As filed with the Securities and Exchange Commission on July 3, 1997
Registration No. 333-
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
Comverse Technology, Inc.
(Exact name of registrant as specified in its charter)
New York 13-3238402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 Crossways Park Drive
Woodbury, New York 11797
(516) 677-7200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Kobi Alexander
President, Chairman of the Board and Chief Executive Officer
Comverse Technology, Inc.
170 Crossways Park Drive
Woodbury, New York 11797
(516) 677-7200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy to:
William F. Sorin, Esq.
823 Park Avenue
New York, NY 10021
(212) 249-0732
---------
Approximate date of commencement of proposed sale to public: At
such time or times after the Registration Statement becomes effective
as the Selling Holders may determine.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, 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 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 Proposed Proposed
Class of Amount Maximum Offering Maximum Aggregate Amount of
Securities to to be Price per Offeringing Registration
be Registered Registered Debenture(1) Price (1) Fee
5-3/4%
Convertible
Subordinated
Debentures
due 2006 $115,000,200(2) 100% $115,000,000 $34,849(4)
Common Stock,
$.10 par value 2,513,661 shares(3) -- -- --
=============================================================================
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(i) under the Securities Act
of 1933.
(2) Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus constituting a part of this Registration Statement
also relates to $61,385,000 aggregate principal amount of the
Registrant's 5 3/4% Convertible Subordinated Debentures due 2006
registered by Registration Statement No. 333-18255.
(3) Such number represents the number of shares of Common Stock as
are initially issuable upon conversion of the 5 3/4% Convertible
Subordinated Debentures due 2006 registered hereby.
(4) Includes a registration fee of $18,602 paid in connection with
the filing of Registration Statement No. 333-18255.
Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus constituting part of this Registration Statement relates to
Debentures registered hereby and to $61,385,000 aggregate principal
amount of Debentures previously registered by Registration Statement
No. 333-18255.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
======================================================================
<PAGE>
PROSPECTUS
$115,000,000
COMVERSE TECHNOLOGY, INC.
5 3/4% Convertible Subordinated Debentures due 2006
initially convertible into 2,513,661 Shares of Common Stock, $.10 par value
This Prospectus relates to the 5 3/4% Convertible Subordinated
Debentures due 2006 (the "Debentures") of Comverse Technology, Inc.
(the "Company") and the shares of the Company's Common Stock, $.10 par
value ("Common Stock"), issuable upon conversion of the Debentures.
The Debentures were issued and sold on October 4, 1996 and October 24,
1996 (the "Original Offering") in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), to persons reasonably believed by Lehman
Brothers Inc., as the initial purchaser (the "Initial Purchaser") of
the Debentures, to be "qualified institutional buyers" (as defined by
Rule 144A under the Securities Act) or other institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) or in transactions complying with the provisions of
Regulation S under the Securities Act. The Debentures and the Common
Stock issuable upon conversion thereof may be offered and sold from
time to time by the holders named herein or by holders named in an
accompanying supplement (a "Prospectus Supplement") or by their
respective transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus and
a Prospectus Supplement, if required.
The Debentures are convertible into shares of the Company's
Common Stock at any time prior to redemption or maturity, at a
conversion price of $45 3/4 per share (equal to a conversion rate of
21.8579 shares per $1,000 principal amount of the Debentures), subject
to adjustment under certain circumstances. The Common Stock of the
Company is traded on the Nasdaq National Market under the symbol
"CMVT." On July 2, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $50 3/4 per share. Interest on
the Debentures is payable semiannually in arrears on April 1 and
October 1 of each year.
The Debentures are unsecured general obligations of the Company
and are subordinated in right of payment to all existing and future
Senior Debt (as defined in the Indenture). The Debentures will be
obligations exclusively of the Company and will be, in effect,
subordinated to all existing and future obligations (including trade
payables) of the Company's subsidiaries. As of March 31, 1997, the
Company had no outstanding Senior Debt and the balance sheet
liabilities of the Company's subsidiaries were approximately $56.6
million. See "Description of Debentures--Subordination." The
Debentures will mature on October 1, 2006, and may be redeemed, at the
option of the Company, in whole or in part, at any time on or after
October 12, 1999 at the redemption prices set forth herein plus
accrued interest. Each holder of Debentures will have the right to
cause the Company to repurchase all of such holder's Debentures in the
event the Common Stock is no longer publicly traded or in certain
circumstances involving a Change of Control (as defined in the
Indenture), payable in cash or, at the Company's option upon a Change
of Control, in Common Stock.
The Debentures and the Common Stock issuable upon conversion of
the Debentures may be sold by the Selling Holders from time to time
directly to purchasers or through underwriters, dealers or agents. See
"Plan of Distribution." If required, the names of any such
underwriters, dealers or agents involved in the sale of the Debentures
and the Common Stock issuable upon conversion of the Debentures in
respect of which this Prospectus is being delivered and the applicable
underwriter's discount, dealer's purchaser price or agent's
commission, if any, will be set forth in a Prospectus Supplement.
The Selling Holders will receive all of the net proceeds from the
sale of the Debentures and the Common Stock issuable upon conversion
of the Debentures and will pay all underwriting discounts and selling
commissions, if any, applicable to the sale of the Debentures and the
Common Stock issuable upon conversion of the Debentures. The Company
is responsible for payment of all other expenses incident to the offer
and sale of the Debentures and the Common Stock issuable upon
conversion of the Debentures.
The Selling Holders and any underwriters, dealers or agents which
participate in the distribution of the Debentures and the Common Stock
issuable upon conversion of the Debentures may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the
Debentures and the Common Stock issuable upon conversion of the
Debentures purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements.
Prospective investors should consider carefully the matters
discussed under the caption "Risk Factors" on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
July 3, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company can be inspected and copied at
the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C., as well as the regional offices
of the Commission located at 500 West Madison Street, Chicago,
Illinois, and Seven World Trade Center, New York, New York. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site
that contains reports, proxy and information statements and other
materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be
accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with
respect to the securities offered by this Prospectus. This Prospectus
does not contain all of the information set forth or incorporated by
referenced in the Registration Statement and the exhibits and
schedules relating thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the securities
offered by this Prospectus, reference is made to the Registration
Statement and the exhibits filed or incorporated as a part thereof,
which are on file at the offices of the Commission and may be obtained
upon payment of the fee prescribed by the Commission, or may be
examined without charge at the offices of the Commission. Statements
contained in this Prospectus as to the contents of any documents
referred to are not necessarily complete and, in each instance, are
qualified in all respects by reference to the applicable documents
filed with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission
(File No. 0-15502) are hereby incorporated by reference into this
Prospectus: (i) the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, (ii) the description of the Company's Common
Stock contained in its registration statement on Form 8-A filed with
the Commission on March 17, 1987, as amended and (iii) the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1997. All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering to which this Prospectus relates shall be
deemed to be incorporated by reference into this Prospectus and to be
part hereof from the date of filing thereof.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is incorporated
herein modifies or replaces such statement. Any statement so modified
or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus. The Company will provide without
charge to each person to whom a copy of the Prospectus has been
delivered, and who makes a written or oral request, a copy of any and
all of the foregoing documents incorporated by reference in the
Prospectus (other than exhibits unless such exhibits are specifically
incorporated by reference into such documents). Requests should be
submitted in writing or by telephone to Vice President, Corporate and
Marketing Communications, Comverse Technology, Inc., at the Company's
executive offices located at 170 Crossways Park Drive, Woodbury, NY
11797, telephone (516) 677-7200.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as
contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by
the Company, any Selling Holder or any Underwriter. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make any such offer or
solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstance imply that there has been
no change in the affairs of the Company since the date hereof.
<PAGE>
=====================================================================
SUMMARY
The following summary does not purport to be complete and is
qualified in its entirety by the more detailed information, including
"Risk Factors" and consolidated financial statements, appearing
elsewhere in this Prospectus or incorporated herein by reference. When
used in this Prospectus or incorporated herein by reference, the words
"expects," "anticipates," "estimates" and similar expressions are
intended to identify forward-looking statements. Such statements,
which include statements contained in "Risk Factors," are subject to
risks and uncertainties, including those set forth under "Risk
Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from those projected. These forward-
looking statements speak only as of the date of this Prospectus. The
Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
The Company
Comverse Technology, Inc. (the "Company"), together with its
subsidiaries, designs, develops, manufactures, markets and supports
special purpose computer and telecommunications systems and software
for multimedia communications and information processing applications.
The Company's systems are used in a broad range of applications by
fixed and wireless telephone network operators, government agencies,
financial institutions and other public and commercial organizations
worldwide. Through subsidiaries, the Company is also involved in the
design and development of software for "advanced intelligent network"
architecture and services and the manufacture of special purpose
systems for telephone answering service bureaus.
The Company was incorporated in New York in October 1984. The
Company's principal executive offices are located at 170 Crossways
Park Drive, Woodbury, New York 11797, and its telephone number is
(516) 677-7200.
The Offering
Securities Offered........ $115,000,000 aggregate principal amount
of 5 3/4% Convertible Subordinated
Debentures due 2006 (the "Debentures").
This Prospectus also relates to
2,513,661 shares of Common Stock
issuable upon conversion of such
Debentures.
Maturity.................. October 1, 2006.
Interest Payment Dates.... April 1 and October 1.
Interest Rate............. 5 3/4% per annum.
Conversion................ The Debentures are convertible at any
time through maturity, unless previously
redeemed, into shares of Common Stock at
a conversion price of $45 3/4 per share
(equal to a conversion rate of 21.8579
shares per $1,000 principal amount of
Debentures), subject to adjustment under
certain circumstances. See "Description
of Debentures--Conversion Rights."
Optional Redemption....... The Debentures are redeemable at the
option of the Company, in whole or in
part, at any time on or after October
12, 1999, at the redemption prices set
forth herein, plus accrued interest to
the redemption date. The Company will
therefore be required to make six
interest payments before being able to
redeem any Debentures. The Debentures
are not entitled to the benefit of any
sinking fund. See "Description of
Debentures--Optional Redemption by the
Company."
<PAGE>
Repurchase Right.......... Each holder of Debentures shall have the
right to cause the Company to repurchase
all of such holder's Debentures at 100%
of their principal amount plus accrued
interest in the event the Common Stock
is no longer publicly traded or in
certain circumstances involving a Change
of Control (as defined in the
Indenture). The repurchase price is
payable in cash or, at the Company's
option upon a Change of Control but
subject to the satisfaction of certain
conditions, in Common Stock (valued at
95% of the average closing prices for
the five consecutive trading days ending
on and including the third trading day
prior to the repurchase date). See
"Description of Debentures--Repurchase
at Option of Holders."
Subordination.............. The Debentures are unsecured general
obligations of the Company and are
subordinated in right of payment to all
existing and future Senior Debt (as
defined in the Indenture). The
Debentures will be obligations
exclusively of the Company and will be,
in effect, subordinated to all existing
and future obligations (including trade
payables) of the Company's subsidiaries.
As of March 31, 1997, the Company had no
outstanding Senior Debt and the balance
sheet liabilities of the Company's
subsidiaries were approximately $56.6
million. See "Risk Factors--Subordination
of the Debentures" and "--Subsidiary
Operations" and "Description of
Debentures--Subordination."
Use of Proceeds........... The Company will not receive any
proceeds from the sale by the Selling
Holders of the Debentures and the Common
Stock issuable upon conversion of the
Debentures. See "Use of Proceeds."
<PAGE>
RISK FACTORS
In evaluating the Company's business, prospective investors
should carefully consider the following risk factors in addition to
the other information presented in this Prospectus.
Subordination of the Debentures
The Debentures are contractually subordinated in right of payment
to Senior Debt. The Indenture does not limit the creation of
additional Senior Debt (or any other indebtedness) of the Company or
any of its subsidiaries, and the incurrence of significant amounts of
additional indebtedness could have an adverse impact on the Company's
ability to service its debt, including the Debentures. By reason of
such subordination provisions, in the event of insolvency, funds which
would otherwise be payable to the holders of the Debentures will be
paid to the holders of Senior Debt to the extent necessary to pay
Senior Debt in full. As a result of these payments, general creditors
of the Company may recover less, ratably, than holders of Senior Debt
and such general creditors may recover more, ratably, than holders of
Debentures or other subordinated indebtedness of the Company. In
addition, the holders of Senior Debt have the right, under certain
circumstances, to restrict or prohibit the Company from making
payments on the Debentures, whether pursuant to regularly scheduled
interest payments or cash payments upon maturity, conversion,
repurchase upon a Designated Event (as defined in the Indenture) or
otherwise, or redemption. See "Description of the
Debentures--Subordination."
Competition; Technological Change
The markets for the Company's products are highly competitive and
there are many competing products offering a broad range of features
and capacities. Many of the Company's present and potential
competitors are considerably larger than the Company, are more
established, have a larger installed base of customers and have
greater financial, technical, marketing and other resources. The
industries in which the Company competes are characterized by rapid
technological change, and future technological developments could
render the Company's products uneconomical or obsolete. The Company's
success will depend, to a considerable extent, upon its ability to
continue to develop competitive products through research and
development efforts.
The voice processing and message management industry has
experienced a continuing evolution of product offerings and
alternatives for delivery of services. These trends have affected and
may be expected to have a significant continuing influence on
conditions in the industry, although the impact on the industry
generally and on the Company's position in the industry cannot be
predicted with assurance. Rapid and significant change in the industry
makes planning decisions more difficult and increases the risk
inherent in the planning process.
The market for telecommunications monitoring systems is also in a
period of significant transition. Budgetary constraints, uncertainties
resulting from the introduction of new technologies in the
telecommunications industry and shifts in the pattern of government
expenditures resulting from geopolitical events have increased
uncertainties in the market, resulting in certain instances in the
attenuation of government procurement programs beyond their originally
expected performance periods and an increased incidence of delay,
cancelation or reduction of planned projects. Competitive conditions
in this sector have also been affected by the increasing use by
certain potential government customers of their own internal
development resources rather than outside vendors to provide certain
technical solutions, and by the efforts of government contractors,
particularly developers and integrators of technology products, to
redirect their marketing strategies and product plans in reaction to
cut- backs in their traditional areas of focus, resulting in an
increase in the number of competitors and the range of products
offered in response to particular requests for proposals. The lack of
predictability in the timing and scope of government procurements have
similarly made planning decisions more difficult and have increased
the associated risks.
Emphasis on Large System Installations
The Company has historically derived a significant portion of its
sales and operating profit from contracts for large system
installations with customers in both the commercial and government
sectors. While the growth of the Company's business has reduced its
dependence on any specific customers, it continues to emphasize large
capacity systems in its product development and marketing strategies.
Contracts for large installations typically involve a lengthy and
complex bidding and selection process, and the ability of the Company
to obtain particular contracts is inherently difficult to predict. In
addition, users of
<PAGE>
large-scale systems, such as telephone companies, typically require
systems that provide an exceptionally high level of reliability. Such
systems are typically more costly to design, build and support.
Although the Company believes that opportunities for large
installations will continue to grow in both its commercial and
government markets, and the Company intends to continue to expand its
research and development, manufacturing, sales and marketing and
product support capabilities in anticipation of such growth, such
growth may in fact not take place. In addition, the timing and scope
of these opportunities and the pricing and margins associated with any
eventual contract award are difficult to forecast, and may vary
substantially from transaction to transaction. The Company's future
operating results may accordingly exhibit a higher degree of
volatility than the operating results of competitors that have adopted
different strategies such as focusing on corporate voice messaging
systems, and than the Company has experienced in prior periods. The
degree of dependence by the Company on large orders, and the
investment required to enable the Company to perform such orders,
without assurance of continuing order flow from the same customers and
predictability of gross margins on any future orders, increase the
risk associated with its business.
Acquisitions and Management of Growth
The Company is experiencing rapid growth and is planning
significant growth both through internal expansion and acquisitions.
The Company regularly examines opportunities to acquire additional
companies, businesses, technologies or product lines. Although the
Company's management believes that acquisitions present potentially
cost-effective opportunities for growth, they also present significant
financial, operational and legal risks to the Company. In order to
maintain and improve operating results, the Company's management will
be required to manage growth and expansion effectively. As the Company
continues to expand, it may become more difficult to manage
geographically dispersed operations. In addition, there can be no
assurance that the Company will be able to effectively and profitably
integrate into the Company any operations that are acquired in the
future or that any future acquisitions will not have a material
adverse effect on the Company's operating results or on the market
price of the Common Stock, particularly during the periods immediately
following such acquisitions. The Company's failure to effectively
manage growth, including growth resulting from acquisitions, could
have a material adverse effect on the Company's results of operations
and financial condition.
Cash Management and Investment Activities
The Company maintains a portion of its assets in a variety of
financial instruments, including government obligations, commercial
paper, bank time deposits, money-market accounts and common and
preferred stocks, both for purposes of cash management and, to some
extent, as strategic and portfolio investments. Such activities
subject the Company to the risks inherent in the capital markets
generally, and to the performance of other businesses over which its
has no direct control. In 1994, the Company organized a wholly owned
subsidiary through which it has made several investments in
early-stage technology ventures and other private and publicly-traded
companies, primarily in Israel ("CTI Capital"). In January 1997, that
subsidiary and a wholly owned subsidiary of Quantum Industrial
Holdings Ltd. organized a new company to focus primarily on
investments in high technology ventures related to Israel, and each
committed $15 million to the capital of the new company for use as
suitable opportunities are identified. Quantum Industrial Holdings
Ltd. is the principal direct investment vehicle of the Quantum Group,
a group of investment funds managed by Soros Fund Management LLC. The
Company believes that its investments enable it to participate in
technology innovation opportunities in areas of interest to it without
having to dedicate the capital and management resources that would be
necessary for comparable internal research and development efforts, to
initiate relationships that may result in eventual expansion of its
product and marketing positions and potential acquisition
opportunities, and to leverage its technological expertise and
established relationships in the technology, business and financial
communities to identify and participate in special opportunities.
Investments in early-stage technology ventures, however, are subject
to a number of risks due to, among other things, the limited operating
history of such ventures and the frequent illiquidity of such
investments. While the Company does not regard its portfolio and
strategic investment activities as a primary element of its overall
business plan, it expects to continue to allocate some of its liquid
assets, comprising a portion of funds not required for working capital
or acquisition plans, for these purposes and, in particular, to
increase its holdings in Israeli technology companies as part of its
long-term growth strategy. Given the magnitude of the Company's liquid
assets relative to its overall size, the results of its operations in
the future may, to a greater degree than in the past, be affected by
the results of the Company's capital management and investment
activities and the risks associated with those activities.
<PAGE>
Substantial Leverage
The Company has a significant amount of indebtedness outstanding.
The degree to which the Company is leveraged could have important
consequences to holders of the Debentures, including that (i) the
ability of the Company to obtain any necessary additional financing in
the future for working capital, capital expenditures, debt service
requirements or other purposes may be limited, and if the Company is
able to obtain such additional financing, the terms of such financing
may not be favorable to the Company; (ii) a substantial portion of the
Company's cash flow from operating activities must be dedicated to the
payment of the principal of and interest on its outstanding
indebtedness and will not be available for other purposes; (iii) the
Company's level of indebtedness could limit its flexibility in
operating, or reacting to changes in, its business; (iv) the Company
is more highly leveraged than some of its competitors, which may place
it at a competitive disadvantage; and (v) the Company's high level of
indebtedness could make it more vulnerable in the event of a downturn
in its business.
Subsidiary Operations
A majority of the Company's research and development and
manufacturing operations are conducted through subsidiaries, as are
certain of its marketing operations. All existing and future
liabilities (including trade payables) of the Company's subsidiaries
will be effectively senior in right of payment to the Debentures. The
Indenture does not limit the amount of indebtedness the Company's
subsidiaries may incur. The Company's ability to make required
interest, principal, repurchase, cash conversion or redemption
payments on the Debentures may be impaired as a result of the
obligations of its subsidiaries.
In addition, the Company is by contract limited in the amount of
dividends it can receive from one of its significant subsidiaries to
an annual amount not in excess of 75% of the net income of such
subsidiary. In addition, because such subsidiary has received certain
benefits under the laws relating to its status as an "Approved
Enterprise" (as defined below), the payment of dividends to the
Company may subject such subsidiary to certain Israeli taxes to which
it would otherwise not be subject. The Company's Israeli subsidiaries
are required under Israeli law to withhold for tax purposes, at a rate
of up to 25%, cash dividends paid to foreign residents. Under the
United States-Israel Tax Treaty, a 12.5% Israeli dividend withholding
tax would apply to dividends paid to a U.S. corporation (such as the
Company) that owns 10% or more of an Israeli company's voting stock
for, in general, the current and preceding tax years of the Israeli
company. Dividends on income derived from an "Approved Enterprise" are
subject to a 15% dividend withholding tax. The Company has also
granted options to certain of its officers to purchase equity in
certain of its subsidiaries; if such options are exercised, the
Company's participation in any future distributions by such
subsidiaries will be reduced.
Operations in Israel; Reduced Government Subsidies
A significant portion of the Company's research and development
and manufacturing operations are located in the State of Israel and
may be affected by regulatory, political, military and economic
conditions in that country. The Company's historical operating results
reflect substantial benefits from programs sponsored by the Israeli
government for the support of research and development, as well as
favorable tax rates available to "Approved Enterprises" in Israel. The
Israeli government has indicated its intention to reexamine certain of
its policies in these areas. It recently acted to increase, from
between 2% and 3% of associated product sales to between 3% and 5% of
associated product revenues (including service and other related
revenues), the annual rate of royalties to be applied to repayment of
amounts received as reimbursement of qualified research and
development expenditures under a program administered by the Office of
the Chief Scientist of the Ministry of Industry and Trade, in which
the Company has regularly participated and under which it continues to
receive significant reimbursement. The Company's repayment of amounts
received under the program will be accelerated through these higher
royalty rates until repayment is completed. The Israeli authorities
have also indicated that this funding program may be reduced
generally, and that consideration is being given to limiting the
funding available to larger entities, such as the Company.
Accordingly, the Company anticipates that the percentage of its total
research and development expenditures reimbursed under this program,
which has declined significantly in recent years, will continue to
decline in the future. The Israeli government has also shortened the
period of the tax moratorium applicable to "Approved Enterprises" from
four years to two years. Although this change does not affect the tax
status any of the Company's current projects, it will apply to any
future "Approved Enterprises" of the Company.
If further changes in the law or government policies regarding
those programs were to result in their termination or adverse
modification, or if the Company were to become unable to participate
in or take advantage of those programs, the cost to the
<PAGE>
Company of its operations in Israel would materially increase and
there would be an adverse effect on the results of the Company's
operations as a whole. To the extent the Company increases its
activities outside the State of Israel, which could result from, among
other things, future acquisitions, such increased activities will not
be eligible for programs sponsored by the State of Israel.
Accordingly, the effective cost to the Company of its future research
and development activities in particular, and its operations in
general, could significantly increase.
In addition, because the development of several of the Company's
products was financed under programs supported by the government of
Israel, those products may not be manufactured, nor may the technology
embodied in the products be transferred, outside of Israel without
appropriate governmental approvals. Under recent regulations, such
approval, if granted, may be conditioned, among other things, upon
significantly higher royalty payments to the Israeli government.
Although the Company's operations have not been adversely
affected by political or military conditions in Israel, a disruption
of the Company's normal operations in Israel due to political,
military or other conditions would have a material adverse effect on
the Company's business, financial condition and results from
operations.
Finally, general inflation in Israel and increases in the cost of
attracting and retaining qualified scientific, engineering and
technical personnel in Israel, where the demand for such personnel is
growing rapidly with the expansion of high technology industries, has
increased the Company's cost of operations in Israel. These increases
have not been offset by proportional devaluations of the Israeli
shekel relative to the U.S. dollar and, as a result, have had a
negative impact on the Company's overall results of operations.
Continued increases in the Company's shekel-denominated costs without
corresponding devaluation would continue to have an adverse effect on
the Company's operating results.
Dependence on Key Personnel; Stock Options
The continuing success of the Company will depend, to a
considerable extent, on the contributions of its senior management and
key employees, many of whom would be difficult to replace, and on the
Company's ability to attract and retain qualified employees in all
areas of its business. Competition for such personnel is intense,
particularly in the computer and telecommunications industries. In
order to attract and retain talented and qualified personnel, and to
provide incentives for their performance, the Company has emphasized
the award of stock options as an important element of its compensation
program, including, in the case of certain key management level
personnel, options to purchase shares in certain of the Company's
subsidiaries. If such options are exercised, the Company's
participation in any future distributions by such subsidiaries will be
reduced.
Increased Costs of Operations
The Company has significantly increased its expenditures in all
areas of its operations during recent periods, including the areas of
research and development and marketing and sales, and the Company
plans to significantly increase these expenditures during future
periods.
The short- and long-term competitiveness of the Company's product
offerings and the Company's ability to take advantage of future growth
opportunities in both the commercial and government sectors will
depend upon its ability to enhance the range of features and
capabilities of its existing product lines, develop new generations of
its products and expand its marketing, sales and product support
capabilities in a number of world markets. The failure of the Company
to make such expenditures in sufficient amounts, or to realize benefit
from such expenditures, could have a material adverse effect on the
Company's business, financial condition and results from operations.
International Operations
The Company currently derives a majority of its sales from
customers outside of the United States. International transactions
involve particular risks, including political decisions affecting
tariffs and trade conditions, rapid and unforeseen changes in economic
conditions in individual countries, turbulence in foreign currency and
credit markets, and increased costs resulting from lack of proximity
to the customer.
<PAGE>
Volatility in international currency exchange rates may also have
a significant impact on the Company's operating results. Since the
Company hedges the exchange rate risks associated with long-term
contracts denominated in foreign currencies only to a limited extent,
operating results can be affected by the impact of currency
fluctuations as well as the cost of such hedging.
Risks of Government Business
The Company derives a significant portion of its sales from the
supply of systems under government contracts. Government contracts
are, in general, subject to special risks, such as delays in funding;
termination of contracts or subcontracts for the convenience of the
government; termination, reduction or modification of contracts or
subcontracts in the event of changes in the government's policies or
as a result of budgetary constraints; obligations for performance
guarantees and restrictions on the draw-down of funds subject to
achievement of performance milestones; requirements to obtain and
maintain security clearances for operating subsidiaries and key
personnel; and increased or unexpected costs resulting in losses or
reduced profits under fixed price contracts.
Patents and Proprietary Rights
Although the Company uses what it believes to be customary and
appropriate measures to protect its technology, these measures may not
be successful, and competitors of the Company may be able to develop
similar technology independently. The Company currently holds three
U.S. patents, two of which apply to the integration of voice and image
(facsimile) technologies utilized by the Company in certain of its
products. The Company has filed other patent applications; however, no
assurance can be given that patents will be issued on the basis of
such applications or that, if patents are issued, the claims allowed
will be sufficiently broad to protect the Company's technology. In
addition, no assurance can be given that any patents issued to the
Company will not be challenged, invalidated or circumvented or that
the rights granted under the patents will provide significant benefits
to the Company.
The Company and its customers from time to time receive
communications from third parties, including some of the Company's
competitors, alleging infringement by the Company of such parties'
patent rights. Although such communications are common in the computer
and telecommunications industries and the Company has in the past been
able to obtain any necessary licenses on commercially reasonable
terms, there can be no assurance that the Company would prevail in any
litigation to enjoin the Company from selling certain of its products
on the basis of such alleged infringement, or that the Company would
be able to license any valid patents on reasonable terms.
Volatility of Share Price
The trading price of the Company's shares may be affected by the
factors noted above as well as prevailing economic and financial
trends and conditions in the public securities markets. During recent
periods, share prices of companies in technology and government
contracting businesses, and particularly smaller and medium-sized
publicly traded companies such as the Company, have exhibited a high
degree of volatility. Shortfalls in revenues or earnings from the
levels anticipated by the public markets could have an immediate and
significant effect on the trading price of the Company's shares in any
given period. Such shortfalls may result from events that are beyond
the Company's immediate control, can be unpredictable and, since a
significant proportion of the Company's sales during each fiscal
quarter tend to occur in the latter stages of the quarter, may not be
discernible until the end of a financial reporting period, which may
contribute to the volatility of the trading value of its shares
regardless of the Company's long-term prospects. The trading price of
the Company's shares may also be affected by developments, including
reported financial results and fluctuations in trading prices of the
shares of other publicly-held companies in the voice processing
industry, which may not have any direct relationship with the
Company's business or prospects.
Absence of Public Market for the Debentures
The Debentures were issued in October 1996 to a small number of
institutional buyers. Although the Debentures have been approved for
trading in the Private Offerings, Resales and Trading through
Automated Linkages market, the Company does not intend to apply for
listing of the Debentures on any securities exchange. Accordingly,
there can be no assurance as to the development or liquidity of any
market for the Debentures. If an active market for the Debentures
fails to develop or be sustained, the trading price of such Debentures
could be adversely affected.
<PAGE>
Limitation on Repurchase of Debentures
In the event the Common Stock is no longer publicly traded or in
certain circumstances involving a Change of Control, each holder of
Debentures may require the Company to repurchase all or a portion of
such holder's Debentures. In such event, there can be no assurance
that the Company would have sufficient financial resources or would be
able to arrange financing to pay the repurchase price. The Company's
ability to repurchase the Debentures in such event may be limited by
law, the Indenture and by the terms of the other agreements relating
to borrowings that constitute Senior Debt, as such indebtedness or
agreements may be entered into, replaced, supplemented or amended from
time to time. The Company may be required to refinance Senior Debt in
order to make any such payment. The Company may not have the financial
ability to repurchase the Debentures in the event payment of Senior
Debt is accelerated. See "Description of Debentures--Repurchase at
Option of Holders."
<PAGE>
USE OF PROCEEDS
The Selling Holders will receive all of the net proceeds from the
Debentures and the Common Stock sold pursuant to this Prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed
charges for the Company for each of the years in the five-year period
ended December 31, 1996, and for the three months ended March 31,
1997.
Year Ended December 31, Three Months Ended
1992 1993 1994 1995 1996 March 31, 1997
---- ---- ---- ---- ---- --------------
Ratio of earnings
to fixed charges....... 10.1x 13.8x 4.3x 5.4x 6.5x 5.6x
For purposes of computing the ratio of earnings to fixed charges
(i) earnings consist of consolidated income before income taxes plus
fixed charges and (ii) fixed charges consist of interest expense and
the portion of rent expense deemed by the Company to be representative
of the interest component.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "CMVT." The following table sets forth, for
the periods indicated, the range of high and low closing sales prices
for the Common Stock, as reported by Nasdaq.
Low High
1994
First Quarter................................... $ 8.00 $ 15.63
Second Quarter.................................. 8.25 10.50
Third Quarter................................... 8.75 11.13
Fourth Quarter.................................. 9.88 14.25
1995
First Quarter................................... $ 11.00 $ 14.63
Second Quarter.................................. 13.25 18.25
Third Quarter................................... 17.14 23.38
Fourth Quarter.................................. 19.94 25.69
1996
First Quarter................................... $ 16.63 $ 25.13
Second Quarter.................................. 23.38 31.19
Third Quarter................................... 23.75 41.38
Fourth Quarter ................................. 32.56 38.13
1997
First Quarter................................... $ 36.88 $ 46.38
Second Quarter.................................. $ 36.50 $ 52.00
Third Quarter (through July 2, 1997)............ $ 50.50 $ 50.75
On July 2, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $50.75. As of July 2, 1997, there
were approximately 1,593 holders of record of the Common Stock.
<PAGE>
The Company has never declared or paid dividends on its capital
stock and does not anticipate paying any dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any,
to finance the development and growth of its business.
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture (the "Indenture")
entered into between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"). A copy of the Indenture has been filed by the
Company with the Commission. The Indenture is subject to and is
governed by the Trust Indenture Act of 1939, as amended. The following
summaries of certain provisions of the Debentures and the Indenture do
not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Debentures
and the Indenture, including the definitions therein of certain terms
that are not otherwise defined in this Prospectus. Wherever particular
provisions or defined terms of the Indenture (or of the form of
Debenture which is a part thereof) are referred to, such provisions or
defined terms are incorporated herein by reference.
General
The Debentures represent unsecured general obligations of the
Company and are subordinate in right of payment to all existing and
future Senior Debt of the Company, and convertible into Common Stock
as described under "--Conversion Rights." The Debentures are limited
to $115,000,000 aggregate principal amount, and will mature on October
1, 2006, unless earlier redeemed at the option of the Company or
repurchased by the Company at the option of the holder upon the
occurrence of a Designated Event (as defined).
The Debentures bear interest at the rate of 5 3/4% per annum,
payable semiannually on April 1 and October 1, to holders of record at
the close of business on the preceding March 15 and September 15,
respectively. Interest on Debentures represented by definitive
certificates may, at the Company's option, be paid by check mailed to
such holders, provided that a holder of Debentures with an aggregate
principal amount in excess of $5,000,000 will be paid by wire transfer
in immediately available funds at the election of such holder.
Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal is payable, and the Debentures may be presented for
conversion, registration of transfer and exchange, without service
charge, at the office of the Company maintained by the Company for
such purposes in New York, New York, which initially is the office or
agency of the Trustee in New York, New York.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities
of the Company or the incurrence of Senior Debt or other indebtedness.
The Indenture contains no covenants or other provisions to afford
protection to holders of Debentures in the event of a highly leveraged
transaction or a change in control of the Company except to the extent
described under "--Repurchase at Option of Holders" below.
Form, Denomination and Registration
The Debentures were issued in fully registered form, without
coupons, in denominations of $1,000 principal amount and integral
multiples thereof.
Global Debenture; Book-Entry Form. Except as provided below,
Debentures are evidenced by global Debentures (collectively, the
"Global Debenture") which have been deposited with the Trustee as
custodian for The Depository Trust Company, New York, New York ("DTC")
and registered in the name of Cede & Co. ("Cede") as DTC's nominee.
Except as set forth below, record ownership of the Global Debenture
may be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
Persons may hold their interests in the Global Debenture directly
through DTC if such Persons are participants in DTC, or indirectly
through organizations which are participants in DTC (the
"Participants"). Persons who are not Participants may beneficially own
interests in the Global Debenture held by DTC only through
Participants, including Euroclear and Cedel, or
<PAGE>
certain banks, brokers, dealers, trust companies and other parties
that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
So long as Cede, as nominee of DTC, is the registered owner of the
Global Debenture, Cede for all purposes will be considered the sole
holder of the Global Debenture. Except as provided below, owners of
beneficial interests in the Global Debenture will not be entitled to
have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive
form, and will not be considered holders thereof.
Payment of principal of and interest on the Global Debenture will
be made to Cede, the nominee for DTC, as the registered owner of the
Global Debenture by wire transfer of immediately available funds. None
of the Company, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to,
or payments made on account of, beneficial ownership interests in the
Global Debenture or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company has been informed by DTC that, with respect to any
payment of principal of and interest on the Global Debenture, DTC's
practice is to credit Participants' accounts on the payment date
therefor with payments in amounts proportionate to their respective
beneficial interests in the Debentures represented by the Global
Debenture, as shown on the records of DTC, unless DTC has reason to
believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in
Debentures represented by the Global Debenture held through such
Participants will be the responsibility of such Participants, as is
now the case with securities held for the accounts of customers
registered in "street name."
Holders who desire to convert their Debentures into Common Stock
pursuant to the terms of the Debentures should contact their brokers
or other Participants or Indirect Participants to obtain information
on procedures, including proper forms and cut- off times, for
submitting such requests.
Because DTC can only act on behalf of Participants, who in turn
act on behalf of Indirect Participants and certain banks, the ability
of a person having a beneficial interest in Debentures represented by
the Global Debenture to pledge such interest to persons or entities
that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying
agent or conversion agent under the Indenture) will have any
responsibility for the performance by DTC or its Participants or
Indirect Participants of their respective obligations under the rules
and procedures governing their operations. DTC has advised the Company
that it will take any action permitted to be taken by a holder of
Debentures (including, without limitation, the presentation of
Debentures for conversion as described below) only at the direction of
one or more Participants to whose account with DTC interests in the
Global Debentures are credited and only in respect of the principal
amount of the Debentures represented by the Global Debenture as to
which such Participant or Participants has or have given such
direction.
DTC has advised the Company as follows: DTC is a limited purpose
trust Company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). DTC was created
to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between
Participants through electronic book-entry changes to the accounts of
its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include
certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect
access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Debenture among
Participants of DTC, it is under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at
any time. If DTC is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company
within 90 days, the Company will cause Debentures to be issued in
definitive form in exchange for the Global Debenture. None of the
Company, the Trustee or any of their respective agents will have any
<PAGE>
responsibility for the performance by DTC, its Participants or
Indirect Participants of their respective obligations under the rules
and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on
account of, beneficial ownership interests in the Global Debenture.
Certificated Debentures. Holders may request that their Debenture
be issued in certificated form, and may request at any time that their
interest in a Global Debenture be exchanged for a Debenture in
certificated form. Certificated Debentures may also be issued in
exchange for Debentures represented by the Global Debenture if no
successor depositary is appointed by the Company as set forth above
under "--Global Debenture; Book-Entry Form" or in certain other
circumstances set forth in the Indenture.
Conversion Rights
The holders of Debentures are entitled at any time through the
close of business on the final maturity date of the Debentures,
subject to prior redemption or repurchase, to convert any Debentures
or portions thereof (in denominations of $1,000 or integral multiples
thereof) into Common Stock of the Company, initially at the conversion
price set forth on the cover page of this Prospectus (equal to the
conversion rate per share), subject to adjustment as described below.
Except as described below, no adjustment will be made on conversion of
any Debentures for interest accrued thereon or for dividends on any
Common Stock issued.
If Debentures are converted after a record date for the payment
of interest and prior to the next succeeding interest payment date,
such Debentures, other than Debentures called for redemption during
such period, must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal
amount so converted. No such payment will be required if the Company
exercises its right to redeem such Debentures on a redemption date
that is an interest payment date. The Company is not required to issue
fractional shares of Common Stock upon conversion of Debentures and,
in lieu thereof, will pay a cash adjustment based upon the market
price of the Common Stock on the last business day prior to the date
of conversion. In the case of Debentures called for redemption,
conversion rights will expire at the close of business on the fifth
business day preceding the date fixed for redemption, unless the
Company defaults in payment of the redemption price.
The right of conversion attaching to any Debenture may be
exercised by the holder by delivering the Debenture at the specified
office of a conversion agent, accompanied by a duly signed and
completed notice of conversion, together with any funds that may be
required as described in the preceding paragraph. The conversion date
shall be the date on which the Debenture, the duly signed and
completed notice of conversion and any funds that may be required as
described in the preceding paragraph shall have been so delivered. A
holder delivering a Debenture for conversion will not be required to
pay any taxes or duties payable in respect of the issue or delivery of
Common Stock on conversion, but will be required to pay any tax or
duty which may be payable in respect of any transfer involved in the
issue or delivery of the Common Stock in a name other than the holder
of the Debenture. Certificates representing shares of Common Stock
will not be issued or delivered unless all taxes and duties, if any,
payable by the holder have been paid.
The initial conversion price is subject to adjustment in certain
events, including (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) certain subdivisions
and combinations of the Common Stock; (iii) the issuance to all
holders of Common Stock of certain rights or warrants to purchase
Common Stock at less than the current market price of the Common
Stock; (iv) the dividend or other distribution to all holders of
Common Stock of shares of capital stock of the Company (other than
Common Stock) or evidences of indebtedness of the Company or assets
(including securities, but excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions in
connection with a reclassification, change, consolidation, merger,
combination, sale or conveyance resulting in a change in the
conversion consideration pursuant to the third succeeding paragraph or
paid exclusively in cash); (v) dividends or other distributions
consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common
Stock to the extent that such distributions, combined together with
(A) all other such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made plus (B) any
cash and the fair market value of other consideration paid in respect
of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of
which no adjustment has been made, exceeds 10% of the Company's market
capitalization (being the product of the then current market price of
the Common Stock times the number of shares of Common Stock then
outstanding) on the record date for such distribution; and (vi) the
purchase of Common Stock pursuant to a tender offer made by the
Company or any of its subsidiaries to the extent that the same
involves an aggregate consideration
<PAGE>
that, together with (x) any cash and the fair market value of any
other consideration paid in any other tender offer by the Company or
any of its subsidiaries for Common Stock expiring within the 12 months
preceding such tender offer in respect of which no adjustment has been
made plus (y) the aggregate amount of any such all-cash distributions
referred to in clause (v) above to all holders of Common Stock within
12 months preceding the expiration of such tender offer in respect of
which no adjustments have been made, exceeds 10% of the Company's
market capitalization on the expiration of such tender offer. The
Company is entitled, in lieu of making certain adjustments under
clause (v) or (vi) above, to provide that, subject to satisfying
certain conditions, upon conversion of the Debentures, the holders of
the Debentures will receive, in addition to the Common Stock issuable
upon conversion of such Debentures, the amount of such distribution
referred to in clause (v) or (vi).
The Indenture provides that if the Company implements a
stockholders' rights plan, such plan must provide that upon conversion
of the Debentures the holders will receive, in addition to the Common
Stock issuable upon such conversion, such rights whether or not such
rights have separated from the Common Stock at the time of such
conversion.
No adjustment in the conversion price will be required unless
such adjustment would require a change of at least 1% in the
conversion price then in effect; provided that any adjustment that
would otherwise be required to be made shall be carried forward and
taken into account in any subsequent adjustment. Except as stated
above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
In the case of (i) any reclassification or change of the Common
Stock (other than changes resulting from a subdivision or combination)
or (ii) a consolidation, merger, or combination involving the Company
or a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety,
in each case as a result of which holders of Common Stock shall be
entitled to receive stock, other securities, other property or assets
(including cash) with respect to or in exchange for such Common Stock,
the holders of the Debentures then outstanding will be entitled
thereafter to convert such Debentures into the kind and amount of
shares of stock, other securities or other property or assets which
they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance had such Debentures been converted into Common Stock
immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance (assuming, in a case in which
the Company's stockholders may exercise rights of election, that a
holder of Debentures would not have exercised any rights of election
as to the stock, other securities or other property or assets
receivable in connection therewith and would have received per share
the kind and amount received per share by a plurality of non-electing
shares).
In the event of a taxable distribution to holders of Common Stock
(or other transaction) which results in any adjustment of the
conversion price, the holders of Debentures may, in certain
circumstances, be deemed to have received a distribution subject to
United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. See "Certain United
States Federal Income Tax Considerations."
The Company from time to time may, to the extent permitted by
law, reduce the conversion price of the Debentures by any amount for
any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such decrease. See "Certain United States
Federal Income Tax Considerations." The Company may, at its option,
make such reductions in the conversion price, in addition to those set
forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes.
Optional Redemption by the Company
The Debentures are not redeemable at the option of the Company
prior to October 12, 1999. At any time on or after that date the
Debentures may be redeemed at the Company's option on at least 30 but
not more than 60 days' notice, in whole or, from time to time, in
part, at the following prices (expressed in percentages of the
principal amount), together with accrued interest to, but excluding,
the date fixed for redemption; provided that if a redemption date is
an interest payment date, the semiannual payment of interest becoming
due on such date shall be payable to the holder of record as of the
relevant record date and the redemption price shall not include such
interest payment.
<PAGE>
If redeemed during the 12-month period beginning October 1
(October 12 in the case of 1999):
Year Redemption Price
---- ----------------
1999................................ 102%
2000................................ 101%
2001 and thereafter................. 100%
If fewer than all the Debentures are to be redeemed, the Trustee
will select the Debentures to be redeemed in principal amounts of
$1,000 or integral multiples thereof by lot or, in its discretion, on
a pro rata basis. If any Debentures are to be redeemed in part only, a
new Debenture or Debentures in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a
holder's Debentures is selected for partial redemption and such holder
converts a portion of such Debentures, such converted portion shall be
deemed to be taken from the portion selected for redemption.
No sinking fund is provided for the Debentures.
Repurchase at Option of Holders
The Indenture provides that if a Designated Event (as defined
below) occurs, each Holder of Debentures shall have the right (the
"Repurchase Right"), at the Holder's option, to require the Company to
repurchase all of such Holder's Debentures, or any portion thereof
that is an integral multiple of $1,000, on the date (the "Repurchase
Date") fixed by the Company that is not less than 30 days or more than
45 calendar days after the date of the Company Notice (as defined
below), for cash at a price equal to 100% of the principal amount of
such Debentures to be repurchased (the "Repurchase Price"), together
with accrued interest, if any, to the Repurchase Date.
The Company may, at its option, upon a Designated Event which
constitutes a Change of Control, in lieu of paying the Repurchase
Price in cash, pay the Repurchase Price in Common Stock valued at 95%
of the average of the closing prices of the Common Stock for the five
consecutive trading days ending on and including the third trading day
preceding the Repurchase Date. Such payment may not be made in Common
Stock unless the Company satisfies certain conditions with respect to
such payment as provided in the Indenture.
Within 30 calendar days after the Company becomes aware of the
occurrence of a Designated Event, the Company is obligated to mail to
all Holders of record of Debentures a notice (the "Company Notice") of
the occurrence of such Designated Event and of the Repurchase Right
arising as a result thereof. The Company must deliver a copy of the
Company Notice to the Trustee and cause a copy or a summary of such
notice to be published in a newspaper of general circulation in The
City of New York. To exercise the Repurchase Right, a Holder of
Debentures must deliver on or before the Repurchase Date written
notice to the Trustee of the Holder's exercise of such right, together
with the Debentures with respect to which the right is being
exercised, duly endorsed for transfer to the Company. Election of
repurchase by a holder shall be revocable at any time prior to, but
excluding, the Repurchase Date, by delivery of written notice to that
effect to the Trustee prior to the close of business on the second
business day prior to the Repurchase Date.
"Designated Event" means a Change of Control (as defined below)
or a Termination of Trading (as defined below).
"Change of Control" means an event or series of events as a
result of which (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-5 under the Exchange Act)
of shares representing more than 50% of the combined voting power of
the then outstanding securities entitled to vote generally in
elections of directors of the Company ("Voting Stock"); (ii) the
Company consolidates with or merges into any other corporation or
conveys, transfers or leases all or substantially all of its assets to
any person, or any other corporation merges into the Company, and in
the case of any such transaction, the outstanding common stock of the
Company is changed or exchanged into or for other assets or securities
as a result, unless the stockholders of the Company immediately before
such transaction own, directly or indirectly, immediately following
such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the corporation resulting from
such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction; or
(iii) at any time Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation of the Company); provided,
however, that a Change of Control shall not be deemed to have occurred
if either
<PAGE>
(x) the closing price per share of the Common Stock for any five
trading days within the period of ten consecutive trading days ending
immediately before the Change of Control shall equal or exceed 105% of
the conversion price of the Debentures in effect on each such trading
day, or (y) at least 90% of the consideration (excluding cash payments
for dissenting and fractional shares) in the transaction or
transactions constituting the Change of Control consists of shares of
common stock or securities convertible into common stock that are, or
immediately upon issuance will be, listed on a national securities
exchange or The Nasdaq Stock Market and as a result of the transaction
or transactions such Debentures become convertible solely into such
common stock.
"Continuing Director" means at any date a member of the Company's
Board of Directors (i) who was a member of such board on October 4,
1996 or (ii) who was nominated or elected by at least a majority of
the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Company's Board of
Directors was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination
or election. (Under this definition, if the current Board of Directors
of the Company were to approve a new director or directors and then
resign, no Change of Control would occur even though the current Board
of Directors would thereafter cease to be in office.)
No quantitative or other established meaning has been given to
the phrase "all or substantially all" (which appears in the definition
of Change of Control) by courts which have interpreted this phrase in
various contexts. In interpreting this phrase, courts, among other
things, make a subjective determination as to the portion of assets
conveyed, considering such factors as the value of assets conveyed,
the proportion of an entity's income derived from the assets conveyed
and the significance of those assets to the ongoing business of the
entity. To the extent the meaning of such phrase is uncertain,
uncertainty will exist as to whether or not a Change of Control may
have occurred (and, accordingly, as to whether or not the holders of
Debentures will have the right to require the Company to repurchase
their Debentures).
A "Termination of Trading" shall have occurred if the Common
Stock (or other common stock into which the Debentures are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on an established
automated over-the-counter trading market in the United States.
The right to require the Company to repurchase Debentures as a
result of the occurrence of a Designated Event could create an event
of default under Senior Debt as a result of which any repurchase
could, absent a waiver, be blocked by the subordination provisions of
the Debentures. See "--Subordination." Failure of the Company to
repurchase the Debentures when required could result in an Event of
Default with respect to the Debentures whether or not such repurchase
is permitted by the subordination provisions.
Certain leveraged transactions sponsored by the Company's
management or an affiliate of the Company could constitute a Change of
Control that would give rise to the repurchase right. The Indenture
does not provide the Company's Board of Directors with the right to
limit or waive the Repurchase Right in the event of any such leveraged
transaction. Conversely, the Company could, in the future, enter into
certain transactions, including certain recapitalizations of the
Company, that would not constitute a Change of Control but that would
increase the amount of Senior Debt (or other indebtedness) outstanding
at such time. There are no restrictions in the Indenture or the
Debentures on the creation of additional Senior Debt (or any other
indebtedness) of the Company or any of its subsidiaries and the
incurrence of significant amounts of additional indebtedness could
have an adverse impact on the Company's ability to service its debt,
including the Debentures. The Debentures are subordinate in right of
payment to all existing and future Senior Debt as described under
"--Subordination" below.
The right to require the Company to repurchase Debentures as a
result of a Designated Event could have the effect of delaying,
deferring or preventing a Change of Control or other attempts to
acquire control of the Company unless arrangements have been made to
enable the Company to repurchase all of the Debentures at the
Repurchase Date. Consequently, the right may render more difficult or
discourage a merger, consolidation or tender offer (even if such
transaction is supported by the Company's Board of Directors or is
favorable to the stockholders), the assumption of control by a holder
of a large block of the Company's shares and the removal of incumbent
management.
Rule 13e-4 under the Exchange Act, requires, among other things,
the dissemination of certain information to security holders in the
event of an issuer tender offer and may apply in the event that the
repurchase option becomes available to holders of the Debentures. The
Company will comply with this rule and Rule 14e-1 to the extent
applicable at that time and will not be in violation of the Indenture
by reason of any act required by such rule or other applicable law.
<PAGE>
Subordination
The Debentures are subordinated in right of payment, as set forth
in the Indenture, to the prior payment in full of all Senior Debt of
the Company. The Indenture provides that in the event of any
distribution of assets of the Company upon its dissolution, winding
up, liquidation or reorganization, the holders of Senior Debt shall
first be paid in full in cash in respect of principal of and premium,
if any, and interest on all Senior Debt (including interest accruing
after the commencement of any bankruptcy proceeding, regardless of
whether such interest is an allowed claim in such proceeding) before
any such payments are made on the Debentures. The Indenture further
provides in the event that any default by the Company has occurred and
is continuing in the payment of principal of or premium, if any, or
interest on any Senior Debt, then no payment shall be made on account
of principal of, premium, if any, or interest on the Debentures,
including redemption, cash payment in lieu of conversion and
repurchase payments, until all such payments due in respect of such
Senior Debt have been paid in full. During the continuance of any
event of default with respect to any Senior Debt, as such event of
default is defined under any such Senior Debt or in any agreement
pursuant to which any Senior Debt has been issued (other than a
default in payment of the principal of or premium, if any, or interest
on any Senior Debt), permitting the holders thereof to accelerate the
maturity thereof, no payment may be made by the Company, directly or
indirectly, with respect to principal of or premium, if any, or
interest on the Debentures, including redemption, cash payment in lieu
of conversion and repurchase payments, for 180 days following written
notice to the Company, from any holder, representative or trustee
under any agreement pursuant to which such Senior Debt may have been
issued, that such an event of default has occurred and is continuing,
unless such event of default has been cured or waived or such Senior
Debt has been paid in full. However, if the maturity of such Senior
Debt is accelerated, no payment may be made on the Debentures until
such accelerated Senior Debt has been paid in full or such
acceleration has been cured or waived.
The term "Senior Debt" is defined in the Indenture as (a) any
liability of the Company for borrowed money, or evidenced by an
instrument for the payment of money, or incurred in connection with
the acquisition of any property, services or assets (including
securities), or relating to a capitalized lease obligation, (b)
obligations under Exchange Rate Contracts or Interest Rate Protection
Agreements, (c) any obligations of the Company to reimburse the issuer
of any letter of credit, surety bond, performance bond or other
guarantee of contractual performance, and (d) any liability of another
person of the type referred to in clauses (a), (b) or (c) which has
been assumed or guaranteed by the Company; provided that Senior Debt
does not include (i) indebtedness of the Company that by its terms is
expressly pari passu with or subordinate in right of payment to the
Debentures, (ii) any indebtedness or other obligations of the Company
in respect of its 5 1/4% Convertible Subordinated Debentures due 2003,
(iii) accounts payable or any other indebtedness of the Company to
trade creditors created or assumed by the Company in the ordinary
course of business in connection with the obtaining of materials or
services or (iv) any liability for federal, state, local or other
taxes owed or owing by the Company.
At March 31, 1997, the Company had no outstanding Senior Debt.
There are no restrictions in the Indenture on the creation of Senior
Debt or any other indebtedness.
By reason of such subordination provisions, in the event of
insolvency, funds which would otherwise be payable to the holders of
Debentures will be paid to the holders of Senior Debt to the extent
necessary to pay Senior Debt in full. As a result of these payments,
general creditors or the Company may recover less, ratably, than
holders of Senior Debt and such general creditors may recover more,
ratably, than holders of Debentures or other subordinated indebtedness
of the Company.
The Debentures are obligations exclusively of the Company and
are, in effect, subordinated to all future and existing obligations
(including trade payables) of the Company's subsidiaries. A majority
of the Company's research and development and manufacturing operations
are conducted through subsidiaries, as are certain of its marketing
and investing operations. The Indenture does not limit the amount of
indebtedness the Company's subsidiaries may incur. The Company's
ability to make required interest, principal, repurchase, cash
conversion or redemption payments on the Debentures may be impaired as
a result of the obligations of its subsidiaries. The subsidiaries are
separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefor, whether by
dividends, loans or other payments. Any right of the Company to
receive assets of any of such subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders
of the Debentures to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be
subordinate to any security interests
<PAGE>
in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. See "Risk
Factors--Subsidiary Operations."
At March 31, 1997, the Company's subsidiaries had aggregate
balance sheet liabilities (which do not include guarantees and other
contingent liabilities), which are structurally senior to the
Debentures, of approximately $56.6 million. There are no restrictions
in the Indenture on the creation of additional subsidiary obligations.
The Company will be obligated to pay reasonable compensation to
the Trustee and to indemnify the Trustee against any losses,
liabilities or expenses incurred by it in connection with its duties
relating to the Debentures. The Trustee's claims for such payments
will be senior to those of holders of the Debentures in respect of all
funds collected or held by the Trustee.
Events of Default
An Event of Default will occur under the Indenture if (a) there
shall be a failure to pay when due the principal of or premium, if
any, on any of the Debentures at maturity, upon redemption or exercise
of a Repurchase Right or otherwise whether or not such payment is
prohibited by the subordination provisions of the Indenture; (b) there
shall be a failure to pay an installment of interest on any of the
Debentures for 30 days after the date when due whether or not such
payment is prohibited by the subordination provisions of the
Indenture; (c) the Company shall fail to perform or observe any other
term, covenant or agreement contained in the Debentures or the
Indenture for a period of 60 days after written notice of such
failure, requiring the Company to remedy the same, shall have been
given to the Company by the Trustee or to the Company and the Trustee
by the holders of 25% in aggregate principal amount of the Debentures
then outstanding; (d) default shall have occurred under any
agreements, indentures or instruments under which the Company has
outstanding indebtedness in excess of $25,000,000 in the aggregate
(but excluding any amounts owing under reimbursement or similar
obligations to banks, sureties or other entities which have issued
letters of credit, surety bonds, performance bonds or other guarantees
relating to the performance by the Company or its subsidiaries of
contractual obligations to customers, to the extent any demands made
under any such reimbursement or similar obligation relates to a draw
under the related letter of credit or other instrument which draw is
being contested in good faith through appropriate proceedings) and, if
not already matured in accordance with its terms, such indebtedness
shall have been accelerated and such acceleration shall not have been
rescinded or annulled within 30 days after notice thereof shall have
been given to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount
of outstanding Debentures, provided that if prior to the entry of
judgment in favor of the Trustee, such default under such indenture or
instrument shall be remedied or cured by the Company, or waived by the
holders of such indebtedness, then the Event of Default under the
Indenture shall be deemed likewise to have been remedied, cured or
waived; or (e) certain events of bankruptcy, insolvency or
reorganization with respect to the Company shall have occurred.
The Indenture provides that the Trustee shall, within 90 days of
the occurrence of a default, give to the registered holders of the
Debentures notice of all uncured defaults known to it, but the Trustee
shall be protected in withholding such notice if it, in good faith,
determines that the withholding of such notice is in the best interest
of such registered holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on, any
of the Debentures when due or in the payment of any redemption or
repurchase obligation.
If an Event of Default shall occur and be continuing (the default
not having been cured or waived as provided below under "--Meetings,
Modifications and Waiver" below), the Trustee or the holders of 25% in
aggregate principal amount of the Debentures then outstanding may
declare the Debentures due and payable at their principal amount
together with accrued interest, and thereupon the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders
of Debentures by appropriate judicial proceedings. Such declaration
may be rescinded or annulled either with the written consent of the
holders of a majority in aggregate principal amount of the Debentures
then outstanding or a majority in aggregate principal amount of the
Debentures represented at a meeting at which a quorum (as specified
under "--Meetings, Modifications and Waiver" below) is present, in
each case upon the conditions provided in the Indenture.
The Indenture contains a provision entitling the Trustee, subject
to the duty of the Trustee during default to act with the required
standard of care, to be indemnified by the holders of Debentures
before proceeding to exercise any right or power under the Indenture
at the request of such holders. The Indenture provides that the
holders of a majority in aggregate principal amount of the Debentures
then outstanding through their written consent, or the holders of a
majority in aggregate principal
<PAGE>
amount of the Debentures then outstanding represented at a meeting at
which a quorum is present by a written resolution, may direct the
time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred
upon the Trustee.
The Company will be required to furnish annually to the Trustee a
statement as to the fulfillment of its obligations under the
Indenture.
Consolidation, Merger or Assumption
The Company may, without the consent of the holders of
Debentures, consolidate with, merge into, or transfer substantially
all of its properties to any other corporation organized under the
laws of the United States or any political subdivision thereof or
therein, provided that (i) the successor corporation assumes all
obligations of the Company under the Indenture and the Debentures,
(ii) at the time of such transaction, no Event of Default, and no
event which, after notice or lapse of time, would become an Event of
Default, shall have happened and be continuing and (iii) certain other
conditions are met.
Meetings, Modifications and Waiver
The Indenture contains provisions for convening meetings of the
holders of Debentures to consider matters affecting their interests.
The Indenture (including the terms and conditions of the
Debentures) may be modified or amended by the Company and the Trustee,
without the consent of the holder of any Debenture, for the purposes
of, among other things (a) adding to the covenants of the Company for
the benefit of the holders of Debentures; (b) surrendering any right
or power conferred upon the Company; (c) providing for conversion
rights of holders of Debentures in the event of consolidation, merger
or sale of substantially all of the assets of the Company; (d)
evidencing the succession of another corporation to the Company and
the assumption by such successor of the covenants and obligations of
the Company thereunder and in the Debentures as permitted by the
Indenture; (e) reducing the conversion price, provided that such
reduction will not adversely affect the interests of holders of
Debentures in any material respect; (f) qualifying the Indenture under
the Trust Indenture Act of 1939, as amended; or (g) curing any
ambiguity or correcting or supplementing any defective provision
contained in the Indenture or making any other provisions which the
Company and the Trustee may deem necessary or desirable and which will
not adversely affect the interests of the holders of Debentures in any
material respect.
Modifications and amendments to the Indenture or to the terms and
conditions of the Debentures may also be made, and past default by the
Company may be waived, either (a) with the written consent of the
holders of at least a majority in aggregate principal amount of the
Debentures at the time outstanding or (b) by the adoption of a
resolution at a meeting of holders by at least a majority in aggregate
principal amount of the Debentures represented at such meeting.
However, no such modification, amendment or waiver may, without the
written consent or the affirmative vote of the holder of each
Debenture so affected, (a) change the maturity of the principal of or
any installment of interest on any such Debenture; (b) reduce the
principal amount of, or any premium or interest on, any such
Debenture; (c) change the currency of payment of such Debenture or
interest thereon; (d) impair the right to institute suit for the
enforcement of any such payment on or with respect to any such
Debenture; (e) modify the obligations of the Company to maintain an
office or agency in New York City; (f) except as otherwise permitted
or contemplated by provisions concerning corporate reorganizations,
adversely affect the Repurchase Right or the conversion rights of
holders of the Debentures; (g) modify the subordination provisions of
the Debentures in a manner adverse to the holders of Debentures; (h)
reduce the percentage in principal amount of Debentures outstanding
necessary to modify or amend the Indenture or to waive any past
default; or (i) reduce the percentage in aggregate principal amount of
Debentures outstanding required for the adoption of a resolution or
the quorum required at any meeting of holders of Debentures at which a
resolution is adopted. The quorum at any meeting called to adopt a
resolution will be persons holding or representing a majority in
aggregate principal amount of the Debentures at the time outstanding
and, at any reconvened meeting adjourned for lack of a quorum, 25% of
such aggregate principal amount.
<PAGE>
Governing Law
The Indenture and the Debentures will be governed by and
construed in accordance with the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction
would be required thereby.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, par value $.10 per share, and
2,500,000 shares of preferred stock, par value $.01 share ("Preferred
Stock"). As of March 31, 1997, there were issued and outstanding
24,829,870 shares of Common Stock. As of March 31, 1997, an additional
3,309,498 shares were reserved for issuance pursuant to outstanding
options. 2,513,661 shares have been reserved for issuance pursuant to
the Debentures. No shares of Preferred Stock have been issued to date.
All outstanding shares of Common Stock are fully paid and
nonassessable. Holders of Common Stock have no preemptive, redemption
or conversion rights, and are entitled to one vote for each share held
on each matter submitted to a vote of shareholders. Cumulative voting
for the election of directors is not permitted. Holders of the Common
Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available
therefor, subject to the rights and preferences of the holders of any
Preferred Stock. On liquidation of the Company, after payment of all
indebtedness and the liquidation preference to holders of any
Preferred Stock, the assets of the Company will be distributed pro
rata to the holders of the Common Stock.
The Company may issue the Preferred Stock in one or more series.
The Board of Directors is authorized to determine, with respect to
each series of Preferred Stock which may be issued, the powers,
designations, preferences, and rights of the shares of such series and
the qualifications, limitations, or restrictions thereof, including
any dividend rate, redemption rights, liquidation preferences, sinking
fund terms, conversion rights, voting rights and any other preferences
or special rights and qualifications. The effects of any issuance of
the Preferred Stock upon the rights of holders of the Common Stock
depends upon the respective powers, designations, preferences, rights,
qualifications, limitations and restrictions of the shares of one or
more series of Preferred Stock as determined by the Board of
Directors. Such effects might include dilution of the voting power of
the Common Stock, the subordination of the rights of holders of Common
Stock to share in the Corporation's assets upon liquidation, and
reduction of the amount otherwise available for payment of dividends
on Common Stock.
American Stock Transfer & Trust Company, New York, New York,
serves as the transfer agent and registrar for the Common Stock.
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a discussion of certain anticipated U.S. federal
income tax consequences of the purchase, ownership and disposition of
the Debentures (or Common Stock of the Company acquired upon
conversion of a Debenture) as of the date hereof. It deals only with
Debentures held as capital assets by initial holders, and does not
deal with special situations including those that may apply to a
particular holder such as exempt organizations, dealers in securities,
financial institutions, insurance companies and holders whose
"functional currency" is not the U.S. dollar. The federal income tax
considerations set forth below are based upon the Internal Revenue
Code of 1986, as amended (the "Code") and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified (possibly
retroactively) so as to result in federal income tax consequences
different from those discussed below. As used herein, the term "U.S.
Holder" means a beneficial owner of a Debenture (or Common Stock of
the Company acquired upon conversion of a Debenture) that is for
United States federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of
any political subdivision thereof, or (iii) an estate or trust the
income of which is subject to United States federal income taxation
regardless of its source. As used herein, the term "Non-U.S. Holder"
means a beneficial owner of a Debenture (or Common Stock of the
Company acquired upon conversion of a Debenture) that is not a U.S.
Holder. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE DEBENTURES OR COMMON STOCK OF THE COMPANY, INCLUDING
THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN LAWS.
U.S. Holders
A U.S. Holder will not recognize gain or loss upon conversion of
the Debentures solely into Common Stock of the Company or a repurchase
for Common Stock of a Debenture pursuant to exercise of the Repurchase
Right (except with respect to any amounts attributable to accrued and
unpaid interest on the Debentures, which will be treated as interest
for federal income tax purposes, and except with respect to cash
received in lieu of fractional shares). The U.S. Holder's basis in the
Common Stock received on conversion or repurchase of a Debenture for
Common Stock pursuant to the Repurchase Right will be the same as the
U.S. Holder's adjusted tax basis in the Debentures at the time of
conversion, and the holding period for the Common Stock received on
conversion will include the holding period of the Debentures that were
converted.
A U.S. Holder generally will recognize gain or loss upon the
sale, redemption (including a repurchase for cash pursuant to the
Repurchase Right) or other taxable disposition of the Debentures in an
amount equal to the difference between the U.S. Holder's adjusted tax
basis in the Debenture and the amount received therefor (other than
amounts attributable to accrued and unpaid interest on the Debentures,
which will be treated as interest for federal income tax purposes).
Such gain or loss generally will be long-term capital gain or loss if
the Debentures were held for more than one year.
The Conversion Price of the Debentures is subject to adjustment
under certain circumstances. Under Section 305 of the Code and the
Treasury Regulations issued thereunder, adjustments or the failure to
make such adjustments to the Conversion Price of the Debentures may
result in a taxable constructive distribution to the U.S. Holders of
Debentures, resulting in ordinary income (subject to a possible
dividends received deduction in the case of corporate holders) to the
extent of the Company's current and accumulated earnings and profits
if, and to the extent that, certain adjustments in the Conversion
Price that may occur in limited circumstances (particularly an
adjustment to reflect a taxable dividend to holders of Common Stock of
the Company) increase the proportionate interest of a U.S. Holder of a
Debenture convertible into fully diluted Common Stock, whether or not
the U.S. Holders ever convert the Debentures. Generally, a U.S.
Holder's tax basis in a Debenture will be increased by the amount of
any such constructive dividend. Moreover, if there is not a full
adjustment to the Conversion Price of the Debentures to reflect a
stock dividend or other event increasing the proportionate interest of
the holders of outstanding Common Stock in the assets or earnings and
profits of the Company, then such increase in the proportionate
interest of the holders of the Common Stock generally will be treated
as a distribution to such holders, taxable as ordinary income (subject
to a possible dividends received deduction in the case of corporate
holders) to the extent of the Company's current earnings and profits
for the taxable year to which the constructive distribution relates
and/or accumulated earnings and profits at the time of such
constructive distribution.
<PAGE>
Non-U.S. Holders
Under present United States federal income and estate tax law,
assuming certain certification requirements are met (which include
identification of the beneficial owner of a Debenture), and subject to
the discussion of backup withholding below:
(a) Payments of interest on a Debenture to any Non-U.S. Holder
will generally not be subject to United States federal income or
withholding tax, provided that (1) the holder is not (i) a direct or
indirect owner of 10% or more of the total voting power of all voting
stock of the Company, (ii) a controlled foreign corporation related to
the Company or (iii) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or
business, (2) such interest payments are not effectively connected
with the conduct of a trade or business within the United States by
the Non-U.S. Holder ("Effectively Connected") and (3) the holder of
the Debentures certifies, under penalties of perjury, as to its status
as a Non-U.S. Holder and provides its name and address.
(b) A Non-U.S. Holder will generally not be subject to United
States federal income tax on gain recognized on a sale, redemption
(including a repurchase for cash pursuant to the Repurchase Right) or
other disposition of a Debenture or Common Stock (including the
receipt of cash in lieu of fractional shares upon conversion of a
Debenture into Common Stock) unless (1) the gain is Effectively
Connected, (2) in the case of a Non-U.S. Holder who is a nonresident
alien individual and holds the Debenture or Common Stock as a capital
asset, such holder is present in the United States for 183 days or
more in the taxable year of disposition and certain other requirements
are met, (3) the Company was, is or becomes a "United States real
property holding corporation" for United States federal income tax
purposes and certain other requirements are met or (4) in the case of
a Non-U.S. Holder who currently is a nonresident alien, but formerly
was a U.S. citizen or, in certain circumstances, a resident alien, and
certain other requirements are met.
(c) If interest on a Debenture is exempt from withholding of
United States federal income tax under the rules described in clause
(a) above, the Debenture will generally not be included in the estate
of a deceased Non-U.S. Holder for United States federal estate tax
purposes.
(d) A Non-U.S. Holder will generally not be subject to United
States federal income tax on the conversion of a Debenture solely into
Common Stock of the Company or a repurchase for Common Stock of a
Debenture pursuant to exercise of the Repurchase Right (except as
described in clause (b) above with respect to the receipt of cash in
lieu of fractional shares by certain holders upon conversion of a
Debenture, or as described in clause (a) above with respect to any
amounts attributable to accrued and unpaid interest on the
Debentures).
(e) Dividends paid on Common Stock of the Company to a Non-U.S.
Holder will generally be subject to withholding of United States
federal income tax at the rate of 30% (or a lower rate prescribed by
an applicable treaty), unless such dividends are Effectively
Connected.
(f) Common Stock of the Company owned by an individual who is
neither a citizen nor a resident (as defined for United States federal
estate tax purposes) of the United States at the date of death will
generally be included in such individual's estate for United States
federal estate tax purposes.
Income (including interest on a Debenture and dividends on Common
Stock of the Company as the case may be) and capital gain on the sale
or other taxable disposition of a Debenture or Common Stock that is
Effectively Connected generally will not be subject to withholding
(provided that the holder provides proper certification that the
income is Effectively Connected), but may be subject to United States
federal income tax at rates applicable to U.S. citizens, resident
aliens and U.S. corporations (and, in the case of corporate holders,
such income and gain may also be subject to the United States branch
profits tax which is generally imposed on a foreign corporation on the
repatriation from the United States of earnings and profits that are
Effectively Connected).
An applicable income tax treaty may, however, change these rules.
A Non-U.S. Holder may be required to satisfy certain certification and
other requirements in order to claim treaty benefits or otherwise
obtain any reduction of or exemption from United States federal income
or withholding tax under the foregoing rules.
<PAGE>
Backup Withholding and Information Reporting
The Company or its designated paying agent (the "payer") will,
where required, report to holders of Debentures (or Common Stock) and
the Internal Revenue Service the amount of any interest paid on the
Debentures (or dividends paid with respect to the Common Stock or
other reportable payments) in each calendar year and the amount of
tax, if any, withheld with respect to such payments. The information
may also be made available to the tax authorities of the country in
which a Non-U.S. Holder resides.
Under current United States federal income tax law, a 31% backup
withholding tax is required with respect to certain interest,
dividends and principal payments made to, and to the proceeds of sales
before maturity by, certain U.S. Holders if such persons fail to
furnish their taxpayer identification numbers and other information.
Interest payments on a Debenture to a Non-U.S. Holder will not be
subject to information reporting requirements and backup withholding
tax if either the requisite certification, as described above, has
been received or an exemption has otherwise been established, provided
that the payor does not have actual knowledge that the holder is a
U.S. Holder or that the conditions of any other exemption are not in
fact satisfied.
Payment by or through a United States office of a broker of the
proceeds on disposition of a Debenture or Common Stock will be subject
to both backup withholding tax and information reporting requirements,
unless the Non-U.S. Holder certifies under penalties of perjury as to
its name, address and status as a Non-U.S. Holder or otherwise
establishes an exemption. Information reporting requirements (but not
backup withholding tax) will also apply to a payment of the proceeds
on disposition of a Debenture or Common Stock by or through a foreign
office of a United States broker, or foreign brokers with certain
relationships to the United States, unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Holder and
certain other conditions are met or the holder otherwise establishes
an exemption.
Information reporting requirements and backup withholding tax
will generally not apply to dividends paid on Common Stock of the
Company to a Non-U.S. Holder at an address outside the United States,
unless the payor has knowledge that the holder is a U.S. Holder.
Dividends paid to a Non-U.S. Holder at an address within the United
States may be subject to backup withholding tax if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the
payor.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules will be refunded or credited
against the holder's United States federal income tax liability,
provided that the required information is furnished to the Internal
Revenue Service.
These backup withholding and information reporting rules are
under review by the United States Treasury, and their application to
the Debentures and the Common Stock could be changed in the future.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER
AS TO PARTICULAR TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND
DISPOSING OF THE DEBENTURES AND THE COMMON STOCK OF THE COMPANY,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
ERISA CONSIDERATIONS
The United States Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Code set forth certain restrictions
on (a) employee benefit plans (as defined in section 3(3) of ERISA),
(b) plans described in Section 4975(e)(1) of the Code, including
individual retirement accounts and Keogh plans, (c) any entity whose
underlying assets include plan assets by reason of a plans's
investment in such entity (each of (a), (b) and (c) hereinafter
referred to as a "Plan" or "Benefit Plan") and (d) persons who have
certain specified relationships to such Plans ("Parties in Interest"
under ERISA and "Disqualified Persons" under the Code). The Company
will be a Party in Interest and Disqualified Person with respect to
each Plan covering its employees or the employees of its subsidiaries
or affiliates.
<PAGE>
ERISA imposes specific requirements on fiduciaries of Benefit
Plans subject to ERISA, namely, that they make prudent investments,
that they diversify investments, and that they make investments in
accordance with the Benefit Plan documents and in the best interests
of participants and their beneficiaries. In accordance with these
general fiduciary standards, before investing in the Debentures or
converting the Debentures to shares of the Company's Common Stock, a
Benefit Plan fiduciary should determine whether such an investment or
conversion is permitted under the governing Plan instruments and is
appropriate for the Benefit Plan in view of its overall investment
policy and the composition and diversification of its portfolio.
In addition to imposing fiduciary requirements, ERISA prohibits a
Party in Interest under ERISA and a Disqualified Person under the Code
from engaging in certain transactions with respect to Benefit Plans or
their assets ("Prohibited Transactions"). A violation of these
Prohibited Transaction rules may result in a breach of fiduciary duty
under ERISA and/or the imposition of an excise tax or other penalties
and liabilities under ERISA and/or the Code for such persons. If the
Company, the Initial Purchaser or any of their respective affiliates
were a Party in Interest or a Disqualified Person with respect to a
Benefit Plan, a Prohibited Transaction could occur upon (i) the
subscription for, acquisition or holding of the Debentures by a
Benefit Plan or (ii) the conversion of the Debentures by a Benefit
Plan into shares of the Company's Common Stock.
However, both ERISA and the Code provide for certain statutory
and administrative exemptions from the Prohibited Transaction rules
which could apply in this case. Further, the U.S. Department of Labor
has issued a number of class exemptions that may apply to otherwise
Prohibited Transactions arising from the acquisition or holding of
Debentures, including: Class Exemption 75-1 (Transactions Involving
Employee Benefit Plans and Certain Broker-Dealers, Reporting Dealers
and Banks), Class Exemption 84-14 (Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers), Class Exemption
90-1 (Acquisition or Holding of Employer Securities or Real Property
by Insurance Company Pooled Separate Accounts), Class Exemption 91-38
(Transactions Involving Bank Collective Investment Funds), Class
Exemption 95-60 (Transactions Involving Insurance Company General
Accounts) and Class Exemption 96-23 (Transactions Involving In-House
Asset Managers). The availability of each of these statutory,
administrative and class exemptions is subject to a number of
important conditions which each Benefit Plan investor's fiduciary must
consider in determining whether such exemption applies.
Prior to making an investment in the Debentures, prospective
Benefit Plan investors should consult with their legal advisers
concerning the impact of ERISA and the Code and the potential
consequences of such investment in light of their specific
circumstances. Each Benefit Plan fiduciary must determine that the
subscription for, acquisition and holding of the Debentures and any
conversion of the Debentures into shares of the Company's Common Stock
is consistent with its fiduciary duties under ERISA and does not
result in the occurrence of a non-exempt Prohibited Transaction.
<PAGE>
SELLING HOLDERS
The Debentures were originally issued by the Company and sold by
the Initial Purchaser, in transactions exempt from the registration
requirements of the Securities Act, to persons reasonably believed by
the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) or other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act) or in transactions complying with the
provisions of Regulation S under the Securities Act. The Selling
Holders (which term includes their transferees, pledgees, donees or
their successors) may from time to time offer and sell pursuant to
this Prospectus any or all of the Debentures and Common Stock issued
upon conversion of the Debentures.
The following table sets forth information with respect to the
Selling Holders and the respective principal amounts of Debentures and
shares of Common Stock beneficially owned by each Selling Holder. Such
information has been obtained from the Selling Holders. Except as
otherwise disclosed herein, none of the Selling Holders has, or within
the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or
affiliates. Because the Selling Holders may offer all or some portion
of the Debentures or the Common Stock issuable upon conversion thereof
pursuant to this Prospectus, no estimate can be given as to the amount
of the Debentures or the Common Stock issuable upon conversion thereof
that will be held by the Selling Holders upon termination of any such
sales. In addition, the Selling Holders identified below may have
sold, transferred or otherwise disposed of all or a portion of their
Debentures since the date on which they provided the information
regarding their Debentures in transactions exempt from the
registration requirements of the Securities Act. Finally, additional
Selling Holders may from time to time be identified and information
with respect to such Selling Holders be provided in a Prospectus
Supplement.
Principal Amount of Number of
Debentures Shares of
Beneficially Owned Common Stock
Selling Holder and Offered Hereby Beneficially Owned(1)
Merrill Lynch Capital Markets P.L.C. ...... $8,000,000 --
Lincoln National Life Insurance Company ... 5,965,000 --
Equitable Life Assurance --
Separate Account Convertibles ............. 4,450,000 --
Bankers Trust International PLC ........... 3,500,000 --
The SMM Co. B.V. .......................... 3,200,000 --
Husic Capital Management as a Discretionary
Asset Manager for the Ameritech Pension
Plan .................................... 3,000,000 --
State of Oregon Equity .................... 3,000,000 --
AIM Charter Fund, a series of AIM
Equity Funds, Inc. ...................... 2,000,000 --
Lincoln National Convertible Securities
Fund..................................... 1,885,000 --
Hudson River Trust Balanced Account ....... 1,765,000 --
Memphis Light, Gas & Water Retirement
Fund .................................... 1,750,000 --
Carrigaholt Capital (Bermuda) L.P. ........ 1,600,000 --
Sheperd Investments International, Ltd. ... 1,600,000 --
Stark International ....................... 1,600,000 --
Kellner, DiLeo & Co. ...................... 1,550,000 --
Hudson River Trust Growth Investors ....... 1,425,000 --
Delta Air Lines Master Trust .............. 1,400,000 --
Hospital Corp. of America
Money Purchase Plan ..................... 1,320,000 --
Phoenix Income & Growth Fund .............. 1,250,000 --
Hudson River Trust Growth & Income ........ 1,210,000 --
Class 1 C, L.P. ........................... 1,100,000 --
Paloma Securities L.L.C. .................. 1,010,000 --
<PAGE>
Principal Amount of Number of
Debentures Shares of
Beneficially Owned Common Stock
Selling Holder and Offered Hereby Beneficially Owned(1)
BT Securities Corporation ... 950,000 --
TQA Vantage Fund Ltd. ....... 850,000 --
Forest Fulcrum Fund LP ...... 810,000 --
The Dow Chemical Company
Employees' Retirement Plan 790,000 --
Pacific Mutual Life Insurance
Company ................... 750,000 --
Q Investments, L.P. ......... 750,000 --
Port Authority of Allegheny County
Retirement and Disability Allowance
Plan for the Employees Represented
by Local 85 of the Amalgamated
Transit Union ............. 675,000 --
Forum Capital Markets, L.P. . 650,000 --
Silverton International Fund
Limited .................... 640,000 --
AIM VI Growth and Income Fund,
a series of AIM Variable
Insurance Funds, Inc. ...... 600,000 --
Champion International Corporation
Master Retirement Trust ...... 575,000 --
The Hotel Union & Industry of
Hawaii ..................... 575,000 --
RJR Nabisco, Inc. Defined Benefit
Master Trust ............... 560,000 --
Weirton Trust ................ 550,000 --
Ingelsa Ltd. ................. 500,000 --
Jefferies & Co., Inc. ........ 500,000 --
Value Line Convertible Fund .. 500,000 --
The HCA Foundation ........... 460,000 --
Forest Fulcrum Fund Ltd. ..... 400,000 --
The Sumitomo Trust
& Banking Co., Ltd. ........ 400,000 --
Equitable Life Assurance--
Separate Account Balanced .. 375,000 --
Credit Suisse First Boston.... 350,000 --
Van Kampen American Capital
Convertible Securities Fund... 350,000 --
Associated Electric and Gas
Insurance Services Ltd. ..... 275,000 --
Walker Art Center ............ 270,000 --
Highbridge Capital Corp. ..... 250,000 --
Starvest Discretionary ....... 250,000 --
The Hotel Union-- ILWU Pension
Trust ...................... 200,000 --
Greyhound Lines Fund.......... 150,000 --
LLT Ltd. ..................... 140,000 --
David Lipscomb University .... 135,000 --
United National Life Insurance
Company .................... 80,000 --
Fiducie Desjardins ........... 65,000 --
Savings & Investment Trust ... 35,000 --
---------- --
Total...................... $70,990,000 --
========== ==
- ------------------
(1) Excludes shares of Common Stock issuable upon conversion of Debentures.
<PAGE>
PLAN OF DISTRIBUTION
The Debentures and the Common Stock offered hereby may be sold
from time to time to purchasers directly by the Selling Holders,
pursuant to this Prospectus and an accompanying Prospectus Supplement,
if required, or in transactions exempt from the registration
requirements of the Securities Act. Alternatively, the Selling Holders
may from time to time offer the Debentures and Common Stock to or
through underwriters, dealers or agents, who may receive compensation
in the form of underwriting discounts, concessions or commissions from
the Selling Holders or the purchasers of Debentures and Common Stock
for whom they may act as agents. The Selling Holders and any
underwriters, dealers or agents which participate in the distribution
of Debentures and Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act and any profit on the sale of
Debentures and Common Stock by them and any discounts, commissions,
concessions or other compensation received by any such underwriter,
dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Debentures and the Common Stock issuable upon conversion
thereof may be sold from time to time in one or more transactions
(including short sales) at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of sale
or at negotiated prices. The sale of the Debentures and the Common
Stock issuable upon conversion thereof may be effected in transactions
(which may involve crosses or block transactions) (i) on any national
securities exchange or quotation service on which the Debentures or
the Common Stock may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market or (iv) through the
writing of options. At the time a particular offering of the
Debentures or the Common Stock is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate
amount and type of Debentures and Common Stock being offered and the
terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to
dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Debentures and the Common Stock will be offered or
sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain jurisdictions the Debentures and
the Common Stock may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act,
any person engaged in a distribution of the Debentures or the Common
Stock may not simultaneously engage in market-making activities with
respect to such securities for a period of two or nine business days
prior to the commencement of such distribution. In addition to and
without limiting the foregoing, each Selling Holder and any other
person participating in a distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 102, 103 and 104, which
provisions may limit the timing of purchases and sales of any of the
securities by the Selling Holders or any such other person. All of the
foregoing may affect the marketability of the Debentures and the
Common Stock and brokers' and dealers' ability to engage in
market-making activities with respect to these securities.
Pursuant to the Registration Rights Agreement, all expenses of
the registration of the Debentures and Common Stock will be paid by
the Company, including, without limitation, Commission filing fees and
expenses of compliance with state securities or "blue sky" laws;
provided, however, that the Selling Holders will pay all underwriting
discounts and selling commissions, if any. The Selling Holders will be
indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith. The Company will be
indemnified by the Selling Holders against certain civil liabilities,
including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
securities offered hereby will be passed upon for the Company by
William F. Sorin, attorney-at-law, 823 Park Avenue, New York, New York
10021. Mr. Sorin is an officer and director of the Company and the
beneficial owner of 25,000 shares of Common Stock issuable upon the
exercise of stock options.
<PAGE>
EXPERTS
The consolidated financial statements of Comverse Technology,
Inc. as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996 incorporated by reference herein
and in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated by reference herein and in the Registration Statement.
Such financial statements are incorporated by reference herein and in
the Registration Statement in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
<PAGE>
=================================== ================================
No dealer, salesperson or any $115,000,000
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus, and,
if given or made, such information
or representations must not be
relied upon as having been
authorized by the Company. This
Prospectus does not constitute an
offer to sell, or a solicitation of COMVERSE
an offer to buy the securities TECHNOLOGY, INC.
described herein by anyone in any
jurisdiction in which such offer or
solicitation is not authorized, or 5 3/4% Convertible Subordinated
in which the person making the Debentures due 2006
offer or solicitation is not
qualified to do so, or to any
person to whom it is unlawful to
make such offer or solicitation.
Under no circumstances shall the
delivery of this Prospectus or any
sale made pursuant to this
Prospectus create any implication
that the information contained in
this Prospectus is correct as of
any time subsequent to the date of
this Prospectus.
----------------------
TABLE OF CONTENTS
Page
Available Information.......... 2
Documents Incorporated
by Reference................. 2
Summary........................ 3
Risk Factors................... 5
Use of Proceeds................ 11 --------------
Ratio of Earnings to Fixed PROSPECTUS
Charges...................... 11 July 3, 1997
Price Range of Common Stock and --------------
Dividend Policy............. 11
Description of Debentures...... 12
Description of Capital Stock... 21
Certain United States Federal
Income Tax Considerations.... 22
ERISA Considerations........... 24
Selling Holders................ 26
Plan of Distribution........... 28
Legal Matters.................. 28
Experts........................ 29
=================================== ================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be paid by
the Registrant in connection with the sale and distribution of the
securities being registered, other than underwriting discounts and
commissions. All of the amounts shown are estimated except the
Securities and Exchange Commission registration fee and the Nasdaq
additional listing fee.
SEC registration fee........................ $34,849
Nasdaq additional listing fee............... 17,500
Legal fees and expenses..................... 5,000
Accounting fees and expenses................ 1,000
Miscellaneous expenses...................... 2,651
Total.................................... $61,000
=======
Item 15. Indemnification of Directors and Officers.
The Company has included in its Certificate of Incorporation,
pursuant to Section 402(b) of the Business Corporation Law of the
State of New York (the "Business Corporation Law"), a provision that
no director of the Company shall be personally liable to the Company
or its shareholders in damages for any breach of duty as a director,
provided that such provision shall not be construed to eliminate or
limit the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions
were in bad faith or involved intentional misconduct or a knowing
violation of law, that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled or that his
acts violated Section 719 of the Business Corporation Law.
The By-Laws of the Company further provide that the Company shall
indemnify its directors and officers, and shall advance their expenses
in the defense of any action for which indemnification is sought, to
the full extent permitted by the Business Corporation Law and when
authorized by resolution of the shareholders or directors of the
Company or any agreement providing for such indemnification or
advancement of expenses, provided that no indemnification may be made
to or on behalf of any director or officer if a judgment or other
final adjudication adverse to him established that his acts were
committed in bad faith or were the result of active and deliberate
dishonesty material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to
which he was not legally entitled. The Company has entered into
indemnity agreements with each of its directors and officers pursuant
to the foregoing provisions of its By-Laws.
Item 16. Exhibits.
Exhibit No. Description of Exhibit
4.1 Excerpts from Certificate of Incorporation of
Registrant (incorporated by reference to
Exhibit 4(A) to the Registrant's Registration
Statement on Form S-1, Registration No.
33-9147).
4.2 Excerpts from Certificate of Amendment of
Certificate of Incorporation of Registrant
effective February 26, 1993 (incorporated by
reference to Exhibit 4(A)(1) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, File No.
0-15502).
4.3 Excerpts from Certificate of Amendment of
Certificate of Incorporation of Registrant
effective January 12, 1995 (incorporated by
reference to Exhibit 4(A)(2) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, File No.
0-15502).
II-1
<PAGE>
4.4 Excerpts from By-laws of Registrant, as
amended (incorporated by reference to Exhibit
4(B) to the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1992, File No. 0-15502).
4.5 Specimen Common Stock certificate
(incorporated by reference to Exhibit 4(C)(1)
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992,
File No. 0-15502).
4.6 Indenture, dated as of October 4, 1996,
between the Registrant and The Chase
Manhattan Bank, as trustee (incorporated by
reference to Exhibit 4 to the Registrant's
Current Report on Form 8-K, dated October 10,
1996, File No. 0-15502).
5 Opinion of William F. Sorin.
12 Statement regarding computation of ratio of
earnings to fixed charges.
23.1 Consent of William F. Sorin (included as part
of Exhibit 5 hereto).
23.2 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (included on signature pages).
25 Statement of Eligibility and Qualification of
The Chase Manhattan Bank on Form T-1.*
- --------------------
* Previously filed as an exhibit to the registrant's Registration
Statement on Form S-3 (Registration No. 333-18255) on December 19,
1996.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made hereunder, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment hereto) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such information
in this registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) will not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
II-2
<PAGE>
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating
to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(h) 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 Commission 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, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of 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.
(i) The undersigned registrant hereby undertakes that:
(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; and
(2) for purposes 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Woodbury, State
of New York, on July 3, 1997.
COMVERSE TECHNOLOGY, INC.
By: /s/ Kobi
----------------------------------
Kobi Alexander
President, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Comverse
Technology, Inc., do hereby constitute and appoint Kobi Alexander and
William F. Sorin, and each of them, our true and lawful attorneys and
agents, to do any and all acts and things in our names and on our
behalf in our capacities as directors and officers and to execute any
and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable said Corporation to comply
with the Securities Act of 1933 and any rules, regulations and
requirements of the Securities and Exchange Commission in connection
with this registration statement, including specifically, but without
limitation, power and authority to sign for us or any of us in our
names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto; and we do hereby ratify
and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue thereof.
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 President, Chairman of the Board and July 3, 1997
- --------------------- Chief Executive Officer; Director
Kobi Alexander
/s/ Igal Nissim
- --------------------- Chief Financial Officer (principal July 3, 1997
Igal Nissim financial and accounting officer)
/s/ Zvi Alexander Director July 3, 1997
- ---------------------
Zvi Alexander
/s/ John H. Friedman Director July 3, 1997
- ----------------------
John H. Friedman
/s/ Sam Oolie Director July 3, 1997
- ----------------------
Sam Oolie
/s/ William F. Sorin Director July 3, 1997
- ----------------------
William F. Sorin
/s/ Yechiam Yemini Director July 3, 1997
- ----------------------
Yechiam Yemini
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
4.1 Excerpts from Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 4(A)
to the Registrant's Registration Statement on Form S-1,
Registration No. 33-9147).
4.2 Excerpts from Certificate of Amendment of Certificate
of Incorporation of Registrant effective February 26,
1993 (incorporated by reference to Exhibit 4(A)(1) to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, File No. 0-15502).
4.3 Excerpts from Certificate of Amendment of Certificate
of Incorporation of Registrant effective January 12,
1995 (incorporated by reference to Exhibit 4(A)(2) to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-15502).
4.4 Excerpts from By-laws of Registrant, as amended
(incorporated by reference to Exhibit 4(B) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 0-15502).
4.5 Specimen Common Stock certificate (incorporated by
reference to Exhibit 4(C)(1) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992, File No. 0-15502).
4.6 Indenture, dated as of October 4, 1996, between the
Registrant and The Chase Manhattan Bank, as trustee
(incorporated by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K, dated October
10, 1996, File No. 0-15502).
5 Opinion of William F. Sorin.
12 Statement regarding computation of ratio of earnings to
fixed charges.
23.1 Consent of William F. Sorin (included as part of
Exhibit 5 hereto).
23.2 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (included on signature pages).
25 Statement of Eligibility and Qualification of The Chase
Manhattan Bank on Form T-1.*
- ---------------
* Previously filed as an exhibit to the registrant's Registration
Statement on Form S-3 (Registration No. 333-18255) on December 19,
1996.
II-5
<PAGE>
EXHIBIT 5
William F. Sorin
823 Park Avenue
New York, NY 10021
July 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-1004
Re: COMVERSE TECHNOLOGY, INC.
Gentlemen:
The undersigned has acted as legal counsel to Comverse Technology,
Inc., a New York corporation (the "Company"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement")
filed by Comverse with the Securities and Exchange Commission on the
date hereof and relating to an aggregate of $115,000,000 aggregate
principal amount of the 5 3/4% Convertible Subordinated Debentures due
2006 of Comverse Technology, Inc. (the "Debentures"), initially
convertible into 2,513,661 Shares of Common Stock, $.10 par value (the
"Subject Shares") of the Company's Common Stock, par value $.10 per
share, to be offered for resale by the Selling Holders identified
therein.
In the capacity of legal counsel to the Company, the undersigned has
examined originals or copies, certified or otherwise identified to the
satisfaction of the undersigned, of such documents, corporate records
and other instruments as the undersigned has deemed necessary for the
purpose of rendering this opinion. In the course of such examinations,
the undersigned has assumed the genuineness of all documents submitted
as originals and the conformity to originals and certified documents
of all copies submitted as conformed copies.
Based upon and subject to the foregoing, and assuming that the
Registration Statement becomes and remains effective and that
applicable state securities laws are complied with, the undersigned is
of the opinion that the Debentures and the Subject Shares have been,
and upon the resale thereof by the Selling Shareholder named in the
Prospectus included in the Registration Statement will be, validly
issued, fully paid and nonassessable.
The undersigned hereby consents to the filing of this opinion as
Exhibit 5 to the Registration Statement and the reference to the
undersigned under the caption "Legal Matters" in the Prospectus
contained therein.
Very truly yours,
/s/William F. Sorin
II-6
<PAGE>
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, Three Months Ended
1992 1993 1994 1995 1996 March 31, 1997
(in thousands, except ratios)
Earnings before
income taxes........ $6,859 $14,486 $13,881 $19,107 $31,346 $10,670
====== ======= ======= ======= ======= =======
Fixed charges:
Interest........... 334 498 3,346 3,347 4,481 1,818
Interest factor of
rent expense..... 421 633 854 1,005 1,170 484
--- --- --- ----- ----- -----
Total fixed charges.. 755 1,131 4,200 4,352 5,651 2,302
=== ===== ===== ===== ===== =====
Earnings before
fixed charges...... 7,614 15,617 18,081 23,459 36,997 12,972
===== ====== ====== ====== ====== ======
Ratio of earnings
to fixed charges.... 10.1x 13.8x 4.3x 5.4x 6.5x 5.6x
===== ===== ==== ==== ==== ====
II-7
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Comverse Technology, Inc. on Form S-3 of our report dated
February 5, 1997, appearing in the Annual Report on Form 10-K of
Comverse Technology, Inc. for the year ended December 31, 1996, and to
the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
Deloitte & Touche LLP
New York, New York
July 3, 1997
II-8
