UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY IN RE NICE SYSTEMS, LTD SECURITIES LITIGATION Master File No. 2:01 CV 737 (Judge Greenaway) This Document Relates To: ALL ACTIONS NOTICE OF PROPOSED CLASS ACTION SETTLEMENT AND HEARING THEREON TO: ALL PERSONS WHO PURCHASED OR OTHERWISE ACQUIRED NICE SYSTEMS LTD.. ( NICE ) AMERICAN DEPOSITORY SHARES ( ADSs ), DURING THE PERIOD FROM NOVEMBER 3, 1999 TO FEBRUARY 7, 2001, INCLUSIVE (THE CLASS PERIOD ). PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE AFFECTED BY THE PROCEEDINGS IN THIS ACTION. IF YOU ARE A CLASS MEMBER, YOU MAY BE ENTITLED TO RECEIVE BENEFITS FROM THE PROPOSED SETTLEMENT DESCRIBED IN THIS NOTICE. CLAIMS DEADLINE: TO SHARE IN THE SETTLEMENT PROCEEDS, CLAIMANTS MUST SUBMIT THE ACCOMPANYING PROOF OF CLAIM AND RELEASE FORM, POST-MARKED ON OR BEFORE MAY 1, 2003. SECURITIES BROKERS AND OTHER NOMINEES: PLEASE SEE INSTRUCTIONS AT SECTION X OF THIS NOTICE. The purpose of this Notice is to inform you of the proposed Settlement of this Consolidated Class Action and of the hearing to be held by the United States District Court for the District of New Jersey to consider the fairness, reasonableness and adequacy of the proposed Settlement, pursuant to which $10,000,000 in cash will be paid. The terms of the proposed Settlement are only summarized in this Notice, and are set forth in the Stipulation of Settlement dated November 15, 2002 1 (the Stipulation ) which has been filed with the Court. NOTICE IS HEREBY GIVEN, pursuant to Rule 23 of the Federal Rules of Civil Procedure and an Order of the Court dated December 11, 2002, that a hearing will be held before the Honorable Joseph A. Greenaway, Jr., United States District Judge for the District of New Jersey, in the Martin Luther King Jr. Building and Federal Courthouse, 50 Walnut Street, Newark, New Jersey 07101, at 2:00 p.m. on March 31, 2003 (the Settlement Hearing ) to determine whether the proposed Settlement is fair, reasonable and adequate; whether the proposed Plan of Allocation (as set forth in this Notice) should be approved; and whether the attorneys for the Class should be awarded fees and expenses. 1 The capitalized terms used in this Notice shall have the meanings given to them in the Definitions section of the parties Stipulation of Settlement.
A. Statement of Plaintiffs Recovery The amount of the proposed Settlement to be distributed to the Class Members (before deduction for court-approved attorneys fees and costs and expenses of settlement) is Ten Million Dollars ($10,000,000) in cash (the Settlement Fund ) and will include interest that is earned on the fund prior to distribution. Based on Lead Plaintiffs estimate that there are 4,460,500 of Nice ADSs entitled to participate in the Settlement, the average distribution per ADS would be approximately $2.24 before deduction of Court-approved fees and expenses, assuming all eligible claimants filed claims. However, your actual recovery from this fund will depend on a number of variables including the number of Authorized Claimants and amount of claims, the number of Nice ADSs you purchased or otherwise acquired during the Class Period, the expense of administering the claims process, and the timing of your purchases and sales, if any, of Nice ADSs. B. Statement of Potential Outcome of Case By way of reference, class actions asserting similar claims of securities fraud were filed in Israel against Nice on behalf of investors who purchased Nice securities on the Tel Aviv Stock Exchange. Those cases were settled for $4 million. Lead Plaintiffs and Defendants do not agree on the average amount of damage per ADS that would be recoverable if Lead Plaintiffs were to have prevailed in their opposition to Defendants motions to dismiss the Amended Complaint and subsequently with the continuance of the litigation through trial on each claim asserted in the Amended Complaint. Even if the case were to reach the damages stage, there are serious issues about the amount of damages (if any) and the average amount of damage per ADS that would be recoverable. These issues include: (1) the appropriate economic model for determining the amount by which Nice ADSs were allegedly artificially inflated (if at all) during the Class Period; (2) the amount by which Nice ADSs were allegedly artificially inflated (if at all) during the Class Period; (3) the effect of various market forces influencing the trading price of Nice ADSs at various times during the Class Period; (4) the extent to which external factors, such as general market conditions, influenced the trading price of Nice ADSs at various times during the Class Period; (5) the extent to which the various matters that Lead Plaintiffs alleged were materially false or misleading influenced (if at all) the trading price of Nice ADSs at various times during the Class Period; (6) the extent to which the various allegedly adverse material facts that Plaintiffs alleged were omitted influenced (if at all) the trading price of Nice ADSs at various times during the Class Period; and (7) whether the statements made or facts allegedly omitted were false, material or otherwise actionable under the federal securities laws. C. Statement of Attorney s Fees and Costs Sought Lead Plaintiffs Counsel have not received any payment for their services in conducting this Action on behalf of the Lead Plaintiffs and the Class, nor have they been reimbursed for their out-of-pocket expenditures. At the Settlement Hearing, Lead Plaintiffs Counsel will apply to the Court for attorneys fees not to exceed 30% of the Settlement Fund, and reimbursement of out-of-pocket expenses including experts fees not to exceed $250,000.00 to be paid from the Settlement Fund, plus interest thereon. If the amount requested by Lead Plaintiffs Counsel is approved by the Court, and based upon the estimates by Lead Plaintiffs Counsel, the amount of such fees and costs determined on an average per ADS basis is approximately $0.073. In view of the benefits of the settlement for the Class, and the precedent of fee awards in other class actions, Lead Plaintiffs Counsel believes that the amounts sought are reasonable and proper. 2
D. Reasons for Settlement The Lead Plaintiffs and Lead Plaintiffs Counsel believe that the Settlement is fair, reasonable, and adequate to the members of the Class. They have reached this conclusion after investigating and considering, among other things, the strengths and weaknesses of the Class claims against Defendants, the uncertainties inherent in this complex litigation, and the substantial benefit provided by the Settlement to the members of the Class. See History of The Litigation. E. Identification of Plaintiffs Lawyers Any questions regarding the Settlement should be directed to the following Lead Plaintiffs Counsel: (1) Marc I. Gross, Esq., Pomerantz Haudek Block Grossman & Gross LLP, 100 Park Avenue, 26 th Floor, New York, NY 10017, (2) Jules Brody, Esq., Stull, Stull & Brody, 6 East 45 th Street, New York, New York 10017, or (3) Fredric S. Fox, Esq., Kaplan, Fox & Kilsheimer LLP, 805 Third Avenue, 22 nd Floor, New York, New York 10022, all Counsel for Lead Plaintiffs. THE COURT, BY SENDING THIS NOTICE OR OTHERWISE, HAS NOT EXPRESSED ANY OPINION AS TO THE MERITS OF ANY OF PLAINTIFFS CLAIMS OR ALLE- GATIONS, OR AS TO ANY OF DEFENDANT S DENIALS OR DEFENSES. THIS NOTICE SHALL NOT BE CONSTRUED AS EXPRESSING ANY SUCH OPINION, BUT IS PROVIDED ONLY SO THAT YOU MAY DECIDE WHAT STEPS, IF ANY, TO TAKE IN RELATION TO THE PROPOSED SETTLEMENT. I. HISTORY OF THE LITIGATION Plaintiffs allege that during the Class Period, November 3, 1999 through February 7, 2001, Nice entered into an arrangement with Stevens Communications, Inc., ( Stevens ) one of Nice s primary distributors in the United States, pursuant to which the Company shipped millions of dollars worth of products to Stevens on consignment, whereby Stevens was not obliged to pay for the products unless and until it sold them. Plaintiffs further allege that although Generally Accepted Accounting Principles ( GAAP ) strictly prohibits the recognition of revenue on consignment shipments, Nice wrongfully recognized revenues in connection with such shipments throughout the Class Period. Plaintiffs further assert that as a result of such accounting violations, Nice s reported results of operations were materially overstated, and that the price of Nice ADSs was thereby artificially inflated. On February 8, 2001, Nice issued a press release stating that it would need to restate downward its previously reported results of operations for 1999 and the first three quarters of 2000. 3
The Class Actions Complaints Shortly after the February 8, 2001 press release, the following class action lawsuits were filed asserting federal securities laws violations against Nice and the Individual Defendants: Caption Case Number David v. Nice Systems Ltd. et al. 01-CV-0737 Kring v. Nice Systems Ltd. et al. 01-CV-0755 Sergey v. Nice Systems Ltd. et al. 01-CV-0778 Shinnecock Capital v. Nice Systems Ltd. et al. 01-CV-0792 Serge v. Nice Systems Ltd. et al. 01-CV-0828 Shapiro v. Nice Systems Ltd. et al. 01-CV-0835 Laufer v. Nice Systems Ltd. et al. 01-CV-0883 Dorani v. Nice Systems Ltd. et al. 01-CV-0884 Cohen v. Nice Systems Ltd. et al. 01-CV-0955 Libiszowski v. Nice Systems Ltd. et al. 01-CV-0957 Golombeck v. Nice Systems Ltd. et al. 01-CV-0980 Smith v. Nice Systems Ltd. et al. 01-CV-1014 Dadabhoy v. Nice Systems Ltd. et al. 01-CV-1040 Adler v. Nice Systems Ltd. et al. 01-CV-1197 Frank v. Nice Systems Ltd. et al. 01-CV-1307 By order dated May 21, 2001, the Court consolidated these actions and appointed Lead Plaintiffs Afikim Management, Adrian Byrne, Dresdnerbank Investment Management, and E.H. Tepe Co., Inc. The law firms of Pomerantz Haudek Block Grossman & Gross LLP, Kaplan Fox & Kilsheimer LLP and Stull, Stull & Brody were appointed Co-Lead Counsel for Lead Plaintiffs. The law firm of Kantrowitz, Goldhamer & Graifman was appointed Liaison Counsel for Plaintiffs. A Consolidated Amended Class Action Complaint (the Amended Complaint ) was filed on August 20, 2001. It asserted claims against Nice and the Individual Defendants for alleged violations of the federal securities laws, specifically 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Defendants moved to dismiss the Amended Complaint. The motion was fully briefed but not decided at the time the settlement was reached. Plaintiffs conducted focused discovery of Nice prior to entering a Stipulation of Settlement dated November 15, 2002. Similar claims were asserted against Nice in class action lawsuits filed in Israel on behalf of persons who purchased Nice ordinary shares in Israel. Those cases have been settled by payment of $4 million. Settlement Negotiations Following intense negotiations that lasted several sessions, the parties to this Stipulation reached the agreement set forth below. II. CLASS CERTIFICATION By order dated December 11, 2002, the Court conditionally certified, for settlement purposes only, this Action as a class action pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure, on behalf of the following Class: All persons who purchased or otherwise acquired Nice ADSs during the period from November 3, 1999 to February 7, 2001, inclusive, other than Defendants. 4
III. SUMMARY OF THE PROPOSED SETTLEMENT The Settlement Fund totals $10,000,000 in cash, with interest accruing to the benefit of the Class. The Settlement Fund will be held for the benefit of the Class to be distributed as set out in Section IV below. The Settlement will become effective, assuming approval by the Court, the day after the judgment to be entered by the Court becomes final, that is, when it is no longer subject to review either by the expiration of the time for the filing of any motions or appeals, with no motion or appeal having been taken, or if any motions or appeals are taken, by the determination of the motion or appeal by the highest court to which such motion or appeal may be taken so as to permit the consummation of the Settlement in accordance with the Stipulation. If the Court approves the proposed Settlement, final judgment will be entered, as is described the Release, the full text of which is set forth in the Release Section of the Proof of Claim form. IV. YOUR SHARE OF THE SETTLEMENT FUND If the proposed Settlement becomes effective, Class Members will be entitled to share in the distribution of the proceeds of the Settlement Fund allocated to the Class, after payment of attorneys fees and expenses, and costs of the settlement administration, to the extent allowed by the Court (the Net Settlement Fund ), in accordance with the Plan of Allocation set forth below, all subject to Court approval. V. PROOF OF CLAIMS AND PLAN OF ALLOCATION In order to make a claim to share in the proceeds of the proposed Settlement according to the Plan of Allocation described below, you must fill out and submit the enclosed Proof of Claim and Release ( Claim ) in the attached form, postmarked no later than May 1, 2003. Each Class Member, by filing a Claim, submits to the jurisdiction of the Court for purposes of ruling on his, her or its Proof of Claim. The Net Settlement Fund shall be distributed in accordance with the following procedures and criteria: The Plan of Allocation Lead Plaintiffs Counsel have conferred with a damage expert and formulated a Plan of Allocation as follows: For Nice ADSs purchased or otherwise acquired during the Class Period and held through February 7, 2001, Recognized Losses per Nice ADS shall be the difference between the purchase or acquisition price and the true value of the ADSs, but in no event more than $3.50 per ADS. For the foregoing purposes, the true value of Nice ADSs shall be $14.66 (based on the average closing price of Nice ADSs for five days following the end of the Class Period). The cap for Recognized Losses of $3.50 per ADS is based on the difference between the Nice ADS prices immediately before and after the February 8, 2001disclosure that the Company would restate its previously reported operating results. This cap represents the maximum amount per ADS that Plaintiffs believe would have likely been recovered at trial. Only those ADSs which were purchased or otherwise acquired during the Class Period and held through February 7, 2001 will be entitled to share in the Net Settlement Fund. For Nice ADSs acquired during the Class Period, the acquisition price shall be the closing price of Nice ADSs on the date that ADSs were acquired. In processing claims, the first-in, first-out basis ( FIFO ) will be applied to both purchases and sales. Any realized gains on Nice ADSs purchased or otherwise acquired during the Class Period will be used to offset Recognized Losses, but at no more than $3.50 per ADS. 5
The Net Settlement Fund will then be distributed on a pro rata basis based on the following formula: Claimant s Recognized Losses x Net Settlement Fund = Payment to Claimant Total Recognized Losses No payment will be made from the Settlement Fund on any claims where the potential distribution would be less than $10, but such Class Members shall be bound by the final judgment entered by the Court. Defendants and their legal counsel take no position with respect to the Plan of Allocation and shall have no responsibility for its provisions, terms or implementation. The Plan of Allocation may be altered or amended by order of the Court for good cause shown. ANY CLASS MEMBER WHO FAILS TO SUBMIT A VALID AND TIMELY PROOF OF CLAIM AND RELEASE FORM WILL BE FOREVER BARRED FROM SHARING IN THE DISTRIBUTION OF THE PROCEEDS OF THE SETTLEMENT, BUT WILL NONETHELESS BE BOUND BY THE COURT S JUDGMENT. In the event that an appeal is taken or a motion is filed relating to the Court s approval of the proposed Settlement, or Plan of Allocation, no distribution will be made until such time as any motions or appeals are finally resolved so as to permit consummation of the Settlement in accordance with the Stipulation. VI. TERMINATION OF PROPOSED SETTLEMENT If there is no final Court approval of the proposed Settlement, or if the Settlement is not consummated for any other reason, the Stipulation will become null and void, and the parties will resume their former positions in this action, and the Settlement Fund, less certain administrative expenses, shall be returned. VII. APPLICATION FOR ATTORNEYS FEES AND EXPENSES At the hearing described below, Lead Plaintiffs Counsel will make an application for an award by the Court of attorneys fees in an amount not exceeding 30% of the Settlement Fund (after payment of all litigation related expenses), and reimbursement of expenses in an amount not to exceed $250,000.00, excluding costs of notice and administration. All such amounts as awarded by the Court shall be paid out of the Settlement Fund. VIII. RIGHT TO EXCLUSION FROM THE SETTLEMENT You may request to be excluded from the Class. To do so, you must mail a written request to Nice Securities Litigation, c/o Berdon LLP, P.O. Box 9014, Jericho, NY 11753-8914, setting forth your name, address, and your desire to be excluded from the Class. It is further requested that you set forth the date and number of Nice ADSs you purchased, otherwise acquired and sold, during the Class Period, and the prices for each such transaction. YOUR EXCLUSION REQUEST MUST BE POSTMARKED ON OR BEFORE MARCH 4, 2003. If you submit a valid and timely request for exclusion, you shall not share in the distribution of the settlement, and shall not be bound by any judgment or order in this litigation. IX. THE SETTLEMENT HEARING IF YOU DO NOT WISH TO OBJECT TO THE PROPOSED SETTLEMENT, THE PLAN OF ALLO- CATION, OR THE REQUEST FOR ATTORNEYS FEES AND EXPENSES, YOU NEED NOT APPEAR AT THE HEARING. Pursuant to an Order of the Court dated December 11, 2002, the Final Approval Hearing with respect to the Settlement (the Settlement Hearing ) will be held in the the Martin Luther King Jr. Building and Federal 6
Courthouse, 50 Walnut Street, Newark, New Jersey 07101 at 2:00 p.m. on March 31, 2003 to determine whether the proposed Settlement is fair, reasonable and adequate, and in the best interests of the Class, and should be approved by the Court; and whether the Consolidated Class Action should be dismissed and Settled Claims released, on the terms and conditions set forth above. At the hearing, the Court may also rule on Plaintiffs Counsel s application for attorneys fees and expenses, and Lead Plaintiffs proposed Plan of Allocation. Any Class Member who has not previously requested exclusion from the Class may appear at the Settlement Hearing in person, or through duly authorized counsel of his or her choice, to object to the Settlement, and show cause, if any, why the proposed Settlement, the proposed Plan of Allocation, or the application for attorneys fees and expenses should not be approved. However, no such person will be heard and no papers or briefs will be considered unless, on or before March 14, 2003 that person has filed the documents listed below with the Clerk of the United States District Court for the District of New Jersey, at the address indicated above, showing due proof of service, by hand, overnight mail, or fax, on the following persons: Marc I. Gross, Esq. Jules Brody, Esq. POMERANTZ HAUDEK BLOCK STULL, STULL & BRODY GROSSMAN & GROSS LLP 6 East 45th Street 100 Park Avenue 5th Floor New York, New York 10017 New York, New York 10017 Telephone: 212-661-1100 Telephone: 212-687-7230 Frederic S. Fox, Esq. KAPLAN, FOX & KILSHEIMER LLP 805 Third Avenue, 22nd Floor New York, New York 10022 Telephone: 212-687-1980 Co-Lead Counsel for Plaintiffs Samuel Kadet, Esq. SKADDEN ARPS SLATE MEAGHER & FLOM, LLP Four Times Square New York, NY 10035-6522 Counsel for Defendants Nice, Benjamin Levin, Mordechai Golan, Avraham Lazar and David Ben-Zeev Aurora Cassirer, Esq. JENKENS & GILCHRIST PARKER CHAPIN LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174 Attorney for Defendant Yuval Yanai To object, you must file and serve the following documents: (1) a notice of your intention to appear, (2) a detailed statement of your objections to any matter before the Court, (3) the grounds for such objections, or the reason for your request to appear and to be heard, (4) a description of all of your transaction(s) involving Nice ADSs during the period November 3, 1999 to February 7, 2001, and (5) all other documents and writings which you desire the Court to consider. The failure to file and serve in a timely manner the above information may bar objectors from being heard, absent relief from the Court. 7
You may file and serve an objection without having to appear at the Settlement Hearing. ANY CLASS MEMBER WHO DOES NOT OBJECT IN THE MANNER DESCRIBED ABOVE WILL BE DEEMED TO HAVE WAIVED ANY OBJECTION, AND SHALL BE FOREVER FORE- CLOSED FROM MAKING ANY OBJECTION TO THE PROPOSED SETTLEMENT. X. SPECIAL NOTICE TO BROKERS, BANKS AND OTHER NOMINEES If you were a nominee who purchased or acquired Nice ADSs during the Class Period, for any beneficial owner then, within five (5) days from receipt of this Notice and Proof of Claim Form ( the Notice ), you must either (1) provide the Claims Administrator with the names and addresses of such beneficial owners, preferably on computer-generated mailing labels or, in MS Word or WordPerfect files (label size Avery #5162) or in an MS Excel data table setting forth (a) title/registration, (b) street address, (c) city/state/zip, or (2) send a copy of the Notice to all beneficial owners by first-class mail and provide the Claims Administrator with written confirmation of having done so. Additional copies of the Notice may be requested in writing, without charge, by contacting: Claims Administrator Nice Securities Litigation c/o Berdon LLP P.O. Box 9014 Jericho, NY 11753-8914 Telephone: 800-766-3330 Fax: 516-931-0810 Website: www.berdonllp.com/claims You are entitled to the reimbursement from the Settlement Fund of any reasonable expenses actually incurred in connection with the research of records and (1) the generating of labels or electronic media or (2) the mailing of this Notice, upon submission to the Claims Administrator of a written request together with appropriate supporting documentation. XI. INFORMATION For a more detailed statement of the matters involved in this litigation, you are referred to the papers on file in this action, including the Stipulation, which may be inspected during regular business hours at the Office of the Clerk of the United States District Court for the District of New Jersey at the address indicated above. Dated: December 17, 2002 BY ORDER OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY 8