Document:

exv10w3

 

Exhibit 10.3

SEPARATION AND ASSET PURCHASE AGREEMENT

AMONG

ECI TELECOM LTD.,

ECI TELECOM-NGTS LTD.

AND

VERAZ NETWORKS LTD.

___, 2002

 

 

INDEX TO SCHEDULES

	 	 	 
	Schedule 2.1.1:

	 	Veraz Business Assets
	 
	 	 
	Schedule 2.1.2:

	 	Assigned Contracts
	 
	 	 
	Schedule 2.1.5:

	 	Permits and Licenses
	 
	 	 
	Schedule 2.1.9:

	 	Inventories, including raw materials, work in process and finished goods
	 
	 	 
	Schedule 2.2:

	 	Assumed Liabilities
	 
	 	 
	Schedule 6.1:

	 	Business Employees
	 
	 	 
	Schedule 6.3(a):

	 	Employee Termination Agreement
	 
	 	 
	Schedule 6.3(b):

	 	Employee Letter to Veraz
	 
	 	 
	Schedule 7.4:

	 	Insurance Policies
	 
	 	 
	Schedule 7.12

	 	Assets Not Identified on Time
	 
	 	 
	Schedule 9:

	 	Pro Forma Balance Sheet of Veraz as of September 30, 2002

 

 

INDEX TO EXHIBITS

	 	 	 
	Exhibits	 	 
	Exhibit A

	 	Bill of Sale
	 
	 	 
	Exhibit B

	 	Assignment and Assumption Agreement
	 
	 	 
	Exhibit C

	 	Intellectual Property Assignment Agreement
	 
	 	 
	Exhibit D

	 	Intellectual Property License Agreement
	 
	 	 
	Exhibit E

	 	Services Agreement
	 
	 	 
	Exhibit F

	 	Sublease Agreement

 

 

Separation and Asset Purchase Agreement

     This Separation And Asset Purchase Agreement (this “Agreement”) is made and entered
into this ___day of ___, 2002, by and among Veraz Networks Ltd. [formerly Chorale
Networks Ltd.] (“Veraz”), ECI Telecom – NGTS Ltd., an Israeli company (“NGTS”) and ECI Telecom
Ltd., an Israeli company (“ECI Telecom”). (NGTS and ECI Telecom are each referred to as a “Seller”
and collectively the “Sellers”; Veraz, ECI Telecom and NGTS are each referred to as a “Party” and
collectively the “Parties”.)

WITNESSETH:

     WHEREAS, ECI Telecom, through its Next-Generation Telephony Solutions division and NGTS, a
wholly-owned subsidiary, is engaged in the development, manufacture, marketing, sale, distribution
and service of products and solutions for gateways for point-to-point, point-to-multipoint and/or
switching and non-switching applications for connecting end-to-end telephony or telephony over
packet networks, which gateways include classification and/or compression of telephony signals,
such as voice, modem, fax and/or other signals, such as video conference, and conversion of the
classified and/or compressed signals into packets in formats suitable for media, such as Ethernet,
IP, ATM or MPLS (the “VoIP Business”) and in the development, marketing, sale, distribution and
service of its DCME product line (the “DCME Distribution Business” and, together with the VoIP
Business, the “Businesses”);

     WHEREAS, the Sellers desire to sell the Businesses to Veraz Networks, Inc. formerly, NexVerse
Networks, Inc., a Delaware corporation (“Veraz Networks”), pursuant to a Share Exchange Agreement
dated as of October 30, 2002 (the “Share Exchange”);

     WHEREAS, Veraz is a wholly-owned subsidiary of ECI; and

     WHEREAS, to effectuate the Share Exchange, the Sellers desire to separate the Businesses from
the Sellers’ businesses as of the Effective Date (the “Separation”) by contributing them to Veraz
in a taxable transaction as set forth in this Agreement and the Exhibits hereto and then selling
the outstanding shares of Veraz to Veraz Networks.

     NOW, THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and intending to be legally bound hereby, the Parties agree as follows:

1. Definitions

     1.1 “Affiliate” means with respect to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by or is under common
control with, such Person. The term “control” means the ownership of more than 50% of the
outstanding equity of a Person or the power to direct the management and policies of a Person.

     1.2 “Assigned Contracts” means as defined in Section 2.1.2 hereof.

     1.3 “Assumed Liabilities” means as defined in Section 2.1 hereof.

     1.4 “Businesses” means the VoIP Business and the DCME Distribution Business.

1.

 

     1.5 “Business Employee” means as defined in Section 6.1 hereof.

     1.6 “Closing” means as defined in Section 3.1. hereof

     1.7 “Closing Date” means as defined in Section 3.1 hereof

     1.8 “Contract” means contracts, agreements, notes, indentures, restrictions, commitments,
leases, purchase orders, arrangements, obligations or other contracts, agreements or instruments,
whether written or oral.

     1.9 “DCME Distribution Business” means as defined in the recitals hereto.

     1.10 “ECI Conflict” means as defined in Section 4.2 hereof.

     1.11 “Effective Date” means as defined in Section 3.1 hereof.

     1.12 “Government Entity” means as defined in Section 4.3 hereof

     1.13 “Lien” means all mortgages, liens, pledges, charges, security interests, bank guarantees,
third party rights or other claims or encumbrances of any kind whatsoever.

     1.14 “Person” means an individual, corporation, partnership, joint venture, trust or
unincorporated organization.

     1.15 “Share Exchange” means as defined in the recitals hereto.

     1.16 “Sister Newco” means as defined in Section 7.9 hereof

     1.17 “Transferred Assets” means as defined in Section 2.1 hereof

     1.18 “VoIP” means Voice over Internet Protocol.

     1.19 “VoIP Business” means as defined in the recitals hereto.

     1.20 “VoIP IP” means the intellectual property relating to the VoIP Business transferred
pursuant to the lP Agreement (defined in Section 3.2.3 hereto).

2. Sale of the Businesses

     2.1 Sale of Assets. Upon the terms and subject to the conditions set forth in this
Agreement, the Sellers hereby agree to contribute, assign, transfer and convey to Veraz and Veraz
hereby agrees to acquire and accept from the Sellers, at the Closing, all of the Sellers’ direct
and indirect right, title and interest in and to all of the assets of the Businesses listed in this
Section 2.1 and the schedules referenced therein (the “Transferred Assets”), the above
contribution, assignment, transfer and conveyance being subject only to those liabilities and
obligations of the Sellers expressly set forth in Section 2.2 (the “Assumed Liabilities”). The
Transferred Assets consist of the following assets and properties:

2.

 

          2.1.1 all machinery, equipment, fixtures, furniture, motor vehicles, information technology
infrastructure and tangible and intangible assets identified on Schedule 2.1.1 attached hereto or
otherwise listed on the Fixed Assets itemization, dated September 30, 2002 and incorporated by
reference in its entirety herein and all warranty, service or other similar rights related to such
assets;

          2.1.2 all Contracts identified in Schedule 2.1.2 hereto (collectively, the “Assigned
Contracts”);

          2.1.3 copies or originals of the business records, books, ledgers, plans, correspondence,
lists, plots, architectural plans, drawings, notebooks, specifications, creative materials,
advertising and promotional materials, marketing materials, studies, reports, equipment repair,
maintenance or service records of the Sellers, whether written or electronically stored or
otherwise recorded, in each case as used in the Businesses for, and relating directly to, their
activities prior to the Closing;

          2.1.4 the Sellers’ dealer, distributor, customer, agents and representatives lists, in each
case as used in the Businesses for and relating directly to, their activities prior to the Closing;

          2.1.5 the permits, licenses, orders, ratings and approvals of all national, local or foreign
governmental or regulatory authorities or industrial bodies, homologations, to the extent the same
are transferable, all as identified on Schedule 2.1.5 hereto, and copies of any respective
third-party approvals to such transfers to Veraz;

          2.1.6 all rights of the Sellers to causes of action, lawsuits, judgments, claims and demands
of any nature which relate to the above-referenced Transferred Assets or constitute counterclaims,
rights of setoff, and affirmative defenses to any claims brought against Veraz by third parties
relating to such Transferred Assets (except that the Sellers reserve their rights with respect to
counterclaims, rights of setoff, and affirmative defenses to any claims covered by Section 7.9(B)
hereof);

          2.1.7 all rights of the Sellers related to grants received or to be received by ECI from the
Office of the Chief Scientist of the Ministry of Industry and Trade (the “OCS”) with respect to the
VoIP Business;

          2.1.8 all accounts receivable related to the VoIP Business;

          2.1.9 the inventories related to the VoIP Business, including raw materials, work in process
and finished goods, referenced on Schedule 2.1.9 hereto; and

          2.1.10 all prepayments made to the Seller for maintenance, warranty service and products to be
performed or sold by the Seller in connection with the Businesses;

     2.2 Assumed Liabilities. Upon the terms and subject to the conditions set forth in
this Agreement, Veraz hereby agrees to assume, pay, perform and discharge the Assumed Liabilities,
and to pay, perform and discharge the Assumed Liabilities as they become due and payable. The
Assumed Liabilities shall consist solely of (i) the obligations and liabilities under the Assigned

3.

 

Contracts, but only to the extent such obligations and liabilities in each case relate to
sales that are consummated (i.e., product delivered) on or after the Effective Date or the grounds
for which arose (e.g., services or supplies delivered) on or after the Effective Date; and (ii) the
obligations of the Sellers related to the rights transferred pursuant to Section 2.1.7 above as
described in Schedule 2.2.

     2.3 Retained Liabilities. All liabilities and obligations of the Sellers (including
liabilities and obligations relating to the Businesses) (the “Retained Liabilities”) shall remain
the liabilities and obligations of the Sellers and not of Veraz, except for the Assumed
Liabilities.

     2.4 Real Estate. Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall be construed as an attempt to assign, transfer or sell any contract,
agreement, lease or asset which is defined as a “right in real estate” under Section 1 of the
Israeli Real Estate (Appreciation, Sale and Purchase) Law, 5723-1963.

     2.5 Investment Center. The Sellers shall file an application (in the form agreed to
by the Parties) with the Investment Center of the Israeli Ministry of Industry and Trade to assign
all of the tax benefits arising from the Transferred Assets to Veraz commencing on the Effective
Date.

3. Closing

     3.1 Closing; Effective Date. The closing of the transactions contemplated hereby (the
“Closing”) shall take place as soon as practicable following the date on which the conditions set
forth in Article 8 hereto shall have been satisfied or waived (the “Closing Date”), at the offices
of Goldfarb, Levy, Eran & Co., Eliahu House, Tel Aviv, unless another place or time is mutually
agreed upon by ECI Telecom and Veraz. Upon the Closing, the transactions contemplated by this
Agreement shall be effective as if the Closing had occurred on September 30, 2002 (the “Effective
Date”), as more fully described in Section 9 below.

     3.2 Actions at Closing. At the Closing, the following actions shall occur
concurrently:

          3.2.1 Seller Actions. The Sellers shall deliver or cause to be delivered to Veraz the
following: (a) a bill of sale relating to transfer of Sellers’ right, title and interest in the
Transferred Assets in the form attached hereto as Exhibit A; (b) a duly signed Assignment and
Assumption Agreement in the form attached hereto as Exhibit B relating to the assignment of any and
all Assigned Contracts and assumption of the Assumed Liabilities, and signed consents to the
assignments of the other parties to such Contracts and to Permits that have been obtained; (c) all
agreements in the forms attached hereto as Schedules 6.3(a) and (b) executed by the Business
Employees; (d) a copy of the resolutions of the boards of directors of ECI Telecom and NGTS
authorizing the transactions contemplated hereby and any other corporate approvals required
pursuant to the Companies Law and the Sellers’ and Veraz’s Articles of Association; and (e) all
other documents and instruments required hereunder to be delivered by the Sellers to Veraz.

          3.2.2 Veraz Actions. Veraz shall deliver or cause to be delivered to the Sellers (a)
a duly signed Assignment and Assumption Agreement in the form attached hereto as

4.

 

Exhibit B relating to the assignment of any and all Assigned Contracts and assumption of the
Assumed Liabilities; (b) a copy of the resolutions of the boards of directors of Veraz authorizing
the transactions contemplated hereby and (c) all other documents and instruments required hereunder
to be delivered by Veraz to the Sellers.

          3.2.3 Other Agreements. Each party shall deliver or cause to be delivered to the
other:

	 	(i)	 	Intellectual Property Assignment Agreement relating to the VoIP
IP, substantially in the form of Exhibit C hereto (the “IP Agreement”);
	 
	 	(ii)	 	Intellectual Property License Agreement relating to the DCME
Business and certain license-backs relating to VoIP IP, substantially in the
form of Exhibit D hereto the (“License Agreement”);
	 
	 	(iii)	 	Services Agreement, substantially in the form of Exhibit E
hereto; and
	 
	 	(iv)	 	Sublease Agreement with ECI Telecom, substantially in the form
of Exhibit F hereto.

          3.2.4 Schedule Update. The Sellers shall deliver to Veraz an addendum to Schedule
2.1.2 identifying any additional Contracts entered into prior to the Closing that, based on the
principles used in preparing Schedule 2.1.2 attached hereto, ought to be assigned to Veraz pursuant
to this Agreement. Upon Veraz’s written approval, which approval shall not be unreasonably
withheld, such addendum shall be deemed part of Schedule 2.1.2, and such Contracts shall be deemed
Assigned Contracts, for all purposes of this Agreement.

4. Representations and Warranties of ECI Telecom and of NGTS

     Each of the Sellers hereby jointly and severally represent and warrant to Veraz that the
following representations and warranties are true and accurate in all respects, as of the date
hereof and as of the Closing Date, and acknowledges that Veraz is entering into this Agreement in
reliance thereon:

     4.1 Organization, Qualification and Corporate Power. Each Seller is a company duly
organized and validly existing under the laws of the State of Israel. Each Seller has the
corporate power and authority to own and hold its properties and to carry on its business as now
conducted, and to execute, deliver and perform this Agreement. This Agreement constitutes the
valid and legal binding obligation of each Seller, enforceable against it in accordance with its
terms.

     4.2 Authority; No Violation; Due Execution; Etc. The execution and delivery by each
Seller of this Agreement and the agreements attached as exhibits hereto and the performance by each
Seller of its obligations hereunder have been (or, as of the Closing Date, will be) duly authorized
by all requisite corporate action and will not conflict with, or result in any violation of, or
default under (with due notice or lapse of time or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit (any such event, an “ECI
Conflict”) under (i) any provision of applicable law, (ii) any order of any court or other agency
of government by which either Seller or any of its properties or assets is or are

5.

 

bound, (iii) the Memorandum of Association and Articles of Association of either Seller, each
as amended, or (iv) any provision of any indenture, mortgage, lease or other agreement or
instrument, permit, concession, franchise or license to which either Seller is a party or, to the
knowledge of either Seller, by which any of its material properties or assets is or are bound, or
result in the creation or imposition of any Lien upon any assets (tangible or intangible) of either
Seller, in each such event which is reasonably likely to prevent, impede, delay, avoid, condition,
enjoin, prohibit or otherwise interfere with, in a material way, the full, valid and complete
performance of each Seller’s obligations under this Agreement.

     4.3 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or commission or other
local or foreign governmental authority, instrumentality, agency or commission (“Governmental
Entity”) or any third party (so as not to trigger any ECI Conflict) is required by or with respect
to either Seller in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby by each Seller, except such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings identified on Schedule
3.05 to the Share Exchange.

5. Representations and Warranties of Veraz

     Veraz hereby represents and warrants to each of the Sellers that the following representations
and warranties are true and accurate in all respects, as of the date hereof and as of the Closing
Date, and acknowledges that the Sellers are entering into this Agreement in reliance thereon:

     5.1 Organization, Qualification and Corporate Power. Veraz is duly incorporated and
validly existing under the laws of the State of Israel. Veraz has the corporate power and
authority to execute, deliver and perform this Agreement. This Agreement constitutes the valid and
legal binding obligation of Veraz, enforceable against Veraz in accordance with its terms.

     5.2 Authority; Due Execution; Etc. The execution and delivery by Veraz of this
Agreement and the agreements attached as exhibits hereto and the performance by Veraz of its
obligations hereunder have been (or, as of the Closing Date, will be) duly authorized by all
requisite corporate action.

     5.3 Shares. On the date hereof and as of the Closing Date, 100 ordinary shares of
Veraz are and will be outstanding. All such shares are duly authorized, validly issued, fully paid
and non-assessable and were issued free and clear of any Liens and not in violation of any
preemptive or similar rights. Except as provided in the Share Exchange, on the date hereof and as
of the Closing Date, there are no rights of any Person to acquire any securities of Veraz.

6. Employment Matters

     6.1 Employees of Businesses. Subject to the Closing, as soon as practicable, Veraz or
its Affiliates will offer employment to each individual listed on Schedule 6.1 hereto. Each
individual who accepts Veraz’s offer of employment of Veraz or its Affiliates and signs an
agreement with Veraz or its Affiliates shall be referred to herein as a “Business Employee.” As of
December 31st, 2002, the employment relationship between NGTS and each Business

6.

 

Employee shall cease and each such employee shall become an employee of Veraz. Each of ECI
Telecom and NGTS hereby confirms that, notwithstanding any confidentiality or non-compete
obligations of any Business Employees to ECI Telecom or NGTS, respectively, the Business Employees
shall be permitted to engage in the Businesses, as mutually contemplated by the Parties prior to
the Closing, on behalf of Veraz and its Affiliates.

     6.2 Business Employee Liability. The Sellers shall pay $200,000, and Veraz shall pay
$500,000, towards bonuses to be distributed by NGTS to the Business Employees in connection with
their termination from NGTS. Other than such payments, and subject to the proviso set forth in
Section 7.9(A)(ii)(b) hereof, any liability with respect to Business Employees the grounds for
which arose during the period prior to December 31st, 2002 shall be the Sellers’, and
any liability with respect to Business Employees the grounds for which arose any time after
December 31st, 2002 shall be Veraz’s.

     6.3 Employee Releases. Each Business Employee shall be requested to execute and
deliver (i) to NGTS a release and confidentiality and non-competition agreement in the form of
Schedule 6.3(a) hereto and (ii) to Veraz a declaration in the form of Schedule 6.3(b) hereto.

     6.4 Options. Any vested options to purchase ordinary shares of ECI Telecom held by a
Business Employee on December 31st, 2002 shall continue to be exercisable for as long as
the Business Employee is employed by Veraz or its affiliates and for 30 days thereafter. Any
unvested options to purchase ordinary shares of ECI Telecom held by a Business Employee on December
31st, 2002 shall be governed by the terms of such options and the option plan under
which they were granted.

7. Additional Matters

     7.1 Allocation of Expenses. All expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by the Party incurring such expenses. For
the avoidance of doubt, all fees and expenses of any legal advisors retained by the management of
NGTS or Veraz, who are not also advisors to ECI Telecom, shall be borne by Veraz.

     7.2 Additional Documents and Further Assurances. Each Party, at the reasonable
request of another Party, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.

     7.3 Non-transferable Assets. (a) Each Party will use commercially reasonable efforts
to cause the assignment of each contract, agreement, license, permit and claim included in the
Transferred Assets or the Assumed Liabilities. Specifically, with respect to the Assigned
Contracts the receipt of third-party consents to assignment therefor is a condition to the closing
of the Share Exchange, the Sellers shall use commercially reasonable efforts to obtain all such
third-party consents prior to the Closing and with respect to any of the other Assigned Contracts,
pursuant to the written request of Veraz, the Sellers shall use commercially reasonable efforts to
obtain all necessary third-party consents prior to the Closing or as soon as practicable
thereafter, provided, however, that, in each case, the Sellers shall not be required to pay any
consideration

7.

 

for any such consents. Veraz shall not be liable for any such consideration paid or agreed to
be paid by any of the Sellers unless otherwise agreed by Veraz.

          (b) Notwithstanding anything in this Agreement to the contrary, nothing in this Agreement
shall be construed as an attempt to assign any contract, agreement, license, permit or claim
included in the Transferred Assets and Assumed Liabilities which is non-assignable without the
consent of the other party or parties thereto, unless such consent shall have been given or as to
which all the remedies for the enforcement thereof enjoyed by the transferring Party would, as a
matter of law, pass to Veraz as an incident of the assignment provided for by this Agreement. In
the event that a third party refuses to consent to an assignment or a novation of such a
non-assignable contract, arrangement, license, permit or claim, or demands any payment or right of
any kind in consideration for granting such consent, then the relevant Seller shall hold the
relevant agreement on behalf of Veraz, and Veraz shall be entitled, to continue the contract,
arrangement, license, permit or claim on behalf of and in the name of the relevant Seller and on
Veraz’s own account; provided that Veraz shall indemnify and hold the relevant Seller harmless for
its pro-rata portion of direct expenses and damages of that Seller, if any, associated with
maintaining and performing any such contract, arrangement, license, permit or claim during the
period following the Effective Date, other than damages related to gross negligence or willful
misconduct by the Sellers or the their employees or agents.

          (c) If and when any such consent shall be obtained or such contract, arrangement, license,
permit or claim shall otherwise become assignable or non-terminable, the Sellers will be deemed,
without any further action necessary, to have irrevocably and unconditionally assigned, granted,
transferred, conveyed, and delivered to Veraz and its successors and assigns, all rights, title,
interests, benefits and privileges under such contract, arrangement, license, permit or claim, and
Veraz will be deemed to have agreed to assume all liabilities and obligations arising after the
Effective Date thereunder.

     7.4 Insurance. For so long as ECI Telecom shall hold, directly or indirectly, more
than 51% of Veraz Networks’ outstanding shares, ECI Telecom shall use commercially reasonable
efforts to maintain insurance coverage for Veraz, as well as Veraz Networks and its wholly-owned
U.S. subsidiary, as set forth in Schedule 7.4 hereto. Veraz acknowledges that as soon as ECI
Telecom’s ownership of Veraz Networks decreases below 51%, such companies shall cease to be
beneficiaries of the insurance coverage of ECI Telecom set forth in Schedule 7.4 hereto, and ECI
Telecom hereby undertakes to request the inclusion of Veraz, as well as Veraz Networks and its
wholly-owned U.S. subsidiary, as additional covered parties under the insurance policies of ECI
Telecom set forth in Schedule 7.4 hereto for so long as ECI shall hold, directly or indirectly, as
least 40% of Veraz Networks’ outstanding shares. At the request of ECI Telecom, Veraz shall pay
ECI Telecom the increase in premiums resulting from the inclusion of Veraz and its Affiliates in
any such insurance policies, irrespective of ECI Telecom’s ownership interest in Veraz Networks.
ECI’s obligations under this Section 7.4 shall terminate on the third anniversary of the Closing
Date.

     7.5 Office of the Chief Scientist. As soon as practicable and in any event prior to
the Closing, ECI Telecom shall file an application for the approval of the Office of the Chief
Scientist and of any other regulatory authority (to the extent required) with respect to the
transactions contemplated by this Agreement.

8.

 

     7.6 Independent Auditor. For so long as ECI Telecom includes Veraz’s results of
operations in ECI’s financial statements, either by consolidation or the equity method, Veraz shall
select one of the Big Four accounting firms and shall fully cooperate to enable them to complete
their audits and reviews of Veraz’s financial statements in sufficient time to meet ECI Telecom’s
timetable for the completion and dissemination of ECI Telecom’s financial statements.

     7.7 Ongoing Information and Cooperation.

          7.7.1 Each Party shall provide, or cause to be provided, to the other Parties, in such form as
the requesting Party shall reasonably request, at no charge to the requesting Party, all financial,
tax and other data and information as the requesting Party determines necessary or advisable in
order to prepare its financial statements and reports or filings with any tax authority and any
other governmental authority. The receiving Party shall not use such data or information for
purposes other than those for which such data or information was given and shall use reasonable
efforts to maintain the confidentiality of such data and information, except as may be required by
law. To facilitate the possible exchange of information pursuant to this Agreement after the
Closing Date, each Party agrees to use its reasonable commercial efforts to retain all information
in their respective possession or control on the Closing Date for a reasonable period, but not less
than seven (7) years from the Closing Date.

          7.7.2 After the Closing Date, except in the case of a legal or other proceeding, investigation
or inquiry by one Party against another Party, each Party shall use its reasonable commercial
efforts to make available to the other Parties, upon written request, the former, current and
future directors, officers, employees and other personnel and agents of such Party as witnesses and
any books, records or other documents within its control or which it otherwise has the ability to
make available (other than information protected from disclosure by applicable privileges), to the
extent that any such person (giving consideration to the business demands of such directors,
officers, employees, other personnel and agents) or books, records or other documents may
reasonably be required in connection with any legal, administrative or other proceeding,
investigation or inquiry in which the requesting Party may from time to time be involved,
regardless of whether such legal, administrative or other proceeding, investigation or inquiry is a
matter with respect to which indemnification may be sought hereunder. The requesting Party shall
bear all costs and expenses in connection therewith.

     7.8 No Representation or Warranty. No Seller makes any representation as to, warranty
of or covenant with respect to the value of any asset or thing of value to be transferred to Veraz.

     7.9 Litigation; Indemnification. (A) From and after the Closing Date, Veraz shall
manage (and, if applicable, assume the defense of) any claims or lawsuits relating to (i) the
Transferred Assets or the VoIP IP brought after the Effective Date, when the grounds for such
matters, claims or lawsuits arose after Effective Date, and (ii) the Business Employees brought
after December 31, 2002, when the grounds for such matters, claims or lawsuits arose after December
31, 2002. Veraz shall indemnify and hold harmless the Sellers and their respective officers,
employees, directors, Affiliates and agents with respect to any and all liabilities, damages and
expenses (including reasonable attorneys’ fees) suffered or incurred in connection

9.

 

with (a) any Transferred Assets, the VoIP IP or in connection with any other Assumed
Liabilities, when the grounds therefor arose on or after Effective Date and (b) the Business
Employees, when the grounds therefor arose after December 31, 2002, provided, however, that
although NGTS shall be responsible to pay directly to each Business Employee the amounts to which
such Business Employee is entitled under applicable law and under any applicable employment
agreement with respect to the period ending on December 31, 2002, the costs of employing (but not
any cost of terminating) the Business Employees during the period commencing on the Effective Date
and ending on December 31, 2002 shall be borne by Veraz and reflected in the Closing Date Financial
Statements. (B) NGTS shall manage (and, if applicable, assume the defense of) any claims or
lawsuits relating to (i) the Transferred Assets or the VoIP IP, when the grounds for such matters,
claims or lawsuits arose before the Effective Date and (ii) the Business Employees, when the
grounds for such matters, claims or lawsuits arose before December 31, 2002. The Sellers, jointly
and severally, shall indemnify and hold harmless Veraz and its officers, employees, directors,
Affiliates and agents with respect to any and all liabilities, damages and expenses (including
reasonable attorneys’ fees) suffered or incurred in connection with (i) any Transferred Assets, the
VoIP IP or in connection with any other Assumed Liabilities, when the grounds therefor arose before
the Effective Date, (ii) the Business Employees, when the grounds therefor arose before December
31, 2002 and (iii) any Retained Liabilities. (C) From and after the Effective Date, each Party
seeking indemnification hereunder shall give the indemnifying Party prompt notice of the
commencement of any applicable claim or lawsuit, provided, however, that any failure to do so shall
not limit any of the rights of the indemnities under this Section 7.9 (except to the extent such
failure materially prejudices the defense of such claim or lawsuit). (D) The Parties shall
cooperate with each other in connection with such matters pursuant to Section 7.7.2 hereof. In the
event that any claims or lawsuits brought after the Effective Date relate to the Transferred Assets
or VoIP IP and also to the assets transferred by ECI Telecom to one or more other subsidiaries of
ECI Telecom (“Sister Newcos”), then ECI Telecom, such Sister Newcos and Veraz shall cooperate to
allocate responsibility therefor in good faith. (E) Except for Veraz Networks and its successors
and assigns, no Person who is not a Party (or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under this Agreement
unless the applicable Party (or any successor thereto or assign thereof) shall have consented to
the assertion of such indemnification claim or the exercise of such other remedy.

     7.10 Operation in the Ordinary Course of Business. Until Closing, the Sellers will
operate the Businesses in the ordinary course of business consistent with past practice, and has
not and will not make any dispositions of assets outside the ordinary course of business consistent
with past practice.

     7.11 Future Purchases of Fixed Assets and Inventory. Any fixed assets or raw
materials that have been ordered by NGTS prior to the Effective Date for use in the VoIP Business
but that have not arrived at the premises of NGTS prior to the Effective Date, shall not be
included in the Transferred Assets. In the event that, at any time and from time to time following
the Closing, Veraz desires to purchase any such items or items reasonably similar to such items, it
shall offer to purchase such items from NGTS and, to the extent they are in the possession of NGTS,
NGTS shall sell them to Veraz at NGTS’s cost (including any import duties and delivery, purchasing
and warehousing expenses directly applicable to such items), in the same manner as such costs were
allocated prior to the Effective Date.

10.

 

     7.12 Assets Not Identified on Time. (a) Schedule 7.12 hereto contains a list of
fixed, tangible assets related to NGTS which belong to the Sellers but which were not specifically
identified as relating to the Businesses on the date hereof. In the event that during the period
ending on April 1, 2003, Veraz and NGTS mutually identify any of such fixed, tangible assets as
relating to the Business, the parties shall take all steps reasonably necessary to promptly cause
the transfer of the relevant asset or assets to Veraz, provided that the aggregate book value of
such assets shall not exceed $500,000.

          (b) If, within one year following the Closing Date, Veraz determines that there are any assets
owned by any of the Sellers that are reasonably required for operation of the Businesses including,
but not limited to intellectual property, intellectual property rights and contract rights (but
excluding fixed assets and inventory), which assets are being used by such Seller in the Businesses
on the date of execution of this Agreement and, based on the principles used in preparing this
Agreement and the IP Agreement, should have been included in the Transferred Assets or in the
“Veraz IP,” respectively, but inadvertently have not been transferred to Veraz pursuant to this
Agreement or the IP Agreement, then Veraz may request in writing for the Sellers to provide the
applicable asset to Veraz by way of an assignment of such asset, provided that any such
intellectual property or intellectual property rights are related to the VoIP Business, excluding
those related to the DCME Business. Upon receipt of such written request, the Sellers hereby agree
to promptly evaluate such request. If such request is valid, the Sellers shall consent to such
request, such consent not to be unreasonably withheld, delayed or conditioned, and use commercially
reasonable efforts to obtain all necessary third-party consents, if any, and take all other
reasonably necessary actions for such assets to be assigned to Veraz, provided that, at the request
of ECI with respect to any such intellectual property or intellectual property rights, Veraz shall
grant a license back to ECI (or any of its affiliates) pursuant to a license agreement
substantially in the form of Appendix 2.4(a) to the License Agreement, subject to reasonable and
lawful non-competition protection for Veraz. Within two (2) days after receipt, the Sellers shall
provide Veraz with each such third-party consents that the Sellers obtain. Immediately upon any
assignment of any asset pursuant to this Section 7.12(b), such asset shall be deemed to be a
Transferred Asset for purposes of this Agreement or, in the case of intellectual property or
intellectual property rights, “Veraz IP” for purposes of the IP Agreement. Until such assignment,
the Parties shall cooperate with respect to such agreement pursuant to the provisions of Section
7.3 hereof.

     7.13 Parent Guaranties. (a) Veraz Networks hereby irrevocably agrees to
unconditionally guaranty all the obligations of Veraz under this Agreement.

     (b) ECI hereby irrevocably agrees to unconditionally guaranty all the obligations of NGTS
under this Agreement.

8. Closing Conditions

     The Closing shall be subject to the simultaneous closing of the Share Exchange.

11.

 

9. Post-Closing Adjustment

     9.1 Preparation of Balance Sheets. Attached hereto as Schedule 9 is a pro-forma
balance sheet with respect to the Businesses, as of September 30, 2002 (the “September 30 Veraz
Balance Sheet”). As soon as practicable, but in any event not later than November 15, 2002, Veraz,
together with its auditors, shall prepare a balance sheet with respect to the Businesses, as of the
Effective Date (the “Effective Date Balance Sheet”), using the same principles and accounting
policies under which the September 30 Veraz Balance Sheet was prepared. Such balance sheets shall
include an entry for Software Capitalization relating to the VoIP Business recorded on the books of
the Sellers as of the respective dates thereof.

     9.2 Post-Closing Adjustment. (a) During the period between the Effective Date and the
Closing Date, the Businesses shall be operated as between the Parties, to the extent reasonably
possible, as if the Separation had been completed.

          (b) As soon as practicable after Closing, but in any event not later than January 30, Veraz,
together with its auditors, shall prepare a balance sheet with respect to the Businesses, as of
December 31, 2002 (the “Closing Date Balance Sheet”), using the same principles and accounting
policies under which the September 30 and Effective Date Balance Sheets were prepared, and related
profit and loss and cash flow statements (the “Closing Date Income Statement” and the “Closing Date
Cash Flow Statement”, respectively, and together with the Closing Date Balance Sheet, the “Closing
Date Financial Statements”) for the period between the Effective Date and December 31, 2002 (the
“Interim Period”). The Closing Date Income Statement and Closing Date Cash Flow Statement shall
each be prepared on the basis of income and expenses which would have been incurred by Veraz had
the Closing occurred on the Effective Date. In preparing the Closing Date Financial Statements,
any inter-company financial transfers from Veraz Networks to Veraz during the period between the
Closing Date and December 31st, 2002 shall be disregarded.

          (c) The Sellers shall have a period of 30 days after delivery of the Effective Date Balance
Sheet to present in writing to Veraz all objections the Sellers may have to any of the matters set
forth or reflected therein. Similarly, the Sellers shall have a period of 30 days after delivery
of the Closing Date Financial Statements to present in writing to Veraz all objections the Sellers
may have to any of the matters set forth or reflected therein. If no objections are raised within
such 30-day period, the Closing Date Financial Statements shall be deemed approved by the Sellers.

          (d) If on the basis of the Closing Date Cash Flow Statement, the Businesses generated a net
increase in cash and cash equivalents during the Interim Period, NGTS shall transfer to Veraz,
within three business days of approval of such amount, cash in the amount of the net increase in
cash and cash equivalents generated by Veraz during the Interim Period. If on the basis of the
Closing Date Cash Flow Statement, the Businesses generated a net decrease in cash and cash
equivalents, Veraz shall transfer, within three business days of approval of such amount, cash to
NGTS in the amount of the net decrease in cash and cash equivalents generated by Veraz during the
Interim Period. The foregoing amounts to be transferred pursuant this Section 9.2(d) shall be
adjusted by the net amount of cash or cash equivalents actually received or paid by Veraz during
the period between the Closing Date and December 31, 2002.

12.

 

     9.3 Disputes. The Parties shall seek in good faith to resolve any differences that
arise in connection with the preparation of the Effective Date Balance Sheet or the Closing Date
Financial Statements. Any dispute shall be resolved in accordance with Section 11.5, except that
the arbitrator shall be a certified accountant.

     10. Non-Solicitation.

     For a period of eighteen (18) months from the Closing Date, (a) Veraz shall not directly
solicit any person (other than Business Employees) who is employed by ECI Telecom, a Sister Newco
or an Affiliate thereof until three months have passed since such person has last been employed by
such other company and (b) ECI Telecom shall not directly solicit and, until closing of a
separation agreement of any Sister Newco, shall ensure that such Sister Newco and its respective
Affiliates shall not directly solicit, any person who is employed by Veraz or an Affiliate thereof
until three months have passed since such person has last been employed by such company. This
prohibition on solicitation does not apply to actions taken by a person (i) as a result of a
general recruitment effort carried out through a public or general solicitation or (ii) as a result
of an employee’s initiative. ECI Telecom hereby undertakes to include in the separation agreement
of each Sister Newco a provision similar to this section 10 that protects Veraz. If ECI Telecom
fails to do so with respect to a Sister Newco, such failure shall not be deemed a breach of this
Agreement, but Veraz shall be released of any restriction under this Section 10 with respect to
such Sister Newco.

11. General Provisions

     11.1 Counterparts. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.

     11.2 Entire Agreement; Assignment. This Agreement and Exhibits and Schedules hereto
and the other agreements among the Parties referenced herein (a) constitute the entire agreement
among the Parties with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, between the Parties with respect to the subject matter
hereof; (b) shall be binding upon successors and assigns of any Party; and (c) shall not be
assigned by any Party without the prior written consent of the other Parties, including any
assignment by operation of law pursuant to a merger or sale of such Party, provided that the
Sellers shall not unreasonably withhold such consent. Notwithstanding anything to the contrary
herein, Veraz shall have the right to assign or transfer any of the Transferred Assets to any party
after the Closing, provided, however, that, following any such assignment or transfer, the Sellers
shall have no further obligations with respect to such Transferred Assets and provided further that
the Transferred Assets identified in Section 2.1.7 above may only be assigned to Israeli entities
with any requisite governmental approvals.

     11.3 Change of Control Event. This Agreement shall remain in full force and effect
and shall bind the successor of a change of control event, including without limitation, if a Party
is merged, consolidated, or sells all or substantially all of its assets or implements or suffers
any change in management or control.

13.

 

     11.4 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction to be illegal,
void or unenforceable, the remainder of this Agreement shall continue in full force and effect and
the application of such provision to other Persons or circumstances shall be interpreted so as
reasonably to effect the intent of the Parties. The Parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision that will achieve,
to the extent possible, the economic, business and other purposes of such void or unenforceable
provision.

     11.5 Governing Law, Dispute Resolution. This Agreement shall be governed by and
construed in accordance with the laws of the State of Israel, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof. In the event of any
controversy or claim arising out of or in connection with this Agreement, including without
limitation, disputes among ECI Telecom, Veraz and any Sister Newcos with respect to the future
allocation of assets or liabilities of ECI Telecom, the first level of escalation shall be limited
to seven business days of discussion between, if ECI Telecom, its Chief Financial Officer and/or
Chief Technology Officer, and if Veraz, its Chief Executive Officer and/or Chief Financial Officer,
and the second and final level of escalation shall be limited to seven business days of discussion
between each of the presidents of ECI Telecom and Veraz Networks. Any such controversy or claim
not so resolved shall be finally settled by arbitration in accordance with the Israel Arbitration
Law — 1968, before a single arbitrator experienced in VoIP and DCME technology, who shall issue his
reasoned opinion in writing. The arbitrator shall give his reasoned decision in writing and his
decision shall be binding and conclusive on the parties. In the event that the Parties do not
agree on the identity of the arbitrator within an additional seven business days, the arbitrator
shall be selected by the chairman of the Israeli Society of Certified Public Accountants. Nothing
in this Agreement shall prevent either party from applying to a court of competent jurisdiction for
injunctive or other equitable relief. ECI Telecom hereby undertakes to include in the separation
agreement of each Sister Newco a provision similar to this section 11.5 that protects Veraz. If
ECI Telecom fails to do so with respect to a Sister Newco, such failure shall not be deemed a
breach of this Agreement, but Veraz shall be released from any arbitration requirement or agreement
under this Section 11.5 with respect to such Sister Newco.

     11.6 Specific Performance. The Parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in equity.

     11.7 No Third Party Beneficiaries. Except as set forth in Sections 7.9 (other than
Business Employees), 10, 11.3 and 11.5, this Agreement is for the sole benefit of the Parties and
their permitted assigns, and nothing herein expressed or implied shall give or be construed to give
to any other Person any legal or equitable rights hereunder.

     11.8 Limitation of Liability. EXCEPT AS SET FORTH IN THE SHARE EXCHANGE OR ANY
AGREEMENTS ENTERED INTO IN CONNECTION THEREWITH,

14.

 

IN NO EVENT SHALL ECI OR VERAZ OR ANY OF THEIR RESPECTIVE AFFILIATES, EMPLOYEES, DIRECTORS,
AGENTS OR ADVISORS, BE LIABLE TO ANY OTHER SUCH PERSON FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT,
INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE IP AGREEMENT, WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

     11.9 Amendment. No change or amendment shall be made to this Agreement except by an
instrument in writing signed on behalf of each of the Parties.

     11.10 Termination. This Agreement shall be terminated upon termination of the Share
Exchange as provided therein. In the event of termination pursuant to this Section 11.10, no Party
shall have any liability of any kind to another Party as a result of such termination.

     11.11 Conflicting Agreements. In the event of conflict between this Agreement and any
ancillary agreement identified in Section 3, the provisions of such ancillary agreement shall
prevail.

     11.12 Interpretation. The headings contained in this Agreement or in any Exhibit or
Schedule hereto are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or such Exhibit or Schedule. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit
or Schedule to, this Agreement unless otherwise indicated.

     11.13 Notices. All notices and other communications hereunder will be in writing and
shall be served by personal delivery or by registered mail or by fax to the address (and for the
attention of the relevant party) set out below. Any such notice shall be deemed to have been
received: if delivered personally, at the time of delivery; in the case of registered mail, three
days from the date of posting; and if faxed, at the time of cleared transmission notice, if sent on
a business day. The addresses and fax numbers for the purposes of this clause are:

	 	 	 
	    If to VERAZ:	 	If to ECI TELECOM or NGTS:
	43 Hasivim Street

	 	30 Hasivim Street,
	Petach Tikvah 49133

	 	Petach Tikvah 49133
	Israel

	 	Israel
	Tel: 03-926-8844

	 	Tel: 03-926-6885
	Fax: 03-926-6355

	 	Fax: 03-926-6070
	Attn: Tal Simchony

	 	Attn: General Counsel

or such other address or fax number as may be notified in writing from time to time by the relevant
party to the other party.

[SIGNATURES APPEAR ON NEXT PAGE]

15.

 

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed by their duly
authorized respective officers and representatives, all as of the date first written above.

ECI TELECOM LTD.

	 	 	 	 	 
	By:

	 	/s/
Illegible	 	 
	 

	 	 	 	 
	 

	 	Name:

Title:	 	 

ECI TELECOM – NGTS LTD.

	 	 	 	 	 
	By:

	 	/s/
Giora Bitan	 	 
	 

	 	 	 	 
	 

	 	Name: Giora Bitan

Title:	 	 

VERAZ NETWORKS LTD.

	 	 	 	 	 
	By:

	 	/s/ Zamir Segev
	 	 
	 

	 	 	 	 
	 

	 	Name: Zamir Segev	 	 
	 

	 	Title:	 	 

With respect to Section 7.13(a):

VERAZ NETWORKS, INC.

	 	 	 	 	 
	By:

	 	/s/ Amit Chawla
	 	 
	 

	 	 	 	 
	 

	 	Name: Amit Chawla	 	 
	 

	 	Title:	 	 

[Signature page to Israeli Separation and Asset Purchase Agreement]

16.

 

Schedule 2.1.1

Veraz Business Assets

Schedule 2.1.2

Assigned Contracts

Schedule 2.1.5

Permits and Licenses

Schedule 2.1.9

Inventories

Schedule 2.2

Assumed Liabilities

Schedule 6.1

Business Employees

Schedule 6.3(a)

Employee Termination Agreement

Schedule 6.3(b)

Employee Letter to Veraz

Schedule 7.4

Insurance Policies

Schedule 7.12

Assets Not Identified On Time

Schedule 9

Pro Forma Balance Sheet of Veraz as of September 30, 2002

17.exv10w4

 

Exhibit 10.4

DCME

MASTER MANUFACTURING AND DISTRIBUTION AGREEMENT

     This DCME MASTER MANUFACTURING AND DISTRIBUTION AGREEMENT (this “Agreement”), dated as of
December 31, 2002, by and between ECI Telecom Ltd., a public company organized under the laws of
the State of Israel (“ECI”) having its principal place of business at 30 Hasivim Street, Petah
Tikva 49133, Israel and Veraz Networks Ltd. [formerly Chorale Networks Ltd.], a private company
organized under the laws of the State of Israel (“Veraz Israel”) having its principal place of
business at 43 Hasivim Street, Petah Tikva 49133, Israel, and Veraz Networks, Inc. [formerly
Chorale Networks, Inc.], a Delaware corporation (“Veraz U.S.”) having its principal place of
business at 926 Rock Avenue, San Jose, CA 95131. Veraz Israel and Veraz U.S. are collectively
referred to as “Veraz”.

WITNESSETH:

     WHEREAS, ECI manufactures and sells Digital Circuit Multiplication Equipment (“DCME”)
worldwide; and

     WHEREAS, within the framework of the transfer by ECI of certain assets and rights relating to
the DCME product line to Veraz the parties hereto are prepared to enter into this Agreement whereby
ECI will manufacture and sell to Veraz DCME to be marketed by Veraz, as more fully set forth below;

     NOW, THEREFORE, in consideration for their mutual promises and undertakings and other valuable
consideration, the sufficiency of which is acknowledged by the parties, the parties hereby agree as
follows:

1. Manufacture and Sale, Purchase and Distribution

     1.1 During the term of this Agreement and subject to the terms and conditions set forth
herein, ECI shall manufacture and sell to Veraz and Veraz shall purchase from ECI and may
distribute worldwide and provide service and support for the DCME integrated systems and equipment
listed in Exhibit 1.1 attached hereto, together with DCME spare parts, components and
accessories that are manufactured by ECI and intended by Veraz for use in DCME integrated systems
and equipment (individually, a “Product,” and collectively the “Products”).

     1.2 The terms and conditions of this Agreement shall govern the manufacture, sale and
distribution of any Product provided by ECI to Veraz pursuant to every purchase order which shall
be submitted in accordance with and which otherwise complies with the conditions for acceptance by
ECI as set forth in Section 6.1 below (“Purchase Order”), each of which shall be deemed a part of
this Agreement.

1.3 Supply and Service Obligations

          (a) During the term of this Agreement and subject to the exclusions and conditions and
exceptions set forth below within Sections 1.3(c) and 1.3(d), ECI shall sell and distribute
Products only to Veraz, and not to any other person or entity.

1.

 

          (b) During the term of this Agreement, and if and to the extent permitted under law, only
Veraz shall be entitled to provide maintenance services and support for Products.

          (c) The parties acknowledge and agree that ECI’s obligations set forth in Sections 1.3(a) and
1.3(b) do not apply to:

               (i) ECI’s sale of DCME sub-assemblies to ECtel Ltd., the sale of subassemblies for the Celtro
product line and the sale of components for the Hi-TV product line, solely to the extent that such
DCME sub-assemblies and components are intended for use and incorporation by them into final
products that are not the same or similar in any material respect with the DCME integrated systems
and equipment listed in Exhibit 1.1 attached hereto; or

               (ii) ECI’s provision of service and support to ECtel Ltd. for the Celtro product line and for
the Hi-TV product line for those DCME sub-assemblies and components solely to the extent that such
service and support is provided by ECI in connection with the use of DCME components in final
products that are not the same or similar in any material respect with the DCME integrated systems
and equipment listed in Exhibit 1.1 attached hereto.

          (d) ECI’s obligations in Sections 1.3(a) and 1.3(b) are also conditioned upon the requirements
set forth below;

               (i) Veraz is not in material breach of Section 5.11 of this Agreement that continues for a
period of thirty (30) days after Veraz’s receipt of written notice from ECI of such breach; and

               (ii) Veraz is not the subject of a petition for relief under any bankruptcy, insolvency or
debtor’s relief law (which petition is not dismissed within ninety (90) days after the filing
thereof), and is not liquidated or dissolved, and does not make an assignment for the benefit of
creditors, and does not have a receiver appointed for all or a substantial portion of Veraz’s
assets.

     If Veraz fails to meet any of these requirements, then ECI shall have no further obligations
under Sections 1.3(a) and 1.3(b) for the remainder of the term of this Agreement.

     1.4 Purchase Obligations

          (a) During the term of this Agreement and .subject to the exclusions and conditions set forth
below within this Section 1.4(b), Veraz shall purchase all of its requirements for Products only
from ECI, and not from any other person or entity.

          (b) Veraz’s obligations in Section 1.4(a) are also conditioned upon the requirements set forth
below. If ECI fails to meet any of these requirements, Veraz shall have no further obligations
under Section 1.4(a) for the remainder of the term of this Agreement.

               (i) ECI is not in material breach of any material obligation under this Agreement that
continues for a period of thirty (30) days after ECI’ s receipt of written notice from Veraz of
such breach;

2.

 

          (ii) ECI is not the subject of a petition for relief under any bankruptcy, insolvency or
debtor’s relief law (which petition is not dismissed within ninety (90) days after the filing
thereof), and is not liquidated or dissolved, and does not make an assignment for the benefit of
creditors, and does not have a ‘receiver appointed for all or a substantial portion of ECI’s
assets; and

          (iii) ECI is not the subject of a force majeure event, as described in Section 16.1, which
continues in effect for a period of ninety (90) days and adversely affects the ability of Veraz to
obtain Products from ECI.

2. Product Forecast

     At the beginning of each month during this Agreement, Veraz will provide ECI with a six
(6)-month rolling Product forecast (each a “Forecast”), describing Veraz’s good faith expectations
of the number of Products it intends to purchase from ECI and the expected sales value in the
following six (6) months for which Purchase Orders have not yet been issued by Veraz, in the form
attached as Exhibit 2. Subject to the provisions of Section 3 below, all commitments made
by Veraz for the purchase of Products hereunder shall be made only upon submission by Veraz of
Purchase Orders to ECI pursuant to Section 6. Each Forecast shall be deemed to be accepted by ECI
unless ECI reasonably objects in writing within five (5) days of the date of Veraz’s submission of
the Forecast. If ECI objects to any Forecast, it will provide all relevant details to Veraz
regarding its objection, and the parties will work in good faith to resolve such objection in a
prompt and reasonable manner to meet the potential needs of Veraz to its customers with respect to
the supply of Products.

3. Materials Procurement

     3.1 ECI shall purchase sufficient components and raw materials required to provide the
Products (“Materials”) using ECI’s standard purchasing practices, to meet the requirements of (i)
the outstanding Purchase Orders and (ii) the Forecast; provided, however, that if the number of
forecasted Products specified in the Forecast together with the number of Products required
pursuant to outstanding Purchase Orders exceeds by more than ten percent (10%) the number of
forecasted Products for the same period as specified in the Veraz business plan attached hereto as
Exhibit 3.1, as the same may be amended from time to time by the parties upon their mutual
consent (the “Business Plan”) (such excess hereinafter referred to as the “Excess Products”), ECI
may, but shall not be required to, purchase Materials for the Excess Products.

     3.2 ECI recognizes its financial responsibility and shall bear all costs for the Materials
purchased by it for inclusion in the Products.

     3.3 In the event ECI does not elect to purchase Materials for Excess Products in accordance
with Section 3.1 above, then VEraz may deliver to ECI a Purchase Order for said Excess Products,
and in such case ECI shall purchase the Materials for these Excess Products. The price to Veraz
for such Excess Products shall be equal to the applicable price for such Products that is
determined under the provisions in Exhibit 9.1, and the provisions of Sections 9.1 and 9.2
below shall not apply to any such Excess Products. Payment from Veraz to

3.

 

ECI for such Excess Products shall be due thirty (30) days after Veraz’s receipt and
acceptance of any such applicable Excess Products. ECI acknowledges and agrees that Veraz may use
Excess Products in place of any corresponding Products to be supplied under a future Forecast, in
which case the provision of Sections 9.1 and 9.2 below shall apply to Customer Revenue generated
from sales made by Veraz of such Excess Products or Products containing Excess Products, provided,
however, that Veraz shall be entitled deduct from amounts which are due ECI for such sales those
amounts previously paid by Veraz to ECI for such Excess Products so used or sold.

     3.4 If a supplier of Materials notifies ECI that any such Materials will be discontinued, ECI
shall immediately notify Veraz of such discontinuance in writing. Veraz shall use commercially
reasonable efforts to locate substitute Materials and failing that shall within fourteen (14)
business days notify ECI, in writing, specifying the amount of such Materials ECI is requested to
purchase before the discontinuance comes into effect. ECI shall then use commercially reasonable
efforts to purchase the amount of such Materials which are specified by Veraz.

4. ECI’s Obligations

     ECI shall, at its expense, unless expressly provided otherwise below:

     4.1 Manufacture, assemble, repair, investigate production problems, test, and deliver in
accordance with the delivery date specified in any Purchase Order and in accordance with this
Agreement, the Products duly ordered by Veraz under each Purchase Order, provided, that ECI is
expressly permitted to outsource or subcontract to subcontractors who are one of ECI’s qualified
vendors for parts, processes or completed or substantially completed Products supplied to Veraz and
ECI shall otherwise be completely independent in determining the manner in which it shall perform
its obligations hereunder without prior written approval from Veraz. Consent of Veraz to the use
of any components manufactured by third parties shall not derogate from ECI’s obligations under
this Agreement, including, without limitation, ECI’s warranty obligations under Section 8 of this
Agreement;

     4.2 Make available to Veraz, upon its reasonable request, Products and Product test equipment,
if any, that may be located in the regional units of ECI, as is necessary for Veraz to perform its
obligations under Section 5.1 below in such regions, provided that the manufacture of the Products
and Product test equipment does not disrupt ECI’s manufacturing process.

     4.3 Prepare the Products described in any Purchase Order, to be ready in its final packaging
for shipping within two (2) business days after Veraz notifies ECI of final packaging and delivery
instructions for any Purchase Order, provided that ECI shall have at least ten (10) business days
after receipt of any Purchase Order to deliver the Products described in such Purchase Order (other
than Products that may be tested using the “highly accelerated screening system”, for which
Products ECI shall have five (5)-business days after receipt of a Purchase Order to deliver such
Products to Veraz);

4.

 

     4.4 Supply, at Veraz’s reasonable request, Product manufacturing data that is required for
obtaining necessary governmental approvals, licenses, permits and consents as required pursuant to
Section 5.4 hereof;

     4.5 Maintain all necessary process design technology, labor, material, tooling, facilities and
other resources for the timely and satisfactory completion and delivery of the Product under this
Agreement;

     4.6 Commit and use sufficient and qualified personnel to support the requirements of this
Agreement;

     4.7 Reimburse Veraz for expenses of third parties approved in advance by ECI in connection
with the development of features to satisfy customer requests;

     4.8 Provide Veraz with Product demonstration equipment as reasonably requested by Veraz,
provided, that Veraz shall reimburse ECI for ECI’s depreciated cost of production of any
demonstration equipment not returned to ECI within one (1) year of delivery to Veraz;

     4.9 Obtain and pay for any bank guarantees, performance bonds or other like instruments to the
extent related to production and performance of the Products, and necessary for the sale by Veraz
of the Products;

     4.10 Provide Veraz with Products for field trials free of charge, provided that Veraz shall
return such Products within a reasonable timeframe upon ECI’s written request subject, however, to
those contractual obligations that may exist between Veraz and its customers that may affect the
required return of such Products;

     4.11 Provide Veraz with Products for homologation; provided that Veraz shall return such
Products within a reasonable timeframe upon ECI’s written request unless Veraz decides to retain
such Products which in such event Veraz shall so promptly notify ECI and will pay to ECI an amount
equal to ECI’s actual cost of manufacture for such Products that will be invoiced by ECI to Veraz
at the time such decision is made by Veraz;

     4.12 (a) Obtain and maintain all governmental and other permits, licenses and approvals that
Veraz notifies ECI in writing are necessary for the performance of ECI’s undertakings hereunder and
the distribution and sale of Products for intended use by customers within countries that Veraz
plans to distribute such Products, including an ISO certification for ECI’s processes to be
performed under this Agreement (of at least ISO 9001 or higher), (b) pay the annual fees associated
with obtaining the CE, TUV and UL marks (to be obtained by Veraz as specified in Section 5.4
below), and (c) use commercially reasonable efforts to insure that each subcontractor complies with
any requirements to obtain and maintain such permits, licenses, approvals and certifications;

     4.13 Provide on a weekly basis to Veraz detailed production and planned delivery schedules for
all Products that are to be manufactured and/or delivered by ECI for Veraz under this Agreement;

5.

 

     4.14 Manufacture Products in accordance with the quality requirements, including reliability
testing and inspection methods and procedures, that are set forth in Exhibit 4.13 to this
Agreement or otherwise agreed to in writing by Veraz and ECI;

     4.15 Assist Veraz in obtaining services of Celtro engineers on an as needed basis to solve
engineering problems in Products, which assistance received, if any, will be compensated by Veraz
to Celtro on commercially reasonable terms, for so long as Celtro is a wholly-owned division or a
wholly owned subsidiary of ECI.

     4.16 Provide Veraz with quality data and reports that Veraz may reasonably request or is
otherwise required by Veraz to satisfy its obligations to ECI under this Agreement; provided,
however, that ECI shall not have any obligation under this Section 4.16 to provide Veraz with any
quality data and reports that are not currently being generated by ECI for the Products as of the
date of execution of this Agreement unless such data and reports are otherwise required by law,
regulation or other legal requirement;

     4.17 Maintain, a business continuity plan for the Products to the extent that ECI generally
has, and that contains protections that are no less protective than, a business continuity plan for
other products that ECI uses generally to protect its business from disruption; and

     4.18 Appoint, and hereby does appoint, Veraz as its agent to collect all DCME-related accounts
receivable balances (including both current and delinquent) pursuant to the provisions of Section
5.10.

5. Veraz’s Obligations

     Veraz shall, at its expense, unless expressly provided otherwise below:

     5.1 Use commercially reasonable efforts to seek out and identify prospective customers, either
through its own actions or actions of its agents, and otherwise promote and expand the sale of the
Products worldwide and follow up inquiries, leads and correspondence furnished to it by ECI;

     5.2 Use commercially reasonable efforts to provide and maintain an adequate place of business
and sales organization to promote and effect sales of the Products worldwide;

     5.3 Use commercially reasonable efforts to Conduct promotional campaigns including advertising
campaigns and participation in trade shows;

     5.4 Use commercially reasonable efforts to obtain all necessary governmental approvals,
licenses, permits and consents in connection with the import into, distribution, sale and use of
the Products worldwide and comply with all applicable laws and regulations in connection with the
performance of its obligations hereunder. Veraz (or its agents or distributors) shall qualify and
act as importer of all Products sold, to the extent that such is required under the laws of any
jurisdiction where the Products are sold;

     5.5 Pay any and all sales and use taxes, duties, fees, expenses and such other similar
charges, including interest and penalties thereon, levied under any applicable law or regulation

6.

 

arising out of or in connection with Veraz’s sale of Products to customers, provided that
nothing in this Section shall be interpreted to mitigate ECI’s obligations under Sections 8
(Warranty, Epidemic Failure, Warranty Service and Post-Warranty Support) and 13 (Indemnification);

     5.6 Use commercially reasonable efforts to obtain bank and performance guarantees related to
maintenance service and support that Veraz is required to provide hereunder, solely to the extent
required to sell the Products to Veraz’s customers, and to use commercially reasonable efforts to
cancel existing guarantees and take commercially reasonable actions to ensure that such
ECI-obtained guarantees are not called or otherwise materialized;

     5.7 Adopt reasonable credit procedures with respect to the sale of Products to third parties
that take into account ECI’s credit procedures and revenue recognition policies, as such procedures
and policies may be amended from time to time, with the cost of any such procedures (such as,
letters of credit or credit insurance premiums) to be shared equally by ECI and Veraz;

     5.8 Other than the warranty contained in Section 8 hereof and the representations and
warranties contained in the standard agreement with Veraz’s customers attached hereto as
Exhibit 5.8, make no representations and warranties that are different in any material
respect to the Products without the prior written consent of ECI;

     5.9 Provide ECI with (i) engineering data that is reasonably requested by ECI for maintenance
of bill of materials, including replacements, drawings, quality requirements, technical
specifications, standard operation and test procedures; proposed test equipment, and approved
vendors list; (ii) (a) engineering support that is reasonably necessary to help enable the
manufacture of the Products, to solve problems on all levels (i.e., component, card, system), to
develop replacement parts together with ECI, provided that the parties agree that such development
is commercially reasonable and provided further that such parts cannot be procured by ECI in
accordance with Section 3.4 above and to share the research and development labor costs of such
development in the same ratio of the Percentage of Customers Revenue for the relevant year as set
forth in Column A in Section 9.1 below, to treat rejected parts, and to improve test functions, (b)
engineering services that is reasonably necessary to improve Product manufacturability, and (c)
support that is reasonably necessary to help ECI comply with customer engineering requests, such as
fixing hardware and software bugs; and (iii) sales order data, packing list accompanied with BPCS
order, specific instructions, customer name, date of delivery, payment terms, and data required to
calculate amounts to be paid to the OCS (for both products and services), and (iv) the additional
information and support that ECI shall reasonably request and require in order to manufacture the
Products and otherwise comply with ECI’s obligations to Veraz under this Agreement, provided that,
with respect to each of the foregoing, ECI shall bear the costs incurred by Veraz for materials or
third party subcontractors directly related to the design or manufacture of the Products;

     5.10 Use commercially reasonable efforts as ECI’s agent to collect ECI’s DCME Receivables
identified in Exhibit 5.10 attached hereto and to provide ECI monthly with a projected cash
flow collection report, all in coordination with ECI, such as use of collection agencies, if
reasonably required, for which Veraz shall be entitled to a commission in the amount of ten percent
(10%) of the amounts it actually collects (with such commission to be increased to twenty percent
(20%) in respect of those DCME Receivables identified in Exhibit 5.10 as being

7.

 

     “Doubtful Debts”), with Veraz to either arrange for the direct payment to ECI by the debtor of
the receivables or for the transfer by Veraz to ECI of the receivables within ninety (90) days
after its receipt thereof;

     5.11 Use commercially reasonable efforts to successfully meet the overall sales projections
for all Products taken as a group, as set forth in the Business Plan;

     5.12 (a) Any distribution of the Products through ECI’s regional business units in the United
Kingdom, Germany and France (each a “RBU”) and any required reimbursement of expenses by Veraz to
any such RBU will be pursuant solely to those terms and conditions in Exhibits 5.12-Al,
5.12-A2, 5.12-A3, respectively. Additional terms (if any) with regard to the execution of the
respective RBU agreements are set forth in Exhibits 5.12-Al(a), 5.12-A2(a), 5.12-A3(a).

          (b) In connection with the distribution of Products through ECI’s country business units (each
a “CBU”) that Veraz chooses to use, unless otherwise agreed in a separate written agreement
executed by and between Veraz and an applicable CBU, Veraz will (i) advance to each such CBU, on a
monthly basis, the amount of its estimated monthly DCME sales and marketing budget as set forth in
the CBU DCME Sales and Marketing Budget attached hereto as Exhibit 5.12-B, which will be
reviewed and adjusted by mutual agreement of the parties on a semi-annual basis, (ii) reimburse
each such CBU on a monthly basis for its fully-loaded actual costs as agreed in advance by the
parties, and reasonably incurred in connection with Veraz’s Product sale and marketing expenses, as
calculated in accordance with ECI’s customary cost allocation method, within thirty (30) days of
receiving an invoice therefor, less the applicable monthly advance, provided that Veraz shall not
be liable for any expenses related to excess space, any depreciation or excessive rent costs or any
past or historical liabilities of the CBUs; (iii) pay all termination costs that are attributable
to the employment of Veraz approved CBU employees dedicated to sales and marketing of the Products
after the date of execution of this Agreement and attributable to the period after the date hereof,
excluding in all cases any such costs relating to employees whose actual or planned termination was
made or determined by ECI prior to the date of execution of this Agreement and any such costs
relating to Israeli expatriate Products dedicated CBU employees; and (iv) be responsible for all
taxes and corresponding withholding payments arising from Veraz’s receipt of local service revenues
that Veraz retains without any payment therefore to ECI hereunder; and

          (c) Veraz shall have the right to inspect the relevant parts of the books and records of any
CBU or RBU, as the case may be, upon reasonable prior notice to such applicable CBU or RBU, during
working hours and in the presence of an ECI representative, all subject to the confidentiality
provisions contained in Section 16.8 below. In the sale and marketing of Products, all dedicated
employees of CBUs, other than those of the Russian and Baltic CBU, shall act in accordance with
instructions from Veraz and such CBU employees, to the extent fully dedicated to Veraz, shall
receive sales incentives solely from Veraz. Dedicated employees of the Russian and Baltic CBU
shall act in accordance with the provisions of Exhibit 5.12-C. Unless otherwise agreed in
a written agreement between the parties, Veraz may terminate its relationship with any CBU or RBU
at any time upon prior written notice of ninety (90) days and shall be liable upon termination
solely for reasonable termination costs incurred with respect to those costs borne by Veraz as set
forth above;

8.

 

     5.13 Maintain and provide to ECI, within ten (10) business days of the end of each calendar
quarter, a detailed inventory of Products used in field trials, demonstrations or sale or return
transactions (“SOR”) and of sales of Products which have not been recognized under its revenue
recognition policy;

     5.14 Provide to ECI on a monthly basis a customer default report detailing customer defaults
of more than 60 days including the reasons for such defaults, and a projected collection report for
the next ninety (90) days; and

     5.15 Promptly notify ECI in writing in the event that its sales projections for the sales of
any one of the DCME Product Lines (as hereinafter defined), during any rolling calendar twelve
(12)-month period fall below Five Hundred Thousand U.S. Dollars (US $500,000), and upon mutual
agreement of the parties after taking into consideration market conditions and other factors, issue
a notice of discontinuance to its customers for such DCME integrated systems and equipment with a
six (6) month period within which to make a final purchase thereof. In this Agreement the term
“Product Lines”, shall mean either one of the following: (a) DTX 240, (b) DTX 360, (c) QC 300, (d)
DTX 60, or (e) DTX 600.

6. Purchase Orders

     6.1 Veraz will provide ECI from time to time during the term hereof with Purchase Orders in
the form attached hereto as Exhibit 6.1 for each Product covered by a Forecast that Veraz
chooses to order, for ECI’s acceptance. Any Purchase Order may be submitted either by Veraz U.S.
or Veraz Israel, at Veraz’s sole discretion. Each Purchase Order shall specify the quantity of
Products to be provided in the relevant period, the relevant price and the requested delivery
schedules, and shall be accompanied with a copy of the customer’s purchase order. ECI shall accept
any Purchase Order that is for a number of products that does not exceed the amount of such Product
in the then most recent Forecast, provided, however, that in no event shall ECI be required to
accept a Purchase Order, if such Purchase Order calls for the manufacture within a period of seven
(7) days or less, of a number of Products that is 20% or more of the amount in the most recent
Forecast accepted or deemed accepted by ECI in accordance with the provisions of Section 2 above,
divided by four (4).

     6.2 The parties agree to attempt to develop a commercially reasonable mechanism to record
Products in ECI’s inventory if, at the end of any quarter, such Products have been shipped but have
not been recognized as a sale on the financial records of ECI or Veraz due to “Staff Accounting
Bulletin 101” accounting requirements.

     6.3 Veraz may, at any time and without charge, cancel any Purchase Order or reschedule the
delivery of Products ordered under any Purchase Order which it can substantiate as having been
cancelled or rescheduled in response to a cancellation or request for reschedule received from a
customer of Veraz. Any such request for reschedule that is initiated by Veraz shall take into
consideration the new requested delivery date received from a customer of Veraz.

     6.4 In the event of a failure by ECI to supply Products specified in any Purchase Order
pursuant to their requested delivery dates therein, and provided further that such failure does not
arise out of or result from the fault of Veraz, then the amount due from Veraz to ECI

9.

 

under this Agreement with respect to such Products shall be reduced by any reasonable price
reduction or financial concession that Veraz is contractually obligated to provide to any affected
customer of Veraz as the result of such delay in delivery. If Veraz anticipates that it will be
required to reduce its price or provide a financial concession to a customer due to any such delay,
it will inform ECI promptly of such potential reduction in price or financial concession. As to
such matter, if ECI delivers Products to Veraz after their requested delivery dates, but before
their scheduled date of delivery by Veraz to the affected customers, Veraz will use a reasonable
expedited delivery service to attempt to avoid any such reduction in price or financial concession
that it would otherwise be required to pay to its affected customers. In such event, ECI will
reimburse Veraz for reasonable expedited charges that Veraz incurs to expedite the delivery of
Products to meet their scheduled delivery dates with Veraz’s customers.

     6.5 ECI will make a good faith effort to notify Veraz in the event that ECI reasonably
believes that there is or may be a materials or capacity constraint that could negatively affect
ECI’s ability to meet any forecasted needs of Veraz under this Agreement (“Supply Constraint”).
During any period of Supply Constraint, ECI shall allocate the supply and delivery of Products to
Veraz that are affected by any such Supply Constraint ahead of any subassemblies that ECI may
provide to ECtel Ltd., components for the Celtro product line, or components for the Hi-TV product
line.

7. Packaging and Delivery

     All Products shall be packaged at no additional charge by ECI in accordance with product
packaging and labeling specifications reasonably issued by Veraz and shall be delivered EX WORKS
(INCOTERMS 2000) ECI’s relevant Israel factory. Risk of loss and title shall pass from ECI to
Veraz upon delivery.

8. Warranty, Epidemic Failure, Warranty Service and Post-Warranty Support

     8.1 Warranty. ECI warrants to Veraz that, (i) during and for a period of time equal
to the same period of time for which Veraz provides a warranty for Products to its customers, but
in no event shall such warranty provided by ECI to Veraz hereunder exceed a date that ends
twenty-four (24) months after the date of delivery of a Product to Veraz (herein the “Warranty
Period”), such Product will be free from material defects in material and workmanship, subject to
normal use and service, and (ii) each Product will conform in all material respects to the
specifications applicable to such Product at the time of its manufacture. If Veraz promptly
reports to ECI in writing, prior to the end of the Warranty Period, the failure of a Product
delivered by ECI to meet the warranty as aforesaid, then ECI shall, at its cost, make available at
its factory in Petah Tikva, Israel, the parts which are reasonably required to repair the Product.
In addition, Veraz shall provide ECI on commercially reasonable terms with all engineering support
which is reasonably required by ECI to meet its warranty obligations in respect of the Products in
connection with sales made during the twelve (12) month period prior to the date of this Agreement
as well as warranty extensions in respect of such sales.

10.

 

     8.2 Epidemic Failure.

          8.2.1 For purpose of this Agreement, “Epidemic Failures” shall mean identical, reproducible
Product failures (including any ECI part failures) due to the same or substantially similar cause,
which occur in the same series of Products and impair the use of the Products, and are a result of
a defect in materials or workmanship of ECI or its affiliates occurring within twenty-four (24)
months after the date of delivery of the Products, and are equal to or in excess of ten percent
(10%) of the total number of a Product or any ECI part from any production lot or ten percent (10%)
‘of the total number of Products or any ECI parts included in Products which are delivered to Veraz
during any ninety (90)-day period (the “Epidemic Failure Rate”).

          8.2.2 In the event of a suspected Epidemic Failure, Veraz shall notify ECI and provide the
following information, if known and as may then exist: a description of the defect, and the
suspected lot numbers, serial numbers or other identifiers, and delivery dates of the defective
Products (including any defective ECI parts). Veraz shall also deliver or make available to ECI,
samples of the defective Products or defective ECI parts for testing and analysis.

          8.2.3 Within five (5) business days of receipt of notice from Veraz, ECI shall provide its
preliminary findings regarding the cause of the failures. Thereafter, ECI shall promptly provide
the results of its root cause corrective analysis, its proposed plan for the identification of and
the repair and/or replacement of the affected Products (including any affected ECI parts), and such
other appropriate or desirable information. The parties shall also cooperate and work together to
expeditiously devise and implement a corrective action program which identifies the defective units
for repair or replacement, and which minimizes disruption to the end users and Veraz’s direct and
indirect distribution channels.

          8.2.4 In the event of an Epidemic Failure, ECI shall be responsible for (a) repair and/or
replacement of the defective Products (including any defective ECI parts) or at ECI’s option, a
credit or payment to Veraz in an amount equal to the cost to Veraz for qualified, nondefective
replacement Products (including any defective ECI parts) reasonably acceptable to Veraz; (b)
reasonable labor costs (and associated lodging and travel costs) to repair and/or replace the
defective Products (including any defective ECI parts); and (c) reasonable freight and
transportation costs incurred in connection with the repair and/or replacement of the defective
Products (and the larger product in which the Product or the ECI Part is incorporated if the
Product or ECI Part cannot be separated without undue inconvenience or disruption to the end user).

     8.3 Warranty Service. Veraz shall be responsible, at its own cost and expense, to
provide the necessary labor to retrieve and deliver components to ECI for repair.

     8.4 Post-Warranty Support. Veraz shall offer to the extent feasible post-warranty
service to customers for all the Products on commercially reasonable terms that it determines.
With respect to service and maintenance required on the Products (other than pursuant to the
aforesaid Product warranties) under service agreements and on a “time and material” basis, Veraz
shall perform such services under contractual arrangements that it has with customers and

11.

 

shall, subject to the other terms and conditions of this Agreement and on an as needed basis,
purchase the parts and related repair services from ECI on commercially reasonable terms, including
pricing. ECI shall only be obligated to make such parts and services available at its factory in
Petah Tikva. Veraz shall be entitled to keep all revenues that it generates from such services.
Veraz shall be responsible for one hundred percent (100%) of all royalty payments to the Office of
the Chief Scientist of the Israel Ministry of Industry and Trade (“OCS”) required to be made with
respect to all service revenues related to installation, repair, maintenance service and support,
commissioning, and training services for the Products performed as permitted under this Section 8.4
(“OCS Service Revenue”), which it shall forward to ECI on a calendar semi—annual basis as necessary
for the timely payment thereof by ECI to the OCS, together with a detailed report as to the
calculation thereof as reasonably requested by ECI. ECI shall be responsible for remitting payment
of royalties on the OCS Service Revenue to the OCS. Each party (the “Responsible Party”) shall
indemnify and hold the other party harmless in respect of all loss, cost, liability and expense
incurred by such other party as a result of any breach by the Responsible Party of its obligations
hereunder in respect of the obligations pertaining to royalty payments required to be paid to OCS
based on OCS Service Revenue.

     8.5 Warranty Exclusions. ECI shall not be obligated under any of the above warranty
provisions if any such warranty service is necessitated in whole or in part by normal wear’ and
tear, catastrophe, accident, fault or negligence of Veraz or any third party, improper use,
alteration or modification, unusual stress, installation, service or repair performed other than
pursuant to this Agreement (other than installation, service or repair performed by ECI pursuant to
this Agreement), engineering or design as aforesaid, or any other cause other than ordinary use.
THE WARRANTY IN THIS SECTION 8 IS EXCLUSIVE AND IN LIEU OF ANY AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PURPOSE. THE REMEDY PROVIDED IN
SECTION 8.1 ABOVE SHALL BE THE SOLE REMEDY OF VERAZ FOR ANY FAILURE OF ECI TO CONFORM WITH SUCH
WARRANTY IN SECTION 8.1, AND PROVIDED THAT ECI HAS FULLY AND SATISFACTORILY PERFORMED ITS
WARRANTIES OBLIGATIONS THEREUNDER VERAZ SHALL HAVE NO CLAIM, EXCEPT AS AFORESAID, WHETHER BASED ON
CONTRACT, NEGLIGENCE, PRODUCTS LIABILITY OR OTHERWISE THEREFORE.

     8.6 Additional Services. Veraz may purchase on a monthly basis additional services
from ECI as listed in Exhibit 8.6 attached hereto at commercially reasonable terms to be
negotiated by the parties.

     8.7 Spare Parts. At all times during the term of this Agreement and a reasonable
period thereafter during which Veraz may provide post-warranty support to customers identified to
ECI, ECI shall maintain, at ECI’s sole cost and expense and for the benefit of Veraz, a mutually
agreed supply of replacement parts and components at ECI’s manufacturing facility, which agreed
supply shall be equal to a quantity that is necessary to support at least one (1) month of service
and support activity of Veraz based on prior service and support history. ECI shall maintain a
supply of replacement parts and components to support each of the Products for at least ten (10)
years following the date of final delivery of the Products to Veraz’s customers.

12.

 

     8.8 RMA Process. Each party will follow the RMA Process set forth in Exhibit
8.8 with respect to the return and delivery of Products that are subject to in-warranty or
out-of—warranty repair by ECI. ECI will promptly repair or replace Products returned for repair or
rework to their most current version within thirty (30) days after their receipt and will redeliver
to Veraz such repaired or reworked products prior to the expiration of such period. In the event
of any conflict or inconsistency between the provisions of Exhibit 8.8 and the provisions
within Section 8, the provisions within Section 8 shall govern and control such conflict or
inconsistency.

9. Payment Terms

     9.1 As and for the purchase price for the Products Veraz purchases from ECI hereunder (the
“Purchase Price”), Veraz shall pay ECI in connection with Veraz’s sale of each such Product, a
percentage of the Customer Revenue (defined below) received from the sale of such Product in
accordance with the following table:

	 	 	 	 	 
	 	 	Column “A”	 	Column “B”
	 	 	 	 	Percentage of Customer Revenue
	 	 	Percentage of	 	on RBU Sales (i.e., Germany,
	Period	 	Customer Revenue	 	France and United Kingdom)
	Y2002

	 	50.0%
	 	 48.0%
	 
	 	 	 	 
	Y2003

	 	44.4%
	 	 42.4%
	 
	 	 	 	 
	Y2004

	 	40.0%
	 	 38.0%
	 
	 	 	 	 
	Y2005

	 	36.4%
	 	 34.4%
	 
	 	 	 	 
	Y2006 – thereafter

	 	Compensation shall be as
negotiated between the
parties, but will not
exceed 36.4%
	 	Compensation shall be as
negotiated between the
parties, but will not
exceed 34.4%

For purposes of this Section 9.1, the term “Customer Revenue” shall mean the aggregate of all
amounts invoiced to and actually received by Veraz from a Veraz customer or, if an affiliate of
ECI, from the affiliate’s customer in connection with the sale of a Product, but excluding (1) any
and all sales taxes or duties, paid directly or indirectly by Veraz, and (2) any fees for
installation, service, extended warranty, training, maintenance or similar service either expressly
identified in the invoice or purchase order or are otherwise customarily attributable to the
provision of such services based on a percentage of revenue that Veraz receives (but in any event,
the fee for installation, services, extended warranty, training, maintenance or similar service
shall be, in the aggregate, not more than seven percent (7%) of the customer invoiced purchase
price); provided, however, that the minimum Purchase Price for any such applicable Product that is
sold by Veraz shall be as set forth in Exhibit 9.1 hereto, as the same may be modified in
accordance with the provisions of Exhibit 9.1. Except as provided in the following
sentence, all amounts required to be paid by Veraz to ECI hereunder for those Products that it
purchases for sale to customers shall be computed in accordance with the Percentage of the Customer
Revenue specified in Column “A” in the above table, unless otherwise agreed in writing by Veraz and
Ea. For those Products that are sold by Veraz through an RBU, Veraz shall pay to ECI the
Percentage of the Customer Revenue Specified in Column “B” in the above table that Veraz receives
from such sales.

13.

 

     9.2 Veraz shall pay the Purchase Price for a sale of Product promptly following its receipt of
the proceeds of its disposition of the Products and in any event within thirty (30) days
thereafter, except that for the period ended December 31, 2003, payment shall be due within ninety
(90) days following receipt thereof, but in any event no later than March 31, 2004.

     9.3 All payments hereunder shall be made by wire transfer of immediately available U.S.
dollars to ECI’s bank account as instructed by ECI. Payments, when overdue, shall bear an interest
at the rate of LIBOR plus two percent (2%) per annum. Payments hereunder shall be made net of any
local, state, or federal sales, use, excise, personal property or other similar taxes (other than
income taxes) or duties, and any such taxes or duties shall be assumed and paid for by Veraz. If
Veraz receives Customer Revenue in a currency other than U.S. dollars, Veraz will pay ECI its
percentage in U.S. dollars based on the exchange rate that Veraz actually obtains on the date of
receipt of funds or, if not converted on that date, that Veraz could have obtained on the date of
receipt of funds based on the New York closing bid rate for such currency. The parties will
cooperate to facilitate refunds, if any, of such payments to the applicable party.

     9.4 Within fourteen (14) days following every fiscal quarter, Veraz shall submit to ECI a
preliminary revenue statement and within one week thereafter a final revenue statement (“Revenue
Statement”) in a form reasonably satisfactory to ECI, certified by the Chief Financial Officer of
Veraz and reporting, inter alia, the quantity of each Product sold, the date of each sale, the
identity of the end user, the price paid to Veraz or, if the customer is an affiliate of ECI, the
price paid to the affiliate by its customer, payments of commissions, if any, to RBUs pursuant to
Section 5.12 above, and such other information as requested in such form or which is reasonably
necessary to enable ECI to understand Veraz’s calculation of the amounts payable during such
period. Within five (5) business days following the beginning of each month, Veraz shall submit to
ECI a collection forecast and an accounts receivable aging report in a form reasonably satisfactory
to ECI, certified by the Chief Financial Officer of Veraz.

     9.5 Each party agrees to keep true and accurate books of account with regard to the
manufacture, delivery and sale of the Products for the term of this Agreement and for any legally
required period thereafter.

     9.6 ECI, through an accounting representative nominated by ECI, will have the right to inspect
the books of account referred to in Section 9.5 above during Veraz’s normal working hours, upon
advance notice to Veraz. The accounting representative will only disclose to ECI such information
as is necessary to verify the truth and accuracy of such books of account and, if an error is
discovered, to verify such sum as is properly due to ECI or Veraz. The cost of the accounting
representative will be borne by ECI unless an error in the amounts due in excess of 5% is
discovered which has resulted in under-payment to ECI, in which event Veraz shall bear the cost.
Veraz agrees to allow all reasonable access, accommodation, facilities and assistance to said
accounting representative in his task and to bear its own costs incurred in doing this.

     9.7 The parties acknowledge that the amounts paid to ECI and Veraz in respect of sales of the
Products may be subject to royalties payable to the OCS (“OCS Product Sales Royalties”). ECI shall
be responsible for payments of all OCS Product Sales Royalties. The parties shall cooperate in
providing all necessary documentation to the OCS and/or in any dispute with the OCS with respect to
the OCS Product Sales Royalties payable. Veraz shall be

14.

 

responsible for transferring to ECI on a timely basis all amounts required to be paid to the
OCS for the royalties on OCS Service Revenue in connection with the service revenues pursuant to
Section 9.4 above, as aforesaid.

10. Engineering Changes 

     ECI shall not make any engineering changes to the Products to be supplied to Veraz hereunder
that may impact the form, fit or function of such Products, or may cause the Products to deviate
from their specifications, without first obtaining the prior written consent of Veraz to such
engineering changes, which will not be unreasonably withheld, delayed or conditioned.
Additionally, Veraz may submit engineering changes for incorporation into any Product, which shall
be subject to ECI’s approval, which shall not be unreasonably withheld, delayed or conditioned.
ECI will make a reasonable effort to review the engineering change and report to Veraz within ten
(10)-business days of any implications of the proposed changes. The report shall include all
possible implications on material, delivery schedule, manufacturing process, quality and product
cost. Such changes will be reflected in revised Purchase Orders. ECI shall bear all costs
associated with the development and implementation of engineering changes if such changes are made
or implemented in order to make the Product (i) comply with the specification that was agreed to by
Veraz and Ea, (ii) meet any agreed upon quality requirements of Veraz, or (iii) comply with or
conform to any safety or legal requirements to the extent not necessitated by a change in design of
the Products. ECI shall use commercially reasonable efforts to quickly implement all of the
foregoing engineering changes and any other agreed engineering changes.

11. Term; Termination

     11.1 This Agreement shall commence on the date hereof and shall continue until December 31,
2005, unless earlier terminated pursuant to this Section 11. Subject to the provisions set forth
below in this Section 11.2, this Agreement will automatically renew for successive one (1)-year
periods.

     11.2 At least ninety (90) days before the expiration of the then-current term of this
Agreement, Veraz will inform in writing ECI of its good faith expectation of Customer Revenue for
sales of Products in the upcoming one (1)-year period. If Veraz informs ECI in writing of expected
Customer Revenue of at least One Million U.S. Dollars (U.S. $1,000,000) for any such upcoming one
(1)-year period, then this Agreement shall automatically renew for such period. If Veraz informs
ECI in writing of expected Customer Revenue less than One Million U.S. Dollars (U.S. $1,000,000)
for any such period, then Veraz will issue a notice of discontinuance to its customers for the DCME
integrated systems and equipment available to Veraz under this Agreement and this Agreement will
expire at the end of the then-current term of this Agreement. If Veraz fails to inform ECI as
aforesaid, even after written request by ECI, then this Agreement will expire at the end of its
then-current term.

     11.3 If a party fails to meet one or more of any material terms and conditions hereof (a
“default”), ECI and Veraz agree to negotiate in good faith to resolve such default. If the
defaulting party fails to cure such default or submit an acceptable written plan to resolve such
default within thirty (30) days following notice of default, the non-defaulting party shall have
the

15.

 

right to terminate this Agreement by furnishing the defaulting party with thirty (30) days
written notice of termination.

     11.4 Reserved.

     11.5 Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and
agree that a breach by Veraz of the terms of Section 5.11 shall only permit ECI to convert ECI’s
obligation to sell Products exclusively to Veraz to a non-exclusive status, and shall not otherwise
be grounds for the termination of this Agreement.

     11.6 A party shall have a right to terminate this Agreement immediately should the other party
become insolvent; enter into or file on its own a petition, arraignment or proceeding seeking an
order for relief under the bankruptcy laws of its respective jurisdiction; have filed against it an
involuntary petition, arraignment or proceeding seeking an order for relief under the bankruptcy
laws of its respective jurisdiction, which is not dismissed within ninety (90) days after filing;
enter into a receivership of any of its assets; or enter into a dissolution or liquidation of its
assets or an assignment for the benefit of its creditors.

     11.7 Veraz shall have the right to terminate this Agreement in the event of a force majeure
event that continues in effect for a period of ninety (90) days and affects the ability of Veraz to
obtain Products from ECI.

     11.8 In the event of the expiration of this Agreement pursuant to the provisions of Section
11.2, then, notwithstanding anything to the contrary, Veraz shall have the right to request and ECI
shall supply to Veraz Products to fulfill any Purchase Orders that Veraz places with ECI after the
expiration of this Agreement that are based on purchase orders or other written commitments
received by Veraz from its customers at any time within six (6) months after the expiration of this
Agreement. Products ordered under such Purchase Orders will be fulfilled by ECI in accordance with
their reasonable requested delivery dates in such Purchase Orders in a manner consistent with the
delivery requirements of Veraz’s customers.

     11.9 The provisions of Sections 8 (Warranty, Epidemic Failure, Warranty Service and
Post-Warranty Support), 9 (Payment Terms), 11 (Term; Termination), 12 (Effect of Termination), 13
(Indemnification), 14 (Dispute Resolution) and 16 (General) shall survive the expiration or earlier
termination of this Agreement for as long as Veraz provides maintenance service and support for the
Products, but in any event not for a period of more than seven (7) years after such expiration or
earlier termination.

12. Effect of Termination

          12.1 In the event of termination (other than termination by Veraz due to a default by ECI, a
force majeure event involving ECI, or a court declaration of bankruptcy or insolvency of ECI):

          12.1.1 Veraz shall compensate ECI for unused Forecast Excess Materials as stipulated in
Section 3.3.

16.

 

          12.1.2 Each party will promptly return to the other party, all Proprietary Information of the
other party (as defined below).

          12.1.3 Veraz shall provide a list of all of its current customers to the Products and the
contact information therefor and shall advise ECI by notice of all existing indications of interest
by, and discussions with, potential customers for Products.

          12.1.4 In the event that Veraz has failed in any material respect to satisfy its payment
obligations to ECI under Section 9 of the Agreement and has not cured any such failure within
thirty (30) days after receipt of written notice from ECI, Veraz shall assign to ECI all of Vreaz’s
receivables due and owing to Veraz in connection with the disposition of the Products, both prior
to and after the termination date.

          12.1.5 Veraz shall submit to ECI a listing of its then current inventory of Products and the
condition of each such Product, specifying types and quantities. Within 30 days from the date of
receipt of such listing, ECI may instruct Veraz to deliver all or part of the Products, free of
charge, to ECI or to such other destination as ECI shall direct in writing, F.O.B. ECI’s place of
business; provided, however, Veraz may choose not to return those spare parts that may be required
for Veraz to draw upon in connection with the furnishing of service and support to customers. In
addition, Veraz shall promptly return to ECI all equipment used by Veraz to meet Veraz’s
obligations hereunder, as well as all equipment in Veraz’s possession or under Veraz’s control as
is reasonably requested by ECI to enable ECI to continue manufacturing the Products.

     12.2 In the event of termination by Veraz due to a default by ECI, or a court declaration of
bankruptcy or insolvency of ECI:

          12.2.1 Veraz shall be entitled to find a replacement manufacturer for the Products reasonably
acceptable to ECI and to continue selling the Products.

          12.2.2 ECI shall transfer the manufacturing of such Product to such replacement manufacturer,
have relevant representatives meet with representatives of such replacement, sharing know-how about
the manufacturing process, and providing all necessary tools and tooling for the Product, at
Veraz’s cost, to such replacement manufacturer, and providing reasonable technical assistance and
support to such manufacturer for the Products.

          12.2.3 Upon request by Veraz, ECI shall grant to such replacement manufacturer a worldwide,
non-exclusive, non-transferable, non-sublicensable and royalty-free license to all technology and
intellectual property within ECI’s possession or control solely to the extent necessary and for a
period necessary to manufacture the Product for supply to Veraz.

          12.2.4 ECI shall immediately transfer to Veraz all Material, work in process, finished goods,
tools, tooling and test equipment then in its inventory at a price to be agreed upon by the
parties, but no higher than value at which recorded in the financial records of ECI.

          12.2.5 If Veraz is unable to find a replacement manufacturer on commercially reasonable terms,
Veraz may, at its option, purchase ECI’s manufacturing equipment and any

17.

 

other resources that are necessary to manufacture the Products at a price to be agreed by the
parties.

     12.3 Neither party shall be liable to the other party for any expenses incurred by the other
party or any of its employees, distributors or agents and which arise out of or in connection with
the termination of this Agreement or relate to the development of goodwill for the Product.
Furthermore, neither party shall have any obligation whatsoever to the other party by reason of the
expiration or termination hereof, for loss of profits or anticipated profits, reimbursement of
expenditures or otherwise.

     12.4 Neither party shall be obligated to compensate the other party for any loss, cost or
expense incurred by the latter by virtue of any investments in buildings, stock, machinery,
transport equipment or other property which may be undertaken by the other party in connection with
this Agreement. Each party agrees that all such investments shall be for its own account and at
its own risk.

13. Indemnification

     13.1 ECI shall defend, indemnify and hold harmless Veraz and its affiliates, and each of their
respective officers, directors, employees, and assigns and successors permitted hereunder, from and
against any direct loss, damage, expense, cost (including, but not limited to, reasonable
attorneys’ fees and costs incurred in the enforcement of this indemnity) or liability solely to the
extent that it is based upon a claim that (a) ECI’s design (provided such design was implemented
prior to the date hereof) and/or manufacturing process, process technology or methodology, and/or
any component that is purchased by ECI and included in the Products: (1) infringes or
misappropriates any patent, copyright, trade secret or other intellectual property right of a third
party, or (2) has caused personal injury (including death) or damage to property or (b) any failure
to comply by ECI of its obligations to use commercially reasonable efforts to obtain all necessary
governmental approvals, licenses, permits and consents as set forth in Section 4.22; provided that
Veraz (i) gives ECI prompt written notice of any such claim made to Veraz in writing, (ii)
cooperates with ECI, at ECI’s expense, in the defense of such claim, and (iii) gives ECI the right
to control the defense and settlement of any such claim to the extent covered by the
indemnification provided herein. ECI will: (x) defend or settle, at its own expense, any such
claim; (y) keep Veraz advised of the status of any such claim and of its defense and/or negotiation
efforts; and (z) afford Veraz reasonable opportunity to review and comment on significant actions
planned to be taken by ECI on behalf of Veraz. ECI shall not enter into any settlement that
adversely affects Veraz’s rights or interests, without Veraz’s prior written approval, which
approval will not be unreasonably withheld, delayed or conditioned. Further, ECI shall pass
through to Veraz all indemnification coverage provided by the applicable component vendor. Veraz
shall have no authority to settle any claim on behalf of ECI.

     13.2 Should the manufacture, use, distribution or sale of a Product, or any part thereof, or
ECI’s manufacturing process, process technology or methodology be enjoined or become the subject of
a claim of infringement for which indemnity is provided under Section 13.1, ECI shall at its
option, and at no expense to Veraz (a) by license or other release, procure for Veraz the right to
continue to use and distribute the same, or (b) replace or modify the same to make it non-

18.

 

infringing, in a manner acceptable to Veraz, without materially changing the form, fit, and
function of the Product.

     13.3 Veraz shall defend, indemnify and hold harmless ECI and affiliates, and each of their
respective officers, directors, employees, and assigns and successors permitted hereunder, from and
against any direct loss, damage, expense, cost (including, but not limited to, reasonable
attorneys’ fees and costs incurred in the enforcement of this indemnity) or liability solely to the
extent that it is based upon a failure to comply by Veraz of its obligations to use commercially
reasonable efforts to obtain all necessary governmental approvals, licenses, permits and consents
as set forth in Section 5.4, provided that ECI (i) gives Veraz prompt written notice of any such
claim made to ECI in writing, (ii) cooperates with Veraz, at Veraz’s expense, in the defense of
such claim, and (iii) gives Veraz the right to control the defense and settlement of any such claim
to the extent covered by the indemnification provided herein. Veraz will: (x) defend or settle, at
its own expense, any such claim; (y) keep ECI advised of the status of any such claim and of its
defense and/or negotiation efforts; and (z) afford ECI reasonable opportunity to review and comment
on significant actions planned to be taken by Veraz on behalf of ECI. Veraz shall not enter into
any settlement that adversely affects Veraz’s rights or interest, without Veraz’s prior written
approval, which approval will not be unreasonably withheld, delayed or conditioned. ECI shall have
no authority to settle any claim on behalf of Veraz.

14. Dispute Resolution

     14.1 In the spirit of continued cooperation, the parties intend to and hereby establish the
following dispute resolution procedure to be utilized in the unlikely event any controversy should
arise out of or concerning the performance of this Agreement.

     14.2 It is the intent of the parties that any dispute be resolved informally and promptly
through good faith negotiation between ECI and Veraz. Either party may initiate negotiation
proceedings by written notice to the other party setting forth the particulars of the dispute. The
parties agree to meet in good faith to jointly define the scope and a method to remedy the dispute.
If these proceedings are not productive of a resolution within twenty-five (25) days, then senior
management of ECI (Position: CFO) and Veraz (Position: CEO) are authorized to and will meet
personally within five (5) days to confer in a bona fide attempt to resolve the matter. If senior
management is not able to resolve the dispute within fifteen (15) days thereafter, either party may
seek remedy from a court of competent jurisdiction.

     14.3 Notwithstanding anything to the contrary, the dispute resolution process set forth in
this Agreement shall not affect or limit the ability of a party to seek immediate injunctive or
equitable relief as permitted under this Agreement.

15. Reserved

16. General

     16.1 Force Majeure. Neither of the parties shall be liable for any failure or delay
in its performance under this Agreement (except for payment of money) due to acts of God, acts of
civil or military authority, fires, floods, earthquakes, riots, wars, sabotage, labor shortages or
disputes, destruction of production facilities, material unavailability or any other cause beyond

19.

 

the reasonable control of the delayed party, provided that the delayed party (i) gives the
other party written notice of such cause; and (ii) uses its reasonable efforts to remedy such delay
in its performance. Each party will reasonably cooperate with the other party to mitigate harm
caused as a result of a force majeure event in a manner that is reasonably acceptable to the party
to whose cooperation is sought.

     16.2 Severability. If any provision of this Agreement is held by a court of competent
jurisdiction to be unenforceable, such provision shall be deemed null and void, and the remainder
of the Agreement shall continue to be in full force and effect, while the parties shall negotiate
in good faith to replace the provision with another enforceable one reflecting as closely as
possible the parties initial intention.

     16.3 Relationship of the Parties. Each of the parties shall at all times during the
term of this Agreement act as, and shall represent itself to be, an independent contractor.
Neither party shall have any right or authority to assume or create any obligations or to make any
representations or warranties on behalf of the other party whether express or implied, or to bind
the other party in a respect whatsoever. Neither party shall be liable to any third party in any
way for any engagement, obligation, contract, representation or transaction or for any act or
omission to an act of the other, and each party shall indemnify the other and hold it harmless
against and from any liabilities as aforesaid.

     16.4 Governing Law. The construction, interpretation and performance of this
Agreement and all transactions under it shall be governed by the laws of the State of Israel
(without giving effect to conflict of laws provisions), and both parties consent to non-exclusive
jurisdiction by the competent courts of the Tel Aviv district. This Agreement shall not be
governed by the provisions of the 1980 United Nations Convention on Contracts for the International
Sale of Goods.

     16.5 Choice of Language. The original of this Agreement has been written in English.
Each party waives any right it may have under the laws of either party’s country to have this
Agreement written in the language of either party’s country. Further any notices given to either
party as required by this Agreement shall be written in the English language.

     16.6 Entire Agreement. No amendment of this Agreement will be valid unless made in
writing signed by a duly authorized representative of both parties. No provision of this Agreement
will be deemed waived and breach or default excused unless the waiver or excuse is in writing and
signed by the party issuing it. The terms and conditions contained in this Agreement supersede all
prior oral or written understandings between the parties and shall constitute the entire agreement
between them concerning the subject matter of this Agreement.

     16.7 Assignment. This Agreement shall be binding upon and inure to the benefit of
each party’s successors and assigns. Notwithstanding the foregoing, neither party shall assign, by
operation of law or otherwise, any of its rights or obligations hereunder nor permit the same to be
assigned by operation of law, except with the other party’s prior written consent; provided,
however, nothing contained herein shall restrict the ability of each party to assign by operation
of law or otherwise, this Agreement or any of its rights or obligations hereunder, nor prohibit the
same to be assigned by operation of law or otherwise, to a successor-in-interest to it or to an

20.

 

affiliate that agrees to be bound by all of the terms and conditions in this Agreement, and,
in the case of assignment to an affiliate, provided that ECI guarantees the performance of all
undertakings and obligations of any such affiliate hereunder.

     16.8 Confidentiality. Proprietary information disclosed by either party to the other
in connection with this Agreement must be used only for the purpose of this Agreement and for no
other purpose, and shall not be utilized by the recipient party in competition with the other party
and shall be protected by the recipient party from divulgement to others with the degree of care
given to its own proprietary information that is intended to be protected from disclosure. The
obligations in this Section 16.8 shall continue for both parties for a period of three (3) years
after the termination of this Agreement or any renewal thereof. In this Agreement “Proprietary
Information” shall mean all non-public schematics, drawings, specifications and manuals, and all
other technical and business information provided by a party to the other party during the term of,
or in connection with the negotiation, performance or enforcement of this Agreement, other than
that DCME Know-How of a party that is provided under and governed by the DCME License Agreement by
and between the parties. Notwithstanding the foregoing, “Proprietary Information” shall not
include any information which the receiving party can show: (i) is now or subsequently becomes
legally and publicly available without breach of this Agreement by the receiving party, (ii) was
rightfully in the possession of the receiving party without any obligation of confidentiality prior
to receiving it from the disclosing party, (iii) was rightfully obtained by the receiving party
from a source other than the disclosing party without any obligation of confidentiality, or (iv)
was developed by or for the receiving party independently and without reference to such information
that can be shown by documentary evidence. The receiving party agrees to take appropriate measures
by instruction and written agreement prior to disclosure of Proprietary Information to its
employees and contractors to prevent unauthorized use or disclosure. Proprietary Information must
be returned by the receiving party upon termination or expiration of this Agreement. Proprietary
Information may be disclosed to the extent necessary to comply with an order of an administrative
agency or court of competent jurisdiction; provided, however, that, if legally possible, the party
so required to disclose Proprietary Information shall provide prior written notice thereof to the
other party in sufficient time to enable that party to seek a protective order or otherwise prevent
such disclosure.

     16.9 Injunctive Relief. In the event of a breach of any of the provisions in Sections 1.3,
1.4 or 16.8, each party hereby agrees that the harm suffered by the affected party would not be
compensable by monetary damages alone and, accordingly, that the affected party shall, in addition
to any other available legal or equitable remedies, be entitled to seek an injunction or other
equitable relief against the other party in connection with any breach or violation of any such
provisions.

     16.10 Notices. Any notice or other communication required or which may be given
hereunder shall be in writing and either delivered personally to an officer of the addressee or
mailed, certified or registered mail, postage prepaid, or by facsimile transmission (with a
confirming copy sent by registered mail) and shall be deemed given (i) when so delivered
personally; (ii) if mailed, five (5) days after the time of mailing; (iii) if faxed, when the copy
sent by the mail was deemed delivered. Notices may be sent through an email, but shall be deemed
given only if the recipient approves the receipt of such email by a return email.

21.

 

Addresses for notice are as follows:

ECI Telecom Ltd.

30 Hasivim Street

Petah Tikva 49133, Israel

Attention: Chief Operating Officer

Fax: 972-3-926-6330

Veraz Networks Ltd.

43 Hasivim Street

Petah Tikva 49133, Israel

Attention: Chief Operating Officer

Fax: : 972-3-928-7010

Veraz Networks, Inc.

926 Rock Avenue

San Jose, California 95131

Attention: Chief Financial Officer

Fax: _______________

     16.11 Limitation of Liability. EXCEPT WITH RESPECT TO DAMAGES IN RESPECT OF BREACHES
OF CONFIDENTIALITY OBLIGATIONS UNDER THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER THEORY FOR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES INCLUDING WITHOUT LIMITATION LOST PROFITS IN CONNECTION WITH THE SUBJECT
MATTER OF THIS AGREEMENT OR ANY PURCHASE ORDER IRRESPECTIVE OF WHETHER SUCH PARTY HAD ADVANCE
NOTICE OR KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, THIS SECTION
SHALL NOT LIMIT EITHER PARTY’S LIABILITY FOR INJURY TO A PERSON OR RELIEVE VERAZ’S LIABILITY TO PAY
ECI WHEN DUE ANY UNDISPUTED AMOUNTS DUE FOR THE PRODUCTS SOLD. FOR THE AVOIDANCE OF DOUBT, DAMAGES
INCURRED BY VERAZ FOR LOSS OF ITS PERCENTAGE OF “CUSTOMER REVENUE” WHICH LOSS RESULTS FROM ECI’S
BREACH OF SECTION 1.3 OF THIS AGREEMENT ARE DIRECT DAMAGES TO WHICH THIS LIMITATION OF LIABILITY
PROVISION SHALL NOT APPLY.

     16.12 Counterparts. This Agreement may be executed in two or more counterparts, each
of which will be an original and together which will constitute one and the same instrument.

     16.13 Reserved Rights. ECI retains all rights, title and interest in and to any ECI
intellectual property that is provided by ECI to Veraz under this Agreement. Except for the
limited license rights provided to Veraz through a separate written license agreement that is
entered into by and between Veraz Israel, ECI Telecom — NGTS Ltd. and ECI, ECI does not grant to
Veraz any rights in or to any of ECI’s intellectual property. All such rights in and to any such
intellectual property are expressly reserved by ECI.

     16.14 Order of Precedence. In the event of a contradiction between any of the
provisions of this Agreement and the provisions of any of the Exhibits attached hereto, the
provisions of this Agreement shall prevail.

[SIGNATURE PAGE FOLLOWS]

22.

 

     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective
duly authorized representatives as of the date first above written.

Veraz Networks Ltd.

	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

Veraz Networks, Inc.

	 	 	 	 	 
	By:

	 	/s/ Illegible	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

ECI Telecom Lt

	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

[Signature Page to DCME Master Manufacturing and Distribution Agreement]

23.

 

     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective
duly authorized representatives as of the date first above written.

Veraz Networks Ltd.

	 	 	 	 	 
	By:

	 	/s/ Zamir Segev
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Zamir Segev	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

Veraz Networks, Inc.

	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

ECI Telecom Lt

	 	 	 	 	 
	By:

	 	/s/ Giora Bitan

	 	 
	 
	 	 	 	 
	Name:

	 	Giora Bitan	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

[Signature Page to DCME Master Manufacturing and Distribution Agreement]

24.

 

Exhibit 1.1 — Products

DTX-240E

DTX-240F

240 E/F

DTX-240T

DTX-360B:

DTX360 A

DTX360 A/B

QC300

DTX360 C

QC300E

DTX-60D

DTX-60E

DTX-600H

DTX-600 (Old)

Software license for the above Products

1.

 

Exhibit 2 — Product Forecast

	 	 	 	 	 	 	 	 	 
	 	 	Q1/02	 	 	 	Q2/02	 	 
	 	 	Quantity	 	Value	 	Quantity	 	Value
	 	 	U.W.                                                 W	 	U.W.          W	 	U.W.                                                 W	 	U.W.           W
	DTX-240E
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-240F
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	240 E/F
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-240T
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-360B:
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX360 A
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX360 A/B
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX360 C
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	QC300E
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-60D
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-60E
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-600H
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	DTX-600 (Old)
	 	MPS:	 	 	 	MPS:	 	 
	 
	 	Forecasts:	 	 	 	Forecasts:	 	 
	 
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 
	 
	 	 	 	 	 	 	 	 
	Software / Upgrades
	 	MPS:	 	 	 	MPS:	 	 
	for the above
	 	Forecasts:	 	 	 	Forecasts:	 	 
	Products
	 	Total Forecast amount (E):	 	 	 	Total Forecast amount (E):	 	 

2.

 

Exhibit 3.1 – DCME Forecasted Sales in Business Plan

Exhibit 4.13 – Quality Requirements

Exhibit 5.8 – Standard Veraz Warranty Terms

Exhibit 5.10 — DCME Receivables

Exhibit 5.12-Al — UK RBU Agreement

Exhibit 5.12-A2 — Germany RBU Agreement

Exhibit 5.12-A3 — France RBU Agreement

Exhibit 5.12-A1(a) — UK RBU Additional Terms

Exhibit 5.12-A2(a) — Germany RBU Additional Terms

Exhibit 5.12-A3(a) — France RBU Additional Terms

Exhibit 5.12-B CBU DCME Sales and Marketing Budget

Exhibit 5.12-C — Russian and Baltic CBU

Exhibit 6.1 — Purchase Order Form

Exhibit 8.6 — Additional Services

Exhibit 8.8 – RMA Process

Exhibit 9.1 – Minimum Purchase Price

3.

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