120,612 | |||||||
| Costs and expenses | (71,801 | ) | (52,260 | ) | (12,325 | ) | (5,795 | ) | 12,021 | (130,160 | ) | |||||||||
| Operating income (loss) | $ | (649 | ) | $ | (5,215 | ) | $ | (2,838 | ) | $ | (472 | ) | $ | (374 | ) | $ | (9,548 | ) | ||
| Year Ended January 31, 2001 | ||||||||||||||||||||
| Sales | $ | 77,777 | $ | 53,246 | $ | 20,503 | $ | 9,662 | $ | (19,511 | ) | $ | 141,677 | |||||||
| Costs and expenses | (84,679 | ) | (54,045 | ) | (20,994 | ) | (9,115 | ) | 19,591 | (149,242 | ) | |||||||||
| Operating income (loss) | $ | (6,902 | ) | $ | (799 | ) | $ | (491 | ) | $ | 547 | $ | 80 | $ | (7,565 | ) | ||||
| Year Ended January 31, 2002 | ||||||||||||||||||||
| Sales | $ | 65,731 | $ | 62,712 | $ | 18,848 | $ | 6,023 | $ | (22,079 | ) | $ | 131,235 | |||||||
| Costs and expenses | (70,290 | ) | (58,813 | ) | (19,349 | ) | (7,882 | ) | 22,566 | (133,768 | ) | |||||||||
| Operating income (loss) | $ | (4,559 | ) | $ | 3,899 | $ | (501 | ) | $ | (1,859 | ) | $ | 487 | $ | (2,533 | ) | ||||
Year Ended January 31, 2002 Compared to Year Ended January 31, 2001
Sales for fiscal 2001 decreased in all geographic segments except Israel as compared to fiscal 2000 due to decreased product sales volumes. Sales originating from Israel increased by approximately $9.5 million due to an increase in product sales to international markets excluding the United States and the United Kingdom. Operating costs and expenses in Israel increased by $4.8 million due to the increase in cost of sales and other expenses supporting the increased sales. Operating costs and expenses in the United States decreased approximately $14.4 million due to the one-time merger, restructuring and impairment charges and inventory write-off and abandonment of approximately $6.0 million incurred during fiscal 2000 and due to a decrease in operating expenses which resulted from the decrease in sales. Operating costs and expenses in the United Kingdom decreased by $1.6 million due to the decrease in sales.
Year Ended January 31, 2001 Compared to Year Ended January 31, 2000
Sales for fiscal 2000 increased in all geographic segments as compared to fiscal 1999 due to increased sales volumes of both product sales and service revenues. Operating costs and expenses in the United States increased by approximately $12.9 million due to the one-time merger, restructuring and impairment charges and inventory write-off and abandonment of approximately $6.0 million incurred during fiscal 2000 and an increase in operating expenses to support the increased sales. Operating costs and expenses in Israel increased by $1.8 million due to an increase in operating expenses to support the increase in sales. Sales in the United Kingdom increased by $11.0 million and operating costs increased by approximately $8.7 million due to the increase in sales.
Selected Quarterly Results of Operations
The following tables set forth consolidated statement of operations data for each of the seveneight consecutive quarters ended OctoberJanuary 31, 2001.2002. This information has been derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared substantially on the same basis as the audited consolidated financial statements appearing elsewhere in
27
this prospectus and include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. You should read this information in conjunction with our consolidated financial statements and the related notes elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results of any future period.
| | Three Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Apr. 30, 2000 | July 31, 2000 | Oct. 31, 2000 | Jan. 31, 2001 | Apr. 30, 2001 | July 31, 2001 | Oct. 31, 2001 | Jan. 31, 2002 | |||||||||||||||||
| | (in thousands) | ||||||||||||||||||||||||
| Sales | $ | 30,586 | $ | 35,163 | $ | 36,958 | $ | 38,970 | $ | 34,558 | $ | 32,017 | $ | 31,039 | $ | 33,621 | |||||||||
| Cost of sales | 15,804 | 21,812 | 19,183 | 20,077 | 17,840 | 16,335 | 16,120 | 16,761 | |||||||||||||||||
| Gross profit | 14,782 | 13,351 | 17,775 | 18,893 | 16,718 | 15,682 | 14,919 | 16,860 | |||||||||||||||||
| Research and development, net | 3,392 | 3,266 | 3,665 | 3,926 | 4,007 | 3,786 | 3,617 | 3,774 | |||||||||||||||||
| Selling, general and administrative | 11,258 | 12,452 | 11,773 | 12,679 | 12,032 | 11,135 | 11,543 | 11,213 | |||||||||||||||||
| Royalties and license fees | 672 | 660 | 691 | 708 | 719 | 697 | 670 | 765 | |||||||||||||||||
| Merger expenses | — | 3,510 | — | — | — | — | — | — | |||||||||||||||||
| Restructuring and impairment charges | — | 3,714 | — | — | — | 1,164 | — | 1,590 | |||||||||||||||||
| Income (loss) from operations | (540 | ) | (10,251 | ) | 1,646 | 1,580 | (40 | ) | (1,100 | ) | (911 | ) | (482 | ) | |||||||||||
| Interest and other income (expense), net | (293 | ) | (201 | ) | (230 | ) | 227 | (292 | ) | (188 | ) | 128 | (212 | ) | |||||||||||
| Income (loss) before income taxes | (833 | ) | (10,452 | ) | 1,416 | 1,807 | (332 | ) | (1,288 | ) | (783 | ) | (694 | ) | |||||||||||
| Income tax provision | 7 | 3 | 11 | 476 | 560 | 454 | 240 | 298 | |||||||||||||||||
| Net income (loss) | $ | (840 | ) | $ | (10,455 | ) | $ | 1,405 | $ | 1,331 | $ | (892 | ) | $ | (1,742 | ) | $ | (1,023 | ) | $ | (992 | ) | |||
| As a percentage of sales | |||||||||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Cost of sales | 51.7 | 62.0 | 51.9 | 51.5 | 51.6 | 51.0 | 51.9 | 49.9 | |||||||||||||||||
| Gross profit | 48.3 | 38.0 | 48.1 | 48.5 | 48.4 | 49.0 | 48.1 | 50.1 | |||||||||||||||||
| Research and development, net | 11.1 | 9.3 | 9.9 | 10.1 | 11.6 | 11.8 | 11.7 | 11.2 | |||||||||||||||||
| Selling, general and administrative | 36.8 | 35.4 | 31.9 | 32.5 | 34.8 | 34.8 | 37.2 | 33.4 | |||||||||||||||||
| Royalties and license fees | 2.2 | 1.9 | 1.9 | 1.8 | 2.1 | 2.2 | 2.2 | 2.3 | |||||||||||||||||
| Merger expenses | — | 10.0 | — | — | — | — | — | — | |||||||||||||||||
| Restructuring and impairment charges | — | 10.6 | — | — | — | 3.6 | — | 4.7 | |||||||||||||||||
| Income (loss) from operations | (1.8 | ) | (29.2 | ) | 4.5 | 4.1 | (0.1 | ) | (3.4 | ) | (2.9 | ) | (1.4 | ) | |||||||||||
| Interest and other income (expense), net | (1.0 | ) | (0.6 | ) | (0.6 | ) | 0.6 | (0.8 | ) | (0.6 | ) | 0.4 | (0.6 | ) | |||||||||||
| Income (loss) before income taxes | (2.7 | ) | (29.7 | ) | 3.8 | 4.6 | (1.0 | ) | (4.0 | ) | (2.5 | ) | (2.1 | ) | |||||||||||
| Income tax provision | 0.0 | 0.0 | 0.0 | 1.2 | 1.6 | 1.4 | 0.8 | 0.9 | |||||||||||||||||
| Net income (loss) | (2.7 | )% | (29.7 | )% | 3.8 | % | 3.4 | % | (2.6 | )% | (5.4 | )% | (3.3 | )% | (3.0 | )% | |||||||||
Our quarterly results of operations have varied significantly in the past as a result of various factors, including the recent global economic slowdown and the general decline in information technology spending. Accordingly, sales and net income, if any, in any particular period may be lower than sales and net income, if any, in a preceding or comparable period. Period-to-period comparisons of our results of operations may not be meaningful, and you should not rely upon them as indicators of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
We have funded our operations and met our capital expenditure requirements primarily through cash flows from operations and borrowings from Comverse Technology. As of OctoberJanuary 31, 2001,2002, we had cash and cash equivalents of approximately $45.4$49.9 million and working capital of approximately $41.8$41.2 million.
Operating activities for fiscal 1999, fiscal 2000 and for the
nine-month period ended October 31,fiscal 2001, after adding back non-cash items, provided (or used) cash of approximately ($3.3) million, $8.8 million, and $1.6
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During such periods,For
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fiscal 1999, cash provided from other changes in operating assets and liabilities provided (or used) cash of approximately $10.1 million ($0.4)primarily consisted of an increase in accounts payable and accrued liabilities of $14.4 million and changes in due to/from related parties of $5.5 million, partially offset by an increase in accounts receivable of $4.0 million and an increase in inventories of $5.0 million which resulted from the growth of our business compared to the previous year. For fiscal 2000, cash used by other changes in assets and liabilities of $0.4 million primarily consisted of an increase in accounts payable and accrued liabilities of $5.6 million and an increase in advance payments from customers of $6.9 million, partially offset by an increase in accounts receivable of $6.4 million, an increase in prepaid expenses and other assets of $3.9 million and a decrease in due to/from related parties of $2.9 million which resulted from the growth of our business as compared to the prior year. For fiscal 2001, cash provided from other changes in assets and liabilities of $7.2 million respectively.primarily consisted of an increase in accounts payable and accrued liabilities of $3.6 million, a decrease in accounts receivable of $2.0 million, a decrease in inventories of $3.5 million, and a decrease in prepaid and other assets of $2.8 million, partially offset by a change in due to/from related parties of $3.6 million.
Investing activities for fiscal 1999, fiscal 2000 and for the
nine-month period ended October 31,fiscal 2001 used cash of approximately $8.7 million, $10.6 million and $6.9$ 8.5 million, respectively. These amounts primarily include additions to property and equipment in fiscal 1999, fiscal 2000 and for
the nine-month period ended October 31,fiscal 2001 of approximately $4.7 million, $6.3 million and $3.7$4.3 million, respectively, and capitalization of software development costs of approximately $4.0 million, $4.3 million and $3.1$4.1 million, respectively.
Financing activities for fiscal 1999, fiscal 2000 and fiscal 20002001 provided cash of approximately $5.4 million, and $9.4 million and $5.2 million, respectively. Financing activities
for the nine-month period ended October 31, 2001 were not material. For fiscal 1999, fiscal 2000, and 2000,fiscal 2001 proceeds from the issuanceissuances of common stock provided $1.4 million, $0.9 million and $0.9$0.3 million, respectively, and net proceeds from bank loans and related party loans provided $4.0 million, and $8.6 million and $4.9 million, respectively.
In January 2002, we obtained a $42 million bank loan. This loan matures in February 2003, bears interest at LIBOR plus 0.55%, and may be prepaid without penalty at the end of any interest period. The proceeds of this loan were used to repay amounts owed to Comverse Technology. The loan is guaranteed by Comverse Technology.
We have obtained bank guarantees primarily to secure our performance of certain obligations under contracts with customers. These guarantees, which aggregated $5.2 million at January 31, 2002, are to be released by our performance of specified contract milestones, which are scheduled to be completed in the ensuing year.
The following table sets forth our contractual obligations and commercial commitments as of January 31, 2002:
| | | Years Ending January 31, | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations | | ||||||||||||||||||||
| Total | 2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | |||||||||||||||
| Long-term debt | $ | 43,623 | $ | 167 | $ | 42,163 | $ | 160 | $ | 161 | $ | 162 | $ | 810 | |||||||
| Rent and other operating lease obligations | 5,637 | 2,548 | 2,063 | 605 | 421 | — | — | ||||||||||||||
| Total | $ | 49,260 | $ | 2,715 | $ | 44,226 | $ | 765 | $ | 582 | $ | 162 | $ | 810 | |||||||
On February 1, 2002, our wholly-owned subsidiary, Loronix, acquired the digital video recording business of Lanex, LLC. The Lanex business provides digital video recording solutions for security and surveillance applications primarily to North American banks. The purchase price consisted of $9.5 million in cash and a $2.2 million convertible note issued by us to Lanex. The note is non-interest bearing and matures on February 1, 2004. The holder of the note may elect to convert the note, in whole or in part, into shares of our common stock at a conversion price of $3.1429 per share at any
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time on or after the completion of our initial public offering. The note is guaranteed by Comverse Technology.
We believe that the net proceeds from this offering, together with our current cash balances and potential cash flow from operations, will be sufficient to meet the anticipated cash needs for working capital, capital expenditures and other activities for at least the next 12 months. Thereafter, if current sources are not sufficient to meet our needs, we may seek additional debt or equity financing. We do not expect to be dependent on Comverse Technology for our financing needs for the foreseeable future. In addition, although there is no present understanding, commitment or agreement with respect to any acquisition of other businesses, products, or technologies, we may in the future consider such transactions, which may require additional debt or equity financing and could result in a decrease of our working capital. There can be no assurance that such additional financing would be available on acceptable terms, if at all.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Effect of New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations." SFAS No. 141 applies prospectively to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method of accounting for which the date of acquisition is July 1, 2001, or later. SFAS No. 141 requires all business combinations to be accounted for using one method, the purchase method. Under previously existing accounting rules, business combinations were accounted for using one of two methods, the pooling-of-interests method or the purchase method. The adoption of SFAS No. 141 did not have a material impact on our consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather will be reviewed for impairment on a periodic basis. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS No. 142 is required to be applied at the beginning of our fiscal year and is to be applied to all goodwill and other intangible assets recognized in our financial statements at that date. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the provisions of SFAS No. 142. We do not expect the adoption of SFAS No. 142 to have a material impact on our consolidated financial statements.
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In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS No. 143 to have a material impact on our financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes certain provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-ReportingOperations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
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Transactions." SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years; however, early adoption is encouraged. We are currently evaluating the impact that SFAS No. 144 will have on our consolidated financial statements.
CORPORATE TAX RATE
Corporate Tax Rate
We have operations primarily in the United States, Israel, and the United Kingdom. The statutory corporate income tax rate in these jurisdictions are 34%, 36% and 30%, respectively. For the years ended January 31, 2000, and
2001 and the nine-month period ended October 31, 2001,2002, we have not had significant taxable income in the United States or the United Kingdom. If and when we generate taxable income in these tax jurisdictions, we would expect our effective tax rate to increase. Our facilities in Israel have been granted approved enterprise status under the Law for the Encouragement of Capital Investment, 1959. As a result of this status, our Israeli subsidiary is entitled to a reduction in the normally applicable tax rate in Israel for income generated from these facilities. However, these benefits may not be applied to reduce the tax rate for any income derived by our non-Israeli subsidiaries.
Under the current rules, the portion of income derived by our Israeli subsidiary from each of its approved enterprise programs at our manufacturing facilities in Israel is exempt from income tax in Israel for a period of two years commencing in the first year in which our Israeli subsidiary has taxable income allocable to a specific program and is subject to a reduced company tax of 10% for the subsequent eight year period, so long as we continue to hold at least 90% of the ordinary shares of our Israeli subsidiary. In addition, these reduced rates are limited to a period of 12 years from the year in which the facilities commenced operations or 14 years from the year in which the letter of approval was granted, whichever comes earlier.
If our Israeli subsidiary subsequently pays us dividends out of income derived from the approved enterprise during the tax exempt period, there will be a tax on the gross amount distributed. The tax rate will be between 10% to 25%, depending on the percentage of ordinary shares of our Israeli subsidiary that we hold at the relevant time. In addition, we would also be taxed in Israel on the dividends we receive from our Israeli subsidiary at a reduced rate applicable to dividends from approved enterprises, which is 15% if the dividend is distributed during the tax exempt period or within 12 years after such period. Our Israeli subsidiary would be required to withhold the tax on its dividends at the time the dividend is paid.
GOVERNMENT GRANTS
Government Grants
Our research and development efforts in Israel have been partially financed through internal resources and grants from the Government of Israel through the Office of the Chief Scientist of the Ministry of Industry and Trade. Under the Law for the Encouragement of Industrial Research and Development, 27
In fiscal 1999, fiscal 2000 and the nine-month period ended October
31,fiscal 2001, we received grants of approximately $4.8 million, $7.5 million and $4.5$5.8 million, respectively, from the Office of the Chief Scientist. We expect that Chief Scientist grants as a percentage of our consolidated research and development expenses will decrease in future periods due to an expected increase in the portion of research and development activities that
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will not be recognized by the Chief Scientist and an expected increase in research and development activities outside of Israel. To date,As of January 31, 2002, we have received approximately $43$44 million in cumulative grants from the Office of the Chief Scientist.
We pay royalties to the Chief Scientist for each project once the project begins to yield revenues. The royalty rates are between 3% and 5% of sales of products developed through the project up to the repayment of 100% of the grants received. For grants received under programs approved subsequent to January 1, 1999, the maximum payment is 100% of the grant amount, linked to the U.S. dollar, plus interest thereon. To date,As of January 31, 2002, we have recorded approximately $14$15 million in cumulative royalties to the Office of the Chief Scientist.
The manufacturing of products developed with Chief Scientist grants must be performed in Israel. However, subject to the Chief Scientist's approval, manufacturing may be performed outside of Israel if the recipient of the grants pays accelerated royalties based on the amount of manufacturing performed outside of Israel.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency exchange rates which could impact our results of operations and financial condition. We consider our exchange rate risk, in particular that of the U.S. dollar versus the British pound, the Euro and the new Israeli shekel, to be our primary market risk exposure. We do not believe that our exchange rate exposure will have a material effect on our financial condition, results of operations or cash flows.
We manage our exposure to foreign currency exchange risks primarily through our regular operating and financing activities. In the future, we may use foreign currency exchange contracts and other derivative instruments to reduce our exposure to this risk if these contracts or financial instruments enable us to reduce our exposure to exchange rate movements. To date, we have not used any material foreign currency exchange contracts or other derivative instruments to reduce our exposure to this risk. As of OctoberJanuary 31, 2001,2002, we had no outstanding foreign currency exchange contracts or other derivative instruments.
We currently maintain our surplus cash in short-term, interest-bearing bank deposits. Upon completion of this offering, pending further application, we may invest a portion of the net proceeds in interest-bearing investment-grade instruments or bank deposits. We do not expect that a 100 basis point increase nor decrease from current interest rates would have a material effect on our financial position, results of operations or cash flows.
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Overview
We are a leading provider of analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. Our software generates actionable intelligence through the collection, retention and analysis of voice, fax, video, email, Internet and data transmissions from multiple types of communications networks.
Since the terrorist attacks of September 11, 2001, heightened awareness surrounding homeland defense and security, both in the United States and globally, has increased the demand for solutions such as ours. Recent legislative and regulatory actions have provided greater surveillance powers to law enforcement agencies, imposed strict requirements on communications service providers to facilitate interception of communications over public networks, and increased the security measures being implemented at airports and other public facilities. Demand for solutions such as ours has also been driven by the enormous growth in recent years in both the types and volume of communications.
INDUSTRY BACKGROUND
Industry Background
Overview
The two markets that we focus on, digital security and surveillance and enterprise business intelligence, include a variety of applications aimed at generating actionable intelligence from voice, video and data transmissions. The process of generating actionable intelligence is comprised of the following five components: collection, retention, analysis, decision and distribution.
o
The Digital Security and Surveillance Market
The digital security and surveillance market consists primarily of communications interception by law enforcement agencies and digital video security utilized by government agencies and public and private organizations for use in airports, public buildings, correctional facilities and corporate sites.
Communications Interception
Lawful communications interception, historically referred to as wiretapping, is the monitoring and recording of voice and data transmissions to and from a specified target over communications networks in order to obtain intelligence and gather evidence. Law enforcement agencies are typically granted the authority from national and regional government authorities to monitor, record, process and store intercepted transmissions to and from specified targets. Since laws governing electronic surveillance vary significantly by country, and within many countries at the state or provincial levels, law
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enforcement agencies are increasingly turning to established industry leaders
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In 1994, the U.S. Congress passed the Communications Assistance for Law Enforcement Act, or CALEA, and subsequently, the European Telecommunications Standards Institute, or ETSI, adopted similar standards. These two developments have prompted an increase in the demand for communications interception solutions. The purpose of CALEA and the ETSI standards is to ensure that communications service providers are able to fulfill the technical requirements of channeling intercepted transmissions to law enforcement agencies. Although CALEA was introduced approximately eight years ago, communications service providers were not required to comply with CALEA's standards until June 30, 2000, and were allowed to individually seek further exemptions. Following the September 11 terrorist attacks, the Federal Communications Commission issued an order stating that no further exemptions would be granted after December 31, 2001. Since then, communications service providers seeking to comply with CALEA and the ETSI standards and communications equipment vendors seeking to provide compliant products have fueled the demand for solutions that are CALEA and ETSI compliant. By outsourcing their need for a compliant communications interception solution, communications service providers and equipment vendors are able to focus on their core business activities.
On November 19, 2001, the President of the United States signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, known as the "USA Patriot Act." This legislation significantly expanded federal wiretap capability and eased the process for acquiring wiretapping warrants by granting law enforcement agencies the authority to intercept multiple methods of communications, such as cellular calls and emails with a single warrant and by extending the duration and scope of such warrants in certain circumstances. In addition, the USA Patriot Act encourages collaboration between law enforcement agencies by easing the restrictions on the sharing of recorded communications. Similar legislation is currently being considered in Europe and Asia.
Altogether, the recent legislative, regulatory and technological developments surrounding communications interception activities have led to an increase in demand for sophisticated communications interception solutions. Traditionally, lawful communications interception activities consisted of a law enforcement or other authorized official eavesdropping on the telephone conversation of a suspected target. Today, utilizing advanced communications interception technologies, all voice and data transmissions of a target can be intercepted through multiple communications channels.
We believe the market for communications interception solutions will grow primarily due to:
o
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Digital Video Security
Organizations are increasingly recognizing the need for surveillance of their facilities and operations to ensure the proper level of security. The September 11 terrorist attacks have heightened public awareness to the security needs of public facilities, including airports and government buildings, as well as other organizations and institutions. Digital video security solutions coupled with intelligent video analysis tools address some of these security needs by providing a proactive approach to surveillance and security. A 30
Traditionally, video security consisted of connecting surveillance cameras to analog recording equipment that archived video images on tape. Today, digital video technology offers many advantages over analog equipment while allowing for the continued use of the existing infrastructure of installed cameras. These advantages include more efficient storage of video for faster search and retrieval, either locally or remotely through IP networks. Additionally, as video data is digitized and compressed, a variety of intelligent video analysis tools can be applied, including biometric identification, the process of using unique biological characteristics to identify an individual, and motion detection technologies. The combination of digital recording and intelligent video analysis technologies provides users with a more effective integrated security and surveillance solution.
Digital video security systems are marketed primarily to government agencies and public and private organizations for use in airports, public buildings, correctional facilities and corporate sites that require the capture, retention and analysis of video information for crime prevention and investigation, asset protection and other related purposes.
We believe that the market for digital video security will grow primarily due to:
o
The Enterprise Business Intelligence Market
The pressure on companies to manage their businesses more effectively has fueled the demand for analytic technologies and enterprise business intelligence solutions that provide actionable intelligence to organizations in a quick, convenient and helpful manner. The enterprise business intelligence market consists primarily of solutions targeting enterprises that rely on contact centers for voice, email and Internet interactions with their customers. Additionally, an emerging segment of enterprise business intelligence utilizes digital video information to allow enterprises and institutions to enhance their operations, processes and performance.
Contact Center Business Intelligence
Developing and maintaining long-term customer relationships is critical to the success of an enterprise operating in the competitive global marketplace. However, to understand and enhance customer relations, an enterprise must first improve its business processes that involve a high degree of direct customer interaction. Today, many organizations interact with their customers or clients primarily through contact centers. Increasingly, the contact center is the primary "hub" within an organization for processing inbound or outbound communications with customers that relate to the organization's products and services. Contact centers generally consist of supervisor and agent workstations that are staffed with customer service representatives and are linked to a central telephone switch as well as
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computer systems linking all functions of database management to capture, store and report relevant customer information.
Recently, demand has increased for solutions that automate and evaluate key sales, marketing and customer service processes, improve the effectiveness of customer interactions, and aid in the retention of contact center agents. As customers continue to interact with customer service representatives through multiple communication channels including the Internet, the role and importance of recording and quality assurance for contact centers is increasing. Additionally, the rapid growth of the Internet and electronic commerce has also increased the importance companies place on their customer relationships since the Internet enables consumers to easily evaluate products and prices from a wide range of geographically dispersed vendors and quickly change vendors at a relatively low cost. Enterprises across industries are being 31
Contact center business intelligence solutions target enterprises that rely on contact centers for voice, email and Internet interactions with their customers. Actionable intelligence generated from such interactions helps these enterprises to better service and retain customers, improve business processes and optimize contact center agent performance and retention. Companies possessing a better understanding of the characteristics and preferences of their customers are better positioned to customize product and service offerings resulting in increased sales and enhanced customer retention. In addition, these companies will also be able to better identify opportunities to sell complementary or higher-end products and to more accurately forecast customer demand. For example, major financial institutions generally and credit card issuers particularly, need to monitor contact center activity in real time to ensure that contact center representatives are responsive to customer needs, and assure that customers do not cancel accounts or transfer balances based on poor service. Additionally, increased intelligence allows these companies to identify new business opportunities with customers, such as cross-selling other financial services and products, including investments, insurance and mortgages, to existing credit card customers.
We believe that the market for contact center business intelligence solutions will grow primarily due to:
o
Video Business Intelligence
An emerging segment of enterprise business intelligence utilizes digital video information to allow enterprises and institutions to enhance their operations, processes and performance. Traditional video security and surveillance systems allow enterprises to view and record actions and behaviors associated with security-related or criminal activity; however, information on the actions, behaviors and interactions of personnel or customers of an enterprise is also valuable. The existing infrastructure of closed circuit television cameras often already captures much of this valuable operational information,
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however, utilizing information recorded by analog recording systems is impractical. The expansion of digital recording and the introduction of intelligent video analysis tools allow an enterprise to easily access and utilize this valuable operational information.
Implementing video business intelligence applications offers valuable information and process improvements to businesses in many vertical markets, such as the retail, gaming and corporate markets. Some of the applications for video business intelligence include the automatic counting, categorizing, monitoring and assessment of customers and personnel. Improved service is realized by real-time identification and notification of business opportunities and customer service requirements.
We believe that the market for digital video business intelligence solutions will grow primarily due to:
o
Our Strategy
Our strategy is to further enhance our position as a leading provider of digital security and surveillance and enterprise business intelligence solutions worldwide. Key elements of our strategy include:
o
Our Solution
Our solution enables the intelligent recording and analysis of voice, video and data transmissions for digital security and surveillance and enterprise business intelligence. Our products are utilized by
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government agencies, leading corporations, financial institutions and telecommunications service and equipment providers.
Our solutions provide our customers with the following key benefits:
o
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Digital Security and Surveillance Solutions
The following table summarizes our digital security and surveillance product lines:
| Product Line | Market Served | Type of Customer | Purpose/Description | Location of Product | ||||
|---|---|---|---|---|---|---|---|---|
| STAR-GATE | Communications | • Communications service providers • Internet service providers • Switch manufacturers | Access, delivery and administrative functions of communications interception | Embedded in circuit or | ||||
RELIANT | Communications | • Law enforcement agencies • Intelligence agencies | Collection, delivery, | Law enforcement or intelligence agency monitoring center | ||||
LORONIX digital video security | Digital video security | • Government agencies • Public agencies • Transportation agencies • Public buildings | Intelligent recording of video from CCTV camera transmissions | Networked to customer CCTV |
STAR-GATE
Our STAR-GATE product line enables communications carriers, Internet service providers, and communications equipment manufacturers to overcome the complexities posed by global digital communications and comply with governmental requirements. STAR-GATE enables communications service providers to intercept simultaneous communications over a variety of wireline, wireless and IP networks for delivery to law enforcement and other government agencies. STAR-GATE's flexibility supports multi-network, multi-vendor switch environments for a common interface across communications networks and supports switches from communications equipment manufacturers, such as Alcatel, Ericsson, Lucent, Nokia, Nortel and Siemens. STAR-GATE also supports interfaces to packet data networks, such as the Internet and general packet radio services.
Our STAR-GATE product line performs two primary functions:
o
STAR-GATE complies with CALEA and the ETSI standards for both circuit switched and IP networks.
RELIANT
Our RELIANT product line provides intelligent recording and analysis solutions for communications interception activities to law enforcement organizations and government agencies. Our RELIANT software equips law enforcement agencies with an end-to-end solution for live monitoring of intercepted target communications and evidence collection management, regardless of the type of communication or network used. Applications can scale from a 35
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comply with legal regulations and can be integrated with communications networks in the country where the system is utilized.
The RELIANT monitoring center is comprised of a system administration workstation and an operator workstation as well as collection and storage databases and servers. RELIANT collects intercepted communications from multiple channels and stores them for immediate access, further analysis and later use as evidence. The system enables the review of intercepted voice, fax and data transmissions in their original forms through an easy to use interface.
RELIANT offers the following key features:
o
LORONIX Digital Video Security
Our LORONIX digital video security product line provides intelligent recording and analysis of video for security and surveillance applications to government agencies and public organizations. Our LORONIX software digitizes, compresses, stores and retrieves video imaging. In addition, LORONIX products provide live video streaming and camera control over local and wide area computer networks and the Internet.
Our LORONIX product line may be configured to allow customers to perform complete monitoring for security and management of local and remote sites from a central investigative unit. The use of digital storage and compression technology makes the LORONIX product line a more efficient alternative to analog tape storage. The technology interfaces with access control, facial recognition, activity and intrusion detection and other technologies for enhanced security and surveillance.
The LORONIX solution offers the following features:
o
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Enterprise Business Intelligence Solutions
The following table summarizes our enterprise business intelligence product lines:
| Product Line | Market Served | Type of Customer | Purpose/Description | Location of Product | ||||
|---|---|---|---|---|---|---|---|---|
| ULTRA | Contact centers | • Internal contact centers of large organizations and enterprises, including utilities and financial institutions • Outsourced contact centers | Recording and analysis of | Interface through customer relations management application | ||||
LORONIX video business intelligence | Business intelligence | • Large | Analysis of digital video to improve business processes and performance | Networked to customer CCTV or IP cameras |
ULTRA
Our ULTRA products record and analyze customer interactions to provide enterprises with business intelligence about their customers and help monitor and improve the performance of their contact centers. ULTRA's intelligent recording platform uses an innovative architecture that leverages voice and data processing technologies to offer customers multiple methods of recording contact center interactions while providing a flexible framework for expansions and changes in technologies.
ULTRA products capture customer interactions from multiple sources, including telephone, email, Internet or voice over Internet protocol. Utilizing ULTRA's OpenStorage Portal and Universal Database, our customers can leverage their existing storage infrastructure to store and access recorded customer interactions using standard file formats. ULTRA's software tools analyze customer interactions and distribute the resulting actionable intelligence to specified individuals based on predetermined parameters via private computer networks or the Internet.
ULTRA products integrate with leading customer relationship management, or CRM, applications allowing the delivery of information directly to the user's desktop within Siebel, PeopleSoft and other CRM solutions. ULTRA also interfaces with popular desktop software tools, including Microsoft Outlook, Lotus Notes and web browsers, to enable the user to easily access the data in a familiar computing environment.
The ULTRA product line offers the following key features:
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LORONIX Video Business Intelligence
Our LORONIX video business intelligence products enable our enterprise customers to monitor and improve their operations through the analysis of live and recorded digital video. Like the LORONIX digital video security product, the LORONIX video business intelligence product digitizes, compresses, stores and retrieves video imaging. While leveraging the technology of our digital security product, the LORONIX enterprise product line also contains unique software focused on maximizing operational effectiveness through video analysis.
By interfacing with customer databases and software systems, LORONIX facilitates the user's review of video imaging based on specific criteria such as employee ID, product barcodes and point of sale transaction history. The LORONIX solution also integrates intelligent software that allows for the detection of movement of people and objects at a customer's premises. These features can be used to improve the operational performance of businesses, such as retail chains and casinos, by providing real-time alerts to customer bottlenecks. Enterprises can combine our software with other video analysis technologies that actively monitor customer and employee behavior and responses.
SALES AND MARKETING
Sales and Marketing
We sell our products primarily through a combination of our direct sales force and agents, distributors, value added resellers and systems integrators. As of January 31, 2002, we had several sales offices in the United States and offices in Australia, Canada, France, Germany, Hong Kong, Israel, Japan, the Netherlands, Singapore and the United Kingdom. Our direct sales force consists of account executives, solutions consultants, and regional sales directors, that possess industry-specific experience.
Our sales force pursues potential sales leads identified internally or provided by systems integrators. We develop strategic marketing alliances with leading companies in our industry to expand the coverage and support of our direct sales force. Our business development personnel are responsible for the initiation, negotiation and completion of these marketing alliances. We currently have such relationships with ADT, Avaya, Nortel, and Siemens. In addition, we established technological alliances with leading software and hardware companies including Genesys, Nortel,
PriceWaterhouseCoopers, Siebel Siemens and Visionics.Visionics, which enable us to offer complementary solutions to their products.
Our direct sales cycle typically begins with our initiation of a sales lead or the receipt of a request for a proposal from a prospective customer. The sales lead, or request for a proposal, is followed by an assessment of the customer's requirements, a formal proposal, presentations and product demonstrations, site visits to an existing customer that utilizes our products and contract negotiation and signing. The sales cycle can vary substantially from customer to customer but typically lasts six months to one year and is considered completed with the delivery of our product to the customer.
We use a variety of marketing programs to build brand name awareness, as well as to attract potential customers. These programs include market research, product and strategy updates with industry analysts, direct marketing programs to current and prospective customers, advertising, participation in industry trade shows, conferences, and seminars, and a public relations program that includes demonstrations of our products. To support sales efforts, we also produce promotional materials that include brochures, video presentations, data sheets and other technical descriptions.
CUSTOMERS
Customers
Our products are currently used by over 800 organizations and are deployed in over 50 countries, across many industries and markets. Many users of our products are large corporations or government agencies that operate from multiple locations and facilities across large geographic areas and sometimes 38
networked-basednetworked-
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based solution. None of our customers, including systems integrators and value added resellers, individually accounted for more than 5% of our revenues in fiscal 2001.
The following list represents sample purchasers of our products in our key market segments:
o
We derived approximately 21%, 22% and 26% of our revenues in fiscal 1999, fiscal 2000 and fiscal 2001, respectively, from government contracts. We expect that government contracts will continue to be a significant source of our revenues for the foreseeable future. Our business generated from government contracts may be adversely affected for various reasons including if levels of government expenditures and authorizations for law enforcement and security related programs decrease, remain constant or shift to programs in areas where we do not provide products and services or if changes in government procurement procedures preclude us from participating in such government procurement processes.
Research and Development
We continue to enhance the features and performance of our existing products and introduce new solutions.solutions by extensive research and development activities in our facilities in Israel, the United States and Germany. As of January 31, 2002, we had over 260 employees engaged in our research and development activities. We believe that our future success depends on a number of factors, which include our ability to:
o
As a result, we have made and intend to continue to make significant investments in research and development. We allocate our research and development resources in response to market research and customer demands for additional features and solutions. Our development strategy involves rolling out initial releases of our products and adding features over time. We continuously incorporate product feedback we receive from our customers into our product development process. While we expect that new products will continue to be developed internally, we may, based on timing and cost considerations, acquire or license technologies, products or applications from third parties.
The Government of Israel, through the Office of the Chief Scientist, encourages research and development projects which result in products for export. Our netgross research and development expenses were approximately $21.3$26.1 million for fiscal 1999, $14.2$21.7 million for fiscal 2000 and $11.4$21.0 million for fiscal 2001. In fiscal 1999, fiscal 2000 and fiscal 2001, we received from the nine-month period ended October 31, 2001. Our principalOffice of the Chief Scientist grants totaling $4.8 million, $7.5 million and $5.8 million, respectively, representing 18.5%, 34.5% and 27.6% of our total research and development activities are locatedexpenditures in Israel, the United Statesthese periods.
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Manufacturing and Germany. As of January
31, 2002, we had over 260 employees engaged in our research and development
activities.
MANUFACTURINGSuppliers
Our manufacturing operations, which are performed in our Israeli, U.S. and German facilities, consist primarily of installing our software on externally purchased hardware components and final assembly and testing, which involves the application of extensive quality control procedures to materials, components, subassemblies and systems. A majorityWe rely on several unaffiliated subcontractors for the supply of specific proprietary components and assemblies that are incorporated in all of our products. Although we have experienced delays and shortages in the hardwaresupply of proprietary components for
our products are available from equipment vendors. Only a limited number of
hardware components are manufactured specifically for us. Toon more than one occasion in the past, to date, we have been able to obtain adequate supplies of all components in a timely manner from existing sources or, when necessary, from alternative sources.
We maintain organization-wide quality assurance procedures, coordinating the quality control activities of our research and development, manufacturing and service departments. Our primary manufacturing and research and development facility in Israel has received certification to Quality Standard ISO 9001.
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INTELLECTUAL PROPERTY RIGHTS
Intellectual Property Rights
We have accumulated a significant amount of proprietary know-how and expertise over the years in developing multimedia analytic solutions for digital security and surveillance and enterprise business intelligence. As of OctoberJanuary 31, 2001,2002, we had no patents and five patent applications pending. We continuously review with our patent attorneys new areas of technology to determine whether they are patentable.
The names RELIANT(TM)RELIANT™, LORONIX(TM)LORONIX™, cctvware(TM)cctvware™, vCRM(TM)vCRM™, Building the Customer Intelligent Enterprise(TM)Enterprise™, OpenStorage Portal(TM)Portal™, Intelligent Recording(TM)Recording™ and our logos are our trademarks.
We license certain software, technology and related rights for use in the manufacture and marketing of our products, and pay royalties to third parties under such licenses and other agreements. We believe that our rights under such licenses and other agreements are sufficient for the manufacturing and marketing of our products and, in the case of licenses, extend for periods at least equal to the estimated useful lives of the related technology and know-how.
In January 2000, Comverse Technology and Lucent, acting through subsidiary patent holding companies on behalf of themselves and their various subsidiaries and affiliates, entered into a non-exclusive cross-licensing arrangement covering current and certain future patents issued to Comverse Technology and its affiliates and a portfolio of current and certain future patents in the area of communications technology issued to Lucent and its affiliates. Under that arrangement, and pursuant to a patent license agreement between us and Comverse Technology, Lucent is entitled to non-exclusive royalty-free licenses under any patents granted to us or which we obtain the right to license during the term of the agreement, while we are entitled to a non-exclusive royalty-free sublicense to all patents that are licensed by Lucent to Comverse Technology. See "Related Party Transactions - Transactions—Patent License Agreement."
COMPETITION
Competition
We face strong competition in the markets for our products, both in the United States and internationally. We expect competition to persist and intensify in the digital security and surveillance market, primarily due to increased demand for homeland defense and security solutions following the September 11 terror attacks. Our primary competitors are suppliers of security and recording systems and software, and indirect competitors that supply certain components to systems integrators. In the enterprise business intelligence market, we face competition from organizations emerging from the traditional call logging or call recording market as well as software companies that develop and sell products that perform specific functions for this market. Additionally, many of our competitors
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specialize in a subset of our portfolio of products and services. Primary competitors include, among others, ADC Telecommunications,SS8 Networks, ECtel, e-talk, Eyretel, JSI Telecom, NICE-Systems, Sensormatic and Witness Systems. We believe we compete principally on the basis of:
o
We believe that our success depends primarily on our ability to provide technologically advanced and cost effective solutions. Additionally, we must continue to provide our customers with prompt and responsive customer support. Our competitors that manufacture other security-related systems or other recording systems may derive a competitive advantage in selling to customers that are purchasing or have previously purchased other compatible equipment from such manufacturers. Further, we expect that competition will increase as other established and emerging companies enter our market and as new products, services and technologies are introduced.
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EMPLOYEES
Employees
As of January 31, 2002, we had approximately 800 employees. A majority of our employees are scientists, engineers or technicians engaged in research and development and marketing support services. We consider our relationship with our employees to be good. Our employees in the United States are not covered by any collective bargaining agreement. Our employees outside the United States are entitled to severance and other benefits mandated under local laws.
Israeli law generally requires the payment by employers of severance pay upon the death of an employee, retirement or upon termination of employment, and we provide for such payment obligations through monthly contributions to an insurance fund. Additionally, Israeli employees and employers are required to pay pre-determined sums to the National Insurance Institute, which covers medical and other benefits similar to the benefits provided by the United States Social Security Administration.
FACILITIES
Facilities
We lease approximately 60,000 square feet of office space in the United States, including approximately 32,000 square feet in Woodbury, New York, where our headquarters and some of our support and sales facilities are located. The lease of our Woodbury, New York facilities expires in February 2003. We lease approximately 70,000 square feet of office and storage space for manufacturing, development, support and sales facilities in Tel Aviv, Israel. This lease expires in January 2004. Additionally, we lease approximately 15,0006,000 square feet of office space for sales, installation and support in the United Kingdom. We also lease small office facilities in Germany and the Netherlands.
We own approximately 40,000 square feet of office space for the development, manufacturing, support and sales of our LORONIX product lines in Durango, Colorado. We also own approximately 25,000 square feet of office and storage space for sales, manufacturing, support and development in Bexbach, Germany. We believe that our owned and leased facilities are adequate for our current operations, and that additional facilities can be acquired or developed to provide for expansion of our operations in the foreseeable future.
LEGAL PROCEEDINGS
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Legal Proceedings
From time to time, we are subject to claims in legal proceedings arising in the normal course of our business. We do not believe that we are party to any pending legal action that could reasonably be expected to have a material adverse effect on our business or operating results.
PROXY AGREEMENT WITH THE DEPARTMENT OF DEFENSE
Proxy Agreement with the Department of Defense
One of our subsidiaries, Verint Technology Inc., or Verint Technology, is engaged in the development, marketing and sale of our communications interception solutions to various U.S. governmental agencies. In order to conduct its business, Verint Technology is required to maintain facility security clearances under the National Industrial Security Program, or the NISP. The NISP requires companies maintaining facility security clearances to be insulated from foreign ownership, control or influence. We,In January 1999, we, Comverse Technology and the Department of Defense have entered into a proxy agreement with respect to the ownership and operations of Verint Technology. The proxy agreement has been approved by the Defense Security Service, which has oversight responsibilities on behalf of the Department of Defense.
Under the proxy agreement we appointed three U.S. citizens that have the requisite personal security clearance as directors of Verint Technology and as holders of proxies to vote the stock of Verint Technology. These individuals are responsible for the oversight of Verint Technology's security arrangements, including the separation of Verint Technology from us and our affiliates. As proxy holders, these individuals have the power to exercise all prerogatives of ownership of Verint Technology, except that without obtaining our express written approval they may not authorize any individual sale or disposal of capital assets constituting a material amount of Verint Technology's assets, the mortgaging of assets other than for working capital or capital improvement purposes, any merger, consolidation, reorganization or dissolution of Verint Technology and the filing of a petition under the federal bankruptcy laws.
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Under the proxy agreement we have also established a government security committee, which consists of the three proxy holders. The government security committee is in charge of the development and implementation of a technology control plan, which prescribes measures and establishes procedures to prevent unauthorized disclosure or export of controlled information to us, any of our affiliates or others. In addition, the proxy agreement establishes procedures regarding meetings, visits and communications between Verint Technology, us and our other affiliates. The Department of Defense continually reviews the technology control plan and receives an annual report from the proxy holders.
EXPORT REGULATIONS
Export Regulations
We are subject to export restrictions in Israel with respect to certain components of our RELIANT products which are developed and manufactured in Israel. In order to export our RELIANT products from Israel, we are required to obtain export licenses from the Israeli Ministry of Defense prior to marketing these products in foreign countries. We are also required to obtain an additional license prior to the completion of each sale. To date, we have been successful in obtaining necessary permits.
We are also subject to export restrictions in Germany with respect to components of our RELIANT products which are developed and manufactured in Germany. To date, we have been able to rely on the terms of a general export license in Germany to export these components to countries outside the European Union. Under the terms of this license, we are also required to report to German authorities each shipment of these components outside of the European Union.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Directors, Executive Officers and Key Employees
The following table sets forth certain information concerning our current directors, executive officers and key employees. Prior to theemployees and information concerning individuals who will become our directors upon completion of this offering,
we intend to designate three independent directors in accordance with the rules
of the Nasdaq National Market:
offering:
| Name | Age | Position | ||
|---|---|---|---|---|
| Executive Officers and Directors: | ||||
| Kobi | 49 | Chairman of the Board of Directors | ||
| Dan | 43 | President, Chief Executive Officer and Director | ||
| Igal | 46 | Chief Financial Officer and Director | ||
| David | 37 | Director | ||
| William F. | 53 | Director | ||
| David T. Ledwell | 55 | President and Chief Executive Officer of Loronix and Nominee Director* | ||
| Paul D. Baker | 42 | Nominee Director* | ||
| Paul L. Robinson | 35 | Nominee Director* | ||
| Howard Safir(2) | 60 | Nominee Director* | ||
| Victor De Marines(2) | 65 | Nominee Director* | ||
| Key Employees: | ||||
| Elan | 39 | Vice President for Contact Center Business Intelligence Solutions | ||
| David | 40 | President and Chief Executive Officer of Verint Technology Inc. | ||
| David | 48 | Managing Director of Europe, Middle East and Africa | ||
| Meir | 52 | Managing Director of Verint Systems Ltd. | ||
Executive Officers and Directors
KOBI ALEXANDER
Kobi Alexander has served as Chairman of our Board of Directors since February 1994. Mr. Alexander, a founder of Comverse Technology, Inc., has been a director and senior executive officer of Comverse Technology since its formation in October 1984, serving in the capacities of Chairman of the Board of Directors since September 1986 and Chief Executive Officer since April 1987. Mr. Alexander also serves as director and Chairman of the Board of various subsidiaries of Comverse Technology, including its other principal operating subsidiaries, Comverse, Inc. and Ulticom, Inc. Mr. Alexander is also a director of System Management Arts Incorporated, or SMARTS, a leading developer of intelligent software to assure availability and performance of network-based services. Mr. Alexander received a B.A., magna cum laude, in Economics from the Hebrew University of Jerusalem in 1977, and an M.B.A. in Finance from New York University in 1980.
DAN BODNER
Dan Bodner is the President, Chief Executive Officer and a director of our company. Mr. Bodner served as our President and/or Chief Executive Officer and director since February 1994. From 1991 to 1998, Mr. Bodner also served as President and Chief Executive Officer of Comverse Government Systems Corp., a former affiliate of ours. Prior to such positions, from 1987 to 1991, Mr. Bodner held
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various management positions at Comverse Technology. Prior to joining Comverse Technology, Mr. Bodner was employed for two years as Director of Software Development for Contahal Ltd. From 1981 through 1985, Mr. Bodner served in the Israeli Defense Force in an engineering capacity. Mr. Bodner received a B.Sc., cum laude, in Electrical Engineering from the Technion, Israel Institute of Technology, in 1981 and a M.Sc., cum laude, in Telecommunications and Computer Science from Tel Aviv University in 1987.
IGAL NISSIM
Igal Nissim has served as our Chief Financial Officer and has been a director since January 1999. Mr. Nissim has been employed by Comverse Technology since 1986 where he served as Chief Financial Officer from 1993 until 1998. Prior to this position, Mr. Nissim served as Chief Financial Officer of Efrat Future Technology Ltd. From 1984 to 1986, Mr. Nissim was employed by Gadot Industrial Enterprises Ltd. as deputy controller, responsible for financial and cost accounting. Mr. Nissim is a Certified Public Accountant in Israel and was employed for four years by Kesselman & Kesselman (now a member of PriceWaterhouseCoopers). Mr. Nissim received a B.A. in Economics and Accounting from the Tel-Aviv University in 1981.
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DAVID KREINBERG
David Kreinberg has been a director since January 1999. Mr. Kreinberg has served as Vice President of Finance and Chief Financial Officer of Comverse Technology, Inc. since May 1999. Previously, Mr. Kreinberg had served Comverse Technology as Vice President of Finance and Treasurer from April 1996 and as Vice President of Financial Planning from April 1994. Mr. Kreinberg also served as the Chief Financial Officer of Ulticom from December 1999 until September 2001. Mr. Kreinberg is also a director of Ulticom and SMARTS. Mr. Kreinberg is a Certified Public Accountant, and prior to joining Comverse Technology he served as a senior manager at Deloitte & Touche LLP. Mr. Kreinberg received a B.S., summa cum laude, in Accounting from Yeshiva University in 1986 and an M.B.A. in Finance and International Business from Columbia Business School in 1990.
WILLIAM
William F. SORINSorin has been a director since January 1999. Mr. Sorin has served as a director and the Corporate Secretary of Comverse Technology Inc. since its formation in October 1984. Mr. Sorin is also a director of Ulticom and SMARTS. Mr. Sorin is an attorney engaged in private practice and is General Counsel to Comverse Technology. Mr. Sorin received a B.A. from Trinity College in 1970 and a J.D., cum laude, from Harvard Law School in 1973.
Key Employees
DAVID
David T. LEDWELLLedwell will become a director upon completion of this offering. Mr. Ledwell has served as the President and Chief Executive Officer of our subsidiary, Loronix, since September 1999. Mr. Ledwell also served as a director of Loronix from September 1999 until July 2000. From 1986 to 1998, Mr. Ledwell served in various senior executive capacities at DH Technology, Inc., a company engaged in the development, marketing, sales and support of transaction, bar code printers and credit card readers. From 1995 to 1998, Mr. Ledwell served as Executive Vice President responsible for several of the DH Technology's subsidiaries and divisions. Prior to 1986, Mr. Ledwell held various management positions with companies in the computer and electronics industries, including Texas Instruments and Datapoint Corporation. Mr. Ledwell holds a B.S. in Electrical Engineering from Colorado State University.
ELAN MORIAH
Paul D. Baker will become a director upon completion of this offering. Mr. Baker also serves as Vice President, Corporate Marketing and Corporate Communications of Comverse Technology, a position he has held since joining Comverse Technology in April 1991. Mr. Baker is also a director of Ulticom. Mr. Baker held various positions in sales, marketing, and corporate communications with Robotic Vision Systems, Inc. from 1984 to 1991. Mr. Baker received a B.S. in Management from Babson College in 1980 and an M.B.A. in Marketing Management from St. John's University in 1984.
Paul L. Robinson will become a director upon completion of this offering. Mr. Robinson has served as Associate General Counsel of Comverse Technology since January 1999. Prior to joining Comverse Technology, Mr. Robinson was an associate attorney at Kramer, Levin, Naftalis & Frankel, LLP from January 1998 to December 1998. From January 1997 to December 1997, Mr. Robinson served as
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counsel to the United States Senate Committee on Governmental Affairs with respect to its special investigation into illegal and improper campaign fund-raising activities during the 1996 federal election. From June 1994 through January 1997, Mr. Robinson was an associate attorney at Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Robinson received a B.A. in political science and was Phi Beta Kappa from State University of New York at Binghamton in 1989 and a J.D., cum laude, from Boston University School of Law in 1992.
Victor De Marines will become a director upon completion of this offering. Mr. De Marines recently retired form his position as President and Chief Executive Officer of MITRE Corporation, a nonprofit organization, which provides security solutions for the computer systems of the Department of Defense, the Federal Aviation Administration, the Internal Revenue Service and several organizations in the U.S. intelligence community. Mr. De Marines currently serves on the board of trustees of MITRE. Mr. De Marines has recently served as an advisor to the Department of Defense on matters concerning the transformation of the military. Mr. De Marines is a member of an advisory group for the National Reconnaissance Office and is a member of the Massachusetts Business Roundtable. Mr. De Marines served as the a Presidential Executive with Department of Transportation and is a Lieutenant (retired) of the U.S. Air force. Mr. De Marines holds a B.S. from Pennsylvania State University and a M.S. in Electrical Engineering from the Northeastern University.
Howard Safir will become a director upon completion of this offering. Mr. Safir is the Chairman and Chief Executive Officer of SafirRosetti, Omnicom Group Inc., a premier company providing security and investigation services. Mr. Safir also serves as consultant to ChicePoint, a leading provider of credential verification and identification services. Prior to these positions, Mr. Safir served as the 39th Police Commissioner of the City of New York. Mr. Safir also served as Associate Director for Operations, U.S. Marshals Service, as Assistant Director of the Drug Enforcement Administration and as Chief of the Witness Security Division, U.S. Marshals Service. Mr. Safir holds a B.A. in History and Political Science from Hofstra University. Mr. Safir participated in several programs at Harvard University's John F. Kennedy School of Government. Mr. Safir was awarded the Ellis Island Medal of Honor among other citations and awards.
Key Employees
Elan Moriah has served as our divisionalVice President for Contact Center Business Intelligence Solutions since August 2001 and as a Vice President since May 2000. From 1995 until May 2000, Mr. Moriah held various senior management positions in Motorola Inc., including Business Development Manager for Europe, Middle East and Africa business at Motorola Inc.'s Schaumburg;Schaumburg, Illinois based worldwide network services division, where he established large-scale joint ventures in the area of wireless communication. Mr. Moriah has also served as Vice President of Marketing and Sales of Motorola's paging subsidiary in Israel. From 1989 to 1995, Mr. Moriah worked for Comet Software Inc., as Vice President of Marketing and Sales and as Operations Manager. Mr. Moriah received a B.Sc., cum laude, in Industrial Engineering and Management from the Technion, Israel Institute of Technology, in 1988, and an M.B.A., summa cum laude, in International Business from the City University of New York in 1992.
DAVID WORTHLEY
David Worthley has served as President and Chief Executive Officer of our subsidiary Verint Technology Inc. since January 1999. From August 1997 to January 1999, Mr. Worthley served as our Vice President. Prior to joining our company, Mr. Worthley served as the Chief of the FBI's Telecommunications Industry Liaison Unit, which was responsible for the implementation of CALEA. Mr. Worthley joined the FBI in 1988 as a Special Agent. In 1991 Mr. Worthley was assigned to the FBI's engineering research facility where he supervised electronic surveillance matters. Prior to his employment with the FBI, Mr. Worthley worked as an account representative for Motorola Communications Sector from 1986 to 1988. From 1982 to 1986, Mr. Worthley worked as an audio engineer for ORTV Productions. Mr. Worthley received a B.S. in Telecommunications from Oral Roberts University in 1984 and is a 1988 graduate of the FBI Academy.
DAVID PARCELL
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David Parcell has served as our Managing Director of Europe, Middle East and Africa, or EMEA, since May 2001. From July 1997 until joining our company Mr. Parcell was employed by Aspect Communications, where he served as Vice President, EMEA. From April 1994 to July 1997, Mr. Parcell served as United Kingdom Managing Director for Co-Cam, a subsidiary of Colonial (now First Wave Technologies). From July 1981 to January 1994, Mr. Parcell held various senior sales and general management positions at Datapoint UK Ltd., where he also served as Sales and Marketing Director for a period of four years. Prior to these positions, Mr. Parcell held sales positions at Unisys between June 1978 and June 1981, and with Olivetti between June 1975 and June 1978. Mr. Parcell received a B.Sc. with honors, in Economics and Law from the Surrey University in 1974.
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MEIR SPERLING
Meir Sperling has served as a Managing Director of our subsidiary Verint Systems Ltd. since September 2000. From January 1999 to January 2000, Mr. Sperling was employed by ECI Telecom Ltd., where he served as Corporate Vice President, General Manager of the business systems division and a director in several of ECI's subsidiaries. From 1992 to 1999, Mr. Sperling served as Corporate Vice President and General Manager of the business and access systems divisions of Tadiran Telecommunications Ltd. Mr. Sperling also served as a director in several of Tadiran's subsidiaries. From 1987 to 1992, Mr. Sperling served as Director of Product Planning and Business Development of TEI, a U.S. subsidiary of Tadiran Ltd. Between 1975 and 1987, Mr. Sperling served in various positions in research and development at Tadiran, where he also served as a Director of research and development of Tadiran's business systems division. Mr. Sperling received a B.Sc. in Electronic Engineering from the Ben Gurion University, Israel, in 1975.
BOARD COMPOSITION
Board Composition and Terms of Directors
Our by-laws will authorize our board of directors to have not less than three and not more than fifteentwenty members. OurUpon completion of this offering our board of directors currently
has fivewill have ten members. We intend to have additional directors, including an independent directors,director, join our Board of Directors effective uponafter the completion of this offering. Members of the board of directorsdirector are elected each year at the annual meeting of stockholders to serve until the following annual meeting of stockholders or until their successors have been elected and qualified. Directors may be removed by the affirmative vote of the holders of a majority of the shares entitled to vote at an election of directors. There are no family relationships among any of our directors and executive officers.
BOARD COMMITTEES
Board Committees
Our board of directors will have four committees:currently has an executive committee and a compensation committee, and upon completion of this offering will also have an audit committee and a stock option committee. Members will serve on these committees for one-year terms.
Our executive committee consists of Messrs. Kobi Alexander, Dan
Bodner, William SorinKreinberg and David Kreinberg.Sorin. The executive committee has all the authority of the board, except with respect to items requiring stockholder approval or submission and except as otherwise required by law.
Our compensation committee consists of Messrs. ____________,
____________Alexander, Bodner, Kreinberg and ____________.Sorin. The compensation committee makes recommendations to the board of directors regarding the various incentive compensation and benefit plans and determines salaries for the executive officers and incentive compensation for employees.
Our audit committee consistswill initially consist of Messrs. ____________, ____________De Marines and ____________.Safir. We intend to appoint an additional independent director who will become a member of this committee following the completion of this offering. The audit committee makes recommendations to the board of directors regarding the selection of independent public accountants, reviews the results and scope of the audit and other services provided by our independent public accountants and reviews and evaluate our control functions.
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Our stock option committee consistswill initially consist of Messrs. ____________,
____________De Marines and ____________.Safir. We intend to appoint an additional independent director who will become a member of this committee following the completion of this offering. The stock option committee administers the issuance of stock options under our stock incentive compensation plan.
DIRECTOR COMPENSATION
Nasdaq Requirements
Under the Nasdaq National Market listing requirements, we are required to form an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. The responsibilities of the audit committee under the Nasdaq National Market listing requirements include evaluating the independence of a company's outside auditors. Two members of our audit committee will become our directors upon completion of this offering and an additional member of our audit committee will be appointed following the completion of this offering. In addition, we adopted an audit committee charter that complies with the Nasdaq National Market listing requirements.
Director Compensation
Our directors do not currently receive any cash compensation for serving on the board of directors or any committee of the board. Our directors are reimbursed for the expenses they incur in attending meetings of the board or board committees. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONWe have granted our directors options to purchase share of our common stock.
Our independent directors will be entitled to receive an annual cash compensations of $15,000, payable in arrears at the end of each fiscal quarter and an additional $1,000 for each board meeting attended and $500 for each board committee meeting attended. Effective upon completion of this offering, we will grant to each of Howard Safir and Victor De Marines vested options to purchase shares of our common stock at an exercise price equal to the initial public offering price. In addition, on each anniversary of the completion date of this offering our independent directors will be granted options to purchase shares of our common stock at an exercise price equal to the trading price of our common stock on the date of grant. These options will vest in increments of shares for each board meeting attended during the year.
Compensation Committee Interlocks and Insider Participation
Executive compensation decisions in fiscal 2001 were made exclusively by our Chairman, Kobi Alexander. No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past.
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EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information concerning compensation we paid or incurred on our behalf to our chief executive officer and our other executive officer during fiscal 1999, fiscal 2000 and fiscal 2001.
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Stock Option Information The following table sets forth information concerning options granted during fiscal 2001
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------------------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
Dan Bodner,
President and Chief Executive Officer................ Annual Compensation
Name and Principal Position Fiscal
Year Salary(1) Bonus(2) Other Annual
CompensationDan Bodner,
President and Chief Executive Officer 2001 $ 200,000 $ 50,000 $ 2,000 2000 $ 193,953 $ 70,000 $ 5,379 1999 $ 120,750 $ 12,125 $ 50,644
Igal Nissim,
Chief Financial Officer
2001
$
135,837
$
25,000
$
25,407 2000 $ 121,701 $ 14,410 $ 23,289 1999 $ 110,110 $ 0 $ 21,676 $ $ $
---------- ---------- ----------
Igal Nissim,
Chief Financial Officer.............................. 2001 $ $ $
---------- ---------- ----------
STOCK OPTION INFORMATION
_________ options to purchase shares of common stock were granted by
us to our executive officers during fiscal 2001.
identified above under our incentive compensation stock option plan. These options vest in four equal annual increments commencing from the date of grant.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
| Individual Grants | | | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Percent of Total Options Granted to Employees in Period | | | | | |||||||
| | | | | Value of Unexercised In-the- Money Options at January 31, 2002* | |||||||||
| | Number of Shares Subject to Option | | | ||||||||||
Name | Exercise Price per Share | | |||||||||||
| Expiration Date | Exercisable | Unexercisable | |||||||||||
| Dan Bodner | 250,000 | 5.6 | % | $ | 1.70 | April 1, 2011 | |||||||
| Igal Nissim | 125,000 | 2.8 | % | $ | 1.70 | April 1, 2011 | |||||||
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No options granted by us were exercised by the executive officers during fiscal 2001. The following table provides certain information concerning options granted by us as of January 31, 2002, with respect to each of the executive officers. These options vest in four equal annual increments
commencing from the date of grant. The value of the unexercised options set forth below has been calculated by subtracting the exercise price from the assumed initial offering price of $___$ per share and multiplying that amount by the number of shares underlying the option.
| | Number of Securities Underlying Unexercised Options at January 31, 2002 | Value of Unexercised In-the-Money Options at January 31, 2002 | ||||||
|---|---|---|---|---|---|---|---|---|
| | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||
| Dan Bodner | 487,501 | 512,499 | ||||||
| Igal Nissim | 172,500 | 332,500 | ||||||
Verint Systems Inc. Stock Incentive Compensation Plan
The purpose of this plan is induce key personnel, including employees, directors, independent contractors, and other persons rendering valued services, to remain in the employ or service of our company, our subsidiaries and affiliates, to attract new personnel and to encourage such personnel to secure or increase on reasonable terms their stock ownership in our company.
General. Options granted under the plan are intended to be either incentive stock options or options not intended to be incentive stock options, called non-qualified options, or a combination thereof. We have reserved 25,000,000 shares of our common stock for issuance upon exercise of awards under the plan.
Administration. The plan has been to date, and up to the closing of this offering will be, administered by a committee. Following completion of this offering, the plan will be administered by a stock option committee consisting of Messrs. ________, ______________De Marines and ____________.Safir.
Eligibility. Employees of our company or our affiliates may receive incentive stock options. Non-qualified options may be granted to employees of our company or our affiliates, directors and to independent contractors rendering services to our company or our affiliates.
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Deferred Stock. An award of deferred stock is an agreement by our company to deliver to an employeea recipient a specified number of shares of common stock at the end of a specified deferral period or periods. Before the issuance and delivery of the deferred stock, the awarded employeerecipient does not have any rights as a stockholder with respect to any shares of deferred stock credited to his or her account. Dividends declared during the deferral period on shares covered by a deferred stock award will be paid to the awarded employeerecipient currently, or deferred and deemed to be reinvested in additional deferred stock, or otherwise reinstated on terms as the committee may determine at the time of the award. The stock option committee may condition the grant of the deferred stock award or the expiration of the deferral period upon the employee'srecipient's achievement of one or more performance goals. Shares of deferred stock credited to the account of the awarded employeerecipient are issued and delivered to the employee at the end of the deferral period under the terms of the deferred stock agreement. The committee may, in its sole discretion, accelerate the delivery of all or any part of a deferred stock award or waive the deferral limitations for all or any part of the deferred stock award.
Restricted Stock. An award of restricted stock to an employeea recipient is a grant by our company of a specified number of shares of common stock subject to forfeiture upon the happening of specified events. The certificates representing shares of restricted stock are legended as to sale, transfer, assignment, pledge or other encumbrances during the restriction period and are deposited by the employee,recipient, together with a stock power endorsed in blank, with our company, to be held in escrow
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during the restriction period. Unless the stock option committee determines otherwise, during the restriction period the awarded employeerecipient has the right to receive dividends from and to vote the shares of restricted stock. The committee may condition the grant of an award of restricted stock or the expiration of the restriction period upon the employee's achievement of one or more performance goals. The committee may, in its sole discretion, modify or accelerate the vesting and delivery of shares of restricted stock.
Stock Appreciation Rights. Stock appreciation rights are rights to receive payment in cash, common stock, restricted stock or deferred stock or any combination of these equal to the increase in the fair market value of a specified number of shares of common stock from the date of grant of the rights to the date of exercise. Stock appreciation rights may be granted in tandem with all or a portion of a related option under the plan, or may be granted separately as a freestanding stock appreciation right. A tandem stock appreciation right may be granted either at the time of the grant of the option or at any time thereafter during the term of the option and may be exercisable only to the extent that the related option is exercisable. No stock appreciation right may be exercisable within the first six months of its grant. The base price of a tandem stock appreciation right may only be the option price under the related option. The base price of a freestanding stock appreciation right may not be less than 100% of the fair market value of the common stock, as determined by the stock option committee, on the date of grant.
Options. Options give an employeea recipient the right to purchase a specified number of shares of common stock from us for a specified time period at a fixed price. The price per share at which common stock may be purchased upon exercise of an option is determined by the stock option committee; however, in the case of grants of incentive stock options, the price per share may not be less than the fair market value of a share of common stock on the date of grant. In case of any incentive stock option granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of our capital stock, the option price per share will not be less than 110% of the fair market value of a share of common stock on the date of grant. The option price per share for non-qualified options may be less than the fair market value of a share of common stock on the date of grant.
Option terms may not be greater than 10 years, or five years in the case of an incentive stock option granted to a holder of 10% or more of the voting power of our capital stock. Except as provided in an option agreement, the price upon exercise of an option will be paid in full at the time of the exercise in cash, or in the sole determination of the committee in shares of common stock at the fair market value on the date of exercise or a combination of cash and shares. The committee or our board of directors may in their discretion extend the period during which an option held by an employee of, or consultant to, our company or any affiliate may be exercised to a period not to exceed three years following the termination of an employee's employment or service, as the committee or our board of directors may determine to be appropriate in any particular instance.
Adjustments Upon a Change in Control. Except as otherwise provided by applicable agreement, upon the occurrence of a change in control, excluding a hostile change of control, the committee may elect to provide that all outstanding options and stock appreciation rights will immediately vest and become exercisable, each deferral period and restriction period will immediately lapse, or all shares of deferred stock subject to outstanding awards will be issued and delivered to the awarded employee.recipient. In the event of a hostile change in control, each of the foregoing actions will occur automatically upon the
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employee to whom an
option was granted:
o recipient:
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Effective Date, Termination and Amendment. The plan will remain effective until SeptemberMarch 10, 2006,2012, or the date it is terminated by our board of directors. Under the provisions of Section 1516 of the plan, our board of directors has the power to amend, suspend or terminate the plan at any time; however, the board may not effect any of the following amendments without stockholder approval:
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2002 EMPLOYEE STOCK PURCHASE PLANEmployee Stock Purchase Plan
We expect to adopt an employee stock purchase plan prior to the completion of this offering. The purpose of this plan is to provide a method whereby our employees and those of our eligible subsidiaries, if any, will have an opportunity to acquire a proprietary interest in our company through the purchase of shares of our common stock.
General. The plan is intended to comply with the provisions of Section 423 of the U.S. Internal Revenue Code of 1986, as amended, generally referred to as the Code. The plan will allow eligible employees who elect to participate in the plan to make purchases of our common stock through payroll deductions at a price of 85% of the fair market value of our common stock on the first day or last day of each offering period, whichever is lower. Participants will be limited by the Code to a maximum of $25,000 deducted from their compensation under the plan during any calendar year.
Administration. The plan will be administered by our compensation committee, which will be authorized to decide questions of eligibility and to make rules and regulations for the administration and interpretation of the plan, subject to final authority of our board of directors. All determinations of the compensation committee with respect to the plan will be binding. The expenses of administering the plan will be borne by us.
Shares Available Under the Plan. Under the Plan, we will issue an aggregate of not more than 5,000,000 shares of our company's common stock. The maximum number of shares issuable under the plan will be subject to adjustment for any dividend, stock split or other relevant change in our capitalization.
Eligibility. With certain exceptions, all full-time employees who have been employed by us or an eligible subsidiary, if any, for at least three months, are eligible to participate in the plan. The purchase of shares under the plan will be voluntary, and we cannot determine the number of shares to be purchased under the plan.
Operation of the Stock Purchase Plan. Our common stock will be purchased under the plan through semi-annual offering periods. The first offering is expected to begin on September 1, 2002. Offering periods will begin on March 1 and September 1 of each year.
During each offering period, the maximum number of shares which may
be purchased by a participant will be determined on the first day of the
offering period under a formula whereby 85% of the market value of a share of
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our common stock on the first day of the offering period will be divided into an
amount equal to 6% of that participant's annualized base pay, as defined in the
plan.
A participant may elect to have up to 10% of his or her base pay withheld from his or her pay for this purpose. The price at which the participant may purchase shares will be the lower of (i) 85% of
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the last sale price of our common stock on the Nasdaq National Market on the first day of the offering period or (ii) 85% of such price on the last day of the offering period.
Amendment. Our board of directors may at any time, and from time to time, modify, terminate or amend the plan in any respect without obtaining stockholder approval, except where the approval of our stockholders is required under (i) Section 423 of the Code, (ii) Rule 16b-3 of the Exchange Act or any successor provisions or (iii) under any applicable listing requirement of Nasdaq.
The termination, modification or amendment of this plan shall not, without the consent of a participant, affect his or her rights under a purchase option previously selected bygranted to the participant. With the consent of the participant affected, our board of directors may amend outstanding purchase options in a manner not inconsistent with the terms of the plan. Our board of directors shall also have the right to amend or modify the terms and provisions of the plan and of any purchase options previously granted under the plan to the extent necessary to ensure the continued qualification of the plan under Section 423 of the Code and Rule 16b-3. The plan also contains provisions relating to the disposition of purchase options in the event of certain mergers or other significant transactions in which we may be involved.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH COMVERSE TECHNOLOGY AND ITS SUBSIDIARIES
Relationship with Comverse Technology and its Subsidiaries
We are a subsidiary of Comverse Technology. Set forth below is a brief description of the existing relationships and agreements between us and Comverse Technology.
Corporate Services Agreement
We have a corporate services agreement with Comverse Technology. Under this agreement, Comverse Technology provides us with the following services:
o
As of February 1, 2002, we are required to pay Comverse Technology a quarterly fee of $131,250, subject to adjustment and annual increases, for the services provided by Comverse Technology during each fiscal quarter. In addition, we agree to reimburse Comverse Technology for any out-of-pocket expenses incurred by Comverse Technology in providing the services. During fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001 no amounts were paid to Comverse Technology for reimbursement of out-of-pocket expenses. The term of this agreement extends to January 31, 2005 and is automatically extended for additional twelve-month periods unless terminated by either Comverse Technology or us. Since February 1, 1999, Comverse Technology has been providing these services to us for a quarterly fee that has ranged from $118,750 to $131,250.
Enterprise Resource Planning Software Sharing Agreement
On February 1, 2001,
In January 2002, we entered into an enterprise resource planning, or ERP, software sharing agreement with Comverse, Inc.Comverse. Under this agreement, Comverse Inc. agreed to continue to share the use of specific ERP software with us and undertook to provideexert its reasonable commercial efforts to arrange for the ongoing operation, back up, maintenance and support of the software for an annual fee of $100,000. The terms of the ERP Software Sharing Agreement and the fee payable to Comverse were determined by arm's length negotiations between us and Comverse. We have been sharing the ERP software with Comverse Inc. since February 1999. During fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001, we recorded expenses of $1,500,000, $200,000 and $75,000,$100,000 respectively, for services relating to our use of the ERP Software.
Satellite Services Agreement with Comverse, Inc.
In January 2002, we entered into a services agreement with Comverse Inc. pursuant to which Comverse Inc. provides us with the exclusive use of the services of specified employees of Comverse Inc. and its facilities where such employees are located. Under this agreement, we pay Comverse Inc. a quarterly fee, which is equal to the expenses Comverse Inc. incurs in providing these services plus ten percent. For services rendered by Comverse Inc. during fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001, we recorded expenses of $459,000, $1,193,000 and $1,168,000,$1,817,000 respectively.
We believe that the terms of the Corporate Services Agreement, the Enterprise Resource Planning Software Sharing Agreement and the Satellite Services Agreement are fair to us and are not materially less favorable to usdifferent than those we could have obtained from an unaffiliated third party.
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Federal Income Tax Sharing Agreement
We have a tax sharing agreement with Comverse Technology. Comverse Technology is the parent company of a group of companies which includes us and for which Comverse Technology files a consolidated a federal income tax return. After this offering is completed we expect that we will continue to be included in the Comverse Technology consolidated group for federal income tax purposes
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Patent License Agreement
Our affiliate, Comverse Patent Holding, granted Lucent GRL a non-exclusive license to those patents now owned by Comverse Patent Holding or for which Comverse Patent Holding has a right to license and to those patents granted to Comverse Patent Holding or for which Comverse Patent Holding obtains the right to license during the terms of that arrangement. In return, Comverse Patent Holding was granted a non-exclusive license to certain patents now owned by Lucent GRL or for which Lucent GRL has the right to license and to those patents granted to Lucent GRL or for which Lucent GRL obtains the right to license during the term of that arrangement. Under that arrangement, Comverse Patent Holding has the right to grant a sublicense to us. In connection with that arrangement, effective December 30, 1999, we entered into a patent license agreement with Comverse Patent Holding under which we have granted a non-exclusive royalty-free license to Comverse Patent Holding with the right to sublicense to Lucent GRL our patents and those patents granted to us or for which we obtain the right to license during the term of the agreement. In return, Comverse Patent Holding granted to us a non-exclusive royalty-free sublicense to all patents that are licensed by Lucent GRL to Comverse Patent Holding. We believe that the value of our sublicense from Comverse Patent Holding is greater than the value of our license to Comverse Patent Holding.
Registration Rights Agreement
We have entered into a registration rights agreement with Comverse Technology. Under this Agreement, Comverse Technology may require us on one occasion to register our common stock for sale on Form S-1 under the Securities Act if we are not eligible to use Form S-3 under that Act. After we become eligible to use Form S-3, Comverse Technology may require us on unlimited occasions to register our common stock for sale on this form. Comverse Technology will also have an unlimited number of piggyback registration rights. This means that any time we register our common stock for sale, Comverse Technology may require us to include shares of our common stock held by it in that offering and sale. Comverse Technology will not be allowed to exercise any registration rights during the 180-day lock-up period.
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We have agreed to pay all expenses that result from registration of our common stock under the registration rights agreement, other than underwriting commissions for such shares and taxes. We have also agreed to indemnify Comverse Technology, its directors, officers and employees against liabilities that may result from its sale of our common stock, including Securities Act liabilities.
Business Opportunities Agreement
We have a business opportunities agreement with Comverse Technology which addresses potential conflicts of interest between Comverse Technology and us. This agreement allocates between Comverse Technology and us opportunities to pursue transactions or matters that, absent such allocation, could constitute corporate opportunities of both companies. We are precluded from pursuing an opportunity offered to any person who is a director of our company but not an officer or employee of our company and who is also an officer or employee of Comverse Technology, unless Comverse Technology fails to pursue such opportunity diligently. Comverse Technology is precluded from pursuing an opportunity offered to any person who is a director of Comverse Technology but not an officer or employee of Comverse Technology and who is also an officer or employee of our company, unless we fail to pursue such opportunity diligently. We are also precluded from pursuing an opportunity offered to any person who is an employee or officer of both companies or a director of both companies, unless Comverse Technology fails to pursue such opportunity diligently. Accordingly, we may be precluded from pursuing transactions or opportunities that we would otherwise be able to pursue if we were not affiliated with Comverse Technology. We have agreed to indemnify Comverse Technology and its directors, officers, employees and agents against any liabilities arising out of any claim that any provision of the agreement or the failure to offer any business opportunity to us violates or breaches any duty that may be owed to us by Comverse Technology or any such person.
Proxy Agreement with the Department of Defense
We and Comverse Technology are parties to a proxy agreement with the Department of Defense concerning the ownership and operations of our subsidiary Verint Technology Inc. See "Business - "Business—Proxy Agreements with the Department of Defense."
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Contribution Agreement
We entered into a contribution agreement, dated as of February 1, 2001, with Comverse Technology, pursuant to which we acquired from Comverse Technology all of the outstanding shares of Loronix and all of the outstanding shares of Comverse GmbH, which directly and through a wholly-owned subsidiary holds 99.8%all of the partnership interest in Syborg
Informationsysteme beschrankt haftende OHG, or Syborg, and all of the shares of
Comverse Grundbesitz GmbH, which holds 0.2% of the partnership interestinterests in Syborg, in exchange for 34,539,905 shares of our common stock. Under this agreement, we received all of the burdens, benefit and incidents of ownership in each of the companies as of February 1, 2001. This transaction was designed to qualify as a tax-free exchange pursuant to section 351(a) of the Code.
This transaction was accounted for as a pooling of interests. Our consolidated financial statements for the year ended January 31, 2000, include the operations of Loronix and Syborg for the year ended December 31, 1999.
Sale of Comverse Media Holding Inc.
On February 1, 2001, we sold 100% of the capital stock of Comverse Media Holding Inc., or Media, to Comverse, Inc.Comverse. The purchase price for the shares of Media was $100,000, which was paid by a reduction in intercompany debt that we owed to Comverse.
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Indemnification Agreement with Comverse Inc.
Technology
On January 31, 2002, we entered into an indemnification agreement with Comverse Technology pursuant to which Comverse Technology agreed to indemnify us for any damages that may arise from two specified disputes which are not material to us. In return, we granted to Comverse Technology the exclusive control of the settlement and defense of these disputes, and we agreed to fully cooperate with Comverse Technology in any such settlement or defense.
Transactions with an Affiliate
We sell products and services to Comverse Infosys (Singapore) PTE LTD., or Infosys Singapore, an affiliated systems integrator in the ordinary course of our business.which we hold a 50% equity interest. Sales to this affiliateInfosys Singapore were approximately $961,000, $4,271,000 and $2,488,000$4,024,000 for the fiscal years ended January 31, 2000, and
2001 and 2002, respectively. We sell our products and services to Infosys Singapore on the nine-month period ended October 31, 2001, respectively.same terms that we sell similar products and services to our non-affiliated customers. In addition, we wereInfosys Singapore charged us for marketing and office service fees by that affiliate.
These fees wereof approximately $56,000, $270,000 and $241,000$490,000 for the years ended
January 31,fiscal 1999, fiscal 2000 and 2001 and the nine-month period ended October 31,fiscal 2001, respectively. We believe that Infosys Singapore has determined these charges on the basis of its estimated costs in providing such services.
Transactions with Other Subsidiaries of Comverse Technology
We charge subsidiaries of Comverse Technology for services relating to the use of our facilities and employees. Charges to these subsidiaries were approximately $365,000, $1,006,000 and $1,153,000$1,030,000 for fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001, respectively.
We also purchased products and services from other subsidiaries of Comverse Technology in the ordinary course of our business. Purchases from these subsidiaries were approximately $268,000, $0 and $2,000 for the years ended
January 31,fiscal 1999, fiscal 2000 and 2001 and the nine-month period ended October 31,fiscal 2001, respectively. We believe that these sales are made on the same terms as provided by such affiliated entities to their non-affiliated customers.
Guarantees of Our Obligations to Third Parties
As of February 1, 2000, we had $25.2 million of outstanding indebtedness owed to Comverse Technology resulting from loans made by Comverse Technology to fund our working capital requirements. During fiscal 1999, fiscal 2000 and fiscal 2001, we borrowed an additional $5.7 million, $9.9 million, and $1.2 million, respectively, which was inclusive of accrued and unpaid interest, additional loans, and fees charged by Comverse Technology for corporate services. We had no repayments to Comverse Technology during these periods. On January 31, 2002, we borrowed $42 million under a term loan from a bank. We used the proceeds of this loan to repay our outstanding indebtedness owed to Comverse Technology. At January 31, 2002, we had outstanding indebtedness to Comverse Technology of $0.7 million which we intend to repay in the fiscal quarter ended April 30, 2002. The bank loan is guaranteed by Comverse Technology. During fiscal 1999, fiscal 2000 and the nine-month period ended October 31,fiscal 2001, we were charged with interest on our indebtedness to Comverse Technology in an amount equal to approximately $1,357,000, $2,142,000 and $1,246,000,$1,458,000, respectively. The interest rate on our indebtedness to Comverse Technology was the three-month LIBOR rate during fiscal 1999, fiscal 2000 and fiscal 2001. We do not expect to be dependent on Comverse Technology for our financing needs for the nine-month
period ended October 31, 2001.foreseeable future.
Comverse Technology has guaranteed the payment of rent and the performance of all other obligations under the leases for our facilities in Woodbury, New York and the lease for our facility in the United Kingdom. In addition, Comverse Technology has guaranteed the payment of the convertible note issued by us to Lanex, LLC.
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PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table contains information with respect to the beneficial ownership of our common stock as of OctoberJanuary 31, 2001,2002, and as adjusted to reflect the sale of common stock in this offering by:
o
Unless otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock. Share ownership in each case includes shares issuable upon exercise of outstanding options that are exercisable within 60 days.days after January 31, 2002. Each of our directors and executive officers who is also a director or officer of Comverse Technology disclaims ownership of the shares of our common stock owned by Comverse Technology. Unless otherwise indicated, the address of the beneficial owners is c/o Verint Systems Inc., 234 Crossways Park Drive, Woodbury, New York, 11797.
| | Shares of Common Stock Beneficially Owned Before the Offering(1) | | Shares of Common Stock Beneficially Owned After the Offering | | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Shares to be Sold in this Offering | | ||||||||
| | Number of Options Not Exercisable Within 60 Days | |||||||||
| | Number | Percentage(2) | Number | Percentage(3) | ||||||
| Principal Stockholders: | ||||||||||
| Comverse Technology, Inc. | 94,989,905 | 98.4 | % | — | — | |||||
| Directors and Executive Officers: | ||||||||||
| Kobi Alexander(6) | 2,128,000 | (4) | 2.2 | % | — | 304,000 | ||||
| Dan Bodner(7) | 590,127 | (5) | * | — | * | 413,623 | ||||
| Igal Nissim(8) | 298,750 | (5) | * | — | * | 206,250 | ||||
| David Kreinberg(9) | 25,000 | (5) | * | — | * | 35,000 | ||||
| William F. Sorin(10) | 11,250 | (5) | * | — | * | 3,750 | ||||
| David T. Ledwell(11) | 37,500 | (5) | * | — | * | 112,500 | ||||
| Paul D. Baker(12) | 15,000 | (5) | * | — | * | 10,000 | ||||
| Paul Robinson(13) | 13,750 | (5) | * | — | * | 11,250 | ||||
| All executive officers and directors as a group (five persons) | 3,119,377 | (14) | 3.2 | % | — | 1,096,373 | ||||
| Selling Stockholder: | ||||||||||
| AKR Enterprises, LLC(15) | 700,000 | * | 700,000 | — | — | |||||
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Upon completion of this offering, our authorized capital stock will consist of ________ shares of common stock, par value $.001 per share and _______ shares of preferred stock, par value $________$ per share. We refer you to our certificate of incorporation and bylaws, both of which have been filed as exhibits to the registration statement of which this prospectus forms a part, and the applicable provisions of the Delaware General Corporation Law.
COMMON STOCK
Common Stock
Voting Rights. Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of common stock do not have cumulative voting rights in the election of directors. Accordingly, Comverse Technology, our controlling stockholder, may elect all of the directors standing for election.
Dividends. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as the board of directors may declare on the common stock out of funds legally available for that purpose.
Liquidation. Upon the liquidation, dissolution or winding up of Verint, holders of common stock are entitled to share ratably in all assets remaining after the payment of all debts and other liabilities and the liquidation preferences of any outstanding shares of preferred stock.
PREFERRED STOCK
Preferred Stock
There are no shares of preferred stock outstanding. The board of directors has the authority, without further action by the stockholders, to issue up to ________ shares of preferred stock, par value $________$ per share, in one or more series and to fix the powers, preferences, privileges and rights thereof, and the number of shares constituting any series or the designation of the series, without any further vote or action by stockholders. We believe that the board of directors' authority to set the terms of, and our ability to issue, preferred stock will provide flexibility in connection with possible financing transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock, and the likelihood that the holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control in us. We have no present plans to issue any shares of preferred stock.
PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
STATE LAW PROVISIONS WITH POTENTIAL ANTITAKEOVER EFFECT
Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws and State Law Provisions With Potential Antitakeover Effect
Certificate of Incorporation; By-laws
Our certificate of incorporation and by-laws contain provisions that could make more difficult the acquisition of the company by means of a tender offer, a proxy contest or otherwise.
Advance Notice Procedures. Our by-laws establish an advance notice procedure for stockholders to make nominations of candidates for election as directors, or bring other business before an annual or special meeting of our stockholders. This notice procedure provides that only persons who are nominated by, or at the direction of our board of directors or by a stockholder who has given timely written notice to the secretary of our company prior to the meeting at which directors are to be elected will be eligible for election as directors. The procedure also requires that, in order to raise matters at an annual or special meeting, those matters be raised before the meeting pursuant to the notice of meeting we deliver or by, or at the direction of, our board of directors or by a stockholder who is entitled to vote at the meeting and who has given timely written notice to the secretary of our company
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of his intention to raise those matters at the annual meeting. If our chairman or other officer presiding at a meeting determines that a person was not nominated, or other business was not brought before the meeting, in accordance with the notice procedure, that person will not be eligible for election as a director, or that business will not be conducted at the meeting.
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Authorized but Unissued Shares. The authorized but unissued shares of common stock are available for future issuance without stockholder approval. We may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law
We are subject to Section 203 of the Delaware General Corporation Law, or DGCL, which regulates corporate acquisitions. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with any person who, after this offering, becomes an interested stockholder for a period of three years following the date the person became an interested stockholder, unless:
o
Limitation of Liability of Directors and Officers
Our certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for damages for breach of any duty owed to us or our stockholders except for liability for: (i) any breach of the director's duty of loyalty to us or our stockholders, (ii) acts or omissions not in good faith or, in failing to act, not having acted in good faith, (iii)
having acted in a manner involvingor which involve intentional misconduct or a knowing violation of law, or, in failing to act, having acted in(iii) any matter for which a manner involving intentional
misconduct or a knowing violationdirector shall be liable under Section 174 of law,the DGCL, or (iv) having derived an improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification of Directors and Officers
Our certificate of incorporation requires us to indemnify,provides that every person who is or was our director, officer, employee or agent or is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at our request, shall be indemnified to the fullfullest extent permitted by law for all expenses and liabilities in connection with any proceeding involving such person in this capacity. We entered into an indemnification agreement with each of our directors and officers under which we agreed to provide indemnification and expense reimbursement as outlined above.
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We have agreed to indemnify Comverse Technology and its directors, officers, employees and agents against any liabilities arising out of any claim that any provision of the Delaware General Corporation Law, all persons webusiness opportunities agreement entered into by us and Comverse Technology breaches any duty that may indemnify pursuant thereto.be owed to us by Comverse Technology or any such person.
Under the corporate services agreement described above, Comverse Technology has directors' and officers' liability insurance which also provides coverage for our officers and directors.
LISTING
Listing
We intend to have our common stock quoted on the Nasdaq National Market under the symbol "VRNT".
TRANSFER AGENT AND REGISTRAR
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company. Its address is 59 Maiden Lane, New York, New York 10038 and its telephone number at this location is (212) 936-5100.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after the offering could cause the market price of our common stock to fall and could affect our ability to raise equity capital in the future on terms favorable to us.
Upon completion of this offering, we will have issued and outstanding an aggregate of ________ shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options to purchase common stock. All of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act.
The remaining ________ shares were issued and sold by us in private transactions, are restricted securities and may be sold in the public market only if registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 144(k) under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below
and the provisions of Rule 144, additionalthese shares will be available for sale in the public market subject in the case of shares held by affiliates to
compliance with certain volume restrictions, as follows:
o ___________
Lock-up Agreements
We, all of our directors and executive officers and directors, Comverse Technology and some of our other stockholders will sign a lock-up agreement under which each will agree not to transfer, dispose of or hedge any shares of common stock or any securities convertible into or exchangeable for shares of common stock for a period of 180 days from the date of this prospectus. Transfer or dispositions can be made sooner with the prior written consent of Lehman Brothers Inc.
RULE
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of common stock that are restricted securities for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
o
Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any time during the three months before a sale, and who has beneficially owned the restricted shares for at least two years, is entitled to sell the shares immediately after the date of this prospectus without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
REGISTRATION RIGHTS
Registration Rights
We have entered into a registration rights agreement with Comverse Technology. See "Certain Relationships and Related Transactions--RelationshipTransactions—Relationship with Comverse Technology and its Subsidiaries." We do not have any other contractual obligations to register our common stock.
56
66
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock applicable to Non-U.S. Holders. A "Non-U.S. Holder" is a beneficial owner of our common stock that holds our common stock as a capital asset and who is generally an individual, corporation, estate or trust other than:
o
The following discussion does not consider specific facts and circumstances that may be relevant to a particular Non-U.S. Holder's tax position and does not consider U.S. state and local or non-U.S. tax consequences. Further, it does not consider Non-U.S. Holders subject to special tax treatment under the federal income tax laws (including partnerships or other pass-through entities, banks and insurance companies, dealers in securities, holders of securities held as part of a "straddle," "hedge," "conversion transaction" or other risk-reduction transaction and persons who hold or receive common stock as compensation). The following discussion is based on provisions of the U.S. Internal Revenue Code of 1986, as amended, applicable Treasury regulations, and administrative and judicial interpretations as of the date of this prospectus, all of which are subject to change, possibly on a retroactive basis, and any change could affect the continuing validity of this discussion.
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION.
ACCORDINGLY, EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT A TAX ADVISOR
WITH RESPECT TO THE FEDERAL, STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES OF
HOLDING AND DISPOSING OF COMMON STOCK.
The following summary is included herein for general information. Accordingly, each prospective Non-U.S. Holder is urged to consult a tax advisor with respect to the federal, state, local or non-U.S. tax consequences of holding and disposing of common stock.
U.S. TRADE OR BUSINESS INCOMETrade or Business Income
For purposes of the following discussion, dividends and gains on the sale, exchange or other disposition of our common stock will be considered to be "U.S. trade or business income" if such income or gain is (i) effectively connected with the conduct of a U.S. trade or business or (ii) in the case of a treaty resident, attributable to a permanent establishment (or, in the case of an individual, a fixed base) in the U.S. Generally, U.S. trade or business income is subject to U.S. federal income tax on a net income basis at regular graduated tax rates. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may, under specific circumstances, be subject to an additional "branch profits tax" at a 30% rate or a lower rate that an applicable income tax treaty may specify.
DIVIDENDS
Dividends
Dividends paid to a Non-U.S. Holder of common stock generally will be subject to withholding of U.S. federal income tax at a 30% rate unless the dividends are U.S. trade or business income and the Non-U.S. Holder files a properly executed IRS Form W-8ECI with the withholding agent.
The 30% withholding rate may be reduced if the Non-U.S. Holder is eligible for the benefits of an income tax treaty that provides for a lower rate. Generally, to claim the benefits of an income tax treaty, a Non-U.S. Holder of common stock will be required to provide a properly executed IRS Form W-8BEN and satisfy applicable certification and other requirements. A Non-U.S. Holder of common stock that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty
67
may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. A 57
DISPOSITION OF COMMON STOCK
Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a disposition of common stock unless:
o
The tax relating to stock in a USRPHC does not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all times during the applicable period, amount to 5% or less of the common stock, provided that the common stock is regularly traded on an established securities market. Generally, a corporation is a USRPHC if the fair market value of its "U.S. real property interests" equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. We believe that we have not been and are not currently a USRPHC for U.S. federal income tax purposes, nor do we anticipate becoming a USRPHC in the future. However, no assurance can be given that we will not be a USRPHC when a Non-U.S. Holder sells its shares of common stock.
FEDERAL ESTATE TAXES
Federal Estate Taxes
Common stock owned or treated as owned by an individual who is a Non-U.S. Holder at the time of death will be included in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
DIVIDENDS
Information Reporting Requirements and Backup Withholding Tax
Dividends
We must report annually to the IRS and to each Non-U.S. Holder any dividend income that is subject to withholding or that is exempt from U.S. withholding tax pursuant to an income tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Dividends paid to Non-U.S. Holders of common stock generally will be exempt from backup withholding if the Non-U.S. Holder provides a properly executed IRS Form W-8BEN or otherwise establishes an exemption.
DISPOSITION OF COMMON STOCK
Disposition of Common Stock
The payment of the proceeds from the disposition of common stock to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption,provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds
68
from the disposition of common stock to or through a non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the U.S. (a "U.S. related person"). In the case of the payment of the proceeds from the disposition of common stock to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. 58
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded or credited against the holder's U.S. federal income tax liability, if any, if the holder provides the required information to the IRS.
59
69
Under the underwriting agreement, which is filed as an exhibit to the registration statement relating to this prospectus, each of the underwriters named below for whom Lehman Brothers Inc., Salomon Smith Barney Inc., Robertson Stephens, Inc., UBS Warburg LLC and U.S. Bancorp Piper Jaffray Inc., are acting as representatives, has agreed to purchase from us, on a firm commitment basis, subject only to the conditions contained in the underwriting agreement the respective number of shares of common stock shown opposite its name below:
NUMBER OF
UNDERWRITERS SHARES
- ------------ ----------
Lehman Brothers Inc. .........................................
Salomon Smith Barney Inc. ....................................
Robertson Stephens, Inc. .....................................
UBS Warburg LLC...............................................
U.S. Bancorp Piper Jaffray, Inc. ............................. __________
Total................................................. __________
| Underwriters | Number of Shares | ||
|---|---|---|---|
| Lehman Brothers Inc. | |||
| Salomon Smith Barney Inc. | |||
| Robertson Stephens, Inc. | |||
| UBS Warburg LLC | |||
| U.S. Bancorp Piper Jaffray, Inc. | |||
| Total | |||
The underwriting agreement provides that the underwriters' obligations to purchase our common stock depends on the satisfaction of the conditions contained in the underwriting agreement, which includes:
o
Commission and Expenses
The representatives had advised us that the underwriters propose to offer the common stock directly to the public at the public offering price presented on the cover page of this prospectus, and to selected dealers, that may include the underwriters, at the public offering price less a selling concession not in excess of $0.___$0. per share. The underwriters may allow, and the selected dealers may reallow, a concession not in excess of $0.___$0. per share to brokers and dealers. After the offering, the underwriters may change the offering price and other selling terms.
The following table summarizes the underwriting discounts and commissions to be paid to the underwriters by us. The underwriting discounts and commissions are equal to the public offering price per share, less the amount paid to us per share. The underwriting discounts and commissions equal to ____%% of the initial public offering price.
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
-------------- --------------
Per Share Total..................
-------------- --------------
| Without Over-Allotment | With Over-Allotment | |||
|---|---|---|---|---|
| Per Share Total | ||||
We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, will be approximately $____$ million.
OVER-ALLOTMENT OPTION
70
Over-Allotment Option
We have granted to the underwriters an option to purchase up to an aggregate of ________ shares of common stock, exercisable solely to cover over-allotments, if any, at the public offering price less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriters may exercise this option at any time until 30 days after the date
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LOCK-UP AGREEMENTS
Lock-up Agreements
We have agreed that, without the prior written consent of Lehman Brothers Inc., we will not, directly or indirectly, offer, sell or dispose of any common stock or any securities which may be converted into or exchanged for any common stock for a period of 180 days from the date of this prospectus. We
andIn addition, all of our executive officers and directors, Comverse Technology and certainsome of our other stockholders holding in the aggregate ______ shares of our common stock, have agreed under lock-up agreements not to, without the prior written consent of Lehman Brothers Inc., directly or indirectly, offer, sell or otherwise dispose of any common stock or any securities which may be converted into or exchanged or exercised for any common stock for a period of 180 days from the date of this prospectus.
OFFERING PRICE DETERMINATION
Offering Price Determination
Prior to this offering, there has been no public market for our common stock. The initial public offering price has been negotiated between the representatives and us. In determining the initial public offering price of our common stock, the representatives considered:
o
Indemnification
We have agreed to indemnify the underwriters against liabilities relating to the offering, including liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities. We have further agreed to indemnify Lehman Brothers Inc. against liabilities related to the directed share program referred to below, including liabilities under the Securities Act.
STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Stabilization, Short Positions and Penalty Bids
The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934:
o
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position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option, in whole or in part, or purchasing shares in the open market.
o
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
STAMP TAXES
Stamp Taxes
Purchasers of the shares of our common stock offered by this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover of this prospectus.
OFFER AND SALES IN CANADA
Offer and Sales in Canada
This prospectus is not, and under no circumstance is it to be construed as, an advertisement or a public offering of shares in Canada or any province or territory thereof. Any offers in Canada will be made only under an exception from the requirements to file a prospectus supplement or a prospectus and an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made.
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved up to __________
shares, or _______% of our common stock offered by this prospectus, for sale
under a directed share program to our officers, directors and employees and
those of our affiliates and their respective family members and to our other
business associates. All of the persons purchasing the reserved shares must
commit to purchase no later than the close of business on the day following the
date of this prospectus. The number of shares available for sale to the general
public will be reduced to the extent these persons purchase the reserved shares.
Shares committed to be purchased by directed share participants which are not so
purchased will be reallocated for sale to the general public in the offering.
All sales of shares pursuant to the directed share program will be made at the
initial public offering price set forth on the cover page of this prospectus.
DISCRETIONARY SALES
Discretionary Sales
The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares of our common stock offered by them.
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ELECTRONIC DISTRIBUTION
72
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter's or selling group member's web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as underwriter or selling
group member and should not be relied upon by investors.
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The validity of the shares of common stock offered hereby will be passed upon for us by Weil, Gotshal & Manges LLP, New York, New York. Certain legal matters will be passed upon for the underwriters by Gibson, Dunn & Crutcher LLP, New York, New York.
The consolidated financial statements of the Company and its subsidiaries, except Loronix Information Systems, Inc. for the yearyears ended December 31, 1999, as of January 31, 20002001 and 20012002 and for each of the twothree years in the period ended January 31, 2001,2002, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein. The consolidated financial statements of operations, stockholders' equity and cash flows of Loronix Information Systems, Inc. and its subsidiaries (combined with those of the Company and not presented separately herein) for the year ended December 31, 1999 have been audited by KPMG LLP, independent accountants, as stated in their report which is included herein. Such financial statements of the Company and its consolidated subsidiaries are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For further information with respect to us and our common stock, reference is made to the registration statement and exhibits and schedules thereto. You may read and copy any document we file at the SEC's public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC's website at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the website of the SEC referred to above. Information on our website does not constitute a part of this prospectus.
We intend to furnish our stockholders annual reports containing audited consolidated financial statements and will make available copies of quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial information.
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VERINT SYSTEMS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
| Page | ||
|---|---|---|
| Independent Auditors' Report of Deloitte & Touche | F-2 | |
| Independent Auditors' Report of KPMG | F-3 | |
| Consolidated Balance Sheets as of January 31, | F-4 | |
| Consolidated Statements of Operations for the Years Ended January 31, 2000, | F-5 | |
| Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2000, | F-6 | |
| Consolidated Statements of Cash Flows for the Years Ended January 31, 2000, | F-7 | |
| Notes to Consolidated Financial | F-8 |
F-1
To the Board of Directors and Stockholders of
Verint Systems Inc.
Woodbury, New York
We have audited the accompanying consolidated balance sheets of Verint Systems Inc. and subsidiaries (the "Company") as of January 31, 20002001 and 2001,2002, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the twothree years in the period ended January 31, 2001.2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of operations, stockholders' equity and cash flows for the year ended January 31, 2000, give retroactive effect to the merger of the Company and Loronix Information Systems, Inc. ("Loronix"), which has been accounted for as a pooling of interests as described in Note 7 of the consolidated financial statements. We did not audit the consolidated balance sheet of Loronix as of December 31, 1999, or the
relatedfinancial statements of operations, stockholders' equity, and cash flows of Loronix for the year ended December 31, 1999, which statements reflect total
assets constituting approximately 20% of consolidated total assets as of January
31, 2000, and total sales constituting approximately 31% of consolidated total sales for the year ended January 31, 2000. These financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Loronix is based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 20002001 and 2001,2002, and the results of their operations and their cash flows for each of the twothree years in the period ended January 31, 20012002 in conformity with accounting principles generally accepted in the United States of America.
/s/
/s/ Deloitte & Touche LLP
Jericho, New York
February 4,
March 8, 2002
F-2
The Board of Directors
Loronix Information Systems, Inc.:
We have audited the consolidated balance sheets of Loronix Information Systems,
Inc. and subsidiary as of December 31, 1999 and the related statements of operations, stockholders' equity, and cash flows of Loronix Information Systems, Inc. and subsidiary for the year then ended.ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionresults of operations and cash flows of Loronix Information Systems, Inc. and subsidiary as offor the year ended December 31, 1999, and the results of their
operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/
/s/ KPMG LLP
San Diego, California
January 28, 2000
except as to Note 12, which is as of March 5, 2000
F-3
VERINT SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN
(IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 31, JANUARY 31, OCTOBER 31,
2000 2001 2001
---------- ---------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 35,933 $ 43,330 $ 45,408
Accounts receivable, net............................................ 24,272 28,502 23,544
Inventories......................................................... 15,107 10,961 8,399
Due from related parties............................................ 627 3,972 3,682
Prepaid expenses and other current assets........................... 4,798 6,559 6,744
---------- ---------- ----------
Total current assets............................................ 80,737 93,324 87,777
Property and equipment, net......................................... 13,034 12,977 13,230
Other assets........................................................ 9,639 11,253 11,761
---------- ---------- ----------
Total assets.................................................... $ 103,410 $ 117,554 $ 112,768
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................... $ 29,132 $ 34,405 $ 33,461
Advance payments from customers..................................... 6,778 13,666 11,162
Due to related parties.............................................. 34,023 41,741 1,342
---------- ---------- ----------
Total current liabilities....................................... 69,933 89,812 45,965
Due to related parties.............................................. - - 42,000
Liability for severance pay......................................... 1,179 1,128 1,413
Other liabilities................................................... 1,402 4,089 3,984
---------- ---------- ----------
Total liabilities............................................... 72,514 95,029 93,362
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value - authorized,
300,000,000 shares; issued and outstanding,
95,147,405, 95,748,753, and 95,917,197 shares..................... 95 96 96
Additional paid-in capital.......................................... 61,435 62,745 63,259
Accumulated deficit................................................. (30,577) (40,353) (44,010)
Cumulative translation adjustment................................... (57) 37 61
---------- ---------- ----------
Total stockholders' equity...................................... 30,896 22,525 19,406
---------- ---------- ----------
Total liabilities and stockholders' equity...................... $ 103,410 $ 117,554 $ 112,768
========== ========== ==========
| | January 31, 2001 | January 31, 2002 | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 43,330 | $ | 49,860 | ||||
| Accounts receivable, net | 28,502 | 27,005 | ||||||
| Inventories | 10,961 | 7,488 | ||||||
| Due from related parties | 3,972 | 3,813 | ||||||
| Prepaid expenses and other current assets | 6,559 | 4,987 | ||||||
| Total current assets | 93,324 | 93,153 | ||||||
| Property and equipment, net | 12,977 | 12,486 | ||||||
| Other assets | 11,253 | 11,087 | ||||||
| Total assets | $ | 117,554 | $ | 116,726 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 34,112 | $ | 37,508 | ||||
| Advance payments from customers | 13,666 | 13,518 | ||||||
| Current maturities of long-term bank loans | 293 | 167 | ||||||
| Due to related parties | 41,741 | 800 | ||||||
| Total current liabilities | 89,812 | 51,993 | ||||||
| Long-term bank loans | 2,513 | 43,456 | ||||||
| Liability for severance pay | 1,128 | 1,265 | ||||||
| Other liabilities | 1,576 | 1,277 | ||||||
| Total liabilities | 95,029 | 97,991 | ||||||
Commitments and Contingencies (Note 15) | ||||||||
Stockholders' Equity: | ||||||||
| Common stock, $0.001 par value — authorized, 300,000,000 shares; issued and outstanding, 95,748,753, and 96,530,836 shares | 96 | 97 | ||||||
| Additional paid-in capital | 62,745 | 63,369 | ||||||
| Accumulated deficit | (40,353 | ) | (45,002 | ) | ||||
| Cumulative translation adjustment | 37 | 271 | ||||||
| Total stockholders' equity | 22,525 | 18,735 | ||||||
| Total liabilities and stockholders' equity | $ | 117,554 | $ | 116,726 | ||||
See notes to consolidated financial statements.
F-4
VERINT SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
------------------------------ -------------------------------
2000 2001 2000 2001
---------- ---------- ---------- ----------
(UNAUDITED)
Sales.............................................. $ 120,612 $ 141,677 $ 102,707 $ 97,614
Cost of sales...................................... 61,898 73,191 53,114 50,295
---------- ---------- ---------- ----------
Gross profit....................................... 58,714 68,486 49,593 47,319
Operating expenses:
Research and development, net...................... 21,307 14,249 10,323 11,410
Selling, general and administrative................ 44,914 48,162 35,483 34,710
Royalties and license fees......................... 2,041 2,731 2,023 2,086
Merger and workforce reduction
expenses........................................ - 10,909 10,909 1,164
---------- ---------- ---------- ----------
Loss from operations............................... (9,548) (7,565) (9,145) (2,051)
Interest and other income (expense), net........... (641) (497) (724) (352)
---------- ---------- ---------- ----------
Loss before income taxes........................... (10,189) (8,062) (9,869) (2,403)
Income tax provision............................... 355 497 21 1,254
---------- ---------- ---------- ----------
Net loss........................................... $ (10,544) $ (8,559) $ (9,890) $ (3,657)
========== ========== ========== ==========
Net loss per share:
Basic and diluted.................................. $ (0.11) $ (0.09) $ (0.10) $ (0.04)
========= ========= ========== ==========
Weighted average shares:
Basic and diluted.................................. 95,144 95,577 95,527 95,854
========== ========== ========== ==========
| | Year Ended January 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | |||||||
| Sales: | ||||||||||
| Product revenues | $ | 112,101 | $ | 124,420 | $ | 109,964 | ||||
| Service revenues | 8,511 | 17,257 | 21,271 | |||||||
| 120,612 | 141,677 | 131,235 | ||||||||
| Cost of sales | 61,898 | 76,876 | 67,056 | |||||||
| Gross profit | 58,714 | 64,801 | 64,179 | |||||||
Operating expenses: | ||||||||||
| Research and development, net | 21,307 | 14,249 | 15,184 | |||||||
| Selling, general and administrative | 44,914 | 48,162 | 45,923 | |||||||
| Royalties and license fees | 2,041 | 2,731 | 2,851 | |||||||
| Merger expenses | — | 3,510 | — | |||||||
| Restructuring and impairment charges | — | 3,714 | 2,754 | |||||||
| Loss from operations | (9,548 | ) | (7,565 | ) | (2,533 | ) | ||||
Interest income | 1,076 | 2,151 | 1,542 | |||||||
| Interest expense | (1,472 | ) | (2,409 | ) | (1,714 | ) | ||||
| Other, net | (245 | ) | (239 | ) | (392 | ) | ||||
| Loss before income taxes | (10,189 | ) | (8,062 | ) | (3,097 | ) | ||||
| Income tax provision | 355 | 497 | 1,552 | |||||||
| Net loss | $ | (10,544 | ) | $ | (8,559 | ) | $ | (4,649 | ) | |
| Net loss per share: | ||||||||||
| Basic and diluted | $ | (0.11 | ) | $ | (0.09 | ) | $ | (0.05 | ) | |
| Weighted average shares: | ||||||||||
| Basic and diluted | 95,144 | 95,577 | 95,899 | |||||||
See notes to consolidated financial statements.
F-5
VERINT SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
----------------------
NUMBER OF PAR PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ----- ------- ------- ---------- ------
BALANCE, FEBRUARY 1, 1999........................ 95,139,905 $ 95 $ 59,989 $ (20,033) $ 24 $ 40,075
Comprehensive loss:
Net loss......................................... (10,544)
Translation adjustment........................... (81)
Total comprehensive loss......................... (10,625)
Exercise of stock options of subsidiary.......... 1,421 1,421
Exercise of stock options........................ 7,500 25 25
------------ -------- -------- ------------ ------ ----------
BALANCE, JANUARY 31, 2000........................ 95,147,405 95 61,435 (30,577) (57) 30,896
Comprehensive loss:
Net loss......................................... (8,559)
Translation adjustment........................... 94
Total comprehensive loss......................... (8,465)
Change in year end of pooled companies........... (1,217) (1,217)
Issuance of subsidiaries' stock to third parties. 704 704
Exercise of stock options of subsidiary.......... 338 338
Exercise of stock options........................ 601,348 1 268 269
------------ -------- -------- ------------ ------ ----------
BALANCE, JANUARY 31, 2001........................ 95,748,753 96 62,745 (40,353) 37 22,525
Comprehensive loss:
Net loss (unaudited)............................. (3,657)
Translation adjustment (unaudited)............... 24
Total comprehensive loss (unaudited)............. (3,633)
Exercise of stock options (unaudited)............ 168,444 216 216
Sale of subsidiary shares to parent (unaudited)..
298 298
------------ -------- -------- ------------ ------ ----------
BALANCE, OCTOBER 31, 2001 (UNAUDITED)............ 95,917,197 $ 96 $ 63,259 $ (44,010) $ 61 $ 19,406
============ ======== ======== ============ ====== ==========
| | Common Stock | | | | | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Cumulative Translation Adjustment | Total Stockholders' Equity | ||||||||||||
| Balance, February 1, 1999 | 95,139,905 | $ | 95 | $ | 59,989 | $ | (20,033 | ) | $ | 24 | $ | 40,075 | ||||||
Comprehensive loss: | ||||||||||||||||||
| Net loss | (10,544 | ) | ||||||||||||||||
| Translation adjustment | (81 | ) | ||||||||||||||||
| Total comprehensive loss | (10,625 | ) | ||||||||||||||||
| Exercise of stock options of subsidiary | 1,421 | 1,421 | ||||||||||||||||
| Exercise of stock options | 7,500 | 25 | 25 | |||||||||||||||
Balance, January 31, 2000 | 95,147,405 | 95 | 61,435 | (30,577 | ) | (57 | ) | 30,896 | ||||||||||
Comprehensive loss: | ||||||||||||||||||
| Net loss | (8,559 | ) | ||||||||||||||||
| Translation adjustment | 94 | |||||||||||||||||
| Total comprehensive loss | (8,465 | ) | ||||||||||||||||
| Change in year end of pooled companies | (1,217 | ) | (1,217 | ) | ||||||||||||||
| Issuance of subsidiaries' stock to third parties | 704 | 704 | ||||||||||||||||
| Exercise of stock options of subsidiary | 338 | 338 | ||||||||||||||||
| Exercise of stock options | 601,348 | 1 | 268 | 269 | ||||||||||||||
Balance, January 31, 2001 | 95,748,753 | 96 | 62,745 | (40,353 | ) | 37 | 22,525 | |||||||||||
Comprehensive loss: | ||||||||||||||||||
| Net loss | (4,649 | ) | ||||||||||||||||
| Translation adjustment | 234 | |||||||||||||||||
| Total comprehensive loss | (4,415 | ) | ||||||||||||||||
| Exercise of stock options | 782,083 | 1 | 326 | 327 | ||||||||||||||
| Sale of subsidiary shares to affiliate | 298 | 298 | ||||||||||||||||
Balance, January 31, 2002 | 96,530,836 | $ | 97 | $ | 63,369 | $ | (45,002 | ) | $ | 271 | $ | 18,735 | ||||||
See notes to consolidated financial statements.
F-6
VERINT SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN
(IN THOUSANDS)
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
--------------------------- ----------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (10,544) $ (8,559) $ (9,890) $ (3,657)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization............................... 5,671 7,740 5,546 5,574
Allowance for doubtful accounts............................. 1,608 2,183 1,929 (346)
Asset write-downs and impairments........................... - 7,399 7,399 -
Changes in assets and liabilities:
Accounts receivable......................................... (3,980) (6,413) 163 5,303
Inventories................................................. (4,959) 461 1,119 2,562
Prepaid expenses and other assets........................... (558) (3,877) (3,440) 356
Accounts payable and accrued expenses....................... 14,351 5,551 1,760 (686)
Advance payments from customers............................. (643) 6,888 3,125 (2,504)
Liability for severance pay................................. 465 (43) 331 289
Due to/from related parties................................. 5,502 (2,868) (4,332) 2,003
Other....................................................... (46) (115) (1,233) (169)
----------- ----------- ----------- -----------
Net cash provided by operating activities................... 6,867 8,347 2,477 8,725
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (4,695) (6,332) (3,331) (3,739)
Capitalization of software development costs................ (4,036) (4,252) (3,283) (3,139)
----------- ----------- ----------- -----------
Net cash used in investing activities....................... (8,731) (10,584) (6,614) (6,878)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in connection
with exercise of stock options............................ 1,446 607 493 216
Proceeds from issuance of common stock of subsidiary........ - 250 250 -
Net proceeds (repayments) of bank loans and other debt...... 151 1,336 (965) (75)
Net proceeds of related party loans......................... 3,823 7,241 7,241 -
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities......... 5,420 9,434 7,019 141
----------- ----------- ----------- -----------
Effect of exchange rates on cash............................ (79) 200 303 90
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 3,477 7,397 3,185 2,078
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 32,456 35,933 35,933 43,330
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 35,933 $ 43,330 $ 39,118 $ 45,408
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 113 $ 85 $ 88 $ 95
=========== =========== =========== ===========
Cash paid during the period for income taxes................ $ 776 $ 938 $ 445 $ 439
=========== =========== =========== ===========
| | Year Ended January 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (10,544 | ) | $ | (8,559 | ) | $ | (4,649 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 5,671 | 7,740 | 7,394 | ||||||||
| Provision for doubtful accounts | 1,608 | 2,183 | (468 | ) | |||||||
| Asset write-downs and impairments | — | 7,399 | — | ||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | (3,980 | ) | (6,413 | ) | 1,964 | ||||||
| Inventories | (4,959 | ) | 461 | 3,473 | |||||||
| Prepaid expenses and other assets | (558 | ) | (3,877 | ) | 2,809 | ||||||
| Accounts payable and accrued expenses | 14,351 | 5,551 | 3,600 | ||||||||
| Advance payments from customers | (643 | ) | 6,888 | (148 | ) | ||||||
| Liability for severance pay | 465 | (43 | ) | 141 | |||||||
| Due to/from related parties | 5,502 | (2,868 | ) | (3,639 | ) | ||||||
| Other | (46 | ) | (115 | ) | (987 | ) | |||||
| Net cash provided by operating activities | 6,867 | 8,347 | 9,490 | ||||||||
Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | (4,695 | ) | (6,332 | ) | (4,330 | ) | |||||
| Capitalization of software development costs | (4,036 | ) | (4,252 | ) | (4,146 | ) | |||||
| Net cash used in investing activities | (8,731 | ) | (10,584 | ) | (8,476 | ) | |||||
Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of common stock in connection with exercise of stock options | 1,446 | 607 | 327 | ||||||||
| Proceeds from issuance of common stock of subsidiary | — | 250 | — | ||||||||
| Proceeds from long-term bank loan | — | — | 42,000 | ||||||||
| Net proceeds (repayments) of other bank debt | 151 | 1,336 | (115 | ) | |||||||
| Proceeds from related party loans | 3,823 | 7,241 | — | ||||||||
| Repayments of related party loans | — | — | (37,031 | ) | |||||||
| Net cash provided by (used in) financing activities | 5,420 | 9,434 | 5,181 | ||||||||
| Effect of exchange rates on cash | (79 | ) | 200 | 335 | |||||||
| Net increase in cash and cash equivalents | 3,477 | 7,397 | 6,530 | ||||||||
Cash and cash equivalents, beginning of year | 32,456 | 35,933 | 43,330 | ||||||||
Cash and cash equivalents, end of year | $ | 35,933 | $ | 43,330 | $ | 49,860 | |||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the year for interest | $ | 113 | $ | 85 | $ | 5,142 | |||||
| Cash paid during the year for income taxes | $ | 776 | $ | 938 | $ | 889 | |||||
See notes to consolidated financial statements.
F-7
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000, AND 2001 AND THE NINE MONTHS ENDED OCTOBER 31, 2000 AND 2001
(INFORMATION RELATING TO THE NINE MONTHS ENDED
OCTOBER 31, 2000 AND 2001 IS UNAUDITED)
2002
1. ORGANIZATION AND BUSINESSOrganization and Business
Verint Systems Inc. ("Verint" and, together with its subsidiaries, the "Company") was organized as a Delaware corporation on February 23, 1994 under the name "Interactive Information Systems Corporation". The Company is engaged in providing analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence.
On January 30, 1996, the Company changed its name to "Comverse Information Systems Corporation." Effective January 31, 1999, Comverse Infomedia Systems Corp. merged with and into Comverse Information Systems Corporation and changed the name of the Company to Comverse Infosys, Inc. and amended its certificate of incorporation to increase its authorized common stock from 1,500 shares to 100,000,000 shares. On February 1, 2001, the Company amended its certificate of incorporation to increase its authorized stock from 100,000,000 shares to 300,000,000 shares. In February 2002, the name of the Company was changed to Verint Systems Inc.
In February 2002, the Board of Directors of the Company approved the filing of a registration statement by the Company under the Securities Act of 1933 relating to an initial public offering of the Company's common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--TheSummary of Significant Accounting Policies
Basis of Presentation—The Company is a majority owned subsidiary of Comverse Technology, Inc. ("Comverse Technology"). Comverse Technology has provided certain corporate and administrative services to the Company and is expected to continue to provide such services for the foreseeable future. See note 12 to the consolidated financial statements. Management believes the consolidated financial statements include all the costs of doing business on a stand-alone basis. The Company believes that the net proceeds from its initial public offering, together with its current cash balances and potential cash flow from operations, will be sufficient to meet the Company's anticipated working capital, capital expenditures and other activities for at least the next 12 months.
Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated. INTERIM RESULTS (UNAUDITED)--The accompanyingAs of January 31, 2001 and 2002, minority interests were not material and were included under the caption other liabilities on the consolidated balance sheetsheets. The Company accounts for the sale of newly-issued shares of its subsidiaries' common stock as of October 31, 2001 andcapital transactions with no gain or loss recognition in the consolidated statements of operationsoperations. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over the operating and cash flowsfinancing policies, are accounted for under the nine-month periods ended October 31, 2000equity method.
Cash and 2001, and the
consolidated statement of stockholders' equity for the nine-month period ended
October 31, 2001 are unaudited. In the opinion of management, the statements
have been prepared on the same basis as the audited financial statements and
included all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the results of the interim periods.
Operating results for the nine-month period ended October 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 2002.
CASH AND CASH EQUIVALENTS--TheCash Equivalents—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The
Fair Value of Financial Instruments—The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of
F-8
different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
CONCENTRATION OF CREDIT RISK--Financial
Concentration of Credit Risk—Financial instruments which potentially expose the Company to concentration of credit risk consist primarily of cash investments and accounts receivable. The Company places its cash investments with high-credit quality financial institutions and currently invests primarily in bank time deposits. Accounts receivable are generally diversified due to the number of commercial and government entities comprising the Company's customer base and their dispersion across many geographical regions. As of January 31, 2000 and 2001 and October 31, 2001,2002, the Company's allowance for doubtful accounts was approximately $3,744,000, $4,985,000, and $4,598,000,$2,909,000, respectively. The Company believes no significant concentration of credit risk exists with
F-8
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) respect to these cash investments and accounts receivable. The carrying amount of these financial instruments are reasonable estimates of their fair value.
INVENTORIES--Inventories
Inventories—Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT--Property
Property and Equipment—Property and equipment are carried at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment, other than buildings, transportation equipment and leasehold improvements, on a straight-line basis over periods ranging from two to ten years. Buildings are depreciated over thirty years. Transportation equipment is depreciated over a period ranging from three to sevenfifteen years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and improvements are capitalized.
INCOME TAXES--The
Income Taxes—The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is provided against net deferred tax assets unless, in management's judgment, it is more likely than not that such deferred tax assets will be realized. For federal income tax purposes, the Company's results will be included in the Comverse Technology Inc. ("Comverse Technology") consolidated tax return as long as Comverse Technology retains beneficial ownership of at least 80% of the total voting power and value of the outstanding common stock of the Company. Income taxes are determined as if the Company was a separate taxpayer. Income taxes currently payable have been charged to the related parties account in the period that the liability arose, if any.
NET LOSS PER SHARE--Basic
Net Loss Per Share—Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is the same as basic net loss per share since the assumed exercise of options would have been antidilutive.
REVENUE AND EXPENSE RECOGNITION--Revenue
Revenue and Expense Recognition—Revenue is generally recognized at the time of shipment for sales of systems which do not require significant customization to be performed by the Company and collection of the resulting receivable is deemed probable by the Company. The Company's systems are generally a bundled hardware and software solution that areis shipped together. Amounts billed to customers pursuant to the terms specified in contracts but for which revenue has not been recognized are recorded as advance payments from customers. The Company generally has no obligations to customers after the
F-9
date products are shipped, except for product warranties. The Company generally warranties its products for one year after sale. A provision for estimated warranty costs is recorded at the time of sale.
Customers may also purchase separate maintenance contracts, which generally consist of bug-fixing and telephone access to Company technical personnel, but in certain circumstances may also include the right to receive unspecified product updates, upgrades and enhancements. Revenue from these services is recognized ratably over the contract period. IncludedAmounts received from customers in salesexcess of revenues earned under maintenance contracts are revenuesrecorded as advance payments from services of $8,511,000, $17,257,000, $12,890,000 and $15,317,000
for the years ended January 31, 2000 and 2001 and the nine-month periods ended
October 31, 2000 and 2001, respectively.customers.
Revenue from certain developmentlong-term contracts is recognized under the percentage-of-completion method on the basis of physical completion to date or using actual costs incurred to total expected costs under the contract. Revisions in estimates of costs and profits are reflected in the accounting period in which the facts that require the revision become known. At the time a loss on a contract is known, the entire amount of the estimated loss is accrued. Amounts received from customers in excess of revenues earned under the percentage-of-completion method are recorded as advance payments from customers. Related contract costs include all direct material and labor costs and those indirect costs related to contract performance, and are included in cost of sales in the consolidated statements of operations.
Expenses incurred in connection with research and development activities, other than certain software development costs that are capitalized, and selling, general and administrative expenses are charged to operations as incurred.
F-9
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SOFTWARE DEVELOPMENT COSTS--Software
Software Development Costs—Software development costs are capitalized upon the establishment of technological feasibility and are amortized on a straight-line basis over the estimated useful life of the software, which to date has been four years or less. Amortization begins in the period in which the related product is available for general release to customers. Amortization expenses amounted to $3,044,000, $2,967,000, $2,373,000
and $2,223,000$2,892,000 for the years ended January 31, 2000, and 2001 and 2002, respectively.
The Company reviews software development costs for impairment at the nine-month
periods ended October 31, 2000end of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss would be recognized when the estimated net realizable value of the software is less than its carrying amount. The net realizable value is the estimated future gross revenue from the software reduced by the estimated future costs of completing and 2001, respectively.
LONG-TERM BANK LOANS--Included insupporting the caption other liabilities on
the consolidated balance sheets as of January 31, 2000software.
Functional Currency and 2001Foreign Currency Transaction Gains and October 31,
2001 are long-term bank loans of $1,226,000, $2,513,000 and $2,212,000,
respectively, and included in the caption accounts payable and accrued expenses
are the current maturities of long-term bank loans of $97,000, $293,000 and
$239,000, respectively. These loans are secured by certain land and buildings
and restricted cash balances are required to be maintained at these banks in the
amounts of $0, $1,130,000, and $715,000 as of January 31, 2000 and 2001 and
October 31, 2001, respectively, and such restricted cash is included in the
caption of other assets on the consolidated balance sheets.
FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTION GAINS AND
LOSSES--TheLosses—The United States dollar (the "dollar") is the functional currency of the major portion of the Company's foreign operations. Most of the Company's sales and materials purchased for manufacturing are denominated in or linked to the dollar. Certain operating costs, principally salaries, of foreign operations are denominated in local currencies. In those instances where a foreign subsidiary has a functional currency other than the dollar, the Company records any necessary foreign currency translation adjustment, reflected in stockholders' equity, at the end of each reporting period.
F-10
Net gains (losses) from foreign currency transactions, included in the consolidated statements of operations, approximated $(266,000), $(541,000), $(554,000) and $(413,000)$(741,000) for the years ended January 31, 2000, and 2001 and the
nine-month periods ended October 31, 2000 and 2001,2002, respectively.
The Company may occasionally entersenter into foreign exchange forward contracts and options on foreign currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash flows resulting from the sale of products to international customers will be adversely affected by changes in exchange rates. Any gain or loss on a foreign exchange contract which hedges a firm commitment is deferred until the underlying transaction is realized, at which time it is included in the consolidated statement of operations. The Company may also purchase foreign exchange options whichthat permit, but do not require, the Company to exchange foreign currencies at a future date with another party at a contracted exchange rate. To finance premiums paid on such options, from time to time, the Company may also write offsetting options at exercise prices whichthat limit, but do not eliminate, the effect of purchased options as a hedge. As of January 31, 2000, and 2001 and October 31, 2001,2002, the Company had no material
outstanding foreign exchange contracts.
LONG-LIVED ASSETS--The
Long-Lived Assets—The Company reviews for the impairment of
long-lived assetsproperty and equipment and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows expected to result from the use of the asset and proceeds from its eventual disposition are less than its carrying amount. Impairment is measured at fair value.
PERVASIVENESS OF ESTIMATES--The
Pervasiveness of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS--In
Reclassifications—Certain prior year amounts have been reclassified to conform to the manner of presentation in the current year.
Effect of New Accounting Pronouncements—In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." SFAS No. 141 applies prospectively to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method of accounting for which the date of acquisition is July 1, 2001, or later. SFAS No. 141 requires all business combinations to be accounted for using one method, the purchase method. Under previously existing accounting rules, business F-10
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
combinations were accounted for using one of two methods, the pooling-of-interests method or the purchase method. The adoption of SFAS No. 141 did not have a material impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather will be reviewed for impairment on a periodic basis. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. SFAS No. 142 is required to be applied at the beginning of the Company's fiscal year and is to be applied to all goodwill and other
F-11
intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of SFAS No. 142 are to be reported as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the provisions of SFAS No. 142. The adoption of SFAS No. 142 is not expected to have a material impact on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material impact on the Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes certain provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years; however, early adoption is encouraged. The Company is currently evaluating the impact that SFAS No. 144 will have on its consolidated financial statements.
3. RESEARCH AND DEVELOPMENTResearch and Development
A significant portion of the Company's research and development operations are located in Israel where the Company derives substantial benefits from participation in programs sponsored by the Government of Israel for the support of research and development activities conducted in that country. The Company's research and development activities include projects partially funded by the Office of the Chief Scientist of the Ministry of Industry and Trade of the State of Israel (the "OCS") under which the funding organizationOCS reimburses a portion of the Company's research and development expenditures under approved project budgets. The Company is currently involved in several ongoing research and development projects supported by the OCS. The Company accrues royalties to the OCS for the sale of products incorporating technology developed in these projects up to the amount of such fund,funding, plus interest in certain circumstances. In addition, under the terms of the applicable funding agreements,
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products resulting from projects funded by the OCS may not be manufactured outside of Israel without government approval. The amounts reimbursed by the OCS for the years ended January 31, 2000, and 2001 and the nine-month periods ended October
31, 2000 and 20012002 were $4,826,000, $7,499,000, $5,628,000 and $4,495,000,$5,802,000, respectively.
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VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIESInventories
Inventories consistsconsist of:
| | January 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||
| | (In thousands) | |||||
| Raw materials | $ | 8,143 | $ | 3,640 | ||
| Work in process | 945 | 1,249 | ||||
| Finished goods | 1,873 | 2,599 | ||||
| $ | 10,961 | $ | 7,488 | |||
5. Property and Equipment
Property and equipment consist of:
| | January 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||
| | (In thousands) | |||||
| Fixtures and equipment | $ | 17,401 | $ | 20,352 | ||
| Land | 477 | 458 | ||||
| Building and building improvements | 3,449 | 3,891 | ||||
| Software | 1,415 | 1,828 | ||||
| Transportation vehicles | 1,023 | 912 | ||||
| Leasehold improvements | 460 | 581 | ||||
| 24,225 | 28,022 | |||||
| Less accumulated depreciation and amortization | 11,248 | 15,536 | ||||
| $ | 12,977 | $ | 12,486 | |||
6. Other Assets
Other assets consist of:
| | January 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2001 | 2002 | |||||
| | (In thousands) | ||||||
| Software development costs | $ | 21,057 | $ | 25,203 | |||
| Accumulated amortization | (12,856 | ) | (15,748 | ) | |||
| Software development costs, net | 8,201 | 9,455 | |||||
| Other assets | 3,052 | 1,632 | |||||
| $ | 11,253 | $ | 11,087 | ||||
7. BUSINESS COMBINATIONSBusiness Combinations
In July 2000, the Company's parent, Comverse Technology acquired all of the outstanding stock of Loronix Information Systems, Inc. ("Loronix"), a company that develops software-based digital video recording and management systems, for 1,994,806 shares of Comverse Technology's common stock and
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the assumption of options to purchase the equivalent of 370,101 shares of the Comverse Technology common stock. The business combination was accounted for as
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VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) a pooling of interests. For the six months ended June 30, 2000, Loronix had sales of approximately $18,104,000 and a net loss, including merger related expenses, of approximately $2,249,000.
In July 2000, Comverse Technology acquired all of the outstanding stock of Syborg Informationsysteme GmbH, ("Syborg") a company that develops software-based digital voice and Internet recording systems, for 201,251 shares of Comverse Technology common stock. The business combination was accounted for as a pooling of interests. For the six months ended June 30, 2000, Syborg had sales of approximately $2,561,000 and a net loss, including merger related expenses, of approximately $425,000.
In February 2001, the Company issued 34,539,905 shares of its common stock to Comverse Technology in exchange for Comverse Technology's ownership interest in Loronix and Syborg. These shares are reflected in the consolidated financial statements as if they were outstanding as of the earliest period presented which is consistent with the pooling of interests method of accounting.
The table below sets forth the separate and combined results of Verint, Loronix and Syborg for the fiscal year ended January 31, 2000:
| January 31, 2000 | Verint | Loronix | Syborg | Combined | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In thousands, except per share data amounts) | ||||||||||||
| Sales | $ | 78,074 | $ | 37,477 | $ | 5,061 | $ | 120,612 | |||||
| Net income (loss) | $ | (13,633 | ) | $ | 2,885 | $ | 204 | $ | (10,544 | ) | |||
| Net loss per share—diluted | $ | (0.22 | ) | $ | (0.11 | ) | |||||||
The consolidated statement of operations data combines Verint's historical statement of operations data for the fiscal year ended January 31, 2000 with the historical statements of income data of Loronix and Syborg for their fiscal year ended December 31, 1999. Loronix's net loss for the period from July 1, 2000 through July 31, 2000 of approximately $715,000 has been excluded from the Company's consolidated statement of operations for the year ended January 31, 2001 as a result of conforming fiscal years and has been included as an adjustment to accumulated deficit. Syborg's net loss for the period from July 1, 2000 through July 31, 2000 of approximately $502,000 has been excluded from the Company's consolidated statement of operations for the year ended January 31, 2001 as a result of conforming fiscal years and has been included as an adjustment to accumulated deficit. Loronix's and Syborg's sales for the period from July 1, 2000 through July 31, 2000 were $1,568,000 and $139,000, respectively.
In connection with the above acquisitions, the Company has charged
$10,909,000 to operationsmergers in the year ended January 31, 2001, forthe Company incurred merger related charges. Such charges relate to the following:
Asset write-downs and impairments
---------------------------------
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8. ACCOUNTS PAYABLE AND ACCRUED EXPENSESAccounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of:
| | January 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||
| | (In thousands) | |||||
| Accounts payable | $ | 14,271 | $ | 14,593 | ||
| Accrued salaries | 4,554 | 6,283 | ||||
| Accrued royalties | 2,989 | 3,862 | ||||
| Accrued vacation | 2,925 | 3,018 | ||||
| Other accrued expenses | 9,373 | 9,752 | ||||
| $ | 34,112 | $ | 37,508 | |||
In April 2001, the Company reducedannounced a plan to reduce its workforce. As a result of this workforce reduction the Companyand recorded a charge of $1,164,000$1,164,000. In December 2001, the Company announced a plan to operations for severancefurther reduce its workforce and other related
costsconsolidate its offices in the nine-month periodUnited Kingdom and recorded a charge of $1,590,000. These charges totaling $2,754,000 for the year ended OctoberJanuary 31, 2001.2002, were charged to expense and are included in the caption restructuring and impairment charges in the consolidated statement of operations. These reductions were necessary as a result of the difficult economic and capital spending environment and were designed to improve the Company's cost structure and to increase its profitability. These plans included reducing the workforce in the United States, Israel and Germany by 65, 45 and 35 employees, respectively. These workforce reductions included employees within all departments of the Company. As of January 31, 2002, substantially all of the employees identified in the plan have been terminated in accordance with the terms of the plan.
The Company has notified the landlord of its United Kingdom office of its intention to terminate the Company's lease. The Company expects to vacate the facility in March 2002 and has recorded a charge for the remaining lease payments from the vacancy date through the expiration date of the lease.
A summary of the workforce reductionrestructuring and impairment accrual is as follows:
| | (In thousands) | |||
|---|---|---|---|---|
| Balance January 31, 2001 | $ | — | ||
| Provision for workforce reduction | 2,397 | |||
| Provision for facilities consolidation | 357 | |||
| Payments of employee severance | (1,710 | ) | ||
| Balance January 31, 2002 | $ | 1,044 | ||
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9. LIABILITY FOR SEVERANCE PAYLong-term bank loans
Bank loans consist of the following:
| | January 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||
| | (In thousands) | |||||
| Long-term bank loan | $ | — | $ | 42,000 | ||
| Other bank debt | 2,806 | 1,623 | ||||
| 2,806 | 43,623 | |||||
| Less: current maturities | 293 | 167 | ||||
| Long-term bank loans | $ | 2,513 | $ | 43,456 | ||
In January 2002, the Company took a long-term bank loan in the amount of $42 million. This loan, which matures in February 2003, bears interest at LIBOR plus 0.55%, and may be prepaid without penalty. The proceeds of this loan were used to repay amounts owed to Comverse Technology. The loan is guaranteed by Comverse Technology.
Other bank debt is secured by certain land and buildings and restricted cash balances are required to be maintained at these banks in the amounts of $1,130,000, and $679,000 as of January 31, 2001 and 2002, respectively, and such restricted cash is included in the caption of other assets on the consolidated balance sheets.
Maturities of long-term bank loans are as follows:
| Year Ending January 31, | Amount | ||
|---|---|---|---|
| | (In thousands) | ||
| 2003 | $ | 167 | |
| 2004 | 42,163 | ||
| 2005 | 160 | ||
| 2006 | 161 | ||
| 2007 | 162 | ||
| 2008 and thereafter | 810 | ||
| $ | 43,623 | ||
10. Liability for Severance Pay
Liability for severance pay consists of the Company's unfunded liability for severance pay to employees of certain foreign subsidiaries.
Under Israeli law, the Company is obligated to make severance payments to employees of its Israeli subsidiary on the basis of each individual's current salary and length of employment. These liabilities are currently provided primarily by premiums paid by the Company to insurance providers.
10. STOCK OPTIONS
EMPLOYEE STOCK OPTIONS--As
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11. Stock Options
Employee Stock Options—As of January 31, 2001 and October 31, 2001,
respectively, 11,869,956 and 15,188,3222002, 14,250,646 shares of common stock were reserved for issuance upon the exercise of stock options then outstanding and 12,521,196 and
9,034,3869,358,423 shares were available for future grant under the Company's Stock Option Plan, under which options may be granted to key employees, directors, and other persons rendering services to the Company. Options which are designated as "incentive stock options" under the option plan may be granted with an exercise price not less than the fair market value of the underlying shares at the date of grant and are subject to certain quantity and other limitations specified in Section 422 of the Internal Revenue Code. Options which are not intended to qualify as "incentive stock options" may be granted at any price, but not less than the par value of the underlying shares, and without restriction as to amount. The options and the underlying shares are subject to adjustment in accordance with the terms of the plan in the event of stock dividends, recapitalizations and similar transactions. The right to exercise options generally vests in increments over periods of up to four years from the date of grant or the date of commencement of the grantee's employment with the Company, up to a maximum term of ten years for all options granted.
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VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The changes in the number of options were as follows:
| | Year Ended January 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||
| Outstanding at beginning of period | 4,387,250 | 10,120,793 | 11,869,956 | ||||
| Granted during the period | 6,653,950 | 3,602,000 | 4,462,100 | ||||
| Exercised during the period | (7,500 | ) | (601,348 | ) | (782,083 | ) | |
| Canceled, terminated and expired | (912,907 | ) | (1,251,489 | ) | (1,299,327 | ) | |
| Outstanding at end of period | 10,120,793 | 11,869,956 | 14,250,646 | ||||
At January 31, 2001 and October 31, 2001,2002, options to purchase an aggregate of 3,633,604 and 5,335,7995,191,033 shares, respectively, were vested and currently exercisable under the option plan and options to purchase an additional 8,236,352 and 9,852,5239,059,613 shares, respectively, vest at various dates extending through the year 2005.
Weighted average option exercise price information was as follows:
| | Year Ended January 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||||
| Outstanding at beginning of period | $ | 0.93 | $ | 1.05 | $ | 1.26 | |||
| Granted during the period | $ | 1.16 | $ | 1.73 | $ | 1.70 | |||
| Exercised during the period | $ | 3.33 | $ | 0.45 | $ | 0.41 | |||
| Canceled, terminated and expired | $ | 1.27 | $ | 1.28 | $ | 1.57 | |||
| Outstanding at end of period | $ | 1.05 | $ | 1.26 | $ | 1.42 | |||
| Exercisable at end of period | $ | 0.51 | $ | 0.92 | $ | 1.19 | |||
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Significant option groups outstanding at January 31, 20012002 and related weighted average exercise price and life information were as follows:
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | 0.11 | 536,500 | 4.26 | $ | 0.11 | 536,500 | $ | 0.11 | |||||
| $ | 0.50 | 84,924 | 2.16 | $ | 0.50 | 84,924 | $ | 0.50 | |||||
| $ | 1.15 | 6,037,143 | 6.99 | $ | 1.15 | 3,521,825 | $ | 1.15 | |||||
| $ | 1.35 | 2,662,379 | 7.95 | $ | 1.35 | 739,774 | $ | 1.35 | |||||
| $ | 1.70 | 4,092,700 | 9.20 | $ | 1.70 | — | $ | — | |||||
| $ | 2.35 | 51,750 | 8.25 | $ | 2.35 | 12,938 | $ | 2.35 | |||||
| $ | 3.00 | 650,500 | 8.60 | $ | 3.00 | 170,322 | $ | 3.00 | |||||
| $ | 3.33 | 63,000 | 4.92 | $ | 3.33 | 63,000 | $ | 3.33 | |||||
| $ | 4.50 | 71,750 | 5.83 | $ | 4.50 | 61,750 | $ | 4.50 | |||||
| 14,250,646 | 7.74 | $ | 1.42 | 5,191,033 | $ | 1.19 | |||||||
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its option plan. Accordingly, as all options have been granted at
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VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) exercise prices equal to fair market value on the date of grant, no compensation expense has been recognized by the Company in connection with its stock-based compensation plan. Had compensation cost for the Company's stock option plan been determined based upon the fair value at the grant date for awards under the plan consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss and net loss per share would have been increased by approximately $1,311,000, $1,760,000, $1,266,000
and $2,212,000$2,961,523 or $0.01, $0.02, $0.02 and $0.02$0.03 per diluted share for the years ended January 31, 2000, and 2001 and the nine-month periods ended October 31,
2000 and 2001,2002, respectively. The weighted average fair value of the options granted for the years ended January 31, 2000, and 2001 and the nine-month periods
ended October 31, 2000 and 2001,2002, respectively, is estimated at $0.68, $1.12, $1.04 and $1.08$1.13 on the date of grant (using the Black-Scholes option pricing model) with the following weighted average assumptions for the years ended January 31, 2000, and 2001 and the nine-month periods ended October 31, 2000 and
2001,2002, respectively: volatility of 65.0%, 73.5%, 73.5% and 73.5%79.2%; risk-free interest rate of 4.72%, 6.53%, 6.60% and 4.66%; expected dividend yield of 0%; and an expected life of 5 years.
11. RELATED PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT--The
12. Related Party Transactions
Corporate Services Agreement—The Company has a corporate services agreement with Comverse Technology. Under this agreement, Comverse Technology provides the Company with the following services:
o
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For the years ended January 31, 2000, and 2001 and the nine-month
periods ended October 31, 2000 and 2001,2002, the Company recorded expenses of $475,000, $500,000, $375,000 and $375,000,$500,000, respectively, for the services provided by Comverse Technology. As of February 1, 2002, the Company will pay Comverse Technology a quarterly fee of $131,250, subject to adjustment and annual increases, for services provided by Comverse Technology during each fiscal quarter. In addition, the Company agreed to reimburse Comverse Technology for any out-of-pocket expenses incurred by Comverse Technology in providing the services. During the yearyears ended January 31, 2000, and 2001 and the nine-month
periods ended October 31, 2000 and 2001,2002, no amounts were paid to Comverse Technology for reimbursement of out-of-pocket expenses. The term of this agreement extends to January 31, 2005 and is automatically extended for additional twelve-month periods unless terminated by either Comverse Technology or the Company.
ENTERPRISE RESOURCE PLANNING SOFTWARE SHARING AGREEMENT--On February
1, 2001,
Enterprise Resource Planning Software Sharing Agreement—In January 2002, the Company entered into an enterprise resource planning ("ERP") software sharing agreement with Comverse, Inc.Ltd., a subsidiary of Comverse Technology. Under this agreement, Comverse Inc.Ltd. agreed to continue to share the use of specific ERP software with the Company and undertook to provideexert its reasonable commercial efforts to arrange for the ongoing operation, back up, maintenance and support of the software for an annual fee of $100,000. The terms of the ERP Software Sharing Agreement and the fee payable to Comverse Ltd. were determined by arm's length negotiations between the Company and Comverse Ltd. The Company was charged $1,500,000, $200,000, $150,000
and $75,000$100,000 for the years ended January 31, 2000, and 2001 and the nine-month
periods ended October 31, 2000 and 2001,2002, respectively, for ERP support services.
SATELLITE SERVICES AGREEMENT WITH COMVERSE, INC.--In
Satellite Services Agreement—In January 2002, the Company entered into a services agreement with Comverse Inc., a subsidiary of Comverse Technology, pursuant to which Comverse Inc.'s subsidiaries provide provides the Company with the exclusive use of the services of specified employees of Comverse Inc. and its facilities where such employees are located. Under this agreement, the Company pays Comverse Inc. a fee, which is equal to the expenses Comverse Inc. incurs in providing these services plus ten percent. During the year ended January 31, 2000, and 2001 and during the nine-month periods ended October 31, 2000 and 2001,
F-16
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)2002, the Company recorded expenses of $459,000, $1,193,000, $552,000 and $1,168,000,$1,817,000, respectively, for services rendered by Comverse Inc. during these periods.
FEDERAL INCOME TAX SHARING AGREEMENT--The
The Company believes that the terms of the Corporate Services Agreement, the Enterprise Resource Planning Software Sharing Agreement and the Satellite Services Agreement are fair to the Company and are not materially different than those they could have obtained from an unaffiliated third party.
Federal Income Tax Sharing Agreement—The Company has a tax sharing agreement with Comverse Technology. Comverse Technology is the parent company of a group of companies which includes the Company and for which Comverse Technology files a consolidated a federal income tax return. After this offering is completed the Company expects that it will continue to be included in the Comverse Technology consolidated group for federal income tax purposes and that the Company will not file its own federal income tax return. Under the terms of the tax sharing agreement, during years in which Comverse Technology files a consolidated federal income tax return which includes the Company, the Company is required to pay Comverse Technology an amount equal to the Company's
F-19
separate tax liability, if any, computed by Comverse Technology in its reasonable discretion. The Company's separate tax liability generally is the amount of federal income tax that the Company would owe if the Company had filed a tax return independent of the Comverse Technology group. If the calculation of the Company's separate tax liability for any year results in a net operating loss or capital loss, the Company is not entitled to receive any payments from Comverse Technology with respect to such loss in such year or as a result of carrying such loss back to any prior year or forward to any future year, or otherwise to take such loss into account in determining the Company's liability to Comverse Technology, including in the event that Comverse Technology utilizes such loss to reduce its own tax liability so that such loss is not available to the Company in the event of deconsolidation. The tax sharing agreement also provides for certain payments in the event of adjustments to the tax liability. The tax sharing agreement continues in effect until 60 days after the expiration of the applicable statute of limitations with respect to the final year of the Comverse Technology consolidated group which includes the Company.
PATENT LICENSE AGREEMENT--The
Patent License Agreement—The Company's affiliate, Comverse Patent Holding, granted Lucent GRL a non-exclusive license to those patents now owned by Comverse Patent Holding or for which Comverse Patent Holding has a right to license and to those patents granted to Comverse Patent Holding or for which Comverse Patent Holding obtains the right to license during the term of that arrangement. In return, Comverse Patent Holding was granted a non-exclusive license to certain patents now owned by Lucent GRL or for which Lucent GRL has the right to license and to those patents granted to Lucent GRL or for which Lucent GRL obtains the right to license during the term of that arrangement. Under that arrangement, Comverse Patent Holding has the right to grant a sublicense to the Company. In connection with that arrangement, effective December 30, 1999, the Company entered into a patent license agreement with Comverse Patent Holding under which the Company has granted a non-exclusive royalty-free license to Comverse Patent Holding with the right to sublicense to Lucent GRL the Company's patents and those patents granted to the Company or for which the Company obtains the right to license during the term of the agreement. In return, Comverse Patent Holding granted to the Company a non-exclusive royalty-free sublicense to all patents that are licensed by Lucent GRL to Comverse Patent Holding. The Company believes that the value of the sublicense from Comverse Patent Holding is greater than the value of the license to Comverse Patent Holding.
REGISTRATION RIGHTS AGREEMENT--The
Registration Rights Agreement—The Company has entered into a registration rights agreement with Comverse Technology. Under this agreement, Comverse Technology may require the Company on one occasion to register the Company's common stock for sale on Form S-1 under the Securities Act of 1933 (the "Act") if the Company is not eligible to use Form S-3 under the Act. After the Company becomes eligible to use Form S-3, Comverse Technology may require the Company on unlimited occasions to register the Company's common stock for sale on this form. Comverse Technology will also have an unlimited number of piggyback registration rights. Comverse Technology will not be allowed to exercise any registration rights during the 180-day lock-up period.
The Company has agreed to pay all expenses that result from registration of its common stock under the registration rights agreement, other than underwriting commissions for such shares and taxes. The Company has also agreed to indemnify Comverse Technology, its directors, officers and employees against liabilities that may result from its sale of the Company's common stock, including Securities Act liabilities.
PROXY AGREEMENT WITH THE DEPARTMENT OF DEFENSE--One
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Business Opportunities Agreement—The Company has a business opportunities agreement with Comverse Technology which addresses potential conflicts of interest between Comverse Technology and the Company. This agreement allocates between Comverse Technology and the Company opportunities to pursue transactions or matters that, absent such allocation, could constitute corporate opportunities of both companies. The Company is precluded from pursuing an opportunity offered to any person who is a director of the Company but not an officer or employee of the Company and who is also an officer or employee of Comverse Technology, unless Comverse Technology fails to pursue such opportunity diligently. Comverse Technology is precluded from pursuing an opportunity offered to any person who is a director of Comverse Technology but not an officer or employee of Comverse Technology and who is also an officer or employee of the Company, unless the Company fails to pursue such opportunity diligently. The Company is also precluded from pursuing an opportunity offered to any person who is an employee or officer of both companies or a director of both companies, unless Comverse Technology fails to pursue such opportunity diligently. Accordingly, the Company may be precluded from pursuing transactions or opportunities that the Company would otherwise be able to pursue if the Company was not affiliated with Comverse Technology. The Company has agreed to indemnify Comverse Technology and its directors, officers, employees and agents against any liabilities arising out of any claim that any provision of the agreement or the failure to offer any business opportunity to the Company violates or breaches any duty that may be owed to the Company by Comverse Technology or any such person.
Proxy Agreement with the Department of Defense—One of the Company's subsidiaries, Verint Technology Inc. ("Verint Technology"), is engaged in the development, marketing and the sale of the Company's communications interception solutions to various U.S. governmental agencies. In order to conduct its business, Verint Technology is required to maintain facility security clearances
F-17
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) under the National Industrial Security Program ("NISP"). The NISP requires companies maintaining facility security clearances to be insulated from foreign ownership, control or influence. The Company, Comverse Technology and the Department of Defense have entered into a proxy agreement with respect to the ownership and operations of Verint Technology. The proxy agreement has been approved by the Defense Security Service, which has oversight responsibilities on behalf of the Department of Defense.
Under the proxy agreement, the Company appointed three U.S. citizens that have the requisite personal security clearance as directors of Verint Technology and as holders of proxies to vote the stock of Verint Technology. These individuals are responsible for the oversight of Verint Technology's security arrangements, including the separation of Verint Technology from the Company and the Company's affiliates. As proxy holders, these individuals have the power to exercise all prerogatives of ownership of Verint Technology, except that without obtaining the Company's express written approval they may not authorize any individual sale or disposal of capital assets constituting a material amount of Verint Technology's assets, the mortgaging of assets other than for working capital or capital improvement purposes, any merger, consolidation, reorganization or dissolution of Verint Technology and the filing of a petition under the federal bankruptcy laws.
Under the proxy agreement, the Company has also established a government security committee, which consists of the three proxy holders. The government security committee is in charge of the development and implementation of a technology control plan, which prescribes measures and
F-21
establishes procedures to prevent unauthorized disclosure or export of controlled information to the Company, any of the Company's affiliates or others. In addition, the proxy agreement establishes procedures regarding meetings, visits and communications between Verint Technology, the Company and the Company's other affiliates. The Department of Defense continually reviews the technology control plan and receives an annual report from the proxy holders.
SALE OF COMVERSE MEDIA HOLDING INC.--In
Sale of Comverse Media Holding Inc.—In February 2001, the Company sold 100% of the capital stock of Comverse Media Holding Inc. to Comverse, Inc., a subsidiary of Comverse Technology, for $100,000. The Company increased stockholders' equity for the nine-month periodyear ended OctoberJanuary 31, 20012002 by $298,000 which represents the excess of the consideration given and the carrying amount of the net liabilities of Comverse Media Holding Inc.
TRANSACTIONS WITH AN AFFILIATE--The
Indemnification Agreement with Comverse Technology—On January 31, 2002, the Company entered into an indemnification agreement with Comverse Technology pursuant to which Comverse Technology agreed to indemnify the Company for any damages that may arise from two specified disputes which are not material to the Company. In return, the Company granted to Comverse Technology the exclusive control of the settlement and defense of these disputes, and the Company agreed to fully cooperate with Comverse Technology in any such settlement or defense.
Transactions with an Affiliate—The Company sells products and services to Comverse Infosys (Singapore) PTE LTD ("Infosys Singapore") an affiliated systems integrator in which the ordinary course of business.Company holds 50% equity interest. Sales to this affiliateInfosys Singapore were approximately $961,000, $4,271,000, $4,871,000 and $2,488,000$4,024,000 for the years ended January 31, 2000, and 2001 and 2002, respectively. The Company sells their products and services to Infosys Singapore on the nine-month
periods ended October 31, 2000same terms the Company sells similar products and 2001, respectively.services to their non-affiliated customers. In addition, the Company was charged marketing and office service fees by that affiliate. These fees were approximately $56,000, $270,000, $158,000 and $241,000$490,000 for the years ended January 31, 2000, and 2001 and 2002, respectively. The Company believes that Infosys Singapore has determined these charges on the nine-month periods ended October 31, 2000 and
2001, respectively.
TRANSACTIONS WITH OTHER SUBSIDIARIES OF COMVERSE TECHNOLOGY--Thebasis of its estimated costs in providing such services.
Transactions with Other Subsidiaries of Comverse Technology—The Company charges subsidiaries of Comverse Technology for services relating to the use of the Company's facilities and employees. Charges to these subsidiaries were approximately $365,000, $1,006,000, $702,000 and $1,153,000$1,030,000 for the years ended
January 31,fiscal 1999, fiscal 2000 and 2001 and the nine-month periods ended October 31, 2000 andfiscal 2001, respectively.
The Company also purchased products and services from other subsidiaries of Comverse Technology in the ordinary course of business. Purchases from these subsidiaries were approximately $268,000, $0, $0 and $2,000 for the years ended January 31, 2000, and 2001 and 2002, respectively. We believe that these sales are made on the nine-month periods ended
October 31, 2000 and 2001, respectively.
INTERCOMPANY LOAN--Thesame terms as provided by such affiliated entities to their non-affiliated customers.
Intercompany Loan—The Company was charged interest on balances owed to Comverse Technology amounting to $1,357,000, $2,142,000, $1,523,000 and $1,246,000$1,458,000 for the years ended January 31, 2000, and 2001 and the nine-month
periods ended October 31, 2000 and 2001,2002, respectively. The interest rate on the indebtedness to Comverse Technology was the three-month LIBOR rate. F-18
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GUARANTEE OF LEASES--ComverseThe principal amount of the indebtedness to Comverse Technology and related accrued and unpaid interest was due on demand and was repaid on January 31, 2002 with the proceeds of a bank loan. The Company does not expect to be dependent on Comverse Technology for its financing needs for the foreseeable future.
F-22
Guarantee of Leases—Comverse Technology has guaranteed the payment of rent and the performance of all other obligations under the leases for the Company's facilities in Woodbury, New York and the lease for the Company's facility in the United Kingdom.
12. INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other
13. Income Taxes
The provision for income (expense), net,taxes consists of the following:
| | Year Ended January 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||||||
| | (In thousands) | ||||||||||
| Current: | |||||||||||
| Federal | $ | 170 | $ | 2 | $ | — | |||||
| State | 7 | 91 | 145 | ||||||||
| Foreign | 234 | 624 | 1,393 | ||||||||
| Total current | 411 | 717 | 1,538 | ||||||||
| Deferred (benefit): | |||||||||||
| Federal | (49 | ) | — | — | |||||||
| State | (7 | ) | — | — | |||||||
| Foreign | — | (220 | ) | 14 | |||||||
| Total deferred | (56 | ) | (220 | ) | 14 | ||||||
| $ | 355 | $ | 497 | $ | 1,552 | ||||||
The reconciliation of the U.S. Federal statutory tax rate to the Company's effective tax rate is as follows:
| | 2000 | 2001 | 2002 | ||||
|---|---|---|---|---|---|---|---|
| U.S. Federal statutory rate | 34 | % | 34 | % | 34 | % | |
| Change in valuation allowance | (35 | ) | (34 | ) | (34 | ) | |
| Foreign and state income taxes | (2 | ) | (6 | ) | (50 | ) | |
| Company's effective tax rate | (3 | )% | (6 | )% | (50 | )% | |
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) F-19
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operating loss carryforwards. The tax effects of significant items comprising the Company's deferred tax assets and liabilities at January 31, 2000 and 2001 and October 31, 20012002, are as follows:
JANUARY 31, OCTOBER 31,
--------------------------------
2000 2001 2001
----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
Deferred tax liabilities:
Expenses deductible for tax purposes and not for
financial reporting purposes......................... $ (923) $ (486) $ (493)
----------- ----------- -----------
Deferred tax assets:
Reserves not currently deductible.................... 5,257 5,487 5,464
Tax loss carryforwards............................... 4,162 6,024 6,392
---------- ---------- ----------
9,419 11,511 11,856
Less: valuation allowance.............................. (8,671) (11,030) (11,435)
---------- ---------- ----------
Net deferred tax liabilities............................ $ (175) $ (5) $ (72)
========== ========== ==========
| | January 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||||
| | (In thousands) | |||||||
| Deferred tax liabilities: | ||||||||
| Expenses deductible for tax purposes and not for financial reporting purposes | $ | (486 | ) | $ | (418 | ) | ||
| Deferred tax assets: | ||||||||
| Reserves not currently deductible | 5,487 | 4,360 | ||||||
| Tax loss carryforwards | 6,024 | 7,154 | ||||||
| 11,511 | 11,514 | |||||||
| Less: valuation allowance | (11,030 | ) | (11,115 | ) | ||||
| Net deferred tax liabilities | $ | (5 | ) | $ | (19 | ) | ||
F-23
As of January 31, 2001,2002, the Company had approximately $16.1$17.9 million of net operating loss carryforwards for federal income tax purposes. These carryforwards will begin to expire in 20192020 if not utilized.
Income tax has not been provided on unrepatriated earnings of foreign subsidiaries as currently it is the intention of the Company to reinvest such foreign earnings in their operations.
14. BUSINESS SEGMENT INFORMATIONBusiness Segment Information
The Company is engaged in providing analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. The Company operates in one business segment and manages its business on a geographic basis. Summarized financial information for the Company's reportable geographic segments is presented in the following table. Sales in each geographic segment represents sales originating from that segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
| | United States | Israel | United Kingdom | Other | Reconciling Items | Consolidated Totals | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended January 31, 2000 | (In thousands) | ||||||||||||||||||
| Sales | $ | 71,152 | $ | 47,045 | $ | 9,487 | $ | 5,323 | $ | (12,395 | ) | $ | 120,612 | ||||||
| Costs and expenses | (71,801 | ) | (52,260 | ) | (12,325 | ) | (5,795 | ) | 12,021 | (130,160 | ) | ||||||||
| Operating income (loss) | $ | (649 | ) | $ | (5,215 | ) | $ | (2,838 | ) | $ | (472 | ) | $ | (374 | ) | $ | (9,548 | ) | |
| Year Ended January 31, 2001 | |||||||||||||||||||
| Sales | $ | 77,777 | $ | 53,246 | $ | 20,503 | $ | 9,662 | $ | (19,511 | ) | $ | 141,677 | ||||||
| Costs and expenses | (84,679 | ) | (54,045 | ) | (20,994 | ) | (9,115 | ) | 19,591 | (149,242 | ) | ||||||||
| Operating income (loss) | $ | (6,902 | ) | $ | (799 | ) | $ | (491 | ) | $ | 547 | $ | 80 | $ | (7,565 | ) | |||
| Year Ended January 31, 2002 | |||||||||||||||||||
| Sales | $ | 65,731 | $ | 62,712 | $ | 18,848 | $ | 6,023 | $ | (22,079 | ) | $ | 131,235 | ||||||
| Costs and expenses | (70,290 | ) | (58,813 | ) | (19,349 | ) | (7,882 | ) | 22,566 | (133,768 | ) | ||||||||
| Operating income (loss) | $ | (4,559 | ) | $ | 3,899 | $ | (501 | ) | $ | (1,859 | ) | $ | 487 | $ | (2,533 | ) | |||
F-24
Long-lived assets by country of domicile consist of:
| | January 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2002 | ||||
| | (In thousands) | |||||
| Israel | $ | 11,692 | $ | 12,632 | ||
| United States | 8,300 | 8,014 | ||||
| Germany | 3,602 | 2,463 | ||||
| United Kingdom | 478 | 273 | ||||
| Other | 158 | 191 | ||||
| $ | 24,230 | $ | 23,573 | |||
Sales by country, based on end-user location, as a percentage of total sales were as follows:
| | January 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2000 | 2001 | 2002 | ||||
| United States | 51 | % | 49 | % | 42 | % | |
| United Kingdom | 7 | % | 15 | % | 14 | % | |
| Other | 42 | % | 36 | % | 44 | % | |
| 100 | % | 100 | % | 100 | % | ||
No single customer accounted for 10% or more of sales for the years ended January 31, 2000, and 2001 and the nine-month periods ended October 31,
20002002.
15. Commitments and 2001.
15. COMMITMENTS AND CONTINGENCIES
LEASES--TheContingencies
Leases—The Company leases office, manufacturing, and warehouse space under non-cancelable operating leases. Rent expense for all leased premises approximated $2,475,000, $2,596,000, $1,983,000 and $2,247,000$2,887,000 in the years ended January 31, 2000, and 2001 and the nine-month periods ended October 31,
2000 and 2001,2002, respectively.
F-21
VERINT SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of January 31, 2001,2002, the minimum annual rent obligations of the Company were approximately as follows:
YEAR ENDING JANUARY 31, AMOUNT
----------------------- ------
(IN THOUSANDS)
2002.................................... $ 2,553
2003.................................... 2,584
2004.................................... 2,270
2005.................................... 635
2006
| Year Ending January 31, | Amount | ||
|---|---|---|---|
| | (In thousands) | ||
| 2003 | $ | 2,548 | |
| 2004 | 2,063 | ||
| 2005 | 605 | ||
| 2006 | 421 | ||
| $ | 5,637 | ||
Licenses and thereafter..................... 405
--------
$ 8,447
========
LICENSES AND ROYALTIES--TheRoyalties—The Company licenses certain technology, "know-how" and related rights for use in the manufacture and marketing of its products, and pays royalties to third parties under such licenses and under other agreements entered into in connection with research and development financing. The Company currently pays royalties on a substantial portion of its product sales in varying
F-25
amounts based upon the revenues attributed to the various components of such products. Royalties typically range up to 6% of net sales of the related products and, in the case of royalties due to government funding sources in respect of research and development projects, are required to be paid until the funding organization has received total royalties amounting to 100% of the amounts received by the Company under the approved project budgets, plus interest in certain circumstances.
DIVIDEND RESTRICTIONS--The
Dividend Restrictions—The ability of the Company's Israeli subsidiaries to pay dividends is governed by Israeli law, which provides that cash dividends may be paid by an Israeli corporation only out of retained earnings as determined for statutory purposes in Israeli currency. In the event of a devaluation of the Israeli currency against the dollar, the amount in dollars available for payment of cash dividends out of prior years' earnings will decrease accordingly. Cash dividends paid by an Israeli corporation to United States residents are subject to withholding of Israeli income tax at source at a rate of up to 25%, depending on the particular facilities which have generated the earnings that are the source of the dividends.
GUARANTIES--The
Guaranties—The Company has obtained bank guaranties primarily forto secure its performance of certain obligations under contracts with customers. These guaranties, which aggregated approximately $10,317,000$5,153,000 at January 31, 2001,2002, are to be released by the Company's performance of specified contract milestones, which are scheduled to be completed in the ensuing year.
LITIGATION--From
Litigation—From time to time, the Company is subject to certain legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their final resolution will not have any significant adverse effect upon the Company's financial position or results of operations.
16. SUBSEQUENT EVENTS
In January 2002, the Company took a bank loan in the amount of $42
million. This loan, which matures in February 2003, bears interest at LIBOR plus
0.55%, and may be prepaid without penalty. The proceeds of this loan were used
to repay amounts owed to related parties. The loan is guaranteed by Comverse
Technology.Subsequent Events
On February 1, 2002, the Company's wholly-owned subsidiary, Loronix,
Information Systems, Inc., acquired the digital video recording business of Lanex, LLC. The Lanex business provides digital video recording solutions for security and surveillance applications primarily to North American banks. The purchase price consisted of $9.5 million in cash and a $2.2 million convertible note issued by the Company to Lanex. The note is non-interest bearing and matures on February 1, 2004. The holder of the note may elect to convert the note, in whole or in part, into shares of the Company's common stock at a conversion price of $3.1429 per share at any time on or after the completion of the Company's initial public offering. The note is guaranteed by Comverse Technology.
*****
* F-22
[LOGO]
F-26
[Background graphic of Map]
Shares
Common Stock
PROSPECTUS
, 2001
LEHMAN BROTHERS
SALOMON SMITH BARNEY
ROBERTSON STEPHENS
UBS WARBURG
U.S. BANCORP PIPER JAFFRAY
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONOther Expenses of Issuance and Distribution
The expenses, other than underwriting commissions, expected to be incurred by the Company in connection with the issuance and distribution of the securities being registered under this Registration Statement are estimated to be as follows:
| Securities and Exchange Commission Registration Fee | $ | 6,900 | |||
| National Association of Securities Dealers, Inc. Filing Fee | $ | 8,000 | |||
| Nasdaq National Market Filing Fee | $ | * | |||
| Printing and Engraving | $ | * | |||
| Legal Fees and Expenses | $ | * | |||
| Accounting Fees and Expenses | $ | * | |||
| Miscellaneous | $ | * | |||
| Total | $ | ||||
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERSIndemnification of Directors and Officers
Section 102 of the Delaware General Corporation Law, or DGCL, as amended, allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding--otherproceeding—other than an action by or in the right of the Company--byCompany—by reason of the fact that the person is or was a director, officer, agent, or employee of the Company, or is or was serving at our request as a director, officer, agent or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to indemnify applies (a) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (b) if such person acting in good faith and in a manner he reasonably believed to be in the best interest, or not opposed to the best interest, of the Company, and with respect to any criminal action or proceeding had no reasonable cause to believe his or her conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the Company as well but only to the extent of defense expenses, including attorneys' fees but excluding amounts paid in settlement, actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of liability to the Company, unless the court believes that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
II-1
Our certificate of incorporation provides that we shall indemnify, to the full extent permitted by Section 145 of the DGCL, all persons whom we may indemnify pursuant thereto. Under the corporate services agreement described in the Prospectus, Comverse Technology has obtained directors' and officers' liability insurance which also provides coverage for our officers and directors.
II-1
ITEM
Item 15. RECENT SALES OF UNREGISTERED SECURITIESRecent Sales of Unregistered Securities
Described below are unregistered securities sold by the Company during the three years preceding the filing of this Registration Statement:
In _____,
As of January 31, 2002, we issued ________ shares of our common stock under our stock incentive compensation plan to directors, officers, employees and consultants upon the exercise of options for aggregate consideration of $__.$ . Such shares were issued pursuant to the exemption from registration in Rule 701 under the Securities Act.
On ___________ __,February 1, 2001, we issued 34,539,905 shares of our common stock to Comverse Technology, Inc., or Comverse Technology, as consideration
under a contribution agreement, dated as of February 2,1, 2001, pursuant to which we acquired from Comverse Technology all of the outstanding shares of Loronix Information Systems, Inc. and all of the outstanding shares of Comverse GmbH, which directly and through a wholly-owned subsidiary holds 99.8%all of the partnership interestinterests in Syborg Informationsysteme beschranktbeschränkt haftende OHG, or Syborg, and allOHG. These shares of common stock issued by us were issued in a transaction not involving any public offering pursuant to the exemption from registration in Section 4(2) of the shares of Comverse
Grundbesitz GmbH, which holds 0.2% of the partnership interest in Syborg.Securities Act.
On February 1, 2002, the Company'sour wholly-owned subsidiary, Loronix Information Systems, Inc., acquired the digital video recording business of Lanex, LLC. The purchase price consisted of $9,510,000 in cash and a $2,200,000 convertible note issued by us to Lanex in a transaction not involving any public offering pursuant to the Company to Lanex.exemption from registration in Section 4(2) of the Securities Act. The note is non-interest bearing and matures on February 1, 2004. The holder of the note may elect to convert the note, in whole or in part, into shares of the Company's common stock at a conversion price of $3.1429 per share at any time on or after the completion of the Company's initial public offering.offering of our common stock. The note is guaranteed by Comverse Technology.
ITEM
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
NUMBER DESCRIPTION
------ -----------
1.1* Form of Underwriting Agreement
3.1* AmendedExhibits and Restated Certificate of Incorporation of Verint
Systems Inc.
3.2* Amended and Restated Bylaws of Verint Systems Inc.
4.1* Specimen Common Stock certificate
5.1* Opinion of Weil, Gotshal & Manges LLP
10.1* Corporate Services Agreement, dated as of ___________,
between Comverse Technology and the Registrant
10.2* Federal Income Tax Sharing Agreement, dated as of __________,
between Comverse Technology and the Registrant
10.3* Patent License Agreement, dated as of ___________, between
Comverse Patent Holding and the Registrant
10.4* Registration Rights Agreement, dated as of __________,
between Comverse Technology and the Registrant
10.5* Contribution Agreement, dated as of ___________, between
Comverse Technology and the Registrant
10.6* Enterprise Resource Planning Software Sharing Agreement,
dated as of _____________, between Comverse Ltd. and the
Registrant
10.7* Satellite Services Agreement, dated as of _____________,
between Comverse Technology and the Registrant
10.8* Proxy Agreement, dated as of _____________, between Comverse
Technology, the Registrant and the United Stated Department
of Defense
10.9* Verint Systems Inc. Stock Incentive Compensation Plan
10.10* Stock Purchase Agreement, dated as of _____________________,
between Comverse, Inc. and the Registrant
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG LLP
23.3* Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
24.1 Powers of Attorney (See Signature Page)
- ------------
Financial Statement Schedules
| Number | Description | |
|---|---|---|
1.1* | Form of Underwriting Agreement | |
| 3.1* | Amended and Restated Certificate of Incorporation of Verint Systems Inc. | |
| 3.2* | Amended and Restated Bylaws of Verint Systems Inc. | |
| 4.1* | Specimen Common Stock certificate | |
| 5.1* | Opinion of Weil, Gotshal & Manges LLP | |
| 10.1 | Corporate Services Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.2 | Federal Income Tax Sharing Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.3 | Patent License Agreement, dated as of January 17, 2000 between Comverse Patent Holding and the Registrant | |
| 10.4 | Registration Rights Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.5 | Contribution Agreement, dated as of February 1, 2001, between Comverse Technology and the Registrant |
II-2
| 10.6 | Enterprise Resource Planning Software Sharing Agreement, dated as of January 31, 2002, between Comverse Ltd. and the Registrant | |
| 10.7 | Satellite Services Agreement, dated as of January 31, 2002, between Comverse, Inc. and the Registrant | |
| 10.8 | Proxy Agreement, dated as of May 21, 2001, between Comverse Technology, the Registrant and the United Stated Department of Defense | |
| 10.9 | Verint Systems Inc. Stock Incentive Compensation Plan | |
| 10.10 | Stock Purchase Agreement, dated as of January 31, 2002, between Comverse, Inc. and the Registrant | |
| 10.11 | Distribution Agreement, dated as of July 1, 2001 between Comverse Infosys (Singapore) PTE LTD and the Registrant | |
| 10.12 | Business Opportunities Agreement dated as of March 19, 2002, between Comverse Technology Inc. and the Registrant | |
| 10.13 | Form of an Indemnification Agreement | |
| 21.1 | Subsidiaries of the Registrant | |
| 23.1 | Consent of Deloitte & Touche LLP | |
| 23.2 | Consent of KPMG LLP | |
| 23.3* | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1) | |
| 24.1 | Powers of Attorney (See Signature Page) |
Item 17. UNDERTAKINGSUndertakings
The undersigned hereby undertakes that:
(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commissions such indemnification is against public policy as expressed in the 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, suite 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 Act and will be governed by the final adjudication of such issue.
(b)(1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933, 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.
(c) To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-3
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the cityCity of New York, stateState of New York, on this 7th22nd day of February,March, 2002.
VERINT SYSTEMS INC.
By: /s/ DAN BODNER
--------------------------------------------
Name: Dan Bodner
Title: President and Chief Executive Officer
| VERINT SYSTEMS INC. | |||
By: | /s/ DAN BODNER Dan Bodner Name: Dan Bodner Title: President and Chief Executive Officer | ||
We, the undersigned directors and/or officers of Verint Systems Inc., hereby severally constitute and appoint Dan Bodner and Igal Nissim, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933 in connection with the registration under the Securities Act of 1933 of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.
II-4
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 dates indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ KOBI ALEXANDER Kobi Alexander | Chairman of the Board of Directors | March 22, 2002 | ||
/s/ DAN BODNER Dan Bodner | President and Chief Executive Officer and Director | March 22, 2002 | ||
/s/ IGAL NISSIM Igal Nissim | Chief Financial Officer and Director | March 22, 2002 | ||
/s/ WILLIAM F. SORIN William F. Sorin | Director | March 22, 2002 | ||
/s/ DAVID KREINBERG David Kreinberg | Director | March 22, 2002 |
II-5
INDEX TO EXHIBITS
NUMBER DESCRIPTION
------ -----------
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of Verint
Systems Inc.
3.2* Amended and Restated Bylaws of Verint Systems Inc.
4.1* Specimen Common Stock certificate
5.1* Opinion of Weil, Gotshal & Manges LLP
10.1* Corporate Services Agreement, dated as of ___________,
between Comverse Technology and the Registrant
10.2* Federal Income Tax Sharing Agreement, dated as of __________,
between Comverse Technology and the Registrant
10.3* Patent License Agreement, dated as of ___________, between
Comverse Patent Holding and the Registrant
10.4* Registration Rights Agreement, dated as of __________,
between Comverse Technology and the Registrant
10.5* Contribution Agreement, dated as of ___________, between
Comverse Technology and the Registrant
10.6* Enterprise Resource Planning Software Sharing Agreement,
dated as of _____________, between Comverse Ltd. and the
Registrant
10.7* Satellite Services Agreement, dated as of _____________,
between Comverse Technology and the Registrant
10.8* Proxy Agreement, dated as of _____________, between Comverse
Technology, the Registrant and the United Stated Department
of Defense
10.9* Verint Systems Inc. Stock Incentive Compensation Plan
10.10* Stock Purchase Agreement, dated as of _____________________,
between Comverse, Inc. and the Registrant
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG LLP
23.3* Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
24.1 Powers of Attorney (See Signature Page)
- ------------
| Number | Description | |
|---|---|---|
| 1.1* | Form of Underwriting Agreement | |
| 3.1* | Amended and Restated Certificate of Incorporation of Verint Systems Inc. | |
| 3.2* | Amended and Restated Bylaws of Verint Systems Inc. | |
| 4.1* | Specimen Common Stock certificate | |
| 5.1* | Opinion of Weil, Gotshal & Manges LLP | |
| 10.1 | Corporate Services Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.2 | Federal Income Tax Sharing Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.3 | Patent License Agreement, dated as of January 17, 2000, between Comverse Patent Holding and the Registrant | |
| 10.4 | Registration Rights Agreement, dated as of January 31, 2002, between Comverse Technology and the Registrant | |
| 10.5 | Contribution Agreement, dated as of February 1, 2001, between Comverse Technology and the Registrant | |
| 10.6 | Enterprise Resource Planning Software Sharing Agreement, dated as of January 31, 2002, between Comverse Ltd. and the Registrant | |
| 10.7 | Satellite Services Agreement, dated as of January 31, 2002, between Comverse, Inc. and the Registrant | |
| 10.8 | Proxy Agreement, dated as of May 21, 2001, between Comverse Technology, the Registrant and the United Stated Department of Defense | |
| 10.9 | Verint Systems Inc. Stock Incentive Compensation Plan | |
| 10.10 | Stock Purchase Agreement, dated as of January 31, 2002, between Comverse, Inc. and the Registrant | |
| 10.11 | Distribution Agreement, dated as of July 1, 2001 between Comverse Infosys (Singapore) PTE LTD and the Registrant | |
| 10.12 | Business Opportunities Agreement dated as of March 19, 2002, between Comverse Technology and the Registrant | |
| 10.13 | Form of an Indemnification Agreement | |
| 21.1 | Subsidiaries of the Registrant | |
| 23.1 | Consent of Deloitte & Touche LLP | |
| 23.2 | Consent of KPMG LLP | |
| 23.3* | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1) | |
| 24.1 | Powers of Attorney (See Signature Page) |
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