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| White
& Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
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Tel +1 212 819
8200
Fax +1 212 354 8113
www.whitecase.com
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Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
Securities
and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
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Attn:
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Mr.
Patrick Gilmore
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Re:
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Allot
Communications Ltd.
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Form
20-F for the Fiscal Year Ended December 31, 2008
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Filed
May 7, 2009
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File
No. 001-33129
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Dear Mr.
Gilmore:
On behalf
of our client, Allot Communications Ltd., an Israeli company (the “Company”), please
find set forth below for review by the Staff (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) the
Company’s responses to the Staff’s comment letter dated November 25, 2009 (the
“Comment
Letter”) with respect to the above-referenced filing of the Company under
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). For ease of reference, each comment contained in the
Comment Letter is printed below in bold text and is followed by the Company’s
response. The information included herein has been provided to us by
management of the Company.
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1.
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You
state that certain hardware components that are used in your products are
obtained from single or limited sources. Please tell us how you
determined that the limited source supplier agreement with the companies
you cite in this risk factor need not be filed as exhibits pursuant to
Instruction 4(b)(ii) to the
Exhibits.
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12-18-09-01
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
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||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
Response:
The risk
factor referenced the following products and related suppliers:
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Product
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Component
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Supplier
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NetEnforcer
AC-400
NetEnforcer
AC-800
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Central
processing unit
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Intel
Corporation
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NetEnforcer
AC-1000
NetEnforcer
AC-2500
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Network
processor
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Hifn,
Inc.
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NetEnforcer-10000
Service
Gateway platforms
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Central
processing unit
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Raza
Microelectronics, Inc.
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The
Company does not believe that its agreements or other purchasing arrangements
with the above-referenced suppliers were required to be filed based on the
following reasoning:
Instruction
4(b)(ii) refers to “continuing contracts…to purchase the major part of your
requirement of goods, services or raw materials.” The preamble to
that subsection states that “Even if a contract falls into one of these
categories, you do not have to file the contract if it is immaterial in amount
or significance.”
The
Company does not have a supply agreement with Intel and, accordingly, could not
file any agreement as an exhibit. The Company’s agreements with Hifn
and Raza do not require any minimum purchases nor commit those companies to make
any minimum amount available for purchase. Each agreement merely
provides that the Company may submit purchase orders and sets forth the terms of
licenses for software included in any products supplied. As such,
they do not contain any terms that would be material to
investors. This is one reason that the Company believes these
contracts are immaterial in significance.
The other
reason that the Company believes the contracts are immaterial in significance is
that each of the components supplied is an off-the-shelf item, none of which
were designed or manufactured specifically for the Company. As a
result, these components may be purchased by other customers in addition to the
Company. Suppliers of such components generally announce end of life
policies and the Company can increase its inventory accordingly to allow enough
time to modify products to accommodate alternate components. The
Company has disclosed this fact, and its related practices, clearly on page 29
of the Form 20-F:
12-18-09-02
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
|
|
||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
“We carry
approximately three to six months of inventory of key components. We also work
closely with our suppliers to monitor the end-of-life of the product cycle for
integral components, and believe that in the event that they announce end of
life, we will be able to increase our inventory to allow enough time for
replacing the products. We have been informed by Hifn that it is their general
policy to provide their customers with a six-month last-time-buy option and
twelve months to take delivery of the product in the event that Hifn decides to
discontinue production of the network processor.”
The
Company provided the above disclosure with respect to its inventory precisely
because it does not have any long-term supply agreements. The Company
believes that its inventory practices outlined above, and the nature of its
agreements with Hifn and Raza, mean that the Company is not substantially
dependent on any agreement or purchasing arrangement. In addition to
the foregoing disclosure, the Company will clarify in future Form 20-Fs that it
does not have agreements that contain supply commitments.
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2.
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We
note that your certifying officers concluded that you “have in place
effective controls and procedures…” Please refer to Item 15T(a)
of Form 20-F and confirm, if true, that your “disclosure controls and
procedures” were effective during the relevant period and confirm that you
will provide conforming disclosure in future
filings.
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Response:
The
Company confirms that its certifying officers have concluded that its disclosure
controls and procedures were effective as of the end of the period covered by
the Form 20-F filed by the Company on May 7, 2009. The Company will
provide conforming disclosure in future filings.
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3.
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You
state that your Chief Executive Officer and Chief Financial Officer
concluded that you “have in place effective controls and procedures
designed to ensure that information disclosed by [you] in the reports
[you] file or submit under the Exchange Act and the rules thereunder, is
recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms.” This effectiveness
conclusion is stated in terms that are more limited in scope than the
definition of “disclosure controls and procedures” as set forth in
Exchange Act Rule 13a-15(e). In your response letter, please
confirm, if true, that your disclosure controls and procedures were also
effective to ensure that information required to be disclosed in the
reports that you file or submit under the Exchange Act is accumulated and
communicated to your management, including your Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures. In future filings, to the
extent you include a definition of disclosure controls and procedures in
your effectiveness conclusion, please include the entire definition as set
forth in Exchange Act Rule
13a-15(e).
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12-18-09-03
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
|
|
||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
Response:
The
Company confirms that its disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports that it files or
submits under the Exchange Act is accumulated and communicated to its
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosures.
The
Company acknowledges the Staff’s comment and, to the extent a definition of
“disclosure controls and procedures” is included in its effectiveness
conclusion, will include the entire definition as set forth in Exchange Act Rule
13a-15(e) in future filings.
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4.
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While
you state that no “material changes” in your internal control over
financial reporting occurred during the fiscal year ended 2008 that
materially affected your internal control over financial reporting, please
note that Item 15T(c) requires disclosure of “any change” in your internal
control over financial reporting that has materially affected or is
reasonably likely to materially affect, your internal control over
financial reporting. Please confirm that there were no changes
in your internal control over financial reporting that materially
affected, or were reasonably likely to materially affect your internal
control over financial reporting and provide us with a representation that
you will provide conforming disclosure in future
filings.
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Response:
The
Company confirms that there were no changes in its internal control over
financial reporting that materially affected, or were reasonably likely to
materially affect, its internal control over financial reporting. The
Company will provide conforming disclosure in future filings.
12-18-09-04
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
|
|
||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
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5.
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We
note your disclosure that vendor-specific objective evidence (“VSOE”) of
your maintenance and support services is based on the “price when sold
separately.” Please describe, in detail, your methodology for
establishing VSOE. If VSOE is based on stated renewal rates
then please tell us how you determined the renewal rates are
substantive. In this regard, please provide the range of
renewal rates and tell us what percentage of your customers actually renew
at such rates. Alternately, if VSOE is based on stand-alone
sales, then provide the volume and range of stand alone sales used to
establish VSOE. Also, please describe the various factors that
affect your VSOE analysis including customer type and other pricing
factors (e.g., geographic region, purchase volume, competitive pricing,
perpetual versus term license,
etc.).
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Response:
As of
December 31, 2008, the Company offered two maintenance and support plans. The
basic support plan includes hardware advance replacement, software bug fixing,
unspecified updates and upgrades (on a when-and-if-available basis) and
technical support services. The second plan is an extended support plan that
includes on site support in addition to the services provided under the basic
support plan.
The
Company’s process for establishing VSOE of fair value of the basic support plan
is through the performance of a VSOE compliance test which is an analysis of the
basic support plan annual renewal activity for the installed base of the
Company. VSOE of fair value of the basic support plan is based on the actual
renewal price, calculated as a percentage of the respective price list (“Renewal
Rate”).
The
Company used the Bell Shaped Curve approach to establish its VSOE of fair value
of the basic support plan in accordance with the provision of paragraph 10 of
SOP 97-2. VSOE of fair value of the basic support plan exists when a substantial
majority of the Company’s actual basic support plan renewals are within a narrow
range of plus or minus 20% of the midpoint of the Renewal Rates. The compliance
test was conducted using two variables: geographic region and type of
customer.
The table
below summarizes the results of the abovementioned analysis:
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Region
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Customer
Type
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Number
of Renewals
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Percentage
of Renewals Falling Within the Range
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ROW
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Distributor
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648
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74%
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Reseller
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114
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79%
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End
User
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29
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76%
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America
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Distributor
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319
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92%
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Reseller
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143
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93%
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End
User
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46
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85%
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12-18-09-05
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
|
|
||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
The
Company’s process for establishing VSOE of fair value of the extended support
plan is through the performance of a VSOE compliance test for the renewal rates
stated in customers’ contracts. This process, known as the
Substantive Renewal Rate approach, was conducted in accordance with the
provision of paragraph 10 of SOP 97-2. VSOE of fair value of the extended
support plan is based on the renewal rate as permitted by AICPA Technical
Practice Aid 5100.55, “Fair Value of PCS with a Consistent Renewal Percentage
(But Varying Renewal Dollar Amounts) and Software Revenue
Recognition.”
The
Company determined that the renewal rates applicable for the extended support
plan were substantive based on their actual rate of <***>%.
The
stated renewal rates for the extended support plan were all within a narrow
range of plus or minus 15% of their respective midpoint. The original terms of
the contracts with stated renewal rates have not yet expired. In addition, this
extended support plan was also sold separately for a price reflecting a rate
within the same narrow range of the stated renewal rates mentioned
above. In that case, the original contract included only the basic
support plan and the renewal rate for the extended support plan was agreed
separately when the service was renewed and extended.
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6.
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We note several references
throughout your Form 20-F to third party valuations. For
example, on page F-20 you indicate that the fair value of intangible
assets acquired was based on third-party valuation. Also, on
page F-21 you indicate that a third party valuation was used to determine
the fair value of certain auction rate securities. For each
reference to a third party valuation in your Form 20-F please describe for
us the nature and extent of the third party valuation firm’s involvement
in the transaction. Please see Question 141.02 of our
Compliance and Disclosure Interpretations available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm for
guidance.
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<***>
Omitted pursuant to a request for confidential treatment under Rule 83 (17
C.F.R. 200.83) of the Rules of Practice of the Securities and Exchange
Commission.
12-18-09-06
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
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||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
Response:
With
respect to the valuation of intangible assets, the Company’s management was
integrally involved in the valuation process, and the valuation was based on
management’s financial projections and related assumptions which were provided
to the expert to perform the fair value calculations. While the Company
considered and relied in part on the work of the expert, management reviewed and
approved the expert’s methodology and adopted the valuation conclusions
following such review as its own. The Company will clarify the
language in future Form 20-Fs to remove any suggestion that it is attributing
the valuations to a third party expert.
The
Company’s management relied on the third party expert valuation report of
auction rate securities due to the extrinsic nature of the valuation
exercise. As a result, in response to the Staff’s comment, the
Company has filed concurrently herewith an amendment to its Form 20-F to provide
a consent from the valuation firm in accordance with Rule 436.
12-18-09-07
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Securities
and Exchange Commission
FOIA
Confidential Treatment Request
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||
Pursuant to Rule 83 by Allot
Communications Ltd.
December
18, 2009
FOIA Confidential Treatment
Request
Pursuant to Rule 83 by Allot
Communications Ltd.
Please do
not hesitate to contact Colin Diamond at (212) 819-8754 of White & Case LLP
with any questions or comments regarding this letter.
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Sincerely,
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/s/ White & Case LLP
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White
& Case LLP
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| cc: |
Mr.
David Edgar
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Ms.
Christine Davis
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Ms.
Stephani Bouvet
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Ms.
Maryse Mills-Apenteng
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Mr.
Rami Hadar
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Mr.
Doron Arazi
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12-18-09-08