Comverse Technology, Inc. (Re), 2011 CanLII 71613

Headnote

National Policy 11-203 Process for Relief in Multiple Jurisdictions – relief granted under subsection 74(1) of the Securities Act (Ontario) from the prospectus and registration requirements of the Act in connection with the distribution of securities by an issuer in settlement of outstanding litigation against that issuer – relief also granted from the resale restrictions relating to the resale of such securities, subject to certain conditions.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c.S.5, as am., s.74(1) National Instrument 45-102 Resale of Securities, subsection 2.6(3)

DATE: November 15, 2011

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION)

AND

IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF COMVERSE TECHNOLOGY, INC. (THE FILER)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that (i) the issuance, delivery and distribution by the Filer of shares of its common stock (Common Stock) to claimants (Canadian Claimants) to be made in the Jurisdiction and each of the Passport Jurisdictions (as defined below) (the Settlement Shares) pursuant to the settlement of certain class action litigation in the United States (as described below) be exempt from the prospectus requirement of the Legislation; and (ii) that the provisions of section 2.14 of National Instrument 45-102 Resale of Securities be available to the resale of these Settlement Shares (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application, and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Manitoba and Québec (the Passport Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a New York corporation, which maintains its principal executive office at 810 Seventh Avenue, New York, N.Y. 10019.

2. The Filer is a registrant under the United States Securities Exchange Act of 1934, as amended (the Exchange Act).

3. The Common Stock of the Filer is listed on the NASDAQ Global Select Market (the Exchange) under the symbol CMVT. As at October 28, 2011, there were 206,038,130 shares of Common Stock issued and outstanding.

4. The Filer is not in default of securities legislation in any jurisdiction.

5. The Filer is not a reporting issuer in any Canadian jurisdiction. Its Common Stock is not listed or quoted in any Canadian market.

6. On April 16, 2006, the first of five individual class actions was filed against the Filer and certain of its former officers and directors (the Defendants) alleging violations of Section 10(b) and 20(a) of the Exchange Act. These actions included: Caifa v. Comverse Technology, Inc., 06-CV-1825 (E.D.N.Y.); Gorman v. Comverse Technology, Inc., 06-CV-2738 (E.D.N.Y.); Nadel v. Comverse Technology, Inc., 06-cv-3190-RPP (S.D.N.Y.); Thomas v. Comverse Technology, Inc., 06-cv-3445- RPP (S.D.N.Y.); and Moore v. Comverse Technology, Inc., 06-cv-04418-RPP (S.D.N.Y.).

7. By Order dated August 24, 2006, the cases pending in the Southern District of New York were transferred to the United States District Court for the Eastern District of New York (the Court), and were consolidated into a single action captioned In re Comverse Technology, Inc. Securities Litigation, 06-1825 (NGG) (RER).

8. On March 2, 2007, the Court appointed Menorah Insurance Co. Ltd. and Mivtachim Pension Funds, Ltd. as lead plaintiff (Lead Plaintiff) in the consolidated class action, and Pomerantz Haudek Grossman & Gross LLP as lead counsel (Lead Counsel).

9. A “Consolidated Amended Complaint” (the Comverse Action) was filed on March 23, 2007, alleging violations of the federal securities laws. With respect to these claims, Lead Plaintiff asserted that the Defendants issued false and misleading statements in violation of Sections 10(b), 14(a), and 20(a) of the Exchange Act.

10. The named defendants were the Filer, certain of its former senior officers and directors and members of the Filer’s Audit Committee and Stock Option and Remuneration Committee.

11. A “Stipulation of Settlement” settling the Comverse Action was entered into by the Filer, Lead Plaintiff and the individual Defendants on December 16, 2009 (as amended, the Settlement). The Settlement was amended by the parties on June 19, 2010.

12. On June 23, 2010, the Court approved the Settlement requiring, among other things, the Defendants to make a series of payments totalling US$225,000,000 (Settlement Amount) to the “Settlement Fund”, of which US$165,000,000 was to be paid by the Filer. Attorney fees and expenses, notification costs, a compensatory award to the Lead Plaintiff, and claims administration costs will be paid out of the Settlement Amount. The Settlement Amount minus these fees, costs, expenses, and awards shall be distributed to the Class (as defined below). After giving effect to prior payments and before making certain adjustments provided for in the Settlement, the final amount payable by the Filer on or before November 15, 2011 is up to US$92,500,000.

13. The Court certified, for the purposes of the Settlement only, a class of all purchasers of the Common Stock (the Class) during the period from April 30, 2001 through January 29, 2008 (the Class Period), both dates inclusive, subject to certain exclusions.

14. In agreeing to settle the Comverse Action, the Defendants have denied and continue to deny, inter alia, that the Lead Plaintiff and the Class have suffered all damages alleged in the Comverse Action; that the price of the Filer’s securities was artificially inflated by reason of the alleged misrepresentations, omissions, or otherwise; and that the alleged harm suffered by the Lead Plaintiff and the Class, if any, were causally linked to the alleged misrepresentations or omissions in the Comverse Action. Nonetheless, the Defendants concluded that further litigation of the Comverse Action would be protracted, burdensome, and expensive, and that it is desirable to secure releases and that the action be fully and finally settled and terminated.

15. Each member of the Class received from Lead Counsel a notice in April 2010 which, among other things, informed the Class that each member of the Class had the right to request that they be excluded from the Class so as not to be bound by the outcome of the Comverse Action and so as to preserve their right to take action against the Defendant independently of the Comverse Action. On June 23, 2010, the Settlement was approved and in order to receive payment from the Settlement Amount, a Class member had to submit a proof of claim form in order to be entitled to their share of the Settlement Amount.

16. There were approximately 12,000 individual claimants from 30 different countries, including approximately 2,646 individual claimants outside of the United States, that comprise the class of Authorized Claimants. Among the Authorized Claimants, only 22 Canadian Claimants provided an address located in the Jurisdictions and are entitled to receive Settlement Shares totalling approximately 13,000 shares.

Province	# of Authorized Claimants by Jurisdiction	Settlement Shares
Ontario	14	7,264
British Columbia	1	12
Québec	6	5,716
Manitoba	1	12
Total:	22	13,004

17. The Settlement provided that US$82,500,000 of the Settlement Amount could be paid in Common Stock rather than in cash, at the election of the Filer, so long as the Common Stock is listed on a US national securities exchange at the time of such election and the Filer followed the Court approved notice procedure and the procedure for determining the number of shares of Common Stock to be issued. The Filer availed itself of this election with respect to the final payment due November 15, 2011 and delivered the requisite notice to the Class pursuant to the process outlined in the Settlement on October 21, 2011. In total, 12,462,236 shares of Common Stock will be issued to Authorized Claimants in approximately 30 different countries, including Canada, at the election of the Filer, in satisfaction of the Settlement Amount, representing approximately 6% of the current outstanding Common Stock of such shares, approximately 0.10% will be issued to Canadian Claimants, which represents approximately 0.006% of the Filer’s current outstanding Common Stock. The plan of allocation, which was formulated and administered by Lead Counsel and approved by the Court on June 23, 2010 as part of the Settlement, provides that, to the extent the Filer elects to pay any portion of the Settlement Amount in Settlement Shares, such shares will be allocated on a pro rata basis to each Class member that submitted a proof of claim by the applicable date (each an Authorized Claimant) as calculated by the administrator of the Settlement pursuant to the provisions of the Settlement. There is no provision in the plan of allocation to permit the Filer to pay cash in lieu of the Settlement Shares to Authorized Claimants in selected jurisdictions.

18. The Filer is relying on the exemption from the registration requirements under the US Securities Act of 1933, as amended (the US Securities Act), pursuant to the exemption contained in Section 3(a)(10) thereof, and the Court was informed of the Filer’s intention to rely on such exemption. Section 3(a)(10) provides a registration exemption from the US Securities Act for offers and sales of securities that are exchanged for securities, claims or property interests. The exemption requires, in relevant part, that a court must approve the fairness of the terms and conditions of the exchange to those to whom the securities are to be issued.

19. The Settlement required that the shares be listed on a US national securities exchange and shall not bear any legend restricting its transferability.

20. In the absence of the relief requested herein, the issuance, delivery and distribution of Settlement Shares in the Jurisdictions will be subject to the applicable prospectus requirements of the Legislation and no statutory prospectus exemptions are believed to be available under the Legislation to enable the Filer to distribute Settlement Shares to all Canadian Recipients in accordance with the terms and conditions of the Settlement. In addition, the resale of Settlement Shares will be subject to applicable resale rules.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted.

“Wes. M. Scott”

Ontario Securities Commission

“James D. Carnwath”

Ontario Securities Commission