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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Fiscal Year ended December 31, 1997
Commission File Number 0-15502
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
(Address of principal executive offices)
Registrant's telephone number, including area code: 516-677-7200
Securities registered pursuant to Section 12(b) of
the Act:
Name of each exchange
Title of each class on which registered
Not applicable Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes:[X] No: [_]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 24 , 1998 was approximately $1,975,000,000. The closing
price of the registrant's common stock on the NASDAQ National Market System on
March 24, 1998 was $47.25 per share.
There were 43,461,824 shares of the registrant's common stock outstanding
on March 24, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant hereby incorporates by reference in this report the
information required by Part III appearing in the registrant's proxy statement
or information statement distributed in connection with the 1998 Annual Meeting
of Shareholders of the registrant or in an amendment to this report on Form
10K/A.
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TRILOGUE and Access NP are registered trademarks and
TRILOGUE INfinity, AUDIODISK, ULTRA, and SignalWare are
trademarks of the Company.
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Comverse Technology, Inc., a New York corporation ("Comverse" and,
together with its subsidiaries, the "Company"), designs, develops, manufactures,
markets and supports computer and telecommunications systems and software for
multimedia communications and information processing applications. The Company's
products are used in a broad range of applications by fixed and wireless
telephone network operators, government agencies, call centers, financial
institutions and other public and commercial organizations worldwide.
The Company's line of enhanced services platform products enable
telecommunications network operators to offer a variety of revenue-generating
services that are accessible to large numbers of simultaneous users, including a
broad range of integrated messaging, information distribution and personal
assistant services, such as call answering, voice mail, fax mail, unified
messaging, pre-paid services, short text messaging and audiotext. The Company's
Comverse Network Systems ("CNS") Division's principal market consists of
organizations that use the systems to provide services to the public, usually on
a subscription or pay-per-usage basis, and includes both fixed and wireless
telephone network operators and other telecommunications services organizations.
In January 1998, Boston Technology, Inc., a Delaware corporation
("Boston"), merged with and into Comverse in a transaction in which former
shareholders of Boston received an aggregate of 18,141,185, shares of Comverse's
Common Stock, par value $0.10 per share ("Common Stock"). Boston, like the
Company's CNS Division, manufactures multimedia enhanced services platforms for
service provider organizations, including both fixed and wireless telephone
network operators. Boston's enhanced services platforms are similar in features
to those of the Company, but have traditionally been sold to different market
segments, which include, among others, several of the Regional Bell Operating
Companies in the United States and NTT in Japan. Prior to its merger with
Boston, Comverse's marketing efforts were focused primarily on international
network operators, as well as wireless personal communications network operators
in the United States. The business and assets of Boston have been combined with
the CNS Division following the merger of Boston with Comverse (the "Merger").
Except for financial information and as otherwise indicated, discussion of the
business of the Company in this report includes the business of Boston.
The Company markets its enhanced services platforms throughout the world,
with its own direct sales force and in cooperation with a number of leading
international vendors of telecommunications infrastructure equipment. The
Company is the market-share leader in providing large capacity enhanced services
platforms for wireless and wireline telecommunications network operators. More
than 250 fixed and wireless telephone network operators in more than 65
countries, including 13 of the 20 largest telephone companies in the world, have
selected the Company's platforms to provide enhanced telecommunications services
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to their public customers. CNS customers include, among others, AT&T (USA), Bell
Atlantic (USA), BellSouth (USA), Deutsche Telekom (Germany), Hongkong Telecom
(Hong Kong), NTT (Japan), SBC Communications (USA), SFR (France), Sprint PCS
(USA), Telebras (Brazil), Telecom Italia (Italy), Telmex (Mexico) and Telstra
(Australia).
The Company's Comverse Information Systems ("CIS") Division
manufactures multiple channel, multimedia digital monitoring systems, which
support the monitoring, recording, surveillance, and information gathering and
analysis activities of law enforcement and intelligence agencies, and digital
recording systems which support the voice, fax and data recording and analysis
activities of a variety of governmental and commercial organizations. The
Company's monitoring systems enable many simultaneous users to monitor, record
and process voice, image (facsimile) and data communications from multiple
channels in a variety of analog and digital formats, provide facilities for
archiving large volumes of recorded information and allow the use of computer
database processing techniques for analysis, management and retrieval
operations. The systems have been sold to law enforcement, military and
intelligence agencies that monitor and record communication channels for a
variety of purposes, such as surveillance in support of police actions and the
collection and processing of information for intelligence analysis. Customers
such as inbound and outbound call centers, commercial organizations, emergency
service (e.g., "911") providers, correctional facilities, public health and
safety organizations and financial institutions, use the Company's call
recording systems to record and process large volumes of audio, image and data
communications. Traditionally, analog tape recorders, alone or coupled with a
variety of special purpose devices, have been used for these applications. The
worldwide growth in telecommunications traffic in general and digital
communications in particular, and the increasing use of a variety of digital
transmission formats in telecommunications networks, have created a need for
user organizations to modernize their monitoring, recording and processing
capabilities. The Company's systems provide a number of advantages over analog,
tape recorder-based equipment, including improvements in capacity, reliability,
accuracy, processing efficiency and archiving and retrieval capabilities. Most
importantly, the systems enable users to adapt efficiently to the emergence of
new telecommunications technologies, such as digital transmission, Integrated
Services Digital Network ("ISDN") and enhanced signaling systems, for which
analog, tape recorder-based equipment was not designed. CIS Division products
have been sold to end-users in more than 30 countries.
The Company's DGM&S Telecom ("DGM&S") Division provides Signaling
System Number Seven ("SS7") telecommunications software and hardware. DGM&S's
products provide Intelligent Network ("IN") and Advanced Intelligent Network
("AIN") applications for voice, data and mobility communications services such
as 800 number translation, voice mail, Internet routing, short text messaging,
local number portability, cellular roaming and emergency "911" services. DGM&S's
products are marketed to wireline and wireless equipment providers and network
operators to enable global connectivity, inter-platform portability,
client/server flexibility and clustering reliability. The products provide the
global standards and national variants needed to communicate between the
disparate signaling protocols worldwide, and enable operators to use either a
UNIX or Windows NT platform. The products, which offer
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mediated access to the telecommunications signaling network, operate in a
client/server configuration.
DGM&S's customers include, among others, Amdahl, Compaq, DSC
Communications, Ericsson, MCI, Nokia, PTT Telecom (Netherlands), Qualcomm,
Siemens, Sprint and Sun Microsystems.
Through subsidiaries and affiliates, the Company is also involved in
the development of technologies and products incorporating video compression and
networking, the design and development of systems for telephone answering
service bureaus, the operation of telemessaging service bureaus and capital
market activities for its own account.
Throughout this document, references are made to technologies,
features, capabilities, capacities and specifications in conjunction with the
Company's products and technological resources. Such references do not
necessarily apply to all product lines, models, system configurations and
Company operating Divisions.
The Company was incorporated in the State of New York in October 1984.
Its principal executive offices are located at 170 Crossways Park Drive,
Woodbury, New York 11797, where its telephone number is (516) 677-7200.
THE COMPANY'S PRODUCTS
Comverse Network Systems Division: Enhanced Services Platform Product Family
The market for network-based enhanced services platforms has grown
rapidly over the past several years. The Company believes that a number of
factors have contributed to this growth, including the heightened emphasis among
wireless and wireline telecommunications network operators on offering new
services for revenue-generation and competitive differentiation, the increasing
public awareness and acceptance of multimedia messaging services resulting from
the growing installed base of messaging systems in the business community, the
expanding availability from the major telephone companies of call answering
services, and the growing use of wireless telephone services, which almost
universally offer a mailbox-based call answering service.
The CNS Division's primary focus has been on supplying large-capacity
enhanced services platforms, which are marketed under the names Access NP and
TRILOGUE INfinity, to fixed and wireless telecommunications network operators.
These organizations benefit from the ability to offer their customers a variety
of revenue-generating services provided by the Company's systems, such as
automated call answering, voice and fax messaging, unified messaging, pre-paid
services, short text messaging, audiotext, voice activated dialing, call
screening, one-touch call return, automated personal assistant services and
"virtual telephone" service, usually on a subscription or pay-per-call basis.
With call answering and voice and fax
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messaging, telephone operating companies benefit not only from service
subscription fees, but also from traffic revenue generated by the increase in
billable completed calls. In addition, these services improve overall network
efficiency by reducing congestion from repeated unbillable busy/no-answer calls.
Wireless telephone service operators are almost universally adding voice
mailboxes to their service offerings, and often as part of their basic service
package, not only because of these benefits, but also because wireless messaging
services directly increase billable airtime by stimulating outbound calls.
The Company's enhanced services platforms have been designed and
packaged to meet the capacity, reliability, scalability, maintainability and
physical requirements of large telephone network operators. The systems are
offered in a variety of sizes and configurations, extending to a capacity of up
to 6,000 ports, 45,000 voice storage hours and 1,000,000 mailboxes. The systems
also offer redundancy of critical components, so that no single failure will
interrupt the service. The Company's platforms are available in both centralized
and widely distributed configurations, and maintain their integrity as a single
system in distributed configurations.
The Company's systems also incorporate components that are compatible
with the IN and AIN protocols for Intelligent Peripherals ("IP"), permitting the
Company's network operator customers to develop and deploy services based on the
overall IN/AIN architecture. In addition, when the system is configured as a
Service Node ("SN"), it enables customers to offer next-generation IN/AIN-based
services such as personal number, call screening/caller introduction, one-touch
call return and pre-paid. The incorporation of IN and AIN-related software also
allows a customer, which has not yet implemented intelligent network
infrastructure, to purchase an enhanced services platform from the Company with
the confidence that it contains a built-in migration path to IN/AIN standards,
should the network operator decide to implement IN/AIN infrastructure in the
future.
The Company's platforms incorporate proprietary and third-party
software, and industry standard and proprietary hardware, in an open system
architecture. Most hardware is based on Industry Standard Architecture ("ISA"),
which facilitates the integration of commercially available ISA technologies
with the Company's core technologies. The systems support a wide variety of
analog and digital telephony interfaces and signaling systems, enabling them to
adapt to a variety of different telephony environments and IN/AIN applications,
and provide a "universal port" -- a single port that supports any combination of
voice and fax services at any time during a single call. The Company has also
introduced Internet messaging capabilities, enabling end-users to access their
voice, fax and e-mail text messages from anywhere in the world via the World
Wide Web.
Comverse Information Systems Division: Monitoring and Recording Systems
Comverse's Information Systems Division develops, manufactures and
markets monitoring and recording systems primarily for law enforcement,
intelligence agencies, call centers and financial institutions.
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The Company's AUDIODISK systems are multiple channel, multimedia
digital monitoring systems, sold primarily to law enforcement and intelligence
agencies, which enable multiple users simultaneously to monitor, record and
process audio, image (facsimile) and data communications over multiple channels
in a variety of analog and digital formats, and provide facilities for archiving
large volumes of recorded information. The systems automatically decode and
record a variety of signals without operator intervention and store the recorded
information on magnetic and optical disks to permit quick and easy random access
and the use of computer database techniques for analysis, archival and retrieval
operations. AUDIODISK also enables multiple users to access the same recorded
information simultaneously for processing and analysis.
The Company's ULTRA line of multiple channel, multimedia digital
recording systems are marketed primarily to call centers, financial
institutions, emergency "911" service providers, correctional institutions, and
other organizations that record large volumes of communications, and require
fast and easy retrieval of recorded information.
Traditionally, analog tape recorders, alone or coupled with a variety
of other special purpose devices, have been utilized for communications
monitoring, recording and related applications. The limited capacity and
processing capability inherent in these systems have imposed constraints on
organizations that process large amounts of multimedia information from multiple
channels and that need to store the processed information for long periods while
keeping it available for rapid retrieval. The Company's systems interface with a
variety of analog and digital communications protocols and automatically
recognize and adapt to voice, fax or modem content on each recorded channel.
Most importantly, they also enable users to adapt efficiently to the emergence
of new telecommunications technologies, such as digital transmission and
enhanced signaling systems, for which analog, tape recorder-based equipment was
not designed. The systems provide a number of advantages over analog, tape
recorder-based systems, including improvements in capacity, reliability,
accuracy, processing efficiency and archiving and retrieval capabilities.
The AUDIODISK product design is based on open system architecture and
client/server concepts, and supports a broad range of multimedia monitoring
capabilities, such as the recording, processing and retrieval of analog audio
signals, such as telephone and radio channels; analog facsimile and modem
communications; digital audio and data signals, including ISDN, T1, E1 and X.25;
and telephony signaling, including Pulse Dialing, DTMF, Calling Line
Identification and Call Progress Tones (such as busy, no-answer and ringback).
AUDIODISK systems simultaneously process incoming signals over multiple
channels, apply digital signal processing technologies and use magnetic and
optical disks for temporary and long-term digital storage. Digital signal
processing technologies that are employed by AUDIODISK to enhance monitoring
applications include, among others, signal compression, automatic signal
identification, automatic signal interpretation and noise cancellation. Magnetic
and optical disks permit virtually instantaneous retrieval and sharing of stored
information among many users. The systems also enable users to transmit
multimedia information among multiple sites over
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communication links. AUDIODISK is designed to support various communications
links, including T1, E1, ISDN, Dial-up telephone lines (over secure modems),
satellite links, TCP/IP over Ethernet (with routers) and X.25. AUDIODISK systems
also provide a facility for archiving large volumes of recorded information on
rewritable optical disks. This archive function allows a single recording
session, groups of sessions, a single recording channel, selected channels or
all channels to be stored on the same disk. The archive disk records all the
signals on a particular channel and automatically associates the signal-related
information ("SRI") as well as the date and time with the recorded information.
For larger AUDIODISK systems, automatic disk library systems, referred to as
"jukeboxes", provide very large amounts of on-line storage. The product employs
a database management system to provide a central facility for access to all
stored information. This feature allows any operator to use computer database
query techniques to retrieve the audio and SRI data quickly and efficiently.
The Company offers AUDIODISK systems in a range of configurations,
which share substantially the same hardware, software and user interface. The
AUDIODISK systems' multimedia server can be configured in a variety of models to
support a range of applications, including large, fixed-site audio monitoring
platforms with up to 350 channels. Moreover, several AUDIODISK multimedia
servers may be networked for increased capacity or to satisfy redundancy
requirements. Storage configurations include magnetic disks, optical drives and
optical jukebox devices. Up to 50 four-gigabyte magnetic disks can be configured
in a disk array to provide a recording buffer. Removable optical cartridges are
used for archiving, with each cartridge capable of storing up to 180 compressed
audio hours. Multiple jukebox configurations provide automated management of
optical media, storing up to 30,000 hours of audio or 4,500,000 pages of fax for
rapid automated retrieval.
ULTRA systems provide Computer-Telephony Integration ("CTI") enabled
recording, including integration with major PBX/ACDs, Predictive Dialers and
middleware products. The CTI connection allows the customer to easily search
calls through database queries. In addition, selective recording is possible
through time-driven schedules or event triggers. ULTRA systems support high
volume of simultaneous playbacks over the telephone or through LANs, WANs, and
the Internet. Immediate access to recordings is possible through advanced
optical disk technology and jukeboxes. The ULTRA Series comprises six products,
tailored to customer-specific requirements for capacity, storage and special
features.
DGM&S Telecom Division: Telecommunications Signaling Products
The DGM&S Telecom Division provides SS7 telecommunications software and
hardware, marketed under the name SignalWare. DGM&S's SignalWare products
provide IN/AIN applications for voice, data and mobility communications services
such as 800 number translation, voice mail, Internet routing, short text
messaging, local number portability, cellular roaming and emergency "911"
services. DGM&S's products are marketed to wireline and wireless equipment
providers and network operators to enable global connectivity, inter-platform
portability, client/server flexibility and clustering reliability. The products
provide the global
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standards and national variants needed to communicate between the disparate
signaling protocols worldwide, and enable operators to use either a UNIX or
Windows NT platform. SignalWare products, which offers mediated access to the
telecommunications signaling network, operates in a client/server configuration.
DGM&S's customers include, among others, Amdahl, Compaq, DSC
Communications, Ericsson, MCI, Nokia, PTT Telecom (Netherlands), Qualcomm,
Siemens, Sprint and Sun Microsystems.
MARKETS, SALES AND MARKETING
The Company's CNS Division markets enhanced services platforms
throughout the world, with its own direct sales force and in cooperation with a
number of leading international vendors of telecommunications infrastructure
equipment. The Company is a market share leader in providing large capacity
messaging systems for telephone network operators around the world.
More than 250 fixed and wireless telephone network operators in more
than 65 countries, including 13 of the 20 largest telephone companies in the
world, have selected the Company's platforms for messaging and other enhanced
services. The Company's network operator customers include, among others, AT&T
(USA), Bell Atlantic (USA), BellSouth (USA), Deutsche Telekom (Germany),
Hongkong Telecom (Hong Kong), NTT (Japan), SBC Commmunications (USA), SFR
(France), Sprint PCS (USA), Telebras (Brazil), Telecom Italia (Italy), Telmex
(Mexico) and Telstra (Australia).
The Company provides its customers with programs of marketing
consultation, seminars and materials designed to assist them in marketing
enhanced telecommunications services, and also undertakes to play an ongoing
supporting role in their business and market planning processes.
The Company's CIS Division markets AUDIODISK and ULTRA systems
worldwide through its direct sales force and, where appropriate, through agents,
distributors and system integrators. The Company sells AUDIODISK directly to the
law enforcement, military and intelligence markets. Primary target markets for
the ULTRA Series include call centers, public safety and emergency services
organizations and financial institutions.
TECHNOLOGIES
The Company's research and development efforts focus particularly on
the design of very large, high throughput systems and digital signal processing
technologies for voice, image and data communications. The Company's products
use advanced technologies in the areas of digital signal processing, facsimile
protocols, telephony interfaces, mass storage, digital networking,
multi-processor computer architecture and real-time software design. The Company
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also possesses considerable technology and expertise in the development of
software products, solutions and applications within the IN and AIN environment.
The Company's products are based upon flexible system architectures
specifically designed to handle multiple channel, multimedia communication and
processing applications. Multimedia processing computers require a much higher
throughput than conventional data processing systems, especially when a large
number of channels have to be processed simultaneously. The Company's products
employ open system, modular architectures, which use distributed processors,
rather than one large central processor, as well as multiple storage devices and
digital networking. The product design is intended to be readily adaptable to
the usage and capacity requirements of the individual end-user. The product
architectures also allow the Company to add enhancements and new technologies to
its systems without rendering existing products obsolete.
A primary focus of the Company's research and development efforts has
been digital signal processing technologies required for voice, image and data
communications. Computer systems designed for signal processing applications,
such as processing of voice and image communications, handle information
differently from conventional data processing systems and require greater
processing and storage resources. For example, a digitized voice message, even
when subjected to data compression techniques, may require as much as 150 times
the storage capacity as the same message processed in textual form. The computer
must be designed to function at a fast and efficient rate to produce a form of
speech acceptable to the human ear. The Company has developed a number of speech
compression algorithms, which provide the Company's products with optimal
compression taking into account the level of speech quality required for each
application. The Company also has developed a special signal detector, which
identifies signals as voice, fax or modem. Voice processing algorithms currently
available with the Company's products include speech enhancement (noise
reduction) and variable playback speed with pitch compensation. Fax and modem
processing algorithms offered by the Company enable communication and
interception of a large number of standard and non-standard communications
protocols.
The Company has developed interfaces for its products to most telephony
environments used around the world, including digital interfaces, such as T1, E1
and ISDN, and SS7 interfaces designed to encompass both basic network
connectivity and the IN/AIN capabilities of Intelligent Peripherals and Service
Nodes. The Company has implemented facsimile communication and intercept
protocols for Group 3 facsimile. Certain of the Company's products incorporate
local area network and wide area network technologies used for the transfer of
digitized voice, fax and modem information, as well as for the transfer of data
among various network elements.
The Company utilizes state-of-the-art mass storage technologies in many of
its products. Proprietary algorithms developed by the Company are utilized for
storage of multimedia information to facilitate real-time processing of large
amounts of information and optimal use of media. A variable number of disks may
be configured in a disk array to serve large numbers of users and to provide
full or partial disk redundancy for critical applications. Special algorithms
utilized by the Company to handle optical disks within a number of jukebox
devices include automatic channel-to-disk allocation, automatic retrieval of
multimedia information from any disk located in the jukeboxes and redundant
archiving on two or more cartridges simultaneously.
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RESEARCH AND DEVELOPMENT
Because of the continuing technological changes that characterize the
telecommunications and computer industries, the Company's success will depend,
to a considerable extent, upon its ability to continue to develop competitive
products through its research and development efforts.
The Company is engaged in ongoing research and development efforts
intended to expand and enhance the technical capabilities, features and range of
uses of its products, and to design and develop new generations of its product
offerings. The Company currently employs more than 1,200 scientists, engineers
and technicians with broad experience in the areas of digital signal processing,
computer architecture, facsimile protocols, telephony, digital networking,
multi-processing, mass storage, and real-time software design.
A substantial portion of the Company's research and development
operations benefit from financial incentives provided by government
instrumentalities to promote research and development activities, including its
research and development activities situated in Israel. The cost of such efforts
is affected by the continued availability of funding under such programs. The
percentage of the Company's total research and development expenditures
reimbursed under these programs has declined in recent years, and will continue
to decline with the growth in the Company's overall operations and the
increasing amount of research and development conducted by the Company at
locations other than those in which reimbursement programs are available to it.
The Company pays royalties on its sales of certain products developed in part
with funding supplied under such programs. Permission from the government of
Israel is required for the Company to manufacture outside of Israel products
resulting from research and development activities funded under such programs,
or to transfer outside of Israel related technology rights, and in order to
obtain such permission the Company may be required to increase the royalties to
the applicable funding agencies and/or repay certain amounts received as
reimbursement of research and development costs. The Company expects to incur
additional royalty expenses and/or repayment obligations as a result of the
Merger and the location of certain manufacturing and research and development
operations pertaining to its TRILOGUE product line at its Boston facilities. See
"Business--Licenses and Royalties," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 3 to the financial
statements.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
The Company currently holds a total of 17 United States patents and a
number of foreign patents. While the Company files patent applications
periodically, 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.
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In order to safeguard its unpatented proprietary know-how, trade
secrets and technology, the Company relies primarily upon trade secret
protection and non-disclosure provisions in agreements with employees and others
having access to confidential information. There can be no assurance that these
measures will adequately protect the Company from disclosure or misappropriation
of its proprietary information.
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. While 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.
LICENSES AND ROYALTIES
The Company licenses certain technology, know-how and related rights
for use in the manufacture and marketing of its products, and pays royalties to
third parties under such licenses and under other agreements entered into in
connection with research and development financing. The Company believes that
its rights under such licenses and other agreements are sufficient for the
manufacturing and marketing of its products and, in the case of licenses, extend
for periods at least equal to the estimated useful lives of the related
technology and know-how. The Company currently pays royalties on substantially
all sales of enhanced services platforms and on certain sales of AUDIODISK,
ULTRA and derivative products. The royalties vary in amount based upon the
revenues attributable to the various components of such products. During 1995,
1996 and 1997, aggregate license and royalty payments by the Company amounted to
approximately $2,419,000, $4,365,000 and $6,865,000, respectively.
INTERNATIONAL SALES
Sales of the Company's products outside of North America have increased
from approximately $92,046,000 in 1995 to approximately $136,236,000 in 1996 and
$205,988,000 in 1997. International sales and marketing efforts may be adversely
affected by a number of factors, including the need for system customization and
special integrations, government approvals and export licenses, instability in
international trading relations, currency fluctuations and additional costs of
marketing, service and support due to lack of proximity with the end-users. In
certain cases, the Company's contracts are denominated in local currencies, and
as such, the Company may be adversely affected by fluctuations in those
currencies. International sales of certain systems manufactured by the Company
also are subject to a variety of legal restrictions governing the export of such
products.
10
While the Company believes that prevailing economic conditions in the
Far East and Southeast Asia have reduced the demand for its systems in certain
countries, overall sales in the region have increased over the past 12 months.
The Company cannot currently predict the effect on its business should regional
economic conditions fail to improve.
For additional information regarding foreign operations, see Notes 16
and 18 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Certain Trends and Uncertainties" appearing elsewhere in this report.
BACKLOG
At December 31, 1997, the backlog of the Company amounted to
approximately $87,644,000, compared with approximately $70,339,000 at December
31, 1996, an increase of approximately $17,305,000. Substantially all of the
current backlog is expected to be delivered within the next 12 months.
SERVICE AND SUPPORT
The Company has a strong commitment to provide product service and
support to its customers and emphasizes such commitment in its marketing.
Because of the intensity of use of systems by telephone network operators and
other customers of the Company's products, and their low tolerance for
down-time, the Company is required to make a greater commitment to service and
support of systems used by these customers, and such commitment increases
operating costs.
The Company's general warranty policy is to replace or repair any
component that fails during a specified warranty period. Broader warranty and
service coverage is provided in certain instances, and is usually made available
to customers on a contractual basis for an additional charge.
The Company provides centralized technical assistance from several
locations around the world. Technical support is available for the Company's
customers 24 hours-a-day, seven days-a-week.
COMPETITION
The enhanced services platform industry is highly competitive, and
includes numerous products offering a broad range of features and capacities.
The primary direct competitors of the CNS Division are manufacturers of
stand-alone voice mail systems, including, among others, Brite Voice Systems,
Inc., Centigram Communications Corporation, Glenayre Electronics, Inc., Octel
Communications Corporation (acquired in 1997 by Lucent Technologies, Inc.),
Tecnomen Oy, Unisys Corporation, and manufacturers of central office
telecommunications equipment, including Northern Telecom Limited and
Telefonaktiebolaget LM Ericsson. Competitors of the Company that manufacture
other telecommunications equipment may derive a competitive advantage in selling
voice processing and message management systems to customers that are purchasing
or have previously purchased other compatible equipment from such manufacturers.
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Indirect competition is provided by voice and fax messaging products
employed at end-user sites as an alternative to the use of services available
through telephone network operators. This "customer premises equipment" includes
a broad range of products, such as stand-alone voice mail systems, products
offering "call processing" services that are supplied with voice mail features
or integrated with other voice mail systems, as well as personal computer modems
and add-on cards and software designed to furnish voice processing and message
management features.
The Company believes that competition in the sale of enhanced services
platforms is based on a number of factors, the most important of which are
product features and functionality, system performance and reliability,
marketing and distribution capability and price. Other important competitive
factors include service and support and the capability to integrate systems with
a variety of central office and cellular switches and other communications
systems. The Company believes that the range of features provided by, and the
ease of use of, its enhanced services platforms are competitive with other
platforms currently being marketed, and that its products are among the leading
systems designed specifically for telephone network operators.
Neither the Company nor any of the Company's competitors is a dominant
vendor of enhanced services platforms in any market segment or product line. The
Company anticipates that a number of its direct and indirect competitors will be
introducing new or improved enhanced services platforms during the next several
years.
The Company is aware of a relatively small number of manufacturers of
products that compete with the AUDIODISK product line at the present time.
Manufacturers of products that have been offered in competition with the
AUDIODISK system include Applied Signal Technology, Inc., the E-Systems division
of Raytheon Corporation, GTE Government Systems Division, Harris Corporation,
JSI Corporation and Nice Systems, Ltd. Competition also has been provided by
manufacturers and integrators of custom designed computer and telecommunications
systems in response to particular government procurements in specific markets
where they have entrenched customer relationships. The Company believes that it
derives a competitive advantage over many potential competitors of its AUDIODISK
product line by reason of its ability to offer prospective customers a family of
products that can provide a solution to most customer requirements without
extensive special development effort. The government market in general is highly
competitive and difficult to penetrate, and the Company may be at a competitive
disadvantage in respect of certain customers and market segments as a result of
its small size in relation to other potential vendors and the existence of
entrenched customer relationships with other vendors. The market in which ULTRA
products are sold is also highly competitive. Primary competitors include Atis
Assmann GmbH, Dictaphone Corporation, Kreutler GmbH, Nice Systems, Ltd., Racal
Recorders Ltd., Seltronics Corp., TEAC America, Inc., Teknekron Infoswitch
Corporation and Witness Systems, Inc.
12
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.
MANUFACTURING AND SOURCES OF SUPPLIES
The Company's manufacturing operations consist primarily of final
assembly and testing, involving the application of extensive testing and quality
control procedures to materials, components, subassemblies and systems. The
Company uses third parties to perform printed circuit board assembly and sheet
metal fabrication. Although the Company generally uses standard parts and
components in its products, certain components are presently available only from
a limited number of sources. To date, the Company has been able to obtain
adequate supplies of all components in a timely manner from existing sources or,
when necessary, from alternative sources. However, the inability to obtain
sufficient quantities of components or to locate alternative sources of supply
if and as required in the future, would adversely affect the Company's
operations.
The Company maintains organization-wide quality assurance
procedures, coordinating the quality control activities of the Company's
research and development, manufacturing and service departments. The Company's
primary manufacturing and research and development facilities have received
certification to Quality Standard ISO 9001.
CAPITAL MARKET ACTIVITIES
The Company has organized a wholly-owned subsidiary, CTI Capital
Corp. ("CTI Capital"), in support of its exploration of strategic acquisition
and investment opportunities. CTI Capital, directly and through a wholly-owned
subsidiary in Israel, Comverse Investments Ltd., seeks to identify and implement
suitable strategic investments for the Company, and engages in portfolio
investment and capital market activities, primarily in Israel. Such activities
include, in addition to direct investment in public and private companies,
investment and merchant banking activities and short-term trading of debt and
equity securities. Through ComSor Investment Fund N.V., formed by CTI Capital in
partnership with a subsidiary of Soros Fund Management LLC., the Company seeks
to invest venture capital in high technology firms, primarily those located in
Israel, and engages in other investment activities. The ComSor fund has a $25
million dollar capital commitment each from CTI Capital and a subsidiary of
Soros Fund Management. Comverse also engages in direct strategic and capital
management investment activities for its own account.
13
OPERATIONS IN ISRAEL
A substantial portion of the Company's research and development and
manufacturing operations are conducted at its wholly-owned subsidiary, Efrat
Future Technology Ltd. ("Efrat"), which is located in Israel and, accordingly,
may be affected by economic, political and military conditions in that country.
The Company's business is also dependent to some extent on trading relationships
between Israel and other countries. Certain of the Company's products
incorporate components imported into Israel from the United States and other
countries and most of the Company's products are sold outside of Israel.
Accordingly, the Company's operations would be adversely affected if major
hostilities involving Israel should occur or if trade between Israel and its
current trading partners were interrupted or curtailed. The Company benefits
from various policies of the Government of Israel, including reduced taxation
and special subsidy programs, designed to stimulate economic activity,
particularly high technology industry, in that country. As a condition of its
receipt of funds for various research and development projects conducted under
programs sponsored by the Government of Israel, the Company has agreed that
products resulting from these projects may not be manufactured, nor may the
technology developed in the projects be transferred, outside of Israel without
government consent.
Since the establishment of Israel in 1948, a state of hostility has
existed, varying in degree and intensity, between Israel and the Arab countries,
and Israel and countries doing business with Israel have been the subject of an
economic boycott by the Arab countries. Following the Six-Day War in 1967,
Israel commenced administering the territories of the West Bank and the Gaza
Strip and, since December 1987, increased civil unrest has existed in these
territories and resulted in acts of violence in other parts of Israel. Although
Israel has entered into various agreements with Arab countries and the Palestine
Liberation Organization ("PLO"), and various declarations have been signed in
connection with efforts to resolve some of the regional problems, no prediction
can be made as to whether a full resolution of these problems can be achieved or
as to the nature of any such resolution. To date, these problems have not had a
material adverse impact on the financial condition or operations of the Company,
although there can be no assurance that continuation of these problems will not
have such an impact in the future.
Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development, and the
International Finance Corporation, and is a signatory to the General Agreement
on Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada, and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.
Israel and the European Union are parties to a Free Trade Agreement
pursuant to which, subject to rules of origin, Israel's industrial exports to
the European Union are exempt from customs duties and other non-tariff barriers
and import restrictions. Israel also has an agreement with the United States to
establish a Free Trade Area ("FTA") which is intended ultimately to eliminate
all tariff and certain non-tariff barriers on most trade between the two
countries. Under the FTA agreement, most products received immediate duty-free
status in 1985, and all tariffs have since been eliminated. In 1993, Israel
14
entered into an agreement with the European Free Trade Association ("EFTA"),
which includes Austria, Norway, Finland, Switzerland, Iceland and Liechtenstein,
that established a free-trade zone between Israel and EFTA nations exempting
manufactured goods and some agricultural goods and processed foods from customs
duties, while reducing duties on other goods. Israel is the only country which
has free-trade area agreements with the United States as well as with the
European Union and EFTA states. The end of the Cold War has also enabled Israel
to establish commercial and trade relations with a number of nations, including
Russia, China and the nations of Eastern Europe, with whom Israel had not
previously had such relations.
Israel's economy has from time to time been subject to various
destabilizing factors, including a period of rampant inflation in the early to
mid-1980s, low foreign exchange reserves, fluctuations in world commodity
prices, military conflicts and civil unrest. For these and other reasons, the
Israeli Government has intervened in all sectors of the economy, employing,
among other means, fiscal and monetary policies, import duties, foreign currency
restrictions and controls of wages, prices and exchange rates. The Israeli
Government has frequently changed its policies in all these areas. For the
calendar years 1993 through 1997, the annual rates of inflation were
approximately 11%, 14%, 8%, 11% and 7%, respectively. This inflation, and the
associated increases in salaries that are linked by Israeli law to increases in
the consumer price index, have increased the cost of the Company's operations in
Israel, and salary costs have further increased as a result of the growing
competition for qualified scientific, engineering and technical personnel in
Israel. The increase in costs in recent periods has not been offset by
proportional devaluation of the Israeli shekel against the U.S. dollar, and
accordingly has had a negative impact on the Company's overall results of
operations.
The results of operations of the Company have been favorably affected
by Efrat's participation in Israeli Government programs related to research and
development, as well as its utilization of certain tax incentives and other
incentives available under applicable Israeli laws and regulations, some of
which have been reduced, discontinued or otherwise modified in recent years. In
addition, the Company's ability to obtain benefits under various discretionary
funding programs has declined and may continue to decline as its internal
financial and operational resources increase relative to other applicants. The
results of operations of the Company could be adversely affected if these
programs were further reduced or eliminated and not replaced with equivalent
programs or if Efrat's ability to participate in these programs were to be
reduced significantly.
EMPLOYEES
At December 31, 1997, the Company employed 2,827 individuals,
approximately 76% of whom are scientists, engineers and technicians engaged in
research and development, marketing and support activities.
15
The Company is not a party to any collective bargaining or other
agreement with any labor organization; however, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordinating Bureau of Economic Organizations
(including the Industrialists' Association) are applicable to the Company's
Israeli employees by order of the Israeli Ministry of Labor. Israeli law
generally requires the payment by employers of severance pay upon the death of
an employee, his retirement or upon termination of his employment, and the
Company provides for such payment obligations through monthly contributions to
an insurance fund. Israeli employees and employers are required to pay
pre-determined sums to the National Insurance Institute, which payment covers
medical and other benefits similar to the benefits provided by the United States
Social Security Administration.
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 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, and cash bonuses based on several
parameters, including the profitability of their respective business units.
ITEM 2. PROPERTIES.
As of December 31, 1997, the Company, excluding Boston, leased an
aggregate of approximately 548,000 square feet of space for its operations
worldwide, including approximately 414,000 square feet in Tel Aviv, Israel,
approximately 46,000 square feet in Woodbury, New York, approximately 31,000
square feet in Mt. Laurel, New Jersey, approximately 22,000 square feet in
Irvine, California, and an aggregate of approximately 35,000 square feet at
various other locations in the United States, Israel, Western Europe, the Far
East and Australia. The aggregate base monthly rent for the facilities under
lease at December 31, 1997 was approximately $604,000, and all of such leases
are subject to various pass-throughs and escalation adjustments.
In March 1998, the Company entered into a lease for approximately
93,500 square feet in Tel Aviv, Israel to increase the capacity of its Israeli
operations. The monthly base rent for the new premises starts at approximately
$103,000.
The Company believes that its facilities currently under lease are
adequate for its current operations, and that additional facilities are
available on competitive market terms to provide for such future expansion of
the Company's operations as may be warranted.
16
ITEM 3. LEGAL PROCEEDINGS.
On November 16, 1995, a purported class action was filed in the United
States District Court for the Eastern District of Pennsylvania against Boston
and certain of its officers. Two similar complaints were filed on November 20,
1995 and November 21, 1995. The plaintiffs alleged violations of the Securities
Exchange Act of 1934. On February 15, 1996, the Court consolidated the three
cases into one captioned In re Boston Technology, Inc., Securities Litigation.
On November 13, 1996, Boston was allowed to transfer the consolidated action to
the United States District Court for the District of Massachusetts. On February
5, 1998, the Court issued an order granting the defendants' motion to dismiss
the Amended Complaint. No final judgment has been entered in the case. The
Company has received no information regarding any plans the plaintiffs may have
to ask the Court to reconsider its order, attempt to re-plead their claims, or
appeal from any judgment that might be entered. However, if any of these actions
are taken by the plaintiffs, the Company and the other defendants intend to
contest these actions vigorously.
On or about March 11, 1997, a complaint was filed in the Fourteenth
Judicial District Court of Dallas County, Case No. 9702187, by Syntellect
Technology Corporation ("Syntellect"). The complaint alleges, among other
things, breach of contract by Boston in failing or refusing to pay certain
royalties allegedly due under the Patent License Agreement between Boston and
Syntellect's predecessor, Dytel Corporation (the "License Agreement").
Syntellect claims that the License Agreement required Boston to pay royalties on
sales of its software and hardware products. On February 10, 1998, the Court
granted the Company partial summary judgment, holding that the License Agreement
requires payment of royalties on software products only, and not on hardware
sales. Discovery on the remaining claims continues, and a trial is scheduled for
the summer of 1998. The Company is currently engaged in negotiations with
Syntellect for the settlement of the litigation and the license by the Company
of a number of patents for which Syntellect holds licensing rights. Should such
negotiations not result in the settlement of the action, the Company intends to
contest Syntellect's claims vigorously.
On February 2, 1998, Computel Computadores e Telecommunicacoes S.A.
("Computel") filed a Request for Arbitration with the International Chamber of
Commerce ("ICC") in Paris, France, claiming breaches by Boston and its
wholly-owned subsidiary, Boston Technology Investments, Inc., in respect of
agreements with Computel and its affiliates for the distribution of Boston's
systems in Brazil. Computel claims, among other things, that the defendants have
breached their obligations to Computel by engaging in the Merger and thereby
competing with the joint venture established by the parties in connection with
such distribution activities, by delivering equipment that did not conform to
specification, by failing to support this equipment and by "fraudulently
inducing" Computel to terminate the agreement that established the joint venture
without advising it of the possibility of the Merger. In its prayer for relief,
Computel alleges damages in excess of US $50 million as a result of lost
business opportunities, injury to its business reputation, investment losses and
losses due to currency devaluation. On March 10, 1998, the Company commenced an
action against Computel and an affiliate in the Middlesex Superior Court of
Massachusetts (Civil Action No. 98-1155) seeking declaratory judgments as to
17
arbitrability and the continuing validity of the Purchase and Sale Agreement
between the parties, Computel's specific performance of such agreement and
injunctions to prevent Computel from proceeding with the ICC arbitration. The
Company also seeks damages in excess of $3,767,500 as a result of Computel's
failure to pay monies owed under the Purchase and Sale Agreement, as well as
costs and attorneys' fees. The Company has also filed a Demand for Arbitration
with the American Arbitration Association in Boston, Massachusetts, against
Computel and certain of its affiliates claiming breach of a Distribution
Agreement between the parties and unfair and deceptive trade practices. The
Company seeks to recover damages in excess of $12,000,000, plus interest, for
systems shipped to respondents, and additional damages for respondents'
repudiation and anticipatory breach of contract and unfair and deceptive trade
practices. The Company intends to vigorously contest Computel's claims and
assert its claims against Computel and its affiliates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1997 Annual Meeting of Shareholders of Comverse, held on January 13,
1998, the following matters, in addition to the reelection of the incumbent
Board of Directors, were approved by the shareholders with the votes indicated:
Number of Shares
Abstentions and
Voted For Voted Against Broker Non-Votes
1. Adoption of the Agreement and Plan
of Merger providing for the Merger
and related actions. 19,518,465 55,052 4,023,159
2. Ratification of the appointment of
Deloitte & Touche LLP as Comverse's
independent auditors for the fiscal year
ending December 31, 1997. 23,419,355 17,998 75,567
3. Approval of Comverse's 1997 Stock
Incentive Compensation Plan under
which up to 2.5 million shares of
Common Stock may be issued as
equity-based compensation to Company
employees and directors. 11,585,060 7,902,484 4,025,376
4. Approval of Comverse's 1997 Employee
Stock Purchase Plan under which up to
250,000 shares of Common Stock may be
issued for purchase by employees of the
Company. 19,391,347 175,745 3,945,828
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Common Stock trades on the NASDAQ National Market System under
the symbol CMVT. The following table sets forth the range of closing prices of
the Common Stock as reported on NASDAQ for the past three calendar years and for
the first calendar quarter of 1998, through March 24, 1998.
YEAR CALENDAR QUARTER LOW HIGH
1995 First Quarter $ 11 $ 14-5/8
Second Quarter $ 13-1/4 $ 18-1/4
Third Quarter $ 17-9/64 $ 23-3/8
Fourth Quarter $ 19-15/16 $ 25-11/16
1996 First Quarter $ 16-5/8 $ 25-1/8
Second Quarter $ 23-3/8 $ 30-1/2
Third Quarter $ 23-3/4 $ 41-3/8
Fourth Quarter $ 32-9/16 $ 38-1/8
1997 First Quarter $ 36-7/8 $ 46-3/8
Second Quarter $ 36-1/2 $ 52
Third Quarter $ 45-15/16 $ 53-1/16
Fourth Quarter $ 32-5/16 $ 54-3/16
1998 First Quarter
(through March 24, 1998) $ 30-5/8 $ 47-3/4
There were 3,005 holders of record of Common Stock at March 24, 1998.
Such record holders include a number of holders who are nominees for an
undetermined number of beneficial owners; the Company believes that the number
of beneficial owners of the shares of Common Stock outstanding at such date was
approximately 40,000.
The Company has not declared or paid any cash dividends on its equity
securities and does not expect to pay any cash dividends in the foreseeable
future, but rather intends to retain its earnings to finance the development and
growth of the Company's business. Any future determination as to the declaration
and payment of dividends will be made by the Board of Directors in its
discretion, and will depend upon the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
19
ITEM 6. SELECTED FINANCIAL DATA.
The following tables present selected consolidated financial data for
the Company for each of the years in the five years ended December 31, 1997.
Such information has been derived from the Company's audited consolidated
financial statements and should be read in conjunction with the Company's
consolidated financial statements and the notes to the consolidated financial
statements included elsewhere in this report. All financial information
presented herein for periods prior to the 1995 acquisition of DGM&S has been
retroactively adjusted to account for that transaction as a pooling of
interests.
Year Ended December 31,
----------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997
(In thousands, except per share data)
Statement of Operations Data:
Revenues:
Sales $ 81,388 $ 108,150 $ 137,149 $ 197,181 $ 280,281
Interest and other income 3,203 6,162 8,747 10,130 16,209
---------- ---------- ---------- ---------- ---------
Total revenues 84,591 114,312 145,896 207,311 296,490
Costs and Expenses:
Cost of sales 35,125 47,715 59,297 84,319 118,857
Selling, general and administrative 23,468 33,681 41,388 53,347 74,064
Research and development, net 8,161 12,640 19,426 27,441 38,659
Interest expense and other 1,057 3,947 4,406 7,063 9,769
Royalties and license fees 1,911 2,186 2,419 4,365 6,865
Total costs and expenses 70,105 100,431 126,789 176,500 248,175
Income before income tax provision and
extraordinary item 14,486 13,881 19,107 31,346 48,315
Income tax provision 1,021 1,783 2,057 3,358 4,815
---------- ---------- ---------- ---------- ---------
Net income $ 13,465 $ 12,098 $ 17,050 $ 27,988 $ 43,500
========== ========== ========== ========== =========
Earnings per share -diluted $ 0.65 $ 0.55 $ 0.75 $ 1.16 $ 1.61
========== ========== ========== ========== =========
Weighted average number of common
and common equivalent shares outstanding 20,756 21,868 22,602 26,447 27,099
December 31,
----------------------------------------------------------------
1993(2) 1994 1995 1996 1997
(In thousands)
Balance Sheet Data:
Working capital $ 138,149 $ 141,344 $ 155,064 $ 292,249 $ 330,303
Total assets 174,468 192,502 221,454 390,901 457,563
Long-term debt, including current portion 63,232 62,810 61,086 115,605 115,630
Stockholders' equity 91,608 101,613 121,766 212,058 261,482
(1) Includes results for DGM&S for its fiscal year ended September 30.
(2) Includes amounts for DGM&S as of its fiscal year ended September 30.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve a
number of risks and uncertainties, including without limitation information
regarding competition and future trends in the industries in which the Company
competes, the Company's future revenues and expenses, and the Company's plans,
strategies and expectations for its business. There are a number of factors that
could cause the Company's actual results and business plans to differ materially
from those forecasted or projected in such forward-looking statements. These
factors include, without limitation, those set forth below under the caption
"Certain Trends and Uncertainties". Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligations to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations covers the operating results of Comverse and its consolidated
subsidiaries for the fiscal years included in the foregoing selected financial
data. The operating results of Boston are not included. In connection with the
Merger, the fiscal year of the Company has been changed from the calendar year
to the fiscal year ending January 31, corresponding to Boston's fiscal year. The
Company is recognizing substantial charges relating to the Merger and the
resulting combination of the two companies, effective upon the consummation of
the Merger in January 1998. Sales in the January, 1998 one-month transition
period (including Boston) were approximately $14,401,000, with a net loss of
approximately $115,207,000.
Comparison of 1996 and 1997 Operations
Total Revenues. Total revenues increased from 1996 to 1997 by
approximately $89,179,000 (43%). The increase is attributable primarily to a
higher volume of sales of systems and parts. Sales increased from 1996 to 1997
by approximately $83,100,000 (42%), primarily resulting from increased sales in
the TRILOGUE product line. Interest and other income increased from 1996 to 1997
by approximately $6,079,000 (60%), resulting primarily from increased interest
and dividend income, the investment of funds generated through the issuance of
convertible subordinated debentures in October 1996, and realized gains on sales
of investments.
Cost of Sales. Cost of sales increased by approximately $34,538,000
(41%) from 1996 to 1997 primarily as a result of the increase in sales. Gross
margins increased from approximately 57.2% in 1996 to approximately 57.6% in
1997.
21
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from 1996 to 1997 by approximately $20,717,000
(39%) and as a percentage of total revenues decreased from approximately 26% in
1996 to approximately 25% in 1997. The increased amount was a result of
increased sales, marketing and administrative activities associated with the
overall growth of the Company's operations, and particularly with the expansion
of direct sales and marketing activities.
Research and Development Expenses. Net research and development
expenses during 1997 increased by approximately $11,218,000 (41%) over 1996 due
to overall growth of research and development operations, the initiation of
significant new research and development projects and increases in salaries and
other costs associated with research and development operations in Israel.
Royalties and License Fees. Royalties and license fees increased from
1996 to 1997 by approximately $2,500,000 (57%) due primarily to growth in sales
of royalty-bearing products. Royalties and license fees as a percentage of total
sales increased from approximately 2.2% in 1996 to approximately 2.4% in 1997,
reflecting an increase in the royalty rate payable to a funding agency that
became effective in 1996.
Income Tax Provision. Provision for income taxes increased from 1996 to
1997 by approximately $1,457,000 (43%), while the Company's overall effective
tax rate decreased from approximately 10.7% during 1996 to approximately 10.0%
in 1997. The Company's overall rate of tax is reduced significantly by the tax
benefits associated with qualified activities of one of its Israeli
subsidiaries, which is entitled to favorable income tax rates under a program of
the Israeli Government for "Approved Enterprise" investments in that country.
Net Income. Net income after taxes increased from approximately
$27,988,000 in 1996 to approximately $43,500,000 in 1997, an increase of
approximately $15,512,000 (55%), while net income after taxes as a percentage of
total revenues increased from approximately 13.5% in 1996 to approximately 14.7%
in 1997. The increases resulted primarily from the factors described above.
Comparison of 1995 and 1996 Operations
Total Revenues. Total revenues increased from 1995 to 1996 by
approximately $61,415,000 (42%). The increase is attributable primarily to a
higher volume of sales of systems and parts. Sales increased from 1995 to 1996
by approximately $60,032,000 (44%), primarily resulting from increased sales in
the TRILOGUE product line. Interest and other income increased from 1995 to 1996
by approximately $1,383,000 (16%), resulting primarily from increased interest
and dividend income, the investment of funds generated through the issuance of
convertible subordinated debentures in October 1996, and realized gains on sales
of short-term investments.
22
Cost of Sales. Cost of sales increased by approximately $25,022,000
(42%) from 1995 to 1996 primarily as a result of the increase in sales. Gross
margins increased from approximately 56.8% in 1995 to approximately 57.2% in
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from 1995 to 1996 by approximately $11,959,000
(29%) and as a percentage of total revenues decreased from approximately 28% in
1995 to approximately 26% in 1996. The increased amount was a result of
increased sales, marketing and administrative activities associated with the
overall growth of the Company's operations, and particularly with the expansion
of direct sales and marketing activities.
Research and Development Expenses. Net research and development
expenses during 1996 increased by approximately $8,015,000 (41%) over 1995 due
to overall growth of research and development operations, the initiation of
significant new research and development projects and increases in salaries and
other costs associated with research and development operations in Israel.
Royalties and License Fees. Royalties and license fees increased from
1995 to 1996 by approximately $1,946,000 (80%) due primarily to growth in sales
of royalty-bearing products. Royalties and license fees as a percentage of total
sales increased from approximately 1.8% in 1995 to approximately 2.2% in 1996,
reflecting an increase in the royalty rate payable to a funding agency that
became effective in 1996.
Income Tax Provision. Provision for income taxes increased from 1995 to
1996 by approximately $1,301,000 (63%), while the Company's overall effective
tax rate decreased from approximately 10.8% during 1995 to approximately 10.7%
in 1996. The Company's overall rate of tax is reduced significantly by the tax
benefits associated with qualified activities of one of its Israeli
subsidiaries, which is entitled to favorable income tax rates under a program of
the Israeli Government for "Approved Enterprise" investments in that country.
Net Income. Net income after taxes increased from approximately
$17,050,000 in 1995 to approximately $27,988,000 in 1996, an increase of
approximately $10,938,000 (64%), while net income after taxes as a percentage of
total revenues increased from approximately 11.7% in 1995 to approximately 13.5%
in 1996. The increases resulted primarily from the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had cash and cash equivalents of
approximately $173,531,000, bank time deposits of approximately $40,700,000,
short-term investments of approximately $60,787,000 and working capital of
approximately $330,303,000. The Company believes that its existing working
capital, together with funds generated from operations, will be sufficient to
provide for its planned operations at least through December 31, 1998.
23
The Company regularly examines opportunities for strategic
acquisitions of other companies or lines of business, and anticipates that it
may from time to time issue additional debt and/or equity securities either as
direct consideration for such acquisitions or to raise additional funds to be
used (in whole or in part) in payment for acquired securities or assets. The
issuance of such securities can be expected to have a dilutive impact on the
Company's shareholders, and there can be no assurance as to whether or when any
acquired business would contribute positive operating results commensurate with
the associated acquisition cost.
The Company's liquidity and capital resources have not been, and
are not anticipated to be, materially affected by restrictions pertaining to the
ability of its subsidiaries in Israel to pay dividends or by withholding taxes
associated with any such dividend payments. Cash dividends paid by an Israeli
corporation to United States residents are subject to withholding of Israeli
income tax at source at rates of up to 25%, depending on the particular
facilities that have generated the earnings that are the source of the
dividends.
YEAR 2000
The Company has taken actions to understand the nature and extent of
the work required to make its systems, products and infrastructure Year 2000
compliant and has begun work to prepare its products and its financial,
information and other computer-based systems for the Year 2000, including
replacing and/or updating existing legacy systems. The Company continues to
evaluate the estimated costs associated with these efforts. While these efforts
will involve additional costs, the Company believes, based on available
information, that it will be able to manage its total Year 2000 transition
without any material adverse effect on its business operations, products or
financial prospects.
CERTAIN TRENDS AND UNCERTAINTIES
The Company has benefited from the growth in its business and capital
base over the past three years to make significant new investment in its
operations and infrastructure intended to enhance its opportunities for future
growth and profitability. The Company's results of operations reflect the
significant increase in its investment in operations over the past three years.
The Company intends to continue during 1998 to make significant investments in
the growth of its business, and to examine opportunities for additional growth
through acquisitions and strategic investments. The impact of these decisions on
future profitability cannot be predicted with assurance, and the Company's
commitment to growth may increase its vulnerability to unforeseen downturns in
its markets, technology changes and shifts in competitive conditions. However,
the Company believes that significant opportunities exist in the markets for
each of its main product lines, and that continued strong investment in its
technical, product development, marketing and sales capabilities will enhance
its opportunities for long term growth and profitability.
24
The Merger involves the integration of two companies that have
previously operated independently. The combination of two sizable
technology-based companies involves significant complexities, and no assurance
can be given that the combined Company will be able to integrate the operations
of Boston into the Company without encountering difficulties or experiencing the
loss of key Comverse or Boston personnel or that the benefits expected from such
integration will be realized. The integration of two companies across
geographically dispersed operations can create the risk of disruption in
operations of the combined company, and neither company's management has
substantial experience in managing such integration or the operations of an
entity the size of the combined Company. The Company does not expect to realize
cost savings in the near future as a result of the Merger, and no assurance can
be given that any savings can be achieved in future periods. Furthermore, there
can be no certainty that the Merger will not adversely affect the relationships
with key customers or key vendors of either company. As a result of its
significantly greater concentration on a small number of large telephone company
customers, Boston's business has historically been considerably more volatile
than that of Comverse, and the operations of the combined Company are likely to
be less predictable and subject to greater risks from actions of individual
customers than the operations of Comverse in recent years.
The telecommunications industry is subject to rapid technological
change. The Company's revenue stream will depend on its ability to enhance its
existing products and to introduce new products on a timely and cost-effective
basis. This includes any customer-requested custom software enhancements
required in the normal course of product delivery and customer demands for the
technological convergence of the Company's products. The Company's products
involve sophisticated hardware and software technology that performs critical
functions to highly demanding standards. There can be no assurance the Company's
current or future products will not develop operational problems, which could
have a material adverse effect on the Company. In addition, if the Company were
to delay the introduction of new products, or to delay the delivery of specific
custom software enhancements, the Company's operating results could be adversely
affected. The Company sells a majority of its products to companies in the
telecommunications industry. This industry is undergoing significant change as a
result of deregulation and privatization worldwide, reducing restrictions on
competition in the industry. Unforeseen changes in the regulatory environment
may have an impact on the Company's revenues and/or costs in any given part of
the world. The worldwide enhanced services systems industry is already highly
competitive and the Company expects competition to intensify. The Company
believes that existing competitors will continue to present substantial
competition, and that other companies, many with considerably greater financial,
marketing and sales resources than the Company, may enter the enhanced services
systems markets. The 1997 acquisition of Octel Communications Corporation, a
significant competitor of the Company, by Lucent Technologies, Inc. may
intensify the competitive environment in the industry, and there can be no
assurance that similar business combinations or industry consolidation will not
occur in the future.
25
The enhanced services platforms 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. Significant changes in the industry make planning decisions more
difficult and increase 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 environment
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,
cancellation or reduction of planned projects. The continuing delay and
uncertainties surrounding the Communications Assistance for Law Enforcement Act
("CALEA") have had a significant impact on acquisition plans of law enforcement
agencies in North America engaged in monitoring activities, and no assurances
can be given as to the timing or ultimate content of the proposed legislation.
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. In
addition, a number of established government contractors, particularly
developers and integrators of technology products, have taken steps 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.
The Company has historically derived a significant portion of its sales
and operating profit from a relatively small number of contracts for large
system installations with major customers. Boston's operating results, in
particular, have often been characterized by volatility and lack of
predictability, reflecting its traditional customer concentration among major
telecommunications services providers such as the Regional Bell Operating
Companies. The Company 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. The Company believes that opportunities for large installations will
continue to grow in both its commercial and government markets, and intends to
continue to expand its research and development, manufacturing, sales and
marketing and product support capabilities in anticipation of such growth.
However, 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 other companies in its industries that have adopted
different strategies, and than the Company has experienced in prior periods.
Although the Company is actively pursuing a number of significant procurement
opportunities in the United States and internationally, both the timing of any
eventual procurements and the probability of the Company's receipt of
significant contract awards are uncertain. 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.
26
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 further increase
these expenditures in the foreseeable future. The increase in research and
development expenditures reflects the Company's concentration on enhancing the
range of features and capabilities of its existing product lines and developing
new generations of its products. The Company believes that these efforts are
essential for the continuing competitiveness of its product offerings and for
positioning itself to participate in future growth opportunities in both the
commercial and government sectors. The increase in sales and marketing
expenditures primarily results from the Company's decision to expand its
activities and direct presence in a growing number of world markets. The
Company's costs of operations have also been affected by increases in the cost
of its operations in Israel, resulting both from general inflation 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 technology-based industries in that country. The
increase in these costs in recent periods has not been offset by proportional
devaluation of the Israeli shekel against the United States dollar, and
accordingly has had a negative impact on the Company's overall results of
operations. Continuation of such trends may have a material adverse effect on
the Company's future results of operations.
A significant portion of the Company's research and development and
manufacturing operations are located in 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. Recently, the government acted to
increase, from between 2% and 3% of associated product sales to 3% of associated
product revenues (including service and other related revenues), the annual rate
of royalties to be applied to repayment of benefits under the conditional grant
program administered by the Office of the Chief Scientist of the Ministry of
Industry and Trade, a program in which the Company has regularly participated
and under which it continues to receive significant benefits through
reimbursement of qualified research and development expenditures. The Company's
repayment of amounts received under the program will be accelerated through
these higher royalty rates until repayment is completed. In addition, permission
from the government of Israel is required for the Company to manufacture outside
of Israel products resulting from research and development activities funded
under such programs, or to transfer outside of Israel related technology rights,
and in order to obtain such permission the Company may be required to increase
the royalties to the applicable funding agencies
27
and/or repay certain amounts received as reimbursement of research and
development costs. The Company expects to incur additional royalty expenses
and/or repayment obligations as a result of the Merger and the location of
certain manufacturing and research and development operations pertaining to its
TRILOGUE product line at its Boston facilities. The Israeli authorities have
also indicated that this funding program will be further reduced in the future,
particularly for larger entities such as the Company. 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 has not affected
the tax status of most 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 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 Israel, which will result from the
Merger and possible future acquisitions, such increased activities will not be
eligible for programs sponsored by Israel. The Company's research and
development and manufacturing operations attributable to Boston are expected to
continue to be located in the United States and thus will not be eligible for
the benefits of those programs. Accordingly, the effective cost to the Company
of its future research and development activities in particular, and its
operations in general, could significantly increase relative to that of
Comverse, historically.
The Company currently derives a significant portion of its total 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. Volatility in
international currency exchange rates may have a significant impact on the
Company's operating results. The Company has, and anticipates that it will
continue to receive, significant contracts denominated in foreign (primarily
Western European and Japanese) currencies. As a result of the unpredictable
timing of purchase orders and payments under such contracts and other factors,
it is often not practicable for the Company to effectively hedge the risk of
significant changes in currency rates during the contract period. Since the
Company will hedge 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.
While the Company believes that prevailing economic conditions in
the Far East and Southeast Asia have reduced the demand for its systems in
certain countries, overall sales in the region have increased over the past 12
months. The Company cannot currently predict the effect on its business should
regional economic conditions fail to improve.
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. Share prices of companies in
technology and government contracting businesses, and particularly smaller and
medium-sized publicly traded companies such as the Company, tend to
28
exhibit a high degree of volatility. The Company's revenues and earnings may be
more volatile than that of Comverse historically as a result of the greater
concentration of Boston's business on a limited number of large customers.
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. These factors 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included elsewhere in
this report.
See Part IV, Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Part III is omitted pursuant to instruction
G(3).
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
Page(s)
-------
(a) Documents filed as part of this report.
--- ---------------------------------------
(1) Financial Statements.
--- ---------------------
Index to Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets -
December 31, 1996 and 1997 F-3
Consolidated Statements of Income -
Years ended December 31,
1995, 1996 and 1997 F-4
Consolidated Statements of Stockholders' Equity -
Years ended December 31,
1995, 1996 and 1997 F-5
Consolidated Statements of Cash Flows -
Years ended December 31,
1994, 1995 and 1996 F-7
Notes to Consolidated Financial Statements F-8
(2) Financial Statement Schedules.
--- ------------------------------
None
(3) Exhibits.
--- ---------
The Index of Exhibits commences on the following
page. Exhibits numbered 10.3 through 10.8, 10.13
through 10.16 and 10.24 through 10.30 comprise
material compensatory plans and arrangements of the
registrant.
- 30 -
EXHIBITS
No. Description
2.1* Agreement and Plan of Merger dated as of August 20, 1997, between
Registrant and Boston Technology, Inc. (Incorporated by reference to
the Definitive Proxy Materials for the Registrant's Annual Meeting of
Stockholders held January 13, 1998.)
3 Articles of Incorporation and By-Laws:
3.1* Certificate of Incorporation. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1987.)
3.2* Certificate of Amendment of Certificate of Incorporation
effective February 26, 1993. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1992.)
3.3* Certificate of Amendment of Certificate of Incorporation
effective January 12, 1995. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1994.)
3.4* By-Laws, as amended. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1987.)
4 Instruments defining the rights of security holders including indentures:
4.1* Excerpts from Certificate of Incorporation. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-1 under the Securities Exchange Act of 1933, Registration
No. 33-9147.)
4.2* Excerpt from Certificate of Amendment of Certificate of
Incorporation effective February 26, 1993. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1992.)
4.3* Excerpt from Certificate of Amendment of Certificate of
Incorporation effective January 12, 1995. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1994.)
4.4* Excerpts from By-Laws, as amended. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1992.)
4.5* Specimen stock certificate. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1992.)
- 31 -
4.6* Indenture dated as of October 4, 1996 from Comverse
Technology, Inc. to The Chase Manhattan Bank, N.A., Trustee.
(Incorporated by reference to the Registrant's Current
Report on Form 8-K under the Securities Exchange Act of 1934
filed October 10, 1996.)
4.7* Specimen 5 3/4% Convertible Subordinated Debenture due 2006.
(Incorporated by reference to the Registrant's Current
Report on Form 8-K under the Securities Exchange Act of 1934
filed October 10, 1996.)
10 Material contracts:
10.1* Proxy Agreement dated as of September 5, 1991 by and among
Comverse Government Systems Corporation, James R. Allen,
Robert W. Bazley, Robert T. Marsh and Comverse Technology,
Inc. (Incorporated by reference to the Registrant's Annual
Report on Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1991.)
10.2* Visitation Approval Procedure Agreement dated as of
September 5, 1991 by and among Comverse Government Systems
Corporation, James R. Allen, Robert W. Bazley, Robert T.
Marsh and Comverse Technology, Inc. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1991.)
10.3* Form of Stock Option Agreement pertaining to shares of
certain subsidiaries of Comverse Technology, Inc.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1993.)
10.4* Employment Agreement effective as of July 1, 1994 by and
between Comverse Technology, Inc. and Kobi Alexander.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1994.)
10.5* 1994 Stock Option Plan. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1994.)
10.6* 1995 Stock Option Plan. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1995.)
- 32 -
10.7* 1996 Stock Option Plan. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1996.)
10.8* Form of Incentive Stock Option Agreement. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-1 under the Securities Act of 1933, Registration No.
33-9147.)
10.9* Deed of Guarantee from Comverse Technology, Inc. to Bank
Hapoalim B.M. dated July 30, 1986. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-1 under the Securities Act of 1933, Registration No.
33-9147.)
10.10* Continuing Guarantee from Comverse Technology, Inc. to Bank
Leumi le-Israel B.M. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1 under the
Securities Act of 1933, Registration No. 33-9147.)
10.11* Patent License Agreement by and between Efrat Future
Technology Ltd. and VMX, Inc. (Incorporated by reference to
the Registrant's Registration Statement on Form S-1 under
the Securities Act of 1933, Registration No. 33-9147.)
10.12* Form of Indemnity Agreement between Comverse Technology,
Inc. and its Officers and Directors. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1987.)
10.13* 1987 Stock Option Plan, as amended. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
December 31, 1987.)
10.14* Form of Stock Option Agreement for options other than
Incentive Stock Options. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1987.)
10.15* 1997 Employee Stock Purchase Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Stockholders held January 13,
1998.)
10.16* 1997 Stock Incentive Compensation Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Stockholders held January 13,
1998.)
10.17* Memorandum of Agreement dated November 22, 1995 between
Boston Technology, Inc. and AT&T. (Incorporated by reference
to the Annual Report of Boston Technology, Inc. on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
January 31, 1996, confidential treatment requested as to
certain portions.)
- 33 -
10.18* Lease dated November 5, 1990 between Boston Technology, Inc.
and Wakefield Park Limited Partnership. (Incorporated by
reference to the Annual Report of Boston Technology, Inc. on
Form 10-K under the Securities Exchange Act of 1934 for the
year ended January 31, 1991.)
10.19* First Amendment dated as of March 31, 1993 to Lease dated
November 5, 1990 between Boston Technology, Inc. and
Wakefield Park Limited Partnership. (Incorporated by
reference to the Quarterly Report of Boston Technology, Inc.
on Form 10-Q under the Securities Exchange Act of 1934 for
the quarter ended October 31, 1993.)
10.20* Second Amendment dated as of August 31, 1994 to Lease dated
November 5, 1990 between Boston Technology, Inc. and
Wakefield Park Limited Partnership. (Incorporated by
reference to the Annual Report of Boston Technology, Inc. on
Form 10-K under the Securities Exchange Act of 1934 for the
year ended January 31, 1995.)
10.21* License Agreement dated November 15, 1988 between Boston
Technology, Inc. and VMX, Inc. (Incorporated by reference to
the Registration Statement of Boston Technology, Inc. on
Form S-1 under the Securities Act of 1933, Registration No.
33-32134.)
10.22* License Agreement dated January 22, 1990 between Boston
Technology, Inc. and Dytel Corporation. (Incorporated by
reference to the Annual Report of Boston Technology, Inc. on
Form 10-K under the Securities Exchange Act of 1934 for the
year ended January 31, 1990.)
10.23* Settlement Agreement dated December 28, 1993 between the
Boston Technology, Inc. and Theis Research, Inc. and Peter
F. Theis. (Incorporated by reference to the Annual Report of
Boston Technology, Inc. on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 1994.)
10.24* Boston Technology, Inc. 1995 Director Stock Option Plan.
(Incorporated by reference to the Quarterly Report of Boston
Technology, Inc. on Form 10-Q under the Securities Exchange
Act of 1934 for the quarter ended July 31, 1995.)
10.25* Boston Technology, Inc. 1992 Directors' Stock Option Plan,
as amended. (Incorporated by reference to the Annual Report
of Boston Technology, Inc. on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 1994.)
10.26* Boston Technology, Inc. 1994 Stock Incentive Plan.
(Incorporated by reference to the Annual Report of Boston
Technology, Inc. on Form 10-K under the Securities Exchange
Act of 1934 for the year ended January 31, 1994.)
- 34 -
10.27* Boston Technology, Inc. 1989 Incentive Stock Option Plan, as
amended. (Incorporated by reference to the Definitive Proxy
Materials for Boston Technology, Inc.'s Annual Meeting of
Stockholders held July 14, 1992.)
10.28* Boston Technology, Inc. Employee Savings and Profit Sharing
Plan. (Incorporated by reference to Registration Statement
of Boston Technology, Inc. on Form S-1 under the Securities
Act of 1933, Registration No. 33-32134.)
10.29* Boston Technology, Inc. Employee Severance Benefit Plan.
(Incorporated by reference to the Current Report of Boston
Technology, Inc. on Form 8-K under the Securities Exchange
Act of 1934 dated May 9, 1991.)
10.30* Boston Technology, Inc. 1996 Stock Incentive Plan.
(Incorporated by reference to the Definitive Proxy Materials
for Boston Technology, Inc.'s Annual Meeting of Stockholders
held June 25, 1996.)
10.31* Lease dated June 7, 1996 between Boston Technology, Inc. and
WBAM Limited Partner