803014--10/4/2010--COMVERSE_TECHNOLOGY

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{stock, price, share}

{debt, indebtedness, cash}

{control, financial, internal}

{system, service, information}

{product, candidate, development}

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Risks Concerning Special Committee Investigations, CTI s Efforts to Become Current in Its Periodic Reporting, CTI is in violation of a final judgment and court order that mandated that it become current in its periodic reporting obligations under the federal securities laws by February 8, 2010. After CTI becomes current in such periodic reporting obligations, it will also be in violation of such judgment and court order if, in the future, it does not file its periodic reports in a timely manner. Violations of the final judgment and court order may result in significant sanctions. CTI faces challenges in producing accurate financial statements and periodic reports as required on a timely basis. Changes to organization and processes Potential for future errors in the application of accounting rules and pronouncements. Potential inability to adapt to new interpretations of applicable accounting rules and pronouncements. CTI s dependence upon Verint, Ulticom and Starhome to provide CTI with necessary financial information in a timely manner. CTI s management has concluded that, as of January 31, 2009, CTI s disclosure controls and procedures were not effective resulting in CTI s inability to timely file its periodic reports under the federal securities laws due to material weaknesses in internal control over financial reporting. The SEC and the DOJ might pursue civil and/or criminal actions against CTI relating to certain alleged improper payments made by certain Comverse employees and sales agents in foreign jurisdictions in connection with the sale of certain products, which could subject it to significant civil and/or criminal penalties and other sanctions. Efforts by each of CTI and Verint Systems to become current in its periodic reporting obligations have required diversion of its management s attention from business operations, led to concerns on the part of customers, partners, investors and employees about the financial condition of CTI and Comverse and potential loss of business opportunities and resulted in the incurrence of substantial expenses. The staff of the SEC may review the periodic reports of CTI, Verint Systems and Ulticom, Inc. and may request amendments of financial information or other disclosures. If CTI ceases to maintain a majority ownership of Verint Systems outstanding equity securities, it may be required to no longer consolidate Verint s financial statements within its consolidated financial statements. In such event, the presentation of CTI s consolidated financial statements would be materially different from the presentation for the fiscal years covered by this Annual Report. Risks Related to our Businesses and our Industries The financial results disclosed in this Annual Report relate to the fiscal years ended on or before January 31, 2009 and do not reflect the material and adverse effect of certain subsequent events. Comverse and CTI are exposed to credit and liquidity risk. As a result of the decline in the global economy, information technology spending has been reduced, including for our subsidiaries products and services. The failure of CTI to be current in its periodic reporting obligations under the federal securities laws and the continuing negative effects of the global economic decline may materially and adversely affect CTI s ability to obtain new debt or equity financing or engage in business combinations. Adverse conditions in the telecommunications industry have harmed and may continue to harm Comverse s business, including its revenues, profitability and cash flows. Our subsidiaries operate in industries characterized by rapidly changing technology, and our success depends on our subsidiaries ability to enhance their existing products and develop and market new products. Our subsidiaries must often establish and demonstrate the benefits of new and innovative products to customers. Our subsidiaries are exposed to risks associated with the sale of large systems and large installations. Operating results are difficult to predict as a result of lengthy and variable sales cycles, focus on large customers and installations, short delivery windows required by customers, and high percentage of revenues typically generated late in the fiscal quarter. Our subsidiaries may incur significant costs to correct undetected defects, errors or operational problems in their complex products. Our subsidiaries depend on a limited number of suppliers and manufacturers for certain components and are exposed to the risk that these suppliers and manufacturers will not be able to fill their orders on a timely basis and at the specifications our subsidiaries require. Comverse s business can be seriously affected by changes in the competitive environment in the telecommunications industry worldwide. Comverse s compliance with telecommunications regulations and standards may be time consuming, difficult and costly. Recent limitations imposed by the Department of Telecommunications of the Government of India on the ability of Indian telecommunication service providers to purchase equipment and software from providers that are not Indian owned or controlled have substantially limited the ability of Comverse to conduct business in India. If these limitations persist, our revenue, profitability and cash flows will be materially adversely affected. Failure or delay by Comverse to achieve interoperability of its products with the systems of its customers could impair its ability to sell its products. Increased competition could force our subsidiaries to lower their prices or take other actions to differentiate their products. Many of our subsidiaries sales are made by competitive bid which often require them to expend significant resources with no guaranty of recoupment. If our subsidiaries are unable to maintain their relationships with value added resellers, systems integrators and other third parties that market and sell their products, our business and ability to grow could suffer. Third parties may infringe upon our subsidiaries proprietary technology and our subsidiaries may infringe on the intellectual property rights of others. Use of free or open source software could expose our subsidiaries products to unintended restrictions and could materially adversely affect our business. Certain contractual obligations could expose our subsidiaries to uncapped liabilities. We have pursued and may continue to pursue mergers and acquisitions and strategic investments that present risks and may not be successful. We are dependent upon hiring and retaining highly qualified employees. Verint incurred significant indebtedness in connection with its acquisition of Witness, which makes it highly leveraged, subjects it to restrictive covenants and could adversely affect its operations. Risks associated with being highly leveraged. Risks associated with Verint s leverage ratio and financial statement delivery covenants. Limitations resulting from the restrictive covenants in Verint s credit agreement. Verint is dependent on contracts with governments around the world for a significant portion of its revenue. These contracts also expose Verint to additional business risks and compliance obligations. Verint may not be able to receive or retain the necessary licenses or authorizations required for it to export some of the products that it develops or manufactures in specific countries. U.S. and foreign governments could refuse to buy Verint s Communications Intelligence solutions or could deactivate its security clearances in their countries thereby restricting or eliminating Verint s ability to sell these solutions in those countries and perhaps other countries influenced by such a decision. The mishandling or even the perception of mishandling of sensitive information could harm Verint s business. Risks Related to International Operations Geopolitical, economic and military conditions in countries in which our subsidiaries operate may adversely affect our subsidiaries. Our subsidiaries have significant international sales, which subjects them to risks inherent in foreign operations. Our subsidiaries business in countries with a history of corruption and transactions with foreign governments, including with government owned or controlled telecommunications carriers, increase the risks associated with their international activities. Currency exchange rates, fluctuations of currency exchange rates and limitations imposed by certain countries on the outflow of their currencies could have a material adverse effect on our results of operations. Risks Related to Operations in Israel Conditions in Israel may materially adversely affect our subsidiaries operations and personnel and may limit their ability to produce and sell their products. Research and development grants and tax benefits certain of our subsidiaries receive in Israel may be reduced or eliminated in the future, and grants received may limit their ability to transfer know-how and manufacture outside Israel. The ability of CTI s Israeli subsidiaries to pay dividends is subject to limitations under Israeli law and dividends paid and loans extended by Israeli subsidiaries may be subject to taxes. Risks Related to CTI s Common Stock CTI s common stock is traded over-the-counter on the Pink Sheets, which limits the liquidity of its common stock. CTI is not yet in a position to seek relisting of its common stock on a national securities exchange. After CTI becomes current in its periodic reporting obligations and has an effective registration statement on Form S-8 with the SEC, current and former employees will be able to exercise stock options, will receive shares in settlement of vested deferred stock unit (or DSU) awards and may sell a significant number of shares of CTI s common stock. Sales of a significant number of shares may result in declines in the market price of CTI s common stock. CTI may issue additional equity securities, which would lead to dilution of its issued and outstanding common stock. Provisions in CTI s governing documents and New York corporate law have the effect of discouraging, delaying or preventing takeover attempts, which may reduce or eliminate shareholders ability to sell their shares for a premium in a change of control transaction.

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803014--10/4/2010--COMVERSE_TECHNOLOGY_INC/NY/