On October 31, 2012, Comverse Technology, Inc. ("CMVT") distributed 100 percent of the common shares in its wholly owned subsidiary, Comverse Inc. ("CNSI"), to its October 22, 2012 date of record shareholders, on a pro-rata basis (the "Distribution"). CMVT shareholders received 1 CNSI share for every 10 CMVT shares owned. Fractional shares of CNSI common stock that CMVT shareholders would otherwise have received were aggregated and sold in the open market by the distribution agent at prevailing market prices. The net cash proceeds were distributed ratably to those holders of record of CMVT common shares who would otherwise have received fractional shares of CNSI common stock.
For the tax year-ending January 31, 2013, CMVT anticipates that it will have no accumulated or current year earnings and profits for U.S. federal income tax purposes. Accordingly, it is anticipated that no portion of the Distribution will be taxable as a dividend, as defined in Section 316 of the Internal Revenue Code, for U.S. federal income tax purposes. Assuming no portion of the Distribution is taxable as a dividend, pursuant to Section 301© of the Internal Revenue Code, a shareholder's basis in each CMVT share owned subsequent to the Distribution should be equal to: (1) the basis of such share immediately before the Distribution, less (2) the quotient of the: the fair market value of the CNSI shares received ($29.38) divided by 10. Assuming no portion of the Distribution is taxable as a dividend, pursuant to Section 301© of the Internal Revenue Code, any amount distributed with respect to each CMVT share that exceeds a shareholder's basis in such share prior to the Distribution will result in a capital gain to the shareholder for U.S. federal income tax purposes.
Your receipt of cash in lieu of fractional shares of our common stock generally will result in taxable gain or loss for U.S. federal income tax purposes, but you should consult your own tax advisor as to the receipt of such cash based on your particular circumstances.
U.S. federal income tax law does not specify the method to determine the fair market value of the CNSI stock distributed by CMVT for purposes of determining a CMVT shareholder's remaining basis in its CMVT shares subsequent to the Distribution. There are numerous methods to determine the fair market value of the CNSI common shares at the time of the Distribution. One method, and the method utilized for purposes of 1099-DIV reporting, is to average the high and low trading prices of the CNSI common stock on the NASDAQ on November 1, 2012, the first trading day after the Distribution. The high and low trading price of the CNSI common stock on the NASDAQ on November 1, 2012 was $30.50 and $28.26, respectively, the average being $29.38.
The above discussion is based on CMVT's belief that the Distribution is separate from the Verint Merger because, among other reasons, the Distribution is not conditioned upon the occurrence of the Verint Merger and the Verint Merger is conditioned upon a favorable vote of the CMVT shareholders. If it is determined that the Distribution is not treated as separate from the Verint Merger for U.S. federal income tax purposes, the tax consequences could differ from those described above. Generally, if it is determined that the Distribution is not treated as separate from the Verint Merger for U.S. federal income tax purposes, a holder of CMVT common stock that participates in the Verint Merger would recognize gain in the Verint Merger equal to the lesser of (i) any gain in the holder’s shares of CMVT common stock, and (ii) the fair market value of the CNSI common stock received with respect to the holder’s shares of CMVT common stock in the Distribution. The tax consequences to each U.S. Holder, including whether any such gain is capital or treated as a dividend, however, will depend, among other things, on the holder’s particular circumstances (including whether the holder participates in the Verint Merger), and each holder should consult the holder’s own tax advisor as to the holder’s tax consequences based on such circumstances.
The discussion above does not constitute tax advice. You should consult an independent tax advisor concerning the U.S. federal, state and local income tax consequences particular to your receipt of the Distribution, as well as any other taxing jurisdiction.
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