Alvarion Ltd. (Exact Name of Registrant As Specified in Its Charter)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 20-F

(Mark One) 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 THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

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

For the transition period from ______to ______

OR 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 ______

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)

Eran Gorev 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:

Title of each class Name of each exchange on which registered Ordinary Shares, NIS 0.01 par value per share NASDAQ Global Select Market

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, 2011, there were 62,378,801 Ordinary Shares, NIS 0.01 par value per share, outstanding. 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 ⌧ Non-Accelerated Filer o

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).

oYes ⌧No

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), and enterprise customers. Our innovative solutions are based on multiple technologies across licensed and 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, BreezeCOM, BreezeMAX, BreezeACCESS, BreezeNET, BreezeLITE, WALKair, 4Motion, INTERWAVE, 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

Page 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 3 C. REASONS FOR THE OFFER AND USE OF PROCEEDS 3 D. RISK FACTORS 3 ITEM 4. INFORMATION ON THE COMPANY 23 A. HISTORY AND DEVELOPMENT OF THE COMPANY 23 B. BUSINESS OVERVIEW 23 C. ORGANIZATIONAL STRUCTURE 48 D. PROPERTY, PLANTS AND EQUIPMENT 49 ITEM 4A. UNRESOLVED STAFF COMMENTS 49 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 50 A. OPERATING RESULTS 50 B. LIQUIDITY AND CAPITAL RESOURCES 65 C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES 73 D. TREND INFORMATION 73 E. OFF-BALANCE SHEET ARRANGEMENTS 73 F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 73 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 74 A. DIRECTORS AND SENIOR MANAGEMENT 74 B. COMPENSATION 78 C. BOARD PRACTICES 79 D. EMPLOYEES 88 E. SHARE OWNERSHIP 89

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 90 A. MAJOR SHAREHOLDERS 90 B. RELATED PARTY TRANSACTIONS 90 C. INTERESTS OF EXPERTS AND COUNSEL 90 ITEM 8. FINANCIAL INFORMATION 91 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION 91 B. SIGNIFICANT CHANGES 91 ITEM 9. THE OFFER AND LISTING 92 A. OFFER AND LISTING DETAILS 92 B. PLAN OF DISTRIBUTION 93 C. MARKETS 93 D. SELLING SHAREHOLDERS 93 E. DILUTION 93 F. EXPENSES OF THE ISSUE 93 ITEM 10. ADDITIONAL INFORMATION 94 A. SHARE CAPITAL 94 B. MEMORANDUM AND ARTICLES OF ASSOCIATION 94 C. MATERIAL CONTRACTS 96 D. EXCHANGE CONTROLS 97 E. TAXATION 98 F. DIVIDENDS AND PAYING AGENTS 110 G. STATEMENT BY EXPERTS 110 H. DOCUMENTS ON DISPLAY 110 I. SUBSIDIARY INFORMATION 110 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 111 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 112

PART II 113 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 113 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 113 ITEM 15. CONTROLS AND PROCEDURES 113 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 114 ITEM 16B. CODE OF ETHICS 114 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 115 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 115 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 116 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 116 ITEM 16G. CORPORATE GOVERNANCE 116 ITEM 16H. MINE SAFETY DISCLOSURE 116

PART III 118 ITEM 17. FINANCIAL STATEMENTS 118 ITEM 18. FINANCIAL STATEMENTS 118 ITEM 19. EXHIBITS 119

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA –

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, 2007, 2008, 2009, 2010 and 2011. The selected consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011, and the selected consolidated balance sheet data at December 31, 2010 and 2011, 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, 2007 and 2008 and the selected consolidated balance sheet data at December 31, 2007, 2008 and 2009, have been derived from our previously published audited consolidated financial statements, 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.

Year Ended December 31, 2007(*) 2008(*) 2009(*)(**) 2010(*)(**) 2011(*)(**) (in thousands except per share data) Statement of Operations Data: Sales $ 236,573 $ 281,281 $ 245,239 $ 205,815 $ 190,037 Cost of sales 114,099 144,326 128,461 128,578 118,855 Write-off of excess inventory and provision for inventory purchase commitments 4,762 3,457 3,993 4,897 2,580 Inventory write-off related to bankruptcy of a customer - - - - 7,144 Gross profit 117,712 133,498 112,785 72,340 61,458

Operating costs and expenses: Research and development, gross 54,967 69,952 54,674 41,744 32,404 Less grants and participations 3,578 10,273 3,884 3,027 4,440 Research and development, net 51,389 59,679 50,790 38,717 27,964 Selling and marketing 55,943 60,521 52,022 43,376 37,576 General and administrative 15,426 18,813 15,087 19,920 13,877

Amortization of intangible assets 2,544 1,327 132 130 186 Impairment of investment - - 1,554 - - Impairment of goodwill and intangible assets - - - 57,110 - Restructuring and other related expenses - 2,914 2,787 3,573 12,040 Acquisition related expenses - - - - 2,622 Total operating costs and expenses 125,302 143,254 122,372 162,826 94,265 Operating loss (7,590) (9,756) (9,587) (90,486) (32,807) Other (loss) income 8,265 - 731 (7,000) - Financial income (expenses), net 6,453 4,297 1,668 (99) (1,015) Income (loss) before tax 7,128 (5,459) (7,188) (97,585) (33,822) Taxes on Income - - - 894 - Income (loss) from continuing operations 7,128 (5,459) (7,188) (98,479) (33,822) Income from discontinued operations, net 5,413 - - - - Net income (loss) $ 12,541 $ (5,459) $ (7,188) $ (98,479) $ (33,822)

Net earnings (loss) per share: Basic: Continuing operations $ 0.11 $ (0.09) $ (0.12) $ (1.58) $ (0.54) Discontinued operations 0.09 - - - - Total $ 0.20 $ (0.09) $ (0.12) $ (1.58) $ (0.54) Weighted average number of shares used in computing basic net earnings (loss) per share 62,345 62,925 62,023 62,199 62,302 Diluted: Continuing operations $ 0.11 $ (0.09) $ (0.12) $ (1.58) $ (0.54) Discontinued operations 0.08 - - - - Total $ 0.19 $ (0.09) $ (0.12) $ (1.58) $ (0.54) Weighted average number of shares used in computing diluted net earnings (loss) per share 64,626 62,925 62,023 62,199 62,302

(*) Includes charges for stock-based compensation of approximately $7.4 million, $7.6 million, $4.2 million, $3.3 million and $3.2 million as a result of ASC 718 Compensation – “Stock Compensation” for the years ended December 31, 2007, 2008, 2009, 2010 and 2011, respectively. (**) For more details of sales please see our Financial Statements.

As of December 31, 2007 2008 2009 2010 2011 (in thousands) Working capital $ 113,118 $ 115,817 $ 132,813 $ 109,978 $ 62,078 Total assets $ 313,143 $ 338,110 $ 301,544 $ 214,764 $ 206,838 Shareholders’ equity $ 220,553 $ 215,906 $ 216,644 $ 122,087 $ 86,154 Capital Stock $ 415,213 $ 423,468 $ 428,086 $ 431,534 $ 434,696

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS

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.

In 2011, our operating loss and net loss were approximately $(32.8) million and $(33.8) million, respectively. Our losses in 2011 resulted from other charges and expenses related to our acquisition of Wavion Inc., remaining effects of the global economic slowdown, the continued limited availability of credit in the global capital markets, the aggressive competition which we face (especially from Chinese vendors), the continued delay in new project launches and delays in allocating spectrum in several countries. Each of the above reasons led to a sequential decline in our gross margin during 2011 and may continue to adversely affect our business and operating results in the future.

In 2010 and 2009, our operating loss was approximately $(90.5) million and $(9.6) million, respectively, and our net loss was approximately $(98.5) million and $(7.2) million, respectively. In addition, we have incurred operating losses in each of our last five fiscal years, and net losses in four of our last five fiscal years (with the exception of 2007). We may continue to incur operating losses and net losses in the future. Further, in the event our recent restructuring plan, which we implemented in 2011 (as hereinafter described in Item 4 – Organizational Restructuring and New Strategic Initiatives through Acquisitions) does not reduce costs as expected, it may have an adverse effect on our business and our results of operations may continue to incur losses. Continuing losses could have a material adverse effect on our business, financial condition and results of operations, and on the value and market price of our ordinary shares. Continuing losses could have a material adverse effect on our business, financial condition and results of operations, and on the value and market price of our ordinary shares, and may require that we further restructure our operations.

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 through 2010 and 2011, led to a global economic slowdown, with the economies of the United States and Europe showing significant signs of weakness. If the economies in the countries in which we operate do not improve or weaken further, telecom carriers and our partners and 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 continued reductions in sales, further decreases in our revenues, 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 may be 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 2010 and 2011 and may continue to decline and our losses may increase in the future since we believe that the economic global situation in general, and in specific regions such as Europe, will continue to be affected by the slowdown. 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. Moreover, the number of orders received by carriers and service providers who are our current and potential customers may decrease because of the limited number of licenses granted in each country and the substantial capital requirements involved in establishing networks as well as the fierce competition we face in our business. As a result, our revenues declined in 2010 and 2011 and our revenues may continue to decline and our losses may continue to increase.

New markets we attempt to penetrate may not become substantial commercial markets or technologies that we develop or have developed, may become superseded by other competing technologies. In addition, if we do not maintain or increase our market share of the wireless broadband equipment market, our business will suffer.

The wireless broadband market, both fixed and mobile, 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 addition, our Mobile WiMAX technology targets 4th generation cellular technologies ("4G") services and therefore competes with other technologies such as Long Term Evolution ("LTE"), which is becoming the 4G leading technology and the major competitor of WiMAX for wireless broadband markets. The market transition to TD-LTE technology and the perception that LTE will replace WiMAX Technology have resulted in a decline in demand for WiMax technology and equipment and have negatively impacted our sales and results of operations. WiMAX market acceptance has been hampered by competing technologies (such as LTE) and may be hampered by intellectual property rights disputes. In order to maintain or increase our market share in the markets in which we operate, we must:

• 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.

Our efforts in these markets may not succeed.

Intense competition in the markets for our products may have an adverse effect on our sales and profitability.

Many companies compete with us in the wireless broadband equipment market in which we sell our products, particularly Chinese vendors. These vendors have substantially increased their market share in the past few years. We expect that competition from Chinese and other large vendors will increase in the future, including 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 LTE technology, competition becomes increasingly more challenging for us. In addition, some system integrators and other strategic partners to which we sell our wireless broadband products could develop the capability to manufacture systems similar to our wireless broadband products or choose to work exclusively with our competitors. We expect our competitors to continue improving the performance of their current products and to introduce new products or new technologies that may supplant or provide lower cost alternatives to our products or perform better than our products. We also face competition from large telecommunication equipment vendors, such as Huawei, Samsung, and ZTE Corporation, especially with respect to the wireless broadband products. Some customers may prefer to purchase products from these large vendors, as has occurred on a number of occasions.

Multiple companies with a range of diverse products and solutions compete with us in the license-exempt and vertical markets in which we sell our products. These competitors may have a vertical-focus or a multi-vertical focus. 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 increase, including 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 WiFi 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 that may have better performance or supplant our products entirely. We may also face new competition from larger players in the telecom market and/ or indoor wireless vendors, such as Cisco, Samsung, and Aruba, especially with respect to the WiFi-based products. 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 impact our license-exempt and vertical market business.

We expect all of these competitors to continue improving their technologies and products, which may cause us to lose some of our customers or prevent us from entering into new markets. Some of our existing and potential competitors, including large competitors arising from the continued consolidation in the telecommunications equipment market as well as increased competition from Chinese vendors, 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 may not be able 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. 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 may have an adverse effect on the market acceptance of our products and may adversely affect our results of operations.

The development of new or enhanced productsin 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 having using technologies. 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. Such difficulties could 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 has also been delayed, which may harm our competitiveness and our ability to penetrate, and market these products in, vertical markets in an efficient and timely manner.

In addition, market changes could 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. For example, the wireless broadband equipment market may stop growing as a result of the deployment of alternative technologies that are constantly improving, such as DSL, cable modem, fiber optic, coaxial cable, satellite systems, third or fourth generation cellular systems, or high speed packet access (“HSPA”) and LTE 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.

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

• market acceptance of new and innovative technologies; • market acceptance of standards for wireless broadband products; • timely availability and maturity of technology from technology suppliers and chip-vendors, such as Sequans, Beceem (acquired by Broadcom in 2011), Gemtek, Cisco, Tellabs and Atheros (acquired by Qualcomm); • network capacity to handle growing demands for faster transmission of increasing amounts of data and voice; • cost-effectiveness and performance compared to other broadband wireless technologies; • reliability and security; • suitability of our technology for a sufficient number of geographic regions; • the availability of sufficient frequencies and site locations for carriers to deploy and install products at commercially reasonable rates; and • safety and environmental concerns regarding wireless broadband transmissions.

We may experience difficulties or delays in the introduction of new or enhanced products, which could 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 having using technologies. 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. Such difficulties could 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 has also been delayed, which may harm our competitiveness and our ability to penetrate, and market these products in, vertical markets in an efficient and timely manner.

Businesses we recently acquired 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 Inc. ("Wavion") in order to create new growth engines and penetrate into new market segments (the “Wavion Transaction”). 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. We also acquired the intellectual property of Clariton Ltd. (“Clariton”) in the beginning of 2011 in order to penetrate the indoor wireless market using Clariton's Distributed Antenna System (DAS) technology and know-how (the “Clariton Transaction” and together with the Wavion Transaction, the “Acquisition Transactions”). The process of integrating an acquired business may be prolonged due to unforeseen difficulties such as leveraging our sales forces to sell and distribute the Wavion products and enable full support as well as integrating all of the operations including the two R&D divisions into one integrated operation, and may require a disproportionate amount of our resources and management’s attention.

We cannot assure you that we will be able to successfully integrate the acquired businesses into our operations or expand into new markets, such as the Wi-Fi market or the market for cellular indoor coverage solutions, 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. The 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.

We received a $30 million loan facility from Silicon Valley Bank ("SVB"). If we fail to comply with the terms of the loan agreement with SVB, our available cash and our business operations may be significantly harmed.

For the purpose of financing the acquisition of Wavion, we obtained a $ 30 million credit facility from SVB (the “Long Term 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.

As of April 1, 2012, the Company was in breach of certain financial covenants and on April 25, we reached a general agreement with SVB for the grant of a temporary forbearance of the breached covenants and a modification of the terms of the Long Term Loan, which amended terms include an increase in the interest rate applicable to the Long Term Loan and the repayment of approximately $7million of principal on the loan in addition to its normal loan payments by July 2012, after which the outstanding balance of the Long Term Loan is expected to be approximately $20 million. However, there is no assurance that we will not breach the terms of the Long Term 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 amended Long Term Loan, SVB may require immediate repayment of the Long Term Loan and realize on its security, which can significantly harm our available cash and our operations.

For more information please see "Item 10 C – Material Contracts" below.

We have engaged and may continue to engage in mergers and acquisitions which could harm our business, results of operations and financial condition, and dilute our shareholders’ equity.

We have pursued and, subject to market conditions, may continue to pursue, growth opportunities through internal growth and acquisition of complementary businesses, products and technologies. We are unable to predict whether or when any prospective acquisitions will be completed. The process of integrating an acquired business may be prolonged due to unforeseen difficulties and may require a disproportionate amount of our resources and management’s attention. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, or expand into new markets. Further, once integrated, acquisitions may not achieve comparable levels of revenues, profitability or productivity as our existing business or otherwise perform as expected. The occurrence of any of these events could harm our business, financial condition or results of operations. Past and future acquisitions may require substantial capital resources, which may require us to seek additional debt or equity financing, and could result, without limitation, in the following, any of which could seriously harm our results of operations or the price of our ordinary shares:

• issuance of equity securities that would dilute our current shareholders; • large write-offs; • the incurrence of debt and contingent liabilities which we may not be able to repay or comply with covenants we agree to in connection therewith; • difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of the acquired companies; • diversion of management’s attention from other business concerns; • contractual disputes; • risks of entering geographic and business markets in which we have limited or no prior experience; • loss of key employees of acquired organizations; and • negative impact on our cash reserves.

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 intense competition, especially from Chinese vendors as outlined earlier and hereinafter, the continuing effects of the global 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 uneven pace of spectrum licensing to carriers and service providers; • 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; • the introduction of our new products or enhancements or those of our competitors or of providers of complementary products; • seasonality, including the relatively low level of general business activity in the first and third quarters of each year; • 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; • general economic conditions, including the unfavorable global economic conditions; and • network approval process dependencies.

Our customers ordinarily require the delivery of products promptly after their orders are accepted. Historically, our business 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. Our revenue recognition is complex and 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.

In addition, our operating expenses may increase significantly. If revenues in any quarter do not increase correspondingly or at a higher rate, or if we do not reduce our expenses in a timely manner in response to lower level or declining revenues, our results of operations for that quarter would be materially adversely affected. Because of the variations that we have experienced in our quarterly results of operations, we do not believe quarter-to-quarter comparisons of our results of operations are necessarily meaningful and you should not rely on results of operations in any particular quarter as an indication of future performance.

Our products have long and unpredictable sales cycles which could adversely impact our revenues and results of operations.

The sales cycle for most of our products 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, delays in the licensing of spectrum for these 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 will be adversely affected if a significant customer, or a significant potential customer, reduces, delays or cancels orders during the sales cycle or chooses not to deploy networks incorporating our products. Any such fluctuation in revenue or cancellation of orders may have an adverse effect on our business and may affect the market price of our ordinary shares. In addition, the global economic recession as well as the on-going European debt crisis may continue to have an adverse effect on the length and the success of our sales cycle.

Our business is dependent upon the success of our distributors, system integrators and other partners, who are under no obligation to purchase our products.

A portion of our revenues is derived from sales to our independent partners, such as distributors and system integrators. 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, all of which may result in a decline in the purchase of our products.

We are dependent upon the acceptance of our products by the market through our partners' efforts in marketing and sales. In some cases, 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 (“DSO”) increase, we may suffer from a cash shortfall.

Our DSOs increased to 106 days in 2011 from 87 days in 2010.We expect that over time our DSOs may further increase and we expect our DSOs will range between 90 to 120 days during 2012, 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 decrease in our gross margin levels in the future, which may adversely affect our financial results.

We believe that several markets in which we operate have caused, and may continue to cause, a decline in our gross margin, mainly due to (a) the fact that our revenue mix contained a high proportion of third party equipment, combined with the continued aggressive competition as described hereinabove and hereinafter, (b) the delay in new project launches and (c) the continued economic slowdown in these markets, all of which resulted in a low level of revenue which led to a large sequential decline in gross margin. Additional reasons for a decline in our gross margin include the following: (i) increased competition in the regions in which we currently operate; (ii) changes in the mix of our products, such as an increase in the volume of sales of lower-margin Customer Premise Equipment (“CPEs”); (iii) the entry of new, large vendors into our markets; (iv) changes in the market demand of some of our existing and potential products; (v) our engaging in “turn-key” projects, which involve lower margins on third party equipment and services; and (vi) our entry into new geographical markets with lower margins, such as India. We expect this decline in gross margin to 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 deployment in complex networks.

Some of our products are highly complex and are designed to be deployed in complex networks. 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; • failure to achieve market acceptance and loss of market share; • diversion of deployment 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.

In October 2011, Open Range Communications, Inc., one of our major customers, filed for bankruptcy in the Bankruptcy Court of Delaware. In the declaration filed by its Chief Financial Officer in support of the company’s Chapter 11 petition, Open Range alleged that Alvarion’s failure to achieve the system performance and quality, in accordance with the signed contracts, was one of the reasons for Open Range’s bankruptcy. If a legal action is filed against us, following such allegations, this may harm our reputation and our operations.

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 permit customers to return for repair or replacement, within a period ranging from 14 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:

• 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; • suppliers could increase component prices significantly and with immediate effect on the manufacturing costs of our products; • due to the global financial recession, 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 could 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.

Our dependence on third party equipment embedded in our products and complimentary 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, or ASN- GW, which are part of our solution. Failure by our vendors to deliver such products or discontinue 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 ASN-GW partners that it would not continue investing in new developments in our line of business in 2011 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 place orders with our subcontractors and suppliers based on our estimates of future sales. 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 2009, 2010 and 2011, we wrote off inventory in the amounts of $4.0 million, $4.8 million and $2.6 million, respectively. In addition, in 2011 we wrote off additional inventory related to bankruptcy of a customer in an amount of $7.1 million.

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. 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.

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:

• 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; • 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 • their financial strength.

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. Some 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. Since WiMAX technologies evolve and enable new applications, such as mobile services, in some countries the regulators may not permit an operator to use the spectrum previously allocated according to its full technology potential and its latest technological evolution. The regulators in some countries may avoid granting WiMAX spectrum to protect owners of other spectrums previously allocated or they may wait until new technologies such as LTE become available before starting the frequency allocation process. 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.

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

• Our customers may not be able to obtain sufficient frequencies for their planned uses of our wireless broadband products;

• Failure by the regulatory authorities to allocate suitable and sufficient radio frequencies in a timely manner could deter potential customers from ordering our wireless broadband products. Also, frequency licenses and other regulations may include terms that affect the desirability of using our products; • The process of establishing new regulations for wireless broadband frequencies and allocating these frequencies to operators is complex and lengthy, and delays in this process may postpone the commercial deployment of our products; • If our products operate in the license-free bands, 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, including changes in the allocation of frequency spectrum, may significantly impact our operations by rendering our current products obsolete or non-compliant, restricting the applications and markets served by our products, or requiring us to modify our products; • Regulatory changes and restrictions imposed due to environmental concerns, such as restrictions imposed on the location of outdoor antennas; • Spectrum technology neutrality or specific technology allocation may be changed by regulatory authorities towards other competing technologies or to fit specific competitive solutions. Spectrum allocation may specify a particular technology, such as 3G, LTE or WiMAX rather than enabling the spectrum owner to determine the technology; and • Export control laws and regulations which are applicable to all of our products and technology may become more stringent in the future.

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 letters alleging that we have infringed upon a patent, trademark or other proprietary right. As the broadband wireless access market transitions toward standardization, we are more exposed to intellectual property litigation by third parties who claim to hold intellectual property rights related to such standards. In addition, 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 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 you that we can 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 and we will have a new Chief Executive Officer as of May 6, 2012. They may need time to acquire the requisite knowledge of our company and the specific skills necessary to successfully carry out the tasks required of them, which could adversely affect our results of operations.

Five of the eight members of our senior management, including our chief financial officer, were only appointed to their present positions in 2011 and another was only appointed in October 2010. Some of these individuals had little or no previous experience working for Alvarion. Furthermore, Eran Gorev, our Chief Executive Officer and President, will leave the Company and be replaced by Mr. Hezi Lapid, effective May 6, 2012. Mr. Lapid is new to Alvarion while our chief financial officer joined Alvarion in September 2008 as the vice president of our financial division, and became chief financial officer on January 1, 2011. Our Chief Operating Officer (ex-Wavion CEO), Mr. Tal Meirzon, joined Alvarion in November 2011 as a result of the Wavion acquisition. Should any members of senior management, including our new Chief Executive 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 adversely affect the results of our operations.

The restructurings that the Company underwent, and may carry out in the future, create morale issues, 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 2011, we do not believe that we were a PFIC for 2011. In addition, based upon our valuation of our assets as of the end of each quarter of 2002 and 2003 and an independent valuation of our assets as of the end of each quarter of 2001, 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 some of those years. 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 2012 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”.

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. For the two year period ended December 31, 2011, the price of our ordinary shares on the NASDAQ Global Select Market has ranged from a high of $4.28 to a low of $0.83. On December 31, 2011 and March 31, 2012, the closing price of our ordinary shares on the NASDAQ Global Select Market was $0.91 and $0.93 respectively. We may continue to experience significant volatility in the future, based on the following factors, among others:

• 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 wireless broadband products industry and 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.

We have received a written notice from NASDAQ that we are not currently in compliance with the continued listing requirements of the NASDAQ Global Select Market. If we fail to regain compliance, our ordinary shares may be delisted and the price of our ordinary shares and our ability to access the capital markets could be negatively impacted.

As of April 25, the bid price for our ordinary shares had closed under $1.00 for 30 consecutive business days. On April 26, 2012, we received a notice from the NASDAQ Listing Qualification Department indicating that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share required for continued inclusion on the NASDAQ Global Select Market under the NASDAQ Listing Rules. The notification letter states that pursuant to the NASDAQ Listing Rules the Company will be afforded 180 calendar days, or until October 23, 2012, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Company’s common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. If we do not regain compliance by October 23, 2012, we may be eligible for additional time to regain compliance. If we are not eligible for additional time or fail to regain compliance after such an extension, NASDAQ will provide written notification to us that our common stock will be subject to delisting. In addition, we must continue to satisfy NASDAQ's other continued listing requirements, including among other things, a minimum stockholders' equity of $10.0 million.

A delisting of our ordinary shares from the NASDAQ Global Select Market would have a material adverse effect on our business and could materially reduce the liquidity of our ordinary shares and result in a corresponding material reduction in the price of our ordinary shares. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees. If our ordinary shares are delisted from the NASDAQ Global Select Market, trading in our common shares would likely move to another market, such as the NASDAQ Capital Market, or be quoted on the Over-the-Counter Bulletin Board or pink sheets, which could adversely affect the liquidity or market price of our ordinary shares.

We may be named as a defendant in securities class action lawsuits, or in other time consuming and expensive litigation that requires extensive management attention and resources and which may be expensive, lengthy and disruptive.

In the future, we may be named as a defendant in securities class action lawsuits or in other time consuming and expensive litigation. Legal proceedings can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources, regardless of their merit. Moreover, we cannot predict the results of such legal proceedings, and an unfavorable outcome of a lawsuit or proceeding could materially and adversely affect our business, results of operations and financial condition.

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 99% of our sales in recent years 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; • 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.

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.

Risks Related to Our Location in Israel

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, the Palestinian Authority 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 and specifically on the relations between Israel and Egypt, which have been parties to a peace treaty since the late 1970s. Ongoing violence between Israel and the Palestinians, 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.

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. As of 2012, we are in the process of entering into a new royalty-bearing program arrangement with the OCS under new terms which are currently being evaluated and discussed with the OCS. 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 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.

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. We believe that we are currently in compliance with these requirements. 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.

We 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.

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. In addition, the Israeli Companies Law regulates acquisitions of shares through tender offers and mergers, and regulates other matters that may be relevant to these types of transactions. 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.

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 Global Select 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 Global Select Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Marketplace 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 Global Select 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 Marketplace 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.

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. On November 23, 2011 we completed the acquisition of Wavion Inc.

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. We also have an additional office in Sunnyvale, California located at N. Mathilda Avenue, Suite 210, Sunnyvale, California 94043, and its telephone number is 408-773-7200. 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. 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 leveraging our key roles in the Institute of Electrical and Electronic Engineers (“IEEE”) and HiperMAN standards committees and having experience in extensive development and deployment of OFDM technology -based systems, we have been at the forefront of the WiMAX Forum™ in its focus on increasing the widespread adoption of standards-based products in the wireless broadband market and in leading the industry to adopt mobile WiMAX networks. The WiMAX standard is the outcome of the standardization work done by the WiMAX Forum™, widely based on the IEEE 802.16 standard working group. Through the Acquisition Transactions (see Item 3D "Risk Factors –Merger transactions recently performed by the Company may not be successfully implemented and integrated with our operations and our technologies, which may harm our business and results of operations"), we recently entered into the carrier grade Wi-Fi market as well as the cellular indoor coverage market and became the owners of certain additional product lines and technologies.

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

Broadband Wireless Access Carriers ("BWA Carriers"):

Solutions for BWA Carriers include 4G wireless networks for fixed, nomadic and mobile subscribers, providing subscribers with home, office and personal broadband connectivity for internet access, social networking, gaming, VoIP, video and other broadband applications. Our solutions enable operators in both developed and emerging markets to offer broadband services to subscribers anytime, anywhere where the WiMAX network is deployed, through the use of a variety of devices, such as laptops, PDAs and smart handsets which have undergone interoperability testing with our WiMAX system. In the BWA Carriers category, we continue to offer standard products.

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.

Mobile (Cellular) Service Providers:

Solutions for Mobile Service Providers address these customers' challenges in providing ubiquitous coverage and sufficient capacity in an era of ever growing demand for mobile data services and applications. These solutions include Wi-Fi networks for off-loading of mobile data traffic from 3G/4G networks and distributed antenna systems (DAS) for optimized indoor service availability. In the Mobile Service Providers category, we are offering the Company's acquired carrier- grade Wi-Fi products and solutions as well as the DAS products, based on the technology developed by Clariton.

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.

Organizational Restructuring and New Strategic Initiatives through Acquisitions

Since the beginning of 2011, we restructured the organization in order to improve our business results while re-sizing the company to a level appropriate to the available carrier and vertical market opportunities. As part of the restructuring, we also further adjusted the number of our employees to meet the needs of the restructured company and strategic initiatives arising from the acquisitions performed during 2011. The restructuring has resulted in a reduction in the number of employees by 194 and the vacating of certain leased premises in 2011.

Additionally, in 2011 we acquired Wavion in order to create new growth opportunities and penetrate into new market segments. Wavion is a provider of carrier-grade outdoor Wi-Fi solutions, with a variety of different products for the Wi-Fi access and 3G off-load applications segment. We also acquired the intellectual property of Clariton in the beginning of 2011 in order to penetrate into the indoor wireless market using Clariton's Distributed Antenna System (DAS) technology and know-how.

INDUSTRY DYNAMICS –

4G BWA Techology, Applications and Industry Advantages

Mobile WiMAX is a technology based on the IEEE 802.16e air interface standard and the ETSI HiperMAN wireless metropolitan area network (“MAN”) standard. WiMAX is the worldwide standard for wireless broadband access and personal mobile broadband applications. Solutions based on WiMAX technology enable fixed-line, cable, and mobile operators and challengers to compete with each other in the relevant market for higher Average Revenue Per User (“ARPU”) services. WiMAX technology has the capacity to deliver sufficient bandwidth to enable value-added broadband applications, including live video broadcasting, high-speed data, toll-quality voice and multimedia content. Most importantly, the WiMAX (IEEE 802.16) standards were developed based on the concept of an "all-IP Network". A complete set of IP-based functions and interfaces allows for high quality service delivery, while keeping end-to-end Quality of Service (“QoS”) and minimizes investment and operating costs for operators with its distributed architecture and efficient, packet-based air interface.

WiMAX offers two technological advantages to the operators relative to most existing commercial technologies: (i) a superior radio access technology; and (ii) an open IP-based access network infrastructure.

Superior radio access technology: WiMAX benefits from advanced Non-Line-of-Sight (“NLOS”) radio and antenna technologies, such as MIMO, Beam Forming, and Spatial Division Multiple Access (“SDMA”). These new technologies can be used in fixed, portable and mobile WiMAX networks and facilitate high spectral efficiency and obstacle penetration (e.g., walls) resulting in best network coverage, capacity, low latency and improved user experience. As a result, WiMAX offers lower infrastructure costs and reduced cost per subscriber for the operator, compared to any other wireless technology.

Utilizing its built-in strong QoS mechanisms, WiMAX technology has the capacity to deliver maximum service quality under the subscriber’s Service Level Agreement ("SLA") to enable rich value-added applications, including high-speed data and Internet, live video multicasting, toll-quality voice and multimedia content in both download and streaming formats. These capabilities enable toll-quality delivery of differentiating services, coupled with an enhanced subscriber quality of experience (“QoE”).

Transition of the market to TD-LTE-

Alvarion's main BWA market has undergone a technology shift in the past year, which we believe is the result of a perception that TDD LTE technology will replace WiMAX technology. Although we believe that the availability to offer cost effective TDD LTE products is limited (especially in Alvarion's main market of 3.5GHz licensed operators), the perception that TDD LTE will replace WiMAX technology has caused a decline in demand for WiMAX technology and equipment.

Carrier Grade Wi-Fi Technology -

Driven by strong uptake among end-users, Wi-Fi has become a "game changer" for the mobile industry. With its high quality of service, low cost 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.

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 a 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 profitable 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 anytime anywhere 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, 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. During 2011, additional licensed and unlicensed spectrums were allocated around the world and we expect this trend to continue in the future. Increased availability of licensed and unlicensed spectrums enables operators to address increasing demand for wireless broadband. New and developing technologies combine the use of license and license-exempt bands, allowing new cost-effective network deployment strategies and availability of coverage and capacity in very low density areas.

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:

• 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 the WiMAX Forum™, 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; • increasing availability of 4G ecosystem products, leading to reduction in the capital expenditures (CAPEX) and operating expenses (OPEX) of network deployment and the promotion of 4G operators’ competitiveness; and • proliferation of user-friendly, Internet-centric end user devices which encourage the use of bandwidth thirsty applications.

4G for Mobile Broadband Services and Applications

Mobile broadband promotes convergence of the fixed and mobile spheres, offering subscribers a combination of high-speed broadband and mobile services that are available anywhere, anytime, using any device. Mobile broadband offers always-on, high-speed and all- IP-based connectivity, providing direct access to the mobile Internet and creating a dynamic market for various services and applications.

Mobile broadband capabilities are already embedded in a wide range of computing, telephony and consumer electronics devices that aim to optimize personal lifestyle and professional productivity. These new mobile broadband capabilities would enhance traditional service provider business models and create opportunities for new entrants to penetrate the market with alternative business models.

However, for mobile broadband services to be adopted widely by consumers and businesses, vendors must offer interoperable diverse and innovative applications with the right devices to utilize the applications.

We believe that WiMAX and Wi-Fi as well as LTE are currently the technologies that are the most advanced and well-suited to cost-effectively meet the requirements of personal broadband. Wi-Fi complements the WiMAX / LTE technologies, especially in high traffic areas. For mobile operators, Wi-Fi is another Radio Access technology. It allows the operator to offer additional data services in different frequency bands, unlicensed, bases on the users’ existing mobile devices.

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 Leadership and Brand Recognition: We believe that we are a worldwide 4G vendor with a combined multiple business focus in both licensed and unlicensed solutions, with carrier grade products for mobile operators and broadband wireless access networks, and we enjoy a strong brand purpose and brand identity.

Customer Base: We have a broad customer base, with over 280 world-wide fixed, nomadic and mobile 4G 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 addition, we have continued our leadership in the relevant standardization organizations (IEEE 802.16, WiMAX Forum™). In the Wi-Fi market, we recently purchased Wavion (see Item 4 – Business overview – Organizational Restructuring and New Strategic Initiatives through Acquisitions) , which recently introduced its two-way beamforming 802.11n 3x3:3 base station with a unique Interference Immunity suite which enhances the Wi-Fi products available from our company.

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.

We believe that we have the ability to compete with any other vendor in this industry, while keeping our flexibility and technology differentiators according to customer demands and needs.

Strategic Relationships: We are actively partnering with industry and market leaders to create go-to-market strategic relationships and best-of-breed end-to-end wireless broadband networks.

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 have been at the forefront of developments with WiMAX technology since its inception, at a company and industry level. Examples of our active involvement include major roles in the standardization process through our work in the WiMAX Forum™ as a charter board member. In addition, our employees are active in other related technology organizations, such as Wireless Communications Association, IEEE 802.16, ETSI BRAN-HiperMAN and ITU standards.

By acquiring Wavion during the fourth quarter of 2011, we gained personnel with an average of 10 years of valuable experience and technical expertise in the field of carrier grade Outdoor Wi-Fi. These employees possess particular knowledge in several key technologies such as beamforming, real time radio management, advanced antenna design and smart location management.

GROWTH STRATEGY –

Our growth strategy contains three primary elements. The first element is providing broadband wireless networks (based on WiMAX and additional technologies) to telecom service providers, maintaining our current leadership position and growing along with market demand for converged applications. We have accomplished significant milestones, such as a live demonstration of our TD-LTE technology, and, in terms of product development, we have entered into agreements with third parties to integrate their products into our complete solution. The second element is providing 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 third 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 networks, creating a large demand for Wi-Fi solutions.

Opportunities for Providing Solutions Based on an Open Architecture

The inherent, open architecture characteristics of WiMAX offer many opportunities for our company as a major global WiMAX end-to-end network provider. We continually strive to be at the forefront of exploring and maximizing the benefits of WiMAX in order to create a new operator-centric model based on best-of-breed solutions from a variety of OPEN WiMAX ecosystem partners.

PRODUCTS -

BreezeMAX Platforms - WiMAX Solutions for converged applications

Our WiMAX-based BreezeMAX Frequency Division Duplex ("FDD") and Time Division Duplex ("TDD") (“BreezeMAX”) platforms are designed from the ground-up according to the IEEE 802.16 standard. BreezeMAX platforms feature advanced OFDM and OFDMA technologies to support non-line-of-sight ("NLOS") operation, adaptive modulation up to QAM64 and the highest spectral efficiency available. Currently commercially available and operating in the 2.3, 2.3WCS, 2.5, 3.3, 3.5, 3.6 and 5.2 GHz licensed frequency bands, BreezeMAX meets the immediate customer demand for cost-effective, next generation broadband wireless systems with a platform designed around the implementation of the IEEE 802.16 and HiperMAN standards by the WiMAX Forum™. The BreezeMAX carrier-class design supports broadband speeds and QoS to enable carriers to offer quadruple play (meaning broadband data, voice, mobility and multimedia) services to thousands of subscribers in a single-base station.

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.

In 2007, the BreezeMAX indoor Si CPE began offering personal broadband and primary broadband WiMAX standard-based solutions and enabled nomadic services via quick deployments based on a plug-and-play installation. In addition, the BreezeMAX indoor Si CPE enabled centrally provisioned, portable connectivity for subscribers to use the CPE in various points within the network coverage and reconnect to the service after moving from one location to another. The BreezeMAX’s FDD platform was designed according to the IEEE 802.16-2004 standard, and was partially certified by the WiMAX Forum™ during 2006 for fixed and nomadic networks, for both Base Stations and CPEs. In early 2007, we introduced our TDD pre-certified IEEE 802.16-2005 platform that was designed for fixed and nomadic networks. Our BreezeMAX platform, which is part of our 4Motion solution, provides support for fixed, nomadic and mobile WiMAX, and has been designed according to the IEEE 802.16e-2005 standard for portable and mobile networks.

BreezeMAX Macro Outdoor is a carrier-class, all outdoor, broadband wireless access platform. Based on the BreezeMAX Macro Indoor base station, BreezeMAX Macro Outdoor is a modular, scalable and reliable all outdoor base station which features flexible installation capabilities. The Outdoor Access Unit ("ODU") is a high power remote radio unit that connects to an external antenna, and provides high system gain and interference robustness by utilizing high transmit power and low noise figure. Supporting up to 20 MHz bandwidth, the ODU is scalable for future options such as increased capacity through carrier multiplexing or wider frequency bandwidths. The BreezeMAX Macro Outdoor base station offers a range of ODUs featuring diverse configurations and streamlining 2nd and 4th order diversity.

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

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

IEEE 802.16e-2005 compliant technology enables portable and mobile networks to be IP-based, with a focus on open standards, end users and consumer devices. Portable access is defined according to the WiMAX Forum™ to apply to handsets, PDA, laptop Personal Computer Memory Card International Association ("PCMCIA") or mini cards at multiple locations, at least at walking speed, and enables a hard handoff of devices, in which the subscriber terminal is disconnected from one base station before connecting to the next base station. Mobile access ranges in scope from low to high vehicular speeds but adds PDAs and smart-phone devices, multiple locations and enables a soft handoff, in which the subscriber maintains a simultaneous connection with two or more base stations for a seamless handoff to the base station with the highest quality connection. Both consumer and business users have driven the demand for this technology that has resulted from the convergence of fixed broadband networks and mobile voice networks towards mobile broadband communications.

4Motion™ Solution

Our mobile WiMAX solution, 4Motion™, was introduced to the market during the second half of 2006 and was commercially deployed in the market in mid 2008. 4Motion™ is an end-to- end mobile WiMAX solution designed to comply with the IEEE 802.16e-2005 standard. The solution is a software defined radio base and as such allows migration to other OFDMA technologies. The solution portfolio was developed in conjunction with leading providers of core network and IP technology, devices and integration services and its evolution is under continuous development. 4Motion™ offers an open, end-to-end, carrier-class, scalable and cost-effective mobile broadband data solution that delivers personal broadband services of several Mbps per subscriber or more. Offering the benefits of the OPEN WiMAX approach to network strategy, our 4Motion™ solution provides operators with the flexibility to choose best-of-breed multi-vendor partners to add third-party IP services, while controlling costs.

The 4Motion™ solution includes Radio Access Network ("RAN") and includes both Alvarion’s and third parties’ core network, radio and IP networking elements, end-user devices and subscriber applications. The 4Motion™ as a whole is optimized to provide full mobility in line with the IEEE 802.16e-2005 standard.

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 products operate in licensed and license-free bands, ranging from 900 MHz to 28 GHz and comply with various industry standards. 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”).

Most of our non-WiMAX wireless broadband solutions are based on OFDM technology with NLOS 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.

BreezeACCESS Products (BreezeACCESS 4900, 900,VL,OFDM, Wi2)

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 worldwide. 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 OFDM products support 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 4900 is a critical communications tool for the United States public safety sector. Deployable in point-to-point and point-to-multipoint configurations, the solution provides secure and reliable wireless connectivity in any terrain, environment and climate. The 50 MHz licensed spectrum in the 4.940 GHz-4.990 GHz, reserved for public safety and homeland security use, assists local municipal groups to provide license-protected, secure access for public safety, medical, emergency, government security and surveillance applications with superior capacity, range and scalability.

Operating in the license-exempt 902-928 MHz band, BreezeACCESS 900 is a cost-effective broadband wireless access solution that enables service providers to deliver high-speed, wireless data and voice services for fixed and mobile applications. BreezeACCESS 900 enables the reliable delivery of services in NLOS, foliage-dense environments.

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 top performance.

BreezeACCESS Wi2 combines the advantages of Wi-Fi access with the capabilities of BreezeACCESS VL systems to provide cost-effective solutions for personal broadband services today. BreezeACCESS Wi2 solutions can be deployed almost anywhere to provide personal broadband to standard IEEE 802.11 b/g end user devices such as laptops, PDAs, smart-phones and portable gaming devices. BreezeACCESS Wi2 solutions are ideal for operators, municipalities and communities looking to build metropolitan broadband networks or to integrate Wi-Fi hot zone capabilities into their existing broadband wireless access networks. These solutions provide personal broadband services ranging from public Internet access to public safety and Intranet applications.

OFDM technology, on which BreezeACCESS and BreezeACCESS VL are based, enables higher data rates of up to 12 Mbps and up to 54 Mbps, respectively, by utilizing the available radio spectrum in an efficient manner. In addition, OFDM technology enables NLOS operation with robust resistance to interference. OFDM-based products enable carriers to use the technology in applications where a high data rate is required, including serving medium to large enterprises and high-speed backbone applications.

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.

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.

WALKair Products

The WALKair system is a wireless broadband system that enables carriers to provide high-speed Internet access, other data services and voice services primarily to SMEs. WALKair’s high spectral efficiency, dynamic bandwidth allocation, effective frequency reuse plan and high coverage capacity enable carriers to connect last-mile business subscribers to their network in an efficient and cost-effective manner.

In 2011 we announced “end of life” for the WALKair 1000 and 3000 lines. In their stead we have introduced the new WALKair 5000.

Our new WALKair 5000 operates in the 10.5, 26 and 28 GHz licensed bands.

WALKair products are based on time division multiplexing technology. WALKair systems support a complement of value-added classes of services including VPN, VLAN and QoS, based on per-user allocation of committed data rate and maximum data rate.

BreezeCELL

Alvarion introduced a distributed antenna system offering in 2011. The system uses proprietary RF technology based on intellectual property acquired from Clariton. By utilizing manipulation of cellular RF signals the system can transport these signals across cable TV infrastructure to provide coverage and capacity within large buildings. The system is comprised of various components deployed indoors, mainly head-end equipment connected directly to a cellular Base Station on one side and to coax cable infrastructure on the other side. Additional components include specialized diplexers and amplifiers and a Remote Unit (RU) that emits the original signal from the Base Station after it is transported over the cabling system.

The BreezeCELL product offering serves large buildings and is most commonly purchased and managed by a cellular operator. The onset of 3G data services has increased dramatically the use of DAS solutions.

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 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 tripling the coverage provided in comparison to conventional access points. Furthermore, our advanced SDMA technology doubles 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.

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 Products -- WBSn

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.

Network Management Solutions

We provide advanced 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 broadband networks. The Star Management Suite, our flagship carrier-class Network Management System ("NMS"), 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 designed specifically for WiMAX deployments and helps service providers to cost-effectively manage WiMAX deployments, roll out new services and maintain high service levels. The Star Management Suite is made up of specific management tools that cover the entire WiMAX 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. The Star Management Suite is made up of four modules:

AlvariStar is a carrier-class, field-proven NMS for managing Alvarion’s WiMAX base stations in mobile and fixed deployments.

StarACS automatic configuration server is a scalable solution for unified management of various WiMAX CPEs including; residential gateways ("RGWs") and devices with WiFi, data and VoIP capabilities as well as any fixed or nomadic TR-069-supported devices.

StarQuality is a network performance and traffic monitoring system that helps operators optimize WiMAX network usage, maximize traffic capacity, maintain high level, quality services and comply with maintenance service license agreements.

StarReport provides a quick and efficient way to generate network inventory reports for a full, accurate and easy to understand status of the entire network.

Accessories Offered by Alvarion

In order to support our products and provide comprehensive solutions to our customers, we provide a family of accessories designed to extend the range of our BreezeMAX, 4Motion, BreezeACCESS, WALKair and BreezeNET solutions. These accessories include antennas, cables, surge arrestors, amplifiers and other components.

Our Geographic Markets

Our network installations can typically be found in developing regions in developed countries and in emerging markets.

Within developed countries there are rural or suburban regions with low-density populations, often extending over vast distances that have limited telecommunications infrastructures. Wireless broadband has made inroads in these areas due to the business opportunities, robust equipment, extensive coverage and non line-of-sight capabilities. In addition, government assistance in many countries has served as an incentive for alternative operators to consider WiMAX, LTE and Wi-Fi systems for providing broadband services. Examples of these markets are found in various parts of the world, including in North America, Western and Eastern Europe, Asia Pacific and Latin America. Alvarion currently serves all of these markets. Regional governments and municipalities in some areas have initiated free broadband networks to their local populations, with private Wi-Fi networks. We offer these regional governments various state- of-the art solutions for broadband connectivity.

We believe that wireless broadband service providers in emerging markets have found that deploying wireless broadband and new wireless solutions where there is a lack of telecommunication coverage due to poor infrastructure is an affordable means to provide broadband and telephony services. Emerging markets are countries where basic voice services combined with broadband data remain scarce. Examples of these locations are in Africa, Eastern Europe, Latin America and Asia Pacific. Alvarion currently serves all of these markets.

Geographic Breakdown of Our Revenue –

2009 2010 2011 In thousands North America $ 23,242 9.5% $ 47,517 23.1% $ 46,941 24.7% Latin America 45,369 18.5% 26,875 13.1% 28,396 14.9% Europe, Middle East and Africa 148,738 60.7% 109,909 53.3% 80,701 42.5% Asia Pacific 27,890 11.3% 21,514 10.5% 34,000 17.9% $ 245,239 100.0% $ 205,815 100% $ 190,037 100%

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 two of our business lines.

In numerous cases, these operators have a broadband wireless services unit. These operations are well addressed by WiMAX 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. Examples of Tier One and Tier Two carriers that have publicly indicated their strategy include: Telkom South Africa Ltd., France Telecom, Bharti and Telefonos de Mexico S.A. de C.V, Orange and Safaricom.

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 converged WiMAX solutions, while providing in many cases improved services compared to legacy telecommunication operators. Broadband service providers are expected to constitute a greater portion of the WiMAX market in the future. Examples of service providers in this category include Bolloré Telecom (France), Enforta (Russia), Free (France), Iberbanda in Spain (a subsidiary of Telefonica de Espana), and Ertach (Argentina).

CLECs & Regional Carriers

Competitive Local Exchange Carriers (“CLECs”) seek to compete effectively with the Incumbent Local Exchange Carriers (“ILECs”). Wireless broadband is an attractive and cost- effective last-mile alternative to wired access solutions. CLECs deploy our products to provide voice and broadband services in rural and suburban areas where wire line infrastructure does not exist or does not support the demand. In addition, in the areas of landline infrastructure in developed countries, wireless broadband systems offer carriers the ability to reach otherwise inaccessible customers, while providing increased bandwidth flexibility and service differentiation, surpassing the inherent limitations in wire line infrastructure.

CLECs have constituted an important part of our focus in our fixed wireless access product line and have exhibited an interest in our technology. The reduced installation costs, rapid roll-out potential and modular architecture, coupled with high network capacity and coverage and enhanced service options, present an appealing alternative to service providers and regional carriers seeking to supply their customers with reliable comprehensive data and voice solutions. Examples of these operators include VMAX (Taiwan), Wisper (USA), Elro (Denmark), Linkem (Italy), Czech on line, KDN (Kenya), Millicom and Xplornet Communications Inc. (Canada).

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 very 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.

2011 Partial Customer List for 4G Wireless Broadband Systems –

Telecom carriers and service providers using our products include, among others:

ADAM INTERNET, AUSTRALIA

ARIA, ITALY

BHARTI TELE-VENTURES LIMITED ( AIRTEL ENTERPRISE SERVICES), INDIA

CEDICOM JSC

CIELUX, DRC

CONNECT DATAELRO, DENMARK

FORIS TELECOM LTD., ISRAEL

IBERBANDA, S.A, SPAIN

ICE COSTA RICA

LINKEM, ITALY

MTN UGANDA, UGANDA

NETIA SA, POLAND

NEXTEL DEL PERU S.A

NGI, ITALY

ORANGE BOTSWANA

ORANGE CAMEROUN

ORANGE MALI

SAFARICOM, KENYA

TELECOM NAMIBIA, NAMIBIA

TELKOM SOUTH AFRICA LTD., SOUTH AFRICA

TTML TATA TELESERVICES (MAHARASHTRA) LTD

WAVEMAX S.R.L

XPLORNET COMMUNICATIONS INC., CANADA

ZAPFI NV (VIG), BELGIUM

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.

Networking Technology

To support the OPEN WiMAX concept and our 4Motion™ solution as well as the BreezeMAX platform 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. To support the SentieM™ technologies embedded in our 4Motion™ solution as well as in the BreezeMAX platform and other products, we have developed or otherwise acquired, and continue to invest in, distributed radio architecture and hierarchical ASN-GW network architecture. 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 frequency bands include, among others, 900 MHz, 2.4 GHz, 2.3, 2.5-2.7 GHz, or MMDS, 3.3-3.8 GHz, 4.9-6 GHz, 10.5 GHz and 26 and 28 GHz. 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 developed the BreezeMAX base station platform, which is designed to support the WiMAX (IEEE 802.16) air interface specification. The platform supports the multiple antenna elements per sector to exploit the smart-antenna signal processing techniques for improved coverage and network capacity. The programmable DSP-based architecture of the BreezeMAX platform enables us to support the IEEE 802.16d-2004 standard, as well as the IEEE 802.16e-2005 standard for mobile broadband communications, while enjoying the benefits of OFDMA and smart-antenna processing. The base station architecture and capabilities are closely aligned and synchronized with the CPE application-specific integrated circuit (“ASIC”) and reference design developed by Intel resulting from our collaboration, which began in 2003, to ensure optimum performance in future WiMAX deployments. Our WiMAX CPE (Customer Premises Equipment) is based on commercial SoC (System On Chip) elements. As WiMAX technology matured, less interaction has been required with chipset vendors, reducing development risk. Furthermore, as the industry moves toward technologies such as LTE and SoC, vendors have refocused their investments from WiMAX to LTE. Therefore we may expect those chipset vendors to declare EoL (End of Life) for WiMAX chipsets, which will require Alvarion to acquire large stocks in addition to maintaining a low level of responsiveness for ongoing maintenance.

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 recently approved 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. This system-on-a-chip ASIC has been used as a key component of our BreezeACCESS-OFDM products. An additional ASIC developed in-house supports our WALKair products, with a full duplex point-to-multipoint single carrier trellis-coded 64QAM modem.

We have developed or otherwise acquired, and continue to invest in, MAC and RRM technology expertise that support channel aware rate adaptation and power control technology (part of the SentieM™ suite) technologies as well as advanced packet data scheduling and OFDMA frame building technologies embedded in the BreezeMAX platform and 4Motion™ solution. Additional features developed or otherwise acquired are MAC and RRM support for MIMO transmissions in the downlink, collaborative MIMO reception in the uplink and beam-forming in the downlink.

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.

IOT Labs and Activities

To support our OPEN WiMAX strategy and enable a strong ecosystem of CPEs and devices by top industry vendors we have created our Inter-operability testing (IOT) lab which tests a variety of products for interoperability on an ongoing basis, with the goal of ensuring that customer specific configurations, including CPE's and frequencies, are fully supported. The IOT Center is tasked with testing both various forms of CPE's, including dongles, PCCards, USB's, notebooks, laptops and standalones, as well as a range of core products, including ASN-GW's, AAA's and Home Agents (an element in the carrier network). The IOT lab tests products from a variety of vendors, in an Alvarion network environment using Alvarion BaseStations and, on occasion, an Alvarion ASN-GW, depending on the customer configuration. In addition, the IOT lab performs scheduled maintenance for product versions which have already undergone IOT. Our IOT center can additionally engage in provisioning activities which enable end-to-end integration of a full solution per customer requirements.

Participation in International Standards Committees

As part of our strategy to become a technology leader and influence the industry in specific areas, we have, since our inception, been active members in standardization committees.

We are a principal founder of the WiMAX Forum™, a non-profit organization whose members work to promote adoption of the IEEE 802.16 OFDM/OFDMA standard and to certify interoperability of compliant equipment. Our representative on the board of directors of the WiMAX Forum™ is Dr. Mohammad Shakouri, Corporate Vice President of Innovation and Marketing at Alvarion, who holds the position of Vice President of the WiMAX Forum™.

The scope of the IEEE 802.16-based standard is the Wireless MAN, supporting larger range fixed/nomadic/mobile broadband access networks with more performance and dedicated high-end services. Our engineers actively participate in the technical group for defining inter-operability profiles and tests. Our representative, Dr. Vladimir Yanover, holds the position of Vice Chair of WiMAX Forum™’s Technical Working Group (TWG), which is responsible for defining the interoperability profiles and the interoperability and conformance tests for the IEEE802.16e- 2005 standard.

We actively participate in the IEEE 802.16’s broadband wireless access work group. Similarly, we are part of the WiMAX Forum™’s groups that define and improve the OFDM/OFDMA mode for both fixed and mobile broadband applications and that improve the ability of the IEEE 802.16 standard to increase its market footprint in license-exempt applications as well as a registered member in the Wi-Fi Alliance (WFA) forum with regard to the 802.11n standard.

We are also very active in the international regulatory arena, including ITU-R, which aims to promote WiMAX in the regulatory domain and to secure the spectrum for broadband fixed/mobile deployment.

SALES, MARKETING AND SUPPORT OF OUR PRODUCTS –

Alvarion’s carrier products are mostly marketed directly to carriers. In the vertical markets, 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 have strong relationships with leading telecom operators to whom we sell our solutions directly. Our relationships are primarily based on the following common activities: (i) we are building together the industry and leadership position; (ii) we have a common strategy and participate in world-wide standards authorities and consortia; and (iii) we have a positive commercial relationship and share a common vision and joint marketing activities.

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.

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 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 and WEEE 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. Following the Acquisition Transactions (together with Clariton and Wavion's granted and pending patents) we have been granted 123 patents and 118 pending patent applications worldwide. 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 sufficiently adequate 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.

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.

Currently, we participate in the formation of two patent pools administered by VIA licensing, a company experienced in technology licensing which formed the LTE patent pool and administers the WiMAX patent pool and the LTE patent pool. As a result, we expect that patents pertaining to WiMAX and LTE and their associated royalty rates will be more predictable and transparent. The patent pools may act as a “one stop shop” where companies building WiMAX and LTE solutions can obtain use of the patents more simply and cost effectively using a more competitive royalty structure that charges only for the features required to develop WiMAX and LTE products.

THE COMPETITIVE ENVIRONMENT IN WHICH WE OPERATE –

The markets for our products are very competitive. Competition comes from both tier-1 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:

• 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; • quality of service; and • value proposition - coverage and capacity capabilities.

Companies that are engaged in the manufacture and sale or the development of products that compete with our wireless broadband products include Airspan Inc., NewNet, Huawei Technologies, Samsung, and ZTE. 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 and other vendors of TD-LTE equipment may become our competitors in the future.

Our products use wireless media, which also competes with alternative telecommunications transmission media, including leased lines, copper wire, fiber-optic cable, cable modems, satellite technologies and television modems. Our products compete with other wireless media technologies, including (i) 3G, HSPDA, HSUPA, EVDO and (ii) 4G, such as UMB and LTE. Although LTE and mobile WiMAX are based on the same fundamental technologies, they originate from different eco -systems. However, over the last few years, LTE’s 4G has been adopted rapidly by cellular operators and their traditional eco-systems throughout the world, and we expect increased competition between WiMAX and LTE over the course of 2012.

During the last decade, the rise of Chinese telecom equipment vendors, such as Huawei and ZTE, has put pressure on Western telecom equipment vendors. In order to compete with Chinese vendors’ cost and financing advantages, Western vendors, such as Alcatel - Lucent, Nokia with Siemens and with Motorola, have consolidated in order to create advantages of scale. Still, Chinese vendors are gaining market share and competition in the telecom infrastructure is intense.

Some 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. Outside of the United States the use of spectrum license, if any, and the purposes of such use, vary from country to country. Some of our products operate in 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 many countries, the unavailability of radio frequencies for broadband communications has slowed down the growth of these networks. The process of establishing new regulations for wireless broadband frequencies and allocating these frequencies to operators is complex and lengthy. The regulation of frequency licensing began during 1999 in many countries in Europe and South America and continues in many countries in these and other regions. Licensed blocks in 2.3, 2.5, 3.3, 3.5 and 3.6 GHz were released in some countries. In Europe, the European Civil Code (the “ECC”) assigned the spectrum in 3.4-3.8GHz to broadband applications, in a flexible and technology-neutral mode. However, the implementation of the ECC decisions in individual countries may suffer delays or may be limited to a relatively small range of spectrum. In addition to the above, in some countries, particular frequency bands were allocated for licensing. Our current customers that commercially deploy our licensed band products have already been granted appropriate frequency licenses for their network operation. In some cases, the continued validity of these licenses may be conditional on the licensee complying with various conditions. In October 2007, the Radio-communication Sector of the International Telecommunication Union (ITU-R) made a decision that effectively includes WiMAX technology in the IMT-2000 set of standards. This inclusion of WiMAX in IMT-2000 may be viewed as placing WiMAX on equal footing with the legacy-based technologies ITU-R already endorses. However, establishing new regulations in individual countries for wireless broadband frequencies and allocating frequencies to operators is complex and lengthy. The European Commission started a process to revise the 2.5-2.69GHz regime to provide more flexibility in the spectrum usage and a more balanced protection of the TDD operation. A change in the European regulation may imply a need for revised type approval norms; such revisions may involve a lengthy process.

There is a trend to release more license-exempt bands. For example, in the United States, FCC rules were modified to include an additional 255MHz of spectrum, though actual use of this allocation is not permitted until a technical issue is resolved between the National Telecommunications and Information Administration (which manages government-used spectrum) and the FCC (which manages commercial and public spectrum). In Europe, the process is slower. We see potential for new markets in rural areas and developing countries, created by the availability of licensed-exempt spectrum in the 5GHz band. The FCC enforced the 3.65-3.7GHz spectrum to be used in a shared mode; the upper 25MHz require a special coexistence protocol. Such a protocol is defined for the WiMAX systems in 802.16 and this process might be lengthy.

An additional trend affecting our business involves allowing TDD operation in frequency bands allocated in the past for FDD operation. Generally, TDD operation allows for lower cost equipment and is currently the preferred mode of operations, according to the adopted WiMAX Forum’s profiles. However, the operation of TDD networks in proximity to FDD networks creates a mutual interference hazard that may postpone customer decisions, impede network deployment or require higher cost solutions to address such issues.

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.

C. ORGANIZATIONAL STRUCTURE –

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

• Alvarion, Inc., incorporated under the laws of Delaware, United States; • Alvarion Mobile, Inc.*, incorporated under the laws of Delaware, United States; • Alvarion UK Ltd., incorporated under the laws of England; • 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; • Tadipol-ECI 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; • Interwave Communications International SA.***, incorporated under the laws of France; • Alvarion Philippines*** incorporated under the laws of Philippines; • Kermadec Telecom B.V. incorporated under the laws of Holland; • Alvarion South Africa (Pty) Ltd., incorporated under the laws of South Africa; • Alvarion Italy SRL incorporated under the laws of Italy; • Alvarion GmbH incorporated under the laws of Germany; • 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; • 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.

*Alvarion SARL, Alvarion GmbH, Wavion, Inc. **Alvarion Mobile Inc., PT. Alvaritech Indonesia and Wavion Inc. are wholly-owned subsidiaries of Alvarion, Inc. *** Alvarion Singapore PTE Ltd., Taiwan Branch Preparatory Office is a wholly-owned branch of Alvarion Singapore PTE Ltd. **** Interwave Communications International SA and Alvarion Philippines are wholly-owned subsidiaries of Alvarion Mobile Inc. ***** Wavion Ltd. is a wholly-owned subsidiary of Wavion Inc.

In addition, we have representative offices in China and Russia.

D. PROPERTY, PLANTS AND EQUIPMENT –

We do not own any real estate. As of December 31, 2011, we leased an aggregate of approximately 153,095 square feet in Israel for annual lease payments (including management fees) of approximately $2.7 million and incurred annual parking expenses in connection with these leases of approximately $0.5 million. These premises consist mainly of our corporate headquarters in Tel-Aviv, Israel, and a separate warehouse located in Israel. Recently the company's management has decided to terminate the lease for this warehouse in Israel which will be vacated during the beginning of 2012. Thereafter the Company shall lease only one warehouse and reduce its costs accordingly.

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 for annual lease payments (including management fees) of approximately $2 million as well as annual parking expenses of approximately $0.5 million. We also lease approximately 18,320 square feet of office facilities located at 5 Hamada Street, Yokneam Ilit, Israel, at an annual rent of approximately $0.2 million. These premises serve as the corporate headquarters of our newly purchased subsidiary in Israel, Wavion Ltd. We also lease 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 and approximately 15,589 square feet of office facilities located at 6430 Fiddler's Green Circle, Suite 175 Greenwood Village, CO 80111, at an annual rent of approximately $0.1 million. We also have an additional office in Maryland located at 6701 Democracy Blvd., Suite 300, Bethesda, MD, at an annual rent of approximately $0.1 million. Our Maryland office serves as the corporate headquarters of our U.S. subsidiary, Alvarion Inc., and as our principal sales and marketing office in North America. We also lease approximately 22,098 square feet of office facilities in Romania, at an annual rent of approximately $0.5 million. 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 Argentina, France, China, Uruguay, Mexico, Poland, Italy, South Africa, India and Spain. Some of the office space was vacated as part of the Company’s restructuring process. We believe that the facilities we currently lease are adequate for our current requirements.

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. Leveraging our key roles in the IEEE and HiperMAN standards committees and with experience in development and deployment of OFDM technology -based systems, we have been at the forefront of the WiMAX Forum™ in its focus on increasing the widespread adoption of standards- based products in the wireless broadband market and in leading portions of the industry to adopt our technology. The WiMAX standard is the outcome of the standardization work done by the WiMAX Forum™, widely based on the IEEE 802.16 standard working group.

We believe we will experience demand in the consumer, business and government segments for access to bandwidth-intensive applications (video, data and voice).

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 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 in licensed and license-exempt bands, ranging from 450 MHz to 28 GHz 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.

2011 Highlights

On November 23, 2011, we completed the acquisition of Wavion, a technology leader in 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). We believe that the Wavion acquisition will enable Alvarion to further leverage its years of experience providing carrier-grade solutions and creates a unique combination of multi-technology capabilities which can be optimized for various types of networks and applications.

2011 was a difficult year for us in light of the aggressive competition with other 4G vendors. In 2011, our revenues decreased by 7.7% to approximately $190.0 million from approximately $205.8 million in 2010, primarily due to the aggressive competition which we face especially from Chinese vendors, the postponement of some WiMAX projects as a result of the limited availability of funds related to the global credit crisis, the global economic slowdown and delays in allocating spectrum in several countries.

Despite these difficulties and challenges, in 2011, we won several projects, providing complete turnkey solutions from design and planning to implementation, by ourselves and together with partners. In addition, we formed numerous strategic relationships with world-wide partners adding technology, integration and channel partners. In order to ensure the timely introduction of a host of mobile WiMAX devices, we successfully completed interoperability testing with major chips and device manufacturers.

We believe that there is a strong demand for broadband access, and governments around the world, including in Europe, Australia and the United States, are creating programs to extend broadband coverage as a matter of national competitiveness.

In addition, a host of new mobile data opportunities in public safety, border control, utilities and other vertical markets are emerging.

During 2011 our gross margins decreased to approximately 32.3% of our revenues, compared to approximately 35.2% of revenues in 2010. This decrease in gross margin is mainly due to inventory write-off related to the bankruptcy filing of Open Range Communication in the amount of approximately $7.1 million. In addition, the fact that our revenue mix contained a higher proportion of third party equipment, combined with the continued effects from the global economic slowdown, the limited availability of credit in the global capital markets, the aggressive competition which we faced (especially from Chinese vendors) and the continued delay in new project launches led to a low level of revenue with a particularly unfavorable mix of our products and third party products, which resulted in a large sequential decline in gross margin. During 2011, due to the reasons mentioned above, we implemented another restructuring plan, which included the layoff of approximately 194 employees and the vacating of certain leased premises. As a result, we recorded other restructuring charges of approximately $12.0 million in 2011.

During 2011, our net loss amounted to approximately $(33.8) million compared to net loss of approximately $(98.5) million in 2010. This decrease in net loss was primarily a result of the impairment of goodwill in an amount of $57.1 million that we recognized in 2010 and an impairment of short term investment in an amount of $7.0 million that we recognized in 2010. Our operating expenses decreased to $94.3 million in 2011 compared to $162.8 million in 2010 due to the $57.1 million impairment of goodwill that we recognized in 2010 of as well as cost reduction which the Company implemented, as mentioned above.

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.

Starting January 1, 2011 the Company adopted the guidance of ASU 2009-13 "Multiple-Deliverable Revenue Arrangements", (amendments to FASB ASC Topic 605, Revenue Recognition) ("ASU 2009-13") and ASU 2009-14, "Certain Revenue Arrangements That Include Software Elements", (amendments to FASB ASC Topic 985, Software) ("ASU 2009-14"). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendment eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance in determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. Company's management determined that the software is incidental to the product as a whole and therefore ASC 985-605 and ASU 2009-14 should not apply.

The Company prospectively applied these provisions to all revenue arrangements entered into or materially modified after January 1, 2011. This guidance does not generally change the units of accounting for the Company’s revenue transactions. Most products and services qualify as separate units of accounting and the revenue is recognized when the applicable revenue recognition criteria are met. The Company’s arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue. While certain of the Company’s bundled products are now accounted for following ASC 605, the impact of the adoption of these standards was immaterial.

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 $5.1 million and $5.5 million as of December 31, 2010 and 2011, respectively. The balance as of December 31, 2011, 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.

Total doubtful debts expenses during 2009, 2010 and 2011 amounted to $0.9 million, $4.6 million and $2.0 million, respectively. Total write-offs amounted $ 0 million, $0.7 and $1.8 million in 2009, 2010 and 2011, 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 2g to our financial statements describes the write-offs and provisions that we made and recorded in 2009, 2010 and 2011 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 2g 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. 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.

For purposes of testing goodwill in accordance with ASC 350 for the year ended December 31, 2010, the Company operated in one operating segment, and this segment is comprised of a single reporting unit. During 2010, the global economic downturn negatively affected the Company's results of operations with a significant reduction in the Company's market capitalization. In calculating the fair value of the reporting unit, the Company used a Discounted Cash Flow (DCF) approach. The Company further applied a market approach, using multiples of earnings, to corroborate the results achieved in the estimated discounted cash flows model. As a result of performing step two, the Company's implied fair value of the reporting unit goodwill has decreased to zero.

For the year ended December 31, 2009, no impairment losses were recorded. In 2010, we recorded impairment of the outstanding goodwill balance in the amount of $57.1 million.

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, as the full integration into the activity of the Company had not yet been completed. As part of the Wavion acquisition, the Company recorded goodwill in an amount of $13.1 million. Since the transaction occurred in November 2011 and no outstanding goodwill balances remained prior to the acquisition, no annual impairment test has been completed and no impairment has been recorded in 2011.

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 14 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 2009, 2010 and 2011 was $4.2 million, $3.3 million and $3.2 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 2011 as a result of updating several parameters in our stock- based compensation calculation due to 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 2011, 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.

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.

Results of Operations –

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, 2009, 2010 and 2011:

2009 2010 2011 Total Total Total Revenues Percentage revenues Percentage revenues Percentage In In In thousands Of sales thousands Of sales thousands Of sales Israel $ 697 0.3% $ 718 0.3% $ 736 0.4% United States 22,478 9.2% 45,638 22.2% 34,426 18.1% Canada 764 0.3% 1,879 0.9% 12,514 6.6% Europe (excluding France, Italy, Spain and Denmark)(1) 24,398 9.9% 20, 415 9.9% 18,963 9.9% France 17,252 7.0% 11,049 5.4% 5,503 2.9% Italy 19,281 7.9% 17,333 8.4% 14,791 7.8% Spain 9,734 4.0% 14,186 6.9% 6,605 3.5% Denmark 35,483 14.5% 7,115 3.5% 5,608 3.0% Africa (excluding Nigeria)(1) 41,726 17.0% 26,191 12.7% 23,046 12.1% Nigeria 167 0.1% 12,902 6.3% 5,449 2.9% Asia (excluding India)(1) 25,288 10.3% 19,528 9.5% 19,449 10.2% India 2,602 1.1% 1,986 1.0% 14,551 7.7% Latin America (excluding Argentina) (1) 29,313 12.0% 21,980 10.7% 26,388 13.8% Argentina 16,056 6.4% 4,895 2.3% 2,008 1.1% $ 245,239 100% $ 205,815 100% $ 190,037 100%

(1) We have listed Italy, Spain, Denmark, France, Nigeria and Argentina separately within this table because each of these countries generated at least 5% of our total revenues during at least one of the last 3 years.

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:

Year Ended December 31, 2009 2010 2011 (In thousands) Sales Products $ 218,137 $ 180,447 $ 163,744 Services 27,102 25,368 26,293 Total Sales 245,239 205,815 190,037

Cost of sales Products 113,576 101,955 95,129 Services 14,885 26,623 23,726 Write-off of excess inventory and provision for inventory purchase commitments 3,993 4,897 2,580 Inventory write-off related to bankruptcy of a customer - - 7,144 Gross profit 112,785 72,340 61,458

Operating costs and expenses: Research and development, gross 54,674 41,744 32,404 Less – grants and participations 3,884 3,027 4,440 Research and development, net 50,790 38,717 27,964 Selling and marketing 52,022 43,376 37,576 General and administrative 15,087 19,920 13,877 Amortization of intangible assets 132 130 186 Impairment of investment 1,554 - - Impairment of goodwill and intangible assets - 57,110 - Restructuring and other charges 2,787 3,573 12,040 Acquisition related expenses - - 2,622 Total operating costs and expenses 122,372 162,826 94,265 Operating loss (9,587) (90,486) (32,807) Other (loss) income 731 (7,000) - Financial income (expenses), net 1,668 (99) (1,015) Loss before tax (7,188) (97,585) (33,822) Taxes on income - 894 - Net income (loss) $ (7,188) $ (98,479) $ (33,822)

Year Ended December 31, 2009 2010 2011 (As a percentage of sales) Statement of Operations Data: Sales Products 88.9 87.7 86.2 Services 11.1 12.3 13.8 Total Sales 100.0 100.0 100.0 Cost of sales Products 46.3 49.5 50.1 Services 6.1 12.9 12.5 Write-off of excess inventory and provision for inventory purchase commitments 1.6 2.4 1.4 Inventory write-off related to bankruptcy of a customer - - 3.8

Gross margin 46.0 35.2 32.2

Operating costs and expenses: Research and development, gross 22.3 20.3 17.1 Less – grants and participations 1.6 1.5 2.3 Research and development, net 20.7 18.8 14.8 Selling and marketing 21.2 21.1 19.8 General and administrative 6.2 9.7 7.3 Amortization of intangible assets 0.1 0.1 0.1 Impairment of investment 0.6 - - Impairment of goodwill and intangible assets - 27.7 - Restructuring and other charges 1.1 1.7 6.3 Acquisition related expenses - - 1.4

Total operating expenses 49.9 79.1 49.7 Operating loss (3.9) (43.9) (17.5) Other (loss) income 0.3 (3.4) - Financial income (expenses), net 0.7 (0.1) (0.5) Loss before tax (2.9) (47.4) (18.0) Taxes on Income - 0.4 - Net (loss) (2.9%) (47.8%) (18.0%)

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Sales. Sales in 2011 were approximately $190.0 million, a decrease of approximately 7.7% compared to sales of approximately $205.8 million in 2010. In 2011, BreezeMAX revenues totaled approximately $141.4 million or 74.4% of total revenue, compared to approximately $147.5 million or 71.9% of total revenue in 2010, a decrease of approximately 4.1% compared to the 2010 BreezeMAX revenues. The decrease of our total sales in 2011 resulted primarily due to the continuous unfavorable general economic conditions, which influenced some of our clients, and the intense competition which we faced, in particular by Chinese vendors. Our revenues in 2011 from non-WiMAX broadband wireless products were approximately $48.6 million, a decrease of approximately 16.4% compared to sales of approximately $58.2 million in 2010.

Sales in Europe, the Middle East and Africa reached approximately 42.5% of our sales in 2011 and totaled approximately $80.8 million, which represents a decrease of approximately 26.4% compared to our 2010 sales in these regions which were approximately $109.9 million or 53.4% of our sales. Sales in Central and Latin America accounted for 14.9% of our sales in 2011 compared to 13.1% of our sales in 2010. Sales in North America accounted for approximately 24.7% of our sales in 2011, compared to 23.1 % in 2010. Sales in Asia Pacific accounted for approximately 17.9% of our sales in 2011 compared to approximately 10.5% in 2010 in this region.

In 2010 and 2011, no customer accounted for more than 10% of our revenues. Because of 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 $118.9 million in 2011, compared to cost of sales of approximately $128.6 million in 2010. Cost of sales as a percentage of sales are consistent between 2010 and 2011 at 62.5%.

Write-off of excess inventory and provision for inventory purchase commitments. We periodically assess our inventories valuation in accordance with 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. Primarily as a result of the decrease of our sales, our write-off of excess inventory and our accrual of a provision for inventory purchase commitments decreased and amounted in the aggregate to approximately $2.6 million for the year ended December 31, 2011 compared to approximately $4.9 million for the year ended December 31, 2010.

Inventory utilization. We perform periodically an inventory evaluation model in order to align our inventory levels to the market conditions and anticipated customer demand. In each of 2011 and 2010, approximately $0.4 million of inventory previously written-off consistent with our inventory evaluation model was used as components in our regular production course and was sold as finished goods to end users. The sales of these related manufactured products were reflected in our revenues without increasing the cost of sales in the period the inventory was utilized. This inventory utilization increased our gross margin by 0.2% in 2011 and by 0.2% in 2010.

If the demand for our products suddenly and significantly decreased, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology, standardization and customer requirements, we could be required to increase our write-off of excess inventory, and our gross margin could be adversely affected. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times compared to the risk of inventory obsolescence. However, if the demand for our products increases beyond our expectations following write-down of inventory, we may further utilize our written down inventory. Such utilization may contribute to our gross margin in future periods. We cannot predict the likelihood of utilizing previously written-off inventory in future operations.

Research and development expenses, net. Gross research and development expenses consist 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 $32.4 million in 2011, a decrease of approximately 22.3% compared to gross research and development expenses of approximately $41.7 million in 2010. This decrease was primarily attributable to the restructuring plans that the Company implemented during 2011 and 2010. Gross research and development, as a percentage of sales was 17% in 2011, compared to 20.3% in 2010. Grants and other participations for funding approved research and development projects totaled approximately $4.4 million in 2011 and $3.0 million in 2010. Research and development expenses, net, were approximately $28.0 million in 2011, compared to approximately $38.7 million in 2010.

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 $37.6 million in 2011, a decrease of approximately 13.4% compared to selling and marketing expenses of approximately $43.4 million in 2010. This decrease was primarily attributable to the restructuring plan that the company implemented during 2011 and 2010. Selling and marketing expenses as a percentage of sales were 19.8% in 2011 compare to 21.1% in 2010.

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 $13.9 million in 2011, a decrease of approximately 30.3% compared to general and administrative expenses of approximately $19.9 million in 2010. This decrease is related primarily to the $3.6 million that the Company recorded in 2010 for doubtful accounts and for the restructuring plan that the Company implemented during 2011 and 2010. General and administrative expenses as a percentage of sales decreased to 7.3% in 2011 from 9.7% in 2010.

Amortization of intangibles assets. As a result of our merger and acquisition activity of Wavion Inc. during November 2011, we had annual amortization charges of approximately $0.2 million recorded in 2011 compared to $0.1 million in 2010 related to the prior year’s acquisition.

Impairment of investment. During 2011 and 2010 the Company did not book any impairment of investment.

Impairment of goodwill. During 2011 the Company did not book any impairment of goodwill compared to 2010, when the Company incurred impairment of goodwill in amount of $57.1 million. For further information regarding these charges, see Item 5.– “A Critical Accounting Principles —Goodwill”.

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 $12.0 million in 2011 and approximately $3.6 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 Long Term Loan that the Company took from Silicon Valley Bank (SVB).

Other loss. During 2011 the Company did not book other loss compared to 2010, when the Company incurred impairment of short term investment in an amount of $7.0 million, resulting from purchasing from one of our customers subordinated convertible promissory notes (See note 6 to our consolidated financial statements).

Net loss. In 2011, net loss was approximately $(33.8) million, compared to a net loss of approximately $(98.5) million in 2010.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Sales. Sales in 2010 were approximately $205.8 million, a decrease of approximately 16.1% compared to sales of approximately $245.2 million in 2009. In 2010, BreezeMAX revenues totaled approximately $147.5 million or 71.9% of total revenue, compared to approximately $179.0 million or 73.0% of total revenue in 2009, a decrease of approximately 17.6% compared to the 2009 BreezeMAX revenues. The decrease of our total sales in 2010 resulted primarily due to the postponement of some WiMAX projects as a result of the unfavorable general economic conditions, which influenced some of our clients, and delays in allocating spectrum in several countries as well as the intense competition which we faced, in particular by Chinese vendors. Our revenues in 2010 from non-WiMAX broadband wireless products decreased approximately 12.7% compared to the previous year.

Sales in Europe, the Middle East and Africa reached approximately 53.4% of our sales in 2010 and totaled approximately $109.9 million, which represents a decrease of approximately 26.2% compared to our 2009 sales in this region which were approximately $148.7.million or 60.7% of our sales. Sales in Central and Latin America accounted for 13.1% of our sales in 2010 compared to 18.5% of our sales in 2009. Sales in North America accounted for approximately 23.1% of our sales in 2010, compared to 9.5 % in 2009. The main reason for the increase in our sales in North America was due a deployment to a large customer which we performed in 2010. Sales in Asia Pacific accounted for approximately 10.5% of our sales in 2010 compared to approximately 11.4% in 2009 in this region.

In 2010, no customer accounted for more than 10% of our revenues, compared to 2009, when one customer accounted for more than 15% of revenues.

Cost of sales. Cost of sales was approximately $128.6 million in 2010, compared to cost of sales of approximately $128.5 million in 2009. Cost of sales as a percentage of sales increased to approximately 62.5% in 2010 from approximately 52.4% in 2009. This increase is primarily attributable to the change in the mix of the products that comprised our revenues in 2010. As the market continues to move towards standardization and more players enter into this market making it more competitive for us, and as we shift the mix of products that comprise our revenues, such as an increase in the volume of lower-margin third party products and turnkey projects, our cost of sales as a percentage of sales increased.

Write-off of excess inventory and provision for inventory purchase commitments. Primarily as a result of the decrease of our sales, our write-off of excess inventory and our accrual of a provision for inventory purchase commitments increased and amounted in the aggregate to approximately $4.9 million for the year ended December 31, 2010 compared to approximately $4.0 million for the year ended December 31, 2009.

Inventory utilization. In 2010 and 2009, approximately $0.4 million and $0.6 million, respectively, of inventory previously written-off consistent with our inventory evaluation model was used as components in our regular production course and was sold as finished goods to end users. The sales of these related manufactured products were reflected in our revenues without increasing the cost of sales in the period the inventory was utilized. This inventory utilization increased our gross margin by 0.2% in 2010 and by 0.2% in 2009.

Research and development expenses, net. Gross research and development expenses were approximately $41.7 million in 2010, a decrease of approximately 23.8% compared to gross research and development expenses of approximately $54.7 million in 2009. This decrease is primarily attributable to the restructuring plans that the Company implemented during 2010 and 2009. Gross research and development, as a percentage of sales was 20.3% in 2010, compared to 22.3% in 2009. Grants and other participations for funding approved research and development projects totaled approximately $3.0 million in 2010 and $3.9 million in 2009. Research and development expenses, net, were approximately $38.7 million in 2010, compared to approximately $50.8 million in 2009.

Selling and marketing expenses. Selling and marketing expenses were approximately $43.4 million in 2010, a decrease of approximately 17% compared to selling and marketing expenses of approximately $52.0 million in 2009. This decrease is primarily attributable to the cost reduction plan that the Company implemented during 2010. Selling and marketing expenses as a percentage of sales was 21.1% in 2010 compare to 21.2% in 2009.

General and administrative expenses. General and administrative expenses were approximately $19.9 million in 2010, an increase of approximately 32% compared to general and administrative expenses of approximately $15.1 million in 2009. This increase is related primarily to the $3.6 million addition to the company’s provision for doubtful accounts. General and administrative expenses as a percentage of sales increased to 9.7% in 2010 from 6.2% in 2009.

Amortization of intangibles assets. As a result of our merger and acquisition activity in prior years, we had annual amortization charges of approximately $0.1 million recorded in each of 2010 and 2009.

Impairment of investment. During 2010 the Company did not book any impairment of investment compared to $1.6 million in 2009.

Impairment of goodwill. During 2010, the Company incurred impairment of goodwill in amount of $57.1 million. For further information regarding these charges, see Item 5.– “A Critical Accounting Principles —Goodwill”.

Restructuring costs. During 2010 and 2009, we implemented separate restructuring plans including the layoff of approximately 160 employees in 2010 and approximately 90 employees in 2009 as well as the vacating of certain leased premises.

As a result, we recorded a restructuring charge of approximately $3.6 million in 2010 and approximately $2.8 million in 2009, which primarily consists of employees' termination benefits, lease abandonment and repayment of grants.

Financial income, net. Financial expense, net, was $0.1 million in 2010, a decrease of approximately 105.9% compared to financial income, net, of approximately $1.7 million in 2009. The decrease in financial income is attributed mainly to decreased yields on investments compared to the previous year due to the decrease in our investment balances and the global interest rates.

Other loss. During 2010, the Company incurred impairment of short term investment in an amount of $7.0 million, resulting from purchasing from one of our customers subordinated convertible promissory notes (See note 6 to our consolidated financial statements), compared to a net income in 2009 of $0.7 million, which was received as additional proceeds in connection with the LGC transaction (under which we sold our CMU to LGC Wireless, Inc. during November 2006).

Net loss. In 2010, net loss was approximately $(98.5) million, compared to a net loss of approximately $(7.2) million in 2009.

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:

Israeli devaluation Israeli inflation adjusted Year ended Israeli (appreciation) for devaluation December 31, inflation rate % rate % (appreciation)%

2007 3.4 (9.0) 12.4 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)

We cannot assure you that we will not be materially and adversely affected in the future if the devaluation (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".

B. LIQUIDITY AND CAPITAL RESOURCES

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

Balance Sheet and Cash Flows

Total cash, cash equivalents, short-term and long-term marketable securities and deposits were $64.4 million as of December 31, 2011, a decrease of approximately $18.9 million or 22.7% from $83.3 million at December 31, 2010. Total cash, cash equivalents, short-term and long-term marketable securities and deposits as of December 31, 2010 reflected a decrease of approximately $35.2 million or 29.7% from $118.5 million at December 31, 2009.

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. Total cash and cash equivalents as of December 31, 2010 were $61.3 million, a decrease of $7.8 million or 11.3% from $69.1 million at December 31, 2009.

Our operating activities used cash of approximately $18.0 million, $22.4 million and $15.5 million in 2011, 2010 and 2009, respectively. The cash flows used in operating activities for 2011 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 intangibles assets) plus an increase in long term trade receivable and decrease in trade payables, offset by a decrease in inventories, a decrease in accounts receivable, a decrease in other accounts receivable and prepaid expenses and an increase in other accounts payable and accrued expenses. The cash flows used in operating activities for 2010 consisted primarily of adjusted net loss (net loss was adjusted for non-cash activities, including impairment of goodwill and short term investment, stock-based compensation expenses, depreciation of fixed assets) plus an increase in inventories, an increase in other accounts receivable and prepaid expenses and a decrease in other accounts payable and accrued expenses, offset by an increase in trade payables and a decrease in trade receivables. The cash flows used in operating activities for 2009 consisted primarily of net loss adjusted for non-cash activities, including stock-based compensation expenses, depreciation of fixed assets and impairment of investments in affiliates plus a decrease in other accounts receivable and prepaid expenses and a decrease in inventories, fully offset by an increase in trade receivables, a decrease in trade payables and a decrease in other accounts payable and accrued expenses.

Our cash used in investing activities was approximately $12.5 million in 2011. In 2010 and 2009 our investing activities provided cash of approximately $14.5 million and $20.5 million, respectively. In 2011, our investing activities consisted mainly of the acquisition of Wavion ($24.6 million), investments in bank deposits $4.9 million, and fixed assets. In 2011, our cash used in investing was mainly attributable to our investment in Wavion and investments in bank deposits and 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. In 2009, our investing activities provided proceeds from the maturity of marketable securities, proceeds from maturity of bank deposits, as well as the remaining proceeds from the LGC transaction (under which we sold our cellular mobile unit to LGC Wireless, Inc. during November 2006) which were partially offset by investments in bank deposits, marketable securities and fixed assets.

Capital expenditures were approximately $3.3 million, $5.0 million and $7.2 million in 2011, 2010 and 2009, respectively. These expenditures principally financed the purchase of research and development equipment and manufacturing equipment.

Our financing activities provided cash of approximately $27 million in 2011, $0.1 million in 2010 and $0.4 million in 2009. In 2011, the amount attributable to receipt of the Long Term Loan that the Company received from SVB related to the purchase of Wavion during the year, offset by a repayment of a long term loan that was received by Wavion in the past. In 2010 and 2009, the amount of cash provided 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 and $0.4 million, respectively.

We expect that cash provided or used by operations may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, shipment timing, accounts receivable collections, inventory management, and the timing of other payments and investments.

Accounts Receivable, Net. Accounts receivable, net was $48.3 million and $49.9 million as of December 31, 2011 and 2010, respectively. The decrease in the accounts receivable balance in 2011 was mainly a result of the global economic slowdown, aggressive competition and the crunch in the global capital markets offset by increasing of the net accounts receivable due to the acquisition of Wavion Inc. DSOs as of December 31, 2011, 2010 and 2009 were 106 days, 89 days and 97 days, respectively. Our DSOs in 2011 ranged between 80 and 125 days and we expect that our DSOs will further increase to a range of between 90 to 120 days during 2012 as a result of our customers requesting more favorable payment terms from as a result of increased competition.

Inventories. Inventories were $36.2 million as of December 31, 2011 compared to $56.1 million as of December 31, 2010. This decrease of inventory was mainly due to the usage of our inventory for sales during 2011 and due to an inventory write-off related to the bankruptcy of a customer. 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 3.3 times in 2011 and approximately 2.3 times in 2010.

Credit Facility

Long Term Loan. For a discussion of our Long Term Loan, please see the Section entitled “Item 10 Additional Information – Material Contracts.”

WORKING CAPITAL –

Our working capital was approximately $62.0 million as of December 31, 2011 compared to $110.0 million as of December 31, 2010 and $132.8 million as of December 31, 2009.

Commitments

Leases. We lease office space in several locations worldwide. Rent expense totaled $5.3 million, $6.4 million and $6.8 million in 2011, 2010 and 2009, respectively. We also lease certain computers under operating lease agreements which expire in 2014. Computer leasing expenses totaled $0.5 million, $0.5 million and $0.2 million in 2011, 2010 and 2009, respectively. We also lease various motor vehicles under operating lease agreements, which expire in 2014. Motor vehicles lease expenses were $3.6 million, $3.0 million and $1.9 million in 2011, 2010 and 2009, 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, 2011 were as follows (in thousands):

Lease of Rental of Lease of motor premises computers vehicles

2012 $ 3,657 $ 143 $ 1,133 2013 1,463 43 638 2014 130 6 235 2015 28 - - $ 5,278 $ 192 $ 2,006

The following table of our material contractual obligations as of December 31, 2011 summarizes the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated (in thousands)

Contractual Obligations Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Rental Lease $ 5,278 $ 3,657 $ 1,621 $ - $ - Motor Vehicle Lease 2,006 1,133 873 - - Computers Lease 192 143 49 - - Severance pay and long term employee liabilities 1,173 - 1,173 - - Long Term Loan 30,000 12,813 17,187 - - Long term accrued expenses 547 - 547 - - Other long-term liabilities 6,425 - 6,425 - - Total $ 45,621 $ 17,746 $ 27,875 $ - $ -

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.

During 2011, we paid or accrued royalties to the OCS in the amount of $0.2 million. As of December 31, 2011, the aggregate contingent liability to the OCS amounted to $23.6 million.

Treasury stock. As of December 31, 2011, we repurchased an aggregate of 5,246,772 ordinary shares, which appear on our balance sheet as treasury stock, pursuant to our two repurchase programs, the 2002 repurchase program and the 2008 repurchase program, as stipulated 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 1,449,999 ordinary shares at a weighted average price of approximately $3.44 per share for an aggregate of $5.0 million. We have not repurchased any shares in 2010 and 2011. See Item 16E "Purchases of Equity Securities by the Issuer and Affiliated Purchasers" for additional information.

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 3,796,773 ordinary shares at a weighted average price per share of approximately $2.07 for an aggregate of $7.9 million. Since then we have not utilized the remainder of this re-purchase program.

FUTURE NEEDS –

We believe our cash balances and investments and governmental research and development grants will be sufficient to satisfy our working capital needs, repayment of amounts under our Long Term Loan, capital expenditures, investment requirements, stock repurchases, commitments, future customer financings, and other liquidity requirements associated with our existing operations through at least the next twelve months. We believe that the most strategic uses of our cash resources include working capital, strategic investments to gain access to new technologies, acquisitions and financing activities. There are no transactions, arrangements and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital resources. However, if our operations do not generate cash to the extent currently anticipated by us, or if we grow more rapidly than currently anticipated, it is possible that we will require more funds than anticipated. We expect that these sources will continue to finance our operations in the long term, and will be complemented, if required, by private or public financing.

Effective Corporate Tax Rate

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

Until December 31, 2003, the regular tax rate applicable to income of Israeli companies (which are not entitled to benefits due to “Approved Enterprise,” as described below) was 36%. In June 2004 and in July 2005, the “Knesset” (Israeli parliament) passed amendments to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 and (No. 147), 2005, respectively, which determined, among other things, that the corporate tax rate is to be gradually reduced to the following tax rates: 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26% and 2010 - 25%.

In July 2009, the Knesset passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 - 24%.

In December 5, 2011, the Knesset (Israel's Parliament) passed a law for changing the tax burden (the Law), which cancels, among others, the gradual reduction in the corporate tax rates in Israel. In addition, the corporate tax in Israel will be increased to 25% starting in 2012. Accordingly, the real capital gains tax rate will increase to 25%. There was no effect on the Company as a result of the above mentioned changes.

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.

According to the provision of the law, we have elected the “alternative benefits” track provisions 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 will expire in 2012.

(iii) Or Yehuda / Tel Aviv Facilities: In 1997, Floware submitted a request for Approved Enterprise status of its production facility in Or Yehuda. This request was approved. After the merger, Floware’s enterprise was relocated into our facilities in Tel Aviv. The income derived from this Approved Enterprise is tax exempt for a period of two years and thereafter will be subject to a reduced tax rate between 10% and 25% for an additional period of five to eight years. The actual number of years and tax rate depends upon the percentage of the non-Israeli holders of our share capital. The period of benefits will commence with the first year that we earn taxable income. The period of benefits for this plan has expired in 2011.

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 these 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, 2011, our accumulated deficit does not include tax-exempt profits earned by our “Approved Enterprise.”

On April 1, 2005, tax benefits under the amendment to the Investment Law came into effect (the "Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises that may be approved by the Investment Center. The Investment Center is a statutory body in Israel responsible for providing certain grants and/or tax benefits subject to certain criteria and limitations. These criteria set for the approval of a facility as a “Privileged Enterprise,” include a generally required provision that at least 25% of the Privileged Enterprise’s income must be derived from export. Additionally, the Amendment enacted major changes concerning the manner in which tax benefits are awarded under the Investment Law so that companies no longer require the Investment Center's approval in order to qualify for tax benefits. However, the Amendment provides that terms and benefits that were included in any certificate of approval which was already granted will remain subject to the provisions of the law as they were on the date of such approval.

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 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%).

Status Expansion of our Production Facilities: Under the Amendment, in 2005 and 2007, we submitted an expansion request for additional “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.

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

As of December 31, 2011, Alvarion Ltd. had an available tax loss carry forward amounting to approximately$206 million, which may be carried forward, in order to offset taxable income in the future, for an indefinite period; the Israeli subsidiary has an available tax loss carry forward amounting to approximately $38.5 million.

As of December 31, 2011, the U.S. subsidiaries had approximately $42.3 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 2012 and 2031. The state tax losses carry forwards of the U.S. subsidiaries are approximately $14.3 million and this balance will expire between 2012 through 2018.

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.

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 –

Impact of recently issued Accounting Standards:

In May 2011, the FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, codified in ASC 820 "Fair Value Measurement". The guidance requires an entity to provide a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements, and will become effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

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 is still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In September 2011, the Financial Accounting Standards Board, or FASB issued ASU 2011-08, Testing Goodwill for Impairment, codified in ASC 350 "Intangibles – Goodwill and Other". The revised accounting standard update intended to simplify how an entity tests goodwill for impairment. The amendment will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update will be effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES –

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, 2011, our research and development staff consisted of 225 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 $32 million or 17% of sales in 2011, $42 million or 20% of sales in 2010 and $55 million or 22% of sales in 2009. The Government of Israel and other jurisdictions for funding-approved research and development projects reimbursed us for approximately $3.9 million in 2009, $3.0 million in 2010 and $4.4 million in 2011.

D. TREND INFORMATION -

See “—Operating Results—2011 Highlights” and “Item 3—Key Information—Risk Factors”.

E. OFF-BALANCE SHEET ARRANGEMENTS

None.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES –

A. DIRECTORS AND SENIOR MANAGEMENT

The following table lists the name, age and position of each of our directors and executive officers as of March 31, 2012:

Name Age Position Amnon Yacoby 61 Chairman of the Board of Directors (1)(4)(5) Dan Yalon 39 Director (1) Professor Raphael Amit 64 Director(1)(2)(3)(4) Robin Hacke 52 Director (1)(2)(3)(5) Tali Aben 48 Director (1)(5) Doron Inbar 62 Director (1)(3) (4) (5) Ng Eng Ho 58 Director (1) Eran Gorev 47 Chief Executive Officer and President (6) Lior Shemesh 42 Chief Financial Officer Mohammad Shakouri 49 Corporate Vice President, Innovation and Marketing Elli Yaniv 59 President, Operations and Infrastructure Division Gadi Bahat 48 Chief Business Officer Tal Meirzon 46 Chief Operating Officer Assaf Katan 41 Corporate Vice President, Strategy & Business Development Anat Mogilevsky 37 Corporate Vice President, Human Resources

(1) “Independent Director” under rules of the SEC, NASDAQ Marketplace 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.

(6) Mr. Gorev will leave the Company and will be replaced by Mr. Hezi Lapid, effective May 6, 2012. Mr. Lapid most recently served as Chairman and CEO of Axerra Networks, a provider of carrier network equipment. Prior to joining Axerra, he headed multiple business units as an executive of ECI Telecom Ltd. from 1995 until 2003. He also served as CEO of C. Mer Industries, a global system integrator delivering turn-key solutions for wireless networks. Mr. Lapid holds a B.Sc. in Electrical Engineering from Ben-Gurion University and a M.Sc. in Management and Information Sciences from Tel Aviv University.

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 on the compensation committees. Prior to joining our board of directors, Professor Amit served as Chairman of the board of directors of Creo Products Inc (NASDAQ: CREO until May 2005). 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.

Ms. Robin Hacke was appointed as one of our external directors upon our merger with Floware in August 2001. Ms. Hacke served as a member of Floware’s board of directors from its initial public offering in August 2000 and was appointed as an external director of Floware in December 2000. In September 2007, Ms. Hacke became Director of Capital Formation at Living Cities, a funding collaborative of foundations and financial institutions. Since August 2003, Ms. Hacke has been the Managing Director of Pentaport Venture Advisors Inc., a company that advises investment companies, including Portview Communications Partners LP. From 1990 to 2002, Ms. Hacke served as the Chief Executive Officer of HK Catalyst Strategy and Finance Ltd., a company that Ms. Hacke founded that provided advisory services to investment companies and high-tech enterprises. From 1986 to 1990, Ms. Hacke held various management positions at Aitech Ltd., an Israeli start-up company. Prior to that, Ms. Hacke was an investment banker at Shearson Lehman Brothers in New York. Ms. Hacke holds an A.B. magna cum laude degree from Harvard-Radcliffe College and an MBA degree from Harvard Business School.

Mr. Doron Inbar has served as a member of our board of directors since September 2009. Mr. Inbar is a Venture Partner at Carmel Ventures, an Israeli-based venture capital fund. He serves as Chairman of C-nario Ltd. a digital signage company. As chairman of Enure Networks Ltd. and an active chairman at Archimedes Global Ltd., a private health provision and insurance company providing its services in the CIS countries. In addition Mr. Inbar serves as independent director on the board of Maccabi Dent Ltd., the largest chain of dental service clinics in Israel. Prior to joining Carmel Ventures in 2006, Mr. Inbar served as President and Chief Executive Officer of ECI Telecom Ltd., having served as President from November 1999 and Chief Executive Officer from February 2000. Mr. Inbar joined ECI Telecom in 1983 and during his first eleven years with ECI, he served in various positions at its wholly-owned U.S. subsidiary, ECI Telecom, Inc., 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, and he became Executive Vice President in January 1999. Mr. Inbar holds a bachelors degree in economics and business administration from Bar-Ilan University, Israel.

Mr. Ng Eng Ho has served as a member of our board of directors since September 2009. Mr. Eng Ho is the Executive Director of Audelia Pte Ltd., an investment and management consultancy company he founded in November 2007. Prior to founding Audelia Pte Ltd. Mr. Eng Ho served as Executive Vice President (Operations) at ST Technologies Telemedia Pte Ltd., a subsidiary of Temasek Holdings, since December 2005, and as the Deputy President Director of ST Telemedia's Indonesian subsidiary, PT Indosat Tbk, from January 2003 through December 2005. Prior to that, Mr. Eng Ho was Managing Director of Keppel Telecommunications & Transportation Ltd, (Keppel T&T) from July 1998 to September 2002, after serving in various positions at Keppel T&T and its subsidiaries from September 1990 through June 1998. Prior to joining Keppel T&T, Mr. Eng Ho was a career officer in the Singapore Armed forces from 1973 through 1990. Mr. Eng Ho received his Bachelor of Science (Telecomm System Engineering) degree (Honors) from the Royal Military College of Science, UK.

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. and Vizrt Ltd. (two publicly traded companies), as well as several privately-held companies and 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.

Mr. Dan Yalon was appointed as a member of our board of directors in February 2012. Since 2007, Mr. Yalon has served as the Chief Strategy Officer of NICE Systems (NASDAQ: NICE). As a member of NICE’s executive leadership team, Mr. Yalon was responsible for strategy formulation and execution, and for strategic alliances building growth strategies which were successfully executed organically and inorganically. Prior to joining NICE in 2007, Mr. Yalon was Head of Strategy and New Business Initiatives at Amdocs (NYSE: DOX), where he led all corporate strategy activities – defining and executing growth engines. His career also includes several years as a strategy consultant with US-based Monitor Group and with Israeli firm POC Hi- Tech. Mr. Yalon holds an LL.B. and a Bachelor degree in Management from the Hebrew University of Jerusalem and is a graduate of Harvard Business School's Advanced Management Program (AMP).

Mr. Eran Gorev was appointed as our President and Chief Executive Officer in December 2009. Prior to his appointment, he served from 2005 until 2009 as President and CEO of NICE Systems Inc., the company’s operation in the Americas, and from 2008 until 2009 as NICE’s Chief Business Officer, responsible for driving the company’s global business. Prior to NICE Systems, Mr. Gorev worked for Amdocs from 1996 until 2004, where he was President of the North America Major Clients Division responsible for the company’s business with some of North America's leading communication service providers and media companies, and Corporate Vice President and Head of Worldwide Sales, responsible for leading global sales and business development activities. Mr. Gorev holds an LLB degree from Tel-Aviv University and a joint MBA degree from the Kellogg School of Management, at Northwestern University, and the Recanati School of Business Administration, at Tel-Aviv University.

Mr. Lior Shemesh became our Chief Financial Officer in January 2011, after serving for two years as our Vice President of Finance. Prior to this, he served as Vice President of Finance at Veraz Networks, a provider of softswitch, media gateway and digital compression solutions from May 2003 to October 2008. Before joining Veraz, Mr. Shemesh worked for ECI Telecom, a networking infrastructure provider, from April 2000 to May 2003 as the company Controller, and later as Associate Vice-President of Finance of the Broadband Division. Mr. Shemesh is a Certified Public Accountant in Israel and holds a B.A. in Accounting and Economics, and an M.B.A from Bar-Ilan University.

Dr. Mohammad Shakouri was appointed as our Corporate Vice President of Innovation and Marketing in March 2008 and assumed his new role as of April 1, 2008. Dr. Shakouri joined us in February 2001 and has extensive experience in wireless communication systems and fiber optic networks. Dr. Shakouri serves as a Vice President of WiMAX Forum, a member of WiMAX Forum board of directors, advisory board for the Wireless Communication Alliance and is an IEEE MTT-SVC 2004 chairman. Prior to joining Alvarion, Dr. Shakouri worked at Lucent Technologies where he was responsible for managing, building and developing network solutions for European and South American broadband wireless markets. Before joining Lucent, he spent fourteen years in technical and management positions with Hewlett Packard developing microwave and fiber optic communication components and systems. He co-founded the wireless systems division, where he was responsible for the engineering team developing low-cost residential digital wireless systems for U.S. and Asian markets. Dr. Shakouri earned his doctorate in electrical engineering from Stanford University on Subpicosecond GaAs Wafer Probe Systems.

Mr. Gadi Bahat joined Alvarion as President of the Customer Business Division in October, 2010, with global responsibility for regional operations and activities. Mr. Bahat came to Alvarion after successfully leading Olista (a provider of customer experience analytics solutions that enable mobile and broadband operators to increase the success of their service offerings) for two years as CEO and board member, until the company was acquired in May 2010. Prior to joining Olista in September 2008, Mr. Bahat spent over a decade with Comverse, where he held a number of executive management positions including EMEA Group President, International Group President and World Group President. He was also a member of Comverse’s Executive Management team, and was responsible for a P&L of more than $500 million. Before joining Comverse in August 1995, Mr. Bahat held a number of Product Management/Marketing positions at Scitex and RAD Data Communications. Mr. Bahat holds a B.Sc. in Electrical Engineering from the Technion Israel Institute of Technology, and an MBA from Tel-Aviv University.

Tal Meirzon currently holds the position of COO for Alvarion. Prior to Alvarion, Mr. Meirzon was the CEO for Wavion Networks leading the company to a front line position in the carrier-grade Wi-Fi market. In November 2011, Mr. Meirzon played a pivotal role in facilitating Alvarion’s acquisition of Wavion Networks. Prior to this, Mr. Meirzon held various executive positions at Gilat Satellite Networks for 13 years, serving as the General Manager of Gilat’s Wireless Business Unit. In addition he held roles as VP Marketing and Business Development, where he managed Gilat's expansion into new markets. Mr. Meirzon holds a B.Sc in Electrical Engineering and an MBA in Technology Management and Marketing, both from the Tel Aviv University.

Elli Yaniv joined Alvarion as the Corporate VP of Operations in September 2011. Previously, Mr. Yaniv was VP of Operations for more than four years at Gilat Satelites Network. From 1994 until 2005 Mr. Yaniv was with Flextronics in a variety of global management roles including management of the global semiconductor division. Prior to Flextronics, Mr. Yaniv held a number of executive positions in several hi-tech Israeli companies, including the establishment of Intel’s first fabrication plant in Israel. Mr. Yaniv holds a M.Sc. in Industry and Management Engineering from the Technion Israel Institute of Technology, and an MBA from Tel-Aviv University.

Assaf Katan joined Alvarion in October 2010 as VP 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.

Anat Mogilevsky joined Alvarion as the Corporate Vice President of Human Resources in November 2011. Prior to Alvarion, Ms. Mogilevsky headed the Human Resources department for 3 years at RADVISION. From 2005 to 2009, Mr. Mogilevsky held a number of roles in Human Resources at Alvarion, including serving as the Director of Training and Organizational Development. Prior to Alvarion, Ms. Mogilevsky served in Human Resources department of the R&D and Operations Divisions at Teva Pharmaceutical Industries. Ms. Mogilevsky holds a B.A. in Sociology and M.A. in Labor Studies from Tel Aviv University.

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 (24 persons) for the year ended December 31, 2011 (including persons who served as executive officers and directors during 2011 and did not serve in such capacity as of December 31, 2011) was approximately $3.9 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 $507,000 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 $287,112 in cash compensation in 2011.

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 30,000 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 2011, we granted all of our directors and executive officers as a group (24 persons) (including persons who served as directors and executive officers during 2011 and did not serve in such capacity as of December 31, 2011) options to purchase an aggregate of 480,000 of our ordinary shares at exercise prices ranging from $ 0.003 to $0.95, with expiration dates ranging from November 1, 2017 to December 21, 2021.

As of December 31, 2011, our directors and executive officers (including persons who served as executive officers and directors during 2011 and did not serve in such capacity as of December 31, 2011) held outstanding options to purchase an aggregate of 6,031,998 ordinary shares, at exercise prices ranging from $ 0.003 to $15.40 with expiration dates ranging from May 8, 2012 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 $25,000 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 $25,000.

C. BOARD PRACTICES –

Appointment of Directors and Terms of Office

Our board of directors currently consists of seven 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 terms of office of the directors, including compensation, must be approved, under the Israeli Companies Law, by the audit committee, the board of directors and the general meeting of the shareholders.

Pursuant to a recent amendment to the Israeli Companies Law that took effect in 2011, compensation arrangements for executive officers who are not directors require the approval of the audit committee and the board of directors. The approval of the audit committee may be substituted with the approval of the compensation committee, provided that the compensation committee complies with all the requirements prescribed by the Israeli Companies Law regarding composition of the audit committee. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, the approval of the audit committee is sufficient.

The term of office of Messrs. Inbar, Yalon and Eng Ho will expire at our 2012 annual general meeting of the shareholders; and the term of office of Mr. Yacoby will expire at our 2013 annual general meeting of the shareholders. The term of office of Ms. Aben will expire at our 2014 annual general meeting of the shareholders. The terms of office of our external directors, Ms. Hacke and Professor Amit, expire in August 2013 and September 2012, respectively, as described below.

Service Contracts of Directors

None of our directors has the right to receive any benefit upon termination of his or her office or any service contract he or she 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 “financial and accounting expertise” (unless another member of the audit committee, who is an independent director under the NASDAQ Marketplace Rules, has “financial and accounting 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” and Ms. Hacke has “professional expertise”.

A person may not serve as an external director if at the date of the person's election or within the prior two years the person is a relative of the company's controlling shareholder, or the person or his or her relatives, partners, employers, supervisors or entities under the person's control, have or had any affiliation with us 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 voting rights, any affiliation, at the time of election, to the chairman of the board of directors, the chief executive officer, an interested party or the company's most senior finance officer. Under the Israeli Companies Law, the term affiliation includes:

• an employment relationship; • a business or professional relationship maintained on a regular basis; • control; and • service as an office holder.

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

• if the person or his or her relatives, partners, employers, supervisors or entities 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, or • if the person received compensation as an outside director in excess of the amounts permitted by the Israeli Companies Law and regulations thereunder.

An "office holder" is defined as any managing director, general manager, chief executive officer, executive vice president, vice president, or any other person assuming the responsibilities of any of these positions regardless of that person's title, or any director or any manager directly subordinate to the general manager. 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, which requires that all external directors be members of such committee, including one external director serving as the chair of the audit committee. 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 Global Select 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.

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 shareholders 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.

Ms. Robin Hacke and Professor Raphael Amit qualify as our external directors under the Israeli Companies Law. We have appointed the external directors to the committees of our board of directors as required by the Israeli Companies Law.

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 must have at least three members and be comprised only of independent directors, each of whom satisfies the respective “independence” requirements of NASDAQ and the SEC. Our board of directors has determined that each of Professor Amit, Ms. Hacke, Ms. Aben, Mr. Yalon, Mr. Yacoby, Mr. Inbar, and Mr. Ng Ho qualifies as an independent director under the requirements of NASDAQ, and that each of Professor Amit, Ms. Hacke, and Mr. Inbar (who serve on our audit committee) qualifies as an independent director under the requirements of the SEC and NASDAQ.

Under the Israeli Companies Law, an Israeli company, whose shares are publicly traded, may elect to adopt a provision in its articles of association pursuant to which a majority of its board of directors (or a third of its board of directors in the case the company has a controlling shareholder) will constitute individuals complying with certain independence criteria prescribed by the Israeli Companies Law, as well as certain other recommended corporate governance provisions. We have not included such provisions in our articles of association since our board of directors complies with the independence requirements and the corporate governance rules of NASDAQ and the Securities and Exchange Commission regulations. However, as described above, a majority of our board of directors and all the members of our audit committee consist of directors that comply with the independence criteria prescribed by the Israeli Companies Law.

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, reviewing and recommending on board members compensation and other matters as required by Israeli law and NASDAQ rules. The audit committee must be comprised of at least three directors, including all the external directors (including one external director serving as the chair of the audit committee). 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.

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, Ms. Hacke 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, Ms. Hacke and Professor Amit qualify as external directors under the Israeli Companies Law.

Compensation Committee

The compensation committee of our board of directors consists of Mr. Yacoby, Professor Amit and Mr. Inbar. Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee, which include:

• reviewing and recommending to the board of directors for its determination all compensation arrangements of our chief executive officer and chief financial officer; • reviewing and determining all compensation arrangements of our other executive officers, including our corporate vice presidents and division presidents; and • overseeing our equity incentive plans and cash incentives and deferred compensation plans.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee of our board of directors consists of Ms. Hacke, Mr. Yacoby, 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:

• 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.

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.

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. Under the recent amendment to the Israeli Companies Law that took effect in 2011, compensation arrangements for officers who are not directors require the approval of the audit committee and the board of directors. The approval of the audit committee may be substituted with the approval of the compensation committee, provided that the compensation committee complies with all the requirements prescribed by the Israeli Companies Law regarding composition of the audit committee. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, the approval of the audit committee is sufficient. Arrangements regarding the compensation of directors require the approval of the audit committee, the board and the shareholders, in that order.

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, or if it concerns exculpation, indemnification, insurance or compensation of an office holder, then the approvals of our audit committee and board of directors are required, except if the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, in which case the approval of the audit committee is sufficient. Exculpation, indemnification, insurance or compensation of a director also requires shareholder approval.

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.

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; and

• 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:

• 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 2% of the aggregate voting rights of our company.

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:

• 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.

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:

• 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; and

• 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.

• 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.

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.

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:

• 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; and

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

• 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.

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 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). 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.

D. EMPLOYEES –

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 59 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.”

As of December 31, 2010, we had 715 employees, of whom 286 were engaged in research and development, 84 in operations, 280 in sales and marketing, and 65 in administration and management. Of our full-time employees, as of December 31, 2010, 429 were located in Israel, 43 in the United States and 243 at our other branch offices, which offices are listed in “Item 4— Information on the Company—Organizational Structure.”

As of December 31, 2009, we had 877 employees, of whom 394 were engaged in research and development, 110 in operations, 306 in sales and marketing, and 68 in administration and management. Of our full-time employees, as of December 31, 2009, 566 were located in Israel, 42 in the United States and 269 at our other branch offices.

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.

E. SHARE OWNERSHIP –

The following table sets forth certain information as of March 31, 2012 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 62,403,424 ordinary shares outstanding as of March 31, 2012. Each of our outstanding ordinary shares has identical rights in all respects.

Number of Percentage of Ordinary Shares Outstanding Name (1) Ordinary Shares Amnon Yacoby (2) 809,579 1.30%

All directors and members of senior management as a group (15 persons)(3) 4,016,709 6.11%

(1) The number of ordinary shares beneficially owned includes the shares issuable pursuant to options that are exercisable within 60 days of March 31, 2012. 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 85,000 of our ordinary shares which are exercisable within 60 days of March 31, 2012. The options have a weighted exercise price of $6.14 with expiration dates ranging from May 8, 2012 until December 21, 2021.

(3) Includes options to purchase 3,291,130 of our ordinary shares which are exercisable within 60 days of March 31, 2012.

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, 2012.

As of March 31, 2012, 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 4,536,877 of our ordinary shares at a weighted average exercise price of $4.70 with expiration dates ranging from May 08, 2012 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, 2011, a total of 34,886,495 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).

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

As of December 31, 2011, options to purchase 9,313,328 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 $4.83 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 9,313,328 of our ordinary shares expire between six and ten years from the date of grant. As of December 31, 2011, options to purchase 9,212,839 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, 1,500,000 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, 2011, options to purchase 5,968,196 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 March 31, 2012, 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 March 31, 2012, there were 58 holders of record of our ordinary shares, including 43 holders of record with a U.S. mailing address, including banks, brokers and nominees. As of March 31, 2012, these 43 holders of record with a U.S. mailing address held approximately 65,119,715 ordinary shares, representing approximately 96% of the aggregate 67,650,196 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 96% 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.

B. RELATED PARTY TRANSACTIONS

None.

C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8. FINANCIAL INFORMATION FINANCE

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

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

Legal Proceedings –

Initial Public Offering Securities Litigation.

On November 21, 2001, a purported Class Action lawsuit ("the Action") was filed against interWAVE (which merged into the Company in 2003), certain of its former officers and directors, and certain of the underwriters for interWAVE's initial public offering ("the IPO"). On April 19, 2002, the plaintiffs filed an amended complaint. The amended complaint alleged that the prospectus from interWAVE's IPO failed to disclose certain alleged improper actions by various underwriters for the offering, in violation of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended ("the Exchange Act"). Similar complaints have been filed concerning more than 300 other IPOs; all of these cases have been coordinated as In re Initial Public Offering Securities Litigation, 21 MC 92. On October 8, 2002, the Court entered an Order of Dismissal as to all of the individual defendants in the IPO litigation, without prejudice. In 2007, a settlement that had been pending with the Court since 2004,was terminated by stipulation. After a ruling by the Second Circuit Court of Appeals in six "focus" cases in the coordinated proceedings (interWAVE is not one of the six test cases) made it unlikely that the settlement would receive final Court approval plaintiffs filed amended master allegations and amended complaints in the six test cases. In 2008, the Court denied the defendants' motion to dismiss the amended complaints.

This action has been resolved through a global settlement of the coordinated litigation. Under the settlement, the insurers pay the full amount of the settlement share allocated to the Company, and the Company bears no financial liability. InterWAVE, as well as the officer and director defendants who were previously dismissed from the Action pursuant to tolling agreements, have received complete dismissals from the case. On October 5, 2009, the Court entered an order granting final approval of the settlement. Although certain objectors filed appeals, by early 2012 all of those appeals had been withdrawn or dismissed and the settlement is now final.

Export Sales

Export sales constitute a significant portion of our sales. In 2011, export sales were approximately $189 million, constituting approximately 99.5% 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.

B. SIGNIFICANT CHANGES

Except as otherwise disclosed in this Annual Report, no significant change has occurred since December 31, 2011.

ITEM 9. THE OFFER AND LISTING

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, in U.S. dollars, and as reported by the Tel Aviv Stock Exchange, in NIS, for each of the last five years:

NASDAQ Global Select Market Tel Aviv Stock Exchange Year High Low High Low

2007 $15.21 $ 6.03 NIS 59.76 NIS 26.54 2008 $9.69 $ 2.54 NIS 37.50 NIS 10.05 2009 $4.80 $2.36 NIS 19.00 NIS 10.23 2010 $4.28 $1.79 NIS 15.59 NIS 6.78 2011 $2.62 $0.83 NIS 9.24 NIS 3.10

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, in U.S. dollars, and as reported by the Tel Aviv Stock Exchange, in NIS:

NASDAQ Global Select Market Tel Aviv Stock Exchange 2010 High Low High Low First Quarter $ 4.28 $3.49 NIS 15.59 NIS 13.15 Second Quarter $4.07 $2.00 NIS 14.96 NIS 7.60 Third Quarter $2.36 $1.79 NIS 8.81 NIS 7.00 Fourth Quarter $2.76 $1.84 NIS 10.44 NIS 6.78 2011 High Low High Low First Quarter $2.62 $1.71 NIS 9.24 NIS 5.94 Second Quarter $1.89 $1.15 NIS 6.48 NIS 4.00 Third Quarter $1.67 $1.04 NIS 5.71 NIS 3.99 Fourth Quarter $1.22 $0.83 NIS 4.27 NIS 3.10 2012 High Low High Low First Quarter $1.27 $0.91 NIS 4.58 NIS 3.41

The following table sets forth the high and low sales price for our ordinary shares as reported by the NASDAQ Global Select Market, in U.S. dollars, and the Tel Aviv Stock Exchange, in NIS, for the most recent six months:

NASDAQ Global Select Market Tel Aviv Stock Exchange Month High Low High Low

October 2011 $1.22 $0.94 NIS 4.27 NIS 3.45 November 2011 $1.09 $0.83 NIS 3.97 NIS 3.14 December 2011 $1.03 $0.84 NIS 3.99 NIS 3.10 January 2012 $1.23 $0.94 NIS 4.55 NIS 3.45 February 2012 $1.27 $1.01 NIS 4.58 NIS 3.85 March 2012 $1.01 $0.91 NIS 3.82 NIS 3.41

As of March 31, 2012, the exchange rate of the NIS to the US$ was $1 to NIS3.715.

B. PLAN OF DISTRIBUTION

Not applicable.

C. MARKETS –

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. As of the date of this Annual Report, our ordinary shares trade on both the NASDAQ Global Select Market and the Tel Aviv Stock Exchange under the symbol "ALVR".

D. SELLING SHAREHOLDERS

Not applicable.

E. DILUTION

Not applicable.

F. EXPENSES OF THE ISSUE

Not applicable.

ITEM 10. ADDITIONAL INFORMATION -

A. SHARE CAPITAL

Not applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION –

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 120,080,000 ordinary shares, par value NIS 0.01 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.

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).

1 The quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy holding at least 33 ⁄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.

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.

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:

• 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; 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.”

C. MATERIAL CONTRACTS

1. Loan and Security Agreement with Silicon Valley Bank

On June 21, 2011, the Company entered into the Long Term 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 Long Term 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 Long Term Loan amount consists of Facility A $25 million and Facility B $5 million.

Facility A will be repaid in thirty six (36) equal monthly installments each commencing on March 1st, 2012. The interest rate applicable to Facility A is LIBOR plus 4.75%, payable monthly starting December 1, 2011.

Facility B will be repaid in one (1) installment after thirty six (36) months following drawdown of the Long Term Loan. The interest rate applicable to Facility B is LIBOR plus 4.50%, payable monthly starting December 1, 2011.

As of April 1st, 2012 the Company was in breach of certain financial covenants set forth in the Long Term Loan but on April 25, 2012, it reached a general agreement with SVB for the grant of a temporary forbearance of the breached covenants and a modification of the terms of the Long Term Loan, which terms include (i) an increase of the interest rate applicable to Facility A and Facility B to LIBOR plus 5.85% and (ii) the repayment of approximately $7,000,000 of principal on the Long Term Loan in addition to its normal loan payments by July 2012.

Following the early repayment described above, the current outstanding balance under the Long Term Loan will be approximately US$ 20 million.

2. Acquisition of Wavion Inc.

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. 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.

D. EXCHANGE CONTROLS

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.

E. TAXATION

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

Until December 31, 2003, the regular tax rate applicable to income of Israeli companies (which are not entitled to benefits due to “Approved Enterprise,” as described below) was 36%. In June 2004 and in July 2005, the “Knesset” (Israeli parliament) passed amendments to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 and (No. 147), 2005, respectively, which determined, among other things, that the corporate tax rate was to be gradually reduced to the following tax rates: 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 - 25% and 2011 – 24%.

However, as detailed below, income derived in Israel from certain “Approved Enterprises” will enjoy certain tax benefits for a specific definitive period. The allocation of income derived from approved 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 US, France, Romania, Brazil, Hong-Kong, Singapore, Japan, Mexico, Poland, 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.

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.

Under the Law for the Encouragement of Industry (Taxes), 1969 (the “Industry Encouragement Law”), Industrial Companies are entitled to the following preferred corporate tax benefits, among others:

• deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period for tax purposes;

• accelerated depreciation rates on equipment at the first five tax years of using the equipment and buildings; and

• deduction over a three-year period of expenses involved with the issuance and listing of shares on the Tel Aviv Stock Exchange or, on or after January 1, 2003, on a recognized stock market outside of Israel.

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 –

Tax Benefits prior to the 2005 Amendment

The Law for Encouragement of Capital Investments, 1959, as in effect prior to April 1, 2005 which is referred to below as the Capital Investments Law, provides that capital investments in a production facility or other eligible assets may, upon application to the Israeli Investment Center of the Ministry of Industry, Trade and Labor, be designated as an “Approved Enterprise”. 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. An Approved Enterprise is entitled to certain benefits, including Israeli government cash grants, state-guaranteed loans and tax benefits.

Taxable income derived from an Approved Enterprise under the Capital Investments Law is subject to a reduced corporate tax rate of 25%. That income is eligible for further reductions in tax rates depending on the percentage of the foreign investment in our share capital. The tax rate is 20% if the foreign investment is 49% or more but less than 74%, 15% if the foreign investment is 74% or more but less than 90%, and 10% if the foreign investment is 90% or more. The lowest level of foreign investment during the year will be used to determine the relevant tax rate for that year. These tax benefits are granted for a limited period not exceeding seven years, or 10 years for a company whose foreign investment level exceeds 25%, (the "benefits period") from the first year in which the Approved Enterprise has taxable income, after the year in which production commenced (the "commencement year") (as determined by the Israeli Investment Center of the Ministry of Industry, Trade and Labor, or the Investment Center). The period of benefits may in no event, however, exceed the lesser of 12 years from the year in which the production commenced (as determined by the Investment Center) or 14 years from the year of receipt the letters of approved of Approved Enterprise status ( please note that the years limitation does not apply to the exemption period).

An Approved Enterprise may elect to forego any entitlement to the grants otherwise available under the Capital 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. There can be no assurance that the current benefit programs will continue to be available, or that we will continue to qualify for benefits under the current programs.

We 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."

We currently have Approved Enterprise programs under the Capital 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. 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 25% after such period as described below.

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From time to time, the Israeli government has discussed reducing the benefits available to companies under the Capital Investments Law. The termination or substantial reduction of any of the benefits available under the Capital Investments Law could materially impact the cost of our future investments.

The benefits available to an Approved Enterprise are conditional upon the fulfillment of certain conditions stipulated in the Capital 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.

Amendments to the Law for the Encouragement of Capital Investments, 1959:

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among other things, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment 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 amendment (the waiver is irrevocable) and from then on we 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%).

Foreign investor’s Company (“FIC”) –

A company that has an approved enterprise program is eligible for further tax benefits if it qualifies as a foreign investors’ company. A foreign investors company is a company which more than 25% of its share capital and combined share and loan capital is owned by non-Israeli residents. A company that qualifies as a foreign investors’ company and has an approved enterprise program is eligible for tax benefits for a 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 entitled to the following:

• Exemption from tax on its undistributed income up to ten years.

• An additional period of reduced corporate tax liability at rates ranging between 10% and 25%, depending on the level of foreign (i.e., non-Israeli) ownership of our shares. Those tax rates and the related levels of foreign investment are as set forth in the following table:

Rate of Percent of Reduced Tax Reduced Tax Period Tax Exemption Period Foreign Ownership 25 5 years 2 years 0-25% 25 8 years 2 years 25-48.99% 20 8 years 2 years 49-73.99% 15 8 years 2 years 74-89.99% 10 8 years 2 years 90-100%

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• The twelve years limitation period for reduced tax rate of 15% on dividend from the approved enterprise does not apply to Foreign Investor’s Company.

Tax Benefits under the 2005 Amendment

On April 1, 2005, an amendment to the Investment Law went into effect (the “2005 Amendment”). As a result of the 2005 Amendment, a company is no longer obliged to acquire Approved Enterprise status in order to receive the tax benefits previously available under the Alternative Benefits provisions, and therefore generally there is no need to apply to the Investment Center for this purpose (Approved Enterprise status remains mandatory for companies seeking grants). Rather, the Company may claim the tax benefits offered by the Investments Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set out by the Amendment. A company is also granted a right to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the Amendment. Among other things, the 2005 Amendment provides tax benefits to both local and foreign investors and simplifies the approval process. The period of tax benefits for a new Privileged Enterprise begins in the “Year of Commencement.” This year is the later of (i) the year in which taxable income is first generated by a company, or (ii) a year selected by the company for commencement, on the condition that the company meets certain provisions provided by the Investment Law (Year of Election). The 2005 Amendment does not apply to investment programs approved prior to December 31, 2004. The new tax regime applies to new investment programs only. Therefore, our existing Approved Enterprises will not be subject to the provisions of the 2005 Amendment.

The Company's Tax Benefits Prior the Amendment –According to the provision of the law, we have elected the “alternative benefits” track provisions 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:

(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 from the commencement year. The relative portion of taxable income that should be exempt for a 10-year period is subject to final covenants with the tax authorities.

(iii) Or Yehuda / Tel Aviv Facilities: In 1997, Floware submitted a request for Approved Enterprise status of its production facility in Or Yehuda. This request was approved. After the merger, Floware’s enterprise was relocated into our facilities in Tel Aviv. The income derived from this Approved Enterprise is tax exempt for a period of two years and thereafter will be subject to a reduced tax rate between 10% and 25% for an additional period of five to eight years depends on the percentage of the non-Israeli holders of our share capital. The period of benefits will commence with the first year that we earn taxable income after the commencement year. The period of benefits for this plan has expired in 2011. Please note that the year limitation does not apply to the exemption period.

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The Company's Tax Benefits under the Amendment –On April 1, 2005, an amendment to the Investment Law came into effect (the "Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises that may be approved by the Investment Center. The Investment Center is a statutory body in Israel. The Law for Encouragement of Capital Investments, 1959 provides certain grants and/or tax benefits subject to certain criteria and limitations. These criteria set for the approval of a facility as a “Privileged Enterprise,” include a generally required provision that at least 25% of the Privileged Enterprise’s income must be derived from export. Additionally, the Amendment enacted major changes concerning the manner in which tax benefits are awarded under the Investment Law so that companies no longer require the Investment Center's approval in order to qualify for tax benefits. However, the Amendment provides that terms and benefits that were included in any certificate of approval which was already granted will remain subject to the provisions of the law as they were on the date of such approval.

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

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.

Measurement of Taxable Income –

Results for tax purposes are measured in real terms, in accordance with the changes in the Israeli Consumer Price Index, or changes in exchange rate of the NIS against the dollar, for a “foreign investors” company. Until taxable year 2002, we measured our results for tax purposes in accordance with changes in the Israeli consumer price index. Commencing with taxable year 2003, we have elected to measure our results for tax purposes on the basis of the changes in the exchange rate of NIS against the U.S. dollar.

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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.

Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders –

Nonresidents of Israel are subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income such as dividends, royalties and interest, as well as non-passive income from services rendered in Israel. We are generally required to withhold income tax at the rate of 25% on all distributions of dividends, although, with respect to U.S. taxpayers, if the dividend recipient holds 10% or more of our voting stock for a certain period prior to the declaration and payment of the dividend, we are only required to withhold at a 12.5% rate. Notwithstanding the foregoing, with regard to dividends generated by an Approved Enterprise, we are required to withhold income tax at the rate of 15%.

Israeli law generally imposes a capital gains tax on the sale of publicly traded securities. Pursuant to changes made to the Israeli Income Tax Ordinance in January 2006, capital gains on the sale of our ordinary shares will be subject to Israeli capital gains tax, generally at a rate of 20% unless the holder holds 10% or more of our voting power during the 12 months preceding the sale, in which case it will be subject to a 25% capital gains tax. However, as of January 1, 2003, nonresidents of Israel are exempt from capital gains tax in relation to the sale of our ordinary shares for so long as (i) our ordinary shares are listed for trading on a stock exchange outside of Israel, (ii) the capital gains are not accrued or derived by the nonresident shareholder’s permanent enterprise in Israel, (iii) the ordinary shares in relation to which the capital gains are accrued or derived were acquired by the nonresident shareholder after the initial listing of the ordinary shares on a stock exchange outside of Israel, and (iv) neither the shareholder nor the particular capital gain is otherwise subject to certain sections of the Israeli Income Tax Ordinance. As of January 1, 2003, nonresidents of Israel are also exempt from Israeli capital gains tax resulting from the sale of securities on the Tel Aviv Stock Exchange; provided that the capital gains are not accrued or derived by the nonresident shareholder’s permanent enterprise in Israel.

In addition, under the income tax treaty between the United States and Israel, a U.S. resident holder of ordinary shares that are not listed for trading on a stock exchange outside of Israel will be exempt from Israeli capital gains tax on the sale, exchange or other disposition of such ordinary shares unless the holder owns, directly or indirectly, 10% or more of our voting power during the 12 months preceding such sale, exchange or other disposition.

A nonresident of Israel who receives interest, dividend or royalty income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempt from the duty to file tax returns in Israel with respect to such income, provided such income was not derived from a business conducted in Israel by the taxpayer.

Israel presently has no estate or gift tax.

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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:

• 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.

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.

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:

• 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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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 15%) for taxable years beginning on or before 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.

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.

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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 (15% for taxable years beginning on or before 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 be treated as United States source income or loss for United States foreign tax credit purposes.

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:

• 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.

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 PFIC, for U.S. federal income tax purposes. Based upon our market capitalization during 2011, we do not believe that we were a PFIC for 2011. 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 2012 or subsequent taxable years.

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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:

• 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 for taxable years beginning on or after March 18, 2010; 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.

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.

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.

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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.

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:

• 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.

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:

• 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.

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.

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F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENT BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

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. 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.

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.

I. SUBSIDIARY INFORMATION

Not applicable.

110

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to both interest rate and foreign exchange risk.

Interest risk:

We are exposed to Interest risk associated with the SVB Long Term Loan obtained in 2011.

Our investment portfolio includes held to maturity marketable securities. These securities include investments issued by agencies of the U.S. government that have an implied guarantee by the U.S. government or were nationalized by U.S. government or are investments issued by highly rated corporations. As of December 31, 2011, the rating of the securities in our portfolio were at least A. The declines in interest rates in 2010 and 2011 have reduced and are expected to continue to reduce our interest income. In addition as a result of the loan obtain in 2011, as the loan is linked to the LIBOR for three month plus a fixed percentage, and the fact that the LIBOR for three month might fluctuate over time our interest expense on the loan might change.

The table below provides information regarding our investments in cash, cash equivalents and marketable securities (in thousands), as of December 31, 2011 and 2010:

Fair value at Dec. 31, Amortized cost 2011 Maturity 2012

Corporate bonds $ 1,644 $ 1,650 Cash and short term bank deposit 62,764 62,764

Total $ 64,408 $ 64,414

111

Fair Total Amortized value at Dec. 31, Amortized cost cost 2010 Maturity 2011 2012

US Government agencies $ 1,318 $ - $ 1,318 $ 1,322 Corporate bonds 14,816 2,564 17,380 17,517 Cash and short term bank deposit 64,647 - 64,647 64,647

Total $ 80,781 $ 2,564 $ 83,345 $ 83,486

Foreign Currency Risk –

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 remeasurement, 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. These forward and option contracts are designated as cash flow hedges and are all effective.

As of December 31, 2011, we recorded accumulated other comprehensive net gain in the amount of approximately $2.7 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 2012.

See also “Item 5—Operating and Financial Review and Prospects—Operating Results Impact of Inflation and Currency Fluctuations”.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

112

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.

ITEM 15. CONTROLS AND PROCEDURES a. Disclosure Controls and Procedures

The Company’s management, with the participation of its 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, 2011. 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 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:

• 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.

113

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 principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the framework for Internal Control – Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has excluded Wavion, which is included in the 2011 consolidated financial statements of Alvarion Ltd. and subsidiaries and constituted approximately $43.1 million and $27.9 million of total and net assets, respectively, as of December 31, 2011 and $4.3 million and $ 1.0 million of revenues and net income, respectively, for the year then ended because ownership was acquired by Alvarion during November 2011. 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, 2011.

Our financial statements and internal control over financial reporting has been audited by Kost, Forer, Gabbay & Kasierer (A member of Ernst & Young Global), an independent registered public accounting firm. c. Attestation Report of the Registered Public Accounting Firm

This Annual Report includes an attestation report of our registered public accounting firm regarding internal control over financial reporting on page F-3 of our audited consolidated financial statements set forth in “Item 18 – Financial Statements”, and is incorporated herein by reference. d. Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting identified with the evaluation thereof 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.

ITEM 16B. CODE OF ETHICS

In 2003, we adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, all other senior officers and all of our employees. In March 2008 and July 2011, we updated the Code of Ethics. The updated Code of Ethics is included as an Exhibit hereto.

114

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES –

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, 2010 and December 31, 2011:

Fee Category 2010 2011 Audit Fees $ 340,000 $ 280,000 Audit-Related Fees $ - $ - Tax Fees $ 74,914 $ 89,639 All other fees $ - $ - Total Fees $ 414,914 $ 369,639

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 or 2010.

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.

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

Not applicable.

115

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

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 1,449,999 ordinary shares at a weighted average price of approximately $3.44 per share for an aggregate price of approximately $5.0 million. During 2010 and 2011 we did not repurchase any additional ordinary shares under this repurchase program or otherwise.

Under our 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 repurchased until December 31, 2003 3,796,773 ordinary shares at a weighted average price per share of approximately $2.07 for an aggregate of $7.9 million. Since such date, we have not utilized the remainder of this first repurchase program.

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

As a foreign private issuer listed on the NASDAQ Global Select Market, we may also follow home country practice with regard to other matters, including those set forth below:

• 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 the Israeli Companies Law, the compensation arrangements for officers who are not directors require the approval of the audit committee and the board of directors. The audit committee approval may be substituted by the approval of the compensation committee, provided the compensation committee complies with the audit committee requirements prescribed by the Israeli Companies Law. If the compensation arrangement is an immaterial amendment to an existing compensation arrangement of an officer who is not a director, the approval of the audit committee is sufficient. Arrangements regarding the compensation of directors require the approval of the audit committee, the board and the shareholders, in that order. • 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, 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 audit 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.

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."

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable

116

PART III

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of this item.

ITEM 18. FINANCIAL STATEMENTS

The financial statements required by this item are at the end of this Annual Report, beginning on page F-1.

117

ITEM 19. EXHIBITS

The exhibits filed with or incorporated into this Annual Report are listed on the index of exhibits below.

Exhibit No. Description 1.1 Memorandum of Association (English translation accompanied by Hebrew original) (1) 1.2 Articles of Association(2) 1.3 Certificate of Name Change (English translation accompanied by Hebrew original) (3) 2.1 Form of Ordinary Share Certificate (4) 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) (1) 4.2 Form of Indemnity Agreement for Directors and Executive Officers* 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) (5) 4.4 Sublease Agreement, dated July 5, 2001, between Floware Wireless Systems Ltd. and Ceragon Networks Ltd. (English summary accompanied by Hebrew original) (5) 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) * 8.1 Subsidiaries of Alvarion Ltd.* 10.1 Loan and Security Agreement, dated June 21, 2011, between Alvarion and Silicon Valley Bank (the "Long Term Loan Agreement with SVB")* 10.2 First Modification, dated November 17, 2011 to the Long Term Loan Agreement with SVB* 10.3 Second Modification, dated January 31, 2012 to the Long Term Loan Agreement with SVB* 10.4 Third modification, dated April 5 2012, to the Long Term Loan Agreement with SVB* 10.5 Fourth Modification , dated April 25 2012 to the Long Term Loan Agreement with SVB* 10.6 Agreement and Plan of Merger, dated November 2, 2011, among Alvarion Inc., Alvarion Acquisition Inc. and Wavion Inc. * 11 Amended Code of Ethics* 12.1 Certification of 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 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*

______* Filed herewith

(1) Incorporated herein by reference to the Registration Statement on Form F-1 (File No. 333-11572).

(2) Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2008.

(3) Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-13786).

(4) Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-14142).

(5) Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2001.

118

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/ Eran Gorev Eran Gorev Chief Executive Officer Date: April 30, 2012

119

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

IN U.S. DOLLARS

INDEX

Page

Reports of Independent Registered Public Accounting Firm F-2 - F-4

Consolidated Balance Sheets F-5 - F-6

Consolidated Statements of Operations F-7

Statements of Changes in Shareholders' Equity F-8

Consolidated Statements of Cash Flows F-9 - F-10

Notes to Consolidated Financial Statements F-11 - F-51

Kost Forer Gabbay & Kasierer 3 Aminadav St. Tel-Aviv 67067, Israel

Tel: 972 (3)6232525 Fax: 972 (3)5622555 www.ey.com

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, 2010 and 2011, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. 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, 2010 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's and its subsidiaries' internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 30, 2012 expressed an unqualified opinion thereon.

Tel-Aviv, Israel KOST FORER GABBAY & KASIERER April 30, 2012 A Member of Ernst & Young Global

F - 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ALVARION LTD.

We have audited Alvarion Ltd. ("the Company") and subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("the COSO criteria"). The Company and its subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

As indicated in the accompanying Management's Annual Report on Internal Control Over Financial Reporting management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Wavion, Inc. (“Wavion”), which is included in the 2011 consolidated financial statements of Alvarion Ltd. and subsidiaries and constituted approximately $43,068 thousands and $27,883 thousands of total and net assets, respectively, as of December 31, 2011 and $4,316 thousands and $ 1,013 thousands of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Alvarion Ltd. and subsidiaries also did not include an evaluation of the internal control over financial reporting of Wavion Inc.

F - 3

In our opinion, the Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2010 and 2011, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011 and our report dated April 30, 2012 expressed an unqualified opinion thereon.

Tel-Aviv, Israel KOST FORER GABBAY & KASIERER April 30 , 2012 A Member of Ernst & Young Global

F - 4

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

December 31, 2010 2011

ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 61,297 $ 57,787 Short-term bank deposits 3,350 4,977 Marketable securities (Note 3) 16,134 1,644 Trade receivables, net (Note 2t) 49,931 48,294 Other accounts receivable and prepaid expenses (Note 4) 10,807 7,658 Inventories (Note 5) 56,078 36,215

Total current assets 197,597 156,575

LONG TERM MARKETABLE SECURITIES (Note 3) 2,564 -

LONG TERM TRADE RECEIVABLES - 6,986

LONG TERM PREPAID EXPENSES - 171

PROPERTY AND EQUIPMENT, NET (Note 7) 14,603 9,774

INTANGIBLE ASSETS, NET (Note 8) - 20,245

GOODWILL (Note 1g) - 13,087

Total assets $ 214,764 $ 206,838

The accompanying notes are an integral part of the consolidated financial statements.

F - 5

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

December 31, 2010 2011

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Current maturity on long-term loan (note 10) $ - $ 12,813 Trade payables 51,242 36,243 Other accounts payable and accrued expenses (Note 9) 36,377 45,441

Total current liabilities 87,619 94,497

LONG-TERM LIABILITIES: Long term accrued expenses - 547 Severance pay and long term employee liabilities 2,712 1,173 Other long-term liabilities 2,346 7,280 Long-term loan (note 10) - 17,187

Total long term liabilities 5,058 26,187

COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)

SHAREHOLDERS' EQUITY: Share capital (Note 12) - Ordinary shares of NIS 0.01 par value - Authorized: 120,080,000 shares at December 31, 2010 and 2011; Issued: 67,507,508 and 67,625,573 shares at December 31, 2010 and 2011, respectively; Outstanding: 62,260,736 and 62,378,801shares at December 31, 2010 and 2011, respectively 166 166 Additional paid-in capital 431,368 434,530 Treasury shares at cost: 5,246,772 shares at December 31, 2010 and 2011 (12,872) (12,872) Other accumulated comprehensive income (loss) 2,599 (2,674) Accumulated deficit (299,174) (332,996)

Total shareholders' equity 122,087 86,154

Total liabilities and shareholders' equity $ 214,764 $ 206,838

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except per share data

Year ended December 31, 2009 2010 2011

Sales (Note 14) Products $ 218,137 $ 180,447 $ 163,744 Services 27,102 25,368 26,293 Total Sales 245,239 205,815 190,037

Cost of Sales Products 113,576 101,955 95,129 Services 14,885 26,623 23,726 Write-off of excess inventory and provision for inventory purchase commitments (Note 2g) 3,993 4,897 2,580 Inventory write-off related to bankruptcy of a customer (Note 15a) - - 7,144

Gross profit 112,785 72,340 61,458

Operating costs and expenses: Research and development, net (Note 15b) 50,790 38,717 27,964 Selling and marketing 52,022 43,376 37,576 General and administrative 15,087 19,920 13,877 Amortization of intangible assets 132 130 186 Impairment of investment (Note 2y) 1,554 - - Acquisition related expenses (Note 1b) - - 2,622 Impairment of goodwill and intangible assets (Note 2j) - 57,110 - Restructuring and other charges (Note 2z) 2,787 3,573 12,040

Total operating costs and expenses 122,372 162,826 94,265

Operating loss (9,587) (90,486) (32,807)

Other (loss) income (Note 1f and Note 6) 731 (7,000) - Financial income (expense), net (Note 15c) 1,668 (99) (1,015)

Loss before income taxes (7,188) (97,585) (33,822)

Taxes on income (Note 13e) - 894 -

Net loss $ (7,188) $ (98,479) $ (33,822)

Net loss per share (Note 15d):

Basic and diluted $ (0.12) $ (1.58) $ (0.54)

The accompanying notes are an integral part of the consolidated financial statements.

F - 7

ALVARION LTD. AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands, except share data

Other Additional accumulated Total Total Ordinary shares paid-in Treasury comprehensive Accumulated comprehensive shareholders' Number Amount capital shares income (loss) deficit income (loss) equity

Balance at January 1, 2009 61,929,895 $ 165 $ 423,303 $ (12,872) $ (1,183) $ (193,507) $ 215,906

Exercise of employee stock options 214,539 1 371 - - - 372 Stock-based compensation expenses related to ASC 718 - 4,246 - - - 4,246 Unrealized gains on foreign currency cash flow hedges - - - 3,308 - $ 3,308 3,308 Net loss - - - - (7,188) (7,188) (7,188)

Total comprehensive loss $ (3,880)

Balance at December 31, 2009 62,144,434 166 427,920 (12,872) 2,125 (200,695) 216,644

Exercise of employee stock options 116,302 - 114 - - - 114 Stock-based compensation expenses related to ASC 718 - - 3,334 - - - 3,334 Unrealized gains on foreign currency cash flow hedges - - - - 474 - $ 474 474 Net loss - - - - - (98,479) (98,479) (98,479)

Total comprehensive loss $ (98,005)

Balance at December 31, 2010 62,260,736 166 431,368 (12,872) 2,599 (299,174) 122,087

Exercise of employee stock options 118,065 - 9 - - - 9 Stock-based compensation expenses related to ASC 718 - - 3,153 - - - 3,153 Unrealized losses on foreign currency cash flow hedges - - - - (5,273 ) - $ (5,273) (5,273) Net loss - - - - - (33,822) (33,822) (33,822)

Total comprehensive loss $ (39,095)

Balance at December 31, 2011 62,378,801 $ 166 $ 434,530 $ (12,872) $ (2,674) $ (332,996) $ 86,154

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Year ended December 31, 2009 2010 2011

Cash flows from operating activities:

Net loss $ (7,188) $ (98,479) $ (33,822) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 7,231 6,662 5,433 Capital loss on disposal of property and equipment 267 363 3,908 Other income from LGC transaction (716) - - Stock-based compensation expenses related to ASC 718 4,246 3,334 3,153 Accrued interest, amortization of premium and accretion of discounts on held-to-maturity marketable securities and bank deposits 589 786 108 Amortization of other intangible assets 132 130 1,764 Impairment of goodwill and other intangible assets - 57,110 - Impairment of investment in affiliate 1,554 - - Impairment of short term investment - 7,000 - Decrease (increase) in trade receivables, net (5,676) 15,559 5,397 Decrease (increase) in other accounts receivable and prepaid expenses 2,487 (3,526) 2,323 Decrease (increase) in inventories 17,693 (20,096) 21,299 Increase in long term prepaid expenses - - (171) Increase in long-term trade receivables - - (6,986) Increase (decrease) in trade payables (21,452) 15,661 (18,552) Increase (decrease) in other accounts payable and accrued expenses (13,218) (5,392) 164 Increase in long term accrued expenses - - 547 Increase (decrease) in other long-term liabilities, net 26 91 (864) Decrease in severance pay net and long-term employee liabilities (1,477) (1,642) (1,742)

Net cash used in operating activities (15,502) (22,439) (18,041)

Cash flows from investing activities:

Purchase of property and equipment (7,196) (5,025) (3,344) Proceeds from property and equipment 43 7 149 Investment in short term investment - (7,000) - Proceeds from bank deposits 15,112 8,056 3,350 Investment in bank deposits (8,020) (3,345) (4,916) Investment in held-to-maturity marketable securities (9,281) (2,424) - Proceeds from maturity of held-to-maturity marketable securities 29,161 24,273 16,885 Proceeds related to the LGC transaction 716 - - Acquisition of Wavion (a) - - (24,618)

Net cash provided by (used in) investing activities 20,535 14,542 (12,494)

The accompanying notes are an integral part of the consolidated financial statements.

F - 9

ALVARION LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Year ended December 31, 2009 2010 2011

Cash flows from financing activities:

Proceeds from exercise of employee stock options 372 114 9 Receipt of long term loan - - 30,000 Repayment of Long term loan - - (2,984)

Net cash provided by financing activities 372 114 27,025

Increase (decrease) in cash and cash equivalents 5,405 (7,783) (3,510) Cash and cash equivalents at the beginning of the year 63,675 69,080 61,297

Cash and cash equivalents at the end of the year $ 69,080 $ 61,297 $ 57,787

Supplemental disclosure of cash flows activities:

Cash paid during the year for taxes $ 461 $ 572 $ 500

(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

The accompanying notes are an integral part of the consolidated financial statements.

F - 10

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL

a. Alvarion Ltd. together with its worldwide subsidiaries ("the Company") is a provider of wireless broadband systems. The Company supplies top-tier carriers, Internet Service Providers ("ISPs") and private networks in vertical markets with solutions based on WiMAX, Wi-Fi and other wireless broadband technologies.

As for geographic markets and major customers, see Note 14.

b. Acquisition of Wavion:

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 for an aggregate consideration of $ 28,433. The total purchase price of Wavion was composed of the following:

Cash $ 25,715 Earn out *) 2,718

Total purchase price $ 28,433

*) The agreement stipulated for an Earn out based on performance milestones for up to an amount of $3,750. The performance milestone was for the period from acquisition date through December 31, 2011. The actual calculated Earn out amounted to $2,718 based on Wavion's result for the stipulated period and has been paid subsequent to the balance sheet date.

The acquired business provides a significant new market opportunity. The cash consideration was financed by a loan that we received from Silicon Valley Bank (“SVB”) (see Note 10) . The Company believes that the acquisition of Wavion will enable the Company to expand our solutions and to become a multi-technology wireless broadband solution powerhouse.

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 employees' undertaking to continue their employment with the Company. If an employee does not complete full term of retention, the amount in escrow related to him will be released to the Company. This amount will be recorded as compensation and not as part of the purchase price of Wavion. As of December 31, 2011 there is a short term and long term prepaid balance of $ 565 and $ 171 relating to this amount, which will be recorded as compensation expense on a straight line basis over the retention period.

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.

F - 11

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

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 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:

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

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 is due to primarily the expected synergies.

As part of the acquisition the Company incurred certain acquisition related expenses 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.

Below are certain unaudited pro forma combined statements of income data for the years ended December 31, 2010 and 2011, as if the acquisition had occurred January 1, 2010, after giving effect to purchase accounting adjustments, including amortization of identifiable intangible assets. This pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisition taken place at the beginning of 2010, nor is it necessarily indicative of future results. The amounts of revenue and earnings of Wavion since the acquisition date included in the consolidated statement for the the year ended December 31, 2011 was $ 4,316 and $1,013, respectively.

F - 12

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

Year ended December 31, 2010 2011 Unaudited Unaudited

Total revenues $ 215,413 $ 208,456 Net loss 106,409 42,738

Net loss per share basic and diluted $ 1.71 $ 0.69

c. Acquisition of Clariton:

At the beginning of 2011, the Company acquired the intellectual property of Clariton Ltd., ("Clariton") for indoor wireless solution called Clariton's Distributed Antenna System (DAS) for no consideration. The Company also assumed Clariton's related OCS royalty bearing grant obligation, Clariton Networks.

d. 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.

e. 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.

f. Discontinued operations of the Cellular Mobile Unit ("CMU"):

In September 2007, the Company converted convertible notes into LGC Wireless Inc. ("LGC") Common shares as part of an agreement to sell substantially all of the Company's assets and certain liabilities related to the Company's CMU, representing the majority of former interWAVE Communications International Ltd ("interWAVE") business. On November 30, 2007, ADC Telecommunication Inc. ("ADC"), a U.S. publicly traded company, completed its acquisition of LGC. As of December 31, 2008, the Company received approximately $ 16,100, out of which approximately $ 8,900 was received during 2008, in respect of the Common shares of LGC while an additional $ 1,000 was secured in escrow. During the year ended December 31, 2009 the Company received approximately $ 700 and the residual $ 300 represented all indemnification obligations, costs and expenses. The amount received of approximately $700 was recorded as additional proceeds in 2009 as "other income".

F - 13

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:- GENERAL (Cont.)

g. Goodwill impairment:

In accordance with ASC 350 "Intangibles - Goodwill and Others", the Company tests for goodwill impairment on an annual basis for its single reporting unit. The continuing global economic downturn during 2010 had negatively affected the Company and significantly reduced the Company's market capitalization. As a result of its impairment test, the Company determined that there would be no implied value attributable to its reporting unit's goodwill and fully impaired the recorded amount.

The Goodwill as of December 31, 2011 resulted from Wavion's acquisition. See also Note 2j.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with U.S generally accepted accounting principles ("U.S. GAAP").

a. Use of estimates:

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 and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

b. Financial statements in U.S. dollars ("dollars"):

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.

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.

c. Principles of consolidation:

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.

F - 14

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

d. Cash equivalents:

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.

e. Short-term bank deposits:

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, 2010 and 2011, most of the bank deposits are in U.S. dollars and bore interest at a weighted average interest rate of 0.81% and 2.48%, respectively. The deposits are presented at their cost, including accrued interest.

f. Held-to-maturity securities:

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.

For the years ended December 31, 2009, 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, 2009, 2010 and 2011, no other-than-temporary impairment losses have been identified.

F - 15

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

g. Inventories:

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 2009, 2010 and 2011, the Company recorded inventory write-off for inventory and for inventory purchase commitments, for inventory no longer required in a total amount of $ 3,993, $ 4,897 and $ 2,580, respectively.

In 2009, 2010 and 2011, approximately $ 578, $ 388 and $ 375, 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.

h. Property and equipment, net:

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:

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

i. Impairment of long-lived assets:

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). For the year ended December 31, 2009, no impairment losses were recorded. As of December 31, 2010, all of the Company's intangible assets have been amortized or written off. In November 2011 due to the completion of Wavion acquisition, the Company recorded intangible assets in an amount of $22,009. Since the acquisition date, no indications for impairment have been noted.

F - 16

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

j. Goodwill:

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".

For purposes of testing goodwill in accordance with ASC 350 for the year ended December 31, 2010, the Company operated in one operating segment, and this segment comprises of a single reporting unit. During 2010, the global economic downturn had negatively affected the Company's results of operations with a significant reduction in the Company's market capitalization. In calculating the fair value of the reporting unit, the Company used Discounted Cash Flow (DCF) approach. The Company further applied a market approach, using multiples of earnings, to corroborate the results achieved in the estimated discounted cash flows model. As a result of performing step two, the Company's implied fair value of the reporting unit goodwill has decreased to zero.

For the year ended December 31, 2009 no impairment losses were recorded; In 2010, the Company recorded impairment of the outstanding Goodwill balance in the amount of $ 57,106.

The acquisition of Wavion in November 2011 has been incorporated into the single reportable segment of the Company. Nevertheless, Wavion’s full integration into the activity of the Company has not yet been completed. As part of Wavion acquisition, the Company recorded goodwill in amount of $13,087. Since the transaction occurred in November 2011, there are no indicators of impairment at December 31, 2011 and no outstanding Goodwill balances remained prior to the acquition, no annual impairment test has been completed and no impairment has been recorded in 2011.

F - 17

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

k. Income taxes:

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 operating expenses for the year ended December 31, 2009 includes $ 783 income tax expenses respectively. These expenses were not presented in income tax due to immateriality.

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 for the year ended December 31, 2009 in general and administrative expenses and for the years ended December 31, 2010 and 2011 in taxes on income.

l. Accounting for stock-based compensation:

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 963,000 options at par value and Restricted Shares Unit 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, 2011, the performance related ratios for the first and second installments have not achieved, and the corresponding part (66%) of the grant has been cancelled. Further, the Company estimates that it is less than probable that the last installments’ performance related ratio criteria will be achieved and has not recorded any expenses related to this equity based award. Subsequent to balances sheet date, the February 2012 performance criteria has not been met and an additional corresponding (33%) of the grant has been cancelled.

F - 18

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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 2009, 2010 and 2011, 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.

Year ended December 31, 2009 2010 2011

Volatility 56.1% 56.5% 59.4% Risk-free interest rate 2.5% 1.45% 1.40% Dividend yield 0% 0% 0% Expected term 4.7 years 4.47 years 4.21 years Average Forfeiture rate 8% 13% 19%

The Company's annual compensation cost for the years ended December 31, 2009, 2010 and 2011 totaled $ 4,246, $ 3,334 and $ 3,153, respectively.

F - 19

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2009, 2010 and 2011, was comprised as follows:

Year ended December 31, 2009 2010 2011

Cost of goods sold $ 331 $ 434 $ 295 Research and development 1,553 780 495 Sales and marketing 1,204 733 775 General and administrative 1,158 1,387 1,588

Equity-based compensation expenses $ 4,246 $ 3,334 $ 3,153

m. Revenue recognition:

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.

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.

Starting January 1, 2011 the Company adopted the guidance of ASU 2009-13 "Multiple-Deliverable Revenue Arrangements", (amendments to FASB ASC Topic 605, Revenue Recognition) ("ASU 2009-13") and ASU 2009-14, "Certain Revenue Arrangements That Include Software Elements", (amendments to FASB ASC Topic 985, Software) ("ASU 2009-14"). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of all deliverables in an arrangement based on a selling price hierarchy. The amendment eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance in determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. Company's management determined that the software is incidental to the product as a whole and therefore ASC 985-605 and ASU 2009-14 should not apply.

F - 20

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company prospectively applied these provisions to all revenue arrangements entered into or materially modified after January 1, 2011. This guidance does not generally change the units of accounting for the Company’s revenue transactions. Most products and services qualify as separate units of accounting and the revenue is recognized when the applicable revenue recognition criteria are met. The Company’s arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue. While certain of the Company’s bundled products are now accounted for following the ASU 2009-13 amendments to ASC 605, the impact of the adoption of these standards was immaterial in 2011 and is expected to remain so in periods after adoption.

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 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 Equpiment element price was obtained by using management’s 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 the selling price of maintenance services, based on the price charged when sold separately at renewal.

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

F - 21

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

n. Warranty costs:

The Company provides a 14 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.

Changes in the Company's warranty allowance during the period are as follows:

Year ended December 31, 2009 2010 2011

Balance at the beginning of the year $ 3,186 $ 1,880 $ 1,605 Warranties issued during the year 1,552 1,447 500 Settlements/adjustments made during the year (2,858) (1,722) (1,457)

Balance at the end of the year $ 1,880 $ 1,605 $ 648

o. Research and development:

Research and development costs, net of participation funding received and grants, are charged to the statement of operations as incurred. See also Note 15b.

p. Participations and grants:

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.

q. Severance pay and long term employee liabilities:

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 shall be instead of its severance liability. Upon contribution of the full amount from the employee's monthly salary, no additional calculations shall be 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.

F - 22

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Additional payments have been paid to Company's employees at the time of termination by the Company. The estimation of those payments is appropriately recorded as a liability at each of the balance sheet date.

Severance pay expenses for the years ended December 31, 2009, 2010 and 2011 were $ 3,059, $ 3,059 and $ 2,218, respectively.

r. Advertising expenses:

Advertising expenses are carried to the statement of operations as incurred. Advertising expenses for the years ended December 31, 2009, 2010 and 2011 were $ 1,923, $ 1,652 and $ 1,094, respectively.

s. Basic and diluted net loss per share:

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, 2009, 2010 and 2011, 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.

t. Concentration of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, 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 Company's marketable securities include investments in debentures of U.S. corporations and U.S. government agencies.

Since the turmoil in capital markets the Company tightened its control and monitoring over its marketable securities portfolio in order to minimize potential risks. Such measures included among others: Company's investment policy is approved by the Investment Committee, limits on the amount the Company may invest in any one type of investment or issuer and the grade of the security, thereby reducing credit risk concentrations.

F - 23

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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. Customers balances with maturity dates exceeding one year, are disclosed as Long Term Trade Receivables. 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.

Allowance for doubtful accounts amounted to $ 5,052 and $ 5,525 as of December 31, 2010 and 2011, respectively. Balance as of December 31, 2011, includes allowance for doubtful accounts from Wavion acquisition in amount of $294. 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 during 2009, 2010 and 2011 amounted to $ 904, $ 4,604 and $ 1,994, respectively. The 2010 expense is mainly a result of a single customer for which the Company deemed the balance as uncollectable. Total write offs amounted $ 0, $ 690 and $ 1,815 in 2009, 2010 and 2011, respectively.

u. Fair value of financial instruments:

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:

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.

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.

F - 24

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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:

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

December 31, 2010 Fair value measurements using input type Level 1 Level 2 Level 3 Total Assets: Foreign currency option $ - $ 524 $ - $ 524 Foreign currency forwards - 2,176 - 2,176

Total financial assets $ - $ 2,700 $ - $ 2,700

Liabilities: Foreign currency option $ - $ 41 $ - $ 41 Foreign currency forwards - 133 - 133

Total financial liabilities $ - $ 174 $ - $ 174

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.

F - 25

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

v. Derivative instruments:

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.

During 2010-2011 the Company performed organizational changes and headcount reductions, and as a result the payroll and trade payables payments have decreased. There was an ineffective portion of the hedging in an amount of $96 and $ 3, respectively which has been recognized in statement of operations in the financial income (expense) net, as ineffective hedge portion. The Company does not enter into derivative transactions for trading purposes.

F - 26

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

As of December 31, 2011, the Company recorded accumulated other comprehensive loss in the net amount of $ 2,674 (as further detailed in the following tables) from its currency forward and put and call options transactions with respect to trade payables and payroll expenses expected to be incurred during 2012 and 2013. Such amount will be reclassified into earnings within the next 13 months.

The notional principal of foreign exchange contracts to purchase NIS with U.S. dollars was $39,700 and $ 81,158 at December 31, 2010 and 2011, respectively. The notional principal of foreign exchange contracts to purchase RON with U.S. dollars was $ 3,750 and $ 5,750 at December 31, 2010 and 2011, respectively.

The fair value of the Company's outstanding derivative instruments qualified as hedging instruments at December 31, 2010 and 2011 is summarized below:

December 31, Balance sheet location 2010 2011 Assets

Foreign exchange option contracts Other accounts receivable and prepaid expenses $ 523 $ 16 Foreign exchange forward contracts 2,116 -

$ 2,639 $ 16 Liabilities

Foreign exchange option contracts Other accounts payable and accrued expenses $ (40) $ (1,033) Foreign exchange forward contracts - (1,657)

$ (40) $ (2,690)

Derivatives assets (liabilities), net $ 2,599 $ (2,674)

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ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The effect of derivative instruments in cash flow hedging relationships on income (loss) and other comprehensive income (loss) for the years ended December 31, 2009, 2010 and 2011 is summarized below:

Increase (decrease) in gains recognized in other comprehensive income (loss) on derivative (effective portion) Year ended December 31, 2009 2010 2011 Derivative in cash flow hedging relationship Foreign exchange option contracts $ 3,781 $ 662 $ (1,177) Foreign exchange forward contracts 2,124 2,428 (1,229)

$ 5,905 $ 3,090 $ (2,406)

The following is the change in the other comprehensive income (loss) of unrealized gains on foreign currency cash flow hedge during 2011:

Other comprehensive income (loss)

Other comprehensive income from unrealized gains on foreign currency cash flow hedge as of January 1, 2011 $ 2,599 Reclassification to earnings of realized gains on foreign currency cash flow hedge (2,867) Unrealized net losses on foreign currency cash flow hedge (2,406) Other comprehensive loss from losses on foreign currency cash flow hedge as of December 31, 2011 $ (2,674)

Gains (losses) reclassified from other comprehensive income (loss) into income (expenses) (effective portion) Year ended December 31, Location 2009 2010 2011

Derivative in cash flow hedging relationship Foreign exchange option contracts Cost of sales and operating expenses $ (2,390) $ 175 $ 273 Foreign exchange forward contracts Cost of sales and operating expenses (207) 2,441 2,591

$ (2,597) $ 2,616 $ 2,864

F - 28

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company entered into forward contracts to hedge the fair value of assets and liabilities denominated in Euros. As of December 31, 2010, the Company had outstanding forward contracts that did not meet the definition of hedge accounting, in the notional amount of $ 5,938, the fair value of which is presented in other accounts payable and accrued expenses, and in the notional amount of $ 1,395 the fair value of which is presented in other accounts receivable and prepaid expenses. These contracts were for a period of up to twelve months. 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. 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 2009, 2010 and 2011 were $ (128), $ 528 and $ (307), respectively.

w. Comprehensive income:

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.

x. Treasury stock:

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.

y. Investment in affiliate:

The Company accounts for its investment in an affiliate in which the Company holds less than 20%, using the cost method of accounting since the Company does not have the ability to exercise significant influence over operating and financial policies of this investee.

The Company's investment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. Following the Company's decision not to continue funding the affiliate, the Company's holding was diluted into an immaterial amount during 2009, and the Company recorded an impairment of the entire investment in the amount of $ 1,554 in the year end December 31, 2009.

F - 29

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

z. Restructuring and other charges:

During 2009 and 2010, 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 90 and 160 employees, respectively. During 2011 the Company implemented an additional plan for cost reduction and organizational changes to certain of the Company's units of operations and reduced by 194 the Company's headcount. The Company recorded in 2009, 2010 and 2011 charges of $ 2,787, $ 3,573 and $ 12,040, respectively. In addition to the charges to short and long term accrued amounts below, these charges included $ 282, $ 343 and $ 650, 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".

As of December 31, 2011, the short term components of the restructuring and cost reduction plan accrual are as follows:

Employee termination Repayments of Lease benefits grants abandonment Other Total

Balance as of January 1, 2010 $ 1,190 $ 923 $ 340 $ 42 $ 2,495 Charges 1,868 - 1,175 186 3,229 Cash outlays (2,777) - (917) (175) (3,869)

Balance as of December 31, 2010 281 923 598 53 1,855 Charges (Reverse) 2,954 (923) 3,158 1,526 6,715 Cash outlays (1,785) - (1,881) (427) (4,093)

Balance as of December 31, 2011 $ 1,450 $ - $ 1,875 $ 1,152 $ 4,477

As of December 31, 2011, the long term components of the cost reduction plan amounted to $ 547 and are presented as Long term accrued expenses. These costs are due to lease abandonment and are expected to be paid during 2013.

The restructuring and other charges do not include the impact related to stock based compensation (for stock based compensation see Note 12c).

aa. Transfers of financial assets:

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.

F - 30

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

During the years ended December 31, 2009, 2010 and 2011, the Company sold trade receivables to Israeli financial institutions in a total amount of $ 44,991, $ 43,046 and $ 52,303, respectively. Control and risk of those trade receivables were fully transferred in accordance with ASC 860. As of December 31, 2010 and 2011, the Company had a transaction that did not meet the guidance of ASC 860 and is presented as a secured borrowing as part of other accounts payable and accrued expenses in the amount of $ 1,770 and $ 987, respectively.

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.

The aggregate amounts of financing expense related to the sales of trade receivables for the years ended December 31, 2009, 2010 and 2011 were $ 661, $ 578 and $ 818, respectively.

ab. Business Combination:

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.

F - 31

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)

ac. Impact of recently issued Accounting Standards:

In May 2011, the Financial Accounting Standards Board, or FASB issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, codified in ASC 820 "Fair Value Measurement". The guidance requires an entity to use a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements, and will become effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

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 indefinitely the effective date for some of the amendments outlined in ASU 2011-05, but the remainder of its provisions will become effective for the Company beginning January 1,2012. The Company is still evaluating whether to present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, codified in ASC 350 "Intangibles – Goodwill and Other". The revised accounting standard update intends to simplify how an entity tests goodwill for impairment. The amendment will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This accounting standard update will be effective for the Company beginning January 1, 2012. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

F - 32

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:- MARKETABLE SECURITIES

The following is a summary of held-to-maturity marketable securities:

Estimated Gross unrealized Gross unrealized fair market Amortized cost gains losses value

December 31, 2011:

Maturing within one year: Corporate bonds $ 1,644 $ 6 $ - $ 1,650

$ 1,644 $ 6 $ - $ 1,650

December 31, 2010:

Maturing within one year: U.S. Government agencies $ 1,318 $ 4 $ - $ 1,322 Corporate bonds 14,816 120 (1) 14,935

16,134 124 (1) 16,257 Maturing over one year: Corporate bonds 2,564 18 - 2,582

2,564 18 - 2,582

$ 18,698 $ 142 $ (1) $ 18,839

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.

F - 33

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

December 31, 2010 2011

Government authorities $ 3,648 $ 2,625 Deposits 717 672 Derivatives 2,700 102 Prepaid expenses 1,390 1,351 Advances to suppliers and others 2,352 2,908

$ 10,807 $ 7,658

NOTE 5:- INVENTORIES

See also Note 2g.

December 31, 2010 2011

Raw materials and components $ 12,746 $ 19,727 Work in progress 8,317 6,190 Finished products *) 35,015 10,298

$ 56,078 $ 36,215

*) Includes inventory held by customers in the amount of $ 15,082 and $ 654 as of Decemeber 31, 2010 and 2011, respectively.

NOTE 6: - OTHER LOSS RELATED TO SHORT TERM INVESTMENT

On February 11, 2010, the Company and one of its customers (the "Customer") entered into a Note Purchase Agreement (the "Note Purchase Agreement"). Pursuant to the Note Purchase Agreement, the Company purchased from the Customer subordinated convertible promissory notes in the aggregate original principal amount of up to $ 7,000 (the "Notes") in 2010.

The outstanding principal balance of the Notes together with interest accrued and unpaid to date shall be due and payable at any time on or after such date that is the earliest of (a) August 11, 2011, (b) an Event of Default (as defined in the Notes), (c) at the Company's election, upon the consummation of an Acquisition Event or an Equity Financing (as defined in the Notes).

The Company's investment in the Note was reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of the investment may not be recoverable. The Company does not expect to collect, therefore following the Company's review for impairment of the Note, the Company recorded an impairment of the entire investment in the amount of $ 7,000 in the year ended December 31, 2010. The Company has not collected any portion of the Note in 2011.

F - 34

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 7: - PROPERTY AND EQUIPMENT

December 31, 2010 2011

Cost: Office furniture and equipment $ 5,218 $ 4,869 Computers and electronic equipment 52,598 48,974 Motor vehicles 100 79 Leasehold improvements 4,574 3,729

62,490 57,651 Accumulated depreciation: Office furniture and equipment 2,480 2,527 Computers and manufacturing equipment 42,497 42,672 Motor vehicles 20 24 Leasehold improvements 2,890 2,654

47,887 47,877

Depreciated cost $ 14,603 $ 9,774

Depreciation expenses for the years ended December 31, 2009, 2010 and 2011 amounted to $ 7,231, $ 6,662 and $ 5,433, respectively.

During 2011, the Company recorded disposals and sales of property and equipment in the amount of $ 9,500 and accumulated depreciation in the amount of $ 5,443, out of which the amount of $ 8,516 and related accumulated depreciation in the amount of $ 4,842 was associated with the Company's restructuring activities.

NOTE 8:- INTANGIBLE ASSETS, NET

December 31, 2010 2011 Cost: Current technology $ 17,871 $ 18,557 Customer relations 500 1,874 Backlog - 1,578

18,371 22,009 Accumulated amortization: Current technology 17,871 160 Customer relations 500 26 Backlog - 1,578

18,371 1,764

Amortized cost $ - $ 20,245

F - 35

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 8:- INTANGIBLE ASSETS, NET (Cont.)

Amortization expenses for the years ended December 31, 2009, 2010 and 2011 amounted $ 132, $ 130 (including an impairment of the remaining other intangible assets, in amount of $ 4) and $ 1,764, respectively. Intangibles and the related accumulated amortization of $18,371 at December 31, 2010 were written off in 2011.

See also Note 1b regarding Wavion acquisition

Estimated amortization expenses for the years ended:

Amortization Year ended December 31, expenses

2012 $ 2,235 2013 2,235 2014 2,235 2015 2,188 2016 1,671 Thereafter 9,681

$ 20,245

NOTE 9:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

December 31, 2010 2011

Service providers, consultants and accrued expenses $ 9,768 $ 11,139 Employees and payroll accruals 11,061 14,013 Advances from customers 4,519 2,246 Provision for agent commissions 3,777 2,695 Secured borrowings *) 1,770 987 Restructuring and other charges **) 1,855 4,477 Warranty provision 1,605 648 Royalties 1,214 2,355 Derivatives 174 2,690 Advances from grants 570 1,413 Earn out provision - 2,718 Others 64 60

$ 36,377 $ 45,441

*) See Note 2aa. **) See also Note 2z .

F - 36

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 10:- LONG TERM 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 the acquisition of Wavion. The Company fully utilized the credit line on November 18, 2011.

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 consist of Facility A ($25,000) and Facility B ($5,000).

Facility A will be repaid in thirty six (36) equal monthly installments starting March 1st, 2012. Interest rate applicable to Facility A is LIBOR for three months plus 4.75%, payable monthly starting December 1, 2011. Facility B will be repaid in one (1) installment after thirty six (36) months following first repayment of Facility A of the credit line. Interest rate applicable to Facility B is LIBOR for three months plus 4.50%, payable monthly starting December 1, 2011.

The Agreement was amended on January 31, 2012 with effective date as of December 31, 2011 to reflect certain changes to the Agreement (for example, changing the financial covenants). As of December 31, 2011, the Company was in full compliance with the covenants of the amended Agreement.

As of April 1, 2012 the Company was in breach of certain financial covenants set forth in the Long Term Loan but on April 25, 2012, it reached a general agreement with SVB for the grant of a temporary forbearance of the breached covenants and a modification of the terms of the Long Term Loan, which terms include (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.

b. As of December 31, 2011, the aggregate annual maturities according to the loan agreement are as follows:

Repayment Year ended December 31, amount 2012 (current maturities) $ 12,813 2013 5,625 2014 5,625 2015 5,937

Total $ 30,000

c. In respect of the loan provided, the Company is required to meet certain financial covenants which includes non-gaap adjusted profit/loss, quick asset ratio and account receivable levels.

F - 37

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:- 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 2012-2015.

The Company has leased various motor vehicles and computers under operating lease agreements. These leases expire in fiscal year 2014.

Future minimum rental payments under such leases as of December 31, 2011 are as follows:

Rental of Lease of Lease of motor premises computers vehicles

2012 $ 3,657 $ 143 $ 1,133 2013 1,463 43 638 2014 130 6 235 2015 28 - -

$ 5,278 $ 192 $ 2,006

Rental of premises expenses for the years ended December 31, 2009, 2010 and 2011, were $ 6,809, $ 6,442 and $ 5,363, respectively. Motor vehicle leasing expenses for the years ended December 31, 2009, 2010 and 2011, were $ 3,633, $ 2,961 and $ 1,896, respectively. Computer leasing expenses for the years ended December 31, 2009, 2010 and 2011, were $ 542, $ 497 and $ 226, respectively.

b. Litigation:

On November 21, 2001, a purported Class Action lawsuit ("the Action") was filed against interWAVE (a company merged into the Company in 2003), certain of its former officers and directors, and certain of the underwriters for interWAVE's initial public offering ("the IPO"). On April 19, 2002, the plaintiffs filed an amended complaint. The amended complaint alleged that the prospectus from interWAVE's IPO failed to disclose certain alleged improper actions by various underwriters for the offering, in violation of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended ("the Exchange Act"). Similar complaints have been filed concerning more than 300 other IPOs; all of these cases have been coordinated as In re Initial Public Offering Securities Litigation, 21 MC 92. On October 8, 2002, the Court entered an Order of Dismissal as to all of the individual defendants in the IPO litigation, without prejudice. In 2007, a settlement that had been pending with the Court since 2004, was terminated by stipulation. After a ruling by the Second Circuit Court of Appeals in six "focus" cases in the coordinated proceedings (interWAVE is not one of the six test cases) made it unlikely that the settlement would receive final Court approval, plaintiffs filed amended master allegations and amended complaints in the six test cases. In 2008, the Court largely denied the defendants' motion to dismiss the amended complaints.

F - 38

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

This action has been resolved through a global settlement of the coordinated litigation. Under the settlement, the insurers pay the full amount of the settlement share allocated to the Company, and the Company bears no financial liability. InterWAVE, as well as the officer and director defendants who were previously dismissed from the Action pursuant to tolling agreements, receive complete dismissals from the case. On October 5, 2009, the Court entered an order granting final approval of the settlement. Although certain objectors filed appeals, by early 2012 all of those appeals had been withdrawn or dismissed and the settlement is now final.

c. Guarantees:

As of December 31, 2011, the Company:

Had outstanding bank guarantees in the total amount of approximately $ 4,647, in favor of customers, lessors and Government authorities.

d. Royalties:

The Company's research and development efforts have been partially financed through grants from the Office of the Chief Scientist ("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.

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 1b), the Company assumed Wavion's royalty bearing grant, and the royalties assumed has 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. Royalty expenses relating to OCS grants included in cost of sales for the years ended December 31, 2009, 2010 and 2011, amounted to $ 159, $ 67 and $ 186, respectively. The maximum amount of the contingent liability related to royalty bearing grants payable to the Israeli Government was approximately $ 23,651 as of December 31, 2011.

F - 39

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

e. Liens:

Pursuant to its Loan and Security Agreement with SVB (see note 10), the Company pledged all of its assets under a floating charge and created a fixed charge on its IP rights and receivables.

NOTE 12:- SHAREHOLDERS' EQUITY

a. The Company's shares are listed for trading on the NASDAQ National Market and on the Tel-Aviv Stock Exchange.

b. Shareholders' rights:

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.

c. Share options:

The Company has six stock option plans under which 34,886,495 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, 1,500,000 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 2009, 2010 and 2011, the Company did not grant any performance based options. The Company did not record compensation expenses for 963,000 performance based options that were granted during 2008 since as of December 31, 2011, the Company did not reach the performance targets and the plan was canceled. During 2011, 174,000 performance based options were forfeited.

F - 40

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)

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, 2011, 9,212,839 Ordinary shares of the Company are still available for future grants under the various option plans.

A summary of option activity under the Company's stock option plans as of December 31, 2011 and changes during year than ended are as follows:

Year ended December 31, 2011 Weighted average remaining Weighted contractual average Amount term exercise Aggregate of options (in years) price intrinsic value

Options outstanding at beginning of year 11,178,511 3.68 $ 5.55 $ 4,938 Changes during the year: Granted 1,771,573 $ 1.49 Exercised (118,065) $ 0.08 Forfeited or cancelled (3,518,691) $ 5.60

Options outstanding at end of year 9,313,328 2.95 $ 4.83 $ 1,447

Options vested or expected to vest 8,233,146 2.66 $ 5.26 $ 1,214 Options exercisable at end of year 6,164,768 2.00 $ 6.51 $ 459

The weighted-average grant-date fair value of options granted during the years ended December 31, 2009, 2010 and 2011 was $ 4.95, $ 2.44 and $ 0.92, respectively. The weighted-average fair value of the options vested during the year ended December 31, 2011 was $ 2.81. The total intrinsic value for the options exercised for the years ended December 31, 2009, 2010 and 2011 was, $ 436, $ 169 and $ 107, respectively.

As of December 31, 2011, there was approximately $ 4,003 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 3 years.

F - 41

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)

The options outstanding as of December 31, 2011, have been separated into ranges of exercise prices, as follows:

Weighted Options average Weighted Remaining Weighted Exercise outstanding remaining average Options exercisable contractual life average price as of contractual exercise as of (years for exercise (range) December 31, 2011 life (years) price December 31, 2011 exercisable options) price

$ 0-0.003 1,579,466 4.13 0.003 506,345 3.15 0.003 $ 0.84-1.17 320,500 6.27 0.94 - - - $ 1.49-2.19 2,017,323 3.32 1.99 1,044,174 1.42 2.04 $ 2.57-3.74 1,332,018 2.67 3.13 855,060 2.18 3.16 $ 3.88-5.80 939,900 3.66 4.53 655,900 3.38 4.80 $ 6.39-9.58 1,407,781 1.58 8.02 1,386,949 1.56 8.03 $ 10.24-15.404 1,716,340 1.75 12.22 1,716,340 1.75 12.22

9,313,328 6,164,768

A summary of the status of the Company's restricted shares units and options granted at par-value as of December 31, 2011, and changes during the year ended December 31, 2011, are presented below:

Number of restricted share units and Weighted options at par average grant Unvested restricted share units and options at par value value date fair value

Non vested at January 1, 2011 1,667,470 $ 4.01

Granted 250,000 $ 0.99 Vested (607,231) $ 4.28 Forfeited (237,118) $ 5.40

Non vested at December 31, 2011 1,073,121 $ 2.81

The total fair value of shares vested during the years ended December 31, 2009, 2010 and 2011 was $257, $358 and $932 respectively.

d. Dividends:

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.

F - 42

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- 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:

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, 2011, the accumulated deficit of the Company does not include tax-exempt profits earned by the Company's "Approved Enterprise".

F - 43

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- TAXES ON INCOME (Cont.)

Income from sources other than "Approved Enterprise" during the benefit period will be subject to tax at the regular corporate tax rate.

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%).

F - 44

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- TAXES ON INCOME (Cont.)

c. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

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.

d. Loss before income tax expense:

Year ended December 31, 2009 2010 2011

Domestic $ (11,557) $ (65,207) $ (21,464) Foreign 4,369 (32,378) (12,358)

$ (7,188) $ (97,585) $ (33,822)

e. Taxes on income are comprised of the following:

Year ended December 31, 2010 2011

Current $ 894 $ - Deferred - -

$ 894 $ -

Domestic $ 125 $ 144 Foreign 769 (144)

$ 894 $ -

Income tax expenses for 2009 are not presented due to immateriality.

F - 45

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- TAXES ON INCOME (Cont.)

f. Reconciliation of the theoretical tax expenses:

Reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate applicable and the actual income tax as reported in the statements of income, is as follows:

Year ended December 31, 2010 2011

Loss before taxes $ 97,585 $ 33,822 Statutory tax rate in Israel 25% 24%

Tax benefit (24,396) (8,117)

Permanent differences 17,921 801 Loss for which a valuation allowance was provided 6,794 7,734 Tax expenses adjustment due to past years 45 124 Withholdings and other taxes 125 193 Differences in tax rate 404 163 Uncertain tax position and other differences - (898)

Tax expense $ 894 $ -

Income tax expenses for 2009 are not presented due to immateriality.

The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the permanent differences and the non-recognition of tax benefits resulting from the Company's accumulated net operating losses carryforward due to the uncertainty of the realization of such tax benefits.

g. Carryforward losses:

As of December 31, 2011, Alvarion Ltd. and Wavion Ltd. had an available tax loss carry forward amounting to approximately $ 205,900 and $38,500, respectively, which may be carried forward, in order to offset taxable income in the future, for an indefinite period.

As of December 31, 2011, the U.S. subsidiaries had approximately $ 42,330 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 2012 and 2031. The state tax losses carryforwards of the U.S. subsidiaries are approximately $14,370 and this balance will expire between 2012 through 2021.

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.

F - 46

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- TAXES ON INCOME (Cont.)

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.

h. Tax rates applicable to the income of the Company:

Taxable income of Israeli company is subject to tax at the rate of 26% in 2009, 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 cancels, among others, the gradual reduction in the corporate tax rates in Israel. In addition, the corporate tax in Israel will be increased to 25% starting in 2012. Accordingly, the real capital gains tax rate will increase to 25%. There was no effect on the Company as a result of the above mentioned changes.

i. Deferred taxes:

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:

December 31, 2010 2011 Tax assets in respect of: Allowance for doubtful accounts $ 1,319 $ 1,604 Accrued severance pay and accrued vacation pay 1,053 862 Reaserch and development expenses 4,457 4,270 Other deductions for tax purposes 2,452 1,712 Net loss carry forward 43,119 76,181

Total deferred tax assets 52,400 84,629

Deferred tax liabilities: Acquired intangibles - (7,743)

Deferred tax assets, net before valuation allowance 52,400 76,886 Valuation allowance (52,400) (76,886)

Deferred tax assets $ - $ -

F - 47

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- TAXES ON INCOME (Cont.)

j. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

December 31, 2010 2011

Opening balance $ 3,223 $ 3,363 Additions for (settlement of) prior year tax positions 92 (878) Additions for current year tax position 48 52

Closing balance $ 3,363 $ 2,537

During the years ended December 31, 2009, 2010 and 2011, the Company recorded $ 26, $ 92 and $ 100, respectively for interest and penalties expenses related to uncertain tax positions. The liability for unrecognized tax benefits included accrued interest and penalties of $ 810 and $ 910 at December 31, 2010 and 2011, respectively.

As of December 31, 2011, the entire amount of unrecognized tax benefit could affect the Company's income tax provision and the effective tax rate.

k. 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 2006 tax year (including 2006 tax returns) are deemed to be approved. With respect to the Israeli subsidiary the tax returns until 2005 (including 2005 tax returns) are deemed to be approved. The statute of limitations relating to the U.S. Federal income tax return is closed for all tax years up to and including 2007.

NOTE 14:- 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:

The total revenues are attributed to geographic areas based on the location of the Company's end customers.

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:- INFORMATION ABOUT GEOGRAPHIC AREAS AND MAJOR CUSTOMERS (Cont.)

The following table presents total revenues for the years ended December 31, 2009, 2010 and 2011:

Total revenues Year ended December 31, 2009 2010 2011

Israel $ 697 $ 718 $ 736 United States 22,478 45,638 34,426 Canada 764 1,879 12,514 Europe (without, Italy, France, Spain and Denmark) 24,398 20,415 18,963 France 17,252 11,049 5,503 Italy 19,281 17,333 14,791 Spain 9,734 14,186 6,605 Denmark 35,483 7,115 5,608 Latin America (without Argentina) 29,313 21,980 26,388 Argentina 16,056 4,895 2,008 Africa (without Nigeria) 41,726 26,191 23,046 Nigeria 167 12,902 5,449 Asia (without India) 25,288 19,528 19,449 India 2,602 1,986 14,551

$ 245,239 $ 205,815 $ 190,037

The following table presents total long-lived assets as of December 31, 2010 and 2011:

Total long-lived assets December 31, 2010 2011

Israel $ 10,185 $ 6,536 Romania 3,058 2,545 Other 1,360 693

$ 14,603 $ 9,774

The total long-lived assets are attributed to geographic areas based on the location of the assets.

c. The following is a summary of the percentages of net sales from major customers:

% of consolidated revenue Year ended December 31, 2009 2010 2011

Customer A 15% *) - *) -

*) Less than 10% of the Company's consolidated revenues

F - 49

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:- SELECTED STATEMENTS OF OPERATIONS DATA

a. One of the Company's customers ("ORC") has declared bankruptcy in 2011. As part of the bankruptcy, the Company recorded charges in the form of an inventory write-off which represents approximately $3,900 of Alvarion equipment which had been shipped to ORC but the related revenues had not been recognized, and this inventory can not be retrieved by the Company. In addition an approximate $3,300 of third-party equipment ordered by ORC, which had yet to be delivered by the Company to ORC as of the time of the bankruptcy filing, and equipment used for ORC by the Company, and the Company has no other line of business to sell or use the equipment in.

b. Research and development, net:

Year ended December 31, 2009 2010 2011

Research and development costs $ 54,674 $ 41,744 $ 32,404 Less - grants and participation 3,884 3,027 4,440

$ 50,790 $ 38,717 $ 27,964

c. Financial income, net:

Year ended December 31, 2009 2010 2011 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 $ 2,583 $ 1,311 $ 778 Income related to ineffective derivative and derivative not designated as effective hedge - 1,221 709 Foreign currency transaction differences, net 355 - -

2,938 2,532 1,487 Financial expenses: Interest and bank expenses including expense related to sale of trade receivables (1,142) (1,087) (1,209) Expenses related to ineffective derivative and derivative not designated as effective hedge (128) (597) (1,016) Foreign currency transaction differences, net - (947) (277)

(1,270) (2,631) (2,502)

$ 1,668 $ (99) $ (1,015)

F - 50

ALVARION LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 15:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)

d. Net loss per share:

The following table sets forth the computation of basic and diluted net loss per share:

Year ended December 31, 2009 2010 2011

Numerator:

Numerator for basic and diluted net loss per share (7,188) (98,479) (33.822) Denominator:

Denominator for basic net loss per share - weighted average number of Ordinary shares 62,023,075 62,198,615 62,301,866

Effect of dilutive securities: Employee stock options *) - *) - *) -

Denominator for diluted net loss per share - adjusted weighted average number of shares 62,023,075 62,198,615 62,301,866

Net loss per share Basic and Diluted $ (0.12) $ (1.58) $ (0.54)

*) Antidilutive.

NOTE 16:- SUBSEQUENT EVENT

On April 5, 2012, the Company issued lower first quarter 2012 projected results, and as a result, indicated that it is in default on a financial covenant under its loan, however, on April 25, 2012, the Company reached an agreement with SVB, amending the loan agreement, following which the Company now complies with the amended loan covenants. F - 51

Exhibit 1.2

Articles of Association

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.

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

The Company is a public company.

3. The Purpose of the 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.

4. The Objectives of the Company

The Company shall engage in any lawful business.

5. Limited Liability

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.

- 2 -

SHARE CAPITAL

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 One Hundred and Twenty Million Eighty Thousand (120,080,000) Ordinary Shares of a nominal value of One Agora (NIS 0.01) 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.

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.

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(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;

(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.

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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

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.

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.

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

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.

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.

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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.

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

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.

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.

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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.

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.

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18. Sale after Forfeiture or Surrender or in Enforcement of Lien

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.

19. Redeemable Shares

The Company may, subject to applicable Law, issue redeemable shares and redeem the same.

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.

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 Transferor The Transferee Name:______Name: ______Signature: ______Signature: ______

Witness to Signature: Witness to Signature: Name:______Name: ______Signature: ______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.

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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

The Company shall not issue bearer share certificates which grant the bearer rights in the shares specified therein.

GENERAL MEETINGS

22. The Authority of the General Meeting

22.1. Matters within the authority of the General Meeting

The following matters shall require the approval 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).

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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.”

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.

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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

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.

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.

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.

PROCEEDINGS AT GENERAL MEETINGS

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.

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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.

29. Chairman

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).

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.

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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.

32. Reserved

33. Voting Power

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.

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.

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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

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.

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.

PROXIES

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.

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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).

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)

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.

39. Effect of Death of Appointer or Revocation of Appointment

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.

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DEED OF VOTE

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

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:

41.1. If there is a reasonable suspicion that they are forged or falsified;

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.

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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.

BOARD OF DIRECTORS

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.

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.

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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

The agenda of any meeting of the Board shall be as determined by the Chairman of the Board, and shall include the following matters:

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;

44.3.3. Any other matter determined by the Chairman of the Board.

44.4. Quorum

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.

44.5. Conducting a Meeting Through Means of Communication

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.

44.6. Voting in 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.

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44.7. Written Resolution

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.

45. The Appointment of Directors

45.1. The Number of Directors

The Board shall consist of such number of Directors, not less than four (4) nor more than ten (10) (including the External 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.

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.

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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.

47. Termination of the Term of a Director

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:

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

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.

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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

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.

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.

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.

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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.

53. Validity of Acts Despite Defects

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

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.

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OFFICERS; AUDITOR

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.

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

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.

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.

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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.

DISTRIBUTIONS

59. General

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.

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.

60.2. Resolution of the Company with Respect to a Dividend or Bonus Shares

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.

60.3. Specific Dividend

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.

60.4. Deductions from Dividends

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.

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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

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.

60.7. An Unclaimed Dividend

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.

60.8. Receipt from a Joint Holder

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.

60.9. Manner of Capitalization of Profits and the Distribution of Bonus Shares

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.

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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.

INSURANCE, INDEMNIFICATION AND RELEASE OF OFFICE HOLDERS

62. Definition

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.

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;

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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

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..

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65. Release of Office Holders

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.

66. General

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

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.

ACCOUNTS

68. Books of Account

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.

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69. Audit

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

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.

NOTICES

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.

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Exhibit 4.2

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement") is effective as of December 22, 2011, by and between Alvarion Ltd., a company incorporated under the laws of the State of Israel, with its principal offices at 21A Habarzel St. Tel Aviv, 69710 (the "Company"), and ______("Indemnitee"), residing at the address set forth beneath Indemnitee's signature to this Agreement.

Whereas, the Company and Indemnitee recognize the difficulty in obtaining full and adequate liability insurance for directors and other office holders, as such term is defined in the Israeli Companies Law, 1999 (collectively “Office Holders”), the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

Whereas, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting Office Holders to expensive litigation risks at the same time as the availability and coverage of liability insurance have been severely limited;

Whereas, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancement of expense to Indemnitee and to exempt Indemnitee from liability to the Company, all of the foregoing to the maximum extent permitted by law; and

Whereas, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and exempted by the Company, all as set forth herein; and

Whereas the Company has received, prior to the signing hereof, the approval of the Company’s audit committee, Board of Directors and the General Assembly of the shareholders, in accordance with the provisions of the Companies Law, 1999, for entering into this Agreement.

Now, therefore, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

a. Indemnification of Expenses. The Company shall indemnify Indemnitee, subject to, and to the fullest extent permitted by, law and subject to the limitations set forth in paragraphs 1 (b) and (c) in his capacity as Office Holder of the Company against any and all expenses, including attorneys' fees and all other costs, expenses and obligations reasonably incurred in connection with investigating, defending, being a witness or in participating in (including on appeal), or preparing to defend, or be a litigant in, any such action, suit, proceeding (including administrative proceeding), alternative dispute resolution mechanism, hearing, inquiry or investigation, judgments, and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld, and further provided that such settlement is confirmed by court decision), and which arise out of or in connection with any of the following: (i) a financial liability imposed on Indemnitee or in Indemnitee’s favor of another person by a court, including a settlement, judgment or an arbitrator's award approved by a court and (ii) reasonable costs of litigation, including attorney’s fees, expended by an Indemnitee as a result of an investigation or proceeding instituted against the Indemnitee by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against the Indemnitee or the imposition of any financial liability in lieu of criminal proceedings, or was concluded without the filing of an indictment against the Indemnitee and a financial liability was imposed on the Office Holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof of mens rea, and as further set forth in the Companies Law; (iii) for reasonable litigation expenses, including attorneys' fees, expended by an Indemnitee 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 (iv) a financial obligation imposed upon the Indemnitee and reasonable litigation expenses, including attorney fees, expended by the Indemnitee as a result of an administrative proceeding instituted against the Indemnitee to the fullest extent permitted by applicable law. Without derogating from the generality of the foregoing, such obligation or expense will include a payment which the Indemnitee is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 5728-1968 (the "Securities Law"), and expenses that the Indemnitee incurs 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. (collectively all of the above referred to as a “Claim”) (collectively, hereinafter "Expenses"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, provided that: (i) in respect of any specific Indemnifiable Event, the Expenses for which Indemnitee may be indemnified hereunder will not exceed, individually or in the aggregate, the Limit Amount (as defined below); and (ii) in respect of all Indemnifiable Events the Expenses for which Indemnitee may be indemnified hereunder will not exceed, in the aggregate, the amount of $8,000,000. Such payments of Expenses shall be made by the Company as soon as practicable but in any event no later than twenty (20) days after written demand by Indemnitee therefor is presented to the Company.

b. Indemnifiable Event; Limit Amounts. For the purpose of this Agreement, an Indemnifiable Event shall mean any event or occurrence falling, all or in part, within any one or more of the categories set forth in Exhibit A to this Agreement and related to the fact that Indemnitee is or was an Office Holder of the Company, including any occurance as aforesaid related to the Office Holder serving or having served, at the request of the Company, as an employee, consultant, Office Holder or agent of any subsidiary of the Company (regardless of whether it was a subsidiary of the Company at the time of the event giving rise to Claim), or any other corporation or partnership (any such other corporation or partnership an “affiliate”), by reason of any action or inaction on the part of Indemnitee while serving in such capacity. The Limit Amount shall be as set forth in section 1(a) above for each Director and Office Holder, limited by the said in Exhibit A for all Directors and Office Holders. The Indemnification provided herein shall not be subject to the foregoing limits, if and to the extent such limits are no longer required by Israeli law, provided they are amended as set forth herein and in accordance with Israeli law, then in effect. Without derogating from the foregoing, the Company hereby undertakes to employ its reasonable best efforts so that any subsidiary or affliate thereof shall (in addition to the Company’s undertakings hereunder) undertake to idemnify the Indemnitee, under substantialy the same terms provided hereunder, in connection with an occurence included in Annex A hereof, related to the Indemnitee being an Office Holder of such subsidiary or affliate, in an amount no less than the applicable Limit Amount for such an occurence hereunder, provided that the total indemnification amount actually received by the Indemnitee shall not exceed the sum the Indemnitee would have been entitled to get had the Indemnitee been indemnified solely by the Company under the terms of this Agreement.

c. Agreement is Subject to Applicable Law and Articles of Association. Notwithstanding the foregoing: (i) the obligations of the Company under Section 1(a) shall be subject to the provisions of applicable law and the Company’s Articles of Association applicable to idemnification of the Indemnitee and (ii) the obligation of the Company to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall be subject to the condition that, if, when and to the extent that a court of competent jurisdiction determines that Indemnitee should not be permitted to be so indemnified under applicable law, Indemnitee shall reimburse the Company in respect of all such amounts theretofore paid; and Indemnitee hereby agrees to reimburse the Company for all such amounts. d. Reserved. e. Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 8 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

2. Expenses; Indemnification Procedure.

a. Advancement of Expenses. Subject to applicable law, the Company shall advance an amount estimated by it to cover Indemnitee’s reasonable Expenses with respect to which Indemnitee is entitled to be indemnified under section 1 (a) above due to an Indemnifiable Event. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable, but in any event not later than thirty (30) days following Indemnitee’s written demand to the Company. However, if the actual expenses shall be lower than the amount advanced by the Company, the Indemnitee shall return to the Company all sums overpaid.

b. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which Indemnification will or could be sought under this Agreement, provided, however, that any failure to provide such notice shall not affect Indemnitee's rights to indemnification hereunder unless and to the extent such failure to provide notice materially and adversely prejudices the Company's right to defend against such action. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee), or if the Indemnitee is then the Chief Executive Officer of the Company, such notice shall be directed to the Chairman of the Company's Board of Directors, at the same address. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.

c. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgement, order, settlement (whether with or without court approval) or conviction, or upon a plea of guilty, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

d. Notice to Insurers. Without derogating from Section 1(a) above, if, at the time of the receipt by the Company of a notice of a claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.

e. Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such written confirmation and such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; the Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee provided any such settlement includes (i) a complete release and discharge of Indemnitee; (ii) does not contain any admittance of wrongdoing by Indemnitee; and (iii) is monetary only.

3. Additional Indemnification Rights; Nonexclusivity.

a. Scope. In the event of any change after the date of this agreement of any applicable law, statute or rule which expands the right of a corporation of the Company's state of incorporation to indemnify an Office Holder, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a corporation of the Company's country or state of incorporation to indemnify an Office Holder such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 8(a) hereof.

b. Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Memorandum and Articles of Association, as may from time to time be amended or replaced, any agreement, any vote of shareholders or disinterested directors, the laws of the Company's state of incorporation, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, payment made by a subsidiary of the Company or an affiliate, the Articles or Memorandum of Association or otherwise) of the amounts otherwise Indemnifiable hereunder (such amounts “Additional Payments”), except for the difference, if any, between the Additional Payments and the total Expenses incurred by Indemnitee in connection with such Claim. To the extent that the Indemnitee has received any Additional Payment, subsequent to receipt of Expenses from the Company in accordance with this Agreement, Indemnitee shall immediately and in any event no later than seven days subsequent to receipt of the Additional Payment, advise the Company of its receipt. For the avoidance of doubt, the Indemnitee shall reimburse the Company for all Expenses which, in accordance with this Section 4, the Company is not liable for, whether such Expenses were paid to Idemnitee prior or after receipt by Idemnitee of any Additional Payments.

5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of the Expenses incurred in connection with any Claim, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

6. Reserved.

7. Exemption. To the maximum extent permitted by law, the Company hereby exempts and releases Indemnitee from any and all liability to the Company related to any breach by Indemnitee of his or her duty of care to the Company.

8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

a. Excluded Acts and Omissions. To indemnify or exempt Indemnitee from or against any liability arising out of (i) Indemnitee's breach of fiduciary duty to the Company, unless Indemnitee has acted or omitted to act in good faith and had reasonable grounds to believe such action would not harm the Company's interests, (ii) intentional or reckless breach by Indemnitee of his or her duty of care to the Company; (iii) an action taken with the intention to unduly profit therefrom; or (iv) any fine or penalty payment to propitiate an offense. or

b. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except in specific cases if the Board of Directors has approved the initiation or bringing of such suit. or

c. Claims Under Section 16(B). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the extent such Section shall apply to the Company, or any similar successor or Israeli statute.

9. Reserved.

10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

11. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as an Office Holder of the Company or any other enterprise at the Company's request.

12. Reserved.

13. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given and shall in any event be deemed to be given: (a) five (5) business days after deposit with the applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee's address as set forth beneath Indemnitee's signature to this Agreement and if to the Company at the address of its principal corporate offices or at such other address as such party may designate by ten days' advance written notice to the other party hereto.

14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Israel for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the competent Courts of the Tel-Aviv District, which shall be the exclusive and only proper forum for adjudicating such a claim.

15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable, to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Israel, as applied to contracts between Israeli residents, entered into and to be performed entirely within the State of Israel, without regard to the conflict of laws principles thereof or of any other jurisdiction.

17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

18. Amendment and Termination. No amendment or modification, of this Agreement shall be effective unless it is in writing signed by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. This Agreement shall terminate upon the lapse of the of eight (8) years from the termination, for whatever reason, of the Indemnitee’s service with the Company, as an Office Holder.

19. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

20. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ or otherwise in the service of the Company or any of its subsidiaries.

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first written above.

Alvarion Ltd.

By: ______

AGREED TO AND ACCEPTED AS OF THE DATE FIRST WRITTEN ABOVE:

______

Address: ______

Exhibit A

INDEMNIFIABLE EVENTS AND LIMIT AMOUNTS

The Limit Amount in the event of an Indemnifiable Event is US$50,000,000 for all directors and Office Holders in the aggregate. Solely for the avoidance of doubt, it is hereby clarified, that unless otherwise explicitly stated in this Exhibit, any reference below to a claim or demand made shall be deemed to include a claim or demand made by way of a deriviative action, and shall further be deemed to include any claim or demand made by any person acting in a capacity of a: (i) liquidator; (ii) reciever; or (iii) trustee.

Indemnifiable Event

1. Any claim or demand made by customers, suppliers, contractors or other third parties transacting any form of business with the Company, its subsidiaries or affiliates, in the ordinary course of their respective businesses, relating to the negotiations or performance of such transactions, representations or inducements provided in connection thereto or otherwise.

2. Any claim or demand made in connection with any transaction not in the ordinary course of business of either the Company, its subsidiaries or affiliates or the party making such claim.

3. Any claim or demand made, pertaining to the Company or its subsidiaries or affiliates, in connection with: (i) any Merger, Tender Offer, Forced Sale of Shares, Arrangement and Compromise, within the meaning of such terms under the Israeli Companies Law, 1999, as amended from time to time or as replaced by any successor legislation; or (ii) any reorganization, merger or consolidation of whatever kind or nature within the meaning of any law applicable to such claim or demand; (iii) the sale, lease, purchase, acquisition or any other form of disposition, of any assets, business, securities, companies or other corporate entities.

4. Any claim or demand made by employees, consultants, agents or other individuals or entities employed by or providing services to the Company relating to compensation owed to them or damages or liabilities suffered by them in connection with such employment or service.

5. Any claim or demand made under any securities laws or by reference thereto, or related to the failure to disclose any information in the manner or time such information is required to be disclosed pursuant to such laws, or related to inadequate or improper disclosure of information to stockholders, or prospective stockholders, or related to the purchase, holding or disposition of securities of the Company or any other investment activity involving or effected by such securities.

6. Any claim or demand made for actual or alleged infringement, misappropriation or misuse of any third party's intellectual property rights by the Company, its subsidiaries or affiliates.

7. Any claim or demand made by any lenders or other creditors or for monies borrowed by, or other indebtedness of, the Company, its subsidiaries or affiliates.

8. Any claim or demand made by any third party suffering any personal injury or damage to business or personal property through any act or omission attributed to the Company, its subsidiaries or affiliates, or their respective employees, agents or other persons acting or allegedly acting on their behalf.

9. Any claim or demand made directly or indirectly in connection with complete or partial failure, by the Company or any subsidiary or affiliate thereof, or their respective directors, officers and employees, to pay, report, keep applicable records or otherwise, any foreign, federal, state, county, local, municipal or city taxes or other mandatory payments of any nature whatsoever, including, without limitation, income, sales, use, transfer, excise, sales, value added, registration, severance, stamp, occupation, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll or employee withholding or other withholding, including any interest, penalty or addition thereto, whether disputed or not.

10. Any claim or demand made by purchasers, holders, lessors or other users of products of the Company, or individuals treated with such products, for damages or losses related to such use or treatment.

11. Any administrative, regulatory or judicial actions, orders, decrees, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any governmental entity or other person alleging the failure to comply with any statute, law, ordinance, rule, regulation, order or decree of any governmental entity applicable to the Company or any of its subsidiaries, or any of their respective businesses or operations.

11 Exhibit 8.1 List of Subsidiaries –

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 UK Ltd. UK 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 International SA*** France Alvarion Spain SL Spain Alvarion Philippines*** Philippines Kermadec Telecom B.V. Holland 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 Alvarion GmbH Germany PT. Alvaritech Indonesia* Indonesia Alvarion Canada LTD Canada Wavion Inc.* USA Wavion Ltd.**** 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. *** Interwave Communications International SA and Alvarion Philippines are wholly-owned subsidiaries of Alvarion Mobile Inc. **** Wavion Ltd. is a wholly-owned subsidiary of Wavion Inc.

EXHIBIT 10.1

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of June 21st, 2011 (the “Effective Date”) is between (a) SILICON VALLEY BANK, a California corporation (“Bank”), and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Ltd”) and (ii) ALVARION, INC., a Delaware corporation (“Inc”) (Ltd and 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. 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.

(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.

2.1.2 Letters of Credit Sublimit.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit denominated in Dollars or a Foreign Currency for Borrower’s account. The aggregate Dollar Equivalent amount utilized for the issuance of Letters of Credit shall at all times reduce the amount otherwise available for Advances under the Revolving Line. The aggregate Dollar Equivalent of the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed the lesser of (A) Ten Million Dollars ($10,000,000), minus (i) the sum of all amounts used for Cash Management Services, and minus (ii) the FX Reduction Amount, or (B) the lesser of the Revolving Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Advances (including any amounts used for Cash Management Services), and minus (ii) the FX Reduction Amount

(b) If, on the Revolving Line Maturity Date (or the effective date of any termination of this Agreement), there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% (if the Letter of Credit is denominated in Dollars) or 110% (if the Letter of Credit is denominated in a Foreign Currency) of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith in accordance with this Agreement (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “Letter of Credit Application”). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake (other than gross negligence or willful misconduct of Bank), whether of omission or commission, in following Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto.

(c) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application.

(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the Dollar Equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges).

(e) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding.

2.1.3 Foreign Exchange Sublimit. The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the lesser of (A) Three Million Dollars ($3,000,000), minus (i) the sum of all amounts used for Cash Management Services, and minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), or (B) the lesser of the Revolving Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Advances (including any amounts used for Cash Management Services), and minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve). The amount otherwise available for Credit Extensions under the Revolving Line shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract (the “FX Reduction Amount”). Any amounts needed to fully reimburse Bank for any amounts not paid by Borrower in connection with FX Forward Contracts will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances.

2.1.4 Cash Management Services Sublimit. Borrower may use the Revolving Line for Bank’s cash management services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “Cash Management Services”), in an aggregate amount not to exceed the lesser of (A) Three Million Dollars ($3,000,000), minus (i) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (ii) the FX Reduction Amount, or (B) the lesser of the Revolving Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Advances, minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (iii) the FX Reduction Amount. Any amounts Bank pays on behalf of Borrower for any Cash Management Services will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances.

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2.1.5 Term Loan.

(a) Availability. Subject to the satisfaction of the terms and conditions of this Agreement, during the Draw Period, Bank shall make one (1) loan available (the “Term Loan”) to Borrower in an amount up to Twenty-Five Million Dollars ($25,000,000).

(b) Interest Period. Commencing on the first Payment Date of the month following the month in which the Funding Date of the Term Loan occurs, Borrower shall make monthly payments of interest, in arrears, on the principal amount of the Term Loan at the rate set forth in Section 2.3(a)(ii).

(c) Repayment. Commencing on the Amortization Date, and continuing on each Payment Date thereafter, Borrower shall repay the Term Loan in (i) thirty-six (36) equal installments of principal, plus (ii) monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the Term Loan, and all other outstanding Obligations with respect to the Term Loan (including the Early Termination Fee), are due and payable in full on the Term Loan Maturity Date. Any payment in full of the Obligations prior the Term Loan Maturity Date shall only include accrued interest through the date of prepayment of such principal and all other Obligations including the Early Termination Fee. Once repaid, the Term Loan may not be reborrowed.

2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall, upon notice from Bank, immediately pay to Bank in cash such excess.

2.3 Payment of Interest on the Credit Extensions.

(a) Interest Rate.

(i) Advances. 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 the LIBOR Rate plus four and one-half of one percent (4.50%), which interest rate shall be determined by the Bank as of the first Business Day of each quarter, for all times during such quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each quarter based upon the LIBOR Rate in effect on the first day of such quarter.

(ii) Term Loan. Subject to Section 2.3(b), the principal amount outstanding under the Term Loan shall accrue interest at a fixed rate per annum rate equal to the LIBOR Rate plus four and three-quarters of one percent (4.75%), which interest rate shall be determined by the Bank as of the first day of each quarter, for all times during such quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each quarter based upon the LIBOR Rate in effect on the first day of such quarter.

(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 (5.00%) 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.

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(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 commitment fee of One Hundred Fifty Thousand Dollars ($150,000), on the Effective Date;

(b) Anniversary Fee. A fully earned, non-refundable Anniversary Fee shall be earned as of the Effective Date, and shall be due and payable as follows: (i) on the date that is one (1) year from the Effective Date, and (ii) on the date that is two (2) years from the Effective Date;

(c) Early Termination Fee. The Revolving Line and/or the Term Loan 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 either the Revolving Line and/or the Term Loan 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 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.

(d) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance of such Letter of Credit, each anniversary of the issuance during the term of such Letter of Credit, and upon the renewal of such Letter of Credit by Bank; and

(e) 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.

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 Initial Credit Extension. Bank’s obligation to make the initial Credit Extension 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) duly executed original signatures to the Loan Documents;

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(b) the Debentures;

(d) Certificate of the Chief Financial Officer of Ltd with respect to articles, incumbency and resolutions authorizing the execution and delivery of this Agreement;

(e) Inc’s Operating Documents and a long form good standing certificate of 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 either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(h) the Perfection Certificate of each Borrower, together with the duly executed original signatures thereto;

(i) a legal opinion of Borrower ’s counsel (authority/enforceability) in form and substance acceptable to Bank;

(j) 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);

(k) consent to charge and security interest from all applicable Israeli banks and depository institutions;

(l) evidence satisfactory to Bank that all filings required to have been made pursuant to the Debentures, the Deed of Pledge and the other Loan Documents 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 prior to the initial Credit Extension shall have been taken and all consents and other authorizations shall have been obtained prior to the initial Credit Extension, all in accordance with the terms of the Debenture and the other Loan Documents; and

(m) 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, including the initial Credit Extension, is subject to the following conditions precedent:

(a) except as otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance Form;

(b) 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

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(c) 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 (other than Advances under Sections 2.1.2 or 2.1.4), 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.

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.

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 undertakes to create, 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, intellectual property, listed under Exhibit A-1, and other fixed assets and any tax benefit it may have, in accordance with a debenture of floating charge and fixed charge in the form of Debenture attached as Exhibit E and Exhibit E-1 respectively (jointly, the “Debentures” and each, a “Debenture”). In addition, Borrower undertakes to create within twenty (20) days of the end of each financial quarter, a first ranking fixed charge over each Account which is outstanding at such time and with respect of which Advances are or have been made, in accordance with a debenture of fixed charge in the form of the Debenture attached hereto as Exhibit E-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 or otherwise set forth on the Schedule of Exceptions attached as Exhibit E, which exceptions shall be deemed to be a part of and to qualify the representations and warranties to which they refer as of the Effective Date, provided such exception may not be amended or updated without the Bank’s written consent, 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.

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All Inventory is in all material respects of good and marketable quality, free from material defects.

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 in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible 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. All sales and other transactions underlying or giving rise to each Eligible 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 in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible 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 Intentionally Omitted.

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. Within twenty (20) days after the last day of each month in which an Advance is outstanding or an Advance request has been made (i) aged listings of accounts receivable and accounts payable (by invoice date) and (ii) Deferred Revenue report (the “Borrowing Base Reports”);

(b) Borrowing Base Certificate. Within twenty (20) days after the last day of each month in which an Advance is outstanding or an Advance request has been made and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

(c) Monthly Financial Statements. 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 (the “Monthly Financial Statements”);

(d) Monthly Compliance Certificate. Within thirty (30) days after the last day of each month (other than for a month ending on a fiscal quarter) and together with the Monthly Financial Statements, 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;

(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;

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(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, One Million Dollars ($1,000,000) 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; and

(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; and

(j) Other Financial Information. Other financial information reasonably requested by Bank.

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 One Million Dollars ($1,000,000).

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.

6.6 Operating Accounts.

(a) Inc. shall maintain its primary operating and depository accounts with Bank and Bank’s Affiliates. Ltd. shall maintain an operating account with Bank. Inc. shall make good faith efforts to maintain a majority of its US Dollar deposits with Bank and Bank’s Affiliates.

(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.

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6.7 Financial Covenants.

(a) Adjusted Quick Ratio. Commencing with the month ending March 31, 2011, and as of the last day of each month thereafter, an Adjusted Quick Ratio of at least 1.0 to 1.0.

(b) Minimum Net Profit. Borrower’s quarterly: (i) net losses shall not exceed (a) Eleven Million Dollars ($11,000,000) as of the quarter ending March 31, 2011, (b) Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2011, and (ii) net profit shall be at least (a) One Dollar ($1.00) as of the quarter ending September 30, 2011, (b) One Million Five Hundred Thousand Dollars ($1,500,000) as of the quarter ending December 31, 2012, and (c) Two Million Dollars ($2,000,000) as of the quarter ending March 31, 2012, and as of the last day of each quarter thereafter, all on a non-GAAP basis.

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.

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 no more often than once every twelve (12) months unless 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. The Initial Audit shall take place within ninety (90) after an Advance request has been made.

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.

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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 (including without limitation, Wavion), 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.

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; and (e) in connection with non-recourse sale of receivables up to Twenty-Five Million Dollars ($25,000,000) in the aggregate, and/or in connection with sales secured by letter of credits, 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.

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; or (c) 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).

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 (a) the acquisition of Wavion, provided that (i) Borrower is the surviving legal entity (and Wavion shall merge into the Borrower), and (ii) the consummation of the acquisition of Wavion will not otherwise result in an Event of Default, and (b) Permitted Acquisitions. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

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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.

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, 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;

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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 Five Million Dollars ($5,000,000); 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;

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 Five Million Dollars ($5,000,000) (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; or

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.

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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;

(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.

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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.

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.

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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.

If to Borrower: Alvarion Ltd. and Alvarion, Inc. 21a HaBarzel St. Tel Aviv, 69710, Israel Attn: Lior Shemesh Fax: +972-3-6456204 Email: [email protected]

If to Bank: Silicon Valley Bank 275 Grove Street, Suite 2-200 Newton, Massachusetts 02466

Attn: Mr. David Reich Fax: (617) 527-0177 Email: [email protected]

with a copy to: Riemer & Braunstein LLP Three Center Plaza Boston, Massachusetts 02108 Attn: David A. Ephraim, Esquire Fax: (617) 880-3456 Email: [email protected]

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.

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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.

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.

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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.

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.

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12.15 Execution by Inc. Borrower acknowledge, confirm and agree that if on or before August 15, 2011, this Agreement is not signed by Inc. and all conditions precedent set forth in Section 3.1 hereof have not been satisfied by Borrower, then the commitment fee in the amount of One Hundred Fifty Thousand Dollars ($150,000) set forth in Section 2.4(a) hereof shall be deemed fully earned and retained by Bank as a due diligence fee.

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:

“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.

“Amortization Date” is the date that is the first (1st) Payment Date following the three (3) month anniversary of the Funding Date of the Term Loan.

“Anniversary Fee” is an additional fee payable to the Bank, pursuant to Section 2.3(b) hereof, in an amount equal to 0.3% of the unused portion of the Revolving Line, as determined by the Bank, as of the Funding Date of the Term Loan.

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Advances.

“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.

“Borrower” is defined in the preamble hereof.

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“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 eighty percent (80.0%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing percentage 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.

“Borrowing Base Certificate” is that certain certificate in the form attached hereto as Exhibit C.

“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.

“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.

“Cash Management Services” is defined in Section 2.1.4.

“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 Ltd. 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 D.

“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.

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“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, Letter of Credit, Term Loan, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for Borrower’s benefit.

“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.

“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 ______, maintained with Bank.

“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 either the Revolving Line and/or the Term Loan is terminated pursuant to Section 2.4(c), on or prior to the date that is twelve (12) months following the Effective Date, Three Hundred Thousand Dollars ($300,000); and

(b) if either the Revolving Line and/or the Term Loan is terminated pursuant to Section 2.4(c), after the date that is twelve (12) months following the Effective Date, but on or prior to the date that is twenty-four (24) months following the Effective Date, Two Hundred Twenty-Five Thousand Dollars ($225,000); and

(c) if either the Revolving Line and/or the Term Loan is terminated pursuant to Section 2.4(c), after the date that is twenty-four (24) months following the Effective Date, but on or prior to the date that is thirty-six (36) months following the Effective Date, One Hundred Fifty Thousand Dollars ($150,000).

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Notwithstanding anything in this Agreement to the contrary, in the event that either the Revolving Line and/or the Term Loan 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) 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:

(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;

(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 Inc. or the State of Israel for 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);

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(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);

(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; and

(y) Accounts which constitute Permitted Factoring.

“Eligible Extended Accounts” Accounts for which the Account Debtor not paid between ninety-one (91) days and one hundred twenty days (120) of invoice date, but are otherwise Eligible Accounts; provided that the total Advances relating thereto do not exceed Six Million Dollars ($6,000,000.00).

“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.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

“Event of Default” is defined in Section 8.

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

“Foreign Currency” means lawful money of a country other than the United States.

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“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 Business Day” is any day when (a) Bank’s Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.

“FX Forward Contract” is defined in Section 2.1.3.

“FX Reduction Amount” is defined in Section 2.1.3.

“FX Reserve” is defined in Section 2.1.3.

“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 Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books with results satisfactory to Bank in its sole and absolute discretion.

“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;

(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know -how, operating manuals;

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(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 Inc to Bank, as amended, modified or restated from time to time, and (b) that certain Intellectual Property Security Agreement dated as of the Effective Date, executed and delivered by Ltd to Bank, as amended, modified or restated from time to time.

“Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(b).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(e).

“LIBOR” means, as of the first day of the applicable quarter, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 1/10,000th of one percent (0.0001%)) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior the period approximately equal to three (3) months and in an amount approximately equal to the aggregate amount of outstanding Credit Extensions.

“LIBOR Rate” means, for each three-month period, an interest rate per annum (rounded upward, if necessary, to the nearest 1/10,000th of one percent (0.0001%)) equal to LIBOR for such three-month period divided by one (1) minus the Reserve Requirement for such three-month period.

“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, the IP Agreement, the Debentures, 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.

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“Maturity Date” is the Revolving Line Maturity Date or the Term Loan Maturity Date, as applicable.

“Monthly Financial Statements” is defined in Section 6.2(c).

“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.

“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 Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform 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 first calendar day of each month.

“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.

“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;

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(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 Twelve Million Dollars ($12,000,000) in the aggregate, provided that that aggregate amount of all such credit lines with other financial institutions, excluding foreign exchange activities, shall not exceed Twenty Million Dollars ($20,000,000); and

(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.

“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;

(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;

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(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; and

(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.

“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.

“Quick Assets” is, on any date, Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP.

“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.

“Reserve Requirement” means, for any three-month period, the average maximum rate at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D against “Eurocurrency liabilities” (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of LIBOR or (b) any category of extensions of credit or other assets which include Credit Extensions.

“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 amount equal to Thirty Million Dollars ($30,000,000), minus the aggregate outstanding amount of the Term Loan.

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“Revolving Line Maturity Date” is ______, 2014 [3 years from the Effective Date].

“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.

“Settlement Date” is defined in Section 2.1.3.

“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.

“Term Loan” is defined in Section 2.1.5(a).

“Term Loan Maturity Date” is the Payment Date that is thirty-five (35) months after the Amortization Date.

“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.

“Transfer” is defined in Section 7.1.

“Western Europe” means the United Kingdom, Ireland, Spain, Italy, Portugal, France, Germany, Switzerland, Belgium, The Netherlands, Norway, Sweden, Finland, Poland, Greece and Denmark.

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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:______

BANK:

SILICON VALLEY BANK

By______Name:______Title:______

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.

EXHIBIT B – LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS NOON EASTERN TIME*

Fax To: Date: ______

LOAN PAYMENT:

ALVARION LTD. ALVARION, INC.

From Account #______To Account #______(Deposit 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

Beneficiary Name: ______Amount of Wire: $______Beneficiary Bank: ______Account Number:______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 #:______

∗ Unless otherwise provided for an Advance bearing interest at LIBOR.

EXHIBIT C - BORROWING BASE CERTIFICATE

Borrower: Alvarion Ltd. and Alvarion, Inc. Lender: Silicon Valley Bank Commitment Amount: $30,000.000

ACCOUNTS RECEIVABLE 1.Accounts Receivable (invoiced) Book Value as of ______$______2.Additions (please explain on next page) $______3.Less: Intercompany / Employee / Non-Trade Accounts $______4.NET TRADE ACCOUNTS RECEIVABLE $______

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 5.90 Days Past Invoice Date (except for the Eligible Extended Accounts) $______6.Credit Balances over 90 Days (except for the Eligible Extended Accounts) $______7.Balance of 50% over 90 Day Accounts (cross-age or current affected) (except for the Eligible Extended Accounts) $______8.Foreign Account Debtor Accounts $______9.Foreign Invoiced and/or Collected Accounts $______10.Contra/Customer Deposit Accounts $______11.U.S. Government Accounts $______12.Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts $______13.Accounts with Memo or Pre-Billings $______14.Contract Accounts; Accounts with Progress/Milestone Billings $______15.Accounts for Retainage Billings $______16.Trust / Bonded Accounts $______17.Bill and Hold Accounts $______18.Unbilled Accounts $______19.Non-Trade Accounts (if not already deducted above) $______20.Accounts with Extended Term Invoices (Net 90+) (except for the Eligible Extended Accounts) $______21.Chargebacks Accounts / Debit Memos $______22.Product Returns/Exchanges $______23.Disputed Accounts; Insolvent Account Debtor Accounts $______24.Deferred Revenue $______25.Deferred Revenue, if applicable/Other (please explain on next page) $______26.Concentration Limits $______27.TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______28.Eligible Accounts (#3 minus #24) $______29.ELIGIBLE AMOUNT OF ACCOUNTS (80% of #25) $______

BALANCES 30.Maximum Loan Amount $______31.Total Funds Available (Lesser of #29 or #30) $______32.Present balance owing on Line of Credit $______33.Outstanding under Sublimits $______34.RESERVE POSITION (#31 minus #32 and #33) $______

[Continued on following page.]

Explanatory comments from previous page:

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

BANK USE ONLY

COMMENTS: Received by: ______

AUTHORIZED SIGNER

Date: ______By: ______Verified: ______Authorized Signer AUTHORIZED SIGNER Date: ______Date: ______Compliance Status: Yes No

EXHIBIT D

COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK Date:______FROM: ALVARION LTD. AND ALVARION, INC.

The undersigned authorized officer of Alvarion Ltd. and Alvarion, Inc. (collectively, the “Borrower”) certifies that under the terms and conditions of the 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.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant Required Complies

Monthly financial statements with Monthly within 30 days Yes No Compliance Certificate 20-F and 6-K Within 5 days after filing with SEC Yes No Borrowing Base Certificate A/R & A/P Agings and Deferred Revenue report Monthly within 20 days (when an Advance is outstanding or Yes No an Advance request has been made) Board approved projections Within 40 days of FYE Yes No

The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”) ______

Financial Covenant Required Actual Complies

Minimum Adjusted Quick Ratio (Monthly) 1.0:1.0 _____:1.0 Yes No Minimum Net Profit (Quarterly) $ * $ Yes No

*As set forth in Section 6.7(b) of the Agreement.

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.”)

Alvarion Ltd. BANK USE ONLY

By: ______Received by: ______Name: ______AUTHORIZED SIGNER Title: ______Date: ______

Verified: ______Alvarion, Inc. AUTHORIZED SIGNER Date: ______By: ______Name: ______Compliance Status: Yes No Title: ______

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated: ______

I. Adjusted Quick Ratio (Section 6.7(a))

Required: 1.00:1.00

Actual:

A. Aggregate value of Borrower’s unrestricted cash $______

B. Aggregate value of Borrower’s gross accounts receivable, determined according to GAAP $______

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) ______

Is line I equal to or greater than 1.00:1:00?

______No, not in compliance ______Yes, in compliance

II. Minimum Net Profit (Section 6.7(b)):

Required: Borrower’s quarterly: (i) net losses shall not exceed (a) Eleven Million Dollars ($11,000,000) as of the quarter ending March 31, 2011, (b) Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2011, and (ii) net profit shall be at least (a) One Dollar ($1.00) as of the quarter ending September 30, 2011, (b) One Million Five Hundred Thousand Dollars ($1,500,000) as of the quarter ending December 31, 2012, and (c) Two Million Dollars ($2,000,000) as of the quarter ending March 31, 2012, and as of the last day of each quarter thereafter.

Actual: ______

______No, not in compliance ______Yes, in compliance

EXHIBIT E

[Debenture]

EXHIBIT E-1

[Debenture]

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 10.2

FIRST LOAN MODIFICATION AGREEMENT

This First Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of November 17, 2011, by and between (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Ltd”), and (ii) ALVARION, INC., a Delaware corporation (“Inc”) (Ltd and Inc are hereinafter jointly and severally, individually and collectively, referred to as “Borrower”).

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by (a) the Collateral as described in the Loan Agreement and (b) the Intellectual Property Collateral as defined in that certain Intellectual Property Security Agreement dated as of June 21, 2011, between Ltd and Bank (as amended, the “Ltd IP Agreement”), and (c) the Intellectual Property Collateral as defined in that certain Intellectual Property Security Agreement dated as of June 21, 2011, between Alvarion Israel (2003) Ltd. (“2003”) and Bank (as amended, the “2003 IP Agreement”) (together with any other collateral security granted to Bank, the “Security Documents”). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1 The Loan Agreement shall be amended by deleting the text appearing in each of (i) Section 2.1.2 (entitled “Letters of Credit Sublimit”), (ii) Section 2.1.3 (entitled “Foreign Exchange Sublimit”), and (iii) Section 2.1.4 (entitled “Cash Management Services Sublimit”) in their entirety and inserting in lieu of each of the foregoing “Intentionally Omitted”.

2 The Loan Agreement shall be amended by deleting the following provision appearing as Section 2.2 (Overadvances) thereof:

“ 2.2 Overadvances. If, at any time, the sum of (a) the outstanding principal amount of any Advances (including any amounts used for Cash Management Services), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall, upon notice from Bank, immediately pay to Bank in cash such excess.”

and inserting in lieu thereof the following:

“ 2.2 Overadvances. If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.”

3 The Loan Agreement shall be amended by deleting the following text appearing as Section 2.4(d) (entitled “Letter of Credit Fee”) thereof:

“ (d) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance of such Letter of Credit, each anniversary of the issuance during the term of such Letter of Credit, and upon the renewal of such Letter of Credit by Bank; and”

and inserting in lieu thereof the following:

“ (d) Intentionally Omitted.; and”

4 The Loan Agreement shall be amended by deleting the following provision appearing as Section 3.4 (Procedures for Borrowing) thereof:

“ 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 (other than Advances under Sections 2.1.2 or 2.1.4), 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.”

and inserting in lieu thereof the following:

“ 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.”

5 The Loan Agreement shall be amended by inserting the following text to appear at the end of Section 4.1 (Grant of Security Interest) 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.”

6 The Loan Agreement shall be amended by inserting the following provision to appear as Section 6.14 (Wavion Acquisition) thereof:

“ 6.14 Wavion Acquisition. Within three (3) days of the consummation of the Wavion Acquisition, Borrower shall deliver to Bank evidence, satisfactory to Bank in its sole discretion, that all the assets of Wavion are free and clear of all Liens.”

7 The Loan Agreement shall be amended by deleting the following provision appearing as Section 8.2(a) thereof:

“(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, 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”

and inserting in lieu thereof:

“(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 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”

8 The Loan Agreement shall be amended by inserting the following text at the end of Section 12.8 (Survival) thereof:

“ 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.”

9 The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

“ “Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the Dollar Equivalent amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Advances.”

“ “Credit Extension” is any Advance, Letter of Credit, Term Loan, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for Borrower’s benefit.”

“ “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.”

“ “FX Forward Contract” is defined in Section 2.1.3.”

“ “Letter of Credit” means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2.”

“ “Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the IP Agreement, the Debentures, 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.”

“ “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 Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents).”

“ “Quick Assets” is, on any date, Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP.”

“ “Revolving Line Maturity Date” is June 21, 2014.” and inserting in lieu thereof the following:

“ “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.”

“ “Credit Extension” is any Advance, Term Loan, or any other extension of credit by Bank for Borrower’s benefit.”

“ “Draw Period” is the period of time from the Effective Date through the earlier to occur of (a) December 31, 2011 or (b) an Event of Default.”

“ “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.”

“ “Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower.”

“ “Loan Documents” are, collectively, this Agreement, the Perfection Certificate, any Bank Services Agreement, the IP Agreement, the Debentures, 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.”

“ “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.”

“ “Quick Assets” is, on any date, Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP, excluding allowances for doubtful debt and any obligations of Nortel to Borrower.”

“ “Revolving Line Maturity Date” is the Term Loan Maturity Date.”

10 The Loan Agreement shall be amended by inserting the following new definitions to appear alphabetically in Section 13.1 thereof:

“ “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.”

“ “Wavion” is collectively, Wavion Ltd and Wavion Inc.”

“ Wavion Acquisition” means the acquisition by Borrower of Wavion.”

11 The Borrowing Base Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Borrowing Base Certificate attached as Schedule 1 hereto.

12 The Compliance Certificate appearing as Exhibit D to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Schedule 2 hereto.

4. FEES. Borrower shall reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

5. CONSENT. Borrower has notified Bank that it has acquired (i) Wavion Ltd. and (ii) Wavion Inc. ((i) and (ii) collectively, the “Acquisition”); with the Acquisition resulting in, among other things: (x) Borrower being a surviving legal entity, (y) Wavion Inc. merging with and into Inc., and (z) Wavion Ltd. become a wholly owned subsidiary of Ltd. Borrower has requested and Bank has consented to the Acquisition, provided that, (1) after the Acquisition, Borrower shall continue to be a surviving legal entity, (2) no Indebtedness shall assumed by Borrower in connection with the Acquisition (except in connection with leases for automobiles and office locations), (3) the consummation of the Acquisition will not otherwise result in an Event of Default, as defined in the Loan Agreement, after giving effect to such Acquisition, and (4) Borrower shall deliver to Bank, on or before January 15, 2012, a Joinder Agreement and Debentures, in form and substance acceptable to Bank in its sole discretion, together with any documents and agreements as may be requested by Bank in order to provide Bank with a first priority security interest in all assets of Wavion Ltd.

6. RATIFICATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENTS.

(a) Ltd hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Ltd IP Agreement, and acknowledges, confirms and agrees that the Ltd IP Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined in the Ltd IP Agreement, and shall remain in full force and effect.

(b) 2003 hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the 2003 IP Agreement, and acknowledges, confirms and agrees that the 2003 IP Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined in the 2003 IP Agreement, and shall remain in full force and effect.

7. RATIFICATION OF PERFECTION CERTIFICATES.

(a) Ltd hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate of Ltd dated as of June 21, 2011, and acknowledges, confirms and agrees that the disclosures and information Ltd provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

(b) Inc hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate of Inc dated as of August 15, 2011, and acknowledges, confirms and agrees that the disclosures and information Inc provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

8. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

9. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

10. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

11. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[The remainder of this page is intentionally left blank]

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

BORROWER: BANK:

ALVARION LTD. SILICON VALLEY BANK

By:______By:______

Name:______Name:______

Title:______Title:______

ALVARION, INC.

By:______

Name:______

Title:______

The undersigned, Alvarion Israel (2003) Ltd., a company organized under the laws of the State of Israel, hereby (i) ratifies, confirms, and reaffirms, all an singular, the terms and conditions of (A) the Secured Guarantee dated as of June 21, 2011 (the “Guarantee”), and (B) the 2003 IP Agreement; (ii) acknowledges, confirms and agrees that the Guarantee and the 2003 IP Agreement shall remain in full force and effect and shall in no way be limited by the execution of this Loan Modification Agreement or any other documents, instruments and/or agreements executed and/or delivered in connection herewith; and (iii) acknowledges, confirms and agrees that the Obligations of Borrower to Bank under the Guarantee include, without limitation, all Obligations of Borrower to Bank under the Loan Agreement, as amended by the Loan Modification Agreement.

ALVARION ISRAEL (2003) LTD.

By:______

Name:______

Title:______

Schedule 1

EXHIBIT C - BORROWING BASE CERTIFICATE

Borrower: Alvarion Ltd. and Alvarion, Inc.

Lender: Silicon Valley Bank

Commitment Amount: $30,000.000

ACCOUNTS RECEIVABLE 1. Accounts Receivable (invoiced) Book Value as of ______$______2. Additions (please explain on next page) $______3. Less: Intercompany / Employee / Non -Trade Accounts $______4. NET TRADE ACCOUNTS RECEIVABLE $______

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 5. 90 Days Past Invoice Date (except for the Eligible Extended Accounts) $______6. Credit Balances over 90 Days (except for the Eligible Extended Accounts) $______7. Balance of 50% over 90 Day Accounts (cross -age or current affected) (except for the Eligible Extended Accounts) $______8. Foreign Account Debtor Accounts $______9. Foreign Invoiced and/or Collected Accounts $______10. Contra/Customer Deposit Accounts $______11. U.S. Government Accounts $______12. Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts $______13. Accounts with Memo or Pre -Billings $______14. Contract Accounts; Accounts with Progress/Milestone Billings $______15. Accounts for Retainage Billings $______16. Trust / Bonded Accounts $______17. Bill and Hold Accounts $______18. Unbilled Accounts $______19. Non-Trade Accounts (if not already deducted above) $______20. Accounts with Extended Term Invoices (Net 90+) (except for the Eligible Extended Accounts) $______21. Chargebacks Accounts / Debit Memos $______22. Product Returns/Exchanges $______23. Disputed Accounts; Insolvent Account Debtor Accounts $______24. Deferred Revenue $______25. Deferred Revenue, if applicable/Other (please explain on next page) $______26. Concentration Limits $______27. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______28. Eligible Accounts (#3 minus #24) $______29. ELIGIBLE AMOUNT OF ACCOUNTS (80% of #25) $______

BALANCES 30. Maximum Loan Amount $______31. Total Funds Available (Lesser of #29 or #30) $______32. Present balance owing on Line of Credit $______33. RESERVE POSITION (#31 minus #32) $______

[Continued on following page.]

Explanatory comments from previous page: ______

BANK USE ONLY COMMENTS: Received by: ______AUTHORIZED SIGNER Date: ______By: ______Verified: ______Authorized Signer AUTHORIZED SIGNER Date:______Date: ______Compliance Status: Yes No

Schedule 2

EXHIBIT D

COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK Date: ______FROM: ALVARION LTD. AND ALVARION, INC.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant Required Complies

Monthly financial statements with Monthly within 30 days Yes No Compliance Certificate 20-F and 6-K Within 5 days after filing with SEC Yes No Borrowing Base Certificate A/R & A/P Agings and Deferred Revenue report Monthly within 20 days (when an Advance is outstanding or an Yes No Advance request has been made) Board approved projections Within 40 days of FYE Yes No

The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”) ______

Financial Covenant Required Actual Complies

Minimum Adjusted Quick Ratio (Monthly) 1.0:1.0 _____:1.0 Yes No Minimum Net Profit (Quarterly) $ * $ Yes No

*As set forth in Section 6.7(b) of the Agreement.

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.”) ______

Alvarion Ltd. BANK USE ONLY

Received by: ______By: AUTHORIZED SIGNER Name: Date: ______Title: Verified: ______AUTHORIZED SIGNER Alvarion, Inc. Date: ______

By: ______Compliance Status: Yes No Name: ______Title: ______

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated: ______

I. Adjusted Quick Ratio (Section 6.7(a))

Required: 1.00:1.00

Actual:

A. Aggregate value of Borrower’s unrestricted cash $ ______

B. Aggregate value of Borrower’s gross accounts receivable, determined according to GAAP, excluding doubtful debt and any obligations of Nortel to Borrower $ ______

C. Quick Assets (the sum of lines A and B) $ ______

D. Aggregate value of all Obligations of Borrower to Bank $ ______

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) ______

Is line I equal to or greater than 1.00:1:00?

______No, not in compliance ______Yes, in compliance

II. Minimum Net Profit (Section 6.7(b)):

**Note for purposes of clarity, “Net Profit” means EBITDA minus unfinanced capital expenditures.

Actual: ______

______No, not in compliance ______Yes, in compliance

Exhibit 10.3

SECOND LOAN MODIFICATION AGREEMENT

This Second Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of ______, 2012, by and between (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Ltd”), and (ii) ALVARION, INC., a Delaware corporation (“Inc”) (Ltd and Inc are hereinafter jointly and severally, individually and collectively, referred to as “Borrower”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of June 21, 2011, evidenced by, among other documents, a certain Loan and Security Agreement dated as of June 21, 2011, between Borrower and Bank, as amended by a certain First Loan Modification Agreement dated as of November 17, 2011, between Borrower and Bank (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1 The Loan Agreement shall be amended by deleting the following provisions appearing as Section 2.3(a) thereof:

“(a) Interest Rate.

(i) Advances. 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 the LIBOR Rate plus four and one-half of one percent (4.50%), which interest rate shall be determined by the Bank as of the first Business Day of each quarter, for all times during such quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each quarter based upon the LIBOR Rate in effect on the first day of such quarter.

and inserting in lieu thereof the following:

“(a) Interest Rate.

(i) Advances. 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 the LIBOR Rate plus four and one-half of one percent (4.50%), which interest rate shall be determined by the Bank as of the first day of each calendar quarter, for all times during such calendar quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first day of such calendar quarter.

(ii) Term Loan. Subject to Section 2.3(b), the principal amount outstanding under the Term Loan shall accrue interest at a fixed rate per annum rate equal to the LIBOR Rate plus four and three-quarters of one percent (4.75%), which interest rate shall be determined by the Bank as of the first day of each calendar quarter, for all times during such calendar quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first day of such calendar quarter.”

2 The Loan Agreement shall be amended by deleting the following provision appearing as Section 6.2(c) thereof:

“ (c) Monthly Financial Statements. 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 (the “Monthly Financial Statements”);”

and inserting in lieu thereof the following:

“ (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 satisfies 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 and each of its Subsidiary’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”.

3 The Loan Agreement shall be amended by inserting the following new provision to appear as Section 6.2(k) thereof:

“ (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.

4 The Loan Agreement shall be amended by deleting the following provision appearing as Section 6.7(b) (entitled “Financial Covenants”) thereof:

“ (b) Minimum Net Profit. Borrower’s quarterly: (i) net losses shall not exceed (a) Eleven Million Dollars ($11,000,000) as of the quarter ending March 31, 2011, (b) Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2011, and (ii) net profit shall be at least (a) One Dollar ($1.00) as of the quarter ending September 30, 2011, (b) One Million Five Hundred Thousand Dollars ($1,500,000) as of the quarter ending December 31, 2012, and (c) Two Million Dollars ($2,000,000) as of the quarter ending March 31, 2012, and as of the last day of each quarter thereafter, all on a non-GAAP basis.”

and inserting in lieu thereof the following:

“ (b) Minimum Net Profit. Borrower’s quarterly: (i) net losses shall not exceed (a) Eleven Million Dollars ($11,000,000) as of the quarter ending March 31, 2011, (b) Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2011, (ii) net profit shall be at least One Dollar ($1.00) as of the quarter ending September 30, 2011, (iii) net losses shall not exceed (a) One Million Three Hundred Fifty Thousand Dollars ($1,350,000) as of the quarter ending December 31, 2011, and (b) Five Hundred Thousand Dollars ($500,000) as of the quarter ending March 31, 2012, and (iv) net profit shall be at least Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2012, and as of the last day of each quarter thereafter, all on a non-GAAP basis.”

5 The Loan Agreement shall be amended by deleting the following text appearing in Section 6.10 (entitled “Access to Collateral; Books and Records”) thereof:

“ The Initial Audit shall take place within ninety (90) after an Advance request has been made.”

and inserting in lieu thereof the following:

“ The Initial Audit shall take place on or before April 30, 2012.”

6 The Loan Agreement shall be amended by inserting the following text to appear at the end of Section 6.13 (entitled “Formation or Acquisition of Subsidiaries”) thereof:

“ This Section 6.13 shall only apply to Wavion if Borrower shall fail to provide Bank with evidence that Wavion has merged with and into Borrower and all assets of Wavion have been transferred to Borrower on or before April 30, 2012.”

7 The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

“ “LIBOR” means, as of the first day of the applicable quarter, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 1/10,000th of one percent (0.0001%)) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior the period approximately equal to three (3) months and in an amount approximately equal to the aggregate amount of outstanding Credit Extensions.”

“ “Quick Assets” ” is, on any date, Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP, excluding allowances for doubtful debt and any obligations of Nortel to Borrower.”

and inserting in lieu thereof the following:

“ “LIBOR” means, as of the first day of the applicable calendar quarter, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 1/10,000th of one percent (0.0001%)) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior the period approximately equal to three (3) months and in an amount approximately equal to the aggregate amount of outstanding Credit Extensions.

“ “Quick Assets” is on any date the Borrower’s unrestricted cash and gross accounts receivable, determined according to GAAP, excluding allowances for doubtful debt and any obligations of Nortel to Borrower; provided however for each month in which Borrower satisfies the Percentage Requirement, Quick Assets shall be defined as on any date the Borrower’s consolidated unrestricted cash and gross accounts receivable, determined according to GAAP, excluding allowances for doubtful debt and any obligations of Nortel to Borrower.”

8 The Loan Agreement shall be amended by inserting the following new definition to appear in Section 13.1 thereof:

“ “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.”

9 The Compliance Certificate appearing as Exhibit D to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Schedule 1 hereto.

4. FEES. Borrower shall pay to Bank a modification fee equal to Twenty Thousand Dollars ($20,000.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

5. RATIFICATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENTS.

6. RATIFICATION OF PERFECTION CERTIFICATES.

7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

8. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

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This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

BORROWER: BANK:

ALVARION LTD. SILICON VALLEY BANK

By:______By:______

Name:______Name:______

Title:______Title:______

ALVARION, INC.

By:______

Name:______

Title:______

ALVARION ISRAEL (2003) LTD.

By:______

Name:______

Title:______

Schedule 1

EXHIBIT D

COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK Date: ______FROM: ALVARION LTD. AND ALVARION, INC.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant Required Complies

Monthly financial statements with Monthly within 30 days Yes No Compliance Certificate 20-F and 6-K Within 5 days after filing with SEC Yes No Borrowing Base Certificate A/R & A/P Agings and Deferred Revenue report Monthly within 20 days (when an Advance is outstanding or an Yes No Advance request has been made) Board approved projections Within 40 days of FYE Yes No List of Accounts and Cash Balances Monthly within 30 days Yes No

The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”) ______

Financial Covenant Required Actual Complies

Minimum Adjusted Quick Ratio (Monthly) 1.0:1.0 _____:1.0 Yes No Minimum Net Profit (Quarterly) $ * $ Yes No

*As set forth in Section 6.7(b) of the Agreement.

Percentage Requirement Complies

Greater than 80% of all Accounts Receivable are billed and payable to Borrower Yes No Greater than 80% of all unrestricted cash of Borrower and its Subsidiaries are maintained in the name of Borrower Yes No

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.”) ______

Alvarion Ltd. BANK USE ONLY

Received by: ______By: ______AUTHORIZED SIGNER Name: ______Date: ______Title: ______Verified: ______AUTHORIZED SIGNER Date: ______Alvarion, Inc. Compliance Status: Yes No By: ______Name: ______Title: ______

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated: ______

I. Adjusted Quick Ratio (Section 6.7(a))

Required: 1.00:1.00

Actual:

A. Aggregate value of Borrower’s unrestricted cash $ ______

B. Aggregate value of Borrower’s gross accounts receivable, determined according to GAAP, excluding doubtful debt and any obligations of Nortel to Borrower $ ______

C. Quick Assets (the sum of lines A and B) $ ______

D. Aggregate value of all Obligations of Borrower to Bank $ ______

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) ______

Is line I equal to or greater than 1.00:1:00?

______No, not in compliance ______Yes, in compliance

II. Minimum Net Profit (Section 6.7(b)):

Required: Borrower’s quarterly: (i) net losses shall not exceed (a) Eleven Million Dollars ($11,000,000) as of the quarter ending March 31, 2011, (b) Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2011, (ii) net profit shall be at least One Dollar ($1.00) as of the quarter ending September 30, 2011, (iii) net losses shall not exceed (a) One Million Three Hundred Fifty Thousand Dollars ($1,350,000) as of the quarter ending December 31, 2011, and (b) Five Hundred Thousand Dollars ($500,000) as of the quarter ending March 31, 2012, and (iv) net profit shall be at least Two Million Dollars ($2,000,000) as of the quarter ending June 30, 2012, and as of the last day of each quarter thereafter, all on a non-GAAP basis

**Note for purposes of clarity, “Net Profit” means EBITDA minus unfinanced capital expenditures.

Actual: ______

______No, not in compliance ______Yes, in compliance

Exhibit 10.4

THIRD LOAN MODIFICATION AGREEMENT

This Third Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of February __, 2012, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Ltd”) and (ii) ALVARION, INC., a Delaware corporation (“Inc”) (Ltd and Inc are hereinafter jointly and severally, individually and collectively, referred to as “Borrower”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of June 21, 2011, evidenced by, among other documents, a certain Loan and Security Agreement dated as of June 21, 2011, among Borrower and Bank (as amended from time to time, including without limitation by the First Loan Modification Agreement dated as of November 17, 2011, and the Second Loan Modification Agreement dated as of March 21, 2012 the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by (a) the Collateral as defined in the Loan Agreement, and (b) the Intellectual Property Collateral as defined in that certain Intellectual Property Security Agreement dated as of June 21, 2011, between Borrower and Bank (as amended, the “Borrower IP Agreement”, and together with any other collateral security granted to Bank, the “Security Documents”). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3. DESCRIPTION OF CHANGE IN TERMS.

Modifications to Loan Agreement.

1 The Loan Agreement shall be amended by deleting the following text, appearing as Section 6.2(c) thereof (as amended by the Second Loan Modification Agreement):

and inserting in lieu thereof the following:

” (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 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”

2 The Loan Agreement shall be amended by adding the following new text, to appear following Section 6.2(k) thereof:

“(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 Ltd. and Mizrahi Tefahot Bank Ltd, dated March 29 2012 and all ancillary documents thereto ("MTB Agreement")”

3 The Loan Agreement shall be amended by adding the following new text, to appear at the end of Section 6.6(a) thereof:

" the amounts deposited in the Ltd’s account opened at Mizrahi Tefahot Bank pursuant to the MTB Agreement will be freely transferrable to any other account of Ltd., after deduction of all amounts due to Mizrahi Tefahot Bank under the MTB Agreement. The Loan Agreement shall be amended by deleting the following text, appearing in Section 7.1(e) thereof:

"(e) in connection with non-recourse sale of receivables up to Twenty-Five Million Dollars ($25,000,000) in the aggregate, and/or in connection with sales secured by letter of credits, if any, issued in favor of Borrower on behalf of the account debtor that specifically supports such receivable (“Permitted Factoring”)"

and inserting in lieu thereof the following:

"(e) in connection with non-recourse sale of accounts receivables in the amount of up to Twenty-Five Million Dollars ($25,000,000) in the aggregate [for the avoidance of any doubt, the face amount of such accounts receivables shall not exceed the foregoing aggregate amount], and/or in connection with sales secured by letter of credits, if any, issued in favor of Borrower on behalf of the account debtor that specifically supports such receivable (“Permitted Factoring”)"

4 The Loan Agreement shall be amended by inserting the following new definition appearing alphabetically in Section 13.1 thereof:

“ “Exempted Accounts” means any and all such Xplornet Communication Inc. Accounts of Ltd, to the extent and as long as they are released by the Bank from the scope of the Debentures in accordance with the provisions of the Consent Letter dated March 28th, 2012.”

5 The Loan Agreement shall be amended by adding the following text at the end of the definition of “Borrowing Base” appearing in Section 13.1 thereof:

“ In addition, the Borrowing Base shall not contain any Exempted Accounts.”

6 The Loan Agreement shall be amended by adding the following text at the end of the definition of “Quick Assets” appearing in Section 13.1 thereof:

“ , except for any Exempted Accounts.”

7 The Loan Agreement shall be amended by deleting the following text from sub-section (h) of the definition of “Permitted Indebtedness” appearing in Section 13.1 thereof:

and inserting in lieu thereof the following:

“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 Nine Million Dollars ($9,000,000) in the aggregate, which includes, for the avoidance of any doubt, the amount of Two Hundred and Fifty Thousand Dollars ($250,000) deposited in Ltd's account in Mizrahi Tefahot Bank Ltd and charged in favor of Mizrahi Tefahot Bank Ltd in accordance with MTB Agreement“

5. RATIFICATION OF PERFECTION CERTIFICATES. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate of Borrower dated as of June 21, 2011, and acknowledges, confirms and agrees that the disclosures and information Borrower provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

6. RATIFICATION OF INTELLECTUAL PROPERTY AGREEMENT AND SECURITY DOCUMENTS. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Borrower IP Agreement, the Debentures and the Deed of Pledge and acknowledges, confirms and agrees that the Borrower IP Agreement, the Debentures and the Deed of Pledge contain an accurate and complete listing of all Intellectual Property Collateral, Charge Property and the Pledged Rights as defined in the Borrower IP Agreement, the Debentures and the Deed of Pledge, respectively, and all shall remain in full force and effect.

7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

8. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[The remainder of this page is intentionally left blank]

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

BORROWER:

ALVARION LTD.

By______

Name:______

Title:______

ALVARION, INC.

By______

Name:______

Title:______

BANK:

SILICON VALLEY BANK

By______

Name:______

Title:______

Exihibt 10.5

FOURTH LOAN MODIFICATION AND FORBEARANCE AGREEMENT

This Fourth Loan Modification and Forbearance Agreement (this “Loan Modification Agreement”) is entered into as of April 25, 2012, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and (b) (i) ALVARION LTD., a company organized under the laws of the State of Israel (“Ltd”), and (ii) ALVARION, INC., a Delaware corporation (“Inc”) (Ltd and Inc are hereinafter jointly and severally, individually and collectively, referred to as “Borrower”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of June 21, 2011, evidenced by, among other documents, a certain Loan and Security Agreement dated as of June 21, 2011, among Borrower and Bank, 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, and as further amended by a certain Third Loan Modification Agreement dated as of April 5, 2012, among Borrower and Bank (as amended, the “Loan Agreement”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

3. DESCRIPTION OF CHANGE IN TERMS.

A. Modifications to Loan Agreement.

1 Notwithstanding anything to the contrary set forth in the Loan Agreement but in addition to any repayment obligations set forth therein, if at any time the sum of (a) the aggregate outstanding Advances, and (b) the aggregate principal amount outstanding under the Term Loan exceeds the Borrowing Base, Borrower shall, upon notice from Bank, immediately pay to Bank in cash such excess, with such cash proceeds to be applied by Bank to the Obligations in such order as Bank shall determine in its sole discretion.

2 Borrower hereby agrees and acknowledges that (a) Borrowing Base Reports and a Borrowing Base Certificate shall be delivered to Bank on or before May 20, 2012 pursuant to the terms Section 6.2 of the Loan Agreement, and (b) Bank shall, on such date, and on the twentieth (20th) day of each month thereafter, test the Borrowing Base.

3 The Loan Agreement shall be amended by deleting the following text appearing in Section 2.1.5(c) thereof (entitled “Repayment”):

and inserting in lieu thereof the following:

“Commencing on the Amortization Date, and continuing on each Payment Date thereafter, Borrower shall repay the Term Loan in (i) thirty-six (36) equal installments of principal, plus (ii) monthly payments of accrued interest at the rate set forth in Section 2.3(a)(ii) (the “Existing Amortization Schedule”). In addition to and without limiting Borrower’s obligations under the Existing Amortization Schedule, Borrower shall make payments on the outstanding principal amount of the Term Loan as follows: (x) on or prior to April 30, 2012, in an amount equal to Five Million Dollars ($5,000,000.00), and (y) on or prior to July 1, 2012, in an amount that reduces the aggregate principal amount outstanding under the Term Loan as of such date to Fifteen Million Dollars ($15,000,000.00) (subsections (x) and (y) are, collectively, the “Supplemental Payments”). Upon Borrower making the Supplemental Payments when required hereunder, and provided no Event of Default has occurred and is continuing, Borrower shall not be required to make payments pursuant to the Existing Amortization Schedule and, commencing on the New Amortization Date and continuing on each Payment Date thereafter, through and including the Term Loan Maturity Date, Borrower shall repay the principal amount of the Term Loan outstanding on the New Amortization Date in (i) thirty-two (32) equal monthly installments of principal, plus (ii) accrued payments of interest at the rate set forth in Section 2.2(a)(ii).”

4 The Loan Agreement shall be amended by deleting the following appearing as Section 2.3(a) thereof (entitled “Interest Rate”):

“ (a) Interest Rate.

(i) Advances. 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 the LIBOR Rate plus four and one-half of one percent (4.50%), which interest rate shall be determined by the Bank as of the first day of each calendar quarter, for all times during such calendar quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first day of such calendar quarter.

(ii) Term Loan. Subject to Section 2.3(b), the principal amount outstanding under the Term Loan shall accrue interest at a fixed rate per annum rate equal to the LIBOR Rate plus four and three-quarters of one percent (4.75%), which interest rate shall be determined by the Bank as of the first day of each calendar quarter, for all times during such calendar quarter, and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the interest rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first day of such calendar quarter.”

and inserting in lieu thereof the following:

“ (a) Interest Rate.

(i) Advances. 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 the LIBOR Rate plus (A) prior to the Fourth Amendment Effective Date, four and one half of one percent (4.50%), and (B) on and after the Fourth Amendment Effective Date five and eighty-five hundredths of one percent (5.85%), which interest rate shall in each case be determined by the Bank as of the first Business Day of each calendar quarter, for all times during such calendar quarter (provided that, notwithstanding the foregoing, such interest rate shall be reset as of the Fourth Amendment Effective Date), and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the LIBOR Rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first Business Day of such calendar quarter.

(ii) Term Loan. Subject to Section 2.3(b), the principal amount outstanding under the Term Loan shall accrue interest at a fixed rate per annum rate equal to the LIBOR Rate plus (A) prior to the Fourth Amendment Effective Date, four and three-quarters of one percent (4.75%), and (B) on and after the Fourth Amendment Effective Date five and eighty-five hundredths of one percent (5.85%), which interest rate shall in each case be determined by the Bank as of the first Business Day of each calendar quarter, for all times during such calendar quarter (provided that, notwithstanding the foregoing, such interest rate shall be reset as of the Fourth Amendment Effective Date), and shall be payable monthly in accordance with Section 2.3(e) below. For sake of clarity, the LIBOR Rate shall be set for each calendar quarter based upon the LIBOR Rate in effect on the first Business Day of such calendar quarter.”

5 The Loan Agreement shall be amended by deleting the following text appearing in Section 6.13 thereof (entitled “Formation or Acquisition of Subsidiaries”):

“This Section 6.13 shall only apply to Wavion if Borrower shall fail to provide Bank with evidence that Wavion has merged with and into Borrower and all assets of Wavion have been transferred to Borrower on or before April 30, 2012.”

and inserting in lieu thereof the following:

“[Intentionally Deleted].”

6 The Loan Agreement shall be amended by inserting the following new provision to appear as Section 6.15 thereof (entitled “Wavion Inc.”):

“ 6.15 Wavion Inc. On or prior to May 28, 2012, Borrower shall (a) deliver to Bank evidence, satisfactory to Bank in its sole discretion, that Wavion Inc. has merged with and into Alvarion, Inc. and that all the assets of Wavion Inc. have been transferred to Alvarion, Inc. free and clear of all Liens, or (b) cause Wavion Inc. to become a Borrower hereunder pursuant to the terms of Section 6.13.”

7 The Loan Agreement shall be amended by inserting the following new provision to appear as Section 6.16 thereof (entitled “Wavion Ltd”):

“ 6.16 Wavion Ltd.

(a) 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 Borrower or any other Person without the prior written consent of Bank, to be granted or withheld in Bank’s sole discretion; and

(b) On or prior to May 28, 2012, Borrower shall cause Wavion Ltd. to become a Borrower hereunder pursuant to the terms of Section 6.13, including without limitation, causing Wavion Ltd. to grant Bank a first priority Lien (subject to Permitted Liens) and deliver to Bank, without limitation, debentures of fixed and floating charge in form and substance satisfactory to Bank, in its sole discretion. In addition to and without limiting the foregoing, the shares of each of Wavion Inc. (if not merged with and into Alvarion Inc.) and Wavion Ltd. shall be pledged to Bank pursuant to documentation acceptable to Bank in its sole discretion on or before May 28, 2012.”

8 The Loan Agreement shall be amended by deleting the following provision appearing as Section 8.2(a) thereof:

“ (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 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”

and inserting in lieu thereof:

“ (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 or 6.16 or violates any covenant in Section 7 (provided, however, (i) for Sections 6.2, 6.4, and 6.5, Borrower shall fail to cure such default within five (5) days, and (ii) for Sections 6.15 and 6.16, Borrower shall fail to cure such default within fourteen (14) days); or”

9 The Loan Agreement shall be amended by deleting the following definitions appearing in Section 13.1 thereof:

“ “Borrowing Base” is eighty percent (80.0%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing percentage 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.”

“ “Eligible Extended Accounts” Accounts for which the Account Debtor not paid between ninety-one (91) days and one hundred twenty days (120) of invoice date, but are otherwise Eligible Accounts; provided that the total Advances relating thereto do not exceed Six Million Dollars ($6,000,000.00).”

“ “Revolving Line” is an Advance or Advances in an amount equal to Thirty Million Dollars ($30,000,000), minus the aggregate outstanding amount of the Term Loan.”

“ “Term Loan Maturity Date” is the Payment Date that is thirty-five (35) months after the Amortization Date.”

and inserting in lieu thereof the following:

“ “Borrowing Base” is (a) prior to the Fourth Amendment Effective Date, eighty percent (80.0%) of Eligible Accounts, and (b) on and after the Fourth Amendment Effective Date, the sum of (i) Eligible Cash, and (ii) eighty percent (80.0%) of Eligible Accounts, in each case as determined by Bank from Borrower’s most recent Borrowing Base Certificate, provided, however, that if Eligible Accounts at any time constitute greater than the Applicable Percentage of the Borrowing Base, the Borrowing Base shall automatically be reduced by the amount of such excess; and provided further that 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.”

“ “Eligible Extended Accounts” are (a) prior to the Fourth Amendment Effective Date, Accounts for which the Account Debtor not paid between ninety-one (91) days and one hundred twenty days (120) of invoice date, but are otherwise Eligible Accounts; provided that the total Advances relating thereto do not exceed Six Million Dollars ($6,000,000.00), and (b) on and after the Fourth Amendment Effective Date, Accounts of Borrower from North America, Israel, western Europe or other territories acceptable to Bank in its sole discretion, (i) with payment terms of 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.”

“ “LIBOR” means, as of the first Business Day of the applicable calendar quarter, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 1/10,000th of one percent (0.0001%)) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior the period approximately equal to three (3) months and in an amount approximately equal to the aggregate amount of outstanding Credit Extensions.”

“ “Revolving Line” is an Advance or Advances in an aggregate amount equal to Five Million Dollars ($5,000,000.00).”

“ “Term Loan Maturity Date” is February 1, 2015.”

10 The Loan Agreement shall be amended by inserting the following new definitions to appear alphabetically in Section 13.1 thereof:

“ “Applicable Percentage” is (a) with respect to the first (1st) month of each calendar quarter, thirty percent (30.0%), (b) with respect to the second (2nd) month of each calendar quarter, forty percent (40.0%), and (c) with respect to the third (3rd) month of each calendar quarter, fifty percent (50.0%), provided however that such Applicable Percentage shall in each case be applied to the Borrowing Base as of the twentieth (20th) day of the following month through the twentieth (20th) day of the next following month.”

“ “Eligible Cash” is the aggregate unrestricted and unencumbered cash of Borrower maintained at Bank.”

“ “Existing Amortization Schedule” is defined in Section 2.1.5(c).”

“ “Fourth Amendment Effective Date” is April ___, 2012.”

“ “New Amortization Date” is July 2, 2012.”

“ “Supplemental Payments” is defined in Section 2.1.5(c).”

11 The Borrowing Base Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Borrowing Base Certificate attached as Schedule 1 hereto.

B. Acknowledgment of Default; Forbearance by Bank. Borrower acknowledges that it is currently in default under the Loan Agreement by its failure to comply with (a) the Adjusted Quick Ratio covenant set forth in Section 6.7(a) thereof, and (b) the Minimum Net Profit covenant set forth in Section 6.7(b) thereof, each for the month ended March 31, 2012 (collectively, the “Existing Default”). Bank, however, hereby agrees to forbear from exercising its rights and remedies with respect to the Existing Default until the earlier to occur of (i) an Event of Default under the Loan Agreement (other than the Existing Default) or (ii) May 15, 2012 (the “Forbearance Period”). Borrower hereby acknowledges and agrees that except as specifically provided herein, nothing in this Section or anywhere in this Loan Modification Agreement shall be deemed or otherwise construed as a waiver by Bank of any of its rights and remedies pursuant to the Existing Loan Documents, applicable law or otherwise. Borrower shall not request, and Bank shall not be obligated to make, any Credit Extensions during the Forbearance Period.

4. FEES . Borrower shall pay to Bank a modification fee equal to Fifty Thousand Dollars ($50,000.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

5. RATIFICATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENTS.

6. RATIFICATION OF PERFECTION CERTIFICATES.

7. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[The remainder of this page is intentionally left blank]

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above.

BORROWER: BANK:

ALVARION LTD. SILICON VALLEY BANK

By:______By:______

Name:______Name:______

Title:______Title:______

ALVARION, INC.

By:______

Name:______

Title:______

ALVARION ISRAEL (2003) LTD.

By:______

Name:______

Title:______

Schedule 1

EXHIBIT C - BORROWING BASE CERTIFICATE

Borrower: Alvarion Ltd. and Alvarion, Inc. Lender: Silicon Valley Bank Commitment Amount under Revolving Line: $5,000,000

ACCOUNTS RECEIVABLE (i) Accounts Receivable (invoiced) Book Value as of ______$______(ii) Additions (please explain on next page) $______(iii) Less: Intercompany / Employee / Non-Trade Accounts $______(iv) NET TRADE ACCOUNTS RECEIVABLE $______

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) (v) 90 Days Past Invoice Date (except for the Eligible Extended Accounts up to $5,000,000) $______(vi) Credit Balances over 90 Days (except for the Eligible Extended Accounts up to $5,000,000) $______(vii) Balance of 50% over 90 Day Accounts (cross-age or current affected) (except for the Eligible Extended Accounts) $______(viii) Foreign Account Debtor Accounts $______(ix) Foreign Invoiced and/or Collected Accounts $______(x) Contra/Customer Deposit Accounts $______(xi) U.S. Government Accounts $______(xii) Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts $______(xiii) Accounts with Memo or Pre-Billings $______(xiv) Contract Accounts; Accounts with Progress/Milestone Billings $______(xv) Accounts for Retainage Billings $______(xvi) Trust / Bonded Accounts $______(xvii) Bill and Hold Accounts $______(xviii) Unbilled Accounts $______(xix) Non-Trade Accounts (if not already deducted above) $______(xx) Accounts with Extended Term Invoices (Net 90+) (except for the Eligible Extended Accounts) $______(xxi) Chargebacks Accounts / Debit Memos $______(xxii) Product Returns/Exchanges $______(xxiii) Disputed Accounts; Insolvent Account Debtor Accounts $______(xxiv) Deferred Revenue $______(xxv) Deferred Revenue, if applicable/Other (please explain on next page) $______(xxvi) Concentration Limits $______(xxvii) TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______(xxviii) Eligible Accounts (NET TRADE ACCOUNTS RECEIVABLE (iii) minus TOTAL ACCOUNTS RECEIVEABLE DEDUCTIONS (xxvii)) $______(xxix) ELIGIBLE AMOUNT OF ACCOUNTS (80% of #xxxix) $______

BORROWING BASE (xxx) Unrestricted and Unencumbered cash of Borrower at Bank $______(xxxi) 80% of Eligible Accounts (as defined in the Loan Agreement) up to Applicable Percentage* of overall Borrowing Base $______(xxxii) BORROWING BASE (sum of xxx and xxxi) $______

BALANCES (xxxiii) Maximum Revolving Loan Amount $5,000,000.00 (xxxiv) Total Funds Available (lesser of (a) $5,000,000, and (b) BORROWING BASE minus outstandings under Term Loan ($______) (xxxv) Present Balance Owing under Revolving Line $______$______(xxxvi) RESERVE POSITION (#xxxiv minus #xxxv) $______

*“Applicable Percentage” is (a) with respect to the first (1st) month of each calendar quarter, thirty percent (30.0%), (b) with respect to the second (2nd) month of each calendar quarter, forty percent (40.0%), and (c) with respect to the third (3rd) month of each calendar quarter, fifty percent (50.0%), provided however that such Applicable Percentage shall in each case be applied to the Borrowing Base as of the twentieth (20th) day of the following month through the twentieth (20th) day of the next following month.

Explanatory comments:

______

BANK USE ONLY COMMENTS: Received by: ______AUTHORIZED SIGNER Date: ______By: ______Verified: ______Authorized Signer AUTHORIZED SIGNER Date: ______Date: ______Compliance Status: Yes No

Exhibit 10.6

AGREEMENT AND PLAN OF MERGER

AMONG

ALVARION INC.,

ALVARION ACQUISITION, INC.,

WAVION INC.,

AND

ELRON ELECTRONIC INDUSTRIESLTD. as SHAREHOLDER REPRESENTATIVE

Dated as of November 2, 2011

TABLE OF EXHIBITS

Exhibit A – Form of Company Stockholder Consent

Exhibit B – Form of Stockholders Undertaking

Exhibit C – List of Employees/Consultants Signing Amendments to Engagement Agreements at Signing

Exhibit D – Form of Non-Competition Agreement

Exhibit E – Form of Escrow Agreement

Exhibit F – Form of Paying Agent Agreement

Exhibit G – Form of Certificate of Merger

Exhibit H – Form of Stockholder Letter of Transmittal

Exhibit I – Form of Carve-Out Participant Undertaking

Exhibit I – Form of Carve-Out Participant Letter of Transmittal

Exhibit J – Form of Payoff Letter

Exhibit K – [Reserved]

Exhibit L – Form of Estimated Adjustment Statement

Exhibit M – Stockholders Executing Stockholders Consent.

Exhibit M1 – Form of Notice to the Holders of Company Capital Stock of the Approval of the Merger

Exhibit N – Form of Buyer Compliance Certificate

Exhibit O – Form of Buyer's Counsel Legal Opinion

Exhibit O1 – Form of Written Confirmation From Alvarion Ltd.’s Internal Legal Counsel

Exhibit P – Form of Company Compliance Certificate

Exhibit Q – Form of Directors Resignation

Exhibit R – Form of Company's Counsel Legal Opinion

LIST OF SCHEDULES

Schedule I – Allocation Spreadsheet

Schedule II – Material Contracts the termination of which shall not be deemed MAC

Schedule III – [Intentionally Deleted]

Schedule IV – Point of Contacts

Schedule V – List of Employees/Consultants Proposed to Sign Amendments to Engagement Agreements prior to or at Closing

Schedule 8.1(b) – Governmental Approvals

Schedule 8.2(c) – Third Parties Consents and Approvals

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of November 2, 2011 (this "Agreement"), is among Alvarion Inc., a Delaware corporation ("Buyer"), Alvarion Acquisition, Inc. , a Delaware corporation and a wholly-owned subsidiary of Buyer ("Sub"), Wavion Inc., a Delaware corporation (the "Company") (Sub and the Company being hereinafter collectively referred to as the "Constituent Corporations"), and Elron Electronic Industries Ltd., as Shareholder Representative (as defined herein). All capitalized terms that are not otherwise defined shall have the meanings ascribed to such terms in Section 1.1 below.

RECITALS

A. Buyer has formed Sub for the purpose of merging it with and into the Company (the " Merger") in order to acquire the Company as a wholly-owned subsidiary;

B. The respective Boards of Directors of Buyer, Sub and the Company have approved, and declared advisable, the Merger upon the terms and subject to the conditions of this Agreement, and the respective Boards of Directors of Buyer, Sub and the Company have approved and adopted this Agreement;

C. The respective Boards of Directors of Sub and the Company have determined that the Merger is in the best interests of their respective shareholders;

D. The Board of Directors of the Company has resolved to submit this Agreement to a vote of the holders of Company Capital Stock (as defined herein) and, subject to the terms hereof, to recommend the approval of this Agreement, the Merger and the other transactions contemplated hereby to the holders of shares of Company Capital Stock entitled to vote thereto;

E. (i) Shareholders holding at least 70% of the outstanding shares of Company Preferred Stock (as defined herein) (on an as-converted basis), and (ii) shareholders holding a majority of the outstanding shares of Company Capital Stock, on an as-converted basis (the "Majority Shareholders"), have indicated their willingness to deliver, immediately following the execution and delivery of this Agreement, written consents in compliance with the Delaware General Corporation Law (the “DGCL”) that approve and adopt this Agreement, the Merger and the transactions contemplated hereby in the form attached hereto as Exhibit A (the “Company Stockholder Consent”), and a Stockholders Undertaking in the form attached hereto as Exhibit B (the “Stockholders Undertaking”);

F. As a material inducement for the willingness of Buyer and Sub to enter into this Agreement, those employees and consultants of the Company or its Subsidiary (as defined herein) whose names are listed on Exhibit C hereto have entered or will enter into amendments to their employment/consulting agreements (the "Amendments to Engagements Agreements") and non-competition, confidentiality, non-solicitation and assignment of proprietary information and inventions agreement in the form attached as Exhibit D hereto (the "Non-Competition Agreements") that will go into effect upon the consummation of the Merger; and

G. Buyer, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger.

AGREEMENT

NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties agree as follows:

Article I DEFINITIONS

Section 1.1 Certain Defined Terms. In addition to the other words and terms defined elsewhere in this Agreement, the following words and terms shall have the meanings specified or referred to below:

“Acquisition Proposal” means, any Contract, offer, proposal or bona fide indication of interest (other than this Agreement or any other offer, proposal or indication of interest by Buyer), or any public announcement of intention to enter into any such Contract or of (or intention to make) any offer, proposal or bona fide indication of interest, relating to, or involving: (A) any acquisition or purchase from the Company or its Subsidiary (except by existing holders of Company Capital Stock), or from the holders of Company Capital Stock, by any Person or Group (as hereinafter defined) of more than a 10% interest in the total outstanding voting securities of Company or its Subsidiary or any tender offer or exchange offer that if consummated would result in any Person or Group beneficially owning 10% or more of the total outstanding voting securities of the Company or its Subsidiary or any merger, consolidation, business combination or similar transaction involving the Company or its Subsidiary; (B) any sale, lease, mortgage, pledge, exchange, transfer, license (other than in the ordinary course of business), acquisition, or disposition of more than 10% of the assets of the Company and its Subsidiary in any single transaction or series of related transactions; or (C) any liquidation, dissolution, recapitalization or other significant corporate reorganization of the Company or its Subsidiary, or any extraordinary dividend, whether of cash or other property.

"Affiliate" means any Person that is controlled by, controlling, or under common control with such Person

"Allocation Spreadsheet" means Schedule I attached hereto, which sets forth for each Rights Holder: (A) if applicable, the number of shares of Company Capital Stock held by such holder, (B) such holder’s Pro-Rata Portion out of the Merger Consideration, including without limitations, the Closing Payment and the Total Earnout Amount, and allocation of the amount payable on account of repayment to the applicable Rights Holders of their respective portions of the Convertible Loan Repayment Amount, and payment to the Carve-Out Plan Participants pursuant to the Carve-Out Plan, and (C) such holder's Pro-Rata Portion of the Escrow Amount. The Allocation Spreadsheet shall be deemed a Company Fundamental Representation and shall not be subject to the Threshold (as may be updated by a written notice by Company to Buyer in order to give effect to exercise of Options prior to or at Closing and update of Company Transaction Expenses, Estimated Adjustment Statement and Final Adjustment Statement, all in accordance with the provisions of this Agreement).

"Applicable Laws" means, with respect to any Person, any domestic or foreign, federal, state or local statute, law, judgment, order, decree, ordinance, rule, regulation or other legally enforceable similar requirement applicable to such Person, any of its Subsidiaries, or any of their respective properties or assets.

"Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Applicable Law to be closed in Israel.

"Buyer Accountant" means a reputable accounting firm out of the "big-4" accounting firms, to be determined by the Buyer.

"Carve-Out Plan" means the Company's Incentive Bonus Plan dated May 11, 2011.

"Carve-Out Plan Participants" means such persons designated as Participants, as such term is defined in the Carve-Out Plan, eligible to receive a portion of the Merger Consideration pursuant to its terms and identified in the Allocation Spreadsheet.

"Carve-Out Tax Ruling" means a ruling issued by the ITA in a form satisfactory to Buyer, providing, among other things, the criteria for the determination of the withholding obligations with respect to the Carve-Out Plan Participants.

"Carve-Out Trustee" means ESOP Management and Trust Services Ltd. or any duly authorized successor thereto.

"Cash" means cash at bank and cash at hand, but excluding any amounts necessary to cover outstanding checks that have been written, issued, mailed or otherwise delivered by the Company and which are either (i) already due and payable, or (ii) payable on a future date but only with respect to an amount, if any, exceeding US$20,000 in the aggregate; in each case, that have not yet been cleared.

"Company Capital Stock" means the Company Common Stock and the Company Preferred Stock.

"Company Common Stock" means the Company’s shares of common stock, $0.001 par value per share.

"Company Preferred Stock" means the Company’s preferred stock, $0.001 par value per share, which consists of Series A Preferred Stock.

"Company Products" means, with respect to the Company or its Subsidiary, all products or services, existing as of the date hereof, that have been produced, licensed, sold, distributed or performed by it or on its behalf.

"Company Section 102 Stock Options" means Company Stock Options (i) granted under Section 102(b)(2) of the Israeli Income Tax Ordinance or (ii) granted under Section 102 of the Israeli Income Tax Ordinance prior to January 1, 2003.

"Company Stock Option" means each outstanding option to purchase shares of the Company Common Stock issued under one of the Company Stock Option Plans.

"Company Stock Option Plans" means the Company’s 2003 Share Option Plan and 2000 Share Option Plan.

"Company Transaction Expenses" means all fees and expenses incurred prior to or on the Closing and payable by the Company and/or its Subsidiary in connection with the negotiation and/or consummation of the transactions contemplated by this Agreement, including fees and expenses payable to all attorneys, accountants, financial advisors and other professionals and bankers’, banks', brokers’ or finders’ fees for persons not engaged by Buyer or Sub and any stay, retention or other bonuses, or other compensation or other amounts payable in connection with or as a result of the consummation of the transactions contemplated hereunder (not including any such retention plan which Buyer implements for the Company following the Closing or payments under the Carve-Out Plan and mandatory social security deductions related thereto, and not including, for the avoidance of any doubt, the Convertible Loans Repayment Amount).

"Company Warrants" means (i) Warrant granted by the Company to Tianah Technologies (2000) Ltd., dated April 2000, (ii) Warrant granted by the Company to Mizrahi Tefahot Bank Ltd., dated September 3, 2010, (iii) Warrant granted by the Company to Silicon Valley Bank, dated June 27, 2006, (iv) Warrant granted by the Company to Silicon Valley Bank, dated March 7, 2008, (v) Warrant granted by the Company to Silicon Valley Bank, dated December 2008, (vi) Warrant granted by the Company to Venture Lending & Leasing IV LLC, dated June 27, 2006, (vii) Warrant granted by the Company to Venture Lending & Leasing IV LLC, dated March 7, 2008 and (viii) Warrant granted by the Company to Venture Lending & Leasing IV LLC, dated December 2008.

"Confidentiality Agreement" means the Mutual Non-Disclosure Agreement between Alvarion Ltd. and the Company, dated as of November 22, 2010, as amended.

"Contract" means any oral or written contract, agreement, plan, understanding, arrangement, undertaking, indenture, note, or bond.

"Convertible Loans" means (i) the loan granted to the Company under the Convertible Bridge Financing Agreement between the Company and Elron, dated April, 2010, and (ii) the loan granted to the Company under the Convertible Bridge Financing Agreement between the Company, Elron and BRM dated, March 30, 2011.

"Convertible Loans Repayment Amount" means the amount specified in the Payoff Letters, repayable to the applicable Rights Holders, as specified under the Allocation Spreadsheet, on account of the Convertible Loans (including all principal, interest, prepayment premiums, penalties, breakage costs or other similar obligations related to such Loans) upon and subject to the Effective Time.

"Closing Date Cash" means, as of the Closing Date, all Cash and cash equivalents, marketable securities, short-term investments and security deposits, of the Company and its Subsidiary, including time deposits, certificates of deposit, money market accounts, plus any cash disbursed prior to Closing solely to pay any Company Transaction Expenses.

"Closing Date Debt" means, as of the Closing Date, the sum of all short term and/or long term loans from and/or amounts otherwise due to financial institutions (excluding such amounts constituting part of the Company Transaction Expenses and, for the avoidance of any doubt, the Convertible Loans Repayment Amount).

“Dissenting Shares” means any shares of Company Capital Stock that are issued and outstanding immediately prior to the Effective Time that are eligible under the DGCL to exercise appraisal rights and held by a holder of Company Capital Stock who has not voted in favor of the Merger or consented thereto in writing and who has exercised and perfected appraisal rights for such Company Capital Stock in accordance with Section 262 of the DGCL and has not effectively withdrawn or lost such appraisal rights.

"Escrow Account" means the bank account to be opened by the Escrow Agent, pursuant to the Escrow Agreement, in which the Escrow Amount shall be deposited in accordance with the terms of this Agreement.

"Escrow Agent" means S.G.S. Trust Ltd., or its authorized successor in accordance with the terms of this Agreement and the Escrow Agreement.

"Escrow Agreement" means the Escrow Agreement to be executed by the Buyer, the Shareholders Representative and the Escrow Agent, in the form attached hereto as Exhibit D.

"Escrow Amount" means the amount of US$3,000,000.

“Escrow Termination Date” means the date that is fifteen (15) months after the Closing Date.

"Governmental Authorization" means any: permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Applicable Laws.

"Governmental Entity" means any federal, national, state, provincial, local or similar governmental, regulatory or administrative authority, branch, agency or commission or any court, tribunal, or arbitral or judicial body.

“Group” shall have the definition ascribed to such term under Section 13(d) of the Exchange Act, the rules and regulations thereunder, all as amended, and related case law.

"holders of Company Capital Stock", "holders of Company Common Stock", "holders of Company Preferred Stock" and "holders of Company Stock Options" mean the holders of Company Capital Stock, the holders of Company Common Stock, the holders of Company Preferred Stock, and the holders of Company Stock Options, respectively, in each case, as of immediately prior to the Effective Time.

"Indemnification Claim" means any claim by an Indemnitee against an Indemnifying Party for indemnification under Article VII hereof.

"Israeli Income Tax Ordinance" means the Israeli Income Tax ordinance (New Version).

"ITA" means the Israel Tax Authority.

"Investment Center" means the Investment Center of the Israeli Ministry of Industry, Trade and Labor established under the Israel Law for the Encouragement of Capital Investments- 1959.

"Knowledge" means (i) with respect to the Company, the actual knowledge of the following individuals: Company's and the Subsidiary's CEO, CFO, CTO, VP R&D, EVP Sales, VP Marketing and Customers and VP Operations and any knowledge that each of such individuals would have been reasonably expected to have obtained after reasonable inquiry and (ii) with respect to Buyer, the actual knowledge of the following individuals: Eran Gorev and Lior Shemesh and any knowledge that each of such individuals would have been reasonably expected to have obtained after reasonable inquiry.

"Liens" mean, with respect to any security, property or asset, as the case may be, any mortgage, lien, pledge, charge, security interest, encumbrance, hypothecation, Options, proxies, right of first refusal, preemptive right or restriction or rights of third parties of any nature (including any spousal community property rights, any restriction on the voting, transfer, receipt of any income derived from, the possession of any security, or the exercise or transfer of any other attribute of ownership of a security). For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

"Losses" mean any and all direct losses, liabilities, damages or out-of-pocket costs and expenses, whether or not arising from or in connection with any third-party claims (including, without limitation, interest, penalties, reasonable attorneys’, consultants’ and experts’ fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing), plus any interest that may accrue on any of the foregoing from the date of incurrence provided, however, that any Losses which are punitive, special, indirect or consequential shall not be deemed “Losses” hereunder, except for punitive, special, indirect or consequential damages sought in any third party claim.

"Material Adverse Effect" means, when used with respect to any Person, any event, change, development, occurrence, or effect that, when taken individually or together with any or all other events, is materially adverse to or is reasonably likely to be materially adverse to the business, operations, properties, assets, liabilities, employee relationships, customer or supplier relationships, results of operations, or financial condition of such Person and its Subsidiaries taken as a whole, but shall not include adverse effect resulting primarily from, arising in connection with or relating to: (i) changes in the industry in which the Company and its Subsidiary operate; (ii) any such changes or effects resulting, directly or indirectly, from changes in general political or economic conditions or the financial or securities markets generally, but only to the extent that any of the changes described in clause (i) or (ii) disproportionately impacts that Person or its Subsidiaries, (iii) the announcement or consummation of the transactions contemplated by this Agreement or any ancillary document hereto (other than the termination of a Material Contract except for the Material Contracts set forth in Schedule II), and (iv) any changes as a result of any actions taken or omitted to be taken by Buyer or Sub, except with respect to the fulfillment of any of their obligations pursuant to this Agreement, and (v) any change in accounting principles or policies.

"Merger Consideration" means a cash amount equal to: (i) US$26,500,000; minus/plus (ii) the Purchase Price Adjustment Amount, to the extent such amount is a negative amount; plus (iii) the Total Earnout Amount; minus (iv) the Company Transaction Expenses; (v) minus the Convertible Loan Repayment Amount.

"Option" means, with respect to any Person, any security, right, subscription, warrant, option, "phantom" stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any shares of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of such Person or (ii) receive or exercise any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of such Person, including any rights to participate in the equity or income of such Person or to participate in or direct the election of any directors or officers of such Person or the manner in which any shares of such Person are voted.

"Paying Agent" means S.G.S. Trust Ltd. or its authorized successor in accordance with the terms of this Agreement and the Paying Agent Agreement.

"Paying Agent Agreement" means the Paying Agent Agreement to be executed by the Buyer, the Shareholders Representative and the Paying Agent, in the form attached hereto as Exhibit F.

"Permitted Liens" means (i) liens consisting of zoning restrictions, building set back lines, easements and other restrictions on the use of the facilities of the Company or its Subsidiary, provided that such items do not materially adversely impair the continued commercial use and operation of such facilities; (ii) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies of title insurance which have been delivered to Buyer and specified in the Company Disclosure Letter; (iii) statutory liens for current Taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, provided an appropriate reserve has been established therefor in the Financial Statements; and (iv) liens incurred in the ordinary course of business in connection with workers’ compensation, leased cars, unemployment insurance and other types of social security (that are not resulting from a breach, default or violation by the Company of any Contract or Applicable Law).

"Permitted Transferee" of a Person means (i) an Affiliate of such Person, or (ii) a trust acting for the benefit of such Person, or (iii) the surviving entity in the merger of such Person with another Person, or (iv) with respect to a partnership, its affiliated partnerships managed by the same manager or management company or managing partner, or managed by an entity which controls, is controlled by, or is under common control with, such manager, management company or managing general partner, or any person or entity that acquires all, or substantially all, of the investment portfolio of the partnership, or (iv) with respect to each of Elron Electronic Industries Ltd. and BRM Capital Fund, L.P., (X) each other, and (Y) each of SVM Star Ventures Managementgesellschaft GmbH No. 3, Star Management of Investments No. II (2000) L.P., SVE Star Ventures Enterprises GmbH & Co. No. IX KG and SVM Star Ventures Managementgesellschaft mbH Nr. 3 & Co. Beteiligungs KG Nr. 4.

"Person" means any individual, corporation, partnership, limited partnership, limited liability company, trust, association, entity or Governmental Entity or authority.

"Proceeding" means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Entity or any arbitrator or arbitration panel.

"Pro-Rata Portion" means, with respect to each of the Rights Holders, its pro-rata portion of the Merger Consideration payable to such Rights Holder by Buyer out of the aggregate Merger Consideration, including its respective pro-rata portion of each of the following: (i) the Closing Payment, (ii) the Escrow Amount, (iii) the Convertible Loans Repayment Amount, and (iv) the Total Earnout Amount, in each case, calculated in accordance with the Allocation Spreadsheet.

"Purchase Price Adjustment Amount" means an amount (which may be a positive number, a negative number, or zero) equal to: (i) the Closing Date Cash plus US$2,500,000; minus (ii) the Closing Date Debt.

"Real Estate" means, with respect to the Company or its Subsidiary, as applicable, all leasehold ownership rights, titles and interests of such Person, in and to all real estate owned or leased by such Person and which are used by such Person in connection with the operation of its business.

“Recognized Revenues” means any revenues of the Company (or its Subsidiary) recognized by Buyer, Alvarion Ltd. (or any of their Subsidiaries, including the Surviving Corporation), in accordance with the revenue recognition policy used in preparing the Company’s financial statements for the year ended December 31, 2010, from the sale of products and/or services and/or solutions of the Company and/or its Subsidiary (including as part of the Bundled Sale), provided however, that:

(i) inter-company transactions between Buyer, Alvarion Ltd. and their Subsidiaries shall not be counted for the purposes of calculation of the Recognized Revenues; in such event, Recognized Revenues will be determined based on the Recognized Revenues when such product or solution is sold, or when services are provided, to third-parties; and

(ii) with respect to sales or services or solutions which are not a "stand-alone" but rather sold or provided as part of a "bundled sale" (the "Bundled Sale"), the term “Recognized Revenues” shall mean the actual Recognized Revenues recorded for such Bundled Sale multiplied by a fraction (X) the numerator of which is the price of the Company and/or its Subsidiary's product, service or solution included in such Bundled Sale (as set forth in the formal price list as in effect at such time minus any discounts given by the Company or its Subsidiary with respect to such Bundled Sale) and (Y) the denominator of which is the aggregate sum of (1) such price of the Company and/or its Subsidiary's product, service or solution included in such Bundled Sale (as set forth in the formal price list as in effect at such time minus any discounts given by the Company or its Subsidiary with respect to such Bundled Sale), plus (2) the price for the other products, services and solutions included in such Bundled Sale (as set forth in the formal price list as in effect at such time).

"Rights Holders" means, any holders of Company Capital Stock or Carve-Out Plan Participants eligible to receive any portion of the Merger Consideration pursuant to the terms of this Agreement.

"Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"Series A Preferred Stock" means the shares of Series A Preferred Stock of the Company, $0.001 par value per share.

"Shareholders Agreements" means the Company's Eighth Amended and Restated Stockholders Rights Agreement by and among the Company and certain of its stockholders listed therein, dated September 30, 2010 and the Amended and Restated Voting Agreement between the Company, Yoya LLC, R&R LLC and certain holders of Series A Preferred Stock, dated August 15, 2007.

"Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other legal entity of which such Person owns or controls, directly or indirectly, above 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, limited liability company, joint venture or other legal entity.

"Tax" means any applicable federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, franchise, employment, payroll, withholding, alternative or added minimum, ad valorem, value-added, transfer, excise, capital, or net worth tax, or other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest thereon or penalty imposed with respect thereto by any Governmental Entity, whether computed on a separate, consolidated, unitary, combined, or any other basis, and shall include any transferee or secondary liability in respect of any tax (whether imposed by law, contractual agreement, or otherwise).

"Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including any information return, claim for refund, amended return or declaration of estimated Tax.

"Taxing Authority" means any governmental agency, board, bureau, body, department or authority of any Israeli jurisdiction or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax.

"Total Earnout Amount" means the Revenues Earnout Amount, minus any setoffs provided for in Article VII.

"Transaction Documents" means this Agreement and any and all other Contracts, certificates and documents contemplated to be delivered or executed in connection with this Agreement and the transactions contemplated hereby.

Section 1.2 Table of Definitions. The following words and terms have the meanings set forth in the Sections referenced below:

"Adjustment Shortfall Amount" – Section 2.8(f/g) "Affiliated Persons" – Section 4.19 "Buyer Fundamental Representations" – Section 7.1(a) "Buyer Indemnitees" – Section 7.2(a) "Cap" – Section 7.2(c) "Certificates" – Section 2.6(f) "Certificate of Merger" – Section 2.2(b) "Claim Notice" – Section 7.4(a) "Closing – Section 2.2(a) "Closing Date" – Section 2.2(a) "Closing Payment" – Section 2.6(a) "Company Balance Sheet" – Section 4.5(a) "Company Balance Sheet Date" – Section 4.5(a) "Company Business Personnel" – Section 4.15(b) "Company Charter" – Section 4.1(a) "Company Corporate Representations" – Section 7.1(b) "Company Disclosure Letter" – preamble to Article IV "Company Fundamental Representations" – Section 7.1(c) "Company Owned Registered IP" – Section 4.16(b) "Company Patents" – Section 4.16(b) "Company Permits" – Section 4.9(a) "Company Plan" – Section 4.13(c) "Company Representatives" – Section 6.5(a) "Company Registered Copyrights" – Section 4.16(b) "Company Registered IP" – Section 4.16(b) "Company Registered Marks" – Section 4.16(b) "Company Securities" – Section 4.2(b) "Company Stockholder Approval" – Section 4.3(c) "Compensation Agreements" – Section 4.12(a) "Compensation Package" – Section 4.15(a) "Copyrights" – Section 4.16(a) "Disagreement Notice" – Section 7.4(b) "Dispute Amount" – Section 2.8(d) "Dispute Items" – Section 2.9(e)(i) "Dispute Resolution Date" – Section 7.4(d) "Dispute Resolution Period" – Section 7.4(c) "Draft Final Adjustment Statement" – Section 2.8(a) "Earnout Review Period" – Section 2.9(c) "Earnout Schedule" – Section 2.9(c) "Effective Time" – Section 2.2(b)

"ERISA" – Section 4.13(a) "Estimated Adjustment Statement" – Section 2.7(a) "Final Adjustment Statement" – Section 2.8(c) "Financial Statements" – Section 4.5(a) "First Earnout Period" – Section 2.9(a) "Fraud" – Section 7.1(d) "Grants" – Section 4.7(b) "IFRS" – Section 4.5(b) "Inbound License Agreements" – Section 4.16(f) "Indemnifying Party" – Section 7.2(c) "Indemnitees" – Section 7.2(b) "Independent Accountant" – Section 2.8(d) "Insurance Policies" – Section 4.18 "Intellectual Property" – Section 2.16(a) "Letter of Transmittal" – Section 2.6(f) "IP Representations" – Section 7.1(b) "Letter of Undertaking" – Section 2.6(f) "Marks" – Section 4.16(a) "Material Contracts" – Section 4.12(b) "New Litigation Claim" – Section 6.10 "Open Source Licenses" – Section 4.16(i) "Outbound License Agreements" – Section 4.16(f) "Patents" – Section 4.16(a) "Payment Fund Termination Date" – Section 2.6(i) "Payoff Letter" – Section 2.6(k) "Released Parties" - Section 6.3 "Resolution Period" – Section 2.8(c) "Review Period" – Section 2.8(b) "Revenues Earnout Amount" – Section 2.9(a) "Schedule of Expenses" – Section 2.6(j)(i) "Second Earnout Period" – Section 2.9(a) "Section 102" – Section 4.13(a) "Section 401(a)" – Section 4.13(a) "Seller Indemnitees" – Section 7.2(b) "Shareholder Representative" – Section 7.6(a) "Shareholder Representative Fund" – Section 2.6(e)(iii) "Shareholder Tax Ruling" – Section 2.11(a) "Significant Customer" – Section 4.17(a) "Significant Supplier" – Section 4.17(b) "Statement of Objection" – Section 2.8(c) "Stockholders Written Consent Effective Time" – Section 6.4(a) "Surviving Corporation" - Section 2.1 "Termination Date" – Section 9.1(b) "Threshold" – Section 7.2(c) "Trademarks" – Section 4.16(a)

Article II THE MERGER

Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective Time and in accordance with the DGCL, Sub shall be merged with and into the Company. Following the Merger (i) the separate corporate existence of Sub shall cease and (ii) the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL.

Section 2.2 Closing; Effective Time.

(a) The closing of the transactions contemplated by this Agreement (the "Closing") and all actions specified in this Agreement to occur at the Closing shall take place at the offices of Meitar, Liquornik, Geva & Leshem, Brandwein, Law Offices, 16 Abba Hillel Road, Ramat Gan 52506, Israel, at a time and on a date to be specified by the parties, which shall be no later than the second Business Day after the satisfaction or waiver of all the conditions set forth in Article VIII to be satisfied or waived (other than those respective conditions that by their nature are to be satisfied at the Closing). The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date".

(b) Subject to the terms and conditions set forth in this Agreement, on the Closing Date: (i) a Certificate of Merger (the "Certificate of Merger") substantially in the form of Exhibit G attached hereto shall be duly executed by the Company and Sub and filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and (ii) the parties shall make such other filings with the Secretary of State of the State of Delaware as shall be necessary to effect the Merger. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, or at such later time as Buyer and the Company may agree upon and as shall be set forth in the Certificate of Merger. The date and time when the Merger shall become effective is referred to herein as the "Effective Time".

Section 2.3 Effects of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all properties, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Sub shall become the debts, liabilities and duties of the Surviving Corporation.

Section 2.4 Certificate of Incorporation and By-laws; Directors and Officers; Subsequent Actions.

(a) From and after the Effective Time, (i) the Certificate of Incorporation of Sub in effect at the Effective Time will be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law and (ii) the By-laws of Sub in effect at the Effective Time will be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law.

(b) From and after the Effective Time, (i) the directors of Sub immediately prior to the Effective Time shall automatically, and without further action, be all of the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be, and (ii) the officers of Sub at the Effective Time shall be all of the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

(c) If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either the Company or Sub acquired or to be acquired by the Surviving Corporation as a result of or in connection with the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name of and on behalf of either the Company or Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the intent of this Agreement.

Section 2.5 Effect on Company Capital Stock, Company Stock Options and Company Warrants. Subject to the terms and conditions of Section 2.6 and Section 2.11, at the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any capital stock of the Constituent Corporations:

(a) Capital Stock of Sub. Each issued and outstanding share of common stock, par value $0.001 per share, of Sub shall be converted into and become one (1) validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation and shall constitute the only shares of capital stock of the Surviving Corporation issued and outstanding immediately after the Effective Time.

(b) Treasury Shares. All shares of the Company Capital Stock that are held in the treasury of the Company shall automatically be cancelled and retired and shall cease to exist and no cash or other consideration shall be delivered or deliverable in exchange therefor.

(i) Each share of the Company Common Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be cancelled and extinguished and be converted into and become the right to receive, from Buyer (which may act through the Paying Agent), subject to the provisions of Section 2.6(b) and Article VII, an amount equal to the amount set forth in the Allocation Spreadsheet in respect of each share of Company Common Stock, in each case payable in accordance with the provisions of this Article II. The amount of cash each holder of Company Common Stock is entitled to receive shall be rounded to the nearest cent, and computed after aggregating all cash amounts for all shares of Company Common Stock held by such holder of Company Common Stock.

(ii) The Allocation Spreadsheet sets forth for each holder of shares of Company Common Stock (A) the number of shares of Company Common Stock held by such holder, and (B) such holder’s Pro-Rata Portion out of the Merger Consideration. The Allocation Spreadsheet shall be deemed a Company Fundamental Representation and shall not be subject to the Threshold.

(d) Conversion of Company Preferred Stock.

(i) Each share of Series A Preferred Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares) shall be cancelled and extinguished and be converted into and become a right to receive, from Buyer (which may act through the Paying Agent), subject to the provisions of Section 2.6(b) and Article VII, an amount equal to the amount set forth in the Allocation Spreadsheet in respect of each share of Series A Preferred Stock, in each case payable in accordance with the provisions of this Article II. The amount of cash each holder of Company Preferred Stock is entitled to receive shall be rounded to the nearest cent, and computed after aggregating all cash amounts for all shares of Company Preferred Stock held by such holder of Company Preferred Stock.

(ii) The Allocation Spreadsheet sets forth for each holder of shares of Company Preferred Stock (A) the number of shares of Company Preferred Stock held by such holder, and (B) such holder’s Pro-Rata Portion out of the Merger Consideration.

(e) Company Options. At the Effective Time, each Company Stock Option that is unexpired, unexercised, vested (including pursuant to the acceleration provisions of the Company Stock Option Plans) and outstanding immediately prior to the Closing may be duly exercised by the holder thereof in accordance with the Company Stock Option Plans. Each share of Company Common Stock issued pursuant to the exercise of Company Stock Options as aforesaid shall be automatically converted pursuant to the terms of Section 2.5(c). Each Company Stock Option that is unexpired, unexercised (whether vested or unvested) and outstanding as of the Effective Time, will by virtue of the Merger, and without any further action on the part of any holder thereof, be cancelled and extinguished.

(f) Company Warrants. At the Effective Time, each Company Warrant that is unexpired, unexercised, vested and outstanding immediately prior to the Closing may be duly exercised by the holder thereof in accordance with its terms. Each share of Company Capital Stock issued pursuant to the exercise of a Company Warrant as aforesaid shall be automatically converted pursuant to the terms of Section 2.5(c) or Section 2.5(d), as applicable. Each Company Warrant that is unexpired, unexercised (whether vested or unvested) and outstanding as of the Effective Time, will by virtue of the Merger, and without any further action on the part of any holder thereof, be cancelled and extinguished.

(g) Dissenting Shares. Notwithstanding anything contained herein to the contrary, any Dissenting Shares shall not be converted into or represent the right to receive the Merger Consideration, but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to any such Dissenting Shares pursuant to Section 262 of the DGCL. Each holder of Dissenting Shares who, pursuant to the provisions of DGCL, becomes entitled to payment thereunder for such shares shall receive payment therefor in accordance with DGCL (but only after the value therefor shall have been agreed upon or finally determined pursuant to such provisions). If, after the Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, then any such shares shall immediately be converted into and represent the right to receive the applicable portion of Merger Consideration, without interest, in respect of such shares as if such shares never had been Dissenting Shares, and Buyer shall issue and deliver to the holder thereof, at (or as promptly as reasonably practicable after) the applicable time or times specified herein, following the satisfaction of the applicable conditions set forth in Article VIII, the consideration to which such holder would be entitled in respect thereof under this Section 2.5, if any, as if such shares never had been Dissenting Shares. From and after the Effective Time, the Shareholders Representative shall be entitled to: (i) receive from the Company prompt notice of any demands for appraisal or purchase received by the Company, withdrawals of such demands, and any other instruments served pursuant to DGCL and received by the Company and (ii) the right to direct all negotiations and proceedings with respect to demands for appraisal or purchase under DGCL, including reaching a settlement with the applicable holder of Dissenting Shares (provided any such settlement shall only provide monetary relief to the holder of Dissenting Shares). The Company and the Buyer shall not, except with the prior written consent of the Shareholders Representative, which shall not be unreasonably withheld, or as otherwise required under the DGCL, voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any claim or demand in respect of any Dissenting Shares. The Shareholders Representative shall promptly provide Buyer with updates relating to legal proceedings involving appraisal rights claims, the payout and delivery of consideration under this Agreement to the holders of Company Capital Stock (other than to holders of Dissenting Shares who shall be treated as provided in this Section 2.5(g) and under the DGCL) shall not be affected by the exercise or potential exercise of appraisal rights under the DGCL by any other holder of Company Capital Stock, subject to the satisfaction of the condition set forth in Section 8.3.

Section 2.6 Payment and Deposit of Merger Consideration.

(a) Subject to the terms and conditions herein, at the Effective Time, Buyer shall transfer to the Paying Agent, for the benefit of each of the Rights Holders who are entitled to receive part of the Merger Consideration in accordance with the Allocation Spreadsheet, in immediately available funds, an amount equal to such Rights Holder's Pro-Rata Portion of: (i) US$26,500,000, minus/plus (ii) the Purchase Price Adjustment Amount, to the extent such amount is a negative amount, calculated based on the Estimated Adjustment Statement, minus (iii) the Escrow Amount; minus (iv) the Company Transaction Expenses; minus (v) the Convertible Loan Repayment Amount (the amounts referred to in clauses (i) through (v) are referred to, collectively, as the "Closing Payment"). The Paying Agent shall promptly pay to each Rights Holder, in accordance with the provisions hereof and the provisions of the Paying Agent Agreement, the applicable amount of the Closing Payment payable to it hereunder.

(b) Subject to the terms and conditions herein, at the Effective Time, Buyer shall transfer to the Escrow Agent the Escrow Amount, in immediately available funds, to be deposited in the Escrow Account. Such amounts shall be released by the Escrow Agent to the Rights Holders, as provided in the Allocation Spreadsheet, on or immediately following the Escrow Termination Date or any subsequent Dispute Resolution Date (to the extent that upon the Escrow Termination Date, there exists an outstanding Claim Notice which was not yet resolved pursuant to a Dispute Resolution), if applicable, subject to the provisions hereof and the provisions of the Escrow Agreement and less any amounts distributed to the Purchaser pursuant to Article VII.

(c) Subject to the terms and conditions herein, at the Earnout Payment Date Buyer shall transfer to the Paying Agent, for the benefit of each of the Rights Holders who are entitled to receive part of the Merger Consideration in accordance with the Allocation Spreadsheet, in immediately available funds, an amount equal to such Rights Holder's Pro-Rata Portion of the respective portion of the Total Earnout Amount. The Paying Agent shall promptly pay to each Rights Holder the applicable amount due to it in accordance with the provisions hereof and the provisions of the Paying Agent Agreement.

(d) Not less than two (2) Business Days prior to the Closing Date, the Company shall deliver to the Buyer the Allocation Spreadsheet which shall set forth (i) the account or accounts to which the Buyer and/or the Paying Agent shall transfer funds in respect of the Merger Consideration, and (ii) the Pro-Rata Portion applicable to each Rights Holder. The Pro-Rata Portions set forth in the Allocation Spreadsheet shall be consistent with the liquidation preferences, the Carve-Out Plan and each other requirement of the certificate of incorporation of the Company and any agreement between the Company and its security holders. So long as the Buyer shall have paid to the Rights Holders an aggregate amount equal to the Merger Consideration (as may be adjusted or reduced pursuant to the terms of this Agreement) in accordance with the Allocation Spreadsheet, neither the Buyer nor the Surviving Corporation shall have any liability to any Person for any errors or omissions by the Company or any Rights Holders in the preparation of the Allocation Spreadsheet.

(e) Paying Agent.

(i) The Paying Agent shall be designated by Buyer to act as paying agent in connection with the Merger pursuant to the Paying Agent Agreement and the provisions hereof. The appointment by Buyer of the Paying Agent hereunder shall not relieve Buyer of its payment obligations to the Rights Holders, as set forth in this Agreement.

(ii) Pursuant to the Paying Agent Agreement, the Paying Agent will transfer to the Rights Holders in accordance with the Allocation Spreadsheet, after deducting the applicable Tax withholding amounts pursuant to Section 2.11 below, if any, and any remaining parts of the payments made to the Shareholders Representative pursuant to Section 7.6, the Closing Payment, the Total Earnout Amount and the Shareholder Representative Fund. Notwithstanding anything to the contrary provided for in this Agreement, in the event that the Carve-Out Tax Ruling, if obtained, provides that Merger Consideration payable to the Carve-Out Plan Participants has to be delivered to the Carve-Out Trustee, then, the Buyer or the Paying Agent will make payments of the Merger Consideration that such holder is entitled to receive hereunder (as set forth under Section 2.6(h)(i) and Section 2.6(h)(ii)) directly to the Carve-Out Trustee (for the benefit of the Carve-Out Plan Participants), in accordance with the agreement with the Carve-Out Trustee and Applicable Law (including, without limitation, the provisions of Section 102 of the Israeli Income Tax Ordinance and the regulations and rules promulgated thereunder, including, where applicable, the Carve-Out Tax Ruling or any other approval from the ITA received either by the Company or Buyer and the completion of any required Section 102 Trust Period, each of the foregoing, to the extent applicable).

(iii) In addition, at the Closing, the Paying Agent shall retain out of the Closing Payment for the benefit of the Shareholder Representative an aggregate amount of US$75,000, all as set forth in Section 7.6 hereto and the Paying Agent Agreement (the "Shareholder Representative Fund").

(iv) Any and all interest or other amount accrued on any portion of the Merger Consideration, from the time of deposit thereof by Buyer with the Paying Agent until the payment thereof by the Paying Agent to the Rights Holders, shall be paid by the Paying Agent to the applicable Rights Holder concurrently with the payment of the applicable portion of the Merger Consideration, subject to any Tax withholding requirement under Applicable Law.

(f) Notice of Exchange. Promptly but in any event within not more than two (2) Business Days after the Effective Time, Buyer shall cause (i) the Paying Agent to mail to each holder of record, as of the Effective Time, of any outstanding certificate or certificates that, immediately prior to the Effective Time, evidenced outstanding shares of Company Capital Stock (the "Certificates"), a letter of transmittal, substantially in the form attached hereto as Exhibit H (the "Stockholder Letter of Transmittal") and instructions for use in effecting the surrender of the Certificates or an affidavit regarding the loss thereof (if applicable) in exchange for payment therefor, and (ii) the Paying Agent to mail to each Carve-Out Plan Participant a letter of transmittal substantially in the form attached hereto as Exhibit I (the "Carve-Out Participant Letter of Transmittal") (to the extent not previously delivered to the Paying Agent).

(g) Payment by Paying Agent and Escrow Agent to Holders of Company Capital Stock. Upon the surrender to the Paying Agent of each Certificate representing shares of Company Capital Stock (or an affidavit of lost certificate, as provided in Section 2.13) and a duly executed Stockholder Letter of Transmittal related thereto (the "Holder Surrendering Date"), such Certificate shall, after such surrender, be marked as cancelled, and the holder of such Certificate shall then be entitled to receive, in exchange therefor, via wire transfer of immediately available funds:

(i) On or promptly after the Effective Time (but in any event within three (3) Business Days from the Holder Surrendering Date), such holder’s Pro-Rata Portion of the Closing Payment payable in accordance with the provisions hereof on the Effective Date; and

(ii) On or promptly, but within three (3) Business Days, after the Earnout Payment Date, such holder’s Pro-Rata Portion of the Total Earnout Amount, if applicable; and

(iii) On or promptly after the Escrow Termination Date, such holder’s Pro-Rata Portion of the amounts released from the Escrow Account by the Escrow Agent to the Rights Holders in accordance with the provisions hereof and the provisions of the Escrow Agreement; and

(iv) On or promptly after each Dispute Resolution Date subsequent to the Escrow Termination Date, if applicable, such holder ’s Pro-Rata Portion of the applicable portion of the amounts released from the Escrow Account to the Rights Holders by the Escrow Agent in accordance with the provisions hereof and the provisions of the Escrow Agreement.

(v) Any Rights Holder who is a holder of record as of the Effective Time who has not surrendered a duly executed copy of the Stockholder Letter of Transmittal, in accordance with the provisions of Article II hereof prior to a Payment Fund Termination Date (as defined herein) shall thereafter look only to Buyer and only as general creditor thereof for payment of its claim for cash, if any, to which such holders may be entitled pursuant to the terms of this Agreement.

(h) Payment by Paying Agent and Escrow Agent to Carve-Out Plan Participants. Upon the surrender to the Paying Agent of each Carve-Out Participant Letter of Transmittal by a Carve-Out Plan Participant (the "Participant Surrendering Date"), the Paying Agent or the Escrow Agent, as applicable, shall pay or release to such Carve-Out Plan Participant (or the Carve-Out Trustee, if applicable, pursuant to Section 2.6(e)(ii)), by check or via wire transfer of immediately available funds:

(i) On or promptly after the Effective Time (but in any event within three (3) Business Days from the ParticipantSurrendering Date), such Carve-Out Plan Participant’s Pro-Rata Portion of the Closing Payment payable in accordance with the provisions hereof on the Effective Date; and

(ii) On or promptly, but within three (3) Business Days, after the Earnout Payment Date, such holder’s Pro-Rata Portion of the Total Earnout Amount, if applicable; and

(iii) On or promptly after the Escrow Termination Date, such Carve-Out Plan Participant’s Pro-Rata Portion of the amounts released from the Escrow Account to the Carve-Out Plan Participants by the Escrow Agent in accordance with the provisions hereof and the provisions of the Escrow Agreement; and

(iv) On or promptly after each Dispute Resolution Date subsequent to the Escrow Termination Date, if applicable, such Carve-Out Plan Participant’s Pro-Rata Portion of the applicable portion of the amounts released from the Escrow Account to the Carve-Out Plan Participants by the Escrow Agent in accordance with the provisions hereof and the provisions of the Escrow Agreement.

(v) Any Carve-Out Plan Participant who has not surrendered a duly executed copy of the Carve-Out Participant Letter of Transmittal, in accordance with the provisions of Article II hereof prior to a Payment Fund Termination Date (as defined herein) shall thereafter look only to Buyer and only as general creditor thereof for payment of its claim for cash, if any, to which such Carve-Out Plan Participants may be entitled pursuant to the terms of this Agreement.

Notwithstanding the foregoing, and only with respect to such Carve-Out Plan Participants identified as "employees" in the Allocation Spreadsheet, in the event that the Carve-Out Tax Ruling is not provided to the Paying Agent prior to making any of the payments of the Merger Consideration by the Paying Agent to such Persons, the Paying Agent shall deposit with the Company (or its payroll service provider, if designated by the Buyer on or promptly prior to each such payment date), the aggregate amount of cash to be paid to such Carve- Out Plan Participants, and on the immediately upcoming salary payment date thereafter, the Buyer shall cause the Company or its payroll service provider to pay each such Carve-Out Plan Participant the amount which such Carve-Out Plan Participant is entitled to receive pursuant to this Agreement. For the avoidance of any doubt, Paying Agent shall not deduct any withholding Taxes upon deposition of the foregoing amount by the Paying Agent to the Company or its payroll service provider, as the case may be, and the Company shall be entitled to withhold such Taxes as required under Applicable Law.

(i) Termination of Payment Fund. Any portion of the Merger Consideration which remains undistributed to the Carve-Out Trustee or a Rights Holder for six (6) months after the respective payment date thereof in accordance with the provisions of this Agreement (each such sixth month anniversary, a "Payment Fund Termination Date"), shall be delivered by the Paying Agent to Buyer.

(j) Payment of the Company Transaction Expenses.

(i) The Company Transaction Expenses estimated as of the date hereof are as set forth in the Allocation Spreadsheet. Not less than five (5) calendar days prior to the anticipated Closing Date, the Company shall prepare and deliver to the Buyer an itemized schedule (the "Schedule of Expenses") containing: (A) a true and complete list of all Company Transaction Expenses that have been paid or accrued as of such date, (B) a true and complete list of all Company Transaction Expenses (including without limitations, a good faith estimate of Company Transaction Expenses that are expected to be payable after the Effective Time), together with a certificate of an authorized officer of the Company certifying the accuracy and completeness of the Schedule of Expenses which shall be deemed a representation of the Company, and any Losses incurred by the Buyer as a result of any inaccuracies in the Schedule of Expenses shall not be subject to the Threshold.

(ii) Concurrently with the Closing, the Buyer shall pay or cause to be paid, in accordance with instructions provided by the Company, all unpaid Company Transaction Expenses, to the extent incurred and provided for payment to the Company prior to or on the Closing Date.

(k) Payment of Convertible Loans.

(i) Not later than five (5) Business Days prior to the Closing Date, the Company shall furnish to the Buyer customary payoff letters in the from attached hereto as Exhibit J (each, a “Payoff Letter”) from the lenders of the Convertible Loans, which Payoff Letters shall (i) indicate the Convertible Loans Repayment Amount (as of the Closing Date) and (ii) state that all rights under the Convertible Loans and all Liens in connection therewith relating to the assets and the business of the Company, if any, shall be, upon the payment of the Convertible Loans Repayment Amount on the Closing Date, released and terminated.

(ii) Concurrently with the Closing, the Buyer shall cause to be paid through the Paying Agent, on behalf of the Company, to such entities who executed the Payoff Letters, to one or more accounts specified in the Payoff Letters, the Convertible Loans Repayment Amount.

(l) Retention of Employees. Notwithstanding anything herein to the contrary, pursuant to the agreement of certain employees and consultants of the Company listed in Exhibit C attached hereto, certain amounts out of the Merger Consideration payable to such employees/consultants shall be delivered by the Paying Agent to the Escrow Agent, to be held and released by the Escrow Agent pursuant to the terms of the applicable Amendment to Engagement Agreements and the Escrow Agreement.

(m) Neither Buyer nor the Surviving Corporation nor any of their representatives or agents shall be liable to any holder of shares for cash constituting Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Section 2.7 Closing Adjustment.

(a) Not less than five (5) calendar days prior to the anticipated Closing Date, the Company shall prepare and deliver to the Buyer a preliminary estimated statement in the form attached hereto as Exhibit L of the Purchase Price Adjustment Amount as of the Closing Date, certified by an authorized officer of the Company which shall include a good faith determination of the Closing Date Debt and the Closing Date Cash (the “Estimated Adjustment Statement”). The Company shall make available to the Buyer all information, documents and data that are reasonably necessary and requested by the Buyer in order to facilitate a review and examination of the information included in the Estimated Adjustment Statement.

(b) Not less than three (3) calendar days prior to the anticipated Closing Date, the Buyer shall notify the Company in the event that it disputes in good faith any information included in the Estimated Adjustment Statement, it being understood and agreed that any failure to do so with respect to any such particular information shall not prejudice in any way the Buyer’s rights, solely to the extent arising pursuant to Section 2.8. Prior to the Closing Date, the Company and the Buyer shall negotiate in good faith to resolve any such dispute, and the amount so agreed following such negotiations shall be the Closing Date Cash and the Closing Date Debt, as applicable, for purposes of the Closing. If the Company and the Buyer are unable to resolve any such dispute, such dispute shall not delay the Closing, and the Closing Date Cash and Closing Date Debt, as applicable, set forth in the Estimated Adjustment Statement (unless otherwise agreed) and the Purchase Price Adjustment Amount derived therefrom shall be the amounts used for the purposes of the Closing, without prejudice to the Buyer’s rights pursuant to Section 2.8.

(c) If, after the delivery of the Estimated Adjustment Statement but prior to the Closing, there shall be a change in any component thereof, the Company and the Shareholder Representative shall update the Estimated Adjustment Statement and the Purchase Price Adjustment Amount derived therefrom accordingly to reflect such change. If, for any reason, the Closing Date shall be postponed, the foregoing obligations shall again apply with respect to such postponed Closing Date.

Section 2.8 Final Adjustment. Within sixty (60) calendar days after the Closing Date, the Buyer shall cause to be prepared by the Buyer Accountant and delivered to the Shareholder Representative, at Buyer's expense (i) a consolidated balance sheet of the Company and its Subsidiary as of the Closing Date, and (ii) a statement of the Purchase Price Adjustment Amount as of the Closing Date based on such consolidated balance sheet, together with supporting calculations, setting forth the Buyer’s good faith determination of the Closing Date Debt and the Closing Date Cash and the Purchase Price Adjustment Amount derived therefrom (collectively, the “Draft Final Adjustment Statement”). The Draft Final Adjustment Statement shall (i) fairly present the financial position of the Company and its Subsidiary as at the close of the applicable Business Day in accordance with IFRS, and (ii) include line items substantially consistent with those in the Financial Statements. If the Buyer fails to deliver the Draft Final Adjustment Statement before the expiration of the foregoing 60-day period, the Estimated Adjustment Statement shall be deemed as a Final Adjustment Statement (as defined below) for the purposes hereof.

(b) After receipt of the Draft Final Adjustment Statement, the Shareholder Representative shall have thirty (30) calendar days after the date of receipt thereof (the “Review Period”) to review the Draft Final Adjustment Statement. During the Review Period, the Shareholder Representative and its accountants shall have reasonable access to the books and records of the Company and its Subsidiary, the personnel of, and work papers prepared by, the Buyer to the extent that they relate to the Draft Final Adjustment Statement and to such historical financial information relating thereto as the Shareholder Representative and/or its accountants may reasonably request for the purpose of reviewing the Draft Final Adjustment Statement and to prepare any Statement of Objections (as hereinafter defined); provided that such access shall be during normal business hours.

(c) On or prior to the last day of the Review Period, the Shareholder Representative may object to the Draft Final Adjustment Statement by delivering to the Buyer a written statement setting forth the Shareholder Representative’s objections in reasonable detail, indicating each disputed item or amount and the basis for the Shareholder Representative’s disagreement therewith (the “Statement of Objections”). If the Shareholder Representative fails to deliver a Statement of Objections before the expiration of the Review Period, or if it agrees in writing to the Draft Final Adjustment Statement, the Draft Final Adjustment Statement and the Purchase Price Adjustment Amount derived therefrom shall be deemed to have been accepted by the Shareholder Representative and shall be the final and binding adjustment statement (the “Final Adjustment Statement”). If the Shareholder Representative delivers the Statement of Objections before the expiration of the Review Period, the Buyer and the Shareholder Representative shall negotiate in good faith to resolve such objections within thirty (30) calendar days after the delivery of the Statement of Objections (the “Resolution Period”), and, if the same are so resolved within the Resolution Period, the Draft Final Adjustment Statement, as so resolved, shall be the Final Adjustment Statement.

(d) If the Shareholder Representative and the Buyer fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then the total absolute amount of the Draft Final Adjustment Statement remaining in dispute (the “Disputed Amounts”) shall be submitted within ten (10) calendar days from the end of the Resolution Period for resolution to (i) the office of Deloitte Israel or, (ii) if it is unable to serve, the Buyer and the Shareholder Representative shall appoint by mutual agreement an independent certified public accounting firm other than the Company’s Accountants or the Buyer’s Accountants (any such firm, the "Independent Accountants") who, having the privileges, powers and immunities of an arbitrator, shall resolve the Disputed Amounts only and make any adjustments to the Purchase Price Adjustment Amount and the Draft Final Adjustment Statement. The parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountants shall decide on the Final Adjustment Amount based only on adjustments due to the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range of values assigned to each such item in the Draft Final Adjustment Statement and the Statement of Objections, respectively. Each of the Buyer and the Shareholder Representative shall submit a statement of its position and supporting documentation within ten (10) calendar days of engagement of the Independent Accountants. The Independent Accountants shall make a determination regarding the Final Adjustment Statements as soon as practicable, and in any event within thirty (30) calendar days after their engagement. The Independent Accountants shall prepare a written statement setting forth their resolution of the Disputed Amounts and adjustments to the Draft Final Adjustment Statement (and the Purchase Price Adjustment Amount derived therefrom), which shall be the Final Adjustment Statement.

(e) The Shareholder Representative, on behalf of the Rights Holders, shall pay a portion of the fees and expenses of the Independent Accountants equal to 100% multiplied by a fraction, the numerator of which is the sum of the absolute values of the Disputed Amounts submitted to the Independent Accountants that are resolved in favor of the Buyer (that being the difference between the Independent Accountants’ determination and the Shareholder Representative’s determination) and the denominator of which is the sum of the absolute values of all the Disputed Amounts submitted to the Independent Accountants (that being the absolute sums of the Dispute Amounts). The Buyer shall pay that portion of the fees and expenses of the Independent Accountants that the Shareholder Representative is not required to bear hereunder.

(f) If the Purchase Price Adjustment Amount set forth on the Final Adjustment Statement provides for a lower Merger Consideration than the Merger Consideration calculated based on the Estimated Adjustment Statement and actually paid by the Buyer on the Effective Time (such amount, the “Adjustment Shortfall Amount”), then, the Adjustment Shortfall Amount shall be reimbursed to Buyer in accordance with the provisions of Article VII herein as if such payment was a Claim Notice approved by the Shareholders Representative.

(g) Any payments made pursuant to thisSection 2.8 shall be treated as an adjustment to the Merger Consideration by the parties for Tax purposes, unless otherwise required by Applicable Law.

Section 2.9 Contingent Payment

(a) The Rights Holders (according to their respective Pro-Rata Portions set forth in the Allocation Spreadsheet) shall be entitled to receive up to an additional aggregate amount (the "Revenues Earnout Amount") of (i) up to US$3,500,000 in case the Recognized Revenues for the period commencing on October 1, 2011 and ending on December 31, 2011 (the "Earnout Period") exceed US$3,500,000, which amount shall represent 75% of such Recognized Revenues exceeding US$3,500,000, plus (ii) US$250,000 in case the Recognized Revenues for the Earnout Period equal or exceed US$5,000,000.

(b) Buyer shall deliver to the Shareholder Representative (i) within five (5) Business Days following the approval of Buyer's reviewed financial statements for the last calendar quarter of the calendar year 2011 (but in any event, not later than within 45 days following expiration of such financial quarter), a reasonably detailed schedule certified by an authorized officer of the Buyer setting forth the computation of Recognized Revenues for the relevant calendar quarter and the resulting Revenues Earnout Amount to become payable for such period, or, if there are no Recognized Revenues, stating that no Recognized Revenues exist, and (ii) by January 5, 2012, a reasonably detailed projection schedule certified by an authorized officer of the Buyer setting forth the projected Recognized Revenues for the Earnout Period.

(c) Not later than five (5) Business Days after the approval and/or publication of Buyer's audited financial statements for the calendar year 2011 (but in any event, not later than on March 31, 2012), the Buyer shall deliver to the Shareholder Representative a reasonably detailed schedule certified by an authorized officer of the Buyer and by the Buyer Accountant (an “Earnout Schedule”) setting forth the computation of Recognized Revenues for the Earnout Period and the resulting Revenues Earnout Amount for such period, or, if there is no Revenues Earnout Amount to be made, stating that no Revenues Earnout Amount is to be made. After receipt of the Earnout Schedule, the Shareholder Representative shall have thirty (30) Business Days (the “Earnout Review Period”) to review the Earnout Schedule and provide it for the review of its accountants. During the Earnout Review Period, the Shareholder Representative and its accountant shall have reasonable access to the books and records of the Buyer and the Surviving Corporation, the personnel of, and work papers prepared by, the Buyer to the extent that they relate to the Earnout Schedule and to such historical financial information relating thereto as the Shareholder Representative may reasonably request for the purpose of reviewing the Earnout Schedule and to prepare any objections thereto; provided that such access shall be during normal business hours.

(d) If the Shareholder Representative, on or prior to the last day of the respective Earnout Review Period, will not give the Buyer a notice objecting thereto and specifying, in reasonable detail, the basis for each such objection and the amount in dispute, or if the Shareholder Representative agrees in writing to the Earnout Schedule, such Earnout Schedule and the Revenues Earnout Amount, if any, resulting therefrom shall be final and binding upon the Buyer and the Shareholder Representative. If a timely notice of dispute of such Earnout Schedule is delivered to the Buyer, then such Earnout Schedule for the Earnout Period (as revised in accordance with Section 2.9(e) below) shall become final and binding upon the parties on the earlier of the date (i) the Shareholder Representative and the Buyer resolve in writing any differences they have with respect to any matter specified in the notice of dispute, or (ii) any matters in dispute are finally resolved pursuant to Section 2.9(e) below.

(e) Any dispute relating to the Revenues Earnout Amount shall be resolved pursuant to the following provisions:

(i) If the Shareholder Representative has timely disputed any calculations shown in an Earnout Schedule, then during the thirty (30) calendar days immediately following the delivery of a notice of dispute, the Shareholder Representative and the Buyer shall seek in good faith to resolve in writing any differences that they may have with respect to any matter specified in the notice of dispute. If the parties are unable to resolve such dispute within such 30-day period, then such dispute shall be finally resolved by the Independent Accountants in accordance with the procedures set forth in the next paragraph.

(ii) Within 10 days following the end of the -day30 period described in Section 2.9(e)(ii), the Shareholder Representative and the Buyer shall submit to the Independent Accountants for review and resolution all matters remaining in dispute (and only such matters) and that were included in the applicable notice of dispute (the “Disputed Items”). The Buyer and the Shareholder Representative shall instruct the Independent Accountants to review and resolve all of the Disputed Items. The Buyer and the Shareholder Representative shall instruct the Independent Accountants to make a final determination of the Disputed Items in accordance with the guidelines and procedures set forth in this Agreement. The Buyer and the Shareholder Representative shall cooperate with the Independent Accountants during the term of their engagement. The Independent Accountant’s determination shall be based solely on presentations by the Buyer and the Shareholder Representative that are in accordance with the guidelines and procedures set forth in this Agreement, and not on the basis of an independent review. The resulting Earnout Schedule and the resulting Revenues Earnout Amount shall become final and binding on the parties hereto on the date the Independent Accountants deliver a final resolution in writing to the Buyer and the Shareholder Representative (which final resolution shall be requested by the parties to be delivered not more than thirty (30) calendar days following submission of such disputed matters). All of the fees and expenses of the Independent Accountants pursuant to this Section 2.9(e) shall be borne by the party who did not prevail the dispute (whether Buyer or the Shareholder Representative).

(f) If any Total Earnout Amount shall be owed, the Buyer shall pay such amount, following the date such amount becomes final and binding amount pursuant to this Section 2.9 within five (5) Business Days (i) from the date on which the respective Earnout Schedule shall become final, or, (ii) to the extent Buyer is entitled to withhold such payment due to an outstanding indemnification claim as provided in Section 10.3 below, from the applicable Dispute Resolution Date and subject to the outcomes thereof (each such date, an "Earnout Payment Date"), in accordance with the terms of Section 2.6 above. So long as the Buyer shall have paid an aggregate amount equal to such Total Earnout Amount, the Buyer shall have no liability to any Person for any errors or omissions by the Company in the preparation of the Allocation Spreadsheet.

(g) Any payments made pursuant to thisSection 2.9 shall be treated as an adjustment to the Merger Consideration by the parties for Tax purposes, unless otherwise required by Applicable Law

Section 2.10 Assignment of Payment Rights. No Rights Holder, may sell, exchange, transfer or otherwise dispose of his, her or its right to receive any portion of the Merger Consideration other than by the laws of descent and distribution or succession; provided, however, that a Rights Holder may transfer his, her, or its right to receive any portion of the Merger Consideration to its Permitted Transferees, subject to sending a written notice to this effect to the Buyer, the Paying Agent and the Shareholder Representative, or otherwise as set forth in the Allocation Spreadsheet. Any transfer in violation of this Section 2.10 shall be null and void and shall not be recognized by Buyer or the Surviving Corporation.

Section 2.11 Taxes and Withholding.

(a) Prior to the Effective Time or thereafter, the Company or any party who, as of immediately prior to the Effective Time, is a Rights Holder, may deliver to Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee a copy of a certificate, issued by the relevant Taxing Authority and setting forth the exemption or reduced rate of withholding of one or more of such Rights Holders from Tax withholding obligations imposed by the Israeli Income Tax Ordinance or any other Applicable Law, in each case, as and to the extent applicable, including without limitations, the Carve-Out Tax Ruling (each, a "Shareholder Tax Rulings"). It is clarified that a Shareholder Tax Ruling may relate specifically to the Merger, or may, alternatively, be more general in nature. If Buyer or the Paying Agent, the Escrow Agent (or the Carve-Out Trustee, in case of holders of Carve-Out Plan Participants) has an obligation under Applicable Law to withhold on amounts payable pursuant to this Agreement and the Company or the relevant holder does not deliver such Shareholder Tax Rulings, then the Company authorizes Buyer, the Paying Agent, the Escrow Agent and the Carve-Out Trustee, as applicable, to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to such Rights Holder such amounts as Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee is required to deduct and withhold under the Israeli Income Tax Ordinance or any other Applicable Law, as applicable to such Rights Holder; provided, however, that, subject to Applicable Law, the relevant Rights Holder shall be entitled to instruct in writhing Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee, as applicable, at least two (2) Business Days before any payment date hereunder, not to effect payment to such Rights Holder until such time after the Effective Time as such Rights Holder so instructs Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee, as applicable, in order to allow such Rights Holder sufficient time to seek the obtainment of the Shareholder Tax Ruling, and Buyer and/or the Paying Agent and/or Escrow Agent and/or the Carve-Out Trustee shall comply with such instruction, subject to Applicable Law, and shall only withhold Taxes if, at the time of actual payment, (i) the Shareholder Tax Ruling has not yet been obtained and presented to Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee (as applicable) (ii) the Shareholder Tax Ruling delivered to Buyer and/or the Paying Agent, the Escrow Agent and/or the Carve-Out Trustee provides for Tax withholding. If the relevant Rights Holders does deliver a Shareholder Tax Ruling prior to payment of a particular portion of the Merger Consideration and such Shareholder Tax Ruling provides for an exemption from withholding or a reduced rate of withholding, then: (i) in case of a Shareholder Tax Ruling setting forth a reduced withholding amount, Buyer, the Paying Agent, the Escrow Agent or the Carve-Out Trustee (as applicable) shall only withhold Taxes with respect to such portion of the Merger Consideration required to be withheld under Applicable Law, taking into account the applicable Shareholder Tax Ruling; and (ii) in the case of a Shareholder Tax Ruling setting forth an exemption from withholding, Buyer or the Paying Agent, the Escrow Agent or the Carve-Out Trustee (as applicable) shall not withhold Taxes. For the avoidance of any doubt, the Shareholders Representative shall have the authority to require the Paying Agent and the Escrow Agent to delay payments to the Carve-Out Participants in accordance with the provisions hereof, provided however, that any individual Carve-Out Participant shall have the authority to require the Paying Agent or the Escrow Agent, as applicable, not to delay payments for such specific Carve-Out Participant, subject to withholding deductions in accordance with the provisions hereof (including if such Carve-Out Participant obtained an individual Shareholder Tax Ruling).

(b) Notwithstanding anything to the contrary herein, any transfer of payments by Buyer to the Paying Agent or the Escrow Agent shall be made without making any Tax withholding deductions, provided that the Paying Agent and Escrow Agent are instructed by Buyer and the Company to make all required withholdings in accordance with the provisions hereof and the respective provisions of the Paying Agent Agreement and Escrow Agreement, as well as the provisions of any Applicable Law.

(c) Buyer shall remit, and shall cause the Paying Agent to remit (as applicable), all withheld amounts to the appropriate Taxing Authorities to satisfy any Tax withholding obligations; provided, however, that deduction and withholding as aforesaid shall only be carried out if and at the time that the relevant payment is actually paid to the applicable Rights Holders.

(d) To the extent that amounts are so withheld and remitted to the appropriate Taxing Authorities, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Rights Holder in respect of which such deduction and withholding was made by Buyer or the Paying Agent.

(e) Buyer shall provide, and shall cause the Paying Agent (as applicable) to provide to the applicable Rights Holders certifications evidencing any amounts withheld as Tax withholding from any payments made to them.

Section 2.12 No Further Ownership Rights in Shares of the Company Capital Stock. The Merger Consideration payable to the Rights Holders in accordance with the terms of Article II hereof shall, upon the Effective Time and thereafter, be deemed to constitute full satisfaction of all rights pertaining to the shares of Company Capital Stock.

Section 2.13 Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Buyer, the provision by such Person of a customary indemnity, reasonably acceptable to Buyer against any claim that may be made against Buyer with respect to such Certificate, Buyer will pay in exchange for such lost, stolen or destroyed Certificate the amounts to which the holders of shares of Company Capital Stock thereof are entitled pursuant to this Agreement.

Section 2.14 Further Assurances. If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either of the Constituent Corporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Corporation, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation’s right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement.

Article III REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB

The Buyer and Sub hereby represent and warrant as set forth in this Article III, subject solely to the exceptions set forth in Schedule 3 hereto (which exceptions shall specifically identify the section, subsection, paragraph or clause of a single section or subsection hereof, as applicable, to which such exception relates and be limited in their effect to such identified sections, subsections, paragraphs or clauses, except where it is apparent from the face of such disclosure that such exception relates to another section, subsection, paragraph or clause, in which case it shall also be applicable to such other provision without additional disclosure), that:

Section 3.1 Organization, Standing and Power. Each of Buyer and Sub is a corporation duly organized, validly existing and, where applicable, in good standing under the laws of its place of incorporation and has the requisite corporate power and authority to own, use and distribute its properties and, where applicable, carry on its business as now being conducted and as currently proposed by it to be conducted.

Section 3.2 Authority

(a) Each of Buyer and Sub has all requisite corporate power and authority to enter into this Agreement and all other Transaction Documents and to consummate the transactions contemplated hereby and thereby, subject to the fulfillment of all conditions precedent set forth under Section 8.1 and Section 8.3 hereto. The execution and delivery of this Agreement and all other Transaction Documents by Buyer and Sub and the consummation by Buyer and Sub of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate actions on the part of Buyer and Sub, subject to the filing of the Certificate of Merger as required by the DGCL and no other action on the part of Buyer or Sub is required to authorize the execution, delivery and performance of this Agreement and the consummation by Buyer and Sub of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Buyer and Sub, and (assuming the valid authorization, execution and delivery of this Agreement by the Company) constitutes the valid and binding obligation of Buyer and Sub enforceable against each of them in accordance with its terms, subject to the effect of (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and (ii) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

(b) Without limiting the generality of the foregoing, on or prior to the date of this Agreement, the respective Boards of Directors of Buyer and Sub have (i) declared the Merger advisable and fair to and in the interest of Buyer and Sub, and (ii) approved and adopted this Agreement in accordance with the DGCL.

Section 3.3 Consents and Approvals; No Violation.

(a) Assuming that all consents, approvals, authorizations and other actions described inSection 3.3(a) have been obtained and all filings and obligations described in Section 3.3(a) have been made, the execution and delivery of this Agreement or any other Transaction Documents does not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, any provision of (i) the Articles of Associations of Buyer, as amended to date, (ii) the Certificate of Incorporation or the By-laws of Sub, (iii) any Contract to which Buyer or Sub are parties, or (iv) any Applicable Laws or Governmental Authorization, other than, in the case of clauses (iii) and (iv), any such violations, defaults, rights, losses, or Liens that, individually or in the aggregate, would not materially impair the ability of Buyer or Sub to perform their respective obligations hereunder or prevent the consummation of any of the transactions contemplated hereby or thereby.

(b) No filing or registration with, or authorization, consent or approval of any Governmental Entity is required by or with respect to Buyer or Sub in connection with the execution and delivery of this Agreement by Buyer or Sub or is necessary for the consummation of the Merger and the other transactions contemplated by this Agreement, except for: (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, (ii) such other consents, orders, authorizations, registrations, declarations, approvals and filings the failure of which to be obtained or made would not, individually or in the aggregate, have a Material Adverse Effect on Buyer, materially impair the ability of Buyer or Sub to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby or thereby, and (iii) as set forth in Section 3.3(b).

Section 3.4 Brokers. No broker, investment banker or other Person is entitled to any broker’s, finder’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Buyer or Sub.

Section 3.5 Financing. Buyer and Sub will have at the Effective Time sufficient funds to pay the relevant portions of the Merger Consideration pursuant to this Agreement and to perform Buyer’s and Sub’s obligations under this Agreement.

Section 3.6 Litigation. There are no Proceedings pending or, to the Knowledge of Buyer, threatened against Buyer or any of its Subsidiaries that challenges the validity or propriety, or seek to, or would be reasonably expected to prevent the consummation of, the Merger.

Section 3.7 Ownership of Sub. Sub is a wholly-owned subsidiary of Buyer.

Article IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Buyer and Sub as set forth in this Article IV, subject solely to the exceptions set forth in the disclosure schedule delivered by the Company to Buyer and Sub (the "Company Disclosure Letter") (which exceptions shall specifically identify the section, subsection, paragraph or clause of a single section or subsection hereof, as applicable, to which such exception relates and be limited in their effect to such identified sections, subsections, paragraphs or clauses, except where it is apparent from the face of such disclosure that such exception relates to another section, subsection, paragraph or clause, in which case it shall also be applicable to such other provision without additional disclosure), that:

Section 4.1 Organization, Standing and Power.

(a) Each of Company and its Subsidiary is a corporation duly organized, validly existing and, where applicable, in good standing under the laws of the jurisdiction of its place of incorporation, and has the requisite corporate power and authority to own, use and distribute its properties and to carry on its business as now being conducted and as currently proposed by it to be conducted. The Company and its Subsidiary are duly qualified to do business in each jurisdiction where the character of their properties owned or held under lease or the current nature of their activities makes such qualification necessary. The Company has previously delivered to Buyer accurate and complete copies of the Certificate of Incorporation and the By-laws of the Company (together, the "Company Charter"), and the organizational documents of its Subsidiary, as currently in full force and effect. Section 4.1(a) of the Company Disclosure Letter sets forth a true, correct and complete list of each Subsidiary of the Company, its place of incorporation and its authorized and issued share capital. The Company is the owner of all of the issued and outstanding shares of capital stock of its Subsidiary, free and clear of all Liens, other than Permitted Liens (except as set forth in the Company Charter, the Shareholders Agreement or the organizational documents of its Subsidiary and/or under applicable securities laws and/or as otherwise set forth in Section 4.1(a) of the Company Disclosure Letter), and all such shares are duly authorized, validly issued, fully paid and nonassessable. There are no outstanding subscriptions or Options relating to the issued or unissued capital stock or other securities of its Subsidiary, or otherwise obligating the Company or its Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire or sell any securities of its Subsidiary. The Company does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any Person, other than the Subsidiary listed in Section 4.1(a) of the Company Disclosure Letter.

(b) Section 4.1(b) of the Company Disclosure Letter accurately sets forth with respect to each of the Company and its Subsidiary: (i) the names of the members of the board of directors; (ii) the names of the members of each committee of the board of directors (or similar body); and (iii) the names and titles of its executive officers.

(c) Neither the Company nor its Subsidiary has conducted any business under or has otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, business name or other name, other than its corporate name as set forth in this Agreement and in Section 4.1(c) of the Company Disclosure Letter.

Section 4.2 Capitalization.

(a) As of the date hereof, the authorized capital stock of the Company consists of 95,562,666 shares of Company Common Stock and 50,645,614 shares of Company Preferred Stock, of which 50,645,614 shares of Series A Preferred Stock, are authorized. At the date of this Agreement, (i) 30,811,932 shares of Company Common Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free and clear of any Liens (except as set forth in the Company Charter, the Shareholders Agreement and/or under applicable securities laws), and (ii) 35,805,625 shares of Company Preferred Stock were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free and clear of any Liens (except as set forth in the Company Charter, the Shareholders Agreement and/or under applicable securities laws) and consisting of shares of Series A Preferred Stock, (iii) 14,533,171 shares of Company Common Stock were reserved for future issuance pursuant to the Company Stock Option Plans and (iv) 539,638 shares of Company Common Stock and 2,965,673 shares of Company Preferred Stock were reserved for future issuance pursuant to the Company Warrants. Except as set forth in Section 4.2(a) of the Company Disclosure Letter, as of the date hereof, there are no other issued and outstanding shares of capital stock of the Company. Section 4.2(a) of the Company Disclosure Letter accurately sets forth, as of the date hereof, the name of each Person that is the registered owner of any shares of Company Common Stock or Company Preferred Stock and the number of such shares so owned by such Person, identified by class and series, and the number of shares of Company Common Stock that would be owned by such Person (or any other person) assuming conversion of all shares of Company Preferred Stock so owned by such Person giving effect to all anti-dilution and similar adjustments, if any. The number of such shares set forth as being so owned by such Person constitutes the entire interest of such Person in the issued and outstanding capital stock or voting securities of the Company. Except as set forth in Section 4.2(a) of the Company Disclosure Letter and except as set forth in the Company Charter, the Shareholders Agreement, the Company Stock Option Plans and the Company Warrants, no issued and outstanding shares of Company Capital Stock are subject to vesting, repurchase rights, forfeiture, escrow, earnout or other similar restrictions, and as of the Effective Time, no shares of Company Capital Stock will be subject to vesting, repurchase rights, forfeiture, escrow, earnout or other similar restrictions. All issued and outstanding shares of Company Capital Stock were issued in compliance with all Applicable Laws and all requirements set forth in applicable Contracts. Except as set forth in the Company Charter or the Shareholders Agreement, there is currently no liability for dividends accrued and unpaid by the Company. Except as set forth in Section 4.2(a) of the Company Disclosure Letter, the Company is not currently under any obligation to register under the Securities Act any shares of Company Capital Stock or any other securities of the Company, whether currently outstanding or that may subsequently be issued.

(b) Section 4.2(b) of the Company Disclosure Letter contains a correct and complete list as of the date of this Agreement of each Company Stock Option (vested and unvested) and Company Warrants, including, where applicable, (i) the name of the holder, (ii) date of grant, (iii) term, (iv) whether such option is currently intended to qualify as a nonqualified stock option or incentive stock option pursuant to the Code, as amended, or as Company Section 102 Stock Options, (v) any restrictions set by the Company on the exercise or sale of such option or warrant, as applicable, or the underlying shares (other than any restrictions set forth in the Company Stock Option Plans, the Company’s standard form of option agreement under the Company Stock Option Plans or under Section 102 of the Israeli Income Tax Ordinance and the regulations and rules promulgated thereunder), (vi) exercise price, (vii) number of shares of Company Capital Stock subject thereto and (viii) the vesting schedule (and the terms of any acceleration thereof). Except as set forth in Section 4.2(b) of the Company Disclosure Letter and except for the Company Stock Options, Company Warrants and the Convertible Loans (collectively, the "Company Securities"), there are no options, warrants, calls, rights or Contracts to which the Company or its Subsidiary is a party or by which the Company or its Subsidiary is bound, obligating the Company or its Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Company Capital Stock or capital stock of the Subsidiary of the Company or obligating the Company or its Subsidiary to grant, extend or enter into any such option, warrant, call, right or Contract. All Company Securities and all shares of Company Capital Stock issued pursuant to the exercise of options granted under the Company Stock Option Plans have been granted or issued, respectively, in compliance with all Applicable Laws.

(c) The Company Warrants shall be exercised or cashed out, according to their terms, at the Effective Time (if not exercised prior to such time).

(d) Except as set forthSection in 4.2(d) of the Company Disclosure Letter, there are no outstanding contractual obligations of the Company or its Subsidiary to repurchase, redeem or otherwise acquire any shares of Company Capital Stock or any capital stock of or any equity interest in the Company or its Subsidiary. Except as set forth in Section 4.2(d) of the Company Disclosure Letter, neither the Company nor its Subsidiary has any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or are convertible into or exercisable for securities having the right to vote) with the holders of Company Capital Stock on any matter.

(e) Except as set forth Sectionin 4.2(e) of the Company Disclosure Letter, there are no shareholder agreements, investors rights agreements, voting trusts or other agreements or understandings to which the Company or its Subsidiary is a party, relating to the voting or registration of any shares of Company Capital Stock or capital stock of the Subsidiary of the Company.

(f) No Post Closing Liabilities. Except as set forth in Section 6.2 at the Effective Time, no Rights Holder, in its capacity as a shareholder, director or officer of the Company or its Subsidiary, or as a Carve-Out Plan Participant will be entitled to any indemnity, reimbursement or other similar rights from the Buyer, the Surviving Corporation or its Subsidiary, including, without limitation, by virtue of such Rights Holder's investment in the Company or any other Contract executed between the Company or its Subsidiary and such Rights Holder in his capacity as such, and no obligation, liability or other circumstances shall exist at the Effective Time that give or may give rise to any liability of the Buyer, the Surviving Corporation or its Subsidiary to any Rights Holder, other than as specifically set forth in this Agreement.

Section 4.3 Authority.

(a) The Company has all requisite corporate power and authority to enter into and perform this Agreement and all other Transaction Documents to which it is party and to consummate the transactions contemplated hereby and thereby, subject to the fulfillment of all conditions precedent set forth under Section 8.1 and Section 8.2 hereto. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of this Agreement, to the approval of this Agreement by the holders of Company Capital Stock and the filing of the Certificate of Merger as required by the DGCL and no other action on the part of the Company is required to authorize the execution, delivery and performance of this Agreement and the consummation by the Company of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Buyer and Sub and the validity and binding effect of the Agreement on Buyer and Sub) constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effect of (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and (ii) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

(b) Without limiting the generality of the foregoing, on or prior to the date of this Agreement, the Board of Directors of the Company has unanimously (i) declared the Merger advisable and fair to and in the best interests of the Company and its shareholders, (ii) approved and adopted this Agreement in accordance with the DGCL, and (iii) recommended the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby by the holders of Company Capital Stock. The Board has not withdrawn or modified such approval or resolution to recommend.

(c) The affirmative votes of (i) shareholders holding at least 70% of the outstanding shares of Company Preferred Stock (as defined herein) (on an as-converted basis), and (ii) shareholders holding a majority of the outstanding shares of Company Capital Stock, on an as-converted basis are the only votes of the holders of the Company Capital Stock necessary to adopt this Agreement and approve the Merger (the “Company Stockholder Approval”). The execution, delivery and performance of the Company Stockholder Consent by the holders of the Company Capital Stock listed on Exhibit M is sufficient for the Company Stockholder Approval and, subject to the written approval of the Company and of certain shareholders of the Company who are parties to the Shareholders Agreement, for the termination of the Shareholders Agreements.

Section 4.4 Consents and Approvals; No Violation.

(a) Assuming that all consents, approvals, authorizations and other actions described inSection 4.4(a) of the Company Disclosure Letter have been obtained and all filings and obligations described in Section 4.4(a) of the Company Disclosure Letter have been made, the execution and delivery of this Agreement or any of the Transaction Documents does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof and thereof shall not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or result in the loss of a benefit under, or result in the creation of any Lien (other than Permitted Liens), upon any of the properties or assets of the Company or its Subsidiary under, any provision of (a) the Company Charter or the organizational documents of the Subsidiary of the Company, as amended from time to time, (b) any Contract to which the Company or its Subsidiary are parties, or (c) any Applicable Law, Company Permit (as defined below) or Governmental Authorization applicable to the Company or its Subsidiary or any of the properties or assets of the Company or its Subsidiary, other than, in the case of clauses (b) and (c), any such violations, defaults, rights, losses or Liens that, individually or in the aggregate, would not impair the ability of the Company to perform its obligations hereunder or prevent consummation of any of the transactions contemplated hereby or thereby.

(b) No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by the Company or its Subsidiary in connection with the execution and delivery of this Agreement or any other Transaction Documents by the Company or is necessary for the consummation of the Merger and the other transactions contemplated by this Agreement, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company or its Subsidiary is qualified to do business, and (ii) as set forth in Section 4.4(b) of the Company Disclosure Letter.

Section 4.5 Financial Statements.

(a) The Company has furnished Buyer with copies of the following (collectively, the " Financial Statements"): (i) an audited consolidated balance sheet of the Company as of December 31, 2010, (ii) an unaudited consolidated balance sheet of the Company as of the nine months period ended September 30, 2011, and (iii) the related income statements, statement of changes in shareholders equity and statements of cash flows for the periods ended on such dates. The balance sheet of the Company as of December 31, 2010 is referred to herein as the "Company Balance Sheet" and the date thereof is referred to herein as the "Company Balance Sheet Date." The Financial Statements are included in Section 4.5(a) of the Company Disclosure Letter.

(b) The Financial Statements: (i) are correct and complete in all material respects and have been prepared in accordance with the books and records of the Company and its Subsidiary; (ii) except as set forth on Section 4.5(b) of the Company Disclosure Letter, have been prepared in accordance with the International Financial Reporting Standard ("IFRS") consistently applied throughout the periods covered, except as noted in the Financial Statements; (iii) reflect and provide in accordance with IFRS adequate reserves in respect of all known liabilities of the Company and its Subsidiary, including all known contingent liabilities, as of such dates; and (iv) present fairly the consolidated financial condition of the Company and its Subsidiary at such dates and the consolidated results of their operations for the fiscal periods then ended, subject (with respect only to the June 30, 2011 financial statements) to normal year-end adjustments.

(c) The Company and its Subsidiary keep books, records and accounts that, in reasonable detail, accurately and fairly reflect (i) the transactions and dispositions of assets of such entities and (ii) the value of inventory calculated in accordance with IFRS. Neither the Company nor its Subsidiary has, and to the Knowledge of the Company, no employee, non- employee agent or shareholder of the Company or its Subsidiary (in its capacity as such) has, directly or indirectly, made any payment of funds to any entity or received or retained any funds from such entity in material violation of any Applicable Law.

(d) Except as reflected or reserved against in the Financial Statements (which reserves have been established in accordance with IFRS), or disclosed in the footnotes thereto and except as set forth in Section 4.5(d) of the Company Disclosure Letter, neither the Company nor its Subsidiary had any liabilities (including Tax liabilities) as of the Company Balance Sheet Date, absolute or contingent, of a type required to be recorded on a balance sheet or disclosed in the notes thereto under IFRS.

(e) Except as set forthSection in 4.5(e) of the Company Disclosure Letter or in the Financial Statements, neither the Company nor its Subsidiary has any material indebtedness for borrowed money.

Section 4.6 No Undisclosed Liabilities. Neither the Company nor its Subsidiary has any liabilities of any kind, whether or not required to be reflected or reserved in financial statements in accordance with IFRS, other than:

(a) liabilities reflected in the "liabilities" column of the balance sheet that is part of the Financial Statements or in the notes thereto;

(b) accounts payable and accrued salaries that have been incurred by each of the Company and its Subsidiary since the Company Balance Sheet Date in the ordinary course of business and consistent with past practice; and

Section 4.7 No Default; Grants.

(a) Except as set forth inSection 4.7(a) of the Company Disclosure Letter, neither the Company nor its Subsidiary is in breach, default or violation or has received any notices of breach, default or violation (and, to the Knowledge of the Company, no event has occurred that with notice or the lapse of time or both would constitute a breach, default or violation by the Company or its Subsidiary) of any term, condition or provision of (i) their respective organizational documents, (ii) any Material Contract, or (iii) any Applicable Laws applicable to the Company or its Subsidiary or any of the properties, assets or business of the Company or its Subsidiary.

(b) Section 4.7(b) of the Company Disclosure Letter provides a complete list of all pending and outstanding grants, incentives and subsidies, and applications therefor provided or made available to the Company or its Subsidiary by or on behalf of or under the authority of the OCS, the Investment Center, the BIRD Foundation or any other grant programs for research and development, the European Union, the Fund for Encouragement of Marketing Activities of the Israeli Government or any other Governmental Entity (collectively, "Grants"). The Company has provided to Buyer true and accurate copies of all material documents evidencing Grants submitted by the Company or its Subsidiary and of all related letters of approval, and supplements thereto, granted to the Company or its Subsidiary. The Company and its Subsidiary, as applicable, are in compliance with the terms and conditions of their respective Grants and have duly fulfilled all the undertakings relating thereto. The Company is not aware of any event or other set of circumstances which might lead to the revocation or material modification of any of the Grants.

Section 4.8 Absence of Certain Changes or Events.

(a) To the Knowledge of the Company, except as set forth in Section 4.8(a) of the Company Disclosure Letter, since the Company Balance Sheet Date, (i) the Company has not incurred any liability or obligation (indirect, direct or contingent), or entered into any oral or written agreement or other transaction, that is not in the ordinary course of business, (ii) the Company has not sustained any loss or interference with its business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance), (iii) there has been no change in the Company Capital Stock except for the issuance of shares of the Company Common Stock pursuant to Company Stock Options, (iv) the Company has not declared, set aside or paid any dividends on, or made any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise made any payments to its holders of Company Capital Stock in their capacity as such, , (v) there has not been (A) any adoption of a new Company Plan, (B) any amendment to a Company Plan increasing benefits thereunder, (C) any granting by the Company or its Subsidiary to any executive officer or other key employee of the Company or its Subsidiary of any increase in compensation, including declaration of bonuses, except in the ordinary course of business consistent with prior practice or as required under employment agreements in effect as of the date of the Company Balance Sheet Date, (D) any granting by the Company or its Subsidiary to any such executive officer or other key employee of any increase in severance or termination agreements in effect as of the Company Balance Sheet Date, or (E) any entry by the Company or its Subsidiary into an employment, severance or termination agreement with any such executive officer or other key employee, (vi) the Company has not hired additional employees, consultants or other independent contractors (except for the hiring of new employees, consultants or other independent contractors in the ordinary course of business consistent with past practice, each of whose compensation does not exceed $100,000 per year), (vii) there has not been any material change in the amount or terms of the indebtedness of the Company, (viii) the Company has not incurred any new indebtedness for borrowed money, guaranteed any such indebtedness or made any loans or advances (other than loans or advances to employees consistent with past practice), except such indebtedness incurred in the ordinary course of business, and (ix) the Company has not made or authorized any new capital expenditure or expenditures that individually is in excess of $10,000 or in the aggregate are in excess of $200,000.

(b) Except as set forth inSection 4.8(b) of the Company Disclosure Letter, since the Company Balance Sheet Date, there has been no event causing a Material Adverse Effect on the Company, nor any development that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on the Company.

Section 4.9 Permits and Compliance.

(a) The Company and its Subsidiary are in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company or its Subsidiary to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"); all of the Company Permits are in full force and effect; and no suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company, threatened. Each of the Company and its Subsidiary is in compliance with each of such entity’s respective Company Permits. Neither the Company nor its Subsidiary has received written notice from any Governmental Entity that there are any facts or circumstances currently existing which could reasonably be expected to lead to (1) with respect to each Company Permit, any loss of or refusal to renew any Company Permit on terms less advantageous to the Company or its Subsidiary than the current terms of the Company Permits; and (2) with respect to any pending application for a Company Permit, whether or not filed, any refusal to grant such pending Company Permit.

Section 4.10 Tax Matters.

(a) Except as otherwise set forth inSection 4.10(a) of the Company Disclosure Letter: (i) each of the Company and its Subsidiary has timely filed (taking account of extensions to file that have been properly obtained and except for taxes which the Company or its Subsidiary is contesting in good faith, all of which taxes contested are set forth in Section 4.10 (a) of the Company Disclosure Letter), all Tax Returns required to have been filed by it, and such Tax Returns were correct and complete as of the respective dates of their submission or filing; (ii) each of the Company and its Subsidiary has timely paid (taking account of extensions to pay that have been properly obtained and except for taxes which the Company or its Subsidiary is contesting in good faith, all of which taxes contested are set forth in Section 4.10(a) of the Company Disclosure Letter) all Taxes required to have been paid by it that have been due; (iii) each of the Company and its Subsidiary has complied with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes; (iv) each of the Company and its Subsidiary has not waived any statute of limitations in respect of its Taxes, which remains open; (v) no federal, state, local or foreign audits or administrative Proceedings, of which the Company or its Subsidiary has notice, are pending with regard to any Taxes or Tax Returns of the Company or it Subsidiary and neither the Company nor its Subsidiary has received a written notice of any proposed audit or Proceeding from any other Taxing Authority; (vi) no material issues have been raised by the relevant Taxing Authority in connection with the examination of Tax Returns required to have been filed by or with respect to the Company or its Subsidiary; (vii) all deficiencies asserted or assessments made as a result of any examination of such Tax Returns by any Taxing Authority have been paid in full; (viii) neither the Company nor its Subsidiary has engaged in any transaction that would constitute a "reportable transaction" within the meaning of Section 6111 or a "tax shelter" within the meaning of Section 6662 of the Code and that has not been disclosed on an applicable Tax Return; (ix) neither the Company nor its Subsidiary has at any time made, changed or rescinded any express or deemed election relating to Taxes, that is not reflected in any Tax Return (other than elections that related solely to methods of accounting, depreciation or amortization, or in connection with Section 102(b) to the Israeli Tax Ordinance track election, all of which are set forth in Section 4.10(a)of the Company Disclosure Letter); (x) neither the Company nor its Subsidiary has at any time changed any of its methods of reporting income or deductions for Tax purposes from those employed in the preparation of its Tax Returns; (xi) neither the Company nor its Subsidiary has been a member of an affiliated group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated federal income tax return (or a group of corporations filing a consolidated, combined, or unitary income tax return under comparable provisions of state, local, or foreign tax law) for any taxable period, other than a group the common parent of which is the Company; (xii) neither the Company nor its Subsidiary has any material obligation under any Contract or arrangement with any other Person with respect to Taxes of such other Person (including pursuant to Treasury Regulations Section 1.1502-6 or comparable provision of state, local or foreign tax law) including any liability for Taxes of any predecessor entity, other than Tax withholding obligations; and (xiii) the unpaid Taxes of the Company and its Subsidiary do not exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect temporary differences between book and Tax income) set forth or included in the Company Balance Sheet as adjusted for the passage of time through the Closing Date.

(b) Section 4.10(b) of the Company Disclosure Letter sets forth all jurisdictions outside of the United States in which the Company or its Subsidiary has a permanent establishment, is engaged in business and is subject to local Tax.

(c) Except as set forth in Section 4.10(c) of the Company Disclosure Schedule the Company and its Subsidiary have at all times been residents for Tax purposes of their respective countries of incorporation, the Company and its Subsidiary have not during the past six years paid and are not, to the Knowledge of the Company, currently liable to pay, Taxes in any other jurisdiction, and no written claim has been made by any tax authority against the Company or its Subsidiary in any jurisdiction where the Company or its Subsidiary does not file Tax Returns that it is or may be subject to Tax by such jurisdiction.

(d) The Company and its Subsidiary are not subject to any restrictions or limitations pursuant to Part E2 of the Israeli Income Tax Ordinance.

(e) All records which the Company and its Subsidiary are required under any Applicable Law to keep for Tax purposes (including without limitation all documents and records likely to be needed to defend any challenge by any Governmental Entity to the transfer pricing of any transactions between the Company and its Subsidiary) have been duly kept (in accordance with all applicable requirements).

(f) No deemed profit distributions have been made by the Company or its Subsidiary through the date hereof.

(g) The Subsidiary is registered, if so required for the purpose of, and has complied with the Israeli Value Added Law, 5736-1975 (or any similar provision of state, local or foreign law)). The Company has never been, and is currently not, required to effect such registration.

(h) All documents which are required to be stamped or in respect of which any form of Tax is due and which are in the possession of the Company or its Subsidiary, or by virtue of which the Company or its Subsidiary have any right, have been duly and sufficiently stamped or the Tax on such documents has been paid.

Section 4.11 Actions and Proceedings.

(a) Except as set forth in Section 4.11(a) of the Company Disclosure Letter there is no pending Proceeding that has been submitted to the Company or its Subsidiary nor has any Person threatened in writing to commence any Proceeding against the Company or its Subsidiary: (i) that involves the Company or its Subsidiary or their business, any of the assets or properties owned or used by them or that involves any Company Product; (ii) that challenges, or that may be reasonably expected to have the effect of preventing, delaying, or making illegal the consummation of the Transactions; or (iii) that relates to the ownership of any share capital of the Company or its Subsidiary, or any Option or other right to acquire share capital of the Company or its Subsidiary, or any right to receive consideration as a result of this Agreement. Neither the Company nor its Subsidiary has been informed in writing of, and to the Company’s Knowledge no event has occurred, that is reasonably expected to give rise to or serve as a basis for the commencement of any such Proceeding.

(b) There is no order, writ, injunction, judgment or decree issued by any Governmental Entity by which the Company or its Subsidiary, or any of the assets owned by any of them or to the Knowledge of the Company used by them and material to their respective business, is subject or which restricts in any respect the ability of the Company or its Subsidiary to conduct its business as now being conducted. To the Knowledge of the Company, no officer, director, shareholder or employee of the Company or its Subsidiary (in each case, in his, it or her capacity as such) is subject to any order, writ, injunction, judgment or decree that prohibits such person from engaging in or continuing any conduct, activity or practice consistent with past practice, relating to the business of the Company or its Subsidiary.

Section 4.12 Certain Agreements.

(a) Except as set forth in Section 4.12(a) of the Company Disclosure Letter, neither the Company nor its Subsidiary is a party to any Contract relating to the compensation of employees of the Company or its Subsidiary (collectively, the "Compensation Agreements"), any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. Section 4.12(a) of the Company Disclosure Letter sets forth (i) for each officer, director or employee who is a party to, or will receive benefits under, any Compensation Agreement as a result of the transactions contemplated herein, the total amount that each such Person may receive, or is eligible to receive, assuming that the transactions contemplated by this Agreement are consummated on the Closing Date, and (ii) the total amount of indebtedness owed to the Company or its Subsidiary from each officer, director or employee of the Company or its Subsidiary.

(b) Set forth in Section 4.12(b) of the Company Disclosure Letter is a list of all Material Contracts to which the Company or its Subsidiary is a party as of the date hereof or by which any of the Company’s or its Subsidiary’s material assets are bound. Prior to the date hereof, the Company has made available to Buyer or its counsel true and complete copies of all such Material Contracts. "Material Contracts" means with respect to the Company and/or its Subsidiary, any of the following written Contracts currently in effect:

(i) any distributor, original equipment manufacturer, reseller, value added reseller, sales, agency or manufacturer’s representative Contract which involves payments or fees in excess of $100,000 each, over the life of the Contract;

(ii) any continuing Contract for the purchase, sale or license of materials, supplies, equipment, services, software, Intellectual Property or other assets involving in the case of any such Contract more than $25,000 over the life of the Contract;

(iii) any trust indenture, mortgage, promissory note, loan agreement or other Contract for the borrowing of money, any currency exchange, commodities or other hedging arrangement or any leasing transaction of the type required to be capitalized in accordance with IFRS;

(iv) any Contract for capital expenditures in excess of $100,000 in the aggregate;

(v) any Contract limiting the freedom of the Company or its Subsidiary to engage or participate, or compete with any other Person, in any line of business, market or geographic area, or to make use of any Intellectual Property owned or used by the Company or its Subsidiary, or any Contract granting most favored nation pricing, exclusive sales, distribution, marketing or other exclusive rights, rights of refusal, rights of first negotiation or similar rights and/or terms to any Person, or any Contract otherwise limiting the right of the Company or its Subsidiary to sell, distribute or manufacture any products or services or to purchase or otherwise obtain any software, components, parts, subassemblies or services;

(vi) any Contract pursuant to which the Company or its Subsidiary is a lessor or lessee of any real property or any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property involving in excess of $25,000 per annum;

(vii) any Contract of guarantee, support, indemnification, assumption or endorsement of, or any similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of any other Person;

(viii) all licenses, sublicenses and other Contracts as to which the Company or its Subsidiary is a party and pursuant to which any Person is authorized to use any Company IP Rights, other than end-users license agreement and other licenses granted to purchasers of Company Products in the ordinary course of business;

(ix) other than "shrink wrap" and similar generally available commercial end-user licenses to software that is not redistributed with the Company Products, all licenses, sublicenses and other Contracts to which the Company or its Subsidiary is a party and pursuant to which the Company or its Subsidiary acquired or is authorized to use any third party Intellectual Property;

(x) any Contract (other than employment agreements) providing for the development of any software, content, technology or Intellectual Property, independently or jointly, by or for the Company or its Subsidiary which Intellectual Property is used by the Company or its Subsidiary or otherwise incorporated into the Company Product;

(xi) any Contract to license or authorize any third party to manufacture or reproduce any of the products, services, technology or Intellectual Property of the Company; (A) any joint venture Contract, (B) any Contract that involves a sharing of revenues, profits, cash flows, expenses or losses with other Persons or (C) any Contract that involves the payment of royalties to any other Person in excess of $25,000 per annum;

(xii) any Contract for the employment or other engagement of any director or officer of the Company or the Subsidiary or any consultant providing services typically provided by a director or officer; and each other Contract with any employee or consultant of the Company (A) that is terminable on notice that is greater than 60 days or (B) that involves an annual base salary (plus target bonus, if any) of more than $100,000);

(xiii) any Contract (other than stock option and/or stock bonus plan) relating to the sale, issuance, grant, exercise, award, purchase, repurchase, forfeiture or redemption of any shares of Company Capital Stock or any other securities of the Company or any of its Subsidiaries;

(xiv) any Contract under which the Company or its Subsidiary provides any advice or services to any third party, including any consulting Contract, professional Contract or software implementation, or development services Contract, or support services Contract which involves payments or fees in excess of $100,000 each, over the life of the Contract;

(xv) any Contract pursuant to which the Company or its Subsidiary has acquired a business or entity, or assets of a business or entity (other than in the ordinary course), whether by way of merger, consolidation, purchase of stock, purchase of assets, license or otherwise, or any contract pursuant to which it has any material ownership interest in any other Person (other than its subsidiaries);

(xvi) any Contract with any Governmental Entity, other than any Contract with any Governmental Entity in its capacity as a customer of the Company or its Subsidiary (except if such Contract is otherwise required to be disclosed hereunder);

(xvii) any settlement agreement;

(xviii) any other Contract not listed in clauses (i) through (xvii) that individually had or has a value or payment obligation in excess of $25,000 per annum and is material to the Company or its Subsidiary or their respective businesses, operations, financial condition, properties or assets.

(c) Except as set forth in Section 4.12(c) of the Company Disclosure Letter, each Material Contract is a legal, valid and binding contract of the Company or its Subsidiary, neither the Company nor its Subsidiary (or to the Knowledge of the Company, any other party thereto) is in default under any Material Contract, and none of such Material Contracts has been cancelled by the other party thereto; to the Knowledge of the Company, each Material Contract is in full force and effect and no event has occurred which, with the passage of time or the giving of notice or both, would constitute a default, event of default or other breach by the Company or its Subsidiary which would entitle the other party to such Material Contract to terminate the same or declare an event of default thereunder; neither the Company nor its Subsidiary is in receipt of any written claim of default under any such Material Contract; it being understood that the Company’s representation in this Section 4.12(c) is not directed at those Material Contracts which permit termination by the counter-party: (i) “at will”, (ii) contingent upon compliance with a prior notice period, or (iii) contingent upon the occurrence or non-occurrence of certain events, which are not directly related to transactions of the kind contemplated in this Agreement.

Section 4.13 Company Plans.

(a) Each Company Plan is listed inSection 4.13(a) of the Company Disclosure Letter. With respect to each Company Plan, the Company has made available to Buyer a true and correct copy of each such Company Plan (except for any pension funds, managers insurance policies, study funds, and similar policies and funds) that has been reduced to writing and all amendments thereto and ancillary documents executed in connection therewith. No Company Plan is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or section 401(a) of the Code, or is a "multiemployer plan" (as defined in Section 3(37) of ERISA). Each Company Plan has complied in form and in operation with Applicable Law. Each Company Plan that is intended to qualify under Section 401(a) of the Code ("Section 401(a)"), if any, has received a favorable determination or approval letter from the Internal Revenue Service and each Company Plan that is intended to qualify under Section 102 of the Tax Ordinance ("Section 102") has received a favorable determination or approval letter or is otherwise approved by the ITA. All Company Stock Options and Company Capital Stock issued under Section 401(a) or any "Section 102 Plan" have been issued in compliance with the applicable requirements of Section 401(a) or Section 102, as the case may be, including, without limitation, the adoption of the applicable board and shareholders resolutions, the filing of the necessary documents with the ITA and the Internal Revenue Service, the submission of the application to the ITA to approve a "Section 102 Plan" and the appointment of trustees to hold the Company Stock Options and, if applicable Company Capital Stock pursuant to the terms of Section 102.

(b) Except as listed inSection 4.13(b) of the Company Disclosure Letter and except for routine contributions due and owing, with respect to the Company Plans, the Company has no Knowledge of an event or condition or set of circumstances in connection with which the Company or its Subsidiary could be subject to any liability under the terms of such Company Plans or Applicable Laws. Except as disclosed in Section 4.13(b) of the Company Disclosure Letter or as required by Applicable Laws, neither the Company, nor its Subsidiary has any liability or obligation under any welfare plan to provide benefits after termination of employment to any employee or dependent.

(c) As used herein, "Company Plan" means any written or oral bonus, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, restricted stock, stock appreciation right, holiday pay, vacation, severance, medical, dental, vision, disability, death benefit, fringe benefit, pension, managers insurance policies, study funds, personnel policy, insurance or other plan, program, agreement, arrangement or understanding, in respect of any employees, directors, officers, shareholders, consultants of the Company or its Subsidiary, in each case established or maintained by the Company or its Subsidiary or as to which the Company or its Subsidiary is required to make payments, transfers, or contributions or otherwise under which the Company or its Subsidiary has any liability.

(d) Section 4.13(d) of the Company Disclosure Letter contains a list of all (i) severance and employment agreements with employees of the Company and each Subsidiary, except for severance obligations mandated or permitted by Applicable Law (including Section 14 of the Israeli Severance Pay Law, 5723-1963, the general approval of the Israeli Labor Minister dated June 30, 1998 and any extension orders (tzavei harchava) applicable to the Company or its Subsidiary), and (ii) plans, programs, agreements and other arrangements of the Company and each Subsidiary with or relating to its employees containing change of control or similar provisions.

(e) Except as set forth in Section 4.13(e) of the Company Disclosure Letter, neither the Company nor its Subsidiary is party to any Contract that could result, separately or in the aggregate, in the payment, acceleration or enhancement of any employee benefit as a result of the transactions contemplated hereby.

Section 4.14 Products.

(a) Except as set forth in Section 4.13(e) of the Company Disclosure Letter, the current versions of each of the commercially released Company Product fit the purposes for which they are intended to be used and perform the functions described in all applicable published specifications or end user documentation in all material respects.

(b) Except as set forth inSection 4.13(e) of the Company Disclosure Letter, the current versions of each of the commercially released Company Products are free from defects, bugs or programming errors that adversely affect the functionality of such Company Product other than routine defects, bugs or programming errors that reasonably would be expected to be timely corrected in the ordinary course of the maintenance and support services provided by the Company or its Subsidiary. Except as set forth in Section 4.13(e) of the Company Disclosure Letter, there are currently no claims pending and submitted to the Company or its Subsidiary or to the Company's Knowledge threatened against the Company or its Subsidiary with respect to the quality of, or the existence of defects in, any Company Products.

(c) Except as set forth in Section 4.13(e) of the Company Disclosure Letter, there have been no recalls with respect to any of the Company Products or any written request, during a 3-year period preceding the date hereof, to terminate services provided by the Company or its Subsidiary to purchasers of its products (other than termination in accordance with the provisions of the applicable Contract with such purchaser of Company's products or services), and to the Knowledge of the Company or its Subsidiary, there are no facts, events or circumstances that could reasonably be expected to cause the recall of any product sold by the Company or its Subsidiary.

Section 4.15 Labor Matters; Employees.

(a) Section 4.15(a) of the Company Disclosure Letter sets forth, with respect to each of the Company and its Subsidiary, the name of each executive officer and each independent contractor and consultant providing services customarily provided by executive officers and the ten other employees with the highest total Compensation Package in such company, together with his or her position or function, date of hire or engagement, annual base salary or wages or the compensation, vacation entitlement and any applicable incentive, severance or bonus arrangements such items are referred to collectively as the "Compensation Package".

(b) Neither the Company nor its Subsidiary is a party to any collective bargaining agreement or labor contract nor, to the Knowledge of the Company, is there any effort to organize any employees of the Company or its Subsidiary. No expansion orders of the Israeli Ministry of Labor are applicable to the Company or its Subsidiary other than such orders that are generally applicable to all employers of salaried workers in Israel or to all employers in the industry in which the Company and its Subsidiary operate. Neither the Company nor its Subsidiary has engaged in any unfair labor practice with respect to any persons employed by or otherwise performing services primarily for the Company or its Subsidiary (collectively, the "Company Business Personnel"), and there is no unfair labor practice complaint or grievance pending in writing or, to the Knowledge of the Company, threatened against the Company or its Subsidiary by any Person with respect to the Company Business Personnel. There is no labor strike, dispute, slowdown or stoppage pending or, to the Knowledge of the Company, threatened against the Company or its Subsidiary.

(c) The Company and its Subsidiary have complied and are currently in compliance in all material respects with all Applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including, without limitation, Applicable Laws relating to overtime. The Company and its Subsidiary have withheld and reported to the applicable Governmental Entity (including the Israeli National Insurance Institute) all amounts required by Applicable Law or by agreement to be withheld and reported with respect to wages, salaries and other payments to employees. Except as required by Applicable Law, or as set forth in any Company Plan or any employment agreement, there are no agreements or arrangements for the payment of any pensions, allowances, lump sums or other like benefits on retirement or on death or termination or during periods of sickness or disablement for the benefit of any employee or former employee or consultant of the Company or its Subsidiary or for the benefit of the dependants of any such person in operation at the date hereof.

(d) The severance pay, study fund, pension funds, and managers ’ insurance policies (including any insurance required to be maintained by the Company or its Subsidiary against the loss of the ability to work and other forms of medical insurance) due to any employees of the Company or its Subsidiary are fully funded, other than with respect to the current month of employment.

Section 4.16 Intellectual Property.

(a) As used herein, the termIntellectual " Property" means all intellectual property rights arising from or associated with the following, whether created, protected or arising under the laws of the United States or any other jurisdiction with respect to the following: (i) trade names, trademarks and service marks (whether registered or unregistered), domain names and other internet addresses or identifiers, trade dress and similar rights and applications to register any of the foregoing (collectively, "Marks"); (ii) patents and patent applications and rights in respect of utility models or industrial designs (collectively, "Patents"); (iii) copyrights (whether registered or unregistered) and registrations and applications therefor (collectively, "Copyrights"); (iv) know-how, inventions, discoveries, methods, processes, techniques, methodologies, formulae, algorithms, technical data, specifications, research and development information, technology, data bases and other proprietary or confidential information, including customer lists, in each case that derives economic value (actual or potential) from not being generally known to other persons who can obtain economic value from its disclosure, but excluding any Copyrights or Patents that cover or protect any of the foregoing (collectively, "Trade Secrets"); and (v) any other proprietary, intellectual or industrial property rights of any kind or nature that do not comprise or are not protected by Marks, Patents, Copyrights or Trade Secrets.

(b) Registered Intellectual Property. Section 4.16(b) of the Company Disclosure Letter sets forth an accurate and complete lists of (A) all registered Marks and applications for registration of Marks owned by or exclusively licensed to the Company or its Subsidiary (collectively, "Company Registered Marks"), (B) all Patents owned by, or exclusively licensed to, the Company or its Subsidiary (collectively, "Company Patents") and (C) all registered Copyrights and all pending applications for registration of Copyrights owned by or exclusively licensed to the Company or its Subsidiary (collectively the "Company Registered Copyrights" and, together with the Company Registered Marks and the Company Patents, the "Company Registered IP"). No Company Registered IP owned by, or filed in the name of, the Company or its Subsidiary (the "Company-Owned Registered IP") and, to the Knowledge of the Company, no other Company Registered IP, has been or is now involved in any third party (which is not the Governmental Entity in charge of such registration) opposition or cancellation proceeding and, to the Knowledge of the Company, no such action is or has been threatened with respect to any of the Company Registered IP. All Company-Owned Registered IP and, to the Knowledge of the Company, based on notices provided to the Company, all other Company Registered IP, has been registered or obtained in accordance with all applicable legal requirements and is currently in compliance with all legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) other than any requirement that, if not satisfied, would not result in a cancellation of any such Company-Owned Registered IP, or, to the Company’s Knowledge, based on notices provided to the Company, any other Company Registered IP, or otherwise affect the priority, validity and enforceability of such Company-Owned Registered IP, or, to the Company’s Knowledge, based on notices provided to the Company, any other Company Registered IP. The Company-Owned Registered IP is subsisting and, to the Knowledge of the Company, the other Company Registered IP is subsisting. Except as set forth in Section 4.16(b) of the Company Disclosure Letter, to the Knowledge of the Company, the Company Registered IP is valid and enforceable, and no written notice or claim challenging the validity or enforceability or alleging the misuse of any of the Company Registered IP has been received by the Company. Neither the Company nor its Subsidiary have taken any action or failed to take any action that could reasonably be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidation or unenforceability of any of the Company-Owned Registered IP (other than any intentional action or intentional failure to take action pursuant to a resolution of the Company or the Subsidiary, in the case of Company-Owned Registered IP determined by the Company or the Subsidiary not to be material to their respective business), any other Company Registered IP, and all filing, examination, issuance, post registration and maintenance fees, annuities and the like associated with or required with respect to any of the Company-Owned Registered IP.

(c) Trademarks. To the Company’s Knowledge, there has been no prior use of any Company Registered Mark by any third party that would confer upon such third party superior rights in such Company Registered Mark in each country in which such Company Registered Mark is registered. All Company Registered Marks have been used by the Company and its Subsidiary in the form appearing in, and in connection with, the goods and services listed in their respective registration certificates and applications therefor.

(d) Actions to Protect Trade Secrets. The Company and its Subsidiary have taken reasonable steps to protect their rights in the Intellectual Property owned by the Company and its Subsidiary and maintain the confidentiality of all information that constitutes or at any time constituted a Trade Secret of the Company or its Subsidiary. Except as set forth in Section 4.16(d) of the Company Disclosure Letter, all current or former employees, consultants and contractors of the Company or the Subsidiary who in each case have participated in the creation of any Intellectual Property owned by the Company or its Subsidiary have entered into proprietary information, confidentiality and assignment agreements (or to an engagement agreement with the Company or its Subsidiary under which there are such provisions) substantially in the Company’s or its Subsidiary’s standard forms (which have previously been provided to Buyer).

(e) Ownership. Except as set forth in Section 4.13(e) of the Company Disclosure Letter, each of the Company and its Subsidiary owns exclusively all right, title and interest to its Company-Owned Registered IP and has all necessary valid license rights to all other Intellectual Property used by the Company or its Subsidiary, free and clear of any Lien (except for the terms and restrictions set forth under any license agreement pursuant to which the Company is using any such other Intellectual Property), other than Permitted Liens (except as set forth in Section 4.1(a) of the Company Disclosure Letter) or adverse ownership claim, and neither the Company nor its Subsidiary has received any written notice or claim challenging the Company’s or its Subsidiary’s ownership or right of use of any of such Intellectual Property. None of the Intellectual Property owned by the Company or its Subsidiary and, to the Knowledge of the Company, none of the Intellectual Property exclusively licensed to the Company or its Subsidiary, is subject to any outstanding order, judgment, stipulation or agreement restricting the use thereof by the Company or its Subsidiary (other than restrictions set forth in licensing agreements, and those covering commercially available off-the-shelf standard desktop software used generally by the Company or its Subsidiary in its operations and not used exclusively in connection with the development, manufacture or operation of any Company Product).

(f) License Agreements. Section 4.16(f) of the Company Disclosure Letter sets forth a complete and accurate list of all agreements granting to the Company or its Subsidiary any right under or with respect to any Intellectual Property owned by a third party that is used in connection with the business of the Company or its Subsidiary, other than any commercially available off-the-shelf standard desktop software applications in object code form used generally in the Company’s or its Subsidiary’s operations and not used exclusively in connection with the development, manufacture or operation of any Company Product (collectively, the "Inbound License Agreements"), indicating for each Inbound License Agreement, the title and the parties thereto. Section 4.16(f) of the Company Disclosure Letter sets forth a complete and accurate list of all license agreements under which the Company or its Subsidiary grant any rights under any Intellectual Property, excluding non-exclusive, end-user and other customary licenses granted by the Company or its Subsidiary in the ordinary course of business to purchasers or distributors of the Company Products. Section 4.16(f) of the Company Disclosure Letter lists the amount of or the obligation to pay any future royalty, license fee or other payments that may become payable by the Company or its Subsidiary under each such Inbound License Agreement by reason of the use or exploitation of the Intellectual Property licensed thereunder. To the Knowledge of the Company, no loss or expiration of any Intellectual Property licensed to the Company or its Subsidiary under any Inbound License Agreement is pending or, to the Knowledge of the Company, threatened, other than expirations which would occur due to the end of the applicable legal protection afforded thereto (e.g. the expiration of a Patent at the end of its term) or the expiration of any Inbound License Agreement in accordance with its terms. There is no outstanding or, to the Knowledge of the Company, threatened dispute or disagreement with respect to (i) any Inbound License Agreement or (ii) any license agreement under which the Company or its Subsidiary grants any rights under any Intellectual Property (collectively, the "Outbound License Agreements"), in each case, as to which the Company or its Subsidiary has exchanged any communications in writing (including emails) with the other party thereto, that could affect any of the respective rights and obligations of the parties thereunder, nor has the Company or its Subsidiary breached any of its obligations under any Inbound License Agreement or Outbound License Agreement. Except as set forth in Section 4.16(f) of the Company Disclosure Letter, the execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby, shall not result in the loss or impairment of, or give rise to any right of any third party to terminate or re-price or otherwise modify any of the Company’s or its Subsidiary’s rights or obligations under any Inbound License Agreement or any Outbound License Agreement.

(g) Sufficiency of IP Assets; Transfers; Continuing Rights. The Intellectual Property owned by the Company or its Subsidiary or validly licensed to the Company or its Subsidiary under the Inbound License Agreements constitutes all the Intellectual Property rights necessary for the conduct of the Company’s and its Subsidiary’s business as it is currently conducted. Neither the Company nor its Subsidiary has transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property owned by the Company. Upon the Closing and subject to the provisions of the Contracts specified in Section 4.16(f), Buyer, through its ownership of the Surviving Corporation, shall succeed to all of the Intellectual Property rights necessary for the conduct of the Company’s and its Subsidiary’s businesses as they are currently conducted, and all of such rights shall be exercisable by Company or its Subsidiary to the same extent as by the Company and its Subsidiary prior to the Closing.

(h) No Infringement. None of the Company Products nor any Intellectual Property owned by the Company, or, to the Knowledge of the Company, Intellectual Property not owned by the Company or its Subsidiary but used, displayed, published, sold, distributed or otherwise commercially exploited by the Company or its Subsidiary, has infringed upon, misappropriated or violated or, to the Knowledge of the Company, if used, displayed, published, sold, distributed or otherwise commercially exploited by the Company or its Subsidiary in the manner currently contemplated by the Company and its Subsidiary, would infringe upon, misappropriate, or violate, any Intellectual Property of any third party or constitute unfair competition or trade practices under the laws of any relevant jurisdiction. Further, except as set forth in Section 4.16(h) of the Company Disclosure Letter, neither the Company nor its Subsidiary has received any written notice or claim asserting or suggesting that any such infringement, misappropriation, or violation, unfair competition or trade practices has occurred, nor, to the Knowledge of the Company, is there any reasonable basis therefor. To the Knowledge of the Company, no third party is misappropriating or infringing any Intellectual Property owned by or exclusively licensed to the Company or its Subsidiary and, to the Knowledge of the Company, no third party has made any unauthorized disclosure of any Trade Secrets of the Company or its Subsidiary.

(i) Software. Except as set forth in Section 4.16(i) of the Company Disclosure Letter, no source code of any computer software owned by the Company or its Subsidiary has been licensed or otherwise provided to another Person (other than an escrow agent pursuant to the terms of a source code escrow agreement, a copy of which has been provided to the Buyer) and the Company and its Subsidiary have taken reasonable steps to protect all such source code as a Trade Secret of the Company or its Subsidiary. Except as disclosed in Section 4.16(i) of the Company Letter no software which is owned by the Company and embedded in any Company Product (i) contains any code that is owned by any third party, including any code that is licensed to the Company or its Subsidiary pursuant to the provisions of any "open source" license agreement or any other license agreement that requires source code to be distributed or made available in connection with the distribution of the licensed software in object code form, or (ii) that limits the amount of fees that may be charged in connection with sublicensing or distributing such licensed software (each, an "Open Source License"). Except as set forth in Section 4.16(i) of the Company Disclosure Schedule, one of the Company’s or its Subsidiary’s products in which software is embedded is, as a result of the intermingling or integration of code owned by the Company or its Subsidiary with any "open source" licensed under any Open Source License, in whole or in part, subject to the provisions of any Open Source License.

(j) Export Restrictions. Neither the Company nor its Subsidiary has exported or transmitted products or other materials to any country to which such export or transmission is restricted by any Applicable Law, without first having obtained all necessary and appropriate government or other necessary licenses or permits.

(k) Employee Confidentiality Agreements. To the Knowledge of the Company, no employee of, or consultant to, the Company or its Subsidiary is obligated under any agreement or subject to any judgment, decree or order of any court or administrative agency, or any other restriction that would interfere with his or her carrying out his or her duties for the Company or its Subsidiary to fulfill its undertakings towards the Company or its Subsidiary under such Person's applicable contract with the Company or its Subsidiary. To the Knowledge of the Company, at no time during the conception of, or reduction to practice of any Intellectual Property owned or developed by the Company or its Subsidiary was any developer or inventor of such Intellectual Property operating under any grants from any Governmental Entity or private source, performing research sponsored by any Governmental Entity or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that would be reasonably expected to adversely affect the Company’s or its Subsidiary’s rights in such Intellectual Property. To the Knowledge of the Company, there exist no inventions by current or former employees or consultants of the Company or its Subsidiary made or otherwise conceived prior to their commencement of employment or consultation with the Company or its Subsidiary that have been or shall be incorporated into any of the Company’s or its Subsidiary’s Intellectual Property or products, in each case which have not been duly and fully assigned to the Company and/or its Subsidiary.

(l) Intellectual Property Opinions. The Company and/or its Subsidiary have provided to Buyer a true and correct copy of all written opinions of counsel relating to the validity, enforceability or infringement of Intellectual Property owned by the Company or its Subsidiary that the Company or its Subsidiary have ever received.

(m) Governmental Funding. Except as set forth in Section 4.16(m) of the Company Disclosure Letter, no funding, facilities or resources of a Governmental Entity, university, college, other educational institution or research center or funding from third parties was used in the development of the Intellectual Property owned or purportedly owned by the Company or its Subsidiary or, to the Knowledge of the Company, exclusively licensed to the Company, and no such Governmental Entity, university, college, other educational institution or research center has, to the Knowledge of the Company, any claim or right in or to such Intellectual Property.

Section 4.17 Customers and Suppliers.

(a) Neither the Company nor its Subsidiary has any outstanding disputes concerning any Company Product with any customer or distributor who, in the year ended December 31, 2010 or the six months ended June 30, 2011, was one of the 5 largest sources of revenues for the Company and its Subsidiary, based on amounts paid or payable (each, a "Significant Customer"). Each Significant Customer is listed on Section 4.17(a) of the Company Disclosure Letter. Neither the Company nor its Subsidiary has received any written information from any Significant Customer that it shall not continue as a customer of the Company or its Subsidiary (or the Surviving Corporation or Buyer) after the Closing or that such customer intends to terminate or modify existing Contracts with the Company or its Subsidiary (or the Surviving Corporation or Buyer).

(b) Neither the Company nor its Subsidiary has any outstanding dispute concerning products and/or services provided by any supplier who, in the year ended December 31, 2010 or the six months ended June 30, 2011, was one of the 5 largest suppliers of products and/or services to the Company and its Subsidiaries, based on amounts paid or payable (each, a "Significant Supplier"). Each Significant Supplier is listed on Section 4.17(b) of the Company Disclosure Letter. Neither the Company nor its Subsidiary has received any written information from any Significant Supplier that such supplier shall not continue as a supplier to the Company or its Subsidiary (or the Surviving Corporation or Buyer) after the Closing or that such supplier intends to terminate or modify existing Contracts with the Company or its Subsidiary (or the Surviving Corporation or Buyer). The Company and its Subsidiary have access to all products and services reasonably necessary to carry on their respective businesses.

Section 4.18 Insurance. Section 4.18 of the Company Disclosure Letter contains a list of all policies of title, property, fire, casualty, liability, life, business interruption, product liability, sprinkler and water damage, workmen’s compensation, libel and slander, and other forms of insurance of any kind relating to the business and operations of the Company and its Subsidiary in each case which are in force as of the date hereof (the "Insurance Policies"). All of the Insurance Policies are maintained with reputable insurance carriers, provide commercially reasonable coverage for all normal risks incident to the business of the Company and its Subsidiary and their respective properties and assets, and are in character and amount similar to that carried by Persons engaged in similar businesses and subject to the same or substantially similar perils or hazards. The Company and its Subsidiary have made any and all payments required to maintain the Insurance Policies in full force and effect. Neither the Company nor its Subsidiary has received written notice of default under any Insurance Policy, and has not received written notice or, to the Knowledge of the Company, oral notice of any pending or threatened termination or cancellation, coverage limitation or reduction or premium increase with respect to any Insurance Policy.

Section 4.19 Transactions with Affiliates.

(a) For purposes of this Section 4.19, the term "Affiliated Person" means (i) any holder of more than 5% of the Company Capital Stock, (ii) any director or officer of the Company or its Subsidiary or any consultant of the Company or the Subsidiary providing services customarily provided by a director or officer, (iii) any member of the immediate family of any of such persons, or (iv) any Person that is controlled by any of the foregoing.

(b) Except as described inSection 4.19(b) of the Company Disclosure Letter, since the Balance Sheet Date, neither the Company nor its Subsidiary has, in the ordinary course of business or otherwise, (i) purchased, leased or otherwise acquired any property or assets or obtained any services from, (ii) sold, leased or otherwise disposed of any property or assets or provided any services to (except with respect to remuneration for services rendered in the ordinary course of business as director, officer or employee of the Company or its Subsidiary), (iii) entered into or modified in any manner any contract with or (iv) borrowed any money from, or made or forgiven any loan or other advance (other than expenses or similar advances made in the ordinary course of business) to any Affiliated Person.

(c) Except as described Sectionin 4.19(c) of the Company Disclosure Letter and expect with respect to services provided by any director, officer or employee of the Company or its Subsidiary in their capacity as such and any remuneration provided by the Company or its Subsidiary in consideration thereof in the ordinary course of business (i) neither the Company nor its Subsidiary has any obligation or commitment towards any Affiliated Person thereof, and (ii) no Affiliated Person of either the Company or its Subsidiary has any obligation or commitment thereto.

Section 4.20 Title to and Sufficiency of Assets.

(a) Except as set forthSection in 4.20(a) of the Company Disclosure Letter, the Company and its Subsidiary own good and marketable title to all of their assets constituting personal property (excluding, for purposes of this sentence, assets held under leases), free and clear of any Liens, other than Permitted Liens. Such assets, together with all assets held by the Company and its Subsidiary under leases and licenses of Intellectual Property, include all tangible and intangible personal property, contracts and rights necessary for the operation of the businesses of the Company and its Subsidiary as currently conducted and as currently proposed to be conducted.

(b) As of the date hereof, neither the Company nor its Subsidiary own any Real Estate. All Real Estate leases held by the Company or its Subsidiary, are adequate for the operation of the businesses of the Company and its Subsidiary in substantially the same manner as presently conducted and as currently proposed to be conducted. The leases to all Real Estate occupied by the Company and its Subsidiary are listed in Section 4.20(b) of the Company Disclosure Letter, are in full force and effect and, to the Knowledge of the Company, no event has occurred which with the passage of time, the giving of notice, or both, would constitute a material default or event of default by the Company or its Subsidiary or, to the Knowledge of the Company, any other Person who is a party signatory thereto.

Section 4.21 Brokers. Except as disclosed in Section 4.21 of the Company Disclosure Letter, no broker, investment banker or other Person is entitled to any broker’s, finder’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or its Subsidiary.

Section 4.22 Books and Records. The Company has provided to Buyer true, correct and complete copies of each document that has been requested by Buyer in connection with its legal and accounting review of the Company and/or any Subsidiary (other than any such document that does not exist or is not in the Company’s possession and is not subject to its control). Without limiting the foregoing, the Company has provided to Buyer complete and correct copies of (a) all documents identified on the Company Disclosure Letter, (b) the Certificate of Incorporation and Bylaws or equivalent organizational or governing documents of the Company and its Subsidiary, each as currently in effect, (c) the minute books containing records of all proceedings, consents, actions and meetings of the Board of Directors, committees of the Board of Directors and stockholders of the Company and its Subsidiaries, (d) the stock ledger, reflecting all stock issuances and transfers and all stock option and warrant grants and agreements of the Company and its Subsidiary, currently in effect, and (e) all material permits, orders and consents issued by any regulatory agency with respect to the Company and its Subsidiary. The minute books of the Company and its Subsidiary provided to Buyer contain a complete and accurate summary, in all material respect of all meetings of directors and stockholders or actions by written consent since the time of incorporation of the Company and its Subsidiary through the date of this Agreement, and reflect all transactions referred to in such minutes accurately. The books, records and accounts of the Company and its Subsidiary (i) are true, correct and complete, in all material respects, and (ii) have been maintained in accordance with Applicable Law and reasonable business practices on a basis consistent with prior years and (iii) are stated in reasonable detail and accurately and fairly reflect the material transactions and dispositions of the assets and properties of the Company and its Subsidiary, customarily described in books and records of companies.

Section 4.23 Accuracy of Information. None of the representations or warranties made by the Company herein or in any exhibit or schedule hereto, including the Company Disclosure Letter, or in any certificate furnished by the Company pursuant to this Agreement, when all such documents are read together in their entirety, contains or will contain at the Closing any untrue statement of a material fact, or omits or will omit at the Closing to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they are made, not misleading. There is no material fact or information, individually or in the aggregate, relating to the business, financial condition, affairs, operations or assets of the Company and its Subsidiaries that has not been disclosed to Buyer by the Company and/or its Subsidiary.

Section 4.24 No Other Representations or Warranties. Except for the representations and warranties contained in this Agreement or any of the Transaction Documents to which it is a party, the Company makes no other express or implied representations or warranties with respect to the Company, its Subsidiary, the transactions contemplated by this Agreement or any other Transaction Documents and the Company and its Subsidiary disclaim any other representations and warranties, whether made by any Rights Holders, the Shareholder Representative, the Company, its Subsidiary or any of their respective officers, directors, employees, agents or representatives. Except for the representations and warranties contained in this Agreement or in any of the Transaction Documents to which it is a party, the Company hereby disclaims all liability and responsibility for any representation, warranty, projection, forecast, statement, or information made, communicated, or furnished (orally or in writing) to Buyer and Sub or any of their respective affiliates or representatives.

Article V CONDUCT PRIOR TO THE EFFECTIVE TIME

Section 5.1 Conduct of Business of the Company and its Subsidiary. During the period from the date hereof and continuing until the earlier of the termination of this Agreement and the Effective Time:

(a) the Company shall, and shall cause its Subsidiary to, conduct its business in the ordinary course in substantially the same manner as heretofore conducted (except to the extent expressly provided otherwise in this Agreement) and in compliance with all Applicable Laws;

(b) the Company shall, and shall cause its Subsidiary to use its best efforts, consistent with past practice, to preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it;

(c) the Company shall promptly notify Buyer of any change, occurrence or event which, individually or in the aggregate with any other changes, occurrences and events, would reasonably be expected to cause a Material Adverse Affect with respect to the Company or its Subsidiary or cause any of the conditions to Closing set forth in Article VIII not to be satisfied;

(d) the Company shall, and shall cause its Subsidiary to, assure that each of its Contracts entered into after the date hereof will not require the procurement of any consent, waiver or novation or provide for any change in the obligations of any party in connection with, or terminate as a result of the consummation of, the Merger, and shall give reasonable advance notice to Buyer in connection with the early termination of any Material Contract not in accordance with its terms; and

(e) the Company shall, and shall cause each Subsidiary to, make reasonable commercial efforts to maintain each of its leased premises in accordance with the terms of the applicable lease.

Section 5.2 Restrictions on Conduct of Business of the Company and Subsidiaries. Without limiting the generality or effect of the provisions of Section 5.1, during the period from the date hereof and continuing until the earlier of the termination of this Agreement and the Effective Time, the Company shall not, and shall cause its Subsidiary not to, do, cause or permit any of the following (except to the extent expressly provided otherwise in this Agreement, required in order to consummate the transactions hereof, or as consented to in writing by Buyer:

(a) Charter Documents. Cause or permit any amendments to its Company Charter or equivalent organizational or governing documents of the Company's Subsidiary;

(b) Dividends; Changes in Capital Stock. Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, non-employee directors and consultants in accordance with agreements entered into prior to the date hereof providing for the repurchase of shares in connection with any termination of service;

(c) Material Contracts. Enter into any Contract that would constitute a Material Contract or violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the terms of any of its Material Contracts; in each case, other than in connection with violations, except in the ordinary course of business.

(d) Issuance of Securities. Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of any shares of Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other Contracts of any character obligating it to issue any such shares or other convertible securities, other than the issuance of shares of Company Capital Stock pursuant to the exercise of Company Stock Options and Company Warrants and the conversion of Convertible Loans;

(e) Employees; Consultants; Independent Contractors. (i) hire any additional officers or other employees, or any consultants or independent contractors, engaged for the purposes of providing services customarily performed by executives (ii) terminate (other than for cause or similar provisions under either the applicable employment agreement or Applicable Law) the employment, change the title, office or position, or materially reduce the responsibilities of any management, supervisory or other key personnel of the Company or any Subsidiary (except if such change is pursuant to agreement existing as of the date hereof), (iii) amend or extend the term of any employment or consulting agreement with any officer, employee, consultant or independent contractor, or (iv) enter into any Contract with a labor union or collective bargaining agreement (unless required by Applicable Laws);

(f) Loans and Investments. Make any loans or advances (other than routine expense advances to employees and directors of the Company or its Subsidiary consistent with past practice) to, or any investments in or capital contributions to, any Person or from Company's Subsidiary (other than ordinary course funding to its Subsidiary in order to fund operations in amounts consistent with past practice), or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any indebtedness for borrowed money, other than as required in order to satisfy the Company's obligations under this Agreement or in accordance with the provisions of any Contract to which the Company and/or its Subsidiary is a party as of the date hereof;

(g) Intellectual Property. Transfer or license from any Person any rights to any Intellectual Property, or transfer or license to any Person any rights to any Company IP Rights (other than non-exclusive end-user licenses and other non-exclusive licenses in connection with the sale of Company Products in the ordinary course of business consistent with past practice), or transfer or provide a copy of any Company's source code to any Person (other than providing access to Company's source code to current employees and consultants of the Company or its Subsidiary involved in the development of the Company Products on a need to know basis, consistent with past practice, or pursuant to existing Contracts by which the Company or the Subsidiary are bound);

(h) Dispositions and Liens. Sell, lease, license or otherwise dispose of or create any Lien (other than Permitted Liens) on any of its properties or assets (other than non- exclusive end-user licenses and other non-exclusive licenses in connection with the sale of Company Products in the ordinary course of business consistent with past practice), or enter into any Contract with respect to the foregoing;

(i) Indebtedness. Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others, except for withdraws made on account of existing credit facilities or extension thereof subject to a written notice to Buyer in this respect;

(j) Leases. Enter into any operating lease in excess of $150,000- or any leasing transaction of the type required to be capitalized in accordance with IFRS;

(k) Payment of Obligations; Collection of Receivables. Pay, discharge or satisfy, (i) any amounts due under any promissory note issued by the Company to any officer or director of the Company as of the date hereof, or (ii) any amount in excess of $25,000 in any one case or $50,000 in the aggregate, of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) arising otherwise than in the ordinary course of business or pursuant to Contracts made available to Buyer, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the Financial Statements and Company Transaction Expenses or (iii) defer payment of any accounts payable other than in the ordinary course of business consistent with past practice, or give any discount, accommodation or other concession other than in the ordinary course of business consistent with past practice, or in order to accelerate or induce the collection of any receivable;

(l) Capital Expenditures. Make any capital expenditures, capital additions or capital improvements in excess of $50,000 individually or $100,000 in the aggregate;

(m) Insurance. Change the amount of any insurance coverage;

(n) Termination or Waiver. Terminate or waive any right of substantial value;

(o) Employee Benefit Plans; Pay Increases. Adopt or amend any Company Plan or amend any compensation, benefit, entitlement, grant or award provided or made under any such Company Plan, except in each case as required under Applicable Laws, pay any special bonus or special remuneration to any employee or non-employee director or consultant, except to the extent paid in accordance with the provisions of any Contract by which the Company and/or its Subsidiary is bound, or increase the salaries, wage rates or fees of its employees or consultants except to the extent such increase is in accordance with the provisions of any Contract by which the Company and/or its Subsidiary is bound, or add any new members to the Board of Directors of the Company or its Subsidiary;

(p) Severance Arrangements. Grant or pay, or enter into any Contract providing for the granting of any severance, retention or termination pay, or the acceleration of vesting or other benefits, to any Person, except as required in accordance with the provisions of Applicable Laws or any Contract by which the Company and/or its Subsidiary is bound;

(q) Lawsuits; Settlements. (i) Commence a lawsuit other than (A) for the routine collection of bills, (B) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business or assets (provided that it consults with Buyer prior to the filing of such a suit), or (C) for a breach of this Agreement or (ii) settle or agree to settle any pending or threatened lawsuit or other dispute, except for any settlement concerning the routine collection of bills;

(r) Acquisitions. Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets not in the ordinary course of business which are material, individually or in the aggregate, to its and its Subsidiary’s business, or enter into any Contract with respect to a joint venture, strategic alliance or partnership;

(s) Taxes. Make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file (except if such filing is made in order to meet time limitations under Applicable Law) any Tax Return or any amendment to a Tax Return; all as set forth under Applicable Laws or the requirements of a Governmental Authority, or enter into any Tax sharing or similar agreement or closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, or enter into intercompany transactions giving rise to deferred gain or loss of any kind;

(t) Accounting. Change accounting methods or practices (including any change in depreciation or amortization policies) or revalue any of its assets (including writing down the value of inventory or writing off notes or accounts receivable otherwise than in the ordinary course of business), except in each case as required by changes in IFRS as concurred with its independent accountants and after notice to Buyer;

(u) Real Property. Enter into any agreement for the purchase, sale or lease of any real property or owned tenant improvements;

(v) Warranties, Discounts. Change the manner and practice in which it provides warranties, discounts or credits to customers;

(w) Interested Party Transactions. Enter into any Contract in which any Affiliated Person of the Company has an interest under circumstances that, if entered immediately prior to the date hereof, would require that such Contract be listed on Section 4.19 of the Company Disclosure Letter, except if such Contract is being entered into in accordance with or pursuant to the provisions hereof;

(x) Grants. Apply for, or obtain funds under any Grants, except for receipt of funds under Grants obtained prior to the date hereof; and

(y) Other. Take or agree in writing or otherwise to take, any of the actions described in clauses (a) through (x) in this Section 5.2, or any action which would reasonably be expected to make any of the Company’s representations or warranties contained in this Agreement untrue or incorrect in a manner adverse to the Company (such that the condition set forth in the first sentence of Section Section 8.3(a) would not be satisfied) or prevent the Company from performing or causing the Company or its Subsidiary not to perform one or more covenants required hereunder to be performed by the Company or its Subsidiary (such that the condition set forth in the second sentence of Section 8.3(a) would not be satisfied).

Section 5.3 Point of Contact. All notices, request for consents and other communications pursuant to this Article V shall be in writing, delivered in accordance with Section 10.6 and shall be sent by Company’s point of contact to Buyer’s point of contact as detailed in Schedule IV attached hereto.

Article VI ADDITIONAL AGREEMENTS

Section 6.1 Public Announcements.

Each of Buyer and the Company shall consult with one another before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statement with respect to the transactions contemplated hereby, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by Applicable Law or by the regulations of an applicable securities exchange applicable to the Company, the Subsidiary or any of the Company's Affiliates or to the Buyer.

Section 6.2 Insurance and Indemnification.

(a) Notwithstanding anything to the contrary in this Agreement, Buyer and Sub agree, and shall ensure, that the indemnification provisions set forth in the Company’s Certificate of Incorporation, the Company’s By-laws and its Subsidiary’s Articles of Association, as well as any indemnification agreements and undertakings entered into on or prior to the date hereof with a director, officer, observer or employee, in each case, of the Company or its Subsidiary, and, in each case, as in effect immediately prior to the Effective Time, shall survive the Closing. Prior to the Effective Time, Buyer and Sub have caused the Certificate of Incorporation and By-laws of the Surviving Corporation to reflect such pre-existing indemnification provisions and agree not to amend, repeal or otherwise modify the Surviving Corporation’s Certificate of Incorporation or By-laws, or the corresponding provisions of the Subsidiary’s Articles of Association, for a period of seven (7) years after the Effective Time in any manner that would adversely affect the rights thereunder of the individuals who on or at any time prior to the Effective Time were directors, officers, observers or employees of the Company or its Subsidiary and were covered by such indemnities, except to the extent required in order to comply with Applicable Laws. Buyer shall ensure that the provisions of this Section shall apply to the surviving entity of any merger or other reorganization of the Surviving Corporation.

(b) Buyer and Sub acknowledge that prior to the Closing, the Company may obtain a non-cancelable run-off insurance policy, for a period of up to seven (7) years after the Closing Date, to provide insurance coverage for events, acts or omissions occurring on or prior to the Effective Time for all persons who were directors, officers, observers or employees of the Company or its Subsidiary on or prior to the Effective Time the costs of which will be set forth in the Schedule of Expenses. Following the Effective Time, the Surviving Corporation and Buyer shall act, with respect to any claims which may be made against the aforesaid directors, officers, observers, or employees of the Company or its Subsidiary from time to time in connection with their service to the Company or its Subsidiary, in a manner which is consistent with such insurance policy, with a view towards ensuring the application of the coverage thereunder.

Section 6.3 Release and Waiver. Buyer and the Company, on behalf of themselves and (if applicable) their assigns and successors (including the Surviving Corporation), irrevocably and unconditionally waive, as of the Closing, all direct and indirect claims, suits and demands against any current or former director, observer, officer, employee, agent, holder of Company Capital Stock or holder of Company Stock Options of the Company or its Subsidiary, in such capacity, together with their respective heirs, executors, agents, advisers, representatives, assigns, successors, beneficiaries and trustees (together, the “Released Parties”), that they may have in connection with this Agreement, the transactions contemplated herein, or any of their actions or omissions in connection with or relating to the Company or its Subsidiary which preceded the Effective Time. The release and waiver contained herein shall not apply to a Released Party for (i) any act of fraud or willful misconduct committed by such Released Party, or (ii) any breach of this Agreement or any of the Transaction Documents. Nothing in this Section 6.3 shall derogate from the rights of the parties pursuant to this Agreement, including pursuant to Article VII.

Section 6.4 Stockholder Approval and Board Recommendation.

From and after the date of this Agreement until the earlier of the Effective Time or termination of this Agreement pursuant to Article IX:

(a) Notwithstanding the execution and delivery of the Company Stockholder Consent, the Company shall exercise commercially reasonable efforts to obtain as soon as practicable after the execution and delivery of this Agreement the signatures from all holders of Company Capital Stock on the Company Stockholder Consent, from such holders of Company Capital Stock who did not previously execute the Stockholders Undertaking, the Stockholders Undertaking and from all the Carve-Out Plan Participants the signatures on the Carve-Out Participant Undertakings in the form attached hereto as Exhibit I1 (the " Carve-Out Participant Undertakings"). By 5:00 p.m. Israel Time on the last Business Day prior to the Closing Date (the “Stockholder Written Consent Effective Time”), the Stockholder Written Consent shall be filed in the Company’s records.

(b) This Agreement and the Merger shall be submitted for approval by the Company's stockholders, and the Board of Directors of the Company shall use commercially reasonable efforts to obtain the Company Stockholder Approval as contemplated herein, even if the Board of Directors of the Company, or any committee thereof, shall have, after the execution hereof, withdrawn, amended or modified the unanimous recommendation of the Company’s Board of Directors that the holders of Company Capital Stock vote in favor of the approval of the Merger and adoption of this Agreement.

(c) Promptly after the Stockholder Written Consent Effective Time, the Company shall deliver notice to the holders of Company Capital Stock, in the form attached hereto as Exhibit M1, of the approval of the Merger, this Agreement and the transactions contemplated hereby, pursuant to and in accordance with the applicable provisions of DGCL and the Company Charter.

Section 6.5 No Solicitation.

(a) From and after the date of this Agreement until the earlier of the Effective Time or termination of this Agreement pursuant toArticle IX neither the Company nor its Subsidiary will, nor will any of them authorize or permit any of their respective officers, directors, Affiliates, stockholders or employees or any investment banker, attorney or other advisor or representative retained by any of them (all of the foregoing collectively being the “Company Representatives”) to, directly or indirectly, (i) solicit, initiate, seek, entertain, encourage, facilitate, support or induce the making, submission or announcement of any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (ii) enter into, participate in, maintain or continue any communications (except solely to provide written notice as to the existence of these provisions) or negotiations regarding, or deliver or make available to any Person any non-public information with respect to, or take any other action regarding, any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (iii) agree to, accept, approve, endorse or recommend (or publicly propose or announce any intention or desire to agree to, accept, approve, endorse or recommend) any Acquisition Proposal, (iv) enter into any letter of intent or any other Contract contemplating or otherwise relating to any Acquisition Proposal, or (v) submit any Acquisition Proposal to the vote of any securityholders of Company or its Subsidiary. Each of the Company and its Subsidiary will immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on the date of this Agreement with respect to any Acquisition Proposal. If any Company Representative, whether in his or her capacity as such or in any other capacity, takes any action that the Company is obligated pursuant to this Section 6.5 not to permit or authorize such Company Representative to take, and the Company permitted or authorized such action, then the Company shall be deemed for all purposes of this Agreement to have breached this Section 6.5.

(b) The Company shall immediately notify Buyer orally and in writing after receipt by the Company and/or its Subsidiary (or, to the Knowledge of the Company, by any of the Company Representatives), of (i) any Acquisition Proposal, (ii) any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, or (iii) any request for nonpublic information relating to the Company or its Subsidiary or for access to any of the properties, books or records of the Company or its Subsidiary by any Person or Persons other than Buyer in connection with an Acquisition Proposal.. Such notice shall describe (A) the material terms and conditions of such Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request, and (B) the identity of the Person or Group making any such Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request; in each case, to the extent the Company is not prohibited from disclosing such information either under Applicable Law or under the terms of a currently existing agreement. The Company shall keep Buyer fully informed of the status and details of, and any modification to, any such inquiry, expression of interest, proposal or offer and any correspondence or communications related thereto and shall provide to Buyer a true, correct and complete copy of such inquiry, expression of interest, proposal or offer and any amendments, correspondence and communications related thereto, if it is in writing, or a reasonable written summary thereof, if it is not in writing; in each case, to the extent the Company is not prohibited from disclosing such information either under Applicable Law or under the terms of a currently existing agreement. The Company shall provide Buyer with 48 hours prior notice (or such lesser prior notice as is provided to the members of the Board of Directors of the Company) of any meeting of the Board of Directors of the Company at which the Board of Directors of the Company is reasonably expected to discuss any Acquisition Proposal.

(c) Notwithstanding the foregoing, at any time prior to the receipt of the Company Stockholder Approval, the Company may, subject to compliance with the provisions of this Section 6.5, engage or participate in discussions or negotiations with, and furnish non-public Company information to, any Person that has made (and not withdrawn) a bona fide Acquisition Proposal that the Company’s Board of Directors reasonably determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes or is reasonably likely to lead to a Superior Proposal, if the Company’s board of directors reasonably determines in good faith (after consultation with outside legal counsel) that the failure to take such actions would reasonably be expected to be a breach of its fiduciary duties under Delaware law. The term “Superior Proposal” shall mean any bona fide written Acquisition Proposal received subsequent to the date hereof (i) which, if any cash consideration is involved, is not subject to any financing contingencies (and if financing is required, such financing is then fully committed to the third party making such Acquisition Proposal) and (ii) with respect to which the board of directors of the Company shall have reasonably determined in good faith (after consultation with its financial and legal advisors, and after taking into account, among other things, the financial, legal and regulatory aspects of such acquisition proposal, as well as any counter-offer or proposal made by Buyer) that (A) the acquiring party is reasonably capable of timely consummating the proposed acquisition on the terms proposed and without unreasonable delay and (B) the proposed acquisition would, if timely consummated in accordance with its terms, be more favorable to the Company’s stockholders (in their capacity as such), from a financial point of view, than the transactions contemplated by this Agreement (or any counter offer or proposal made by Buyer).

Section 6.6 Regulatory Approvals.

(a) The Company shall, and shall cause each Company Subsidiary to, as soon as practicable and no later than three Business Days after the date hereof, execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Entity which may be reasonably required, in connection with the consummation of the Merger and the other transactions contemplated by this Agreement. The Company shall use commercially reasonable efforts to obtain, and Buyer shall cooperate with the Company reasonably and to the extent necessary or advisable to obtain, all such authorizations, approvals and consents and shall pay any associated filing fees payable by the Company with respect to such authorizations, approvals and consents. The Company shall promptly inform Buyer of any communication between the Company and any Governmental Entity either (i) regarding any of the transactions contemplated hereby or (ii) that may impair the ability of the parties hereto to consummate the Merger hereunder. If the Company or its Subsidiary receives any formal or informal request for supplemental information or documentary from any Governmental Entity with respect to the transactions contemplated hereby, then the Company shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request. The Company shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of Buyer.

(b) Buyer shall as soon as practicable and no later than three Business Days after the date hereof execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Entity, whether foreign, federal, state, local or municipal, which may be reasonably required in connection with the consummation of the Merger and the other transactions contemplated by this Agreement. Buyer shall use commercially reasonable efforts to obtain all such authorizations, approvals and consents and shall pay any associated filing fees payable by Buyer with respect to such authorizations, approvals and consents. Buyer shall promptly inform the Company of any communication between Buyer and any Governmental Entity either (i) regarding any of the transactions contemplated hereby or (ii) that may impair the ability of the parties hereto to consummate the Merger hereunder. If Buyer or any affiliate of Buyer receives any formal or informal request for supplemental information or documentary from any Governmental Entity with respect to the transactions contemplated hereby, then Buyer shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request. Buyer shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of the Company.

Section 6.7 Rulings.

(a) The Company has, or may, file with the ITA application for the Israeli Carve -Out Tax Ruling.

(b) To the extent that the Company wishes to file the Carve-Out Tax Ruling, the Buyer shall, and shall instruct its representatives to, cooperate with the Company and its Israeli counsel and its representatives with respect to the application of the Carve-Out Tax Ruling and in the preparation of any written or oral submissions that may be necessary, proper or advisable to obtain such ruling. Subject to the terms and conditions hereof, to the extent that the Company wishes to file the Carve-Out Tax Ruling the parties shall use commercially 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 under Applicable Laws to obtain the Carve-Out Tax Ruling, as promptly as practicable. The Company’s representatives shall provide to the Buyer's representatives a prompt and full report of any such discussions held with the ITA in connection with the Carve-Out Tax Ruling and provide it in advance with copies of any notice or letter to be sent the ITA in this respect and will reasonably incorporate the Buyer's and its advisors' comments to such notices and letters. In any event, the final text of the application for the Israeli Carve-Out Tax Ruling in all circumstances be subject to the prior approval of Buyer.

Section 6.8 Reasonable Efforts. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts, and to cooperate with each other party hereto, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated hereby, including the satisfaction of the respective conditions set forth in Article VIII, and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably desirable for effecting completely the consummation of the Merger and the other transactions contemplated hereby (and including without limitation to send the forms of the Carve-Out Participant Undertakings to the Carve-Out Participants promptly following the date hereof).

Section 6.9 Third Party Consents; Notices.

(a) The Company shall use its commercially reasonable efforts to obtain prior to the Closing, and deliver to Buyer at or prior to the Closing, all consents, waivers and approvals under each Contract listed or described on Section 4.4 of the Company Disclosure Letter, solely to the extent that such approvals, waivers or consents are required to be obtained in order to consummate the transactions contemplated hereby (and any Contract entered into after the date hereof that would have been required to be listed or described on Section 4.4 of the Company Disclosure Letter if entered into prior to the date hereof).

(b) The Company shall give all notices and other information required to be given to the employees of the Company or its Subsidiary, any collective bargaining unit representing any group of employees of the Company or its Subsidiary, and any applicable Governmental Entity and any Applicable Laws in connection with the transactions contemplated by this Agreement. The Company will provide the Buyer with reasonable time to review and provide comments with respect to each such notice or other information and shall consider in good faith the Buyer’s comments.

Section 6.10 Litigation. The Company will (i) notify Buyer in writing promptly after learning of any Proceeding by or before any Governmental Entity or arbitrator initiated by or against it or its Subsidiary, or known by the Company to be threatened against the Company, its Subsidiary or any of their respective directors, officers, employees or stockholders solely in their capacity as such (a “New Litigation Claim”), (ii) notify Buyer in writing promptly of ongoing material developments in any New Litigation Claim and (iii) consult in good faith with Buyer regarding the conduct of the defense of any New Litigation Claim.

Section 6.11 Access to Information.

(a) During the period commencing on the date hereof and continuing until the earlier of the termination of this Agreement and the (i) Closing, the Company shall afford Buyer and its accountants, counsel and other representatives, reasonable access during business hours to (A) all of the Company’s and its Subsidiary’s properties, books, Contracts and records and (B) all other information concerning the business, properties and, subject to coordination with and approval of the Company's management, not to be unreasonably withheld, delayed or conditioned, personnel of the Company or its Subsidiary as Buyer may reasonably request, and (ii) the Company shall provide to Buyer true, correct and complete copies (to the extent prepared or received by the Company) of the Company’s and its Subsidiary’s (A) financial reports, (B) Tax Returns, Tax elections and all other records and work-papers relating to Taxes, and (C) receipts for any Taxes paid to foreign Taxing Authorities.

(b) Subject to compliance with Applicable Laws, from the date hereof until the earlier of the termination of this Agreement and the Closing, the Company shall confer from time to time as requested by Buyer with one or more representatives of Buyer to discuss any material changes or developments in the operational matters of the Company and of its Subsidiary and the general status of the ongoing operations of the Company and its Subsidiary.

(c) No information or knowledge obtained in any investigation pursuant to this Section 6.11 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties hereto to consummate the Merger.

Section 6.12 Financial Information.

(a) Following the Effective Time, Buyer hereby confirms and undertakes that the Company shall provide the Shareholder Representative, at its request

(A) (i) if the Effective Time is on or prior to December 31, 2011, then, by January 31, 2012, a detailed financial spreadsheet of the Company as of the Effective Time, or, (ii) if the Effective Time is on or following January 1, 2012, then, within thirty (15) days from expiration of the calendar quarter during which the Effective Time occurs, a detailed financial spreadsheet of the Company as of the Effective Time; in each case, in such form and including such information reasonably required by the Shareholder Representative in accordance with any requirements of any Applicable Law (including the requirements of any US, Israeli or other stock exchange regulations) and certified by the Company's accountants as described under clause (B) below; and

(B) (i) if the Effective Time is on or prior to December 31, 2011, then, by February 14, 2012, a balance sheet of the Company as of December 31, 2011, or (ii) if the Effective Time is on or following January 1, 2012, within thirty (30) days from expiration of the fiscal quarter during which the Effective Date occurred, a balance sheet of the Company as of the end of such fiscal quarter; in each case together with the related statements of income and statements of cash flows, changes in shareholders' equity, and profit and loss account of the Company for such year or quarter, as the case may be, all in reasonable detail, prepared in accordance with International Financial Reporting Standards ("IFRS") and audited (with respect to the annual financial statements only and otherwise reviewed) in accordance with applicable standards of the Public Company Accounting Oversight Board (“PCAOB”); in each event, prepared by an accounting firm affiliated with one of the “big four” U.S. accounting firms, which is independent with respect to Elron Electronic Industries Ltd.; and

(C) any auditor consent letters prepared by the auditors of the Company in connection with the financial statements mentioned in the foregoing clause (B); and

(D) any other financial or other information as may be reasonably required by Shareholders Representative in order to comply with any requirements of any Applicable Law (including the requirements of any US, Israeli or other stock exchange regulations);

all of the above at the cost and expense of the Shareholder Representative with respect to any fees incurred by the Buyer in excess of the fees otherwise payable by it to its accountants with respect to the preparation of the Company's quarterly or annual financial reports/spreadsheets

(b) In addition, at the request of any of the Majority Shareholders, Buyer shall cause the Company and its auditors to reasonably cooperate with such Majority Shareholder and its auditors, at the cost and expense of such Majority Shareholder, in respect of any input reasonably required by them in connection with the financial or other information mentioned in Section 6.12 above, all at the cost and expense of such Majority Shareholder with respect to any excess fees incurred by the Buyer in connection with such request.

Section 6.13 Confidentiality. The parties acknowledge that the provisions of the Confidentiality Agreement shall apply to all information furnished to the parties hereto, for the time periods set forth therein (subject to Section 6.1 above).

Article VII INDEMNITY

Section 7.1 Survival of Representations and Warranties. The parties agree that, regardless of any investigation made by the parties, the representations and warranties of the parties contained in this Agreement, any Transaction Document or any schedule, certificate or other document delivered pursuant hereto or thereto or in connection with the transactions contemplated hereby or thereby shall survive the Closing until the date that is 15 months after the Closing and shall expire on such date; provided, however, that:

(a) the representations and warranties of Buyer set forth Sectionin 3.1 (Organization, Standing and Power), Section 3.2 (Authority) and Section 3.3 (Consents and Approval; No Violations) (collectively, "Buyer Fundamental Representations") shall survive the Closing until the date that is 36 months thereafter and shall expire on such date;

(b) the representations and warranties of the Company set forth in Section 4.1 (Organization, Standing and Power), Section 4.3 (Authority), and Section 4.4 (Consents and Approval; No Violations),(collectively, "Company Corporate Representations") shall survive the Closing until the date that is 36 months thereafter and shall expire on such date;

(c) the representations and warranties of the Company set forth in Section 4.16 (Intellectual Property) ("IP Representations") shall survive the Closing until the date that is 60 months thereafter and shall expire on such date;

(d) the representations and warranties of the Company set forth Sectionin 4.10 (Tax Matters) and Section 4.2 (Capitalization) (collectively, "Company Fundamental Representations") shall survive the Closing until 30 days after the expiration of the applicable statute of limitation; and

(e) the limitations set forth in Section 7.1 shall not apply: (i) in the case of claims against such Person based upon its/his own willful breach, intentional misrepresentation or fraud, and (ii) with respect to any holder of Company Capital Stock, in case of any claims against the Company based on the Company's willful breach, intentional misrepresentation or fraud, of which such holder of Company Capital Stock had actual knowledge or would have been reasonably expected to have obtained such knowledge (without limiting the foregoing, each holder of Company Capital Stock who is (or whose Affiliate or other representative is) as of the date hereof, or was (or whose Affiliate or other representative was) at any time during the 90 days ending on the date hereof, a member of the Board of Directors of the Company or the Subsidiary, shall be deemed to have such knowledge) (each, a "Fraud").

Section 7.2 Indemnification.

(a) Indemnification by Rights Holders. Subject to Section 7.1, from and after the Effective Time, Buyer, Sub and the Surviving Corporation and their respective affiliates, officers, directors, shareholders, representatives and agents (collectively, the "Buyer Indemnitees") shall be indemnified and held harmless by each Rights Holder, who shall be severally (and not jointly with the other Rights Holders), pro-rata in accordance with its respective Pro-Rata Portion, liable, from and against and in respect of any and all Losses incurred, sustained or suffered by such Buyer Indemnitee, resulting from, arising out of or relating to the following:

(i) any inaccuracy in, or breach of, any of the Company’s representations and warranties contained in this Agreement, any Transaction Document or any schedule, certificate or other document delivered at or prior to the Effective Time pursuant hereto or thereto, in each case without giving effect: (A) to any limitation or qualification as to "materiality," "material," "Material Adverse Effect" or similar qualifiers set forth in such representation or warranty, solely for purposes of determining the Losses resulting from, arising out of or relating to such breach; or (B) any update or modification of the Company Disclosure Letter made or purported to have been made on or after the date of this Agreement and not resulting from the occurrence of new events between the date hereof and the Closing Date;

(ii) any breach performed prior to the Effective Time of any covenant or agreement by the Company contained in this Agreement, any Transaction Document or any schedule, certificate or other document delivered at or prior to the Effective Time pursuant hereto or thereto (including as a result of the action or failure to act of the Company or its Subsidiary);

(iii) any Company Transaction Expenses that shall not have been reflected on the Schedule of Expenses, other than Company Transaction Expenses deducted from the Merger Consideration, as provided in Section 2.6(j) or taken into consideration as part of the Final Adjustment Statement; and

(iv) any amounts in excess of the Merger Consideration required to be paid to holders of Dissenting Shares, including any interest required to be paid thereon.

(b) Indemnification by Buyer. Subject to Section 7.1, from and after the Effective Time, Buyer shall save, defend, indemnify and hold harmless the Rights Holders and their respective affiliates, officers, directors, shareholders, representatives and agents (collectively, the "Seller Indemnitees" and, together with the Buyer Indemnitees, the "Indemnitees") from and against any and all Losses asserted against, incurred, sustained or suffered by the Seller Indemnitees as a result of, arising out of or relating to:

(i) any inaccuracy in, or breach of, any of Buyer’s or Sub’s representations and warranties contained in this Agreement, any Transaction Document or any schedule, certificate or other document delivered pursuant hereto or thereto, in each case without giving effect to: (A) any limitation or qualification as to "materiality," "material," "Material Adverse Effect" or similar qualifiers set forth in such representation or warranty solely for purposes of determining the Losses resulting from, arising out of or relating to such breach; or (B) any update of or modification of the Buyer Disclosure Letter made or purported to have been made on or after the date of this Agreement and not resulting from the occurrence of new events between the date hereof and the Closing Date; and

(ii) any breach of any covenant or agreement by Buyer or Sub contained in this Agreement, any Transaction Document or any schedule, certificate or other document delivered pursuant hereto or thereto (including as a result of the action or failure to act of Buyer or Sub).

(c) Limits on Indemnification. (i) No Indemnitee shall be entitled to indemnification from Rights Holders or Buyer, as applicable (each, the "Indemnifying Party"), for any Losses arising under Section 7.2(a)(i) or Section 7.2(b)(i), as applicable, until the aggregate amount of indemnifiable Losses which may be recovered from such Indemnifying Parties shall equal or exceed US$100,000 (the "Threshold"), in which case the Indemnifying Party shall be liable for the full amount of such Losses from the first dollar thereof, (ii) the maximum aggregate amount of indemnifiable Losses (the "Cap") which may be recovered from any Indemnifying Party by any Indemnitees pursuant to Section 7.2(a)(i) or Section 7.2(b)(i), as applicable, shall be (X) the Merger Consideration and Convertible Loan Repayment Amount (including any part thereof previously paid to Indemnitees pursuant to the indemnification provisions hereunder), except that (Y) for breaches pursuant to Section 7.2(a)(i) which are not breaches of Company Fundamental Representations or Company Corporate Representations and IP Representations, the Escrow Amount (or any remaining portion thereof); in each case, which shall be the sole and exclusive remedy of the Indemnitees for any claims pursuant to Section 7.2(a)(i) or Section 7.2(b)(i) hereof; provided, however, that (i) with respect to all Rights Holders other than BRM Capital Fund, L.P., the Threshold and the Cap shall not apply with respect to any such Person in the case of Fraud, and (ii) with respect to BRM Capital Fund, L.P. only, the Cap applicable in the event of Fraud shall be an amount equal to 125% of its Pro-Rata Portion of the Merger Consideration and Convertible Loan Repayment Amount (including any part thereof previously paid to Indemnitees pursuant to the indemnification provisions hereunder).

(d) Net Recovery. The amount of any Losses for which indemnification is permitted in favor of Buyer Indemnitees pursuant to this Section 7.2 shall be (i) reduced by any amounts actually recovered by the Buyer Indemnitees under insurance policies with respect to such Losses (net of any costs incurred in connection with the collection thereof), (ii) if the indemnity payment is treated as an adjustment to the Merger Consideration for Tax purposes pursuant to Section 7.8, increased to take account of any net Tax cost actually incurred by the Buyer Indemnitees arising from the receipt or accrual of indemnity payments hereunder (grossed up for such increase) and (iii) reduced to take account of any net Tax benefit actually realized by the Buyer Indemnitees as a result of the deductibility for Tax purposes of such Loss. In computing the amount of any such Tax cost or Tax benefit, the Buyer Indemnitees shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any items arising from the receipt of any indemnity payment hereunder or the incurrence of payment of such loss.

(e) Mitigation of Losses. Each Indemnified Party shall in all instances use its commercially reasonable efforts to mitigate any and all Losses incurred by it.

Section 7.3 Manner of Indemnification; Claims Made by Buyer Indemnitees. Subject to the provisions of Section 7.2(a):

(a) Subject to the provisions of Section 7.2(c), any Losses incurred by a Buyer Indemnitee against any Rights Holder shall be recovered as follows:

(i) First, from such Rights Holder's Pro -Rata Portion out of the remaining Escrow Amount;

(ii) Second, in connection with any Losses incurred by Buyer Indemnitees that are not satisfied in full from the Escrow Amount, from such Rights Holder's Pro- Rata Portion of the Merger Consideration (other than in connection with Fraud). For the purposes hereof, the respective Pro-Rata Portion of any Rights Holders shall be calculated based on the amounts previously paid by Buyer to such Rights Holder on account of the Merger Consideration upon the applicable Dispute Resolution Date applicable to the relevant Claim Notice.

(b) To the extent that Buyer or any Buyer Indemnitee is entitled to any indemnification from any Rights Holder under this Agreement or any Transaction Document and subject to the provisions of this Article VII, Buyer shall be entitled to offset such amount from any payment due or payable to any of the Rights Holders on account of the Total Earnout Amount, and to withhold such respective payment that it determines in good faith is reasonably expected to be necessary to satisfy any pending claim until the applicable Dispute Resolution Date, all as provided in Section 10.3 below.

Section 7.4 Notice of Claims.

(a) Any Indemnitee seeking indemnification hereunder shall give the Indemnifying Party a written notice (a " Claim Notice"), which, in the case of an Indemnification Claim by Buyer against the Rights Holders, shall be given to the Shareholder Representative, specifying in reasonable detail the facts giving rise to any Indemnification Claim and shall include in such Claim Notice (if then known) the amount or the method of computation of the amount of such Indemnification Claim, and a reference to the provision of this Agreement or any agreement, certificate or instrument executed pursuant hereto or in connection herewith upon which such Indemnification Claim is based; provided, that a Claim Notice in respect of any action at law or suit in equity by or against a third Person as to which indemnification shall be sought shall be given promptly after the action or suit is commenced; and provided further, that failure to give such notice shall not relieve the Indemnifying Party of its obligations hereunder except to the extent it shall have been prejudiced by such failure.

(b) The Buyer or the Shareholder Representative, as applicable, shall have thirty (30) Business Days after receipt of any Claim Notice pursuant hereto to provide such Indemnitee with notice of its objection to the Indemnification Claim or that it disagrees with the amount or method of determination set forth in the Claim Notice (the "Disagreement Notice"). If a timely Disagreement Notice is not received or to the extent an item is not objected to in the Disagreement Notice, the Claim Notice shall be then deemed to have been accepted and final and binding on the parties, absent manifest error. If Buyer or the Shareholder Representative, as applicable, delivers a timely Disagreement Notice, the parties shall resolve such conflict in accordance with the procedures set forth in Section 7.4(c).

(c) If Buyer or the Shareholder Representative, as applicable, has provided a Disagreement Notice, the parties shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the parties should so agree, a memorandum setting forth such agreement shall be prepared and signed by Buyer and the Shareholder Representative. In the event the parties fail to reach an agreement within thirty (30) Business Days after the date on which Buyer or the Shareholder Representative, as applicable, received the Disagreement Notice (the "Dispute Resolution Period"), the dispute may be submitted by the Indemnitee seeking indemnification to the applicable court in accordance with the provisions of Section 10.13, provided however, that Buyer may not withhold release from the Escrow Account on or following the Escrow Termination Date of any Escrow Amounts due to a Claim Notice by any Buyer Indemnitees subject to outstanding Disagreement Notice not agreed upon in accordance with the provisions hereof, to the extent that Buyer has failed to initiate legal proceedings in accordance with the provisions hereof within sixty (60) days following expiration of the applicable Dispute Resolution Period.

(d) For the purposes of this Agreement, a "Dispute Resolution Date" shall mean , with respect to each Claim Notice, (i) the lapse of the period during which Shareholder Representative may provide Buyer with a Disagreement Notice, to the extent such Disagreement Notice was not provided in accordance with the provisions of Section 7.4(b), or (ii) the date of the execution of the memorandum setting forth the agreement between the parties in accordance with the provisions of Section 7.4(c), or (iii) the date on which a competent court provides for a ruling on any Claim Notice in accordance with the provisions of Section 7.4(c).

(e) For as long as any portion of the Escrow Amount is still held in the Escrow Account, a copy of any notice provided to either the Buyer or the Shareholder Representative pursuant to the provisions of this Section 7.4 or Section 7.5 below shall be concurrently provided to the Escrow Agent.

Section 7.5 Third-Party Claims. If an Indemnified Party becomes aware of a third-party claim that such Indemnified Party believes, in good faith, may result in a demand by it for Indemnification, such Indemnified Party shall promptly notify the Indemnifying Party (Buyer or the Shareholder Representative, as applicable) in writing of such claim, and Buyer or the Shareholder Representative on behalf of the Rights Holders, shall be entitled to participate in any defense of such claim. Notwithstanding the immediately preceding sentence, the Indemnifying Party (Buyer or the Shareholder Representative, as applicable) shall have the right to conduct and control such defense, but shall not settle any such claim without the written consent of the Indemnified Party (Buyer or the Shareholder Representative as applicable) such consent not to be unreasonably withheld, unless the settlement provides for monetary remedy only to such third party, which is indemnifiable in full in accordance with the provisions hereof, in which event such consent shall not be required.

Section 7.6 Shareholder Representative.

(a) By virtue of their approval of the Merger, the Rights Holders, without any further action on the part of any Rights Holders, irrevocably constitute and appoint Elron Electronic Industries Ltd. as the representative of the Rights Holders (the "Shareholder Representative"), as the attorney-in-fact for and on behalf of each such Right Holder, and the taking by the Shareholder Representative of any and all actions and the making of any decisions required or permitted to be taken by it under this Agreement, including the exercise of the power to (a) authorize delivery to Buyer and Sub of the Escrow Amount, or any remaining portion thereof, in satisfaction of any Indemnification Claims made pursuant to Section 7.2(a) hereof, (b) agree to, negotiate, enter into settlements and compromises of and comply with orders of courts and, if applicable, awards of arbitrators with respect to such Indemnification Claims, (c) resolve any Indemnification Claims, (d) execute, perform and handle such actions as provided in and pursuant to the Escrow Agreement and Paying Agent Agreement, and (e) take all actions necessary in the judgment of the Shareholder Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement. Accordingly, the Shareholder Representative has unlimited authority and power to act on behalf of each Rights Holder with respect to this Agreement and the disposition, settlement or other handling of all Indemnification Claims, rights or obligations arising from and taken pursuant to this Agreement including, but not limited to, the authority and power to receive notices on behalf of the Rights Holders..

(b) Any notice provided to the Shareholder Representative shall be deemed to have been provided to all Rights Holders. The Rights Holders shall be bound by all actions taken by the Shareholder Representative in connection with this Agreement, and Buyer and Sub shall be entitled to rely on any action or decision of the Shareholder Representative. The Shareholder Representative shall incur no liability with respect to any action taken or suffered by him in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and to have been signed by the proper Person (and shall have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except its own willful misconduct. In all questions arising under this Agreement, the Shareholder Representative may rely on the advice of counsel, and the Shareholder Representative shall not be liable to the Rights Holders for anything done, omitted or suffered in good faith by the Shareholder Representative based on such advice. The Shareholder Representative shall not be required to take any action involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to it.

(c) The Rights Holders shall jointly and severally indemnify and hold harmless the Shareholder Representative from and against any and all Losses (including reasonable legal and expert fees and expenses incurred by the Shareholder Representative in investigating or defending (including any appeal) any claim for indemnification made against the Rights Holders pursuant to a Indemnification Claim, arising out of and in connection with its activities as Shareholder Representative under this Agreement or any Transaction Document or any schedule, certificate or other document delivered pursuant hereto or thereto or in connection with the transactions contemplated hereby or thereby.

(d) At any time, the Majority Shareholders can appoint a new Shareholder Representative (whether as a result of the resignation of the existing Shareholder Representative which may be made upon a 30-day prior notice to the Majority Shareholders or otherwise) by written consent by sending notice and a copy of the written consent appointing such new Shareholder Representative signed by such holders to Buyer. Such appointment shall be effective upon the later of the date indicated in the consent or the date such consent is received by Buyer and Sub (or, if after the Effective Time, the Surviving Corporation).

(e) The Shareholder Representative, in its capacity as such, shall not have any liability with respect to Buyer, Sub or any of the other Buyer Indemnitees under or in connection with this Agreement.

(f) All decisions, actions, consents and instructions by the Shareholder Representative shall be binding upon all the Rights Holders. Buyer and Sub shall be entitled to rely on any decision, action, consent or instruction of the Shareholder Representative as being the decision, action, consent or instruction of the Rights Holders and Buyer and Sub are hereby relieved from any liability to any Person for acts done by them in accordance with any such decision, act, consent or instruction.

(g) Notwithstanding anything to the contrary in this Agreement but subject to any Tax withholding requirement under Applicable Laws, on the Effective Time, the amount of the Shareholder Representative Fund shall be deposited by Buyer with the Paying Agent (and not to the Rights Holders), such amount being intended for use by the Shareholder Representative, and released to it by the Paying Agent from time to time at its request, in its discretion, in covering out-of-pocket expenses incurred (or to be incurred) by it (if at all) in carrying out its duties hereunder. Such amount shall be deducted from the Closing Payment payable to the Rights Holders, based on their respective Pro-Rata Portions of such amounts. Payments to the Shareholder Representative shall be made to a bank account specified by it in writing. As set forth in the Paying Agent Agreement and the Escrow Agreement, the Shareholder Representative shall have the authority to instruct the Paying Agent and/or the Escrow Agent, prior to the distribution of any portion of the Merger Consideration to the Rights Holders in accordance with the provisions hereof and thereof, to withhold a portion of such amount or pay a portion of any such amount (as applicable) to the Shareholder Representative, such portion being intended for use by the Shareholder Representative, in its discretion, in covering out-of-pocket expenses incurred or reasonably expected to be incurred by it (if at all) in carrying out its duties hereunder, and exceeding the Shareholder Representative Fund (any such amounts shall be deducted from all Rights Holders Pro-Rata between them). The Shareholder Representative may instruct the Paying Agent to invest and handle the amounts of the Shareholder Representative Fund and any additional amounts so withheld by the Paying Agent as provided in this Section 7.6(g) until the allocation or payment thereof, as the case may be, according to its commercial reasonable discretion. Promptly after the later of the Escrow Termination Date and last Earnout Payment Date, or, if Indemnification Claims are outstanding on such date, promptly after the date of settlement of all such claims, the Shareholder Representative, through the Paying Agent, shall allocate and pay any remaining amount of the Shareholder Representative Fund and of any excess amounts so withheld by the Paying Agent and any interest accrued thereon, to the Rights Holders, based on their Pro-Rata Portions, subject to any Tax withholding requirement under Applicable Laws, in the same manner set forth in Section 2.6.

Section 7.7 Waiver of Defenses. To the maximum extent permitted by law, each Indemnifying Party waives any claim or defense that the indemnity provided for herein or any other provision of any Transaction Document is unenforceable under any provision of Applicable Law.

Section 7.8 Treatment of Indemnity Payments. Any indemnification amount received by any Buyer Indemnified Party pursuant to this Article VII shall be treated as adjustments to the Merger Consideration for all purposes, to the extent permitted by Applicable Law.

Section 7.9 Sole Remedy. Subject to Section 10.3 and to all of the terms, conditions and limitations hereof, the right to indemnification under this Article VII, shall constitute the sole and exclusive right and remedy available to any party hereto (other than any claims relating to fraud or willful and intentional misconduct or intentional misrepresentation perpetrated by the party against which the claim is being made, and claims made in connection with breach of Buyer's obligation to pay any portion of the Merger Consideration or any portion thereof) for any breach of this Agreement or any other Transaction Document and none of the parties hereto shall initiate or maintain any legal action at law or in equity against any other party hereto (other than any claims relating to fraud or willful misconduct perpetrated by the party against which the claim is made and claims made in connection with breach of Buyer's obligation to pay any portion of the Merger Consideration or any portion thereof) which is directly or indirectly related to any breach of this Agreement on or after the Closing Date.

Article VIII CONDITIONS TO THE MERGER

Section 8.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party hereto to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions:

(a) No Order. No court or other Governmental Entity having jurisdiction over the Company or Buyer, or any of their respective Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporarily, preliminary or permanent) which is in effect on the Closing Date and has the effect of, directly or indirectly, restraining, prohibiting or restricting the Merger or any of the transactions contemplated hereby.

(b) Governmental Approvals. Buyer, Sub and the Company shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary for consummation of, or in connection with, the Merger and the other transactions contemplated hereby; as listed in each case in Schedule 8.1(b) hereto.

Section 8.2 Additional Conditions to Obligations of the Company. The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of the Company and may be waived by the Company in writing in its sole discretion without notice, liability or obligation to any Person):

(a) Representations, Warranties and Covenants. The representations and warranties of Buyer in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date, other than the Buyer Fundamental Representations which shall be true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date. Buyer shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it at or prior to the Closing.

(b) Stockholders Approval. The Company shall have obtained the Company Stockholder Consent from the holders of Company Capital Stock, required to be obtained for the consummation of the Merger, in accordance with the provisions hereof.

(c) Consents, Approvals and Notification Obligations. Each of the consents, authorizations, approvals or notification obligations listed on Section 3.3(b) hereto, shall have been obtained or complied with, provided however, that, with respect to the consent required from Bank Mizrahi Tefahot (UMTB), to the extent that the Company will fail to obtain such consent, Buyer may, at its sole and absolute discretion, act for the obtainment of such consent, and any amounts repaid by Buyer to the bank on behalf of the Company in connection with such consent shall be reduced from the "Closing Date Cash" for the purposes of calculation of the Purchase Price Adjustment Amount; and

(d) Buyer and Sub Closing Deliverables. Buyer and Sub shall have delivered, or caused to be delivered to the Company, at or prior to the Closing, each of the following:

(i) a copy of the Escrow Agreement, duly executed by the Buyer.

(ii) a copy of the Paying Agent Agreement, duly executed by the Buyer.

(iii) a certificate, in the form attached hereto as Exhibit N, executed on behalf of the Buyer by its Chief Executive Officer, certifying (i) that the conditions set forth in Section 8.1 (to the extent applicable to the Buyer) and this Section 8.2 have been duly satisfied; and (ii) the resolutions of the Board of Directors of the Buyer in form reasonably satisfactory to Company's counsel, approving this Agreement and the Merger.

(e) An opinion addressed to the Company from Kramer Levin, counsel to Buyer, dated as of the Closing Date, in the form attached hereto as Exhibit O.

(f) Written confirmation from Alvarion Ltd. ’s internal legal counsel that Alvarion Ltd. has duly executed this Agreement in the form attached hereto as Exhibit O1.

For the avoidance of any doubt, no Shareholder Tax Ruling shall be deemed as a condition precedent to the consummation of the transactions hereunder.

Section 8.3 Additional Conditions to the Obligations of Buyer and Sub. The obligations of Buyer and Sub to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of Buyer and Sub and may be waived by Buyer and Sub in writing in their sole discretion without notice, liability or obligation to any Person):

(a) Representations, Warranties and Covenants. The representations and warranties of the Company in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date, other than the Company Fundamental Representations and the Company Corporate Representations and the IP Representations which shall be true and accurate in all respects on and as of the date of this Agreement and on and as of the Closing Date. The Company shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by the Company at or prior to the Closing.

(b) Stockholders Approval and Carve-Out Plan Participants Approval. The Company shall have obtained the Company Stockholder Consent from the holders of Company Capital Stock, required to be obtained for the consummation of the Merger, in accordance with the provisions hereof, and the executed Carve-Out Participant Undertakings from all Carve-Out Plan Participants.

(c) Consents and Approvals. Each of the consents, authorizations or approvals listed on Section 3.3(b) of the Company Disclosure Letter, shall have been obtained in form and substance reasonably satisfactory to the Buyer and shall be in full force and effect.

(d) Company Closing Deliverables. The Company shall have delivered, or caused to be delivered, to Buyer and Sub, each of the following:

(i) an opinion addressed to Buyer from Pepper Hamilton LLP, Delaware counsel to Company, dated as of the Closing Date, in the form attached hereto as Exhibit P.

(ii) a copy of the Escrow Agreement, duly executed by the Shareholder Representative.

(iii) a copy of the Paying Agent Agreement, duly executed by the Shareholder Representative.

(iv) executed written resignations of all directors of Company and the Subsidiary, effective as of the Closing Date, in the form attached hereto as Exhibit Q.

(v) a certificate, in the form attached hereto asExhibit R, executed on behalf of the Company by its Chief Executive Officer, certifying (i) that the conditions set forth in Section 8.1 (to the extent applicable to the Company) and this Section 8.3 have been duly satisfied; and (ii) the resolutions of the Board of Directors of the Company in form reasonably satisfactory to Buyer's counsel, approving this Agreement and the Merger.

(vi) Statements/invoices from the Company’s and its Subsidiary’s lawyers and accountants, releasing and discharging Buyer, Sub, the Company, the Surviving Corporation and any of their Affiliated Persons with respect to any liability for any Company Transaction Expenses.

(e) No Material Adverse Effect. There shall not have occurred a Material Adverse Effect with respect to the Company.

(f) Maximum Dissenting Shares. Holders of no more than 1% of the Company Capital Stock shall be Dissenting Shares or shall have the right under the DGCL to become Dissenting Shares.

(g) Termination of Shareholders Agreement. The Shareholders Agreements shall have been terminated.

(h) Engagement of Consultants/Employees. At least 15 out of the 20 employees/consultants listed onSchedule V shall have executed an Amendment to Engagement Agreement and the Non-Competition Agreements (not containing carve-out retention arrangements), and in addition, such employees/consultants listed in Exhibit C who have not yet executed such documents, shall have executed an Amendment to Engagement Agreement and the Non-Competition Agreements (including carve out arrangements).

For the avoidance of any doubt, no Shareholder Tax Ruling shall be deemed as a condition precedent to the consummation of the transactions hereunder. In addition, if the Buyer consummates the transactions contemplated hereunder notwithstanding the Company's failure to obtain all of the executed Carve-Out Participant Undertakings, then, provided that the Company shall have complied with the provisions of Section 6.8 hereof, the Company shall not be deemed to have breached this Agreement (including without limitations, the provisions of Section 2.5(e) hereof), and no Buyer Indemnitee shall be entitled to any indemnification or other remedy from any Rights Holder in connection with such failure.

Article IX TERMINATION

Section 9.1 Termination. At any time prior to the Closing, this Agreement may be terminated and the Merger abandoned by authorized action taken by the terminating party:

(a) by mutual written consent duly authorized by the Company ’s Board of Directors and the Board of Directors of Buyer;

(b) by either Buyer or the Company, if the Closing shall not have occurred on or before 45 days after signing (the “Termination Date”); provided, however, that the right to terminate this Agreement under this clause (b) of Section 9.1 shall not be available to any party whose breach of this Agreement (including breach resulting in the failure to obtain any third party consents and approvals required for the consummation of the transactions contemplated hereby) has resulted in the failure of the Closing to occur on or before the Termination Date;

(c) by either Buyer or the Company, if any permanent injunction or other order of a Governmental Entity of competent authority preventing the consummation of the Merger shall have become final and non-appealable; provided, however, that the right to terminate this Agreement under this Section 9.1(c) shall not be available to any party whose breach of this Agreement has been the cause of or resulted in such injunction or other order;

(d) by Buyer, if (i) the Company shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within ten (10) Business Days after receipt by the Company of written notice of such breach (provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 8.1 or Section 8.3 to be satisfied, (ii) there shall have occurred a Material Adverse Effect with respect to the Company or its Subsidiary or (iii) if within two (2) Business Days following the date hereof the duly executed Company Stockholder Consent and Stockholder Undertaking from Elron Electornic Industries Ltd. BRM Capital Fund, L.P. are not provided to the Buyer; or

(e) by the Company, if Buyer shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within ten (10) Business Days after receipt by Buyer of written notice of such breach (provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 8.1 or Section 8.2 to be satisfied.

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 there shall be no liability or obligation on the part of Buyer, Sub, the Company or their respective officers, directors, stockholders or affiliates; provided, however, that (a) the provisions of this Section 9.2 (Effect of Termination), Section 6.1 (Public Announcements), Article X (General Provisions) and the Confidentiality Agreement shall remain in full force and effect and survive any termination of this Agreement and (b) nothing herein shall relieve any party hereto from liability in connection with any breach of such party’s representations, warranties or covenants contained herein.

Article X GENERAL PROVISIONS

Section 10.1 Amendment. This Agreement may be amended by the parties hereto at any time before or after approval of the matters presented in connection with the Merger by the holders of Company Capital Stock, provided that to the extent such amendment is made after approval of the matters presented in connection with the Merger by the holders of Company Capital Stock, such amendment shall become effective, only upon the approval thereof by the required majority of the holders of Company Capital Stock, to the extent required under Applicable Law, including without limitations, the approval of Elron Electronic Industries Ltd. and BRM Capital Fund, L.P. (and subject to the next sentence). This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. At all times following the Effective Time, all amendments shall require the written consent of the Shareholder Representative.

Section 10.2 Waiver. No delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. Unless otherwise provided, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that the parties hereto may otherwise have at law or in equity. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. Any extensions or waivers, which are given following the Effective Time, shall require the written consent of the Shareholder Representative.

Section 10.3 Remedies; Specific Performance; Set-Off. Unless otherwise provided herein, all rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions of this Agreement in addition to any other remedy to which they are entitled at law or in equity, in each case and subject to the provisions of Applicable Law, without the requirement of posting any bond or other type of security. To the extent that Buyer or any Buyer Indemnitee is entitled to any payment from any Rights Holder under this Agreement or any Transaction Document, including payment under the indemnification provisions of Article VII, the Buyer shall be entitled to offset such amount from any payment due or payable to such Rights Holders in accordance with Article II or otherwise in accordance with this Agreement. If any payment to any Rights Holder under this Agreement or the Transaction Documents, including any payment of the Merger Consideration (other than the Closing Payment), becomes due in accordance with this Agreement while a claim for indemnification that would be subject to offset against such payment is pending and not yet finally resolved, then Buyer may withhold such portion of such payment that it determines in good faith is reasonably expected to be necessary to satisfy such pending claim until such claim is resolved in accordance with the provisions hereof and in accordance with provisions of the Escrow Agreement.

Section 10.4 Fees and Expenses. Whether or not the Merger is consummated, all fees and expenses incurred in connection with or related to this Agreement in accordance with its terms and the transactions contemplated hereby, shall be paid by the party incurring such fees and expenses; provided, however, that if the Merger is consummated, all Company Transaction Expenses shall be paid as provided in this Agreement. This Section shall survive the consummation, termination or expiration of this Agreement, the Merger and the transactions contemplated hereby.

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 electronic confirmation of full receipt when transmitted by facsimile transmission or (if transmitted and received on a non-Business Day) on the first Business Day following transmission, (c) upon transmission by electronic mail, but only if followed by transmittal by national overnight courier or by hand for delivery on the next Business Day, (d) upon receipt after dispatch by registered or certified mail, postage prepaid or (e) on the next Business Day if transmitted by national overnight courier (with confirmation of delivery), in each case, addressed as follows:

if to Buyer or Sub, to:

Alvarion Ltd. 21a HaBarzel Street P.O. Box 13139 Tel Aviv, Israel 69710 Attn.: CEO Facsimile: 03-6456204 E-mail: [email protected]

Alvarion Inc. 21a HaBarzel Street P.O. Box 13139 Tel Aviv, Israel 69710

Attn.: Chairman Facsimile: 03-6456204 E-mail: [email protected]

with copies to:

Meitar, Liquornik, Geva & Leshem Brandwein 16 Abba Hillel Silver Rd., Ramat Gan 52506, Israel Attention: Maya Liquornik, Advocate and Mike Rimon, Advocate Telephone No.: +972-3-6103100 Facsimile No.: +972-3-6103111 E-mail: [email protected]; [email protected]

if to the Company, to:

Wavion Inc. C/o Wavion Ltd., 5 Hamada St. Yoqneam Ilit, Israel Attn.: Chief Financial Officer Facsimile: +972-4-9097322 E-mail: [email protected]

with copies to:

Raved, Magriso, Benkel & Co., Advocates & Notaries 37 Shaul Hamelech Blvd., Tel Aviv 64928, Israel Attn.: Einat Weidberg, Adv. and Barak Ben-Arye, Adv. Facsimile: +972-3-6060266 E-mail: [email protected]; [email protected]

If to the Shareholder Representative, to:

Elron Electronic Industries Ltd. Attn: Yaron Elad, CFO 3 Azrieli Center, Tel Aviv 67023 E-Mail: [email protected] Phone: +972-3-6075555 Fax: +972-3-6075556

with copies to:

P. Weinberg & Co. Attn: Paul Weinberg, Advocate 1 Azrieli Center, 20th Floor, Tel Aviv, 67021 Fax: 972 3 - 6091024 Email: [email protected] or to such other address, facsimile number or electronic mail 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 Interpretation.

(a) When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation."

(b) Each of the Company, Buyer, Sub and the Shareholder Representative acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require the interpretation of any claimed ambiguities in this Agreement against the drafting party has not application and is expressly waived.

Section 10.8 Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. A facsimile signature of this Agreement or any Transaction Document shall be valid and have the same force and effect as a manually signed original.

Section 10.9 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), the Transaction Documents and the Confidentiality Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. The parties stipulate and agree that no prior drafts, memoranda, notes or discussions relating to this Agreement shall be used at any time by either party in any arbitration, trial or hearing, or be used or discoverable in the discovery process pertaining thereto, to prove or evidence in any way the intention or understanding of either party with respect to any provision or part of this Agreement.

Section 10.10 No Third-Party Beneficiaries. Except for those Persons mentioned in Section 6.2 and Section 6.3 (and only with respect to Section 6.2 and Section 6.3) and the Buyer Indemnittees and Seller Indemnittees, and the Rights Holders, nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights or remedies of any nature under or by reason of this Agreement.

Section 10.11 No Additional Representations. Buyer and Sub acknowledge that (i) neither the Company nor its Subsidiary or any other Person has made any representation or warranty, express or implied, except as expressly set forth in this Agreement, and (ii) Buyer and Sub have not relied on any representation or warranty from the Company or its Subsidiary (other than as set forth in this Agreement) or any other Person in determining to enter into this Agreement. Buyer and Sub acknowledge that at the Closing, Buyer shall acquire the Company without any representation or warranty as to merchantability or fitness of the Company's and the Subsidiary's properties and assets for any particular purposes and in an "as is" condition and on a "where is" basis, except as otherwise expressly set forth in this Agreement.

Section 10.12 Governing Law. Except to the extent that the laws of the State of Delaware are mandatorily applicable to the Merger (including without limitations, in connection with claims of holders of Dissenting Shares), this Agreement shall be governed by, and construed in accordance with, the laws of the State of Israel, without regard to the conflicts of laws provisions thereof that would apply the laws of any other state.

Section 10.13 Submission to Jurisdiction. The parties hereto agree that any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the Transactions shall be brought before the competent courts in Tel Aviv-Jaffa, 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 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 outside the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process to such party’s address set forth in Section 10.6 above shall be deemed effective service of process on such party.

Section 10.14 Waivers. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES, WHERE APPLICABLE, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HEREBY FURTHER IRREVOCABLY WAIVES ANY RIGHT TO EXEMPLARY OR PUNITIVE DAMAGES.

Section 10.5 Assignment. Except as specifically provided herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (other than by operation of law) without the prior written consent of the other parties; provided, however, that Buyer may assign this Agreement to a wholly-owned subsidiary of Buyer without the prior written consent of any of the other parties subject to a prior written notice to the Shareholder Representative; provided further, that no such assignment shall limit the assignor’s obligations hereunder nor Alvarion Ltd.'s acknowledgement of this Agreement as provided below. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors or assigns.

Section 10.16 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

Section 10.17 Performance by Sub. Buyer hereby agrees to cause Sub to comply with its obligations hereunder and to cause Sub to consummate the Merger as contemplated herein and whenever this Agreement requires Sub to take any action, such requirement shall be deemed to include an undertaking of Buyer to cause Sub to take such action.

Section 10.18 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

[Signature Page Follows]

IN WITNESS WHEREOF, Buyer, Sub, the Company and the Shareholder Representatives have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above.

ALVARION INC.

By: Name: Title:

ALVARION ACQUISITION, INC.

By: Name: Title:

WAVION INC.

By: Name: Title:

SHAREHOLDER REPRESENTATIVE

By: Name: Title: Shareholder Representative

In consideration of and in order to induce the Company, the Rights Holders and Shareholder Representative to enter into the above Agreement and all related Transaction Documents with Buyer, the undersigned, which directly owns all of the issued and outstanding capital stock of Buyer, hereby absolutely and unconditionally guarantees to each of such Persons: (i) the full and timely performance by Buyer of its obligations under the above Agreement and all related Transaction Documents, including the payment of all amounts payable under or in connection therewith, (ii) Buyer’s representations and warranties made under the above Agreement and any related Transaction Documents being true and correct and (iii) which guarantee shall be a continuing guarantee and remain in full force and effect for so long as there shall remain in effect any obligations (including indemnification obligations) or any representations or warranties of Buyer under the above Agreement or any Transaction Document.

ALVARION LTD.

By: Name: Title:

Exhibit 11

ALVARION LTD.

CODE OF BUSINESS CONDUCT AND ETHICS

INTRODUCTION

Alvarion and all of its subsidiaries (collectively, “Alvarion” or the “Company”) are committed to meeting the highest standards of integrity and business ethics in the operation of the Company. These standards are set forth in the pages that follow and are reflected in the character and the conduct of the employees of the Company and its subsidiaries. We urge you to become thoroughly familiar with the contents of this Code of Business Conduct and Ethics (which is sometimes referred to simply as the “Code”) and to use it as a guideline in the performance of your responsibilities for the Company. We also encourage you to seek assistance either from your supervisor or the Human Resources Department when a question or concern arises with respect to any matter addressed in this material.

This Code is divided into four sections, each of which contains specific guidance with respect to Company conduct. As you will see, these sections can be summarized in the following general principles, which should guide each of us in the performance of our day-to-day business responsibilities:

• Be honest and trustworthy in your relationships with customers, suppliers, fellow employees, management, stockholders and the general public;

• Provide service of the highest quality;

• Conduct business in accordance with the letter, spirit and intent of applicable laws, regulations and policies;

• Maintain confidentiality of third parties including customer, employee and Company information;

• Avoid outside activities or influences which conflict with the best interests of the Company or impair the performance of your work responsibilities;

• Be economical in using Company resources;

• Refrain from using the Company’s resources and reputation for personal gain.

These principles are fundamental to the operation of every quality enterprise.

The Company may change, update, eliminate, or deviate from the guidelines in this Code, as necessary, to address specific requirements relating to various functions and areas of responsibility.

TABLE OF CONTENTS

Page I. CONFLICTS OF INTEREST 3 ` A. Fair Dealing 3 B. Respect for the Individual 3 C. Gifts and Gratuities 4 D. Illegal payments to Governmental entities 4 E. Meals and Entertainment 5 F. Outside Employment 5 G. Personal Financial Interests 5 H. Purchase of Goods and Services 6 I. Public Office 7 II. CONFIDENTIAL INFORMATION 7 A. Confidential Information 7 B. Securities Trading Policy 8 C. Media Disclosure 8 III. RECORDS, PRACTICES, PROPERTY AND ADHERENCE TO LAW 9 A. Company Data, Records, Reports, Filings and Financial Practices 9 B. Company Funds and Property 10 C. Adherence to Applicable Law 10 IV. COMPLIANCE WITH THE CODE 12 A. Responsibility for Compliance 12 B. Reporting Code Violations 12 C. Investigating and Resolving Concerns 12 D. Questions 13

I. CONFLICTS OF INTEREST

The Company respects the right of its employees to engage in activities outside of their employment, which do not conflict with the business of the Company or which do not draw direct or indirect benefits from the Company. Conflicts of interest arise when the personal interests of an employee are inconsistent with the responsibilities of his or her employment. Examples of such conflicts include any activity, interest or association that might influence, or even appear to influence, the independent exercise of an employee’s judgment in making a decision or taking an action which is in the best interests of the Company, its stockholders and the public. The following categories cover the most common situations (but by no means all situations) in which a conflict of interest may arise:

A. Fair Dealing

Every Company employee must deal fairly with the Company’s clients, vendors, competitors and fellow employees. The Company seeks to excel and outperform our competitors honestly and fairly. Competitive advantage must result from superior performance, not unethical or illegal business dealings. No Company employee may take unfair advantage of anyone through unethical or illegal measures, such as manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practices.

Our goal is to increase business by offering superior products and services. Accordingly, all Company advertising must be truthful, not deceptive and in full compliance with applicable laws, regulations and company policies. All advertising and marketing materials must be approved pursuant to the procedures established in each of the business units across the Company.

All Company employees must guard against unfair competitive practices and exercise extreme caution to avoid conduct that might violate antitrust laws or other rules prohibiting anti- competitive activities. Violations may carry criminal penalties. If a competitor or third party proposes to discuss unfair collusion, price-fixing or other anti-competitive activities, your responsibility is to object, terminate the conversation or leave the meeting and report the incident promptly to the CVP Human Resources. Employees must avoid any discussion with competitors of proprietary or confidential information, business plans or topics such as pricing or sales policies — the discussion of which could be viewed as an attempt to make joint rather than independent business decisions.

B. Respect for the Individual

The Company strives, on a personal level, to treat each individual with dignity, consideration and respect. All Company employees should be honest and fair with others, share the credit when credit is due, avoid public criticism of one another and encourage an atmosphere in which openness, cooperation and consultation are the norm. Internal relationships with fellow employees should be based on the same high standards of integrity and ethical responsibility that are observed with Company clients, shareholders and the public. The Company is committed to promoting diversity within our workforce; achieving it is an important competitive advantage in the global marketplace.

C. Gifts and Gratuities

Employees, including members of their immediate families, should not request or accept a gift, rebate, kickback, compensation or remuneration of any kind (whether it be in the form of cash, property, services or payment of expenses), from any organization or individual which supplies to, purchases from or competes with the Company or any organization or individual with which the Company does or is likely to do business. This does not apply to routine two-way exchanges of normal business courtesies, which might reasonably be expected to be exchanged in the ordinary course of business. The boundaries of “reasonableness” are not easily defined and in most instances are left to the good judgment and common sense of the employee.

In certain cases, because of protocol or courtesy, it may be appropriate to accept an unsolicited gift of nominal value. As a guideline for helping you to determine whether a particular gift, entertainment or other benefit is appropriate, you should consider whether it would be considered extravagant or excessive or whether a disinterested third party might infer that it could affect your judgment. If so, the gift, entertainment or other benefit should not be accepted. The receipt of gratuities, such as gifts or entertainment of more than nominal value, money, loans, vacations, airline tickets, or hotel accommodations, are prohibited. Under no circumstances whatsoever should any Company employee accept cash gifts from any supplier or vendor of goods or services to the Company or from any Company customer or agent. If a gift or gratuity such as those described is received, it should be promptly returned with a polite note explaining that it is contrary to Company policy to accept it. If you receive a gift, entertainment or other benefit which does not comply with this Code, or are unsure whether it complies, it should be reported in writing to the Company’s CVP Human Resources who may choose to accept the gift on behalf of the Company, determine that it is appropriate for you to keep the gift, or require that the gift be returned.

Similarly, it is also the Company’s policy to prohibit employees from making or offering payments or gifts to influence any decision to be made or action to be taken in securing or transacting Company business with another individual or organization. In many instances this is also a violation of law. This does not intend to prevent sending nominal value gifts sponsored by the Company for public holidays or special events.

D. Illegal payments to Governmental entities.

No Bribery, Kick-backs, or Payoffs. In its relations with governmental agencies, actual and potential purchasers and suppliers, distributors, vendors, subcontractors, business associates, and others, neither the Company nor any of its employees will, directly or indirectly, engage in bribery, kick-backs, payoffs, or other corrupt business practices. The Company complies with the U.S. Foreign Corrupt Practices Act.

Prohibited Payments. Payments to consultants, attorneys, suppliers, distributors, purchasers, and others are strictly prohibited if it is known or believed (or there is reason to believe) that all or a portion of such payments will be offered, given, or promised to a government employee, a member of political party, a candidate for political office, or to an employee, officer, director, business associate, or family member of an actual or potential purchaser of Company products or any employee, officer or director of the Company or a family member of any of the foregoing.

E. Meals and Entertainment

As part of the performance of an employee’s responsibilities, providing or accepting meals and refreshments, which are business related, reasonable and of the type normally exchanged in the ordinary course of business, is permitted as an exchange of normal business courtesies. However, acceptance of such meals or other amenities is prohibited when the employee has, or should have, any reason to believe that the offer is made with the intent to improperly influence the employee in the performance of his or her responsibilities for the Company.

The solicitation of entertainment from an individual or organization through special events, such as sporting events, social dinner meetings and other social events, is not to be used or even suggested as a prerequisite for that individual’s or organization’s doing business with the Company. However, such entertainment may occasionally be accepted or extended by an employee when appropriate for business objectives and when such entertainment has been or is likely to be mutually extended during the course of the business relationship. Elaborate entertainment, such as overnight or weekend trips, is not to be extended by or accepted by Company employees.

F. Outside Employment

Any outside employment or business activities engaged in by an employee must not conflict, appear to conflict, or interfere, with the employee’s ability to properly perform his or her work at the Company. Employees may not perform work or services for any person, corporation, partnership or other entity, which supplies to, purchases from or competes with the Company.

The solicitation or performance of any outside work for personal gain during working hours is prohibited. The performance of certain charitable activities may be permissible during working hours with the prior approval of the employee’s supervisor.

Employees must obtain approval from the Chief Executive Officer before serving on the board of directors of another for-profit company. Employees may serve as a director, trustee or officer of a non-profit organization in their individual capacity and on their own time, but must get prior permission from the Chief Executive Officer to do so as a representative of the Company.

G. Personal Financial Interests

A conflict with the interests of the Company arises when an employee holds an investment or other financial interest in any organization, which supplies to, purchases from or competes with the Company. Such a financial interest might arise through:

• Stock ownership, partnership or other proprietary interest, or holding of debt or debt securities.

• Receipt of remuneration, compensation, commissions, or brokerage, finders, consulting or advisory fees.

• Holding office, serving on the Board of Directors, or otherwise participating in management.

• Borrowing money. (This does not apply to loans from banks or commercial lending institutions in the usual manner.)

• Ownership of any interest in, or any dealing in, real estate, equipment, materials or property where the opportunity for such investment is presented to the employee solely or substantially as a result of his or her position with the Company or where the individual stands to gain financially due to his or her position with the Company, whether or not such activities are detrimental to the Company’s best interests.

Certain types of financial interests will not be considered substantial or material, such as ownership of less than one percent (1%) of any class of stock, debt or other securities in a public or private company or enterprise.

Employees may not do Company business with any organization in which they have a financial interest, without first obtaining the written approval of their supervisor and the CFO. Employees may not have material financial interests in any organization that competes with the Company.

H. Purchase of Goods and Services

Each year the Company spends millions of dollars in the purchase of goods and services from outside vendors and suppliers. All Company employees involved in the process of purchasing such goods and services should be objective and impartial when making purchasing related decisions. To remain fair and impartial in making decisions, employees involved in these processes should:

• Follow established policies and procedures for all steps of the purchasing process.

• Not engage in “backdoor selling” when doing business with vendors and suppliers. Backdoor selling occurs when vendors and suppliers circumvent established procedures and attempt to work directly with requisitioners and to influence purchasing decisions.

• As already discussed in detail, neither seek nor accept gratuities, favors, or other payments from vendors or suppliers as an inducement to do business.

• Not use Company funds to make personal purchases.

Situations may arise where a relative or a family member of an employee is interested in providing goods or services to the Company. So as to avoid any conflict of interest or even the appearance of impropriety with respect to such a situation, an employee should submit any such proposals to the appropriate department of the Company, disclosing the nature of the family relationship and the terms of the proposal. Under no circumstances should the employee attempt to influence or be involved with any decision with respect to any such proposal, which will only be considered on an arm’s length basis along with other similar proposals.

I. Public Office

All Company employees are required to notify and receive the approval of the CEO before committing to a candidacy for elective office or a formal position on a campaign committee and before accepting an appointment to a public or civic office. The employee must take steps to ensure that conflicts of interest are not raised by such campaign or public service. In general, a Company employee may run for and serve in local, elective or appointed civic offices, provided the activity, including campaigning:

• Occurs outside work hours;

• Involves no use of the Company’s name, facilities, client lists, assets or funding;

• Is confined solely to the person’s capacity as a private citizen and not as a representative of the Company; and

• Does not present an actual or perceived conflict of interest for the Company, as determined in the sole judgment of the Company.

II. CONFIDENTIAL INFORMATION

A. Confidential Information

As employees of the Company, we are all responsible for protecting the Company’s confidential information and using that information only for the Company’s purposes. All information developed within the Company with respect to its business is confidential and should not be disclosed to any unauthorized person. Employees should not discuss confidential Company information outside the Company, even with their families. Such information must be protected because unauthorized disclosure could destroy its value to the Company and give unfair advantage to others. Examples of Company confidential information include, without limitation, the Company’s manufacturing processes, sources of supplies, patented processes and manufacturing techniques, technologies and packaging methods, research and development of new products and new applications, pricing policies, marketing and distribution programs, computer programs and data files, non-public sales or earnings results and any other information concerning the Company’s financial, legal or other business activities. Other information that we have access to may include personal information about our fellow employees, the Company’s officers, directors and stockholders or our customers. This information is also confidential and may not be disclosed without proper authorization. The Company’s customers properly expect that this information will be kept confidential. The Company takes any violation of a customer’s confidentiality very seriously and will not tolerate such conduct.

Confidential information should be used only as necessary to do your job, and never for your own benefit. You are responsible for the safe-keeping of any confidential information, whether verbal, written or electronic, and for limiting access to those who have a need to know in order to do their jobs. That means you should avoid discussing confidential information in common areas in our buildings or in elevators, restaurants, airplanes, taxicabs or other public areas.

If you leave the Company, all information and materials (including Company information, manuals, documents, software, etc.) must be returned on or before your last day of employment. The obligation to preserve confidential information continues even after employment ends. You may not divulge or use confidential information (or documents containing confidential information) that you may have learned about or received during your employment.

B. Securities Trading Policy

Many of us who work at the Company, officers and non-officers alike, have access to confidential information concerning the Company and its affairs. Under federal securities laws, if someone possesses non-public information that is found to be “material,” that person may not buy or sell the Company’s securities while in the possession of such “inside information.” For these purposes, the Company’s securities include the common stock purchased upon the exercise of Company stock options.

The standard that applies to the use of such information is one of “materiality.” If the confidential information is “material” or, in other words, of such significance that a reasonable investor would want to know about it in deciding whether or not to invest in Company stock, then we, as employees, must not trade in Company stock until the information is fully disclosed to the public. It is also illegal to communicate (to “tip”) inside information to others so that they may trade in Company stock based upon that information. These illegal activities are commonly referred to as “insider trading.” Failing to abide by this standard could result in criminal and/or civil liability under the insider trading rules of the federal securities laws and other applicable laws.

In addition to the above, all Company employees must comply with the

Company’s Insider Trading Policy. A copy of the Insider Trading Policy can be obtaind from the Human Resources department or the Legal Department.

C. Media Disclosure

In the course of our duties, we may receive inquiries from representatives of the news media. Employees should not talk directly to reporters without prior authorization of the Company’s Chief Executive Officer or Chief Financial Officer. Unless responding to such inquiries is among your specifically authorized responsibilities, you should politely refer all media representatives to the Chief Executive Officer or Chief Financial Officer.

III. RECORDS, PRACTICES, PROPERTY AND ADHERENCE TO LAW

A. Company Data, Records, Reports, Filings and Financial Practices

In performing our responsibilities for the Company, we must prepare and/or complete all Company records, business data, reports, filings, submissions and documents in a full, fair, accurate, timely and understandable manner, including disclosure in reports and documents that the Company files with or submits to the U.S. Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company. They also include preparation and completion of time sheets, expense reports, accounting entries, cost estimates, contract proposals, and other presentations and reports to management, customers, governmental agencies, stockholders and the public. The falsification of records, manual or computer, is always unethical, generally illegal and always unacceptable to the Company.

All information transmitted both within and outside of the Company must be honest and well-founded, as the integrity of the Company’s records and reports is based on the validity and accuracy of the information on which such records and reports are based and the completeness with which such records and reports are prepared. In addition, accounting and financial reporting must follow the Company’s accounting policies as well as all generally applicable accounting principles and laws. All Company financial practices concerning accounting, internal accounting controls and auditing matters must meet the highest standards of professionalism, transparency and honesty. Employees shall promptly bring to the attention of the General Counsel of the Company or the Chairman of the Audit Committee any credible information of which he or she becomes aware that would place in doubt the accuracy and completeness in any material respect of any disclosures of which he or she is aware that have been made, or are to be made, directly or indirectly by the Company in any public SEC filing or submission or any other formal or informal public communication, whether oral or written (including but not limited to a press release).

In addition, each employee is responsible for promptly bringing to the attention of the General Counsel or the Chairman of the Audit Committee of the Company any credible information of which he or she becomes aware that indicates any deficiency in the Company’s internal control over financial reporting within the meaning of Section 404 of the Sarbanes-Oxley Act and the SEC’s implementing rules, and/or the Company’s disclosure controls and procedures for preparing SEC reports or other public communication as mandated by Section 302 of the Sarbanes-Oxley Act and the SEC’s implementing rules, even if a materially inaccurate or incomplete disclosure by or on behalf of the Company has not resulted or is not expected imminently to result from such deficiency. The Company is required by law to keep books and records that accurately and fairly reflect its business operations, its acquisition and disposition of assets and its incurrence of liabilities, as part of a system of internal accounting controls that will ensure the reliability and adequacy of these books and records and that will ensure that access to Company assets is granted only as permitted by Company policies.

B. Company Funds and Property

We are all personally responsible and accountable for the proper expenditure of Company funds. This includes Company money spent on travel and other business expenses. We are also responsible for the proper use and care of Company property over which we have control. Company equipment and other property should be handled and cared for properly and should be used only for business purposes. It should not be used for personal benefit, sold, loaned, given away, or otherwise disposed of, regardless of its condition or value, without proper authorization. You are prohibited from doing anything that involves fraud, theft, embezzlement or misappropriation of Company property. The ownership of any invention, improvements, trade- name, know-how, or any other proprietary right which you may invent, during you employment with the Company, and relates to or results from your work for the Company, is the exclusive property of the Company.

C. Adherence to Applicable Law

The Company requires that all employees, officers, directors, or any third party doing business on behalf of the Company comply with all laws, rules and regulations applicable to the Company wherever it does business. The Company acknowledges that there are differences in local laws and practices between countries. In some instances, the Code establishes policies and/or requirements that would not otherwise be required in some countries. In keeping with the Company’s commitment to meet the highest standards of business conduct wherever we do business, all employees must comply with all aspects of the Code, even if it is not required by local laws. Conversely, there may be laws in certain countries which may not specifically apply outside of those countries, and therefore, not specifically addressed in the Code. You are expected to use good judgment and common sense in seeking to comply with all applicable laws, rules and regulations and to ask for advice when you are uncertain about them.

1. Discrimination And Harassment

The Company has no tolerance for discrimination or harassment. All employment decisions are to be made without regard to race, color, age, gender, sexual orientation, religion, marital status, pregnancy, national origin/ancestry, citizenship, physical/mental disability, military status or any other basis prohibited by law. This policy applies to our directors, employees, applicants, customers and business partners (including independent contractors, vendors and suppliers). For purposes of this policy, harassment includes slurs and any other offensive remarks, jokes and other verbal, graphic, or physical conduct that could create an intimidating, hostile or offensive work environment. In addition to the above, “sexual harassment” includes unwelcome sexual advances, requests for sexual favors, and other visual, verbal, electronic, or physical conduct of a sexual nature. This definition includes many forms of offensive behavior including but not limited to the following:

• Unwanted sexual advances or propositions;

• Offering employment benefits in exchange for sexual favors;

• Making or threatening reprisals after a negative response to sexual advances;

• Visual conduct: leering, making sexual gestures, displaying of sexually suggestive objects or pictures, cartoons or posters, electronic display or dissemination of such material;

• Verbal conduct: making or using derogatory comments, epithets, slurs and jokes;

• Verbal abuse of a sexual nature, graphic verbal commentaries about a person’s body, sexually degrading words used to describe a person, suggestive or obscene letters, notes or invitations; and

• Physical conduct: touching, assault, impeding or blocking movements.

Employees are responsible for ensuring adherence to this policy and for taking appropriate and immediate action as described in Section IV.B below if they believe that a violation of this policy has occurred or if they become aware that someone is alleging that a violation has occurred.

The Company will promptly and thoroughly investigate all complaints of discrimination or harassment. Employees are expected to cooperate fully in any such investigation. Failure to do so may result in disciplinary action, including termination. If any employee is determined to have violated the Company’s policy, the Company will take appropriate corrective action which may include termination. Retaliation against employees or applicants who report violations or assist in investigations is strictly prohibited.

2. Workplace Violence

The Company will not tolerate workplace violence. Consistent with this policy, acts or threats of physical violence, including intimidation, harassment, and/or coercion, which involve or affect the Company or its employees will not be tolerated.

3. Alcohol and Drugs

Employees may not use, sell, possess, purchase or transfer alcohol or illegal drugs on Company premises, in Company vehicles or during work hours. The only exception is that alcohol may be consumed by people of legal drinking age at Company-sponsored functions that are approved by the management or business meetings if appropriate. Employees also must not be under the influence of illegal drugs or alcohol during work hours, regardless of when the drugs or alcohol were consumed. It is also a violation of this Code to sell, transfer or distribute personal prescription drugs on Company premises, in Company vehicles or during work hours.

4. Government Proceedings and Requests for Information

It is Company policy to cooperate with appropriate government requests or investigations. If you are asked to provide information (either written or verbally) for a government investigation or if a government representative appears at your workplace, call your supervisor before providing any information. All information provided should be truthful and accurate and must not obstruct, influence or impede the request for information. Employees should not alter, falsify, mutilate, cover up or destroy any documents or records related to a government request or investigation or legal proceeding.

5. The Environment

The Company is committed to minimizing any negative impact of our business activities on the environment. All employees are responsible for complying with applicable environmental laws and Company policies.

IV. COMPLIANCE WITH THE CODE

A. Responsibility for Compliance

Every employee is responsible for compliance with both the letter and spirit of this Code of Business Conduct and Ethics. Management assumes a special obligation for its own awareness and the effective communication of this Code to employees who report to them. This Code will be distributed to each new employee of the Company upon commencement of his or her employment and shall also be distributed to every employee. Managers and supervisors are encouraged to maintain an open-door policy in responding to questions regarding the Code of Business Conduct and Ethics. Frequent discussion of ethical issues, both informally and formally, is a sign of good corporate practice. These responsibilities cannot be delegated.

B. Reporting Code Violations

Any employee who knows or believes that any employee, officer, director or other representative of the Company has engaged or is engaging in conduct related to the Company that violates applicable law, this Code or any other code or practice standard applicable to such an individual, should report this information to his or her supervisor, anyone in their supervisory chain of command, the Human Resources Department or the Legal Department in person or by sending a letter or other writing to the Company’s principal executive offices to the attention of the employee’s supervisor or CVP Human Resources . You may choose to remain anonymous in reporting any possible violation of this Code. Any supervisor who receives a report of a violation of this Code must immediately inform CVP Human Resources.

Employees concerned about matters involving accounting, internal accounting controls or auditing matters should report their complaints immediately as follows: (1) by e-mail, to [email protected]; or (2) by postal mail, to Robin Hacke, 5605 Pollard Road Bethesda, MD 20816 USA.

This Code should not be construed to prohibit you from testifying, participating or otherwise assisting in any state or federal administrative, judicial or legislative proceeding or investigation.

C. Investigating and Resolving Concerns

All reports of possible violations will be forwarded to the CVP Human Resources who may assume responsibility for evaluating any possible violation and directing or conducting any investigation or may delegate any portion of such responsibility to the Human Resources Department or another person or entity within or outside the Company. If the investigation concerns a possible violation by someone from the Human Resources Department, then the Chief Executive Officer or Chief Financial Officer shall assume the responsibilities in this regard. All reports of possible violations will be handled with the utmost care and receive a thorough review.

After conducting the investigation, the results will be evaluated and the Company will authorize such swift response, follow-up and preventive actions, if any, as are deemed necessary and appropriate to address the substance of the reported possible violation. The Company reserves the right to take whatever action it believes appropriate, up to and including discharge of any employee determined to have engaged in improper conduct. The Company will quickly report illegal actions to the appropriate authorities, which may result in civil and criminal penalties.

The Company will strive to keep all reports of possible violations and the identity of those who submit them and participate in any investigation as confidential as possible. Neither the Company nor any person associated with the Company shall discharge, demote, suspend, threaten, harass or in any other manner discipline, discriminate or retaliate against any person or entity because he or she reports any violations or cooperates in any investigation or inquiry regarding violations of applicable law or this Code using the methods outlined above, unless it is determined that the report was not made in good faith. Any such retaliation will warrant disciplinary action against the person who wrongfully retaliates, which may include termination of employment.

Any waiver of the Code for executive officers and directors of the Company may be made only by the Company’s board of directors. Any such waiver must be promptly disclosed to the Company’s shareholders.

D. Questions

Employees having any questions regarding the best course of action in a particular situation should promptly contact their supervisor, anyone in their supervisory chain of command, or the Human Resources Department. These discussions may concern the employee’s activities or activities of others and may involve apparent conflicts between actions the employee has been directed to take and the standards contained in this Code.

Exhibit 12.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Eran Gorev, certify that:

1. I have reviewed this Annual Report on Form 20-F for the year ended December 31, 2011of 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: April 30, 2012

/s/ Eran Gorev Eran Gorev Chief Executive Officer

Exhibit 12.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lior Shemesh, certify that:

1. I have reviewed this Annual Report on Form 20-F for the year ended December 31, 2011 of Alvarion Ltd.;

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: April 30, 2012

/s/ Lior Shemesh Lior Shemesh 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, Eran Gorev, as 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, 2011 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: April 30, 2012

/s/ Eran Gorev Eran Gorev Chief Executive Officer

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.

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, Lior Shemesh, 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:

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 30, 2012

/s/ Lior Shemesh Lior Shemesh 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 April 30, 2012, with respect to the consolidated financial statements of Alvarion Ltd. and its subsidiaries and the effectiveness of internal control over financialreporting of Alvarion Ltd. and its subsidiaries included in this annual report (Form 20-F) for the year ended December 31, 2011.

KOST, FORER GABBAY & KASIERER Tel-Aviv, Israel A Member of Ernst & Young Global

April 30, 2012