UNITED STATES

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

 

FORM 20-F   (Mark One)  

  OR

 

  OR

 

For the transition period from __________ to __________  

OR  

  Commission file number 000-30628

Alvarion Ltd. (Exact name of Registrant as specified in its charter)

  Israel

(Jurisdiction of incorporation or organization)  

21A HaBarzel Street, Tel Aviv 69710, Israel (Address of principal executive offices)

  Assaf Katan

Acting Chief Executive Officer and President Alvarion Ltd.

21A HaBarzel Street, Tel Aviv 69710, Israel Tel: +972-3-645-6262 Fax: +972-3-645-6222 

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)   Securities registered or to be registered pursuant to Section 12(b) of the Act:  

  Securities registered or to be registered pursuant to Section 12(g) of the Act: None   Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None   Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.   As of December 31, 2012, there were 6,316,882 Ordinary Shares, NIS 0. 10 par value per share, outstanding (giving effect to the one for ten reverse split of the registrant’s ordinary shares effected on April 2, 2013).  

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934   For the fiscal year ended December 31, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   Date of event requiring this shell company report _____________

Title of each class Ordinary Shares, NIS 0. 10 par value per share

   Name of each exchange on which registered NASDAQ Capital Market

   

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  o Yes                     ⌧ No

  If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

  o Yes                     ⌧ No

  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  ⌧ Yes                     o No

  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

  ⌧ Yes                     o No

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 in the Exchange Act. (Check one).

  Large Accelerated Filer  o       Accelerated Filer  o         Non-Accelerated Filer  ⌧

  Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ⌧

International Financial Reporting Standards as issued by the International Accounting Standards Board  o  

Other  o   If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

  ¨ Item 17                     o Item 18

  If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  o Yes                        ⌧ No

 

 

  ii 

  INTRODUCTION

  Alvarion Ltd. (NASDAQ: ALVR), provides optimized wireless broadband solutions addressing the connectivity, coverage and capacity challenges of telecom operators, smart cities (a

vertical segment which uses technology to enhance sustainability, citizen well-being and economic development through applications such as traffic monitoring, Internet access in public venues, utility metering etc.), security (such as police and other safety agencies), enterprise customers, and carrier grade outdoor Wi-Fi solutions, offering a variety of different products for Wi-Fi access and 3rd Generation cellular technologies (“3G”) off-load applications. Our innovative solutions are based on multiple technologies across various unlicensed spectrums.  

This annual report on Form 20-F (this “Annual Report”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our business, financial condition and results of operations.  Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all or any of the risks discussed in “Item 3—Key Information—Risk Factors” and elsewhere in this Annual Report.  

In some cases, you can identify forward-looking statements by terms such as "may", "might", "will", "should", "could", "would", "expect", "believe", "intend", "plan", "anticipate", "project", "estimate", "predict", "potential" or the negative of these terms, and similar expressions intended to identify forward-looking statements.  

These statements reflect our current views with respect to future events, are based on current assumptions, expectations, estimates and projections, and are subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.  Except as required by applicable law, including the securities laws of the United States, we do not undertake any obligation nor intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  

As used in this Annual Report, the terms "we", "us", "our", "our Company", and "Alvarion" mean Alvarion Ltd. and its subsidiaries, unless otherwise indicated. ALVARION, ALVARION & Design, BreezeACCESS, BreezeNET, Wavion and Wavion & Device are registered trademarks or service marks of Alvarion in certain jurisdictions.  All other trademarks and trade names appearing in this Annual Report are owned by their respective holders.

 

 

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TABLE OF CONTENTS

PART I  1

  ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1

  ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 1

  ITEM 3. KEY INFORMATION 1

  A.  SELECTED FINANCIAL DATA 1

  B.  CAPITALIZATION AND INDEBTEDNESS 2

  C.  REASONS FOR THE OFFER AND USE OF PROCEEDS 2

  D.  RISK FACTORS 2

  ITEM 4. INFORMATION ON THE COMPANY 21

  A.  HISTORY AND DEVELOPMENT OF THE COMPANY 21

  B.  BUSINESS OVERVIEW 22

  C.  ORGANIZATIONAL STRUCTURE 41

  D.  PROPERTY, PLANTS AND EQUIPMENT 41

  ITEM 4A. UNRESOLVED STAFF COMMENTS 42

  ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 42

  A.  OPERATING RESULTS 42

  B.  LIQUIDITY AND CAPITAL RESOURCES 57

  C.  RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 64

  D.  TREND INFORMATION 64

  E.  OFF-BALANCE SHEET ARRANGEMENTS 64

  F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 64

  ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 65

  A.  DIRECTORS AND SENIOR MANAGEMENT 65

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  B.  COMPENSATION 68

  C.  BOARD PRACTICES 69

  D.  EMPLOYEES 79

  E.  SHARE OWNERSHIP 80

  ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 81

  A.  MAJOR SHAREHOLDERS 81

  B.  RELATED PARTY TRANSACTIONS 81

  C.  INTERESTS OF EXPERTS AND COUNSEL 81

  ITEM 8. FINANCIAL INFORMATION 82

  A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 82

  B.  SIGNIFICANT CHANGES 83

  ITEM 9. THE OFFER AND LISTING 83

  A.  OFFER AND LISTING DETAILS 83

  B.  PLAN OF DISTRIBUTION 84

  C.  MARKETS 84

  D.  SELLING SHAREHOLDERS 84

  E.  DILUTION 84

  F.  EXPENSES OF THE ISSUE 84

  ITEM 10. ADDITIONAL INFORMATION 85

  A.  SHARE CAPITAL 85

  B.  MEMORANDUM AND ARTICLES OF ASSOCIATION 85

  C.  MATERIAL CONTRACTS 87

  D.  EXCHANGE CONTROLS 88

  E.  TAXATION 89

  F.  DIVIDENDS AND PAYING AGENTS 101

  G.  STATEMENT BY EXPERTS 101

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  H.  DOCUMENTS ON DISPLAY 101

  I.  SUBSIDIARY INFORMATION 102

  ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 103

  ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 103

PART II  104

  ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 104

  ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 104

  ITEM 15. CONTROLS AND PROCEDURES 104

    ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 105

    ITEM 16B. CODE OF ETHICS 105

    ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 105

    ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 106

    ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  106

    ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 107

    ITEM 16G. CORPORATE GOVERNANCE 107

    ITEM 16H. MINE SAFETY DISCLOSURE 108

PART III  108

  ITEM 17. FINANCIAL STATEMENTS 108

  ITEM 18. FINANCIAL STATEMENTS 108

  ITEM 19. EXHIBITS 109

  vi 

  PART I

 

  Not applicable.

 

  Not applicable.

  ITEM 3.                      KEY INFORMATION  

  The selected financial data, set forth in the table below, have been derived from our audited historical consolidated financial statements as of, and for each of the years ended, December

31, 2008, 2009, 2010, 2011 and 2012. The selected consolidated statement of operations data for the years ended December 31, 2010, 2011 and 2012, and the selected consolidated balance sheet data at December 31, 2011 and 2012, have been derived from our audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated statement of operations data for the years ended December 31, 2008 and 2009 and the selected consolidated balance sheet data at December 31, 2008, 2009 and 2010, have been derived from our previously published audited consolidated financial statements, as adjusted retrospectively for reclassification of certain operations as discontinued operations, which are not included in this Annual Report. We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).  You should read the selected financial data together with the section of this Annual Report entitled, “Item 5—Operating and Financial Review and Prospects” and our consolidated financial statements and related notes included elsewhere in this Annual Report, and the selected financial data are qualified entirely by reference to such consolidated financial statements and related notes.

 

(*) Includes charges for stock-based compensation of approximately $4 million, $2.2 million, $ 1.8 million, $1.7 million and $ 0.9 million based on ASC 718 Compensation – “Stock Compensation” for the years ended December 31, 2008, 2009, 2010, 2011 and 2012, respectively. (**) For more details of sales please see the financial statements for the year ended December 31, 2012 appearing elsewhere in this Annual Report. (***)  The historical financial results of our BWA Division, which we recently sold, have been reclassified as discontinued operations for all periods presented and the other financial information presented herein has been retrospectively adjusted in accordance with such reclassification.  

 

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

A. SELECTED FINANCIAL DATA –

    Year Ended December 31,  

      2008(*) (***)       2009(*) (***)      2010(*)(**)

(***)       2011(*)(**)       2012(*)(**)      (in thousands except per share data)  Statement of Operations Data:                                   Sales  $ 102,519   $ 89,383   $ 75,014   $ 72,273   $ 49,949 Cost of sales    42,513     37,840     37,096     37,493     27,326 Inventory write-off    1,018     1,176     2,093     1,433     6,385 Gross profit    58,988     50,367     35,825     33,347     16,238                                     Operating costs and expenses:                                   Research and development, gross    14,574     11,391     8,440     12,552     14,825 Less grants and participations    2,140     809     536     1,844     2,161 Research and development, net    12,434     10,582     7,904     10,708     12,664 Selling and marketing    19,587     16,836     13,801     18,304     13,177 General and administrative    4,425     3,549     4,364     5,170     7,182 Amortization of intangible assets    -     -     -     186     2,235 Restructuring and other related expenses    1,457     1,394     1,787     6,020     - Acquisition related expenses    -     -     -     2,622     1,102 Total operating costs and expenses    37,903     32,361     27,856     43,010     36,360                                Operating income (loss)    21,085     18,006     7,969     (9,663)    (20,122)                               Financial income (expenses), net    4,297     1,668     (99)    (1,015)    (2,895)                               Income (loss) before tax    25,382     19,674     7,870     (10,678)    (23,017)                               Taxes on Income    -     -     894     -     -                                Income (loss) from continuing operations    25,382     19,674     6,976     (10,678)    (23,017)Loss from discontinued operations, net    (30,841)    (26,862)    (105.455)    (23,144)    (32,892)Net loss  $ (5,459)  $ (7,188)  $ (98,479)  $ (33,822)  $ (55,909)

                                    Net earnings (loss) per share:                                   Basic:                                     Continuing operations  $ 4.03   $ 3.17   $ 1.12   $ (1.71)  $ (3.68)  Discontinued operations    (4.90)    (4.33)    (16.95)    (3.72)  $ (5.25)Total  $ (0.87)  $ (1.16)  $ (15.83)  $ (5.43)  $ (8.93)

Weighted average number of shares used in computing basic net earnings (loss) per share    6,292     6,202     6,220     6,230     6,260 

Diluted:                                   Continuing operations  $ 4.03   $ 3.17   $ 1.12   $ (1.71)  $ (3.68)Discontinued operations    (4.90)    (4.33)    (16.95)    (3.72)  $ (5.25)Total  $ (0.87)  $ (1.16)  $ (15.83)  $ (5.43)  $ (8.93)

Weighted average number of shares used in computing diluted net earnings (loss) per share    6,292     6,202     6,220     6,230     6,260 

    As of December 31,      2008     2009     2010     2011     2012            (in thousands)        Working capital   $ 115,817    $ 132,813     $ 109,978    $ 62,079    $ 8,397 Total assets   $ 338,110    $ 301,544    $ 214,764    $ 206,838    $ 96,159 Shareholders’ equity   $ 215,906    $ 216,644    $ 122,087    $ 86,154    $ 35,531 Capital Stock   $ 423,468    $ 428,086    $ 431,534    $ 434,696    $ 436,469 

  1

 

  Not applicable.

 

  Not applicable.

 

  Our business, financial condition and results of operations could be seriously harmed due to any of the following risks, among others.  If we do not successfully address the risks to

which we are subject, we could experience a material adverse effect on our business, results of operations and financial condition, and our share price may decline.  We cannot assure you that we will successfully address any of these risks.  

Risks Related to Our Business and Our Industry   We have incurred significant losses in the past and we may continue to incur losses in the future, and the report of our independent registered public accounting firm relating to our financial statements includes an explanatory paragraph describing matters that raise substantial doubt as to our ability to continue as a going concern.  While we recently sold certain of our patents and one of our divisions and are continuing to take other actions in an effort to streamline our business, we will need to obtain additional funding and to generate working capital to sustain our business.  If we are unable to successfully streamline our business and obtain additional funding, we may have to further curtail our operations or cease our operations entirely.  

In the years ended December 31, 2011 and 2012, our operating loss was $9.6 million and $20.1 million, respectively and in the years ended December 31, 2010, 2011 and 2012, our net loss was $98.5 million, $33.8 million and $55.9 million, respectively.  

During the early 2000s, we focused our business on the development of WiMAX (Worldwide Interoperability for Microwave Access) technology.  WiMAX technology, which was launched a number of years before Long Term Evolution (“LTE”) technology, was faced with fierce competition from LTE as a growing number of cellular operators adopted LTE for their 4th Generation Cellular Technology. By 2009, WiMAX was no longer the prevailing technology for the 4G mobile mass market.  We continued to manufacture, market and sell WiMAX products for the 4G mobile mass market through 2012, and while this business generated revenues, it was not profitable.  

As part of our strategy to focus on complementary wireless applications, in November 2011, we completed the acquisition of Wavion Ltd., a provider of carrier-grade Wi-Fi solutions (“Wavion”). For the purpose of financing the acquisition of Wavion in November 2011, we obtained a $ 30 million secured credit facility from Silicon Valley Bank (“SVB”).  We decided to finance the acquisition rather than use our cash on hand in order to retain available cash to meet the substantial working capital needs of our WiMAX business while growing our new Wi-Fi business.  

During 2011, we implemented a restructuring plan including the layoff of approximately 194 employees as well as the vacating of certain leased premises. Nonetheless, we continued to incur substantial losses.  In addition, our sales of our Wi-Fi products decreased significantly in the second half of 2012 as the world was migrating to the new 802.11n standard and our WBSn product that had been developed based on that standard was not market ready.

 

 

B. CAPITALIZATION AND INDEBTEDNESS

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

D. RISK FACTORS

  2

  During 2012, in particular in light of the significant cash requirements to fund the WiMAX business and the limited availability of credit both in the market generally and to Alvarion in

particular, we were actively evaluating various alternatives to exit the WiMAX business.  We ultimately decided to seek to sell the business and if we could not reach agreement with a buyer in a reasonable time, we would wind down the business. During 2012, we received several offers and negotiated with a number of potential buyers for the BWA Division, but we did not reach an agreement.  As part of this process, we separated all of our licensed WiMAX business (the “BWA Division”) from our unlicensed business. While we continued to operate this business to maintain the customers, products and remain in the market, it it continued to generate significant losses and had a negative effect on working capital.  

As a result of the difficulty we experienced with the launch and marketing of our WBSn product and our lack of success in disposing of the BWA Division, with respect to which we were required to continue to provide services to our customers and meet contractual commitments, we continued to suffer substantial losses during 2012. Our cash position was further negatively affected by our required principal and interest payments on the SVB Loan, as well as the closure of previously available credit lines with various Israeli banks.  

Our working capital was approximately $8.4 million as of December 31, 2012 compared to $62.0 million as of December 31, 2011 and $109.9 million as of December 31, 2010.  During 2012 and through May 12, 2013, due to the limited availability of credit and our lower cash balances resulting from our prior losses, we have not had the level of working capital and amounts available for product development, launch and support which we believe would be necessary to grow our business and make it profitable.  In addition, our limited working capital has resulted, and may continue to result, in delays of shipments of our products, which has and may continue to have a material adverse effect on our revenues and our profitability.  

We also have incurred accumulated losses of $388.9 million as of December 31, 2012 and $48 million in negative cash flow for the year ended December 31, 2012. We had $3.5 million in negative cash flow for the year ended December 31, 2011. As of December 31, 2012, we had $9.8 million in cash and cash equivalents and an $11 million outstanding revolving short term credit line.  

The report of our independent registered public accounting firm with respect to our financial statements for the years ended December 31, 2012 and 2011 includes an explanatory paragraph that states that our declining sales, recurring losses, negative cash flows from operations, and our excess of credit line drawn over cash and cash equivalents as well as uncertainty in meeting credit line covenants raise substantial doubt about our ability to continue as a going concern.  In order to continue as a going concern we will need to obtain funding in order to finance our working capital and sustain our ongoing operations and additional capital to enable product development and market growth.  While we are currently actively seeking more funding, we cannot ensure that we will be able to obtain funding on terms that will be acceptable to us or at all.  Additional funding raised through the issuance of equity interests may significantly dilute the equity interests of our current shareholders. Furthermore, if we raise additional funds through debt financing arrangements, if available, we may be required to pledge certain assets or enter into covenants that would restrict our business activities or our ability to incur further indebtedness, and such debt financing may be at interest rates and contain other terms that are not favorable to us.  Our inability to obtain additional financing for working capital, product development, launch and support or for our other capital requirements on terms acceptable to us would result in our having to curtail our business operations further or cease our operations entirely.  

 

  3

  In an effort to streamline our business, we recently sold part of our patent portfolio to Wi-Lan Inc. (“Wi-Lan”) and our BWA Division to Telrad Networks Ltd. (“Telrad”) and we are

currently focused on our vertical markets businesses.  In addition, we are continuing to seek to lower our expenses, including through reductions in the number of our employees across our company, a reduction in employee salaries and moving to new smaller and less expensive facilities.  Such actions may not be effective and may not result in the anticipated cost savings and increase in working capital.  Even if we are successful in reducing costs, the effects of such reductions on our business operations may ultimately have a material adverse effect on our financial condition and results of operations and our share price may decline.   We experienced a decline in orders for our products during 2012 compared to 2011. If customer order activity does not increase, our revenue and profitability will likely be materially adversely affected and we may be required to implement certain measures to preserve or enhance our operating results and cash position.  

 We experienced a significant decline in orders for our products in 2012 compared to 2011. We believe the decrease in orders for our products was attributable to delays in introductions of certain new products.  While we would not expect a similar decline in 2013, if our order activity does not increase, our revenue and profitability would likely be materially adversely affected and would contribute to a determination as to whether implement further cost reduction measures and other initiatives to preserve and enhance our cash position. Any such measures may limit or hinder our ability to execute our strategy and achieve our objectives thereby adversely affecting our business.   Continued unfavorable global economic conditions could have a material adverse effect on our business, operating results and financial condition.  

The crisis in the financial and credit markets in the United States, Europe and Asia which began in 2008 and 2009 and which has continued at varying levels of intensity since then, led to a global economic slowdown, with economies throughout the world experiencing periods of weakness.  This has contributed to the downturn in our business. While the economies in some of the countries in which we operate have improved, if the economies in those countries weaken or if the economies in other countries in which we operate do not improve or weaken further, telecom carriers, service providers and our partners as well as other customers in such countries may further significantly reduce or postpone their technology spending as well as require aggressive vendor financing.  This could result in further decreases in our revenues because of reductions in sales, longer sales cycles, slower market acceptance of our products and increased price competition.  Any of these events would likely harm our business, operating results and financial condition.  If global economic and market conditions, or economic conditions in the United States, Europe or Asia or other key markets do not improve or weaken further, our business, operating results and financial condition would be further materially adversely affected.   Adverse conditions in the telecommunications industry and in the telecommunications equipment market may decrease demand for our products and may harm our business, financial condition and results of operations.  

Our systems are used by telecom carriers and service providers and within vertical markets, such as municipalities and utility companies.  As a result of our customers’ continued tightened spending as well as the limited licenses and substantial capital requirements which limit growth into new markets, our revenues further declined in 2011 and 2012 and may continue to decline and our losses may increase in the future. Adverse market conditions in the past years have also led our customers and potential customers to be conservative in their spending, and this could continue in the future.  Due to these conditions, the markets in which we operate may not grow as we expect or may decrease. While our goal is to increase our sales by expanding the range of customers that we address, there can be no assurance that we will be successful.  These adverse conditions in the telecommunications industry contributed to the decline in our revenues in 2011 and 2012 and our revenues may continue to decline and our losses may continue to increase.

 

 

  4

  Markets implementing broadband wireless technologies and other new markets we attempt to penetrate may not become substantial commercial markets or may not evolve in a manner that will enable our products to achieve market acceptance. If such markets do not evolve or develop or we do not maintain or increase our market share within our current markets, our revenues may continue to decrease.  

In order to maintain or increase our market share in the markets in which we operate, we must, among other things:  

 

 

 

 

 

  Our efforts in these markets may not succeed.   Intense competition in the markets for our products has had and may continue to have an adverse effect on our sales and profitability.  

Multiple companies with a range of diverse products and solutions compete with us in the markets in which we sell our products. These competitors may have a vertical-focus or a multi-vertical focus. Some of these competitors also have a more complete networking solution than ours which may make their products more desirable to our potential customers. Many of these vendors have been able to grow their market share in the past few years in the territories in which we are active.  We expect that competition from these vendors will continue to increase, both with respect to products that we currently offer and products that we intend to introduce in the future.  As the market transitions toward standardization and Wi-Fi 802.11n technology, competition becomes increasingly challenging and makes room for entry level, low cost offerings by our competitors.  We expect our competitors to continue improving the performance of their current products and to introduce new products or new technologies and such products or technologies may have better performance than our products or supplant our products entirely. In addition, our current  lack of additional new technologies and resulting products may hurt our competitive positioning in the market place and our ability to develop new technologies and products has been and may continue to be adversely affected by our limited working capital.  

 

• obtain third party funding for working capital;

• retain and attract personnel with the relevant knowledge and experience;

• continue to innovate and differentiate our technology position by designing, developing and manufacturing broadband wireless access products;

• develop and cultivate additional sales channels in addition to our direct sales from which we currently generate our main revenues, including regional local partners or other strategic arrangements with leading manufacturers of access equipment, who can market our wireless broadband products to prospective customers, such as local exchange carriers, international cellular operators, Internet and application service providers, municipalities, customers in education, oil and gas, and other vertical markets, other private network operators and local telephone companies;

• effectively establish and support relationships with customers, including local exchange carriers, Internet and application service providers, public fixed or mobile telephone service providers and private network operators; and

• continue to enhance our maintenance and support services.

  5

  We also face new competition from larger players in the telecom market and/or indoor wireless vendors, such as Cisco, Ericsson, Nokia Siemens and Rockus, as well as from start-up

companies. Our license-exempt and vertical market business may be affected by the dynamics of spectrum allocations. The allocation of alternative spectrum such as TV white space spectrum, 24GHz unlicensed band, and 60GHz unlicensed band may become a relevant alternative to the current spectrum upon which our product portfolio is based. Additional license based spectrum, such as the 700MHz public safety band, 6GHz, 70GHz, or LMDS spectrum may become a relevant alternative for our vertical market customers and as such could adversely affect our license-exempt and vertical market business.  

Most of our existing and potential competitors, including large competitors arising from the continued consolidation in the telecommunications equipment market, have substantially greater resources, including financial, technological, manufacturing and marketing, and distribution capabilities, and enjoy greater market recognition than we do.  Increased competition, direct and indirect, has resulted in, and is likely to continue to result in, reductions of average selling prices, shorter product life cycles due to our competitors' launch of innovative products in the market more frequently, reduced gross margins, longer sales cycles and potential loss of market share and, consequently, could adversely affect our sales and profitability.  

We have had limited success in our recent efforts, and we may not be able in the future, to differentiate our products from those of our competitors, successfully develop or introduce new products that are less costly, offer better performance than the products of our competitors, or offer our customers payment or other commercial terms as favorable as those offered by our competitors, particularly in light of the lack of available credit to both Alvarion and its customers specifically and in the markets generally. In addition, we may not be able to offer our products as part of integrated systems or solutions or provide services to the same extent as our competitors.  A failure to accomplish one or more of these objectives could materially adversely affect our sales and profitability, harming our financial condition and results of operations.   Technological changes have had and may continue to have an adverse effect on the market acceptance of our current products and any products we develop in the future and may adversely affect our results of operations.  

The markets for our products and the technologies utilized in the industry in which we operate evolve continuously.  

Market changes have and could in the future render our products and technologies obsolete or subject them to intense competition by alternative products or technologies or by improvements in existing products or technologies. New or enhanced products developed by our competitors may be technologically superior to our products, may limit our target markets or may render our products obsolete, and consequently adversely affect our results of operations. New chips introduced may include built-in capabilities which are currently an Alvarion product differentiator, which would lower the barrier for competition.  For example, in the past, we focused our efforts on products using the WiMAX standard, however, cellular carriers adopted other standards introduced after WiMAX and our business was adversely affected.  

The success of our technology depends on the following factors, among others:  

 

 

 

 

  • market acceptance of new and innovative technologies employed by us;

  • market acceptance of standards for wireless broadband products employed by us;;

  • network capacity to handle growing demands for faster transmission of increasing amounts of data and voice;

  6

 

 

 

 

  We have experienced and may continue to experience difficulties or delays in the introduction of new or enhanced products, which has resulted and could continue to result in reduced sales or unexpected expenses.              The development of new or enhanced products in vertical markets is a complex and uncertain process.  For example, product development is multi-disciplinary, involving hardware design and development, software, integration, and intensive and complicated system design, and resulting in a long development cycle.  We are engaged and will continue to be engaged in the development of various types of product lines, if we have sufficient capital to fund such development. We have experienced and may continue to experience design, development, manufacturing, marketing and other difficulties due to delays in our development or delays by third party vendors, and these delays have caused and could continue to cause difficulties or prevent our development, introduction or marketing of new products or product enhancements and subject us to intensified competition.  For example, we were unable to successfully introduce our WBSn product when we had expected to do so in early 2012 as a result of product instability and were only able to reintroduce this product in the first quarter of 2013.  In addition, our limited financial resources have constrained our ability to invest in research and development of new or enhanced products. Such difficulties have resulted and could continue to result in reduced sales, unexpected expenses or delays in the launch of new or enhanced products or our inability to timely introduce to the market our products, any of which may adversely affect our results of operations. Also, such delays could lead sales partners and distributors to turn to competing vendors.  The launch and availability of certain of our new products, in particular our WBSn product, has also been delayed, which has harmed and may continue to harm our competitiveness and our ability to penetrate, and market these products in, vertical markets in an efficient and timely manner.   Businesses we acquired or may acquire in the future may not be successfully integrated with our operations and our technologies, which may harm our business and results of operations.  

During the fourth quarter of 2011, we acquired Wavion in order to create new growth engines and penetrate into new market segments. Wavion is a provider of carrier grade outdoor Wi-Fi solutions, offering a variety of different products for Wi-Fi access and mobile cellular technologies (“3G/4G”) off-load applications.  While we have generally been able to integrate Wavion into our business, this required significant resources and management attention.  We cannot assure you that we will be able to successfully expand into new markets, such as the Wi-Fi market, as a result of any acquisition.  We also cannot assure that the Wi-Fi market will grow as we expect or that our market share of the Wi-Fi market will grow as expected.  

Further, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as our existing business or otherwise perform as expected and may increase our costs of operations, which may be higher than expected.  We also cannot assure you that we will succeed in retaining our employees or those of any acquired companies following any acquisition, including key employees in managerial positions.  In particular, a number of key employees of Wavion have resigned from their positions since our acquisition of Wavion. The continued occurrence of any of these events could harm our business, financial condition or results of operations and as a result may decrease our share price in the future.  

 

  • cost-effectiveness and performance of our technology compared to other broadband wireless technologies;

  • reliability and security of our technology;

  • suitability of our technology for a sufficient number of geographic regions; and

  • safety and environmental concerns regarding wireless broadband transmissions.

  7

  We obtained a loan facility from Silicon Valley Bank ("SVB") which has been amended and modified a number of times in order for us to remain in compliance. If we fail to comply with the terms of the loan agreement with SVB, our available cash and our business operations will be significantly harmed.  

For the purpose of financing the acquisition of Wavion in November 2011, we obtained a $30 million credit facility from SVB (the “SVB Loan”).  As part of the transaction, we pledged all of our assets under a floating charge, and created a fixed charge on our IP rights and receivables. The loan and security agreement with SVB contains various provisions related to compliance with financial covenants, restrictive covenants, including negative pledges, and other customary commitments, contained in facility agreements of this type.  In April 2012, we breached certain financial covenants under the SVB Loan, however, we and SVB agreed on modifications to the terms of the SVB loan and on SVB’s waiver of the breach of covenant. We and SVB have modified the terms of the SVB Loan a number of other times, most recently in May 2013. As a result of our breach of the financial covenants under the SVB Loan, as well as various amendments to the SVB Loan, we repaid a total of $19 million during 2012 and $5.6 million during 2013 through May 12, 2013.              As of May 12, 2013 and following the completion of the sale of the BWA Division to Telrad, the outstanding balance of the SVB Loan is approximately $5.4 million.  The terms of the SVB Loan were further amended in connection with the sale to Telrad and include financial covenants relating to our net tangible assets and our net losses or profits.  In addition, the outstanding amount under the SVB Loan must be lower than the amount available thereunder at any time pursuant to the borrowing base provided for under the SVB Loan.  There is no assurance that we will not breach the terms of the SVB Loan in the future or that we will remain in compliance with the amended terms. In addition, should we fail to comply with our obligations under the SVB Loan, SVB may require immediate repayment of the SVB Loan and realize on its security, which can significantly harm our available cash and our operations and may result in cessation of our operations in their entirety. For more information please see "Item 10 C – Material Contracts" below.   We have experienced in the past, and may experience in the future, quarterly and annual fluctuations in our results of operations which have caused, and may cause, volatility in the market price of our ordinary shares.  

We have experienced, and may continue to experience, significant fluctuations in our quarterly and annual results of operations, in particular, in light of the timing of new product introductions, intense competition, the continuing effects of the global economic slowdown and the continued limited availability of credit in the global capital markets.  Any fluctuations may cause our results of operations to decrease below the expectations of securities analysts and investors.  This would likely affect the market price of our ordinary shares.  

Our quarterly and annual results of operations may vary significantly in the future for a variety of reasons, many of which are outside of our control, including the following:  

 

 

 

 

 

  • the introduction of our new products or enhancements or those of our competitors or of providers of complementary products;

  • purchasing  patterns of our customers, including the size and timing of orders and the timing of large scale deployments;

  • the fulfillment of all revenue recognition criteria;

  • customer deferral of orders in anticipation of new products, product features or price reductions;

  8

 

 

 

 

 

 

  Our customers ordinarily require the delivery of products promptly after their orders are accepted.  Historically, our business typically does not have a significant backlog of accepted

orders.  Consequently, revenues in any quarter depend primarily on orders that are received and accepted in that quarter. The deferral of the placing and acceptance of any large order from one quarter to another could materially and adversely affect our results of operations for the former quarter.  The effects of deferrals of orders may be more significant in light of our limited working capital, which has resulted and may continue to result in a backlog of orders if we are unable to pay our suppliers and third party manufacturers on a timely basis.  Our revenue recognition is dependent on various parameters and milestones. If revenues from our business in any quarter remain in the same level or decline in comparison to any previous quarter, our results of operations could be harmed.   Our products have long and unpredictable sales cycles which could adversely impact our revenues and results of operations.  

The sales cycle for a portion of our large service providers encompasses significant technical evaluation and testing by each potential purchaser and a commitment of significant cash and other resources.  The sales cycle can extend for more than one year and sometimes even two years from initial contact with a customer to receipt of a purchase order, and in certain instances may not even result in the receipt of an order.   This time frame may be extended due to, among other reasons, a customer's desire to ensure that the systems work for a long period with increased number of subscribers’ coverage and capacity, a customer's need to obtain financing or other means of collateral to purchase systems incorporating our products, the regulatory authorization of competition in local services, and other regulatory hurdles.  

As a result of the length of these sales cycles, revenues from our products may fluctuate from quarter to quarter and fail to correspond with associated expenses, which are largely based on anticipated revenues.  In addition, the delays inherent in the sales cycles of our products raise additional risks of customers canceling or changing their product plans.  Our revenues have been adversely affected by a significant customer, or a significant potential customer, reducing, delaying or canceling orders during the sales cycle or choosing not to deploy networks incorporating our products and our revenues may be adversely affected if this occurs in the future.  Such fluctuation in revenue or cancellation of orders has had and may in the future have an adverse effect on our business and may affect the market price of our ordinary shares.   Our business is dependent upon our distributors, system integrators, service providers and other partners, who are under no obligation to purchase our products.  

Our revenues are derived from sales to our independent partners, such as distributors, system integrators and service providers.  Our distributors resell our products to others, who further resell our products to end users.  Changes in the distribution and sales channels of our products, a loss of a major distributor or a major distributor’s loss of a major end-user, or our inability to establish effective distribution and sales channels for new products may impact our ability to sell our products and result in a loss of revenues.  Additionally, sales through our distributors and system integrator channels expose our business to a number of risks, each of which could result in a reduction in the sales of our products. For example, some of these distributors, system integrators and other partners may terminate their relationships with us, consolidate or face financial problems, as well as promote competing products or emphasize alternative technologies, which may turn them into our competitors rather than our partners.  In addition, while we expect that most of our distributors will continue to distribute our products, certain distributors who primarily distributed the products which were part of our BWA Division may cease to distribute our products entirely and certain distributors may seek other suppliers for their customers due to concerns regarding our level of working capital.  All of the foregoing may result in a decline in the purchase of our products.

 

 

  • disruption or changes in the quality of our sources of supply;

  • changes in the mix of products sold by us;

  • mergers or acquisitions, by us, our competitors and existing and potential customers, if any;

  • one-time charges such as asset impairment and restructuring charges;

  • fluctuations in the exchange rate of the New Israeli Shekel (the “NIS”) against the United States dollar; and

  • general economic conditions, including the unfavorable global economic conditions; and

  9

  We are dependent upon the acceptance of our products by the market through our partners' efforts in marketing and sales.  Generally, arrangements with our partners do not prevent

them from selling competitive products and some of the arrangements do not contain minimum sales or marketing performance requirements.  In addition, our efforts to increase sales may suffer from the lack of brand visibility resulting from the integration of these products into more comprehensive systems by distributors and system integrators.  Changes in the financial condition, business or marketing strategies of our partners could have a material adverse effect on our results of operations.  Any of these changes could occur suddenly and rapidly.   If our revenues decrease and our days- sales-outstanding (“DSOs”) increase, our cash position may be negatively affected and result in a greater cash shortfall.  

Our DSOs decreased to 75 days in 2012 from 96 days in 2011. We expect that over time our DSOs may increase and we expect our DSOs will range between 100 to 120 days during 2013, mainly due to our customers requesting more favorable payment terms from us as part of increased competition, as well as the limited availability of credit in the capital markets, which may also affect our ability to collect our customers' debts in a timely manner or at all. In addition, we may experience an increase in DSOs if we fail to timely collect revenues from our customers.   We may experience a further decrease in our gross margin levels in the future, which may adversely affect our financial results.  

We have been experiencing declines in gross margin.  Our gross margin was 32.5% in 2012 compared to 46.1% in 2011.  While the decline was mainly a result of a write off of excess inventory during 2012, this decline was also driven by our operations in a number of our markets, mainly due to (a) the delay in new project launches, (b) lower sales, (c) increased competition and (d) the economic concerns in these markets, all of which resulted in a low level of revenue and the sequential decline in gross margin.  This decline in gross margin may continue over time. If our revenues do not increase and our operating expenses remain the same or increase, the decline in gross margin will have a negative impact on our results of operations.    Our products are complex and may have errors or defects that are detected only after full deployment.  

Some of our products are highly complex and are designed to be deployed in complex settings. Although our products are tested during manufacturing and prior to deployment, our customers may discover errors after the products have been fully deployed. If we are unable to fix errors or other problems that may be identified in full deployment, including problems related to the site survey, radio planning and other problems that are not necessarily related to product functionality but to the associated services, or unable to correct the errors in a timely manner, we could experience:  

 

 

 

 

  • costs associated with remediation;

  • loss of or delay in revenues;

  • loss of customers;

  10

 

 

 

 

 

 

  Our products are often integrated with other network components. There may be incompatibilities between these components and our products that could significantly harm service

providers or their subscribers. Product problems in the field could require us to incur costs or divert resources and may subject us to liability for damages caused by the problems or delay research and development projects because of the diversion of resources. These problems could also harm our reputation and competitive position in the industry.   We could be subject to warranty claims and product recalls, which could be very expensive and harm our financial condition.  

Products like ours sometimes contain undetected errors.  These errors can cause delays in product introductions or require design modifications.  In addition, we are dependent on unaffiliated suppliers for key components incorporated into our products.  Defects in systems in which our products are deployed, whether resulting from faults in our products or products supplied by others, from faulty installation or from any other cause, may result in customer dissatisfaction.  Additionally, we are continually marketing several new products.  The risk of errors in these new products, as in any new product, may be greater than the risk of errors in established products.  The warranties for our products typically permit customers to return for repair or replacement, within a period ranging from 16 to 21 months of purchase, any defective products.  Any failure of a system in which our products are deployed (whether or not our products are the cause), any product recall and any associated negative publicity could result in the loss of, or delay in, market acceptance of our products and could harm our business, financial condition and results of operations. Although we attempt to limit our liability for product defects to product replacements, we may not be successful, and customers may sue us or claim liability for defective products and for related claims arising therefrom.  A successful product liability claim could result in substantial cost or divert management’s attention and resources, which could have a negative impact on our financial condition and results of operations.   Our dependence on limited sources for key components of our products may lead to disruptions in the delivery and increased cost of our products, harming our business and results of operations.  

 We currently obtain key components for our products from a limited number of suppliers, and in some instances from a single supplier.  In addition, some of the components that we purchase from single suppliers are custom-made.  We cannot be sure that we will not experience increased costs or disruptions in the delivery of our product components.   In addition, there is a global demand for some electrical components that are used in our systems and that are supplied by relatively few suppliers.  Our dependence on these limited sources for key components for our products presents the following potential risks:  

 

 

 

  • failure to achieve market acceptance and loss of market share;

  • diversion of deployment of resources;

  • diversion of research and development resources to fix errors in the field;

  • increased service and warranty costs;

  • legal actions or demands for compensation by our customers; and

  • increased insurance costs.

  • as a result of our financial situation, in some cases, we have not been able and in the future we may not be able to obtain credit from our suppliers and we have not and may not have funds to pay for such components as needed to manufacture our products on a timely basis;

  • delays in delivery or shortages of components, especially for custom-made components or components with long delivery lead times, could interrupt and delay manufacturing and result in cancellations of orders for our products;

  11

 

 

 

 

 

 

  Our dependence on third party equipment embedded in our products and complementary systems may impact our business.              We rely on third party software and hardware embedded in our solution. If our licensors fail to support the software or hardware embedded in our solution we may suffer difficulties in supporting our customers and delivering our equipment.  We are also dependent on complementary systems such as CPEs, and Access Service Networks Gateways, which are part of our solution. Failure by our vendors to deliver such products or their discontinuing production of such products may cause difficulties to, and may have an adverse effect, on our business.              Changes within any of these vendors’ environments can influence our business results. For example, the recent announcement by one of our major component suppliers that it would not continue supporting the existing chip set as it is moving to a new chip generation may influence price levels or change the partners’ roadmap in a way that could harm our business.  

In addition, in the past, we experienced delays and shortages in the supply of components on more than one occasion.  We may experience such delays in the future, harming our business and results of operations.   We must be able to manage expenses and inventory risks associated with meeting the demands of our customers.  

To ensure that we are able to meet customer demand for our products, we seek to place orders with our subcontractors and suppliers based on our estimates of future sales, to the extent we have available working capital to make such purchases.  If actual sales differ materially from these estimates, our inventory levels may be too high, and inventory may become obsolete and/or over-stated on our balance sheet.  This result would require us to write off inventory, which could adversely affect our results of operations. In 2010, 2011 and 2012, we wrote off inventory related to our unlicensed business in the amounts of $2.1 million, $1.4 million, and $6.4 million, respectively.  

We are required to place manufacturing orders well in advance of the time we expect to sell products, and this may result in us ordering a larger or smaller number of these products than required.  If we lack working capital, then we may choose to order a smaller number of products.  In the event that we order the manufacture of a greater or lesser amount of these products than necessary, we may be required to purchase the surplus products or to forego or delay the sale or delivery of the products that we did not order in advance.  In either case, our business and results of operations may be adversely affected.

 

 

  • suppliers could increase component prices significantly and with immediate effect on the manufacturing costs of our products;

  • some of our suppliers may cease to exist or face financial difficulties which could affect the supply chain;

  • we may not be able to develop alternative sources for product components;

  • suppliers could discontinue the manufacture or supply of components used in our products which may require us to modify our products and which may cause delays in product shipments, increased manufacturing costs and increased product prices;

  • we may be required to hold more inventory for longer periods of time than we otherwise might in order to avoid problems from shortages or discontinuance, which has led to, and could in the future lead to, write offs of inventory; and

  • due to the political situation in the Middle East and the fact that our headquarters are located in Israel, we may not be able to import necessary components from different countries world-wide.

  12

  The limited manufacturing capacity of a number of subcontractors we depend on may prevent us from filling orders in the timeframe and with the quality specifications our customers demand, which may harm our business and results of operations.  

We currently depend on a number of contract manufacturers with limited manufacturing capacity to manufacture our products.  The assembly of certain of our finished products, and the manufacture of custom printed circuit boards utilized in electronic subassemblies and related services are also performed by these independent subcontractors.  In addition, we rely on third-party “turn-key” manufacturers to manufacture certain sub-systems for our products.  Reliance on third-party manufacturers exposes us to significant risks, including risks resulting from:

 

 

 

 

 

 

 

 

 

  If the operations of our contract manufacturers are halted, even temporarily, or if our contract manufacturers are unable to operate at full capacity for an extended period of time, we may

experience business interruption, increased costs, loss of goodwill and loss of customers.  

 Any of these risks could result in manufacturing delays or increases in manufacturing costs and expenses. If we experience manufacturing delays, we could lose orders for our products and, as a result, lose customers.  There may be an adverse effect on our profitability and, consequently, on our results of operations, if we incur increased costs.   Regulation by governments or other public authorities may increase our costs of doing business, limit our potential markets or require changes to our products that may be difficult and costly.  

Our business is premised on the availability of certain radio frequencies for two-way broadband communications.  Radio frequencies are subject to extensive regulation under international treaties and local laws, which differ by country. Most of our products operate in license-free bands in the radio spectrum, while others operate in licensed bands.  The regulatory environment in which we operate is subject to significant change, the results and timing of which are uncertain.  

  In some cases, the continued validity of licenses may be conditioned on the licensee complying with various conditions. In addition to regulation of available frequencies, our products must conform to a variety of national and international regulations that require compliance with administrative and technical requirements as a condition to the operation or marketing of devices that emit radio frequency energy.  

 

  • potential lack of manufacturing capacity;

  • limited control over delivery schedules;

  • quality assurance and control;

  • manufacturing yields and production costs;

  • voluntary or involuntary termination of their relationship with us;

  • concerns of our subcontractors regarding our company;

  • difficulty in, and timeliness of, substituting any of our contract manufacturers, which could take as long as six months or more;

  • the economic and political conditions in their environments; and

  • the financial strength of our third party manufacturers.

  13

  The regulatory environment in which we sell our products subjects us to several risks, including the following:

 

 

 

 

  We are subject to certain European directives like the directive on Waste Electrical and Electronic Equipment and the directive on the Restriction of the Use of Certain Hazardous

Substances in Electrical and Electronic Equipment and may also be subject to other similar legislation in other parts of the world.   Our proprietary technology is difficult to protect, and its unauthorized use by third parties may impair our ability to compete effectively.  

Our success and ability to compete depends and will continue to depend, to a large extent, on maintaining our proprietary rights and the rights that we currently license or will license in the future from third parties.  We rely primarily on a combination of patents, trademarks, trade secrets and copyright law and on confidentiality, non-disclosure and assignment-of-inventions agreements to protect our proprietary technology.  We have obtained several patents and have several patent applications pending that are associated with our products. We also have several trademark registrations associated with our name and some of our products.  

These measures may not be sufficiently adequate to protect our technology from third-party infringement.  Our competitors may independently develop technologies that are substantially equivalent or superior to our technology.  Third-party patent applications filed earlier may block our patent applications or receive broader claim coverage.  In addition, any patents issued to us, if issued at all, may not provide us with significant commercial protection.  Third parties may also invalidate, circumvent, challenge or design around our patents or trade secrets, and our proprietary technology may otherwise become known, or similar technology may be independently developed by competitors.  Additionally, our products may be sold in foreign countries that provide less protection to intellectual property than that provided under U.S. or Israeli laws.  Failure to successfully protect our intellectual property from infringement may damage our ability to compete effectively and harm our results of operations.   We could become subject to litigation regarding intellectual property rights, which could seriously harm our business.  

From time to time we receive allegations that we have infringed upon a patent, trademark or other proprietary right.  Based on the size and sophistication of our competitors and the history of rapid technological change in our industry, it is possible that several competitors may have intellectual property rights that could relate to our products.  Therefore, we may need to litigate to defend against claims of infringement or to determine the validity or scope of the proprietary rights of others.  Similarly, we may need to litigate to enforce or uphold the validity of our patent, trademarks and other intellectual property rights.  Other actions may involve ownership disputes over our intellectual property or the misappropriation of our trade secrets or proprietary technology.  As a result of these actions, we may have to seek licenses to third-parties' intellectual property rights, which may not be able to be successfully integrated into our products.  These licenses may not be available to us on reasonable terms or at all.  In addition, litigation could be expensive and time consuming and could result in court orders preventing us from selling our then-current products or from operating our business.  Any infringement claim, even if not meritorious, could result in the expenditure of significant financial and managerial resources and harm our business, financial condition and results of operations. We have no assurance that any such allegation will not have a material adverse effect on our business, financial condition or results of operations.

 

 

  • If our products operate in the license-free bands, United States Federal Communications Commission (“FCC”) rules and similar rules in other countries require operators of radio frequency devices, such as our products, to cease operation of a device if its operation causes interference with authorized users of the spectrum and to accept interference caused by other users;

  • If the use of our products interferes with authorized users, or if users of our products experience interference from other users, market acceptance of our products could be adversely affected;

  • Regulatory changes and restrictions imposed due to environmental concerns, such as restrictions imposed on the location of outdoor antennas; and

  • Export control laws and regulations which are applicable to all of our products and technology may become more stringent in the future.

  14

  If we are unable to maintain licenses to use certain technologies, we may not be able to develop and sell our products.

We receive licenses from third party companies for certain technologies we use in connection with some of our technologies.   The loss of these licenses could impair our ability to develop and market our products.  If we are unable to obtain or maintain the licenses that we need, we may be unable to develop and market our products or processes, or we may need to obtain substitute technologies of lower quality or performance characteristics or at greater cost.  We cannot assure that we will be able to maintain these licenses or obtain additional licenses, if we need them in the future, on commercially reasonable terms or at all. Also, some of our products utilize open source technologies.  These technologies are licensed to us on varying license structures.  These licenses and others like them pose a potential risk to products should they be inappropriately used.   We depend on key personnel and several members of our senior management have been recently appointed.  

Our future success depends, in part, on the continued service of key personnel.  Most members of our senior management team are new to their positions.  Our Chief Executive Officer assumed his position as of April 22, 2013 after serving as Corporate Vice President, Strategy & Business Development since 2011.  Our CFO assumed his position as of January 1, 2013 after serving as vice president in our financial division since September 2009. They may need time to acquire the specific skills necessary to successfully carry out the tasks required of them, which could adversely affect our results of operations.  

Eight of nine members of our senior management, were only appointed to their present positions in 2012 and another was only appointed in 2011. Some of these individuals had little or no previous experience working for Alvarion. Should any members of senior management, including our new Chief Executive Officer and Chief Financial Officer, fail to perform as expected, or should they or other new key managerial appointees fail to acquire the requisite knowledge and skills in a timely manner, or should they decide to leave the Company on their own initiative, our operations may be disrupted and this might materially adversely affect the results of our operations.

The reductions in force the Company underwent in the past few years, and may carry out in the future, may result in our not having adequate personnel resources for our operations.  Such reductions in force may also have adverse effects on the morale of our employees, which may induce employees to leave the Company. If certain of our key technical, sales or senior management personnel terminate their employment and we are unable to retain qualified replacements, our business and results of operations could be harmed.   We may be classified as a passive foreign investment company.  

As a result of the combination of our substantial holdings of cash, cash equivalents and securities and the decline in the market price of our ordinary shares from its historical highs, there is a risk that we could be classified as a passive foreign investment company (“PFIC”) for United States federal income tax purposes. However, based upon our market capitalization during 2012, we do not believe that we were a PFIC for 2012.  We cannot assure you, however, that the United States Internal Revenue Service or the courts would agree with our conclusion if they were to consider our situation. There is no assurance that we will not become a PFIC in 2013 or in subsequent taxable years. If we were classified as a PFIC, U.S. taxpayers that own our ordinary shares would be subject to additional taxes upon certain distributions by us or upon gains recognized after a sale or disposition of our ordinary shares unless they appropriately elect to treat us as a “qualified electing fund” or to make a “mark-to-market election” under the U.S. Internal Revenue Code. Our classification as a PFIC could also adversely affect the market price of our ordinary shares. For more information, see “Item 10—Additional Information—Taxation—United States Federal Income Tax Considerations with Respect to the Acquisition, Ownership and Disposition of our Ordinary Shares—Passive Foreign Investment Company Status”.

 

 

  15

  The price of our ordinary shares is subject to volatility.  

The price of our ordinary shares has experienced significant volatility in the past and may continue to do so in the future.  On April 2, 2013, in order to increase our per share trading price to satisfy the $1.00 minimum bid price requirement for the continued listing on the NASDAQ Capital Market , we completed a reverse split of our ordinary shares, upon which our shareholders received one ordinary share of Alvarion for every 10 ordinary shares held by them.  For the two year period ended December 31, 2012, the price of our ordinary shares on the NASDAQ Global Select Market and since October 19, 2012, the NASDAQ Capital Market has ranged from a high of $26.20 to a low of $3.20 (adjusted for the reverse split).  On December 31, 2012 and April 30, 2013, the closing price of our ordinary shares on the NASDAQ Global Select Market was $3.70 (adjusted for the reverse split) and $2.96 respectively.  We may continue to experience significant volatility in the future, based on the following factors, among others:  

 

 

 

 

 

 

 

 

  We must meet the Nasdaq Capital Market continued listing requirements or we risk delisting. If our ordinary shares are delisted, our share price may decline and it will likely make it more difficult for us to sell securities in a financing and for our shareholders to trade our shares.  

Our ordinary shares began trading on the Nasdaq Capital Market on October 19, 2012. Prior to October 19, 2012, our ordinary shares were traded on the Nasdaq Global Select Market. On April 26, 2012, we received a notification letter from the Nasdaq Listing Qualifications staff of the Nasdaq Stock Market advising us that, based on the closing bid price of our common stock for the 30 consecutive business days prior to April 26, 2012, we no longer satisfied the requirement that our common stock maintain a minimum bid price of $1.00 per share as required by Nasdaq Listing Rule 5450(a)(1). Nasdaq stated in its letter that in accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had been provided 180 calendar days, or until October 23, 2012, to regain compliance with the minimum bid price requirement. On October 24, 2012, since we met the continued listing requirement for market value of publicly held shares and all other applicable NASDAQ listing requirements, except the bid price requirement, we received an extension until April 22, 2012 to regain compliance with the minimum bid price requirement. Subsequently our ordinary shares were transferred to the Nasdaq Capital Market as of October 19, 2012.  On April 1, 2013, we completed a one for ten reverse split of our ordinary shares and subsequently we regained compliance with the minimum bid price requirement.  

 

  • general economic conditions;

  • our prospects;

  • actual or anticipated fluctuations in our sales and results of operations;

  • variations between our actual or anticipated results of operations and the published expectations of analysts;

  • general conditions in the telecommunications equipment industry;

  • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures and capital commitments;

  • introduction of technologies or product enhancements or new industry substitute standards that reduce the need for our products;

  • the effect of general political conditions on our operations and results; and

  • departures of key personnel.

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  We cannot ensure you that we will meet the minimum bid requirement or the other continued listing requirements of the Nasdaq Capital Market.  If our ordinary shares are delisted from

Nasdaq, we may be eligible to trade on the Over-The-Counter Bulletin Board, which may be a less liquid market, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, shares of our ordinary shares would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our ordinary shares, if delisted from the Nasdaq Capital Market, will be listed on a national securities exchange, a national quotation service, the Over-The-Counter Bulletin Board or the pink sheets. Delisting from Nasdaq, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our ordinary shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence. Future sales or the potential for future sales of our securities may cause the trading price of our ordinary shares to decline and could impair our ability to raise capital through subsequent equity offerings.  

Sales of a substantial number of our ordinary shares or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common shares or other securities to decline and could materially impair our ability to raise capital through the sale of additional securities.   Holders of our ordinary shares may be adversely affected through dilution.  

We may need to issue equity in order to fund working capital, capital expenditures and product development requirements or to make acquisitions and other investments. If we choose to raise funds through the issuance of ordinary shares, the issuance will dilute the ownership interest of our current shareholders.   Operating in international markets exposes us to risks, which could cause our sales to decline and our operations to suffer and could expose us to various legal, business, political and economic risks.  

While we are headquartered in Israel, approximately 97% of our sales in 2012 were generated globally, outside of Israel.  Our products are marketed internationally and we are, therefore, subject to certain risks associated with international sales, including the following:  

 

 

 

 

 

 

  • trade restrictions, tariffs, and technology import and export license requirements, which may restrict our ability to export our products or may make our products less price-competitive;

  • effects of economic conditions and credit availability;

  • adverse tax consequences;

  • greater difficulty in safeguarding intellectual property;

  • difficulties in managing our overseas subsidiaries and staffing multiple offices and multiple research and development centers, and the increased travel, infrastructure and legal compliance costs associated with multiple international locations;

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  We may encounter significant difficulties with the sale of our products in international markets as a result of one or more of these factors. As we expand our business globally, our

success will depend, in large part, on our ability to anticipate and effectively manage these risks.  Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, operating results and financial condition.   There may be health and safety risks related to wireless products.  

In recent years, there has been publicity regarding the potentially negative direct and indirect health and safety effects of electromagnetic emissions from cellular telephones and other wireless equipment sources, including allegations that these emissions may cause cancer.  Our wireless communications products emit electromagnetic radiation.  Health and safety issues related to our products may arise that could lead to litigation or other actions against us, or to additional regulation of our products.  We may be required to modify our technology and may not be able to do so.  We may also be required to pay damages that may reduce our profitability and adversely affect our financial condition.  Even if these concerns prove to be baseless, the resulting negative publicity could affect our ability to market our products and, in turn, could harm our business and results of operations.   Conducting business in Israel entails special risks.  

We are incorporated under Israeli law and our principal offices and the majority of our manufacturing and research and development facilities are located in the State of Israel.  Political, economic and military conditions in Israel and in the Middle East directly affect our operations. We could be harmed by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel. In the event of war, we and our Israeli subcontractors and suppliers may cease operations which may cause delays in the development, manufacturing or shipment of our products.  In recent years, there has been an escalation in violence among Israel, Hamas and other groups, as well as extensive and continued hostilities along Israel's border with the Gaza Strip. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons which could attract preemptive actions by Israel and/or Western countries.  Furthermore, since the beginning of 2011 there has been instability in the bordering countries such as Egypt and Syria. We have witnessed increased instability in the region, in particular related to the governmental changes in Egypt and the deterioration of the internal government and control of Syria's President Assad, over Syria's internal affairs. This and further deterioration could have an adverse effect on the stability of our region. Ongoing violence involving Israel, as well as tension between Israel and terror organizations and other countries in the Middle East, combined with political instability in the Middle East such as in Egypt, Libya, Syria, Iran and Lebanon, may have a material adverse effect on our business, financial condition and results of operations. 

 

 

  • difficulties in enforcing contracts and implementing our accounts receivable function, which introduces revenue recognition, translation, proximity and cultural challenges;

  • political and economic instability, particularly in emerging markets;

  • reduced protection for intellectual property rights in some countries where we may seek to expand our sales in the future;

  • laws and business practices favoring local companies;

  • differing labor standards;

  • costs of localizing our products for foreign countries and the lack of acceptance of localized products in foreign countries; and

  • fluctuations in currency exchange rates and the implications on our financial statements.

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  Furthermore, several countries, principally some of those in the Middle East, still restrict business with Israel and Israeli companies.  These restrictive laws and policies may seriously

limit our ability to offer our services to customers in these countries.   Our results of operations may be negatively affected by the obligation of our personnel to perform military service.  

Many of our officers and employees in Israel are obligated to perform annual military service duty until they reach age 45 and, in the event of a military conflict, could be called to active duty.  Our operations could be disrupted by the absence of a significant number of our employees due to military service or the absence for extended periods of one or more of our key employees due to military service.  A disruption could materially and adversely affect our business, operating results and financial condition.   We currently benefit from local government programs as well as international programs and local tax benefits that may be discontinued or reduced.  

We have received grants from the Government of Israel through the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor (“OCS”) for the financing of a portion of our research and development expenditures in Israel, pursuant to the provisions of The Encouragement of Industrial Research and Development Law, 1984, referred to as the “Research and Development Law”.  Pursuant to our current arrangement with the OCS, the OCS finances up to 20% of our research and development expenses by reimbursing us for up to 66% of the approved expenses related to our generic research and development projects. In addition, we obtain other grants from the OCS to partially fund certain other research and development projects. These programs currently restrict our ability to manufacture particular products or transfer particular technology outside of Israel. The Research and Development Law and related regulations permit the OCS to approve the transfer of manufacturing rights outside Israel subject to approval of the research committee and in exchange for the payment of higher royalties, for royalty-bearing programs. If we fail to comply with these conditions, the benefits received could be canceled and we could be required to refund any payments previously received under these programs or pay additional amounts with respect to the grants received under these programs.  If the Government of Israel discontinues or modifies these programs and potential tax benefits, our business, financial condition and results of operations could be materially and adversely affected.  

We have also received grants from the European Union, Romania and Spain for the financing of a portion of our research and development expenditures in those countries through various European programs.  Under these programs we need to comply with certain conditions. If we fail to comply with these conditions, the benefits received could be canceled and we could be required to refund any payments previously received under these programs or pay additional amounts with respect to the grants received under these programs.  If the European Union, the Government of Spain and/or the Government of Romania discontinues or modifies these programs and potential tax benefits, our business, financial condition and results of operations could be materially and adversely affected.  

In addition, we have been granted “Approved Enterprise” status under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”) for our production facilities in Israel. Such status enables us to obtain certain tax relief for a definitive period upon compliance with the Investment Law regulations. On April 1, 2005, an amendment to the Investment Law came into effect which significantly changed the provisions of the Investment Law. The amendment revised the criteria for investments qualified to receive tax benefits.  An eligible investment program under the amendment will qualify for benefits as a “Privileged Enterprise” (rather than the previous terminology of Approved Enterprise). Among other things, the amendment provides tax benefits to both local and foreign investors and simplifies the approval process. However, the amendment provides that terms and benefits included in any certificate of approval granted prior to December 31, 2004 will remain subject to the provisions of the law as they were on the date of such approval.  On January 1, 2011, another significant amendment to the Investment Law came into effect.  Such amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to such amendment.  However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the new amendment apply.  We have reviewed and evaluated the implications and effect of the benefits under the new amendment, and, while potentially eligible for such benefits, we have not yet chosen to be subject to the tax benefits introduced by such amendment. We believe that we are currently in compliance with the requirements of the Investment Law which are applicable to our enterprises.  However, if we fail to comply with these conditions in the future, the tax benefits received could be canceled and we could be required to pay increased taxes in the future.  

 

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  We are adversely affected by the devaluation of the U.S. dollar against the New Israeli Shekel and could be adversely affected by the rate of inflation in Israel.  

Substantially all of our revenues are generated in U.S. dollars.  A significant portion of our expenses, primarily salaries, building leases and related personnel expenses is currently incurred in NIS, and we anticipate that a significant portion of our expenses will continue to be denominated in NIS.  

As a result, inflation in Israel and/or the devaluation of the U.S. dollar in relation to the NIS has and may continue to have the effect of increasing the cost in U.S. dollars of these expenses; hence, our dollar-measured results of operations are and may continue to be adversely affected, though, the inflation in Israel has been moderate in recent years.   In order to manage the risks imposed by foreign currency exchange rate fluctuations, from time to time we enter into currency forward contracts and put and call options to hedge some of our foreign currency exposure.  We can provide no assurance that our hedging arrangements will be effective.  In addition, if we wish to maintain the dollar-denominated value of our products in non-U.S. markets, devaluation in the local currencies of our customers relative to the U.S. dollar may cause our customers to cancel or decrease orders or default on payment.   Provisions of Israeli law and our Articles of Association may delay, prevent or make difficult a merger or an acquisition of us, which could prevent a change of control and therefore depress the market price of our ordinary shares.  

Our Articles of Association contain certain provisions that may delay or prevent a change of control, including a classified board of directors.  Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees (in head count) that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.  These provisions of Israeli law could have the effect of delaying or preventing a change of control of us, may make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.  Furthermore, Israeli tax considerations may make potential acquisition transactions unappealing to us or to some of our shareholders.

 

 

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              It may be difficult to effect service of process and enforce U.S. judgments against our directors and officers in Israel or to assert U.S. securities laws claims in Israel.  

We are incorporated in Israel.  Our executive officers and a majority of our directors are not residents of the United States, and a substantial portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult to obtain a judgment in the United States or collect or get an Israeli court to enforce a judgment obtained in the United States against us or any of those persons. Furthermore, it may be difficult to assert U.S. securities laws claims in original actions instituted in Israel.   As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.  

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Listing Rules.  

We do not comply with the NASDAQ requirement that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans.  Instead, we follow Israeli law and practice in accordance with which the establishment or amendment of certain equity based compensation plans is approved by our board of directors.  

As a foreign private issuer listed on the NASDAQ Capital Market, we may also follow home country practice with regard to, among other things, executive officer compensation, director nomination, composition of the board of directors and quorum at shareholders’ meetings.  In addition, we may follow our home country law, instead of the NASDAQ Listing Rules, which require that we obtain shareholder approval for an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.  Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.   ITEM 4.                      INFORMATION ON THE COMPANY   A.            HISTORY AND DEVELOPMENT OF THE COMPANY –  

Our legal and commercial name is Alvarion Ltd.  We were incorporated in September 1992 under the laws of the State of Israel.  Since our inception, we have devoted substantially all of our resources to the design, development, manufacturing and marketing of wireless products.  

 

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  On August 1, 2001, Floware Wireless Systems Ltd., a company incorporated under the laws of the State of Israel (“Floware”) merged with and into us.  As a result of the merger, we

emerged as the surviving company and Floware’s separate existence ceased.  Upon the closing of the merger, we changed our name from BreezeCOM Ltd. to Alvarion Ltd.  On April 1, 2003, we completed an acquisition of most of the assets and the assumption of related liabilities of InnoWave.  In December 2004, we completed the amalgamation of interWAVE, and the interWAVE operations became our cellular mobile unit.  In November 2006, we completed the sale of our cellular mobile unit to LGC Wireless, Inc. (“LGC”), a privately-held supplier of wireless networking solutions in exchange for promissory and convertible notes of LGC.  In September 2007, LGC converted our convertible notes into LGC shares and thus we became a shareholder of LGC.  In November 2007, ADC Telecommunications Inc. ("ADC") acquired LGC and we sold our LGC shares to ADC. In the beginning of 2011 we acquired the intellectual property of Clariton Networks (“Clariton”) for a contingent consideration of up to $8.5 million of which none has been paid through April 30, 2013 as we have determined not to develop a product based on this technology. On November 23, 2011, we completed the acquisition of Wavion Inc. for an aggregate consideration of up to $28.4 million all of which was paid through December 31, 2012. On September 28, 2012, we entered into an agreement for the sale of a portion of our patent portfolio to Wi-Lan related to our BWA Division for consideration of up to $ 19.0 million.  Upon execution of the agreement we received $16.8 million as the first payment under the agreement and on May 13, 2013 we received a second payment in the amount of $1.5 million (with the second payment having been reduced based on changes to the portfolio of patents transferred to Wi-Lan).  On April 2, 2013, we effected a one for ten reverse split of our ordinary shares.  On May 10, 2013 we completed the sale to Telrad of our BWA Division. The consideration in the transaction was $ 4 million, payable in installments, and provides for additional performance –based milestone payments of up to $7.7 million.  Alvarion and Telrad also entered into mutual reseller agreements pursuant to which Alvarion will continue to provide carrier licensed solutions to its partners and distributors and Telrad will provide Alvarion’s unlicensed solutions to its carrier customers after the transaction is completed. The parties also entered into a transition services agreement governing various services relating to the BWA Division which will be provided by us to Telrad for a transition period and the consideration to be paid therefor by Telrad.  

 Our principal executive offices are located at 21A HaBarzel Street, Tel Aviv 69710, Israel, and our telephone number is 972-3-645-6262.  In 1995, we established a wholly-owned subsidiary in the United States, Alvarion, Inc., a Delaware corporation.  Alvarion, Inc. is located at 6701 Democracy Blvd., Suite 300, Bethesda, Maryland.  Alvarion, Inc. serves as our agent for service of process.  

We also have several wholly owned subsidiaries worldwide that handle local support, promotion, sales and developing activities. For a discussion of our capital expenditures and divestitures, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”   B.           BUSINESS OVERVIEW  

General –  

We concentrate our resources on the broad industry of wireless broadband and carrier Wi-Fi. As a wireless broadband pioneer, we have been driving and delivering innovation for more than 15 years, from developing core technology to creating and promoting industry standards. Through our acquisition of Wavion, we have entered into the carrier grade Wi-Fi market, which is one of our primary businesses.  

Our primary business is currently focused on two main markets, offering a wide variety of applications, which are mainly the following:  

Vertical Markets (Enterprise):  

Solutions for our Enterprise category include broadband wireless applications for a variety of vertical markets, providing owners and operators of public networks, private networks, utility companies and municipalities with broadband connectivity and applications that fulfill each organization's specific communication needs. Examples of such applications include government and municipal office connectivity, security and surveillance services, campus-to-campus broadband connectivity, oil and gas and mining company applications, emerging Smart Power Grids and Public Mobile Radio ("PMR") applications. In this market, we sell both WiMAX and Wi-Fi solutions, primarily in the license-exempt frequency bands with various applications, including point-to-point and point-to-multipoint.  

 

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  Service Providers (Mobile, Fixed and Cable):  

           Solutions for Service Providers address these customers' challenges in providing ubiquitous coverage and sufficient capacity in an era of ever growing demand for data services and applications. These solutions include Wi-Fi networks for off-loading of mobile data traffic from 3G/4G networks In the Service Providers category, we are offering our acquired carrier- grade Wi-Fi products and solutions as well as Wi-Max Products, based on Alvarion’s core technology.  

Our growth strategy is focused on providing optimized broadband wireless solutions to address connectivity, capacity and coverage challenges of public and private networks, enabling us to maintain our current position and grow along with the market demand for multi-technologies solutions and applications.  

Recent Developments  

During the early 2000s, we were  at the forefront of the development of WiMAX (Worldwide Interoperability for Microwave Access) technology, which provides for a full range of frequency bands with both fixed and mobile solutions, enabling the delivery of business and residential broadband access, corporate VPNs (Virtual Private Network), toll quality telephony, mobile base station feeding, hotspot coverage extension, community interconnection, public safety communications, and mobile voice and data. Products based on the WiMAX technology compete with other wireless media technologies, including (i) HSPDA, HSUPA, EVDO and (ii) 3rd and 4th generation cellular technologies ("4G"), such as UMB LTE. In particular, WiMAX technology, which was launched a number of years before LTE, was faced with fierce competition from LTE as a growing number of cellular operators adopted LTE for their 4th Generation Cellular Technology. By 2009, LTE became the prevailing technology for the 4G mobile mass market. While there remained a market for WiMAX due to certain technological advantages it has over LTE, particularly in rural and suburban areas with low-density populations, we determined that, along with continuing to manufacture and sell WiMAX based products, we needed to find other new long term growth engines.  

In 2010, we began to evaluate potential new directions and ruled out competing in the LTE technology market due to the fierce competition in that market, with participants such as Huawei, Ericsson and NSN as well as the substantial investment necessary for the development of this technology.  At the conclusion of this strategic evaluation process, we determined that we should focus on complementary solutions for mobile operators and to consider alternatives for our WiMAX business which was generating significant but declining revenues. We began implementing this strategy with our acquisition of Clariton for only contingent consideration in early 2011, although we ultimately determined not to pursue the Clariton technology.  As the next step in this strategy, in November 2011, we completed the acquisition of Wavion, a provider of carrier-grade Wi-Fi solutions. Wavion’s products use widely-accepted Wi-Fi technology and we believed that the Wi-Fi market was poised for continuing growth.  In addition, we believed that the acquisition would be beneficial to Alvarion since this market segment was not dominated by the world’s largest vendors and these products would generate higher gross margins than Alvarion’s current WiMAX products.  Finally, we recognized potential synergies based on internal know-how relating to Wi-Fi technology used in our BreezeACCESS VL and BreezeNET B products.  Throughout this period, we continued to manufacture and sell our WiMAX based products and continued to enter into contracts with new and existing customers and make necessary commitments to purchase raw materials to manufacture the WiMAX products, though we increased our focus generally on the unlicensed market.  

For the purpose of financing the acquisition of Wavion in November 2011, we obtained a $ 30 million secured credit facility from SVB.  We decided to finance the acquisition rather than use our cash on hand in order to retain available cash to meet the substantial working capital needs of our WiMAX business while growing our new Wi-Fi business.

 

 

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  During 2011, we implemented a restructuring plan including the layoff of approximately 200 employees as well as the vacating of certain leased premises. Nonetheless, we continued to

incur substantial losses, which were primarily the result of decline in revenues, increased competition which led to a decline in our profitability, and our inability to adapt our cost structure quickly enough to meet the reduction in revenues.  

Prior to the acquisition, Wavion was marketing Wi-Fi products based on the 802.11b/g standard (“WBS”) and was developing its product based on the 802.11n standard (“WBSn”).  Following the launch of the WBSn product, we noted certain problems with the stability and capacity of the product.  We subsequently undertook intense efforts to improve the stability of the WBSn product and relaunched the product in the first quarter of 2013.  While we continued sales of the WBS product, our sales of the WBS product decreased significantly in the second half of 2012 as the market was quickly migrating to the new 802.11n standard.  

During 2012, in particular in light of the significant cash requirements to fund the WiMAX business and the limited availability of credit both in the market generally and to Alvarion in particular, we were also evaluating various alternatives to exit the WiMAX business.  As part of this process, we separated the BWA Division, which included all of Alvarion’s licensed WiMAX business, from our unlicensed business. We ultimately decided to seek to sell the business and if we could not reach agreement with a buyer in a reasonable time, we would wind down the business. During 2012, we received several offers and negotiated with a number of potential buyers for the BWA Division, but we did not reach an agreement. The two primary challenges in disposing of the BWA Division were the long term commitments to our customers to provide product, service and support and the monetary obligations to our WiMAX suppliers, based on contractual commitments to purchase unused raw materials from such suppliers if we decide to exit the WiMAX business. .  While we continued to operate this business to maintain the customers, products and remain in the market, it continued to generate significant losses for Alvarion and had a negative impact on our working capital.  

Our other Vertical Products, primarily the BreezeMAX Extreme and BreezeACCESS VL continued to generate revenues during 2012, however, as these products had been on the market for a number of years, their sales declined in comparison to previous years. Due to our financial difficulty we were only capable of devoting relatively limited resources to developing replacements for these legacy products. We are beginning to replace these legacy products with our BreezeULTRA product, but we will need adequate working capital to market and sell this product.  

As a result of the difficulty we experienced with the launch and marketing of our WBSn product and our lack of success in disposing of the BWA Division, with respect to which we were required to continue to provide services to our customers and meet contractual commitments, we continued to suffer substantial losses during 2012. Our cash position was further negatively affected by our required principal and interest payments on the SVB Loan, as well as the closure of previously available credit lines with various Israeli banks. The foregoing led to our monetizing various assets that we had available such as the sale of a portion of our patent portfolio in September and November 2012 to Wi-LAN for $16.8 million (and received an additional $1.5 million in May 2013) and a debt of Nortel Network Corporation to us (“Nortel Debt”) in October 2012 for $5.2 million. We believe that while these monetization activities improved our cash position, they did not hurt our long term growth as the patents we sold related primarily to our WiMAX technology as well as other technologies which were not supported by our current and future products. In addition, we received a license back to all patents we sold to Wi-LAN.    

As noted above, the need to service the SVB Loan was negatively affecting our cash position and, as a result of our performance, we breached various financial covenants under the SVB Loan.   As a result, we entered into a number of modifications and amendments to the terms and conditions of the SVB Loan.  As part of those modifications and amendments and since our patent portfolio and the Nortel Debt that we sold were pledged in favor of SVB as security for the SVB Loan, we were required, through May 12, 2013, to repay an aggregate amount of approximately $25 million in principal amount of the SVB Loan, which further harmed our cash position.  

 

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  In January 2013, we signed a term sheet for the sale of the BWA Division and, on February 21, 2013, we signed a definitive agreement with Telrad. Under this agreement, Telrad assumed

a majority of the rights and obligations of the BWA Division as of February 21, 2013 including the obligation to provide products, service and support to our customers as well as a substantial portion of our obligations to our BWA Division suppliers. The closing of this transaction on May 10, 2013 generated some additional cash which marginally improved our financial situation and allows us to focus on our remaining businesses.  

As a result of the foregoing, our working capital deteriorated during 2012 and this deterioration has continued into 2013.  Our limited working capital has resulted and may continue to result in delays of shipments of our products, which has and may continue to have a material adverse effect on our revenues and profitability. The report of our independent registered public accounting firm with respect to our financial statements for the years ended December 31, 2012 and 2011 includes an explanatory paragraph that states that our declining sales, recurring losses, negative cash flows from operations, and our excess of credit line drawn over cash and cash equivalents as well as uncertainty in meeting credit line covenants, raise substantial doubt about our ability to continue as a going concern.   We are currently seeking to raise additional capital and are continuing to seek to reduce costs and increase sales, particularly of our new products, in order to improve our working capital position and continue to operate as a going concern.  We cannot ensure that we will be able to obtain funding on terms that will be acceptable to us or at all.  If we are unable to obtain additional financing for working capital, product development, launch and support or for our other capital requirements, we would be required to curtail our business operations further or cease our operations entirely.   INDUSTRY DYNAMICS –   Carrier Grade Wi-Fi Technology  

Driven by strong uptake among end-users, Wi-Fi has become a "game changer" for the mobile industry as well as fixed and other wireless market segments. With its high quality of service, low cost, high End-Users acceptance and ubiquitous availability, a growing number of users consume more traffic over Wi-Fi than on any other access technology. With this trend and with rapidly growing data requirements, operators have begun adopting Wi-Fi technology as a strategy for their future business. A growing number of operators, including AT&T, China Mobile, KDDI, DoCoMo, KT, PLDT, and Smart, are deploying or planning to deploy metro Wi-Fi networks for access and for cellular data offloading. With this trend the Company believes that the market for carrier-grade Wi-Fi equipment is poised to grow rapidly.  

Carrier grade Wi-Fi is defined as a Wi-Fi infrastructure solution that enables operators to deliver the high quality service end-users expect with easy access, fast broadband speed, security, and ubiquitous indoor and outdoor coverage. From the operators’ perspective, carrier-grade Wi-Fi solutions must address the coverage and capacity needs of a large deployment and therefore should be scalable to millions of users, come with robust interference immunity technology (critical for operating in the unlicensed spectrum in which Wi-Fi is used) and enable rapid deployment.  

Major carrier-grade Wi-Fi market trends:  

We believe that Wi-Fi offloading is growing worldwide and that the number of Wi-Fi hotspots will increase substantially over the next several years. The expansion of Wi-Fi availability into large metro “hot-zones” such as San Francisco, London, Singapore, Seoul and Tokyo, will create opportunities for new applications and services such as indoor location-based navigation and location-based advertisements and there is already a growing interest in this space from small startups to large vendors such as Google, Microsoft and Nokia.  

 

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   Alvarion WBSn – a family of carrier-grade Wi-Fi base stations:

  WBSn is a family of advanced carrier-grade Wi-Fi base-stations operating in the 2.4 and 5 GHz bands. WBSn base-stations use powerful two-way beamforming 802.11n and unique

interference immunity technology to deliver good range, capacity and indoor penetration. WBSn is a service-aware platform, addressing the growing demand for faster connectivity and video applications and is optimized for scalable large networks, and applications related to Wi-Fi hotspots, mobile data offloading, capacity wholesale, smart cities, indoor/outdoor large venues, and large corporate networks. WBSn base stations enable operators to rapidly deploy large scale Wi-Fi networks with the quality of service end-users expect.    The Evolution of Wireless Broadband –  

During the last decade the desire to be connected regardless of time and place has grown extensively due to the introduction of new handsets allowing connectivity and easy-to-use applications (such as iPhones and iPads). Furthermore, the cultural effect of social networks (such as Facebook, Twitter, and LinkedIn) has changed the way people communicate on a daily basis.  

Along with the increased demand for on-line connectivity, the wireless broadband market has grown due to the acceptance of wireless equipment as a high performance, cost-efficient alternative to wireline infrastructure for broadband connectivity.  

In developed countries, government financial support encourages operators to provide broadband coverage in rural and suburban areas with low-density populations, where the business model for wired infrastructure is less cost-effective.  In developing countries, government financial support is provided to encourage operators to offer basic telephony services and Internet access based on wireless broadband infrastructure in order to meet demand, mainly in urban and suburban areas.  

The worldwide success of broadband connectivity and services creates demand for additional broadband networks mainly in regions where broadband was not yet widely available.  The accelerated proliferation of broadband services and networks around the world as well as the commoditization of broadband devices and services has generated more demand for broadband in developing regions, often referred to as the world’s emerging markets. In these regions, wireline infrastructure is often non-existent, resulting in an accelerated widespread adoption of wireless broadband networks.   Government Spectrum Allocation Enables Network Deployments  

Global telecom spectrum allocation is opening up the telecommunications industry to competition from new players. Wireless technologies require the use of frequencies contained within a given spectrum to transfer voice, multimedia and other data services. Usually, governments allocate a specific range of that spectrum, either licensed or license-exempt (“unlicensed”) bands, to carriers,  operators,  ISPs and other service providers, enabling them to launch a variety of broadband initiatives based exclusively on wireless networking solutions. We believe that during the coming years additional frequency bands for unlicensed spectrum will be released. Increased availability of unlicensed spectrum enables operators to address increasing demand for wireless broadband. New and developing technologies combine the use of licensed and license-exempt bands, allowing new cost-effective network deployment strategies and availability of coverage and capacity in very low density areas.

 

 

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  Additional Factors in the Widespread Adoption of Wireless Broadband  

Over the last few years, wireless broadband networks have increasingly grown in popularity and we believe they will continue to do so, due in part to the inability of wired infrastructure to meet demand, but also because of the following factors:  

 

 

 

 

 

 

 

  COMPANY STRENGTHS -

  For more than 15 years, our primary business activity has been focused on fulfilling the growing demand for IP wireless broadband in the telecom industry by providing solutions and

services to build wireless broadband networks. In addition, we have deployed through our customers fixed wireless broadband solutions for applications, such as toll quality telephony service, mobile base station feeding, hotspot coverage extension, municipal and community interconnection, utility company metering and monitoring applications, as well as public safety communications.  

Our key strengths include:  

Market Coverage and Brand Recognition: We are a worldwide wireless vendor with a business focus in unlicensed solutions, with carrier grade products for mobile operators and broadband wireless access networks, and we believe that we enjoy a strong brand purpose and brand identity.  

Customer Base:  We have a broad customer base, with extensive world-wide fixed, nomadic and mobile commercial deployments.  

Technology: We have over 15 years of experience in end-to-end broadband wireless IP and we believe we have been a leader in the broadband wireless access market for more than a decade. In the Wi-Fi market, on which we are currently focused, we market our two-way beamforming 802.11n 3x3:3 base station with a unique Interference Immunity suite.

  Execution Capabilities: We have the ability to deliver and deploy a complete end-to-end solution in terms of product, technology, and full end-to-end network deployments, radio

planning and network services resulting in the ability to build long-term customer relationships (excluding civil work type of activities). We believe that we are able to provide flexibility and technology differentiators according to customer demands and needs.

 

 

  • the low cost of Wi-Fi components made the insertion thereof to electronic devices very cost effective and common;

  • our belief that Wi-Fi as well as LTE, which we do not provide, are currently the technologies that are the most advanced and well-suited to cost-effectively meet the requirements of personal broadband (fixed and mobile) and that Wi-Fi complements the LTE technology which is used by many mobile operators, especially in high traffic areas; allowing these operators to offer additional data services in unlicensed frequency bands based on the users’ existing mobile devices.

  • competition among various types of telecommunications players to offer multiple services using a single network;

  • growing trend of public access providers to build infrastructures owned by municipalities;

  • rapid progression of standardization by international authorities, such as 802.11, 3GPP combined with the wide adoption of these standards by equipment vendors and carriers;

  • attractiveness of the business model offered to operators that use high performance standardized and interoperable products;

  • convergence of fixed and mobile services; and

  • proliferation of user-friendly, Internet-centric end user devices which encourage the use of bandwidth thirsty applications.

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  Experience in Wireless Broadband  

Our experience in wireless broadband enabled us to identify the potential of WiMAX in early 2002, ahead of most equipment vendors. We were at the forefront of developments with WiMAX technology since its inception, at a company and industry level until we substantially exited this business in 2013.  We further leveraged our experience in wireless broadband and WiMAX as we entered into carrier grade Wi-Fi, including through the acquisition of Wavion during the fourth quarter of 2011, through which we gained personnel with valuable experience and technical expertise in the field of carrier grade Outdoor Wi-Fi.  We have thereby enhanced our experience in several key technologies such as beamforming, real time radio management, advanced antenna design and smart location management.   STRATEGY   Our growth strategy contains two primary elements. The first element is providing segments of wireless broadband networks for select enterprise vertical markets (including safe city, mining, education, municipalities, utilities, among others in licensed and license-exempt environments. We offer our customers optimized access, CPE’s and backhaul solutions. We plan to make additional investment in product development, channel recruitment and go-to-market activities in new vertical markets/domains.  The second element of our strategy is to offer indoor coverage and capacity solutions and carrier-grade Wi-Fi offload systems to mobile carriers. This is a growing market looking for solutions to offload data from 3G/4G networks, creating a large demand for Wi-Fi solutions. PRODUCTS –   Our BreezeMAX Wireless Broadband Access Solution Platforms (WiMAX technology in licensed exempt frequency bands)  

BreezeMAX has become a popular solution for operators offering fixed high-bandwidth, VoIP and data services to evolve their networks to industry-standard solutions with improved outdoor and indoor customer premises equipment ("CPE") economics. This platform includes an enhanced offering of primary voice services and allows an operator to leverage legacy voice infrastructure. The system’s features and cost-effective, versatile subscriber units make BreezeMAX a widely accepted broadband wireless solution for service providers that are interested in improving their business model.  The BreezeMAX platform for licensed frequency bands was part of the discontinued operation sold to Telrad. The BreezeMAX Extreme described below, operates in license exempt frequency bands and is part of the Alvarion product portfolio.  

BreezeMAX Extreme 5000 and 3600 are the first wireless broadband solutions to bring WiMAX 16e technology to the 5 GHz license-exempt market. A highly integrated, all outdoor base station, BreezeMAX Extreme 5000 and 3600 are designed for ease-of deployment and reduced total cost of ownership. Built with the customer in mind these solutions offer easy configuration and a self-sustained ecosystem, ideally suited for Wireless Internet Service Providers (“WISP”s), municipalities, utilities, enterprises and public safety networks.  

BreezeMAX Extreme 3650 is an all outdoor zero footprint WiMAX 16e wireless broadband solution for rural America.  

Our Wireless Broadband Access Solutions (Non-WiMAX)We provide a broad range of integrated wireless broadband solutions, addressing different markets and frequency bands, designed for the various business models of carriers, service providers and private network owners such as municipalities, businesses, utilities and more.  Our products address point-to-point and point-to-multipoint architectures for a wide scope of end-user profiles, including residential, small office/home office (“SOHO”), small/medium enterprises (“SME”), multi-tenant/multi-dwelling units (MTU/MDU) and large enterprises (corporate). Our core technologies include spread spectrum radio, linear radio, digital signal processing, modems, media access control, IP-based mobile switches, networking protocols and very large systems integration (“VLSI”).

 

 

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  Most of our non-Wi-Fi, non-WiMAX wireless broadband solutions are based on OFDM technology with NLOS (non-line of sight) capabilities, creating more possibilities to cover a

wireless access network.  

Many applications can be deployed over wireless broadband systems.  Data, voice and video applications can be utilized by telecom operators, service providers and regional carriers based on the needs of their regions of operation.  

In addition to data and voice, applications such as video surveillance are deployed over our networks in municipalities and other markets such as mining, oil and gas, campus deployments and more.  

Wireless broadband solutions are implemented in a modular infrastructure, enabling swift, cost-effective roll-out as needed. Sectorized base stations are deployed to provide radio coverage to the targeted area, and frequency channels are reused in non-adjacent base station sectors, making the most efficient use of the available spectrum. Base stations are connected to the operator’s central office, or point-of-presence, using wired or wireless point-to-point solutions. End users are provided with CPE, typically consisting of an outdoor unit with a radio and an antenna connected to an indoor unit or indoor self-installed unit, which present voice and data interfaces to the customer network.   BreezeULTRA Products

Our BreezeULTRA P6000 is a family of wireless broadband products that operate in the 5.1 – 5.9 GHz unlicensed frequency band, leveraging 802.11n protocol. BreezeULTRA optimizes the performance of applications such as data, voice, or video using quality of service (QoS), to guarantee high-quality voice and support time-critical applications in parallel to broadband applications such as high-definition video streaming. To help meet the challenges of today’s hyper-dynamic world our BreezeULTRA products offer a combination of multiplicity, performance, organic growth and simplicity. BreezeULTRA P6000 supports non-line-of-sight coverage and mitigate interference with OFDM, MIMO (multiple-input and multiple-output), Diversity Techniques and DFS, to precisely meet bandwidth needs. BreezeULTRA P6000   is optimized for a variety of vertical markets and applications such as smart cities, public safety, Oil & Gas industry, education and backhauling. BreezeACCESS Products  

BreezeACCESS enables fixed high-speed data and voice, point-to-multipoint wireless broadband applications. BreezeACCESS products operate in several frequency bands to meet the needs of our customers in our market throughout the world.  The BreezeACCESS product family consists of base stations, including access units, controllers and subscriber units. The latter operates optimally when connected to computers or computer networks utilizing the Internet Protocol.  The subscriber units include subscriber units for data applications and subscriber units for data and telephony applications. BreezeACCESS is modular in design, allowing for a low initial investment, and is scalable to enable future growth.  

BreezeACCESS VL is an OFDM-based, carrier-class, point-to-multipoint solution for wireless broadband outdoor connectivity and the delivery of high-quality data, voice and video services in urban and rural environments. BreezeACCESS VL lets WISPs, municipalities, governments, enterprises and utilities providers deliver an array of broadband wireless applications in urban and rural deployments. It provides enhanced QoS capabilities to enable the allocation of the necessary bandwidth and priority in line with application and user needs. BreezeACCESS VL supports an extended coverage range in the 4.9, 5 GHz frequencies and the license-exempt 900 MHz frequency bands, and features embedded security mechanisms with hardware-based encryption to ensure consistently secure wireless links that do not degrade performance.  BreezeACCESS VL is a field-proven, flexible platform that enables diverse product configurations and power feeding options to match varying deployment needs. The solution adheres to Alvarion's "pay-as-you-grow" business model (enabling customers to start small and scale up) to ensure maximum scalability and supports a wide range of subscriber units to offer an affordable, optimized solution for what we believe is top performance.

 

 

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  BreezeNET B Products  

Our BreezeNET B products are designed to provide highly reliable, backhaul, building-to-building bridging solutions, support mobile connectivity and provide individuals or small groups of users with wireless access to a LAN primarily for backhaul in the WISP market and building-to-building bridging solutions in the vertical market.  

BreezeNET B products function as a wireless bridge system that provides high-capacity and high-speed point-to-point connectivity.  

The BreezeNET B system operates in the unlicensed 2.4, 4.9-5.8 GHz bands and has flexible rate options: B10, B14, B28, B100, B300 delivering up to 250 Mbps with symmetric or fully symmetric, fixed or dynamically adjusted allocation reaching up to 60 km.  

BreezeNET B operates in NLOS environments, such as buildings, foliage or ridgelines. The system also features adaptive modulation for automatic selection of modulation schemes to maximize data rate and improve spectral efficiency. BreezeNET B supports security sensitive applications through optional use of authentication and data encryption. The system supports Virtual Local Networks (“VLANs”), which enable secure operation, and VPN services, which allow workers in remote locations or remote offices to conveniently access their enterprise network.   Carrier Grade Wi-Fi – WBS Products  

WBS-2400 is a carrier-grade range of base stations for advanced wireless broadband, and is a solution for urban and rural outdoor Wi-Fi deployments. Based on Alvarion’s spatially adaptive beamforming technology, and operating with any off-the-shelf 802.11b/g standard-based devices, the WBS-2400 provides significant performance gains in terms of range, throughput, indoor penetration and interference mitigation, enabling service providers to offer cost effective Wi-Fi service without compromising quality.  

The beamforming technology maintains high quality signals under NLOS conditions, enabling uniform coverage of the entire area, and creating a larger addressable market per base station. The superior link gain provides higher throughput and network capacity, with the SDMA technology doubling the downlink capacity per base station. The inherent spatial filtering of the beamforming technology and the unique dynamic interference handling capabilities help ensure good operation even in noisy environments. WBS-2400 is cost-effective, and by increasing the addressable market per base station, and by the standards based approach, provides the lowest cost per line.  

WBS-2400 is a robust and weatherproof IP-67 platform, and is designed to withstand extreme weather conditions. The WBS-2400 range of base stations have been optimized for a wide range of applications including business connectivity, municipal networks, metro zone networks for outdoor access and cellular data offload, public safety (video surveillance over wireless), VoIP / rural connectivity, education campuses, residential access, building coverage and the hospitality industry.  

With an array of six antennas and six radios, the WBS-2400 Omni leverages our beamforming technology to provide superior connectivity, extended range and increased capacity, and succeeds in significantly increasing the coverage provided in comparison to conventional access points. Furthermore, our advanced SDMA technology increases the base station’s downlink capacity. These characteristics enable service providers, municipalities, and enterprises to deliver high quality Wi-Fi service with significantly fewer base stations compared to competing solutions at a much lower cost.

 

 

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  The WBS-2400 Sector base station is a solution for Wi-Fi deployments that require sector coverage. Based on an array of three antennas covering a 120° degree sector and three radios,

the WBS-2400 sector leverages our beamforming technology to provide extended range and connectivity under both LOS and NLOS conditions. Furthermore, our advanced SDMA technology increases the base station’s downlink capacity. These characteristics enable service providers, municipalities, and enterprises to deliver high quality, Wi-Fi service with significantly fewer base stations compared to competing solutions at a much lower cost.   Carrier-Grade Wi-Fi -- WBSn Products  

WBSn base stations, the Alvarion solution for carrier-grade Wi-Fi, is a family of advanced outdoor Wi-Fi base stations suitable for a broad range of applications. Operating in the license-exempt 2.4 and 5 GHz bands, and leveraging spatially adaptive beamforming together with 3x3:3 MIMO technology, the WBSn family delivers  range and capacity, and addresses the growing needs of operators to deliver new content-rich services, while maintaining quality of service. WBSn base stations are carrier grade IP-68 certified, with a rich set of security, QoS and management tools, and with a built-in access controller, helping reduce cost and increase availability. Our spatially adaptive beamforming technology is based on an array of multiple radios and multiple antennas, leveraging the multiple signals received and transmitted. The multiple signals are properly adjusted by the beamforming technology to maximize the transmission signal at the client modem and the receiving signal at the base station modem. With Alvarion’s approach to beamforming, up to six powerful radios are in the base station and are used together with high gain antennas to form efficient dynamic beamforming per packet. The WBSn family is environmentally friendly with low power consumption, for off-grid powering, and complies with green standards.  

Alvarion’s technology combines Tx and Rx spatially adaptive beamforming and 802.11n 3x3:3 MIMO for excellent coverage and capacity for delivering up to Gigabit per second capacity and 450 Mbps data speeds. The beamforming technology leverages a unique High Gain Diversely Polarized (HGDP) antenna array for enhanced performance, and significantly increases the link gain and interference immunity. Simultaneous 2.4 and 5 GHz band support for access services addresses the growing usage of 5 GHz in handheld devices and laptops, and the built-in integrated backhaul in 2.4 and 5 GHz, with self-forming and self-healing properties, provide strong performance under both LOS and NLOS conditions, by leveraging Alvarion’s beamforming and 3x3:3 MIMO technologies. WBSn base stations are complemented by Alvarion service provisioning, management tools, and a span of generic CPE devices, enabling numerous urban and rural applications at a low cost per bit. The WBSn base stations are IP-68 outdoor rated, are designed for high reliability, quality of service and security and come with a complete set of FCAPS management and service provisioning tools.  

Alvarion’s base stations enable carriers, internet service providers, governments and private networks to deploy outdoor Wi-Fi networks in metropolitan and rural areas, for a variety of applications, including seamless cellular offload, hot-zone and hot-spots, residential and business access, rural communities, government and private networks, education (schools and universities), municipal networks and safe cities, the health and hospitality industries, oil and gas, industrial and construction sites, mining, terminal hubs, malls and other large venues, smart power grid and automatic meter reading and telemetry.   WBSn Carrier-Grade Wi-Fi Form Factors  

The WBSn family includes base stations in four form factors, all IP-68 compliant, designed to withstand harsh outdoor environments, with flexible pole/wall installation and various field-of-view antennas. The WBSn-2400-S Sector base station operates in the 2.4 GHz band, and theWBSn-2450-S Sector base station, operates in the 2.4 and 5 GHz bands simultaneously. The sector form factor base stations are suited for building or street coverage, offering a range of direction that can be adjusted according to the coverage needs of the customer. The WBSn-2400-O Omni base station operates in the 2.4 GHz band, and the WBSn-2450-O Omni base station operates in the 2.4 and 5 GHz bands simultaneously. The Omni form factor base station offers 360 degree coverage, making it an excellent choice for providing effective Metro Wi-Fi, and consequently enabling carriers to comprehensively cover larger areas and address more customers per base station. Operating in the unlicensed band requires strong interference immunity algorithms and tools to cope with existing and future interferences. The built-in Interference Immunity Suite combines the inherent beamforming ability to suppress interference, comprising the Dynamic Interference Handling (DIH) algorithm that continuously optimizes receiver’s parameters according to noise level, the Automatic Channel Selection (ACS) algorithm for best operating channel online selection, the Wavion Rate Adaptation (WARA) for optimal rate selection in environments with high interference, and the capabilities of both Down Tilted Antennas (DTA) and sector antennas to reject noise out of their field-of-view.

 

 

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  Network Management Solutions.  We provide advanced network management applications for our wireless solutions. Our network management applications are equipped with

graphical user interfaces and provide a set of tools for configuring, monitoring and effectively managing our wireless networks.   

 

  Our Geographic Markets  

The following presents total revenue by geographic region:  

 

  WavioNet is an advanced Simple Network Management Protocol based  Network Management System (NMS) application for Alvarion’s carrier Wi-Fi solutions and products - Base Stations and CPEs. WavioNet offers a rich toolbox of network management and monitoring features. It offers flexible viewing options, advanced and customizable fault management, performance monitoring as well as configuration and user management.

  Star Management Suite is being used to manage the other products in Alvarion’s portfolio -  the BreezeMAX Extreme, BreezeULTRA and BreezeAccess VL. It is fully compliant with Telecommunications Management Network (TMN) standards and simplifies network deployment and maintenance for networks of every scale. The Star Management Suite is made up of specific management tools that cover the entire service life-cycle - from initial installation to full service provision, and all monitoring, reporting and troubleshooting tasks required for efficient network operation. The Star Management Suite can be deployed gradually, module by module, in accordance with network needs.

    2010     2011     2012  In thousands  

North America  $ 14,679     19%  $ 16,822     23%  $ 8,720     17%Latin America    10,072     14%    10,724     15%    6,788     14%Europe, Middle East and Africa    38,875     52%    31,304     43%    16,169     32%Asia Pacific    11,388     15%    13,423     19%    18,272     37%                                     Total  $ 75,014     100%  $ 72,273     100%  $ 49,949     100%

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  General – Industry Market Segments and Players  

The operators in the wireless broadband market fall within the following categories, as determined by the industry:   Communications Service Providers: Tier One and Tier Two Operators  

Tier One and Tier Two operators form the largest and most established group of telecom operators, with nationwide or global presence, serving tens of millions of users. These operators are a primary focus for our Wi-Fi offering.   In numerous cases, these operators have a broadband wireless services unit. These operations are well addressed by Wi-Fi networks which can provide robust services at high QoS levels to large scales of users and enable these operators to maintain their position at the front line of communications services business. An example of a Tier One carrier that is using our Wi-Fi offerings for such deployments is PLDT (Philippines)   With the proliferation of smartphones and tablet devices, many of the mobile Tier One and Tier Two operators are experiencing congestion and deteriorating QoS in their data networks. Wi-Fi equipment enables these operators to offload some of this traffic from their networks, resulting in improved QoS and user experience. Many of the world's leading mobile operators have publicly indicated their intent to use this technology approach, including AT&T, Verizon, Vodafone, Orange, NTT and KDDI.  

 Broadband Service Providers  

Broadband service providers build their business model primarily on Point to Multi-Point solutions. Alvarion WiMAX products are one of the options these operators have.  Broadband service providers are expected to constitute a greater portion of the Point to Multi-Point market in the future. Examples of service providers in this category include OMG Fast (United Sates), NGI S.p.A (Italy) and Adam Internet (Australia).  

Vertical Markets  

Private and government sectors that operate private networks for business management and operations are in constant need of technologies to support their operational requirements. Examples of such requirements are enterprises that require leased line replacement for cost-effective connectivity to provide VoIP and data services; metropolitan area networks for broadband connectivity; metering and monitoring applications used by utility companies to collect information and supervise operations; and cost-effective access within communities, municipalities and educational institutions. Additional areas that have leveraged broadband wireless effectively include surveillance, public safety and municipal applications. Government authorities and private organizations with government sponsored funds have begun to deploy broadband wireless systems to support remote video surveillance, traffic flow management, back-up for disaster recovery, leased line replacement, various forms of backhaul and other public safety uses.  Examples may be found in various U.S. communities such as Houston, Texas, Richardson, Texas and many others.    

 

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  2012 Partial Customer List  

Telecom carriers and service providers using our products include, among others:   Beijing Huasun Unicreate Co. Winncom Technologies, Inc PCS Technologies, Inc. NGI Spa NEC Wireless Connections Nodes Network Com Avances Tecnologicos OMGFAST Connect Data Mirait Technologies Corp. Arya Communications & Electronic Services Sysnet Integrators Inc Anixter (All Subsidiaries) ITM Gmbh Adam Internet RLAN Veracomp Sa Systemas Y Servicios De Comu ABSA Comunicaciones S.A. Hutton Communications Scansource Latin America Equipements Scientifiques Wireless Tech (Australia) Lt Elmat S.P.A Rikei Corporation Photonix Communications Pty Upgrade Communication As Net Iletisim Ltd   TECHNOLOGIES UNDERLYING OUR PRODUCTS  

We use internally developed core technologies and continue to invest in augmenting our expertise in networking, radio, digital signal processing (“DSP”) modem technologies, Media Access Control ("MAC") technologies and Radio Resource Management ("RRM") technologies.  We also participate as active members in international standards committees.

 

 

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  Networking Technology  

To support the unlicensed WiMAX platforms and other products, we have developed or otherwise acquired, and continue to invest in, networking expertise in the areas of IP Access and Mobile IP that is particularly adapted for mobile WiMAX networks, ASN-GW, Point-to-Point Protocol Over Ethernet (“PPPoE”) tunneling, VPN and VoIP, based on industry standards, such as H.323, SIP and MGCP, and other Internet standards and protocols.  We have also developed, and are continuing to develop, know-how to satisfy market requirements with respect to quality of service, classes of services, committed information rate, maximum information rate, virtual LAN management and prioritization. We are developing access technology based on the IEEE 802.16-2004 and the IEEE 802.16e-2005 standards, as well as the WiMAX Forum™ technical specifications for both radio access and networking to further support the needs of customers using WiMAX. We have also developed a network management system that provides network surveillance, monitoring and configuration capabilities for all our products.   Radio Technology  

We have in-house radio development capabilities to address the diverse frequency bands and modulation methods of our products. The modulation methods include Frequency Hopping Spread Spectrum (FHSS), Gaussian Frequency Shift Keying (GFSK), Direct Sequence Spread Spectrum (DSSS), Single Carrier QAM and OFDM and OFDMA. Our products include both TDD and FDD radios.  

Our radio teams specialize in low cost, mass-production oriented radio design.  The system level capability is software-assisted radio auto-calibration, which allows for reduced manufacturing costs and compensates for components’ parameter spread and instability, temperature-related changes and aging of components.  

Our internal radio expertise enables us to attract customers by addressing promptly new needs, such as new frequency bands.  

We have developed or otherwise acquired, and continue to invest in, radio technology expertise, specifically high efficiency, high power radios and new interfaces between the modem and the remote radio heads.   Digital Signal Processing ("DSP") Modem Technology  

We maintain expertise in DSP and in modem design. Our capabilities include a hardware oriented design, as well as programmable DSP oriented design. Our modem design hinges on the Software Defined Radio paradigm. The extensive configurability of our base station modems, through Field Programmable Gate-Array (“FPGA”) and DSP reprogramming, allows us to readily introduce advanced features to our products and to follow amendments to emerging standards, including capability to upgrade deployed networks by downloading only software. Similarly, our CPE designs allow for upgradeability through over the air software download, simplifying our customers' operations.  

We have also developed mixed signal ASICs containing DSP cores. Inclusion on-chip of analog-digital converters is instrumental to both cost reduction and power consumption reduction. First generation ASIC supports our IEEE 802.11-based FH-GFSK products, with the above-standard capability of delivering 3 Mbps, with automatic fall back to 2 Mbps and 1 Mbps as necessary. Our second generation ASIC is optimized for OFDM modulation, as used by the IEEE 802.11a/g standards and the IEEE 802.16a standard. This ASIC is based on proprietary programmable “very long instruction word” DSP architecture. The programmable architecture allows us to implement numerous beyond-standard capabilities, such as OFDMA extensions to the baseline OFDM mode.  

 

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  DAS  

Alvarion introduced a distributed antenna system offering in 2011. The system uses proprietary RF technology based on intellectual property acquired from Clariton. By manipulating cellular RF signals the system can transport these signals across cable TV infrastructure to provide coverage and capacity within large buildings. The technology is termed TrueActive and provides amplification at the end points called Remote Units where the cellular signal is being emitted towards mobile handsets and where the signal is being received from transmitting mobile handsets.  

  This structure provides uplink gain and minimal noise level required for high capacity cellular data networks. The technology is protected by various patent filings.

Alvarion Carrier Grade Wi-Fi Technology   Beamforming 802.11n   Alvarion’s technology combines Tx and Rx spatially adaptive beamforming and 802.11n 3x3:3 MIMO for effective coverage and capacity.   The true spatially adaptive beamforming technology leverages a High Gain Diversity Polarized (HGDP) antenna array for maximum performance. The beamforming significantly increases the link gain and interference immunity. Moreover, it exploits multipath to its advantage by coherently combining signals traveling in different propagation paths, providing LOS and NLOS coverage, and indoor penetration.   With 3x3 MIMO and three spatial data streams, Alvarion’s base stations set up a new market milestone delivering up to gigabit capacity and 450 Mbps data speeds.   Interference Immunity Suite   Alvarion’s interference immunity combines the beamforming inherent ability to suppress interference, the Dynamic Interference Handling (“DIH”) algorithm for continuous receiver parameter optimization according to the noise level, the Automatic Channel Selection (“ACS”) algorithm for optimal selection of the best operating channel, the Alvarion Rate Adaptation (“WARA”) for optimal rate selection for any environment, and the Down Tilted Antennas (“DTA”) and sector antennas capability to reject interference out of their field-of-view. Alvarion’s interference immunity suite leverages over a decade of outdoor Wi-Fi experience.   Multi-band Access  

Alvarion’s multi-band access provides simultaneous 2.4 and 5 GHz band support for access services, addressing the growing usage of 5 GHz in handheld devices and laptops.   Integrated Backhaul  

Alvarion’s integrated backhaul provides support in 2.4 and 5 GHz, with self-forming and self-healing, providing performance in both LOS and NLOS by leveraging Alvarion’s beamforming and 3x3:3 MIMO technologies.   Carrier Grade  

Alvarion’s base stations are IP-67 outdoor rated and are designed for high reliability, quality of service and security. Alvarion base stations come with a complete set of FCAPS management and service provisioning tools.  

 

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WBSn Access Control embedded and WCC  

The WBSn built-in Access Controller (“AC”) includes a powerful embedded AC function which enables access control and policy enforcement at the at the network edge. As a result of this, only policed traffic is backhauled, reducing backhauling capacity requirements and charges. Furthermore, the network is truly scalable with no single point of failure as the need for a powerful, data crunching centralized Access Controller is waived.   Wi-Fi Cloud Controller (“WCC”)  

With large scale Wi-Fi networks the WCC acts as a mediation gateway to an operator’s core such as needed for Wi-Fi-3G/LTE mobility in trusted and untrusted non-3GPP network topologies.   IOT Labs and Activities  

To support our OPEN Wi-Fi strategy and enable a strong ecosystem of Network Controllers, Clients, (such as Smart Phones), CPEs and devices by top industry vendors we have created our Inter-operability testing (IOT) capability which tests a variety of products for interoperability on an ongoing basis, with the goal of ensuring that customer specific configurations  are fully supported. We test products from a variety of vendors in an Alvarion network environment using Alvarion BaseStations and, on occasion, an Alvarion Access Controller, depending on the customer configuration.   SALES, MARKETING AND SUPPORT OF OUR PRODUCTS –  

We sell our products primarily through an extensive network of more than 200 active partners. These include global and local system integration and service fulfillment partners in various geographic regions, solution partners, national and local distribution partners, and resellers.  Our distribution partners in turn sell to resellers, including value-added resellers and systems integrators, as well as to end users.  

We currently sell and distribute our products in more than 120 countries worldwide.  The use of different types of marketing channels through our partnership network enables us to market our products to many different markets and to meet the differing needs of our customers.  

We are seeking additional strategic relationships with international partners, strong local partners and other key companies to increase our exposure and establish ourselves as a supplier to service providers, telecom markets and end-user markets that are not reached by our present distribution channels.  

We operate in various regions. Our subsidiaries and representative offices, located throughout North America, South America, Europe, Africa and Asia, support our international marketing network.  

We derive our revenues from different geographical regions.  For a more detailed discussion regarding the geographic allocation of our revenues based on the location of our customers, see “Item 5—Operating and Financial Review and Prospects—Operating Results.”  

We conduct a wide range of marketing activities aimed at positioning and generating recognition and awareness of our brands throughout the telecommunications industry, as well as identifying leads for distributors and other resellers. These activities include public relations, participation in trade shows and exhibitions, advertising programs, public speaking at industry forums and website maintenance.  

We maintain a highly trained global technical support team that participates in providing customer support to customers who have purchased our products.  This includes both direct support rendered by us when we perform turn-key projects, and local support by distributors’ and system integrators’ personnel trained by our support team, support through help desks and the provision of detailed technical information on our website, expert technical support for resolution of more difficult problems, as well as participation in pre-sales and post-sales activities conducted by our distribution channels with large customer accounts and key end users.

 

 

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  We organize technical seminars covering general technologies, as well as specific products and applications.  We also have qualification programs to advance the technical knowledge

of our distributors and their ability to sell and support our products.  These seminars are held in various countries and in different languages as needed.  

MANUFACTURING OPERATIONS AND SUPPLIERS –  

We currently subcontract most of the manufacturing of our products.  We have a pre-qualification process for our contract manufacturers, which includes the examination of the technological skills, production capacity and quality assurance ability of each contract manufacturer.  Our manufacturing capacity planning is based on rolling forecasts done on a monthly basis. The forecasts provided to the subcontractors are based on internal company forecasts, and are up to six months. We purchase our raw materials from several suppliers.  

Our products are currently manufactured primarily by several contract manufacturers located in Israel, with additional manufacturing also taking place in the Philippines and Taiwan. Final assembly and testing are performed by our contract manufacturers and are monitored and controlled by our quality assurance personnel. The testing criteria are validated by the automatic fail safe mechanisms in order to ensure that all activities successfully pass the testing criteria. We have processes in place for the ongoing performance of quality assurance at our own facilities and at our subcontractors’ facilities. The automating testing equipment which is developed and owned by us and testing procedures at our subcontractors are part of our Approved Enterprise programs.  

We monitor quality with respect to each major stage of the production process, including the selection of components and subassembly suppliers, warehouse procedures, assembly of goods, final testing and packaging and shipping.  

We currently obtain key components for our products from a limited number of suppliers, and in some instances from a single supplier.  In addition, some of the components that we purchase from single suppliers are custom-made. See Item 3.D – Risk Factors – “Our dependence on limited sources for key components of our products may lead to disruptions in the delivery and increased cost of our products, harming our business and results of operations.”  

We are ISO 9001, ISO 14000 and ISO 18000 certified. Our contractors are ISO 9002 certified.  

All our manufacturing locations in Israel and in the Philippines comply with RoHS regulations.   PROPRIETARY RIGHTS –  

In order to protect our proprietary rights in our products and technologies, we rely primarily upon a combination of patents, trademarks, trade secrets, and copyrights, as well as confidentiality, non-disclosure and assignment of inventions agreements. The proprietary rights described above are material to our business and profitability. Because our proprietary rights are diversified and independent of each other, we believe that we are not dependent on any one patent. We have trademark registrations in Israel, the United States, the European Union and many other countries.  In addition, we have typically entered into nondisclosure, confidentiality and assignment of inventions agreements with our employees, our consultants and with some of our suppliers and customers who have access to sensitive information.  We cannot assure you that the steps taken by us to protect our proprietary rights will be sufficient to prevent misappropriation of our technology or independent development or the sale by others of products with features based upon, or otherwise similar to, those of our products.

 

 

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  Given the rapid pace of technological development in the communications industry, we also cannot assure you that our products may not be adjudicated as infringing on existing or

future proprietary rights of others. Although we believe that our technology has been independently developed and that none of our products infringe upon the rights of others, from time to time, we receive letters alleging that we have infringed upon a patent, trademark, license or other proprietary right. We have no assurance that any such allegation will not have a material adverse effect on our business, financial condition or results of operations.  

We receive licenses to certain technologies from others for use in connection with some of our technologies. The loss of these licenses could impair our ability to develop and market our products.  If we are unable to obtain or maintain the licenses that we need, we may be unable to develop and market our products or processes, or we may need to obtain substitute technologies of lower quality or performance characteristics or at greater cost.   THE COMPETITIVE ENVIRONMENT IN WHICH WE OPERATE –  

The markets for our products are very competitive. Competition comes both from large network equipment vendors who have advantageous cost structure, scale advantage and can offer financing and turnkey solutions; and from smaller competitors providing lower end, lower cost solutions. We believe that the principal competitive factors in the markets for our products include:  

  Companies that compete with our products in the vertical markets include mainly Radwin, Redline, Proxim, and Ruckus Wireless. Companies that are engaged in the manufacture and

sale or development of products that compete with our carrier-grade outdoor Wi-Fi products include Ruckus Wireless, Cisco, Altai, Aruba, GoNet, and BelAir (acquired by Ericsson). Other vendors in the 4G and Wi-Fi markets may become our competitors in the future.  

 

  • price and price/performance ratio;   • flexibility;   • superior technology;   • innovation;   • service and spectrum regulation and product certifications;   • end-to-end network integration;   • eco system terminal and modem variety;   • vendor financing;   • ability to support new industry standards;   • product time to market;   • brand strength, go-to market capabilities and sales channels;   • systems integration;   • product stability;   • financial stability of the vendor;   • quality of service; and   • value proposition - coverage and capacity capabilities.

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  Our products use wireless media, which also competes with alternative telecommunications transmission media, including leased lines, copper wire, fiber-optic cable, cable modems and

satellite technologies. Our products compete with other wireless media technologies, including (i) 3G, HSPDA, HSUPA, EVDO and (ii) 4G, such LTE.  

Many of our existing and potential competitors, have substantially greater resources including financial, technological, manufacturing, marketing and distribution capabilities, and enjoy greater recognition than we do.  

Increased competition in our market results in price reductions, new business alliances, shorter product life cycles, reduced gross margins, longer sales cycles and loss of market shares, which could harm the results of our operations. We have designed and engineered our products to minimize costs, maximize margins and improve competitiveness. However, we cannot assure you that we will be able to compete successfully against current or future competitors.  

For more information regarding our competitive strengths, please see “Item 4—Information on the Company—Business Overview—Company Strengths”.   GOVERNMENT REGULATION -  

Our business is premised on the availability of certain radio frequencies for broadband communications.  Radio frequencies are subject to extensive regulation under the laws of each country and international treaties.  Each country has different regulation and regulatory processes for wireless communications equipment and uses of radio frequencies.  In the United States, our products are subject to FCC rules and regulations.  In other countries, our products are subject to national or regional radio authority rules and regulations.  Current FCC regulations permit license-free operation in FCC-certified bands in the radio spectrum in the United States. In Europe, our products are subject to European Telecommunications Standards Institute (ETSI) rules and regulations.  In other countries, the use of spectrum license, if any, and the purposes of such use, vary from country to country.  Most of our products are intended for the license-exempt bands, while others operate in licensed bands.  The regulatory environment in which we operate is subject to significant changes, the results and timing of which are uncertain.  

In addition to regulation of available frequencies, our products must conform to a variety of national and international regulations that require compliance with administrative and technical requirements as a condition to marketing devices that emit radio frequency energy.  These requirements were established, among other things, to avoid interference among users of radio frequencies and to permit the interconnection of equipment.  

We are subject to export control laws and regulations with respect to all of our products and technology.  In addition, Israeli law requires us to obtain a government license to engage in research and development, and export, of the encryption technology incorporated in some of our products.  We currently have the required licenses to utilize the encryption technology in our products.

 

 

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  C.           ORGANIZATIONAL STRUCTURE –  

The following is a list of our subsidiaries, each of which is wholly-owned:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  * Indirectly owned. D.           PROPERTY, PLANTS AND EQUIPMENT  

We do not own any real estate.  As of December 31, 2012, we leased an aggregate of approximately 157,135 square feet in Tel-Aviv, Israel for annual lease payments (including management fees) of approximately $3 million and incurred annual parking expenses in connection with these leases of approximately $0.4 million (21% of these expenses are attributed to our continuing operations). We have been occupying our main premises since April 2001. These premises serve as our corporate headquarters, as well as the site at which we conduct our main research and development activities and some quality assurance, final assembly and testing operations. The lease agreement for our main premises is effective until 2013. We also lease approximately 18,320 square feet of office facilities located at 5 Hamada Street, Yokneam Illit, Israel, at an annual rent of approximately $0.27 million. These premises serve as the corporate headquarters of our subsidiary in Israel, Wavion Ltd.  We also leased approximately 12,647 square feet of office facilities located at 555 N. Mathilda Avenue, Suite 210, Sunnyvale, CA 94085, at an annual rent of approximately $0.2 million (which was terminated in April 2012). We also had an additional office in Maryland located at 6701 Democracy Blvd., Suite 300, Bethesda, MD, at an annual rent of approximately $0.1 million (which was terminated in May 2012).  We also lease approximately 30,171 square feet of office facilities in Romania, at an annual rent of approximately $0.7 million (22% of these expenses are attributed to our continuing operations).  These premises serve as the corporate headquarters of our Romanian subsidiary, Alvarion SRL, and as our principal research and development and technical support office in Romania. In addition, we lease office space for the operation of our facilities in Miami, France, China, Poland, Italy, South Africa, India and Spain. Some of the office space was vacated as part of our restructuring process (84,852 square feet of our headquarters in Tel – Aviv, Israel and 21,528 square feet of our offices in Romania) and we continue to assess our needs and are continually vacating additional portions our of our lease property in an effort to decrease our expenses. We believe that the facilities we currently lease are adequate for our current requirements.  

 

  • Alvarion, Inc., incorporated under the laws of Delaware, United States;

  • Alvarion Mobile, Inc.*, incorporated under the laws of Delaware, United States;

  • Alvarion SARL, incorporated under the laws of France;

  • Alvarion SRL, incorporated under the laws of Romania;

  • Alvarion Asia Pacific Ltd., incorporated under the laws of Hong Kong;

  • Alvarion do Brasil LTDA, incorporated under the laws of Brazil;

  • Alvarion Uruguay SA, incorporated under the laws of Uruguay;

  • Alvarion Japan KK, incorporated under the laws of Japan;

  • Alvarion Israel (2003) Ltd., incorporated under the laws the State of Israel;

  • Alvarion Spain, S.L, incorporated under the laws of Spain;

  • Alvarion Tadipol* Sp.z o.o., incorporated under the laws of Poland;

  • Alvarion Telsiz Sistemleri Ticaret A.Ş, incorporated under the laws of Turkey;

  • Alvarion de Mexico S.A de C.V, incorporated under the laws of Mexico;

  • Alvarion Philippines incorporated under the laws of Philippines;

  • Alvarion South Africa (Pty) Ltd., incorporated under the laws of South Africa; 

  • Alvarion Italy SRL incorporated under the laws of Italy;  

  • Alvarion Singapore PTE Ltd., incorporated under the laws of Singapore.

  • India 4Motion Broadband Wireless Network Private Limited, incorporated under the laws of India; 

  • Alvarion Singapore PTE Ltd., Taiwan Branch Preparatory Office incorporated under the laws of Taiwan.

  • Alvarion del Ecuador S.A, incorporated under the laws of Ecuador; 

  • Alvarion Chile LIMITADA, incorporated under the laws of Chile; 

  • Alvarion S.A., incorporated under the laws of Argentina; 

  • Alvarion Costa Rica S.A, incorporated under the laws of Costa Rica; 

  • Alvarion Canada Ltd, incorporated under the laws of Canada;

  • Interwave Communication Inc*, incorporated under the laws of Delaware, United States;

  • PT. Alvaritech Indonesia, incorporated under the laws of Indonesia;

  • Wavion, Inc., incorporated under the laws of Delaware, United States; and

  • Wavion Ltd , incorporated under the laws of Israel.

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  ITEM  4A.                  UNRESOLVED STAFF COMMENTS  

Not applicable.   ITEM  5.                     OPERATING AND FINANCIAL REVIEW AND PROSPECTS –  

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth in “Item 3—Key Information—Risk Factors.”   A.            OPERATING RESULTS –  

Overview  

We concentrate our resources on the broad industry of wireless broadband. As a wireless broadband pioneer, we have been driving and delivering innovation for more than 15 years, from developing core technology to creating and promoting industry standards.  

Our vision is focused on providing optimized broadband wireless solutions to address connectivity, capacity and coverage challenges of public and private networks, enabling us to maintain our current position and grow along with the market demand for multi-technologies solutions and applications.  

Our solutions are usually used in a point-to-multipoint, point-to-point and public Wi-Fi architecture and address a wide scope of end-user profiles, from the consumers, residential and SOHO markets, through SMEs and multi-tenant units/multi-dwelling units as well as applications in various vertical markets.  

Our products operate primarily in the license-exempt bands and comply with various industry standards.  Our core technologies include spread spectrum radio, linear radio, digital signal processing, modems, MAC, IP-based mobile switches, compact mobile networks, networking protocols and VLSI. We have intellectual property rights in these technologies.  

 

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  In 2010, we began to evaluate potential new directions in addition to our core WiMAX products.  At the conclusion of this strategic evaluation process, our board of directors

determined that we should focus on complementary solutions for mobile operators. On November 23, 2011, we completed the acquisition of Wavion, a provider of outdoor Wi-Fi applications for metro and rural areas with deployments in more than 75

countries.  Featuring Wavion Base Stations with 802.11n in 2.4 GHz and 5 GHz unlicensed bands and in the 700 MHz licensed band, Wavion offers end-to-end solutions including access, backhaul, CPEs, management and service provisioning tools.  The acquisition was for total consideration of approximately $28.4 million in cash (including a $2.7 million performance earn-out which was paid).

Throughout 2011 and 2012, we continued to manufacture and sell our WiMAX based products and continued to enter into contracts with new and existing customers and make necessary commitments to purchase raw materials to manufacture the WiMAX products.

For the purpose of financing the acquisition of Wavion in November 2011, we obtained a $ 30 million secured credit facility from SVB.  We determined to finance the acquisition rather than use our cash on hand in order to retain available cash to meet the substantial working capital needs of our WiMAX business while growing our new Wi-Fi business.

    During 2011, we implemented a restructuring plan including the layoff of approximately 194 employees as well as the vacating of certain leased premises. Nonetheless, we continued to

incur substantial losses, which were primarily the result of decline in revenues, increased competition which led to a decline in our profitability, and our inability to adapt our cost structure quickly enough to meet the reduction in revenues. Following the launch of Wavion’s WBSn product, we noted certain problems with the stability of the product. We subsequently undertook intensive efforts to improve the stability of the WBSn product and relaunched the product in the first quarter of 2013.  While we continued sales of the WBS product, our sales decreased significantly in the second half of 2012 as the market was quickly migrating to the new 802.11n standard.

During 2012, in particular in light of the significant cash requirements to fund the WiMAX business and the limited availability of credit both in the market generally and to Alvarion in

particular, we were also evaluating various alternatives to exit the WiMAX business. As part of this process, we established the BWA Division, which included all of Alvarion’s licensed WiMAX business on a stand-alone basis. During 2012, we negotiated with a number of potential buyers for the BWA Division, but we could not reach an agreement.  In the meantime, this business continued to general significant losses for Alvarion and had a negative impact on working capital.

Alvarion’s other Vertical Products, primarily the BreezeMAX Extreme and BreezeACCESS VL performed relatively well during 2012, however as these products have been on the market for a number of years, their sales did not grow in comparison to previous years. Due to our financial difficulty we were only capable of devoting relatively limited resources to developing replacements for these legacy products.

As a result of the difficulty we experienced with the launch and marketing of our WBSn product and our lack of success in disposing of the BWA Division, with respect to which we were required to continue to provide services to our customers and meet contractual commitments, we continued to suffer substantial losses during 2012. Our cash position was further negatively affected by our required principal and interest payments on the SVB Loan, as well as the closure of previously available credit lines with various Israeli banks.  The foregoing led to our monetizing various assets that we had available such as the sale of a portion of our patent portfolio in September and November 2012 to Wi-LAN for $16.8 million (with respect to which we received an additional $1.5 million in May 2013) and the Nortel Debt in October 2012 for $5.2 million.  

 

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  As noted above, the need to service the SVB Loan was negatively affecting our cash position and, as a result of our performance, we breached various financial covenants under the

SVB Loan.   As a result, we entered into a number of modifications and amendments to the terms and conditions of the SVB Loan.  As part of those modifications and amendments and since our patent portfolio and the Nortel Debt that we sold were pledged in favor of SVB as security for the SVB Loan, we were required, through May 12, 2013, to repay an aggregate amount of approximately $25 million in principal amount of the SVB Loan, which further harmed our cash position.  

On February 21, 2013, we entered into a definitive agreement with Telrad, pursuant to which Telrad acquired the BWA Division. The transaction was completed on May 10, 2013, and pursuant to the finally agreed terms, the consideration in the transaction is $4.0 million, with the first payment of $1.3 million payable at closing. We may also receive certain performance –based milestone payments of up to $7.7 million.   As further described below, except as otherwise stated, our financial results present only our continuing business and reflect the BWA Division as discontinued operations for all periods covered thereby.  

On December 10, 2012 we announced our intention to effect a reverse share split of our Ordinary Shares in a ratio of 1:10.  Following execution of the reverse share split, our shareholders received one ordinary share of Alvarion for every 10 ordinary shares held by them, with fractional shares rounded up. The reverse share split was intended to increase our per share trading price to satisfy the $1.00 minimum bid price requirement for the continued listing on the NASDAQ Capital Market. The reverse share split became effective on April 2, 2013.  

In 2012, our revenues decreased by 30.8% to approximately $49.9 million from approximately $72.2 million in 2011, primarily due to decreased sales of our BreezeACCESS VL and BreezeNET B products for which we have not developed sufficient replacements, delays in introduction of new products, aggressive competition, and the continued effects of the global economic slowdown.  

During 2012 our gross margins decreased to approximately 32.5% of our revenues, compared to approximately 46.1% of revenues in 2011.  This decrease in gross margin is mainly due to the write-off of excess and obsolete inventory in 2012 as a result of demand for our products (primarily WiMAX) being lower than the estimated amounts on which we based the quantity of our products that we manufactured and due to cancelations of projects during the year. In addition, the aggressive competition which we faced, the continued effects from the global economic slowdown and the limited availability of credit in the global capital markets contributed to the decline in gross margin.  

 

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  During 2012, our net loss from continued and discontinued operations amounted to approximately $(55.9) million compared to a net loss of approximately $(33.8) million in 2011. This

increase in net loss was primarily a result of the impairment of the fair value of the BWA Division based on its December 31, 2012 selling price.  

Our operating expenses decreased to $ 36.4 million in 2012 compared to $ 43 million in 2011 mainly due to the $6 million of restructuring costs included in operating expenses for 2011 and the decrease in 2012 of the operating expenses resulting from the cost reductions.  

As a result of the foregoing, our working capital deteriorated during 2012 and this deterioration has continued into 2013.  Our limited working capital has resulted and may continue to result in delays of shipments of our products, which has and may continue to have a material adverse effect on our revenues and profitability. The report of our independent registered public accounting firm with respect to our financial statements for the years ended December 31, 2012 and 2011 includes an explanatory paragraph that states that our declining sales, recurring losses and negative cash flows from operations, and our excess of credit line over cash and cash equivalents as well as uncertainty in meeting credit line covenants raise substantial doubt about our ability to continue as a going concern.   We are currently seeking to raise additional capital and continuing to seek to reduce costs and increase sales, particularly of our new products, in order to improve our working capital position and continue to operate as a going concern.  We cannot ensure that we will be able to obtain funding on terms that will be acceptable to us or at all.  If we are unable to obtain additional financing for working capital, product development, launch and support or for our other capital requirements, we would be required to curtail our business operations further or cease our operations entirely.  

Critical Accounting Principles –  

Our financial statements are prepared in accordance with United States generally accepted accounting principles, and audited in accordance with standards of the Public Company Accounting Oversight Board (United States).  A discussion of the significant accounting policies that we follow in preparing our financial statements is set forth in Note 2 to our consolidated financial statements included in Part III of this Annual Report.  In preparing our financial statements, we must make estimates and assumptions as to certain matters, including, for example, the amount of new materials and components that we will require to satisfy the demand for our products based on our sales estimates and the period of time that will elapse before our products become obsolete.  While we endeavor diligently to assure that our estimates and assumptions have a reasonable basis and reflect our best assessment as to the future circumstances in which we anticipate, actual results may differ from the results estimated or assumed and the differences may be substantial as to require subsequent write-offs, write-downs or other adjustments to past results or current valuations.  

The following is a summary of certain critical principles, which have a substantial impact upon our financial statements and which we believe are most important to keep in mind in assessing our financial condition and operating result:  

Revenue Recognition.  We generate revenues from selling our products indirectly through distributors as well as selling them directly to end users.  

Revenues are recognized in accordance with ASC 605-10-S99-1 (SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”) and ASC 605-25 “Multiple-Element Arrangements” when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller’s price to the buyer is fixed or determinable, no further obligation exists and collectability is probable.  

We generally do not grant a right of return on our products. However, we have granted to certain distributors limited rights of return on unsold products. Product revenues on shipments to these distributors are recognized based on their history of actual returns provided that all other revenue recognition criteria are met.

 

 

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  The Company's revenue recognition policies provide that, when a sales arrangement contains multiple elements, the Company allocates revenue to each element based on a selling price

hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence ("VSOE"), if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately when they have not yet sold the deliverable separately, using the price established by management having the relevant authority. When VSOE cannot be established, the Company establishes the selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. The best estimate of selling price is established considering several external and internal factors including, but not limited to, historical sales, pricing practices and geographies in which the Company offers its products. The determination of ESP is judgmental.   For arrangements which include multiple elements, the Company considers the sale of equipment, professional services and maintenance to be three separate units of accounting in the arrangement in accordance with ASC 605-25, since all three elements have value to the customer on a standalone basis.  

Equipment includes the software as the software is deemed incidental to the product as a whole. The Equipment element price was attained by using management best estimate based on the historical prices sold by the Company. The historical prices have been allocated based on product and region, due to variances between the regions in which the products have been sold.

Professional Services prices were based on TPE for which the Company has accumulated the prices from its suppliers throughout the year.

Maintenance price has been established using VSOE of fair value of maintenance services, based on the price charged when sold separately at renewal.

In transactions where a customer's contractual terms include a provision for customer acceptance, revenues are recognized either when such acceptance has been obtained or the acceptance provision has lapsed.

Advances from customers include advances and payments received from customers, for which revenue has not yet been recognized.  

Accounts Receivable. We are required to assess the collectability of our accounts receivable balances. Generally, we do not require collateral; however, under certain circumstances we require letters of credit, additional guarantees or advance payments. A considerable amount of judgment is required in assessing the ultimate realization of these receivables including, but not limited to, the current credit-worthiness of each customer. We regularly review the amounts due and related allowance by considering factors, such as historical experience, credit quality, age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. For certain accounts receivable balances, we are also covered by foreign trade risk insurance. Should we consider it necessary to increase the level of provision for doubtful accounts, required for a particular customer, then additional charges will be recorded when they become probable.  

Allowance for doubtful accounts amounted to $0.3 million and $4.1 million as of December 31, 2011 and 2012, respectively. The balance as of December 31, 2012, includes a doubtful debts provision from the Wavion acquisition of $0.3 million. The Company charges off receivables when they are deemed uncollectible. Actual collection experience may not meet expectations and there may be an effect in the Company's ability to collect customers' debts in a timely manner or at all and this may result in increased bad debt expense.  

 

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  Total doubtful debts expenses during 2010, 2011 and 2012 amounted to $1.0 million, $0.9 million and $3.9 million, respectively. Total write-offs amounted $ 0 million, $0.6 and $0.1 million

in 2010, 2011 and 2012, respectively.    Inventory Valuation. Our policy for valuation of inventory and commitments to purchase inventory, including the determination of obsolete or excess inventory, requires us to perform

a detailed assessment of inventory at each balance sheet date which includes a review of, among other factors, an estimate of future demand for products within specific time frames, valuation of existing inventory, as well as product lifecycle and product development plans. The business environment in which we operate the wide range of products that we offer and the sales-cycles we experience all contribute to the exercise of judgment relating to maintaining, utilizing and writing-off inventory. The estimates of future demand that we use in the valuation of inventory are the basis for our revenue forecast, which is also consistent with our short-term manufacturing plan. Inventory reserves are also provided to cover risks arising from non-moving or slow-moving items. We write-down our inventory for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value which is based on assumptions about future demand and market conditions. We may be required to record additional inventory write-downs if actual market conditions are less favorable than those projected by our management.  

Note 2h to our financial statements describes the write-offs and provisions that we made and recorded in 2010, 2011 and 2012 to reflect the decline in our expectations about the value of inventory, which had become excessive, unmarketable or otherwise obsolete or the inventory of new materials and components that we had purchased or committed to purchase in anticipation of forecasted sales which we did not consummate. In addition, changes in demand, which result in increased demand for our products, may lead to utilization of our previously written-off products. Note 2h to our financial statements describes the effect of the utilization of the related products of our prior years’ written-off components, which are reflected in our revenues without additional cost in the cost of sales in the period the inventory was utilized.  

If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, we could be required to increase our inventory allowances and our gross margin could be adversely affected. For example, in 2012, we were required to write-down a significant amount of inventory due to demand for our products that was lower than we had anticipated. In addition, if the demand for our products increases beyond our expectations following a write-off of inventory, we may need to further utilize our previously written-down inventory. Such utilization may contribute to our gross margin in future periods. Inventory management remains an area of management focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements.  

Goodwill and long-lived asset impairment. We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350 “Intangibles – Goodwill and Others”.  

Goodwill impairment testing is a two-step process. The first step involves comparing the fair value of a company's reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded.

 

 

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  The acquisition of Wavion in November 2011 has been incorporated into the single reportable segment of the Company. Nevertheless, Wavion was considered its own reporting unit in

2011 and 2012. As part of the Wavion acquisition, the Company recorded goodwill in an amount of $13.1 million. No impairment has been recorded in 2012 based on the impairment analysis performed by the Company. As a result of the discontinued operation of BWA division for the year ended December 31, 2012 the Company operated in one operating segment comprised of a single reporting unit.  

Warranties.  We provide for the estimated cost of product warranties at the time the product is shipped. Our products sold are covered by a warranty for periods ranging from 16 to 21 months.  We accrue a warranty reserve for estimated costs to provide warranty services.  Our estimate of costs to service the warranty obligations is based on historical experience and expectation of future conditions. We accrue for warranty costs as part of our cost of sales based on associated material costs and technical support labor costs. Material cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. Technical support labor cost is primarily estimated based upon historical trends in the rate of customer calls and the cost to support the customer calls within the warranty period. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in decreased gross profit.  

Stock-Based Compensation Expense.  We account for equity-based compensation in accordance with ASC 718 “Compensation - Stock Compensation”. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service periods. Stock-based compensation expense recognized under ASC 718 for 2010, 2011 and 2012 was $1.8 million, $1.7 million and $0.9 million, respectively. Determining the fair value of stock-based awards at the grant date requires the exercise of judgment, including the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ from our estimates, equity-based compensation expense and our results of operations would be impacted. Our stock based compensation expense decreased in 2012 as a result of the cost reduction that we implemented during the year and a decrease in the number of our principal granted options.  

We estimate the fair value of employee stock options using a Black-Scholes-Merton valuation model and for restricted stock units and options granted with par value exercise price, the fair value is calculated by multiplying the share price at the date of grant with the number of options granted. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the estimated volatility of our stock price over the expected term of the awards, and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption is based upon United States bonds treasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our publicly traded stock in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical behavioral patterns rates of employee groups by job classification. In 2012, the expected term of options granted is estimated based on historical experience and represents the period of time that options granted are expected to be outstanding. Our expected dividend rate is zero since we do not currently pay cash dividends on our ordinary shares and do not anticipate doing so in the foreseeable future.  

Deferred Taxes.  We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. In addition, we are subject to the continuous examination of our tax returns by the local tax authorities in each country that we have established corporations. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for taxes. A full valuation allowance was provided for the period ending December 31, 2012.

 

 

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ASC 740-10-55 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. ASC 740-10-55 contains a two-step

approach to recognizing and measuring uncertain tax positions accounted for in accordance with FASB ASC 740 “Income Taxes”. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine the liability no longer applies. Conversely, we record additional tax charges in a period in which we determine that a recorded tax liability is less than we expect the ultimate assessment to be. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

Contingencies. We are involved in legal proceedings and other claims from time to time. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for any contingencies are made after careful analysis of each individual claim. The required reserves may change due to future developments in each matter or changes in approach, such as a change in the settlement strategy in dealing with any contingencies, which may result in higher net loss. If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. See “Item 8A Financial Information Finance – Consolidated Statements and Other Financial Information – Legal Proceedings.”

Business Combination. We apply the provisions of ASC 805 "Business Combination", accordingly we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed based on their estimated fair values. In allocating the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, we developed the required assumptions underlying the valuation work. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, the acquired company’s brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio and discount rates.Management’s estimates of fair value are based upon assumptions believed to be reasonable, utilizing a market participant approach, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

  Discontinued Operations.   As of December 31, 2012, our management determined to sell our BWA Division and the sale of the BWA Division was completed on May 10, 2013. Under

the final terms agreed, we will receive a consideration of $4.0 million, paid in installments over four quarters, with the first payment of $1.;35 million payable at closing. In addition, we may receive certain performance based milestone payments of up to $7.7 million.

 

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  Under ASC 205, "Presentation of Financial Statements - Discontinued Operation" when a component of an entity, as defined in ASC 205, has been disposed of or is classified as held for

sale, the results of its operations, including the gain or loss on its  component are classified as discontinued operations and the assets and liabilities of such component are classified as assets and liabilities attributed to discontinued operations; that is, provided that the operations, assets and liabilities and cash flows of the component have been eliminated from our consolidated operations and we will have no significant continuing involvement in the operations of the component.

The BWA Division has been considered a "component of the entity" since it comprises of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company's operations. Further, since no significant cash outflow or cash inflow are expected to be generated or paid by the Company in respect of the discontinued operation and we will have no significant continuing involvement in the operations of the component after the division is sold, the component meets the criteria to be considered as discontinued operation.

As a result, the assets and liabilities of the component were retroactively adjusted and classified as discontinued assets and liabilities as of December 31, 2011 and 2012 and the component's operation results and cash flows for the years ended December 31, 2010, 2011 and 2012 were retroactively adjusted and classified separately as net loss from discontinued operations.   Results of Operations –  

As previously noted, except as otherwise stated, our results of operations represent only our continuing business and reflect the BWA Division as discontinued operations for all periods covered thereby.  

The following tables present our total revenues attributed to the geographical regions based on the location of our customers for the years ended December 31, 2010, 2011 and 2012:  

 

 

    2010     2011     2012      Total           Total                        revenues     Percentage     revenues     Percentage     revenues     Percentage                       

 Of sales

             

   In

thousands     Of sales    In

 thousands        In

 thousands     

Of sales  North America (including the United States & Canada)  $ 14,679     20%  $ 16,822     23%  $ 8,720     17%Europe (without, Italy)    24,640     33%    16,640     23%    8,262     17%Italy    10,610     14%    9,291     13%    2,947     6%Asia  (without China)    7,466     10%    6,230     9%    6,949     14%China    3,922     5%    7,193     10%    11,323     23%Others    13,697     18%    16,097     22%    11,748     23%                                              $ 75,014     100%  $ 72,273     100%  $ 49,949     100%

  (1) We have listed Italy and China separately within this table because each of these countries generated at least 10% of our total revenues during at least one of the last 3 years.

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The following tables set forth, for the periods indicated, selected items from our consolidated statement of operations in U.S. dollars in thousands and as a percentage of total sales:  

  (*) Adjusted for discontinued operations  

 

    Year Ended December 31,        2010(*)       2011(*)       2012      (In thousands)  Sales                     Products  $ 72,090   $ 69,457   $ 48,278 Services    2,924     2,816     1,671 Total Sales    75,014     72,273     49,949                       Cost of sales                     Products    35,616     33,582     24,972 Services    1,480     3,911     2,354 Write-off of excess inventory and provision for inventory purchase commitments    2,093     1,433     6,385                       Gross profit    35,825     33,347     16,238                       Operating costs and expenses:                     Research and development, gross    8,440     12,552     14,825 Less – grants and participations    536     1,844     2,161 Research and development, net    7,904      10,708      12,664 Selling and marketing    13,801      18,304      13,177 General and administrative    4,364      5,170     7,182 Amortization of intangible assets    -      186     2,235 Restructuring and other charges    1,787     6,020     - Acquisition related expenses    -     2,622     1,102                    Total operating costs and expenses    27,856     43,010     36,360                    Operating income (loss)    7,969     (9,663)    (20,122)                   Financial expenses, net    (99)    (1,015)    (2,895)                   Income (loss) before tax    7,870     (10,678)    (23,017)                   Taxes on income    894     -     -                    Net income ( loss) from continuing operations     6,976     (10,678)    (23,017)Net loss from discontinued operations    (105,455)    (23,144)    (32,892)                      Net loss  $ (98,479)  $ (33,822)  $ (55,909)

Other comprehensive income (loss)                     Unrealized gains (losses) on foreign currency cash flow hedges    474     (5,273)    3,513                        Total comprehensive (loss)  $ (98,005)  $ (39,095)  $ (52,396)

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(*) Adjusted for discontinued operations  

 

    Year Ended December 31,        2010(*)       2011(*)       2012      (As a percentage of sales)  Statement of Operations Data:                     Sales                     Products    96.1     96.1     96.7 Services    3.9     3.9     3.3 Total Sales    100.0     100.0     100.0 Cost of sales                     Products    47.5     46.5     50.0 Services    2.0     5.4     4.7 Write-off of excess inventory and provision for inventory purchase commitments    2.8     2.0     12.8 Gross margin    47.7     46.1     32.5 Operating costs and expenses:                  Research and development, gross    11.2     17.4     29.7 Less – grants and participations    (0.7)     (2.6)     (4.4) Research and development, net    10.5     14.8     25.3 Selling and marketing    18.4     25.3     26.4 General and administrative    5.8     7.2     14.4 Amortization of intangible assets    -     0.3     4.5 Restructuring and other charges    2.4     8.3     - Acquisition related expenses    -     3.6     2.2                       Total operating expenses    37.1     59.5     72.8                    Operating income (loss)    10.6      (13.4)     (40.3)                      Financial expenses, net     (0.1)     (1.4)     (5.8)                      Income (loss) before tax     10.5      (14.8)     (46.1)                      Taxes on Income     1.2      -      -                       Net income (loss) from continuing operations     9.3      (14.8)     (46.1)                      Net (loss) from discontinued operations     (140.6)     (32)     (65.8)                      Net loss     (131.3)     (46.8)     (111.9)

Other comprehensive income (loss)                     Unrealized gains (losses) on foreign currency cash flow Hedges     0.6      (7.3)     7.0 Total comprehensive (loss)     (130.7)     (54.1)     (104.9)

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  Year Ended December 31, 2012 Compared to Year Ended December 31, 2011  

Sales. Sales in 2012 were approximately $49.9 million, a decrease of approximately 30.9% compared to sales of approximately $72.3 million in 2011. This decrease was primarily due to a decrease in sales in 2012 of our legacy BreezeACCESS VL and BreezeNET B products for which we have not developed sufficient replacements compared to 2011, minimal sales of our WBSn product due to certain problems in its stability and capacity following its introduction in 2012, aggressive competition, and the continued effects of the global economic slowdown.  

Sales in APAC accounted for approximately 36.6% of our sales in 2012 and totaled approximately $18.3 million, which represents an increase of approximately 36.6% compared to our 2011 sales in these regions which were approximately $13.4 million or 18.6% of our sales. This increase is primarily attributed to sales of the Company’s Wi-Fi products to a major customer in China. Sales in Europe, the Middle East and Africa accounted for approximately 32.4% of our sales in 2012 and totaled approximately $16.2 million, which represents a decrease of approximately 48.2% compared to our 2011 sales in these regions which were approximately $31.3 million or 43.3% of our sales. This decrease resulted from the economic crisis in Europe , lack of suitable replacement to our BreezeACCESS VL, increased competition, and a decision of a major customer in Italy to reduce its purchases from us in 2012. Sales in Central and Latin America accounted for 13.6% of our sales in 2012 compared to 14.8% of our sales in 2011. Sales in North America accounted for approximately 17.5% of our sales in 2012, compared to 23.3 % in 2011.

In each of 2011 and 2012, a single customer (different customer in each year) accounted for more than 10% of our revenues. We believe that due to the nature of our agreements and the associated large initial payments due, the identity of major customers generally varies from quarter to quarter and we do not believe that we are materially dependent on any one specific customer or any specific small number of customers.

Cost of Sales.  Cost of sales for products and services consists primarily of cost of components, product manufacturing and assembly, labor, overhead and other costs associated with production. Cost of sales was approximately $ 27.3 million in 2012, a decrease of 27.2% compared to cost of sales of approximately $ 37.5 million in 2011 primarily due to lower revenues in 2012 compared to 2011. Cost of sales as a percentage of sales were approximately 54.7% and 51.9% for 2012 and 2011, respectively. The main reason for the decrease in our gross margins during 2012 was the inventory write-off that we booked based on lower than anticipated demand for our products (particularly unlicensed products, other than our Wi-Fi products) and cancellation of customer orders during the year.              Write-off of excess inventory and provision for inventory purchase commitments. We periodically assess our inventories valuation in relation to obsolete and slow-moving items based on revenue forecasts and technological obsolescence. If inventories on-hand exceed our estimates or become obsolete.  This would result in a charge to our statement of operations and a corresponding reduction in our inventory and shareholders’ equity. Changes in demand for our products and in our estimates for demand create changes in provisions for obsolete inventory. As part of our ordinary course of business we evaluate, on a quarterly basis, our actual inventory needs versus our sales projections and write-off excess inventory and un-cancelable purchase commitments from our suppliers and subcontractors. As a result, we record charges related to the write-off of excess inventory and accrued a provision for inventory purchase commitments of new materials and components that we had purchased or committed to purchase in anticipation of forecasted sales that we did not consummate.  

 

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  Write-off of excess inventory and provision for inventory purchase commitments increased to approximately $6.4 million for the year ended December 31, 2012, compared to

approximately $1.4 million for the year ended December 31, 2011.  This increase was primarily due to our write-off of excess and obsolete inventory in 2012, which resulted from lower than anticipated demand for our products and cancellation of customer orders during the year and our accrual of a provision for inventory purchase commitments.  

Research and development expenses, net.  Gross research and development expenses consists primarily of employee salaries, development-related raw materials and subcontractors, and other related costs partially offset by research and development funding. Gross research and development expenses were approximately $ 14.8 million in 2012, an increase of approximately 18.4% compared to gross research and development expenses of approximately $12.5 million in 2011. This increase was primarily due to the inclusion of a full year in 2012 of research and development expenses relating to the business acquired from Wavion in November 2011 and the additional research and development expenses relating to the work that was required to stabilize the WBSn product during 2012.  Gross research and development as a percentage of sales was 29.7% in 2012, compared to 17.4% in 2011.  Grants and other participations for funding approved research and development projects totaled approximately $2.2 million in 2012 and $1.8 million in 2011. Research and development expenses, net, were approximately $12.7 million in 2012, compared to approximately $10.7 million in 2011.  

Selling and marketing expenses.  Selling and marketing expenses consist primarily of costs relating to compensation attributable to employees engaged in selling and marketing activities, promotion, advertising, trade shows and exhibitions, travel and related expenses. Selling and marketing expenses were approximately $13.2 million in 2012, a decrease of approximately 27.9% compared to selling and marketing expenses of approximately $ 18.3 million in 2011.  This decrease was primarily attributable to the impact in 2012 of our cost reduction initiatives that were approved in 2011. Selling and marketing expenses as a percentage of sales were 26.4% in 2012 compared to 25.3% in 2011.  

General and administrative expenses. General and administrative expenses consist primarily of compensation costs for administration, finance and general management personnel, office maintenance, insurance costs, professional fees and other administrative costs.  General and administrative expenses were approximately $7.2 million in 2012, an increase of approximately 38.5% compared to general and administrative expenses of approximately $ 5.2 million in 2011. This increase resulted from the amounts we recorded in 2012 for doubtful accounts. General and administrative expenses as a percentage of sales increased to 14.4% in 2012 from 7.2% in 2011.  

Amortization of intangible assets.  Amortization of intangible assets was $2.2 million in 2012 compared to $0.2 million recorded in 2011, which reflected a full year of amortization of intangible assets recorded in connection with our acquisition of Wavion in November 2011.  

Restructuring costs. During 2011, we implemented a restructuring plan including the layoff of approximately 194 employees in 2011 as well as the vacating of certain leased premises.  As a result, we recorded a restructuring charge of approximately $6.0 million in 2011 which primarily consists of employees' termination benefits, lease abandonment and repayment of grants.  There were no such costs in 2012.  

Financial expenses, net.  Financial expenses, net, were $2.9 million in 2012, compared to financial expenses, net, of approximately $1.0 million in 2011.  The increase in financial expenses is attributed mainly to a full year of interest in 2012 on the SVB Loan.  

 

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  Net loss.  In 2012, net loss from continuing operations was approximately $(23.0) million, compared to a net loss of approximately $(10.7) million in 2011.  In 2012, net loss from

discontinued operations was approximately $(32.9) million which included a loss of approximately $(17.3) million from the fair value impairment to selling price of the BWA Division in addition to the operating loss from the discontinued operations, compared to a net loss of approximately $(23.1) million in 2011, which included the restructuring charge of $(6) million related to the BWA Division.   Year Ended December 31, 2011 Compared to Year Ended December 31, 2010  

Sales in 2011 were approximately $72.3 million, a decrease of approximately 3.6% compared to sales of approximately $75 million in 2010.  

Sales in APAC reached approximately 18.6% of our sales in 2011 and totaled approximately $13.4 million, which represents an increase of approximately 17.5% compared to our 2010 sales in these regions which were approximately $11.4 million or 15.2% of our sales. Sales in Europe, the Middle East and Africa reached approximately 43.3% of our sales in 2011 and totaled approximately $31.3 million, which represents a decrease of approximately 19.5% compared to our 2010 sales in these regions which were approximately $38.9 million or 51.8% of our sales.The decrease in our sales in sales in Europe, the Middle East and Africa resulted from the crisis in the European economy and intense completion. Sales in Central and Latin America accounted for 14.8% of our sales in 2011 compared to 13.4% of our sales in 2010. Sales in North America accounted for approximately 23.3% of our sales in 2011, compared to 19.5% in 2010.

In 2011, one customer accounted for more than 10% of our revenues.  In 2010, no customer accounted for more than 10% of our revenues.              Cost of sales.  Cost of sales for products and services consists primarily of cost of components, product manufacturing and assembly, labor, overhead and other costs associated with production. Cost of sales was approximately $37.5 million in 2011, compared to cost of sales of approximately $37.1 million in 2010. Cost of sales as a percentage of sales were approximately 51.9% and 49.5% in 2011 and 2010, respectively.  

Write-off of excess inventory and provision for inventory purchase commitments. Write-off of excess inventory and provision for inventory purchase commitments was approximately $1.4 million for the year ended December 31, 2011 compared to approximately $2.1 million for the year ended December 31, 2010.  

Research and development expenses, net.  Gross research and development expenses were approximately $12.5 million in 2011 compared to gross research and development expenses of approximately $8.4 million in 2010. This increase was primarily due to greater investment in research and development in 2011 compared to 2010.  Gross research and development, as a percentage of sales was 17.4% in 2011, compared to 11.2% in 2010.  Grants and other participations for funding approved research and development projects totaled approximately $1.8 million in 2011 and $0.5 million in 2010. Research and development expenses, net, were approximately $10.7 million in 2011, compared to approximately $7.9 million in 2010.  

Selling and marketing expenses.  Selling and marketing expenses were approximately $18.3 million in 2011 compared to selling and marketing expenses of approximately $13.8 million in 2010.  This increase was primarily due to greater sales and marketing activity in 2011 from the increased focus on the unlicensed market in 2011. Selling and marketing expenses as a percentage of sales were 25.3% in 2011 compared to 18.4% in 2010.  

General and administrative expenses. General and administrative expenses were approximately $5.2 million in 2011 compared to general and administrative expenses of approximately $4.4 million in 2010. This increase is related primarily to our increased focus on the unlicensed market in 2011.  General and administrative expenses as a percentage of sales increased to 7.2% in 2011 from 5.8% in 2010.  

 

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  Amortization of intangibles assets.  As a result of acquisition of Wavion in November 2011, we had annual amortization charges of approximately $0.2 million recorded in 2011.

  Restructuring costs. During 2011 and 2010, we implemented separate restructuring plans including the layoff of approximately 194 employees in 2011 and approximately 160 employees in

2010 as well as the vacating of certain leased premises.  As a result, we recorded a restructuring charge of approximately $6.0 million in 2011 and approximately $1.8 million in 2010, which primarily consists of employees' termination benefits, lease abandonment and repayment of grants.  

Financial expenses, net.  Financial expenses, net, were $1.0 million in 2011, compared to financial expenses, net, of approximately $0.1 million in 2010.  The increase in financial expenses is attributed mainly to the inflation in the currency change between the Dollar and other currencies and interest on the SVB Loan which was obtained in November 2011.  

Net income (loss).  In 2011, net loss from continuing operations was approximately $(10.7) million, compared to a net income of approximately $7 million in 2010. In 2011, net loss from discontinued operations was approximately $(23.1) million, compared to a net loss of approximately $(105.4) million in 2010 which included impairment of goodwill and intangible assets in the sum of $ (57.1) million.   Impact of Inflation and Currency Fluctuations –  

A devaluation of the U.S. dollar against the NIS has a direct influence on the U.S. dollar cost of our operations.  The majority of our sales, and part of our expenses, are denominated in dollars.  However, a significant portion of our expenses, primarily labor expenses, is denominated in NIS unlinked to the U.S. dollar. Inflation in Israel and/or the devaluation of the dollar in relation to the NIS has the effect of increasing the cost in dollars of these expenses and has a negative effect on our profitability.  

Because exchange rates between the NIS and the U.S. dollar fluctuate continuously, exchange rate fluctuations as recently experienced in Israel and especially larger periodic devaluations or revaluations, will have an impact on our profitability and period-to-period comparisons of our results of operations.  The effects of foreign currency re-measurements are reported in our consolidated financial statements in the statement of operations.  

To protect against exchange rate fluctuations, we have instituted several foreign currency hedging programs.  These hedging activities consist of cash flow hedges of anticipated NIS payroll and forward exchange contracts to hedge certain trade payables in NIS. In 2011, the majority of the cash flow hedges were effective.  For more information, see "Item 11—Qualitative and Qualitative Disclosures About Market Risk".  

The following table presents information about the rate of inflation in Israel, the rate of devaluation or appreciation of the NIS against the U.S. dollar, and the rate of inflation of Israel adjusted for the devaluation:  

 

 

Year ended December 31,  

Israeli inflation rate %    

Israeli devaluation

(appreciation) rate %    

Israeli inflation adjusted for

devaluation %                     

2008     3.8      (1.1)     4.9 2009     3.9      (0.7)     4.6 2010     2.7      (6.0)     8.7 2011     2.2      7.7      (5.5)2012     1.6      (2.3)     3.9 

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  We cannot assure you that we will not be materially and adversely affected in the future if the appreciation of the NIS against the U.S. dollar continues or, that in the event the dollar

appreciates against the NIS, the inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of the devaluation lags behind inflation in Israel.  

For a discussion of certain policies or factors relating to our being an Israeli company and our location in Israel, see "Item 3—Key Information—Risk Factors—Risks Related to Our Location in Israel".  

  The following sections discuss the effects of changes in our balance sheets, cash flows and commitments on our liquidity and capital resources.

  Going Concern Uncertainty  

The report of our independent registered public accounting firm with respect to our financial statements for the years ended December 31, 2012 and 2011 includes an explanatory paragraph that states that our declining sales, recurring losses and negative cash flows from operations and our excess of credit line over cash and cash equivalents as of December 31, 2013 as well as uncertainty in meeting credit line covenants raise substantial doubt about our ability to continue as a going concern.   In order to continue as a going concern we will need to obtain funding in order to finance our working capital and sustain our ongoing operations and additional capital to enable product development and market growth.  While we are currently actively seeking additional funding, we cannot ensure that we will be able to obtain funding on terms that will be acceptable to us or at all.  If we are unable to obtain additional financing for working capital, product development, launch and support or our other capital requirements we would be required to curtail our business operations further or cease our operations entirely.   Balance Sheet and Cash Flows  

Total cash, cash equivalents, short-term and long-term marketable securities and deposits were $14.4 million as of December 31, 2012, a decrease of approximately $50 million or 77.6% from $64.4 million at December 31, 2011.  Total cash, cash equivalents, short-term and long-term marketable securities and deposits as of December 31, 2011 reflected a decrease of approximately $18.9 million or 22.7% from $83.3 million at December 31, 2010.  

Total cash and cash equivalents as of December 31, 2012 were $9.8 million, a decrease of $48 million or 83% from $57.8 million at December 31, 2011.  The decrease primarily resulted from net losses incurred in 2012 which were driven by lower sales and higher ongoing expenses from our BWA Division which was sold to Telrad in May 2013, and by early prepayment of principal.  Total cash and cash equivalents as of December 31, 2011 were $57.8 million, a decrease of $3.5 million or 5.8% from $61.3 million at December 31, 2010.

  Our continuing operating activities used cash of approximately $23.3 million and $4.0 million in 2012 and 2011, respectively. Our continuing operating activities provided cash of

approximately $14.3 million in 2010. Our discontinued operating activities used cash of approximately $2.9 million, $14.0 million and $36.7 million in 2012, 2011 and 2010, respectively.  The cash flows used in operating activities for 2012 consisted primarily of adjusted net loss (net loss as adjusted for non-cash activities, including stock-based compensation expenses, depreciation of fixed assets and amortization of intangible assets) plus a decrease in trade payables, decrease in other accounts payable and accrued expenses partially offset by, a decrease in inventories, a decrease in accounts receivable, a decrease in other accounts receivable and prepaid expenses. The cash flows used in operating activities for 2011 consisted primarily of adjusted net loss (net loss was adjusted for non-cash activities, including stock-based compensation expenses, depreciation of fixed assets and amortization of intangible assets) plus a decrease in accounts payable and accrued expenses and a decrease in trade payables, partially offset by a decrease in inventories, a decrease in other accounts receivable and prepaid expenses and a decrease in trade receivables. The cash flows provide by the operating activities for 2010 consisted primarily of net income adjusted for non-cash activities, including stock-based compensation expenses and depreciation of fixed assets and an increase in trade payables decrease in trade receivables partially offset by a decrease in other accounts payable and accrued expenses, increase in other accounts receivable and prepaid expenses and an increase in inventories.

 

B. LIQUIDITY AND CAPITAL RESOURCES

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  Our cash used in continuing investing activities was approximately $1.5 million and $ 10.8 million in 2012 and in 2011, respectively. Our cash provided by the continuing investing

activities was approximately $24.0 million in 2010. Our cash used in discontinued investment activities was approximately $1.3 million, $1.7 million and $9.6 million in 2012, 2011 and 2010, respectively. In 2012, our investing activities provided proceeds from the maturity of marketable securities and proceeds from the maturity of bank deposits in the total sum of approximately $ 6.6 million, which were offset by investments in bank deposits, marketable securities, restricted cash, fixed assets and the final payment which was made in respect with the acquisition of Wavion of $2.7 million. In 2011, our investing activities consisted mainly of the acquisition of Wavion ($24.6 million), investments in bank deposits of $4.9 million, and investments in fixed assets, which were partially offset by proceeds from the maturity of marketable securities and proceeds from maturity of bank deposits. In 2010, our investing activities provided proceeds from the maturity of marketable securities and proceeds from the maturity of bank deposits, which were partially offset by investments in bank deposits, marketable securities and fixed assets and investment in convertible promissory notes of one of our customers.  

Capital expenditures were approximately $0.8 million, $1.7 million and $2.5 million in 2012, 2011 and 2010, respectively.  These expenditures principally financed the purchase of research and development equipment and manufacturing equipment.  

Our cash used in financing activities was $19.0 million in 2012. Our continuing financing activities provided cash of approximately $27 million in 2011 and $0.1 million in 2010. In 2012, our financing activities consisted mainly of the repayment of the SVB Loan in the sum of $19 million. In 2011, our financing activities consisted mainly of the amount attributable to receipt of the SVB Loan relating to the purchase of Wavion during the year, offset by a repayment by Wavion of a long term loan. In 2010, the amount of cash provided by financing activities was attributable to proceeds from the issuance of shares in connection with the exercise of employees’ options in the amount of approximately $0.1 million.  

Accounts Receivable, Net.  Accounts receivable, net was $10.3 million and $18.9 million as of December 31, 2012 and 2011, respectively. The decrease in the accounts receivable balance as of December 31, 2012 was mainly a result of lower sales during 2012.  DSOs as of December 31, 2012 and 2011 were 74 days and 94 days, respectively.  We expect that our DSOs will increase to a range of between 100 to 120 days during 2013 as a result of our customers requesting more favorable payment terms as a result of increased competition.  

Inventories.  Inventories were $9.3 million as of December 31, 2012 compared to $10.4 million as of December 31, 2011. This decrease of inventory was mainly due to the usage of our inventory for sales during 2012 and due to an inventory write-off. Inventories consist of raw materials, work in process and finished goods and inventories at customer sites that are not yet recognized as revenues. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements. We are focusing our operational efforts to increase inventory turns in order to enhance our responsiveness to future customers’ needs and market changes.  Our inventory turns were approximately 2.95 times in 2012 and approximately 3.6 times in 2011.   Credit Facility  

On June 21, 2011, the Company entered into the SVB Loan with SVB, whereby SVB provided a $30 million loan for the financing of the Wavion acquisition. As part of the transaction, the Company pledged all of its assets under a floating charge, and created a fixed charge on its IP rights and receivables. The SVB Loan contains various provisions related to compliance with financial covenants, restrictive covenants, including negative pledges, and other customary commitments, contained in credit facility agreements of this type.  The terms of the SVB Loan were amended to modify the structure of the loan, from a term loan to a revolving line of credit.  

 

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  As of December 31, 2012, the loan was defined as a revolving line of credit. As such, the outstanding balance has been classified as revolving credit line.

  In respect of the credit line provided, we are required to meet certain financial covenants which include non-GAAP adjusted profit/loss and quick asset ratio.  As of December 31, 2012,

we were in full compliance with the covenants as defined in the amended Agreement.  

In connection with amendments to the SVB loan and the sales of certain of our assets and businesses, we repaid principal on the SVB Loan in the aggregate amount of $24.6 million.  In addition, we are required to pay an additional $2.15 million of the proceeds of the sale of the BWA Division during the year following the closing of such sale.  

On May 12, 2013, we entered into an amended and restated loan and security agreement with SVB governing the SVB Loan.  The SVB Loan is currently structured as a revolving working capital line of credit with SVB, which permits borrowings of up to a principal amount equal to the lesser of (a) $6,000,000 or (b) 80% of the aggregate amount of our outstanding eligible accounts receivable, subject to customary limitations and exceptions  and the outstanding amount under the SVB Loan may not exceed such borrowing base. The SVB Loan matures on February 1, 2015. The unpaid principal amount borrowed under the 2013 Credit Facility accrues interest at a floating rate per annum equal to 7.0% per annum.  Interest on the principal amount outstanding under the SVB Loan is payable monthly on the last calendar day of each month with the outstanding principal amount of any borrowings under the SVB Loan, along with any accrued and unpaid interest thereon, payable on February 1, 2015.  We are required to permanently pay down the principal amount of the SVB Loan with additional proceeds received from Telrad during the first year following execution of the amendment and restated Loan and Security Agreement.  

The SVB Loan requires compliance with certain financial and other covenants and is secured by all of our assets and the assets of certain of our subsidiaries. The Loan and Security Agreement contains customary events of default, which, if triggered, would permit SVB to exercise customary remedies such as acceleration of all then-outstanding obligations arising under the Loan and Security Agreement. We are required under the terms of the SVB Loan to maintain an Adjusted Quick Ratio of at least 0.5 to 1.0 at all times through and including October 31, 2013 and thereafter 0.65 to 1.0, tested at the end of each quarter.  The “Adjusted Quick Ratio is defined as the ratio of (a) unrestricted cash and gross accounts receivable minus allowances for doubtful debt and other obligations to Alvarion specifically excluded questionable indebtedness and factored receivables to (b) current liabilities minus the current portion of deferred revenue, each as defined in the SVB Loan and SecurityAgreement  In addition, under the SVB Loan, our quarterly net losses shall not exceed $4.3 million, $2.1 million and $350,000 in the quarters ending March 31, 2013, June 30, 2013, and September 30, 2013, and we are required to have a net profit as of the quarter ending December 31, 2013, and as of the last day of each quarter thereafter.  Net losses and net profit are determined based on EBITDA (as defined in the SVB Loan agreement) minus unfunded capital expenditures.   Should we fail to comply with our obligations under the amended SVB Loan, SVB may require immediate repayment of the SVB Loan and realize on its security, which can significantly harm our available cash and our operations and may result in cessation of our operations in their entirety.  

We are required to provide certain financial information and compliance certificates to SVB and comply with certain other customary affirmative and negative covenants.  

As of May 12, 2013, $5.4 million in principal amount is outstanding under the SVB Loan.  

 

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  WORKING CAPITAL

  Our working capital was approximately $8.4 million as of December 31, 2012 compared to $62.1 million as of December 31, 2011 and $109.9 million as of December 31, 2010.

  Commitments

  Leases.  We lease office space in several locations worldwide. Rent expense totaled $1.5 million, $2.7 million and $3.3 million in 2012, 2011 and 2010, respectively.  We also lease certain

computers under operating lease agreements which expire in 2014. Computer leasing expenses totaled $0.1 million, $0.1 million and $0.3 million in 2012, 2011 and 2010, respectively. We also lease various motor vehicles under operating lease agreements, which expire in 2015.  Motor vehicles lease expenses were $0.7 million, $0.9 million and $1.5 million in 2012, 2011 and 2010, respectively. The vast majority of the motor vehicle leases expenses are charged back to our employees.  

Future annual minimum lease payments under all non-cancelable operating leases as of December 31, 2012 were as follows (in thousands):  

  The following table of our material contractual obligations as of December 31, 2012 summarizes the aggregate effect that these obligations are expected to have on our cash flows in the

periods indicated (in thousands)  

 

 

   Rental of premises    

Lease of computers    

Lease of motor vehicles  

                   2013  $ 1,912   $ 21   $ 556 2014    205     11     273 2015    67     -     33 

                      $ 2,184   $ 32   $ 862 

Contractual Obligations   Payments due by period      Total     Less than 1 year     1-3 years     3-5 years     More than 5 years  Rental Lease                                                $ 2,184   $ 1,912   $ 272   $ -    $ - Motor Vehicle Lease                                                  862     556     306     -     - Computers Lease                                                  32     21     11     -     - Severance pay and long term employee liabilities    252     -     252     -     - Loan                                                  10,999     10,999      -     -     - Other long-term liabilities                                                  7,149     -     7,149     -     -                                 Total                                                $ 21,478   $ 13,488   $ 7,990   $ -    $ - 

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  Under our agreement pursuant to which we purchased Clariton, we have agreed to make payments of up to $8.5 million upon achievement of certain performance milestones.  We do not

anticipate that we will be required to make any payments thereunder.  

Under our revolving loan, we are required to pay interest on a monthly basis on the outstanding balance at the end of the month.  See “Credit Facility” above.  

Royalties. We participated in programs (from InnoWave, Clariton Networks and Wavion) sponsored by the OCS of the Israeli Government for the support of research and development activities. We are obligated to pay royalties to the OCS amounting to 3.5% of the sales of the products and other related revenues generated from certain research and development projects, up to 100% of the amount granted by the OCS. The obligation to pay these royalties is contingent upon actual sales of the products, and in the absence of such sales, no payment is required. We did not receive grants-bearing royalties from the OCS during the years 2006 until 2011. As a result of the 2011 acquisition of Wavion, we assumed Wavion's grant-bearing royalties from the OCS, and such royalties have been recognized as a liability associated with the acquisition.  

As of December 31, 2012, the aggregate contingent liability to the OCS amounted to $27.7 million.              Treasury stock.  As of December 31, 2012, 524,677 ordinary shares appear on our balance sheet as treasury stock.  These shares were repurchased pursuant to our two repurchase programs, the 2002 repurchase program and the 2008 repurchase program, as described below. In October 2008, following the approval of our board of directors and the receipt of a court approval, we were authorized to use up to $30 million of our available cash to repurchase our shares. Through December 31, 2011 we repurchased under this second repurchase program 145,000 ordinary shares at a weighted average price of approximately $34.4 per share for an aggregate of $5.0 million.  Under the Company's first repurchase program in 2002, our board of directors authorized a share repurchase of up to $9 million of our ordinary shares. Under this 2002 repurchase plan, we had repurchased until December 31, 2003. 379,677 ordinary shares at a weighted average price per share of approximately $20.7 for an aggregate of $7.9 million. Effective Corporate Tax Rate  

Income derived by Alvarion Ltd. is generally subject to the regular Israeli corporate tax rate.  

As of 2012, the corporate tax in Israel is 25%, which applies on regular income and real capital gain.

As described below, several of our manufacturing facilities have been granted “Approved Enterprise” status under the Law for the Encouragement of Capital Investments, 1959, as amended, or the Investment Law, and, consequently, are eligible, subject to compliance with specified requirements, for tax benefits beginning when such facilities first generate taxable income.

 

 

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  According to the provision of the Law, we have elected the Alternative Benefits Program of the Investment Law, pursuant to which we have waived our right to grants and instead

receive a tax benefit on undistributed income derived from the “Approved Enterprise” program. The tax benefits under the Investment Law may not be available with respect to income derived from products developed and manufactured outside of Israel or developed or manufactured in Israel but outside of the Approved Enterprises mentioned above and may be affected by the current location of our facilities in Israel.  The relative portion of taxable income that should be allocated to each Approved Enterprise and expansion is subject to the fulfillment of covenants with the tax authorities.  

Several of our facilities have been granted Approved Enterprise status:  

(i)  Nazareth Facilities: On December 31, 1997, our production facilities in Nazareth were granted Approved Enterprise status.  Subject to compliance with applicable requirements, the income derived from the Nazareth Approved Enterprise is tax exempt for a period of 10 years.  

The periods of tax benefits with respect to Nazareth Approved Enterprises will commence with the first year in which we earn our taxable income and exhaust our accumulated tax loss carry forwards.  The period of tax benefits for the Approved Enterprises are subject to limits of the earlier of 12 years from the commencement of production or 14 years from receiving the approval (these limits do not apply to the exemption period).  The period of benefits for Nazareth plan expired in 2009.  

(ii) Status Expansion of Nazareth and Migdal Ha-emek: In 2000, we received approval of our application for an expansion of our Approved Enterprise status with respect to our Nazareth facility.  This expansion included, among other things, our Carmiel facility, which during 2004 was relocated to Migdal Ha-emek.  The income derived from this Approved Enterprise is tax-exempt for a period of 10 years. The relative portion of taxable income that should be exempt for a 10-year period is subject to final covenants with the tax authorities. The 10-year period of benefits will commence with the first year in which we earn taxable income. The period of benefits for this expansion plan expired in 2012.  

In order to maintain eligibility for the above programs and benefits, we must meet specified conditions stipulated by the Investment Law, regulations published there-under and the letters of approval for the specific investments in Approved Enterprises. In the event of failure to comply with these conditions, any benefits that were previously granted may be canceled, and we may be required to refund the amount of the benefits, in whole or in part, including interest.  

If the retained tax-exempt profits are distributed they would be taxed at the corporate tax rate applicable to such profits as if we had not elected the alternative system of benefits, currently between 10% - 25% for an “Approved Enterprise.” As of December 31, 2012, our accumulated deficit does not include tax-exempt profits earned by our Approved Enterprise.  

Status Expansion of our Production Facilities: We submitted an expansion request for a Privileged Enterprise approval regarding our production facilities. A portion of the income derived from this Privileged Enterprise will be tax-exempt for a period of 10 years and the rest will be taxed at a reduced rate of 10% to 25% (depending on the percentage of foreign investment in the Company). The 10-year period of benefits will commence with the first year in which we earn taxable income.

 

 

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  Our Israeli company had no taxable income since inception nor any profit under our Approved or Privileged Enterprise plans.

  As of December 31, 2012, Alvarion Ltd. and its Israeli subsidiaries had an available tax loss carry forward amounting to approximately$283 million, which may be carried forward, in order

to offset taxable income in the future, for an indefinite period.  

As of December 31, 2012, the U.S. subsidiaries had approximately $41 million in US federal net operating loss carry forward for income tax purposes, which can be carried forward and offset against taxable income for 20 years and expire between 2013 and 2032. The state tax losses carry forwards of the U.S. subsidiaries are approximately $24 million and this balance will expire between 2013 through 2022.  

The state and federal tax loss carry forwards per income tax returns filed included uncertain tax positions that were taken in prior years.  Due to the application of ASC 740-10, the filed net operating losses are greater than the net operating loss deferred tax asset which was recognized for financial statement purposes.

Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions (“annual limitations”) of the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.  

Because we have more than one “Approved Enterprise", and/ or “Privileged Enterprise” our effective tax rate in Israel will be a weighted combination of the various applicable tax rates. We are likely to be unable to take advantage of all tax benefits in Israel for an Approved Enterprise, which would otherwise be available to us, because a portion of our operations may be considered by the Israeli tax authorities as generated in areas that are defined as non-Approved or non-Privileged Enterprise areas.  

Our effective corporate tax rate may substantially exceed the Israeli tax rate.  Our France, Romania, Brazil, Hong-Kong, Singapore, Japan, Mexico, Poland, Israel, Uruguay, Spain, UK, South-Africa, Italy, Argentina, Ecuador, Costa Rica, India, Chile, Indonesia, Taiwan and Philippines subsidiaries will generally each be subject to applicable federal, state, local and foreign taxation, and we may also be subject to taxation in other jurisdictions where we own assets, have employees or conduct activities.  Because of the complexity of these local tax provisions, it is not possible to anticipate the actual combined effective corporate tax rate that will apply to us.   Government Grants  

Under an arrangement entered during 2003 with the OCS in Israel’s Ministry of Industry and Trade we participate in new OCS programs under which we are eligible to receive grants for research and development projects without any royalty repayment obligations, excluding OCS programs grants resulting from InnoWave’s former operations, Clariton and Wavion which were not included in this arrangement.  

In addition to these grants, we obtain grants from the OCS to fund certain other research and development projects as part of our participation in the MAGNET Consortium. These grants do not bear any royalty repayment obligations. The MAGNET Program in the OCS sponsors innovative generic industry-oriented technologies to strengthen the country's technological expertise and enhance competitiveness.  

We also participate in certain governmental programs in Spain and in Romania, which finance certain local research and development projects.  

 

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  In addition we participate in the BuNGEE (researching for high capacity density deployments targeting 1Gbs/km^2) and Flavia (Flexible Architecture for Virtualizable wireless future

Internet access) projects, which are a consortium of commercial companies and academy institutes from Europe and Israel.  

All of these programs provide grants without any royalty obligations. The programs are expected to last between two and three years.  If we are unable to meet the terms of these programs we may be required to return the grants received.   Recently Issued Accounting Standards –

In June 2011, the FASB issued ASU 2011-05 Presentation of Comprehensive Income, codified in ASC 220 "Comprehensive Income". The guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance also eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, deferring the effective date for amendments outlined in ASU 2011-05, but the remainder of its provisions will become effective for the Company beginning January 1, 2012. The Company has applied to the new presentation of other comprehensive income in two separate but consecutive statements.

  Our product development plans are market driven and address the major, fast-moving trends that influence the wireless industry.  We believe that our future success will depend upon

our ability to maintain technological competitiveness, to enhance our existing products and to introduce on a timely basis new commercially viable products addressing the demands of the broadband wireless access market.  Accordingly, we devote, and intend to continue to devote a significant portion of our personnel and financial resources to research and development.  As part of the product development process, we seek to maintain close relationships with current and potential distributors, other resellers and end users, strategic partners and leaders in industry segments in which we operate to identify market needs and define appropriate product specifications.  

As of December 31, 2012, our research and development staff consisted of 89 full time employees.  Our research and development is conducted at our facilities in Israel, Romania and Spain.  We occasionally use independent subcontractors for portions of our development projects.  

Our gross research and development expenses were approximately $14.8 million or 29.7% of sales in 2012, $12.6 million or 17.4% of sales in 2011 and $8.4 million or 11.2% of sales in 2010. The Government of Israel and other jurisdictions for funding-approved research and development projects reimbursed us for approximately $0.5 million in 2010, $1.8 million in 2011 and $2.2 million in 2012.  

  See “—Operating Results—2012 Highlights,” “Item 3—Key Information—Risk Factors” and Item 4-Information on the Company – Business Overview – Recent Developments”.

 

  None.

 

  See “—Liquidity and Capital Resources—Working Capital—Commitments”.  

 

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES –

D. TREND INFORMATION -

E. OFF-BALANCE SHEET ARRANGEMENTS

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

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  The following table lists the name, age and position of each of our directors and executive officers as of April 30, 2013:

 

 

 

 

 

 

  Mr. Amnon Yacoby has served as a member of our board of directors since our merger with Floware in August 2001. In October 2011, he was appointed as the Chairman of the Board of

Directors. Mr. Yacoby founded Floware and served as its Chief Executive Officer and as a member of its board of directors until its merger with us. Following our merger with Floware until the end of 2001, Mr. Yacoby served as our co-Chief Executive Officer. In 2004, Mr. Yacoby founded Aternity, Inc. and serves as its Chairman and CEO. In 1987, Mr. Yacoby founded RAD Network Devices Ltd., a developer of data networking devices, and served as its president and Chief Executive Officer until 1995.  From 1972 to 1986, he served in the Israel Defense Forces’ Electronic Research Department in various positions, most recently as head of the department.  He twice received the Israel Security Award.  Mr. Yacoby holds B.Sc. and M.Sc. degrees in Electrical Engineering from the Technion – Israel Institute of Technology.  

Professor Raphael Amit has served as one of our external directors since September 2003. He serves on the audit and compensation committees.  Prior to joining our board of directors, Professor Amit served as Chairman of the Board of Directors of Creo Products Inc.  Professor Amit has been the Robert B. Goergen Professor of Entrepreneurship and a Professor of Management at the Wharton School of the University of Pennsylvania since July 1999. Professor Amit also serves as the Academic Director of Wharton’s Goergen Entrepreneurial Management Programs. Prior thereto, Professor Amit was the Peter Wall Distinguished Professor at the Faculty of Commerce and Business Administration, University of British Columbia (UBC), where he was the founding director of the W. Maurice Young Entrepreneurship and Venture Capital Research Center. From 1983 to 1990, Professor Amit served on the faculty of the J.L. Kellogg Graduate School of Management at Northwestern University, where he received the J.L. Kellogg Research Professorship and the Richard M. Paget Research Chair in Business Policy. Professor Amit holds B.A. and M.A. degrees in Economics from the Hebrew University and a Ph.D. in Management from the Northwestern University’s J.L. Kellogg Graduate School of Management. Professor Amit has served as a consultant to a broad range of organizations in North America and Europe on strategic, entrepreneurial management and new venture formation issues.

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

Name Age Position Amnon Yacoby                                    62 Chairman of the Board of Directors (1) Professor Raphael Amit                                         65 Director(1)(2)(3)(4) Tali Aben 49 Director (1)(3)(4)(5) Doron Inbar                                         63 Director (1)(3)(4)(5) Assaf Katan 42 Acting President and Chief Executive Officer Avi Stern 40 Chief Financial Officer Dr. Mati Wax 66 Chief Technology Officer Zeev Farkash 46 Executive Vice President of Sales Moshe Fourier 65 Executive Vice President R&D Nir Golan 55 Executive Vice President Leor Porat 38 Executive Vice President and General Counsel Ziv Eizenberg 41 Executive Vice President of Human Resources

  (1) “Independent Director” under rules of the SEC, NASDAQ Listing Rules and the Israeli Companies Law (see explanation below).

  (2) “External Director” within the meaning of the Israeli Companies Law (see explanation below).

  (3) Member of our audit committee.

  (4) Member of our compensation committee.

  (5) Member of our nominating and corporate governance committee.

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  Mr. Doron Inbar has served as a member of our board of directors since September 2009.  Mr. Inbar has been a Venture Partner at Carmel Ventures, an Israeli-based venture capital firm

that invests primarily in early stage companies in the fields of software, communications, semiconductors, internet, media, and consumer electronics, since 2006. Previously, Mr. Inbar served as the President of ECI Telecom Ltd., a global telecom networking infrastructure provider, from November 1999 to December 2005 and its Chief Executive Officer from February 2000 to December 2005. Mr. Inbar joined ECI Telecom Ltd. in 1983 and during his first eleven years with the company served in various positions at its wholly-owned U.S. subsidiary, ECI Telecom, Inc., in the U.S., including Executive Vice President and General Manager. In July 1994, Mr. Inbar returned to Israel to become Vice President, Corporate Budget, Control and Subsidiaries of ECI Telecom Ltd. In June 1996, Mr. Inbar was appointed Senior Vice President and Chief Financial Officer of ECI Telecom Ltd., and he became Executive Vice President of ECI Telecom Ltd. in January 1999.  Mr. Inbar serves on the board of directors of Comverse, Inc (NASDAQ: CNSI), a provider of software-based products, systems and related services with respect to billing and active customer management systems for wireless, wireline and cable network operators, on the board of directors of SolarEdge Technologies Inc., an innovative start up in the photovoltaic industry, as Chairman of the Board of Archimedes Global Ltd., a company which provides health insurance and health provision in East Europe, and on the board of directors of Maccabi Dent Ltd., the largest chain of dental service clinics in Israel.  Previously, Mr. Inbar served as Chairman of the Board of C-nario Ltd., a global provider of digital signage software solutions, Chairman of the Board of Followap Inc., which was sold to Neustar, Inc. in November 2006, and Chairman of the Board of Enure Networks Ltd. Mr. Inbar holds a B.A. in Economics and Business Administration from Bar-Ilan University, Israel.  

Ms. Tali Aben was appointed as a member of our board of directors in November 2011. Since 2008, she has been advising international investors on opportunities within the Israeli high-tech sector. Ms. Aben also serves as an external director of Attunity Ltd. (NASDAQ: ATTU) and Vizrt Ltd.(OTCBB: VZRTF) as well as several non-profit organizations. Previously, Ms. Aben was a General Partner with Gemini Israel Funds, a venture capital firm, which she joined in 1994.  At Gemini, she funded and supported many successful companies, including Verisity, Jacada, Abirnet, Business Layers, Servicesoft, nLayers and others. Her focus has been primarily on software companies, expanding in 2007 to include cleantech companies. Ms. Aben holds a B.Sc. in Mathematics and Computer Science and an MBA, both from Tel Aviv University.  

Assaf Katan was appointed as our Acting President and Chief Executive Officer in April 2013.  Mr. Katan joined Alvarion in October 2010 as Vice President of Business Development and became a member of Alvarion’s management team in January 2012. Prior to joining Alvarion, Mr. Katan spent two and a half years as VP Marketing and Business Development at Media Layers, a start-up in the Mobile Advertising space. He previously spent five years at Comverse in various corporate marketing and business development positions, where he initiated and led the company's entry into the mobile content domain, and a team leader at Shaldor, Israel's leading strategy consulting firm. Mr. Katan holds a B.A. in Psychology and Business Administration from the Tel Aviv University.  

Mr. Avi Stern was appointed as our Chief Financial Officer in March 2013. Mr. Stern joined Alvarion in 2009 as Director of Finance and as of 2011 served as Vice President of Finance. Prior to joining Alvarion, Mr. Stern was Director of Finance at Finisar Corporation from 2007 to 2009. Preceding this position, from 2003 to 2007, Mr. Stern worked as a controller for Veraz Networks, a provider of softswitch, media gateway and digital compression solutions. From 2000 to 2003, Mr. Stern worked for ECI Telecom, a networking infrastructure provider, as Deputy Controller. Mr. Stern is a Certified Public Accountant in Israel and holds both Bachelors and Masters degrees in Business Administration from The College of Management in Rishon LeZion, Israel.

 

 

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  Dr. Mati Wax joined Alvarion in 2011 following the acquisition of Wavion and currently holds the position of CTO. Dr. Wax brings to Alvarion more than 35 years of expertise in

wireless communications, with a particular focus on smart antenna technology. Before founding Wavion in 2000, Dr. Wax held a number of senior positions in the wireless industry. He held a twenty-year tenure at RAFAEL, where he headed the R&D in smart antenna systems for military applications. He also held the position of CTO at US Wireless where he was responsible for the development of the company’s position location system. Dr. Wax received a BS and MS in Electrical Engineering from the Technion in Haifa, Israel and a PhD in Electrical Engineering from Stanford University.  

Mr. Zeev Farkash joined Alvarion in 2011 as General Manager of Sales for APAC following the acquisition of Wavion Networks. Mr. Farkash currently holds the role of Executive Vice President of Sales. Prior to joining Alvarion, from December 2010 until our acquisition of Wavion, Mr. Farkash worked at Wavion as Executive Vice President of Sales. Before joining Wavion, from 2006 through September 2010, Mr. Farkash worked for Ioimage Ltd, a manufacturer of intelligent video devices for the HLS market, where he initially served as VP Sales and Customer Services initially as VP Sales and Customer Services and was later appointed to the position of CEO and during this period the company gained global leadership and achieved significant business growth. Prior to this position, Mr. Farkash held various managerial positions in global companies such as NICE and Applied Materials. Mr. Farkash holds a B.Sc. degree in Electrical Engineering from the Tel Aviv University.  

Mr. Moshe Fourier joined Alvarion in 2012 as Vice President R&D and is responsible for leading the R&D department and the development and support of all products. Prior to joining Alvarion, Mr. Fourier spent two years as a consultant to start-up companies in the hi-tech arena. From 2000 to 2010 Mr. Fourier served as VP and CTO at Elron Electronic Industries, Ltd., a leading Israeli holding company dedicated to building technology companies, primarily in the field of communication equipment. During his tenure, Mr. Fourier was an active Board Member at: Wavion, Jordan Valley, Starling, Actisafe, 3DV, Atlantium. Prior to this, from 1993 to 2000 Mr. Fourier held the role of Vice President R&D and Chief Operations Officer at Telegate. He was also part of the team that founded the company. Mr. Fourier has held various high-level positions including Vice President of Engineering at RADA and VP Engineering at Astronautics where he spent close to two decades establishing the engineering group and dealing with military electronics. Mr. Fourier holds a Bachelor of Science in Electrical Engineering (BSEE) from the Technion Israel Institute of Technology in Haifa, Israel.  

Mr. Nir Golan joined Alvarion as Executive Vice President for Sales and Services in May 2012 and upon the separation of the BWA Division from our other businesses, led and managed the BWA Division until its sale to Telrad. Prior to joining Alvarion, Mr. Golan worked for various companies in the telecom industry. Mr. Golan's most recent position was at Gilat Satellite Networks – GNS, where he served as Executive Vice President of Sales. Prior to this, Mr. Golan held the position of Vice President of Sales at Innowave Wireless Systems (ECI subsidiary), which was sold to Alvarion Ltd. Following the sale, Mr. Golan served as Vice President of Sales for the WB Division at Alvarion. Previous positions include; Vice President of Global sales at ECI Telecom and various sales and marketing positions at companies such as Telrad Ltd., and IBM. Mr. Golan has an MBA from the Hebrew University in Jerusalem and a Bachelor of Arts, Economics Major from the Tel Aviv University.  

Mr. Leor Porat joined Alvarion in June 2012 as Vice President General Counsel. Prior to joining Alvarion, Mr. Porat served as General Counsel and head of the legal department at Syneron Medical Ltd. (NASDAQ: ELOS), a world leader in the field of aesthetic medical devices from 2007 until May 2012. Between 2004 to 2006, Mr. Porat was an associate at Meitar Liquornik Geva & Leshem Brandwein law firm where his practice focused on corporate law and M&A transactions. Mr. Porat holds a dual, a B.A. in Economics and L.L.B from the Hebrew University in Jerusalem.

 

 

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  Ms. Ziv Eizenberg joined Alvarion in 2008 as HR Director for the Sales & Customer Support Division, and was later promoted to the position of Executive Vice President of Human

Resources. Prior to joining Alvarion, Ms. Eizenberg worked at Comverse as a Business Line Human Resources Manager. Before joining Comverse, Ms. Eizenberg worked as a consultant for “Lotem”- consultancy firm specializing in organizational development and training. Ms. Eizenberg has a BA in Social Sciences and Consultant Education and an MA Consultant Education from the University of Haifa, Israel.  

There are no family relationships between any of our directors and executive officers.   B.            COMPENSATION OF DIRECTORS AND OFFICERS  

The aggregate direct labor costs associated with all of our directors and executive officers as a group (23 persons) for the year ended December 31, 2012 (including persons who served as executive officers and directors during 2012 and did not serve in such capacity as of December 31, 2012) was approximately $4.1 million, which included, with respect to the executive officers, payments made pursuant to bonus plans and with respect to certain executive officers, payments made pursuant to their separation agreements.  This amount also includes approximately $367,000 that was set aside or accrued to provide pension, retirement, social security or similar benefits.  The amount does not include amounts expended by us for vehicles made available to our officers; expenses, including business travel, professional and business association dues and expenses; reimbursements to directors and officers; and other fringe benefits commonly reimbursed or paid by companies in Israel.  Our directors received an aggregate of approximately $323,000 in cash compensation in 2012.  

From time to time, we grant options and awards under our equity incentive plans (described below under Share Ownership) to our executive officers and directors.  

Option grants to directors (including the chairman of our board of directors) who are not executive officers are made pursuant to an automatic option grant program.  Non-employee directors who are elected or re-elected to our board of directors are granted upon each of their election or re-election, an option to purchase 3,000 ordinary shares for the term for which they are elected or re-elected.  The options vest in equal quarterly installments over the term of election or re-election, commencing at the end of the third month following the date of election or re-election.  All options to our non-employee directors pursuant to the automatic option grant program are granted at an exercise price equal to 100% of the closing price of the ordinary shares on the NASDAQ Global Select Market on the last trading day immediately preceding the date of the election or re-election.  

During 2012, we granted all of our directors and executive officers as a group (23 persons) (including persons who served as directors and executive officers during 2012 and did not serve in such capacity as of December 31, 2012) options to purchase an aggregate of 148,500 of our ordinary shares at exercise prices ranging from $ 3.8 to $12.4, with expiration dates ranging from January 2, 2018 to November 12, 2018.  

As of December 31, 2012, our directors and executive officers (including persons who served as executive officers and directors during 2012 and did not serve in such capacity as of December 31, 2012) held outstanding options to purchase an aggregate of 295,170 ordinary shares, at exercise prices ranging from $ 0.03 to $136.5 with expiration dates ranging from March 23, 2013 to December 21, 2021.  

We currently pay each of our non-executive directors (other than the Chairman of our board of directors who provides executive services to Alvarion and is paid separately for those services) an annual fee of $21,250 for the services he or she provides to Alvarion, which annual fee includes payment for the board and committee meetings attended by such director during the year.  In addition, each of the chairs of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee is paid an additional annual fee of $21,250.  

 

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  C.            BOARD PRACTICES –   Appointment of Directors and Terms of Office  

Our board of directors currently consists of four members.  Under our articles of association, our board of directors is to consist of between 4 and 10 members.  Our directors are elected by our shareholders at an annual general shareholders meeting.  Our directors generally commence the terms of their office at the close of the annual general shareholders meeting at which they are elected and, other than our external directors, serve in office until the close of the third annual general shareholders’ meeting following the meeting at which they are elected, and may be re-elected by the shareholders.  Annual general shareholders meetings are required to be held at least once every calendar year, but not more than 15 months after the last preceding annual general shareholders meeting.  In the intervals between the annual general meetings of the shareholders, our shareholders or our board of directors may appoint new directors to fill any vacancy created in our board of directors, except for vacancies of an external director.  

The compensation (including options and other grants) as well as other terms of service of the directors (similarly to those of the Chief Executive Officer), such as insurance and indemnification, must be approved, under the Israeli Companies Law, by the compensation committee, the board of directors and the general meeting of the shareholders.  

The term of office of Mr. Yacoby will expire at our 2013 annual general meeting of shareholders.  The term of office of each of Ms. Aben and Mr. Inbar will expire at our 2014 annual general meeting of shareholders. The term of office of our external director, Professor Amit, expires in September 2015, as described below.   Service Contracts of Directors  

None of our directors has the right to receive any benefit upon termination of his office or any service contract he may have with us.   External Directors  

We are subject to the provisions of the Israeli Companies Law. Under the Israeli Companies Law, companies incorporated under the laws of Israel whose shares have been offered to the public in or outside of Israel are required to appoint at least two directors who qualify as external directors under the Israeli Companies Law.  At least one of the external directors is required to have “accounting and financial expertise” and any other external director must have “accounting and financial expertise” or “professional expertise,” as such terms are defined by regulations promulgated under the Israeli Companies Law.  Our board of directors has determined that Professor Amit has “financial and accounting expertise”.  

A person may not serve as an external director if the person is a relative of a company's controlling shareholder or if at the date of the person's election or within the prior two years, the person or his or her relative, partner, employer, direct or indirect supervisor or an entity under the person's control, have or had any affiliation with such company or with a controlling shareholder or relatives of a controlling shareholder, and, in the case of a company without a controlling shareholder or a shareholder holding at least 25% of the outstanding shares or voting rights of such company, any affiliation, at the time of election, to the chairman of the board of directors, the chief executive officer, a shareholder holding at least 5% of the outstanding shares or voting rights or the company's most senior finance officer.   Under the Israeli Companies Law, the term affiliation includes:  

 

 

  • an employment relationship;

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  In addition, a person may not serve as an external director:

 

 

  An "office holder" is defined as any a director, general manager, chief business manager, deputy general manager, vice general manager, other manager directly subordinate to the

general manager or any other person assuming the responsibilities of any of these positions, regardless of that person’s title.  Each person listed in the table under "Director and senior management" in Item 6.A. above is an office holder. A "relative" is defined as a spouse, sibling, parent, grandparent or descendent, or a spouse's descendant, sibling or parent or the spouse of any of the foregoing.  An "interested party" is defined as a holder of 5% or more of our shares or voting rights, any person or entity that has the right to nominate or appoint at least one of our directors or our general manager, or any person who serves as one of our directors or as our general manager.  

A person may not serve as an external director if that person’s position or other business creates, or may create, a conflict of interest with the person’s responsibilities as an external director or may otherwise interfere with such person’s ability to serve as a director.  If at the time any external director is to be elected all members of the board of directors that are not controlling shareholders or their respective relatives are of the same gender, then the external director to be elected must be of the other gender.  There is also a restriction on interlocking boards of directors: a director of a company may not be elected as an external director of another company if, at that time, a director of the other company is acting as an external director of the first company.  

Under the Israeli Companies Law, each committee of a company’s board of directors is required to include at least one external director, except for the audit committee and the compensation committee, which require that all external directors be members of such committee, including one external director serving as the chair of the each such committee.  Under the Israeli Companies Law, the term of office of an external director is three years and may be extended for additional three year terms.  However, Israeli companies listed on certain stock exchanges outside Israel, including the NASDAQ Capital Market, such as our company, may appoint an external director for additional unlimited terms of three years each subject to certain conditions.  Such conditions include the determination by the audit committee and board of directors that, in view of the director’s professional expertise and special contribution to the company’s board of directors and its committees, the appointment of the external director for an additional term is in the best interest of the company.  An external director can be removed from office only under very limited circumstances.  

 

  • a business or professional relationship maintained on a regular basis;

  • control; and

  • service as an office holder.

  • if the person or his or her relative, partner, employer, direct or indirect supervisor or an entity under the person's control, maintains a business or professional relationship, even if such relationship is not on a regular basis, other than a negligible business or professional relationship with one of the parties with whom the external director may not have an affiliation, as described above, or

  • if the person received compensation as an outside director in excess of the amounts permitted by the Israeli Companies Law and regulations thereunder.

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  The external directors must be elected by the majority of the shareholders in a general meeting, provided that either (i) the shares voting in favor of the external director’s election

includes at least a majority of the shares of non-controlling shareholders or shareholders who have a personal interest in the election of the external directors (excluding a personal interest that is not related to a relationship with the controlling shareholders), or (ii) the total shares of non-controlling shareholders voted against the election does not represent more than two percent of the total voting rights in the company.  

Until the lapse of two years from the termination of office, the company, a controlling shareholder and entities under the company's control may not grant the external director or any of his or her relatives, directly or indirectly, any benefit, or engage the external director or his or her relatives as an office holder of the company, of a controlling shareholder or of an entity under the company's control, and may not employ or receive services from the external director or any of his or her relatives, either directly or indirectly, including through a corporation controlled by that person.  The restriction on a relative that is not the spouse or child of the external director is limited to one year from the termination of office instead of two years.  

Professor Raphael Amit qualifies as our external director under the Israeli Companies Law. We have appointed the external director to the committees of our board of directors as required by the Israeli Companies Law. Under the Israeli Companies Law, as we currently have only one external director, we are required to convene a special general meeting as soon as practicable to elect an additional external director.   Independent Directors  

NASDAQ Listing Rules require that the board of directors of a NASDAQ-listed company have a majority of independent directors, each of whom satisfies the “independence” requirements of NASDAQ, and its audit committee and compensation committee must have at least three members and be comprised only of independent directors, each of whom satisfies the respective “independence” requirements of NASDAQ and, in the case of the audit committee, the SEC.  Our board of directors has determined that each of Professor Amit, Mr. Yacoby and Mr. Inbar qualifies as an independent director under the requirements of NASDAQ, and that each of Professor Amit, Mr. Inbar and Mr. Yacoby (who serve on our audit committee) qualifies as an independent director under the requirements of NASDAQ and the SEC.   Committees of the Board of Directors  

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee.   Audit Committee  

Pursuant to the Israeli Companies Law and the NASDAQ Listing Rules, the board of directors of a public company must appoint an audit committee.  The responsibilities of the audit committee include monitoring the management of the Company’s business and suggesting appropriate courses of action, as well as classifying and approving related party transactions and extraordinary transactions, reviewing the internal auditors audit plan, establishing and monitoring whistleblower procedures and other matters as required by Israeli law and NASDAQ rules.  Our audit committee assists the board of directors in fulfilling its responsibilities to ensure the integrity of our financial reports, serves as an independent and objective monitor of our financial reporting process and internal controls systems, including the activities of our independent auditor and internal audit function, and provides an open avenue of communication between the board of directors and the independent auditors, internal auditor and financial and executive management.

 

 

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  The audit committee may not include the chairman of the board, or any director employed by us, by a controlling shareholder or by any entity controlled by a controlling shareholder, or

any director providing services to us, to a controlling shareholder or to any entity controlled by a controlling shareholder on a regular basis, or any director whose income is primarily dependent on a controlling shareholder, and may not include a controlling shareholder or any relatives of a controlling shareholder.  Individuals who are not permitted to be audit committee members may not participate in the committee's meetings other than to present a particular issue.  However, an employee who is not a controlling shareholder or relative may participate in the committee's discussions but not in any vote, and the company's legal counsel and corporate secretary may participate in the committee's discussions and votes if requested by the committee.  

The members of our audit committee are Professor Amit and Mr. Inbar each of whom is an independent director under the requirements of the SEC, NASDAQ and the Israeli Companies Law. Professor Amit qualifies as an “audit committee financial expert" for purposes of the rules of the SEC.  As stated above, qualify as external directors under the Israeli Companies Law.   Compensation Committee  

Pursuant to the Israeli Companies Law and the NASDAQ Listing Rules, the board of directors of a public company must appoint a compensation committee.  The compensation committee of our board of directors consists of Professor Amit, Ms. Aben and Mr. Inbar.  

Under a recent amendment to the Israeli Companies Law, the compensation committee is responsible for (a) recommending the compensation policy (as described below under “Fiduciary Duties and Approval of Related Party Transactions – Approval of Compensation of Office Holders”)  to our board of directors for its approval (and subsequent approval by our shareholders) and (b) duties related to the compensation policy and to the compensation of our office holders as well as functions previously fulfilled by our audit committee with respect to matters related to approval of the terms of engagement of office holders, including:  

•           recommending whether a compensation policy should continue in effect, if the then-current policy has a term of greater than three (3) years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years);  

•           recommending to the board periodic updates to the compensation policy;  

•           assessing implementation of the compensation policy; and  

•           determining whether the compensation terms of the chief executive officer of the company need not be brought to approval of the shareholders (under special circumstances).  

The compensation committee must consist of at least three (3) members, including all of our external directors. Each remaining compensation committee member must be a director whose compensation does not exceed an amount that may be paid to an external director. The compensation committee will be subject to the same Israeli Companies Law restrictions as the audit committee as to (a) committee membership and (b) who may not be present during committee deliberations (as described under Fiduciary Duties and Approval of Related Party Transactions” below).  We intend to adopt a compensation committee charter consistent with the requirements of the Israeli Companies Law.  

 

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  Nominating and Corporate Governance Committee  

The nominating and corporate governance committee of our board of directors consists of Mr. Inbar and Ms. Aben. Our board of directors has adopted a nominating and corporate governance committee charter setting forth the responsibilities of the committee, which include:  

Internal Auditor  

The Israeli Companies Law also requires the board of directors of a public company to appoint an internal auditor recommended by the audit committee.  The role of the internal auditor is to examine, among other things, whether the company’s acts comply with applicable law and orderly business procedure.  The internal auditor may be an employee of the company but may not be an interested party or office holder, a relative of an interested party or office holder, or a member of the company’s independent accounting firm or its representatives. Our current internal auditor, Mr. Eyal Weitzman, has served in this position since February 2006.   Fiduciary Duties and Approval of Related Party Transactions  

Fiduciary Duties. The Israeli Companies Law codifies the fiduciary duties that office holders, which under the Israeli Companies Law include directors and executive officers, owe to a company.  An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty.  

The duty of care requires an office holder to act with the level of care that a reasonable office holder in the same position would apply under the same circumstances.  This includes the duty to use reasonable means to obtain information regarding the advisability of a given action submitted for his approval or performed by him by virtue of his position, and all other relevant information material to these actions.  

The duty of loyalty requires an office holder to act in good faith and for the company’s benefit, including to avoid any conflict of interest between the office holder’s position in the company and any other position held by him or his personal affairs, and prohibits any competition with the company, or the exploitation of any business opportunity of the company in order to receive personal advantage for himself or others. This duty also requires disclosing to the company any information or documents relating to the company’s affairs that the office holder has received as a result of his position as an office holder.  A company may approve any of the acts mentioned above provided that all the following conditions apply: the office holder acted in good faith and neither the act nor the approval of the act prejudices the good of the company and the office holder disclosed the essence of his personal interest in the act, including any substantial fact or document, a reasonable time before the date for discussion of the approval.  A director is required to exercise independent discretion in fulfilling his or her duties and may not be party to a voting agreement with respect to his or her vote as a director.  A violation of these requirements is deemed a breach of the director's duty of loyalty.  

 

 

  • seeking and recommending to the board of directors the nomination of qualified candidates for election to the board of directors;   • recommending to the board of directors the directors that shall serve on each committee of the board of directors;   • leading and monitoring a process to assess the effectiveness of the board of directors;   • developing and recommending to the board of directors a set of corporate governance guidelines, periodically reviewing such guidelines and recommending changes; and overseeing

the evaluation of the board of directors.

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  Disclosure of Personal Interest. The Israeli Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related

material information known to him or her, in connection with any existing or proposed transaction by the company.  “Personal interest”, as defined by the Israeli Companies Law, includes a personal interest of any person in an act or transaction of the company, including a personal interest of a person’s relative or of a corporation in which that person or a relative of that person is a 5% or greater shareholder, a holder of 5% or more of the voting rights, a director or general manager, or in which he or she has the right to appoint at least one director or the general manager, and includes shares for which the person has the right to vote pursuant to a power-of-attorney.  “Personal interest” does not apply to a personal interest stemming merely from holding shares in the company.  

The office holder must make the disclosure of his or her personal interest no later than the first meeting of the company's board of directors that discusses the particular transaction.  This duty does not apply to the personal interest of a relative of the office holder in a transaction unless it is an “extraordinary transaction”.  The Israeli Companies Law defines an “extraordinary transaction” as a transaction that is not in the ordinary course of business, not on market terms or is likely to have a material impact on the company's profit, assets or liabilities.  

Approval of Compensation of Office Holders.  

In December 2012, an amendment to the Israeli Companies Law, (“Amendment 20”) became effective, requiring companies to appoint a compensation committee. Our existing compensation committee meets this requirement. See “Committees of the Board—Compensation Committee” below.  

Under Amendment 20, we will be required to establish a policy regarding the terms of engagement of office holders, or a compensation policy. Such compensation policy will need to be set by our board, after considering the recommendations of our compensation committee, and will require shareholder approval.  

The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must relate to certain factors, including advancement of the company’s objectives, the company’s business and its long-term strategy, and creation of appropriate incentives for executives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must furthermore consider the following additional factors:  

 

 

  • the knowledge, skills, expertise and accomplishments of the relevant director or executive;   • the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her;   • the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies;   • the impact of disparities in salary upon work relationships in the company;

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  The compensation policy must also include the following principles:

 

  The compensation policy must also consider appropriate incentives from a long-term perspective and maximum limits for severance compensation.

  Pursuant to Amendment 20, compensation of, or an undertaking to indemnify or insure, an office holder, requires approval by the compensation committee, the board of directors and, in

certain cases (for directors, the chief executive officer, and any executive officer whose compensation terms do not conform to the then-existing compensation policy) the shareholders, in that order. Compensation of an individual office holder, including the chief executive officer (but excluding a director), that does not conform to the company’s compensation policy may be adopted under special circumstances despite failure to obtain shareholder approval if, following the relevant shareholder vote, the compensation committee followed by the board once again approves the compensation, based on renewed and specific analysis of relevant factors.  

Approval of Other Transactions with Office Holders.  The Israeli Companies Law provides that a transaction with an office holder or a transaction in which an office holder has a personal interest requires board approval, unless the transaction is an extraordinary transaction or the articles of association provide otherwise.  Our articles of association do not provide otherwise.  The transaction may not be approved if it is adverse to our interest.  If the transaction is an extraordinary transaction, then the approvals of our audit committee and board of directors are required,  

Any person who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee generally may not be present at such meeting or vote on such matter unless a majority of the board of directors or the audit committee has a personal interest in the matter, or if such person is invited by the chairman of the board of directors or audit committee, as applicable, to present the matter being considered.  If a majority of the board of directors or the audit committee has a personal interest in the transaction, shareholder approval is also required.

 

 

  • the possibility of reducing variable compensation at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable compensation; and

  • as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contribution towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company.

  • the link between variable compensation and long-term performance and measurable criteria;   • the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;   • the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was

based was inaccurate and was required to be restated in the company’s financial statements; and   • the minimum holding or vesting period for variable, equity-based compensation.

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  Controlling Shareholder – Disclosure and Approval  

The Israeli Companies Law imposes on a controlling shareholder of a public company the same disclosure requirements described above as it imposes on an office holder.  For this purpose, a "controlling shareholder" is any shareholder who has the ability to direct the activities of a company, including any shareholder that holds 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company.  Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be one shareholder.  

Approval of the audit committee, the board of directors and our shareholders, in that order, is required for extraordinary transactions, including a private placement, with a controlling shareholder or in which a controlling shareholder has a personal interest.  Approval of the compensation committee, the board of directors and our shareholders, in that order, is required for the terms of compensation or employment or engagement of a controlling shareholder or his or her relative, as our officer holder or employee or as a service provider to the company, including through a company controlled by a controlling shareholder.  

Shareholder's approval must include the majority of shares voted at the meeting.  In addition to the majority vote, the shareholder approval must satisfy either of two additional tests:  

 

  Generally, the approval of such a transaction may not be for more than three years.  However, an extraordinary transaction, including a private placement with a controlling shareholder

or in which a controlling shareholder has a personal interest that does not concern the terms of compensation or employment or engagement of a controlling shareholder or his or her relative, as an officer holder or employee of our company or as a service provider to the company, the transaction may be approved for a longer period if the audit committee determines that the approval of the transaction for a period of longer than three years is reasonable under the circumstances. Duties of Shareholders  

Under the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner towards the company and other shareholders, and to refrain from abusing his or her power in the company, including when voting in a shareholders meeting or in a class meeting on matters such as the following:  

 

 

 

 

 

  • the majority includes at least a majority of the shares voted by shareholders who have no personal interest in the transaction; or

  • the total number of shares, other than shares held by the disinterested shareholders, that voted against the approval of the transaction does not exceed two percent of the aggregate voting rights of our company.

  • An amendment to the company’s articles of association;

  • An increase in the company’s authorized share capital;

  • A merger; or

  • Approval of related party transactions that require shareholder approval.

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In addition, any controlling shareholder, any shareholder who knows that he or she possesses the power to determine the outcome of a shareholders meeting or a shareholders class

meeting and any shareholder who has the power to prevent the appointment of an office holder, is under a duty to act with fairness towards the company.  The Israeli  Companies Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking into account the position in the company of those who breached the duty of fairness.   Exculpation, Insurance and Indemnification of Directors and Officers   Indemnification of Office Holder

  Our articles of association provide that, to the extent permitted by the Israeli Companies Law, we may indemnify our office holders for the following liabilities or expenses incurred by an

office holder as a result of an act done by him or her in his or her capacity as an office holder:  

 

 

 

  The Israeli Companies Law and our articles of association provide that, subject to certain limitations, we may undertake to indemnify an office holder of the company retrospectively,

and may also undertake in advance to indemnify an office holder of the company, provided the undertaking is limited to events which the board of directors believes can be anticipated at the time of such undertaking, in light of the company’s activities as conducted at such time and is in an amount or based on criteria that the board of directors determines is reasonable under the circumstances and, provided, further, that such undertaking lists the events which the board of directors believes can be anticipated in light of the company’s activities as conducted at such time, and the amount or criteria that the board determines is reasonable under the circumstances.  

 

  • a financial liability imposed on him or her in favor of another person by a court judgment, including a settlement, judgment or an arbitrator’s award approved by a court;

  • reasonable costs of litigation, including attorney’s fees, expended as a result of an investigation or proceeding instituted against the office holder by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against the office holder or the imposition of any financial liability in lieu of criminal proceedings, or was concluded without the filing of an indictment against the office holder and a financial liability was imposed on the office holder in lieu of criminal proceedings with respect to a criminal offense in which proof of criminal intent is not required or in connection with a financial sanction;

  • reasonable litigation expenses, including attorneys’ fees, expended by an office holder or charged to him or her by a court, in a proceeding filed against him or her by the company or on its behalf or by another person, or in a criminal charge from which he or she was acquitted, or in a criminal charge of which he or she was convicted of a crime which does not require a finding of criminal intent; and

  • a financial obligation imposed upon an office holder and reasonable litigation expenses, including attorney fees, expended by the office holder as a result of an administrative proceeding instituted against him. Without derogating from the generality of the foregoing, such obligation or expense will include a payment which the office holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, and expenses that the office holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.

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  Insurance of Office Holders  

Our articles of association provide that, to the extent permitted by the Israeli Companies Law, we may obtain insurance to cover any liabilities imposed on an office holder as a result of an act done by him or her in his or her capacity as an office holder, in any of the following:  

 

 

 

  Exculpation of Office Holders  

In addition, our articles of association provide that, to the extent permitted by the Israeli Companies Law, we may exculpate an office holder in advance from liability, in whole or in part, for damages resulting from a breach of his or her duty of care to us.   Limitations on Exculpation, Indemnification and Insurance  

These provisions are specifically limited in their scope by the Israeli Companies Law, which provides that a company may indemnify or insure an office holder against a breach of duty of loyalty only to the extent that the office holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the company.  In addition, a company may not indemnify, insure or exculpate an office holder against a breach of duty of care if committed intentionally or recklessly (excluding mere negligence), or committed with the intent to derive an unlawful personal gain, or for a fine or forfeit levied against the office holder in connection with a criminal offense.  

We have obtained directors' and officers' liability insurance for the benefit of our office holders to the full extent permitted by the Israeli Companies Law.  

We have entered into indemnification agreements with each of our directors and office holders in the form approved by our audit committee, board of directors and shareholders.  The indemnification agreements provide that we will indemnify an office holder for any expenses incurred by the office holder in connection with any claims (as these terms are defined in the agreement) that fall within one or more categories of indemnifiable events listed in the agreement, related to any act or omission of the office holder and director while serving as our office holder (or serving or having served, at our request, as an employee, consultant, office holder or agent of any of our subsidiaries, or any other corporation or partnership) subject to a per-claim limitation.  In addition, under these agreements, we exempt and release our office holders from any and all liability to us related to any breach by them of their duty of care to us, to the maximum extent permitted by law.

 

 

  • a breach of his or her duty of care to us or to another person;

  • a breach of his or her duty of loyalty to us, provided that he or she acted in good faith and had reasonable grounds to assume that his or her act would not prejudice us;

  • any financial liability imposed upon him or her in favor of another person; and

  • a payment which the office holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.

  78

 

  As of December 31, 2012, we had 356 employees, of whom 149 were engaged in research and development, 88 in operations, 74 in sales and marketing, and 45 in administration and

management.  

Of our full-time employees (including employees of our BWA Division), as of December 31, 2012, 250 were located in Israel, 14 in the United States and 92 at our other branch offices, which offices are listed in “Item 4—Information on the Company—Organizational Structure.”  

As of December 31, 2011, we had 542 employees, of whom 225 were engaged in research and development, 46 in operations, 212 in sales and marketing, and 65 in administration and management. Of our full-time employees, as of December 31, 2011, 361 were located in Israel, 23 in the United States and 158 at our other branch offices, which offices are listed in “Item 4—Information on the Company—Organizational Structure.”  

We consider our relations with our employees to be good and have never experienced any strikes or work stoppages.  Substantially all of our employees have employment agreements, and none are represented by a labor union.  

We are subject to labor laws and regulations in Israel and in other countries where our employees are located.  Although our Israeli employees are not parties to any collective bargaining agreement, we are subject to certain provisions of collective bargaining agreements among the Government of Israel, the General Federation of Labor in Israel and the Coordinating Bureau of Economic Organizations, including the Industrialists’ Association, that are applicable to our Israeli employees by virtue of expansion orders of the Israeli Ministry of Industry, Trade and Labor.  Israeli labor laws are applicable to all of our employees in Israel.  Those provisions and laws principally concern the length of the work day, minimum daily wages for workers, procedures for dismissing employees, determination of severance pay and other conditions of employment.  

We contribute funds on behalf of our employees to an individual insurance policy known as Managers’ Insurance.  This policy provides a combination of savings plan, insurance and severance pay benefits to the insured employee.  It provides for payments to the employee upon retirement or death and secures a substantial portion of the severance pay, if any, to which the employee is legally entitled upon termination of employment.  Each participating employee contributes an amount equal to 5% of such employee’s base salary, and we contribute between 13.83% and 15.83% of the employee’s base salary. Employees are also entitled, instead of or combined with the Manager's Insurance above, to a pension fund to which the employee contributes an amount ranging from 5% to 5.5% of such employee’s base salary, and we contribute an amount equal to 14.83% of the employee’s base salary.  We also provide our employees with an Education Fund, to which each participating employee contributes an amount equal to 2.5% of the employee’s base salary, and we contribute an amount of up to 7.5% of the employee’s base salary.  Both of the above contributions are limited to maximum amounts promulgated under the Israeli tax regulations which are tax exempt. We also provide our employees with additional health insurance coverage for instances of severe illnesses. Outside of Israel, we offer alternative local plans of pension, health insurance, and social security as provided under the applicable laws in such jurisdictions.  

As an Israeli employer, Israeli law requires us to provide salary increases as partial compensation for increases in the Israeli consumer price index or as set by local law.  Employees and employers also are required to pay predetermined sums, which include a contribution to provide a range of social security benefits.   Management Employment Agreements  

We maintain written employment agreements with substantially all of our key employees.  These agreements provide, among other matters, for monthly salaries, our contributions to Managers’ Insurance or Pension Fund and an Education Fund, and severance benefits.  All of our agreements with our key employees are subject to termination by either party upon the delivery of notice of termination as provided therein.

 

 

D. EMPLOYEES –

  79

 

  The following table sets forth certain information as of March 31, 2013 for (i) each of our executive officers and directors that beneficially owns more than 1% of our outstanding

ordinary shares and (ii) our executive officers and directors as a group.  The information in the table below is based on 504,050 ordinary shares outstanding as of March 31, 2013. Each of our outstanding ordinary shares has identical rights in all respects.  

  (1)           The number of ordinary shares beneficially owned includes the shares issuable pursuant to options that are exercisable within 60 days of March 31, 2013. Shares issuable pursuant to such options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the holding percentage of any other person. (2)           Includes options to purchase 9,500 of our ordinary shares which are exercisable within 60 days of March 31, 2013.  The options have a weighted exercise price of $71.1 with expiration dates ranging from September 30, 2013 until September 7, 2020. (3)           Includes options to purchase 121,624 of our ordinary shares which are exercisable within 60 days of March 31, 2013.

 Except as set forth in the table above, none of our other directors or members of senior management listed above under “—Directors and Senior Management” held more than 1% of our outstanding shares as of March 31, 2013.   As of March 31, 2013, our directors and members of senior management who are currently engaged with the Company as listed above under "—Directors and Senior Management", as a group, held options to purchase 313,425  of our ordinary shares at a weighted average exercise price of $14.2 with expiration dates ranging from September 30, 2013  until December 21, 2021. The voting rights of our directors and members of senior management do not differ from the voting rights of other holders of our ordinary shares.   Equity Incentive Plans  

As of December 31, 2012, a total of 3,488,650 ordinary shares have been reserved for issuance upon exercise of options granted to our employees, officers, directors and consultants pursuant to our share option plans.  These ordinary shares have been reserved pursuant to our 2006 Global Share Based Incentive Plan (the “2006 Plan”), 2002 Global Share Option Plan (the “2002 Plan”), Key Employee Share Incentive Plan (1994), as amended, Key Employee Share Incentive Plan (1996), Key Employee Share Incentive Plan (1997), 1999 U.S. Stock Option Plan, interWAVE’s 1994 Stock Option Plan, interWAVE’s 1999 Stock Option Plan and Floware’s Key Employee Share Incentive Plan (1996).  

 

E. SHARE OWNERSHIP –

Name  

Number of Ordinary Shares

(1)    

Percentage of Outstanding

Ordinary Shares  Amnon Yacoby (2)     75,047      1.19%All directors and members of senior management as a group (23 persons)(3)     187,171      2.91%

  80

  Options granted under the share option plans usually vest over a period of four years.

  As of December 31, 2012, options to purchase 576,996 of our ordinary shares were outstanding under the share option plans, including options issued pursuant to the terms of the

Floware merger and interWAVE amalgamation, at a weighted average exercise price of $25.2 per share.  Unless a shorter period is specified in the notice of grant or unless the applicable share option plan has an earlier termination date, each of the outstanding options to purchase 576,996 of our ordinary shares expire between six and ten years from the date of grant. As of December 31, 2012, options to purchase 11,966,184 of our ordinary shares were available for issuance under the share option plans.  

Pursuant to our 2006 Plan we may grant restricted share units, restricted shares, options and other equity awards to employees, directors, consultants, advisers and service providers of our Company and its subsidiaries.  Initially, 150,000 ordinary shares were reserved for issuance upon the exercise of awards granted under the 2006 Plan.  The number of ordinary shares available for issuance under the 2006 Plan is reset annually on April 1 of each year to equal 4% of our total outstanding shares as of the applicable reset date.  As of December 31, 2012, options to purchase 470,287 of our ordinary shares were outstanding under the 2006 Plan. The share option plans are administered by the board of directors which designates the optionees, dates of grant, vesting period and the exercise price of options.  Each grantee is responsible for all personal tax consequences of the grant and the exercise of the options.  Unless otherwise approved by our board of directors, employees usually may exercise vested options granted under the share option plans for a period of three months following the date of termination of their employment with us or any of our subsidiaries and options that have not vested on the date of termination expire.  Under Israeli law, the issuance of options must be approved by our board of directors and the issuance of options to directors must be approved by the shareholders.   ITEM  7.                     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   A.            MAJOR SHAREHOLDERS -  

As of April 30, 2013, we were not aware of any person who beneficially owned 5% or more of our outstanding ordinary shares.   Each of our outstanding ordinary shares has identical rights in all respects.  

Based on a review of the information provided to us by our transfer agent, as of April 30, 2013, there were 7 holders of record of our ordinary shares, including 2 holders of record with a U.S. mailing address, including banks, brokers and nominees.  As of April 30, 2013, these 2 holders of record with a U.S. mailing address held approximately 6,253,941 ordinary shares, representing approximately 99% of the aggregate 6,324,605 ordinary shares outstanding as of such date (excluding our treasury stock).  Because these holders of record include banks, brokers and nominees (including one U.S. nominee company, CEDE & Co., which held approximately 99% of our outstanding ordinary shares as of such date), the beneficial owners of these ordinary shares may include persons who reside outside the United States. To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person or persons severally or jointly and currently there are no arrangements that may, at a subsequent date, result in a change in our control.

 

  None.

 

  Not applicable.  

 

B. RELATED PARTY TRANSACTIONS

C. INTERESTS OF EXPERTS AND COUNSEL

  81

 

 

  The Financial Statements required by this item can be found at the end of this Annual Report, beginning on page F-1.

  Legal Proceedings –  

We and our subsidiaries are, from time to time, subject to legal, administrative and regulatory proceedings, claims, demands and investigations in the ordinary course of business, including claims with respect to intellectual property, contracts, employment and other matters. Based upon the advice of counsel, we do not believe that the ultimate resolution of these matters will materially affect our consolidated financial position, results of operations or cash flows.   Export Sales  

Export sales constitute a significant portion of our sales.  In 2012, export sales were approximately $48.6 million, constituting approximately 97% of our total sales.  For a more detailed discussion regarding the allocation of our revenues by geographic regions based on the location of our customers, see “Item 5—Operating and Financial Review and Prospects—Operating Results.”   Dividend Policy  

We have never declared or paid any cash dividend on our ordinary shares.  We do not anticipate paying any cash dividend on our ordinary shares in the foreseeable future.  We currently intend to retain all future earnings to finance operations and expand our business.

 

 

ITEM  8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

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  Except as otherwise disclosed in this Annual Report, no significant change has occurred since December 31, 2012.

 

  A.            OFFER AND LISTING DETAILS  

The following table sets forth the high and low sales prices for our ordinary shares as reported by the NASDAQ Global Select Market and, beginning on October 19, 2012, the NASDAQ Capital Market, in U.S. dollars, and as reported by the Tel Aviv Stock Exchange, in NIS, for each of the last five years.  

  * Share prices adjusted to reflect the one-for-ten reverse split of our ordinary shares which was effected on April 2, 2013  

The following table sets forth, for each of the full financial quarters in the years indicated, the high and low sales price for our ordinary shares as reported by the NASDAQ Global Select Market and beginning on October 19, 2012, the NASDAQ Capital Market, in U.S. dollars, and as reported by the Tel Aviv Stock Exchange, in NIS.  

  * Share prices adjusted to reflect the one-for-ten reverse split of our ordinary shares which was effected on April 2, 2013  

 

B. SIGNIFICANT CHANGES

ITEM  9. THE OFFER AND LISTING

    NASDAQ Global Select or Capital Market   Tel Aviv Stock Exchange Year   High*     Low*   High*   Low* 2008   $ 96.9    $ 25.4  NIS 375.0   NIS 100.5 2009   $ 48.0    $ 23.6  NIS 190.0   NIS 102.3 2010   $ 42.8    $ 17.9  NIS 155.9   NIS   67.8 2011   $ 26.2    $ 8.3  NIS   92.4   NIS   31.0 2012   $ 12.7    $ 3.2  NIS   45.8   NIS   12.6

    NASDAQ Global Select or Capital Market   Tel Aviv Stock Exchange 2011   High*     Low*   High*   Low* First Quarter   $ 26.2    $ 17.1   NIS 92.4   NIS 59.4 Second Quarter   $ 18.9    $ 11.5  NIS 64.8   NIS 40.0 Third Quarter   $ 16.7    $ 10.4    NIS 57.1   NIS 39.9 Fourth Quarter   $ 12.2    $ 8.3    NIS 42.7   NIS 31.0 2012   High     Low   High   Low First Quarter   $ 12.7    $ 9.1   NIS 45.8   NIS 34.1 Second Quarter   $ 9.3    $ 3.6   NIS 35.1   NIS 14.3 Third Quarter   $ 5.6    $ 3.2   NIS 20.5   NIS 12.7 Fourth Quarter   $ 5.0    $ 3.3   NIS 19.1   NIS 12.6 2013   High     Low   High   Low First Quarter   $ 5.7    $ 3.7   NIS 20.9   NIS 14.1

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  The following table sets forth the high and low sales price for our ordinary shares as reported by the NASDAQ Global Select Market and beginning on October 19, 2012, the NASDAQ

Capital Market, in U.S. dollars, and the Tel Aviv Stock Exchange, in NIS, for the most recent six months:  

  * Share prices adjusted to reflect the one-for-ten reverse split of our ordinary shares which was effected on April 2, 2013   As of April 30, 2013, the exchange rate of the NIS to the US$ was $1 to NIS3.594  

  Not applicable.

 

  Our ordinary shares began trading on the NASDAQ Global Market on March 23, 2000 under the symbol "BRZE".  Prior to that date, there was no market for our ordinary shares.  On

August 1, 2001, upon the completion of our merger with Floware and the change of our name to Alvarion Ltd., our symbol was changed to "ALVR".  On August 1, 2001, our ordinary shares also began to trade on the Tel Aviv Stock Exchange. Our shares subsequently traded on the NASDAQ Global Select Market until October 19, 2012. As of the date of this Annual Report, our ordinary shares trade on both the NASDAQ Capital Market and the Tel Aviv Stock Exchange under the symbol "ALVR".  

  Not applicable.

 

  Not applicable.

 

  Not applicable.  

 

    NASDAQ Global Select or Capital Market   Tel Aviv Stock Exchange Month   High*     Low*   High*   Low* November 2012   $ 4.7    $ 3.9  NIS 16.0   NIS 18.8 December 2012   $ 4.4    $ 3.3  NIS 12.6   NIS 16.9 January 2013   $ 5.6    $ 4.0  NIS 20.9   NIS 14.4 February 2013   $ 5.7    $ 4.5  NIS 19.7   NIS 17.2 March 2013   $ 4.7    $ 3.7  NIS 17.7   NIS 14.1 April 2013   $ 4.03    $ 2.96  NIS 14.26   NIS 10.87

B. PLAN OF DISTRIBUTION

C. MARKETS –

D. SELLING SHAREHOLDERS

E. DILUTION

F. EXPENSES OF THE ISSUE

  84

  ITEM 10.                   ADDITIONAL INFORMATION  

  Not applicable.

 

  We are registered under the Israel Companies Law as a public company with the name Alvarion Ltd. Our registration number with the Israeli Registrar of Companies is 51-172231-6.

  The following is a summary description of certain provisions of our Memorandum of Association and Articles of Association.

  Our Articles of Association permit us to engage in any lawful business.  Our purpose, as set forth in Article 3 of our Articles of Association, is to operate in accordance with business

considerations to generate profits (provided, however, that we may donate reasonable amounts to worthy causes, as our board of directors may determine in its discretion, even if such donations are not within the framework of business considerations).  

Our Articles of Association permit us to enter into a business transaction with any of the directors of our Company or enter into a business transaction with a third party in which a director has a personal interest, subject to compliance with the Israeli Companies Law.  

Our board of directors may, from time to time, in its discretion, cause us to borrow or secure the payment of any sum or sums of money for our purposes, on such terms and conditions as it deems appropriate.  

Our authorized share capital consists of 12,008,000 ordinary shares, par value NIS 0. 1 per share.  

Shareholders are entitled to receive dividends or bonus shares, upon the recommendation of our board of directors and resolution of our shareholders.  The shareholders entitled to receive dividends or bonus shares are those who are registered in the shareholders register on the date of the resolution approving the distribution or allotment, or on such later date, as may be determined in such resolution.  Any right to a declared dividend by us to our shareholders terminates after seven years from our declaration of the dividend if such dividend has not been claimed by the shareholder within such time.  After seven years, the unclaimed dividend will revert back to us.  

Every shareholder has one vote for each share held by such shareholder of record.  With certain exceptions, no shareholder is entitled to vote at any general meeting (or be counted as a part of the lawful quorum thereat), unless all calls and other sums then payable in respect of his shares have been paid.  

A shareholder seeking to vote with respect to a resolution that requires that the majority of such resolution’s adoption include at least a certain percentage of all those not having a personal interest (as defined in the Israeli Companies Law) in it, must notify us at least two business days prior to the date of the general meeting, whether or not he has a personal interest in the resolution, as a condition for his right to vote and be counted with respect to such resolution.  

Upon our liquidation, the liquidator, with the approval of a general meeting of the shareholders, may distribute all or part of the property to our shareholders, and may deposit any part of such property with trustees in favor of the shareholders, as deemed appropriate by the liquidator.  

 

A. SHARE CAPITAL

B. MEMORANDUM AND ARTICLES OF ASSOCIATION –

  85

  Rights attached to our ordinary shares may be modified or abrogated by a resolution adopted at a general meeting of the shareholders by more than 50% of the issued shares of such a

class, or an “ordinary majority,” other than certain rights relating to the election of directors and liquidation that may be modified or abrogated only with the approval of more than 75% of the shareholders who are entitled to vote at the meeting.  

An annual general meeting of our shareholders, or “annual meeting,” must be held once in every calendar year, within a period of not more than 15 months from the preceding annual meeting, either within or outside of Israel.  All general meetings of our shareholders other than annual meetings are called “extraordinary meetings.” Our board of directors has discretion over when to convene an extraordinary meeting.  However, our board of directors must convene an extraordinary meeting upon demand by:  (i) the lesser of any two directors of our Company; or a quarter of the directors of our Company; or (ii) upon the demand of one or more shareholders holding alone or together at least (a) 5% of the issued share capital of our Company and 1% of the voting rights or (b) 5% of the voting rights.  Our board of directors, upon demand to convene an extraordinary meeting, is required to announce the convening of the meeting within 21 days from the receipt of the demand, provided, however, that the date fixed for the extraordinary meeting may not be more than 35 days from the publication date of the announcement of the extraordinary meeting, or such other period as may be permitted by the Israeli Companies Law or the regulations thereunder.  

Directors, other than external directors, are elected, and hold office from the close of the annual general shareholders’ meeting at which they are elected, unless a later date is stated, until the third annual general shareholders’ meeting following the meeting at which such directors were elected.  See "Item 6 – Directors, Senior Management and Employees – Board Practices".  Any director may be removed from office by way of a resolution adopted by the vote of the holders of 75% of the voting power represented at a meeting.  

The shareholders who are entitled to participate and vote at a general meeting are those shareholders who are registered in our shareholders register on the date determined by our board of directors, provided that such date not be more than 40 days, nor less than 4 days prior to the date of the general meeting, except as otherwise permitted by the regulations under the Israeli Companies Law.  Shareholders entitled to attend a general meeting are entitled to receive notice of such meeting at least 21 days prior to the date fixed for such meeting (or at least 35 days for those cases prescribed under the Israeli Companies Law).  

The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy holding at least 33 1⁄3% of the voting power.  A meeting

adjourned for lack of a quorum will be adjourned to the same day in the next week at the same time and place, or any other time and place as the chairman of our board of directors may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy.  At the reconvened meeting, the required quorum consists of any two shareholders.  The chairman of the board of directors presides as chairman at each of our shareholders meetings.  The chairman of the meeting has neither an additional nor a casting vote.

There are no limitations imposed by our Articles of Association or the Israeli Companies Law on the right to own our shares including the rights of non-resident or foreign shareholders to hold or exercise voting rights of our shares, except with respect to subjects of countries which are in a state of war with Israel.  

Our Articles of Association contain certain provisions that may delay or prevent a change of control, including a classified board of directors.  In addition, certain provisions of Israeli corporate and tax law may have the effect of delaying, preventing or making more difficult a merger or other acquisition of our Company, as detailed in “Item 3—Key Information—Risk Factors—Risks Related to Our Location in Israel". Provisions of Israeli law may delay, prevent or make difficult a merger with or an acquisition of us, which could prevent a change of control and therefore depress the market price of our ordinary shares.  

 

  86

  For example, the Israeli Companies Law provides that certain ownership thresholds in public companies may be crossed only by means of a tender offer made to all shareholders.  A

purchaser must conduct a special tender offer in order to purchase shares in publicly held companies if, as a result of the purchase, the purchaser would hold 25% or more of the voting rights of a company in which no other shareholder holds 25% or more of the voting rights, or the purchaser would hold more than 45% of the voting rights of a company in which no other shareholder holds more than 45% of the voting rights.  A special tender offer is not required if: (i) the shares are acquired in a private placement that is approved by the shareholders with the knowledge that as a result the purchaser would hold more than 25% or 45% of the voting rights, as applicable, (ii) the purchaser reaches the 25% threshold by purchasing shares from a shareholder who held 25% or more of the voting rights immediately prior to the transaction, or (iii) the purchaser crosses the 45% threshold by purchasing shares from a shareholder who held more than 45% of the voting rights immediately prior to the transaction.  

Under the Israeli Companies Law, a person may not purchase shares of a public company if, following the purchase, the purchaser would hold more than 90% of the company's shares or of any class of shares, unless the purchaser makes a tender offer to purchase all of the target company's shares or all the shares of the particular class, as applicable.  If, as a result of the tender offer, either:  

 

  then, the purchaser automatically acquires ownership of the remaining shares.  However, if the purchaser is unable to purchase more than 95% or more than 98%, as applicable, of the company's shares or class of shares, the purchaser may not own more than 90% of the shares or class of shares of the target company.  

In addition, the Israeli Companies Law requires the parties to a proposed merger to file a merger proposal with the Israeli Registrar of Companies, specifying certain terms of the transaction.  Each merging company's board of directors and shareholders must approve the merger.  Shares in one of the merging companies held by the other merging company or certain of its affiliates are disenfranchised for purposes of voting on the merger.  A merging company must inform its creditors of the proposed merger.  Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger.  Moreover, a merger may not be completed until at least 50 days have passed from the time that the merger proposal was filed with the Israeli Registrar of Companies and at least 30 days have passed from the approval of the shareholders of each of the merging companies.  

Our transfer agent and registrar is American Stock Transfer & Trust Company at 59 Maiden Lane, New York, New York 10038.  

For additional information, see “Item 6—Directors, Senior Management and Employees—Board Practices.”  

 

  On February 21, 2013, we entered into a definitive agreement with Telrad Networks Ltd., for the sale of our BWA Division to Telrad and pursuant to which Telrad   Telrad assumed a

majority of the rights and obligations of the BWA Division as of February 21, 2013 including the obligation to provide products, service and support to our customers as well as a substantial portion of our obligations to our BWA Division suppliers.  The transaction was completed on May 10, 2013, and pursuant to the finally agreed terms, the consideration in the transaction is $4.0 million with the first payment of $1.3 million payable at closing, and we may also receive certain performance –based milestone payments of up to $7.7M. Alvarion and Telrad also entered into mutual reseller agreements, pursuant to which Alvarion will continue to provide carrier licensed solutions to its partners and distributors and Telrad will provide Alvarion’s unlicensed solutions to its carrier customers.

 

 

  • the purchaser acquires more than 95% of the company's shares or a particular class of shares and a majority of the shareholders that did not have a personal interest accepted the offer; or

  • the purchaser acquires more than 98% of the company's shares or a particular class of shares;

C. MATERIAL CONTRACTS

  1. Asset Purchase Agreement with Telrad Networks Ltd.

  87

 

  On September 28, 2012, we entered into an agreement for the sale of a portion of our WiMAX patent portfolio to Wi-Lan Inc. for up to $ 19.0 million.  As a result of changes to the portfolio being acquired by Wi-LAN, the consideration was adjusted to $18.3 million, all of which we have received as of May 12, 2013.  

  For a discussion of the Loan and Security Agreement governing the SVB Loan, please see the Section entitled “Item 5 Additional Information – Credit Facility.”

 

  In November 2011, the Company completed its purchase of 100% of the outstanding common shares of Wavion, Inc., for the sum of $28.4 million in cash, including the payment of an

earn-out pursuant to a Share Purchase Agreement. Wavion is a provider of carrier grade outdoor Wi-Fi solutions, offering a variety of different products for Wi-Fi access and 3rd Generation cellular technologies (“3G”) off-load applications.  

  Non-residents of Israel who own our ordinary shares may freely convert all amounts received in Israeli currency in respect of such ordinary shares, whether as a dividend, liquidation

distribution or as proceeds from the sale of the ordinary shares, into freely-repatriable non-Israeli currencies at the rate of exchange prevailing at the time of conversion (provided in each case that the applicable Israeli income tax, if any, is paid or withheld).

Since January 1, 2003, all exchange control restrictions on transactions in foreign currency in Israel have been eliminated, although there are still reporting requirements for foreign currency transactions.  Legislation remains in effect, however, pursuant to which currency controls may be imposed by administrative action at any time.

The State of Israel does not restrict in any way the ownership or voting of our ordinary shares by non-residents of Israel, except with respect to subjects of countries that are in a state of war with Israel.  

 

  2. Patent Acquisition and License Agreement with Wi-LAN Inc

  3. Amended and Restated Loan and Security Agreement with Silicon Valley Bank

  4. Share Purchase Agreement with Shareholders of Wavion Inc.

D. EXCHANGE CONTROLS

  88

   

General  

The following is a discussion of Israeli and U.S. tax consequences material to our shareholders.  To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question.  The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.  

Shareholders and potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.   Israeli Taxation  

The following is a summary of the principal Israeli tax laws applicable to companies in Israel, with special reference to their effect on us, and certain Israeli government programs benefiting us.  This section also contains a discussion of certain Israeli tax consequences to persons acquiring ordinary shares.  This summary does not discuss all the acts of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to certain types of investors subject to special treatment under Israeli law, such as traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting share capital.  To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in this discussion will be accepted by the tax authorities.  This discussion should not be construed as legal or professional tax advice and is not exhaustive of all possible tax considerations.   General Corporate Tax Structure  

Income (including capital gains) derived by Alvarion Ltd. is generally subject to the regular Israeli corporate tax rate.  

As of 2012, the corporate tax rate in Israel is 25%.  

However, as detailed below, certain income derived in Israel from Approved Enterprises/Privileged Enterprises/Preferred Enterprises will enjoy certain tax benefits for a specific definitive period. The allocation of income derived from such enterprises is dependent upon compliance of certain requirements with the Investment Law.  

Our effective corporate tax rate may substantially exceed the Israeli tax rate.  Our subsidiaries will generally each be subject to applicable federal, state, local and foreign taxation, and we may also be subject to taxation in other jurisdictions where we own assets, have employees or conduct activities.  Because of the complexity of these local tax provisions, it is not possible to anticipate the actual combined effective corporate tax rate that will apply to us.   Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969  

The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the income of which in a given tax year exclusive of income from specified government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.

 

 

E. TAXATION

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  Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferred corporate tax benefits, among others:

 

 

 

  Eligibility for benefits under the Industry Encouragement Law is not contingent upon the approval of any governmental authority.

  We believe that we currently meet the criteria to qualify as an Industrial Company within the definition of the Industry Encouragement Law.  No assurance can be given that we will

continue to qualify as an Industrial Company, or will be entitled to receive any benefits under the Industry Encouragement Law in the future. Tax Benefits under the Law for the Encouragement of Capital Investments, 1959  

The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law).

The Investment Law was significantly amended effective April 1, 2005 which is referred to below as the 2005 Amendment, and further amended as of January 1, 2011 which is referred to below as the 2011 Amendment. Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead irrevocably to forego such benefits and have the benefits of the 2011 Amendment apply.

  Tax Benefits prior to the 2005 Amendment  

An investment program that is implemented in accordance with the provisions of the Investment Law prior to the 2005 Amendment, referred to as an Approved Enterprise, is entitled to certain benefits. A company that wished to receive benefits as an Approved Enterprise must have received approval from the Investment Center of the Israeli Ministry of Industry, Trade and Labor, or the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset.

 

 

  • deduction of the cost of purchased of know-how and patents and/or right to use a patent and know-how which are used for the development or advancement of the company over an eight-year period;

  • under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and

  • deduction over a three-year period of expenses related to a public offering.

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  An Approved Enterprise may elect to forego any entitlement to the grants otherwise available under the Investments Law and, in lieu of the foregoing, may participate in an Alternative

Benefits Program. Under the Alternative Benefits Program, a company’s undistributed income derived from an Approved Enterprise will be exempt from corporate tax for a period of between two and 10 years from the commencement year, depending on the geographic location of the Approved Enterprise within Israel, and the company will be eligible for a reduced tax rate of 10%-25% for the remainder of the benefits period. The benefit period is ordinarily seven years commencing with the year in which the Approved Enterprise first generates taxable income. The benefit period is limited to 12 years from the operational year as determined by the Investment Center or 14 years from the start of the tax year in which approval of the Approved Enterprise is obtained, whichever is earlier.  

A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors’ Company, or an FIC, which is a company with a level of foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to whether a company qualifies as an FIC is made on an annual basis. A company that qualifies as an FIC and has an Approved Enterprise program is eligible for an extended ten-year benefit period.  As specified above, depending on the geographic location of the Approved Enterprise within Israel, income derived from the Approved Enterprise program may be exempt from tax on its undistributed income for a period of between two to ten years, and will be subject to a reduced tax rate for the remainder of the benefit period.  The tax rate for the remainder of the benefits period will be 25%, unless the level of foreign investment exceeds 49%, in which case the tax rate will be 20% if the foreign investment is more than 49% and less than 74%; 15% if more than 74% and less than 90%; and 10% if 90% or more.  

A company that has elected to participate in the Alternative Benefits Program and that subsequently pays a dividend out of the income derived from the Approved Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount distributed, including withholding tax thereon, at the rate that would have been applicable had the company not elected the Alternative Benefits Program, ranging from 10% to 25%. The dividend recipient is subject to withholding tax at the reduced rate of 15%, applicable to dividends from Approved Enterprises if the dividend is distributed within 12 years after the benefits period. The withholding tax rate will be up to 30% after such period as described below.  

The benefits available to an Approved Enterprise are conditional upon the fulfillment of certain conditions stipulated in the Investments Law and its regulations and the criteria set forth in the specific certificate of approval, as described above. In the event that these conditions are violated, in whole or in part, we might be required to refund the amount of tax benefits, together with linkage differences to the Israeli CPI and interest. We believe that our Approved Enterprise programs operate in compliance with all such conditions and criteria.  

We also believe that our capital investments qualify to receive tax benefits as an Approved Enterprise, however no assurance can be given that such investments will be approved as in fact qualifying for such tax benefits by the Israeli tax authorities. Additionally, no assurance can be given that we will, in the future, be eligible to receive additional tax benefits under this law. For a discussion of the risks our business and prospects for growth face in connection with tax benefits under Israeli law, see “Risk Factors—If we fail to comply with these conditions in the future, the tax benefits received could be canceled and we could be required to pay increased taxes in the future. We could also be required to refund tax benefits, with interest and adjustments for inflation based on the Israeli consumer price index” and “Risk Factors—We currently contemplate that a portion of our products will be manufactured outside of Israel.  This could materially reduce the tax benefits to which we would otherwise be entitled.  We cannot assure you that the Israeli tax authorities will not adversely modify the tax benefits that we could have enjoyed prior to these events."

 

 

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  We currently have Approved Enterprise programs under the Investments Law, which to our belief, entitle us to certain tax benefits. The tax benefit period for these programs has not yet

commenced. We have elected the Alternative Benefits Program which provides for the waiver of grants in return for tax exemption. Accordingly, our income is tax exempt for a period of two years commencing with the year we first earn taxable income relating to each expansion program, and is subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period of five to eight years, depending on the percentage of the company’s ordinary shares held by foreign shareholders in each taxable year. The exact rate reduction is based on the percentage of foreign ownership in each tax year. See note 12 to our consolidated financial statements.   Tax Benefits under the 2005 Amendment  

The 2005 Amendment changed certain provisions of the Investment Law. As a result of the 2005 Amendment, a company was no longer obliged to obtain Approved Enterprise status in order to receive the tax benefits previously available under the Alternative Benefits Program, and therefore generally there was no need to apply to the Investment Center for this purpose (Approved Enterprise status remains mandatory for companies seeking cash grants). Rather, companies may claim the tax benefits offered by the Investment Law directly in their tax returns by notifying the Israeli Tax Authority within 12 months of the end of that year, provided that their facilities meet the criteria for tax benefits set out by the 2005 Amendment. A company is also granted a right to approach the Israeli Tax Authority for a pre-ruling regarding its eligibility for benefits under the 2005 Amendment.  

The 2005 Amendment applies to new investment programs and investment programs with an election year commencing after 2004, but does not apply to investment programs approved prior to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval.  

Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export and meet additional criteria stipulate in the amendment (referred to as a “Privileged Enterprise”). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets all of the conditions, including exceeding a minimum investment amount specified in the Investment Law. Such investment may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to its Privileged Enterprise.  

The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Privileged Enterprise depend on, among other things, the geographic location in Israel of the Privileged Enterprise. The geographic location of the company at the year of election will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Privileged Enterprise in Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year if it is a qualified FIC. A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Privileged Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount of the dividend at the otherwise applicable rate of 10%-25%. Dividends paid out of income attributed to a Privileged Enterprise are generally subject to withholding tax at source at the rate of 15% or such lower rate as may be provided in an applicable tax treaty.  

The benefits available to a Privileged Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations. If a company does not meet these conditions, it may be required to refund the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest, or other monetary penalties.

 

 

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  Tax Benefits Under the 2011 Amendment  

The 2011 Amendment canceled the availability of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income derived by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone (our company is not), in which case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate will be reduced from 15% and 10%, respectively, to 12.5% and 7%, respectively, in 2013 and 2014 and to 12% and 6% in 2015 and thereafter, respectively.  

Dividends paid out of income attributed to a Preferred Enterprise are generally subject to withholding tax at the rate of 15% or such lower rate as may be provided in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (however, if afterward distributed to individuals or non-Israeli company a withholding of 15% or such lower rate as may be provided in an applicable tax treaty, will apply).  

The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law.  These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i)  the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which chose to receive grants before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain conditions; and (ii) terms and benefits included in any certificate of approval that was granted to an Approved  Enterprise under the Alternative Benefits Program before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Privileged Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met.  

From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities.  

We have reviewed and evaluated the implications and effect of the benefits under the 2011 Amendment, and, while potentially eligible for such benefits, we have not yet chosen to be subject to the tax benefits introduced by the 2011 Amendment.  

         Israeli Transfer Pricing Regulations –  

On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into effect (the “TP Regs”). Section 85A of the Tax Ordinance and the TP Regs generally requires that all cross-border transactions carried out between related parties be conducted on an arm’s length principle basis and will be taxed accordingly.  The TP Regs had no material effect on the Company.  

 

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  Tax Benefits of Research and Development –

  Israeli tax law permits, under certain conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, in scientific research and development projects, if

the expenditures are approved by the relevant government ministry, determined by the field of research, and if the research and development is for the promotion of the enterprise and is carried out by, or on behalf of, a company seeking such deduction. Expenditures not so approved are deductible over a three year period; however, expenditures made out of proceeds made available to us through government grants are not deductible.   Taxation of our Shareholders   Capital Gains Tax on Sales of Our Ordinary Shares   Israeli Residents  

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.

  Generally, as of January 1, 2012, the tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such

shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period preceding such sale, i.e., such shareholder holds directly or indirectly, including with others, at least 10% of any means of control in the company, the tax rate shall be 30%. However, the foregoing tax rates do not apply to: (i) dealers in securities; and (ii) shareholders who acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Israeli companies are subject to the Corporate Tax rate on capital gains derived from the sale of listed shares (25% as of 2012).

  As of January 1, 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year), will be subject to an additional tax,

referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which is in excess of NIS 800,000. For this purpose taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.

  The tax basis of shares acquired prior to January 1, 2003 will generally be determined in accordance with the average closing share price in the three trading days preceding January 1,

2003. However, a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.   Non-Residents of Israel  

Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock exchange or regulated market outside of Israel, provided however that such capital gains are not derived from a permanent establishment in Israel and such shareholders did not acquire their shares prior to an initial public offering. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of 25% or more in such non-Israeli corporation, or (ii) are the beneficiaries or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Furthermore, such an exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.  

 

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  In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli

tax at the source.   Pursuant to the Convention Between the Government of the United States of America and the government of Israel with Respect to Taxes on Income, as amended, or the U.S.-Israel Tax

Treaty, the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty, generally, will not be subject to the Israeli capital gains tax. Such exemption will not apply if (i) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel, or (iii) the shareholder, being an individual, has been present in Israel for a period or periods aggregating to 183 days or more during the taxable year. In such case, the sale, exchange or disposition of ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes. Taxation of Dividends paid to Holders of Our Shares   Israeli residents  

Israeli resident individuals are generally subject to Israeli income tax on the receipt of dividends paid on our Ordinary Shares (other than bonus shares or share dividends) at 25%, or 30% if the dividend recipient is a substantial shareholder, at the time of distribution or at any time during the preceding 12-month period.  However, dividends distributed from taxable income accrued during the period of benefit of an Approved Enterprise, Privileged Enterprise or Preferred Enterprise are subject to withholding tax at the rate of 15% (subject to certain conditions). An average rate will be set in case the dividend is distributed from mixed types of income (regular and Approved/Privileged/ Preferred income).

Israeli resident corporations are generally exempt from Israeli corporate tax on the receipt of dividends paid on shares of Israeli resident corporations.  However, dividends distributed

from taxable income accrued during the period of benefit of an Approved Enterprise or Privileged Enterprise are subject to withholding tax at the rate of 15%, if the dividend is distributed during the tax benefit period under the Investment Law or within 12 years after that period. Non-residents of Israel  

Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. Such sources of income include passive income such as dividends. On distributions of dividends other than bonus shares, or stock dividends, income tax is applicable at the rate of 25%, or 30% for a shareholder that is considered a “significant shareholder” at any time during the 12-month period preceding such distribution, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Dividends paid on publicly traded shares, like our Ordinary Shares, to non-Israeli residents, although subject to the same tax rates applicable to dividends paid for non-publicly traded shares, are generally subject to Israeli withholding tax at a rate of 25%, so long as the shares are registered with a Nominee Company (whether the recipient is a substantial shareholder or not), unless a different rate is provided under an applicable tax treaty. However, under the Investments Law, dividends generated by an Approved Enterprise, Privileged Enterprise or Preferred Enterprise, are taxed at the rate of 15%.  

 

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  Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a Treaty U.S. Resident is 25%. However, if the income out of which the

dividend is paid is not generated by an Approved Enterprise, Privileged Enterprise or Preferred Enterprise, and not more than 25% of our gross income consists of interest or dividends, dividends paid to a U.S. corporation holding at least 10% of our issued voting power during the part of the tax year which precedes the date of payment of the dividend and during the whole of its prior tax year, are generally taxed at a rate of 12.5%. Dividends generated by an Approved Enterprise, Privileged Enterprise or Preferred Enterprise, are taxed at the rate of 15% under the U.S.-Israel Tax Treaty.

If the dividend is attributable partly to income derived from an Approved Enterprise, Privileged Enterprise or Preferred Enterprise, and partly to other sources of income, the withholding

rate will be a blended rate reflecting the relative portions of the two types of income.  U.S. residents who are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for Untied States federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in United States tax legislation.

 United States Federal Income Tax Considerations with Respect to the Acquisition, Ownership and Disposition of Our Ordinary Shares –  

The following is a discussion of certain U.S. federal income tax consequences applicable to “U.S. Holders” (as defined below) who beneficially own our ordinary shares.  The discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, applicable U.S. Treasury Regulations promulgated thereunder, and existing administrative rulings and court decisions in effect as of the date of this Annual Report, all of which are subject to change at any time, possibly with retroactive effect.  For purposes of this discussion, it is assumed that U.S. Holders of our ordinary shares hold such stock as a capital asset within the meaning of Section 1221 of the Code, that is, generally for investment.  This discussion does not address all aspects of United States federal income taxation that may be relevant to a particular U.S. Holder of our ordinary shares in light of his or her circumstances or to a U.S. Holder of our ordinary shares subject to special treatment under United States federal income tax law, including, without limitation:  

 

 

 

 

 

 

 

 

  In addition, not discussed is the application of:  (i) foreign, state or local tax laws; (ii) United States federal and state estate and/or gift taxation; or (iii) the alternative minimum tax.  

 

  • banks, other financial institutions, real estate investment trusts, insurance companies or mutual funds;

  • broker-dealers, including dealers in securities or currencies, or taxpayers that elect to apply a mark-to-market method of accounting;

  • shareholders who hold our ordinary shares as part of a hedge, straddle, or other risk reduction, constructive sale or conversion transaction;

  • tax-exempt entities;

  • persons who have a functional currency other than the U.S. dollar;

  • persons who have owned at any time or who own, directly, indirectly, constructively or by attribution, ten percent or more of the total voting power of our share capital;

  • grantor trusts or S corporations;

  • certain expatriates or former long-term residents of the United States; and

  • shareholders who acquired our ordinary shares pursuant to the exercise of an employee stock option or right, or otherwise as compensation.

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  If a partnership (or any entity treated as a partnership for U.S. federal income tax purposes) holds ordinary shares, the tax treatment of the partnership and a partner in such partnership

will generally depend on the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.  

As used in this section, the term “U.S. Holder” refers to any beneficial owner of our ordinary shares that is any of the following:  

 

 

 

  Certain aspects of U.S. federal income tax relevant to a holder of our ordinary shares that is not a U.S. Holder (a “Non-U.S. Holder”) are also discussed below.

  Each holder of our ordinary shares is advised to consult his or her own tax advisor with respect to the specific tax consequences to him or her of purchasing, holding or disposing of our

ordinary shares, including the applicability and effect of federal, state, local and foreign income and other tax laws to his or her particular circumstances.   Distributions

Subject to the discussion below under the heading “Passive Foreign Investment Company Status,” to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, a distribution made with respect to our ordinary shares (including the amount of any non-U.S. withholding tax thereon) will be includible for U.S. federal income tax purposes in the income of a U.S. Holder as a taxable dividend. Dividends that are received by U.S. Holders that are individuals, estates or trusts will be taxed at the rate applicable to long-term capital gains (a maximum rate of 20%) for taxable years beginning after December 31, 2012, provided that such dividends meet the requirement of “qualified dividend income” as defined by the Code. Dividends that fail to meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income rates. No dividend received by a U.S. Holder will be a qualified dividend (1) if the U.S. Holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. Holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities) or (2) to the extent that the U.S. Holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code), or PFIC, for any taxable year, dividends paid on our ordinary shares in such year or in the following taxable year would not be qualified dividends. In addition, a non-corporate U.S. Holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income rates.

 

 

  • an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;

  • a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any State or political subdivision thereof, or the District of Columbia;

  • an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source;

  • a trust (i) if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all of such trust’s substantial decisions; or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.

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  To the extent that a distribution exceeds our earnings and profits and provided that we were not a PFIC, such distribution will be treated as a non-taxable return of capital to the extent of

the U.S. Holder’s adjusted tax basis in our ordinary shares and thereafter as taxable capital gain.  Dividends paid by us generally will not be eligible for the dividends received deduction allowed to corporations under the Code.  Dividends paid in a currency other than the U.S. dollar will generally be includible in income of a U.S. Holder in a U.S. dollar amount based on the exchange rate on the date the distribution is included in income.  A U.S. Holder who receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain or loss, based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.  

Subject to certain conditions and limitations set forth in the Code (including certain holding period requirements), U.S. Holders generally will be able to elect to claim a credit against their United States federal income tax liability for any non-U.S. withholding tax deducted from dividends received in respect of our ordinary shares.  For purposes of calculating the foreign tax credit, dividends paid on our ordinary shares generally will be treated as income from sources outside the United States and foreign source “passive income” for U.S. foreign tax purposes.  In lieu of claiming a tax credit, U.S. Holders that itemize deductions may instead claim a deduction for foreign taxes withheld, subject to certain limitations.  The rules relating to the determination of the amount of non-U.S. income taxes that may be claimed as foreign tax credits are complex and U.S. Holders should consult their tax advisors to determine whether and to what extent a credit would be available.   Disposition of the Ordinary Shares  

Subject to the discussion below under the heading “Passive Foreign Investment Company Status,” upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized on the disposition of our ordinary shares and the U.S. Holder’s adjusted tax basis in our ordinary shares, which is usually the U.S. dollar cost of the ordinary shares.  Such gain or loss generally will be long-term capital gain or loss if our ordinary shares have been held for more than one year on the date of the disposition.  Non-corporate U.S. Holders are currently subject to a reduced rate of taxation on long-term capital gains (20% for taxable years beginning after December 31, 2012). The deductibility of a capital loss recognized on the sale or exchange of ordinary shares is subject to limitations.  Any gain or loss generally will generally be treated as United States source income or loss for United States foreign tax credit purposes.   Medicare Tax  

With respect to taxable years beginning after December 31, 2012, certain non-corporate U.S. holders will be subject to an additional 3.8% Medicare tax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares.  U.S. holders are urged to consult their own tax advisors regarding the implications of the additional Medicare tax on their investment in our ordinary shares.  

 

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  Passive Foreign Investment Company Status  

Generally a non-U.S. corporation is treated as a PFIC for U.S. federal income tax purposes if either:  

 

  As a result of the combination of our holdings of cash, cash equivalents and securities and the decline in the market price of our ordinary shares from its historical highs, there is a risk

that we could be classified as a PFIC, for U.S. federal income tax purposes.  Based upon our market capitalization during 2012, we do not believe that we were a PFIC for 2012.  In addition, based upon an independent valuation of our assets as of the end of each quarter of 2001 and based upon our valuation of our assets for 2002 and 2003, we do not believe that we were a PFIC for 2001, 2002 or 2003 despite the relatively low market price of our ordinary shares during much of those taxable years.  We cannot assure you, however, that the United States Internal Revenue Service (“IRS”) or the courts would agree with our conclusion if they were to consider our situation. In addition, the tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of our future income and assets and the future price of our ordinary shares, which are all relevant to the determination of whether we are classified as a PFIC.  There is no assurance that we will not become a PFIC in 2013 or subsequent taxable years.  

If we were deemed to be a PFIC for any taxable year during which a U.S. Holder held our shares and such holder failed to make either a “QEF election” or a “mark-to-market election” (as described below) for the first taxable year during which we were a PFIC and the U.S. Holder held our shares:  

 

 

 

 

  Although a determination as to a non-U.S. corporation’s PFIC status is made annually, an initial determination that a non U.S. corporation is a PFIC for any taxable year generally will

cause the above-described consequences to apply for all future taxable years to U.S. Holders who held shares in the corporation at any time during a taxable year when the corporation was a PFIC and who made neither a QEF election nor a mark-to-market election (as discussed below) with respect to such shares with their tax return for the year that included the last day of the corporation’s first taxable year as a PFIC.  This will generally be true even if the corporation ceases to be a PFIC in later years.

 

 

  • 75% or more of its gross income (including the pro rata share of gross income of any corporation (U.S. or foreign) of which such corporation is considered to own 25% or more of the ordinary shares by value) for the taxable year is passive income; or

  • 50% or more of its gross assets (including its pro rata share of the assets of any corporation in which such corporation is considered to own 25% or more of the ordinary shares by value) during the taxable year computed on a quarterly average basis produce or are held for the production of passive income.

  • gain recognized (including gain deemed recognized if our ordinary shares are used as security for a loan) by the U.S. Holder upon the disposition of, as well as income recognized upon receiving certain “excess distributions” in respect of, our ordinary shares would be taxable as ordinary income;

  • the U.S. Holder would be required to allocate such excess distribution and/or disposition gain ratably over such holder’s entire holding period for our ordinary shares; the U.S. Holder’s income for the current taxable year would include (as ordinary income) amounts allocated to the current year (i.e., the year of the distribution or disposition) and to any period prior to the first day of the first taxable year for which we were a PFIC;

  • the amount allocated to each year other than (i) the year of the distribution or disposition and (ii) any year prior to our becoming a PFIC, would be subject to tax at the highest individual or corporate marginal tax rate, as applicable, in effect for that year, and an interest charge would be imposed with respect to the resulting tax liability;

  • U.S. Holders will generally be required to file an annual report with the IRS if we are a PFIC; and

  • any U.S. Holder who acquired our ordinary shares upon the death of a U.S. Holder would not receive a step-up of the income tax basis to fair market value for such shares.  Instead, such U.S. Holder would have a tax basis equal to the lesser of the decedent’s basis, or the fair market value of the ordinary shares on the date of the decedent's death.

  99

  Generally, if a U.S. Holder makes a valid QEF election with respect to our ordinary shares, the U.S. Holder would be required, for each taxable year for which we are a PFIC, to include in

income such holder’s pro-rata share of our:  (i) ordinary earnings as ordinary income and (ii) net capital gain as long-term capital gain, in each case computed under U.S. federal income tax principles, even if such earnings or gains have not been distributed, unless the shareholder makes an election to defer this tax liability and pays an interest charge.  

The QEF election is made on a shareholder-by-shareholder basis.  Thus, any U.S. Holder of our ordinary shares can make its own decision whether to make a QEF election.  A QEF election applies to all of our ordinary shares held or subsequently acquired by an electing U.S. Holder and can be revoked only with the consent of the IRS.  A shareholder makes a QEF election by attaching a completed IRS Form 8621, using the information provided in the PFIC annual information statement, to a timely filed U.S. federal income tax return.  In order to permit our shareholders to make a QEF election, we must supply them with certain information.  We will supply U.S. Holders with the information needed to report income and gain pursuant to the QEF election in the event that we are classified as a PFIC for any taxable year and will supply such additional information as the IRS may require in order to enable U.S. Holders to make the QEF election.  It should be noted that U.S. Holders may not make a QEF election with respect to warrants or rights to acquire our ordinary shares. Under certain circumstances, a U.S. Holder that has not made a timely QEF election may obtain treatment similar to that afforded a shareholder who has made a timely QEF election. Such a U.S. Holder may make an election in a taxable year subsequent to the first taxable year during the U.S. Holder’s holding period that we are classified as a PFIC to treat such holder’s interest in our Company as subject to a deemed sale of its PFIC stock and recognize gain, but not loss, on such deemed sale in accordance with the general PFIC rules, including the interest charge provisions, described above and thereafter treating such interest in our Company as an interest in a QEF.  In addition, under certain circumstances U.S. Holders may make a retroactive QEF election, but may be required to file a timely protective statement to preserve their ability to make a retroactive QEF election. U.S. Holders should consult their tax advisors regarding the advisability of filing a protective statement.  

Alternatively, a U.S. Holder of shares in a PFIC can elect to mark “marketable stock” (e.g. stock that is “regularly traded” on the NASDAQ Global Select Market) to market annually recognizing as ordinary income or loss each year the shares are held, as well as on the disposition of the shares, in a taxable year that we are a PFIC, an amount equal to the difference between the shareholder’s adjusted tax basis in the PFIC stock and its fair market value. Under current law, U.S. Holders may not make a mark-to-market election with respect to warrants or rights to acquire our ordinary shares. Ordinary loss generally is recognized only to the extent of net mark-to-market gains previously included in income by the U.S. Holder under the election in prior taxable years.    A mark-to-market election applies for so long as our ordinary shares are “marketable stock and is irrevocable without obtaining the consent of the IRS.  

The PFIC rules described above are complex. U.S. Holders of our ordinary shares (or warrants or rights to acquire our ordinary shares) are urged to consult their tax advisors about the PFIC rules, including the advisability, procedure and timing of making a QEF or mark-to-market election, in connection with their holding of our ordinary shares.

 

 

  100

  Tax Consequences for Non-U.S. Holders of Our Ordinary Shares

Except as described in “Information Reporting and Backup Withholding” below, a Non-U.S. Holder of our ordinary shares will not be subject to U.S. federal income or withholding tax on

the payment of dividends on, and the proceeds from the disposition of, our ordinary shares, unless in the case of U.S. federal income taxes:  

 

  Information Reporting and Backup Withholding

  U.S. Holders (other than certain exempt recipients, such as corporations) generally are subject to information reporting requirements and backup withholding (currently at a rate of 28%)

with respect to dividends paid in the U.S. on, and the proceeds from the disposition of, our ordinary shares, unless they:  

 

  Non-U.S. Holders generally are not subject to information reporting or backup withholding with respect to dividends paid on, or upon the disposition of, our ordinary shares, provided

that such Non-U.S. Holder provides a tax payer identification number, certifies to its foreign status, or otherwise establishes an exemption.  

Backup withholding is not an additional tax.  The amount of any backup withholding is allowable as a credit against the U.S. or Non-U.S. Holder’s United States federal income tax liability, provided that such holder provides the requisite information to the IRS.  

  Not applicable.

 

  Not applicable.

 

  We are subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligation with respect to such requirements by filing reports

with the SEC.  As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act.  In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.  However, we file with the SEC an annual report on Form 20-F containing consolidated financial statements audited by an independent accounting firm no later than four months after the close of each fiscal year (subject to the provisions of Rule 12b-25 under the Exchange Act).  We also furnish reports on Form 6-K containing unaudited consolidated financial information after the end of each of the first three quarters.  You may read and copy any document we file with the SEC at prescribed rates at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates.  Please call the SEC at l-800-SEC-0330 for further information on the public reference room. A copy of each report submitted in accordance with applicable U.S. law is also available for public review at our principal executive offices.  

 

  • such item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and, in the case of a resident of a country which has a treaty with the United States, such item is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States, or

  • in the case of the disposition or our ordinary shares, the Non-U.S. Holder is an individual who holds our ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met.

  • furnish a correct taxpayer identification number and certify that they are not subject to backup withholding on an IRS Form W-9; or

  • provide proof that they are otherwise exempt from backup withholding.

F. DIVIDENDS AND PAYING AGENTS

G. STATEMENT BY EXPERTS

H. DOCUMENTS ON DISPLAY

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  In addition, the SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other material that are filed through the

SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. We began filing our reports through the EDGAR system in November 2002.  

The Israeli Securities Authority maintains an Internet website at http://www.isa.gov.il that contains reports, proxy statements, information statements and other material that are filed through the electronic disclosure system (MAGNA). We began filing our reports through the MAGNA system in August 2003.  

  Not applicable.  

 

I. SUBSIDIARY INFORMATION

  102

 

  We are exposed to financial market risk associated with changes in foreign currency exchange rates.  To mitigate these risks, we use derivative financial instruments.  The majority of our

revenues and expenses are generated in U.S. dollars.  A portion of our expenses, however, is denominated in NIS.  In order to protect ourselves against the volatility of future cash flows caused by changes in foreign exchange rates, we use currency forward contracts and currency options. We hedge the part of our forecasted expenses denominated in NIS. If our currency forward contracts and currency options meet the definition of a hedge, and are so designated, changes in the fair value of the contracts will be offset against changes in the fair value of the hedged assets or liabilities through earnings. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Our hedging program reduces, but does not eliminate, the impact of foreign currency rate movements, and as a result of the general economic slowdown along with the devaluation of the dollar, our results of operations may be adversely affected.

A majority of our revenues are generated in U.S. dollars. In addition, most of our costs are denominated and determined in U.S. dollars and NIS according to the salient economic factors indicated in ASC 830 “Foreign Currency Matters”. Our cash flow, sale price, sales market, expense, financing and inter-company transactions, and arrangement indicators, are predominantly denominated in U.S. dollars. In addition, the U.S. dollar is the primary currency of the economic environment in which we operate, and thus, the U.S. dollar is our functional and reporting currency.  In our balance sheet, we re-measure into U.S. dollars all monetary accounts (principally cash and cash equivalents and liabilities) that are maintained in other currencies. For this re-measurement, we use the relevant foreign exchange rate at the balance sheet date. Any gain or loss that results from this re-measurement is reflected in the statement of operations as appropriate.

We measure and record non-monetary accounts in our balance sheet in U.S. dollars. For this measurement, we use the U.S. dollar value in effect at the date that the asset or liability was initially recorded in our balance sheet (the date of the transaction).

To hedge against the risk of overall changes in cash flows resulting from foreign currency trade payables and salary payments during the year, we have instituted a foreign currency cash flow hedging program. We hedge portions of our forecasted expenses denominated in NIS with currency forwards and option tools.

As of December 31, 2012, we recorded accumulated other comprehensive net loss in the amount of approximately $0.8 million from our currency forward and option transactions with respect mainly to trade payables and payroll expenses. Such amount will be recorded into earnings during 2013

See also “Item 5—Operating and Financial Review and Prospects—Operating Results Impact of Inflation and Currency Fluctuations”.  

  Not applicable.  

 

ITEM  11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM  12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

  103

  PART II

  ITEM 13.                    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  

None.   ITEM 14.                   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  

Not applicable.  

  a.             Disclosure Controls and Procedures  

Our management, with the participation of our Acting Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of December 31, 2012. Based on this evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of such date, the Company’s disclosure controls and procedures were (i) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to its management, including the Company’s chief executive officer and chief financial officer, by others within those entities, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this report was being prepared and (ii) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.   b.             Management’s Annual Report on Internal Control Over Financial Reporting  

Our management, under the supervision of our Acting Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:  

 

 

 

 

 

ITEM 15. CONTROLS AND PROCEDURES

  • pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;

  • provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;

  • provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and

  • provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

  104

   

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   Under the supervision and with the participation of our management, including our Acting Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012 based on the framework for Internal Control – Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on our assessment under that framework and the criteria established therein, our management concluded that the Company’s internal control over financial reporting were effective as of December 31, 2012.   c.             Attestation Report of the Registered Public Accounting Firm  

 Not applicable.   d.             Changes in Internal Control over Financial Reporting  

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting   ITEM 16.                    Reserved.   ITEM 16A.                 AUDIT COMMITTEE FINANCIAL EXPERT  

Our board of directors has determined that Professor Amit, a member of our audit committee, qualifies as an “audit committee financial expert” and is “independent,” each as defined in the applicable SEC and NASDAQ regulations.  

  In 2003, we adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, all other officers and all of our employees. The Code of Ethics was amended in

2011 and is incorporated by reference as an exhibit hereto  

  The following is a summary of the fees billed to us for audit, audit-related, tax and other services provided by Kost, Forer, Gabbay & Kasierer for the years ended December 31, 2011 and

December 31, 2012:  

 

ITEM 16B. CODE OF ETHICS

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fee Category   2011     2012  Audit Fees  $ 280,000   $ 180,500 Audit-Related Fees   $ -    $ - Tax Fees  $ 89,639   $ 115,902 All other fees  $ -   $ 23,003 Total Fees  $ 369,639   $ 319,405 

  105

  Audit Fees:  Consists of the aggregate fees billed and accrued for professional services rendered for the audit of our annual financial statements and services that are normally provided by Kost, Forer, Gabbay & Kasierer in connection with statutory and regulatory filings or engagements.   Audit Related Fees: Consists of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”  We did not have such services in 2011 or 2010.   Tax Fees: Consists of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning.  These services include assistance regarding international and Israeli tax services.   All Other Fees:  Consists of the aggregate fees billed for products and services other than the services reported above.  We did not have such services in 2011.  

Our audit committee has adopted a policy for pre-approval of audit and non-audit services. Under the policy, proposed services either may be pre-approved without consideration of specific case-by-case services by the audit committee (“general pre-approval”) or they may require the specific pre-approval of the audit committee (“specific pre-approval”). The audit committee employs a combination of these two approaches. Unless a type of service has received general pre-approval, it will require specific pre-approval by the audit committee if it is to be provided by the independent auditor. The term of any general pre-approval is 12 months from the date of pre-approval, unless the audit committee considers a different period and states otherwise. The audit committee reviews annually and pre-approves the services that may be provided by the independent auditor without obtaining specific pre-approval from the audit committee. The audit committee adds to or subtracts from the list of general pre-approved services from time to time, based on subsequent determinations.  Pre-approval fee levels or budgeted amounts for all services to be provided by the independent auditor are to be established annually by the audit committee. Any proposed services exceeding these levels or amounts require specific pre-approval by the audit committee.  All of the fees listed in the table above were approved by the audit committee.  

  Not applicable.

 

  In October 2008, following the approval of our board of directors and the receipt of a court approval, we were authorized to use up to $30 million of our available cash to repurchase

our shares. Through December 31, 2008, we repurchased under this repurchase program 145,000 ordinary shares at a weighted average price of approximately $34.4 per share (in each case, adjusted retroactively to reflect the one for ten reverse split of our ordinary shares effected on April 2, 2013) for an aggregate price of approximately $5.0 million. During 2010, 2011 and 2012 we did not repurchase any additional ordinary shares under this repurchase program or otherwise.

 

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

  106

  ITEM 16F.                 CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT  

Not applicable.   ITEM 16G.                CORPORATE GOVERNANCE  

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Listing Rules.  

We do not comply with the NASDAQ requirement that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans.  Instead, we follow Israeli law and practice in accordance with which the establishment or amendment of certain equity based compensation plans is approved by our board of directors.  

As a foreign private issuer listed on the NASDAQ Capital Market, we may also follow home country practice with regard to other matters, including those set forth below:  

  For a discussion of the requirements of Israeli law in this regard, see Item 6.C. "Directors, Senior Management and Employees –Board Practices," and Item 10.B. "Additional

Information – Memorandum and Articles of Association."  

 

  • Nomination – NASDAQ rules require that director nominees be selected, or recommended for the board of directors, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors.  Under Israeli law and practice, directors are recommended by our board of directors for election by our shareholders.

  • Compensation – NASDAQ rules regarding compensation of executive officers require that the compensation of the chief executive officer and all other executive officers be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors or (ii) a compensation committee comprised solely of independent directors.  Under Amendment 20, the compensation of our executives and other office holders will be subject to a compensation policy and to the recommendations of our compensation committee.

  • Shareholder Approval for Dilutive Events – NASDAQ rules require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans and arrangements, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.  Under Israeli law and practice, in general, only the approval of the board of directors is required for the establishment or amendment of equity based compensation plans and arrangements, unless the arrangement is for the benefit of a director, or a controlling shareholder, in which case compensation committee and shareholder approval are also required.  Similarly, the approval of the board of directors is generally sufficient for a private placement unless the private placement involves a director, a controlling shareholder or is deemed a “significant private placement,” in which case shareholder approval, and, in some cases, audit committee approval, would also be required.  The Israeli Companies Law defines a “significant private placement” as a private placement (i) resulting in a party becoming a controlling shareholder, or (ii) involving the issuance of a 20% or more voting rights in the company, which (A) results in a 5% or more shareholder increasing its interest in the company or an offeree becoming a 5% or more shareholder, and (B) involves consideration that is not solely cash or public traded securities, or is not on fair market terms.

  107

  ITEM 16H.                 MINE SAFETY DISCLOSURE  

Not applicable  

PART III  

  We have responded to Item 18 in lieu of this item.

 

  The financial statements required by this item are at the end of this Annual Report, beginning on page F-1.  

 

ITEM 17. FINANCIAL STATEMENTS

ITEM 18. FINANCIAL STATEMENTS

  108

 

  The exhibits filed with or incorporated into this Annual Report are listed on the index of exhibits below.  

  101          The following financial information from Alvarion Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, 2010, 2011 and 2012; (ii) Consolidated Balance Sheets at December 31, 2011 and 2012; (iii) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2011 and 2012; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2011 and 2012; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. Users of this data are advised, in accordance with Rule 406T of Regulation S-T promulgated by the SEC, that this Interactive Data File is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.* __________________________ *           Filed herewith  

 

 

 

 

 

 

ITEM 19. EXHIBITS

Exhibit No. Description

1.1 Memorandum of Association (English translation accompanied by Hebrew original) (1)

1.2 Amended and Restated Articles of Association*

1.3 Certificate of Name Change (English translation accompanied by Hebrew original) (2)

2.1 Form of Ordinary Share Certificate (3)

4.1 Lease Agreement, dated April 16, 2000, between the Registrant and Bet Dror Ltd. And Ziviel Investments Ltd. (English summary accompanied by Hebrew original) (4)

4.2 Form of Indemnity Agreement for Directors and Executive Officers (5)

4.3 Addendum, dated September 2000, to Lease Agreement between the Registrant and Bet Dror Ltd. and Ziviel Investments Ltd. (English summary accompanied by Hebrew original) (6)

4.4 Sublease Agreement, dated July 5, 2001, between Floware Wireless Systems Ltd. and Ceragon Networks Ltd. (English summary accompanied by Hebrew original) (4)

4.5 Addendum, dated October 5th, 2010, to Lease Agreement between the Registrant and Bet Dror Ltd. and Ziviel Investments Ltd. (English summary translation  accompanied by Hebrew original) (5)

4.6 Amended and Restated Loan and Security Agreement, dated May 12, 2013, between Alvarion and Silicon Valley Bank (the "Long Term Loan Agreement with SVB")*

4.7 Agreement and Plan of Merger, dated November 2, 2011, among Alvarion Inc., Alvarion Acquisition Inc. and Wavion Inc. (5)

4.8 Asset Purchase Agreement, dated February 21, 2012, between Alvarion Ltd. and Telrad Networks Ltd. and the addendum thereto dated May 8, 2013

8.1 Subsidiaries of Alvarion Ltd.*

11 Amended Code of Ethics(6)

12.1 Certification of Acting Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

12.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

13.1 Certification of the Acting Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

13.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 15.1 Consent of Kost, Forer, Gabay & Kasierer*

(1) Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2008.

(2) Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-13786).

(3) Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-14142).

(4) Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2001.

(5) Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2011.

  109

  SIGNATURES

  The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its

behalf.  

 

 

  ALVARION LTD.           By: /s/ Assaf Katan  

    Assaf Katan      Acting Chief Executive Officer       

Date: May 15, 2013  

  110

  ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2012

IN U.S. DOLLARS

INDEX

 

  Page    

Reports of Independent Registered Public Accounting Firm F-2    

Consolidated Balance Sheets F-3 - F-4    

Consolidated Statements of Operations F-5    

Consolidated Statement of Comprehensive Income (Loss) F-6    

Statements of Changes in Shareholders' Equity F-7    

Consolidated Statements of Cash Flows F-8 - F-9    

Notes to Consolidated Financial Statements F-10 - F-50

   

 

  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ALVARION LTD.

We have audited the accompanying consolidated balance sheets of Alvarion Ltd. ("the Company") and subsidiaries as of December 31, 2011 and 2012, and the related consolidated

statements of operations, comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of

December 31, 2011 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

  The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1(b) to the

consolidated financial statements, the Company has experienced declining sales, incurred recurring losses and negative cash flows from operations,  has an excess of credit line drawn over cash and cash equivalents as well as uncertainty in meeting credit line covenants. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 1(b). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

 

 Kost Forer Gabbay & Kasierer 3 Aminadav St. Tel-Aviv  6706703, Israel Tel:  972 (3)6232525 Fax: 972 (3)5622555 www.ey.com

Tel-Aviv, Israel KOST FORER GABBAY & KASIERER  May 15, 2013 A Member of Ernst & Young Global

  F - 2

  ALVARION LTD. AND ITS SUBSIDIARIES

  CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

  The accompanying notes are an integral part of the consolidated financial statements.  

 

    December 31,      2011     2012               

ASSETS                         CURRENT ASSETS:            

Cash and cash equivalents   $ 57,787    $ 9,769 Restricted cash     -      3,679 Short-term bank deposits     4,977      967 Marketable securities (Note 3)     1,644      - Trade receivables, net (Note 2v)     18,930      10,256 Other accounts receivable and prepaid expenses (Note 4)     5,915      6,300 Inventories (Note 5)     10,421      9,282 Current assets of discontinued operations (Note 1c)     56,901      21,371 

               Total current assets     156,575      61,624                LONG-TERM PREPAID EXPENSES     171      -                PROPERTY AND EQUIPMENT, NET (Note 6)     4,826      3,438                INTANGIBLE ASSETS, NET (Note 7)     20,245      18,010                GOODWILL (Note 1e)     13,087      13,087                LONG-TERM ASSETS OF DISCONTINUED OPERATIONS     11,934      -                Total assets   $ 206,838    $ 96,159 

  F - 3

ALVARION LTD. AND ITS SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

  The accompanying notes are an integral part of the consolidated financial statements.  

 

    December 31,      2011     2012               

LIABILITIES AND SHAREHOLDERS' EQUITY                         

CURRENT LIABILITIES:            Current maturity on long-term loan and revolving credit line (Note 9)   $ 12,813    $ 10,999 Trade payables     17,697      8,449 Other accounts payable and accrued expenses (Note 8)     29,734      18,508 Liabilities of discontinued operations     34,252      15,271 

               Total current liabilities     94,496      53,227 

               LONG-TERM LIABILITIES:              

Long-term accrued expenses     547      - Severance pay     548      252 Other long-term liabilities     7,280      7,149 Long-term loan (Note 9)     17,187      - 

        Long term liabilities of discontinued operations     626      -                

Total long term liabilities     26,188      7,401                

COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)                             

SHAREHOLDERS’ EQUITY:              Share capital (Note 11) -              

Ordinary shares of NIS 0. 1 par value -              Authorized: 12,008,000 shares at December 31, 2011 and 2012; Issued:

6,762,557 and 6,841,559 shares at December 31, 2011 and 2012, respectively; Outstanding: 6,237,880 and 6,316,882 shares at December 31, 2011 and 2012, respectively     166      168 

Additional paid-in capital     434,530      436,301 Treasury shares at cost: 524,677 shares at December 31, 2011 and 2012     (12,872)     (12,872)Other accumulated comprehensive income (loss)     (2,674)     839 Accumulated deficit     (332,996)     (388,905)

               Total shareholders’ equity     86,154      35,531 

               Total liabilities and shareholders’ equity   $ 206,838    $ 96,159 

  F - 4

ALVARION LTD. AND ITS SUBSIDIARIES   CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except per share data

  The accompanying notes are an integral part of the consolidated financial statements.  

 

   Year ended

December 31,      2010     2011     2012  Sales (Note 14)                  Products   $ 72,090    $ 69,457    $ 48,278 Services     2,924      2,816      1,671                       Total Sales     75,014      72,273      49,949                       Cost of Sales                     Products     35,616      33,582      24,972 Services     1,480      3,911      2,354 Write-off of excess inventory and provision for inventory purchase commitments (Note 2h)     2,093      1,433      6,385                       Gross profit     35,825      33,347      16,238                       Operating costs and expenses:                     Research and development, net (Note 14a)     7,904      10,708      12,664 Selling and marketing     13,801      18,304      13,177 General and administrative     4,364      5,170      7,182 Amortization of intangible assets     -      186      2,235 Acquisition and other related expenses (Note 1e)     -      2,622      1,102 Restructuring and other charges (Note 2aa)     1,787      6,020      -                       Total operating costs and expenses     27,856      43,010      36,360                       Operating income (loss)     7,969      (9,663)     (20,122)                      Financial expense, net (Note 14b)     (99)     (1,015)     (2,895)                      Income (loss) before income taxes     7,870      (10,678)     (23,017)                      Taxes on income     894      -      -                       Net income ( loss) from continuing operations     6,976      (10,678)     (23,017)Net Loss from discontinued operations     (105,455)     (23,144)     (32,892)                      Net loss   $ (98,479)   $ (33,822)   $ (55,909)

                      Net income (loss) per share (Note 14c):                                              Continuing operations     1.12      (1.71)     (3.68)   Discontinued operations     (16.95)     (3.72)     (5.25)                         Basic and diluted   $ (15.83)   $ (5.43)   $ (8.93)

  F - 5

ALVARION LTD. AND ITS SUBSIDIARIES   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

U.S. dollars in thousands, except per share data

  The accompanying notes are an integral part of the consolidated financial statements.  

 

   Year ended

December 31,      2010     2011     2012                     

Net loss   $ (98,479)   $ (33,822)   $ (55,909)                      

Other comprehensive income (loss)                     Unrealized gains (losses) on foreign currency cash flow hedges     474      (5,273)     3,513 

                       Total comprehensive loss   $ (98,005)   $ (39,095)   $ (52,396)

  F - 6

ALVARION LTD. AND ITS SUBSIDIARIES   STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

U.S. dollars in thousands, except share data

*)           Ordinary shares have been retroactively adjusted to reflect the reverse split. See also Note 1d.

The accompanying notes are an integral part of the consolidated financial statements.

 

 

    Ordinary shares     Additional paid-in     Treasury    

Other accumulated

comprehensive     Accumulated    Total

shareholders’      Number *)     Amount     capital     shares     income (loss)     deficit     equity                                             

Balance at January 1, 2010     6,214,444    $ 166    $ 427,920    $ (12,872)   $ 2,125    $ (200,695)   $ 216,644                                                   

Exercise of employee stock options     11,630      -      114      -      -      -      114 

Stock-based compensation expenses related to ASC 718     -      -      3,334      -      -      -      3,334 

Other comprehensive income     -      -      -      -      474      -      474 

Net loss     -      -      -      -      -      (98,479)     (98,479)                                                  

Total comprehensive loss                                                                                                   

Balance at December 31, 2010     6,226,074      166      431,368      (12,872)     2,599      (299,174)     122,087 

                                                  Exercise of employee stock

options     11,806      -      9      -      -      -      9 Stock-based compensation

expenses related to ASC 718     -      -      3,153      -      -      -      3,153 

Other comprehensive loss     -      -      -      -      (5,273)     -      (5,273)Net loss     -      -      -      -      -      (33,822)     (33,822)

                                                  Total comprehensive loss                                                 

                                                  Balance at December 31,

2011     6,237,880      166      434,530      (12,872)     (2,674)     (332,996)     86,154                                                   

Exercise of employee stock options     79,002      2      -      -      -      -      2 

Stock-based compensation expenses related to ASC 718     -      -      1,771      -      -      -      1,771 

Other comprehensive income     -      -      -      -      3,513      -      3,513 

Net loss     -      -      -      -      -      (55,909)     (55,909)                                                  

Balance at December 31, 2012    6,316,882    $ 168    $ 436,301    $ (12,872)   $ 839    $ (388,905)   $ 35,531 

  F - 7

ALVARION LTD. AND ITS SUBSIDIARIES   CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands  

The accompanying notes are an integral part of the consolidated financial statements.  

 

   Year ended

December 31,      2010     2011     2012  

Cash flows from operating activities:                                     

Net loss   $ (98,479)   $ (33,822)   $ (55,909)Net loss from discontinued operations     105,455      23,144      32,892 

                      Net income (loss) from continuing operations     6,976      (10,678)     (23,017)Adjustments required to reconcile net loss to net cash used in operating activities from continuing operations:                     

Depreciation     3,290      2,683      1,736 Capital loss and disposal of property and equipment     175      2,521      436 Stock-based compensation expenses related to ASC 718     1,767      1,671      938 Accrued interest, amortization of premium and accretion of discounts on held-to-maturity marketable securities and

bank deposits     786      108      (27)Amortization of other intangible assets     -      1,764      2,235 Decrease  in trade receivables, net     6,099      4,402      8,674 Decrease (increase) in other accounts receivable and prepaid expenses     (2,182)     751      579 Decrease (increase) in inventories     (5,783)     7,152      1,139 Decrease (increase) in long term prepaid expenses     -      (171)     171 Increase (decrease) in trade payables     7,647      (10,878)     (9,248)Increase (decrease) in other accounts payable and accrued expenses     (3,850)     (2,969)     (5,959)Increase (decrease) in long term accrued expenses     -      547      (547)Increase (decrease) in other long-term liabilities, net     91      (9)     (131)Decrease in severance pay net and long-term employee liabilities     (766)     (921)     (296)

                      Net cash provided by (used in) continuing operating activities     14,250      (4,027)     (23,317)

                      Net cash used in discontinued operating activities     (36,689)     (14,014)     (2,893)

                      Net cash used in operating activities     (22,439)     (18,041)     (26,210)

                      Cash flows from investing activities:                     

                      Purchase of property and equipment     (2,481)     (1,651)     (795)Proceeds from  sale of property and equipment     7      149      11 Proceeds from bank deposits     8,056      3,350      5,016 Investment in bank deposits     (3,345)     (4,916)     (938)Investment in held-to-maturity marketable securities     (2,424)     -      - Proceeds from maturity of held-to-maturity marketable securities     24,273      16,885      1,603 Investment in restricted cash     -      -      (3,679)Acquisition of Wavion (a)     -      (24,618)     (2,718)

                      Net cash provided by (used in) continuing investing activities     24,086      (10,801)     (1,500)

  F - 8

ALVARION LTD. AND ITS SUBSIDIARIES   CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

The accompanying notes are an integral part of the consolidated financial statements.

 

   Year ended

December 31,      2010     2011     2012                     

Net cash used in discontinued investing activities   $ (9,544)   $ (1,693)   $ (1,309)                      

Net cash provided by (used in) investing activities     14,542      (12,494)     (2,809)                      

Cash flows from financing activities:                                           

Proceeds from exercise of employee stock options     60      5      1 Receipt of long term loan     -      30,000      - Repayment of loan     -      (2,984)     (19,001)

                      Net cash provided by (used in) continuing financing activities     60      27,021      (19,000)

                      Net cash provided by  discontinued financing activities     54      4      1 

                      Net cash provided by (used in) financing activities     114      27,025      (18,999)

                      Decrease in cash and cash equivalents     (7,783)     (3,510)     (48,018)Cash and cash equivalents at the beginning of the year     69,080      61,297      57,787 

                      Cash and cash equivalents at the end of the year   $ 61,297    $ 57,787    $ 9,769 

                      Supplemental disclosure of cash flows activities:                     

                      Cash paid during the year for taxes   $ 572    $ 500    $ 207 

                      Cash paid for interest   $ -    $ 56    $ 1,437 

                      (a)    Payment for the acquisition of Wavion:                     

                      Estimated fair value of assets acquired and liabilities assumed at the acquisition date:                     Working capital deficit (excluding cash and cash equivalents)   $ -    $ 102    $ - Property and equipment     -      1,317      - Accrued severance pay     -      (203)     - Other intangible assets     -      22,009      - Goodwill     -      13,087      - Less - accrued OCS commitment     -      (5,992)     - Long-term loan     -      (2,984)     - 

             27,336      -                       

Less - accrued earn out payment     -      (2,718)     -                           $ -    $ 24,618    $ - 

  F - 9

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

As for geographic markets and major customers, see Note 13b.

 

Management’s plans are to seek to further lower the Company's operating expenses and improve the financial performance of the Company by introducing a cost reduction plan, including reductions in the number of employees, a reduction in employee salaries and the movement to smaller and cheaper facilities. In addition, the Company plans to continue to finance its operations through the proceeds related to the sale of the Company's carrier licensed division (see Note 1c below), and third party financing. The Company has in addition reached an amendment to the Company's credit line to amend the future covenants (see Note 9d).

However, there is no assurance that the Company will meet the credit line covenants and be successful in its efforts to improve its financial performance, raise the necessary capital , increase its revenues to continue its activities as a going concern for a reasonable period of time. Furthermore there is no certainty that the Company will meet the credit line covenant which may result in immediate recall of the outstanding credit line drawn.

 

  As of December 31, 2012 Company's management and the board of directors determined to sell the Company's carrier licensed division ("BWA"). On February 21, 2013, the Company entered into a definitive agreement with Telrad Networks LTD ("Telrad"), pursuant to which Telrad will acquire the BWA. The consideration in the agreement amounted to $6,100 and performance based milestone payments of up to $6,000. On May 10, 2013 an amendment to the agreement was signed. Under the final terms agreed, the Company will receive a consideration of $4,000, reduced as a result of the discountinued operations working capital decline in Q1 2013. Consideration will be paid in installments over four quarters, with the first payment of $1,350 received at closing. In addition, the Company may receive certain performance based milestone payments of up to $7,700.  

 

NOTE 1:- GENERAL

  a. Alvarion Ltd. together with its worldwide subsidiaries ("the Company") is a provider of wireless broadband systems. The Company supplies carriers, Internet Service Providers ("ISPs") and private networks in vertical markets with solutions based on WiMAX, Wi-Fi and other wireless broadband technologies. See also Note 1c below.

  b. The Company’s sales have declined by $22,324 in the year ended December 31, 2012 compared to the year ended December 31, 2011.  In addition, the Company has incurred accumulated losses of $388,905 as of December 31, 2012. Furthermore, the Company incurred a $55,909 net loss and $48,018 negative cash flow for the year ended December 31, 2012. As of December 31, 2012, the Company had $9,769 in cash and cash equivalents, and $10,999 outstanding revolving short term credit line. Further through the date of the financial statements the Company' s results continued to deteriorate. These conditions raise substantial doubt as to the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  c. Discontinued Operation:

  F - 10

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

Under ASC 205, "Presentation of Financial Statements - Discontinued Operation" when a component of an entity, as defined in ASC 205, has been disposed of or is classified as held for sale, the results of its operations, including the gain or loss on its  component are classified as discontinued operations and the assets and liabilities of such component are classified as assets and liabilities attributed to discontinued operations; that is, provided that the operations, assets and liabilities and cash flows of the component have been eliminated from the Company's consolidated operations and the Company will have no significant continuing involvement in the operations of the component.

The BWA has been considered a "component of the entity" since it comprises of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company's operations. Further, since no significant cash outflow or cash inflow are expected to be generated or paid by the Company in respect of the discontinued operation and the Company will have no significant continuing involvement in the operations of the component after the division is sold, the component meets the criteria to be considered as discontinued operation.

As a result, the assets and liabilities of the component were retroactively adjusted and classified as discontinued assets and liablilities as of December 31, 2011 and 2012 and the component's operation results and cash flows for the years ended December 31, 2010, 2011 and 2012 were retroactively adjusted and classified separately as net loss from discontinued operations.

 

 

NOTE 1:- GENERAL (Cont.)

  F - 11

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

  The major classes of assets and liabilities of the carrier license division that was classified as discontinued operations were:

 

NOTE 1:- GENERAL (Cont.)

    December 31,      2011     2012  CURRENT ASSETS:            

Trade Receivables, net   $ 29,364   $ 15,358 Other accounts receivable and prepaid expenses     1,743     2,489 Inventories     25,794     3,524 

               Total current assets of discontinued operations     56,901     21,371                LONG TERM ASSETS              

 Long term trade receivables     6,986     -  Property and equipment, net     4,948     - 

               Total long term assets of discontinued operations     11,934     -                CURRENT LIABILITIES:              

Trade Payables     18,545     4,254 Other accounts payable and accrued expenses     15,707     10,717 Severance pay     -     300 

               Total current liabilities of discontinued operations    34,252     15,271                ACCRUED SEVERANCE PAY     626     -                Net assets of discontinued operations   $ 33,957   $ 6,100 

  F - 12

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The results of the discontinued operating carrier license devision for the years ended December 31, 2010, 2011 and 2012, are presented below:

  All accompandied notes of the finalcial statements represent the continuing operations of the Company.

 

On March 18, 2013, the Company announced that the previously-reported 1:10 reverse split of its ordinary shares would be effective on April 2, 2013 with respect to all shares held of record as of the close of business on April 1, 2013. The reverse split was previously approved by the Company’s shareholders at the Annual General Meeting held on September 10, 2012 and announced by the Company on December 10, 2012.

 

NOTE 1:- GENERAL (Cont.)

    Year ended December 31,      2010     2011     2012                     Sales   $ 130,801    $ 117,764    $ 61,632                       Cost of Sales     91,477      81,362      38,594 Write-off of excess inventory and provision for inventory purchase commitments     2,809      8,291      19,365                       Gross profit     36,515      28,111      3,673                       Operating costs and expenses:                     

Research and development , net     30,813      17,256      11,725 Selling and marketing     29,575      19,272      14,211  General and administrative     15,555      8,707      6,939 Restructuring and other charges     1,787      6,020      3,519 Other income *)     -      -      (17,096)

       Amortization of intangible assets     130      -      -         Impairment of goodwill     57,110      -      - 

Other loss **)            -      17,267                       Total operating expenses     134,970      51,255      36,565                       Operating loss     (98,455)     (23,144)     (32,892)Impairment of investment     (7,000)     -      -                       Net loss   $ (105,455)   $ (23,144)   $ (32,892)

  *) Other income represents income from the sale of certain of the Company's intelectual property portfolio and certain claim rights.

  **) As of and for the year ended December 31, 2012, the Company recognized an impairment related to asset held-for-sale of $17,267, based on the fair value of, the net realizable held for sale component, which was based on $6,100 consideration. Additional $2,100 impairment to be recognized in the first quarter 2013 as part of the final closing.

  d. Reverse Split:

  F - 13

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Upon execution of the reverse split, shareholders have received one share of the Company in exchange for every 10 shares held by them. The reverse split reduced the number of Company outstanding shares from approximately 63 million to approximately 6.3 million. Proportional adjustments have been automatically made to the Company’s outstanding stock options and other equity compensation incentive awards

All ordinary share and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the reverse split. .See also Note 2u, Note 11 and Note 14c.

On November 23, 2011, the Company completed the acquisition of all of the outstanding shares of Wavion Inc. and its subsidiary (together "Wavion"), a technology leader in outdoor WiFi applications for metro and rural areas with deployments in more than 75 countries. Wavion offers end-to-end solutions including access, backhaul, CPEs, management and service provisioning tools, and was acquired for an aggregate consideration of $ 28,433. The total purchase price of Wavion was composed of the following:

The acquired business provided a significant new market opportunity. The Company believed that the acquisition of Wavion enables the Company to expand the solutions provided by the Company.

The acquisition was accounted for by the acquisition method. The results of operations were included in the consolidated financial statements of the Company commencing November 23, 2011. The consideration for the acquisition was attributed to acquired net assets and assumed liabilities on the basis of their fair value, based on a valuation performed by an outsourced advisor which included a number of factors.

As part of the acquisition, certain shareholders are entitled to $ 785 if they will complete a retention period as Wavion's employees. This amount was placed in escrow as an assurance for such employees' undertaking to continue their employment with the Company. If an employee does not complete the full term of retention, the amount in escrow related to such employee will be released to the Company. This amount is recorded as compensation expenses and not as part of the purchase price of Wavion. As of December 31, 2012 there is a remaining prepaid balance of $ 171 relating to this amount, which will be recorded as compensation expense on a straight line basis over the remaining retention period of the first half of 2013.

 

NOTE 1:- GENERAL (Cont.)

  e. Acquisition of Wavion:

Cash  $ 25,715 Earn out *)    2,718        Total purchase price  $ 28,433 

  *) Earn out was based on performance milestones for the period from acquisition date through December 31, 2012. The actual Earn out was paid in the year ended December 31, 2012 and amounted to $ 2,718.

  F - 14

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Identifiable intangible assets acquired included Customer relationships and Backlog which were valued using the income approach, and Technology which was valued using the income approach, specifically the "Relief From Royalty method".

The Company also assumed a liability related to Wavion's Officer of the Chief Scientist ("OCS") royalty bearing grant obligation. The liability was valued based on 100% of the outstanding obligation discounted based on a Market Participant interest rate.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:

The excess of cost of acquisition over the fair value of net tangible and identifiable intangible assets on acquisition amounted to $ 13,087, and was allocated to goodwill, which was due to primarily the expected synergies.

As part of the acquisition, the Company incurred certain expenses to outside providers  in an aggregate amount of $ 1,122. These expenses, as well as other transaction related expenses, have been recorded as Acquisition related expenses in the statement of operation in 2011.

 

NOTE 1:- GENERAL (Cont.)

Cash   $ 1,097 Trade receivables     3,760 Other receivables and prepaid expenses     942 Current deferred tax assets     1,334 Inventories     1,436 Property and equipment     1,317 Long-term deferred tax assets     6,480 Other intangible assets     22,009 Goodwill     13,087 

        Total assets acquired     51,462 

        Trade payables     (3,553)Accrued expenses and other liabilities     (3,532)Other long-term liabilities     (4,943)Severance pay     (203)Long-term loan     (2,984)Long-term deferred tax liabilities     (7,814)

        Total liabilities assumed     (23,029)

        Net assets acquired   $ 28,433 

  F - 15

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

At the beginning of 2011, the Company acquired the intellectual property of Clariton Ltd., ("Clariton") for an indoor wireless solution called Clariton's Distributed Antenna System (DAS) for consideration based on performance milestone payments of  up to $8,500 as of Decmeber 31, 2012 and 2011 such performance based milestones were deemed not more likely than not. The Company also assumed Clariton's related OCS royalty bearing grant obligation, Clariton Networks.

 

The consolidated financial statements are prepared in accordance with U.S generally accepted accounting principles ("U.S. GAAP").

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities, discontinued assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue, expenses and net loss from discontinued operations during the reporting period. Actual results could differ from those estimates.

A majority of the Company's revenues are generated in dollars. In addition, most of the Company's costs are denominated and determined in dollars. The Company's management believes that the dollar is the currency in the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar.

 

NOTE 1:- GENERAL (Cont.)

  f. Acquisition of Clariton:

  g. Alvarion Ltd. has wholly-owned active subsidiaries in the United States, France, Romania, Brazil,  Singapore, Mexico, Poland, Uruguay, Spain, South-Africa, Italy, Argentina,  India, Chile, Taiwan, Indonesia, Canda, Japan and the Philippines primarily engaged in marketing, pre-sales, sales and developing activities.

  h. Certain of the raw materials, components, and subassemblies included in the products manufactured by the Company's subcontractors, are obtained from and manufactured by a limited group of suppliers and manufaturers. Disruptions, shortages, termination of certain of these sources of supply, or termination of  manufacturing subcontractors agreements could occur and could negatively affect the Company's financial condition and results of operations.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

  a. Use of estimates:

  b. Financial statements in U.S. dollars ("dollars"):

  F - 16

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification ("ASC") 830, "Foreign Currency Matters". All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statement of operations as appropriate.

The consolidated financial statements include the accounts of Alvarion Ltd. and its wholly-owned subsidiaries. Intercompany transactions and balances, including profits from intercompany sales not yet realized outside the Company, have been eliminated in consolidation.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash, with maturities of three months or less at the date acquired.

Restricted cash is primarily invested in highly liquid deposits, which mature within one year. These deposits are used as security for the credit line the Company received from a bank, guarantees in favor of customers and a lease agreement.

Bank deposits with maturities of more than three months and up to one year were included in short-term bank deposits. As of December 31, 2011 and 2012,  the deposits bore interest at a weighted average interest rate of 2.48% and 3.25%, respectively. The deposits are presented at their cost, including accrued interest.

The Company accounts for investments in debt securities in accordance with ASC 320 "Investments - Debt and Equity Securities".

Management determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity, and are stated at amortized cost. The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, impairment of value judged to be other than temporary, and interest are included in financial income, net.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  c. Principles of consolidation:

  d. Cash equivalents:

  e. Restricted Cash:

  f. Short-term bank deposits:

  g. Held-to-maturity securities:

  F - 17

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

In the year ended December 31, 2012 all Marketable securities have matured and the Company no longer holds investment of securities as of December 31, 2012.

For the years ended December 31, 2010 and 2011, all securities covered by ASC 320 were designated by the Company's management as held-to-maturity.

The Company recognizes an impairment charge when a decline in the fair value of its investments below the amortized cost basis is judged to be other-than-temporary. The Company periodically assesses whether its investments with unrealized losses are other than temporarily impaired.

Under the impairment model, an other-than-temporary impairment loss is recognized in earnings when the Company does not expect to recover the entire amortized cost basis of the security (that is, a credit loss exists). The amount of impairment to be recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

For the years ended December 31, 2010 and 2011, no other-than-temporary impairment losses have been identified.

The Company manages its inventory according to the FIFO method.   Inventories are stated at the lower of cost or market value. Cost is determined as follows:

Raw materials and components - using the "weighted moving average cost" method.

Work in progress and finished products are based on the cost of raw materials and components used and the cost of production including labor and overhead calculated on a periodic basis.

Inventory write-offs have been provided to cover risks arising from dead and slow moving items, technological obsolescence and excess inventories according to revenue forecasts.

During 2010, 2011 and 2012, the Company recorded inventory write-off for inventory and for inventory purchase commitments for the continued operation, for inventory no longer required in a total amount of $ 2,093, $ 1,433 and $ 6,385, respectively.

In 2010, 2011 and 2012, approximately $ 113, $ 109 and $ 179, respectively, of inventory previously written-off was used as product components in the Company's ordinary production course and was sold as finished goods to end users. The sales of these related manufactured products were reflected in the Company's revenues without an additional charge to the cost of sales in the period in which the inventory was utilized.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  h. Inventories:

  F - 18

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:

The Company's property and equipment and certain identifiable intangible assets are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment", whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets that are not considered to have an indefinite useful life have been amortized using the straight-line basis over their estimated useful lives (Customer relationship 6 years and Technology 4-12 years). Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets (or asset group) exceeds the fair value of the assets (or asset group). In November 2011 due to the completion of Wavion acquisition, the Company recorded intangible assets in an amount of $22,009 for the continued operation. For the years ended December 31, 2011 and 2012 , no impairment has been identified.

The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350 "Intangibles -  Goodwill and Others".

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  i. Property and equipment, net:

    %         Office furniture and equipment   6 - 15  Computers and electronic equipment   14 - 33  Motor vehicles   15  Leasehold improvements

 

Over the shorter of the related lease period or the life of the

asset  

  j. Impairment of long-lived assets:

  k. Goodwill:

  F - 19

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Goodwill impairment testing is a two-step process. The first step involves comparing the fair value of a company's reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded.

The acquisition of Wavion in November 2011 has been incorporated into the single reportable segment as a separate business unit, of the Company. As part of Wavion acquisition, the Company recorded goodwill in amount of  $13,087. In the year ended December 31, 2011, there were no indicators of impairment. In the year ended 31, 2012 an annual impairment test has been completed and there were no indicators of impairment and the Company did not  recorded any impairment.

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This guidance prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.

The Company recognizes interest, if any, related to unrecognized tax benefits in financial expenses. The Company recognizes penalties, if any, related to unrecognized tax benefits in taxes on income.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  l. Income taxes:

  F - 20

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The Company accounts for stock-based compensation in accordance with ASC 718 Compensation - Stock Compensation. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of operations.

During 2008, the Company granted 96,300 options at par value and Restricted Shares Units to Management and Senior Executives, the vesting of which is subject to the Company achieving certain performance related ratios, 33% of each grant's vesting being accrued respectively on February 28, 2010, February 28, 2011 and February 28, 2012. The Company accounts for these grants in accordance  with ASC 718 and  estimates the fair value of equity based payment awards only when the achieving the performance criteria is probable. As of December 31, 2012, the performance related ratios for all installments have not been achieved, and  all of the grant has been cancelled.

The Company recognizes compensation expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

The Company estimates the fair value of stock options granted under ASC 718 using the Black-Scholes-Merton option-pricing model that uses the weighted-average assumptions noted in the following table. The Company values restricted stock units and options granted at par value based on the market value of the underlying shares at the date of grant.

Expected volatility is based on historical volatility that is representative of future volatility over the expected term of the options. In 2010, 2011 and 2012, the expected term of options granted is estimated based on historical experience and represents the period of time that options granted are expected to be outstanding. The risk free interest rate is based on the yield of U.S. treasury bonds with equivalent terms. The dividend yield is based on the Company's historical and future expectation of dividends payouts. Historically, the Company has not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  m. Accounting for stock-based compensation:

  F - 21

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

The Company's annual equity-based compensation expense for the years ended December 31, 2010, 2011 and 2012 related to the continued operation totaled $ 1,767, $ 1,671 and $ 938, respectively.

The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2010, 2011 and 2012, was comprised as follows:

The Company generates revenues from sales of products, which include hardware and software,  professional services and maintenance. Professional services include mainly installation, project management,  consulting and training. The Company sells its products directly through its sales force and indirectly through a global network of distributors, system integrators and strategic partners, all of whom are considered end-users.

Revenues from maintenance and professional services are recognized ratably over the contractual period or as services are performed, respectively.

Revenues from products are recognized in accordance with ASC 605-10-S99-1 ("Revenue Recognition") and with ASC 605-25 "Multiple-Element Arrangements" as amended by ASU 2009-13, when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller's price to the buyer is fixed or determinable, no further obligation exists and collection is probable.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

   Year ended

December 31,      2010     2011     2012                     

Volatility     56.5%       59.4%       63.6%  Risk-free interest rate     1.45%       1.40%       0.54%  Dividend yield     0%       0%       0%  Expected term   4.47 years     4.21 years     4.13 years  Average Forfeiture rate     13%       19%       18%  

   Year ended

December 31,      2010     2011     2012                     

Cost of goods sold   $ 231    $ 156    $ 143 Research and development     413      262      245 Sales and marketing     388      411      279 General and administrative     735      842      271 

                      Equity-based compensation expenses   $ 1,767    $ 1,671    $ 938 

  n. Revenue recognition:

  F - 22

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

In transactions where a customer's contractual terms include a provision for customer acceptance, revenues are recognized either when such acceptance has been obtained or the acceptance provision has lapsed.

The Company generally does not grant a right of return. However, the Company has granted to certain distributors limited rights of return on unsold products. Product revenues on shipments to these distributors are recognized based on their history of actual returns provided that all other revenue recognition criteria are met.

The Company's revenue recognition policies provide that, when a sales arrangement contains multiple elements, the Company allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence ("VSOE"), if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately and, when they have not yet sold the deliverable separately, using the price established by management having the relevant authority. When VSOE cannot be established, the Company establishes selling price of each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. The best estimate of selling price for products are established considering several external and internal factors including, but not limited to, historical sales, pricing practices and geographies in which the Company offers its products. The determination of ESP is judgmental.

Advances from customers include advances and payments received from customers, for which revenue has not yet been recognized.

The Company provides a 16 to 21 month warranty period for all of its products lines. The specific terms and conditions of a warranty vary depending upon the product sold and customer it is sold to. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time a product is delivered. Factors that affect the Company's warranty liability include the number of units, historical rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  o. Warranty costs:

  F - 23

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Changes in the Company's warranty allowance during the period are as follows:

Research and development costs, net of participation funding received and grants, are charged to the statement of operations as incurred. See also Note 14a.

Grants and participations received for funding approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred and included as a deduction from research and development costs.

Royalty-bearing grants from the Government of Israel (OCS) for funding of approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred. These grants are represented as a reduction in research and development expenses.

Royalties to the OCS are recorded in the cost of sales, when the related sales are recorded. See also note 10c.

The Company's agreements with the majority of its employees in Israel are under section 14 of the Severance Pay Law -1963. The Company's contributions for severance pay are instead of its severance liability. Upon contribution of the full amount from the employee's monthly salary, no additional calculations are conducted between the parties regarding the matter of severance pay and no additional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

   Year ended

December 31,      2010     2011     2012                     

Balance at the beginning of the year   $ 1,274    $ 1,100    $ 481 Warranties issued during the year     991      372      202 Settlements/adjustments made during the year     (1,165)     (991)     (479)

                      Balance at the end of the year   $ 1,100    $ 481    $ 204 

  p. Research and development:

  q. Participations and grants:

  r. Royalty-bearing grants:

  s. Severance pay and long term employee liabilities:

  F - 24

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Severance pay expenses for the continued operation for the years ended December 31, 2010, 2011 and 2012 were $ 1,507, $ 1,076 and $ 1,086, respectively.

Advertising expenses are carried to the statement of operations as incurred. Advertising expenses for the continued operation for the years ended December 31, 2010, 2011 and 2012 were $ 1,239, $ 821 and $ 641, respectively.

Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. The diluted net earnings per share are computed based on the weighted average number of Ordinary shares outstanding during each year plus dilutive potential equivalent Ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings Per Share". For the years ended December 31, 2010, 2011 and 2012, all outstanding options to purchase shares were excluded from the calculation of diluted loss per share because their effect on the loss per share is anti-dilutive.

  In March 2013, the Company preformed a reverse stock split of the Company’s ordinary shares of ten (10) for one (1), (see also note 1d). The loss per share amounts presented for all prior periods were restated to reflect the effects of the reverse stock split.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term bank deposits, marketable securities, trade receivables and foreign currency derivative contracts.

The majority of the Company's cash and cash equivalents and short-term bank deposits are invested in U.S. dollar deposits with major U.S., European and Israeli banks, and the foreign currency derivative contracts are with the same banks. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally cash and cash equivalents and short term deposits may be redeemed on demand and therefore low credit risk exists with respect to these investments.

The trade receivables of the Company are derived from sales to customers located primarily in North and South America, Asia Pacific, Africa and Europe and represent amounts with maturity dates of less than one year. Under certain circumstances, the Company and its subsidiaries may require letters of credit, other collateral, additional guarantees or advance payments. The Company obtains credit insurance where applicable. The Company and its subsidiaries perform ongoing credit evaluations of their customers and establish an allowance for doubtful accounts based upon a specific review of their accounts.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  t. Advertising expenses:

  u. Basic and diluted net loss per share:

  v. Concentration of credit risk:

  F - 25

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

Allowance for doubtful accounts for the continued operation amounted to $ 296 and $ 4,099 as of December 31, 2011 and 2012, respectively. The Company charges off receivables when they are deemed uncollectible. Actual collection experience may not meet expectations and there may be an effect in the Company's ability to collect customers' debts in a timely manner or at all and this may result in increased bad debt expense.

Total doubtful debts expenses for the continued operation during 2010, 2011 and 2012 amounted to $1,050, $ 863 and $3,909, respectively. Total write offs for the continued operation amounted $ 569 and $ 106 in  2011 and 2012, respectively.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  w. Fair value of financial instruments:

  Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

  Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace.

  Level 3 - Unobservable inputs which are supported by little or no market activity.

  F - 26

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

In accordance with ASC 820 "Fair Value Measurements and Disclosures", the Company measures its foreign currency derivative contracts at fair value using a market approach valuation technique based on marketplace observable inputs foreign exchange rates, as follows:

The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables, trade payables and loan approximate their fair values, due to the short-term maturities of these instruments.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

    December 31, 2012      Fair value measurements using input type      Level 1     Level 2     Level 3     Total  Assets:                                                 Foreign currency forwards  $ -   $ 1,002   $ -   $ 1,002                              Total financial assets  $ -   $ 1,002   $ -   $ 1,002 

                             Liabilities:                                                         Foreign currency forwards  $ -   $ 158   $ -   $ 158                              Total financial liabilities  $ -   $ 158   $ -   $ 158 

    December 31, 2011      Fair value measurements using input type      Level 1     Level 2     Level 3     Total  Assets:                        Foreign currency option  $ -   $ 16   $ -   $ 16 Foreign currency forwards    -     86     -     86                              Total financial assets  $ -   $ 102   $ -   $ 102 

                             Liabilities:                            Foreign currency option  $ -   $ 1,033   $ -   $ 1,033 Foreign currency forwards    -     1,657     -     1,657                              Total financial liabilities  $ -   $ 2,690   $ -   $ 2,690 

  F - 27

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

 

The Company accounts for derivatives and hedging based on ASC 815 "Derivatives and Hedging". ASC 815 requires a company to recognize all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.

The Company has instituted a foreign currency cash flow hedging policy in order to hedge against the risk of overall changes in future cash flows for a period of approximately 1 year resulting from foreign currency trade payables and salary payments during the year. The Company hedges portions of its forecasted expenses denominated in NIS and Romanian New Lei ("RON") with currency forwards contracts and put and call options. These forward and option contracts are designated as cash flow hedges. The Company does not have a master netting policy and as such each arrangement is accounted for separately.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.

  As of December 31, 2012, the Company recorded accumulated other comprehensive income related to unrealized gain on derivative instruments amounted to $ 839 (as further detailed in the following tables). Such amount will be reclassified into earnings within the next 12 months.

The notional principal of foreign exchange contracts to purchase NIS with U.S. dollars was $81,158 and $ 27,852 at December 31, 2011 and 2012, respectively. The notional principal of foreign exchange contracts to purchase U.S dollars with NIS was $799 at December 31, 2012. The notional principal of foreign exchange contracts to purchase RON with U.S. dollars was $ 5,750 and $ 1,000 at December 31, 2011 and 2012, respectively.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  x. Derivative instruments:

  F - 28

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The fair value of the Company's outstanding derivative instruments qualified as hedging instruments at December 31, 2011 and 2012 is summarized below:

The effect of derivative instruments in cash flow hedging relationships on the net loss and other comprehensive income (loss) for the years ended December 31, 2010, 2011 and 2012 is summarized below:

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

      December 31,      Balance sheet location 2011     2012  

Assets                             

Foreign exchange option contracts   Other accounts receivable and prepaid expenses $ 16    $ - Foreign exchange forward contracts       -      997 

                       $ 16    $ 997 

Liabilities                                 

Foreign exchange option contracts   Other accounts payable and accrued expenses $ (1,033)   $ - Foreign exchange forward contracts       (1,657)     (158)

                       $ (2,690)   $ (158)

                 Derivatives assets (liabilities), net     $ (2,674)   $ 839 

   

Increase (decrease) in gains recognized in other comprehensive income (loss)

on derivative (effective portion)      Year ended December 31,      2010     2011     2012  

Derivative in cash flow hedging relationship                  Foreign exchange option contracts   $ 662    $ (1,177)   $ 240 Foreign exchange forward contracts     2,428      (1,229)     1,153 

                          $ 3,090    $ (2,406)   $ 1,393 

  F - 29

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The following is the change in the other comprehensive income (loss) of unrealized gains on foreign currency cash flow hedge during 2012:

As of December 31, 2011, the Company had outstanding forward contracts that did not meet the definition of hedge accounting, in the notional  amount of $ 1,142, the fair value of which is presented in other accounts receivable and prepaid expenses. As of December 31, 2012, the Company had outstanding forward contracts that did not meet the definition of hedge accounting, in the notional  amount of $700, the fair value of which is presented in other accounts receivable and prepaid expenses.  The Company measured the fair value of the contracts in accordance with ASC 820 at level 2. The net gains (losses) recognized in statement of operations in the financial income (expenses) net during 2010, 2011 and 2012 were $ 528, $ (307) and $ (18), respectively.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

   

Other comprehensive income (loss)  

       Other comprehensive loss from unrealized gains on foreign currency cash flow hedge as of January 1, 2012   $ (2,674)Reclassification to earnings of realized losses on foreign currency cash flow hedge     1,393 Unrealized net losses on foreign currency cash flow hedge     2,120 Other comprehensive income from gains on foreign currency cash flow hedge as of December 31, 2012   $ 839 

     Gains (losses) reclassified from other

 comprehensive income (loss) into income (expenses)        Year ended December 31,    Location   2010     2011     2012        effective     effective     effective     ineffective  

Derivative in cash flow hedging relationship                          

Foreign exchange option contracts Cost of sales, operating expenses and financial (expenses) income   $ 175   $ 273    $ -    $ (777)

Foreign exchange forward contracts Cost of sales, operating expenses and financial (expenses) income     2,441     2,591      (1,193)     (150)

                                     $ 2,616   $ 2,864    $ (1,193)   $ (927)

  F - 30

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

 

The Company accounts for comprehensive income in accordance with ASC 220 "Comprehensive Income". This Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its items of comprehensive income relate to gains and losses on hedging derivative instruments.

In May 2011, the FASB issued guidance that changed the requirement for presenting "Comprehensive Income" in the consolidated financial statements. The update requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this new guidance on January 1, 2012 and elected to present the comprehensive income in two separate statements, for all presented years.

The Company repurchases its Ordinary shares from time to time in the open market and holds such shares as treasury stock. The Company presents the cost to repurchase treasury stock as a reduction of shareholders' equity.

During 2010 and 2011, the Company implemented separate restructuring plans, their main purposes were to close and minimize several internal activities, reorganize its units, and reduce headcount of approximately 160 and 194 employees, respectively. The Company recorded in 2010 and 2011 charges of $ 1,787 and $ 6,020 respectively. In addition to the charges to short and long term accrued amounts below, these charges included $ 172 and $ 325 respectively, related to write-offs of leasehold improvements due to abandonment of rental premises as a result of the above mentioned plans. The 2011 plan also included costs amounting to approximately $ 3,000 due to fixed assets disposals, $ 154 due to reverse of grants receivable and $ 359 prepaid service R&D. The Company has accounted for the restructuring and cost reduction plans in accordance with ASC 420 "Exit or Disposal Cost Obligations".

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  y. Comprehensive income:

  z. Treasury stock:

  aa. Restructuring and other charges:

  F - 31

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

As of December 31, 2012, the short term components of the restructuring and cost reduction plan accrual are as follows:

The restructuring and other charges do not include the impact related to stock based compensation (for stock based compensation see Note 11c).

ASC 860 "Transfers and Servicing", establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company's arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a sale, excluding transactions presented below as a secured borrowing. The transfers of financial assets are typically performed by the factoring of receivables to three Israeli financial institutions.

During the years ended December 31, 2010, 2011 and 2012, the Company sold trade receivables related to the continued operation to Israeli financial institutions in a total amount of $ 12,458, $ 15,137 and $ 8,848, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860.

The agreements, pursuant to which the Company sells its trade receivables, are structured such that the Company (i) transfers the proprietary rights in the receivable from the Company to the financial institution; (ii) legally isolates the receivable from the Company's other assets, and presumptively puts the receivable beyond the lawful reach of the Company and its creditors, even in bankruptcy or other receivership; (iii) confers on the financial institution the right to pledge or exchange the receivable; and (iv) eliminates the Company's effective control over the receivable, in the sense that the Company is not entitled and shall not be obligated to repurchase the receivable other than in case of failure by the Company to fulfill its commercial obligation.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

   

Employee termination

benefits    Repayments of

grants    Lease

abandonment     Other     Total                                 

Balance as of January 1, 2011   $ 141    $ 462    $ 298    $ 27    $ 928 Charges     1,477      (462)     1,580      763      3,358 Cash outlays     (893)     -      (941)     (214)     (2,048)

                                    Balance as of December 31, 2011     725      -      937      576      2,238 Sorting of long term components                   547             547 Cash outlays     (697)     -      (630)     (461)     (1,788)

                                    Balance as of December 31, 2012   $ 28    $ -    $ 854    $ 115    $ 997 

  ab. Transfers of financial assets:

  F - 32

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The aggregate amounts of financing expense related to the sales of trade receivables for the continued operation for the years ended December 31, 2010 2011 and 2012 were $ 167, $ 237 and $ 315, respectively.

According to ASC 805 "Business Combination", the Company recognizes assets acquired, liabilities assumed and any non-controlling interest at the acquisition date measured at their fair values as of that date. ASC 805 also requires the fair value of acquired in-process research and development to be recorded as intangibles with indefinite lives, contingent consideration to be recorded on the acquisition date, and restructuring and acquisition-related deal costs to be expensed as incurred. According to ASC 805, the Company is required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values. In allocating the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, the Company developed the required assumptions underlying the valuation work. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists and distribution agreements,. Management’s estimates of fair value are based upon assumptions believed to be reasonable, utilizing a market participant approach, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

The following is a summary of held-to-maturity marketable securities:

During 2011, a security with maturity date in 2012 and a callable feature was called by its issuer. This security was classified as held to maturity since at the acquisition there was no significant premium related to it. The net carrying amount of this security on the date of sale amounted to $ 808. The realized gain amounted to $ 1. During the year ended December 31, 2012, the Company's investments in securities have  matured.

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  ac. Business Combination:

NOTE 3:- MARKETABLE SECURITIES

    Amortized cost    

Gross unrealized

gains    

Gross unrealized

losses    

Estimated fair market

value  December 31, 2011:                                                 

Maturing within one year:                        Corporate bonds   $ 1,644    $ 6    $ -    $ 1,650 

                                 $ 1,644    $ 6    $ -    $ 1,650 

  F - 33

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

 

See also Note 2h.

 

 

 

NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

    December 31,      2011     2012               

Government authorities   $ 2,625    $ 3,020 Deposits     559      460 Derivatives     102      1,002 Prepaid expenses     1,192      402 Advances to suppliers and others     1,437      1,416 

                   $ 5,915    $ 6,300 

NOTE 5:- INVENTORIES

    December 31,      2011     2012               

Raw materials and components   $ 4,996    $ 4,677 Work in progress     2,538      803 Finished products *)     2,887      3,802 

                   $ 10,421    $ 9,282 

  *) Includes inventory held by customers in the amount of $ 113 and $ 74 as of Decemeber 31, 2011 and 2012, respectively.

NOTE 6: - PROPERTY AND EQUIPMENT

    December 31,      2011     2012  

Cost:            Office furniture and equipment   $ 2,698    $ 2,683 Computers and electronic equipment     17,866      18,204 Leasehold improvements     3,432      3,204 

                     23,996      24,091 

Accumulated depreciation:              Office furniture and equipment     1,407      1,615 Computers and manufacturing equipment     15,303      16,520 Leasehold improvements     2,460      2,518 

                     19,170      20,653                

Depreciated cost   $ 4,826    $ 3,438 

  F - 34

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

  Depreciation expenses for the years ended December 31, 2010, 2011 and 2012 amounted to $ 3,290, $ 2,683 and $ 1,736, respectively.   During 2012, the Company recorded disposals and sales of property and equipment in the amount of $ 682 and accumulated depreciation in the amount of $ 235.

 

Amortization expenses for the years ended December 31, 2011 and 2012 amounted  to $ 1,764 and $ 2,235, respectively.

See also Note 1e regarding Wavion acquisition.

Estimated amortization expenses for the years ended:

 

NOTE 6: - PROPERTY AND EQUIPMENT (Cont.)

NOTE 7:- INTANGIBLE ASSETS, NET

    December 31,      2011     2012  

Cost:            Current technology   $ 18,557    $ 18,557 Customer relations     1,874      1,874 Backlog     1,578      1,578 

                     22,009      22,009 

Accumulated amortization:              Current technology     160      2,083 Customer relations     26      338 Backlog     1,578      1,578 

                     1,764      3,999                

Amortized cost   $ 20,245    $ 18,010 

    Amortization  Year ended December 31,   expenses        2013  $ 2,235 2014    2,235 2015    2,188 2016    1,671 2017    1,645 2018 and thereafter    8,036           $ 18,010 

  F - 35

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

As part of the transaction, the Company pledged all of its assets under a floating charge, and created a fixed charge on its Intellectual Property ("IP") rights and receivables. The Agreement with SVB contains various provisions related to compliance with financial covenants, restrictive covenants, including negative pledges, and other commitments , typically contained in facility agreements of this type. The credit line consists of Facility A ($25,000) and Facility B ($5,000).

Facility A should be repaid in thirty six (36) equal monthly installments starting March 1st, 2012. The interest rate applicable to Facility A is three month LIBOR plus 4.75%, payable monthly starting December 1, 2011. Facility B should be repaid in one (1) installment after thirty six (36) months following first repayment of Facility A of the credit line. The interest rate applicable to Facility B is LIBOR for three months plus 4.50%, payable monthly starting December 1, 2011.

The Agreement was amended several times since the initial Agreement was signed.

 

NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

    December 31,      2011     2012               

Service providers, consultants and accrued expenses   $ 6,686    $ 7,815 Employees and payroll accruals     9,645      4,848 Advances from customers     626      452 Provision for agent commissions     1,100      1,216 Restructuring and other charges *)     2,238      997 Warranty provision     481      204 Royalties     2,230      2,758 Derivatives     2,690      158 Advances from grants     1,259      - Earn out provision     2,718      - Others     61      60 

                   $ 29,734    $ 18,508 

  *) See also Note 2aa .

NOTE 9:- LOAN

  a. On June 21, 2011, the Company entered into a Loan & Security Agreement (the "Agreement"), with Silicon Valley Bank ("SVB"), whereby SVB provided a $ 30,000 credit line for the financing of the acquisition of Wavion. The Company fully utilized the credit line on November 18, 2011.

  F - 36

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The Company was not in compliance with its covenants under the Agreement as if April 1, 2012.  On April 25, 2012, the Company and SVB entered into an agreement providing for the grant of a temporary forbearance of the April 1, 2012 breached covenants and a modification of the terms of the Long Term Loan. The modifications of the Agreement included (i) an increase of the interest rate applicable to Facility A and Facility B to LIBOR for three months plus 5.85% and (ii) the early repayment of $5,000 and $2,222 as of April 30, 2012 and July 1, 2012, respectively, of principal on the Long Term Loan.

The Agreement was further amended on September 28, 2012 to provide for the early repayment of the principal on the long term loan of  $5,500. Further, the amendment modified the structure of the loan, from a term loan to a revolving line of credit. The line of credit is based on the Company's eligible account receivable, as defined in the agreement balance up to $15,000 and shal accure interest at a fixed rate per annuam equal to 7%.

In addition, $3,000 in cash were transferred into a restricted account at SVB as a collateral, which will be applied towards the loan in case of (i) over advance on the line (less account receivable than the loan principal amount) or (ii) the Company has negative cash flow for the three months period ending December 31, 2012 and March 31, 2013.

 

 

 

NOTE 9:- LOAN (Cont.)

  b. As of December 31, 2012, the loan is defined as a revolving line of credit and will remain available through February 2015. As such the outstanding balance has been classified as revolving credit line.

  c. In respect of the credit line provided, the Company is required to meet certain financial covenants which includes non-gaap adjusted profit/loss and quick asset ratio on a monthly basis.  As of December 31, 2012, the Company was in full compliance with the covenants as defined in the amended Agreement.

  d. Subsequent to year end an amount of $1,500 of the restricted balance was applied towards the credit line. In addition, on May 10, 2013 the Company signed a new amendment with SVB. This amendment was required in order to enable the assignments of assets to Telrad, and requires the Company to repay up to $2,150 from the consideration received from the sale of the BWA to Telrad, over the one year period following the closing. Furthermore the amendment include updates to future financial covenants stated in Note 9c. As of the date of the finalcial statements the Company meets the stipulated covenants with SVB. If the Company fails to meet the covenants, SVB may recall the outstanding credit line drawn immediately.

  F - 37

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The Company has leased various motor vehicles and computers under operating lease agreements. These leases expire in fiscal year 2015.

Future minimum rental payments under such leases as of December 31, 2012 are as follows:

Rental of premises expenses for the years ended December 31, 2010, 2011 and 2012, were $ 3,285, $ 2,735 and $ 1,458, respectively. Motor vehicle leasing expenses for the years ended December 31, 2010, 2011 and 2012, were $ 1,480, $ 948 and $ 680, respectively. Computer leasing expenses for the years ended December 31, 2010, 2011 and 2012, were $ 266, $ 121 and $ 97, respectively.

 

As of December 31, 2012, the Company had outstanding bank guarantees in the total amount of approximately $ 2,061, in favor of customers, lessors and Government authorities.

 

The Company's research and development efforts have been partially financed through grants from the OCS of the Israeli Government. The Company entered an arrangement during 2003 with the OCS in Israel's Ministry of Industry and Trade where it participates in new OCS programs under which the Company is eligible to receive grants for research and development projects without any royalty repayment obligations, excluding OCS programs grants resulting from the acquisition of InnoWave, Clariton Networks  and Wavion which were not included in this arrangement.

 

NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES

  a. Premises occupied by the Company are leased under various lease agreements. The lease agreements for these premises will expire in 2013-2015.

   Rental of premises    

Lease of computers    

Lease of motor vehicles  

                   2013   $ 1,912    $ 21    $ 556 2014     205      11      273 2015     67      -      33 

                          $ 2,184    $ 32    $ 862 

  b. Guarantees:

  c. Royalties:

  F - 38

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The Company did not receive grants-bearing royalties from the OCS during the years 2006 until 2011. Through the 2011 acquisition of Wavion (see Note 1e), the Company assumed Wavion's royalty bearing grant, and the royalties assumed have been  recognized as a liability as part of the acquisition. In return for the OCS's participation for some of the grants applications (from InnoWave, Clariton Networks and Wavion), the Company is committed to pay royalties to the Israeli Government at the rate of 3.5% of sales of products in which the Israeli Government has participated in financing the research and development, up to the amounts granted. The grants received bear annual interest at LIBOR as of the date of approval. The grants are presented in the consolidated statements of operations as an offset to related research and development expenses.

Repayment of the grants is not required in the event that there are no sales of products developed within the framework of such funded programs. Royalties payable to the OCS are recorded as they become due and are classified as cost of sales. The maximum amount of the contingent liability related to royalty bearing grants payable to the Israeli Government was approximately $ 27,747 as of December 31, 2012.

 

Pursuant to its Loan and Security Agreement with SVB the Company pledged all of its assets under a floating charge and created a fixed charge on its IP rights and receivables.

 

On April 2, 2013, the Company effected a reverse split of the Company’s ordinary shares of ten (10) for one (1) (i.e., ten ordinary shares, NIS 0.01 nominal value each, will be combined into one ordinary share NIS 0.10 nominal value). All ordinary share and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the reverse split. The Company’s articles of association were amended and the authorized share capital of the Company is NIS 1,200,800 divided into 12,008,000 Ordinary shares, par value NIS 0.10 per share.

 

 

The Ordinary shares confer upon the holders rights to receive notice to participate and vote in general meetings of the Company, to receive dividends, if and when declared and to receive, upon liquidation, a pro rata share of any remaining assets.

 

NOTE 10:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

  d. Liens:

NOTE 11:- SHAREHOLDERS' EQUITY

  a. Reverse split:

  b. The Company's shares are listed for trading on the NASDAQ Capital Market and on the Tel-Aviv Stock Exchange.

  c. Shareholders' rights:

  F - 39

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The Company has six stock option plans under which 3,488,650 Ordinary shares were reserved for issuance.

In 2006, the Company adopted the 2006 shares options plan ("the 2006 Plan"). Under the 2006 Plan, the Company may grant restricted share units ("RSU"), restricted shares, options and other equity awards to employees, directors, consultants, advisers and service providers of the Company and its subsidiaries.

Pursuant to the 2006 Plan, 150,000 Ordinary shares were initially reserved for issuance upon the exercise of awards granted under the 2006 Plan. The number of Ordinary shares available for issuance under the 2006 Plan shall be reset annually on April 1 of each year to equal 4% of the total outstanding shares as of such reset date. The Company also grants its options under 2002 Plan. Options that are cancelled or forfeited become available for future grants. RSUs vest over a three year period of employment and may be subject to performance criteria. RSUs that are cancelled or forfeited become available for future grants.

During 2010, and 2011, the Company did not grant any performance based options. During 2012, the Company granted 20,000 performance based options.The Company did not record compensation expenses for 96,300 performance based options that were granted during 2008 since as of December 31, 2012, the Company did not reach the performance targets and the plan was canceled. During 2012, 8,700 performance based options were forfeited.

Under the terms of the Company's plans, options generally vest ratably over a period of up to four years, commencing on the date of grant. The options expire no later than 6 years from the date of grant (under the old plans the options expired after 10 years), and are non-transferable, except under the laws of succession. Each option may be exercised to purchase one Ordinary share for an exercise price that is generally equal to the fair market value of the underlying share on the date of grant. Part of the options under the 2006 plan were granted at par value.

As of December 31, 2012, 1,196,618 Ordinary shares of the Company are still available for future grants under the various option plans.

 

NOTE 11:- SHAREHOLDERS' EQUITY (Cont.)

  d. Share options:

  F - 40

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

A summary of option activity under the Company's stock option plans as of December 31, 2012 and changes during year than ended are as follows:

The weighted-average grant-date fair value of options granted during the years ended December 31, 2010, 2011 and 2012 was $ 24.40, $ 9.20 and $ 2.90, respectively. The weighted-average fair value of the options vested during the year ended December 31, 2012 was $ 12.5. The total intrinsic value for the options exercised for the years ended December 31, 2010, 2011 and 2012 was  $ 169, $ 107 and $ 368, respectively.

As of December 31, 2012, there was approximately $ 1,089  of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's stock option plans. That cost is expected to be recognized over the next 4 years.

 

NOTE 11:- SHAREHOLDERS' EQUITY (Cont.)

    Year ended December 31, 2012  

   Amount

of options    

Weighted average

remaining contractual

term (in years)    

Weighted average exercise

price    Aggregate

intrinsic value                           

Options outstanding at beginning of year     931,333     2.95    $ 48.30    $ 1,447 Changes during the year:                            Granted     305,650           $ 6.00         Exercised     (79,002)          $ 0.03        Forfeited or cancelled     (580,985)          $ 55.60        

                             Options outstanding at end of year     576,996      3.80    $ 25.20    $ 84 

                             Options vested or expected to vest     438,882      3.34    $ 30.80    $ 68 

Options exercisable at end of year     233,878      1.74    $ 50.60     $ 15 

  F - 41

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The options outstanding as of December 31, 2012, have been separated into ranges of exercise prices, as follows:

  A summary of the status of the Company's restricted shares units and options granted at par-value as of December 31, 2012, and changes during the year ended December 31, 2012, are presented below:

The total fair value of shares vested during the years ended December 31, 2010, 2011 and 2012 was $313, $553 and $127, respectively.

In the event that cash dividends are declared in the future, such dividends will be paid in NIS. The Company's Board of Directors has determined that tax exempt income if any, will not be distributed as dividends.

 

NOTE 11:- SHAREHOLDERS' EQUITY (Cont.)

Exercise  price

(range) in $    

Options outstanding as of

December 31, 2012    

Weighted average

remaining contractual life (years)    

Weighted average exercise price in $    

Options exercisable as of

December 31, 2012    

Remaining contractual life

(years for exercisable options)    

Weighted average exercise price in $  

                                         0.03-0.3       22,970      3.95      0.3      3,970      0.72      0.03   3.8-4.0       139,100      5.65      3.9      -      -      -   6.3-9.5       138,525      5.08      7.7      21,588      3.90      9.0   11.7-17.3       25,300      4.76      13.8      2,112      4.91      12.2   19.5-27.4       106,885      2.28      21.0      65,324      1.06      21.2   33.1-39.4       62,344      2.04      36.0      59,012      2.01      36.1   63.9-95.8       45,235      1.38      80.1      45,235      1.38      80.1   108-136.5       36,637      1.59      121.9      36,637      1.59      121.9                                               

         576,996                   233,878               

Unvested restricted share units and options at par value  

Number of restricted share

units and options at par

value    

Weighted average grant date fair value  

             Non vested at January 1, 2012     107,312    $ 28.10 

               Granted     -      - Vested     (34,362)     35.60 Forfeited     (53,950)     28.90 

               Non vested at December 31, 2012     19,000    $ 14.30 

  e. Dividends:

  F - 42

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

Alvarion Ltd. has been granted status as an "Approved Enterprise" under the Law for the Encouragement of Capital Investments, 1959 ("the Investment Law").

According to the provision of the Investment Law, Alvarion Ltd. has elected the "alternative benefits" track provisions of the Investment Law, pursuant to which Alvarion Ltd. has waived its right to grants and instead receives a tax benefit on undistributed income derived from the "Approved Enterprise" program. The entitlement to tax benefits depends upon compliance with the Investment Law regulations.

In 1997, Alvarion Ltd.'s production facility in Nazareth was granted a status of "Approved Enterprise". During 2000, Alvarion Ltd.'s expansion request for its second "Approved Enterprise" regarding its production facilities in Migdal Haemek was approved. In connection with its merger with Floware Ltd. ("Floware") in 2001, Floware Ltd. was granted "Approved Enterprise" status for its 1997 plan regarding the production facility in Or-Yehuda.

The period of benefits for all plans will commence with the first year in which the Company earns taxable income after the commencement year. The duration of tax benefits is subject to limits of the earlier of 12 years from the commencement of production, or 14 years from receiving the approval. The period of benefits for all plans has not yet commenced. The limitation mentioned does not apply to the exemption periods and plans.

Alvarion Ltd.'s entitlement to the above benefits is conditional upon its fulfilling the conditions stipulated by the Investment Law, regulations published thereunder and the letters of approval for the specific investments in "Approved Enterprises". In the event of failure to comply with these conditions, any benefits which were previously granted may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest and CPI adjustments.

If these retained tax-exempt profits are distributed they would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative benefit track. As of December 31, 2012, the accumulated deficit of the Company does not include tax-exempt profits earned by the Company's "Approved Enterprise".

Income from sources other than "Approved Enterprise" during the benefit period will be subject to tax at the regular corporate tax rate.

 

NOTE 12:- TAXES ON INCOME

  a. Commencing taxable year 2003, the Company has elected to measure its taxable income and file its tax return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Accordingly, results for tax purposes are measured in terms of earnings in U.S. dollars.

  b. Tax benefits under the Law for the Encouragement of Capital Investments, 1959:

  F - 43

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

On April 1, 2005, an amendment to the Investment Law came into effect (the "Amendment") and significantly changed the provisions of the Investment Law.  Generally, the Company's investment programs that obtained approval for Approved Enterprise status prior to enactment of the Amendment will continue to be subject to the old provisions of the Investment Law.

The Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies are no longer required to get the Investment Center's prior approval to qualify for tax benefits. Such an enterprise is a "Privileged Enterprise", rather than the previous terminology of Approved Enterprise. The period of tax benefits for a new Privileged Enterprise commences in the "Year of Commencement", which is the later of: (1) the year of election, or (2) the year in which taxable income is first generated by the company after the election year.

The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Privileged Enterprise, such as the provision generally requiring that at least 25% of the Privileged Enterprise's income will be derived from export.

Under the Amendment, in 2005 and 2007, the Company announced 2004 and 2006 (respectively) as the "Election Year" and submitted an expansion request for additional "Privileged Enterprise" status regarding its production facilities. A portion of the taxable income derived from this "Privileged Enterprise" will be tax-exempt for a period of 10 years. The 10 years period of benefits will commence with the first year in which the Company earns taxable income after the election year.

The Company has no taxable income since inception and does not have any profits under the Approved/Privileged Enterprise.

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment was enacted in 2011 and became effective as of January 1, 2011. According to the amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. The Company will be able to elect to apply (the waiver is irrevocable) the amendment and from then on it will be subject to the amended tax rates that are: 2011 and 2012 - 15% (in development area A - 10%), 2013 and 2014 - 12.5% (in development area A - 7%) and in 2015 and thereafter - 12% (in development area A - 6%).

 

NOTE 12:- TAXES ON INCOME (Cont.)

  F - 44

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The Company is an "industrial company" under the above law and, as such, is entitled to certain tax benefits, mainly accelerated depreciation of machinery and equipment. For tax purposes only, the Company may also be entitled to deduct over a three-year period expenses incurred in connection with a public share offering and to amortize know-how over an eight-year period.

 

For the year ended December 31, 2010, 2011 and 2012, the main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carried forward due to the uncertainty of the realization of such tax benefits and current year adjustments to the full valuation allowance provided on the current losses.

 

As of December 31, 2012, Alvarion Ltd. and Wavion Ltd. had an available tax loss carry forward amounting to approximately  $283,122, which may be carried forward, in order to offset taxable income in the future, for an indefinite period.

As of December 31, 2012, the U.S. subsidiaries had approximately $ 41,073 in federal net operating loss carryforward for income tax purposes, which can be carried forward and offset against taxable income for 20 years and will expire between 2013 and 2032. The state tax losses carryforwards of the U.S. subsidiaries are approximately $23,759 and this balance will expire between 2013 through 2022.

The state and U.S. federal loss carry forwards per the income tax returns filed included uncertain tax positions taken in prior years.  Due to application of uncertain tax positions, they are larger than the net operating loss deferred tax asset recognized for financial statement purposes.

NOTE 12:- TAXES ON INCOME (Cont.)

  c. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

  d. Income (loss) before income tax expense:

   Year ended

December 31,      2010     2011     2012                     Domestic   $ 5,259    $ (6,776)   $ (19,497)Foreign     2,611      (3,902)     (3,520)                          $ 7,870    $ (10,678)   $ (23,017)

  e. Reconciliation of the theoretical tax expenses:

  f. Carryforward losses:

  F - 45

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the "change in ownership" provisions ("annual limitations") of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

 

Taxable income of Israeli company is subject to tax at the rate of  25% in 2010 and 24% in 2011. In December 5, 2011, the Knesset (Israel's Parliament) passed a law for changing the tax burden (the Law), which among others, cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate. The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate were also increased accordingly.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:

 

NOTE 12:- TAXES ON INCOME (Cont.)

  g. Tax rates applicable to the income of the Company:

  h. Deferred taxes:

    December 31,      2011     2012  Tax assets in respect of:            

Allowance for doubtful accounts   $ 1,361    $ 429 Accrued severance pay and accrued vacation pay     660      344 Reaserch and development expenses     4,270      2,683 Other deductions for tax purposes     1,712      1,965 Net loss carry forward     76,181      83,644 

               Total deferred tax assets     84,184      89,065                   Deferred tax liabilities:                 Acquired intangibles     (7,743)     (6,850)                  Deferred tax assets, net before valuation allowance    76,441     82,215    Valuation allowance    (76,441)    (82,215)                  Deferred tax assets   $ -    $ - 

  F - 46

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

During the years ended December 31, 2010, 2011 and 2012, the Company recorded $ 92, $ 100 and $ 59, respectively for interest and penalties expenses related to uncertain tax positions. The liability for unrecognized tax benefits included accrued interest and penalties of $ 910 and $ 671 at December 31, 2011 and 2012, respectively.

As of December 31, 2012, the entire amount of unrecognized tax benefit could affect the Company's income tax provision and the effective tax rate.

 

The total revenues are attributed to geographic areas based on the location of the Company's end customers.

 

NOTE 12:- TAXES ON INCOME (Cont.)

  i. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

    December 31,      2011     2012               

Opening balance   $ 3,363    $ 2,537 Settlement of prior year tax positions     (878)     (447)Additions for current year tax position     52      101 

               Closing balance   $ 2,537    $ 2,191 

  j. The Company and its subsidiaries file income tax returns in Israel, USA and other foreign jurisdictions. With respect to Alvarion Ltd., the Israeli Tax Authorities had never examined the Company's tax returns, nevertheless the tax returns until 2007 tax year (including 2007  tax returns) are deemed to be approved.

NOTE 13:- INFORMATION ABOUT GEOGRAPHIC AREAS AND MAJOR CUSTOMERS

  a. The Company operates in one reportable segment (see Note 1 for a brief description of the Company's business) and follows the requirements of ASC 280 "Segment Reporting".

  b. Information on sales by geographic distribution:

  F - 47

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The following table presents total revenues for the years ended December 31, 2010, 2011 and 2012:

The following table presents total long-lived assets as of December 31, 2011 and 2012:

The total long-lived assets are attributed to geographic areas based on the location of the assets.

 

 

NOTE 13:- INFORMATION ABOUT GEOGRAPHIC AREAS AND MAJOR CUSTOMERS (Cont.)

    Total revenues  

   Year ended

December 31,      2010     2011     2012                     

North America   $ 14,679    $ 16,822    $ 8,720 Europe (without Italy)     24,640      16,640      8,262 Italy     10,610      9,291      2,947 Asia  (without China)     7,466      6,230      6,949 China     3,922      7,193      11,323 Others     13,697      16,097      11,748 

                          $ 75,014    $ 72,273    $ 49,949 

    Total long-lived assets      December 31,      2011     2012               

Israel   $ 3,107    $ 2,218 Romania     1,273      948 Other     446      272 

                   $ 4,826    $ 3,438 

  c. The following is a summary of the percentages of net sales from major customers:

    % of consolidated revenue  

   Year ended

December 31,      2010     2011     2012                     

Customer A     *)     -      *)       -      16.31%Customer B     *)     -      10.3%     *)       - 

  *) Less than 10% of the Company's consolidated revenues.

  F - 48

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

 

 

 

NOTE 14:- SELECTED STATEMENTS OF OPERATIONS DATA

  a. Research and development, net:

   Year ended

December 31,      2010     2011     2012                     

Research and development costs   $ 8,440    $ 12,552    $ 14,825 Less - grants and participation     536      1,844      2,161 

                          $ 7,904    $ 10,708    $ 12,664 

  b. Financial income, net:

   Year ended

December 31,      2010     2011     2012                     

Financial income:                                     

Interest on held-to-maturity marketable securities, amortization of premium and accretion of discounts on held-to-maturity marketable securities, interest on bank deposits and other  interest   $ 1,311    $ 778    $ 878 

Income related to ineffective derivative and derivative not designated as effective hedge     1,221      709      386 Foreign currency transaction differences, net     -      -      222 

                            2,532      1,487      1,486 

Financial expenses:                     Interest and bank expenses including expense related to sale of trade receivables     (1,087)     (1,209)     (3,050)Expenses related to ineffective derivative and derivative not designated as effective hedge    (597)    (1,016)    (1,331)Foreign currency transaction differences, net    (947)    (277)    - 

                            (2,631)     (2,502)     (4,381)                          $ (99)   $ (1,015)   $ (2,895)

  F - 49

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data  

The following table sets forth the computation of basic and diluted net loss per share:

  F - 50

   

     

 

NOTE 14:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)

  c. Net loss per share:

   Year ended

December 31,      2010     2011     2012                                        

Numerator:                                     

Numerator for basic and diluted net loss per share  - continuing operations     6,976      (10,678)     (23,017)Numerator for basic and diluted net loss per share  - discontinued  operations     (105,455)     (23,144)     (32,892)

                            (98,479)     (33,822)     (55,909)                      

Denominator:                                           

Denominator for basic net loss per share - weighted average number of Ordinary shares (see Note 11)     6,219,862      6,230,187      6,260,104                       

Effect of dilutive securities:                     Employee stock options     *)        -      *)       -      *)         - 

                      Denominator for diluted net loss per share - adjusted weighted average number of shares     6,219,862      6,230,187      6,260,104 

                      Net loss per share Basic and Diluted                     Continuing operations     1.12      (1.71)     (3.68)Discontinued operations    (16.95)     (3.72)     (5.25)

                          $ (15.83)   $ (5.43)   $ (8.93)

  *)  Antidilutive.

Exhibit 1.2  

Articles of Association   of  

ALVARION LTD.

GENERAL  

 

 

1. Definition and Interpretation

1.1. The following terms in these Articles of Association shall have the respective meanings ascribed to them below:

Articles The Articles of Association of the Company, as set forth herein or as amended.

Board The Board of Directors of the Company.

Business Day Sunday to Thursday, inclusive, with the exception of holidays and officials days of rest in the State of Israel.

Companies Law The Companies Law, 1999, as may be amended from time to time.

Companies Regulations Regulations issued pursuant to the Companies Law.

Director A Director of the Company in accordance with the definition of the Companies Law.

General Meeting A general meeting of the Shareholders of the Company.

Law The provisions of any law (“din”) as defined in the Interpretation Law, 1981.

Ordinary Majority More than fifty percent (50%) of the votes of the Shareholders who are entitled to vote and who voted in a General Meeting in person, by means of a proxy or by means of a deed of vote.

Securities Shares, bonds, capital notes or securities convertible, exchangeable or exercisable into shares, and certificates conferring a right in such securities, issued by the Company.

Securities Law The Securities Law, 1968.

Securities Regulations Regulations issued pursuant to the Securities Law.

Shareholder Anyone registered as a shareholder in the Shareholder Register of the Company.

Significant Shareholder A Shareholder who holds five percent (5%) or more of the Company’s issued share capital or of the voting rights in the Company.

Special Majority A majority of at least three quarters of the votes of the Shareholders who are entitled to vote and who voted in a General Meeting, in person, by means of a proxy or by means of a deed of vote.

   

 

 

  The Company is a public company.  

  The purpose of the Company is to operate in accordance with business considerations to generate profits; provided, however, that the Company may donate reasonable amounts to worthy causes, as the Board may determine in its discretion, even if such donations are not within the framework of business considerations.  

  The Company shall engage in any lawful business.  

  The liability of the Shareholders of the Company is limited, each one up to full amount he undertook to pay for the shares of the Company allotted to him.  

SHARE CAPITAL  

 

 

 

 

 

 

1.2. Unless the subject or the context otherwise requires, each word and expression not specifically defined herein and defined in the Companies Law as in effect on the date when these Articles first became effective shall have the same meaning herein, and to the extent that no meaning is attached to it in the Companies Law, the meaning ascribed to it in the Companies Regulations, and if no meaning is ascribed thereto in the Companies Regulations, the meaning ascribed to it in the Securities Law or Securities Regulations; words and expressions importing the singular shall include the plural and vice versa; words and expressions importing the masculine gender shall include the feminine gender; and words and expressions importing persons shall include corporate entities.

1.3. The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof.

2. Public Company

3. The Purpose of the Company

4. The Objectives of the Company

5. Limited Liability

6. Share Capital

6.1. The registered share capital of the Company is One Million Two Hundred Thousand Eight Hundred New Israeli Shekels (NIS 1,200,800) divided into Twelve Million and Eight Thousand (12,008,000) Ordinary Shares of a nominal value of Ten Agoras (NIS 0.1) each.

6.2. The provisions of these Articles with respect to shares, shall also apply to other Securities issued by the Company, mutatis mutandis.

7. Increase of Share Capital

7.1. The Company may, from time to time, by a resolution of the General Meeting adopted by an Ordinary Majority, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution of the General Meeting shall provide.

7.2. Except to the extent otherwise provided in such resolution of the General Meeting, such new shares shall be subject to all the provisions applicable to the shares of the original capital.

  - 2 -

 

 

 

 

 

 

 

 

 

 

 

 

 

8. Special Rights; Modifications of Rights

8.1. Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by a resolution of the General Meeting adopted by an Ordinary Majority, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether with respect to liquidation, dividends, voting, conversion, repayment of share capital or otherwise, as may be stipulated in such resolution.

8.2. If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, by a resolution of the General Meeting adopted by an Ordinary Majority, subject to the consent in writing of the holders of more than fifty percent (50%) of the issued shares of such class or the sanction of a resolution of a separate General Meeting of the holders of the shares of such class adopted by an Ordinary Majority.

8.3. Unless otherwise provided by these Articles, the increase of the registered number of shares of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposes of this Article 8, to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.

9. Consolidation, Subdivision, Cancellation and Reduction of Share Capital

9.1. The Company may, from time to time, by a resolution of the General Meeting adopted by an Ordinary Majority (subject, however, to the provisions of Article 8.2 hereof and to the Companies Law):

  (a) Consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares;

  (b) Subdivide its shares (issued or unissued) or any of them, into shares of smaller nominal value than is fixed by these Articles (subject to the provisions of the Companies Law), and the resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares.

  (c) Cancel any shares which, at the date of the adoption of such resolution of the General Meeting, have not been alloted, so long as the Company is not under an obligation to allot these shares, and diminish the amount of its share capital by the amount of the shares so cancelled; or

  (d) Reduce its share capital in any manner, and with and subject to any incident authorized, and consent required, by Law.

9.2. With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board may settle any difficulty which may arise with regard thereto, as it deems appropriate, including, inter alia, resort to one or more of the following actions:

  (a) Determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value;

 - 3 -

 

 

 

  SHARES

 

 

 

 

 

 

 

  Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, shall be entitled to treat the holder of any share in trust as a Shareholder and to issue to him a share certificate, in condition that the trustee notify the Company of the identity of the beneficiary, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by Law, be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person.  

 

 

 

  (b) Allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

  (c) Redeem, in the case of redeemable shares, and subject to applicable Law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

  (d) Cause the transfer of fractional shares by certain Shareholders to other Shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this Article 9.2(d).

10. Issuance of Share Certificates; Replacement of Lost Certificates

10.1. The Company shall maintain a Shareholder Register and a Register of Significant Shareholders, to be administered by the corporate secretary of the Company, subject to the oversight of the Board.

10.2. Share certificates shall be issued under the seal or stamp of the Company and shall bear the signatures of one Director and the corporate secretary, or of two Directors, or of any other person or persons authorized thereto by the Board.

10.3. Each Shareholder shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if the Board so approves, to several certificates, each for one or more of such shares. Each certificate may specify the serial numbers of the shares represented thereby and may also specify the amount paid up thereon.

10.4. A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Shareholder Register in respect of such co-ownership.

10.5. If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as the Board may deem appropriate.

11. Registered Holder

12. Issuance of Shares and other Securities

12.1. The unissued shares from time to time shall be under the control of the Board, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 14 hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board may deem appropriate, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board may deem appropriate.

  - 4 -

 

 

 

  If by the terms of issuance of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share or the person(s) entitled thereto.  

 

 

 

 

 

 

 

12.2. The Board may determine to issue a series of bonds or other debt securities, as part of its authority or to take a loan on behalf of the Company, and within the limits of such authority.

12.3. The Shareholders of the Company at any given time shall not have any preemptive right or priority or any other right whatsoever with respect to the acquisition of Securities of the Company. The Board, in its sole discretion, may decide to offer Securities of the Company first to existing Shareholders or to any one or more of them.

12.4. The Company is entitled to pay a commission (including underwriting fees) to any person, in consideration for underwriting services, or the marketing or distribution of Securities of the Company, whether reserved or unreserved, as determined by the Board. Payments, as stated in this Article 12.4, may be paid in cash or in Securities of the Company, or in a combination thereof.

13. Payment in Installments

14. Calls on Shares

14.1. The Board may, from time to time, make such calls as it may deem appropriate upon Shareholders in respect of any sum unpaid in respect of shares held by such Shareholders which is not, by the terms of allotment thereof or otherwise, payable at a fixed time, and each Shareholder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed. Unless otherwise stipulated in the resolution of the Board (and in the notice referred to in Article 14.2), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made.

14.2. Notice of any call shall be given in writing to the applicable Shareholder(s) not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom and the place where such payment shall be made; provided, however, that before the time for any such payment, the Board may, by notice in writing to such Shareholder(s), revoke such call in whole or in part, extend such time, or alter such designated person and/or place. In the event of a call payable in installments, only one notice thereof need be given.

14.3. If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board and of which due notice had been given, and all the provisions herein contained with respect to calls shall apply to each such amount.

14.4. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon.

14.5. Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board may prescribe.

  - 5 -

 

  With the approval of the Board, any Shareholder may pay to the Company any amount not yet payable in respect of his shares, and the Board may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board. The Board may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 15 shall derogate from the right of the Board to make any call before or after receipt by the Company of any such advance.  

 

 

 

 

 

 

 

 

14.6. Upon the allotment of shares, the Board may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof.

15. Prepayment

16. Forfeiture and Surrender

16.1. If any Shareholder fails to pay any amount payable in respect of a call, or interest thereon as provided herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board, may at any time thereafter, so long as such amount or interest remains unpaid, forfeit all or any of the shares in respect of which such call had been made. Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call.

16.2. Upon the adoption of a resolution of forfeiture, the Board shall cause notice thereof to be given to the Shareholder whose shares are the subject of such forfeiture, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board may nullify such resolution of forfeiture, but no such nullification shall estop the Board from adopting a further resolution of forfeiture in respect of the non-payment of such amount.

16.3. Whenever shares are forfeited as herein provided, all distributions theretofore declared in respect thereof and not actually paid or distributed shall be deemed to have been forfeited at the same time.

16.4. The Company, by resolution of the Board, may accept the voluntary surrender of any share.

16.5. Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board deems appropriate.

16.6. Any Shareholder whose shares have been forfeited or surrendered shall cease to be a Shareholder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article 14.5 above, and the Board, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so. In the event of such forfeiture or surrender, the Company, by resolution of the Board, may accelerate the date(s) of payment of any or all amounts then owing by the Shareholder in question (but not yet due) in respect of all shares owned by such Shareholder, solely or jointly with another, and in respect of any other matter or transaction whatsoever.

  - 6 -

 

 

 

 

  Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board may appoint a person to execute an instrument of transfer of the shares so sold and cause the purchaser's name to be entered in the Shareholder Register in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the Shareholder Register in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.  

  The Company may, subject to applicable Law, issue redeemable shares and redeem the same.  

 

 

16.7. The Board may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it deems appropriate, but no such nullification shall estop the Board from re-exercising its powers of forfeiture pursuant to this Article 16.

17. Lien

17.1. Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each Shareholder which are not fully paid up (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not. Such lien shall extend to all distributions from time to time declared in respect of such shares.

17.2. The Board may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board may deem appropriate, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the Company’s intention to sell shall have been served on such Shareholder, his executors or administrators.

17.3. The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such Shareholder (whether or not the same have matured), or any specific part of the same (as the Board may determine), and the balance, if any, shall be paid to the Shareholder, his executors, administrators or assigns.

18. Sale after Forfeiture or Surrender or in Enforcement of Lien

19. Redeemable Shares

20.  Transfer of Shares

20.1. No transfer of shares shall be registered unless the Company receives a deed of transfer or other proper instrument of transfer (in form and substance satisfactory to the Board), together with the share certificate(s) and such other evidence of title as the Board may reasonably require. Until the transferee has been registered in the Shareholder Register in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board may, from time to time, prescribe a fee for the registration of a transfer. A deed of transfer shall be in the following form or in any substantially similar form, including any such form as is acceptable to the transfer agent for the Company’s shares, or in any form otherwise approved by the Board.

  - 7 -

  Deed of Transfer

  I, _________, (hereinafter: “The Transferor”) of  ________________, do hereby transfer, in consideration for ____________ , to ______________ (hereinafter: “The Transferee”),  ______________ share(s) NIS 0.01 par value each of BreezCOM Ltd. (hereinafter: “The Company”) to be held by the Transferee and/or his executors, administrators and assigns, subject to the same terms and conditions under which I held the same at the time of execution hereof; and I, the said Transferee, do hereby agree to take the said share(s) subject to the conditions aforesaid.   In witness whereof we hereby execute this Deed of Transfer, this ___day of  ______, 20__.  

 

 

 

 

  The Company shall not issue bearer share certificates which grant the bearer rights in the shares specified therein.

 

The Transferor          Name:_____________        Signature: __________                                                                               Witness to Signature:                Name:_____________                                                                              Signature: __________                                                                            

The Transferee Name: _________________ Signature: ______________   Witness to Signature: Name: _________________ Signature: ______________

20.2. The transfer of shares which are not fully paid, or shares on which the Company has a lien or pledge, shall have no validity unless approved by the Board, which may, in its absolute discretion and without giving any reason thereto, decline the registration of such transfer. The Board may deny a transfer of shares as aforesaid and may also impose as a condition of the transfer of shares as aforesaid an undertaking by the transferee to meet the obligations of the transferor with respect to the shares, or obligations for which the Company has a lien or pledge on the shares, signed by the transferee, together with the signature of a witness authenticating the signature of the transferee.

20.3. Upon the death of a Shareholder, the Company shall recognize the custodian or administrator of the estate or executor of the will, and in the absence of such, the lawful heirs of the Shareholder, as the only holders of the right for the shares of the deceased Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board.

20.4. The Company may recognize the receiver or liquidator of any corporate Shareholder in liquidation or dissolution, or the receiver or trustee in bankruptcy of any Shareholder, as being entitled to the shares registered in the name of such Shareholder, after receipt of evidence to the entitlement thereto, as determined by the Board.

20.5. A person acquiring a right in shares as a result of being a custodian, administrator of the estate, executor of a will or the heir of a Shareholder, or a receiver, liquidator or a trustee in a bankruptcy of a Shareholder or according to another provision of Law, is entitled, after providing evidence of his right to the satisfaction of the Board, to be registered as the Shareholder or to transfer such shares to another person, subject to the provisions of this Article 20.

21. Bearer Share Certificates

  - 8 -

  GENERAL MEETINGS

 

 

  The following matters shall require the approval of the General Meeting:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22. The Authority of the General Meeting

22.1. Matters within the authority of the General Meeting

  22.1.1. Changes in the Articles.

  22.1.2. The exercise by the General Meeting of the authority of the Board, subject to the provisions of the Companies Law, if it is resolved that the Board is incapable of exercising its authority, and that the exercise of such authority is essential to the orderly management of the Company.

  22.1.3. The appointment or reappointment of the Company’s auditor, and the termination or non-renewal of his service.

  22.1.4. The election of Directors (except as specifically set forth otherwise in these Articles), including external Directors, in accordance with Article 45.3 hereof.

  22.1.5. To the extent required by the provisions of the Companies Law, the approval of actions and transactions with interested parties and the approval of an action or a transaction of an Office Holder (as defined in Article 62).

  22.1.6. Changes in the share capital of the Company, as set forth in Articles 7, 8 and 9 hereof.

  22.1.7. A merger of the Company, as defined in the Companies Law.

  22.1.8. A liquidation of the Company.

  22.1.9. Any other matters which the Companies Law requires to be dealt with at the General Meeting of the Company, or any matters which were given to the General Meeting in these Articles.

22.2. The General Meeting shall not transfer to another organ of the Company any of its authorities detailed in Article 22.1 above.

22.3. The General Meeting, by a resolution adopted by an Ordinary Majority, may assume the authority which is given to another organ of the Company; provided however, that such taking of authorities shall be with regard to a specific issue or for a specific period of time, which period of time shall not be longer than required under the circumstances, all as stated in the resolution of the General Meeting regarding such taking of authorities.

23. Annual Meeting

23.1. An annual General Meeting shall be held once in every calendar year at such time within a period of not more than fifteen (15) months after the last preceding annual General Meeting and at such place either within or without the State of Israel as may be determined by the Board. These General Meetings shall be referred to as “Annual Meetings.”

  - 9 -

 

 

 

 

 

 

 

 

 

 

 

 

 

  The provisions of these Articles of Association with respect to General Meetings shall apply, mutatis mutandis, to meetings of the holders of a class of shares of the Company (hereinafter: “Class Meetings”); provided, however, that the requisite quorum at any such Class Meeting shall be one or more Shareholders present in person, by proxy or by deed of vote, and holding together not less than fifty percent (50%) of the issued shares of such class.  

 

 

23.2. An Annual Meeting shall be convened to discuss the following issues:

  23.2.1. The financial statements of the Company, as of the end of the fiscal year preceding the year of the Annual Meeting and the report of the Board with respect thereto.

  23.2.2. The report of the Board with respect to the fee paid to the Company’s auditor.

  23.2.3. The election of Directors in accordance with Article 45 below.

23.3. The agenda at an Annual Meeting may include the following issues, in addition to those referred to in Article 23.2:

  23.3.1. The appointment of an auditor or the renewal of his office.

  23.3.2. Any other issue which was detailed in the agenda for the Annual Meeting.

24. Extraordinary Meetings

24.1. All General Meetings other than Annual Meetings shall be referred to as "Extraordinary Meetings." An Extraordinary Meeting shall discuss and decide in all matters which are not discussed and decided in the Annual Meeting, and for which the Extraordinary Meeting was convened.

24.2. The Board may, whenever it deems appropriate, convene an Extraordinary Meeting at such time and place, within or without the State of Israel, as may be determined by the Board, and shall be obliged to do so upon the demand of one of the following:

  24.2.1. Any two Directors or a quarter of the Directors, whichever is lower; or

  24.2.2. Any one or more Shareholders, holding alone or together either (i) at least five percent (5%) of the issued share capital of the Company and at least one percent (1%) of the voting rights in the Company or (ii) at least five percent (5%) of the voting rights in the Company.

24.3. The Board, upon demand to convene an Extraordinary Meeting in accordance with Article 24.2 above, shall announce the convening of the General Meeting within twenty one (21) days from the receipt of a demand in that respect; provided, however, that the date fixed for the Extraordinary Meeting shall not be more than thirty five (35) days from the publication date of the announcement of the Extraordinary Meeting, or such other period as may be permitted by the Companies Law or Companies Regulations.

25. Class Meetings

26. Notice of General Meetings

26.1. Unless a shorter period is permitted by Law, a notice of a General Meeting shall be sent to each Shareholder of the Company registered in the Shareholder Register and entitled to attend and vote at such meeting, at least twenty one (21) days prior to the date fixed for the General Meeting. Subject to the provisions of any Law, each such notice shall specify the place, the day and hour of the meeting, the agenda of the meeting, the proposed resolution(s) or a concise description thereof, and the arrangements for voting by means of a proxy and, if applicable, a deed of vote. Anything herein to the contrary notwithstanding, with the written consent of all Shareholders entitled to vote thereon, a resolution may be proposed and passed at such meeting although a shorter notice than hereinabove prescribed has been given. A waiver by a Shareholder can also be made in writing after the fact and even after the convening of the General Meeting.

  - 10 -

 

  PROCEEDINGS AT GENERAL MEETINGS

 

 

 

 

 

 

 

 

 

26.2. Notwithstanding anything to the contrary herein, notice by the Company of a General Meeting may be effected, in addition to any means provided in these Articles, by any other means permitted by, and in accordance with the requirements of, the Companies Law or Companies Regulations.

26.3. Any accidental omission with respect to the giving of a notice of a General Meeting to any Shareholder or the non-receipt of a notice with respect to a meeting or any other notice on the part of any Shareholder shall not cause the cancellation of a resolution adopted at that meeting, or the cancellation of acts based on such notice.

27. The Agenda of General Meetings

27.1. The agenda of General Meetings shall be determined by the Board and shall also include issues for which an Extraordinary Meeting is being convened in accordance with Article  24 above, or as may be required upon the request of Shareholders in accordance with the provisions of the Companies Law.

27.2. The General Meeting shall only adopt resolutions on issues which are on its agenda.

27.3. The General Meeting is entitled to accept or reject a proposed resolution which is on the agenda of the General Meeting. Subject to applicable Law, the General Meeting may adopt a resolution which is different from the description thereof included in the notice of the General Meeting, provided that such resolution is not materially different from the proposed resolution.

28. Quorum

28.1. No business shall be transacted at a General Meeting, or at any adjournment thereof, unless a lawful quorum is present when the meeting proceeds to business.

28.2. Subject to the requirements of the Companies Law, the rules of Nasdaq National Market and any other exchange on which the Company’s securities are or may become quoted or listed, and the provisions of these Articles, any two or more Shareholders (not in default in payment of any sum referred to in Article 14 hereof), present in person or by proxy, or who have delivered to the Company a deed of vote indicating their manner of voting, and who hold or represent in the aggregate at least thirty-three and one-third percent (33 1/3%) of the voting power of the Company, shall constitute a lawful quorum at General Meetings. A Shareholder or his proxy, who also serves as a proxy for other Shareholder(s), shall be regarded as two or more Shareholders, in accordance with the number of Shareholders he is representing.

28.3. If within an hour from the time appointed for the General Meeting a quorum is not present, the meeting, if convened by the Board upon demand under Article 24.2 or, if not convened by the Board, if convened by the demanding Shareholder(s) in accordance with the provisions of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week (or the first Business Day thereafter), at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy or by deed of vote and voting on the question of adjournment. No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any two (2) Shareholders (not in default as aforesaid) present in person or by proxy or by deed of vote, shall constitute a lawful quorum.

  - 11 -

  The Chairman of the Board shall preside as Chairman at every General Meeting. If there is no such Chairman, or if the Chairman is not present within fifteen (15) minutes after the time fixed for holding such meeting or is unwilling to act as Chairman, the Shareholders present shall choose someone of their number or any other person to be Chairman. The position of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a Shareholder or proxy of a Shareholder if, in fact, he is also a Shareholder or proxy, respectively).  

 

 

 

 

 

 

29. Chairman

30. Adjourned Meeting

30.1. A General Meeting at which a lawful quorum is present (hereinafter: “The Original General Meeting”), may resolve by an Ordinary Majority to adjourn the General Meeting, from time to time, to another time and/or place (hereinafter: an “Adjourned Meeting”). In the event that a General Meeting is adjourned for twenty one (21) days or more, a notice of the Adjourned Meeting shall be given in the same manner as the notice of the Original General Meeting. With the exception of the aforesaid, a Shareholder shall not be entitled to receive a notice of an Adjourned Meeting or of the issues which are to be discussed in the Adjourned Meeting. The Adjourned Meeting shall only discuss issues that could have been discussed at the Original General Meeting, and with respect to which no resolution was adopted.

31. Adoption of Resolutions at General Meetings

31.1. All resolutions of the General Meeting, including those with respect to the matters detailed in Article 22.1, shall be adopted by an Ordinary Majority, except with respect to Article 22.1.8 which resolution shall be adopted by a Special Majority, and with respect to the amendment of this Article 31.1 or Articles 45.1, 45.3 and 47.5 each of which amendments shall be adopted by the vote of the holders of seventy five percent (75%) of the voting power represented at a General Meeting in person, by proxy or by deed of vote and voting thereon (an “Extraordinary Resolution”), or any other matter with respect to which a greater majority is required by these Articles or by the Companies Law.

31.2. Every matter submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any Shareholder present in person, by proxy or by deed of vote and entitled to vote at the meeting, the same shall be decided by such ballot. A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot. The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another Shareholder may then demand such written ballot. The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded.

31.3. A declaration by the Chairman of the meeting that a resolution has been adopted unanimously, or adopted by a particular majority, or rejected, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.

  - 12 -

 

  Subject to the provisions of Article 34.1 and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every Shareholder shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote thereon is conducted in person, by proxy or by deed of vote, by a show of hands, by written ballot or by any other means.  

 

 

 

 

 

  The Shareholders who are entitled to participate and vote at a General Meeting shall be those Shareholders who are registered in the Shareholder Register of the Company on the date determined by the Board, provided that such date not be more than twenty one (21) days, nor less than four (4) days, prior to the date of the General Meeting, except as otherwise permitted by the Companies Regulations.  

 

 

 

32. Reserved

33. Voting Power

34. Voting Rights

34.1. No Shareholder shall be entitled to vote at any General Meeting (or be counted as a part of the lawful quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid, but this Article shall not apply to Class Meetings pursuant to Article 25.

34.2. A company or other corporate entity being a Shareholder of the Company may, by resolution of its directors or any other managing body thereof, authorize any person to be its representative at any General Meeting. Any person so authorized shall be entitled to exercise on behalf of such Shareholder all the power which the latter could have exercised if it were an individual shareholder. Upon the request of the Chairman of the General Meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him.

34.3. Any Shareholder entitled to vote may vote either personally (or, if the Shareholder is a company or other corporate entity, by a representative authorized pursuant to Article 34.2) or by proxy (subject to Article 37 below), or by deed of vote in accordance with Article 40 below.

34.4. If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person, by proxy or by deed of vote, shall be accepted to the exclusion of the vote(s) of the other joint holder(s), and for this purpose seniority shall be determined by the order in which the names stand in the Shareholder Register.

35. The Determining Date with Respect to Participation and Voting

36. Personal Interest in Resolution

36.1. A Shareholder or a holder of a deed of vote or a deed of authorization of a proxy seeking to vote with respect to a resolution which requires that the majority for its adoption include at least a certain percentage of the votes of all those not having a personal interest (as defined in the Companies Law) in the resolution, shall notify the Company at least two (2) Business Days prior to the date of the General Meeting, whether or not such person has a personal interest in the resolution, as a condition for such person’s right to vote and be counted with respect to such resolution.

36.2. A Shareholder voting on a resolution, as aforesaid, by means of a deed of vote or a deed of authorization of a proxy, may include his notice with respect to his personal interest on the deed of vote or deed of authorization, as the case may be.

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  PROXIES

 

 

 

 

 

  Deed of Authorization

  To: Alvarion Ltd.   Attn: Corporate Secretary   I _____________________ of __________________________________   (Name of Shareholder)                       (Address of Shareholder)   being a registered holder of __________ Ordinary Shares having a par value of NIS 0.01 each, of Alvarion Ltd. hereby appoint   ________________________ of ____________________________                        (Name of Proxy)                                     (Address of Proxy)   as my proxy to participate and vote for me and in my stead and on my behalf at the General Meeting of the Company to be held on the _____ day of ___________, 20__ and at any adjournment(s) thereof / at any General Meeting of the Company, until I shall otherwise notify you.   Signed this ______ day of ____________, 20__.   _________________________   (Signature of Appointer)  

 

 

37. Voting by Means of a Proxy

37.1. A Shareholder registered in the Shareholder Register is entitled to appoint by deed of authorization a proxy (who is not required to be a Shareholder of the Company) to participate and vote in his stead, whether at a certain General Meeting or generally at General Meetings of the Company, whether personally or by means of a deed of vote.

37.2. In the event that the deed of authorization is not limited to a certain General Meeting, then the deed of authorization, which was deposited prior to a certain General Meeting, shall also be good for other General Meetings thereafter. This Article 37 shall also apply to a Shareholder which is a corporation, appointing a person to participate and vote in a General Meeting in its stead.

38. A Deed of Authorization

38.1. The deed of authorization of a proxy shall be in writing and shall be substantially in the form specified below, or in any usual or common form or in such other form as may be approved by the Board. It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate entity, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s).

38.2. The deed of authorization of a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its registered office or at such place as the Board may specify) not less than two (2) hours (or not less than twenty four (24) hours with respect to a  General Meeting to be held outside of Israel) before the time fixed for the meeting at which the person named in the deed of authorization proposes to vote, or presented to the Chairman at such meeting.

  - 14 -

  A vote cast pursuant to a deed of authorization of a proxy shall be valid notwithstanding the previous death, incapacity or bankruptcy, or if a company or other corporate entity, the liquidation, of the appointing Shareholder (or of his attorney-in-fact, if any, who signed such instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written notice of any such event shall have been received by the Company or by the Chairman of the General Meeting before such vote is cast and provided, further, that the appointing Shareholder, if present in person at said General Meeting, may revoke the appointment by means of a writing, oral notification to the Chairman, or otherwise.  

DEED OF VOTE  

 

 

 

 

 

 

 

 

  Subject to the provisions of applicable Law, the corporate secretary of the Company may, in his discretion, disqualify deeds of vote and deeds of authorization and so notify the Shareholder who submitted a deed of vote or deeds of authorization in the following cases:  

 

 

39. Effect of Death of Appointer or Revocation of Appointment

40. General

40.1. A Shareholder may vote in a General Meeting by means of a deed of vote on any of the following issues that shall arise in the General Meeting:

  40.1.1. All issues detailed in Article 22.1.1 through 22.1.8 above;

  40.1.2. Any other issue which the Articles provide can be voted thereon by means of a deed of vote.

  40.1.3. Any other issues which may be permitted by the Companies Law or the Companies Regulations.

40.2. The deed of vote shall be signed by the Shareholder and shall be in any form acceptable to the Board.

40.3. To the extent required by the Companies Law and Companies Regulations, the deed of vote shall be sent by the Company, at its expense, to the Shareholders of the Company who are entitled to vote in the General Meeting, together with the notice with respect to the General Meeting.

40.4. A duly executed deed of vote which was received at the registered office of the Company at least two (2) Business Days prior to the date of the General Meeting, shall constitute the participation and voting of the Shareholder who has delivered it, for each and every purpose, including for the purpose of determining the lawful quorum at a General Meeting. A deed of vote received by the Company, in accordance with this Article, with respect to a certain issue which was not voted on at the General Meeting, shall be viewed as an “abstain” with respect to the resolution to adjourn the General Meeting and, at any adjourned General Meeting, shall be counted and voted in accordance with the manner set forth therein.

41. The Disqualification of Deeds of Vote and Deeds of Authorization

41.1. If there is a reasonable suspicion that they are forged or falsified;

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  BOARD OF DIRECTORS

 

 

 

 

 

 

 

41.2. If they are not duly executed or completed;

41.3. If there is a reasonable suspicion that they are given with respect to shares for which one or more deeds of vote or deeds of authorization have been given and not withdrawn;

41.4. If more than one choice is marked for the same resolution; or

41.5. With respect to resolutions which require that the majority for their adoption include a certain percentage of those not having a personal interest in the approval of the resolution, where it was not marked, or otherwise notified to the Company, whether or not the relevant Shareholder has a personal interest.

42. Board Recommendation

42.1. The Board, and any other person upon whose lawful demand an Extraordinary Meeting is convened by the Board, may send to the Shareholders a recommendation in order to persuade them with respect to any matter specified in Article 40.1 above, which is on the agenda of such General Meeting. The recommendation shall be delivered at the expense of the Company, together with the deed of vote, if so required by Law. In the event that a General Meeting in convened with respect to any of the matters specified in Article 40.1 above, any Shareholder may submit to the Company, no later than fourteen (14) days prior to the date of the General Meeting, a request that a recommendation be delivered on his behalf to the other Shareholders, together with the form of such recommendation. Unless it is otherwise provided by Law, such recommendation shall be delivered by the Company at the expense of such Shareholder.

42.2. The Board may send to the Shareholders a recommendation in response to a recommendation delivered in accordance with the provisions of this Article, or in response to any other submission to the Shareholders. Such recommendation shall be delivered at the expense of the Company.

43. The Authority of the Board

43.1. The authority of the Board is as specified in the Companies Law and in the provisions of these Articles.

43.2. The Board may exercise any authority of the Company which is not, by the Companies Law or by these Articles, required to be exercised by another organ of the Company.

43.3. Without derogating from the generality of Articles 43.1 and 43.2 above, the Board’s authority shall include the following:

  43.3.1. The Board may, from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it deems appropriate, including, without limitation, by the issuance of bonds, perpetual or redeemable debentures or other securities, or any mortgages, charges, or other liens on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital.

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  The agenda of any meeting of the Board shall be as determined by the Chairman of the Board, and shall include the following matters:  

 

 

 

  43.3.2. The Board may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board, in its sole discretion, shall deem appropriate, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or redesignate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board may from time to time deem appropriate.

  43.3.3. Subject to the provisions of any Law, the Board may, from time to time, authorize any person to be the representative of the Company with respect to those objectives and subject to those conditions and for that time period, as the Board deems appropriate, and may also grant any such representative the authority to delegate any or all of the authorities, powers and discretion given to him by the Board.

44. Board Meetings

44.1. Convening Meetings of the Board

  44.1.1. The Chairman of the Board may convene a meeting of the Board at any time; provided that a meeting of the Board be convened at least once every three (3) months.

  44.1.2. The Chairman of the Board shall convene a meeting of the Board at any time or in any event that such meeting is required by the provisions of the Companies Law.

44.2. Notice of a Meeting of the Board

  44.2.1. Any notice with respect to a meeting of the Board may be given orally or in writing, so long as the notice is given at least seven (7) days prior to the date fixed for the meeting, unless all members of the Board or their Alternate Directors (as defined in Article  46.1.1) or their representatives agree on a shorter time period. Such notice shall be delivered personally, by mail, or transmitted via facsimile or e-mail or through another means of communication, to the address, facsimile number or to the e-mail address or to an address where messages can be delivered through other means of communication, as the case may be, as the Director informed the Company in advance.

  44.2.2. A notice with respect to a meeting of the Board shall include the venue, date and time of the meeting of the Board, the issues on its agenda and any other material that the Chairman of the Board requests to be included in the notice with respect to the meeting.

44.3. The Agenda of Board Meetings

  44.3.1. Matters for which the meeting is required to be convened in accordance with the Companies Law;

  44.3.2. Any matter requested by a Director or by the General Manager to be included in the meeting within a reasonable time (taking into account the nature of the matter) prior to the date of the meeting;

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  Unless otherwise unanimously decided by the Board, a quorum at a meeting of the Board shall be constituted by the presence of a majority of the Directors then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Board ), but shall not be less than two Directors.  

  The Board may conduct a meeting of the Board through the use of any means of communication, provided all of the participating Directors can hear each other simultaneously. A resolution approved by use of means of communications as aforesaid, shall be deemed to be a resolution lawfully adopted at a meeting of the Board.  

  Unless otherwise provided by these Articles, issues presented at meetings of the Board shall be decided upon by a majority of the votes of Directors present (or participating, in the case of a vote through a permitted means of communications) and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Board). Each Director shall have a single vote.  

  A resolution in writing signed by all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Board) or to which all such Directors have given their consent (by letter, telegram, telex, facsimile, e-mail or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board), shall be deemed to have been unanimously adopted by a meeting of the Board duly convened and held.  

 

  The Board shall consist of such number of Directors, not less than four (4) nor more than ten (10) (including the External Directors).  

 

 

 

 

 

  44.3.3. Any other matter determined by the Chairman of the Board.

44.4. Quorum

44.5. Conducting a Meeting Through Means of Communication

44.6. Voting in the Board

44.7. Written Resolution

45. The Appointment of Directors

45.1. The Number of Directors

45.2. Directors Generally

  45.2.1. Subject to the provisions of the Companies Law, a Director may hold another position in the Company.

  45.2.2. Reserved

  45.2.3. The Board shall include external Directors and independent directors (as such term is defined in the Companies Law) as may be required to comply with the requirements of the Companies Law and the rules of any securities exchange on which the securities of the Company are or may become quoted or listed.

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45.3. The Election of Directors and their Terms of Office

  45.3.1. Subject to Article 45.3.3 below, a certain number of the Directors (excluding the External Directors) shall be elected each year at the Annual General Meeting by a resolution adopted by an Ordinary Majority; provided however that External Directors shall be elected in accordance with applicable Law and/or any securities exchange rule applicable to the Company. The Directors shall commence the terms of their office from the close of the Annual Meeting at which they are elected, unless a later date is stated in the resolution with respect to their appointment, and, subject to the provisions of the Companies Law with respect to External Directors, shall serve in office until the close of the third Annual Meeting following the Annual General Meeting at which such Directors are elected, unless their office is vacated earlier in accordance with the provisions of Law or these Articles.

  45.3.2. Reserved.

  45.3.3. The General Meeting, by a resolution adopted by an Ordinary Majority, or the Board, upon approval of the majority of the Directors of the Company, may elect any person as a Director, to fill an office which became vacant, and also in any event in which the number of members of the Board is less than the minimum set in Article 45.1 above. Any Director elected in such manner shall serve in office until the coming Annual Meeting.

46. Alternate Directors

46.1. Alternate Directors

  46.1.1. Subject to the provisions of the Companies Law, any Director may, by written notice to the Company, appoint an alternate for himself (in these Articles, an "Alternate Director"), dismiss such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever, whether for a certain meeting or a certain period of time or generally. Any notice given to the Company pursuant to this Article shall be in writing, delivered to the Company and signed by the appointing or dismissing Director, and shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

  46.1.2. Anyone who is not qualified to be appointed as a Director and/or anyone serving as a Director or as an existing Alternate Director may not be appointed and may not serve as an Alternate Director.

46.2. Reserved.

46.3. Provisions with Respect to Alternate Directors

  46.3.1. An Alternate Director shall have all the authority of the Director who appointed him, provided, however, that he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board or any committee thereof while the Director who appointed him is present.

  46.3.2. The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 47, and such office shall ipso facto be vacated if the Director who appointed such Alternate Director ceases to be a Director.

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  Subject to the provisions of the Companies Law with respect to external Directors, the term of a Director shall terminate in any of the following cases:  

 

 

 

 

 

 

 

  In the event of one or more vacancies in the Board, the continuing Directors may continue to act in every matter; provided, however, that if the number of continuing Directors is less than the minimum number provided for pursuant to Article 45.1 hereof, and unless the vacancy or vacancies is filled by the Board pursuant to Article 45.3.3, they may only act for the convening of a General Meeting for the purpose of electing Director(s) to fill any or all vacancies.  

 

 

 

 

  Subject to compliance with the provisions of the Companies Law, the Company may enter into any contract or otherwise transact any business with any Director and may enter into any contract or otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.  

 

 

47. Termination of the Term of a Director

47.1. If he resigned from his office by way of a signed letter, filed with the corporate secretary at the Company’s office;

47.2. If he is declared bankrupt;

47.3. If he is declared by an appropriate court to be incapacitated;

47.4. Upon his death and, in the event of a company or other corporate entity, upon the adoption of a resolution for its voluntary liquidation or the issuance of a liquidation order;

47.5. If he is removed from his office by way of a resolution adopted by the General Meeting by an Extraordinary Resolution;

47.6. If he is convicted of a crime requiring his termination pursuant the Companies Law; or

47.7. If his term of office is terminated by the Board in accordance with the provisions of the Companies Law.

48. Continuing Directors in the Event of Vacancies

49. Compensation of Directors

49.1. Directors who do not hold other positions in the Company and who are not external Directors shall not receive any compensation from the Company, unless such compensation and its amount are approved by the General Meeting, subject to applicable Law.

49.2. The compensation of the Directors may be fixed, as an all-inclusive payment or as payment for participation in meetings or as any combination thereof.

49.3. The Company may reimburse expenses incurred by a Director in connection with the performance of his duties as a Director, to the extent provided in a resolution of the Board.

50. Personal Interest of a Director

51. Committees of the Board of Directors

51.1. Subject to the provisions of the Companies Law, the Board may delegate its authorities or any part of them to committees, as it deems appropriate, and it may from time to time cancel the delegation of any such authority. Any such committee, while utilizing an authority as stated, is obligated to fulfil all of the instructions given to it from time to time by the Board.

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51.2. Subject to the provisions of the Companies Law and the rules of any exchange on which the Company’s securities are or may become quoted or listed, each committee of the Board shall consist of at least two (2) Directors, of which at least one shall be an external Director; provided that, in addition to any other requirements of the Companies Law and the rules of any exchange on which the Company’s securities are or may become quoted or listed, the audit committee shall consist of at least three (3) Directors, the majority of which shall be independent Directors and which shall include all of the external Directors of the Company.

51.3. The provisions of these Articles with respect to meetings of the Board shall apply, mutatis mutandis, to the meetings and discussions of each committee of the Board, provided that no other terms are set by the Board in this matter, and provided that the lawful quorum for the meetings of the committee, as stated, shall be at least a majority of the members of the committee, unless otherwise required by Law.

52. Chairman of the Board

52.1. Appointment

  52.1.1. Subject to and in accordance with the provisions of the Companies Law, the Board shall choose one of its members to serve as the Chairman of the Board. Unless otherwise provided in the appointing resolution, the Chairman of the Board shall be appointed every calendar year at the first meeting of the Board held after the General Meeting in which Directors were appointed to the Company.

  52.1.2. In the event that the Chairman of the Board ceases to serve as a Director in the Company, the Board, in its first meeting held thereafter, shall appoint one of its members to serve as a new Chairman who will serve in his position for the term set in the appointment resolution, and if no period is set, until the appointment of a new Chairman, as provided in this Article.

  52.1.3. In the event that the Chairman of the Board is absent from a meeting of the Board within fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to preside at the meeting, the Board shall appoint one of the Directors present to preside at the meeting.

52.2. Authority

  52.2.1. The Chairman of the Board shall preside over meetings of the Board and shall sign the minutes of the meetings.

  52.2.2. In the event of deadlock vote, the Chairman of the Board shall not have an additional or casting vote.

  52.2.3. The Chairman of the Board is entitled, at all times, at his initiative or pursuant to a resolution of the Board, to require reports from the General Manager in matters pertaining to the business affairs of the Company.

  52.2.4. The Chairman of the Board shall not serve as the General Manager of the Company, unless he is appointed in accordance with the provisions of the Companies Law.

  52.2.5. The Chairman of the Board shall not serve as a member of the audit committee.

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  Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board, or of a committee of the Board, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there was no such defect or disqualification.  

MINUTES  

 

  OFFICERS; AUDITOR

 

 

 

 

 

 

 

 

 

 

53. Validity of Acts Despite Defects

54. Minutes

54.1. Minutes of each General Meeting and of each meeting of the Board shall be recorded and duly entered in books provided for that purpose. Such minutes shall set forth all resolutions adopted at the meeting and, with respect to minutes of Board meetings, the names of the persons present at the meeting.

54.2. Any minutes as aforesaid, if purporting to be signed by the Chairman of the meeting or by the Chairman of the next succeeding meeting, shall constitute prima facie evidence of the matters recorded therein.

55. The General Manager

55.1. The Board shall appoint a General Manager, and may appoint more than one General Manager. Subject to Article 52.2.4, the General Manager may be a Director. Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places.

55.2. The Authority of the General Manager

  55.2.1. The General Manager is responsible for the day-to-day management of the affairs of the Company within the framework of the policies set by the Board and subject to its instructions.

  55.2.2. The General Manager shall have all managerial and operational authorities which were not conferred by Law or pursuant to these Articles to any other organ of the Company, and he shall be under the supervision of the Board.

  55.2.3. In the event the Board appoints more than one General Manager, the Board may determine the respective positions and functions of the General Managers and allocate their authorities as the Board may deem appropriate.

  55.2.4. The Board may assume the authority granted to the General Manager, either with respect to a certain issue or for a certain period of time.

  55.2.5. In the event that the General Manager is unable to exercise his authority, the Board may exercise such authority in his stead, or authorize another to exercise such authority.

  55.2.6. The General Manager, with the approval of the Board, may delegate to his subordinates any of his authority.

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  The Board may appoint, in addition to the General Manager and the internal controller, other officers, define their positions and authorities, and set their compensation and terms of employment. The Board may authorize the General Manager to exercise any or all of its authorities stated in this Article.  

 

  DISTRIBUTIONS

 

  The Company may effect a distribution to its Shareholders to the extent permitted by the Companies Law. Except as permitted by the Companies Law or Companies Regulations, distribution shall not be made except from the profits of the Company legally available therefor.  

 

 

 

 

 

56. Internal Controller

56.1. The Board shall appoint an internal controller to the Company in accordance with the proposal of the audit committee and with the provisions of the Companies Law. The internal controller shall report to the Chairman of the Board, the General Manager and the Chairman of the audit committee, all to the extent required by Law.

56.2. The internal controller shall file with the Board a proposal for an annual or other periodic work plan, which shall be approved by the Board, subject to any changes it deems appropriate.

57. Other Officers of the Company

58. The Auditor

58.1. The Shareholders at the Annual Meeting shall appoint an auditor for a period until the close of the following Annual Meeting or for a period not to extend beyond the close of the third Annual Meeting following the Annual Meeting in which he was appointed. Subject to the provisions of the Companies Law, the General Meeting is entitled at any time to terminate the service of the auditor.

58.2. The Board shall fix the compensation of the auditor of the Company for his auditing activities, and shall also fix the compensation of the auditor for additional services, if any, which are not auditing activities, and, in each case, shall report thereon to the Annual Meeting.

59. General

60. Dividend and Bonus Shares

60.1. Right to Dividend or Bonus Shares

  60.1.1. A Shareholder shall be entitled to receive dividends or bonus shares, upon the resolution of the Company in accordance with Article 60.2 below, consistent with the rights attached to the shares held by such Shareholder.

  60.1.2. The Shareholders entitled to receive dividends or bonus shares shall be those who are registered in the Shareholder Register on the date of the resolution approving the distribution or allotment, or on such later date, as may be determined in such resolution.

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  The resolution of the Company with respect to the distribution of a dividend or bonus shares shall be adopted by the General Meeting by an Ordinary Majority, after presentation of the recommendation of the Board. The General Meeting may accept the Board’s recommendation or decrease the amount recommended, but may not increase it, provided in each case the distribution is permitted in accordance with the provisions of the Companies Law.  

  Upon the recommendation of the Board approved by a resolution of the General Meeting adopted by an Ordinary Majority, a dividend may be paid, in whole or in part, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or other securities of the Company or of any other companies, or in any combination thereof.  

  The Board may deduct from any distribution or other moneys payable to any Shareholder in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter or transaction whatsoever.  

 

 

 

  Any dividend or other moneys payable in cash in respect of a share may be paid by check sent by registered mail to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto as a result of the death or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may direct in writing. Every such check shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check shall be sent at the risk of the person entitled to the money represented thereby.  

  All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. The payment by the Board of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company; provided, however, that the Board may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.  

 

60.2. Resolution of the Company with Respect to a Dividend or Bonus Shares

60.3. Specific Dividend

60.4. Deductions from Dividends

60.5. Retention of Dividends

  60.5.1. The Board may retain any dividend, bonus shares or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.

  60.5.2. The Board may retain any dividend, bonus shares or other moneys payable or property distributable in respect of a share in respect of which any person is, under Article 20.5, entitled to become a Shareholder, or which any person is, under said Articles, entitled to transfer, until such person shall become a Shareholder in respect of such share or shall transfer the same.

60.6. Mechanics of Payment

60.7. An Unclaimed Dividend

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  If two or more persons are registered as joint holders of any share, or are entitled jointly thereto as a result of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend, bonus shares or other moneys payable or property distributable in respect of such share.  

  Upon the recommendation of the Board approved by a resolution of the General Meeting adopted by an Ordinary Majority, the Company may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for distribution, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed as capital among such of the Shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, or may cause any part of such capitalized fund to be applied on behalf of such Shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or other securities of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or other securities, and may cause such distribution or payment to be accepted by such Shareholders in full satisfaction of their interest in such capitalized sum.  

 

 

 

 

 

60.8. Receipt from a Joint Holder

60.9. Manner of Capitalization of Profits and the Distribution of Bonus Shares

60.10. The Board may settle, as it deems fit, any difficulty arising with regard to the distribution of bonus shares, distributions referred to in Articles 60.3 and 60.9 hereof or otherwise, and in particular, to issue certificates for fractions of shares and sell such fractions of shares in order to pay their consideration to those entitled thereto, to set the value for the distribution of certain assets and to determine that cash payments shall be paid to the Shareholders on the basis of such value, or that fractions whose value is less than NIS 0.01 shall not be taken into account. The Board may pay cash or convey these certain assets to a trustee in favor of those people who are entitled to a dividend or to a capitalized fund, as the Board shall deem appropriate.

60.11. The provisions of this chapter shall also apply to the distribution of Securities.

61. Acquisition of Shares

61.1. The Company is entitled to acquire or to finance an acquisition, directly or indirectly, of shares of the Company or securities convertible or exercisable into shares of the Company, including incurring an obligation to take any of these actions, subject to the fulfillment of the conditions of a permitted distribution under the Companies Law. In the event that the Company so acquired any of its shares, any such share shall become a dormant share, and shall not confer any rights, so long as it held by the Company.

61.2. A subsidiary or another company controlled by the Company is entitled to acquire or finance an acquisition, directly or indirectly, of shares of the Company or securities convertible or exercisable into shares of the Company, or incur an obligation with respect thereto, to the same extent that the Company may make a distribution, subject to the terms of, and in accordance with the Companies Law. In the event a subsidiary or such controlled company so acquired any of the Company’s shares, any such share shall not confer any voting rights, so long as it is held by such subsidiary or controlled company.

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  INSURANCE, INDEMNIFICATION AND RELEASE OF OFFICE HOLDERS

 

  For purposes of Articles 63, 64 and 65 below, the term “Office Holder” shall have the meaning ascribed to such term in the Companies Law.  

 

 

 

 

 

 

 

 

 

 

 

 

62. Definition

63. Insurance of Office Holders

63.1. The Company may, to the extent permitted by the Companies Law, enter into a contract for the insurance of the liability of an Office Holder of the Company, in respect of a liability imposed on him as a result of an act done by him in his capacity as an Office Holder of the Company, in any of the following:

  63.1.1. a breach of his duty of care to the Company or to another person;

  63.1.2. a breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable grounds to assume that such act would not harm the Company;

  63.1.3. a financial liability imposed on him in favor of another person; and

  63.1.4. a payment which the Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.

64. Indemnification of Office Holders

64.1. The Company may, to the extent permitted by the Companies Law, indemnify an Office Holder of the Company for liability or expense, he or she incurs, as a result of an act done by him or her in his or her capacity as an Office Holder of the Company, as follows:

  64.1.1. a financial liability imposed on him or her in favor of another person by a court judgment, including a settlement, judgment or an arbitrator's award approved by a court;

  64.1.2. reasonable costs of litigation, including attorney’s fees, expended by an Office Holder as a result of an investigation or proceeding instituted against the Office Holder by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against the Office Holder or the imposition of any financial liability in lieu of criminal proceedings, or was concluded without the filing of an indictment against the Office Holder and a financial liability was imposed on the Office Holder in lieu of criminal proceedings with respect to a criminal offense in which proof of criminal intent is not required or in connection with a financial sanction;

  64.1.3. reasonable litigation expenses, including attorneys' fees, expended by an Office Holder or charged to him or her by a court, in a proceeding filed against him or her by the Company or on its behalf or by another person, or in a criminal charge from which he or she was acquitted, or in a criminal charge of which he was convicted of a crime which does not require a finding of criminal intent; and

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  The Company may, to the extent permitted by the Companies Law, release an Office Holder of the Company, in advance, from his liability, in whole or in part, for damages resulting from the breach of his duty of care to the Company.  

  The provisions of Articles 63, 64 and 65 above are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification and/or release from liability in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, or in connection with any Office Holder to the extent that such insurance and/or indemnification and/or release from liability is permitted under the Law. Any amendment to the Companies Law, the Securities Law or any other applicable law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to this Article Error! Reference source not found. shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by the Companies Law, the Securities Law or such other applicable law.  

LIQUIDATION  

 

 

 

  64.1.4. a financial obligation imposed upon an Office Holder and reasonable litigation expenses, including attorney fees, expended by the Office Holder as a result of an administrative proceeding instituted against him. Without derogating from the generality of the foregoing, such obligation or expense will include a payment which the Office Holder is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, and expenses that the Office Holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.

64.2 The Company may indemnify an Office Holder of the Company pursuant to this Article 64 retrospectively, and may also undertake in advance to indemnify an Office Holder of the Company, provided the undertaking is limited to events which the Board believes can be anticipated at the time of such undertaking, in light of the Company’s activities as conducted at such time and is in an amount or based on criteria that the Board determines is reasonable under the circumstances and, provided, further, that such undertaking lists the events which the Board believes can be anticipated in light of the Company’s activities as conducted at such time, and the amount or based on criteria that the Board determines is reasonable under the circumstances..

65. Release of Office Holders

66. General

67. Liquidation

67.1. In the event that the Company is liquidated, whether voluntarily or otherwise, the liquidator, with the approval of a General Meeting, may make a distribution in kind to the Shareholders of all or part of the property of the Company, and he may, with the approval of the General Meeting, deposit any part of the property of the Company with trustees in favor of the Shareholders, as the liquidator with the aforementioned approval, deems appropriate.

67.2. Subject to applicable Law and to the rights of shares with special rights upon liquidation, the assets of the Company available for distribution among the Shareholders shall be distributed to them in proportion to the amount paid or credited as paid on the par value of their respective holdings of the shares in respect of which such distribution is being made.

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  ACCOUNTS

 

  The Board shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable Law. Such books of account shall be kept at the registered office of the Company, or at such other place or places as the Board may deem appropriate, and they shall always be open to inspection by all Directors. No Shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by Law or authorized by the Board or by a resolution of the General Meeting adopted by an Ordinary Majority.

  Without derogating from the requirements of any applicable Law, at least once in every fiscal year the accounts of the Company shall be audited and the accuracy of the profit and loss account and balance sheet certified by one or more duly qualified auditors.  

RIGHTS OF SIGNATURE, STAMP AND SEAL  

 

 

 

  NOTICES

 

 

 

 

68. Books of Account

69. Audit

70. Rights of Signature, Stamp and Seal

70.1. The Board shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority.

70.2. The Company shall have at least one official stamp.

70.3. The Board may provide for a seal. If the Board so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.

71. Notices

71.1. Any written notice or other document may be served by the Company upon any Shareholder either personally or by sending it by prepaid registered mail (airmail if sent to a place outside Israel) addressed to such Shareholder at his address as described in the Shareholder Register or such other address as he may have designated in writing for the receipt of notices and other documents. Any written notice or other document may be served by any Shareholder upon the Company by tendering the same in person to the corporate secretary or the General Manager of the Company at the principal office of the Company or by sending it by prepaid registered mail (airmail if posted outside Israel) to the Company at its registered office. Any such notice or other document shall be deemed to have been served two (2) Business Days after it has been posted (seven (7) Business Days if sent internationally), or when actually received by the addressee if sooner than two days or seven days, as the case may be, after it has been posted, or when actually tendered in person, to such Shareholder (or to the corporate secretary or the General Manager), provided, however, that notice may be sent by cablegram, telex, facsimile or other electronic means and confirmed by registered mail as aforesaid, and such notice shall be deemed to have been given twenty four (24) hours after such cablegram, telex, facsimile or other electronic communication has been sent or when actually received by such Shareholder (or by the Company), whichever is earlier. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article 71.1 Unless otherwise provided in these Articles, the provisions of this Article 71.1 shall also apply to written notices permitted or required to be given by the Company to any Director or by any Director to the Company.

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71.2. All notices to be given to the Shareholders shall, with respect to any share held by persons jointly, be given to whichever of such persons is named first in the Shareholder Register, and any notice so given shall be sufficient notice to the holders of such share.

71.3. Any Shareholder whose address is not described in the Shareholder Register, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.

71.4. Any Shareholder and any Director may waive his right to receive notices generally or during a specific time period and he may consent that a General Meeting of the Company or a meeting of the Board, as the case may be, shall be convened and held notwithstanding the fact that he did not receive a notice with respect thereto, or notwithstanding the fact that the notice was not received by him within the required time, in each case subject to the provisions of any Law prohibiting any such waiver or consent.

Exhibit 4.6  

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT  

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 9, 2013 (the “Effective Date”) is among (a) SILICON VALLEY BANK, a California corporation (“Bank”), and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Alvarion Ltd”), (ii) ALVARION, INC., a Delaware corporation (“Alvarion Inc”), (iii) WAVION LTD., a company organized under the laws of the State of Israel (“Wavion Ltd”), and (iv) WAVION INC., a Delaware corporation (“Wavion Inc”) (Alvarion Ltd, Alvarion Inc, Wavion Ltd and Wavion Inc are hereinafter jointly and severally, individually and collectively, referred to as “Borrower”), and provides the terms on which Bank shall lend to Borrower, and Borrower shall repay Bank.  This Agreement amends and restates the terms of that certain Loan and Security Agreement among Borrower and Bank dated as of June 21, 2011, as amended by a certain First Loan Modification Agreement dated as of November 17, 2011, among Borrower and Bank, as further amended by a certain Second Loan Modification Agreement dated as of March 21, 2012, among Borrower and Bank, as further amended by a certain Third Loan Modification Agreement dated as of April 5, 2012, among Borrower and Bank, as further amended by a certain Fourth Loan Modification and Forbearance Agreement dated as of April 25, 2012, among Borrower and Bank, as further amended by a certain Joinder and Fifth Loan Modification Agreement dated as of May 31, 2012, among Borrower and Bank, as further amended by a certain Sixth Loan Modification Agreement dated as of July 30, 2012, among Borrower and Bank, and as further amended by a certain Seventh Loan Modification Agreement dated as of September 28, 2012, among Borrower and Bank (the “Prior Loan Agreement”), in its entirety.  The parties agree as follows:  

1             ACCOUNTING AND OTHER TERMS  

Accounting terms not defined in this Agreement shall be construed following GAAP.  Calculations and determinations must be made following GAAP; provided that if at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided, further, that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder in writing by the Bank setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.  Notwithstanding the foregoing, all financial calculations (whether for pricing, covenants, or otherwise) shall be made with regard to Borrower only and not on a consolidated basis.  The term “financial statements” includes the notes and schedules.  Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13 of this Agreement.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code to the extent such terms are defined therein, and by any other applicable law.  

2             LOAN AND TERMS OF PAYMENT  

2.1          Promise to Pay.  Subject to the terms and conditions of this Agreement, Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.  

2.1.1       Revolving Advances.  

(a)           Availability.  Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount.  Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.  Notwithstanding the foregoing, Borrower and Bank acknowledge, confirm and agree that on and after the Effective Date, no new Advances shall be made based upon Eligible BWA Accounts.  

(b)           Termination; Repayment.  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.  

2.2          Overadvances.  If, at any time, the outstanding principal amount of any Advances exceeds (a) the lesser of either (i) the Revolving Line or (ii) the Borrowing Base, minus (b) any Reserves, Borrower shall, upon notice from Bank, immediately pay to Bank in cash such excess.  Borrower acknowledges and agrees that Borrower’s failure to immediately repay any amount due under this Section 2.2 shall constitute an Event of Default for which no grace period or notice requirement shall apply.    

 

2.3          Payment of Interest on the Credit Extensions.  

(a)           Interest Rate.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a fixed rate per annum rate equal to seven percent (7.0%).  

(b)           Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.  

(c)           Computation; 360-Day Year.  In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.  Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.  

(d)           Debit of Accounts.  Bank may debit Borrower’s Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due.  These debits shall not constitute a set-off.  

(e)           Interest Payment Date.  Unless otherwise provided, interest is payable monthly on the Payment Date.  

2.4          Fees.  Borrower shall pay to Bank:  

(a)           Commitment Fee.  A fully earned, non-refundable amendment and restatement fee of One Hundred Twenty Thousand Dollars ($120,000.00), on the Effective Date;  

(b)           Early Termination Fee.  The Revolving Line may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three (3) Business Days after written notice of termination is given to Bank; or (ii) by Bank at any time after the occurrence of an Event of Default, without notice, effective immediately.  If the Revolving Line is terminated (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a non-refundable termination fee in an amount equal to the Early Termination Fee.  The Early Termination Fee shall be due and payable on the effective date of such termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations; and  

(c)           Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.  

2.5          Payments. All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m. Eastern time on the date when due.  Payments of principal and/or interest received after 12:00 p.m. Eastern time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.  Bank shall apply the whole or any part of collected funds against the Obligations or credit such collected funds to a depository account of Borrower with Bank (or an account maintained by an Affiliate of Bank), the order and method of such application to be in the sole discretion of Bank.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.  Interest is payable monthly on the last calendar day of each month.  In computing interest on the Obligations, all Payments received after 12:00 p.m. Eastern time on any day shall be deemed received on the next Business Day.  In addition, Bank shall be entitled to charge Borrower a “float” charge in an amount equal to three (3) Business Days interest, at the interest rate applicable to the Advances, on all Payments received by Bank.  Said float charge is not included in interest for purposes of computing any minimum monthly interest required hereunder.  The float charge for each month shall be payable on the last day of the month.  Bank shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid.  

 

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2.6          Net Payments and Withholdings.  

(a)           All payments by Borrower shall be made subject to applicable withholding taxes under the Israeli Income Tax Ordinance and the Convention between the Government of the State of Israel and the Government of the United States of America with respect to taxes on income.  

(b)           Borrower will furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made all such withholding tax payments, and will cooperate with Bank in connection with any information and documentation reasonably required by Bank in connection with credits, exemptions, rebates, or other benefits to be obtained by Bank in connection with such withholding payments made by Borrower, which credits, exemptions, rebates, or other benefits shall be property of Bank, without payment to Borrower or application to any Obligations hereunder.  

(c)           The agreements and obligations of Borrower contained in this Section 2.6 shall survive the termination of this Agreement.  

3             CONDITIONS OF LOANS  

3.1          Conditions Precedent to Closing.  Bank’s obligation to close on the Effective Date is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:  

(a)           to the extent not previously delivered by Borrower to Bank, duly executed original signatures to the Loan Documents;  

(b)           amendments to Debentures and new Debenture as set forth in Exhibit A-2;  

(c)           amendments to IP Agreement;  

(d)           Certificate of the Chief Financial Officers of Alvarion Ltd and Wavion Ltd with respect to articles, incumbency and resolutions authorizing the execution and delivery of this Agreement;  

(e)           The Operating Documents of each of Alvarion Inc and Wavion Inc and a long form good standing certificate of each such Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;  

(f)           the completed and executed Borrowing Resolutions for each Borrower;  

(g)           certified copies, dated as of a recent date, of financing statement searches, as Bank shall reasonably request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements constitute Permitted Liens;  

(h)           evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses and collation notice to Bank (including certificates on Acord 25 and Acord 28forms and endorsements to the policies reflecting the same);  

 

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(i)            consent to charge and security interest from all applicable Israeli banks and depository institutions;  

(j)            evidence satisfactory to Bank that all filings required to have been made pursuant to each of the Debentures or any amendments to the Debentures, the other Loan Documents and any amendments thereto have been made to secure a first-ranking Lien in favor of the Bank on the Charged Property, and all other actions required to have been taken by Borrower or any other party shall have been taken and all consents and other authorizations shall have been obtained, all in accordance with the terms of the Debentures and the other Loan Documents;  

(k)           the Perfection Certificate for each Borrower, together with the duly executed original signatures thereto; and  

(l)            payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.  

3.2          Conditions Precedent to all Credit Extensions.  Bank’s obligations to make each Credit Extension following the Effective Date, is subject to the following conditions precedent:  

(a)           receipt of the closing deliverables set forth in Section 3.1 and satisfaction of all conditions precedent thereto;  

(b)           except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance Form;  

(c)           each of the representations and warranties in this Agreement and the Debentures shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement and the Debentures remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and  

(d)           in Bank’s sole discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank.  

3.3          Covenant to Deliver.  Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.  

3.4          Procedures for Borrowing.    Subject to the prior satisfaction of all other applicable conditions to the making of a Credit Extension set forth in this Agreement, to obtain a Credit Extension, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Eastern time on the Funding Date of the Credit Extension.  Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.  Bank shall credit Credit Extensions to the Designated Deposit Account.  Bank may make Credit Extensions under this Agreement based on instructions from a Responsible Officer or his or her designee.  

 

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4             CREATION OF SECURITY INTEREST    

4.1          Grant of Security Interest.  Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that expressly have superior priority to Bank’s Lien in this Agreement).  If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower.  In the event (a) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (b) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment  for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (i) one hundred five percent (105.0%) of the face amount of all such Letters of Credit denominated in Dollars and (ii) one hundred ten percent (110.0%) of the Dollar Equivalent of the face amount of all such Letters of Credit denominated in a Foreign Currency plus, in each case, all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.  

4.2          Priority of Security Interest.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim in an amount in excess of One Million Dollars ($1,000,000.00), Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.  

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash.  Upon payment in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and shall exercise and deliver any further documentation required in connection with the release of Bank’s Lien in the Collateral and all rights therein shall revert to Borrower.  

4.3          Debenture. Borrower has created, or undertakes to create, or has caused Alvarion Israel (2003) Ltd. to create, as the case may be, in favor of Bank, a first ranking floating charge over all of the present and future assets of Borrower whether now existing or hereafter created, and a first ranking fixed charge over its registered and unissued share capital, its reputation and goodwill, Accounts, intellectual property, listed under Exhibit A-1, and other fixed assets and any tax benefit it may have, in accordance with debentures of floating charge and fixed charge in the form of Debentures listed in Exhibit A-2 and attached as Exhibit F-1 through Exhibit F-8 (jointly, as amended and as may be amended from time to time, the “Debentures” and each, a “Debenture”).  In addition, Alvarion Ltd has created a first ranking fixed charge over its equity holdings in the shares of Wavion Ltd, in accordance with the form of the Deed of Pledge attached hereto as Exhibit F-9 (the “Deed of Pledge”). In addition, Borrower undertakes to create within twenty (20) days of the end of each financial quarter, a first ranking fixed charge over (i) each Account which is outstanding at such time and with respect of which Advances are or have been made, (ii) Borrower’s rights, whether then existing or thereafter created, to receive funds from all of its customers, and (iii) Borrower’s Intellectual Property, all as applicable in accordance with the respective applicable Debentures of fixed charge listed under Exhibit A-1) (or in the form of an amendment to the existing Debenture, at the Bank’s discretion; each such new and/or amended debenture shall also be included in the definition of the term “Debenture” herein.  

4.4          Security Documents. All Obligations shall be secured by any and all properties, rights and assets of Borrower granted by Borrower to Bank now, or in the future, in which Borrower obtains an interest, or the power to transfer rights, including, without limitation, the Charged Property as set forth in the Debentures, and any and all other security agreements, mortgages or other collateral granted by Borrower to Bank, now or in the future.  Borrower warrants and represents that the charges of the Debentures, upon the filing thereof, shall be first priority fixed and floating charges in the Collateral, subject only to Permitted Liens which are expressly permitted by the terms of this Agreement to have priority.  

 

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4.5          Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank.  Any such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.  

5             REPRESENTATIONS AND WARRANTIES  

Except as disclosed in the Perfection Certificate, Borrower represents and warrants to Bank as follows:  

5.1          Due Organization, Authorization; Power and Authority.  Borrower and each of its Subsidiaries are duly existing and in good standing, if applicable, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in any other jurisdiction in which the conduct of their respective business or ownership of property requires that they be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, each Borrower has delivered to Bank a completed certificate signed by such Borrower, entitled Perfection Certificate (collectively, the “Perfection Certificate”). Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.  

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.  

5.2          Collateral.  Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing obligations of the Account Debtors.  

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate.  None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.  

All Inventory is in all material respects of good and marketable quality, free from material defects.  

 

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Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate.  Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.  

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.  

5.3          Accounts Receivable.  For any Eligible Account or Eligible BWA Account in any Transaction Report, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts or Eligible BWA Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower's Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account or Eligible BWA Account.  All sales and other transactions underlying or giving rise to each Eligible Account or Eligible BWA Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts or Eligible BWA Accounts in any Transaction Report.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts or Eligible BWA Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.  

5.4          Litigation.  There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Million Dollars ($1,000,000).  

5.5          Financial Statements; Financial Condition.  All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.  

5.6          Solvency.  The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.  

5.7          Regulatory Compliance.  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.  

5.8          Subsidiaries; Investments.  Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.  

 

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5.9          Tax Returns and Payments; Pension Contributions.  Borrower has timely filed all required tax returns and reports (or extensions thereof), and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower.  Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”.  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.  

5.10        Use of Proceeds.  Borrower shall use the proceeds of the Credit Extensions as working capital  and to fund its general business requirements and not for personal, family, household or agricultural purposes.  

5.11        Full Disclosure.  No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank in connection with this Agreement, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements, in light of the circumstances in which they were made, not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).  

5.12        Definition of “Knowledge.”  For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of the Responsible Officers.  

5.13        Office of the Chief Scientist and Investment Center.  As of the Effective Date, the Borrower has received the grants, funds or benefits (including, but not limited to, tax benefits) from the Israeli Office of Chief Scientist or Investment Center, as provided in Schedule 5.13.  Borrower is not obligated to pay any royalties or any other payments to the Israeli Office of Chief Scientist or Investment Center, except as provided in Schedule 5.13.  The transactions contemplated under this Agreement, the Debenture and any other Loan Document (including the realization of the Charged Property) are not subject to any right and do not require the approval of the Israeli Office of Chief Scientists or Investment Center, except as provided in Schedule 5.13.  

5.14        BWA Asset Sale.  None of the BWA Assets proposed to be sold pursuant to the BWA Purchase Agreement are owned by Wavion Ltd or Wavion Inc or used by Wavion Ltd or Wavion Inc in any manner or in connection with either Wavion Ltd’s or Wavion Inc’s products or business, except for certain assets (not owned by Wavion Ltd or Wavion Inc.) used for the entire business of Borrower, which will be transferred to Buyer as part of the BWA Asset Sale and for which Borrower has found adequate replacements.  

5.15        Representations and Warranties.  The Bank hereby represents, warrants, and undertakes that as of the date hereof, the following representations and warranties are true and correct in all respects:  

5.15.1    Organization and Good Standing of Bank.  Bank is a corporation, limited liability company or partnership, as described on Schedule 5.15.1 attached hereto, duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and the location of its principal executive offices are indicated on Schedule 5.15.1.  

5.15.2    Authorization and Power.  Bank has the requisite power and authority to enter into and perform the Loan Documents.  The execution, delivery  and performance of the Loan Documents by the Bank and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate, limited liability company, partnership or other action, and no further consent or authorization of Bank or its Board of Directions (or similar governing body), shareholders, partners or members, as the case may be, is valid and binding obligations of Bank enforceable against Bank in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application (regardless of whether such enforceability is considered in a proceeding in equity or at law).  

 

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5.15.3     No Conflict.  The execution, delivery and performance of the Loan Documents by Bank and the consummation by Bank of the transactions contemplated thereby and hereby do not and will not (i) violate any provision of Bank’s charter or organizational documents, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or (iii) require the consent, approval, authorization or order of any court, regulatory body, administrative agency or other governmental body on the part of Bank for the execution and delivery of this Agreement or the consummation of the transaction contemplated by this Agreement, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulations, order, judgment or decree (including federal and state securities laws and regulation) applicable to Bank or by which any property or asset of Bank are bound or affected, except, in all cases, other than violations pursuant to clauses (i) or (iv) (with respect to federal and state securities laws) above, for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, materially and adversely affect Bank’s ability to perform its obligations under the Loan Documents.  

6             AFFIRMATIVE COVENANTS  

Borrower shall do all of the following:  

6.1          Government Compliance.  Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations.  Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business.  

6.2          Financial Statements, Reports, Certificates.  Deliver to Bank:  

(a)           Borrowing Base Reports.  (i) On the fifteenth (15th) and last day of each month, and (ii) upon each request for a Credit Extension: (i) aged listings of accounts receivable and accounts payable (by invoice date) and (ii) Deferred Revenue report (the “Borrowing Base Reports”);  

(b)           Transaction Reports.  (i) On the fifteenth (15th) and last day of each month, and (ii) upon each request for a Credit Extension, a Transaction Report;  

(c)           Monthly Financial Statements.  (i) As soon as available, but no later than thirty (30) days after the last day of each month (other than for a month ending on a fiscal quarter), a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank.  (ii) Notwithstanding the foregoing, for each month in which Borrower fails to satisfy the Percentage Requirement, in lieu of the financial statements required in the prior sentence, Borrower shall deliver to Bank, as soon as available, but no later than thirty (30) days after the last day of each month (other than for a month ending on a fiscal quarter), a company prepared consolidating balance sheet and income statement covering Borrower’s operations for such month certified by a Responsible Officer and in a form acceptable to Bank. The financial statements delivered pursuant to (i) or (ii) hereof (as applicable) shall be referenced herein as the “Monthly Financial Statements”;  

(d)           Monthly Compliance Certificate.  Within thirty (30) days after the last day of each month, and together with the Monthly Financial Statements (as applicable), a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;  

(e)           Other Statements.  Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;  

 

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(f)            SEC Filings.  Within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be.  Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;  

(g)           Legal Action Notice.  A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000.00) or more;  

(h)           Intellectual Property Notice.  Prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark not shown in the IP Security Agreement and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property;  

(i)            Board-Approved Projections.  As soon as available, but no later than forty (40) days after the last day of Borrower’s fiscal year, and contemporaneously with any updates or changes thereto, Board-approved projections as to the following fiscal year, in a form acceptable to Bank;  

(j)            Other Financial Information.  Other financial information reasonably requested by Bank;  

(k)           List of Accounts Receivable and Cash Balances. Within thirty (30) days after the last day of each month (i) a list setting forth the total accounts receivable for each Borrower for such monthly period, and (ii) a company prepared list of deposit accounts or securities accounts maintained by each Borrower;  

(l)            Factoring Agreement Breach Notice.  Prompt written notice of any breach or default, or any circumstances or an event that could reasonably be expected to constitute a breach or default under that certain discounting agreement executed between Alvarion Ltd and Mizrahi Tefahot Bank Ltd, dated March 29, 2012 and all ancillary documents thereto (the “MTB Agreement”); and  

(m)          Cash Reports.  In addition to and without limiting any of the other requirements in this Section 6.2, at all times until written notice to the contrary is delivered by Borrower to Bank, deliver to Bank on a daily basis a cash report (including a schedule of all collections and total cash outlays) for such day, in a form acceptable to Bank in its sole discretion.  

6.3          Inventory; Returns.  Keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date.  Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Five Hundred Thousand Dollars ($500,000.00).  

6.4          Taxes; Pensions.  Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports (or extensions thereof) and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms  

6.5          Insurance.  Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank.  The Bank confirms that the current insurance policies as of the Effective Date are acceptable to Bank, based upon the existing Collateral as of the Effective Date.  All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive subrogation against Bank and shall provide that the insurer must give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy.  All liability policies (which shall not include EPL- Employment practice liability, Auto Liability, WC- Worker’s compensation, Employer liability, Crime) shall show, or have endorsements showing, Bank as an additional insured, and all such policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.  

 

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6.6          Operating Accounts.  

(a)          Alvarion Inc and Wavion Inc shall each maintain its primary operating and depository accounts with Bank and Bank’s Affiliates. Alvarion Ltd and Wavion Ltd shall each maintain an operating account with Bank.   Alvarion Inc and Wavion Inc shall each make good faith efforts to maintain a majority of its US Dollar deposits with Bank and Bank’s Affiliates.  In addition to and without limiting the following, the amounts deposited in Alvarion Ltd’s account at Mizrahi Tefahot Bank pursuant to the MTB Agreement shall at all times be freely transferable to any other Account of Alvarion Ltd, after deduction of all amounts due to Mizrahi Tefahot Bank under the MTB Agreement.  

(b)           Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.  

6.7          Financial Covenants.  

(a)           Adjusted Quick Ratio.  Maintain an Adjusted Quick Ratio of at least (i) at all times through and including October 31, 2013, 0.50 to 1.0, and (ii) commencing on November 1, 2013, and at all times thereafter, 0.65 to 1.0, in each case to be tested as of the last day of each quarter.  

(b)           Minimum Net Profit.  Borrower’s quarterly: (i) net losses shall not exceed (A) Four Million Three Hundred Thousand Dollars ($4,300,000.00) as of the quarter ended March 31, 2013, (B) Two Million One Hundred Thousand Dollars ($2,100,000.00) as of the quarter ending June 30, 2013, and (C) Three Hundred Fifty Thousand Dollars ($350,000.00) as of the quarter ending September 30, 2013, and (ii) net profit shall be at least One Dollar ($1.00) as of the quarter ending December 31, 2013, and as of the last day of each quarter thereafter, all on a non-GAAP basis, in all cases to be tested as of the last day of each quarter.  For purposes of clarity, “net losses” and “net profits” as used in this Section 6.7(b), means EBITDA minus unfinanced capital expenditures.  

6.8          Protection and Registration of Intellectual Property Rights.  

(a)           (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.  

(b)           If Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall promptly provide written notice thereof to Bank and shall execute such intellectual property security agreements and other documents and take such other actions as Bank shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in such property.  If Borrower decides to register any Copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office.  Borrower shall provide to Bank copies of all applications that it files for Patents or for the registration of Trademarks, Copyrights or mask works, together with evidence of the recording of the intellectual property security agreement necessary for Bank to perfect and maintain a first priority perfected security interest in such property.  

 

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6.9          Litigation Cooperation.  From the Effective Date and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's Books, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.  

6.10        Access to Collateral; Books and Records.  Allow Bank, or its agents, at reasonable times, on at least five (5) Business Days’ prior written notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books.  Such inspections or audits shall be conducted when elected by Bank in its sole and absolute discretion, regardless of whether or not an Event of Default has occurred and is continuing.  The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses; provided such amount shall not exceed Five Thousand Dollars ($5,000) in the aggregate, per audit.  

6.11        Further Assurances.  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.  

6.12        Grants from the Office of the Chief Scientist.  After the occurrence and continuance of an Event of Default, Borrower shall obtain the prior written consent of Bank before receiving any additional grants, funds or benefits, or filing for an application to receive additional funding from the Office of Chief Scientist.  

6.13        Formation or Acquisition of Subsidiaries.  At the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above.  Any document, agreement, or instrument executed or issued pursuant to this Section 6.13 shall be a Loan Document.  

6.14        Wavion Ltd. Notwithstanding any to the contrary set forth in this Agreement or any other Loan Document, Borrower shall not permit or allow the merger of Wavion Ltd with or into any other Borrower or any other Person without the prior written consent of Bank, to be granted or withheld in Bank’s sole discretion.  

6.15        Accounts Receivable.  

(a)           Schedules and Documents Relating to Accounts.  Borrower shall deliver to Bank transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein.  If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts.  In addition, Borrower shall deliver to Bank, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary endorsements, and copies of all credit memos.  

 

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(b)           Disputes.  Borrower shall promptly notify Bank of all disputes or claims relating to Accounts.  

(c)           Collection of Accounts.  All payments on, and proceeds of, Accounts (other than Permitted Factoring Accounts or other Accounts with Permitted Factoring Account Debtors) shall be deposited directly by the applicable Account Debtor into a lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account agreement in form and substance satisfactory to Bank in its sole discretion.  Borrower’s failure to so direct its Account Debtors (other than with respect to Permitted Factoring Accounts or other Accounts with Permitted Factoring Account Debtors) shall constitute an Event of Default, for which no notice requirement, grace period or cure period shall apply.  Whether or not an Event of Default has occurred and is continuing, Borrower shall (i) immediately direct all payments on and proceeds of Accounts (other than Permitted Factoring Accounts or other Accounts with Permitted Factoring Account Debtors) to a “blocked account” maintained with Bank, as Bank may specify, and (ii) shall immediately transfer or cause the transfer of all payments on and proceeds of all accounts with Permitted Factoring Account Debtors other than specific Permitted Factoring Accounts held at other financial institutions to a “blocked account” maintained with Bank, as Bank may specify, in each case, to be immediately applied to the Obligations in a manner to be determined by Bank in its sole discretion.  

(d)           Returns.  Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, upon request from Bank.  In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall immediately notify Bank of the return of the Inventory.  

(e)           Verification.  Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose.  

(f)           No Liability.  Bank shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account.  Nothing herein shall, however, relieve Bank from liability for its own gross negligence or willful misconduct.  

6.16        Remittance of Proceeds.  Except as otherwise provided in Section 6.15(c) or Section 6.20, deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations as chosen by Bank.  Borrower agrees that it will maintain all proceeds of Collateral in an account maintained with Bank.  Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.  

6.17        Wavion’s Account Receivables.  

(a)           In addition to and without limiting or derogating from Section 4.3, Borrower shall also create in favor of Bank, within twenty (20) days of the end of each month (on or prior to the twentieth (20th) day of each month), a first ranking fixed charge over all Account receivables deriving from any commercial agreement or purchase orders for the purchase of Wavion Ltd’s products or services (“New Wavion Accounts”), whether executed by or issued to Wavion Ltd or executed by or issued to any Borrower or any Subsidiary of any Borrower other than Wavion Ltd.  In addition to and without limiting the foregoing, Borrower shall provide to Bank a complete listing, in form and substance acceptable to Bank, of all New Wavion Accounts, on or prior to the twentieth (20th) day of each month.  

(b)           Without derogating from the foregoing, seventy-five percent (75.0%) of all of Wavion Ltd’s Account receivables, including without limitation, such Account receivables deriving from any commercial agreement or purchase orders for the purchase of Wavion Ltd’s products or services, to the extent executed by or issued to any Borrower or any Subsidiary of any Borrower other than Wavion Ltd (“Wavion Contracts”), shall at all times be paid directly to Wavion Ltd’s or another Borrower’s accounts with Bank, whether directly or by way of assignment to Wavion Ltd, and shall be subject to the provisions of Section 6.15.  

 

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6.18        Equity Raise; Change in Financial Plan.  

(a)           Borrower shall immediately notify Bank in accordance with this Agreement of (i) any change to Borrower’s budgets, financial projections or financial plan (each, a “Change in Plan”), and (ii) Borrower’s receipt of proceeds from the issuance or sale of shares or other equity in Borrower (each, an “Equity Raise”).  

(b)           Upon the occurrence of a Change in Plan or an Equity Raise, Bank may, in its reasonable discretion, amend the financial covenants appearing in Section 6.7, solely through notice to Borrower in accordance with this Agreement.  In the event that Borrower and Bank, each acting in their sole discretion, do not agree in writing to an amendment including such revised financial covenants, set in Bank’s reasonable discretion, on or prior to the date that is ten (10) Business Days after delivery of such notice by Borrower to Bank, then, notwithstanding anything to the contrary in this Agreement, all Obligations shall immediately be due and payable in full on such date.  

6.19        Settlement of Accounts Receivable.  Without limiting Section 6.15 and Section 6.16, Borrower shall obtain the prior written consent of Bank before entering into any Discounted Account Settlement Agreement, except for Permitted Factoring.  Borrower hereby acknowledges and agrees Bank may in its sole discretion contact any Account Debtor in connection with any proposed Discounted Accounts Settlement Agreement and that Bank may direct such Account Debtor to directly pay the proceeds owing by such Account Debtor under such Discounted Account Settlement Agreement to Bank, to be applied to the Obligations in a manner to be determined by Bank in its sole discretion.  

6.20        BWA Patent Sale Agreement.  

(a)           Proceeds.  Borrower has agreed and shall continue to cause the BWA Patent Sale Proceeds to be deposited into the following account pursuant to the following instructions:  

BENEFICIARY: SILICON VALLEY BANK BENEFICIARY ADDRESS: 3003 TASMAN DRIVE, SANTA CLARA, CA 95054 BENEFICIARY ACCOUNT: 1130560 FOR FURTHER CREDIT: ALVARION, TEAM 90C. ATT: AMD CORP, FINANCE & FOREIGN CURRENCY ABA #121140399 SWIFT CODE:SVBKUS6S

  Immediately upon deposit thereof, the BWA Patent Sale Proceeds shall be disbursed by Bank as follows: (i) for any BWA Patent Sale Proceeds received prior to Bank’s receipt of any

Nortel Settlement Claims Proceeds, the initial Five Million Five Hundred Thousand Dollars ($5,500,000.00) of BWA Patent Sale Proceeds shall be deposited into a segregated account designated by Bank for Bank’s benefit to immediately repay the Obligations in a manner determined by Bank in its sole and absolute discretion (and Bank is hereby authorized to use such funds to satisfy such Obligations), (ii) after distribution of BWA Patent Sale Proceeds pursuant to Section 6.20(a)(i), the immediately following One Million Five Hundred Thousand Dollars ($1,500,000.00) of BWA Patent Sale Proceeds shall be deposited and maintained in the BWA Restricted Account (and Bank may at any time, in the sole and absolute discretion of Bank, apply any and all proceeds maintained in the BWA Restricted Account to the Obligations, in such order and in such manner as may be determined by Bank in its sole and absolute discretion), (iii) for any Tranche One BWA Patent Sale Proceeds not required to be deposited pursuant to Section 6.20(a)(i) or Section 6.20(a)(ii), to the Designated Deposit Account, (iv) with respect to any Tranche Two BWA Patent Sale Proceeds not required to be deposited pursuant to Section 6.20(a)(i) or Section 6.20(a)(ii), (A) the first One Million Five Hundred Thousand Dollars ($1,500,000.00) of such Tranche Two BWA Patent Sale Proceeds shall be deposited and maintained in the BWA Restricted Account (and Bank may at any time, in the sole and absolute discretion of Bank, apply any and all proceeds maintained in the BWA Restricted Account to the Obligations, in such order and in such manner as may be determined by Bank in its sole and absolute discretion), and (B) the remaining such Tranche Two BWA Patent Sale Proceeds shall be deposited to the Designated Deposit Account.  

 

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(b)           Financial Covenants.  (i) Within ten (10) Business Days of Borrower’s receipt of any Tranche Two BWA Patent Sale Proceeds, Borrower shall deliver or has delivered to Bank an updated financial plan of Borrower acceptable to Bank in its sole discretion, and (ii) within sixteen (16) Business Days of Borrower’s receipt of any Tranche Two BWA Patent Sale Proceeds, Borrower shall deliver or has delivered to Bank an amendment to this Agreement with new financial covenants appearing in this Section 6 (which covenants shall be determined by Bank in its sole discretion) in a form acceptable to Bank in its sole and absolute discretion.  If such an amendment is not delivered by such date, the Obligations shall be immediately due and payable as of such date.  

(c)           BWA Restricted Account.  The amount maintained by Borrower in the BWA Restricted Account shall at all times be greater than or equal to the aggregate amount required to be deposited into such account by Borrower pursuant to Section 6.20(a).  

(d)           Application of Proceeds.  Bank may at any time, in the sole and absolute discretion of Bank, and, notwithstanding anything to the contrary in this Agreement, without notice to or approval by Borrower, apply any and all proceeds maintained in the BWA Restricted Account to the Obligations, in such order and in such manner as may be determined by Bank in its sole and absolute discretion.  

(e)           Breach.  Borrower acknowledges, confirms and agrees that Borrower’s breach of this Section 6.20 in any respect shall result in an immediate Event of Default, for which no notice requirement, grace period or cure period shall apply.  

6.21        BWA Purchase Agreement.  

(a)           Proceeds.  Borrower hereby assigns, pledges and transfers all rights to BWA Business Sale Proceeds to Bank. On or prior to the BWA Sale Date, Borrower shall enter into valid fixed charge debentures with Bank, in form and substance acceptable to Bank in its sole discretion, granting Bank a first (1st) priority perfected security interest by way of pledge in any rights to the BWA Business Sale Proceeds.  Borrower shall cause all BWA Business Sale Proceeds (other than the BWA Security Checks) to be deposited into the following account pursuant to the following instructions (and, in the event that any other Alvarion Seller shall receive any BWA Business Sale Proceeds, shall cause the applicable Alvarion Seller to forthwith arrange that such proceeds shall be deposited accordingly):  

BENEFICIARY: SILICON VALLEY BANK BENEFICIARY ADDRESS: 3003 TASMAN DRIVE, SANTA CLARA, CA 95054 BENEFICIARY ACCOUNT: 1130560 FOR FURTHER CREDIT: ALVARION, TEAM 90C. ATT: AMD CORP, FINANCE & FOREIGN CURRENCY ABA #121140399 SWIFT CODE:SVBKUS6S

  In addition to and without limiting the following, Borrower shall cause all BWA Security Checks received for BWA Business Sales Proceeds to be delivered directly to Bank (or if

delivered to Borrower contrary to Borrower’s instructions, Borrower shall immediately deliver any such checks to Bank) to the following address with the following instructions:  

Mail to:  Silicon Valley Bank Attn: Branch Operations, Deposit Services, HF 105 3003 Tasman Drive Santa Clara, CA 95054-1191

Please write on the back of the check: To be deposited in account number 3300906128

Immediately upon deposit thereof, the BWA Business Sale Proceeds shall be deposited into a segregated account designated by Bank for Bank’s benefit.  Borrower shall cause each

BWA Payment to be paid to the above account in full in cash on or prior to the due date for such BWA Payment identified hereunder.  Notwithstanding the foregoing, after Borrower has made all payments required pursuant to Section 6.22, and provided no Event of Default has occurred or is continuing, Bank shall, on each BWA Payment Date, cause the amount of the BWA Payment received on such BWA Payment Date in excess of the amount due under Section 6.22 to be moved from such segregated account to the Designated Deposit Account.  

 

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(b)           Breach.  Borrower acknowledges, confirms and agrees that any of the following events shall result in an immediate Event of Default, for which no notice requirement, grace period or cure period shall apply: (i) Borrower’s breach of this Section 6.21 in any respect, (ii) the BWA Purchase Agreement is not closed on or prior to May 10, 2013, or is terminated prior to closing thereof for any reason whatsoever, (iii) Buyer does not fully and timely pay to the Alvarion Sellers any of the BWA Payments in accordance with the amounts and time schedule set forth hereunder, and (iv) there is a material breach by any of the Alvarion Sellers of the BWA Purchase Agreement.  

6.22        Mandatory Repayment Amounts.  

(a)           BWA Proceeds.  Notwithstanding anything to the contrary contained in this Agreement, and in addition to and without limiting any payment required pursuant to Section 6.22(b), Borrower shall repay in cash the aggregate outstanding Obligations as of each of the following dates as follows: (i) on the BWA Sale Date, in an amount equal to Seven Hundred Fifty Thousand Dollars ($750,000.00) (the “BWA Sale Date Mandatory Payment”), (ii) on the BWA Second Payment Date, in an amount equal to Three Hundred Thousand Dollars ($300,000.00), (iii) on the BWA Third Payment Date, in an amount equal to Three Hundred Thousand Dollars ($300,000.00), (iv) on the BWA Fourth Payment Date, in an amount equal to Two Hundred Thousand Dollars ($200,000.00), and (v) on the BWA Fifth Payment Date, in an amount equal to Two Hundred Thousand Dollars ($200,000.00).  Borrower’s failure to pay any such amount on any such date shall immediately result in an Event of Default, for which no notice requirement, grace period or cure period shall apply.  

(b)           Equity Event Proceeds.  Notwithstanding anything to the contrary contained in this Agreement, and in addition to and without limiting any payment required pursuant to Section 6.22(a), subject to the occurrence of the Equity Event, the following shall occur: (i) upon the occurrence of the Equity Event, Borrower shall repay in cash the aggregate outstanding Obligations in an amount equal to an additional One Hundred Thousand Dollars ($100,000.00) for each BWA Payment Date due prior to the occurrence of the Equity Event, and (ii) each of the amount(s) set forth in Section 6.22(a) for repayment in cash of the aggregate outstanding Obligations upon each subsequent BWA Payment Date shall increase by an additional One Hundred Thousand Dollars ($100,000.00).  Borrower’s failure to pay such amount on any such date shall immediately result in an Event of Default, for which no notice requirement, grace period or cure period shall apply.  

7             NEGATIVE COVENANTS  

Borrower shall not do any of the following without Bank’s prior written consent:  

7.1          Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (e) in connection with the non-recourse sale of receivables in an amount up to Three Million Dollars ($3,000,000.00) (for the avoidance of doubt, the face amount of any such receivable shall not exceed such amount) at any time outstanding in the aggregate, and/or in connection with sales secured by letters of credit, if any, issued in favor of Borrower on behalf of the Account Debtor that specifically supports such receivable (“Permitted Factoring”); provided such receivables may not be part of the Borrowing Base; and (f) the BWA Asset Sale, provided that such BWA Asset Sale occurs on or prior to May 10, 2013.  Upon the completion of the BWA Asset Sale in accordance with the terms of this Agreement, provided Borrower is in compliance with Section 6.21 hereof, Bank shall release its security interest in the BWA Assets (and the BWA Assets shall be released from the scope of the Israeli security documents executed by Alvarion Ltd and Alvarion 2003) and shall execute releases in the form set forth in Exhibit E hereto and file an amendment to the fixed Debentures dated as of November 3, 2011 executed by Alvarion Ltd. and Alvarion 2003.  

7.2          Changes in Business, Management, Ownership, or Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the Businesses; (b) liquidate or dissolve; (c) have a change in management and/or board composition, as applicable, such that either (i) the Key Person ceases to hold his or her current position or office with Borrower, and/or (ii) at least two (2) directors of Alvarion Ltd shall resign from their position, in each case, except as required by an investor as part of an equity financing consummated by Alvarion Ltd and provided, in connection with such requirement made by an equity investor, that the replacing Key Person is approved by the board of directors upon the Key Person’s departure from Borrower and/or that replacing directors are appointed upon said resignation of directors, as applicable; or (d)  enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).  

 

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  Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices

or business locations contain less than Three Million Dollars ($3,000,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Three Million Dollars ($3,000,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Three Million Dollars ($3,000,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.  

7.3          Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except for Permitted Acquisitions.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.  

7.4          Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.  

7.5          Encumbrance.  Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens or Permitted Factoring, or permit any Collateral not to be subject to the first priority security interest granted herein.  

7.6          Maintenance of Collateral Accounts.  Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.  

7.7          Distributions; Investments.  (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.  

7.8          Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.  

7.9          Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would adversely affect the subordination thereof to Obligations owed to Bank.  

7.10        Compliance.  Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.  

 

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8              EVENTS OF DEFAULT  

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:  

8.1          Payment Default.  Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Maturity Date).  During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);  

8.2          Covenant Default.  

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.6 6.7, 6.8(c), 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, 6.20, 6.21 or 6.22, or violates any covenant in Section 7 (provided, however, for Sections 6.2, 6.4, and 6.5, Borrower shall fail to cure such default within five (5) days); or  

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period).  Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;  

8.3          Material Adverse Change.  A Material Adverse Change occurs:  

8.4          Attachment; Levy; Restraint on Business.  

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or  

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any material part of its business;  

8.5          Insolvency  (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);  

8.6          Other Agreements.  There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in an acceleration of the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Three Million Dollars ($3,000,000.00); or (b) any default by Borrower, the result of which could reasonably be expected to have a material adverse effect on Borrower’s business provided, however, that the Event of Default under this Section 8.6 caused by the occurrence of a default under such other agreement shall be cured or waived for purposes of this Agreement upon Bank receiving written notice from the party asserting such default of such cure or waiver of the default under such other agreement, if at the time of such cure or waiver under such other agreement (x) Bank has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto; (y) any such cure or waiver does not result in an Event of Default under any other provision of this Agreement or any Loan Document; and (z) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are not modified or amended in any manner which could in the good faith judgment of Bank be materially less advantageous to Borrower;  

 

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8.7          Judgments.  One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Three Million Dollars ($3,000,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);  

8.8          Misrepresentations.  Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;  

8.9          Subordinated Debt.  Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement;  

8.10        Opinions.  Any accounting firm retained by Borrower refuses to provide to Borrower an unqualified opinion on its financial statements or provides a qualified opinion on Borrower’s financial statements, including, without limitation, a “going concern” qualification; or  

8.11        Equity Event.  The Equity Event does not occur on or prior to May 28, 2013.  

9             BANK’S RIGHTS AND REMEDIES  

9.1          Rights and Remedies.  While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:  

(a)           declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);  

(b)           stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;  

(c)           demand that Borrower (i) deposit cash with Bank in an amount equal to (i) one hundred percent (100.0%) of the aggregate face amount of all such Letters of Credit denominated in Dollars, and (ii) one hundred ten percent (110.0%) of the Dollar Equivalent of the aggregate face amount of all such Letters of Credit denominated in a Foreign Currency, remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;  

(d)           terminate any FX Forward Contracts;  

(e)           settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;  

 

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(f)            make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral.  Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates.  Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;  

(g)           apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;  

(h)           ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;  

(i)            place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;  

(j)            demand and receive possession of Borrower’s Books; and  

(k)           exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).  

9.2          Power of Attorney.  Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to:  (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.  

9.3          Protective Payments.  If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.  

9.4          Application of Payments and Proceeds Upon Default.  If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion.  Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.  

 

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9.5          Bank’s Liability for Collateral.  So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral.  

9.6          No Waiver; Remedies Cumulative.  Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all rights and remedies provided under the Code and any other applicable law, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.  

9.7          Demand Waiver.  Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable, except as mandated by law.  

9.8          Borrower Liability.  Either Borrower may, acting singly, request Credit Extensions hereunder.  Each Borrower hereby appoints the other as agent for itself for all purposes hereunder, including with respect to requesting Credit Extensions hereunder.  Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extensions, as if each Borrower hereunder directly received all Credit Extensions.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy.  Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability.   

Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise.  Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 9.8 shall be null and void.  If any payment is made to a Borrower in contravention of this Section 9.8, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.  

10           NOTICES  

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.  

 

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If to Borrower:                     Alvarion Ltd., Alvarion, Inc. Wavion Ltd. and Wavion Inc. 21a HaBarzel St. Tel Aviv, 69710, Israel Attn: Avi Stern Fax: +972-3-6456204 Email: Avi.Stern@alvarion.com

If to Bank:                              Silicon Valley Bank

275 Grove Street, Suite 2-200 Newton, Massachusetts 02466 Attn:    Ms. Naomi Herman Fax:      (617) 823-8764 Email:   NHerman@svb.com

  with a copy to:                      Riemer & Braunstein LLP

Three Center Plaza Boston, Massachusetts  02108 Attn:    David A. Ephraim, Esquire Fax:      (617) 880-3456 Email:  DEphraim@riemerlaw.com

  11           CHOICE OF LAW, VENUE, JURY TRIAL WAIVER

  Massachusetts law governs the Loan Documents (except for the Debentures, which shall be governed by Israeli law) without regard to principles of conflicts of law.  Borrower and Bank

each submit to the exclusive jurisdiction of the State and Federal courts in Massachusetts; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank.  Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided to Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.  

12           GENERAL PROVISIONS  

12.1        Successors and Assigns.  This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion).  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.  Notwithstanding the foregoing, prior to the occurrence of an Event of Default, Bank shall not assign any interest in the Loan Documents to an operating company which is a direct competitor of Borrower.  

12.2        Indemnification.  Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against:  (a) direct and actual incurred obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with Borrower entering into the transactions contemplated by the Loan Documents; and (b) direct and actual losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct, provided however that Borrower shall have no liability to Bank hereunder to the extent that the same constitute consequential damage to Bank or to the extent such damage, loss or liability of Bank directly results from Bank’s gross negligence or willful misconduct.  

 

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12.3        Time of Essence.  Time is of the essence for the performance of all Obligations in this Agreement.  

12.4        Severability of Provisions.  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.  

12.5        Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.  

12.6        Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.  

12.7        Survival.  All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.  Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements.  

12.8        Confidentiality.  In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision and that any prospective transferee or purchaser shall have entered into an agreement containing provisions substantially the same as those in this Section); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein.  Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.  

Bank Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrower.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.  

 

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12.9        Right of Set Off.   Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.  

12.10     Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.  

12.11     Captions.  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.  

12.12     Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.  

12.13     Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.  

12.14     Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.  

12.15     No Novation.  Borrower and Bank hereby agree that, effective upon the execution and delivery of this Agreement by each such party, the terms and provisions of the Prior Loan Agreement shall be and hereby are amended, restated and superseded in their entirety by the terms and provisions of this Agreement.  Nothing herein contained shall be construed as a substitution or novation of the obligations of Borrower outstanding under the Prior Loan Agreement or instruments securing the same, which obligations shall remain in full force and effect, except to the extent that the terms thereof are modified hereby or by instruments executed concurrently herewith.  Nothing expressed or implied in this Agreement shall be construed as a release or other discharge of any Borrower from any of the Obligations or any liabilities under the Prior Loan Agreement or any of the security agreements, pledge agreements, mortgages, guaranties or other Loan Documents executed in connection therewith.  Each Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date all references in any such Loan Document to the “Loan and Security Agreement”, the “Loan Agreement” the “Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Prior Loan Agreement shall mean the Prior Loan Agreement as amended and restated by this Agreement; and (ii) confirms and agrees that to the extent that the Prior Loan Agreement or any Loan Document executed in connection therewith purports to assign or pledge to the Bank, or to grant to the Bank a security interest in or lien on, any collateral as security for the Obligations of Borrower or any guarantor from time to time existing in respect of the Prior Loan Agreement, such pledge, assignment or grant of the security interest or lien is hereby ratified and confirmed in all respects and shall remain effective as of the first date it became effective.  

13           DEFINITIONS  

13.1       Definitions.  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative.  As used in this Agreement, the following capitalized terms have the following meanings:  

 

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“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.  

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.  

“Adjusted Quick Ratio” is the ratio of (a) Quick Assets to (b) Current Liabilities minus the current portion of Deferred Revenue.  

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.  

“Affiliate” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.  

“Agreement” is defined in the preamble hereof.  

“Alvarion Inc” is defined in the preamble hereof.  

“Alvarion Ltd” is defined in the preamble hereof.  

“Alvarion Sellers” is Alvarion Ltd and certain direct and indirect subsidiaries thereof, identified jointly as “Seller” under the BWA Purchase Agreement.  

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base, minus (b) the outstanding principal balance of any Advances, and minus (c) any Reserves.  

“Bank” is defined in the preamble hereof.  

“Bank Entities” is defined in Section 12.9.  

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.  

“Bank Services” are any products, credit services and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).  

“Bank Services Agreement” is defined in the definition of Bank Services appearing alphabetically in this Section 13.1.  

“Borrower” is defined in the preamble hereof.  

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.  

“Borrowing Base” is (a) prior to the date that is one (1) day prior to the BWA Sale Date, the sum of (i) eighty percent (80.0%) of Eligible Accounts, and (ii) up to sixty-five percent (65.0%) of Eligible BWA Accounts; (b) on and after the BWA Sale Date, through and including the date that is one (1) day prior to the BWA Eligibility Termination Date, the sum of (i) eighty percent (80.0%) of Eligible Accounts, and (ii) the BWA Proceeds Placeholder (as such BWA Proceeds Placeholder shall be reduced from time to time as set forth herein); and (c) on and after the BWA Eligibility Termination Date, eighty percent (80.0%) of Eligible Accounts.  The Borrowing Base in the case of each of (a) through (c) hereof shall be determined by Bank from Borrower’s most recent Transaction Report.  In addition to and without limiting the foregoing, Bank may decrease Borrowing Base in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.  The Borrowing Base shall not contain any Accounts which constitute Permitted Factoring Accounts.  

 

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“Borrowing Base Report” is defined in Section 6.2(a).  

“Business” means the telecommunications business.  

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.  

“Buyer” is Telrad Networks Ltd., an Israeli company.  

“BWA Accounts” are all Accounts relating to or arising from the BWA Business.  

“BWA Assets” is defined in the definition entitled “BWA Asset Sale” appearing alphabetically in this Section 13.1.  

“BWA Asset Sale” means the sale, conveyance, transfer, assignment and delivery by the Alvarion Sellers of all of such sellers' right, title and interest in and to certain “Transferred Assets” as specified in Exhibit D hereto (including the allocation between the applicable sellers) (the “BWA Assets”) relating to the design, development, manufacturing, sale and servicing of Broadband Wireless Access products (the “BWA Business”) pursuant to the BWA Purchase Agreement, provided that:  

(a)            the transfer of ownership of the BWA Assets to Buyer shall not occur unless (a) Borrower shall receive, concurrently therewith, a cash payment in a net amount greater than or equal to Four Hundred Eighty Four Thousand Dollars and eighty nine ($484,089.00) in accordance with Section 6.21 of this Agreement (the “Initial BWA Sale Payment”), (b) the BWA Purchase Agreement shall reflect a total purchase price (in addition to any “Earn out Payments” and “Performance Based Payments” as described  thereunder) payable by Buyer to Borrower of greater than or equal to Four Million Dollars ($4,000,000.00), payable no later than on such dates specified in the definition of BWA Payments as set forth in Section 13.1 herein, and (c) Borrower shall have caused the delivery to Bank of the BWA Security Checks from Buyer for each other BWA Payment in accordance with Section 6.21 of this Agreement on such dates specified in the definition of BWA Security Checks as set forth in Section 13.1 herein; and  

(b)           Borrower shall not incur any Indebtedness or Liens in connection with the BWA Asset Sale or the BWA Purchase Agreement.  

“BWA Business” is defined in the definition entitled “BWA Asset Sale” appearing alphabetically in this Section 13.1.  

“BWA Business Sale Proceeds” are any proceeds and/or payments due or to become due to the Alvarion Sellers under the BWA Purchase Agreement, including without limitations, the BWA Payments, or otherwise in connection with the sale of the BWA Assets or BWA Business.  

“BWA Eligibility Termination Date” is the earlier to occur of (a) the date on which the BWA Proceeds Placeholder is less than or equal to $0.00 pursuant to the definition of such term appearing alphabetically in this Section 13.1, (b) the date that is six (6) months after the BWA Sale Date, and (c) upon the occurrence of an Event of Default.  

“BWA Fifth Payment Date” is the date that is twelve (12) months after the BWA Sale Date.  

“BWA Fourth Payment Date” is the date that is nine (9) months after the BWA Sale Date.  

 

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“BWA Indebtedness” is defined in the definition of Permitted Indebtedness herein.  

 “BWA Patent Sale Agreement” shall have the meaning given such term in the Prior Loan Agreement.  

“BWA Patent Sale Proceeds” shall have the meaning given such term in the Prior Loan Agreement.  

“BWA Patents” shall have the meaning given such term in the Prior Loan Agreement.  

“BWA Payment Date” is each of (a) BWA Sale Date, (b) the BWA Second Payment Date, (c) the BWA Third Payment Date, (d) the BWA Fourth Payment Date, and (e) the BWA Fifth Payment Date.  

“BWA Payments” are the following cash payments by Buyer to the Alvarion Sellers (all of which to be directed to Alvarion Ltd in accordance with the provisions of the BWA Purchase Agreement) pursuant to the provisions of the BWA Purchase Agreement on the dates set forth below: (a) the Initial BWA Sale Payment, due on the BWA Sale Date, (b) a net payment in an amount equal to Nine Hundred Fifty Thousand Dollars ($950,000.00), due on BWA Second Payment Date, (c) a net payment in an amount equal to Eight Hundred Thousand Dollars ($800,000.00), due on the BWA Third Payment Date, (d) a net payment in an amount equal to Three Hundred Thousand Dollars ($300,000.00), due on the BWA Fourth Payment Date, and (e) a net payment in an amount equal to Six Hundred Thousand Dollars ($600,000.00), due on the BWA Fifth Payment Date.  

“BWA Proceeds Placeholder” is for the period commencing on the BWA Sale Date and continuing through and including the BWA Eligibility Termination Date: the lesser of (a) Seven Hundred Fifty Thousand Dollars ($750,000.00), and (b) an amount equal to (i) the aggregate outstanding principal balance of the Advances (as of the BWA Sale Date and assuming and subject to the payment in full of the BWA Sale Date Mandatory Payment), minus (ii) eighty percent (80.0%) of Eligible Accounts (as of the BWA Sale Date) and minus (iii) any Reserves, if applicable; provided that, notwithstanding the foregoing or anything to the contrary contained in this Agreement, on each BWA Payment Date (other than the BWA Sale Date), the BWA Proceeds Placeholder shall be reduced by an amount equal to the amount required to be repaid by Borrower pursuant to Section 6.22(a) and Section 6.22(b) hereof.  

“BWA Purchase Agreement” is that certain Asset Purchase Agreement dated February 21, 2013 by and among Alvarion Ltd and certain other Alvarion Sellers on the one hand, and Buyer, on the other hand, including all exhibits and annexes thereof, in the form attached hereto as Exhibit G, as shall be amended prior to the BWA Sale Date in a manner conforming with the provisions hereof, where applicable, and a copy of which will be provided to Bank prior to the Effective Date (which shall be acceptable to Bank in its sole and absolute discretion).  

“BWA Restricted Account” is a segregated restricted cash collateral account of Borrower maintained at Bank from which Borrower is not allowed to withdraw funds without Bank’s consent, and from which Bank may apply funds to Obligations that are currently due but not paid.  

“BWA Sale Date” is the date of the closing of the transactions contemplated under the BWA Purchase Agreement.  

“BWA Sale Date Mandatory Payment” is defined in Section 6.22(a)(i).  

“BWA Second Payment Date” is the date that is three (3) months after the BWA Sale Date.  

“BWA Security Checks” are (i) the security checks of Buyer, to be delivered at the BWA Sale Date by Buyer, to secure the payment by Buyer of the aggregate amount of Two Million and Three Hundred and Fifty Thousand Dollars ($2,350,000.00) due on BWA Second Payment Date, the BWA Third Payment Date, the BWA Fourth Payment Date, and 50% of the amount due on the BWA Fifth Payment Date, and (ii) any additional security checks, to the extent delivered by Buyer to the Alvarion Sellers following the BWA Sale Date; all in accordance with the terms and provisions as set forth under the BWA Agreement.

“BWA Third Payment Date” is the date that is six (6) months after the BWA Sale Date.  

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue.  

 

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“Cash Management Services” is defined in Section 2.1.4.  

“Change of Plan” is defined in Section 6.18(a).  

“Charged Property” is defined in the Debentures.  

“Claims” is defined in Section 12.2.  

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the Commonwealth of Massachusetts; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.  

“Collateral” is (a) any and all properties, rights and assets of Borrower described on Exhibit A, and (b) any and all properties, rights and assets granted by any Borrower to Bank or arising under Israeli law or other applicable law, now, or in the future, including, without limitation, the Charged Property.  

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.  

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.  

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit C.  

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.  

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code or any other applicable law) over such Deposit Account, Securities Account, or Commodity Account.  

“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.  

“Credit Extension” is any Advance or any other extension of credit by Bank for Borrower’s benefit.  

 

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“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.  

“Debenture” and “Debentures” are defined in Section 4.3 of the Loan and Security Agreement.  

“Default Rate” is defined in Section 2.3(b).  

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.  

“Deposit Account” is any “deposit account” as defined in the Code or any applicable law with such additions to such term as may hereafter be made.  

“Designated Deposit Account” is Borrower’s U.S. deposit account, account number XXXXXXX313., maintained with Bank.  

“Discounted Account Settlement Agreement” is any agreement or understanding between Borrower and an Account Debtor or its successor in which Borrower agrees to accept less than the full amount owing to Borrower from such Account Debtor or successor as satisfaction for the obligations of such Account Debtor.  

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.  

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.  

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.  

“Draw Period” is the period of time from the Effective Date through the earlier to occur of (a) August 31, 2011 or (b) an Event of Default.  

“Early Termination Fee” shall be an additional fee payable to Bank in an amount equal to:  

(a)           if the Revolving Line is terminated pursuant to Section 2.4(b), on or prior to June 21, 2012, the Year One Termination Amount; and  

(b)           if the Revolving Line is terminated pursuant to Section 2.4(b), after June 21, 2012, but on or prior to June 21, 2013, the Year Two Termination Amount; and  

(c)           if the Revolving Line is terminated pursuant to Section 2.4(b), after June 21, 2013, but on or prior to June 21, 2014, the Year Three Termination Amount.  

Notwithstanding anything in this Agreement to the contrary, in the event that the Revolving Line is terminated as part of the consummation of the closing of an equity round of financing resulting in at least Twenty Million Dollars ($20,000,000.00) in net cash proceeds to the Borrower, then the amount of the Early Termination Fee shall be reduced by fifty percent (50.0%).  

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expense.  

“Effective Date” is defined in the preamble hereof.  

“Eligible Accounts” means Accounts which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3.  Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment.  Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:  

 

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(a)           Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or agent;  

(b)           Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms, except for the Eligible Extended Accounts and unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;  

(c)           Accounts with credit balances over ninety (90) days from invoice date, except for the Eligible Extended Accounts and unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;  

(d)           Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date, except for the Eligible Extended Accounts which have not been paid within one hundred (180) days of invoice date;  

(e)           Accounts owing from an Account Debtor which does not have its principal place of business in the United States, State of Israel, or Western Europe, unless (i) such Accounts are otherwise Eligible Accounts and covered in full by credit insurance through the Israeli Credit Insurance Company, and otherwise satisfactory to Bank, less any deductible, or (ii) otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;  

(f)            Accounts billed and/or payable outside of the United States for Alvarion Inc and Wavion Inc or the State of Israel for Alvarion Ltd or Wavion Ltd, unless otherwise approved by Bank in writing on a case-by-case basis in its sole discretion;  

(g)           Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);  

(h)           Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;  

i)             Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;  

(j)            Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);  

(k)           Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);  

(l)            Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);  

(m)           Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;  

(n)           Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);  

 

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(o)           Accounts for which the Account Debtor has not been invoiced;  

(p)           Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;  

(q)           Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90 days, except for the Eligible Extended Accounts;  

(r)            Accounts arising from chargebacks, debit memos, or other payment deductions taken by an Account Debtor;  

(s)           Accounts arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);  

(t)           Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business;  

(u)           Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);  

(v)           Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;  

(w)           Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts represented by “refreshed” or “recycled” invoices;  

(x)           Accounts owing from an Account Debtor which is a distributor or is subject to sell-through, unless (i) such distributor is pre-approved by Bank in writing in its sole and absolute discretion on a case-by-case basis and (ii) such Account is backed by a contract and letter of credit acceptable to Bank in its sole and absolute discretion;  

(y)           all Permitted Factoring Accounts and all Exempted Accounts; and  

(z)           all BWA Accounts.  

“Eligible BWA Accounts” are BWA Accounts that are otherwise Eligible Accounts (i.e., such accounts comply with the definition of Eligible Accounts except for clause (z) thereunder).  

“Eligible Extended Accounts” are Accounts of Borrower from North America, Israel, western Europe or other territories acceptable to Bank in its sole discretion, (i) with payment terms of greater than ninety (90) but less than one hundred eighty (180) days and (ii) otherwise acceptable to Bank in its sole discretion, based upon, without limitation, Bank’s review of the contracts, agreements, payment terms and payment history relating to such accounts that Bank shall require in its sole discretion; provided that the total Advances relating thereto do not exceed One Million Five Hundred Thousand Dollars ($1,500,000.00).  

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.  

“Equity Event” is the delivery by Borrower to Bank of evidence acceptable to Bank in its sole and absolute discretion reflecting Borrower’s receipt of unrestricted and unencumbered net cash proceeds of at least Two Million Seven Hundred Thousand Dollars ($2,700,000.00) from the issuance by Borrower of new equity after the Effective Date from investors acceptable to Bank in its sole and absolute discretion.  

“Equity Raise” is defined in Section 6.18(a).  

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.  

 

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“Event of Default” is defined in Section 8.  

“Exchange Act” is the Securities Exchange Act of 1934, as amended.  

“Exempted Accounts” means any and all Xplornet Communication Inc. Accounts of Borrower, to the extent and as long as they are released by Bank from the scope of the Debentures in accordance with the provisions of that certain Consent Letter dated March 28, 2012.  

“Foreign Currency” means lawful money of a country other than the United States.  

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.  

“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.  

“FX Forward Contract” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.  

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.  

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.  

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.  

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.  

“Indemnified Person” is defined in Section 12.2.  

“Initial BWA Sale Payment” is defined in the definition entitled “BWA Asset Sale” appearing alphabetically in this Section 13.1.  

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, the Israeli Companies Ordinance 5743-1983, the Israeli Companies Law 5759-1999, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.  

“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:

(a)           its Copyrights, Trademarks and Patents;  

 

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(b)           any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;  

(c)           any and all source code;  

(d)           any and all design rights which may be available to a Borrower;  

(e)           any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and  

(f)           all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.  

“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).  

“Inventory” is all “inventory” as defined in the Code in effect on the Effective Date or any other applicable law with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.  

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.  

“IP Agreement” is collectively, (a) that certain Intellectual Property Security Agreement dated as of the Effective Date, executed and delivered by Alvarion Inc to Bank, as amended, modified or restated from time to time, (b) that certain Intellectual Property Security Agreement dated as of the Effective Date, executed and delivered by Alvarion Ltd to Bank, as amended, modified or restated from time to time, (c) that certain Intellectual Property Security Agreement dated as of May 31, 2012, executed and delivered by Wavion Ltd, as amended, modified or restated from time to time, and (d) that certain Intellectual Property Security Agreement dated as of May 31, 2012, executed and delivered by Wavion Inc, as amended, modified or restated from time to time.  

“Key Person” is Avi Stern.  

“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower.  

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.  

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, any Bank Services Agreement, the IP Agreement, the Debentures, that certain Deed of Pledge by Alvarion Ltd in favor of Bank dated as of June 21, 2012, the Borrowing Resolutions, any subordination agreements, any note, or notes or guaranties executed by Borrower, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.  

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a substantial likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.  

“Maturity Date” is the Revolving Line Maturity Date.  

 

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“Monthly Financial Statements” is defined in Section 6.2(c).  

“MTB Agreement” is defined in Section 6.2(l).  

“Net Income” means, as calculated for Borrower for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower for such period taken as a single accounting period.  

“Net Profit” means EBITDA minus unfinanced capital expenditures.  

“New Wavion Accounts” is defined in Section 6.17(a).  

“Nortel Claims Settlement Agreement” shall have the meaning given such term in the Prior Loan Agreement.  

“Nortel Settlement Claims Proceeds” shall have the meaning given such term in the Prior Loan Agreement.  

“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower’s duties under the Loan Documents.  

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.  

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.  

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.  

“Payment Date” is the last calendar day of each month.  

“Percentage Requirement” means a Responsible Officer certifies to Bank that as of the end of such month: (i) greater than eighty percent (80%) of all accounts receivable are billed and payable to Borrower, and (ii) greater than eighty percent (80%) of all unrestricted cash of Borrower and its Subsidiaries are maintained in the name of Borrower.  

“Perfection Certificate” is defined in Section 5.1.  

“Permitted Acquisitions” means any merger, acquisition, consolidation with or purchase of another Person by the Borrower (“Transactions”) where (a) no Event of Default has occurred and is continuing or would exist after giving effect to the Transactions; (b) Borrower is the surviving legal entity; (c) all assets acquired in connection with such Transactions shall be subject to a first priority Lien in the favor of Bank (subject only to Permitted Liens that are permitted to have superior priority to Bank’s Lien under this Agreement) upon the consummation of the Transactions; (d) the total consideration (inclusive of assumption of Indebtedness) for the Transactions shall not exceed Three Million Dollars ($3,000,000) in the aggregate; and (e) in the event such Transaction results in the target company continuing to operate as a separate legal entity, Borrower  shall cause such target company to provide to Bank a joinder to the Loan Agreement to cause such target company to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such target company).  

“Permitted Factoring” is defined in Section 7.1.  

 

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“Permitted Factoring Account Debtors” are Account Debtors that have Permitted Factoring Accounts.  

“Permitted Factoring Accounts” are specific Accounts which constitute Permitted Factoring.  

“Permitted Indebtedness” is:  

(a)           Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;  

(b)           Indebtedness existing on the Effective Date and shown on the Perfection Certificate;  

(c)           Subordinated Debt;  

(d)           unsecured Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business ;  

(e)           Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;  

(f)            Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;  

(g)           guaranties of Permitted Indebtedness;

(h)           Indebtedness incurred as a result of restricted cash or offset letters with respect to short term credit lines with other financial institutions for foreign exchange, letters of credit and cash management services in an amount not to exceed Three Million Dollars ($3,000,000.00), which includes, for the avoidance of any doubt, the amount of Two Hundred and Fifty Thousand Dollars ($250,000.00) deposited in Alvarion Ltd’s account in Mizrahi Tefahot Bank Ltd and charged in favor of Mizrahi Tefahot Bank Ltd in accordance with the MTB Agreement, provided that that the aggregate amount of all such credit lines with other financial institutions, excluding foreign exchange activities, Permitting Factoring and Exempted Accounts, shall not exceed Three Million Dollars ($3,000,000.00) (including, without limitation, all accounts that are sold or otherwise in connection with Permitted Factoring);  

(i)           extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (h) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be; and  

(j)           potential Indebtedness to Telrad under the BWA Purchase Agreement as a result of Telrad’s inability to sell certain inventory acquired as part of the BWA Asset Sale and the obligation of Alvarion Sellers to reacquire such inventory from Telrad pursuant to the terms of the BWA Purchase Agreement, in an aggregate amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000.00); provided that Borrower shall be prohibited from repaying all or any portion of such Indebtedness prior to the date which is eighteen (18) months from the consummation of the BWA Asset Sale (the “BWA Indebtedness”).  

“Permitted Investments” are:  

(a)           Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate and;  

(b)           Investments consisting of Cash Equivalents;  

(c)           Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;  

(d)           Investments consisting of deposit accounts in which Bank has a perfected security interest;  

(e)           Investments accepted in connection with Transfers permitted by Section 7.1;  

 

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(f)           Investments by Borrower in Subsidiaries not to exceed Three Million Dollars ($3,000,000) in the aggregate in any fiscal year;  

(g)           Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;  

(h)           Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; or  

(i)            Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (i) shall not apply to Investments of Borrower in any Subsidiary.  

“Permitted Liens” are:  

(a)           Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;  

(b)           Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;  

(c)           purchase money Liens or capital leases (i) on Equipment (other than Financed Equipment) acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment (other than Financed Equipment) when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; and  

(d)           Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;  

(e)           leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;  

(f)            non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business;  

(g)           Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7.; and  

(h)           security checks to be deposit with Telrad upon and subject to the consummation of the BWA Asset Sale, up to the amount of, and solely to secure, the BWA Indebtedness.  

 “Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.  

“Prior Loan Agreement” is defined in the preamble hereof.  

 

  - 36 -

“Quick Assets” is, on any date, Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP, excluding: (a) allowances for doubtful debt, (b) any obligations of Nortel to Borrower, (c) any Permitting Factoring Accounts, and (d) any Exempted Accounts.  

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.  

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.  

“Reserves” means, as of any date of determination, such amounts as Bank may from time to time establish and revise in good faith reducing the amount of Advances and other financial accommodations which would otherwise be available to Borrower under the lending formulas:  (a) to reflect events, conditions, contingencies or risks which, as determined by Bank in good faith, do or may affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets or business or financial condition or prospects of Borrower or any guarantor, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Bank’s good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any guarantor to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.  

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.  

“Restricted License” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.  

“Revolving Line” is an Advance or Advances in an aggregate amount equal to (a) prior to the date that is one (1) day prior to the BWA Sale Date, Fifteen Million Dollars ($15,000,000.00), and (b) on and after the BWA Sale Date (assuming and subject to payment in full of the BWA Sale Date Mandatory Payment), and at all times thereafter, Six Million Dollars ($6,000,000.00); provided, however, that, notwithstanding the foregoing or anything to the contrary contained in this Agreement, (x) in addition to and without limiting subsection (y) hereof, on each BWA Payment Date (other than the BWA Sale Date), the Revolving Line shall be reduced by an amount equal to the amount required to be repaid by Borrower pursuant to Section 6.22(a) and Section 6.22(b) hereof.  

“Revolving Line Maturity Date” is February 1, 2015.  

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.  

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.  

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms reasonably acceptable to Bank.  

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.  

 

  - 37 -

“Total Liabilities” is on any day, obligations that should, under GAAP be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, but excluding all Subordinated Debt.  

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.  

“Tranche One BWA Patent Sale Proceeds” shall have the meaning given such term in the Prior Loan Agreement.  

“Tranche Two BWA Patent Sale Proceeds” shall have the meaning given such term in the Prior Loan Agreement.  

“Transaction Report” is the Bank’s standard reporting package provided by Bank to Borrower.  

“Transfer” is defined in Section 7.1.  

“Wavion Contracts” is defined in Section 6.17(b).  

“Wavion Inc” is defined in the preamble hereof.  

“Wavion Ltd” is defined in the preamble hereof.  

“Western Europe” means the United Kingdom, Ireland, Spain, Italy, Portugal, France, Germany, Switzerland, Belgium, The Netherlands, Norway, Sweden, Finland, Poland, Greece and Denmark.  

“Year One Termination Amount” is One Hundred Fifty Thousand Dollars ($150,000.00).  

“Year Two Termination Amount” is, as of any date of determination, the amount that is 0.75% of the Revolving Line as of date of determination (provided that, notwithstanding the definition of such term set forth in Section 13.1, the amount of the Revolving Line shall not be considered reduced for purposes of this definition with respect to any BWA Payment Date if Borrower did not repay the Obligations on such BWA Payment Date as required pursuant to Section 6.22(b)).  

“Year Three Termination Amount” is, as of any date of determination, the amount that is 0.50% of the Revolving Line as of date of determination (provided that, notwithstanding the definition of such term set forth in Section 13.1, the amount of the Revolving Line shall not be considered reduced for purposes of this definition with respect to any BWA Payment Date if Borrower did not repay the Obligations on such BWA Payment Date or as required pursuant to Section 6.22(b)).  

 

  - 38 -

  IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the Effective Date.   BORROWER:   ALVARION LTD.   By_________________________________________ Name:______________________________________ Title:_______________________________________   ALVARION, INC.   By_________________________________________ Name:______________________________________ Title:_______________________________________   WAVION LTD.   By_________________________________________ Name:______________________________________ Title:_______________________________________   WAVION INC.   By_________________________________________ Name:______________________________________ Title:_______________________________________   BANKSILICON VALLEY BANK   By_________________________________________ Name:______________________________________ Title:_______________________________________  

The undersigned, Alvarion Israel (2003) Ltd., a company organized under the laws of the State of Israel, hereby (a) ratifies, confirms, and reaffirms, all an singular, the terms and conditions of (i) the Secured Guarantee dated as of June 21, 2011 (the “Guarantee”), (ii) that certain Intellectual Property Security Agreement dated as of June 21, 2011, between Alvarion Israel (2003) Ltd. and Bank (as amended, modified or restated from time to time, the “Alvarion 2003 IP Agreement”), and (iii) that certain Fixed Charge Debenture dated as of November 3, 2011 (as amended, modified or restated from time to time, the “Alvarion 2003 Debenture”); (b) acknowledges, confirms and agrees that the Guarantee, the Alvarion 2003 IP Agreement and the Alvarion 2003 Debenture shall remain in full force and effect and shall in no way be limited by the execution of this Agreement or any other documents, instruments and/or agreements executed and/or delivered in connection herewith; and (c) acknowledges, confirms and agrees that the Obligations of Borrower to Bank under the Guarantee include, without limitation, all Obligations of Borrower to Bank under this Agreement.  

ALVARION ISRAEL (2003) LTD.  

By:____________________________________                                                                                                 Name:__________________________________                                                                                                 Title:___________________________________

 

 

  - 39 -

EXHIBIT A – COLLATERAL DESCRIPTION

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:  

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and  

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.  

In addition to and without limiting the foregoing, the Collateral shall include (A)(i) any and all claims by Borrower against Nortel Networks Limited and/or Nortel Networks Technology Corporation (jointly, and including any other entity affiliated with or relating to any of the foregoing, the “Nortel Entities”), including, without limitation, under Ontario Court of Justice commercial list, in the manner of the Companies’ Creditors Arrangement Act, R.S.C., 1985 c. C-36, as amended, Court File No. 09-CL-7950, as well as all rights of Borrower under the Nortel Claims Settlement Agreement, (ii) any proceeds received or to be received by Borrower or any Subsidiary in connection with, or as a result of, amounts owed or to become owed to them (the “Owed Amounts”) by any Nortel Entity, including without limitations under any claim settlement agreement (including, without limitation, the Nortel Claims Settlement Agreement, to be executed with any Nortel Entities and/or any monitor and/or other officer of or acting for any Nortel Entities, whether received by Borrower or any of its Subsidiaries from or on behalf of any Nortel Entity and/or from any third party as a result of selling, assigning, factoring or making any other disposition in such Owed Amounts, and any such disposition subject to the provisions of this Agreement, and (iii) all rights, claims and remedies of the Borrower under contract or any applicable law, against any Nortel Entity or anyone acting on its behalf, including without limitation, any monitor and/or other officer of or acting for any Nortel Entity, and (B) the BWA Payments or otherwise received for BWA Business Sales Proceeds.  

 

   

EXHIBIT A-1

[Attached hereto]

 

 

   

EXHIBIT A-2

List of Israeli Security Documents

 

 

 

 

 

 

 

 

 

 

  1. Fixed Charge Debenture created by Alvarion Israel (2003) Ltd. on November 03, 2011 (to be amended in connection with the Agreement);

  2. Floating Charge Debenture created by Alvarion Ltd. on November 03, 2011 (to be amended in connection with the Agreement);

  3. Fixed Charge Debenture created by Alvarion Ltd. on November 03, 2011 (as amended on June 12, 2012, as further amended on July 07, 2012, and to be amended in connection with the Agreement);

  4. Fixed Charge Debenture created by Alvarion Ltd. on June 12, 2012 (to be amended in connection with the Agreement);

  5. Fixed Charge Debenture created by Alvarion Ltd. on July 30, 2012 (as amended on October 18, 2012);

  6. Pledge Agreement  by and between Alvarion Ltd. and Silicon Valley Bank, dated as of June 21, 2012;

  7. Floating Charge Debenture created by Wavion Ltd. on June 12, 2012;

  8. Fixed Charge Debenture created by Wavion Ltd. on June 12, 2012 (as amended on July 07, 2012 and to be amended in connection with the Agreement).

  9. Fixed Charge created by Alvarion Ltd. on May 9, 2013 (pledge of BWA Proceeds).

   

EXHIBIT B – LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS NOON EASTERN TIME*  

 

 

   

∗ Unless otherwise provided for an Advance bearing interest at LIBOR.

 

Fax To:     Date: _____________________

       

LOAN PAYMENT:  

   

ALVARION LTD. ALVARION, INC. WAVION LTD. WAVION, INC.

       

From Account #________________________________  

                                            (Deposit Account #)  To Account #__________________________________________

                                                       (Loan Account #)

Principal $____________________________________  and/or Interest $______________________________________

   

Authorized Signature: ____________________________________  Phone Number:____________________________________ 

Print Name/Title: ____________________________________   

   

LOAN ADVANCE:  

 

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

   

From Account #________________________________ To Account #__________________________________________

                                          (Loan Account #)                                                         (Deposit Account #)

   

Amount of Advance $___________________________

   

All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

     

Authorized Signature: ____________________________________  Phone Number:____________________________________ 

Print Name/Title: ____________________________________   

       

OUTGOING WIRE REQUEST:  

Complete only if all or a portion of funds from the loan advance above is to be wired.  

Deadline for same day processing is noon, Eastern Time  

  Amount of Wire: $____________________________     

Beneficiary Name: ____________________________      Account Number:____________________________         

Beneficiary Bank: ______________________________    

City and State:  ______________________________    

   

Beneficiary Bank Transit (ABA) #: ____________________________          Beneficiary Bank Code (Swift, Sort, Chip, etc.): ___________________________

              (For International Wire Only)

   

Intermediary Bank:___________________________          Transit (ABA) #: ___________________________

For Further Credit to: ___________________________           

 

Special Instruction: ______________________________________________________________________________________________________________________

 

   

   

 

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

   

Authorized Signature: ___________________________         2nd Signature (if required): _______________________________________

   

Print Name/Title: ______________________________   Print Name/Title: ______________________________________ 

Telephone #: _______________________________________ Telephone #:_______________________________________

       

 B - 2

                                                                                                EXHIBIT C

COMPLIANCE CERTIFICATE

   

  The undersigned authorized officer of Alvarion Ltd., Alvarion, Inc. Wavion Inc. and Wavion Ltd. (collectively, the “Borrower”) certifies that under the terms and conditions of the

Amended and Restated Loan and Security Agreement between Borrower and Bank (the “Agreement”):  

(1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.  

 

TO:          SILICON VALLEY BANK  Date:_________________________    FROM:   ALVARION LTD., ALVARION, INC., WAVION INC. AND WAVION LTD.  

Reporting Covenant Required Complies

     

Monthly financial statements with Compliance Certificate

Monthly within 30 days Yes   No

20-F and 6-K Within 5 days after filing with SEC Yes   No

Transaction Report, A/R & A/P Agings, and Deferred Revenue report

15th and Last Day of each Month and upon each Credit Extension request

Yes   No

listing of New Wavion Accounts

Monthly within 20 days (when an Advance is outstanding or an Advance request has been made)

Yes   No

Board approved projections Within 40 days of FYE Yes   No

Change to Financial Plan Notice shall immediately be given to Bank Yes   No

Equity Raise Notice shall immediately be given to Bank Yes  No

 

The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”) ___________________________________________________________________________________________ ___________________________________________________________________________________________  

   

 

*As set forth in Section 6.7(a) of the Agreement. **As set forth in Section 6.7(b) of the Agreement. For the period ending _______________, were (i) greater than eighty percent (80%) of all accounts receivable are billed and payable to Borrower, and (ii) greater than eighty percent (80%) of all unrestricted cash of Borrower and its Subsidiaries are maintained in the name of Borrower? Yes _____                           No: _____

If, no, please explain under exceptions section below.

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”) ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------  

 

 

Financial Covenant Required Actual Complies

       

       

Minimum Adjusted Quick Ratio (Monthly) ___:___* _____:1.0 Yes   No

Minimum Net Profit (Quarterly) $           ** $ Yes   No

  Alvarion Ltd.   By: ______________________________                                                       Name:  ______________________________                                                      Title:  ______________________________                                                        Alvarion, Inc.   By:  _________________________________ Name:  ______________________________ Title: _______________________________   Wavion Ltd.   By:  _________________________________ Name:  ______________________________ Title: _______________________________   Wavion Inc.   By:  _________________________________ Name:  ______________________________ Title: _______________________________  

BANK USE ONLY   Received by: _____________________                                 AUTHORIZED SIGNER Date:                    _________________________   Verified: ________________________                              AUTHORIZED SIGNER Date:                    _________________________   Compliance Status:   Yes     No

  C - 2

  Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:           ____________________

  Required:                      (i) at all times through and including October 31, 2013, 0.50 to 1.0, and (ii) commencing on November 1, 2013, and at all times thereafter, 0.65 to 1.0 Actual:

Is line I equal to or greater than the applicable amount above?  

 

 

I.  Adjusted Quick Ratio (Section 6.7(a))

A. Aggregate value of Borrower’s unrestricted cash  

$             

B. Aggregate value of Borrower’s gross accounts receivable, determined according to GAAP, excluding doubtful debt, any obligations of Nortel to Borrower and any Permitted Factoring Accounts or Exempted Accounts

$             

C. Quick Assets (the sum of lines A and B) $             

D. Aggregate value of all Obligations of Borrower to Bank $             

E. Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness but excluding all Subordinated debt, and not otherwise reflected in line D above that matures within one (1) year

  $           

   

F. Current Liabilities (the sum of lines D and E) $             

G. Aggregate value of current portion of all amounts received or invoiced by Borrower in advance of performance under contracts and not yet recognized as revenue  

$             

H. Line F minus G $             

I. Adjusted Quick Ratio (line C divided by line H)  

 

   ____________ No, not in compliance   ____________ Yes, in compliance     

   

Required  Borrower’s quarterly: (i) net losses shall not exceed (A) Four Million Three Hundred Thousand Dollars ($4,300,000.00) as of the quarter ended March 31, 2013, (B) Two Million One Hundred Thousand Dollars ($2,100,000.00) as of the quarter ending June 30, 2013, and (C) Three Hundred Fifty Thousand Dollars ($350,000.00) as of the quarter ending September 30, 2013, and (ii) net profit shall be at least One Dollar ($1.00) as of the quarter ending December 31, 2013, and as of the last day of each quarter thereafter, all on a non-GAAP basis.**

   

**For purposes of clarity, “net losses” and “net profits” means EBITDA minus unfinanced capital expenditures   Actual:   ______________  

 

II.  Minimum Net Profit (Section 6.7(b)):

   ____________ No, not in compliance   ____________ Yes, in compliance      

 

EXHIBIT D

[Attached hereto]

 

   

EXHIBIT E

[Attached hereto]

 

   

EXHIBITS F-1 – F-8

[Attached hereto]

 

   

EXHIBIT G

[Attached hereto]

 

   

SCHEDULE 5.13 Royalty expenses relating to OCS grants included in cost of sales for the years ended December 31, 2008, 2009, and 2010, amounted to $ 294,000 $ 159,000 and $ 67,000 respectively. The maximum amount of the contingent liability related to royalties payable to the Israeli Government was approximately $ 8,731,000 as of December 31, 2010.  Borrower has received an approximate amount of US$ 33 million grants from the OCS and has paid an approximate amount of US$ 24 million royalties to the OCS.

 

Exhibit 4.7   EXECUTION COPY

  ASSET PURCHASE AGREEMENT

  by and between

  TELRAD NETWORKS LTD.

  and

  ALVARION LTD.

  DATED AS OF FEBRUARY 21, 2013

   

 

  EXECUTION COPY   EXHIBITS  

SCHEDULES  

 

Exhibit A Transition Services Agreement, in the form to be attached prior to Closing Exhibit B Seller Reseller Agreement, in the form to be attached prior to Closing Exhibit C Buyer Reseller Agreement, in the form to be attached prior to Closing Exhibit D TM License Agreement, in the form to be attached prior to Closing Exhibit E Bill of Sale, in the form to be attached prior to Closing Exhibit F IP Assignment Deed, in the form to be attached prior to Closing Exhibit G Consent Letter of owner of Excluded Intellectual Property, in the form to be attached prior to Closing Exhibit H Employees Waiver, in the form to be attached prior to Closing Exhibit I Inventory Book Value Spreadsheet

Schedule I List of Company Subsidiaries that hold Transferred Assets Schedule II List of Accounts Receivables and Accounts Payable Schedule III Reserved Schedule IV Reserved Schedule V Credit Insurance Policies Schedule VI List of Employees Schedule VII Excluded Assets Schedule VIII Excluded Intellectual Property Schedule IX Excluded Liabilities Schedule X Insurance Policies Schedule XI Listed Contracts Schedule XII List of OCS Plans Schedule XIII Transferred Assets Schedule XIV Transferred Intellectual Property Schedule XV List of Written-Off Inventory Schedule XVI Form of Written-Off Payment Notice, in the form to be attached prior to Closing Schedule XVII Seller Disclosure Schedule Schedule XVIII Buyer Required Consents Schedule XIX Purchase Price Allocation Schedule XX List of Guarantees Schedule XXI Reserved Schedule XXII List of Seller Required Consents for Closing Schedule XXIII List of Key Employees  

- i -

  EXECUTION COPY

  ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT, dated as of February 21, 2013, is entered into by and between Alvarion Ltd., a company incorporated under the laws of the State of Israel (the

“Company”) and the entities listed in Schedule I (collectively, the “Seller”) and Telrad Networks Ltd., a company incorporated under the laws of the State of Israel (“Buyer”).  

W I T N E S S E T H:  

WHEREAS, the Seller is engaged in, among other things, the design, development, manufacture, sale and servicing of Broadband Wireless Access products (the “Business”); and  

WHEREAS, the Seller desires to sell, transfer and assign to Buyer, and Buyer desires to purchase from the Seller, all of the assets of the Seller that constitute the Business, upon the terms and subject to the conditions set forth in this Agreement; and  

WHEREAS, the Seller desires to transfer and assign to Buyer, and Buyer desires to assume from the Seller, all of the Assumed Liabilities (as defined below) (except as otherwise set forth herein), upon the terms and subject to the conditions set forth in this Agreement;  

WHEREAS, the boards of directors of each of the Company and Buyer has approved this Agreement and the transactions contemplated hereunder.  

NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:  

ARTICLE I  

DEFINITIONS AND TERMS  

Section 1.1        Certain Definitions.  As used in this Agreement, the following terms have the meanings set forth below:  

“Accounts Receivable” means all accounts receivable, notes receivable, other miscellaneous receivables listed on Schedule II hereto, and other rights of the Seller to receive payment from any party and the benefit of all collateral, security, guarantees and similar undertakings received or held in connection therewith, in each case Related to the Business.  

“Acquisition Transaction” means any acquisition or transaction (including, without limitation, any merger, amalgamation, share exchange, exclusive license, business combination, take-over bid, recapitalization, reorganization, liquidation, sale or issue of treasury securities or rights) with respect to all or substantially all of the Business, except for the transactions contemplated by this Agreement.

 

 

   

  "Active Customer(s)" means those customers of the Seller which have generated or will generate revenues for the Business at any time after July 1, 2010 (other than RMA

Customers (as defined below)).  

 “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such first Person. For purposes of this definition, the term “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or operations of such Person, whether through the ownership of voting securities, by contract or otherwise.  

“Agreement” means this Asset Purchase Agreement, as the same may be amended or supplemented from time to time in accordance with the terms hereof.  

“Assigned Contracts” shall mean all the Contracts that are Related to the Business, including, without limitation, the Listed Contracts (as defined below).  

“Assumed Liabilities” shall mean all Liabilities of the Seller Related to the Business, including the Liabilities listed in a schedule, in the form attached hereto as Schedule III  (the "Listed Liabilities") but except for the Excluded Liabilities (as defined below) and with respect to OCS Business Liability, only the Assumed OCS Liabilities.  

“Assumed OCS Liabilities” shall mean all Liabilities under (i) the OCS plans listed in Section A of Schedule IV and (ii) those of the OCS Plans listed in Section B of Schedule IV that Buyer assumes pursuant to Section 6.16.  

 “Business Day” means any day of the year on which national banking institutions in the State of Israel are open to the public for conducting business and are not obligated by Law (as defined below) or executive order to close.  

“Closing” means the closing of the transactions contemplated by this Agreement.  

“Companies Law” means the Israeli Companies Law, 5759-1999.  

“Contracts” means any agreement, contract, lease, sublease, purchase order, arrangement, commitment and license (other than this Agreement and the Transaction Documents), evidenced by a written instrument.  

“Corporate Documents” means a Person’s Memorandum of Association, Articles of Association or other charter documents.  

 

  2

  “Credit Insurance Policies” means the insurance policies identified in Schedule V, in the form attached hereto.

  “Employees” means the Seller's employees identified in Schedule VI and any other individual currently employed in the Business, who Buyer informs Seller in writing prior to

the Closing Date that it intends to hire.  

“Encumbrance” means any lien, pledge, charge, encumbrance, security interest or mortgage, option, right of first refusal, preemptive right, adverse claims of ownership or use, restrictions on transfer or other encumbrance of any kind or character, except for Permitted Encumbrances (as defined below).  

“Excluded Assets” means all assets that shall remain owned by the Seller and the Seller’s Affiliates after the Closing, which are listed on Schedule VII, in the form attached hereto.  

 “Excluded Intellectual Property” means the Intellectual Property listed on Schedule VIII, in the form attached hereto, which Intellectual Property was sold to the third party listed therein, including know how and all other rights relating to the same.  

 “Excluded Liabilities” means all Liabilities of the Seller and the Seller’s Affiliates, which are not Related to the Business, and/or are as listed on Schedule IX hereto.  

“GAAP” means generally accepted accounting principles in the United States of America.  

“Governmental Authorizations” means any license, permit, certificate and other authorizations and approvals Related to the Business and issued by or obtained from a Government Entity.  

“Government Entity” means any court, administrative body or other governmental entity with competent jurisdiction.  

“Hired Former Employees” means all those Employees who enter into Employment Agreements with Buyer or its Affiliates as of the Closing.  

"Inactive Customers" means (i) those customers of the Seller which generated revenues for the Business solely prior to July 1, 2010 and (ii) RMA Customers.  

 “Insurance Policies” means the insurance policies identified in Schedule X, in the form attached hereto, including the Credit Insurance Policies.  

 

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  “Intellectual Property” means Seller's intellectual property rights Related to the Business, including (solely as it constitutes part of the Business)(i) trademarks, service marks,

brand names, certification marks, collective marks, d/b/a’s, domain names, logos, symbols, trade dress, assumed names, fictitious names, trade names, and other indicia of origin, all applications and registrations for the foregoing, and all goodwill associated therewith and symbolized thereby, including all renewals of same (collectively, “Trademarks”); (ii) all patents, registrations, invention disclosures and applications therefor, including divisionals, continuations, continuations-in-part and renewal applications (collectively, “Patents”); (iii) inventions (whether patentable or not), trade secrets, confidential information and know-how, including technical data, processes, schematics, business methods, formulae, drawings, ideas, algorithms, processes, source and object codes, art works, processes, shop rights, prototypes, maskworks, models, designs, customer lists and supplier lists (collectively, “Trade Secrets”); (iv)  computer software including all source code, object code, display screens, layouts, firmware, development tools, files, records and data, copyrights therein and thereto, registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof (collectively, “Copyrights”) (v) all databases and data collections and all rights therein throughout the world; and (vi) any similar, corresponding or equivalent rights to any of the foregoing.  

“Inventory” means all inventory owned by Seller that is Related to the Business, wherever located, including all raw materials, goods consigned to vendors or subcontractors, work in process, finished goods, whether held at any location or facility of Seller or any of its Affiliates or their subcontractors or in transit to Seller or any of its Affiliates or their subcontractors, in each case as of the Closing Date.  

“Knowledge” or any similar phrase means, with respect to any Person, (i) the actual knowledge of such Person (in the case of an individual) or of the executive officers or other principals of such Person (in the case of an entity), (ii) the knowledge that any of the foregoing, as applicable, would have obtained after reasonable inquiry regarding the relevant matter and, (iii) in the case of Seller, after it has also made all reasonable inquiries of Nir Golan, Avi Stern, Leor Porat and Assaf Katan.  

“Law” means any law, statute, ordinance, rule, regulation, code, order, judgment, injunction or decree enacted, issued, promulgated, enforced or entered by a Government Entity.  

“Legal Requirements” means requirements under any applicable Law.  

“Liabilities” means any and all debts, liabilities and obligations, contingent or absolute, matured or unmatured, required or not required under applicable accounting standards to be reflected in applicable balance sheets, liquidated or unliquidated, accrued or not accrued, known or unknown, determined, determinable or otherwise, whenever or however arising (including whether arising out of any contract or tort based on negligence or strict liability).  

“Listed Contracts” means the Contracts listed on Schedule XI, in the form attached hereto.  

 

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  “Losses” means losses, Liabilities, damages, reasonable costs and expenses.

  “Material Adverse Effect” means any circumstance, event, occurrence, change in, or effect that has a material adverse effect or would reasonably be expected to have a material

adverse effect on the Business or the ability of the Seller to perform its obligations under this Agreement; provided that none of the following, alone or in combination, shall be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, a Material Adverse Effect: (i) any failure by the Seller to meet its estimates, projections or forecasts (but not excluding any of the reasons for or factors contributing to any such failure); (ii) any change, event, circumstance or effect that results from changes, events or circumstances affecting general economic or political conditions or financial credit or securities markets in general or changes affecting generally the industry in which the Business exists or changes in exchange rates in the United States, Israel or any other non-U.S. market, region or regulatory or legal environment where Seller and/or its Subsidiaries currently have material operations or sales, provided that such changes, events, circumstances or effects do not disproportionately affect the Business in any material respect, taken as a whole, compared to companies engaged in businesses similar to the Business; (iii) any change, event, circumstance or effect resulting from natural disasters, hostilities, acts of war or terrorism, sabotage or other force majeure or any material escalation of any of the foregoing, existing as of the date hereof, or other national or international calamity, crisis or emergency, or any governmental or other response or reaction to any of the foregoing acts, in each case in and of itself and provided that such changes, events, circumstances or effects do not disproportionately affect the Business in any material respect, taken as a whole, compared to companies engaged in businesses similar to the Business; (iv) any changes in or to GAAP or other applicable accounting standards, requirements or principles, Laws or the interpretation of any of the foregoing; or (v)  any adverse effect on the Seller's business other than the Business.  

“NASDAQ” means The NASDAQ Stock Market.  

“OCS” means the Office of Chief Scientist of the Israeli Ministry of Industry, Trade and Labor.  

“OCS Business Liability” means Seller's Liabilities to the OCS under the Seller's approved OCS plans in respect of the Business, all of which are listed on Schedule XII, including, without limitation, with respect to the payment of royalties or any other funds on account of sale or licensing transactions performed by Seller, or revenues received in connection with any such transactions.  

“OCS Consent” means the Consent of the OCS to the consummation of the transactions contemplated hereby.  

“Person” means an individual, a corporation, a partnership, an association, a limited liability company, a Government Entity, a trust or other entity or organization.  

 

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  “Related to the Business” means constituting part of, or required for or used in, the Business as conducted by the Seller immediately prior to the date hereof and the Closing,

including as contemplated in any Board resolutions or work papers concerning the same.  

"RMA Customer(s)" means those customers of the Seller which generated revenues for the Business commencing July 1, 2010 through July 1, 2011, which revenues were generated solely from Return Merchandise Authorizations (RMA) ("RMA").  

"Sharing Amount" means the Dollar for Dollar amount by which the revenues of the Business exceed $50 million during the 12 months following Closing up to a maximum of $70 million.  

“Standstill Period” means the period from the Closing Date until the earlier of (i) nine (9) months after the Closing Date, or (ii) such time as the Seller engages in, or is subject to, discussions for a merger, amalgamation, share exchange, business combination, take-over bid, recapitalization, reorganization, liquidation, sale or issue of treasury securities or rights, except for such discussions that have been initiated prior to, and are ongoing as of, the date hereof and have been disclosed in writing to Buyer.  

“Subsidiary” means any Person (i) whose securities or other ownership interests having by their terms the power to elect a majority of the board of directors are owned or controlled, directly or indirectly, by Seller, or (ii) whose business and policies Seller has the power to direct.  

“TASE” means The Tel-Aviv Stock Exchange Ltd.  

“Tax Returns” means all reports and returns required to be filed with respect to Taxes.  

“Taxes” means all Israeli, U.S. federal, state, local or municipal,  foreign or other taxes, including income, capital gains, gross receipts, value added, severance, property, sales, use, duty, license, excise, franchise, assessment, tariff, duty (including any customs duty), employment, severance, withholding or similar taxes, social security, disability, national insurance (‘bituach leumi’) and national health insurance (‘bituach briyut’), together with any interest, additions or penalties with respect thereto.  

“Transferred Assets” means all assets of the Seller and the Seller’s Affiliates Related to the Business, including but not limited to all Assigned Contracts and the other items listed in Schedule XIII.  

 “Employees’ Records” means all personnel files related to the Hired Former Employees and managed by the Seller, provided that Hired Former Employees’ Records shall not include any files the transfer of which is prohibited by applicable Law.

 

 

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  “Transferred Intellectual Property” means all the Intellectual Property owned by the Seller Related to the Business, including as listed in Schedule XIV, in the form attached

hereto, which shall not include (i) any Trademarks with respect to the name "Alvarion" or any variations thereof and any other Trademarks owned by Seller or any of its Affiliates that are not listed in Schedule XIV, and (ii) the Excluded Intellectual Property.  

“Written-Off Inventory Revenues” means the revenues received pursuant to bookings corresponding to purchase orders actually received and recorded by Buyer with respect to the sale of the written-off Inventory listed on Schedule XV hereto (the “Written-Off Inventory”) during the 18-month period after the Closing (the “Revenue Period”).  

Section 1.2              Other Terms.  Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement.  

Section 1.3               Other Definitional Provisions. Unless the express context otherwise requires:  

(i)                the words “hereof”, “herein”, and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

  (ii)               the terms defined in the singular have a comparable meaning when used in the plural, and vice versa;

  (iii)              the terms “Dollars” and “$” mean United States Dollars;

  (iv)              references herein to a specific Section, Subsection or Schedule shall refer, respectively, to Sections, Subsections or Schedules of this Agreement;

  (v)               wherever the word “include,” “includes,” or “including” is used in this Agreement, it shall be deemed to be followed by the words “without

limitation”;  

(vi)              references herein to any gender include each other gender; and  

(vii)             any reference to any law is deemed to refer to all applicable and relevant laws (including case law), statutes, codes or ordinances and all rules and regulations promulgated thereunder, unless the context otherwise requires.

 

 

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  ARTICLE II

  PURCHASE AND SALE OF THE BUSINESS

  Section 2.1               Purchase and Sale. On the terms and subject to the conditions set forth herein, at the Closing, Seller shall sell, convey, transfer, assign and deliver to Buyer, and

Buyer shall purchase and accept from Seller, all of Seller’s right, title and interest, as of the Closing, in and to the Transferred Assets, free and clear of all Encumbrances.  

Section 2.2               Non-Transferable Assets. In the event that any Transferred Asset which would otherwise be transferred on the Closing Date to Buyer is not capable of being sold, assigned, transferred, conveyed or delivered without obtaining the consent of a third party, or if such sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery would constitute a violation of any Contract constituting or relating specifically to a Transferred Asset, or a violation of any Legal Requirement, then such Transferred Asset shall remain in the Seller’s ownership and shall not be sold, assigned, transferred, conveyed or delivered hereunder, nor shall any Liability under any Contract constituting or relating specifically to such Transferred Asset be assumed by Buyer, except as set forth below. Any such Transferred Asset and any Contract which constitutes or relates to any such Transferred Asset or Assets shall be referred to herein as a “Non-Transferable Asset”.  In such event:  

(a)          Both before and after the Closing Date, the parties shall cooperate to obtain any consents or comply with any applicable Legal Requirement required in order to transfer each such Non-Transferable Asset to Buyer without modifying, amending or burdening such Non-Transferable Asset in any material respect.

  (b)         To the extent that on the Closing Date there is any Non-Transferable Asset outstanding, the Seller shall, from and after the Closing Date, cooperate with Buyer in any

reasonable and lawful arrangement agreed upon between such parties designed to provide the benefit of such Non-Transferable Asset to Buyer, and Buyer shall satisfy or perform any Liability under or in connection with such Non-Transferable Asset which would be a Liability assumed by Buyer if such Non-Transferable Asset were a Transferred Asset. Such arrangement (as shall be agreed by the Seller and the Buyer) may include (i) terminating the Non-Transferable Asset between the Seller and the relevant third party and having Buyer entering into a new Contract with such third party on substantially the same terms or a subcontract of the Non-Transferable Asset to Buyer, or (ii) creation of a trust relationship whereby Seller shall serve as Buyer's trustee for any payments on account of such Non-Transferable Asset with such payments being made into a separate account pledged for the benefit of Buyer.

 

 

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  (c)          At any time after the Closing Date, if any Non-Transferable Asset becomes capable of being sold, assigned, transferred, conveyed or delivered to Buyer, then, at

such time, such Non-Transferable Asset shall be assigned, transferred, conveyed and delivered to Buyer for no additional consideration pursuant to the execution and delivery by the parties of an appropriate instrument of assignment with respect to the Non-Transferable Asset and such Non-Transferable Asset shall be deemed a Transferred Asset for all intents and purposes hereunder; provided, however, that if and to the extent that the Seller has theretofore provided Buyer with comparable assets or compensation for such Non-Transferable Asset as shall be agreed upon between the parties in writing, an equitable adjustment shall be made between Seller and Buyer to effectuate fully the intent of the foregoing provision.

  (d)          Without derogating from the foregoing, to the extent that on the Closing Date any Guarantee (as defined below) which would otherwise be replaced by a Buyer

Guarantee as set forth in Section 6.13 is not capable of being so replaced, as shall reasonably be determined by the Parties, then Buyer shall, from and after the Closing Date, provide to Seller such monetary assurances that shall have the same effect as the Buyer Guarantee that would have otherwise replaced the Guarantee, and Buyer shall be responsible and satisfy or perform each Liability under or in connection with such Guarantee which would be a Buyer Guarantee if such Guarantee were replaced by a Buyer Guarantee.

  Section 2.3               Excluded Assets.  Notwithstanding anything herein to the contrary, from and after the Closing, the Seller shall retain all of its existing right, title and interest in and to,

and there shall be excluded from the sale, conveyance, assignment or transfer to Buyer hereunder, the Excluded Assets.  

Section 2.4               Assumption of Liabilities. On the terms and subject to the conditions set forth herein, at the Closing Buyer shall assume, and thereafter shall discharge or perform when due, all of the Assumed Liabilities.  

Section 2.5               Excluded Liabilities. Seller shall retain and be responsible for all Excluded Liabilities.  

Section 2.6               Purchase Price. Subject to the terms and conditions of this Agreement, in consideration of the sale of the Transferred Assets, Buyer shall (i) assume all of the Assumed Liabilities and (ii) pay or cause to be paid to the Seller (A) the Cash Consideration (as defined below) plus (B) the Performance Based Payments (as defined below), if any ((A) and (B), collectively, the “Purchase Price”). The Purchase Price shall consist of the following payments by Buyer:  

(a)          Cash Consideration.  

(i)           Subject to this Section 2.6(a), a cash amount of Five Million Seven Hundred Thousand United States Dollars (US$5,700,000) (the “Cash Consideration”) shall be paid to the Seller, in each case in immediately available funds to an account the details of which shall be provided by the Seller to Buyer in advance of the due date for such payment, as follows: (i) at the Closing, an amount of One Million Two Hundred Thousand United States Dollars (US$1,200,000) (the “First Installment”), plus (ii) three equal installments, each in the amount of One Million Five Hundred Thousand United States Dollars (US$1,500,000), to be paid to the Seller on the dates that are three, six and nine months after the Closing (or, in the event that any of such days is not a Business Day, then on the immediately following Business Day) (the amounts underlying such three installments are referred to collectively as the "Post Closing Installments").

 

 

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  (ii)          Notwithstanding the foregoing, the Cash Consideration shall be adjusted pursuant to Section 6.15(i) and sub-Section 2.6(a)(iii), such that the First

Installment shall be reduced by the Additional Premium payable as set forth in Section 6.15(i) and the First Installment shall be adjusted pursuant to sub-Section 2.6(a)(iii). To the extent the amount of the deductions in the Cash Consideration pursuant to this Section 2.6(a)(ii) exceeds the amount of the First Installment, the Post Closing Installments shall be reduced by the amount by which such deductions exceed the amount of the First Installment, such excess amount to be reduced from the next Post Closing Installments as required.

  (iii)          (a)      Not later than two (2) Business Days prior to the Closing Date, Seller and Buyer shall finalize the preparation of a pro-forma Closing Date balance

sheet for the Business, including Accounts Receivables and accounts payable (the “Closing Balance Sheet”).  The Closing Balance Sheet shall be prepared as of a date which is one (1) Business Day prior to the planned Closing Date.  

(b)       Based on the Closing Balance Sheet, the value of X shall be determined as follows:  

X =  

(+) cash received Related to the Business  

(-) cash paid to suppliers, agents, royalties and all other accounts Related to the Business  

(-) salaries (only salaries; no bonuses or any other “one time” payments) paid to Hired Former Employees during the period from the date hereof until the Closing Date.

  (-) direct costs related to the Hired Former Employees (namely travel, cell phones, cars). Direct costs do not include any overhead expenses of Seller, including, rent, IT, finance, utilities etc.)

 

 

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  (c)       In the event that X is greater than zero, then the amount by which X is greater than zero shall be reduced from the Cash Consideration in accordance

with sub-Section 2.6(a)(iii)(ii);  

(d)       In the event that X is less than zero, then the amount by which X is lower than zero shall be added to the First Installment.  

(b)         Entitlement to Performance Based Payments.  

Subject to the Business recording minimum revenues of $50,000,000 from the Closing Date through the one year anniversary of the Closing Date ("Minimum Revenues"), Buyer shall make additional cash payments to the Seller in the amounts determined in accordance with this Section 2.6(b) (such payments, the “Performance Based Payments”).  The Performance Based Payments will be calculated as follows:  

(i)           Written-Off Inventory Revenue Sharing. Subject to the provisions of this Section 2.6(b)(i), an amount equal to the lower of (i) 50% of the aggregate Written-Off Inventory Revenues, and (ii) Six Million United States Dollars (US$6,000,000) (the “Written-Off Inventory Amount”) multiplied by a fraction the numerator of which is the Sharing Amount and the denominator of which is US$ 20,000,000, shall be paid in cash by wire transfer of immediately available funds by Buyer to Seller within the later of (a) seven (7) Business Days of the actual receipt by Buyer of any payment under the purchase orders for Written-Off Inventory (whether or not such payment is received by Buyer during the Revenue Period) and (b) such date as the Minimum Revenues target is first achieved, which Written-Off Inventory Amount shall be set forth in the applicable Written-Off Inventory Payment Notice (as defined below). Not later than ten (10) days after the end of each calendar quarter during the Revenue Period, Buyer will prepare and deliver to Seller a statement, in the form to be attached hereto as Schedule XVI (the "Written-Off Payment Notice"), setting forth in reasonable detail (i) the aggregate amount of revenues recorded by the Business during such calendar quarter, (ii) the purchase orders for Written-Off Inventory actually received by Buyer and (iii) the consideration upon which such sale was effected, which shall be derived from and be in accordance with the books and records of Buyer. Buyer shall then afford to Seller and to Seller’s representatives reasonable access during normal business hours to the relevant pricing information concerning such Written-Off Inventory and the sale thereof and the provisions of Section 2.6(c) below shall apply; provided that in no event will the amounts paid to Seller under this Section 2.6(b)(i) exceed in the aggregate Six Million United States Dollars (US$6,000,000).  

(c)          Performance Based Payments Procedures.  

(i)           If the Seller does not deliver a Seller Notice (as defined below) within thirty (30) days after receipt of the Payment Notice, then the Payment Notice shall be final and conclusive and shall be paid without deduction within three (3) Business Days following the end of the thirty (30)-day period set forth above.

 

 

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  (ii)           In the event that the Seller disputes Buyer's calculation of any Performance Based Payment, the Seller shall be entitled, within thirty (30) days following

receipt of the Payment Notice, to deliver a written notice to Buyer stating that the Seller believes that a Performance Based Payment in an amount higher than the amount of the Performance Based Payment set forth in the Payment Notice is payable to the Seller, and detailing the error in Buyer's calculation of the Performance Based Payment and the amount of the Performance Based Payment that the Seller believes is due to it (the "Seller Notice"). If Buyer disputes that a Performance Based Payment is payable or the amount of the Performance Based Payment as stated in the Seller Notice, the Seller’s and Buyer's representatives shall meet and attempt in good faith to resolve such dispute. If it is so resolved, the Payment Notice shall be modified as necessary to reflect such resolution and the Payment Notice as so modified shall be deemed final and conclusive and the applicable Performance Based Payment shall be paid within 10 days following the date the amended Payment Notice became final.

  (iii)           If Buyer and Seller do not resolve the dispute as aforesaid then each Party retains its rights and claims in connection therewith until resolved by

agreement, court, mediation or arbitration, as the case may be.  

(d)          Waiver. No waiver by any party of any term or condition of Section 2.6(c), in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of Section 2.6 on any future occasion.  

(e)          Acknowledgment. Seller acknowledges, with respect to the Performance Based Payments that, subject to Section 6.8, (i) Buyer intends to exercise or refrain from exercising its powers and rights with respect to the Written-Off Inventory as it may deem appropriate and in the best overall interests of Buyer and its subsidiaries as a whole, taking into account their respective conditions and prospects from time to time, (ii) Buyer or any Affiliate thereof shall not (other than as set forth in Section 6.8) be restricted from pursuing any activities or operations not affecting the Performance Based Payments, nor from entering into, terminating, modifying, disposing of or otherwise making any change thereto, or selling any assets or properties, including those acquired under the Agreement, in each case to the extent not otherwise specifically prohibited hereunder; and (iii)  operation of the Business by Buyer may impact the timing of receipt of payments from the sale of Written-Off Inventory and Buyer may refuse to enter into an arrangement that would cause or increase sales of Written-Off Inventory during the Revenue Period.  

Section 2.7               Security for Payment. As a security for the payment by Buyer to Seller of the full amount of the Post Closing Installments, at the Closing the Buyer shall provide Seller with three (3) checks each in the amount of US$ 1,500,000 dated as of the date that is three months, six months and nine months after the Closing.  As  security for the payment by Seller to Buyer of the amounts set forth in a Buyer Inventory Notice (as defined below) in accordance with the provisions of Section 6.9, at the Closing the Seller shall provide Buyer with one check in the amount of US$ 1,500,000 dated as of the date that is 18 months after the Closing,

 

 

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  Section 2.8               Withholding Tax. Notwithstanding anything to the contrary herein, Buyer shall be entitled to deduct and withhold from any consideration payable or otherwise

deliverable, upon the actual payment or delivery thereof, to Seller pursuant to this Agreement such amounts as are required to be deducted or withheld therefrom under the Israeli Tax Ordinance, unless Buyer receives from Seller a certificate from the Israeli Tax Authority (“ITA”) providing for an exemption from such withholding or deduction to the reasonable satisfaction of Buyer. To the extent such amounts are so deducted or withheld, such withholding shall be made in good faith, and such withheld amounts shall be transferred by Buyer to the ITA and shall be treated for all purposes of this Agreement as having been paid to Seller, and Buyer shall provide to Seller all requested documentation evidencing such deduction or withholding and such payment to the ITA.  

Section 2.9               VAT. The Purchase Price is exclusive of Value Added Tax (“VAT”), if applicable. At the Closing Seller shall provide Buyer with a valid VAT invoice for the Purchase Price and Buyer shall provide Seller with a check for the applicable VAT on the Purchase Price dated three days prior to the first date on which Seller is obligated to pay VAT.  

Section 2.10             Closing.  The Closing shall take place, subject to the terms and conditions of this Agreement, remotely by electronic means or by such other means as the parties shall agree at a time and a date specified by the parties, which shall be no later than the second Business Day following satisfaction (or, to the extent permitted, waiver) of all the conditions set forth in ARTICLE VII. The date on which the Closing occurs is referred to herein as the “Closing Date”.  

Section 2.11            Deliveries and Transactions at Closing. At the Closing, the following transactions shall occur simultaneously (no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered):  

(a)         Deliveries by Buyer.  At the Closing, Buyer shall deliver to Seller the following:  

(i)            the First Installment in immediately available funds by wire transfer to an account which shall have been designated by Seller in writing prior to the Closing Date;

  (ii)           the transfer documents required by the OCS, as shall be referred to in the OCS Consent or in accordance with the requirements of the Israeli Encouragement

of Industrial Research and Development Law, 5744-1984 (the “R&D Law”), duly executed by Buyer;  

 

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  (iii)          a Transition Services Agreement between Seller and Buyer, in the form to be attached hereto as Exhibit A (the “Transition Services Agreement”), duly

executed by Buyer;  

(iv)         a Seller Reseller Agreement between Seller and Buyer, in the form to be attached hereto as Exhibit B (the “Seller Reseller Agreement”), duly executed by Buyer;

  (v)          a Buyer Reseller Agreement between Seller and Buyer, in the form to be attached hereto as Exhibit C (the “Buyer Reseller Agreement”), duly executed by

Buyer;  

(vi)         a trademark license agreement between Seller and Buyer, in the form to be attached hereto as Exhibit D (the "TM License Agreement"), duly executed by Buyer;

  (vii)        copies of the Buyer Replacement Guarantees (as defined below);

  (viii)       a valid copy of Buyer's product liability insurance policy for the benefit of Seller, as set forth in Section 6.15(i) below.

  (ix)          evidence of the obtaining of, or, if sufficient, the filing with respect to, as necessary, the Buyer Required Consents; and

  (x)           such instruments of assumption and other instruments, certificates or documents as the Seller may reasonably request to effect the transactions

contemplated hereby.  

(b)         Deliveries by Seller. At the Closing, Seller shall deliver, or cause to be delivered, to Buyer the following:  

(i)            possession of the tangible Transferred Assets;  

(ii)           the transfer documents required by the OCS, as shall be referred to in the OCS Consent or in accordance with the requirements of the R&D Law;  

(iii)          the Transition Services Agreement, duly executed by Seller;  

(iv)          the Seller Reseller Agreement, duly executed by Seller;  

(v)           the Buyer Reseller Agreement, duly executed by Seller;  

(vi)          a Bill of Sale, in the form to be attached hereto as Exhibit E, duly executed by Seller;  

 

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  (vii)         an assignment deed of the Intellectual Property rights in the form to be attached hereto as Exhibit F, duly executed by Seller;

  (viii)        the TM License Agreement, duly executed by Seller;

  (ix)          evidence of the obtaining of, or, if sufficient, the filing with respect to, the Seller Required Consents (as defined below);

  (x)           a consent letter duly executed by the owner of the Excluded Intellectual Property, substantially in the form attached hereto as Exhibit G, or such other form

approved in writing by Buyer and its counsel; and  

(xi)          such instruments of assumption and other instruments, certificates or documents as Buyer may reasonably request to effect the transactions contemplated hereby.  

ARTICLE III  

REPRESENTATIONS AND WARRANTIES OF SELLER  

Seller hereby represents and warrants to Buyer that, subject to the exceptions set forth in the disclosure schedule attached hereto as Schedule XVII (the "Seller Disclosure Schedule"), the following statements are true and correct as of the date hereof and as of the Closing Date, and acknowledges that Buyer is entering into this Agreement in reliance thereon:  

Section 3.1               Organization and Qualification; Subsidiaries. Each of the Company and its Subsidiaries that comprise the Seller (i) is a company duly incorporated and validly existing and in good standing (where such concept is applicable) under the Laws of the jurisdiction of its organization, and (ii) has the requisite corporate power and authority to own and carry on the Business as now being conducted. Section 3.1 of the Seller Disclosure Schedule sets forth a true and complete list of each such Subsidiary, together with (A) the specification of the nature of the legal organization of each such Subsidiary, (B) the jurisdiction of incorporation or organization of each such Subsidiary and (C) the percentage of each such Subsidiary’s outstanding shares directly or indirectly owned by the Company.

 

 

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  Section 3.2               Authority; Noncontravention. The Seller has the requisite power and authority, and is competent, to execute, deliver and perform this Agreement and all other

agreements delivered pursuant hereto (collectively, the "Transaction Documents"), to consummate the transactions contemplated hereby and thereby and to comply with the provisions of this Agreement and the other Transaction Documents. The execution, delivery and performance of this Agreement and the other Transaction Documents by Seller, the consummation by Seller of the transactions contemplated hereby and thereby (alone or in combination with any other event) and the compliance by Seller with the provisions of this Agreement and the other Transaction Documents have been duly authorized by all necessary action on the part of Seller, and no other action or proceeding on the part of Seller is necessary to authorize this Agreement or the other Transaction Documents or to consummate the transactions contemplated hereby or thereby. This Agreement and the other Transaction Documents have been (or will be immediately prior to the Closing) duly executed and delivered by Seller and, assuming the due authorization, execution and delivery by Buyer or the other parties thereto, constitute valid and binding obligations of Seller, enforceable against it in accordance with their terms, except to the extent that enforceability may be limited by the effect, if any, of (i) any applicable bankruptcy, reorganization, insolvency, moratorium or other Laws affecting the enforcement of creditors' rights generally, or (ii) general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby (alone or in combination with any other event) and compliance by Seller with the provisions of this Agreement and the other Transaction Documents do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both), (any such event, a “Seller Conflict”) under (i) the Corporate Documents of Seller, (ii) in any material respect, any Legal Requirement or any order of any court or other Governmental Entity, in each case by which Seller or any part of the Business is bound, or (iii) in any material respect, any provision of any Contract, permit, concession, franchise or license by which any part of the Business is bound, or result in the creation or imposition of any Encumbrance upon any part of Transferred Assets or the Business.

  Section 3.3               Consents. No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any other Person (so

as not to trigger any Seller Conflict) is required by or with respect to Seller in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents by the Seller, the consummation by the Seller of the transactions contemplated hereby or thereby (alone or in combination with any other event) or the compliance by the Seller with the provisions of this Agreement or the other Transaction Documents, except for the OCS Consent and such other consents, waivers, approvals, orders, authorizations, registrations, declarations and filings which are set forth in Section 3.2 of the Seller Disclosure Schedule (the “Seller Required Consents”).

Section 3.4               Title to Properties, etc.

(i)          Seller has marketable and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of the Transferred Assets, free and clear of any Encumbrances, except as set forth in Section 3.4(i) of the Seller Disclosure Schedule, and except for (i) Encumbrances imposed by applicable Law, incurred in good faith in the ordinary course of the Business and securing obligations which are not yet due or which are being contested in good faith by customary proceedings the value of which does not exceed US$ 10,000, in the aggregate; and (ii) Encumbrances for Taxes either not yet due and payable or which are being contested in good faith, and which are otherwise not Excluded Liabilities (collectively, the “Permitted Encumbrances”).

 

 

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(ii)         The Transferred Assets, collectively, comprise all of the material assets, rights and services used by Seller in the operation of the Business as

currently conducted. All tangible assets included in the Transferred Assets are in reasonably sufficient operating condition and in a state of reasonable maintenance and repair for the continued conduct of the Business as currently being conducted and as currently contemplated by the Seller to be conducted, except only for reasonable wear and tear.

  (iii)         Except as set forth in Section 3.4(iii) of the Seller Disclosure Schedule, the Transferred Assets (i) comprise in the aggregate all of the assets

necessary for the operation of the Business as currently conducted by Seller, (ii) are in good operating condition as necessary to conduct the Business as currently conducted by Seller, except for reasonable wear and tear, and (iii) assuming the condition set forth in Section 7.2(viii) is met,  will enable Buyer to perform and comply with its obligations under the Assigned Contracts after the Closing Date.

  Section 3.5               Accounts Receivable and Payable. The Accounts Receivable are valid receivables and arose in the ordinary course of business. Seller has not received any written

notice from an Account Receivable debtor (i) stating that it refuses to pay the full amount thereof, or (ii) which might be reasonably expected to result in non-payment thereof. None of the debtors under any of such Accounts Receivable is an Affiliate of the Seller.  None of the Accounts Receivable is subject to any Encumbrance, except as set forth in the Disclosure Schedule. Schedule II sets forth the Accounts Receivables and accounts payable of the Business as of the date hereof.  

Section 3.6               Inventory. The Inventory, other than the Written-Off Inventory, consists solely of items of tangible property of the kind and quality regularly used,  produced and sold in the Business, and is saleable or re-saleable (or useable) in the ordinary course of business as currently conducted by Seller, in each case within the 18-month period following the Closing. Section 3.6 of the Seller Disclosure Schedule details all current Inventory and the location of all such Inventory (other than the Written-Off Inventory).  

Section 3.7               Scope of Listed Contracts.  

(i)              The customers with whom the Listed Contracts have been entered into, generated revenues of the Business in excess of $1,500,000 for the years 2010, 2011 and 2012. The Listed Contracts constituted no less than 72% of the aggregate revenues of the Business for the years 2010, 2011 and 2012.

 

 

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  (ii)              The agents, distributors and resellers with whom the Listed Contracts have been entered into are entitled to commissions only with respect to the

customers and in the countries detailed in such Listed Contracts.  

Section 3.8               Intellectual Property.

(i)         Section 3.8(i) of the Seller Disclosure Schedule lists (i) all Intellectual Property that is the subject of an application, certificate, filing, or registration issued by, filed with, or recorded by, any Governmental Entity, specifying whether such Intellectual Property is owned by or leased (under license or otherwise) to Seller and indicating, where applicable, the jurisdictions in which each such Intellectual Property has been issued or registered or in which an application for such issuance and registration has been filed, and (ii) a complete and accurate list (by name and version number) of all products Related to the Business that have been distributed or provided by Seller in the past three (3) years. To the Seller's Knowledge, all Intellectual Property shown as registered in Section 3.8(i) of the Seller Disclosure Schedule has been properly registered, all pending registrations and applications therefor have been properly made and filed and all maintenance, renewal and other fees relating to registrations or applications therefor are current. To the Seller’s Knowledge, all such registrations, filings and issuances are in full force and effect as of the date hereof, and all fees and other charges with respect thereto are current.

(ii)        Except as set forth in Section 3.8(ii) of the Seller Disclosure Schedule, Seller owns, or has a license to use or otherwise possesses rights to,

all Intellectual Property, free and clear of all Encumbrances. Except as may be limited by applicable Laws, Seller has the right to make, have made, sell, use, copy, distribute, prepare derivative works from, support, modify, enhance, import, or offer for sale, all its products Related to the Business.  The Intellectual Property is sufficient to conduct the Business in its ordinary course and as it is currently conducted.

(iii)       To the Seller’s Knowledge, none of the Intellectual Property infringes any intellectual property or other right of any third party. Except as

set forth in  Section 3.8(iii) of the Seller Disclosure Schedule, there are no pending or, to the Seller's Knowledge, threatened claims made by any Person (i) claiming that the manufacture, sale or use of any product incorporating any of the Intellectual Property infringes any  intellectual property or constitutes a misuse or misappropriation of any trade secret, know-how, process, proprietary information or other intellectual property or other right of any other Person, or (ii) challenging the ownership by Seller, validity or effectiveness, of any of the Intellectual Property. Seller has not received from any other Person any written notification with respect to any matters of the type contemplated by the immediately preceding sentence, nor to Seller's Knowledge are there any facts forming the basis for the matters of the type contemplated by the immediately preceding sentence.  There is currently no pending action, suit or proceeding brought by Seller against any third party claiming an infringement of the Intellectual Property or breach of any Contract by such third party.

 

 

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(iv)       To the Seller's Knowledge, there has not been any unauthorized use, infringement or misappropriation of any of the Intellectual Property

by any third party, including any employee or independent contractor or former employee or former independent contractor of Seller.

(v)        No Intellectual Property is subject to any outstanding decree, order, judgment, injunction, stipulation or determination of an arbitrator or court or other competent Governmental Entity in any jurisdiction where Seller conducts the Business, which decree, order, judgment, injunction, stipulation or determination adversely affects the rights of Seller in such Intellectual Property or restricting in any manner the use or licensing thereof by Seller.

(vi)       Except as set forth in Section 3.8(vi) of the Seller Disclosure Schedule, Seller has not transferred ownership of, or granted any license to or

authorized the retention of any exclusive rights to use or joint ownership of, any Intellectual Property to or by any third party, and there are no outstanding options or agreements of any kind relating to the same. Except as set forth in Section 3.8(vi) of the Seller Disclosure Schedule, Seller is not obligated to pay any royalties or other payments to third parties with respect to its ownership, marketing, sale, distribution, manufacture, license or use of any Intellectual Property. The Intellectual Property does not contain derivative works of any programming or materials, the proprietary rights to which are not owned in their entirety by Seller, except for third party software licensed by Seller and embedded therein, as set forth on Section 3.8(vi) of the Seller Disclosure Schedule.

 

 

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(vii)      Except as set forth in  Section 3.8(vii) of the Seller Disclosure Schedule, Seller has not requested from, made any application to, nor

received any benefits from, the OCS with respect to research and development funding in accordance with the Law for the Encouragement of Industrial Research and Development, 5744-1984, and  Section 3.8(vii) of the Seller Disclosure Schedule lists all items of the Intellectual Property as of the date hereof which were developed with (x) grants, incentives, exemptions and subsidies from any Israeli Governmental Entity granted to Seller and Related to the Business or the Transferred Assets (the “Israeli Grants”), or (y) funding, facilities or resources provided by a university, college, educational institution, research center, foundation, multi-national fund,  or similar institution or organization (collectively, an “Institution”). Except as set forth in Section 3.8(vii) of the Seller Disclosure Schedule, (i) all such Intellectual Property is freely transferable, conveyable and assignable by Seller to Buyer, and (ii) to the Knowledge of Seller, no restriction, constraint, control, supervision or limitation whatsoever has been imposed by any Governmental Entity or Institution on the place, method and scope of exploitation of any such Intellectual Property, including the operation of the Business as currently conducted. Seller has made available to Buyer, prior to the date hereof, correct copies of all applications for Israeli Grants submitted by or on behalf of Seller within the Seller’s possession and of all letters of approval, and supplements thereto, granted in connection therewith as well as all material correspondence or written summaries pertaining thereto. Seller has no unwritten or informal arrangements or understandings that relate to the Israeli Grants that could be reasonably expected to result in increased payments with respect to the Israeli Grants. Seller is in compliance in all material respects with the terms and conditions of all the Israeli Grants and has fulfilled in all material respects all the undertakings required thereby. To Seller’s Knowledge, no event or other set of circumstances has occurred which is reasonably expected to lead to the revocation or material modification of any of the Israeli Grants. Neither the execution, delivery or performance of this Agreement, or any of the other transactions contemplated by this Agreement, does, will or could reasonably be expected to (with or without notice or lapse of time) give rise to any right to revoke, withdraw, suspend, cancel, terminate or modify any Israeli Grant.

  (viii)     Seller has not disclosed or provided access (nor is it required to do so), including by way of escrow, to any source code of, or any material

proprietary information or algorithm contained in or relating to, any software source code, of any Intellectual Property.  

 

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  (ix)        With respect to software (object and source code) that is part of the Intellectual Property (“Software”), in no instance has the eligibility for

protection under applicable copyright Law been forfeited to the public domain by any action on the part of the Seller, its directors, officers, employees, consultants, agents or anyone acting on its behalf.

  (x)         Seller has used efforts in line with standard industry practice to ensure that the Trade Secrets have been treated as confidential and

proprietary and to maintain the secrecy of all Trade Secrets, including by entering into written agreements requiring any recipient of Trade Secret information to keep such information in confidence.  To the Seller’s Knowledge, there has been no violation by any Person that has resulted or may result in the loss of protection of any Trade Secret.  Without prejudice to the foregoing, all employees, agents, consultants, contractors and any other parties who have had access to the Seller’s confidential or proprietary information or created Intellectual Property have been required to sign a non-disclosure agreement.

  (xi)        Except as set forth in  Section 3.8(xi) of the Seller Disclosure Schedule, all employees, agents, consultants and/or contractors of Seller, who

have contributed to or participated in any material way in the conception and/or development of the Intellectual Property on behalf of Seller have executed (1) nondisclosure agreements, and (ii) have executed instruments of assignment in favor of Seller as assignee of all right, title and interest in and to the Intellectual Property. To Seller's Knowledge, no current or former employee, consultant or independent contractor of Seller who was involved in, or contributed to, the creation or development of any of the Intellectual Property has performed services for any Governmental Entity, for a university, college or other educational institution or research center during a period of time during which such employee, consultant or independent contractor was also performing services for Seller. Seller has taken appropriate actions to protect the confidentiality of confidential information provided to it by customers and other third Persons.

  (xii)       Except for technical measures and features that are expressly documented and set forth in  Section 3.8(xii) of the Seller Disclosure Schedule

and that are designated to prevent unauthorized use of the Software, no portion of the Software has been designed by Seller to contain any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” or other software routines or hardware components designed to permit unauthorized access; to disable or erase software, hardware, or data; or to perform any other such actions.

 

 

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  (xiii)      Except as set forth in  Section 3.8(xiii) of the Seller Disclosure Schedule, Seller is not and has never been a member or promoter of, or a

contributor to, any industry standards body, research group or similar organization that could compel Seller to grant or offer to any third party any license or right to the Intellectual Property.

  (xiv)      Except as set forth in Section 3.8(xiv) of the Seller Disclosure Schedule, Seller has not incorporated any Public Software (as defined below)

into the Software at any time. Seller has been and is currently in compliance with all material terms and conditions of all such licenses for Public Software.  Except as set forth in Section 3.8(xiv), none of the Software have been or are being distributed, in whole or in part, or were used, or are being used in conjunction with any Public Software in a manner which would require that such Software be disclosed or distributed in Source Code form or made available at no charge.  “Public Software” means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as open source software (e.g., Linux) or similar licensing or distribution models, including without limitation software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL), (ii) the Artistic License (e.g., PERL), (iii) the Mozilla Public License, (iv) the Netscape Public License, (v) the Sun Community Source License (SCSL), (vi) the Sun Industry Standards License (SISL), (vii) the BSD License, and (viii) the Apache License. In the event that the source code for any Intellectual Property shall be required to be disclosed due to the use of Public Software, such disclosure shall not have a material adverse effect on the  Business as currently conducted and as currently contemplated to be conducted by the Seller.

  (xv)       To the Seller's Knowledge, the letters listed in Section 3.8(xv) of the Seller Disclosure Schedule, do not create a Liability for the Business

and no further correspondence was received by the Seller or any of its Affiliates from the counterparty to such letters or anyone on their behalf since the date each of such letters was received with respect to the matters in such letters.

 

 

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  Section 3.9               Assigned Contracts.  

(i)            Except for the Assigned Contracts, neither Seller nor any of its Subsidiaries is a party to or bound by, any Contract that is Related to the Business, or to which any of the Transferred Assets are subject, except to the extent included in Excluded Assets.

  (ii)           True and complete copies of all the Listed Contracts, including any amendments thereto, have been made available to the Buyer. The Listed Contracts are

in full force and effect and in good standing with no amendments except as disclosed in Schedule X and other than as shall not have a Material Adverse Effect, there are no outstanding defaults or violations under any of those Listed Contracts on the part of Seller or, to Seller's Knowledge, on the part of any other party to any of those Listed Contracts.  Except as disclosed in Section 3.9 of the Seller Disclosure Schedule, there are no current or pending negotiations with respect to the renewal, repudiation or amendment of any of the Listed Contracts, other than in the ordinary course of business.

  (iii)          There are no outstanding powers of attorney in favor of any Person Related to the Business that would affect any Transferred Asset.

  Section 3.10             Litigation. Except as set forth in Section 3.10 of the Seller Disclosure Schedule, there are no claims, actions, suits, proceedings or labor disputes pending or, to the

Knowledge of Seller, threatened, before any Governmental Entity, brought by or against Seller or any of its officers, directors, employees, independent contractors or agents that are either Related to the Business, attached to the Transferred Assets or related the transactions contemplated by this Agreement, nor to the Knowledge of Seller is there any basis for any such action, suit or proceeding. To the Knowledge of the Seller, neither the Business nor the Transferred Assets are subject to any investigation, order, writ, judgment, award, injunction or decree of any national, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, that adversely affects the Business or the Transferred Assets, or that would be reasonably expected to impede Seller's ability to consummate the transactions contemplated by this Agreement.

Section 3.11             Insurance. All Insurance Policies are listed in Section 3.11 of the Seller Disclosure Schedule; true and complete copies of all such Insurance Policies have been

provided to Buyer. Each of the Insurance Policies is valid and subsisting and in good standing and there is no default under any of them. No written notice of cancellation or non-renewal with respect to, nor disallowance of any claim under, any of the Insurance Policies has been received by Seller.  

Section 3.12             Compliance with Laws; Governmental Authorizations.

(i)          Seller has complied with and is in compliance, in each case in all material respects, with all Legal Requirements applicable to the Transferred Assets and Assumed Liabilities.

 

 

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  (ii)         Section 3.12(ii) of the Seller Disclosure Schedule lists each material Governmental Authorization held by Seller in connection with the

Business, and Seller has made available to Buyer accurate and complete copies of all Governmental Authorizations listed in Section 3.12(ii) of the Seller Disclosure Schedule, all of which are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable Seller to conduct the Business substantially in the same manner in which it is currently being conducted by Seller.  Seller is in compliance in all material respects with the terms and requirements of the Governmental Authorizations listed in Section 3.12(ii) of the Seller Disclosure Schedule. Seller has not received any written notice communication from any Governmental Entity regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization.

  (iii)        No Governmental Entity has at any time challenged or questioned the legal right of Seller to manufacture, offer or sell any of products or

services using any of the Intellectual Property or Transferred Assets.  

Section 3.13             Employee Matters.

(i)         Section.3.13(i) of the Seller Disclosure Schedule contains a list of the names and positions of all Employees, along with their date of hire, employing entity, location, the law governing the contract of employment, current monthly salary, estimated or target annual or monthly incentive compensation (if any), number of annual vacation days, sick and other paid time-off allowance and other social benefits payable or which Seller is bound to provide to each Employee (collectively, “Benefits”). Section.3.13(i) of the Seller Disclosure Schedule also identifies each Employee who is entitled to a termination notice of more than thirty (30) days.

   

(ii)         Seller is in compliance in all material respects with all material relevant employment Laws and personal agreements and as customary in Seller and there are no arrears in the payment of wages, social security benefits (including the actual and full payment/depositing of any relevant amount in the relevant funds/severance payment funds/"Bituach Menahalim", pension, provident funds, further education funds, etc.), social security taxes, withholding taxes etc. Except as set forth in Section 3.13(ii) of the Seller Disclosure Schedule Seller has no binding customs applicable to the Employees, including with respect to termination of employment.

 

 

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  (iii)        Section 3.13(iii) of the Seller Disclosure Schedule contains a list of all material independent contractors currently engaged by Seller in

connection with the Business, along with their date of retention and rate of remuneration and any other forms of compensation payable to each such person or entity.

(iv)        Seller is not a member in any employers’ organization, and, to Seller's Knowledge, no claim or request has been made of Seller by any employers’ organization. Seller is not a party to, or bound by, any collective bargaining agreement or arrangement or union contract or extension order (excluding such extension orders that may apply to all employers or employees in Israel in general or to all employees engaged in industries similar to the industry of the Business, as listed in Section.3.13(iv) of the Seller Disclosure Schedule). No labor union or other representative organization has otherwise been certified or recognized as the collective bargaining representative of any employees of Seller or, to Seller's Knowledge, has applied to represent such employees or is attempting to represent such employees.

(v)        Except as set forth in Section 3.13(v) of the Seller Disclosure Schedule, there are no legal proceedings pending or, to the Knowledge of

Seller, threatened against Seller before any tribunal with respect to any labor or employment-related dispute.

(vi)       Except as set forth in Section 3.13(vi) of the Seller Disclosure Schedule, as contemplated by this Agreement, no Employee has notified or, to the Knowledge of Seller, intends to notify Seller that such individual intends to terminate his or her employment or engagement with Seller as a result of the consummation of the transactions contemplated hereby.

(vii)       All Employees of Seller have entered into employment or consulting agreements, as applicable, with Seller, and copies thereof have been

made available to Buyer.

Section 3.14             Related Parties. Except as set forth in Section 3.14 of the Seller Disclosure Schedule or as expressly contemplated by this Agreement or by virtue of employment agreements with Employees in and by themselves, to Seller’s Knowledge: (a) no Related Party has any direct or indirect interest in any material Transferred Asset Related to the Business; (b) no Related Party is indebted to Seller in connection with the Business; (c) no Related Party is currently a party to any Material Contract with the Seller; and (d) no Related Party is currently directly competing with the Business.  For purposes of this Section 3.14, each of the following shall be deemed to be a “Related Party”:  (i) each Affiliate of the Seller; (ii) each individual who is an officer or director of Seller; and (iii) each member of the immediate family of each of the individuals referred to in clauses (i) and (ii) above.

 

 

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Section 3.15             Customers and Suppliers; Subcontractors.

  (i)                Section 3.15(i) of the Seller Disclosure Schedule sets forth a complete and correct list of (a) all customers whose purchases exceeded 7% of the

aggregate sales by the Business during the year ended December 31, 2012; and (b) the ten top suppliers, by Dollar volume, of the Business during the year ended December 31, 2012.  None of such customers and suppliers has notified the Seller that it intends to terminate or change significantly its relationship with the Business as a result of the consummation of the transactions contemplated by this Agreement.

  (ii)               Section 3.15(ii) of the Seller Disclosure Schedule sets forth a complete and correct list of the top fifteen agent, by Dollar volume, of the Business

during the year ended December 31, 2012.  

(iii)              Except as disclosed in Section 3.15(c) of the Seller Disclosure Schedule: (i) there are no outstanding warranties, repair contracts or other maintenance obligations with or to customers or other users of the products of the Business, other than in the ordinary course of business, (ii) there are no outstanding material claims under warranties, repair contracts or other maintenance obligations with or to customers or other users of the products of the Business, and (iii) Seller is not required to provide any bonding or other financial security arrangements in connection with any transactions with any of the customers or suppliers of the Business.

  (iv)              The Seller’s backlog report dated as of February 20, 2013, a copy of which was provided to the Purchaser prior to the date hereof Section 3.15(iv)

(the “Backlog Report”): (i) has been computed based on the methodology and principles developed by Seller and described in Section 3.15(iv)(2) of the Seller Disclosure Schedule and (ii) subject to the limitations described in such schedule, accurately represents in all material respects the projected backlog of Seller with respect to the Business, consistent with such computation, methodologies and principles. For the avoidance of doubt, Seller does not represent and warrant as to the actual fulfilment of the projected backlog.

 

 

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  Section 3.16             Operation of the Business.  No part of the Business is currently operated by Seller through any entity other than Seller. Except as set forth in Section 3.16 of the Seller

Disclosure Schedule, (i) there is no agreement (non-compete or otherwise), commitment, judgment, injunction, order or decree to which Seller is a party or which is otherwise binding upon Seller, which has or is reasonably expected to have the effect of prohibiting or impairing the ability of Buyer to operate the Business and the Transferred Assets after the Closing in materially the same manner as currently operated by Seller,  and (ii) without limiting the foregoing, Seller has not entered into any agreement under which it is restricted from selling, licensing or otherwise distributing any products Related to the Business, which agreement will prevent the Buyer from operating the Business after the Closing in the same manner as it is currently operated by Seller.  

Section 3.17            Product Defects; Product Warranties. There is no action, suit, proceeding or investigation involving any product liability claim in progress, pending, or, to Seller’s Knowledge, threatened, against or affecting the Business alleging any defect in the design or manufacture of or the materials used in any of the Seller's products Related to the Business.  Each product Related to the Business that has been designed, manufactured, assembled, sold, repaired, maintained, leased, installed or delivered, and each service Related to the Business that has been provided, by or on behalf of Seller has been in material compliance with all applicable contractual commitments, warranties and Legal Requirements. Seller has no Liability (and there is no pending or, to Seller’s Knowledge, threatened claim against Seller that would be reasonably expected to give rise to any Liability) for replacement or repair thereof or other damages in connection therewith, except for such Liabilities that would not, individually or in the aggregate, have a Material Adverse Effect. To Seller’s Knowledge, Seller does not have any Liability arising out of any injury to individuals or any material damage to property as a result of the ownership, possession or use of any products designed, manufactured, assembled, licensed, sold, repaired, maintained, leased, installed or delivered or services rendered by or on behalf of Seller that are Related to the Business.  

Section 3.18             No Changes.  

(a)         Except as set forth in Section 3.18 of the Seller Disclosure Schedule, since December 31, 2012 there has not been, occurred or arisen any:  

(i)            transaction by the Seller in relation to the Business, except in the ordinary course of business and consistent with past practices;  

(ii)           destruction of, damage to or loss of any material assets, business or (to Seller's Knowledge) customer of the Business (whether or not covered by insurance);

 

 

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  (iii)          increase in the salary or other compensation payable or to become payable to any of the Employees, or the declaration, payment or commitment or

obligation of any kind for the payment of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement;  

(iv)         any Encumbrance placed on any of the Transferred Assets which remains in existence on the date hereof;  

(v)           amendment or termination of any material Contract that is Related to the Business;  

(vi)         loan by Seller to any person or entity, the incurrence by Seller of any indebtedness, the guaranty by Seller of any indebtedness, issuance or sale of any debt securities of Seller or the guaranty of any debt securities of others, in each such event as Related to the Business (and not to any other part of Seller's business);

  (vii)         waiver or release of any material right or claim of Seller, including any write-off or other compromise of any account receivable of Seller, Related to the

Business;  

(viii)       any material contingent liabilities incurred by Seller with respect to the obligations of any other Person that would be assumed hereunder by Buyer;  

(ix)          written notice or overt threat of commencement of any lawsuit or proceeding against or (to Seller’s  Knowledge) investigation of Seller or its affairs Related to the Business;

  (x)           written notice of any claim of ownership by a third party of the Intellectual Property rights or of infringement by the Intellectual Property of any third party's

intellectual property rights;  

(xi)          material change in pricing or royalties set or charged by Seller to the Business’ customers or licensees or in pricing or royalties set or charged by persons who have licensed intellectual property to the Business;

  (xii)          to Seller’s Knowledge, event or condition of any character that has had or could be reasonably expected to have a Material Adverse Effect;

  (xiii)        any agreement (whether written or oral) to do any of the things described in the preceding clauses.  

 

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  (b)         Since January 31, 2013, there has not been, more than a 5% deviation (positive or negative) in the value of the Written-Off Inventory and the accounts payable,

except with respect to Flextronics.  

Section 3.19             Taxes. All taxes, duties and assessments payable or incurred by Seller prior to the Closing Date that are reasonably expected to result in an Encumbrance upon any of the Transferred Assets have been or will timely be paid by Seller other than those being contested in good faith by Seller. There is no Encumbrance for Taxes upon any of the Transferred Assets nor, to the Knowledge of Seller, is any taxing authority in the process of imposing any Encumbrance for Taxes on any of the Transferred Assets.  

Section 3.20             Solvency. Seller is not now insolvent, and will not be rendered insolvent by any of the transactions contemplated by this Agreement or the Transaction Documents.  As used in this Section, “insolvent” means that the sum of Seller’s debts and other probable Liabilities exceeds the present fair saleable value of Seller’s assets. Immediately after giving effect to the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby, Seller will be able to pay its Liabilities as they become due in the usual course of its business.  

Section 3.21             Full Disclosure. The representations and warranties of Seller contained in this Agreement and in any other document delivered under this Agreement or any Closing Document are true and correct and do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained in those representations and warranties not misleading to a prospective acquirer of the Business.  Except for matters disclosed in this Agreement, to the Seller’s Knowledge there are no facts which (individually or in the aggregate) materially adversely affect the Business or the operation thereof.  

ARTICLE IV  

REPRESENTATIONS AND WARRANTIES OF BUYER  

Buyer hereby represents and warrants to Seller that the following statements are true and correct as of the date hereof and will be true and correct as of the Closing Date:  

Section 4.1               Organization and Qualification. Buyer is a company duly incorporated and validly existing under the laws of the State of Israel. Buyer has the requisite corporate power and authority to own and hold its properties and to carry on its business as now being conducted.

 

 

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Section 4.2              Authority; Noncontravention. Buyer has the requisite power and authority, and is competent, to execute, deliver and perform this Agreement the Transaction

Documents, to consummate the transactions contemplated hereby and thereby and to comply with the provisions of this Agreement and the other Transaction Documents. The execution, delivery and performance of this Agreement and the other Transaction Documents by Buyer, the consummation by Buyer of the transactions contemplated hereby and thereby (alone or in combination with any other event) and the compliance by Buyer with the provisions of this Agreement and the other Transaction Documents have been duly authorized by all necessary action on the part of Buyer, and no other action or proceeding on the part of Buyer is necessary to authorize this Agreement or the other Transaction Documents or to consummate the transactions contemplated hereby or thereby. This Agreement and the other Transaction Documents have been (or will be immediately prior to the Closing) duly executed and delivered by Buyer and, assuming the due authorization, execution and delivery by Seller or the other parties thereto, constitute valid and binding obligations of Buyer enforceable against it in accordance with their terms, except to the extent that enforceability may be limited by the effect, if any, of (i) any applicable bankruptcy, reorganization, insolvency, moratorium or other Laws affecting the enforcement of creditors' rights generally, or (ii) general principles of equity, regardless of whether such enforceability is considered in a proceeding at law or in equity. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby (alone or in combination with any other event) and compliance by Buyer with the provisions of this Agreement and the other Transaction Documents do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) (any such event, a “Buyer Conflict”) under (i) the Corporate Documents of Buyer, (ii) any Legal Requirement or any order of any court or other Governmental Entity by which Buyer is bound, or (iii) any provision of any Contract, permit, concession, franchise or license to which Buyer is a party.

  Section 4.3               Consents. No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity or any other Person (so

as not to trigger any Buyer Conflict) is required by or with respect to Buyer in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents by Buyer, the consummation by Buyer of the transactions contemplated hereby or thereby (alone or in combination with any other event) or the compliance by Buyer with the provisions of this Agreement or the other Transaction Documents and such other consents, waivers, approvals, orders, authorizations, registrations, declarations and filings which are set forth on Schedule XVIII hereto (the “Buyer Required Consents”).  

Section 4.4               Litigation. There are no claims, actions, suits, proceedings, labor disputes or investigations pending or, to the Knowledge of Buyer, threatened, before any Governmental Entity, brought by or against Buyer or any of its officers, directors, employees, independent contractors or agents related to the transactions contemplated hereby.  

Section 4.5               No financing contingency. Buyer shall have through the earlier of the Closing or the termination of this Agreement pursuant to ARTICLE IX, the cash amounts necessary to timely pay the aggregate purchase price.

 

 

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  Section 4.6              Disclosure of Information; Prior Advice. Without in any way derogating from Buyer's reliance upon Seller's representations and warranties in this Agreement and in

any of the Transaction Documents, Buyer hereby confirms that it has completed its due diligence investigation in regard of the transactions contemplated herein to its full satisfaction, has had an opportunity to ask questions concerning the transactions contemplated herein and has received all the information required by it and has had an opportunity to obtain the advice of counsel, accountants and other advisors that it deems necessary prior to entering into this Agreement and the other Transaction Documents as to the financial, tax and legal consequences and related matters in connection with the transactions contemplated herein and therein.  

ARTICLE V  

CONDUCT PRIOR TO CLOSING

Section 5.1              During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to ARTICLE IX hereof and the Closing (the “Pre-Closing Period”), other than (i) as contemplated hereunder, (ii) as required by applicable Law, or (iii) with the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed):  

(i)         Seller shall conduct the Business in the ordinary course and in substantially the same manner as the Business is being conducted as of the date of this Agreement and accordingly shall not accelerate the payment of any Accounts Receivables or delay the payment of any accounts payable;

(ii)        Seller shall use reasonable commercial efforts to preserve intact its current business organization and maintain its beneficial relations with

all suppliers, customers, landlords, creditors, and other Persons having business relationships with Seller, all, to the extent Related to the Business, except changes resulting from the announcement, pendency, execution or performance of the transactions contemplated by this Agreement (including any adverse effect on any of the foregoing, which Seller undertakes to mitigate);

(iii)       Seller shall not make any sale, assignment, transfer, abandonment or other conveyance of the Transferred Assets or any part thereof,

except transactions pursuant to existing Contracts or sales in the ordinary course of the Business;

(iv)       Seller shall not subject any of the Transferred Assets, or any part thereof, to (i) any indebtedness in excess of US$ 10,000 for any individual indebtedness, and US$ 50,000 for all indebtedness in the aggregate, or (ii) Encumbrance, or suffer such to exist, in each case other than Permitted Encumbrances;

 

 

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(v)        In connection with the Employees, Seller shall not enter into any new (or amend any existing) employee benefit plan, program or

arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation payable or to become payable (including bonuses but excluding special one-time bonuses to be paid by Seller and salary increases following past salary decreases, which were imposed as part of a cost reduction plan), except in accordance with contractual provisions in effect as of the date hereof;

(vi)       Seller shall not dispose of or permit to lapse any rights in, to or for the use of any Intellectual Property, or disclose to any Person who is

not an Employee of Seller any Intellectual Property not in the ordinary course of the Business, except pursuant to judicial or administrative process;

(vii)      Seller shall not license any Intellectual Property to any third party, other than in the ordinary course of the Business;

(viii)     Seller shall not cancel or compromise any material debt or claim of material value to the Business without the Business receiving a benefit of similar or greater value;

  (ix)        Seller will not directly or indirectly initiate, solicit, encourage, enter into or respond to any discussions or solicitations with regard to any

Acquisition Transaction;    

(x)         Seller will terminate immediately any recent or current direct or indirect discussions or negotiations with respect to any Acquisition Transaction;

  (xi)        Seller shall refrain from sharing confidential information (other than (i) in the ordinary course of business consistent with past practices,

and/or (ii) information that does not constitute any Intellectual Property to potential investors and/or potential purchasers interested, directly or indirectly, in purchasing any portion of the security interests in Seller, in each case who are subject to confidentiality undertakings) concerning the Business with non-affiliated parties, and without limiting the generality of the foregoing, shall cease immediately to provide or furnish, directly or indirectly, any confidential information with respect to any Acquisition Transaction;

 

 

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  (xii)       Seller shall immediately inform Buyer of any direct or indirect receipt by Seller of any inquiry in relation to any possible Acquisition

Transaction;  

(xiii)      Seller shall refrain from terminating not for cause any Assigned Contract;  

(xiv)     Seller shall (i) not cancel, waive or vary in any material way the terms of any debt owing to or any claim or right for an amount involving in excess of US$ 5,000 in the aggregate, in each case solely to the extent Related to the Business, and (ii) maintain in full force and effect all Insurance Policies maintained by or for the benefit of Seller and Related to the Business and give all notices and present claims under those Insurance Policies in a timely fashion;

  (xv)       Seller shall make all reasonable efforts to not change or alter the physical content or character of any Inventory so as to materially and

adversely affect the nature of the Business or materially and adversely change the value of the Inventory, except in the ordinary course of business consistent with past practices;

  (xvi)      Seller shall make all reasonable efforts to not cause or permit to exist a breach of any of the representations and warranties of Seller

contained in this Agreement or in any Transaction Document (other than due to the passage of time);  

(xvii)     Seller shall not take any action that could impact the calculation of the adjustment to the Cash Consideration pursuant to sub-Section 2.6Section 2.6(a)(iii), without the prior written consent of Buyer, except in the ordinary course of business.

  (xviii)   Seller shall provide Buyer with a daily and weekly report with respect to all changes in Accounts Receivable, accounts payable and receipt

and payment of cash Related to the Business; and   (xix)      Seller shall not authorize or enter into any agreement or commitment to take any of the actions described in this Section 5.1.  

 

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ARTICLE VI

  COVENANTS

  Section 6.1               Access and Information.

  (i)                From the date hereof until the Closing, subject to any applicable Laws or other regulations or the rules of the applicable stock exchange, TASE

or NASDAQ, Seller shall (i) afford Buyer and its representatives access, during regular business hours and upon reasonable advance notice from Buyer, to the Employees (including by participation as members of an integration team whose members and procedures will be agreed to by the Parties) assets, books and records of the Business, and (ii) furnish, or cause to be furnished, to Buyer any financial and operating data and other information that is available with respect to the Business as Buyer from time to time reasonably requests; provided that such access (x) shall not interfere with the business or operations of Seller, and (y) shall not cause Seller to disclose information that would be reasonably expected to result in the disclosure of Trade Secrets of third parties, violate any of its obligations with respect to confidentiality or invalidate or terminate any legal privilege, in each case as determined by Seller in its reasonable judgment. All requests for information made pursuant to this Section 6.1(i) shall be directed to such Person or Persons as may be designated by Seller in writing from time to time. All information received pursuant to this Section 6.1(i) shall be deemed Confidential Information.

  (ii)               Buyer agrees to retain all books and records Related to the Business in existence on the Closing Date for a period of not less than 7 years

following the Closing and to make personnel of Buyer available to Seller to the extent such access is necessary for Seller to comply with the terms of this Agreement, any Transaction Document or any applicable Law.

  Section 6.2               Public Disclosure. Each of the parties hereto hereby agrees not to (and to cause its officers, shareholders, directors, representatives and Affiliates not to) make any

public announcement, notice, or any other communication or disclosure to any other third party regarding the existence or any term of this Agreement, any Transaction Document or the transactions contemplated hereby and thereby (collectively, the “Confidential Information”), without the prior written approval of the other party hereto, which shall not be unreasonably withheld, conditioned or delayed, except where required to be issued or made by or in accordance with applicable Law or other regulations or the rules of the applicable stock exchange, TASE or NASDAQ, subject to provision of prior written notice of such required disclosure to the other parties and the relevant party being compelled to disclose shall reasonably cooperate with the other parties if any such other parties elect to challenge the validity of the requirement to disclose. Notwithstanding the foregoing, Buyer acknowledges that the Seller is required to report the execution of this Agreement and the other Transaction Documents and/or the consummation of the transactions contemplated hereby or thereby in compliance with its public disclosure requirements, and Buyer hereby consents to such reporting by the Seller.

 

 

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  Section 6.3               Reasonable Best Efforts.  (i)  Seller and Buyer shall cooperate and use their respective reasonable best efforts to fulfill as promptly as practicable the conditions

precedent to the other party’s obligations hereunder, including securing as promptly as practicable all consents, approvals, waivers and authorizations required in connection with the transactions contemplated hereby.  

(ii)             Seller and Buyer shall cooperate with each other and shall furnish to the other party all information necessary or desirable in connection with making any required filing under the R&D Law and for any application or other filing to be made pursuant to any applicable Law with respect to the transactions contemplated by this Agreement.

  Section 6.4               Tax Matters.

  (i)              Seller Liability for Taxes. Seller shall be liable for (A) any Taxes imposed with respect to the Business or any Transferred Assets or any income or

gain derived with respect thereto for the taxable periods, or portions thereof, ended on or before the Closing Date, (B) Losses directly relating to or arising out of any Liability for Taxes imposed with respect to the Business or any Transferred Assets or any income or gain derived with respect thereto for the taxable periods, or portions thereof, ended on or before the Closing Date, and (C) any Transfer Taxes for which Seller is liable pursuant to applicable Law.

  (ii)              Buyer Liability for Taxes. Buyer shall be liable for (A) any Taxes imposed with respect to the Business or any Transferred Assets or any income

or gains derived with respect thereto for any taxable period, or portion thereof, beginning immediately after the Closing Date, (B) Losses directly relating to or arising out of any Liability for Taxes imposed with respect to the Business or any Transferred Assets or any income or gains derived with respect thereto for any taxable period, or portion thereof, beginning after the Closing Date, and (C) any Transfer Taxes for which Buyer is liable pursuant to applicable Law.

  (iii)              Proration of Taxes. To the extent necessary to determine the Liability for Taxes for a portion of a taxable year or period that begins before and

ends after the Closing Date, the determination of the Taxes for the portion of the year or period ending on, and the portion of the year or period beginning after, the Closing Date shall be determined by assuming that the taxable year or period ended as of the close of business on the Closing Date, except that those annual property taxes and exemptions, allowances or deductions that are calculated on an annual basis shall be prorated on a time basis.

 

 

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  (iv)              Tax Returns. If either party shall be liable hereunder for any portion of the Tax shown due on any Tax Returns required to be filed by the other

party, the party preparing such Tax Return shall deliver a copy of the relevant portions of such Tax Return to the party so liable for its review and approval not less than 30 days prior to the date on which such Tax Returns are due to be filed (taking into account any applicable extensions). If the parties disagree as to any item reflected on any such return, Seller shall determine how the disputed items are reflected, if at all, unless such returns relate solely to Taxes for which Buyer is liable hereunder, in which case Buyer shall make the determination.

  (v)               Contest Provisions. Each of Buyer and Seller shall promptly notify the other in writing upon receipt of notice of any pending or threatened

audits or assessments with respect to Taxes for which such other party (or such other party’s Affiliates) may be liable hereunder. Seller shall be entitled to participate in the defense of and, at its option, take control of the complete defense of, any Tax audit or administrative or court proceeding relating to Taxes for which they may be liable, and to employ counsel of its choice at its expense. Neither party may agree to settle any claim for Taxes for which the other may be liable without the prior written consent of such other party, which consent shall not be unreasonably withheld.

  (vi)              Assistance and Cooperation. After the Closing Date the parties shall cooperate fully in preparing for any audits of, or disputes with Taxing

authorities regarding, any Tax Returns and payments in respect thereof. Each party shall (i) provide timely notice to the other in writing of any pending or proposed audits or assessments with respect to Taxes for which such other party or any of its Affiliates may have a liability under this Agreement and (ii) furnish the other with copies of all relevant correspondence received from any Taxing authority in connection with any audit or information request with respect to any Taxes referred to in (i).

  Section 6.5               Post-Closing Obligations of the Business to Employees.  (i)  As promptly as practicable following the date of this Agreement, and in any event not later than the

second Business Day hereafter, Seller shall deliver written notices of termination of employment to such Employees and shall take all other actions required by applicable Law to terminate their employment, where such termination shall be conditioned upon and become effective on the Closing Date. Buyer and/or its Affiliates shall enter into Employment Agreements (as defined below) with each of the Hired Former Employees, pursuant to which their employment shall commence on the Closing Date. On or prior to the Closing Date, Seller shall pay in full all benefits and rights accrued in favor of all Employees as of the Closing Date. As a condition to their employment by Buyer, all Hired Former Employees shall execute a consent and waiver in the form to be attached hereto as Exhibit H.

 

 

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  (ii)               Seller shall have sole responsibility for all claims, Liabilities and costs, which may arise from: (i) the termination of employment of any Employee

prior to or at the Closing; and (ii) any contractual obligations owed to Transferred Employees, including, among other things, all wages, prior notice period (or payment in lieu thereof), vacation days (including any accrued vacation days), recreation and/or recuperation pay, bonuses, commissions, pay for other compensated absences and other remuneration (including mandatory or discretionary benefits) due to such Employees with respect to his or her employment or engagement with the Seller through the Closing Date and the termination thereof, including any related payroll deductions (such as employee benefit plan contributions and employment Taxes which shall be paid when due) with respect thereto.

  (iii)              Buyer is not, and shall not be deemed to be, a successor employer to Seller with respect to any employee benefit plans of the Seller, and Buyer

does not and shall not assume any such benefit plan, including any severance plans of Seller.  

Section 6.6               Notification of Certain Matters. During the Pre-Closing Period, Seller shall promptly notify Buyer, and Buyer shall promptly notify Seller, in writing of the discovery of any of the following:  

(i)                any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in or breach of any representation or warranty made by the relevant party in this Agreement;

  (ii)               any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that causes or constitutes, or could

reasonably be expected to cause or constitute, a material inaccuracy in or breach of any representation or warranty made (or to be made on the Closing Date) by the relevant party in this Agreement;

  (iii)              any material notice or other material communication of which Seller has Knowledge from any Governmental Entity or other Person in connection

with the transactions contemplated by this Agreement;  

 

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  (iv)              any actions, suits, claims, investigations or proceedings commenced or, to Seller's Knowledge threatened against, relating to or involving or

otherwise affecting Seller or the Business that are Related to the Business or to the consummation of the transactions contemplated by this Agreement; and  

(v)              any Material Adverse Effect (with respect to Buyer, as such defined term is used for Seller, subject to necessary changes).  

Section 6.7               Confidentiality. (i) Seller shall treat as confidential and shall safeguard any and all information, knowledge and data included in the Transferred Assets, by using the same degree of care, but no less than a reasonable standard of care, to prevent the unauthorized use, dissemination or disclosure of such information, knowledge and data as Seller or its Affiliates used with respect thereto prior to the execution of this Agreement.  

(ii)              Buyer and Seller acknowledge that the confidentiality obligations set forth in Section 6.2 and in Section 6.7(i) shall not extend to information, knowledge and data that is publicly available or becomes publicly available through no act or omission of the party owing a duty of confidentiality, or becomes available on a non-confidential basis from a source other than the party owing a duty of confidentiality so long as such source is not known by such party to be bound by a confidentiality agreement with or other obligations of secrecy to the other party.

  Section 6.8               Collection of certain Invoices; Sale of certain Inventory. Buyer shall not, without the prior written consent of Seller, such consent not to be unreasonably withheld,

assign to any third party the right to receive payment for the Written-Off Inventory.  

Section 6.9               Repurchase of Inventory. Buyer hereby agrees, subject to the Closing, to take, or cause to be taken, any further action and to do, or cause to be done, all reasonable things in order to sell after the Closing Date all of the Inventory transferred by Seller to Buyer hereunder. In the event that Buyer is unable, despite using its reasonable efforts, to sell, within 18 months after the Closing Date, any portion of the Inventory (specifically excluding the Written-Off Inventory) sold to Buyer hereunder, Buyer will prepare and deliver to the Seller a statement setting forth in reasonable detail the calculation of the applicable unsold Inventory based on the book value of such Inventory as set forth in Exhibit I hereto (the "Buyer Inventory Notice"), and the provisions of Section 2.6(c)(i), (ii) and (iii) shall apply, with the necessary changes. Seller's obligation to repurchase the applicable portion of such unsold Inventory (specifically excluding the Written-Off Inventory but including any off-balance sheet Inventory) is up to an amount equal to One Million and Five Hundred Thousand United States Dollars (US$1,500,000).

 

 

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  Section 6.10            Compact 5GHz. Within six months from the Closing Date, Buyer shall inform Seller in writing of its intention with respect to its development of the Compact 5GHz

frequency band and the parties shall determine in good faith whether or not such product shall be included under a reseller agreement between the parties, an NRE arrangement between the parties or otherwise.  

Section 6.11             Standstill.  

(i)                Standstill Period. Buyer hereby agrees that during the Pre-Closing Period and the Standstill Period, Buyer shall not, and shall cause its Affiliates, shareholders, officers and directors not to, directly or indirectly, alone or in concert with any other Person, (i) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any shares of Seller or direct or indirect rights to acquire shares of Seller or any other securities of Seller; (ii) solicit proxies for voting securities of Seller; (iii) subject any voting securities of Seller to any arrangement or agreement with any Person with respect to the voting of such securities;  (iv) initiate any shareholder proposal or tender offer for any voting securities of Seller or any Subsidiary thereof; (v) call, or seek to call, a meeting of Seller’s shareholders or initiate any proposal for action by shareholders of Seller; (vi) seek election or seek to place a representative on the Board of Directors of Seller or seek the removal of any member of the Board of Directors of Seller.

  (i)                Effect of Standstill Violation. Any violation of the covenants under this Section 6.11 by any Affiliate, shareholder, officer or director of Buyer

shall be deemed to be a violation of this Agreement by Buyer.  

(ii)              Injunctive Relief. The parties hereto hereby acknowledge that monetary damages may not be a sufficient or adequate remedy for violation of this Section 6.11 and that, in addition to any other remedy which may be available in Law or equity, and without any wavier or limitation with respect thereto, the Seller shall be entitled to seek such injunctive or equitable relief as may be deemed proper by a court of competent jurisdiction.

 

 

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  Section 6.12             Determination and Allocation of Purchase Price. The parties to this Agreement agree to mutually determine the allocation of the Purchase Price, no later than 90 days

from the Closing Date, among the types of assets (e.g. tangible assets, intangible assets, know-how, goodwill and non-competition agreements). Once such allocation is determined, it shall be attached hereto as Schedule XIX hereto, and such allocation of the Purchase Price shall be binding on Seller and Buyer for all Tax reporting purposes. Neither Buyer nor Sellers shall take any position (whether in connection with audits, filing of tax returns or otherwise) that is inconsistent with such allocation unless required to do so by applicable Law.  

Section 6.13             Replacement of Guarantees. All guarantees (including bank guarantees), deposits, performance bonds or similar arrangements listed on Schedule XX hereto, which were provided prior to the Closing Date by or on behalf of Seller or any of its Affiliates in connection with the Transferred Assets and/or the Assumed Liabilities (collectively, the "Guarantees"), shall be replaced by Buyer, effective as of the Closing Date, and Buyer shall provide Seller, on the Closing Date, copies of such suitable guaranties acceptable to the applicable third party in favor of which the Guarantee was provided, which shall replace, effective as of the Closing, the Guarantees (collectively, the "Buyer Guarantees"). Buyer hereby irrevocably and unconditionally agrees, subject to the Closing, to take, or cause to be taken, any further action and to do, or cause to be done, all things that are necessary or desirable, to return, or cause the return, of the Guarantees to Seller.  

Section 6.14             Equipment. In addition to any other remedy available to it hereunder, Buyer shall be entitled to deliver to Seller within 12 months following the Closing Date a notice for the transfer to it of certain tangible assets that are used by Seller in the operation of the Business as of the date hereof and as of the Closing Date but which were not included in the list of equipment identified on the Schedule of Transferred Assets  (Schedule XIII)  (the "Missing Equipment"). Unless determined otherwise by an agreed upon independent expert, such Missing Equipment shall be deemed a Transferred Asset hereunder and if not in the possession of Buyer or its Affiliates shall be provided to Buyer by Seller, and each of the parties hereto shall promptly do, make, execute or deliver, or cause to be done, made, executed or delivered, such further acts, documents and things as the other party hereto may reasonably require for the purpose of giving effect to the foregoing.   

Section 6.15             Insurance Policies.  

(i)               After the Closing Date, Buyer shall add Seller as an "insured party" to its product liability insurance policy, at Seller's expense (which expense shall be approved in advance by Seller, which approval shall not be unreasonably withheld, delayed or conditioned), to become effective at the Closing, with a claims period of at least seven years following the Closing. Such insurance policy shall cover Seller with respect to acts or omissions occurring prior to or at the Closing (including the transactions contemplated by the Transaction Documents). Any additional premium actually paid as a result solely of the foregoing shall be reduced from the Cash Consideration, as set forth in Section 2.6(a)(ii) (the "Additional Premium").

 

 

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  (ii)               After the Closing, Buyer shall take, at its expense, all actions to maintain insurance policies with respect to the Business similar in all material

terms to the terms of the Insurance Policies. Buyer shall have the right to appoint the insurance broker of its choosing to effect the coverage of the insurance policies required by this Section 6.15; provided that the coverage is on terms similar in all material respects to the terms of the Insurance Policies.

  (iii)              If after the Closing Buyer or any of its Affiliates, successors or assigns (i) consolidates with or merges into any other corporation or entity and

is not the continuing or surviving corporation or entity of the consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then in each such case, Buyer shall use commercially reasonable efforts to cause proper provisions to be made so that the Affiliates, successors and assigns of Buyer or its Affiliates, as applicable, assume all of the obligations set forth in this Section 6.15.

  Section 6.16            OCS

  (i)               Following the date hereof, Seller shall provide Buyer with (i) a letter from Seller's auditors confirming the total amount invested by Seller in the

research and development covered by the OCS plans listed in Schedule XII, and (ii) evidence in writing indicating the amounts paid to the OCS in connection with the transactions for the sale of the Excluded Intellectual Property and their correlation with the plans listed in Section B of Schedule XII (collectively, the "OCS Deliverables").

  (ii)              Prior to Closing, Buyer shall determine which of the plans listed in Section B of Schedule XII it agrees to assume; provided that Buyer shall be

obligated to assume any OCS plan listed in Schedule XI that relates solely to Transferred Intellectual Property and with respect to which the OCS confirmed that there are no outstanding monetary obligations arising as a result of the consummation of the transactions contemplated hereunder.

 

 

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  Section 6.17             Non-Competition.

  (i)                Except in accordance with the terms of the Seller Reseller Agreement, without the written consent of Buyer, Seller shall not (i) for a period of two

(2) years from the Closing, directly or indirectly compete with the Business, including the development, manufacture, marketing or sale of any technology or product which is the same or substantially the same as any existing product Related to the Business and/or the Transferred Assets, provided that (a) the ownership of less than 5% (five percent) of the share capital of a publicity traded company and (b) the performance of Seller’s current business (other than in relation to the Business and/or Transferred Assets) shall not be prohibited hereunder; or (ii) for a period of one (1) year from the Closing, employ or knowingly solicit the employment of any Hired Former Employee with a view to inducing that person to leave such employment with Buyer or its Affiliates and to act for another employer; provided that such restrictions shall not apply to the placement of general advertisements, participation at job fairs and recruiting workshops or the use of general search firm services with respect to a particular geographic or technical area, but which are not targeted, directly or indirectly, towards any Hired Former Employee.

  (ii)               Without the written consent of Seller, Buyer shall not for a period of one (1) year from the Closing, employ or knowingly solicit the employment

of any employee of Seller with a view to inducing that person to leave such employment with Seller or its Affiliates and to act for another employer; provided that such restrictions shall not apply to the placement of general advertisements, participation at job fairs and recruiting workshops or the use of general search firm services with respect to a particular geographic or technical area, but which are not targeted, directly or indirectly, towards any Seller employee.

  (iii)              The parties agree that the duration and geographic scope of the non-competition provision set forth in this Section 6.16(i) are reasonable. In the

event that any court of competent jurisdiction, in a final nonappealable judgment, shall determine that the duration or the geographic scope, or both, are unreasonable and that such provision is to that extent unenforceable, the parties agree that the non-competition provision shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable, and in that event Seller hereby consents that such provision may be judicially modified accordingly in any proceeding brought to enforce the provisions of this Section Section 6.16. Seller hereby agrees that a breach of its obligations under this Section may cause the Buyer irreparable damage and therefore agrees in advance that the Buyer should be entitled and deserves to obtain an injunction order in addition to any other remedy to which they are entitled at law or in equity.

 

 

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  Section 6.18             Full Cooperation. The parties shall, and shall instruct their respective officers, representatives and advisors to, cooperate with the other party hereto and its officers,

representatives and advisors, in approaching customers whose consents constitute Seller Required Consents and obtaining such consents. The parties shall use all reasonable efforts to promptly take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to obtain such Seller Required Consents as set forth in Section 7.2(iii) below.  

ARTICLE VII  

CONDITIONS TO CLOSING  

Section 7.1               Conditions to the Obligations of Buyer and Seller. The obligations of the parties hereto to affect the Closing are subject to the satisfaction (or waiver in writing by Buyer and Seller) prior to the Closing of the following conditions:  

(i)                No Order. No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which (i) is in effect and (ii) has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting or preventing consummation of thereof.

  (ii)               Governmental Approvals.  All waiting periods (and any extension thereof) applicable to the transactions contemplated hereby under any

applicable Law shall have expired or terminated and all other material authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity relating to the transactions contemplated hereby shall have been filed, obtained or expired (as the case may be).

  Section 7.2               Additional Conditions to the Obligations of Buyer. The obligation of Buyer to affect the Closing is subject to the satisfaction (or waiver in writing by Buyer)

prior to the Closing of the following conditions:  

(i)                Representations and Warranties. The representations and warranties of the Seller contained in this Agreement shall be true, correct and complete in all material respects as of the date of this Agreement and the Closing Date as if made on the Closing Date (except for such representations and warranties which by their express terms are made solely as of a specified earlier date in which case such representations and warranties shall be true, correct and complete in all material respects as of such specified earlier date).

 

 

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  (ii)               Performance. The Seller shall have performed and complied, in all respects, with each agreement, covenant and obligation required by this

Agreement to be so performed or complied with by the Seller on or before the Closing.  

(iii)              Consents. Subject to Buyer's obligations under Section 6.18, Buyer shall have received all of the Seller Required Consents listed on Schedule XXII; provided that with respect to customers, the following shall apply:

  "First Stage Customer Consents" means (i) 50% of the 20 biggest customers of the Business in 2012, which represent at least 50% of the revenues derived from the Business for 2012, including INTERPROEKT LLC (“FRESHTEL”) and Barrett Xplore Inc., and (ii) Trans Telecom. First Stage Customer Consents shall be obtained prior to Closing;

  "Second Stage Customer Consents" means three of RENTA DE EQUIPO S.A DE C.V./Telefonos De Mexico S.A.B. De, Telmex Argentina, Safaricom and Umika Limited, provided that RENTA DE EQUIPO S.A DE C.V./Telefonos De Mexico S.A.B. De shall be among them, and 75% of the 20 biggest customers of the Business in 2012, and any of the customers listed in item (ii) in the definition of First Stage Customer Consents that Buyer may have waived at Closing. Second Stage Customer Consents shall be obtained prior September 30, 2013;

  "Third Stage Customer Consent" means the remaining customers of the seven listed in the definitions of First Stage Customer Consents and Second Stage Customer Consents.  Third Stage Customer Consents shall be obtained prior to December 31, 2013.

  (a)          In the event that (a) the Second Stage Customers Consent shall not have been obtained by September 30, 2013, Seller shall not deposit the check for the second Post

Closing Installment until such Second Stage Customer Consents are obtained, (ii) the Second Stage Customers Consent and the Third Stage Customers Consent shall not have been obtained by December 31, 2013, Seller shall not deposit the check for the third Post Closing Installment until such Second Stage Customer Consents are obtained, and (iii) the Second Stage Customers Consent were obtained but the Third Stage Customers Consent was not obtained by December 31, 2013, Seller shall not deposit the check for the third Post Closing Installment until the Third Stage Customers Consent was received, provided that Seller shall be entitled to request Buyer to exchange such check for 2 checks each for 50% of the last Post Closing Installment (and Buyer shall comply with such request), one of which may be deposited immediately and the second shall not be deposited until receipt of the Third Stage Customers Consent

 

 

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  (b)         With respect to consents to be obtained post Closing from the aforementioned customers, receipt by Buyer of a duly executed purchase order or the provision by

Buyer to such customer of products or services shall be deemed provision of consent for purposes of this Section 7.2(iii).  

(iv)             OCS. Buyer shall have received the OCS Deliverables as defined in Section 6.16 and the OCS Consent shall be in full force and effect and all amounts due or that became due and payable under all of the OCS programs of Seller prior to the Closing Date (including the repayment to the OCS of all OCS Business Liability that became due and payable for the period prior to the Closing Date, if any) shall have been paid to the OCS, and the OCS shall have confirmed that, as of immediately following the Closing, there will be no royalty payment obligations with respect to revenues generated by the Buyer following the Closing from the sale of products of the Business which incorporate technologies funded by the OCS pursuant to the "generic" OCS Plans of the Seller.

  (v)              No Material Adverse Effect. There shall not have occurred between the date hereof and the date of the Closing a Material Adverse Effect.

  (vi)             No Proceedings. There shall not be pending or, to the Parties' Knowledge, threatened by any Government Entity any suit, action or proceeding

challenging or seeking to restrain, limit or prohibit any transactions contemplated by this Agreement or seeking to prohibit the ownership, operation or control by Buyer of any material portion of the Business.

  (vii)            Employee Termination Payments.  Buyer shall have received satisfactory evidence that (i) Seller has satisfied in full its obligations to the

Employees and (ii) all option or share incentive plans Related to the Business have been terminated in accordance with their terms.  

 

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  (viii)           Employment Agreements. At least 70% of the specific Employees listed on Schedule XXIII (as such list may be decreased by the Buyer prior to

the Closing), shall have entered into employment agreements with Buyer.  Buyer undertakes that the base salary offered to such Employees by Buyer may not be less than 90% of the base salary in effect with Seller as of the date hereof.

  (ix)              Closing Deliverables.  Buyer shall have received all closing deliverables as set forth in Section 2.11(b) and all Exhibits and other schedules

hereto; provided that if such Exhibits or schedules are not attached in an agreed, or substantially agreed, form, such Exhibits or schedules shall be in a form reasonably acceptable to Buyer.

  Section 7.3               Additional Conditions to the Obligations of Seller.  The obligation of Seller to affect the Closing is subject to the satisfaction (or waiver in writing by Seller) prior

to the Closing of the following conditions:  

(i)                Representations and Warranties. The representations and warranties of Buyer contained in this Agreement shall be true, correct and complete in all material respects as of the date of this Agreement and the Closing Date as if made on the Closing Date (except for such representations and warranties which by their express terms are made solely as of a specified earlier date in which case such representations and warranties shall be true, correct and complete in all material respects as of such specified earlier date).

  (ii)               Performance.  Buyer shall have performed and complied, in all material respects, with each agreement, covenant and obligation required by this

Agreement to be so performed or complied with by Buyer on or before the Closing.  

(iii)              Consents.  All Buyer Required Consents shall have been obtained.  

(iv)              No Proceedings. There shall not be pending or threatened by any Government Entity any suit, action or proceeding challenging or seeking to restrain, limit or prohibit any transactions contemplated by this Agreement.

  (v)               Closing Deliverables.  Seller shall have received all closing deliverables as set forth in Section 2.11(a); provided that if such Exhibits or

schedules are not attached in an agreed, or substantially agreed, form, such Exhibits or schedules shall be in a form reasonably acceptable to Seller.  

 

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  ARTICLE VIII

  SURVIVAL; CERTAIN REMEDIES; INDEMNIFICATION

  Section 8.1               Survival.  The representations and warranties of Seller and Buyer contained in this Agreement and all claims with respect thereto shall survive the Closing and shall

terminate upon the expiration of eighteen (18) months after the Closing Date (the “Survival Period”), except for (i) the representation and warranties contained in Section 3.4 (Title to Properties, etc.), Section 3.7 (Scope of Listed Contracts), Section 3.8 (Intellectual Property) or Section 3.13 (Employee Matters) (collectively, the “Fundamental Representations”), as to which the Survival Period shall terminate upon the expiration of forty-eight (48) months after the Closing Date, and (ii) claims based upon fraud or willful misconduct by Seller, as to which the Survival Period shall terminate upon expiration of the applicable statute of limitations.  

Section 8.2                Sole Remedy. The indemnification provisions contained in this ARTICLE VIII provide the sole and exclusive remedy of Buyer and any of its officers, directors, members, managers, control person and principle shareholders following the Closing Date as to all Losses they may incur arising from or relating to a breach by Seller of any of its representations, warranties or covenants included in this Agreement, provided that the foregoing limitations shall not apply in the case of fraud or willful misconduct by Seller.  

Section 8.3               Indemnification.  

(a)          Indemnification. Subject to the provisions of this ARTICLE VIII, Seller hereby agrees to indemnify Buyer and hold Buyer harmless from and against any Loss actually sustained or suffered by Buyer, as a result of:

 

 

 

 

 

 

 

 

  (i) any inaccuracy in any representation or warranty of Seller contained in this Agreement or in any other Transaction Document;

  (ii) any payments paid by the Buyer to an Inactive Customer under, and in accordance with, any Assigned Contract as are or were in effect prior to the Closing Date;

  (iii) any payments paid by the Buyer to an Active Customer pursuant to a final, non-appealable judgment of a competent court requiring the Buyer to make such payment(s); provided that Buyer shall not settle any such claim without the written consent of Seller, which shall not be unreasonably withheld, delayed or conditioned;

  (iv) any breach of any covenant or obligation of the Seller in this Agreement or in any other Transaction Document;

  (v) Any claims against Buyer with respect to the Excluded Assets and the Excluded Liabilities;

  (vi) Any claims from the OCS with respect to payment for completed plans assumed by Buyer pursuant to Section 6.16.

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  (b)         For the avoidance of doubt, neither the period of survival nor the liability of Seller with respect to the Seller's representations and warranties shall be reduced by any

investigation made at any time by or on behalf of Buyer.  

(c)          Basket. Seller shall not be liable for any Losses with respect to the matters set forth in Section 8.3(a)(i) until the aggregate amount of all such Losses exceeds an amount equal to US$ 150,000 (the “Basket Amount”); provided that (i) if the aggregate amount of all such Losses actually incurred by Buyer exceeds the Basket Amount, Buyer shall be entitled to indemnification for amounts of all such Losses from the first dollar and (ii) the Basket Amount shall not apply with respect to Losses incurred by Buyer as a result of fraud or willful misconduct by Seller. Seller shall not be liable for any Losses with respect to the matters set forth in Section 8.3(a)(ii) or Section 8.3(a)(iii), in each case, which Loss is not derived from a breach of a representation or warranty by Seller, until the aggregate amount of all such Losses exceeds an amount equal to US$ 1,500,000.

  (d)          Indemnification Cap. The maximum aggregate liability for Losses arising under Section 8.3(a)(i) of this Agreement shall be limited to (i) with respect to the

Fundamental Representations, an aggregate amount equal to one hundred percent (100%) of the Purchase Price actually paid to the Seller hereunder, and (ii) with respect to any other representation or warranty of Seller an aggregate amount equal to fifty percent (50%) of the Purchase Price actually paid to Seller hereunder. The maximum aggregate liability for Losses arising under Section 8.3(a)(ii) and (iii) of this Agreement shall be limited to an aggregate amount equal to one hundred percent (100%) of the Purchase Price actually paid to the Seller hereunder; provided that in no event shall the Seller be obligated to indemnify Buyer with respect to breaches of representations or warranties in an amount that in the aggregate exceeds the Purchase Price actually paid to Seller hereunder.

 

 

  (vii) Any claims against Buyer by any director or shareholder of Seller or an Affiliate thereof, regarding the Business or the execution, delivery or performance of this Agreement or the Transaction Documents or the transactions contemplated hereby or thereby, except for any such claims that relate to the period after the Closing Date; or

  (viii) Any claims against Buyer by any employee of Seller, relating to or arising out of the employment of such employee by Seller prior to the Closing Date or the termination thereof by Seller as contemplated hereunder, and any funds payable to any such employee in connection with such employment or such termination.

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  (e)          Seller shall not be liable for any Loss if such Loss is capable of remedy and is remedied in full by Seller, to the satisfaction of Buyer, within 90 (ninety) days of receipt

of the Notice of Claim (as defined below); provided that if such Loss is remedied in part to the reasonable satisfaction of Buyer within such 90-day period, Seller shall not be liable for the part of the Loss that has been so remedied.

  (f)          The procedures for indemnification under this Section 8.3 shall be as follows:

 

 

 

 

  (i) If Buyer has or claims to have incurred or suffered Losses for which it is entitled to indemnification pursuant to this ARTICLE VIII, such claim for indemnification hereunder (a “Claim”) may be made against Seller if notice of such Claim is served on Seller in writing as soon as is practicable in the circumstances after Buyer becomes aware thereof (a “Notice of Claim”), which shall specify in reasonable detail (i) the factual basis for such Claim, and (ii) the amount of the Claim (to the extent known). Such Notice of Claim shall specify whether the Claim arises as a result of a claim by a third party against Buyer (a “Third Party Claim”) or whether the Claim arises directly from Buyer (a “Direct Claim”).

  (ii) Direct Claims. With respect to Direct Claims, following receipt of notice from Buyer of a Notice of Claim, the Seller shall have 30 days to make such investigation of the Claim as Seller consider necessary or desirable. For the purpose of such investigation, Buyer shall make available to the Seller the information relied upon by Buyer to substantiate the Claim. If Seller does not respond within such 30-day period, Seller will be deemed to have accepted such Direct Claim. If Seller rejects all or any part of such Direct Claim, Seller and Buyer shall attempt in good faith for 30 days to resolve such Claim. If no such agreement can be reached through good faith negotiation within 30 days, either Buyer or Seller may thereafter commence an action. Only upon the decision of a final non-appealable judgment or order of a competent court as to the validity and amount of any Claim in such Notice of Claim, will Seller be obligated to indemnify Buyer for the Loss detailed in the Notice of Claim.

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  Section 8.4               Consequential Damages. Notwithstanding anything to the contrary contained in this Agreement, no Person shall be liable under this Agreement for any

consequential, special, incidental or indirect damages, including lost profits.  

Section 8.5               Adjustments to Losses; Insurance.  In calculating the amount of any and all Loss incurred by either party that is indemnifiable hereunder, the net proceeds actually received by non-breaching party or any of its Affiliates under any insurance policy or pursuant to any claim, recovery, settlement or payment by or against any other Person in each case relating to a written claim or demand for which the breaching-party may have Liability to any non-breaching party hereunder, net of any actual costs, expenses or premiums incurred in connection with securing or obtaining such proceeds, shall be deducted.

 

 

  (iii) Third Party Claims. With respect to any Third Party Claim, the Seller shall have the right, at its own expense, to participate in or assume control of the negotiation, settlement or defense of such Third Party Claim. If Seller elects to assume such control, Buyer shall cooperate with Seller, but shall have the right to participate in the negotiation, settlement or defense of such Third Party Claim at the reasonable expense of Buyer and shall have the right to disagree on reasonable grounds with the selection and retention of counsel, in which case counsel reasonably satisfactory to Seller and Buyer shall be retained by Seller. If Seller, having elected to assume such control, thereafter fail to defend any such Third Party Claim within a reasonable period of time, Buyer shall be entitled to assume such control and Seller shall be bound by the results obtained by Buyer with respect to such Third Party Claim. If Seller fails to assume control of the defense of any Third Party Claim, Buyer shall have the exclusive right to contest, settle or pay the amount claimed. Whether or not Seller assumes control of the negotiation, settlement or defense of any Third Party Claim, neither party shall settle any Third Party Claim without the written consent of the other party hereto, which consent shall not be unreasonably withheld, conditioned or delayed. If such consent is unreasonably withheld, conditioned or delayed, any settlement made in good faith shall be binding upon the other party.

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  Section 8.6               Reimbursement.  If a non-breaching party hereunder recovers an amount from a third party in respect of a Loss after all or a portion of such Loss has been paid by

the breaching-party, the non-breaching party shall promptly remit to said breaching-party the excess (if any) of (i) the amount paid by the breaching-party in respect of such Loss, plus the amount received from the third party in respect thereof, less (ii) the full amount of Loss.  

Section 8.7               Mitigation. Each non-breaching party hereunder shall take reasonable steps to mitigate all damages incurred or sustained thereby upon and after becoming aware of any event which could reasonably be expected to give rise to damages hereunder.  

ARTICLE IX  

TERMINATION  

Section 9.1               Termination. At any time prior to the Closing Date, this Agreement and the transactions contemplated hereby may be terminated:  

(i)            by mutual written consent of Buyer and Seller;  

(ii)           by either Buyer or Seller, if the transactions contemplated hereby shall not have occurred on or before the day that is 120 days after the date hereof (the "End Date") (and the right to terminate this Agreement under this Section 9.1 may not be restricted or waived except pursuant to a written instrument making specific reference to this Section 9.1); provided that the right to terminate this Agreement under this Section 9.1 shall not be available to any party whose breach of this Agreement or willful failure to fulfill any obligation hereunder has resulted in or contributed to the failure of the transactions contemplated hereby to occur on or before the End Date.

  (iii)           by Buyer, if Seller shall breach any representation, warranty, obligation or agreement hereunder, such that the conditions set forth in Section 7.2(i) would

not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, and such breach, by its nature, cannot be cured, or, if by its nature it can be cured, shall not have been cured within ten (10) days of receipt by the Seller of written notice of such breach; provided that Buyer has not breached any of its representations, warranties, obligations or agreements hereunder, such that the conditions set forth in Section 7.3(i) would not be satisfied as of the time of the Seller's breach or as of the time such representations or warranty of the Seller shall have become untrue;

  (iv)           by the Seller, if Buyer shall breach any representation, warranty, obligation or agreement hereunder, such that the conditions set forth in Section 7.3(i)

would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, and such breach, by its nature, cannot be cured, or, if by its nature it can be cured, shall not have been cured within ten (10) days following receipt by Buyer of written notice of such breach; provided that the Seller has not breached any of its representations, warranties, obligations or agreements hereunder, such that the conditions set forth in Section 7.2(i) would not be satisfied as of the time of Buyer's breach or as of the time such representations or warranty of Buyer shall have become untrue;

 

 

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  (v)           by Buyer or the Seller if any Governmental Entity of competent jurisdiction shall have issued a permanent injunction or other order preventing the

consummation of the transactions contemplated hereby that shall have become final and nonappealable; and  

(vi)           by Buyer or the Seller if any statute, rule, regulation or order has been enacted, promulgated or issued or deemed applicable to the transactions contemplated hereby by any Governmental Entity that would make consummation of the transactions contemplated hereby illegal.  

Section 9.2              Effect of Termination. In the event of termination of this Agreement as provided in Section 9.1, this Agreement shall forthwith become void, and except as specifically stated otherwise herein, there shall be no Liability on the part of Buyer, Seller, any of their respective Affiliates or any of their respective representatives, officers, directors or interest holders, except to the extent that such termination results from the material breach by a party hereto of any of its representations, warranties or covenants set forth in this Agreement; provided that the provisions of Section 6.2 (Public Disclosure), Section 6.7 (Confidentiality), and ARTICLE X (Miscellaneous), and this Section 9.2 shall remain in full force and effect and survive any termination of this Agreement.  

ARTICLE X  

MISCELLANEOUS  

Section 10.1             Entire Agreement. This Agreement, the recitals herein, the Schedules referred to herein and exhibits attached hereto constitute the entire agreement between the parties hereto and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof including, without limitation, the Term Sheet made between the parties dated as of January 7, 2013.  

Section 10.2             Amendments and Waivers.  

(i)            This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of Buyer and Seller. Any amendment executed in accordance with the foregoing shall be binding upon all parties and their respective successors and assigns.

 

 

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  (ii)           No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement or any Transaction Document, and no

delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement or any Transaction Document, as the case may be, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No Person shall be deemed to have waived any claim arising out of this Agreement or any Transaction Document, as the case may be, or any power, right, privilege or remedy under this Agreement or any Transaction Document, as the case may be, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

  Section 10.3             Binding Effect; Benefit; Assignment.

  (i)               The provisions of this Agreement and any Transaction Document, as the case may be, shall be binding upon and shall inure to the benefit of the

parties hereto and their respective successors and assigns. This Agreement and the Transaction Documents, as the case may be are not intended to confer any rights, benefits, remedies or Liabilities hereunder upon any Person, other than the parties hereto or thereto, as the case may be, and their respective successors and assigns.

  (ii)               Neither party hereto may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement, without the prior written

consent of the other party.  

Section 10.4             Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to principles of conflicts of laws that would require the application of the laws of any other jurisdiction.  

Section 10.5             Jurisdiction. The parties hereto agree that, except as otherwise set forth herein, any proceeding seeking to enforce any provision of this Agreement or the transactions contemplated hereunder shall be brought in the competent courts located in the City of Tel-Aviv, Israel, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such proceeding and irrevocably waives, to the fullest extent permitted by applicable Law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding in any such court or that any such proceeding brought in any such court has been brought in an inconvenient forum. Process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in this Section 10.5 shall be deemed effective service of process on such party.

 

 

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  Section 10.6             Notices. All notices, requests and other communications required or permitted under, or otherwise made in connection with, this Agreement, shall be in writing and

shall be deemed to have been duly given (a) when delivered in person, (b) upon receipt after dispatch by registered or certified mail, postage prepaid, (c) on the next Business Day if transmitted by facsimile or by international overnight courier (in each case with confirmation of transmission or delivery, as the case may be), in each case, addressed as follows:  

if to Seller, to:  

21a HaBarzel Street P.O. Box 13139 Tel Aviv, Israel 69710 Attention: CEO Facsimile No.: 972-3-7465045 Email Address: sivan.farfuri@alvarion.com

with a copy (which shall not constitute notice) to:

  Meitar Liquornik Geva Leshem Tal 16 Abba Hillel Silver Rd., Ramat Gan 52506, Israel Attention: Maya Liquornik, Adv., and Mike Rimon, Advocate Facsimile No.: 972-3-610-3777; 972-3-610-3811 Email Address: maya@meitar.com; mrimon@meitar.com

  if to Buyer, to:

  Telrad Networks Ltd. Attention: Ran Bukshpan Facsimile No.: 972-73-2467555 Email Address: ran.bukshpan@telrad.com

with a copy (which shall not constitute notice) to:

  Yigal Arnon & Co. 1 Azrieli Center Tel Aviv, Israel 67021 Facsimile: 972-3-608-7714 Attention: David H. Schapiro, Advocate, and Peter Sugarman, Advocate Email Address: davids@arnon.co.il; peters@arnon.co.il  

 

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or to such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other Parties hereto in accordance with this Section 10.6.  

Section 10.7             Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Entity to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.  

Section 10.8             Remedies; All rights and remedies of any party hereto under this Agreement are cumulative and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other such rights or remedies.  

Section 10.9            Expenses. Without prejudice to Section 8.3, all costs and expenses incurred in connection with this Agreement, including all third-party legal, accounting, financial advisory, consulting or other fees and expenses incurred in connection with the transactions contemplated hereby, shall be paid by the party incurring such cost or expense.  

Section 10.10          Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by all of the other parties hereto. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by facsimile shall be sufficient to bind the parties hereto to the terms and conditions of this Agreement.  

Section 10.11          Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the Transaction Documents and, in the event an ambiguity or question of intent or interpretation arises, this Agreement and/or the Transaction Documents, as the case may be, shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement and/or the Transaction Documents, as the case may be.

 

 

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  Section 10.12           Further Assurances. Without derogating from any other provision in this Agreement, each of the parties hereto shall promptly do, make, execute or deliver, or cause

to be done, made, executed or delivered, all such further acts, documents and things as the other party hereto may reasonably require from time to time for the purpose of giving effect to this Agreement and the Transaction Documents and shall use reasonable efforts and take all such steps as may be reasonably within its power to implement to their full extent the provisions of this Agreement and the Transaction Documents.  

[Signature Page Follows]  

 

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  IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed as of the date first written above.

 

[Signature Page to Asset Purchase Agreement]  

 

  BUYER  

 

  TELRAD NETWORKS LTD.  

 

  By:    

    Name:      Title:         

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IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed as of the date first written above. SELLER:

[Signature Page to Asset Purchase Agreement]

 

 

Alvarion Ltd.   By:  ___________________   Name:_________________   Title:__________________  

 

India 4Motion Broadband Wireless Network Private Limited   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Singapore PTE Ltd., a company Taiwan Branch Preparatory Office   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Chile LIMITADA   By:  ___________________   Name:_________________   Title:__________________  

Alvarion S.A.   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Costa Rica S.A   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Canada Ltd.   By: ___________________   Name:_________________   Title:__________________  

  58

IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed as of the date first written above. SELLER:  

[Signature Page to Asset Purchase Agreement]

 

 

Alvarion SRL   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Uruguay SA   By: ___________________   Name:_________________   Title:__________________  

Alvarion Israel (2003) Ltd.   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Spain, S.L   By:  ___________________   Name:_________________   Title:__________________  

Tadipol-ECI Sp.z o.o.   By: ___________________   Name:_________________   Title:__________________  

Alvarion de Mexico S.A de C.V   By: ___________________   Name:_________________   Title:__________________  

  59

  ADDENDUM TO ASSET PURCHASE AGREEMENT

THIS ADDENDUM TO ASSET PURCHASE AGREEMENT (this "Addendum") is made and entered into as of May 8, 2013 by and between Alvarion Ltd., a company incorporated under

the laws of the State of Israel (the "Company") and the entities listed in Schedule I (collectively, the "Seller") and Telrad Networks Ltd., a company incorporated under the laws of the State of Israel ("Buyer").  

W I T N E S S E T H:  

WHEREAS, Buyer and Seller are parties to that certain Asset Purchase Agreement dated as of February 21, 2013 (the "Agreement");  

WHEREAS, the parties desire to amend certain provisions of the Agreement, upon the terms and subject to the conditions set forth in this Addendum; and  

WHEREAS, the board of directors of each of the Company and Buyer has approved this Agreement and the transactions contemplated by this Addendum.  

NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:  

 

 

 

  "Section 2.6             Purchase Price. Subject to the terms and conditions of this Agreement, in consideration of the sale of the Transferred Assets, Buyer shall (i) assume all of the Assumed Liabilities and (ii) pay or cause to be paid to the Seller (A) the Cash Consideration (as defined below) plus (B) the Performance Based Payments (as defined below), if any ((A) and (B), collectively, the "Purchase Price"). The Purchase Price shall consist of the following payments by Buyer:

 

 

1. Interpretation. All capitalized terms used but not otherwise defined herein shall have the same meanings ascribed to them in the Agreement.

2. Amendment of Section 1.1. The definition of "Sharing Amount" is hereby replaced in its entirety with the following:

3. "Sharing Amount" means the Dollar for Dollar amount by which the revenues of the Business exceed $60 million during the 12 months following the Closing up to a maximum of $82 million.

4. Amendment of Section 2.6. Section 2.6 is hereby replaced in its entirety with the following:

   

  (a)          Cash Consideration.

  (i)        Subject to this Section 2.6(a), a cash amount of Five Million Seven Hundred Thousand United States Dollars (US$5,700,000) (the "Cash Consideration")

shall be paid to the Seller, in each case in immediately available funds to an account the details of which shall be provided by the Seller to Buyer in advance of the due date for such payment, as follows: (i) at the Closing, an amount of One Million Three Hundred Fifty Thousand United States Dollars (US$1,350,000) (the "First Installment"), (ii) an amount of Nine Hundred Fifty Thousand United States Dollars (US$ 950,000), to be paid to Seller on the date that is three months after the Closing, (iii) an amount of Eight Hundred Thousand United States Dollars (US$ 800,000), to be paid to Seller on the date that is six months after the Closing, (iv) an amount of Three Hundred Thousand United States Dollars (US$ 300,000), to be paid to Seller on the date that is nine months after the Closing, (v) an amount of Six Hundred Thousand United States Dollars (US$ 600,000), to be paid to Seller on the date that is twelve months after the Closing (or in the event that any of such days is not a Business Day, then on the immediately following Business Day) (the "Fifth Installment" and together with the amounts underlying the three installments referred to in clauses (ii) through (iv) are referred to collectively as the "Post Closing Installments") and (vi) an amount of up to One Million Seven Hundred Thousand United States dollars (US$ 1,700,000) shall be paid to Seller in the event that the Minimum Revenues (as defined below) are achieved (the "Earn Out Payment"). The Earn Out Payment shall be calculated based on Buyer's Profit & Loss statement setting forth the revenues derived from the Business during the period ending 12 months after the Closing Date (the "P&L"), which P&L shall be audited (the "Audit") by a third party independent expert Israeli accountant appointed by mutual agreement between the parties (the "Expert Accountant"); provided that if the parties do not agree on the identity of the Expert Accountant within 10 days after expiration of such 12-month period after the Closing, the Expert Accountant shall be selected, at the request of either or both parties, by the President of the Institute of Certified Public Accountants in Israel out of one of the “Big Four” accounting firms in Israel, provided that the Expert Accountant’s firm shall not have performed any significant services for Buyer, Seller or any of their Affiliates, at any time during the twelve (12) month period immediately preceding the date of his/her appointment. Buyer shall deliver to the Expert Accountant as promptly as possible after his/her appointment a copy of the P&L, including all work papers and other materials used in the preparation of the P&L. The parties shall jointly instruct the Expert Accountant to complete the Audit as expeditiously as possible, but in no event later than thirty (60) days after his/her appointment as the Expert Accountant. The Audit conducted by the Expert Accountant shall be final and binding on Buyer and Seller for all purposes and the parties shall equally share the fees and costs of the Expert Accountant. The Earn Out Payment shall be a number equal to (A) plus (B), whereby (A) is equal to US$ 50,000 for each US$ 1,000,000 of the first US$ 10,000,000 of the Sharing Amount (pro-rata for any amount less than a whole US$ 1,000,000), up to a maximum of US$ 500,000, and (B) is equal to US$ 100,000 for every US$ 1,000,000 of the Sharing Amount (above the first US$ 10,000,000 of the Sharing Amount) (pro-rata for any amount less than a whole US$ 1,000,000) up to a maximum amount of US$ 1,200,000. The Earn Out Payment, if due, shall be paid in cash by wire transfer of immediately available funds by Buyer to Seller within seven (7) Business Days following completion of the aforesaid Audit by the Expert Accountant.

  (ii)       Notwithstanding the foregoing, the Cash Consideration shall be adjusted pursuant to Section 6.15(i) and sub-Section 2.6(a)(iii), such that the First

Installment shall be adjusted pursuant to sub-Section 2.6(a)(iii). To the extent the amount of the deductions in the Cash Consideration pursuant to this Section 2.6(a)(iii) exceeds the amount of the First Installment, the Post Closing Installments shall be reduced by the amount by which such deductions exceed the amount of the First Installment, such excess amount to be reduced from the next Post Closing Installments as required.

 

 

  2

  (iii)      Attached as Exhibit A hereto is a jointly prepared and agreed Closing Date balance sheet for the Business, including Accounts Receivables and accounts

payable (the "Closing Balance Sheet").  The Closing Balance Sheet sets forth the agreed amount that shall be reduced from the Cash Consideration in accordance with sub-Section 2.6(a)(ii).

  (iv)      At the Closing, Seller shall provide the Buyer with: (a) a post-dated check dated six months from the Closing for US$ 100,000, and (b) a post-dated check

dated twelve months from the Closing for US$ 75,000. In the event that Buyer is unable to cash either of such checks, then shall be entitled to set-off such amount from any amounts owed to Seller under the Agreement or any other amount payable by Buyer to Seller.

  (b)       Entitlement to Performance Based Payments.   Subject to the Business recording minimum revenues of $60,000,000 from the Closing Date through the one year anniversary of the Closing Date

("Minimum Revenues"), Buyer shall make additional cash payments to the Seller in the amounts determined in accordance with this Section 2.6(b) (such payments, the "Performance Based Payments").  The Performance Based Payments will be calculated as follows:

  (i)        Written-Off Inventory Revenue Sharing. Subject to the provisions of this Section 2.6(b)(i), an amount equal to the lower of (a) 30% of the aggregate

Written-Off Inventory Revenues, and (b) Six Million United States Dollars (US$6,000,000) (the "Written-Off Inventory Amount") multiplied by a fraction the numerator of which is the Sharing Amount and the denominator of which is US$ 22,000,000, shall be paid in cash by wire transfer of immediately available funds by Buyer to Seller within the time periods set forth in Section 2.6(c) below (whether or not the actual payments under the purchase orders for Written-Off Inventory are received by Buyer during the Revenue Period); provided, however, that the Minimum Revenues target is first achieved. The Written-Off Inventory Amount shall be set forth in the applicable Written-Off Inventory Payment Notice (as defined below). Not later than ten (10) days after the end of each calendar quarter during the Revenue Period, Buyer will prepare and deliver to Seller a statement, in the form to be attached hereto as Schedule XVI (the "Written-Off Payment Notice"), setting forth in reasonable detail (i) the aggregate amount of revenues recorded by the Business during such calendar quarter, (ii) the purchase orders for Written-Off Inventory actually received by Buyer and (iii) the consideration upon which such sale was effected, which shall be derived from and be in accordance with the books and records of Buyer. Buyer shall then afford to Seller and to Seller’s representatives reasonable access during normal business hours to the relevant pricing information concerning such Written-Off Inventory and the sale thereof and the provisions of Section 2.6(c) below shall apply; provided that in no event will the amounts paid to Seller under this Section 2.6(b)(i) exceed in the aggregate Six Million United States Dollars (US$6,000,000).

 

 

  3

  (c)       Performance Based Payments Procedures.  

Subject to the achievement of the Minimum Revenues target as set forth in Section 2.6(b) above, the following provisions shall apply:   (i)        If the Seller does not deliver a Seller Notice (as defined below) within thirty (30) days after receipt of the Written-Off Payment Notice, then the

Written-Off Payment Notice shall be final and conclusive and shall be paid without deduction within three (3) Business Days following the end of the thirty (30)-day period set forth in this sub-section (i).

  (ii)       In the event that the Seller disputes Buyer's calculation of any Performance Based Payment, the Seller shall be entitled, within thirty (30) days

following receipt of the Written-Off Payment Notice, to deliver a written notice to Buyer stating that the Seller believes that a Performance Based Payment in an amount higher than the amount of the Performance Based Payment set forth in the Written-Off Payment Notice is payable to the Seller, and detailing the error in Buyer's calculation of the Performance Based Payment and the amount of the Performance Based Payment that the Seller believes is due to it (the "Seller Notice"). If Buyer disputes that a Performance Based Payment is payable or the amount of the Performance Based Payment as stated in the Seller Notice, the Seller’s and Buyer's representatives shall meet and attempt in good faith to resolve such dispute. If it is so resolved, the Written-Off Payment Notice shall be modified as necessary to reflect such resolution and the Written-Off Payment Notice as so modified shall be deemed final and conclusive and the applicable Performance Based Payment shall be paid within 10 days following the date the amended Written-Off Payment Notice became final.

  (iii)      If Buyer and Seller do not resolve the dispute as aforesaid then each Party retains its rights and claims in connection therewith until resolved by

agreement, court, mediation or arbitration, as the case may be.   (d)       Waiver. No waiver by any party of any term or condition of Section 2.6(c), in any one or more instances, shall be deemed to be or construed as a

waiver of the same or any other term or condition of Section 2.6 on any future occasion.   (e)       Acknowledgment. Seller acknowledges, with respect to the Performance Based Payments that, subject to Section 6.8, (i) Buyer intends to exercise or

refrain from exercising its powers and rights with respect to the Business as it may deem appropriate and in the best overall interests of Buyer and its subsidiaries as a whole, taking into account their respective conditions and prospects from time to time, (ii) Buyer or any Affiliate thereof shall not (other than as set forth in Section 6.8) be restricted from pursuing any activities or operations affecting the Performance Based Payments and the Earn Out Payment, nor from entering into, terminating, modifying, disposing of or otherwise making any change thereto, or selling any assets or properties, including those acquired under the Agreement, in each case to the extent not otherwise specifically prohibited hereunder; and (iii)  operation of the Business by Buyer may impact the timing of receipt of revenues, including payments from the sale of Written-Off Inventory and Buyer may refuse to enter into an arrangement that would cause or increase revenues or sales of Written-Off Inventory during the Revenue Period.

 

 

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  "Section 2.7             Security for Payment. As a security for the payment by Buyer to Seller of the full amount of the Post Closing Installments, at the Closing the Buyer shall provide Seller with checks each in the amount of each Post Closing Installment (as adjusted pursuant to Section 2.6(a)(ii)) dated as of the dates set forth in Section 2.6(a); provided that with respect to the Fifth Installment, the Buyer shall provide Seller with 2 checks of US$ 300,000 each dated as of the applicable date set forth in Section 2.6(a).  As security for the payment by Seller to Buyer of the amounts set forth in a Buyer Inventory Notice (as defined below) in accordance with the provisions of Section 6.9, at the Closing the Seller shall provide Buyer with one check in the amount of US$ 1,500,000 dated as of the date that is 18 months after the Closing."

 

  "Section 2.11(b)(ix) - evidence of the obtaining of, or, if sufficient pursuant to the underlying agreement, the application and request for, the Seller Required Consents (as defined below) listed on Schedule XXII."

 

  "Section 6.13 Guarantees. Of the guarantees (including bank guarantees), deposits, performance bonds or similar arrangements listed on Schedule XX hereto, which were provided prior to the Closing Date by or on behalf of Seller or any of its Affiliates in connection with the Transferred Assets and/or the Assumed Liabilities (collectively, the "Guarantees"), (i) the Guarantees issued by SVB to ICE shall be replaced by Buyer within seven days of the Closing Date, and Buyer shall provide Seller, on the Closing Date, copies of such suitable guaranties acceptable to the applicable third party in favor of which the Guarantee was provided, which shall replace, effective as of the Closing, the Guarantees (collectively, the "Buyer Guarantees"), and (ii) with respect to the Guarantee issued by Bank Hapoalim, Buyer shall provide Seller with back-to-back coverage of its liability thereunder. Buyer hereby irrevocably and unconditionally agrees, subject to the Closing, to take, or cause to be taken, any further action and to do, or cause to be done, all things that are necessary or desirable, to return, or cause the return, of the Guarantees to Seller within seven (7) days after the Closing Date."

 

  "(i) Seller has procured a policy of Product Liability Insurance (Run off) (as evidenced by the Certificate of Insurance attached hereto as Exhibit J) to become effective at the Closing, with a claims period of at least seven years following the Closing. Such insurance policy covers Seller with respect to acts or omissions occurring prior to or at the Closing (including the transactions contemplated by the Transaction Documents).  The policy includes a clause that the Buyer is considered as an additional insured party for all intents and purposes."   

 

5. Amendment of Section 2.7. Section 2.7 is hereby replaced in its entirety with the following:

6. Amendment of Section 2.11(b)(ix). Section 2.11(b)(ix) is hereby replaced in its entirety with the following:

7. Amendment of Section 6.13. Section 6.13 is hereby replaced in its entirety with the following:

8. Amendment of Section 6.15. Section 6.15(i) is hereby replaced in its entirety with the following:

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  "Section 7.2(iii) Consents. Subject to Buyer's obligations under Section 6.18, Buyer shall have received all of the Seller Required Consents listed on Schedule XXII, provided that the consents of the Material Customers/Agents shall not be deemed a condition to the Closing and if any such consent is not obtained by the date that is twelve months after the Closing, Seller shall not deposit the US$ 300,000 check for the fourth Post Closing Installment until the Material Customers consent was received, provided that Seller shall be entitled to request Buyer to exchange such check for 2 checks each for 50% of the last Post Closing Installment (and Buyer shall comply with such request as promptly as practicable), one of which may be deposited immediately and the second shall not be deposited until such consents of the Material Customers/Agents have been obtained. "Material Customers/Agents" means (i) Barrett Xplore Inc., (ii) Trans Telecom, (iii) RENTA DE EQUIPO S.A DE C.V./Telefonos De Mexico S.A.B. De and (iv) Umika. With respect to consents to be obtained post Closing from the Material Customers/Agents, receipt by Buyer of a duly executed purchase order, the provision by Buyer to such Material Customer/Agent of products or services, or the receipt of services by Buyer from such Material Customer/Agent shall be deemed provision of consent for purposes of this Section 7.2(iii)."

 

 

 

  "All HW solely Related to the Business (including but not limited to personal computers) on which SW applications and licenses are stored and run. Notwithstanding anything to the contrary in the Agreement and/or in the other Transaction Documents, Seller and Buyer hereby agree that with respect to such components of HW which are Related to the Business but are used by Seller for purposes other than the Business (the "Dual Use HW"), Buyer shall have free use from the Closing, and within not later than 3 months after the Closing (the "HW Transfer Period"), the Dual Use HW shall be split into two halves and the ownership in 50% of any such Dual Use HW shall transfer to Buyer, and the remaining 50% shall be retained by Seller at the Closing (without imposing any restrictions of use on Buyer or Seller). During the 3 month period after the Closing, Buyer and Seller shall exert their reasonable best efforts, to obtain the consent of any software vendors, whose software is being used with such Dual Use HW (the "Dual Use Software"), to the extent that such consent is required in order to transfer the Buyer’s portion of the Dual Use Software to Buyer within the HW Transfer Period; provided that if any such required consent is not obtained prior to the lapse of the HW Transfer Period, then the underlying Dual Use Software shall be deleted in its entirety from the Dual Use HW. The parties agree that the Buyer shall register a fixed charge on the Dual Use HW in favor of Telrad following the Closing and shall execute and file the required documents in order to effectuate such charge. Such charge shall be removed following the execution of the split of the Dual Use HW described above.”  

 

9. Amendment of Section 7.2(iii). Section 7.2(iii) is hereby replaced in its entirety with the following:

10. Replacement of Schedules and Exhibits. Schedule XXII to the Agreement ("List of Seller Required Consents for Closing") shall be replaced with Schedule XXII attached hereto, and Exhibit G to the Agreement ("Consent Letter of Owner of Excluded Intellectual Property") shall be in the form of Exhibit G attached hereto.

11. Amendment of Schedule XIII and VII.

  11.1. Subsection (e) in Schedule XIII to the Agreement ("Transferred Assets"), is hereby replaced in its entirety with the following:

  6

 

  “(r) Deposit in Gemtek for the amount of US$ 408,706.5.”

 

 

 

 

 

  11.2. A new subsection (r) is hereby added to Schedule XIII to the Agreement ("Transferred Assets") following sub-section (q) thereto, as follows:

  11.3. Schedule VII (“Excluded Assets”) is hereby amended by the deletion of sub-section (q) thereto in its entirety.

  11.4. Following the Closing Date, the Buyer and Seller shall enter into good faith discussions so as to re-allocate the automatic testing equipment as set forth in sub-section (j) to Schedule XIII (“Transferred Assets”) to the Agreement and in sub-section (s) to Schedule VII (“Excluded Assets”) to the Agreement.

12. Alvarion Mexico.  As promptly as practicable and no later than 90 Business Days after the  completion of all necessary procedures to ensure debt capitalization of inter-company loans from Alvarion Ltd. to Alvarion Mexico and capital increase (including but not limited to Board of Directors resolution, shareholder meeting and notification to the National Commission on Foreign Investment), to the reasonable satisfaction of Telrad (the "Transfer Period"), Buyer shall cause Seller to transfer, for no additional consideration, 100% of the share capital of Alvarion de Mexico S.A de C.V. ("Alvarion Mexico"), on a fully-diluted basis (the "Share Transfer").  Seller shall have sole responsibility for all claims, Liabilities, Taxes and costs, which may arise from: (i) the termination of employment of any employee of Alvarion Mexico (the "Mexican Employees"), solely as if such termination occurred immediately prior to the Share Transfer; and (ii) any contractual obligations owed to such Mexican Employees, including, among other things, all wages, prior notice period (or payment in lieu thereof), vacation days (including any accrued vacation days), recreation and/or recuperation pay, bonuses, commissions, pay for other compensated absences and other remuneration (including mandatory or discretionary benefits) due to such Mexican Employees with respect to his or her employment or engagement with Alvarion Mexico through the effective date of the Share Transfer and the termination thereof as aforesaid, including any related payroll deductions (such as employee benefit plan contributions and employment Taxes which shall be paid when due) with respect thereto (the "Prior Obligations"). Upon the consummation of the Share Transfer, Buyer shall be entitled to cause Seller to terminate the Mexican Employees or collect from Seller the value of the Prior Obligations. Until the end of the Transfer Period, Seller shall not enter into any new (or amend any existing) employee benefit plan, program or arrangement or any new (or amend any existing) employment, severance or consulting agreement, grant any general increase in the compensation payable or to become payable, except in accordance with contractual provisions in effect as of the date hereof. Buyer and Seller shall use their respective reasonable best efforts to consummate the Share Transfer as promptly as practicable as set forth herein. It is hereby agreed that any cash belonging to Alvarion Mexico as of and after the Closing Date (which at the Closing shall be at least US$ 169,000) shall belong to Buyer and only be expended in accordance with Buyer’s instructions.

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13. Seller Representation. Seller represents and warrants to Buyer that the Agreement does not and shall not, by its terms, adversely affect in any way all of the rights of Mizrahi Tefahot Bank Ltd. ("Mizrahi") under that certain Discounting Agreement between Alvarion and Mizrahi, dated as of March 29, 2012.

14. Gemtek. Seller undertakes towards Buyer that it will pay when due its debts to Gemtek, which are owed as follows: (a) US$ 235,000 on May 15, 2013, and (b) US$ 68,000 during the course of 2013. In the event that Gemtek notifies Buyer that Seller did not make such payment when due, then Buyer shall be entitled to set-off such amount from any amounts owed to Seller under the Agreement or any other amount payable by Buyer to Seller; provided that such set-off amounts shall be immediately paid by Buyer to Gemtek and shall be treated for all purposes as having been paid to Gemtek by Alvarion. If Seller deposits a check for a Post Closing Installment, prior to such set-off by Buyer, Seller shall immediately pay such amount to Buyer.

15. Patents.

  15.1. Seller acknowledges and accepts that as of the Closing Date, Buyer may make, use, sell, offer for sale, distribute, import or otherwise dispose of products that fall under the OCS Patents (as defined in the Confidential Patent Acquisition Agreement dated September 28, 2012 by and among SparkMotion Inc., Wi-LAN Inc (collectively “Wi-Lan”), Alvarion Ltd., and Alvarion Israel (2003) Ltd (as amended, the "Wi-Lan Agreement”) including the patents set forth in Exhibit B hereto).

  15.2. Buyer recognizes that the OCS Patents are subject to a purchase option by Wi-Lan under the Wi-Lan Agreement.

  15.3. From the expiration of Wi-Lan’s purchase option as set forth in Section 15.2 above, provided that such purchase option was not exercised by Wi-Lan, Buyer shall have a non-exclusive, perpetual, royalty free, world-wide, irrevocable, right and license to make, use, sell, offer for sale, distribute, import or otherwise dispose of products that fall under the OCS Patents (including through third parties). Such license shall be non-assignable other than to Affiliates of Buyer or any acquirer of all or substantially all of Buyer’s assets, shares or business.

  15.4. It is hereby clarified that, Seller shall not be prohibited or restricted in any way from selling, pledging or otherwise transferring the OCS Patents, and any such sale, pledge or transfer shall not require the consent of Buyer and Buyer shall not be entitled to any compensation whatsoever therefor; provided, however, that the transferee assumes all rights and obligations of Seller under this Section 15.

  15.5. Seller shall notify Buyer as promptly as practicable after the OCS Closing has occurred. Seller shall not amend the provisions of the purchase option held by Wi-Lan in any manner affecting Buyer's rights hereunder, without the prior written consent of Buyer, which shall not be unreasonably withheld, delayed or conditioned.

16. OCS Matters.

  16.1. The parties agree that notwithstanding the classification by the OCS that the parties are joint holders of OCS-funded "know-how" (the "OCS Know-how") or joint owners of the OCS files listed in Exhibit C hereto (the "OCS Files"), the parties do not hold any joint Intellectual Property (including the OCS Patents which are owned by Alvarion as of the date hereof). The parties further agree that each party is solely responsible for its compliance with the R&D Law and any regulations or rules applicable to the OCS Files or the OCS Know-how and neither party shall have any Liability towards the other party with respect to any non-compliance of the other party. Without prejudice to the generality of the foregoing, each party specifically disclaims any knowledge of the actions or inactions of the other party or the intent of the other party.

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  16.2. Notwithstanding the foregoing and without derogating from Seller's representations and warranties in the Agreement, in the event it is ever determined that joint ownership in any Transferred Intellectual Property exists, Seller irrevocably and forever waives any claims of any kind or nature whatsoever with respect to Buyer's exploitation (including sub-licensing) or transfer of such jointly owned Transferred Intellectual Property and Buyer shall not be restricted in any manner (except under applicable laws, rules and regulations) by such joint ownership determination.

  16.3. Subject to the provisions of Section 8.3(f) and Sections 8.5 through 8.7 (inclusive) of the Agreement, which shall apply mutatis mutandis, Seller agrees to indemnify, defend and hold harmless Buyer and its Affiliates, and their respective directors, officers, employees, and agents, from any and all Losses arising out of or resulting from any claim that Seller did not comply with the R&D Law and any regulations or rules applicable to the OCS Files or the OCS Know-how.

  16.4. Subject to the provisions of Section 8.3(f) and Sections 8.5 through 8.7 (inclusive) of the Agreement, which shall apply mutatis mutandis, Buyer agrees to indemnify, defend and hold harmless Seller and its Affiliates, and their respective directors, officers, employees, and agents, from any and all Losses arising out of or resulting from any claim that Buyer did not comply with R&D Law and any regulations or rules applicable to the OCS Files or the OCS Know-how.

  16.5. It is hereby clarified that any use by Seller of the OCS funded knowledge covered under OCS plans listed on Schedule XII, for purposes of its 'Extreme' products, as such products exist as of the Closing Date shall not be deemed a breach of Section 6.17 of the Agreement.

  16.6. Seller undertakes to provide Buyer with the document referenced in Section 6.16(i)(ii) within ten (10) days following the Closing.

17. Further Acts. Each of the parties hereto shall perform such further acts and execute such further documents as may reasonably be necessary to carry out and give full effect to the provisions of this Addendum and the intentions of the parties as reflected hereby.

18. Miscellaneous.

  18.1. This Addendum shall be governed by and construed in accordance with the laws of the State of Israel excluding that body of law pertaining to conflict of laws. The parties hereto agree to submit to the exclusive jurisdiction of the courts of Tel-Aviv-Jaffa with respect to the breach or interpretation of this Addendum or the enforcement of any and all rights, duties, liabilities, obligations, powers, and other relations between the parties arising under this Addendum.

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  [signature pages follow]

 

 

  18.2. This Addendum may be executed in any number of counterparts (including by fax and electronic scan), each of which when so executed and delivered shall be taken to be an original and all of which together shall constitute one and the same instrument.

  18.3. Except as expressly amended herein, the provisions of the Agreement shall remain unchanged and in full force and effect in accordance with the terms thereof. This Addendum, when executed, shall be attached to the Agreement and shall constitute an integral part thereof. In the event of inconsistency between the terms of the Agreement and the terms of this Addendum, the terms of this Addendum shall prevail. The provisions of Article X of the Agreement shall apply to this Addendum, mutatis mutandis.

  10

  IN WITNESS WHEREOF, the parties have executed or caused this Addendum to be executed as of the date first written above.  

[Signature Page to Addendum to Asset Purchase Agreement]  

 

  BUYER  

 

  TELRAD NETWORKS LTD.  

 

  By:    

    Name:      Title:         

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IN WITNESS WHEREOF, the parties have executed or caused this Addendum to be executed as of the date first written above. SELLER:

[Signature Page to Addendum to Asset Purchase Agreement]

 

Alvarion Ltd.   By:  ___________________   Name:_________________   Title:__________________  

 

India 4Motion Broadband Wireless Network Private Limited   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Singapore PTE Ltd., a company Taiwan Branch Preparatory Office   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Chile LIMITADA   By:  ___________________   Name:_________________   Title:__________________  

Alvarion S.A.   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Costa Rica S.A   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Canada Ltd.   By: ___________________   Name:_________________   Title:__________________  

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IN WITNESS WHEREOF, the parties have executed or caused this Addendum to be executed as of the date first written above. SELLER:  

[Signature Page to Addendum to Asset Purchase Agreement]

  13

 

Alvarion SRL   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Uruguay SA   By: ___________________   Name:_________________   Title:__________________  

Alvarion Israel (2003) Ltd.   By:  ___________________   Name:_________________   Title:__________________  

Alvarion Spain, S.L   By:  ___________________   Name:_________________   Title:__________________  

Tadipol-ECI Sp.z o.o.   By: ___________________   Name:_________________   Title:__________________  

Alvarion de Mexico S.A de C.V   By: ___________________   Name:_________________   Title:__________________  

 

  List of Subsidiaries –

 

 

 

  Exhibit 8.1

Significant Active Subsidiaries       Subs Name Country     India 4Motion Broadband Wireless Network Private Limited India     Tadipol-ECI Sp.z.o.o Poland     Alvarion SARL France     Alvarion De Mexico SA Mexico     Alvarion Inc USA     Alvarion Srl Romania     Alvarion Asia Pacific Ltd. Hong Kong     Alvarion do Brazil Telecomunicacoes Ltda. Brasil     Alvarion Japan KK Japan     Alvarion Telsiz Sistemleri Ticaret A.S. Turkey     Alvarion Israel (2003) Ltd. Israel     Alvarion Mobile Inc. * USA     Interwave Communications Inc. USA     Alvarion Spain SL Spain     Alvarion Philippines*** Philippines     Alvarion Uruguay SA Uruguay     Alvarion Singapore PTE LTD Singapore     Alvarion South Africa (Pty) Ltd  South Africa      Alvarion Ltd., Taiwan Branch Preparatory Office** Taiwan     Alvarion del Ecuador S.A. Ecuador     Alvarion Chile LIMITADA Chile     Alvarion S.A. Argentina     Alvarion Costa Rica S.A Costa Rica     Alvarion Italy SRL   Italy     PT. Alvaritech Indonesia* Indonesia     Alvarion Canada LTD Wavion Inc.* Wavion Ltd.****

Canada USA Israel

   

* Alvarion Mobile Inc. PT. Alvaritech Indonesia and Wavion Inc. are wholly-owned subsidiaries of Alvarion, Inc. ** Alvarion Ltd., Taiwan Branch Preparatory Office is a wholly-owned branch of Alvarion Singapore PTE LTD. *** Alvarion Philippines is a wholly-owned subsidiary of Alvarion Mobile Inc. **** Wavion Ltd. is a wholly-owned subsidiary of Wavion Inc.

 

Exhibit 12.1  

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Assaf Katan, certify that:   1.  I have reviewed this Annual Report on Form 20-F for the year ended December 31, 2012 of Alvarion Ltd.;   2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;   4.  The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:  

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

c.  Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d.  Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting, and   5.  The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):  

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and  

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.   Date: May 15, 2013  

 

 /s/ Assaf Katan Assaf Katan Acting Chief Executive Officer

Exhibit 12.2  

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  I, Avi Stern, certify that:   1.  I have reviewed this Annual Report on Form 20-F for the year ended December 31, 2012 of Alvarion Ltd.;   2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;   4.  The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:  

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;  

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

c.  Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d.  Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting, and   5.  The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):  

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and  

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.   Date: May 15, 2013

 

 /s/ Avi Stern Avi Stern Chief Financial Officer

Exhibit 13.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Assaf Katan, as Acting Chief Executive Officer of Alvarion Ltd. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:  

(1)  The accompanying Annual Report on Form 20-F for the fiscal year ended December 31, 2012 as filed with the U.S. Securities and Exchange Commission  (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and  

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.   Dated: May 15, 2013  

  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  

 /s/ Assaf Katan Assaf Katan Acting Chief Executive Officer

Exhibit 13.2  

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Avi Stern, as Chief Financial Officer of Alvarion Ltd. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:  

(1)  The accompanying Annual Report on Form 20-F for the fiscal year ended December 31, 2012 as filed with the U.S. Securities and Exchange Commission  (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and  

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.   Dated: May 15, 2013  

  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  

 /s/ Avi Stern Avi Stern Chief Financial Officer

Exhibit 15.1  

Consent of Independent Registered Public Accounting Firm   We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos.333-12586, 333-13786, 333-14142, 333-83914, 333-104070, 333-121229, 333-138717, 333-148316, 333-161004 and 333-167057) of our reports dated May 15, 2013, with respect to the consolidated financial statements of Alvarion Ltd. and its subsidiaries included in this annual report (Form 20-F) for the year ended December 31, 2012.

  KOST, FORER GABBAY  & KASIERER Tel-Aviv, Israel A Member of Ernst & Young Global         May 15, 2013